§ 3.11 p.m.
§ Lord Williams of Elvel rose to call attention to the importance of manufacturing industry to the national economy, and to the problems it faces; and to move for Papers.
§ The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. First, we are fortunate this afternoon to have the pleasure of listening to no fewer than five maiden speakers, all of them of great distinction in their own fields. I look forward to hearing what they have to say.
§ It is extremely flattering for an Opposition spokesman to be able to attract four maidens from the Benches opposite. I can say with every confidence that as they come to speak, each will demonstrate to us that in the biblical tradition they will be numbered among the wise virgins rather than the foolish virgins. We shall rejoice accordingly.
§ Our theme this afternoon is manufacturing industry, its importance and its problems. As I am sure your Lordships are aware, there are some impressive documents which will serve as background to our debate. Perhaps of most immediate importance is the report of your Lordships' Select Committee entitled Innovation in Manufacturing Industry. I have no doubt that some of your Lordships will refer to that document during the course of the afternoon, as I shall do.
§ There is also—and I believe this to be no less important —the publication by my own party entitled Modern Manufacturing Strength which, again, I wish to refer to. All I say at this stage is how striking I find the similarity between the conclusions drawn by my party and those drawn by your Lordships' Select Committee.
§ Thirdly, and I am not sure that this is available to all your Lordships, there is a Conservative research 168 department brief issued last week entitled The Economy and Business. Noble Lords opposite may draw on this brief but I should warn them that in our view the document should have had attached to it something in the nature of a health warning. I do not wish to be too harsh on the document. Parts of it are quite good and parts of it are not so good. However, I wish to make a serious point to noble Lords opposite who may wish to draw on the brief. As they will know, my noble friend Lord Peston, who is to wind up for these Benches, is a dab hand at figuring and is even now sharpening his lap-top computer—if that is what one does to a lap-top computer—and is prepared to refute what I regard as some of the more aberrant statistical assertions in the Central Office brief. I simply warn noble Lords opposite so that they are on their guard.
However, there is one point in the brief which, although it may be surprising, I agree with. Page 1 lists a series of 10 what are called "Key Points to Make". In all delicacy I shall pass over the first nine but I am in agreement with the last, which states:
This recession has affected the corporate sector particularly severely".
§ However, I go further. I argue that the current recession is not just affecting the corporate sector particularly severely, but is wounding precisely those companies which will be so important to us if and when we come out of recession. Those are companies engaged in manufacturing. Banks may be hit; property companies may be hit; and car hire firms may be hit. But on the assumption that they survive, they will bounce back when the recession is over. Manufacturing is not like that. It will not necessarily bounce back and in our view—and I shall elaborate on this as I continue—manufacturing has its own separate problems which can be solved only by policies which go well beyond the need to restore a stable macro-economic framework.
§ We must do that as a start. We must also recommit ourselves to economic growth with a sense of urgency. However, even if that commitment is made, our contention is that government policies—and these are government policies—have damaged manufacturing so badly that nothing less than a complete reversal in industrial policy will be sufficient to allow and, indeed, nurture a manufacturing recovery.
§ Furthermore, without a manufacturing recovery, we shall never arrest the decline which has underlain our economic performance over the past decade. That has only been masked —and masked it has been—by the extraordinary, once-for-all, God-given bonus of North Sea oil. That is the argument which I wish to put before your Lordships this afternoon.
§ Perhaps I may make the first part of my case here and now since it serves to demonstrate the first part of my Motion which, as your Lordships will notice, calls attention to the importance of manufacturing. We are in a severe recession. How and why we reached that point is not my concern this afternoon. If your Lordships need evidence about the state of the economy, only this week the Government announced retail sales down 2.9 per cent. over the same time last 169 year and industrial output down by 6.6 per cent. The figures are dreadful. I hope that I need say nothing more than that.
§ In such a severe recession we should normally expect to be running a balance of payments surplus. Normally we should expect domestic demand, when depressed, to reduce the import bill and allow capacity that was previously devoted to home markets to be diverted into export markets.
§ What is happening? Far from running a balance of payments surplus, we are running a balance of payments deficit in a severe recession, and a deficit which looks like being in the range of £8 billion to £9 billion. Why is that? Why is it that all previous economic history is being turned on its head? I am afraid that the answer is both sad and unpleasant. It is because our manufacturing industry has been so battered over the past decade that the sector has simply become too small in terms of its volume of output, even in the sunniest of times, to produce the exports which will correct our balance of payments and so lead us out of recession. It is simple but I am afraid that that is the truth.
§ Therefore, we are entitled to ask ourselves the question—and I ask noble Lords opposite the question: what has gone wrong? Again, I am afraid that the answer is equally simple and sad. In their spasm of what we can now refer to as mad monetarism, the Government reduced manufacturing industry in size to the point at which it became unable any longer to play the central role in our economy which it used to play and must play again if we are to get out of the mess which we are in at present. The service sector cannot do it for us. As a nation, we cannot hope to improve or even sustain our living standards and the quality of life without being a major manufacturing power. That is the extent of the importance of manufacturing.
§ Let me illustrate the point as clearly as I can with one or two figures, because it is fundamental to my argument. In 1988, our balance of payments on current account, before the balancing item, showed inflows—what the rest of the world bought from us —at £168 billion; and outflows—what we bought from the rest of the world—at £182 billion. Of those overall totals, visible trade—goods shipped through our ports, either inward or outward—accounted for roughly £81 billion of the inflows (say, about half) and some £101 billion (say three-fifths) of the outflows. Of those totals, £65 billion of those exports and £80 billion of those imports were in manufactured or semi-manufactured goods. In other words, to put it simply, exports of manufactures accounted for nearly 40 per cent. of current balance of payment inflows; and manufactured imports for some 44 per cent. of outflows.
§ The plain lesson to be learnt from those figures is that there is no way that any conceivable surplus on oil, services, dividends or tourism can make up the deficit on non-oil trade. The magnitudes are too great. Therein lies the whole problem. It is such an obvious problem that only the intellectually blind could fail to see it. But not only have the Government failed to see 170 it, they have exacerbated the problem. The truth is that the ravages of 1980 and 1981, compounded by the ravages of the current recession, with investment down, sales down, output down and unemployment up, have left us with a manufacturing base that no longer has the capability to close the gap in our foreign trade that I have described.
§ Whole branches of manufacturing have been wiped out. When could we last buy a camera made in Britain? When could we last buy a hi-fi set made in Britain? Where are the equivalent British exports that are conquering the world? They do not exist.
I now turn to the second part of my Motion. What are the problems manufacturing industry has to confront? It is not just a question of numbers—the shrinkage of the manufacturing sector, the lack of investment or insufficient research and development. Just as important there are the qualitative signals of decline. Those were well set out in the report of your Lordships' Select Committee. Our attitudes to manufacturing, as was pointed out as long ago as 1985 by another committee under the chairmanship of the noble Lord, Lord Aldington, tend to the view that it is perceived as a second-class occupation. We are insufficiently innovative; our product ranges tend to be technologically at the lower end of the scale, and hence price-sensitive rather than quality-sensitive. There is a shortage of skilled manpower and the high cost of capital, both equity and fixed interest, deters investment. "Short-termism" is real. It is not just a journalist's invention. The attitude towards takeovers, as some kind of game that is entertaining, is remarkable. The Government's attitude towards contested bids is wholly confused, witness the latest example of the absurd diversion of ICI's management time over the Hanson affair. Last but not least, and here I quote directly from the Select Committee's Report:
all the evidence shows that the lack of Government commitment, support and assistance is deeply damaging to industry and to our national interest".
§ Quite so! Since the publication of that report, nothing, but absolutely nothing, has happened.
§ Those are the problems. It is now abundantly clear that we need a change in direction. We must draw a line under the sorry chapter of the past decade and start a new chapter. We must accept that North Sea oil, instead of being used as an opportunity to invest in the next generation of industrial assets, has so far largely been frittered away. There needs to be a new agenda.
§ The agenda which my party proposes is new. It has been set after widespread consultation with industry in what we call the "Industry 2000 project". It may sound new to us, but it would not sound new to the Germans, as we find that many of the ideas that we put forward in this country as being radical are commonplace in Germany. If your Lordships are disinclined to believe me, I recommend reading the latest report of the Centre for Exploitation of Science and Technology which was summarised in yesterday's Independent.
§ First, we are determined to ensure long-term investment in new manufacturing technologies. We need an enhanced first-year capital allowance for 171 investment in innovation and design. We shall replace the business expansion scheme with a growing business scheme, designed to encourage individuals to invest in growing manufacturing firms rather than in stocks of fine wines. We shall be much less accommodating towards takeover bids. We cannot allow the long-term growth of manufacturing industry to be impeded by the short-term views of financial markers. Again, I cite the Hanson/ICI affair as something that, as a nation, we can do without.
§ Secondly, we shall be prepared to invest in people; in the training and skills which we believe will be the key determinant of success in the next century. German companies are legally obliged to train their staff. The CEST report states that only 41 per cent. of firms in Germany say that they face a skills shortage compared with 88 per cent. in Britain. When asked what they will do about the problem, 90 per cent. of German companies said that they intended to train their staff to solve it. The British response was more recruiting—"recruiting" in this instance being the poaching of staff that had been trained elsewhere.
§ Thirdly, we shall devote more funds to civil research and development and encourage firms by means of fiscal incentives to increase their own spending on R&D. All of that is quite uncontroversial in Germany. We also have a programme to establish technology trusts, to bring together universities, industrialists, bankers and local and national government to promote the development and diffusion of new technologies. All quite ordinary in Germany, but very radical here.
§ Lastly, we are determined to achieve a proper balance of industrial activity between the regions and countries that make up the United Kingdom. We propose to build on the experience of the development agencies set up in Scotland and Wales by the Labour Government and extend that experience to the regions of England. They will be run by local people, taking decision is to suit local needs. Their job will also be to ensure that the most successful technologies are available to firms in their areas.
§ There is much more I could say about our programme this afternoon, but I do not wish to weary your Lordships unduly. It is—and we recognise that —extremely ambitious—for this country. But that is only because we have been living for so long under the "hands off" policies of the present Government that we have to be ambitious. It will need a great deal of hard work and application. Above all, it will need a spirit of co-operation, of partnership, between government and industry at all levels and on all sides, national and local government as well as management and employees. We have not seen that for more than a decade. I have no doubt that many noble Lords opposite will say, "But it can't be done, it's not the British way. The whole initiative will fail". I do not believe this for a moment. If it can be done in German it can be done here. I believe that as a people we can do just as well as others, if we put our minds to it. It will need change and I have no doubt that it will be uncomfortable but then nothing good is achieved without effort and the discomfort will be worth it in the end.172
§ Of one thing I am certain: without such a programme, we might as well kiss goodbye to success within the European Community. If we stick to our present policies we shall become finally and irrevocably the sick man of Europe, declining gracefully on the periphery of a continent that is moving away from us, proud of our history, proud of our old rituals, and our stately constitution, but losing out in the fiercely competitive world in which we have to live.
§ It will be above all our manufacturing industry, not the City of London—however valuable that will be —that will be the making or the breaking of us in the Europe of the next century. That is the importance of manufacturing; no more, and no less. The present Government have had their chance and they have failed. It is time for them to depart, quietly and with dignity, and let others with more energy and fresh ideas remedy their failures. That is what we propose to do. The sooner we are allowed to get on and do it, the better. My Lords, I beg to move for Papers.
§ Baroness Denton of Wakefield
My Lords, I share with you my nervousness at rising so quickly since receiving the privilege of joining your Lordships' House. Many greater women than I have addressed the House and I have a lively awareness of the wisdom, wit and learning which have adorned their words. My nervousness increased when I realised how illustrious was the company of maiden speakers I was to join. I consoled myself that at least the adjective is in my favour and, as a Yorkshire woman, I know that one more speaker would have given us an over.
My resolve is driven by the great importance of the issue being debated today. I am grateful to the noble Lord, Lord Williams, for providing an opportunity for me to speak on the first occasion in your Lordships' House on a subject very dear to my heart. I have been fortunate to work for some time in the automotive industry, latterly as a director of Austin Rover, while currently, as deputy chairman of the Black Country Development Corporation, I have spent the past four years endeavouring to ensure that investment returns to the birthplace of the Industrial Revolution. With this experience, I have today a message of good news: that of the fundamental and enduring nature of manufacturing industry in this country.
I wish to make three points: to praise the British workforce; to register the need for sensitivity in pollution legislation; and to tell the House that there is a brighter future if the growing number of qualified women entering manufacturing industry continues at the present rate.
The British motor industry today, instead of being one of the Government's permanent headaches, is one of our leading success stories. Even as the domestic market falls away, production figures continue to rise and we now produce cars in this country which people throughout Europe are proud and pleased to buy. In the recently published May figures, car production for 173 export was 159 per cent. ahead of the same time last year and for the first five months of 1991 it is well over double last year's performance.
The majority of these vehicles are not being built by British owned companies but they are being built by a British workforce. The figures prove what I believe many of your Lordships have always known, that we have a workforce in this country capable of competing with the best in the world.
Productivity at Rover has increased in recent years so that now the group produces nearly 20 vehicles per employee, compared with only six in 1979. That is an enormous step forward. In the same way, in the past 10 years British Steel has reduced from 13.2 to 4.8 the man-hours needed to produce a tonne of liquid steel. That again is a substantial improvement.
This leads me to contend that the success of manufacturing industry cannot be measured in employment figures. Productivity is the key to a successful future for industry. Large companies in this sector will at best protect jobs: they are very unlikely to increase them. Growth comes from small to medium-sized companies and they will need to be helped and supported.
In the Black Country Development Corporation's area we have over 75,000 workers, two-thirds of whom are involved in manufacturing. Surveying our 3,000 companies recently we learnt that well over half of them expected turnover in the next year to remain static or increase. Thirty-nine per cent. of our manufacturing companies are operating at over 90 per cent. capacity and they invested over £90 million in plant and equipment last year. This is just a snapshot of the national scene but it is positive. We see firm evidence that smaller manufacturing companies are putting their houses in order and looking towards a bright future.
Our snapshot illustrates, too, the total linking of national and regional policy. The successful local manufacturing company cannot survive on domestic markets, it needs the whole of Europe as its marketplace. It needs roads to move its goods efficiently—very few companies have a rail freight terminal in their back garden—and it needs understanding of its pollution problems. I am not for one moment underestimating the crucial importance of the protection of the environment but, if legislation is imposed at too great a speed and with too much severity, we shall have green banks for people to sit on and blue sky for them to look at but they will not have jobs. There has to be a balance.
Those noble Lords who know me will not be surprised if I mention another reason why I believe manufacturing industry in this country has a bright future. More and more women are qualifying as engineers and entering the industry. Last week the first woman finance director of a major engineering conglomerate was announced. The fact that almost 20,000 more people applied to take engineering degrees last year compared with 1989 is an indication that more and more young people are recognising that wealth has to be created before it can be spent. As a member of the Engineering Council, I am very pleased 174 to report to your Lordships a 25 per cent. uplift in entries for our "Young Engineers for Britain" competition this year. This enthusiasm we must not allow to disappear.
Manufacturing industry did not in the past change as quickly as it might. It policed rather than nurtured its employees, it did not let its young people through quickly and the customer was not king at the boardroom table. But it has changed and is changing and there is much evidence of success. I am sure the future holds more.
It has been a great privilege for me to participate in this debate on such an important matter. I look forward to learning much in the coming hours. I am, however, confident that the concern and support which your Lordships feel for manufacturing industry will ensure that it receives the high priority that it deserves.
§ 3.39 p.m.
§ Lord Ezra
My Lords, I rise with great pleasure to congratulate the noble Baroness, Lady Denton of Wakefield, on the remarkable maiden speech which she has just given us. She has come to the House with considerable experience in the transport sector, in engineering and in management education—to name but a few of her pursuits and her experiences. Her speech today has shown us the considerable depth of her knowledge of the state of the motor industry. It was encouraging to hear someone as experienced as the noble Baroness deliver a positive message from that important sector of British industry in these difficult times. I very much hope that we shall hear her speak on many occasions in the future. I wish to express the thanks of all noble Lords for the contribution the noble Baroness has made to this important debate today.
It is remarkable that we shall hear four other important maiden speeches today. I do not know whether five maiden speeches in a debate is a record but, if not, it must be getting very near a record. That demonstrates the importance of the subject that the noble Lord, Lord Williams, has chosen. This is by no means the first time we have debated the subject of manufacturing industry. I personally have introduced about three Motions on the subject and there have been many others. As the noble Lord, Lord Williams, pointed out, two important reports have been prepared by Select Committees of your Lordships' House on this subject. The noble Lord, Lord Aldington, presided over a report on overseas trade that was issued in 1985. The noble Viscount, Lord Caldecote, presided over a report entitled Innovation in Manufacturing Industry which was issued earlier this year. It is satisfactory to note that both the noble Viscount and the noble Lord will speak in this debate.
The latter report was issued in January but we are now in June and have not yet had a formal debate on it. It seems to me a most unfortunate aspect of our procedure that there should be such a long timelag before we have a specific debate on the subject of that report. An inquiry is now taking place into our procedure and some of us have been asked for our views on the subject. We have been asked whether we 175 consider that we are debating major reports produced by our Select Committees speedily enough after they have been produced. I have stated that I believe our procedures are defective in that respect.
Nevertheless the subject chosen by the noble Lord, Lord Williams, for debate today will enable us to refer to both the reports that I have mentioned. I wish to quote briefly from the reports as I believe that will show that during the five years that have elapsed between the issue of the two reports little has changed. The words and the conclusions of the reports are virtually identical. The overseas trade report states in paragraph 125, after analysing the manufacturing situation, particularly with regard to overseas trade:The present situation undoubtedly contains the seeds of a major political and economic crisis in the foreseeable future".That report was issued in 1985.
The report on Innovation in Manufacturing Industry states:Our manufacturing base has declined. Our home market is increasingly penetrated by imports. Our share of world markets in manufactured goods is too small. The implications for our future prosperity are grave".The report on Innovation in Manufacturing Industry stated those sentiments more than five years after the report on overseas trade was issued. It is dispiriting indeed that major Select Committees of our House, which include noble Lords from all parties, should come to these rather depressing conclusions after considerable objective research. I can only express the hope that if we meet in five years' time to consider another report on this subject, it will not be possible to quote from it in the same terms.
Like the noble Lord, Lord Williams, I wish to make some suggestions on how we can get out of our current difficulties. But before doing so it is important to remind ourselves of where we stand in relation to our main competitors. I shall do so briefly as that gives us an indication of the ground we have to recover. I shall first of all discuss innovation and research and development. The report on innovation shows that in recent years the UK was the only country in the OECD in which expenditure on research and development declined as a proportion of GDP. The OECD represents all the developed countries of the world. It is a most unsatisfactory situation that we as the country where the industrial revolution took place and as the country which led the world in the 19th century and for a large part of the 20th century through our innovative expertise should now be spending less than other countries on research and development in relation to national income.
Yesterday an article in the Financial Times compared the attitude to innovation in the UK and German industrial sectors. In Germany 90 per cent. of the quite large number of firms that were interviewed could indicate precise new products which related to R&D efforts which they had entered into. Interviews with similar firms in the UK did not produce anything like that answer. It was not at all clear where new products—if any existed —had emerged from. In Germany smaller firms in particular are helped by a network of research institutions which are jointly funded by public and private resources. There are no 176 such institutions in the UK. The attitude to research and development is a positive continuing one in Germany, France and other continental countries. It seems to be spasmodic in the UK and is very much dependent, as regards its level of expenditure, on the economic climate of the time.
The position is similar as regards training. I am glad to say that my noble friend Lady Seear will speak on that subject later. As regards output, taking the UK as 100, USA output has been of the order of 169. In Japan output has been 158 and in Germany and France 137. Those figures relate to 1989. I remind your Lordships that since 1989 our output has declined whereas the output of those countries I have mentioned has continued to grow, albeit at a slower pace. The gap has widened.
Regrettably the same is true of investment. In 1989, according to the CBI's figures, £2,600 per year was invested per worker in the United Kingdom. The figure in Germany was £3,200 and in France it was £3,650. In investment, too, the gap has widened. In 1989 the growth in manufacturing investment in the UK was of the order of 8 per cent. compared with the previous year. However, in 1990 the level of investment went down by 5.5 per cent. compared with the previous year. In 1991 it is estimated that investment will be down by 17.5 per cent.
Whichever way we look at it, and even though we are undoubtedly doing well in sectors such as the motor industry —the noble Baroness referred to that industry—we compare badly with our main competitors in respect of our manufacturing activity as a whole and in respect of our economic performance. The two clearly go together. What can we do about this position? Like the noble Lord, Lord Williams, I feel we must open a new chapter. I very much fear that the Government hope we shall get out of the present recession through a resumption in consumer spending. They feel that if there were such a resumption, that would work its way through into the manufacturing and productive sectors. All our experience shows that things do not work that way and that a rise in consumer spending can quickly lead to an increase in imports and to an overheating of the economy. That is the situation which we had in 1988 and 1989. In order to emerge from the present situation we need an investment led recovery. At the first opportunity we need to bring interest rates down further. In addition we need to consider seriously improving investment allowances, particularly in the manufacturing sector. We need to provide more stimulus to training by manufacturing concerns, more fiscal stimulus for R&D and innovation and special help to small firms.
It will be argued that all of that will cost money. Certainly it will. However, in my opinion that money would be very quickly recovered through increased tax revenues resulting from increased production, increased employment, increased earnings and improved exports. In other words, we should be in a virtuous cycle as opposed to the unfortunate situation in which we would be if we sought to achieve recovery by re-stimulating consumer expenditure. Of course consumer expenditure is important. We want people 177 to have better living standards. But let that come as a result of improved manufacturing activity and improved investment.
§ 3.51 p.m.
§ Lord Desai
My Lords, your Lordships may well imagine the trepidation with which I rise to speak. I am grateful to the noble Baroness, Lady Denton of Wakefield. She has opened the batting and taken the sting out of what happens in the first few balls.
I well recall that as a child I thought that it was axiomatic that British manufacturing was the best. Of course I learned the lesson under somewhat advantageous circumstances for British manufacturers, for in those days Japanese or German manufacturers were synonyms for shoddy goods. I never thought then that I should rise so many years later on my first occasion in this House to speak on the manufacturing industry in this country. If noble Lords will bear with me for a few minutes perhaps I may give my views on the topic.
This is indeed a timely moment to have such a debate. This morning we have seen the statistics on industrial output. As my noble friend Lord Williams pointed out, it is 6 per cent. below the level of last year. What is more, it is barely above the level of manufacturing output in 1976. Therein lies a story. I believe that the present crisis has three overlapping elements. The first is the recession, and I believe that the depth of the recession has not yet been reached.
More than that, we have to see the present crisis in its historical perspective. Except for the quarter century since the Second World War there have been few years in which we could take it for granted that that year's industrial output would be above the previous year's industrial output. The years 1945 to 1974 were a period of unprecedented industrial growth. Indeed, if we go back in history we can see that there has not been a period like it since the period before the 1870s.
Therefore, the problem of British manufacturing is not a new one. Both Houses of Parliament have been debating it for a hundred years and more. In the 1880s there were reports of how the German industrial training system was better than the British system. Indeed, as early as the Great Exhibition we first encountered American inventions and were astonished to see that that newly industrialising country had done so much better than we had. Therefore, the problems that we face are not new.
There have been several analyses of the problem and many Select Committees have reported on it. There is no lack of proposed solutions. Our problem arises not so much in the lack of solutions but in implementing them.
As a pioneering country, in the Industrial Revolution we had about a hundred years when we faced no competition and had a monopoly as the first comer. Once that monopoly was lost we faced continuous problems. There has been heart searching in the attempt to find the secret of the success of our competitors. It is not so much that the country does not have manufacturing ability or that our working 178 people are not capable; it is our ability to survive competition from other countries which poses the challenge. It is true that we can achieve manufacturing growth. The question is whether we can have sustained manufacturing growth and whether we can have a faster rate of growth than our rivals. That is the nub of the problem.
The nostrums which we have tried since the Second World War, especially since the mid-1960s, have included mergers, an examination of the sources of credit for our manufacturing industry and redefining and restructuring the industrial bargaining system. After all that we still lack a successful all-round strategy for reviving our manufacturing industry. Although we shall get out of this recession, the question is whether we shall get out of our long-run problem.
There are three major issues to which I should like to draw your Lordships' attention. First, manufacturing is no longer the concern of one nation alone. There is now an international division of labour. In the motor industry, for example, it is rare for a car to be manufactured entirely within one country. As many as 60 to 70 per cent. of the components may be manufactured abroad and there is co-ordination among different countries. Therefore we live in a world in which manufacturing has become a multinational rather than a national enterprise.
Secondly, we also face the problem that over the past 20 years or so newly industrialising countries have appeared on the scene which can compete in all the older lines of manufacturing much better than not only the UK but most developed countries. The cheap wage strategy will not work against those competitors because they have wages which we cannot ever contemplate in this country. The newly industrialising countries have given notice to us that we need to move on further up the product range and innovate not only in existing products but in new products and new materials. That is the challenge we face.
The third and most vital change which affects modern manufacturing is that we increasingly see progress such that the material content is not as important as the content in terms of ideas—design, fashion and innovation. We have to move away from metal bashing—I do not mean to offend anybody by saying that—to a more innovative line of products which are intensive in ideas. As a developed country we have to grasp the advantage that we have of long experience in manufacturing and a trained workforce. At the same time we have to move on to products which cannot be lost to competition with cheap wage economies.
So I come to the matter of innovation. Your Lordships' Select Committee on innovation and manufacturing defined innovation as the transformation of an idea and went on to describe that idea. I passionately believe—I say this not just because of my profession—that ideas and knowledge are the most important input in modern manufacturing. We shall not get anywhere at all unless we drench the country in education and training.
I was surprised when I first heard many years ago before I touched the shores of this country that there 179 is widespread here a kind of contempt for education, a glorification of the untaught genius—someone who cannot read a book but who can innovate. If that was ever true, that time is past. Innovation is no longer the privilege of the single, lonely person. It is a corporate activity which requires sustained investment in high-powered scientific and technical knowledge.
We must raise the general level of education and knowledge in this country and continue to invest in the education and training of everyone from age five onwards. We must not drop people at 16 or 19. Let us make sure that there is no conflict between basic research and applied research. Basic research is extremely important to innovation. There is no false dichotomy between basic science and applied science. Unless we invest much more in education—primary, secondary and tertiary—and in research and development, we shall not be able to have the sustained foundation that we require for manufacturing. I am grateful to noble Lords for having had the patience to listen to me.
§ 4.2 p.m.
§ Lord Benson
My Lords, it is my privilege to congratulate the noble Lord, Lord Desai, on his maiden speech. He speaks with unexampled authority on the subject now before the House, not only in this country but abroad. We hope that we may hear him on many occasions on this and other allied subjects.
I wish to draw attention to one particular course of behaviour which is damaging British industry; namely, the failure in recent years to observe sound financial management. The result has been that many companies have had to retrench and some have collapsed altogether. The recession has thereby deepened and unemployment rises.
If manufacturing industry is to be healthy, it must observe three vital financial principles. First, the debt-equity ratio must remain low. That point has been flagrantly disregarded in recent years with the result that there has been retrenchment. When trade falls, companies are faced with crippling interest charges, profits fall, banks begin to call in their loans, retrenchment occurs and unemployment rises.
The second basic principle is that all companies must set aside every year sufficient sums to cover the depreciation of their fixed assets, and a retention of profits, so that those two sums together will enable them to replace assets, at greatly enhanced prices, as they fall out of use; and, more importantly, so that they can install the new technologies that are being developed in every sector of industry. Abandonment of that principle has caused many companies to fail to be competitive or up-to-date, and disaster follows.
The third basic principle is a variant of the second; namely, that companies should not distribute by way of dividend more than they can afford. That principle has again been ignored and the matter has been greatly exacerbated by what I shall refer to as predator disease.
The House may ask what has brought about this disgraceful state of affairs. I venture to suggest seven 180 reasons. The first is predator disease. It is important that there should be a free and open market in corporate stocks, but it is a mixed blessing. Sometimes it stimulates industry and sleepy management, but it often leads to high debt-equity ratios. Apart from that, the whole process has now got out of hand. In the downswing of industrial development and the economy, predators lurk in the City, seeking to snap up companies which in their opinion have not distributed sufficient profits or which have accumulated a fund of liquid assets. The acquired companies' assets are often disbanded and the long-term plans of management are destroyed. Frightened by predator disease, boards of directors have distributed far too large a proportion of their profits or have sometimes been panicked into seeking to expand too quickly without the necessary money and management skills.
The second cause is the herd instinct. Financial markets the world over behave like sheep. If an institution abandons one or more of the basic principles, others will follow suit, fascinated by what is apparent but only temporary success. The House may remember that the typical example of the herd instinct is the epidemic of management buy-outs in America in the past two or three years involving enormous interest borrowings.
The third reason is the boards of directors with whom the prime responsibility rests. They have abandoned the three principles because they are frightened of catching the predator disease. Alternatively, they do not have the courage or experience to ignore the herd instinct.
Fourthly, the clearing banks, under intense competition between themselves, have lent too much money without ensuring that their customers have observed the three basic principles. The enormous provision for bad debts that we have seen in the past year or two tells its own story.
Fifthly, the institutions and fund managers have not always been helpful. Their judgments seem too often to be based on their own short-term interests and not on the long-term interests of the companies in which they invest. The predator disease—indeed, even the threat of it—enables them to reap rich, short-term profits. However, worse than that, in the past year or two there has been evidence that some institutions have sought to influence the companies in which they invest to maintain or even to increase dividends when, in a period of recession, they should give exactly the opposite advice.
The sixth reason concerns my own profession which is partly executive and partly advisory. It is executive in the sense that many of its members act as financial directors, but the two sectors together have failed to emphasise the basic realities of business. They have been unable to convince their employers in the one case or their clients in the other to observe the basic principles that have been successful in guiding my profession and business for well over 100 years.
Finally, the Government have no part in management, but they are able to watch the course of events. They are particularly able to proffer advice and 181 warnings through the many channels open to them. I question whether they have done enough on those issues.
It may be asked how this sorry state of affairs can be corrected. It cannot be done by legislation, save possibly by creating a few obstacles which might impede the predators without interfering with the free and open market. For the rest, the only solution is leadership by those organisations that support manufacturing industry—the CBI, the Institute of Directors, the Bank of England and the clearing banks, the heads of our great industrial groups and of our institutions, my own profession and the Government. If the heads of those organisations believe that these principles are important for manufacturing industry, they should say so loudly and clearly as often as may be necessary. Above all, they should observe the principles within the activities in which they themselves engage.
In short, manufacturing industry cannot survive without liquid resources. The profligate habits of the past four or five years have done immense damage. We are now faced with the long and arduous task of trying to repair it.
§ 4.10 p.m.
§ Lord Haslam
My Lords, I feel very privileged to be making my maiden speech today on a subject which reflects my view that an important manufacturing industry is vital and basic to the prosperity of our national economy. I must confess that before leaving school my ambition had been to qualify as a geography teacher but a chapter of accidents led me to my first job down a coal mine. That is not exactly a classic example of career planning. Indeed, that could not have been a more unpredictable start to my industrial career, which has now spanned 47 years: 37 years in the private sector and the balance in nationalised industries. Nevertheless, it has been an exciting and enjoyable life, although the past five years of British Coal have had their masochistic undertones.
Sadly, I believe that too many of our young and talented graduates still regard industry as a somewhat grey, inferior career. We need to intensify our efforts to change that false image. Today inevitably we shall be reflecting on current problems. We should recognise that it is not gloom and doom all the time. Our industry is in far better shape than it was a decade ago.
One of the outstanding achievements of the present Government has been the execution of their vigorous privatisation programme. The emerging benefits are already clear. These undoubtedly flow from the management feeling a great sense of release. Moreover, managers are suddenly freer to deploy their talents on a wider canvas and on an international basis. We often hear criticism of government underspending in the public sector and in the nationalised industries. Speaking from my experience as chairman of British Steel and thereafter British Coal, I can confirm that we were never starved of the necessary capital expenditure. Equally important, we were allowed to employ generous redundancy terms 182 which in turn made possible the massive beneficial restructuring of both those major industries without resorting to enforced redundancies and thereby led to their return to profitability after a decade of massive losses in both industries.
The past decade has also seen beneficial changes on the industrial relations front and there is no doubt that the miners' strike created a real watershed in that respect. Industries like British Coal, which had previously been regarded as somewhat semi-social services, have now become fully fledged commercial businesses. Employees increasingly recognise that the world no longer owes them a living and are now well aware of the economic facts of life. That has led employees increasingly to identify with the success of their individual works or collieries and has seen the marginalisation of even the most confrontational of trade union leaders, such as Arthur Scargill.
Even so, we cannot be complacent in this respect as we lag well behind the meaningful level of collaboration which exists between management and employees in Germany and Japan. The growing identification of employees with the success of their individual businesses and the cultural change that that implies need to be fostered and built upon by both employers and the trade unions.
I propose now to focus my remaining remarks on two deep-seated cultural issues which markedly and adversely affect our industrial performance. The first I shall characterise as "pulling together" and the second as "short termism".
Turning to the first topic, I do not subscribe to the view that our industrial leaders are in any way inferior to those of our major competitors. Indeed, I believe that our ability to manage major international business is pre-eminent. Equally, our banking and financial institutions are rightly envied for their excellence. Our Civil Service too is highly regarded on the world scene. Nevertheless, as a nation we are still not as successful currently as are, for example, Japan, Germany and France. Despite the eminence of our institutions individually, we do not seem able to pull together in a cohesive way as do our formidable competitors in supporting their own industries.
That was first vividly brought home to me in the early 1970s, when I was in charge of ICI's fibres division. The Japanese had been importing rapidly increasing quantities of polyester fibre into the US. Suddenly the authorities there abruptly stopped those imports. Ships full of Japanese fibres were already at sea and they were immediately diverted to Europe. Virtually all that product flowed into the United Kingdom. Hardly a single kilo was imported into France or Germany, even though the formal import restrictions were the same. That is a classic example of the United Kingdom playing to the Queensberry Rules while other countries are able to erect informal barriers to keep out damaging imports. Many industries have shared comparable experiences in their own business sectors. Similar considerations also arise in the lack of reciprocity in acquisition policy across corporate Europe. The highly liquid London Stock Exchange and our liberal attitude towards foreign investors allow easy access to UK takeover targets. 183 That contrasts starkly with the obstacles that face British companies wishing to expand by acquisition on the Continent.
These differences are not primarily a matter of government strategy or regulation. Nevertheless, the governments of Japan, Germany and France take a much more positive and creative attitude to industry, which represents very different cultural behaviour. It is essential to bring about a change here so that suspicion and confrontation between the key players are replaced by wholehearted understanding and collaboration. The mutual identification of government, financial institutions and industry with the success of UK plc is essential if our industry and indeed our country is to fulfil its obvious potential.
My second point expresses my concern about our adherence to a philosophy that market forces must prevail even on a short timescale. That short-termism again contrasts strongly with what happens in Germany where, conversely, the collective culture of the government, the banks and industry is to play it long. For example, despite being in the private sector their government's policy has been to protect and ring-fence their coal industry because they believe that their coal reserves are a national resource which should not be discarded. That is an extreme example which, frankly, I would not advocate. But it provides a dramatic contrast with the attitude of our own Government in relation to the future of our coal sector, which is based on the short term "market forces" philosophy. The consequence is that we shall continue to close pits in this country which have much lower production costs than even the best coal mines in Germany.
Also conversely, the approach to our nuclear industry is not consistent with the market forces concept as it will be ring-fenced and protected until at least 1998. Recognising too that the French heavily subsidise their nuclear industry, the level playing field hoped for in the European energy market beyond 1992 remains a distant mirage. However, I should stress that I am not pleading for hand-outs or feather-bedding; nor do I advocate saving industries which have completely lost their way. However, if an industry is obviously actively endeavouring to put its shop in order so as to survive and compete on the rapidly changing world scene, or if it is living through a severe economic downturn, it should be given time and understanding in order to adjust to such problems. Failure to recognise particularly the latter situation has led in many UK industries to an undesirable erosion of the industrial base and to a loss of world market share which in turn has been gratefully picked up by our major competitors, who meanwhile have been playing it long.
Before commenting on my next example, I should declare my interest as a former deputy chairman of ICI—now a pensioner. If the recent investment of Hanson in ICI were to develop into an all-out bid, it could be another classic example of short-termism, which I am sure will be watched with amazement by major chemical companies around the world. Also, it is most unlikely that a German Hanson would ever make a bid for any of the three major chemical 184 companies in Germany. In my view should this indeed occur, it would be quite inconceivable that the German Government would allow on national interest grounds for the bid to be consummated.
Very different national cultures exist across our main competitor countries and any radical change will obviously be a prolonged evolutionary process. However, cultural changes in the specific ways that I have outlined should be achievable if the collective will is there. Those methods alone could have a dramatic effect on our future industrial performance.
Our Government naturally believe that our current policies suit our needs. However, countries such as Japan and Germany, pursuing different strategies, are demonstrably the pace-setters in relation to industrial growth, our investment and an increasing share in world trade. We cannot afford to ignore the benefits of those important attitudinal differences and we should be prepared to learn from the more successful countries on those specific issues.
To sum up, we already possess most of the ingredients to enable our industry to return to its rightful role among world leaders. That in itself is a great advance on the position of a decade ago. I believe that if we take the right steps now there is no reason why we should not rate with the best in the world in the 1990s. I hope that we will grasp the opportunity with both hands.
§ 4.21 p.m.
§ Lord Scanlon
My Lords, I am sure that the whole of your Lordships' House will join with me in congratulating the noble Lord, Lord Haslam, on a most magnificent maiden speech. I have had the pleasure of knowing him—perhaps crossing swords with him is a better way to put it—over the years. He brings to the House a unique record of knowledge and experience within the chemical, coal and steel industries as well as long experience in industrial relations. We hope that we shall receive many more such contributions from him in the future.
I have to express regret that I shall be unable to stay for the entire debate since I have to attend a meeting on industry and parliament elsewhere in your Lordships' House. However, it is truly a timely debate. We should concentrate more on what needs to be done rather than—tempting as it is—make recriminations about the past.
I hope that it is common ground between all of us that if we wish to have improved living standards, better education for our children, better care of the sick and the aged, more roads and better hospitals, we can only achieve such improvements if we produce goods of sufficient quality and in sufficient quantity to pay for them. That means the establishment of an efficient, viable and technically modern manufacturing industry. I wish to emphasise two points in regard to achieving that aim.
First, there must be substantially increased long-term investment both in capital equipment and in research and development. In Britain, returns on both types of investment are expected within one year or a 185 maximum of two years, whereas our industrial competitors, in particular Germany and Japan, think in terms of a minimum of five or 10 years.
It is also recognised that there are many difficulties connected with raising investment. The difficulty may be lack of supply, high interest rates or an unwillingness to undertake the expense. Whatever it is, if private capital is not forthcoming, public funds with public accountability must be established. No Government concerned with Britain's future prosperity can stand by and let industries vital to Britain's economic recovery perish through lack of finance.
Secondly, I should like to emphasise training. It is as important an investment as finance. It is also very expensive. However, the present slipshod approach to training must be ended. Voluntarism may be desirable; but, as we have said before in debates in this House, voluntarism always seems to bring a lack of volunteers. Moreover, under such a system, good employers prepared to accept responsibility for training have no guarantee that the persons they train will not be poached by employers making no contribution whatsoever to training.
The outmoded, outdated system of apprenticeship has been ended. Gone are the days when no matter how bad the instructors, how incapable the trainees of assimilating instructions, how bad the equipment on which the training had to be undertaken, at the end of seven years (subsequently reduced to four) a person was recognised as skilled merely because of the amount of time he had served. We now have the module system whereby status is given only by the achievement of standards. That is in common with other professions. The sooner a craftsman or technician establishes those standards, the sooner he will be recognised as qualified.
However, technology is advancing so fast that an individual man or woman will receive training or retraining two, three, or even four times during his or her industrial life. The levy grant system previously in operation is now ideal to meet the requirements of training for our manufacturing industry. It calls on all employers to pay into a pool and to receive from that pool the full amount of their cost of training if they themselves are reaching standards determined by the board. It withholds from employers money that they have paid in until they reach those standards of training.
One of the greatest disasters—I am now doing what I said we should not do; namely, to recriminate—towards efficient training was the abolition of the training boards. The sooner they are reinstated, perhaps in an improved form, the better it will be for training in this country.
We are a rich country—rich in the true sense of the word. Wealth is not digging up gold in South Africa and burying it in Fort Knox. Wealth is the application of human endeavour, whether by hands or by brains, to raw materials. We have plenty of all those factors. Name any modern invention, fibre optics, carbon fibre, the Hovercraft, supersonic civilian flight—you name it, we invented it—someone else has exploited it.
Let us consider another aspect: our indigenous 186 wealth. It has been said before but it bears repeating. We are an island built on coal, floating on seas of oil and on natural gas. We are surrounded by plentiful supplies of fish. We are about the only nation in the world which can create a shortage of all four at the same time. But if we were to apply our brains to that raw material, and achieve that change in attitude towards training and investment, what a truly great nation we could become!
§ 4.30 p.m.
§ Lord Griffiths of Fforestfach
My Lords, I rise with considerable trepidation to address this House for the first time. My career as an academic, and certainly my previous job, have not encouraged me to be non-controversial. However, today I shall endeavour to be so. I wish to thank your Lordships for the gracious way in which you have made me feel at home in this House since I was introduced.
The Motion today calls attention to the problems faced by manufacturing industry and I should like to consider three of them. As was stated by the noble Lord, Lord Williams of Elvel, the immediate problem facing manufacturing industry is an unexpectedly deep recession linked to high interest rates and the high cost of borrowing. I do not in any way wish to underestimate the seriousness of the rise in unemployment or in the number of bankruptcies. However, we must see the present recession in context. We must not forget the remarkable successes scored by our manufacturing industry during the 1980s following the even more serious recession in 1980–81. During the 1980s, productivity in British manufacturing grew at a higher rate than in any other major industrialised country. In 1990, output reached a record level. In 1989 manufacturing investment reached a new high. The UK's share of world trade in manufacturing, which had been declining for a long time, finally picked up. In addition to all that, we saw a remarkable inflow into the country of foreign investment. By the end of the 1980s the decline of British manufacturing industry, which had lasted for a long time, was finally halted.
Why did those successes come to an end? It was certainly not through any fault of industry. We know that, regrettably, it came to an end because of the problems posed by rising inflation. As we understand all too well from the experience of the post-war years, whenever inflation enters an economy there is no painless way to remove it. In this context I believe that noble Lords are right to explore every noninflationary avenue to reduce interest rates. It is right to question the possibility that small businesses may face a banking cartel. It is also right to urge the Government to cut interest rates as aggressively as possible within the ERM. However, I do not believe that manufacturing industry will easily forgive the Government if they bring down interest rates quickly only to find that they must push them up again in the near future. That is the path of uncertainty. It is a way to halt the recovery of British industry and it is a sure way to rekindle inflation. In that respect, economics may be a dismal science but I am afraid that it is an honest one.
187 Yet even in our present troubles there is some good news: inflation and interest rates are falling. It is because of the prospect of an eventual recovery and despite our difficulties that we must consider the longer term problems facing manufacturing industry. One of the problems relates to competition. I see great value to the consumer in business being conducted in a competitive environment. However, I also believe that, from the point of view of companies, competition must be fair.
When I visit a company or a factory I almost always find that businessmen are excited by the challenge offered by the Single Market and 1992. However, I come away with one distinct message; repeatedly they say that British manufacturing industry is not at present facing a level playing field in terms of competition. For example, the tax paid on profits by British companies is almost twice that paid by German companies; small firms in this country are not treated nearly as favourably from a tax point of view as are small and medium-sized firms in Germany. It has been said today that UK companies are open to being bid for by foreign firms. Yet, because German banks have such stakes in their companies and the French Government has interests in many industries, it is much harder for our companies to enjoy reciprocal freedoms.
It is frequently alleged that public sector procurement is more open in this country than in others and that our Government and public bodies are more stringent in applying environmental standards than are the equivalent institutions of some of our competitors. It is also said that, one way or another, foreign competition receives more subsidies than do British firms. Many of those factors are a real handicap to British firms but the Government can take action.
One item I would not include in that list is extra government funding of research and development. It is a subject about which I remain rather agnostic. At present the British Government spend more on R&D as a share of GDP than do the Japanese Government. They spend roughly the same as the German Government and only slightly less than the US Government. Britain falls behind other countries in that our private companies invest far less in R&D than do companies in competitor countries. Before investment can be made companies must be profitable. During the 1980s profitability returned to manufacturing industry and the rate of return on capital was raised.
Recently I came across an interesting study carried out by Professor Porter of Harvard University. It dealt with competitive success in the 10 leading industrial nations. The study's clear conclusion was that the, major factor which accounted for competitive success in most industries was the vigorous domestic rivalry of companies in those countries. Therefore the greatest contribution that government can make to the success of manufacturing is to ensure that after 1992 the playing field of business in Europe is level, open and competitive.
Finally, I wish to draw attention to the deep-seated culture problems from which manufacturing industry 188 in this country has suffered. For too long manufacturing industry has been the Cinderella of wealth creation in Britain. Times are changing, but slowly. I well remember that towards the end of my time in government service I visited the Longbridge works of Rover. I met recent graduates from some of our best universities—women as well as men—who were managing the shop-floor and finding it a rewarding and exciting career. That would have been unthinkable 20 years ago.
The education system, with which I have been associated all my life, and government have together taken numerous initiatives to try to foster a change in attitudes towards manufacturing. They have, for example, introduced technology into the national curriculum and TVEI into schools. They have created City Technology Colleges and have introduced schemes into universities and polytechnics for teaching within companies. Our goal as a nation should be to make it as attractive for our best graduates to be employed in manufacturing industry outside London as it has previously been for them to be employed in the City of London. That could be achieved by the introduction of suitable fiscal incentives which would allow enterprising young people to build greater stakes in the ownership of our manufacturing companies.
Britain already has world class manufacturing companies. The 1980s showed us that manufacturing industry could reach new levels of success. I believe that the 1990s can be even more successful. I sincerely hope that, as the recovery eventually comes, it is a theme to which we in this House will return. Meanwhile, I thank noble Lords for listening so courteously to what I have had to say.
§ 4.40 p.m.
§ Lord Gregson
My Lords, on behalf of all your Lordships I offer congratulations to the noble Lord, Lord Griffiths of Fforestfach, for an excellent maiden speech. I must say that I was personally surprised with how much of it I agreed; I expected to say otherwise. With the noble Lord's background of a remarkable career, achieved at such a young age, I am sure that we can all look forward to many more such contributions in this House.
The Select Committee on Overseas Trade chaired by the noble Lord, Lord Aldington, reported to this House some time ago and was rubbished by the Government—then led by Mrs. Thatcher—with such fatuous statements as, "manufacturing industry is no longer important to the economic well-being of this country". There appears to have been a minor change in the attitude of the Government under John Major. They now appear to be paying lip service to the importance of manufacturing industry to a trading nation that depends so patently on its exports to maintain the standard of living of the whole population.
I say "lip service" because as yet we have seen no real action proposed by the Government to recreate our manufacturing industry to the position of critical importance both in size and science and technology to restore and sustain our economic well being. There is 189 a remarkable and almost exact correlation between the decline of our standard of living compared with other leading nations of the world and the deterioration of our balance of payments in manufactured goods. Not many years ago we were among the top three or four countries of the world for wealth generation and standard of living and we had a very healthy positive balance of payments. According to the United Nations' report issued only two weeks ago we are way down the list with a miserable negative balance, and I think your Lordships will agree that that is a particularly sorry state of affairs.
It is a demonstrable fact that the size of our manufacturing sector has shrunk considerably in the past 11 years, and by the various measurements that are now available in science and technology citations and the number of patents reserved for the UK, we are no longer one of the five leading nations in science and technology. For manufacturing industry to shrink in size gives considerable cause for concern; but for this country to drop behind in the technology race is much more serious. Without being in the forefront of technology our goods and services are considerably devalued and our industry is competing with the second and third tier nations in the world. That is simply not possible on the basis of our standard of living.
Innovation is the life-blood of the added value we must apply to our manufacture, and innovation is only possible in a country in the forefront of technology. The two outstanding examples of that in the world are Germany and Japan, whose standard of living, unfortunately, far exceeds our own by the dint of their tremendous thrust into technology right at the cutting edge. That is further demonstrated by the advent of the Japanese setting up considerable manufacturing facilities in this country. When one thinks about it, one realises that that is precisely what we were doing a few years ago in the second and third tier countries of the world. There is no question but that the Japanese invasion of our manufacturing sector, combined with the accident of North Sea oil, saved this Government from an economic collapse worse than anything we have ever experienced in our history.
As other noble Lords have said, there have been many attempts to analyse the reasons why the United Kingdom manufacturing industry is falling so far behind. The latest, and I believe it is one of the most comprehensive, analysis is the recent report of your Lordships' Select Committee on Science and Technology into innovation in manufacturing industry.
Like the noble Lord, Lord Benson, I believe that the fault for our industrial decline must lie with the boards of directors of our manufacturing industry. Driven by short-termism, which is the manifestation of an over sophisticated capital market, they are more concerned in doing deals than with indigenous growth from within our industry. Developing technology requires long-term thinking and patient money. Neither of those seems to be contained in the culture 190 of the interaction between the City and industry in the UK; the culture of the "quick buck" dominates that relationship and, without a shadow of a doubt, that has got to be changed by hook or by crook before we meet the full blast of competition by the end of 1992.
The two most important manifestations of the short-termism culture are the pressure by the institutions to extract more and more dividends from companies instead of insisting on investment of the money for long-term well being and growth. UK companies pay three times the dividends from their profits compared with Japan and nearly two-and-a-half times compared with Germany. We recently had the crazy experience of one institution requesting the companies to pay dividends even though they were fighting for their very existence.
Secondly, we have this mad desire for take-overs; we are, by far, the most deal-ridden country in the world. By evidence take-overs do not expand industry; they contract it, and the record on technology is lousy. Germany and Japan have very few take-overs and they are driving us out of market after market.
One of the most bizarre side effects of this culture is the fact that this country is spending many billions of pounds supporting science research in universities and research establishments only to have it exploited by our overseas competitors. The UK taxpayers are subsidising competitor countries to increase our balance of payments deficit. How much more crazy can we get? In the present circumstances the taxpayer would be far better off if we gave the money to the National Health Service instead.
Around the time the Aldington Report was being rubbished by the Government, the then Chancellor of the Exchequer committed, in my opinion, the most fundamental error of the 11 years of this Government's rule. He wiped out investment allowances and halved corporation taxes, which was pure gold to the devotees of short-termism—pay it out today and to hell with the future. That piece of Alice in Wonderland logic simply must be reversed.
I am totally aware that we shall not be able to change the culture of the relationship between industry and finance in time to meet the challenge of the Common Market. We must, therefore, either by incentive or by restraint, cause industry and its shareholders—of which over 70 per cent. are the institutions of the City—to stop the mad rush, like lemmings, over the cliff. To fail to innovate and carry out product development, British industry can only deteriorate either to oblivion or to the menial tasks of a third world country.
Almost every country in the world gives more assistance to its industry than does the United Kingdom. Even the Common Market rules allow for a good deal more assistance to manufacturing industry than this country has been prepared to recognise. Our children and their children will never forgive us if we do not take this last opportunity to recover the situation we have so stupidly contrived for ourselves.
§ 4.49 p.m.
§ Lord Laing of Dunphail
My Lords, it is a very great honour to be a Member of your Lordships' House; but to speak in it for the first time is more than a little daunting. I therefore cast round for a little comfort and advice; of comfort I found little, but good advice I found in Ecclesiasticus:Speak, if you are old, it is your privilege, but come to the point and do not interrupt the music".Your Lordships have thoughtfully refrained from providing music, but nevertheless I shall endeavour to come to the point as quickly as possible.
In this House and elsewhere there has been much debate about the negative effect of short-term thinking on manufacturing industry and more widely on our society and our economy. I do not much care for the word "short-termism" but it lies at the root of many of our problems. Our attention has been deflected from the essential issues, however, by our eagerness to allocate blame for the shortsightedness in which we have all shared. Industry has blamed the City, and the City has retorted that industry's record on investment does not itself demonstrate much commitment to the future. The truth is that no sector is blameless. Our society as a whole is shot through with short-termism.
When we criticise British companies for failing to invest in research and training on the same scale as our competitors, or financial institutions for their reluctance to lend for organic growth with the same alacrity as they lend for take-overs, and when we attack the failure of successive governments to invest adequately in the basic fabric of our society, we are attacking the symptoms and not the cause.
While our collective myopia no doubt has many social and economic causes, a prime contributor has to be Britain's lamentable record on inflation. With the 1970 pound now worth only 14p., it is inevitable that past experience plays a major part in determining our time horizons. When savings are eroded by inflation and it pays to borrow, it is hardly surprising that spending is encouraged and that as a society we lack confidence in our future.
Ecclesiasticus had some advice on this front too:Be not made a beggar by banqueting upon borrowing".But by repeatedly paying ourselves more than we are earning, we have for decades been banqueting upon borrowing from the funds which should have been invested in keeping our industry in the forefront of modern technology. Our habit of living beyond our means is a direct cause of inflation and if we do not master both, all our efforts in other fields, no matter how imaginative, will be frustrated. The high interest rates, which we all regret, are the painful alternatives to the self-discipline, even self-denial, which our successful competitors accept as necessary and which rewards them with stable currencies.
Our common objective must surely be to bring greater stability to the value of our currency so as to cut back the premium which we have habitually put on the present over the future. That is why I welcome wholeheartedly the commitment of the Government and of the Bank of England to restore the integrity of 192 sterling. We need to pursue all the means open to us to enable building for the future to be seen to obtain its just reward.
Strategic vision—essential to building anything worth while for the future—is the one fundamental attribute shared by the founders of successful companies. They are not hypnotised by the bottom line but invest in the lean years as well as in the fat, believing, rightly or wrongly, that their enterprises will continue through the generations.
Their consistency of purpose builds trust in the working communities which they establish, and trust is essential if people are to give of their best to any enterprise. It certainly cannot be established on the shifting sands of businesses whose ownership passes from hand to hand with frequent changes of management.
We must, despite the current downturn, have the courage and vision to continue to invest in the public sector to restore a really efficient national infrastructure and in the private sector to build launchpads for growth and improved competitiveness when the upturn comes. We must invest in people as well as in plant because we need healthy, well educated and well trained people as well as modern communications networks, hospitals and schools.
Your Lordships do not need me to spell out the consequences for manufacturing industry—for quality and efficiency of production—of having employees who are less well equipped with training and technology than those of our competitors abroad. Quality of people requires well judged, long-term investment in quality training, but Britain's sorry record on education and training seems to be another reflection of short-term attitudes. Fewer children leave school in this country with any worthwhile qualification than in any comparable country. That, it seems to me, is a consequence of their experience of what education has to offer. They appear to see immediate earnings as preferable to an investment of time and effort in their long-term careers. That is not someone else's fault; it is our fault as employers, trade unionists, educationists and politicians.
I am sure that we all want to see a better quality of life for all the stakeholders in Great Britain Limited. Crucial to achieving it is the success of our manufacturing industry. The success of Germany and Japan in the international marketplace was not achieved by chasing short-term profit. If we are to succeed in increasing exports and limiting imports we should learn from them that greater reward comes from taking the long-term view at the expense, if necessary, of immediate bottom-line returns. For this our manufacturing industry will need the long-term support of its shareholders and the banks.
The prospect of the single European market and the approach of the year 2000 encourage us to look further ahead than the next set of company accounts, the next publication of backward-looking statistics or the next election. If we can raise the level of the debate on manufacturing industry from a fruitless attempt to apportion blame to a constructive determination to lay sound foundations for our grandchildren, we shall 193 be helping to restore the sense of vision and of common purpose which are essential if this country is to play its full part in building tomorrow's world.
Being a poor reader, I can manage only one very short book at a time, so I am still with Ecclesiasticus for my exit line:Happy the man who has found a friend and the speaker who has an attentive audience".I am grateful to your Lordships for your courtesy and patience.
§ 4.57 p.m.
§ Lord Varley
My Lords, it is a great pleasure to congratulate the noble Lord, Lord Laing of Dunphail, on behalf of the whole House, on an excellent maiden speech. As Secretary of State for Industry in the 1970s, from time to time I used to see the noble Lord and seek his advice. Perhaps much to his regret and to my disadvantage, I did not always follow his advice. But by any standards he has been one of the leading industrialists and businessmen in the country. He has made a significant contribution to our nation. I am sure that he will make a significant contribution to the House and to the service of the House. I congratulate him again.
One of the more worthwhile recommendations of the excellent report of the Select Committee on Science and Technology which was referred to by my noble friend Lord Williams of Elvel, is:Government Ministers must be heard to proclaim the central position of manufacturing to our national prosperity".So I read the whole of the debate in the other place last Thursday and in particular the speech of Mr. Peter Lilley, the Secretary of State for Trade and Industry, to see whether he had taken that advice on board. I regret to say that in a speech of about 40 minutes he mentioned the word "manufacturing" only once and then only to read it out because the word appeared in the title of a Labour Party policy document. It is true that he mentioned taxation, pay settlements, trade unions, inflation and a new Sex Equality Act—all important subjects on their own. However, I should have thought that Her Majesty's principal Secretary of State for Trade and Industry would have had something to say about manufacturing industry, especially as the report of the Select Committee has been out since January.
I have held the belief for some time—and like the noble Lord who has just spoken, I am not in the business of recrimination—that the fundamental reason for the decline in our manufacturing capacity, especially over the past few years, is the philosophical approach to it by our Government. I accept straightaway that there has been a relative decline in manufacturing industry going back more than 30 years. However, what has happened over the past 12 years has been catastrophic. I know that members of the party who formed the Government in 1979 held the passionate belief that to get the economy moving they had to make room for manufacturing industry to expand and, roll back the frontiers of the state—I think that was the phrase used at the time. That is a perfectly sincere ideological belief; but to be successful that can be very difficult to achieve. I know that from 194 the outset manufacturing industry has experienced terrific problems and difficulties. As the Select Committee on Science and Technology has reported, the pendulum has swung too far, and the lack of government support has damaged our national interests. These are not my words but those of the Select Committee of your Lordships' House.
Heavy manufacturing industry, and supporting basic industries like coal and railways, find no favour with this Government. What Ministers prefer—at least, this is the impression that I get—are small, light, diverse, and it is hoped, non-unionised companies, which seem trendy and fashionable, but unfortunately sometimes only transitory. I have nothing against small companies, in fact I am all in favour of them. But large companies are important, and large national industries are important. I know there are perfectly good reasons why the Secretary of State for Trade and Industry, and perhaps the Minister who is to reply to this debate, cannot say much about the possible bid for ICI by Hanson because of fettering discretion and because if such a bid were to take place it would be outside the jurisdiction of this country. However, the whole stance of Ministers over the past few years has made them now seem so complacent and indifferent to the potential threat of the break-up of ICI—something with which I agree very much in the speech of the noble Lord, Lord Haslam.
So it is very strange, because quite the opposite takes place in other countries such as Germany and Japan, who cherish their market economies just as much as Ministers do here. In those countries there are huge conglomerates big enough to shake off problems in one sector and confident enough to invest colossal sums of money and wait tens of years to get a payback on their investment.
Goodness knows! I enjoyed nearly every minute of the three and a half years during the 1970s that I spent as Secretary of State for Industry. However, there were many problems, mostly the legacies of the private sector, such as the problems of British Leyland and Rolls-Royce, British Aerospace and the shipbuilding industry. However, in each of those years manufacturing investment increased. Manufacturing investment collapsed as soon as the present Government came to office and embraced first of all the mumbo-jumbo of the medium-term financial assessment and the unrealistic money supply targets.
I listened very carefully to the speech of the noble Lord, Lord Griffiths, and I know that it is true that by 1989 manufacturing investment got back to where it was in 1979 and exceeded it. However, now it is back below the level it was in 1979. That is an appalling record. We have gone backwards. For a period of about two years we actually got above the level, but now we have gone backwards again.
The only consistent policy that this Government have had when it comes to industry is to transfer state industries to the private sector. But turning state monopolies into private monopolies is not necessarily a substitute for successful national enterprise. In my view what is all the more culpable is that during all the years of our declining manufacturing industry the Government—as was said from the Front Bench— 195 have had the benefit of primary energy in abundance; not only sufficient for our own needs, but able to sell a surplus to the world.
In the middle of the past decade oil exports brought us in £8 billion a year; at today's prices North Sea oil has contributed over £60 billion to our balance of payments, and about £100 billion to the revenue. However, that is all going to change and change pretty rapidly. Self-sufficiency and surplus in oil has already changed to just about self-sufficiency in terms of value. We already import something like 13 per cent. of our gas. In 10 years we will need to import 50 per cent. of our energy requirements. If National Power and PowerGen get their way and more gas turbines are used to generate electricity, coupled with their desire to import more and more coal, before long we shall be importing primary energy totalling £8 billion a year. That will be a swing from something like £8 billion in the m td-1980s to something between £14 billion and £16 billion by the mid-1990s.
The manufacturing deficit last year was nearly £11 billion and the prospect of an energy deficit was something like £16 billion. If preferred policies are carried through, that adds up to a terrifying prospect for our national economy in a relatively short time. There are many other aspects that could be mentioned in relation to that. If British Coal is put into private control, it would be devastating to our plant manufacturers. The noble Lord, Lord Prior (who was in his place a moment or two ago) will know of the howls of anguish coming from our generating plant manufacturers because now the electricity companies want to install low capital gas turbines and not the traditional ones. Incidentally, such turbines are ideally suited for maximum overseas competition. Our mining machinery manufacturers will experience exactly the same pain when the coal industry contracts further as a result of a greater level of coal imports.
Over the past five years British Coal has spent £6.5 billion, on mining machinery and largely British-made goods—purchases of well over £1 billion a year. I cannot say very much more about that.
I acknowledge that we have some brilliantly managed, successful and highly profitable companies in this country which are second to none in the world. So far they have not succumbed to short-termism. I should like to pay tribute to British managers and engineers and the workforce who for far too long have not had the support of the British Government. It is about time that they did.
§ 5.8 p.m.
§ Viscount Caldecote
My Lords, I am sorry that the noble Lord, Lord Williams, who initiated this important debate, sought to make party capital out of the debate by relating the problems of manufacturing industry to the past 10 years. It simply shows that he does not appreciate the very long-term nature of the problems of manufacturing industry. Of course I agree about the importance of manufacturing industry; not least because of the high proportion of exports and imports of manufactured products—three times as high as service industries. Thus, to reduce or eliminate the balance of payments deficit will require an increase 196 of over 30 per cent. in the output of service industries, compared to the 10 per cent. or so needed in the output of manufactured products. The former is quite unobtainable, whereas the latter is perfectly possible.
That is very significant because the large balance of payments deficit puts a downward pressure on the value of sterling. High interest rates have been required to control inflation, which is coming down very satisfactorily. However, interest rates are now being kept high largely to maintain the value of the pound in the EMS against the effect of the large balance of payments deficit. The need to increase the output of manufacturing industry to meet home demand and to increase exports is perfectly clear. Surely, that is no party issue. There is no disagreement on the objective but perhaps some divergence of views as to how that objective may be achieved.
No party can escape responsibility for the state of affairs in manufacturing industry and its contracting base over the past nearly 50 years. The post-war Labour government squandered the US loan on imports of consumer goods instead of investing in the re-equipment of industry. In 1977, during the period of another Labour government, the CBI action plan called for action,to shift resources back into trade and industry [for] ultimately our economy, our currency, our whole standard of living all depend on industry being fully competitive in world markets".We would all agree with that. However, nothing effective was done by that Labour government to help manufacturing industry.
Eight years later the Select Committee on Overseas Trade revealed a similarly unsatisfactory situation. It said:The committee believes that expansion of the manufacturing base is the principal means of achieving growth".But, again, no effective action was taken to help manufacturing industry, for the cult of the postindustrial society and the dominance of the service industries was still in vogue.
What can now be done to expand our manufacturing base and output? There is only one answer: the marketing of a greater volume of competitive products and processes in world markets. In turn, that can be achieved only by higher investment in innovation. I am glad to see that the CBI is again drawing attention to the crucial importance of manufacturing industry and emphasising what needs to be done. It draws attention to the fact that the United Kingdom share of GDP contributed by value added in manufacturing has fallen from 30.5 per cent. in 1974 to 23 per cent. in 1990, compared with 28 per cent. in Japan and 33 per cent. in West Germany. United Kingdom imports of manufactured products represent a higher proportion of GDP than in any other major industrialised country.
In its study of innovation in manufacturing industry, the Select Committee sought solutions to some of these problems. It took evidence from a wide cross-section of people and organisations, including a delegation from Japan, and it visited Germany and Italy. We noted the major improvements in productivity and profitability in manufacturing industry during the 10 years of Conservative 197 government, as mentioned by several noble Lords, including the noble Lord, Lord Griffiths, in his excellent maiden speech. Both are most important—productivity to ensure that costs are competitive; and profitability to generate funds internally and externally for investment in innovation and expansion. But, in spite of those important and significant improvements resulting from the Government's policy, in spite of the better cash flow and increased liquidity, investment has been inadequate and output volume has grown far too slowly in comparison with our competitors.
Over the whole period from 1973 to 1990, a period embracing both Labour and Conservative governments, the average annual growth rate of manufacturing output has been less than 0.5 per cent. per annum. Clearly, something is wrong. Greater investment in innovation is a necessary condition for faster growth in output—non-inflationary growth. It is not a sufficient condition, for better management, marketing and training all have their part to play, as other noble Lords have emphasised. The Select Committee concentrated on innovation. It sought to identify obstacles and incentives to innovation. There is time to mention only a few salient points. I hope that there will be a chance to debate the report when the Government's response is received.
We identified, first, the need to change the culture and outlook of manufacturing industry in this country. However, that will take time. It must be promoted and advocated by Ministers and industrial leaders; and it must be done energetically and unambiguously. Supported by the authority of the Prime Minister, every policy should be scrutinised for its effect on industry. The Minister with responsibility for industry, working closely with a designated Treasury Minister, should have a clear mandate to implement that.
As many noble Lords have said, although we have many world leaders in manufacturing industry, including ICI, we have too few of them. Other companies must seek out and implement the best practice in innovation. The chairmen and chief executives must cultivate and lead enthusiastically a positive attitude to innovation. They must regard expenditure on it as an investment and not a cost to be reduced to the minimum.
The Select Committee identified the high cost of capital in this country as a serious obstacle. We made proposals to improve the cash flow and generation of internal funds for innovation. We also concluded, as did the noble Lord, Lord Benson, that short-termism is a serious issue. It favours deal-driven activity and short-term money profits at the expense of real added value. We made proposals to alleviate that problem, observing the absence in Germany, where manufacturing industry flourishes, of opposed takeovers and all the wasted effort that they involve.
I fully support the view that industry, and not the Government, must pick winners. That was the committee's view. But that does not mean that the Government should withdraw all near-market support for innovation. The committee stated that 198 properly targeted selective government support can be of great value. We did not advocate a return to wasteful subsidy but concluded that the present level of government support was below the optimum. Expenditure by government should be regarded as investment on behalf of us all, a sharing of risk and not a cost to be minimised.
Lastly, but by no means least, action in schools is necessary to promote a better understanding of industry's important role and the career opportunities there. As the former chairman of Understanding Industry, a charity set up by 3I, I know how effective such charities can be in this work. In the current year UI will spend £750,000. It will produce more than 900 courses in curriculum time in schools. Each course is 11 hours long and involves 25 or more sixth form pupils. UI reaches some 15 per cent. of A-level takers in the country. Those courses are given by more than 3,000 skilled managers from 1,000 companies throughout the UK. UI and other similar charities working in the same field could, with more government support, provide a foundation course on industry and commerce for all post-16 pupils in secondary education. Surely that is what we should aim for. I hope that the Government will accept the recommendation of the Select Committee that they should give greater support to the activities in this area of charities and other bodies.
We look forward to the Government's response to the Select Committee. In the meantime my right honourable friend the Secretary of State for Trade and Industry is showing most encouraging signs of a better understanding of industry's value and the need for much greater innovation and a change of culture. At Warwick he said that companies',ability to innovate and willingness to give priority to investing in new products and processes are both crucial".That is a great advance on the attitude of his two predecessors. He made many more constructive comments, and his indications of a refreshing new outlook on manufacturing industry are greatly to be welcomed. But one passage showed that he has not wholly broken free of the old dogmas. The DTI truly said in evidence to the Select Committee:Industry alone may not always generate sufficient innovation for the national good".That implies that Government have a part to play—and they do, including providing financial support for industry in selective ways. The Secretary of State came down dogmatically against such support. Clearly the Secretary of State has set out on a new road which is more constructive and more understanding of the needs of industry. We must hope that steady progress towards the ultimate objective of stimulating greater output of competitive products will be made. Above all, I hope and am confident that there will be no turning back on that road.
§ 5.20 p.m.
The Earl of Halsbury
My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, for giving me an opportunity to address your Lordships on a subject which has been of concern to me for all but two years 199 of my adult life; that is, research into and development and commercialisation of the products of manufacturing industry.
Some people seem to be unaware of that. One of those who was unaware of it was Napoleon Bonaparte. He said that the English are a nation of shopkeepers. I see nothing wrong in shopkeeping. It is a device for coupling a multiplicity of manufacturers to a multiplicity of consumers with respect to a multiplicity of products. The reason that Napoleon Bonaparte ended up in St. Helena was that he did not notice that he was speaking at the only time in our history when we were not a nation of shopkeepers: we were developing the industrial revolution.
I believe it worthwhile to recite the roll of honour, as it were, of those who made us what we are, which was referred to in general terms in a most enchanting maiden speech by the noble Lord, Lord Desai. First, in 173:i Abraham Darby of Colebrookdale developed the first blast furnace which was improved in 1828 by Neilson, a gas engineer in Glasgow, who developed the hot blast. That ushered in the epoch of cast iron engine ring of which I think Maidenhead railway bridge is one surviving example.
A few years later William Huntsman of Sheffield invented the crucible process for tool steel. In 1783 there was Henry Cort's open hearth puddling process and rolling mill and that enabled us to win the Napoleonic war by ensuring that we had the necessary materials. That made possible steam power based on metallurgy. In 1781 Watt was the first to convert reciprocating into circular motion, and in 1814 Stephenson was getting to work with the locomotive engine on steel rails. From 1830 through the 1850s was the great epoch of railway laying all over the world. Why was America operating in arrears compared to our country? That was because it did not have a single rolling mill in the whole of the United States of America. Therefore, we were able to steal a march.
I shall not go into too much detail in that respect. However, I remind your Lordships that in 1851 the Great Exhibition took place sponsored by the Prince Consort in which it was observed that Britain in general and Birmingham in particular was the workshop of the world.
In 1856 there was the Bessemer converter. In 1856 William Siemens—and your Lordships will notice the introduction of foreign names—introduced the open hearth furnace. I do not know whether a Welshman can be regarded as foreign but Sidney Gilchrist Thomas introduced the basic open hearth furnace in 1877. Of course, the epigones—to borrow a term from classical literature—simply copied what we were doing. The question of patents and so on did not arise. When the Indians and the Chinese were making textiles for themselves, one or two options were open to us but we never made up our minds. At a later stage I shall deal with the change which took place at about 1870.
What we should have done as a matter of policy, if the textile manufacturers had the apparatus to declare a policy, should have been to do what Italy did after the war. It went into high grade textiles as opposed to plain cotton cloth for the Indians and the Chinese. We 200 never took that decision; it was taken for us as an alternative after the war because textile machinery was being exported in excess of the exports of textiles themselves. We were financing the seeds of our own textile disaster by exporting capital goods with which to make textiles.
What is the third option which we could be taking now? Other people will make textile machinery just as they made textiles. We could be designing the electronic controls for textile machinery. That is what our electronics industry should be doing.
I referred to 1870 when many influences were brought to bear on this situation. Marxist analysis has always emphasised that finance capital was replacing manufacturing capital as the centre of gravity of the investment business. That is one item which I am not prepared to argue because I am not an economist let alone a Marxist economist. However, I note that that is not the only factor in the story because around 1870 —and I cannot recall the exact date—the German education system was overhauled from top to bottom with the setting up of the Technische Hochschüle to provide graduate engineers. I remind your Lordships that "engineer" in German is the title given to a person who has a graduate qualification from a Technische Hochschül in almost any one of the sciences or technologies. Therefore, Ingenieur Chemiker is not a chemical engineer but merely a chemist like myself. Other people were modifying their education systems but we did not.
Then came a post-war development which I welcomed although it had a side effect which I did not anticipate. That was the result of the Robbins Report which postulated much greater educational opportunities for every class of the community involving the very welcome expansion of our universities. That entailed more students which entailed more academic teaching staff.
I cannot speak from direct experience but I only quote what has been said to me. At that period of expansion in the aftermath of the Robbins Report, the universities recruited many of what I might call introspective academics who were to some extent hostile to industry—oily hands, oily fingers and so on. They biased their undergraduates against manufacturing industry.
Whether or not it is the truth, something of that still remains. Recently I was speaking to a young man of some 23 summers who has finished his education with, I hope, a qualification. I asked what he thinks of doing with that qualification. He said, "I am rather attracted to sales promotion". I replied, "Yes, but you cannot sell anything unless it is manufactured. It must be made first and sold second. You cannot promote the sale of something which does not exist". He said, "No, I do not think I like the idea of manufacturing industry very much". That appeared to be his view and that of his contemporaries.
I come now to modern times and the way in which the art of shopkeeping has developed, where finance capital has been overtaking manufacturing capital. We must now deal with the matters mentioned by the noble Lords, Lord Varley and Lord Williams of Elvel; that is, the takeover bid and its consequences.
201 There are three kinds of organisation, one of which I welcome and another two which I condemn. The one I welcome is the horizontal merger of people who are all engaged in the same business. That has great advantages in solving one of those problems which needs to be solved from time to time; the problem of succession and the problem of replacing dead wood. In a horizontal merger if a general manager of a unit has gone soft, he can be replaced by the assistant general manager from another unit in the horizontal merger. That solves many managerial problems.
The vertical merger is one in which one tries to make everything which is incorporated in the product which is sold. That is well illustrated by Kynoch who made sporting cartridges. He argued that since a sporting cartridge is made up of materials like cardboard, sheet brass, copper percussion caps, shot and propellant then he must have a factory which made propellant, a factory which made shot, a factory which rolled brass sheet and another cardboard and so on. He attained something that no one, except himself, could manage, and he was not managing it all that well when he died; so the component parts were broken up and returned to people competent to manage them.
The third, and worst, example of putting Humpty Dumpty together again is the conglomerate. Conglomerates have been referred to during the course of our proceedings as predators, but I think of them more as parasites. The only lesson of history —I had to write an essay with that title when I was at school—is that the lessons of history are never learnt. It is possible to learn from the lessons of history that conglomeration is only a passing phase and that in due course we shall be rid of it. I have been warned that once 11 minutes goes up I am into the 12th. I therefore conclude what I have to say, and hope that it is relevant to your Lordships' proceedings.
§ 5.30 p.m.
§ Lord Butterworth
My Lords, the Great Exhibition of 1851, which has recently been referred to, has been identified as the high point in British manufacturing development, for after that date, our manufacturing industry has been in steady decline. Our weakness in industrial technology has become more apparent as technology itself becomes more sophisticated and more firmly based upon science.
I was a member of the committee chaired by the noble Viscount, Lord Caldecote, which produced the report Innovation in Manufacturing Industry. We attempted to face that deep-seated problem which goes back to 1851. To that extent, our report should not be seen as a criticism of the Government. One could say that since 1851 all governments have failed industry. Our report pleads for a fundamental change amounting to a change in our culture.
I shall echo what the noble Lord, Lord Ezra, said about Germany. A few members of the committee were privileged to visit Germany. We were all impressed by the different climate in which industry and innovation operate in that country. The German nation believes in its industry and it regards it as self-evident that industry can prosper only by 202 appropriate and continuous innovation. Those propositions are so embedded in German culture that everyone we met—management, workforce, unions, bankers, central government and Länder—all understood and recognised that greater investment in innovation is essential and fundamental to industrial progress.
Our report is clear: we complain that industry is held in low esteem by our society and attracts too little of the country's talent and other resources. The urgent need is for a change in our culture to be brought about by a campaign which must be led by government. So far, so good! While our report makes recommendations for government to act in specific issues, we tend, I am afraid, to be silent about how the culture in the country will be changed. For example, will the acceptance of our recommendations be sufficient in itself to produce a cultural change or is more needed? The truth is that government, in changing attitudes and culture, are much more effective in some areas than others. For instance, let us take the point that industry does not attract its fair share of the ablest. I suspect that in that area the influence of government is marginal. If more able people are to be recruited by industry, then industry itself must make the changes, giving young people more responsibility from an early stage, and what is more important, paying properly, especially engineers, so that our engineering profession becomes as respected as any other profession, be it law or medicine, as it is in Germany.
I shall give an example of where governments—because it is the government who are involved—could change attitudes. I should like to introduce your Lordships to a company of which you have never heard: Butterfly Manufacturing plc. Research and development has convinced that company that it can produce a car, including its engine, wholly from plastics and ceramics. There is no metal in it at all, not even in the engine. It is convinced that that revolutionary development is on the edge of becoming commercially viable. However, timing is of the essence because international competitors are themselves experimenting with similar developments.
The Butterfly Manufacturing company proposes to build a large plant, costing some £800 million. It will save resources if it can construct that plant next to its existing plant in Rugby. It needs to settle finance and acquire a site and access land. The company has already approached the DTI, but it has been told that the acquisition of land is something that must be pursued locally. It has of course already approached the local authority with regard to possible planning permissions, but it will need a huge supply of water —200 times more than the existing supply—it will need drainage for foul and storm water; it will need an extremely large volume of gas; a greatly enhanced electricity supply; greater rail facilities; much more parking space; new large access roads tied in to the neighbouring motorways; and at one point the road will need to go through a tunnel to pass under common land. The company will also have to satisfy all the authorities that its activities are pollution-free.
Your Lordships will not be surprised to know therefore that that company will have to have separate 203 negotiations, inter alia, with the following: the DTI, the DoE, the Department of Transport, British Rail, the Health and Safety Executive, Her Majesty's Inspectorate of Pollution, authorities for water, gas and electricity, probably two local authorities and of course a parliamentary agent, because a Bill will almost certainly be necessary whether it is private or hybrid. All that the company can achieve; but it will take at least five or seven years to do so. We have already seen that time is of the essence. There is no way in which that byzantine procedure can be avoided by one unified negotiation, because that is the fractured way in which the law, government, local authorities and the Civil Service work. The company cannot know whether it can successfully construct that plant until that byzantine procedure draws to its close. If the Butterfly company is an international company, it may of course investigate alternative sites, perhaps in Sweden or Germany. In that case, the development will almost certainly be undertaken in Frankfurt. Our report says that the Prime Minister and all his Cabinet must give their unequivocal and wholehearted support to the campaign. The only hope for the Butterfly company is if the Prime Minister himself comes to hear of the project, takes it under his wing and personally pushes it through. In short, our ordinary methods of operating have become so byzantine that we can no longer cope with an innovatory scheme where time is of the essence.
Surely this is a limited area where, by change of attitude and change of procedures, the Government could be effective. Who knows? Once a revolution has taken place in this limited field, the knock-on effect in government, in local authority and the Civil Service may he so considerable that a change of attitude may spread to other fields in which manufacturing industry is involved.
§ 5.40 p.m.
§ Lord Mason of Barnsley
My Lords, after that remarkable plug for the Butterfly company, I hope that it is not long before it takes off. There is undoubtedly consternation and deep concern about the state of manufacturing industry in the United Kingdom. As we have heard, the evidence is overwhelming. Our manufacturing base has been eroded while our service industries have expanded. Of course they have soaked up some unemployment—women workers, part-timers and so on. But service industries cannot be the backbone of a nation which has to survive on international trade. That means that we must have more manufacturing industries and more manufacturing exports.
The Department of Employment statistics show a drastic fall in employment in the manufacturing industries. The CBI also reported only last month that the number of employees in the manufacturing sector in Great Britain fell by 32,000 in February and there was a further fall of 45,000 in March. At 4,087,000, it was 209,000 less than the previous year. There must be a massive increase in productivity to make up for such vast, rapid job losses.
The report of your Lordships' Select Committee on Science and Technology revealed that the failure of 204 British manufacturing industry had already had serious consequences for our economy; that our home market was increasingly penetrated by imports; and that our share of manufactured goods was too small. The implications for our future prosperity are grave. The report is riddled with warnings. It emphasises that the only hope for recovering our position is more innovative manufacturing. Indeed, even the OECD survey of 1989–90 stated that the United Kingdom had been slower in adopting important engineering innovations than competitor countries. The Select Committee report also declared:Too many companies are insufficiently innovative or competitive—we must create a climate in which innovation can more readily flourish".Flourish, not die.
Perhaps we may look at what has happened in the regions during the course of the recession and the decline in manufacturing industry. South Yorkshire, one of the county's oldest industrial regions, has seen the run-down and restructuring of its basic coal and steel industries, with terrible results for the local economy. The steel industry plays a vital role in supplying specialist and engineering steels throughout the whole manufacturing sector, particularly to the car industry, aerospace, medical equipment and construction.
However, during the 1980s employment in the industry fell by 75 per cent. from 60,000 to less than 16,000. Also since 1984 in South Yorkshire there has been a massive run-down in the coal industry. Unemployment has fallen dramatically from 34,000 in 1984 to less than 9,000 at present; from 29 coal mines to 11. The impact on the local economies has been traumatic.
My town, Barnsley, was a mono-economy. Coal mining was the lifeblood of the area. This has declined catastrophically. Between 1982 and 1991 coal mines were reduced from 19 to three. Employment plunged from 20,100 to just over 2,000, with all the suffering that that entailed.
All this has meant job losses for the existing workforce and fewer job opportunities for school-leavers. It has had a major knock-on effect in other local industries and resulted in a loss of spending power in the local economy.
Steel manufacturing and supportive manufacturing industries for the coal industry have been drastically reduced. Of course the local authorities had to take steps urgently to halt this pace of change because it contained the seeds of economic disaster. The Government could have done more to help the regions. The cuts in regional aid were particularly cruel during this phase of economic change.
Therefore the local authorities affected had to act boldly, taking a series of initiatives to attract new industry in order to broaden the base of the local economies, clearing up some of the now derelict sites, providing sites for expansion and encouraging new firms. There have been some successes, albeit few, in contrast to the huge scale of the task. The Department of Trade and Industry could and should do more to help these areas where labour intensive traditional industries have virtually died. There is an urgent need now for more manufacturing industry.
205 I draw the Government's attention to the longstanding grievance of additionality. Moneys were earmarked for these areas through the European Regional Development Fund for infrastructure, servicing industrial land and factory buildings. The European Commission argues that its grants should have a genuine impact in the areas to which they are given. The British Government, especially the Treasury, agree that it should be additional but should not go to specific areas. They believe in spreading it around; they dissipated it. Therefore, the distressed regions are not receiving the full financial aid to which they are entitled. It is about time that this was corrected.
With the full allocation of European Regional Development Fund finance these run-down regions would have a better chance of economic revival. The United Kingdom seems to be out on a limb in the Community in this regard. It is an injustice to the local authorities and harms their attempts to put their own economies on a sounder footing.
Perhaps I may also ask what prospects we have of receiving aid under the European Commission's new RECHAR programme. Will we also be denied the finance specially allocated to coal and steel regions because of the Government's attitude on additionality? I should like the Minister to clear the air when he gives his reply. There is the vexed question of additionality and what prospects of aid we shall have from the RECHAR programme.
One method of breaking out of this decline, recognising the importance of technological innovation, is that Barnsley established a business and innovation centre. The Select Committee took no evidence on this issue and never visited it. The Barnsley local authority teamed up with British Coal Enterprise Ltd. and the European Commission. It is their brainchild. Twenty other financial sponsors from industry, the banks and commerce developed the project with them. It is called the Barnsley Business Innovation Centre. It operates from a purpose-built complex containing incubator units helping individuals and companies to develop and successfully market high technology based products and innovative projects. It is fully occupied, with 17 companies engaged in a variety of innovative technologies. Most of them, having developed their technological product, will leave the Barnsley BIC and establish themselves as new high-tech industries in South Yorkshire. We are now building phase two, which comprises another 20 incubator units. There are eight business and innovation centres in Britain. There are 60 operating throughout the European Community; that constitutes a European BIC network fostered by the European Community.
Those BICs need more promotion by the Department of Trade and Industry as they are a regional asset. They are developing a technology culture. The DTI should establish a major network of BICs throughout the country using the existing ones as models. Will the DTI co-operate more closely with the European Regional Development Fund and with DGXV 1 in Brussels to build upon the Common 206 Market BIC initiative? Will the DTI join that initiative and enhance it, thereby enabling Common Market funds to be channelled directly to the BICs? The BICs are concerned with business, innovation, people and technology in their regions. They are non-profit-making organisations. They are involved with local authorities and private enterprise in developing and launching high-tech manufacturing industries.
If a nucleus of technically innovative companies can be established in Barnsley, a countrywide network of BICs should ensure a major impact on the innovative and creative abilities of our manufacturing industry. That is precisely what the Secretary of State for Industry calls for, but he is not giving the backing where it is needed. I hope the Minister will be able to assure me today that the department of enterprise, initiative and innovation really means what it says.
§ 5.52 p.m.
§ Lord Aldington
My Lords, I am glad to follow the noble Lord, Lord Mason of Barnsley. I believe I first spoke after him in another place many years ago. He may be interested to know that one of the subjects he mentioned in his interesting speech, the support for regional policy given by the European Commission, is a matter under inquiry by a sub-committee of the European Communities Committee of which I happen to be the chairman. I noted carefully what the noble Lord said.
I must say with all humility that I do not think I have ever before listened to a quintet of maiden speeches. I have certainly never before heard speeches of such high quality and of such interest from which I have learnt so much. I congratulate my noble friends and the noble Lord opposite. I have a particular reason for congratulating my noble friend Lord Laing of Dunphail as there is a connection between my family and his in that my daughter is married to one of his nephews. I look forward to hearing many more contributions from all the maiden speakers on this and other subjects.
I also wish to refer to the speech made by the noble Lord, Lord Williams of Elvel. He has made more speeches on this subject than even I have. However, I have never heard him speak in an electioneering role before. I believe I detected that emphasis today. I shall have a few words to say about some of the implications of his speech in a short while.
There can be no doubt in your Lordships' minds as regards my views on the importance of manufacturing industry. There can be no doubt either in your Lordships' minds as regards the views of the members of the Select Committee on Science and Technology who earlier this year published a most significant and historic report on innovation. I hope that we shall have a chance to debate that report, with a government reply, before we become very much older. I take this opportunity to congratulate my noble friend Lord Caldecote both on his speech and on his chairmanship of the inquiry which led to the report.
As has been indicated, the subject of our debate is a long-term problem and it has a long history. During the past 140 years many reports have been produced 207 which emphasise the importance to our country of skills in manufacturing and the need for the nation as a whole to believe in the paramount importance of manufacturing industry. The value to young people of a career in manufacturing industry has also been stressed. However, as my noble friend Lord Butterworth indicated, all those warnings have been pigeon -holed. The long-term trend of the decline of our manufacturing competitiveness has continued. But I believe that that decline has slowed to a halt in recent years. Although our manufacturing industry is now much too small, it is much more efficient than it used to be. The attitude of our education system towards industry is being reformed. Training is being given within industry and without. Companies are expending more effort on civil research and development I have seen a report of £6 billion being spent on this research and development last year. That is not enough but the figure is increasing. The need for constant innovation is now understood.
Much more needs to be done, but I no longer fear that the slide will continue under this Government's policies. Nor do I fear that we cannot rebuild a proper sized manufacturing base. But I must repeat that our present manufacturing base is much too small. However, we have not begun to increase our competitiveness relative to others. I said that we had halted the slide, but nevertheless our competitiveness relative to others has not been increased. Neither have we increased the size of our manufacturing base. We are still arguing about what precisely needs to be done to encourage the quick building up of our manufacturing base to enable it to reach the size it must attain to match the demand for manufactured goods of our countrymen. Those who believe in market forces should note that the demand for manufactured goods in this country has grown year by year. Between 1973 and the end of 1988 the demand for manufactured goods grew by 25 per cent. while the supply did not increase at all. That is the position in which we find ourselves due to our lack of competitiveness.
It is our manufacturing base and the size of it that have caused concern to so many people who care about the future of our economy and of our country. We have insufficient capacity to take a proper share of our home market. That is why we import goods to such a great extent. The larger the manufacturing base, the stronger each part of it becomes. That point has not been made today but it was made by several witnesses who gave evidence to the Select Committee in 1985. From the national point of view we cannot obtain a healthy surplus in our balance of trade unless we can produce manufactured goods at home competitively. At the very least we need to produce those goods in the amount that is demanded by the British economy. The market has been telling us what the demand is but the supply has not reacted to the demand.
As I have said, this is a long-term problem with a long history. The importance of attitudes was stressed in the report of my noble friend. Attitudes have been wrong for decades. I withdraw nothing from the comments made by the Select Committee I chaired in 208 1985. But I do not wish to repeat what was said then. In his opening speech the noble Lord, Lord Williams, seemed to me to assume that the blame for the present low level of output rests solely with the present Government. However, the truth is that a lot of good things have happened in the past decade to benefit the future strength of our manufacturing industry. Many of them have been mentioned. It has also been said that certain problems have to be tackled. They have been tackled—both by industry and by government.
As several of my noble friends have said, the most important issue has been inflation. Connected with that is the labour cost per unit of output. That must not increase if we are to remain competitive or to improve our competitiveness. Investment by industry in new plant, R&D and training and the encouragement of innovation have all been mentioned. The key to it all is stable price and exchange rate levels—noble Lords on both sides of the House have welcomed the entry of the British pound into the ERM, which helps—and an economic climate which rewards initiative and enables profits to be earned and invested, for without profits there cannot be investment in plant, there cannot be investment in R&D and there cannot be investment in training.
I hope that this will not be thought to be too much of a party point. The idea that socialism in Britain will help is an idea from Cloud-cuckoo-land. Look at our main competitors. In Germany, Japan and the United States there is no sign of a socialist wand waving benignly.
I also have to remind your Lordships of a point in our report of 1985 which has been overlooked. Competitiveness in British manufacturing industry fell sharply and woefully between 1973 and 1980. Table 3.3 on page 29 of that report shows that in national currency terms—which means excluding the movement of exchange rates—relative unit labour costs in Britain (the principal element in competitiveness) increased by 72 per cent. between 1973 and 1980. That is a point which is often overlooked. That is the situation which my right honourable friends and my noble friends on the Front Bench had to face when they came into government.
There is not much time for me to make the many points that I want to make. However, I should like to correct the noble Lord, Lord Varley, concerning the attitude of the present Secretary of State. The noble Lord quoted from a speech of the Secretary of State in another place. I do not know what that speech was about, but I know that my right honourable friend has made two very important speeches, one at the Institute of Directors and one at Warwick, in which he emphasised his interest in and his concern about manufacturing industry and innovation. The noble Lord opposite is frowning. I fear that he has not read the speeches. They were closely argued and very long. I commend them to him. I have the same proviso as my noble friend about one of the points relating to innovation.
Before I sit down I should like to welcome the change of attitude, as I see it, in the way that my right honourable friend sees the role of the Department of Industry in the two-way channel between government 209 and industry. That point has been rather lost in the past five years or so and I am glad that he has emphasised it. I hope that it will mean that he will improve the organisation of the Department of Trade and Industry, which in my opinion needs to be improved.
§ 6.4 p.m.
§ Lord Barnett
My Lords, not everything about manufacturing industry in this country is bad. I often find myself in agreement with the noble Lord, Lord Aldington. However, most of the points that have been made about the good aspects of British industry have been pretty selective and have applied to particular parts of it and to particular periods. That was the case in the excellent maiden speech of the noble Baroness, Lady Denton of Wakefield, who told us of one industry in which things are a little better. The noble Lord, Lord Aldington, told us that we had halted the slide. I wish that that were true but I am afraid that the facts do not bear it out. The noble Lord is always very good with his facts and he is too modest to quote his own report so I shall quote it for him a little later.
Generally, manufacturing output, allowing for the Government's own forecasts to the end of 1991, shows sadly that over the past 12 years growth in the United Kingdom has been slower than in any country in the European Community, any of the G7 countries and any of the top 20 countries in the OECD. That is the sad and unfortunate fact. If we are seeking lasting solutions to the problem it does not help to pretend that it is anything other than that. I agree that the problems did not all start in 1979. Some noble Lords have suggested that the problem goes back as far as 1851, but I do not propose to go back that far. If one looks at the facts the problem goes back at least as far as 1972. In the period since that date our performance relative to others abroad has been poor. I do not necessarily blame any one particular Government. There has been a long-term, steady decline relative to our competitors.
The facts, I hope, are not in dispute, and certainly not by the noble Lord, Lord Aldington, when he is in a less electoral mood, if I may put it that way. I should like to quote from his report of 1985. It is worth repeating because it is excellent stuff, as the noble Lord knows and as I have always told him. On page 83 the report states:Unless the climate is changed so that steps can be taken to enlarge the manufacturing base, combat import penetration and stimulate the export of manufactured goods, as oil revenues diminish the country will experience adverse effects which include:The noble Lord will recognise that. Nothing has changed.
- (i) a contraction of manufacturing to the point where the successful continuation of much of manufacturing activity is put at risk;
- (ii) in irreplaceable loss of GDP;
- (iii) an adverse balance of payments …;
- (iv) lower tax revenue for public spending …;
- (v) higher unemployment …;and
- (vi) the economy stagnating and inflation rising".
The noble Lord, Lord Aldington, and his committee added: 210Taken together, these constitute a grave threat to the standard of living and to the economic and political stability of the nation".That is what the noble Lord said in 1985. Marvellously, the report looked beyond that year to 1991. The noble Lord's committee was absolutely right. That is exactly the situation today. The climate has not changed.
Unlike the noble Lord I am not seeking to make party political points. I am talking about the facts and facts are not party points. In a debate of this kind in your Lordships' House, none of us being up for election in the near future, we can look realistically at the solutions to the serious problems which we face.
First, I hope that we can all agree that nothing we do now will quickly transform the situation. The noble Lord, Lord Aldington, effectively said just that. Secondly, I hope that we can all agree on an objective —a situation where we can compete with the best in the world, including Germany, Japan, France and other competitors against whom we are doing so badly. Thirdly, I hope that we can also agree —and, indeed, the debate has shown that we can—on the need for increased manufacturing investment, for increased investment in training and a more skilled workforce, including management, for investment in R&D and for investment in innovation. I hope that we can all agree on those points. Those are not party political differences.
A much more difficult issue is how we achieve those objectives. I want to suggest two courses of action whereby we should at least give ourselves a chance. The first relates to action which we can take now but which will take some time to come to fruition, and the second relates to action which we can take now which might have a short-term effect.
Perhaps I may deal first with the action that we can take now. We can do something on investment tax allowances for capital investment in manufacturing industry and for training, but I am under no illusions about the huge and immediate advantages of that. The reason why most companies are not investing now is not that they do not receive tax allowances, but is a result of the economic climate in which they find themselves. They will not invest all that much more simply because they receive a tax allowance. I am under no illusion that it will be of great benefit, but it is something worth trying. More money is clearly needed, as is provided by other countries, for investment in training, R&D and the rest. We should do that to some extent through public expenditure, as others do.
Where is the money to come from? For me, this is the highest priority. If we are to provide the resources for the better things that we all want to see, this is the highest priority. However, as I found in the days when I tried to persuade Cabinet colleagues that this was a high priority, they were willing to accept that but were never willing to accept the logic that there were lower priorities. I see a former Chief Secretary on the Benches opposite nodding. Assuming that we all agree that it is the highest priority, sadly it will mean that even things like higher rates of child benefit and pensions—all those things that we would love to see —must be a lower priority.
211 If that happens—it will apply particularly to a Labour Government, even one with a woman Chief Secretary to the Treasury—the pressures to find more resources to help social security, education, transport, roads, infrastructure and local government, all of which are desperately needed, will be enormous. If we accept that investment in manufacturing output is the highest priority, everything else will have a lower priority. I hope that that point will be accepted.
I make it clear that I have no illusions about the difficulties of the job, having done it for five years with all the traumas that I faced during that time. Some additional help can and should be provided, as has been suggested, by banks and financial institutions. In his report, the noble Lord, Lord Aldington, pointed out that in Germany, France and Japan banks and financial institutions are much closer to manufacturing industry than we are in this country. Others have talked about the short-termism that applies in this country and does not apply in the best of our competitors. Something can certainly be done in that respect, but, even if all that is done, it will still take some years to come to fruition.
The immediate problem is the short-term competitiveness that our manufacturing industries face. I fear that when the upturn comes—it will probably come towards the end of the year even though it may not be noticed —it will come from an increase in consumer demand. There is no other way that it will come. Yet, at the height of the recession, we have a balance of payments deficit. Can one imagine how quickly we shall return to a recession if this recession ends by way of a consumer demand boom? That would be disastrous. Therefore, it is essential that increased output should not come primarily from increased consumer demand. We need increased exports and reduced imports. That means immediate and urgent selective help to manufacturing industry. It will have to be differential help with government pressure on banks and financial institutions.
There would need to be a substantial cut in interest rates very quickly. In another excellent maiden speech, the noble Lord, Lord Griffiths of Fforestfach, talked, as otter noble Lords did, about the dangers of what happens to an exchange rate if interest rates are reduced too much. I recognise and understand that point. On the other hand, there is a much greater problem regarding the general decline of our manufacturing industry and manufacturing output. Certainly, if we reduced interest rates at this time, the pound might drop to the bottom of the range in the exchange rate mechanism. Unlike Professor Walters, I do not regret entering the exchange rate mechanism; I advocated our entry eight years ago and earlier. However, I recognise that, if we cut interest rates as I want to do, the pound might drop to the bottom of the range. but we could live with that better than with not cutting interest rates. There may ultimately be a need for a realignment of the exchange rate mechanism. On the other hand, I concede at once that all past evidence shows that the benefits of that are frittered away very fast with high inflation and unit labour costs rising even faster. It is difficult to see how we shall stop that happening again.
212 How do we give ourselves a chance to do it? I regret to say that the short-term policy would need to be combined with a tight control of public expenditure along the lines that I have described with a tight fiscal and monetary policy and, above all, an unprecedented degree of co-operation from trade union leaders. As the noble Lord, Lord Aldington, said, there is no other way of changing the climate. I only wish that I could be more optimistic that it will happen.
§ 6.15 p.m.
§ Lord Wade of Chorlton
My Lords, I am sure that the noble Lord, Lord Barnett, will not mind me drawing your Lordships' attention to the fact that he is a man from the North West who speaks with great common sense and in a practical way. It is always a joy to listen to him. We have had a feast of speakers in this debate who have great experience and knowledge. I congratulate all the noble Lords who sit in front of me and the splendid noble Lord who, for some reason or other, sits on the other side, on their excellent speeches. All noble Lords have drawn attention to what appears to be a serious situation in manufacturing industry; namely, the recession that we are all going through and the disaster that it appears to mean to many people. However, we have simply gone back about two years from the highest peak that this country has ever seen and from a period when people had never been richer, investment had never been greater and the support and confidence of businesses had never been higher. We are now suffering from an adjustment from that high level. The worst thing that we could possibly do in reacting to what we now see as a rather unfortunate situation is to think that the solution is to ask government to do more. It would be a disaster if we were to return to that period of government involvement in industry and particularly manufacturing which we suffered in the 1960s and 1970s and which resulted in the disasters that became instrumental in turning out the Government in the late 1970s and in adopting a new approach to how we invested and how we ran our companies and our country. We need only look at what is happening in Eastern Europe where they are doing their best to get away from planning controls and all those things that have brought their industry to its knees.
The noble Earl, Lord Halsbury, to whom I always enjoy listening, drew our attention to what was the peak of Britain's strength in the manufacturing world and the suggestion that we might have gone back from that peak. We have not gone back; the rest of the world has caught up with us. We were unique in our innovation and expertise in the middle of the last century, but that knowledge and information is now known by all the world. Our competitiveness must therefore be seen not in the light of what is right for us and right in our market place, but in the light of what everyone else in the world is prepared to do to compete with us.
Several noble Lords, including the noble Lord, Lord Desai, commented on the importance of multinational businesses and on the fact that they are now the leaders in innovation and investment with regard to manufacturing with whom we must 213 compete. We must realise the strength of what has happened in the 1980s and that what makes businesses tick is the people who are prepared to run them. It is the management of the expertise, innovation and motivation of the people concerned which drives on the industries. In the face of all those noble Lords with close links with ICI, it is imprudent of me—I am not involved with either Hanson or ICI—to become involved in that discussion. However, I am surprised that noble Lords who believe so strongly in competition do not realise that in that kind of environment it is inevitable that companies which believe that they can manage other things better will do so. If they are not run in the best way by management, they will lose either the customers or the business for which they compete. I believe that what is happening now with Hanson is an inevitable consequence of a free market system from which so many of us are benefiting.
I should like to tell a story to illustrate the point that I hope government will not again become involved in business. Sir Ian MacGregor told me that when he took over as chairman of British Steel he was shown around a new estate at Corby where BSC had invested a good deal of money to re-employ those who had lost their jobs in the steel mill. He was taken to a factory where he met a large Italian gentleman who had been set up in business to boil hams for the local people. Sir Ian asked him how he was getting on, and he replied, "Now things are marvellous". Sir Ian asked him, "What do you mean by 'now'?" to which he replied that the previous week the traditional ham boiler had gone out of business. British Steel had put money into setting somebody else up in business with the result that the traditional ham boiler could no longer survive. That is one of the dangers of the kind of approach which says that government money must be used to support this or that. At the end of the day, unless we are competitive not just as individual companies but as a country we will never survive in the environment we are about to enter.
Next year, competition from Europe will increase. Nothing dramatic will happen, but more and more people will seize the opportunity to look for other people's customers. They will all want to survive and maintain or increase their standard of living. That can be done only by increasing turnover and profit, and they will be looking everywhere for opportunities to see where they can put their goods on somebody else's toe. That will happen here. We do not deal with that by softening our industries and helping with hand-outs or trying to reorganise and find ways of bringing them together in the way the noble Lord, Lord Williams, suggested might be the approach. We do it by making them more efficient in what they do and by making them invest, not because they want to do so but because they have to do so to exist at all.
I entirely support the Government's policy. The present Minister talks about innovation, competition and deregulation as his principles. I believe that is the right approach. The opportunities for British industry, particularly in the North West where it is 214 poised to take great advantage of export opportunities, can be tremendous. They can be tremendous not as a result of what governments do but as a result of how individual entrepreneurs, financiers and banks are motivated to do it. In an earlier speech the noble Lord, Lord Benson, described how important were our standards of financial control and that, somehow, as the country had become rich those people had luxuriated in that richness and built up their private advantages.
We have seen houses go up and fancy cars being driven around, whereas that money ought to be put back into businesses to strengthen and improve them. That is something which individuals can do but which governments cannot. Governments can say how wonderful it is to manufacture. At all levels in which they are involved—education, training and speaking—it is all to do with how to make manufacturing the most important thing in which to participate. The leadership of government, in particular that of the previous Prime Minister, in explaining to many industries the need to invest, innovate and be expansive was something which got through to many people. In my time, I have never come across industrialists who are so confident about doing something and getting on with it. I hope that the leadership given by the Government will ensure that never again will they become involved in telling manufacturers what they must do.
§ 6.25 p.m.
§ Lord Pennock
My Lords, I am sorry that the noble Lord, Lord Williams, is not sitting on the Front Bench at the moment. I wanted to tell him that I have found this debate one of the most enjoyable I have ever experienced in the House. I think it was George Bernard Shaw who once said, "I have enjoyed myself; I have not enjoyed anyone else". In my case it is exactly the contrary: I have enjoyed everyone else and therefore I have enjoyed myself. I have found it a novel and quite exciting experience to sit for the first time on a Bench sandwiched between four star-studded maiden speakers, not to mention the one immediately opposite. In the businesses in which I have been brought up it has always been a strong characteristic of the board to look for men and women of potential. I would say to both Front Benches that these giants from outside are men and women of potential here and now. I hope that their further participation in the business of the House will be eagerly awaited.
The debate has ranged far and wide. One of the amusing features has been that some speakers have said that the past 10 years have been the worst in our history in economic and manufacturing performance; others have said they have been the best. Someone must be having hallucinations. Eventually we shall find out.
I should like to deal with something quite specific which I believe has far-reaching implications. Whenever ICI has been mentioned this afternoon I have sensed a rumble of approval. In the next few minutes I should like to give noble Lords some hard facts as to why that rumble of approval should 215 continue and an analysis of the reasons for those facts which I hope will be well received. Like the noble Lord, Lord Haslam, many noble Lords will know that I was a deputy chairman of ICI for four years, a director for 10 years, an employee for 34 years and, much more importantly, I shall be a pensioner for a lot longer—I hope. I have a direct interest in ICI which I hope will enable me to give some important information.
First, ICI is one of the four largest chemical companies in the world. On more than one occasion in the past decade it has been the world's number one profit-performer in this industry. That is not a new phenomenon. It happened also in the 1970s, 1960s and 1950s, when I was too young to appreciate the implication of such massive figures. I suspect that since its foundation in 1925 by Mond and McGowan it has been a world leader. It is still easily the most international of all chemical companies in the world. I was surprised to discover that it is the fourth largest chemical company in the USA. It has factories in over 40 countries and has business operations in over 150. That enables it to contribute positively to the UK trade balance to the tune of £1.5 billion to £1.7 billion at a time when for the reasons outlined British manufacturing has a huge deficit. It is the world's number one in paints and explosives and the world's number three in agrochemicals. In pharmaceuticals, ICI produces the world's leading anti-cancer drug and provides the leading beta blocker heart drug.
It is my contention that those results could have been achieved only by a broadly based chemical group, not by a collection of separate businesses. In a word, ICI has practised long-termism.
Pharmaceuticals and petrochemicals are currently its most successful and profitable businesses. In their first 10 years of existence they both consistently made either a loss or a minuscule profit. When I was chairman of the Agrochemicals Division, our profits ran into tens of thousands of pounds, sometimes perhaps hundreds of thousands. Today the profits are well over £100 million. I recall on more than one occasion on paints and explosives, in which it is now a wor1d leader, the main board debating long and loud as to, whether we should continue to persevere with those businesses. The finance to build up embryonic businesses and take the long-term view and the finance on which to depend and persevere with businesses temporarily in trouble can only come from a broadly based group.
I should like to turn now to research. So much of ICI's success is based on research—£700 million this year and 7 per cent. of all research in British manufacturing industry. Even more important than the size of the research commitment is the fact that it is integrated. It moves between the businesses. What is discovered in one business is transferred to another in a way which could never happen with small separate businesses. Initial research on Diquat and Paraquat, two outstanding weedkillers in the 1970s and 1980s, began in the dyes business. Milstem, which is today a prominent fungicide in agrochemicals, came from early research in pharmaceuticals. Fluothane, an anaesthetic which revolutionised anaesthetic practices 216 throughout the world, was developed from research in fluorocarbons in the general chemical business. Hibitane, a major hospital antiseptic, was aided by the development of an intermediate originating in, of all places, a nylon process. Finally, research in fluorochemicals, pharmaceuticals, catalyst research in the old Agricultural Division and process research in the central technical laboratories have produced very recently KLEA 34, which is replacing the CFCs in refrigerator production and as such will be a leading component in helping to dispense with the problems in the ozone layer.
I should like finally to move to the topic of competition. I assure the noble Lord, Lord Wade, that ICI is aware of competition. Although it is 10 years since I left ICI, engraved on my heart like Mary Tudor's Calais are Badische Bayer and Hoechst in Germany, AKZO in Holland, Rhone Poulenc in France, Enichem in Italy, and Dupont Dow and Monsanto in the United States. I put it to your Lordships that all those competitors are widely based group chemical companies. They all practise cross-fertilisation between research and technology in all their businesses. They all practise financial support between the businesses on a long-term basis in the way that I described.
In conclusion I hope to have given some conviction to the theory that a break-up of ICI into separate businesses would be received by the competition first with glee and amazement. However, for ICI and, I believe, for the United Kingdom such a step would be a national tragedy.
§ 6.34 p.m.
§ Lord Shackleton
My Lords, in this discussion we should not worry too much about party politics. I should like the two former Chief Secretaries to have a discussion. If they did, I wonder whether they would end up in total agreement or total disagreement.
I must say that after the way in which Ministers treated his report the noble Lord, Lord Aldington, was almost unduly generous to Ministers today. It was a shocking story. It was before the civil servants managed to get hold of his report. Ministers rubbished it and then the Government had to change their opinion rather quickly. But it was a good report and I am glad that my noble friend quoted from it.
The purpose of my brief speech is partly to demonstrate that I can talk about something other than HMS "Endurance" and partly to urge the Government carefully to consider the reports. I do not expect the Government to answer the Caldecote Report today but I ask them to take it seriously. Recent replies from the Government on Select Committee reports, particularly those from the Science and Technology Committee and especially the report on R&D, have not been worthy. I ask them to consider particular recommendations. The recommendation in an earlier report—namely, that there should be some real remission of taxation in relation to R&D in industry—was dismissed in a contemptuous fashion in a reply by the Treasury. But that has 217 worked successfully in other countries. It may be more psychological than real or physical; nonetheless I urge that it should be seriously considered.
There are a number of detailed recommendations which will need comment. I do not know what the Government will say about takeover bids. We have had a good example in relation to ICI in two admirable speeches—one from the noble Lord, Lord Pennock, and a maiden speech. I should like to add another reason for ICI being as good as it is. As a former deputy chairman of the largest mining company in the world and as one of the great legal deputy chairmen, the noble Lord, Lord Pennock, may remember that Sir Val Duncan had a series of meetings with trade union and industrial leaders. Time and again when there was criticism of the trade union side, they would turn to the noble Lord, Lord Pennock, or whoever was there for ICI, and say, "We don't mean you".
Quality of leadership, which has not been much referred to in this discussion, is very important. I owe a great deal to both the noble Lords, Lord Pennock and Lord Haslam. I have asked for their advice on numerous occasions and they always willingly gave it, particularly in the personnel field. I believe that ICI is entitled to its reputation. It is in the national interest that we should somehow face up to this takeover bid. I certainly know that the noble Lord, Lord Haslam, gave us a wonderful speech. In his time he was a personnel man. He was a director of ICI at the time that we took his advice and it was very good. Leadership is important.
That brings me to another maiden speech, that of the noble Lord, Lord Laing of Dunphail. Quite unashamedly I exploited him for my own company. I asked him to talk the staff and preach his ideas, which were a wonderful mixture of practical capitalism and idealism. We are very lucky to have such distinguished speakers in this House. Their contribution was very good indeed. It has been a remarkable debate.
I am determined to make the shortest speech of this debate. I want to say only that I hope that the Minister will not waste too much time on answering some of the unanswerable points made by the Opposition but concentrate on the positive recommendations. I look to the Government to tackle the report of the noble Viscount, Lord Caldecote, who incidentally spent a lot of time on it. The report is very critical of the Government although he did his best to electioneer as well. That is perfectly all right. Noble Lords should use such arguments. However, I hope that the Government will not waste too much time on attacking the Opposition. Let the Government answer the criticisms that have been made and then we shall be happy.
§ 6.39 p.m.
§ Lord Clitheroe
My Lords, I very rarely speak on the Floor of the House. There are so many noble Lords who are wiser and speak with greater fluency. I made my maiden speech in that debate opened by the noble Lord, Lord Aldington, in 1985. As I have served for the past year on the Select Committee on Science 218 and Technology, which is studying the subject of innovation under the admirable chairmanship of my noble friend Lord Caldecote, I thought that I should allow myself the privilege of speaking tonight.
I am probably a most inappropriate person to be on a committee studying innovation because, like many noble Lords no doubt, I do not readily welcome change. Many innovations are anathema to me and I am a great believer in the old American adage: if it works, don't fix it.
I entered industry 40 years ago—not 140 years ago. It was a most discouraging time. The system was not working. It needed fixing—but how to fix it? It was a most intractable problem. We had been suffering for years from the shrinking market of a previously protected Empire trade. Unions and management were at loggerheads, defending their positions using World War I tactics of trench warfare. We were stuck in this self-destructive mode, and efforts to invest in new equipment to improve productivity were completely stymied.
I speak from management's perspective. The unions were like the Bourbons: they learnt nothing and forgot nothing. And so it continued. Management felt that it had precious little incentive to waste its time with innovatory ideas which would not be brought to fruition. It was easier to invest overseas. Despite many and varied tax incentives—sticks and carrots—from Government, British malaise was such a profound disincentive that overseas investment was the logical imperative.
Unions and management were victims of a shared problem. It has often been said that this country is class-ridden and that that is one of the roots of our industrial problems. I do not agree with that analysis. I believe that the USA is much more class-ridden. One can see class very clearly defined in the precise salaries, the size of motor cars, and the clubs to which people belong. The hierarchy of industry is more rigid in Germany, Japan and in most of the other countries in which I have had the privilege to work, than in this country.
Our problem is more difficult than one of class. Due to the extraordinary stability with which we have been blessed as a nation, we have developed a kind of crystalline structure which, while greatly strengthening us in many ways, creates a rigidity which makes it difficult to adjust. For instance, as long as one remains within one's discipline—which is more or less predetermined at school—one can reach its heights. But to move from one discipline to another is extremely difficult. In most of the countries in which I have worked it is much easier to move through the more amorphous structure. Industry, academia and the Civil Service can communicate and understand each other's languages and points of view. They can even exchange jobs with one another. The problem of communication exists through the crystal lattice of society in this country. My noble friend Lord Butterworth referred to it in another context in his speech. The difficulty of getting the different crystals to communicate with one another is very great.
In the 1970s we trailed badly in industry behind most of our competitors. However, the 1980s 219 introduced a revolution which I had despaired of ever seeing. At last we were finding our way and were introducing innovation into the basic fabric of our culture. We had improved productivity in industry. We had regained confidence and were even the preferred vessel for overseas investment by countries such as Japan. That in turn introduced further innovation and awoke us to new skills such as total quality management. I believe that that is an important feature of industry today.
An enormous tribute is due to the work of the Government during the 1980s. They had at last grasped the realisation that their true duty was to provide a well-equipped concert hall, not to conduct the band. They started to break down some of the rigidity of our cultural heritage although there is much more that needs to be done. One cannot cure the problem in 10 years.
In the Select Committee report which many noble Lords have read, a number of conclusions are reached, and a good deal of advice offered to the Government. During the early 1980s, many companies went to the wall. The Select Committee took evidence last year during the current recession which provided a picture of almost unrelieved gloom. It presented deep anxiety that similar threats of company failures were in the offing I do not have such a pessimistic view. Great strides were made in improving the management of the companies that survived the previous recession. I am optimistic about the future of most of them. Nevertheless, the anxieties exist. Our manufacturing base is so small now that we must ensure that it shrinks no further. We have to make great efforts to ensure that it expands.
I add my congratulations to those already made about all the maiden speakers today. In particular, I refer to the important speech of my noble friend Lord Haslam, and to the wisdom spoken by my noble friend Lord Pennock. I am not an interested party in ICI; I have never worked for the company. However, I have worked in the chemical industry for most of my life. I know what a debt we owe to that company. I cannot view with anything but foreboding the possibility of the break-up of that great company. It has provided and continues to provide the major part of the infrastructure of this country's chemical industry. The chemical industry in this country is one of the most successful examples of manufacturing industry. It owes a great debt to ICI which is not to be forgotten.
I was particularly delighted by the speech of the Secretary of State for Trade and Industry last month at Warwick University to which reference has been made. It gives me great hope because there is much common ground between the views that he expressed on behalf of the Government and many of the recommendations reached by our committee. However, I should like to press him to consider carefully some of the other recommendations that the committee made, in particular those concerning short-termism and takeovers. The noble Lord, Lord Benson, expanded ably on that subject in his speech today. It would be a tragedy indeed if the great changes for the better in our industrial performance 220 achieved by this Government's policies were brought to naught because the industrial base had shrunk into non-existence.
§ 6.48 p.m.
The Viscount of Oxfuird
My Lords, the House must be grateful to the noble Lord, Lord Williams, for instigating the debate. We must also be grateful for the experience of maiden speakers today which has added greatly to the information at the disposal of your Lordships' House. We are grateful and hope that not too much time will elapse before their voices are heard again. I hope also that the noble Baroness, Lady Denton, will become a member of the all-party motor industry group.
The subject is given regular exposure in this Chamber and in another place, both through Questions and in debate and through the media of press and television. There are many voices on the subject, but little unity. That is not surprising when one considers the number of associated interests involved: fiscal and monetary policies; trade unions; the Confederation of British Industry; the Department of Trade and Industry; clearing banks; and manufacturing industry itself. However, there does not appear to be a unified manufacturing voice. Perhaps that gives testimony to the wide variety of manufacturing that we enjoy in this country. Perhaps it is time that we sincerely addressed ourselves to that point and sought a means whereby the voice of our manufacturing industry was heard in unison and not, as is so often the case, in discord. Could this be an area for the leadership referred to by the noble Lord, Lord Benson?
I bring to this Chamber my experience of an industry which spends much of its time minding other people's business. The materials handling industry is largely involved with the manufacturing and distribution industries. Here I must declare an interest in that I work for the Lansing Linde Group, one of the largest manufacturers of forklift trucks and warehousing systems in the world. During the next three years the company will invest in the UK £40 million of the most modern production plant of its type anywhere. The industry is almost a barometer of other people's economic success; the first company budget to be reduced or cancelled in hard times is the materials handling budget and it is usually the last to be reinstated. For us it is very much a stop-go world. That is underlined by the statistics which show that the total market can move as much as 25 per cent. on a three-month moving average basis. It is a market which reacts very swiftly to a downturn in the economic situation.
However, there are further conclusions to be drawn from the past 12 years. Although the peaks and troughs have been present there has been a distinct lowering of the average. That must be a matter of concern when compared with other European markets which have maintained their levels on an average basis over a longer period of time. However, we are a major exporter and aim to continue to be so.
Much has been said of the increased investment made during the past years which in many areas has 221 shown dramatic increases in efficiency. But there has been a downside to that increased efficiency. It was predicted by the effect of the competition which has weeded out those who are not up to today's standards. That must be the accepted price of modern progress. Our successes are there for all to see but there are areas of manufacturing which have been replaced by overseas supply; they have just not been able to compete.
There is a great danger that we spend too much of our time as paid-up members of "the tears before bed" league. For example, it is well known that imports in certain sectors are not in essence sustainable. In that respect the agriculture industry, although not in most minds a manufacturer, needs to grab the nettle of marketing. Our supermarkets do not have enough British produce on their shelves and a change in that area would produce a dramatic benefit in our balance of payments. Personally, I prefer British to Egyptian potatoes.
There are many who seek to return to a world where tax avoidance and the grant begging bowl were the order of the day. It is not for Ministers to run business—government have no superior wisdom in that area—but it is for managers and investors to make the decisions which will determine the future of industry and will ensure our presence in Europe in 1993.
The support of the Department of Trade and Industry has been manifest in that area. In Warwick last May the Minister of State for Trade and Industry confirmed that an important part of the role of the DTI is to listen to business and to ensure that, within government, policies reflect the needs of British business. It is to be hoped that the Treasury will also be invited to partake in the dialogue and that it will result in a reduction in its demand on manufacturing industry. That point was made by my noble friend Lord Aldington.
Manufacturing is a side of industry requiring high investment and much expertise in the form of qualified engineers. There tends to be a cultural disdain at present for such qualifications. That was highlighted by my noble friend Lord Caldecote in his report on innovation in manufacturing industry. The report showed that 35 per cent. of United Kingdom students seriously considered media as a career whereas fewer than 10 per cent. gave serious consideration to manufacturing. The change must initially be cultural. Perhaps the media might assist in that.
As regards investment, I believe that the banking community would be well advised to research and to understand in greater depth the industries that it supports. Lack of understanding in that area has led to unnecessary anguish for a number of dedicated industrialists who have had to spend more of their energy solving short-term, artificial problems created by unsympathetic listening banks than on managing the core of their businesses.
Times change and with that change must come a change in our own culture. We must recognise and accept the market place as it is today; a market place where the most efficient and productive will survive 222 only by giving the service that guarantees future business. That is not the job of government; it is the job of industry itself.
§ 6.56 p.m
§ Baroness Seear
My Lords, today we have had a positive gala of maiden speeches of an exceptionally high order. I congratulate all the speakers. I hope that I shall be forgiven for picking out for special mention the speech of the noble Baroness, Lady Denton. This is not a case of one woman scratching the back of another. Many noble Lords have talked about the importance of women in industry and in management. The noble Baroness, Lady Denton, is the role model of women in industry and management. We must give the world such examples to show that women can hold such positions. I extend my grateful thanks to her not only for what her position does for women but because it shows that a great untapped resource of woman power and manpower is available to industry and is of the quality that is required.
Perhaps I may also be forgiven for paying special tribute to my former LSE colleagues the noble Lords, Lord Desai and Lord Griffiths. We are almost approaching the point where we need an all-party LSE Lords dining club. No doubt the noble Baroness, Lady Denton, will be included because she is a governor at the LSE. The thought will probably make the founding fathers and mothers turn in their graves, but no matter.
In opening the debate the noble Lord, Lord Williams, reproved the Government for the way in which industry has been running during the past 10 years. We are told that there is great joy in heaven over one sinner that repenteth; there must be a riot of delight about the conversions that have taken place inside the Labour Party. Far be it from me to defend the actions of the Government. However, when the noble Lord, Lord Williams, reproves the Government I must remind him that when they took over in 1979 there had been a decline in Britain's share of world markets. That had been the case under a series of governments, including that of the noble Lord's party. I also remind him that in 1979 the percentage of people in British industry who had not received training was no less than 50 per cent. The Labour Party had plenty of opportunities to do something about that; opportunities which it did not take.
The Labour Party ethos was responsible in those days for decrying profit in a way which had an extremely bad cultural effect. To my certain knowledge it discouraged many able young people from going into industry. If the Labour Party denies that it decried profit, why did it continue to support an 83 per cent. tax on high level incomes? Of course nobody at that level with any sense ever paid it; there were so many loopholes. But it would have been possible for the Labour Party to do something about it. The party is now converted to the idea of wealth creation and therefore to the view that riches are something we must accept, even though it may not altogether welcome it.
As the noble Lord, Lord Williams, started with a little electioneering, I see no harm in indulging in my 223 share, though since we now know that there will not be an election until next year, it would be better if we gave up electioneering in this House. This is especially true at Question Time, which is a particularly unsuitable moment to indulge in electioneering, but we seem to get it every day now.
There is no doubt that what the noble Lord, Lord Williams, said in regard to manufacturing industry is correct. Manufacturing industry is the locomotive of economic recovery and of continuing economic success when that recovery occurs. Without successful manufacturing industry there will be no recovery. If there is no recovery, all the other improvements that all sides of the House wish to see will not be brought about.
Why is that? It is because the success of manufacturing industry in exports is greater than the success of any other sector when it comes to export trade and to the avoidance of excessively high imports. Unless we have success in manufacturing exports, the future is bleak indeed. On that we can all agree absolutely. If we can obtain success in exports—can increase exports and decrease imports—that will have the desired effect on the balance of trade; without improving the balance of trade it will be difficult to bring interest rates down. They are being kept up partly to combat the threat to the pound that comes from an adverse balance of trade. Therefore there is no difference between us regardless of where we sit: we all believe that the recovery of manufacturing industry is of the highest possible importance.
I am glad that today nobody spoke of the contrast between success in services and success in manufacturing industry. The idea has died that somehow or other success in services makes up for failure in manufacturing. The truth of the matter is that successful manufacturing contributes to success in services; failure in manufacturing industry leads to a decline in services. The two work together. It is false to believe that it is possible to make up for weaknesses in manufacturing by success in services. Even if that were true, we are now seeing such a decline in services that the argument can hardly be relevant.
What can we now do to improve the position? We on these Benches do not wish to see a return to picking winners. But there are things that the Government undoubtedly could and should do. I agree with all those who said that to try to get recovery in this country by encouraging increased consumption through the consumer market would be disastrous. That is certainly not the way to bring about improvements. The way to bring about improvements is undoubtedly through investment.
Unless it was mentioned by the noble Viscount, Lord Caldecote, when I was out of the Chamber, I am surprised that nobody spoke of the importance of investment in the infrastructure. Investment in the infrastructure is most important in helping manufacturing industry to recover. We are woefully behind as regards the infrastructure in railways, roads and housing. That is part of the trouble with the rigid labour markets, dominated by the fact that people find it extraordinarily difficult to move house. If the Government can see their way to investing in the 224 infrastructure, which to a large extent means helping the construction industry, we shall begin to see some effect on employment and, indirectly, on consumer expenditure. The construction industry is an industry which will employ a large number of people if there is real investment in the infrastructure. I do not need to tell your Lordships that the construction industry is in an extremely bad way. Help to that industry would be help also to manufacturing industry in a way that other consumer expenditure would not be.
As other noble Lords have said, the other area where it is extremely important that there should be development on a much more ambitious scale than at present is the area of education and training. Here I agree with everything said by the noble Lord, Lord Desai, about the tremendous importance of making a quantum leap in education and training. It requires not just a little more here and there; we must get into a completely different kind of market if we are to hold our own.
It is not only a matter of government injecting more money into education and training, although they must do that. It is no good leaving it entirely to the TECs to do it, especially when the money to the TECs is being cut. We do not want every company to train; they are not capable of doing it. What has been urged upon the Government many times and could be done very quickly is for the companies which do not train to pay. I do not suggest going back to the old levy grant system, which was too bureaucratic, though the principle was right. There are ways in which it could be done through the tax system so that money is obtained not from the taxpayer but from those sections of industry which do not pay their way in contributing to training and which should be made to do so. The Government could do that immediately and it would be an important improvement in the way training develops.
Finally, we need to improve the participation of all those working in industry and to develop a different system of industrial relations. Much has been shown to us by the Germans in that area. If we are to achieve success in industry we must achieve far better industrial relations. Tributes have been paid to ICI. Perhaps I may conclude by saying that one aspect of ICI's contribution to this country is the lead it has taken over 50 years in showing how successful industrial relations, successful employee involvement, can be developed. I hope that the Government will see their way to encouraging that.
§ 7.8 p.m.
§ Lord Peston
My Lords, as the last speaker from these Benches perhaps I may add my voice to those who have congratulated our five maiden speakers. It was a great pleasure to hear the noble Baroness, Lady Denton, especially her remarks praising the workforce —with which I agree—rather than blaming it for all our ills. Perhaps I may also say how much I agree with her views on women in industry. If the noble Baroness speaks on that topic on other occasions she will find that I and my noble friends will be extremely supportive of her. However, I believe that she was being a trifle optimistic. I speak purely from memory, 225 but I am fairly confident that if we look at the top 100 companies in this country to see how many chairmen are women and how many managing directors are women, the answer is either nought or not far from nought. There is a long way to go.
I was impressed with essentially how much in common my noble friend Lord Desai had with the noble Lords, Lord Haslam, and Lord Laing, on so many topics, particularly on the question of taking the long-term rather than the short-term view. It is encouraging when the problem is diagnosed in the same way by so many different people. However, I am bound to say that it is easier to diagnose the problem than to find a solution to it. It has been with us for so long that I remain somewhat pessimistic as to how easily we will solve it.
The contribution by the noble Lord, Lord Benson, on those matters was quite outstanding. His reference to the profligate habits of the past four to five years was most telling. I hope that all the major companies of this country buy today's copy of Hansard, which is comparatively inexpensive. They will obtain the benefit of his excellent financial advice which is available virtually free.
I turn finally to the noble Lord, Lord Griffiths of Fforestfach, who gave an excellent maiden speech. I was a trifle disappointed that he did not mention that he is an old student of mine. Perhaps he did not for very good reasons. I did teach mainstream Keynesian economics in those days. I understand that he has moved a little from that position. I believe that I should be encouraged by the appearance in your Lordships' House of an erstwhile student, but it makes one feel a trifle old.
As regards the main theme of the debate, there is no doubt about the importance of manufacturing. Points have been made that it is vital for our exports, for our imports savings and also for growth. I do not make the vulgar error of saying that producing goods is good, and producing services is bad. That is completely wrong. I believe that the important point has been made that we need a balance; but in terms of international trade, manufacturing is of vital importance. It is also important in terms of innovation.
As regards innovation, there is a topic which is significant but which has not been mentioned. It is closely connected with the protection of intellectual property rights, patents and related matters. It is vital that this or any other government ensures that our laws on the subject are always strong and enforced. That is important for the future because innovatory competition is tremendously important to us. ICI has been mentioned, but I am not going into the detail of that controversy. I was very impressed by a statement put out today especially for our debate, by The Royal Society of Chemistry. It states that a settled, large scale research environment is essential for UK industry and the potential effects of the dismemberment of a company's research effort, whether it be ICI or anybody else, should be a key factor that we take into account in the current debate.
226 I have referred to the short-term and long-term view. We shall have other occasions to discuss the problems of the recession. I am not going into them except to make an obvious economist's point that the short-term recession has long-term effects through what it does to investment. That is a matter we have to bear in mind. I believe that the present position is serious. We should look at the long-term and not just at the short-term view. In that connection, one of the factors which worries me about the long view is how we can get back on track to a long running growth path. I refer to the balance of payments.
The point has been made that in a recession of this magnitude for the balance of payments still to be in deficit is extremely worrying. If we get out of the recession via a consumer-led boom, as my noble friend Lord Barnett pointed out, it will not be long before we go back into recession because we cannot sustain that kind of deficit despite a world of free capital movement and so on. The Government must find a way of moving us out of recession led by investment if that is possible. I am not one for throwing indiscriminate tax concessions at industry, but simply to let consumption boom away again will not help us.
Unemployment has been considerable during the 1980s. Once it looks like falling, it begins to grow again. Along with everyone else, I was extremely sorry to hear the Chancellor of the Exchequer blunder. I believe that he just made a blunder because I cannot believe that he actually meant it when he said that the increase in unemployment is a price worth paying for dealing with inflation. I believe that was an error. It would be a double error in so far as he said it, and that it was his own predecessor who created inflation in the first place.
My worry concerning unemployment is not the present increase, but what is happening in the long term. We seem to have moved into a set of economic circumstances where essentially the economy seems to overheat once unemployment gets much below 2 million. That problem requires very considerable sorting out. It is clearly but not wholly connected with training and other related factors. I have some political things to say, but I am not going to get too involved in politics on the history of training.
There is no doubt that we must make certain that our labour force is as highly trained as industry requires. In that connection, I take the view that, especially as regards young people, there should be no access whatever to jobs without training. I know that the CBI is rather scared that one might legislate to achieve that. To allow our young people to go into essentially dead-end jobs with no mandatory training is a betrayal of them and therefore a betrayal of the future of our country. We must do something about that.
I throw out en passant— and in the hope that we shall debate the matter on another occasion—that there is a connection here between our view on the training of young people and on minimum wages. We would not allow a minimum wage policy just to be left to the free market where predictions are made that 227 that would lead to unemployment. A minimum wage policy coupled with a major training policy will not lead to unemployment but to a rise in employment.
I have written in my notes "What is the Government's economic policy?" So far as I can see it contains these factors: it involves deflation to get rid of their own created inflation. I believe that it involves keeping us in the exchange rate mechanism. I hope very much that that is so. Though we got into it rather late, a; I have pointed out before to your Lordships, I would rather have gone in at a slightly lower exchange rate with a narrow band. Nonetheless, I am convinced that we must stick to the arrangement we have. I believe that it is a non-party point (I hope it is on my side) that it would be catastrophic if we devalue sterling. To let people know that we would be willing to devalue sterling would undermine everything we have clone. I say that even though, paradoxically, I have pointed out that in my opinion we went in at slightly too high a rate. We must not devalue.
It is my worry that, apart from the policies I have just mentioned, the Government have been engaging in a policy of "do nothing-ism". I cannot see what the Government's policies are for the longer term. Often we are told: "We shall leave it to the market because it is nothing to do with us". I do not call that a policy.
Some reference has been made to the infrastructure. I totally agree with what has been said. What impressed me is that the Bank for International Settlements, which is not known as being a particularly socialist or a moderately progressive body, said categorically in its latest report which was issued a few weeks ago that, as regards our own country, the lack of public investment in the infrastructure would actually hold us back. That is an interesting proposition coming from that body. The point has already been made and I am simply underlining it. It is said that there is a link between private sector productivity and investment in core infrastructure including, as that body states, airports, water, sewerage and energy works.
I do not accept at all that we are late in learning. I have been saying for as long as I have been an economist—which is a very long time—that we have to take the private sector seriously and encourage it. Therefore I ask noble Lords opposite to take equally seriously in this area the need for the public sector to be sup ported for it to prosper.
I must warn one or two noble Lords that my concluding remarks contain a slight political element. I apologise immediately to the noble Viscount, Lord Caldecote, the noble Lord, Lord Aldington, and the noble Baroness, Lady Seear. I wish to summarise what we are saying with the following statement:The recession has once again emphasised the fundamental weakness of the British economy, that we do not produce sufficient goods of the kind we ourselves—never mind foreigners—wish to buy. It is some time since the Tories realised the folly of the view taken by some influential Right-wing economists in the earlier Thatcher years—that it was unimportant whether or not this country possessed a strong manufacturing basis".That statement was not made by a friendly critic—the noble Lord, Lord Aldington, for example—and it was not made by an unfriendly critic; namely, me. It was 228 in the main leading article of the Daily Telegraph last Saturday—so that all sinners repent. That seems to me to be the central lesson to learn.
My conclusion is going to be very political. The Government have had a fair run for their money and they have done some good things. If I had time, I would tell the House what they were. Overall, however, their economic policies have failed. As my noble friend Lord Williams of Elvel said, it is time for them to go, at least for a while—preferably a long while—to think things through again. We are ready to take over. It is a pity that it looks as if we shall have to wait a year or so for that. It looks as if our inheritance may well be nigh catastrophic. But we are used to clearing up the mess left by the party opposite. We know what to do and we shall do it.
§ 7.21 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)
My Lords, this House has a long tradition of distinguished debates on the prospects for manufacturing industry. This afternoon's debate has been fully within that tradition, only more so. I entirely agree with my noble friend Lord Pennock that we have been extraordinarily fortunate in having had five maiden speakers this afternoon, not only in their number but in their quality. All were speeches of enormous value and interest. I find it a privilege to listen to the distilled experience of a distinguished career. To have that experience five times in one afternoon has made this debate a rare and wonderful occasion in the annals of the House.
The noble Lords, Lord Williams and Lord Peston, and other noble Lords, have made their case eloquently and forcefully. They may be surprised to know that I agree with some of the points that they have made. To those noble Lords, such as my noble friend Lord Caldecote, who have called for a declaration from the Government of their belief in the importance of our manufacturing industry, let me give that right at the start.
I agree that a prosperous manufacturing sector is central to this country's economic performance and prosperity. My right honourable friend the Secretary of State has said on many recent occasions that he simply cannot imagine a healthy British economy without a vigorous manufacturing sector. I also agree that the Government have an important role to play in promoting the health of manufacturing industry. However, what I cannot agree is that the Government have neglected manufacturing industry, or are indifferent to its current difficulties. Nor can I agree that manufacturing would be strengthened by the type of interventionist policies advocated by noble Lords opposite, and whose relevance I suggest has already been discredited by history.
Noble Lords opposite have suggested that manufacturing is in a parlous state. In this, they are, if I may say so, engaging in what my right honourable friend the Secretary of State has called our two great national failings: focusing on bad news, and taking a short-term view. That was a theme taken up by several noble Lords and was given particular emphasis by my 229 noble friend Lord Laing. It is of course true that times are exceedingly difficult for many firms, and not just in manufacturing. But the priority has to be getting inflation down. There is no painless way of reducing inflation. Until we do so we cannot tackle other problems nor see the opportunities which will then be open to us.
Recession is not confined to the United Kingdom. The United States, Canada, Sweden, Switzerland and Finland are also in recession, and there have been marked slowdowns in France, Italy and Spain. The cause is the same everywhere. Very rapid growth in the industrialised world during the 1980s led to the re-emergence of inflationary pressures. Firm policies were needed to stop inflation taking hold again.
High interest rates impose additional costs on business. But the cost to industry if inflation was allowed to become entrenched would be infinitely greater in terms of lost competitiveness, lost jobs and lost investment. Inflation is the enemy of the long-term planning which several noble Lords, including my noble friend Lord Laing and the noble Lord, Lord Gregson, have pointed out as being vital for industrial success. That is why business is fully behind our commitment to lower inflation.
Our policy is working. Inflation has fallen rapidly from the peak of nearly 11 per cent. reached last Autumn to under 6 per cent. now, and is set to fall to 4 per cent. by the end of the year. Lower inflation has meant that we have been able to reduce base rates by 31 percentage points since last October while keeping sterling within its ERM bands.
The difficulties facing manufacturing are therefore short term in nature. Experience shows that recessions, although always painful, are always temporary. The current recession is no exception. Growth is set to resume in the second half of the year as consumers' expenditure responds to lower inflation and interest rates, and as exports are helped by a recovery in the world economy. The recovery in the United Kingdom will gather pace next year. Outside forecasters agree that manufacturing output should grow by 2.5 per cent. between this year and next.
The noble Lord, Lord Peston, quite properly raised the issue of unemployment. Of course we regret the current levels of unemployment. Two and a quarter million is too high; but unemployment lags activity. The extent of any further rise would in part depend on the behaviour of wage bargainers. The quickest way to lose jobs is for firms to allow jobs to be priced out of existence by conceding wage increases ahead of what the market can bear. It is particularly important for firms to have in mind now that ERM membership rules out the option of us devaluing our currency and so bailing out firms who fail to control costs and wages. The noble Lord, Lord Peston, touched on that point. The noble Lord, Lord Barnett, in a speech made in his usual, if I may say so, amusing and impish manner, nevertheless made a serious and non-partisan point about the inflationary impact of devaluing the exchange rate.
I should also like to remind noble Lords that the number of jobs in the United Kingdom has increased 230 since 1983 by 3 million—a larger increase than in any other European Community country. Despite what the noble Lord, Lord Peston, said, I remain extremely sceptical that the Labour Party's proposed plan for a minimum wage will not very substantially add to unemployment.
Noble Lords opposite and some other noble Lords have suggested that the Government, and specifically the Department of Trade and Industry, have not done enough to help manufacturing industry, and that the Government lack an industrial policy. I take issue with those noble Lords.
It is certainly true that the Government's industrial policy is not an interventionist one. The Government do not believe in selecting strategic industries, or in building chosen firms into national champions who then stifle domestic competition, or in channelling investment into certain activities by exhortation, subsidy, tax privileges, protection and intervention. Nor, would I add, does business. The CBI's Business Agenda for the 1990s explicitly rejected any return to the corporate state. The agenda states:It will certainly be important that the United Kingdom does not retrace the steps that have been taken to advantage over the past decade".It goes on to say,CBI members prefer reductions in the rate of corporation tax to the reintroduction of special allowances for particular types of investment".I agree with my noble friend Lord Wade, that we have been fortunate in having in the past few years been provided with proof of the absolute failure of policies of state intervention in their purest form by what has been revealed to have happened in the countries of Eastern Europe. There the state has been able to direct whatever proportion of GDP it wanted into investment—and it has been a far higher proportion than in the West—and to select whatever strategic industries it wished for special emphasis and treatment and the result has been what? It has been national bankruptcy. Any significant step down that road is a step towards the same result.
The Government's industrial policy is to create a framework of open competitive markets. A framework which rewards enterprise and wealth creation. A framework which gives individuals the freedom to develop skills. A framework which gives managers the freedom to run their businesses according to their own commercial judgment. My noble friend Lord Clitheroe put it very well: the purpose is to construct the concert hall, not conduct the orchestra.
Competition underlies all our policies. It harnesses self interest to the public good. Competition is not always comfortable. Many individual producers would probably prefer less, rather than more, competition. But experience shows that industry is weakened, not strengthened, when it is shielded from competition. The success of Japanese, German and American companies in overseas markets demonstrates that vigorous competition creates internationally competitive firms and industries.
Private ownership and competition are different sides of the same coin. That is one reason why we have privatised nearly two-thirds of the nationalised sector, 231 transferring 44 businesses to the private sector. The result has been increased efficiency and better service to the consumer.
Competition also underlies our trade policy. That is why we have taken a leading role in promoting the single European market and pursuing a successful outcome to the Uruguay Round. We in the United Kingdom export nearly one quarter of all the goods and services we produce and our exports per head are actually higher than those of Japan. So clearly it is a paramount national interest to maintain a free and open world trading system. I agree with my noble friend Lord Griffiths that the Government must fight to secure a level playing field in Europe.
We have cut tax rates to restore incentives. Britain now has the lowest rate of corporation tax among the major industrial countries and the structure of corporation tax rates for small companies is the most favourable both in the Community and in the G7 countries. The total tax burden on business in the United Kingdom is lower than in most of our major competitors including France, Germany and Japan.
The Government's deregulation initiative, by dramatically cutting the burden of compliance with government control, has freed business to concentrate on the task of creating wealth and jobs. That is why we have scrapped pay controls, price controls, exchange controls, credit controls, and countless other controls. It is why we have abolished the closed shop, and simplified export licensing, company law and accounting requirements for small companies.
We have reformed trade union law so that union members could take back control from militant leader. The result has been a transformation in the industrial climate: 1990 saw the fewest stoppages due to industrial disputes since 1935.
Nothing demonstrates more clearly the improvement in the business environment than the degree to which inward investment has been generated in recent years, bringing new jobs, new products, new manufacturing and management techniques. In 1988 and 1989 Britain attracted almost 40 per cent. of all OECD inward investment flows in the EC, nearly three times more than France and six times more than Germany. Over the same period the United Kingdom accounted for more than 60 per cent. of all US investment, and more than 40 per cent, of Japanese investment, in the EC. Recent Japanese figures suggest that Japan's inward investment to the UK rose by 30 per cent. in 1990. There can be little doubt that none of this would have happened had we not introduced the changes that I have described.
The result of our policies has been that, in the words of the CBI,there was a remarkable transformation in the critical manufacturing sector in particular".My noble friend Lord Griffiths was right when he said that by the end of the 1980s the decline of manufacturing had halted. Let us look first of all at productivity. During much of the post-war period the United Kingdom languished at the bottom of the international league table for productivity growth. In the 1970s manufacturing productivity grew on average by only 1.6 per cent. a year, compared with 3.2 232 per cent. in our major competitors. In the 1980s productivity grew by 4.7 per cent. a year, faster than in any of the major industrial countries, including Japan.
The volume of our manufactured exports rose by nearly 60 per cent. over the decade. While countries like France, Germany, the USA and Japan have been losing market share to the newly-industrialised countries over the past 10 years, British manufacturers have actually held their share of world markets, halting 30 years of decline. That is the answer to the charge of the noble Lord, Lord Williams, that we are losing out in world markets. My noble friends Lady Denton and Lord Haslam demonstrated in their maiden speeches how this transformation of our manufacturing performance can be illustrated by the enormous changes that have taken place in the car industry and in the coal industry, both of which present a wholly different face to the world from the one they presented a decade ago.
Some noble Lords, including the noble Lord, Lord Barnett, strongly lamented the fact that output had not risen more strongly during the 1980s. But during the 1980s manufacturing output rose by nearly one quarter. That is substantially faster than in Germany, and in line with France and Italy. Other industries and other companies have done outstandingly well. The noble Lord, Lord Williams, asked: where is the British camera? But what about the British aerospace engine. Rolls-Royce has 20 per cent. of the world market—up from 5 per cent. 10 years ago. There are other examples. We have world class companies, a point acknowledged by the noble Lord, Lord Varley. I did not recognise the description given by the noble Lord, Lord Williams.
I turn now to investment. It is correct to suggest that the immediate outlook is for investment to fall in the short term behind that of some of our competitors. But it is normal for different countries to be at different stages in the economic cycle, apart from the fact that Germany of course is today in a special situation. It is also the case that in previous years we have been surpassing those countries in investment. I make that point to, among others, the noble Lord, Lord Ezra. For example, taking the decade as a whole, business investment grew faster in the United Kingdom than in any other G7 country with the sole exception of Japan. Between 1980 and 1988, manufacturing investments grew at the same rate as in Germany and faster than in France.
While on the subject of investment, I remind the House that in the 1984 Budget corporation tax was cut from 52 per cent. to 35 per cent., and 100 per cent. first year depreciation was abolished. In other words, a very significant step was taken to transfer from government to managers more of the decision-taking over what types of investments should be made by industry. Following those very important changes and despite all kinds of dire prediction, business investment has grown by two-thirds. Therefore, I cannot go along with the claim of the noble Lord, Lord Gregson, that the abolition of capital allowances was Alice in Wonderland economics.
233 Some noble Lords have expressed concern about the declining share of manufacturing in total output or have argued that we have now too small a manufacturing base for it to be viable. Indeed, the noble Lord, Lord Williams, said that anyone who does not agree with him must be intellectually blind. I must be intellectually blind for I do not share that view. The share of manufacturing in total output has been falling over time in all the major industrial countries. The manufacturing share of the United Kingdom GDP in 1988 was 21 per cent. having declined from 32 per cent. in 1980. In France, it was 21 per cent. having declined from 29 per cent.; in the United States, it was 19 per cent. having declined from 28 per cent. In Canada it was 17 per cent. Those are OECD figures. In Japan and Germany there were comparable declines but from a higher initial level. In the United Kingdom the share of manufacturing in output has also been affected by North Sea oil which currently boosts the energy component of GDP by 4 per cent. I reject the idea that there has been any decline in the manufacturing share of the economy which is unhealthy or abnormal by international standards.
I should like now to turn to regional policy. The Government are fully committed to an effective regional policy. The most important influence on our regional economies is the state of the national economy. That is why we are determined to get inflation down, and to keep it down. But we also plan to spend directly more than £500 million between 1991–92 and 1993–94 in England alone. We have tried to ensure that such expenditure on regional policy is cost-effective, is targeted and is flexibly applied to meet identified problems by the scrapping of automatic regional grants and by the continuing evaluation and improvement of our schemes.
We have also recognised that the regional problem has many dimensions and requires a range of measures beyond those normally associated with regional policy. We want to attract new investment—including foreign investment—which introduces new skills and methods to regional economies. We want to help business development of small and medium-sized firms in the regions through the Consultancy Initiative, and we have given special help to small firms in development areas through regional enterprise grants. Studies have shown that our policies have created jobs, often on a substantial scale, and helped to strengthen local economies.
Our policies have been successful in creating new jobs in the regions. For example, in the North East during the 1980s our policies created about 70,000 jobs in manufacturing and a further 100,000 in the service sector. In the North West, over 250,000 jobs have been created in manufacturing and in services since 1983. They have been particularly successful in dealing with the restructuring problem caused by major closures. That is why we announced on 13th June an exceptional package of measures to help Barrow and part of West Cumbria.
I turn now to training which was the subject of the latter part of the attractive and brilliantly delivered 234 contribution of the noble Lord, Lord Desai. He said that we must drench the country in education and training. I agree with him. Training, of course, plays a vital role in helping manufacturing industry to compete effectively. The recent White Papers on education and training have reinforced our commitment to raise the skill level of the workforce. But our view remains that training is primarily a matter for employers. It is they who know the skills they require and who reap the benefits from good training policies. The Government's role is to establish the framework which gives employers the freedom to train and develop their workforce in the way that they want to, not in a way that Ministers or civil servants may dictate.
The Government spend nearly £2.75 billion per year on training enterprise and vocational education. The success of our policies can be seen in the 85 per cent. increase over the past six years in the number of employees receiving training from their employers. Employers currently spend around £20 billion a year on employee development and training. The CBI industrial trends survey shows that more than 75 per cent. of manufacturing firms plan to maintain or increase their level of investment in training despite the recession. The training and enterprise councils allow employers to take the lead on training. When TECs were launched it was thought that it would take four years to complete the full network of 82 TECs. In fact, they will all be operational this summer, two years ahead of schedule. That is further demonstration of the welcome and growing commitment of employers to training. I do not understand those who decry our record in that respect.
Innovation, the subject of the Select Committee's report referred to by many noble Lords and in particular the noble Lord, Lord Shackleton, has always been the prime source of economic growth and our success in the 1990s will depend increasingly on the willingness of firms to invest in effective R&D. I can tell the House that the Government will shortly be publishing a considered response to this important report and I shall not attempt to give a reply today. However, I wish to make one or two remarks.
In our view it is for industry, not government, to identify the most appropriate areas for R&D. It is not research in which the UK is weak, but effective development. We believe that needs to be carried out by commercially motivated firms in response to market opportunities, competition being the first condition for private investment in R&D, profitability being the second. We have endeavoured to supply both these conditions, and apparently with some success. Industry's own funded investment in R&D has increased by over 50 per cent. in real terms since 1981.
But we cannot rely on the market alone. That is why DTI schemes have been designed to encourage collaborative research projects in the UK and internationally, to assist the transfer of technology, and to help smaller firms. We are also seeking to create a pro-innovation culture in the UK by making Britain's business, educational and financial sectors more aware of the importance of innovation. That was 235 very much a theme of the Select Committee's report. That was taken up by my noble friend Lord Butterworth. The number of science parks has risen from two, when the Government came to office, to 39 now, with a further 22 planned.
The noble Lord, Lord Mason of Barnsley, asked me about additionality which he linked to the Barnsley business and innovation centre. I have an answer but I should like to write to him on that because it is a technical matter.
I do not believe that I need to remind the House what life was like for industry in this country towards the end of the 1970s and how depressing, unpromising and different from today it was. However, it is those days to which noble Lords opposite wish to return with a wave of what my noble friend Lord Aldington described as the "socialist wand". Their policies of subsidy and subvention set out to pick winners in industry by replacing the workings of the market and the decisions of managers with the judgment of politicians and civil servants, but they end up by distorting the judgment of industry and creating a paradise for accountants. Their unregenerate taste for excessive government expenditure, which even the noble Lord, Lord Barnett, was able to describe from experience, cannot be squared with the commitment required to control inflation.
I have a different view of the future. It is quite plain that British manufacturing will be presented with a great challenge by Europe after 1992 and by the containing dynamism of the Far Eastern economies. I am confident that industry, continuing to operate in a framework which gives it maximum possible freedom to make its own decisions in the light of its own commercial judgment and not have them second guessed by Whitehall, and a framework which encourages enterprise and initiative will be incomparably better placed to meet the challenges and opportunities of the 1990s than it has ever been. In addressing that task, industry will not fail the nation.
§ Lord Williams of Elvel
My Lords, I am grateful to those five maiden speakers who made such distinguished contributions to the debate. I am also glad to see that the last three minutes of the debate have been graced by the presence of the noble Lord, Lord Denham. The fact that he is sitting on the Bishop; Benches should not be construed as a new career for the former Government Chief Whip.
This is not the time to respond to any of the arguments put forward. I agree with the noble Lord, Lord Aldington, that there has been some electioneering. However, not all the electioneering came from the Opposition; a certain amount came from the Minister. It only remains for me to beg leave to withdraw the Motion for Papers.
§ Motion for Papers, by leave, withdrawn.