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John Stevenson (Carlisle) (Con)
It is a pleasure to serve under your chairmanship, Dr McCrea. I hope this will be a worthwhile and interesting debate.
Today we could discuss Government support for small and medium-sized enterprises across all sectors: services, construction and, of course, manufacturing. Indeed, all sectors and industries will have many similar issues and problems—lending, taxation and employment law, to name but a few. There are certain issues, however, on which there are significant differences between the sectors. Indeed, even within sectors there may be different needs, requirements and problems that warrant different solutions. The reality is that it would be easy to have a debate on each sector, and probably many debates within each sector.
Today, however, I will concentrate on the manufacturing sector, the matters that apply to that sector and what the Government can do to support manufacturing, to enable the sector to grow and to ensure that it makes a larger contribution both to local economies across the country and to the national economy. I will address the help that the Government can give to all manufacturing businesses, including larger businesses that seek to develop new products or deal with EU regulation.
Sir Tony Cunningham (Workington) (Lab)
I obviously welcome Government support, which is very important, but companies can often help each other. Will the hon. Gentleman say a little about the supply chain, which is so vital to many small and medium-sized enterprises, particularly in Cumbria?
John Stevenson
I completely agree. Companies can help each other, particularly within the supply chain, but today’s debate is primarily about the Government’s role in helping to support businesses, both large and small.
The Government can help smaller enterprises that are seeking to expand and start-ups that need very basic advice on how to get going, and they must recognise that businesses of all sizes have their own individual roles to play. The Government have stated that they want to rebalance the economy—a laudable aim that is clearly supported across the House. Arguably, the Government want to go further and see growth in the country within an economy that is far more structurally balanced between the various sectors and which has a larger manufacturing sector, in particular.
Not only the economy but the country needs to be rebalanced. The country needs to move away from an over-reliance on a dominant financial services sector that is so overwhelmingly run from and centred on London. London has been, and is, a huge success, but there is a danger that it adversely affects the rest of the country. London dominates politics, the media, finance and business. It is almost overpowering, which can cause policy makers to forget or overlook the many other important contributors to our future prosperity.
Mr Andrew Smith (Oxford East) (Lab)
I congratulate the hon. Gentleman on securing this enormously important debate, which is of concern to us all. Does he agree that, as part of the culture shift that he rightly says is necessary, more needs to be done in schools and colleges and through the curriculum to encourage able young people—sometimes those of a more practical, rather than academic, bent—to have high self-esteem, to set their targets high and to realise that there are good jobs out there for people who make things?
John Stevenson
I do not disagree. The improvement in the view of apprenticeships is helping enormously, because people now view apprenticeships as a serious career choice, rather than people always going off to university.
We need to move to a more balanced economy so that we become a balanced country in which manufacturing has a central role. In my own county of Cumbria and constituency of Carlisle, we still have a very strong manufacturing base. There is defence, power, engineering and food, and in Carlisle itself 20% of the local economy is still based on manufacturing.
In my constituency, we have large players such as Pirelli, Nestlé and McVitie’s, and there are also smaller players that are significant locally such as Carr’s Milling Industries, Clark Door and Mallinson Fabrications. For both local and national reasons, I am delighted that the role of manufacturing is back on the Government’s agenda. A huge amount of credit must be given to the Government and to Parliament for achieving that change.
We all acknowledge that there has been a steep decline in manufacturing over many years, which has created a number of problems. Obviously, there is the balance of payments issue, because we are simply not paying our way in the world. The decline has also created a skills problem. Many skills have gone overseas, with some potentially lost for ever. We have an ageing work force in some sectors, with the food and drink sector being an obvious example of where many thousands of people need to be recruited over the next few years just to stand still.
The decline in manufacturing has created a problem for the long-term success of our economy. Thankfully, there is growing recognition that we, as a nation, need to produce goods, as well as to provide services. Growth in our economy can only be helped by the expansion of industrial production—the rise of the makers once more. Such a revival would immediately help to correct our trade imbalance, and more tax would be paid, so the Government could start to balance their books.
Jeremy Lefroy (Stafford) (Con)
Does my hon. Friend recognise that, with an increase in manufacturing, we would also see a positive knock-on effect for services? Manufacturing and services cannot be split from each other; one gives rise to benefits for the other.
John Stevenson
Yes, I agree. Ultimately, we want to see all sectors of the economy grow, and they are all interlinked. Clearly, if manufacturing improves, the services side will also benefit. The reverse does not always work in quite the same way; there is a greater benefit for services when manufacturing succeeds.
As for my personal involvement, I have to confess that in my previous life I had little knowledge of or involvement with manufacturing. My constituency has a significant number of employers in the manufacturing sector that make a major contribution to the local, national and international economies. I recognise the importance of those employers, and I want to support them wherever possible. That is why I became heavily involved with the all-party group on food and drink manufacturing, which is well supported across the House and which I now chair, and with the associated all-party group on manufacturing—I am delighted to see leading members of that group here this afternoon. There is much overlap between those all-party groups and others, and it is useful to have such differentiation because it demonstrates that although there are many similarities between manufacturers, there are also many important differences.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)
I also congratulate the hon. Gentleman on securing this debate. He will already have realised that there is much cross-party agreement on the importance of manufacturing. I have seen that importance in the past fortnight, when I visited Burgon & Ball in my constituency. The company has been in business for 280 years, and with the help of the Royal Bank of Scotland and the growth fund I hope it will be here for another 280 years.
Will the hon. Gentleman confirm that part of the difficulty for rebalancing and manufacturing is the continuing culture of our banking system? To be fair, the Department for Business, Innovation and Skills endeavours to do something about the banking system, which focuses on short-term returns from manufacturing and business, rather than on long-term investment. We have turned the original intention of the banking system on its head. That intention, which is still reflected in the German model, is that banks are there to serve manufacturing and service industry development, rather than the other way around.
John Stevenson
The right hon. Gentleman makes a valid point. I assumed that many people would raise the question of lending, so I have specifically avoided it, but it is good that he has raised the issue.
My simple conclusion is that, if our economy is to rebalance and grow, and if our nation is to prosper, manufacturing must be central to that change.
David Rutley (Macclesfield) (Con)
I thank my hon. Friend for securing this debate. Manufacturing is critical to the economy, and he is making a powerful case.
Interestingly, the statistics show that not only is manufacturing vital to our economy but average weekly earnings in manufacturing are £557, which is second behind only finance and business services. Does my hon. Friend agree that that is good not only for the economy but for those who are fortunate enough to work in that important sector?
John Stevenson
My hon. Friend makes a valid point. People sometimes forget that in manufacturing there are many highly paid jobs—it is not a low-wage sector, as many think.
There are already signs that our economy is beginning to recover and that manufacturing is playing its part. In the food and drinks industry, exports are up to more than £12 billion; the manufacture of cars is now at its highest level since the 1970s; we are still a world player in pharmaceuticals; we are a leading nation in aviation; and this Monday there was the announcement of a significant rise in manufacturing activity—all welcome signs. It is easy, however, for parliamentarians and Ministers to get caught up in the larger, more glamorous companies with the sexier products such as cars and planes, rather than with the more mundane products, such as storage doors or food, even though those are equally important and often produced by SMEs.
In reality, SMEs are central to the future success of manufacturing, whether as part of a supply chain or as a stand-alone entity with a local or national market share, whether innovating and expanding alone or as part of the next national or international conglomerate. The purpose of today’s debate is to examine what Government can do to support, encourage and enhance the SME manufacturing sector. Government support, assistance and encouragement are critical to the success of our manufacturing sector. The debate is about a few specific issues whereby a role for Government can help businesses of varying sizes to prosper.
Other Members will have their own ideas, as will Government, lending being the obvious one—it has already been referred to, but I am avoiding lending today, because I am sure that others will touch on it. It is important that we all share ideas, to ensure maximum benefit for the manufacturing sector and the industry. It is a given that Government should create an environment in which all businesses can succeed: a tax regime that is friendly, rewarding and supportive; regulation that is sensible and proportionate and ensures a level playing field for businesses to work and compete on; and the confidence that it is important for Government to give to business, so that they are supportive and consistent, without any big surprises for industry.
I want to touch on four specific key areas; first is the definition of an SME. According to European Union law, the main factors determining company size are the number of employees, the turnover and the size of the balance sheet. Those factors can then be divided: micro-businesses have fewer than 10 employees, turnover of less than €2 million or a balance sheet of €2 million; small businesses have fewer than 50 employees, turnover of €10 million or a €10 million balance sheet; and medium-sized businesses have fewer than 250 employees, turnover of €50 million or a €50 million balance sheet.
There are, however, varying definitions in the UK, with one under the Companies Act 1985 and a different one under the business bank scheme. For the purposes of research and development schemes, Her Majesty’s Revenue and Customs defines SMEs in a different way again. In fact, depending on which definition is used, an SME can have anywhere between 10 and 500 employees or a turnover of between £1.7 million and £86 million.
The real issue is that the actual definition of an SME is not helpful. It would be far better to break the definition down into different sizes and types of businesses with their own reference. A clearer idea of exactly what type of businesses we are discussing is necessary, rather than lumping them all together.
More definitions would be beneficial and help to target support to the right businesses in the right circumstances. For the manufacturing sector, that would demonstrate and recognise the importance of companies and raise their profile, and identify a sector as important in its own right. Any definition needs to acknowledge that larger manufacturing companies often have little in common with smaller ones and they should therefore not necessarily be linked together.
Size and numbers matter: they have an impact on how businesses structure themselves, how they function and what type and level of support they seek. I certainly find it hard to equate a manufacturing company with a turnover of several million pounds and, for example, 200 employees, with a two-man engineering business with a turnover that does not even exceed the VAT threshold. A better group of definitions, certainly in the manufacturing sector, would help to simplify a business’s ability to access the correct support, help and guidance that it may be seeking. That might also help Government to steer a business of a particular size or industry towards the appropriate support.
My second issue is simply what support there is, and whether it reflects the actual needs of manufacturing. What can Government actually do? What is the real support and help that Government can give to the manufacturing sector? Clearly, small businesses have their own particular issues; large businesses that want to expand are likely to have different requirements and problems; and there are individuals who want to start their own small manufacturing businesses.
A significant number of issues therefore need to be addressed for businesses of different sizes and complexity within the manufacturing sector: strategic advice and business plans will vary depending on the size of the business; procurement, too, is different for small and large businesses; there is involvement with UKTI—UK Trade & Investment—for exporters; skills and qualifications depend on the needs of the different sizes of businesses; there is the issue of funding, grants, loans and, as mentioned, banking facilities; there is involvement with trade federations, because larger organisations invariably hold greater sway and influence, or relations with the chamber of commerce; there is legal, accountancy and intellectual property rights advice; there is dealing with relevant regulation, because cars, for example, are very different from the food industry; and, equally important but sometimes forgotten, there is succession planning.
I appreciate that the Government are helping where they can—the manufacturing advisory service is an example—but there needs to be accessibility and relevance to the manufacturer. A common complaint is that the Government do not understand the user, and that their support is inaccessible or inappropriate. I appreciate that the amount of such support will vary considerably.
Larger manufacturers will contact Ministers or officials and have an ongoing dialogue. They are more likely to work through the trade organisations, and many will have the resource to research matters or to take paid advice. To be honest, a small manufacturing business in Carlisle with five employees is unlikely to contact central Government, while a 200-employee company with a £30 million turnover may well do so. Often, however, the smaller businesses have the greater needs, but they find it more difficult to access such help from Government.
I acknowledge that the Department for Business, Innovation and Skills is having some success. The best example is the R and D credit uptake, which has been welcome and demonstrates a successful policy and implementation. My concern, however, is that much of the effort is not as effective as it could be for many businesses. AXA Business Insurance carried out a study in the UK suggesting that many are unaware of the initiatives designed to help them. Darrell Sansom, the managing director of AXA Business Insurance, said:
“The numbers of small businesses in the UK continue to climb rapidly, but it seems that many could be missing opportunities to help their business along the way through a lack of awareness of the support that may be available to them.”
That leads me on to my next two points. Talking about government can be slightly misleading. What do we actually mean? Which aspect of government is the most appropriate? Today, I am clearly ignoring the EU, but we still have central Government as well as local government. There are clear issues with central Government: where to go, who to talk to and what Government should be doing. What advice and level of support should they be giving? That applies equally to local government, which really does matter. In many respects, the local council matters more for small manufacturers and businesses than central Government.
Sir Tony Cunningham
Does the hon. Gentleman agree that local government—local councils in particular—should be proactive with SMEs, rather than reactive? Instead of small businesses coming to the council and saying, “We have a problem or an issue”, councils should be going out and looking for ways in which to support local businesses.
John Stevenson
I completely agree. The hon. Gentleman and I, as fellow Cumbrians, agree that our local council does not do enough to support businesses locally or to take a proactive stance in Cumbria.
Is local government up to the job? What support or direction is it getting from central Government to ensure that it gives support to businesses, especially manufacturing ones? Councils can have a direct link to businesses through their everyday activities—planning, highways, environmental issues, health and safety, and, often, property ownership and rentals. What about other advice and help that local government could give, such as with business plans, legal and accountancy advice, finance, business structure, regulations and changes within an industry, and consumer and employment law? I have already commented on many other matters as well.
My experience of local government is that it is not nearly active enough in support of business. I agree with the point made by the hon. Member for Workington (Sir Tony Cunningham).
Caroline Dinenage (Gosport) (Con)
Does my hon. Friend agree that there is also a role for universities to advise businesses on some of the issues that he raised? In many cases, local enterprise partnerships could be a good way of facilitating that relationship.
John Stevenson
I agree with my hon. Friend. It is sensible for businesses fortunate enough to have a local university to engage with it. It will be interesting to hear the Government’s view of local enterprise partnerships taking on the role of helping small businesses in particular in their localities.
My final point is about the interface between the Government, civil servants and the businesses and the individuals within them. I have spoken to many businesses and the common comment is that the Government can be detached from the business environment. That is particularly true of local government, which does not always have a real grasp of the needs of businesses or the complexity of what they are trying to do. That is where there is a huge gap between the thinking behind strategy plans and the reality of businesses engaging and benefiting from support.
On procurement, are smaller businesses, whether manufacturing or otherwise, getting a real opportunity to win Government contracts at both national and local levels? I am aware of the Government’s 25% target and understand that it has reached around 16%, but there is still some way to go. Inaccessibility or inappropriateness of many policy instruments may affect a business’s ability to engage with the Government. Departments and think-tanks often have good ideas, but what about reality? Schemes may suit different sectors and different-sized businesses, but one size does not fit all.
On complexity, the Government must bear in mind fraud and audit trails, but the complexity of application forms for funding often puts people off from even applying. Those who are more engaged with the Government are often the ones who are always applying for funding, assistance or support, but many businesses do not engage with the Government or are not even aware of what they can offer. Real feedback should include those who have not applied for funding and support, but companies that have not applied should also be contacted to find out why not and what are the obstacles and barriers to that.
I am setting out some of the issues facing SMEs rather than offering solutions. I appreciate that the Government are trying to support the manufacturing sector, but there is room for improvement and it is incumbent on MPs on both sides to give their views and to encourage the Government to be open-minded, willing to take on board suggestions and, when appropriate, to make changes.
Other hon. Members will have additional points and issues to make that are relevant to this debate and I look forward to hearing them. I have touched on four. How worth while is it to have a definition of an SME that covers nearly 99% of all businesses in the UK across all sectors? Clearly, greater refinement and relevance is needed across all sectors, and I shall be interested in hearing the Minister’s comments on that. What support have the Government given to the manufacturing sector, taking account of the varying size and complexity of businesses and the accessibility of that support?
Importantly, is there a strategy for dividing the roles of central Government and local government, and does one know what the other is doing? Is there a clear division between the two? Where should businesses go—to central Government or local government? For small businesses particularly, it may be a big thing to talk to their local councillor, let alone MPs and central Government. When they want to access legal or accountancy advice, should that be at local, regional or even national level? My hon. Friend the Member for Gosport (Caroline Dinenage) referred to the role of local enterprise partnerships and universities. Do the Government want LEPs to take a role in helping small businesses particularly?
My final point is about the interface between users and the Government, and the requirement for feedback and for the Government to realise what the reality is for users on the ground. It is vital that Government initiatives fulfil their goals. Advice, support and assistance for small businesses particularly could help to transform the manufacturing sector. SMEs, however they are defined, are the great growth area for employment. They are the backbone of local economies, and they can be the engine for growth in our economy.
I look forward to hearing other contributions and what the Minister has to say about his views and intentions in supporting the world of manufacturing SMEs.
Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)
It is a pleasure, Dr McCrea, to serve under your chairmanship. I congratulate the hon. Member for Carlisle (John Stevenson) on securing this debate and the cogent and well-reasoned way in which he spoke. There was very little to disagree with. I will keep my comments brief as quite a number of hon. Members want to speak. It is a reflection of the importance of the matter across parties that so many hon. Members want to contribute.
In the past couple of weeks, there has been euphoria about manufacturing. There has been a revival, but we must put that in context because the current level is below what it was in 2010, when it was described as a disaster. There are welcome signs of a significant upturn that might be sustained, but the situation is still not good.
In so far as it is possible to discern what has provoked the sudden surge in confidence and production, it is led partly by an increase in confidence in the housing market, which is rising largely because of the funding for lending scheme, and an improvement in exports. Both are welcome, particularly the increase in domestic construction in the housing industry. However, exports are particularly difficult at the moment with the problems in the eurozone, although there are welcome signs of revival. There is a danger in basing a rise in domestic consumption and confidence on a housing boom that may be temporary and is fragile. Many of the criticisms levelled at the previous Government were that consumption was based on that.
I will not reiterate our debates at that time, but although there is a welcome revival, the long-term sustainability of a manufacturing industry must be based on two things, or three if exports are included. First, a sustained and rising standard of living domestically will underpin demand for manufacturing products in this country. Secondly, an appropriate level of investment in the manufacturing industry in the private sector will ensure that we remain competitive, that value is added to improve exports and our domestic consumption, and that cheap foreign imports are resisted.
The hon. Member for Carlisle rightly outlined investment issues. The funding for lending scheme is generating confidence in the housing market, but the indications are that, like the enterprise finance guarantee scheme and other well-intentioned Government schemes designed to boost bank lending to small business, that is not yet happening. When I talk to banks about that, their reaction is that they want to lend and they have the money but companies will not come forward. When I talk to companies, they say that they do not have the confidence to invest because of the current economic situation.
The recent improvement in confidence may stimulate further demand from small manufacturing businesses, and may make the banks look differently at the risk parameters on which they base their loans and improve bank lending.
Mr Blunkett
I will not detain the Chamber long. Surely one of the difficulties with the enterprise finance guarantee scheme—which, in theory, is an extremely good idea—is that many major banks are asking of small businesses, and particularly of the owners, far more than they can give in personal guarantees, given that the banks can recover not only from the individual owner, but the 75% from the guarantee scheme, if they believe that the business is no longer viable. I think that the term is the “going west route”, whereby the banks end up owning the business. That is bound to put the fear of God into entrepreneurs, no matter how brave and confident they are.
Mr Bailey
My right hon. Friend raises a valuable point. I talked about the risk profile. A huge body of evidence demonstrates that banks are excessive in the security they demand in order to lend to businesses, and that is one of the main barriers to businesses wanting to apply for loans. If there is a criticism of the Government, it is that while the Government have provided cheaper money for banks to lend to businesses, I do not think that has addressed the obstacles that are far more significant in terms of getting the money out where it is needed, into investment in small businesses.
Caroline Dinenage
I apologise for interrupting the hon. Gentleman’s brilliant speech. Does he agree that it is also up to the local community to look at ways in which they can help businesses grow and invest? In my area, the local newspaper, The News, made a regional growth fund bid, which they used as a “bridging the gap” fund for small start-up businesses and those that wanted to grow, as a way of helping them to get access to the finance that they needed. Will the hon. Gentleman join me in welcoming that sort of initiative?
Mr Bailey
I certainly join the hon. Lady in welcoming that. In fact, one of the unintended, beneficial by-products of the problem has been the resourceful and inventive ways that communities and businesses have got together to overcome it. Peer-to-peer lending is an example of that. In my area, we have the Black Country Reinvestment Society, with which my fellow west midlands MPs will be very familiar. However, the scale of the entrepreneurial alternative lending sources still does not match what is needed for our manufacturing base as a whole.
I turn to a specific issue that applies not only to my constituency, but to the whole of the west midlands and the black country—other west midlands MPs may refer to this, too. First, I pay tribute to the Tata brothers for their investment in Jaguar Land Rover, which, I think it is fair to say, has transformed manufacturing prospects in the west midlands in a way that we have not known for 30 years. It is an indication of the value of our relationships with the Indian subcontinent and that growing market and growing access of capital, and of the historic association between the Indian diaspora in this country, and of course, the native India.
Jeremy Lefroy
I entirely agree with the hon. Gentleman. It is also testament to the wonderful co-operation between Wolverhampton city council and Staffordshire county council, which, together, put £40 million forward to build a motorway junction on the M54, without which that project might not have been able to go ahead.
Mr Bailey
I pay tribute to both of them. All the players in the i54 development on the borders of Staffordshire and Wolverhampton deserve credit for the united way in which they have seized the opportunity. For the benefit of non-west midlands MPs here, it is a huge expansion in the engine production capacity of JLR that will result in 1,400 jobs. It has really transformed the supply prospects of foundries in the area. In that context, I would also mention the £45 million that the Tata brothers have invested at Warwick business school’s centre for research and innovation. Collectively, they have transformed the prospects for manufacturing in the west midlands.
My constituency still has the highest number of foundries—I think—of any constituency in the country, but there are plenty in the surrounding areas as well. The prospect offered to them of being part of the supply chain to Jaguar Land Rover is very significant. In the regional growth fund applications, there have been a number of successful bids from JLR and companies locally. However—I mention this to the Minister, because it highlights some of the problems that we have with the support that the Government give industry—I understand from the Cast Metals Federation that the engine blocks for the new Jaguar Land Rover development at the i54 will have to be made in Germany, because there is not, would you believe it, the capacity for foundries to produce them locally.
I also understand that Jaguar Land Rover is happy to look at repatriating some of its supply chains, where it has to source from abroad at the moment, but obviously, that will depend on the capacity of local SMEs to deliver. Despite all the Government sources of support, the regional growth fund and the grants that it has given, a crucial gap still remains in the potential economic benefits that will accrue to the west midlands because of the failure to secure this vital market. Aluminium engine blocks for that development will be crucial.
The Society of Motor Manufacturers and Traders has identified something like £3 billion-worth of potential extra business in the supply chain—if the Government and the industry can get together to maximise that potential. Although I do not condemn any of the attempts that have been made to provide finance for business and for SMEs so far—but certainly with the regional growth fund, there are all sorts of issues relating to length of time and so on—I ask the Minister to look at working with the Automotive Council to develop some sort of package that would enable the existing gaps in provision to be filled. The potential benefits, both for regional policy and for our overall national economic situation, are absolutely enormous.
I have spoken for longer than I intended, partly because I have taken interventions, so I will cease my remarks with that plea to the Minister.
Dr William McCrea (in the Chair)
Six Members from Government parties desire to speak before we have the wind-ups, and there are 32 minutes before those commence. I therefore ask for Members to be considerate to their colleagues in order to allow them to speak, if possible.
Caroline Dinenage (Gosport) (Con)
It is a pleasure to serve under your stewardship, Dr McCrea. I join others in congratulating my hon. Friend the Member for Carlisle (John Stevenson) on securing this important debate and on introducing it in such an insightful and thorough way.
I should probably start by declaring an interest. I have been the owner of a small marketing business since I was 19 years old, which is sadly many more years ago than I would care to admit. I would like to echo my hon. Friend’s comments in welcoming the current resurgence in UK manufacturing. It is great news that after a debt-fuelled boom and bust, our economy is finally starting to rebalance, with manufacturing and exports playing an important role in our recovery.
The latest data show that we have seen the biggest jump in output and new orders for almost two decades. That is great news for Britain, but there is no room for complacency. Speaking as a business owner, I would say that the key things the Government need to facilitate to allow other small businesses to flourish are: a skilled work force, the availability of finance, a solid infrastructure, ease of access to both domestic and international markets, and the reduction in red tape and bureaucracy.
While I support the many steps the Government are taking to boost access to finance, and there has definitely been a marked improvement, many businesses, sadly, still find it difficult to obtain credit. A concern all too often voiced by local business owners in my constituency is that, despite their best efforts to weather the economic storm, and no matter how thriving their order book, the failure to secure meaningful credit and the regular hits to their cash flow that result from late payment leave them on the brink of collapse.
I am still concerned about the regulatory burden on small and medium-sized businesses. The country’s 5 million SMEs provide 60% of jobs and generate more than 50% of GDP, and we must do everything we can to ensure that their chances of growth are not strangled by bureaucracy. I therefore welcome the work the Government have done on cutting red tape; indeed, through the red tape challenge, they have committed to scrapping, improving or simplifying at least 3,000 regulations. The one in, one out rule has saved businesses about £1 billion in regulatory costs, and I am glad it has been stepped up so that it is now one in, two out, although I will resist any pressure to enforce that in my shoe cabinet.
My particular bugbear, and one area where we still need to see progress, is the procurement of Government and other public sector contracts. That is one thing I know about, because, as I say, I have owned a business for more than 20 years. The paperwork involved in trying to get considered for a Government contract can still be overwhelming. The tendering process for private sector contracts is still significantly less complex than for public sector contracts.
Although I warmly welcome the scrapping of many of the pre-qualification questionnaire requirements, as do businesses in Gosport, there is still room for such processes to become even more efficient. John Allan, the chairman of the Federation of Small Businesses, quotes research showing that only about a fifth of SMEs have bid for public sector contracts in the past year, in large part because it simply is not worth the effort and because of the intrusive amount of company information that needs to be supplied. A contract my business recently looked at bidding for required financial details of not only my company, but every company I was thinking of subcontracting to, which is hugely bureaucratic for a small business. There is still more to do on this issue.
Our SMEs are the drivers of prosperity in this country, and we should give them every opportunity to overcome obstacles and to expand. I welcome the Cabinet Office announcement in August that there will be a shake-up in Whitehall procurement and that the Government want to loosen the grip of an oligopoly of large suppliers and let in more SMEs. However, we must do more to cut bureaucracy in the application process. As we move from rescue to recovery, our economic success depends on a vibrant, innovative private sector.
That innovative private sector must have the Government’s backing when it develops new and exciting products. The Government rightly take great pride in our country’s innovation, and they invest heavily in R and D; indeed, globally, we are second only to the US in terms of our scientific knowledge base, but we slip down the chart when it comes to turning that innovation into economic prosperity and jobs. The Government’s enthusiasm for helping to develop new ideas is, sadly, not matched by an enthusiasm for buying the results. Unless we become earlier adopters of innovation, British R and D tax credits will continue to deliver German and American manufacturing jobs and profits, as those countries invest in making the things that originate in Britain.
SMEs are often cited as the lifeblood of our economy. We must match those words with action and eradicate the lethargic culture of bureaucracy, which sometimes clogs the procurement process and holds back British business. We must celebrate all that the Government and business, working together, have done in that regard, and we must ensure that SMEs continue to flourish.
Mr David Ward (Bradford East) (LD)
I will do my best to finish within five minutes or so, Dr McCrea.
Bradford is promoting itself as a producer city, but the truth is that it never ceased to be one. It sits alongside many other northern cities, including places such as Carlisle, and I congratulate the hon. Member for Carlisle (John Stevenson) on calling the debate; indeed, I thank him for doing so, because we cannot have enough debates on this subject, which is crucial not only to local communities, but the national economy.
As I said, Bradford never really stopped being a producer city. It suffered dreadfully in the 1980s recession, which almost decimated the city. Bradford did not always focus on textiles; it was, of course, the wool capital of the world, and it was a fabulously wealthy place. However, its manufacturing and engineering were devastated in the 1980s.
None the less, Bradford is still a producer city. Although we still lost 15,000, or 40%, of our manufacturing jobs during the 60-odd consecutive quarters of growth from 1998 to 2008—the golden years, in many ways—Bradford still exists, and it is a cruel rumour that Bradford is no longer a producer city. Some 1,200 manufacturing SMEs still provide employment for 15,000 people in the Bradford district.
With others, I recently set up the all-party group on textile manufacturing, because it is important to tell people that manufacturing, and particularly textile manufacturing in places such as Bradford, still exist, and spinning, weaving and scouring continue on a massive scale. There are no longer 2,000 people coming out of Salt’s mill or Lister’s mill, but many small businesses, particularly in the manufacturing and engineering industries, continue to thrive.
I wanted to speak in the debate because of two contrasting stories picked up in this week’s Yorkshire Post. The first concerns manufacturing. There is a really good story to tell across the whole Yorkshire region. The purchasing managers index for the latest quarter is 57.2, which is a staggeringly good figure. The previous figure—55—was thought to be really good. Fifty is what separates growth from decline; at 50-plus, however, we are talking about exceptional performance, so this is a really good story.
The paper carried out a survey, which tells us that employment has increased for the fourth month running, while output has risen at the fastest pace since July 1994. In addition, the paper included a Barclays survey showing not only that there is growth in output and employment, but that businesses have a real intention to invest for the future, with 54% planning to increase investment over the next 12 months. Some 63% plan to invest in new machinery, 62% plan to invest in new product development and 42% plan to invest in furniture, fixtures and fittings, and buildings. That is all really good news.
What, though, are the contrasting stories? On the same day, the Yorkshire Post included an article headed, “Optimism dims in the small business sector”. According to the article, a survey of 500 UK firms showed that most small businesses
“were still having problems accessing finance despite the introduction of lending schemes.”
A further article in the same paper, on the same day, was headed, “Funding plan still failing to help SMEs”. It says that although the Bank of England lent £1.6 billion through its funding for lending scheme in the last quarter, which is really good news, the bad news is that lending to SMEs continued to fall, shrinking by a net £583 million. The article continues:
“The scheme was revamped in April in a bid to boost the flow of credit to small businesses. But bank loans to SMEs shrunk 2 per cent during the quarter on a year earlier.”
Those are the two contrasting stories. We are all really excited about one, which is about the renaissance in manufacturing. That renaissance is taking place not just in certain sectors or certain parts of the country, but across the piece. It is showing itself strongly in domestic output, customer numbers and exports; that is the good news story. The worrying factor is that that is not getting through to our small manufacturing and engineering businesses, and they are still struggling. Despite Government schemes to provide finance for those businesses, they are waiting, their energy is pent up and they are ready to explode, but they are being held back by a lack of finance. The money is there, but it is clearly going to the bigger companies, which can always access finance from other sources. The companies that critically need the finance to enable them to carry out the investment intentions I mentioned are simply being denied it. Whatever the reasons for that, we need to crack this nut if these companies are to achieve their full potential and we are to carry out the rebalancing of the economy we are all so desperate to achieve.
Jeremy Lefroy (Stafford) (Con)
It is a pleasure to serve under your chairmanship, Dr McCrea, and I congratulate my hon. Friend the Member for Carlisle (John Stevenson) on securing this welcome debate.
Government support for business has always been crucial. My first job was as a production foreman at Ford Motor Company in Bridgend, a plant brought to the UK under Prime Minister Jim Callaghan in the late 1970s. I am glad to say that that factory has expanded since then; it is one of the largest engine factories in Europe, if not in the world, and is still exporting around the world.
In Staffordshire and Stoke-on-Trent there has been strong Government support for manufacturing business—for instance, through the regional growth fund to Alstom in my constituency, which has become a world leader for research in high-voltage direct current manufacturing. The hon. Member for West Bromwich West (Mr Bailey) earlier mentioned Jaguar Land Rover on the i54 site on the edge of Wolverhampton and South Staffordshire. South Staffordshire council has played a major role in that, and that was a great example of co-operation between government and the private sector.
However, that is all about the largest companies, which have access to the Government. We really want to talk more about smaller projects and companies. We have already heard talk about procurement, and how Government procurement from SMEs has increased substantially under the present Government. There is still a long way to the 25% target, but I welcome that progress.
My hon. Friend the Member for Gosport (Caroline Dinenage) talked about oligopoly in procurement. It is not just in manufacturing companies; among service companies it seems that the Government will procure only from a very small number. For instance, there are the big four consultancy firms. In my constituency, health administration is being carried out by Ernst and Young. I should prefer some specialist medium-sized consultancies to do that work if, unfortunately, it should become necessary for a Government to procure it.
We have heard about training and apprenticeships, and the 21.5% increase in engineering and manufacturing technology apprenticeships starts in the past year. However, there is still reluctance from smaller firms, as they do not necessarily have the facilities or expertise to allow those apprentices to start. I welcome the idea of training networks, which could operate under the employer ownership pilots that BIS has started in the past year. I look forward to more of that, with small businesses taking advantage of the facilities and expertise of larger manufacturing businesses in their area.
We have also heard about the supply chain in the debate. Yes, that is an area where small businesses can do things for each other, but there is an increasing realisation of the benefit of having suppliers on the doorstep. The previous Government supported programmes in relation to the automotive sector supply chain, and the present Government are considering the aerospace sector in that regard. I should like to know from the Minister whether there are plans to consider other sectors—and to bring major sectors’ supply chains back into the UK.
I want to spend a little time discussing exports. There has been an increase in the services offered by UK Export Finance. Indeed, just this week BIS announced a direct lending scheme of £1.5 billion under UKEF, in which foreign buyers can get access to support to buy UK products. It is the first time that that has happened, and I encourage all hon. Members to point it out to exporting companies in their constituencies.
UKEF is still very much focused on large businesses, although I was glad to see from its last report that it was used to enable British companies to export, for example, cheese to Greece, a hospital to Ghana and tractors to Israel. However, those were the exceptions rather than the rule. UKEF tends to be dominated by Airbus, Rolls-Royce and BAE Systems. That is welcome—we need those exports—but in the past year the total was only something like £4.3 billion, compared with €29.1 billion under the Hermes scheme in Germany. Under that scheme, Kenya had €156 million of credit, South Africa had €461 million and India had €1 billion. Those are all developing countries, to which our businesses need to export.
I shall cut my remarks short, because colleagues want to come into the debate, but I reiterate what has been said so many times about the importance of the availability of long-term, patient capital and equity finance. It is ironic that Britain has a major institution that deals with that, which has nearly £3 billion of investments throughout the world, in some of the most difficult situations in developing economies—it is called the Commonwealth Development Corporation—but that we do not have a similar development corporation for some of the more challenged areas in our country.
Chris White (Warwick and Leamington) (Con)
I thank my hon. Friend the Member for Carlisle (John Stevenson) for securing this important debate and giving us another opportunity to discuss this topic, as we have done over many years.
One of my concerns, given the welcome news about the upturn in growth in the UK economy, is that politicians—and we are politicians in this Chamber—may move away from a focus on manufacturing and the good results that it could produce for the rebalancing of the economy. We could move back to property booms and financial services, which I think all those present would agree would be a very bad thing. We have a window of opportunity to establish policies to get manufacturing growing strongly once more.
The key is small and medium-sized businesses. The Government need to take steps now to prevent manufacturing from being neglected as growth returns to the economy. They need to ensure that incentives are set up for lenders to support our manufacturers, rather than pouring investment into quick returns in sectors such as property or financial services.
One of the simplest and easiest ways to get support to those manufacturers is through changes to capital allowances. The Chancellor rightly increased the annual investment allowance, which will enable them to upgrade plant and equipment in the next two years. However, if we are to attract more significant manufacturing activity, and enable small and medium-sized businesses to integrate into supply chains, we need to make the capital allowance structure more competitive, and encourage larger manufacturers to base themselves in the UK, which will in turn help the small and medium-sized businesses.
According to the Oxford university centre for business taxation, the present value of capital allowances as a percentage of cost for capital investment is just 46.5% in the UK. That is lower than in Japan, Germany, the United States, Turkey, France, South Korea and virtually all our major competitors. It makes investing in the UK far more expensive for manufacturing businesses than it is elsewhere, and we should not be surprised that, despite a strong skills base and depreciation in sterling, manufacturers are still not flocking as quickly as they might.
Like the rest of the economy, manufacturing is an ecosystem that requires diversity. To increase the number of small and medium-sized manufacturers, we need to increase the number of larger manufacturers in the country, to create resilient supply chains that can weather global economic storms. That, I think, is the key to what has happened in Germany and the United States. We should not ignore small and medium-sized manufacturers while we go about it, but we will need to continue a generous regime of investment allowances for the businesses in question, so that they can compete and provide a base on which large manufacturers can build supply chains.
Another area where we can help businesses is through the availability of skills and apprentices. There has been a fantastic, massive surge in apprenticeship applications in the past 12 months, but manufacturing and engineering are still not the main destination. Business administration, child care and customer service are still the three most popular areas. Perhaps that has something to do with the image of manufacturing in society, which those present for the debate are trying to help to promote.
A way to combat the current situation might be through the creation of apprentice training agencies, similar to those deployed in Australia. Apprenticeships are advertised by the agencies, which then hire them out to small and medium-sized manufacturers. The agencies take on the burden of administration, payroll support and supervision costs, and merely charge the manufacturers something similar to normal agency costs. That will hopefully boost the supply of labour to SMEs and potentially attract young people to work with the companies in the long term.
We need to put policies in place in the next few years so that we have an economy that does not just return to business as usual but is robust, creates sustainable jobs for the future and has manufacturing as one of its key pillars.
Graham Evans (Weaver Vale) (Con)
It is a pleasure to speak under your chairmanship, Dr McCrea. I add my congratulations to my hon. Friend the Member for Carlisle (John Stevenson).
I am deeply proud of Weaver Vale’s huge range of manufacturing enterprises. I personally spent more than 20 years working in manufacturing, starting off at BAE Systems making RAF Nimrods. I am delighted that EEF has announced that the domestic market is at its strongest in almost three years and export sales are at a two-year high. That marks a significant growth in confidence and provides some reassurance that the industry is on the right track. However, although that shows a short-term improvement, it is set against the long-term trend that has seen manufacturing’s share of the economy fall from 23% in 1997 to about 10% currently. That sits alongside the Government’s ambitious target to double UK exports to £1 trillion by 2020—manufacturing currently makes up about half the market. I would be interested to hear my hon. Friend the Minister’s opinion on that and whether he thinks that this country could once again have 20-odd per cent. of its GDP based on manufacturing.
How do SMEs fit into that pattern of ambition and decline? In 2012, SMEs—defined as companies with fewer than 250 employees—made up 99% of all manufacturing businesses, with a turnover of £167,455 million, less than a third of the whole industry’s turnover. However, not all SMEs are created equal. Clearly, the needs and capacity of a 249-employee company are very different from those of a nine-employee company. In 2012, there were 203,000 manufacturing business with nought to nine employees, which made up 88% of manufacturing businesses and 96% of all businesses in the UK.
What can we proactively do to support SMEs? There are two clear lines of support which could and should be better developed. Research and development is key to the UK’s manufacturing future. Manufacturing is responsible for three quarters of business R and D. That is a staggering amount and a credit to our world-leading universities and work ethic. The flexibility, adaptability and innovation of SMEs make them perfect leaders of R and D. To ensure our place in the world market, we need to be able to provide financial, research and trade support to SMEs at this crucial time.
First, we should consider finance. Simply put, without strong, reliable and consistent funding, we cannot expect SMEs to grow and thrive. There are some strong incentives to help SMEs involved in R and D. From April 2012, the tax relief for SMEs is 225%. For every £100 of qualifying costs, corporation tax is not paid on an additional £125 income that would be liable for corporation tax. It is worth noting that HMRC has extended its definition of an SME to companies of under 500 employees.
I have spoken previously in the House about the German political infrastructures set up to nurture industry and especially the Mittelstand—small and medium-sized companies. Foremost among those tools stands KfW, the state-backed bank that ensures that the Mittelstand can access funding, even when the commercial banks are unwilling to lend.
Certainly Government schemes such as the advanced manufacturing supply chain initiative and the high-value manufacturing Catapult, which is designed to bridge the gap between early-stage innovation and manufacturing, are helpful, but they do not address the industry’s concerns about simple access to finance. The right hon. Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) ably pointed that out earlier.
Secondly, with 71% of manufacturers planning innovation to export to new markets and 73% planning to bring new products to the market, they require not only funding but research collaboration. I welcome the work of the Technology Strategy Board’s Catapult network on high-value manufacturing, which brings together SMEs and industrial investors to work together on the centre’s core research and on their own challenges and the knowledge transfer partnership. That form of business/research collaboration speeds up innovation. It is a credit to the Government that 62%—up from 44% in 2010—of manufacturing companies are now engaged in work with research institutions. I have seen that in action at the excellent Daresbury science and innovation campus in my constituency.
Once development has been completed, UKTI must take the innovations and provide a clear and supported route to market. I welcome the £70 million increase for UKTI and I believe that it is the role of those in this House to push the manufacturing agenda to the forefront of campaigns such as the GREAT campaign to demonstrate our unique and innovative industry to key and emerging markets.
It is clear that we need a blueprint for the long-term future of the manufacturing industry and especially SMEs that goes beyond general commitments to industry as a whole. That is why we are all waiting with bated breath for the report of the Future of Manufacturing project, which will set out the long-term future of the manufacturing sector to 2050. It is due in the next few months. I sincerely hope that much of what has been discussed today will feed in to that report in order to help to ensure that the powerhouse that is SMEs in the manufacturing industry is properly supported.
Richard Graham (Gloucester) (Con)
It is a joy to join the debate rightly won by my hon. Friend the Member for Carlisle (John Stevenson). The discussion of manufacturing has gone on for some years and will go on, because it is so important to all of us. It is especially important in constituencies such as mine, Gloucester, where making things has been what the city is all about. We are in fact arguably the bellwether for what happens to British manufacturing, because the narrative, as many hon. Members have noted, is a story of decline and recovery, and now the challenge is how to take it to the next chapter of success. My constituency, as a bellwether, is one to which my hon. Friend the Minister will want to pay attention. We make things, whether for the aerospace sector, the oil and gas sectors, nuclear power, consumption, health, dentistry or container ports; and when we export tea to China and valves to offshore Australian pipelines, the Minister will want to sit up and take notice and, indeed, come to visit the great city of Gloucester as soon as possible to see what can be done in modern manufacturing.
The story of decline we will gloss over, except to note that by 2010 new apprentices were virtually extinct in Gloucester. The specialist Gloucester training group was down to 20 engineering apprentices in one year. Small engineering companies were almost dying on their feet. Science was disappearing from school exams, and 6,000 jobs in business had been lost during the 13 years of the previous Administration.
Today, the story is rather different. We have created 2,000 new jobs in business—not all of them in manufacturing, but many—and last year alone 1,240 new apprentices started in our city. Nationally, of course, manufacturing is now going through its fastest growth, in terms of order books, for more than two decades. The output index is the highest since 1994, and non-EU exports have risen by 10% according to the latest figures. The rebalancing is full steam ahead, but we must not run ahead of ourselves. There is still much more reinvestment to be done to see a sustainable increase in manufacturing. We need confidence to spread more widely across the country and in manufacturing businesses, and of course we need banks to provide support and schools to give more time for manufacturers to tell their story and inspire youngsters.
I believe that the Government have played a useful role. I am thinking of what they have done on corporation tax, on capital allowances, which my hon. Friend the Member for Warwick and Leamington (Chris White) mentioned, on R and D and on apprenticeships, and about the renewed focus on engineering and sciences. All those things, linked to steps taken by my right hon. Friend the Secretary of State for Education on careers advice, have helped. They have been a stimulus to our manufacturers, who now have greater confidence than they used to and can see that this is a Government, finally, who are backing manufacturing and urging them to help with the rebalancing of the economy, which was so badly needed, away from finance, public service and property.
There is still, though, as I mentioned, much more to be done. As individual MPs, we can do our little bit. We can, for example, take on our own apprentice. I am delighted to pay tribute to my apprentice, Laura Pearsall, who has now completed her two-year apprenticeship with me, got her NVQ level 3 in business administration and won a good job in business. Clearly, that is not manufacturing, but manufacturers can also take on apprentices in non-manufacturing subjects, such as business admin. I am delighted that, for example, EDF Energy, whose operational headquarters for its nuclear power stations is in my constituency, now has apprentices working in finance, human resources and a variety of other sectors that are not directly running nuclear power stations.
We can also help by working with the media and our further education colleges. I congratulate Gloucestershire Media and Gloucestershire college, which were the first to launch the 100 apprentices in 100 days challenge, which so many regional newspapers have taken up. They went on to get places for 100 apprentices from companies that had never had them before. They have given huge support to the rebalancing of our economy and supported manufacturers by giving them a platform of encouragement. We can also help to create or support apprenticeship fairs and jobs fairs to highlight the opportunities in manufacturing. I have helped support three apprenticeship fairs and created seven job fairs in the past three years, and there will be much more to do over the next two years.
We can create job sections on our websites, highlighting opportunities for youngsters in manufacturing and other sectors. We can encourage all our employers to take more young people into manufacturing through apprenticeships. We can create export clubs and organise events with UKTI. We can invite Ministers to proselytise and give further encouragement. The Minister’s predecessor did that successfully at Kingsholm, and I invite the current Minister, who is full of enthusiasm, to come and encourage our businesses, many of which are micro-business and manufacturing subcontractors, such as the 500 members of the Gloucester branch of the Federation of Small Businesses. I am delighted to say that its chairman, Mark Owen, is leading from the front by taking on his first apprentice. We can also visit manufacturers ourselves, and help them to expand by assisting with council problems of additional space, parking and other local issues. There is much that we can do.
I finish by congratulating my hon. Friend the Member for Carlisle on securing the debate. I welcome the measures the Government are taking. I salute the success of our manufacturers and urge them to use their capital balances to invest more in new plant and equipment. I urge large manufacturers to look at their supply chains, our schools to engage with manufacturers, and our Ministers to help manufacturers that went abroad to return to Britain with help from the regional growth fund and local councils through waiving business rates for a period, so that we may see the brands “Made in England” and “Made in Gloucester” thrive and expand.
Dr William McCrea (in the Chair)
Before I call the next speaker, may I thank all Members for the discipline shown, led by the excellent example of the hon. Member for Gosport (Caroline Dinenage), in allowing everyone who desired to do so to get in to the debate? I now have the pleasure of calling Iain Wright.
Mr Iain Wright (Hartlepool) (Lab)
Good afternoon. It is a pleasure to serve under your chairmanship, Dr McCrea. I join others in congratulating the hon. Member for Carlisle (John Stevenson) on securing this important debate. I am pleased that there have been so many contributors to a well-informed and consensual debate.
It is clear that manufacturing matters to this country and to the House. Indeed, manufacturing is essential to any advanced economy that wishes to maintain or enhance its living standards. An effective manufacturing policy, based on innovation, is the means by which productivity and wage rates will grow. It is equally clear from listening to hon. Members’ contributions that in every corner of the country we have dynamic, enterprising manufacturers—Mallinson Fabrications in Carlisle or Burgon and Ball in Hillsborough, among others—keen to expand, export into new markets, invent new products or processes and employ more people. An effective and proactive industrial policy will ensure that Government can work with industry for the long-term and tap into that huge potential.
We warmly welcome recent increased output in manufacturing and order books, and the Opposition will encourage any sign of recovery. There is a long way to go however: manufacturing output remains 10% below pre-crisis levels and is still performing below the wider economy, which is 3% off its peak. Despite the positive news, manufacturing is still expected to contract by 0.5% this year. Despite the good news, we are not seeing the much-vaunted march of the makers that the Chancellor promised. Will the Minister comment on that and on today’s news that the World Economic Forum’s global competitiveness report shows that we have slipped down the competitiveness rankings from fourth to seventh and down the infrastructure rankings from fourth to 28th? It is a long-term concern for the productivity and innovation of our manufacturing base, so will he comment?
Every Member who spoke mentioned access to finance. It remains the most significant barrier to manufacturing businesses’ growth. Every initiative the Government have attempted to put in place, from Project Merlin to funding for lending and from the national loan guarantee scheme to the enterprise finance guarantee, has failed in its objective. Net lending to businesses has contracted in 21 of the past 24 months. Commenting on the funding for lending figures, Dr Adam Marshall, director of policy at the British Chambers of Commerce, said that
“the credit environment is not where it could or should be, and many dynamic, new businesses are still struggling to find the funds they need to fulfil their growth potential….A fully functioning Business Bank is essential to plug this gap, but it must be delivered with greater urgency and scale than is currently being proposed by the government.”
Will the Minister comment? Businesses are not confident that the Government’s business bank will help them. A recent survey by Bibby Financial Services showed that only 6% of small and medium-sized businesses believed that the business bank would benefit their firm. David Petrie, head of corporate finance at the Institute of Chartered Accountants in England and Wales, of which I am a proud member, stated:
“The proposals put forward don’t appear to address the needs that businesses have and the finance gaps that exist. It is shaping up to be a missed opportunity to make a real difference, especially to micro and smaller businesses.”
Will the Minister outline how he will ensure that the British business bank works for manufacturers to ensure that long-term capital is put in place to allow manufacturing firms to innovate and grow?
I think that every hon. Member also mentioned procurement, which can be an effective lever for Government to enhance skills, attract apprentices, improve and incentivise innovation and ensure that we have a resilient manufacturing base. What are the Government doing to ensure that smaller and medium-sized businesses, particularly in the manufacturing sector, benefit from Government contracts?
Mr Andrew Smith
My hon. Friend is making an excellent speech. Will he also ask the Minister whether he saw the report in The Daily Telegraph that quoted research by Opinion Leader? It said:
“Despite efforts to cut red tape and promote competition, only 6pc of small and medium-sized enterprises…believe it has become easier to win public sector contracts”
in the past two years,
“and 26pc say it has become more difficult”.
Should the Government not explain why they think that is?
Mr Iain Wright
My right hon. Friend makes an excellent point. The article goes on to say that the Government have a target of awarding 25% of public contracts to small and medium-sized businesses, but the figure for 2012-13 is only 10.5%. We are a long way from the target. Is the Minister confident that he will hit the target and ensure that small and medium-sized businesses in the manufacturing supply chain have a chance of winning Government work?
Business investment is the means by which we can enhance and strengthen manufacturing growth, as the hon. Gentleman for Warwick and Leamington (Chris White) mentioned in his thoughtful, well-informed speech. Since 2010, Britain has experienced the biggest fall in investment as a share of national income of any G8 country, other than Italy. We have seen a 0.8 % drop in the level of capital investment. Our competitors, such as Canada, France, Japan, Russia and the United States, are improving their business rates. Most other nations do better than us; according to The Economist, we are ranked 159 out of 173 countries for investment as a share of GDP. We are on a par with Mali.
The situation is not improving. According to last week’s figures from the Office for National Statistics, general investment for quarter 2 of 2013 fell by 4.8% from a year ago and investment in machinery and equipment, which is probably most related to manufacturing, fell across the same period by 3.4%. To improve our competitiveness, our business investment performance must improve. Will the Minister acknowledge that the levels of business investment are unsatisfactory? They are getting worse on his Government’s watch and are inconsistent with the House’s and the country’s aspirations to being an innovative and competitive high-value manufacturing nation. What will he do to ensure an environment of better business investment?
Supply chain resilience is key. Over the past 30 years, with de-industrialisation, we have seen the hollowing out of the UK manufacturing supply chain, and that is hindering the potential of manufacturing and growth. In an excellent speech this afternoon, the Chair of the Business, Innovation and Skills Committee, my hon. Friend the Member for West Bromwich West (Mr Bailey), made that point in relation to aluminium foundings—I think I have that right. He pointed out that the Society of Motor Manufacturers and Traders stated that the lack of an adequate supply base is forcing some vehicle manufacturers, such as Jaguar Land Rover, but also Nissan and others, to limit their activities in the UK to final assembly operations, relying on foreign R and D and component development and manufacture. The Automotive Council concluded that at least 80% of components in vehicle assembly could be sourced from UK suppliers, but at present only about 36% are. There is enormous scope and potential for manufacturing here, and I hope that we can work together in the House to support it.
In that vein, I applaud what the Government were trying to do with the advanced manufacturing supply chain initiative: trying to improve the global competitiveness of UK advanced manufacturing supply chains, by supporting innovative projects where the UK is well placed to take a global lead. It is an important initiative, and I want to see it succeed for the good of the British manufacturing base. Will the Minister let the House know how much of each funding round—I think we are up to the fourth round—has been not just allocated but provided to the relevant firm, how much of each round has been spent, and how many jobs have been created or safeguarded?
In the short time I have available, I want to finish on skills. Several hon. Members have mentioned that manufacturing firms are finding it difficult to recruit appropriate skills, and a recent CBI/Pearson survey found that two fifths of employers who required employees with skills in STEM—science, technology, engineering and maths—found it difficult to recruit. The hon. Member for Carlisle placed the issue in the context of demographic changes—more and more workers will be retiring shortly. How are the Government dealing with that urgent issue? Does the Minister believe that recent changes, such as the downgrading of the engineering diploma and the dismantling of impartial information, advice and guidance, provide a co-ordinated, cross-Government approach to business and industrial needs? He straddles the Departments for Business, Innovation and Skills and for Education, so what is he doing to ensure that we have a co-ordinated approach to providing the skills that manufacturing needs?
It has been clear, in what has been an excellent debate, that manufacturing matters to this country as a means of improving our competitiveness and raising living standards. We all want manufacturing to succeed and a Government who support it, and I hope that the Minister can address the concerns raised.
The Parliamentary Under-Secretary of State for Skills (Matthew Hancock)
As everyone has said, this has been a stimulating debate, and I will take away from it several specific points. I will address the points as well as I can in the time available, but I start by saying that I do so in the context of someone who began their career in a small business, albeit a software business rather than a manufacturing one. I understand the difficulty of engaging with the Government—they are a large organisation—and the importance of putting in place an improved environment in which small businesses can succeed in a way that is appropriate to their size and to the amount of time that the people running them have. My hon. Friend the Member for Warwick and Leamington (Chris White) asked whether the return of growth would mean that the Government would stop pushing on measures for growth, and all I will say is that he certainly will not get that from me, or my Department.
The context for the debate is, as my hon. Friend the Member for Weaver Vale (Graham Evans) set out, the sharp decline over many years of manufacturing in the UK, from about 23% to barely more than 10% of the economy, but it is on the rise again. Having the debate this week is good timing because we have the welcome news that data show the sharpest rise in manufacturing orders since 1994.
The current level of manufacturing output is of course below the level it was at before what the Governor of the Bank of England has called the great recession, of 2008-09, and there is a huge amount to do to recover that ground and go forward, but I think we can all agree that there is a new spirit and vision for the growth of high-tech, high-end manufacturing. Other countries, not least the United States, where energy costs have fallen sharply, partly due to new sources of unconventional gas, are bringing manufacturing back onshore, especially at the high-value end. That is a positive context for the debate.
The hon. Member for West Bromwich West (Mr Bailey) talked about the i54 development and the Jaguar Land Rover project, which I happened to drive past last week—there is a massive amount of building and earthwork going on. The Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), met Jaguar Land Rover only yesterday to discuss ensuring that we can keep the project moving forward. The links between the different local authorities have been an impressive part of its development.
In the context of the new growth we are seeing in manufacturing, I would be delighted to visit Gloucester and proselytise about manufacturing. I very much look forward to my visit.
My hon. Friend the Member for Carlisle (John Stevenson), who has rightly been congratulated on securing the debate, talked about the definitions involved in the Government approach’s to small businesses. It is important to ensure that we have as simple as is reasonable an approach across Government, and that each intervention is targeted at the right size and sector of business. Broadly defined, SMEs can run from a single-person business up to one employing 250 people. Those are hugely different types of business and we need to ensure that we segment properly.
The links between central and local government are important. Local enterprise partnerships play an increasingly vital role in bringing together local businesses and local authorities and providing a link to central Government, and we should push that forward further.
I want broadly to set out how we view the Government’s role, and to respond to some of the questions asked by the hon. Member for Hartlepool (Mr Wright). It is true that Britain fell down the league of competitiveness, not least on infrastructure, but now, finally, we have a national infrastructure plan, on which we are beginning to deliver. The earthwork along the M54 is not alone; across the country there is infrastructure development, not least for Crossrail, which is the largest construction project in the whole of Europe. It is vital that we turn the situation around and that is what we are doing.
The hon. Member for Hartlepool also mentioned finance. It is true that the funding for lending scheme, as the hon. Member for West Bromwich West said, has been helpful, and in April we announced that we were extending it to SME lending. I note that lending to small businesses rose by £262 million in July, which is positive news. On skills, the increase in engineering apprenticeships, which my hon. Friend the Member for Stafford (Jeremy Lefroy) mentioned, is vital and is something into which I personally have put huge effort. We have apprenticeship training agencies in the UK, but there is the potential for more because they can ensure that we draw together the needs of different companies to guarantee that training is co-ordinated and bureaucracy taken away from small businesses. We are also considering more radical changes to how we fund apprenticeships, to make them easier for small businesses to access, one option being to introduce funding through the tax system.
My hon. Friend the Member for Gosport (Caroline Dinenage) brought her own experience to the debate. The question of simplifying procurement bureaucracy is absolutely vital, and the hon. Member for Hartlepool made a point about procurement almost with the zeal of a convert. The target of awarding 25% of public contracts to SMEs is important and the fact that, according to his figures, only 10% of them go to SMEs at the moment just shows what work there is to do. I am glad that the Labour party is coming to the table on that.
Mr Andrew Smith
Will the Minister comment on the survey that I mentioned, which showed that, according to the perception of small businesses, things have got worse in the past three years rather than better?
Matthew Hancock
It is certainly taking time to turn the situation around, but there is no doubt that there is the enthusiasm to do so. Some Departments have already hit the 25% target, including the Ministry of Justice, so there is progress, and there appears to be cross-party support for it.
I will finish by saying that everyone who participated in the debate mentioned the scope and potential for the future of manufacturing in general and in small businesses, and we in the Government passionately support that. There is plenty more to do on tax and deregulation, the expansion of the R and D tax credit, the all-important funding and finance for growth and all the other issues we have talked about, but momentum is starting to build and we will not let up.