Manufacturing Industry (Hansard, 3 July 2001)

Lord Campbell of Croy
asked Her Majesty's Government:
What action they think necessary to reverse the contraction in output of the manufacturing sector of industry.

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, the recent weakening in manufacturing output reflects the world economic slowdown and follows a previous period of growth. The platform of economic stability that the Government have established, together with our policies to foster enterprise and to help firms to innovate and grow, are the best way to secure the long-term success of the UK's manufacturing sector.

Lord Campbell of Croy
My Lords, I thank the noble Lord for that Answer. Have the Government been worried by the falling index of the Chartered Institute of Purchasing and Supply—a reliable guide—which has been recording this contraction? Will they seek to alleviate the difficulties by, for example, reducing further the burden that is imposed on energy-intensive firms through the climate change levy?

§ Lord Sainsbury of Turville
My Lords, the current pattern of manufacturing is not confined to the UK. The US has experienced seven consecutive months of decline in manufacturing output and there are signs in France and Germany of stagnation. It will be very difficult for our manufacturing industry to be totally removed from that. We also need to be clear about what the exact position is. Although we are possibly dealing with a worsening situation, and although manufacturing output fell by 1.1 per cent in the three months to April, the figure was up by 0.6 per cent compared with the previous year. It is not totally an unfortunate situation. We are worried whenever there is a decline in manufacturing output and we are trying to create all the conditions to make it possible for companies to grow and innovate.
The climate change levy is a key element in our national climate change programme. I am sure that the noble Lord is aware that the industry's competitiveness is protected through the recycling of all revenues to business via reduced employer national 774 insurance contributions and the 80 per cent discount for energy-intensive sectors that sign up to or deliver energy savings targets. Although there may be specific cases in which there are difficulties, overall the climate change levy is neutral so far as industry is concerned.

§ Lord Barnett
My Lords, given the huge international problems in manufacturing industry, does the Minister accept that it would be more sensible to concede that there is virtually nothing that the UK Government can do on their own to reverse the contraction in the UK's manufacturing sector?

§ Lord Sainsbury of Turville
My Lords, in relation to manufacturing world-wide, the figures for all developed countries have declined during the past 10 years from about 30 per cent of GDP to 20 per cent. There are good reasons for that, and I am sure that all noble Lords are well aware of them. However, questions are raised when output increases, as it has done in this country, and there is a decline in the employment of labour because productivity has been increasing. There are sections of industry that are continuing to expand and to do extremely well. In the period 1995–2000, the engineering and allied industries increased their output by some 15 per cent. As in many other parts of industry, the high-tech end is doing well but the low-tech part, which is in competition with low-wage countries, is in difficulty. We need to create an environment in which all companies can innovate and deal with competition.

§ Baroness Byford
My Lords, does the Minister acknowledge that the climate change levy is indeed causing difficulty for some of our industries, particularly the horticultural industry? In view of the earlier response by the noble Lord, Lord Whitty, about the profitability of our farmers, does the Minister also accept that if we insist on creating extra costs and burdens, the question is not whether farmers will be profitable but whether they will continue to exist?

§ Lord Sainsbury of Turville
My Lords, I made it clear earlier that all the money that is raised through the climate change levy is recycled to industry. Overall, therefore, the levy does not affect competitiveness.

§ Lord Razzall
My Lords, does the Minister agree that in reality the Government have three options in this context? The first option—I suspect that after this afternoon's Question Time we should call it "Lord Peston's option"—is to do nothing on the grounds that the decline in manufacturing industry is nothing to do with Her Majesty's Government. The second option is to take the view that one might do something to try to encourage growth in the US and European economies, and thereby take up the slack in the UK's manufacturing output. The third option is to manufacture the exchange rate down, particularly against the European currencies. If the Minister agrees that those are the three options, which one will the Government follow? If he thinks that there is another option, what is it, and what will he do about it?

§ Lord Sainsbury of Turville
My Lords, the Government are trying to create the right conditions for manufacturing industry to innovate and grow. They will do all that they can in terms of macroeconomic stability and the encouragement and application of science and technology. They will not return to the policies of boom and bust or pretend that they can determine the level of manufacturing in the economy. They cannot and will not do that in these circumstances. They will continue to do all that they can to create the conditions, in terms of macroeconomic stability, in which industry can grow and innovate. Of the noble Lord's three options, it is the second, rather than the third or the first, that is relevant.