HL Deb 01 July 1996 vol 573 cc1210-2

2.46 p.m.

Lord Ezra asked Her Majesty's Government:

What they are doing to stimulate activity in the manufacturing sector which, on the latest figures from the Office of National Statistics, continues to fall below the level of last year.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)

My Lords, we are providing a stable economic environment based on the best inflation performance for nearly 50 years, historically low interest rates, competition and free trade. Manufacturing output has risen by over 8 per cent. since the beginning of the recovery and is at a higher level than last year.

Lord Ezra

My Lords, I thank the Minister for that comprehensive Answer. Is he aware that the statistics for this year so far compared with last year show that although demand for manufactured goods has risen by 4 per cent., the increased production of manufactured goods has risen by only 0.8 per cent. and the import of such goods has risen by 12.7 per cent.? Therefore, is it not a fact that there are two economies in Britain today: the economy about which the Government like to talk—namely, the increase in consumer spending, the rise in house prices and other factors which are likely to lead to the feel-good factor—and the economy about which the Government speak much less; namely, the relative decline in manufacturing, the decline in exports and the increase in imports? Is it not about time that the Government paid more attention to the second economy?

Lord Fraser of Carmyllie

My Lords, I accept that the officially published figures show that the last quarter of last year and the first quarter of this year are not as satisfactory as we would like. However, over the past two years, which seems a more reasonable period to take, manufacturing investment has risen by some 12.5 per cent., including a rise of 14 per cent. in plant and machinery. Possibly more important than looking backwards is to look forwards. My understanding is that all major forecasters expect output to pick up in the second half of this year and to continue to rise next year. On that basis, I think there is good cause to anticipate that manufacturing industry will improve.

Lord Bruce of Donington

My Lords, going back not two years but to 1979, which is the period in office of Her Majesty's Government, does the Minister agree that manufacturing output has increased only marginally in total in that time? Is the Minister aware that the main trouble is import penetration into the United Kingdom of manufactured goods, largely from the European Community, with which we are in deficit—and very substantial deficit at that—coupled with government policies which have resulted in the decimation of large parts of British industry?

Lord Fraser of Carmyllie

My Lords, what I will accept is that manufacturing productivity has grown faster in the United Kingdom than in any other G7 country since 1980. I am also aware that because Germany is our biggest market in the European Union and its economy is relatively static, it has been difficult to increase exports to that country. However, I am sure that the noble Lord and I can agree on at least one matter. As the United Kingdom is the only G7 country where non-wage manufacturing costs form a lower proportion of total labour costs than they did in 1980, it would be extremely undesirable to do anything within the European Union that added to those costs.

Lord Peston

My Lords, the Minister is entirely right in all that he says about causation. Nominal interest rates are lower although real interest rates are not; sterling has been devalued; wage costs are lower; and productivity has risen towards that of our competitors. What puzzles noble Lords is that, given all of those allegedly good circumstances, our manufacturing performance in aggregate is not very good. One can always take two years, one of which looks better than the other. However, anyone looking at the path of manufacturing over the past 10 years or so—especially that part owned by British citizens—cannot possibly be pleased with it. I believe that the whole point of the Question put by the noble Lord, Lord Ezra, is whether the Government are missing something. Is there anything more to be done? I agree with the noble Lord that it is a puzzle. But no one can regard the outcome as currently satisfactory.

Lord Fraser of Carmyllie

My Lords, I accept that in recent quarters some slightly puzzling details have emerged. For example, manufacturing employment has appeared to be going up at a time when output is going down. That has rather levelled out, but productivity has significantly improved. I believe that what I set out in my original Answer is the correct approach to a stable economic environment. I do not believe that we should be unnecessarily pessimistic. I understand that today the Chartered Institute of Purchasing and Supply Managers—whose figures are well respected—has indicated that last month output and new orders grew faster than they have done for over a year. Coupled with that, the CBI anticipates that output will rise over the next four months. That is the reason for my optimism.

Lord Harding of Petherton

My Lords, does my noble and learned friend agree that services have become much more important throughout the western industrial world and that the worry voiced in these exchanges is irrelevant? I believe that most economists would agree with what I say.

Lord Fraser of Carmyllie

My Lords, I do not accept that we should ignore manufacturing. I wish to see it continue to grow and improve as much as possible. But my noble friend is right. One would give a completely distorted picture of the British economy if one did not take into account the dramatic improvement in the supply of services in the United Kingdom. That has done a great deal to improve the performance of our economy. Indeed, the growth of our service sector is probably better than that of any other G7 country.