HL Deb 20 July 2000 vol 615 cc1263-78

9.50 p.m.

Lord Ezra asked Her Majesty's Government:

What is their strategy for manufacturing industry.

The noble Lord said: My Lords, I regret that this Unstarred Question had to be postponed because of the lateness of the hour on 18th July. It was proposed to me that we should have the debate today on the ground that we would be able to start much earlier. We are getting not quite as close but closer than I thought we would be to the hour on the previous occasion. I am therefore particularly grateful to noble Lords who will be taking part in the debate. We are not as numerous as we were on the previous occasion, but we have noble Lords speaking for the main parties and I am sure that with their expertise we shall very effectively cover the ground.

I have initiated debates on manufacturing many times since joining this House in 1983. I am afraid that on each occasion I noted a further fall in manufacturing capacity. This occasion is no exception. In total, manufacturing output has fallen steadily during the past half century. In 1950 it provided about 37 per cent of GDP; now it is less than 20 per cent and the trend is still downward. Up until the early 1980s, we achieved a surplus in our overseas trade in goods; since then it has been in deficit—and that deficit reached its highest level in 1999 at £29 billion. The deficit has unfortunately continued to rise into this year. The question to be asked therefore is whether this massive move away from making goods and depending increasingly on imports should be allowed to continue unchecked.

It is timely to be asking this question because of the recent publication of three trend surveys—from the CBI, from the British Chambers of Commerce and from the Engineering Employers Federation. Regrettably, they all report adversely on current prospects.

The CBI, in its June monthly trend survey, states: manufacturers expect output to fall over the next four months, confirming May's negative expectation". The BCC, in its report published on 13th July, states: manufacturing activity slowed last quarter to its lowest level for a year, with export sales and orders contracting". The EEF, in its second quarter 2000 business trend survey, states: the pressures facing the engineering sector have increased and are resulting in deteriorating trading conditions". These are the worst estimated prospects since 1997.

In addition to the three trend surveys, two important studies have been issued on possible future policies. The first is a study by the TUC entitled Britain can make it—A Strategy for Modern Manufacturing; and the second is a study undertaken by Oxford Economic Forecasting on behalf of a group of organisations representing traded sectors; this is entitled Rebalancing the Economy. I shall draw on these two important documents during the remainder of my remarks.

The TUC document draws attention on page 6 to the long-standing weaknesses in the manufacturing sector. Compared to our competitors we have fallen seriously behind in investment. In 1995 the capital stock per worker in UK manufacturing was 50 per cent lower than in the US and France and 40 per cent lower than in Germany. The gap in productivity is similar—60 per cent lower than in the US, 40 per cent lower than in France, 20 per cent lower than in Germany.

A similar trend is also true in R&D, innovation and skills. Between 1985 and 1996, manufacturing R&D spending grew by an annual average of 2 per cent in the UK compared to 16 per cent in France and 17 per cent in Germany. We have been much more dependent on older products than our competitors and have a less skilled workforce.

These are the longer term deficiencies which need to be put right. They have been exacerbated by the high level of the currency, which has created a further obstacle for manufacturing.

Of course, all is not doom and gloom. There have been many successful individual enterprises and a number of successful sectors. Chemicals and pharmaceuticals have grown most strongly, while textiles and metals have suffered most. There has been a regional impact in that diversity of trend. Textiles and metals have most seriously affected the northern parts of the country, whereas the more technologically advanced products have tended to be concentrated in the south.

If the weaknesses identified by the TUC are to be effectively dealt with, the main effort must come from within industry itself. However, government have a major role to play in setting the broad framework and in stimulating the necessary responses. In my opinion, the Government can fairly claim that they have created a broad positive economic framework, with sustained growth over a long period, lower unemployment, stable prices and strong public finances.

The question is, what more should government do to restore and revive manufacturing industry? Let us look first at the currency. The overvalued exchange rate means that, in the words of the TUC report, even highly productive sectors are struggling either to sell goods at all or to sell them at a sustainable profit margin". Can the Government intervene to put this right? In my opinion, the priority of monetary policy must be to maintain price stability. In the medium term the trend for the euro—against which we appear to be over-valued—is likely to be upward, with strong growth, low inflation and falling unemployment developing in the euro zone. The most that can be expected of government is to try to speed that trend up. That might be achieved by a firmer statement of the intention to join the euro.

Let us turn next to investment. For years the British economy has suffered from an excess of consumption and a deficiency of investment. That trend is still noticeable at the present time. With the economic framework in good shape this should be the right moment to seek to rebalance the economy as the study by Oxford Economic Forecasting proposes. It makes two specific recommendations. The first is that much more of the Government's expenditure in the public sector should go into capital projects rather than into current consumption; and that will need to be checked against the spending review which was announced on 18th July and on which the Minister will, I am sure, comment. Secondly, so far as concerns the private sector, the study proposes the introduction of 100 per cent first year allowances for investment in plant and machinery. I do not expect that the Minister will be able to tell us that he can accept that. That is more a matter for the Chancellor in the next Budget. But let us hope that he takes it seriously into consideration.

In relation to productivity and innovation, the other major weaknesses referred to by the TUC, the Government published an important report entitled UK Competitiveness Indicators 1999 last December which lists the problems which British manufacturing faces compared with its main competitors. That confirms that we lag behind in productivity, R&D, innovation and spin-offs from universities. It is at least satisfactory that the problems have been identified. What must now be done is for much closer cooperation between government and manufacturing to overcome them.

So what are the conclusions to be put to the Minister for his comment? The first is that, in spite of its fall over recent years, manufacturing still remains an important part of the economy, providing 4 million out of the total of 24 million jobs in Britain today. It also provides 62 per cent of our exports. It is therefore clearly worth stabilising and developing. Secondly, that can be done only by a frank recognition of the problems it faces. As I have shown, government and leading organisations have now done this. What is now required is a rebalancing towards more investment and a determined joint effort to improve productivity and innovation. Thirdly, the currency problem could be helped with a firmer statement by the Government in relation to the euro.

I look forward to the contribution of other noble Lords and to the Minister's response.

10 p.m.

Lord Brookman

My Lords, I welcome the initiative of the noble Lord, Lord Ezra, in bringing manufacturing to the fore in this Chamber. It is a shame that, because of the lateness of the hour, so many noble Lords are not present to participate. We have had a long day on the Football (Disorder) Bill. I see the importance of that but I also see the great importance of manufacturing to our country.

I start by declaring an interest, as the former general secretary of a trade union—the Iron and Steel Trades Confederation—whose membership is widening, but it is still largely concentrated in the steel industry. It is now a community-based union. Noble Lords will know that there has been much unwelcome news about the industry in recent weeks. I believe that there will be more unwelcome news in the not too distant future. That unwelcome news has illustrated the difficulties which the steel industry is experiencing. I take the example of steel not only because it is the industry I know best but also because its experience points to features of the economic climate which are not friendly to manufacturing in Britain as a whole.

The first point I would make is a little contrary to the thrust of the comments of the noble Lord, Lord Ezra. The steel industry is a strategic industry crucial to manufacturing. It is a fact that working people in that industry deliver more added value than their counterparts in other manufacturing industries—£61,300 per head in 1998. That is about 20 per cent more than the car industry and twice the added value won from making computers in Britain.

Secondly, the noble Lord, Lord Ezra, referred to the government report UK Competitiveness Indicators 1999. Productivity per employee in the steel industry is outstandingly high. The annual rate of productivity improvement over the past 20 years has been between 9.5 and 10 per cent on average. That represents nearly three times the national average for manufacturing. I suggest that that is quite remarkable.

Thirdly, I agree with the noble Lord, Lord Ezra, that steel has made a significant and much-needed contribution to British exports, which have increased from just over one-third of all deliveries in 1990 to nearly one-half last year. That has been achieved despite the immense difficulties that have stemmed from the gross overvaluation of sterling in terms of the euro.

The steel industry workforce is stable, highly skilled and experienced. I am also pleased to say, as an ex-general secretary, that it is relatively well paid. However, the rate of pay increases has been pegged well below the average increase in earnings over the past two years. Corus—many noble Lords will know the new name for the former British Steel plc—reduced its labour costs by 6 per cent during the first six months of its operations. Noble Lords will see that the story of steel is one of outstanding progress. It should herald a bright future.

However, as we know, the reality is very different with the recent announcement of nearly 2,500 jobs lost in Corus alone. I also touched on the fact that further cuts will be on their way in the next few weeks or months. That will reduce employment by that company alone by more than 10 per cent. That is not good news for those who share the belief that manufacturing is vital to the future prosperity of our people.

I am and I remain a very strong supporter of the Government, as is my union, of which I was once the leader. That is why my union, the TUC and I all stress to the Government the fact that manufacturing industry in the United Kingdom is facing a major crisis. If noble Lords believe, as I do, that, manufacturing plays a pivotal role in the economy and reject the views of those who often state that manufacturing no longer matters because we live in a service economy, then noble Lords will join me in saying that those people are wrong; indeed, they are very wrong.

Like the noble Lord, Lord Ezra, I strongly recommend that the Government should take action on the recommendations proposed by the TUC in its recent publication, Britain can make it—A Strategy for Modern Manufacturing, a well-prepared set of recommendations which the Government would be foolish to ignore. Perhaps I may pay a small tribute to my successor, Michael Leahy, and say that many of those proposals have been submitted by him directly to the Chancellor, Gordon Brown. I understand that he has received quite a positive response.

Michael Leahy is striving to overcome the difficulties faced both by the union and by the industry in a pragmatic way. He knows that without urgent government action the cost-cutting measures now being imposed by the steel industry in the United Kingdom betray a vulnerability to short-term market fluctuations and expectations which do not offer a sound basis for strategic planning. In my view, they create widening disparities in income, health and educational opportunities between those who live in communities dependent on steel and elsewhere. It creates problems for areas such as South Yorkshire, Teesside, the Midlands and, of course, South Wales, which is extremely dependent on the steel industry and manufacturing as a whole. The Government and noble Lords know that there are problems in those areas. Serious problems will be exacerbated if action is not taken to assist.

Finally, I would ask my noble friend the Minister to take the necessary and, I believe, important steps to ensure that British workers have the same rights to be involved, informed and heard as their European counterparts. As more mergers and globalisation take place, the current situation in the United Kingdom is unsatisfactory, and unsustainable. Action is needed.

I mentioned earlier those working in the steel industry. I refer to what was British Steel plc and is now Corus, a company that has come together by the joining of a Dutch company and our own British Steel. The job losses our people face are handled differently in Holland. When job reductions are announced, my colleagues would probably be advised 24 hours or, at best 48 hours, before the press are advised. In Holland, Germany and France, because of the systems of co-determination which operate, people would be made aware and, indeed, have an input into possibly avoiding the mass job reductions that occur.

Perhaps I may say to the Minister that that situation is unsustainable. British steelworkers, manufacturing workers and all British workers should be treated in a way which is common to our European counterparts so that there is a level playing field.

10.11 p.m.

Lord Greaves

My Lords, it is a privilege to take part in a debate initiated by my noble friend Lord Ezra, who is far more distinguished in this field than many of us will ever be. Even at this time of night I support what he said and, indeed, most of what was said by the noble Lord, Lord Brookman.

My noble friend said that there had been a regional impact in the diversity of trend in manufacturing in this country. I should like to give a slightly different perspective from the area in which I live in east Lancashire. It is very much a manufacturing area and has suffered from the decline of manufacturing over most of the past century. I refer to the industrial areas and towns which form the core of such districts; that is, Blackburn, Burnley, Rossendale, Hyndburn (which people may know better as Accrington) and my own district of Pendle.

According to 1995 figures, 37 per cent of the workforce is employed in the manufacturing industry compared to the national average of around 18 per cent. My own district of Pendle comes second in the table of districts ranked by the number of people employed in the manufacturing industry, second only to Barrow-in-Furness.

We are a sub-region with a deep-seated industrial culture and a strong sense that making things matters. We have a larger manufacturing workforce than any other sub-region of comparable size in the United Kingdom—over ½ million people. This is the historic heartland of cotton weaving. As late as the 1950s, towns such as Nelson and Colne had well over half their workforce employed in cotton weaving.

The region suffered from the structural decline of the manufacturing base for most of the past century, with a fairly brief period during and after the last war when there was a false boom. There has been a steady decline in weaving since the early 1920s. Perhaps I may give the example of the town in which I live, Colne in east Lancashire. In 1918 the population of Colne was 28,500. It has remained steady at around 18,500 for the past 20 or 30 years. That is the extent to which the manufacturing core and the workforce have been eroded.

But in the past 30 or 40 years there has been an heroic transition. The weaving industry hardly exists. Twenty or 30 years ago it was replaced by other types of manufacturing such as textile—prelated industries—furniture; wall-furnishings; bandages and other surgical items, some of which are probably too rude to mention in this House; car interiors. Much of the industry has been engineering but old-fashioned, heavy engineering. The real success of the region is that much of the new industry has been aerospace. There are a few large companies, such as Rolls-Royce, with important factories in the region, and many small and medium-sized companies providing supplies and support for the larger companies.

On the face of it, the area has a highly diversified manufacturing base but it has very few new, wealth-creating industries. As my noble friend said, this debate illustrates the north-south divide or the divide between the older and newer industrial areas. We have electrical companies, but they produce electrical equipment; by and large, they are not in the new fields of electronics.

The area has an annual growth, value-added, of some 20 per cent below the national average. The tragedy now is that the population of many of the core towns in the district is declining again. Between 1991 and 1995, three of the districts, Burnley, Hyndburn and Pendle, all lost population. But that hides the fact that most of the areas have a rural fringe with some attractive small towns where the population has increased. The core towns, such as Nelson and Accrington, are seeing a loss of population; they are declining towns. They are not yet dying towns, but if the trend continues, that is what will happen.

Yet despite the fact that this is a typical example of an old manufacturing area with more of a manufacturing base than most places nowadays in this country, investment per head in manufacturing in the sub-region is only two-thirds of the national average investment per head in manufacturing. That is a significant statistic; it indicates the basic problem.

There has been a large number of job losses, and they have tended to take place in larger firms. In my own town of Colne, the largest corporation closed its factory and moved its production to the Midlands, with the loss of 550 jobs. In nearby Nelson, a further several hundred jobs went when Coloroll closed a wallpaper factory there. These were staggering blows.

There has been a great deal of self-help over the years, as there is now. The local authorities are working together, both at district and county level. The East Lancashire Partnership is a model of how local authorities and others can work together in this way. Bodies such as Pendle Partnerships are put forward by government Ministers, civil servants and others as some of the best in the field. The consortium of Lancashire Aerospace, which is based in many ways in Pendle, does heroic work in promoting the aerospace industry in the area.

But the outside help which the sub-region is receiving has been declining. There is less now than there was five or 10 years ago. Assistance from the Government in regional grant aid and European Union grant aid is being cut back, it seems, almost by the year. Yet the region does not appear on lists of areas with particularly high unemployment. If we look at unemployment even within Lancashire, districts such as Lancaster and Blackpool will show higher unemployment than we do.

How is this? Ordinary hourly rates of pay are 14 per cent below the UK average. We have a low rate of business start-ups and survival. We also have a turbulent and casualised workforce. The casualisation of the workforce is half as high again as the national average. The answer may be the resilience of the people who live in this area of east Lancashire; or it may be a depressing one: the fact is that when people in such an area do not have jobs they move away to find them. If the noble Lord, Lord Tebbit, was here he might be pleased to hear it, although nowadays people do not go on their bikes. We suffer from a decline in population which has an hourglass shape. The population comprises a lot of old people and young people but those of working age move away to find jobs elsewhere.

Today this area has a number of towns in decline because of the erosion of the manufacturing base. Those towns are in decline despite the efforts of 30 or 40 years ago to replace cotton weaving with a lot of other industry. The new industry which replaced the old is now suffering to a considerable extent, although not the catastrophic decline suffered by cotton weaving. The social and economic implications of allowing a large sub-region of ½ million people effectively to die are not ones that the Government or your Lordships should contemplate. This is not an unusual situation. There are many other parts of the north of England, Scotland and South Wales where this picture is a familiar one.

More positive government action is required. The greatest help that can be provided is regeneration of the national manufacturing base and belief in it as a crucial part of the economy, about which my noble friend spoke.

10.22 p.m.

Baroness Seccombe

My Lords, I begin by offering apologies for the absence of my noble friend Lady Miller of Hendon. Her grand-daughter had an accident involving a pony this afternoon. I am sure that your Lordships join me in sending best wishes to my noble friend and wish the little girl a speedy recovery.

I join other noble Lords in thanking the noble Lord, Lord Ezra, for initiating this debate. My noble friend shares his disappointment that the re-scheduling of this debate has resulted in fewer contributions. We are aware that the noble Lord has on many occasions brought these important matters to the attention of the House. In his speech the noble Lord quoted many authoritative sources which indicate yet a further fall in manufacturing capacity.

Unlike many of your Lordships who have run businesses, in the Government there is a dearth of those who sometimes have had the harrowing experience of trying to find the money to cover the weekly wage bill. When Labour came into office in May 1997 it inherited what we Conservatives rightly and proudly proclaimed as a golden economy. We left the country with reformed trade unions. We introduced the concept of discipline in modern employment relations that has earned the trade unions greater respect at the negotiating table. We also created an enterprise economy in which non-labour costs were among the lowest in Europe.

The United Kingdom attracted one-third of the European Union's inward investment which by itself created 850,000 real jobs. In 1995 the chairman of Philips described Britain as, the most competitive country in Europe today". In October 1995 the chairman of BMW described Britain as, the most attractive economy in Europe for producing cars". That would be a laugh if it was not so tragic. Three years of a Labour government and BMW could not wait to dump Rover with the loss of thousands of jobs and billions of pounds.

Since 1997 Britain has dropped from fourth to eighth in the world's competitiveness league. Why? We believe that it is because of the burden of regulations, red tape and crippling taxes that the Government have imposed on industry. The Employment Relations Act is to restore some of the unions' lost powers, although the regulations just published will be very difficult for small businesses to interpret. Increased fuel costs and vehicle taxes make every movement of goods by road less economic than our competition. The climate change tax affects companies which are already efficient in the use of fuel. The British plastics industry calculates that it will cost £60 million a year; and B&Q, Nissan and British Aerospace will have their energy bills increased by 10 per cent to 16 per cent.

Then there is the part-time workers directive which the Government have mercilessly gold-plated, as they so often do with other EC legislation, and the burden the Government have imposed on commercial employment agencies, hindering them in their business of getting more people into work rather than helping them. Then there is maternity leave, paternity leave and domestic crisis leave. Do not think that the Government have finished with us yet. There is the workplace parking tax. There is the lunacy of the IR35 tax dreamed up by the Inland Revenue because it conceived the idea that it should treat computer programmers like itinerant bricklayers. The result is that a government who proclaim their belief in the new technologies will be driving programmers abroad to work.

Then there is the massive act of confiscation, and the retrospective windfall tax of £5.2 billion. That was supposed to be used for job creation. So far the Government have spent about £611 million. What has happened to the remaining £4.6 billion? It is squirrelled away in the Chancellor's war chest ready to produce the mother of all bribes just before the next election. We heard more about that and the rest of the Comprehensive Spending Review only this Tuesday.

The Government claim that New Deal has put 170,000 people in work but when the figures are analysed we find that 25 per cent had jobs which lasted less than 13 weeks. The Select Committee of another place calculates that 60 per cent of the remainder would have found permanent unsubsidised jobs on their own. Among their claimed successes, the Government even include those who are going through the scheme a second time. The Chancellor has now said that New Deal will be extended to cover other unemployed groups.

As the noble Lord, Lord Ezra, commented, the textile industry has been badly affected. Between May 1997 and December 1999, 82,000 jobs were lost in the textile and footwear industry. That is 600 jobs every week, all in little pockets, unnoticed except by those who found themselves out of work. And while that was going on, the Ministry of Defence ordered millions of pounds of protective clothing from Germany putting 100 jobs at risk in Cumbernauld. A total of 120,000 camouflage sets were ordered from Belgium, and boots ordered from Brazil caused the immediate loss of 65 jobs in Wales. That is because of the bizarre accounting which is conducted by the Treasury. It is happy to save a few pounds in one ledger, and never mind the extra cost in unemployment pay and loss of revenue in another. Is that supposed to be an example of joined-up government?

I have no doubt that we shall hear about the 1 million jobs the Government claim have been created since they took power. But only two weeks ago they were talking about 700,000 jobs. Miraculously the figure jumped to 1 million just in time for the Annual Report. Governments do not create jobs. They create the right environment for the creation of jobs. However, they have the power to destroy jobs by foolish economic and politically correct policies.

Any new jobs that have been created since 1997 have been due to the confidence felt by commerce as a result of the economic legacy of the last government. What are those jobs? Some, I am glad to say, are in finance and IT, but most are in the service trades, not industry. This country cannot prosper by our selling each other hamburgers or filling supermarket shelves.

Under the last Conservative government manufacturing jobs grew by 70,000 but since May 1997 over 200,000 jobs have been lost in manufacturing industry; that is, 10 per hour. Five per cent of manufacturing jobs in the Midlands were lost last year. As the noble Lord, Lord Brookman, said, Corus—formerly British Steel—has announced 2,600 job losses in the past few weeks with another 1,400 to come, according to last Tuesday's newspaper.

Some hypocritical European governments who have complained about illegalities on Britain's part, even up until today, blatantly provide subsidies for their own industries, Italy, Belgium, France and Germany being foremost among them. On the contrary, here in the UK, in 1996 and 1997 government support to the regions was £12.5 million. Under the present Government that support has been cut by about two-thirds to £4.1 million. In his spending review on Tuesday, the Chancellor did announce some further help for the regions. We shall have to see what happens, but we need to ask why, if he had the money in his war chest, it was not spent earlier rather than letting further damage occur. The sum of £4.1 million is just a drop in the £5.2 billion ocean that the Government have snatched from business by their windfall tax that was supposed to help and finance employment. No doubt, the Minister, in his reply, will regale us with a lot of predictions, fine slogans, claims of the Government's alleged successes and, above all, statistics.

My question is: what have the Government done for manufacturing industries since coming to power? Answering myself, I can say not a lot and, on balance, a minus quantity.

10.31 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury)

My Lords, this Government recognise the importance of manufacturing industry and the challenge it faces in the global economy.

I should like to start by thanking the noble Lord, Lord Ezra, for introducing this debate. Manufacture is vital to our ability to compete in the future and a vital part of our wealth creation process. It accounts for about one-fifth of our GDP and employs about 4 million people directly with many service sector jobs depending upon it. It makes a major contribution to productivity, innovation and trade performance. We, as a Government, believe strongly in the importance to the economy of all manufacturing.

I share the enthusiasm of the noble Lord, Lord Ezra, for the manufacturing industry, but I think for different reasons. We have in this country many excellent manufacturing companies and many opportunities for them to exploit, through the use of technology, innovation and creativity. I believe that they can make a major contribution in the future to wealth creation and new jobs. However, I do not support the manufacturing industry because I believe it has to represent a particular percentage of GDP or because we have to have a trade surplus in manufacturing goods; I do not know of any economic argument which would support such views. Nor do I share the enthusiasm of the noble Lord, Lord Ezra, for distorting the spending plans of the Government in order to help manufacturing companies specifically. That, I believe, is a solution of the past.

Of course the Government fully acknowledge Britain's legacy of under-investment and have taken major steps to address it. Public investment is set to double to 1.75 per cent of GDP by 2003–04. Also, in the March 2000 Budget the Chancellor announced that the temporary 40 per cent first-year capital allowance for SMEs would be made permanent. This will give cash-flow help to small companies investing in plant and machinery and will cost the Exchequer around £200 million in 2001–02 and £300 million in 2002–03. It is not at all clear that increasing first year allowances to 100 per cent, which would be a significant medium cost to the Exchequer, would generate more investment for small and medium-sized companies.

As regards currency, it is not correct to say that we have an overvalued pound. When one looks at the pound against the yen and the dollar, one cannot claim that it is overvalued. The issue is overvaluation against the euro, a situation which is not justified by the underlying economic circumstances.

The financial markets have a clear view of the Government's policy and intentions. Trying to talk the pound up or down makes little difference unless there is a clear change of policy or intentions. However, I agree with the noble Lord, Lord Ezra, about the need for a determined joint effort to improve productivity and innovation. I shall say more about that in a moment.

We have heard about the problems of the manufacturing sector. While I recognise the pressure on some sectors of manufacturing, we have many excellent manufacturing companies. In industries such as aerospace, pharmaceuticals, electronics and telecoms we have world-class companies. In high technology sectors, such as electronics, we are Europe's second and the world's sixth largest. We also have the largest semi-conductor design industry in Europe.

Not all is doom and gloom for UK manufacturing. The UK is Europe's largest producer of PCs, televisions and mobile telephones. Information technology and electronic communications industries contribute some 7 per cent of UK GDP amounting to added value of around £50 billion, an output of well over £100 billion and are directly responsible for almost 1 million jobs and enjoy an average growth rate of 10 per cent.

Our electronic component industry has grown at a rate of 23 per cent a year and accounts for 35 per cent of European production. In aerospace, the UK has the second largest industry in the western world, with export sales of nearly £12 billion in 1998. BAE Systems is currently tripling its annual production of wings for Airbus, reflecting record orders for Airbus last year, worth 39 billion dollars. Rolls-Royce has just won a 1.4 billion dollar order to power the next generation of Gulfstream aircraft.

Furthermore, we must be careful about the figures that the noble Lord quoted in relation to surveys of business confidence. They have not always proved to be a robust indicator of latest movements and output. While trends in these often track official data closely, in the short term they can be as much an indicator of business sentiment as likely actual business activity.

As regards output, not only is it forecast to be sustained but the Government forecast growth of 1.75 to 2.25 per cent this year and next, while the average of independent forecasts indicates growth of 1.4 per cent in 2000. Manufacturing output was 1.8 per cent higher in the three months to May than in the same period last year and 0.3 per cent higher than in the previous three months. Productivity is rising and was up by more than 4 per cent in the past year.

There is good news on exports as well. In the most recent three-month period, export volumes have been extremely robust, growing by almost 12 per cent year on year in world markets and by 10 per cent in European markets which have been most affected by exchange rate movements.

Some pessimistically point to the decline in manufacturing share of output and employment, but we must constantly bear in mind that our experience matches that of most industrialised countries. Typically, in the seven major industrial economies manufacturing output has fallen from about 30 per cent of GDP in 1960 to about 20 per cent in the 1990s. According to the OECD, between 1987 and 1997 the percentage of people employed in manufacturing in the UK fell from 23 to 18.6 per cent. Over the same period, manufacturing employment in Germany fell from 32 to 24 per cent.

That underlying decline is the result of a number of factors. It is the result of rising living standards, with people spending a higher proportion of their increasing incomes on service; it is the result of increasing competition from newly industrialising countries which have very low wages and can therefore produce more basic manufactured goods cheaper than elsewhere; and it is the inevitable result of improvements in productivity and a consequence of automation and new technology.

Today our manufacturers face a major challenge. They now operate in a truly international market-place where there are competitive pressures from low-wage, developing countries. Changing consumer demands means more money spent on services and on higher quality products. Industry needs to respond to those challenges and prepare for the challenges ahead. We can compete through innovation, by being enterprising and by using the skills of our workforce. However, we cannot compete on low labour costs, capital and raw materials alone. In the global market-place it is too easy to go elsewhere for those.

Manufacturers in this country will succeed by using their knowledge to add value to products. Businesses that look continuously to improve and innovate can compete globally. As a result, and as manufacturers exploit new technologies and processes, we shall see a change in the quality of jobs being created in the manufacturing sector. That is the direction of manufacturing in this country. It does not mean that we shall lose our traditional industries. Investments by Peugeot, Audi and Vauxhall demonstrate that there are strengths in industries such as vehicle manufacture.

What are the Government doing to help? The Government recognise that they have a role in creating a climate which encourages investment and innovation. We have delivered record low levels of long-term interest rates and short-term rates at levels which are half those reached in the early 1990s. We have delivered stable and low inflation. We have delivered cuts in corporation tax, permanent 40 per cent capital allowances for smaller firms, the new R&D tax credit and 100 per cent allowances for introducing new technology. We are promoting innovation. In the UK the share of manufacturing output accounted for by innovative products is below the average across the European Union. We need to do better: we need not only innovative products but innovative processes, marketing and management as well.

We have boosted investment in the science base by £1 billion and increased DTI's innovation budget by 20 per cent. Earlier this month the Chancellor and my right honourable friend the Secretary of State for Trade and Industry announced a £1 billion investment in buildings, laboratories and equipment for scientific research. The new two-year Science Research Investment Fund partnership between government and the Wellcome Trust will mean that scientists in the UK will have the facilities to be at the cutting edge of research world-wide. The spending review settlement announced earlier this week by my right honourable friend the Chancellor provides a substantial boost in investment in UK science.

This will boost 21st century research in areas such as taking forward our understanding of the functions of the newly decoded genetic blueprint, the next generation of e-science and other basic technologies. It will enhance knowledge transfer by providing funding to deepen university links with business. It will help to commercialise research and train the next generation of science entrepreneurs.

The spending review also provides funding in full over the spending review period for the £530 million launch investment in the Airbus A3XX, bringing major benefits to the manufacturing base, particularly in the South West and in Wales.

Through the Manufacturing 2020 Foresight project we are also working with industry to identify the key challenges for the success of UK manufacturing and the action that we should take now to secure it. Looking to the future in this way will lead to better products, processes and business practices, enabling companies to raise their competitiveness and improve the quality of life.

We are helping companies to turn research into new products and services for British industry as part of the Faraday partnerships initiative, which enables firms to access high-quality research and the expertise of industrial research organisations. I recently announced the Government's support for four new Faraday partnerships, which will cover aerospace and automotive materials, plastics, industrial mathematics and system engineering technical textiles. Those are key manufacturing areas.

The noble Lord, Lord Brookman, made an excellent speech. He was right to talk about the extraordinary performance of the steel industry, particularly the increasingly impressive performance of Corus in pushing up productivity. It is a great success story and I believe that the steel industry will benefit from our long-term investment in the public sector. None of the other solutions that are often suggested—including subsidies or weakening the pound, which would lead to increased inflation—would do much to help the steel industry.

The noble Lord also referred to consultation with employee representatives. The Government fully support the principle of information and consultation. It is obviously important to ensure effective consultation when an industry is in difficulty. Employers are already required to inform and consult employees' representatives in good time before collective redundancies. Those provisions were revised and improved last year and we are satisfied that they implement the collective redundancies directive. We have no current plans for further amendment.

The noble Lord, Lord Greaves, described very well the problems faced in his area. Our task in such areas is to encourage the upgrading of the present industries and the growth of new ones. That is one of the key tasks of the new regional development agencies. The announcement in the recent spending review of an annual £50 million to the RDAs' innovation funds is a significant step in the Government's thinking. Regional venture funds and the changes to regional selective assistance to make it more attractive for high-tech businesses to come into such areas are other ways of helping to upgrade regional industries. That is the way we have to go. The old policies of trying to move jobs between regions have not worked. We have to give resources to regions to help them to upgrade.

I was surprised that the noble Baroness, Lady Seccombe, used this occasion to talk about the Labour Party not having people who had worked in industry. I have spent all my life in industry, including being the chairman of a small textile company with about 200 workers, and I have worked closely with even smaller businesses. I am well aware of the difficulties of such businesses.

Many of the other points that the noble Baroness made were also surprising. I shall give the facts on the previous administration's record of support for manufacturing industries. Between 1979 and 1997, manufacturing employment fell by more than 2.5 million jobs. More than 1 million manufacturing jobs were lost in the 1980s recession. In 1980, more than 200,000 manufacturing jobs were lost in just one quarter. In the early 1990s, almost 1 million manufacturing jobs were lost, including 70,000 in the motor car industry. I could give many more facts that all point to the same thing. As the noble Baroness rightly said, governments cannot create jobs, but they can certainly destroy them. That is the record of the previous government.

The noble Baroness's other points covered a strange collection of issues, including IR35 and the windfall tax on banks, which has very little to do with the performance of manufacturing industry, regardless of whether one thinks that it is right.

These are issues which you can talk about but they are not the problems which manufacturing industry is facing today. Nor indeed do I think that it is really possible to claim that there has been a very significant change in the amount of regulation. We have taken a number of steps which clearly focus on trying to reduce the regulatory burden on small businesses and the new small business initiatives will ensure that the interests of small firms are properly considered and provide practical help.

According to the OECD's Economic Outlook, published last December, the UK has less regulation than other OECD countries. I am the first to say that manufacturing industry in particular areas is today facing real problems; but they are problems caused by the exchange rate and particularly the low value of the euro. They are not caused by many of the other things which are very specific issues and which do not relate to this.

We understand as a government the challenges which manufacturing industry faces but we cannot wish those challenges away. The global economy implies a shift in the location of simple manufacturing production, usually relatively unskilled labour, from mature to developing economies. Our future prosperity depends on our ability to compete on quality and know-how rather than on cost alone. I share the view of the noble Lord, Lord Ezra, that the only way we can tackle these problems is by a determined partnership approach to increasing new products and productivity. This can only be done by government and manufacturing working in partnership. We are increasing our efforts to improve the UK skill base, promoting closer links between education and industry, and we are providing a supportive framework for technological advance.

We are continuing to play our part in fostering strong partnership supply-chain clusters and other business networks. We will continue to pursue policies which will ensure economic stability and low inflation, allowing industry to invest and plan ahead with confidence. I understand and sympathise with those manufacturing sectors where the weakness of the euro is a real problem, a weakness not justified by any serious analysis of the economic fundamentals.

However, it would be wrong, and counter-productive, to adopt the short-term measures proposed by some. That would be to repeat past mistakes. Instead, the role of government is to provide an environment and focused support which will help industry to upgrade, improve its products, increase its productivity and innovate faster that its competitors. In this way industry can achieve the value added to ensure success in the global economy.

Baroness Seccombe

My Lords, before the noble Lord sits down, may I ask him whether he agrees, even after all he has said, that the substantial burdens of regulation and directives on small businesses may impede their growth into large world-beating businesses such as he has referred to? By "small" I mean up to 20 employees, not 200.

Lord Sainsbury of Turville

My Lords, of course regulation is a major issue but, as I think the noble Baroness's colleague, Mrs Angela Browning, acknowledged, the previous government had not made a success of reducing regulation. I do not think that we have done all the things that we might have done but we are determined to do more, because it does impinge on small businesses. It is a great problem for them, but of course there are many cases today of highly successful small businesses which have become the real success stories of our economy. Psion, ARM and Bookman were all small businesses which in the last two or three years have grown into world-beating giants. That is where we should focus our attention; that is where the opportunities are in a manufacturing country.

House adjourned at six minutes before eleven o'clock.