The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Jesse Norman)
It is a pleasure to speak with you in the Chair, Mr Deputy Speaker. I congratulate my hon. Friend the Member for Havant (Mr Mak) and the hon. Member for Hove (Peter Kyle) on securing a debate on this very important topic.
According to the World Economic Forum, the fourth industrial revolution is characterised by a range of new technologies that are fusing the physical, digital and biological worlds. As my hon. Friend reminded us, it has, they say, the potential to transform and to integrate products and services to reshape radically the way in which things are made, the factories in which we make them, and the ever more personal and customised uses to which they are put. This can take many forms, be they new web applications, micro robots, peer-to-peer services, advanced manufacturing, personalised medicines and cyber-medical technologies. They, in turn, can be leveraged by big data, and better and more widespread digital connectivity.
I want to speak briefly about what I think the fourth industrial revolution is or might be, why it matters and what the UK is doing to promote these developments. Let me start by saying that I am quite sceptical about the language of the fourth industrial revolution. I share some of the scepticism of my hon. Friend the Member for Wells (James Heappey). Voltaire once rather sardonically remarked that the Holy Roman empire was neither holy nor Roman nor an empire. I worry that the fourth industrial revolution is neither the fourth nor particularly industrial, and not a revolution.
The natures and causes of the original industrial revolution are still, may I remind the House, rather contested. Was it the result of access to coal and high thermic value coal in particular? Was it the result of spreading trade? Was it the result of the bourgeois virtues of thrift and hard work, of tolerance and openness to other countries, or of science and technology? These are still contested matters among historians. What we can say is that it was based on steam, and that something like 150 years later there was one based on electricity.
Where does that leave us now? I think we need to go to the fons et origo, the foundation of all economic discussion: Adam Smith. I was particularly glad that the hon. Member for Inverclyde (Ronnie Cowan) highlighted the importance of Glasgow, since Smith was Glasgow University’s greatest professor at a time when it was, along with other Scottish universities, one of the greatest universities in the world. Smith was wise on many fronts. He was, alongside David Hume, a Unionist above all. He said:
“The Union was a measure from which infinite good has been derived”
to Scotland. He was wise in economics, by pointing to the importance of the division of labour. He pointed out in particular that the capacity for specialisation was limited by the size of the market. He said that we did not get porters in villages. These days we might say that we do not get Uber in towns—the market simply is not big enough.
I would suggest that change today has been powered by the same things it has always been powered by: bigger markets; technological innovation; better materials and access to materials; and, above all, the human appetite for risk and the questing nature of the human imagination. It was one my predecessors, Lord Willetts, who pointed out the eight technologies on which the previous Government founded their industrial strategy, ranging from satellites to agri-science. I think that that marks a better approach to thinking about these issues than talking airily in terms of revolutions.
There is a contrary view, which has been very well articulated by Robert Gordon in his book “The Rise and Fall of American Growth”. He argued that there was a golden century of innovation between 1870 and 1970, a time of genuine transformation through innovative technologies. As John Kay has said, someone who was born when Benjamin Disraeli was Prime Minister and lived to see Edward Heath would have witnessed horse-drawn transport give way to cars and aircraft, medical services that were non-existent replaced by cures for infectious diseases, as well as the introduction of electric light, indoor plumbing and colour television. Each of them was a transformative technology. Paul Volcker has pointed out that the greatest technological change of the past few decades in finance has been the ATM. Anyone who knows anything about finance has a great deal of sympathy with that viewpoint.
These technologies reshape. Gordon’s suggestion is that the capacity for transformative innovation has slowed. We have upgrades but we do not have the same life-transforming breakthroughs—breakthroughs such as the washing machine, which even more perhaps than the internet has shaped people’s lives—and the result is low growth and low productivity. I do not share that pessimism; for me, the things that matter are imagination, energy, the capacity for risk and the ability to work.
At this point, I should declare an interest by mentioning two projects with which I have been associated. One is the New Model in Technology & Engineering, which will be the first wholly new university for three decades. It will be based in Hereford, and is creating a curriculum along the lines of liberal engineering, tying the liberal imagination of the arts and sciences to the engineering discipline required to create genuine innovation. Its approach will be problem-based rather than curricular, and students will be taught in three-week blocks rather than attending specific lectures. There will be a 46-week curriculum. The university has links with Olin College in America, and with the universities of Warwick and Bristol in this country. It is not just a very important local institution in embryo, but a potentially national—disruptively national—institution in higher education, and I think that it will do an enormous amount to assist the technologies about which we have talked today.
The other project is, if anything, even more personal. It is a not-for-profit car that my father has designed—a flat-pack vehicle. Even you, Mr Deputy Speaker, with your astonishing breadth of understanding and knowledge, may be surprised to learn that the vehicle can be assembled by three people in a day. It costs a third of the price of a luxury 4x4, and it carries three times the weight. Its target price is under £20,000. It is astonishingly simple, and, of course, achieving such simplicity requires terrific design and terrific engineering. What the project shows is that great innovation does not require high technology; it can come through simplification, or a sense of the possibility that simplification can change manufacturing processes. This is a vehicle that has potentially revolutionary implications for developing countries.
Let me now deal with our own situation more widely. My hon. Friend the Member for Havant rightly highlighted the importance of policies that support enterprise, as did the hon. Member for Stoke-on-Trent North (Ruth Smeeth), and I very much share that view, but manufacturing companies in this country are overwhelmingly employers of 50 people or fewer, and those small firms account for more than 50% of manufacturing employment. Small and medium-sized enterprises will be the lifeblood of change over the next few decades, as they are today, because they are versatile in their manufacturing and light on their feet. They are also able to respond quickly as customers demand more customised, bespoke and niche products, using new materials and revolutionary production techniques such as 3D printing, intelligent machines and sophisticated computer design.
I hope that Members are already aware of Innovate UK, which brings together entrepreneurs and innovators with great ideas. It runs funding competitions to identify the strongest opportunities, and connects with the best partners to get their products market-ready, be they digital or solid-state. The High Value Manufacturing catapult, enabled by Innovate UK, helps small manufacturers to adopt and use those technologies. In its first five years of operation, about £300 million has been invested in high-value manufacturing by that means. Over the past year, the HVM Catapult has worked with more than 1,650 private sector clients on more than 1,300 projects and 1,800 small and medium-sized enterprise engagements. It has the right equipment to support the adoption of advanced technologies. Its use of virtual modelling enables businesses to understand what technology could do for them, and to plan and remove risks. Through Innovate UK, we are supporting the £9 million CityVerve internet of things smart city demonstrator in Manchester. The Future Cities catapult is collaborating with Microsoft and Guide Dogs for the Blind to develop tools to make moving through cities easier and more enjoyable for partially sighted people.
Those are just some of the very interesting collaborations that this model of support between the private and public sectors is operating and offering. It is a virtuous circle, and the Government want it to be replicated many times. We need to increase awareness of and access to these catapults. We need to increase the number of catapults so that more small businesses can test out how to transform what they do and open up new market opportunities.
Peter Kyle
I cannot help but make the observation that only someone who has never shopped at Ikea would ever think it was possible to buy a flat-pack car and assemble it in a day.
Catapult centres are a fantastic idea. Does the Minister think there is merit in linking them more to some of the industrial materials, products and services that are being developed in parts of the heartlands that my hon. Friend the Member for Stoke-on-Trent North (Ruth Smeeth) mentioned?
Jesse Norman
I very much take the point. There is only one way to think of this flat-pack car: it is the product of three years’ development by the former chief designer at McLaren. That is the only way one could get a vehicle that would meet the criteria set out by the hon. Gentleman. On the issue of linking to industry, he is right. One of the things that is interesting about catapults is that they have proved to be quite flexible. There is no reason why that flexibility, as they grow in number and extend themselves, cannot be used to create even closer links. As he knows, there is what Lord Willetts used to call a “valley of death” between research and development. The tie-in to employers in education and to businesses in development is vital to stop that problem.
I thank colleagues and congratulate them on the debate, which has been extremely wise and intelligent. The Government want to be at the forefront of the changes that are being discussed here—the dramatic transformations in the landscape of our industry and commerce. We want to lead this revolution—whether it be the third or the fourth—as we led the first, and we plan to do so through the new Department for Business, Energy and Industrial Strategy and the industrial strategy, which will be unveiled in the next few months.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is always a pleasure to speak with you in the Chair, Madam Deputy Speaker.
I congratulate my hon. Friend the Member for Havant (Mr Mak) on securing this very important debate and on his motion, which notes the importance of small and medium-sized businesses, the huge contribution they make and their expertise. The motion also calls on the Government to
“continue introducing and supporting policies that keep the UK at the forefront of this revolution”.
I wish to add to that, as I think we will need policies that support small businesses and let them take advantage of these opportunities in the future.
I welcome the opportunities that this industrial revolution will bring, but I have niggling concerns. I will always be a champion in this Chamber for small business, having set up my own business in 1992 and then several technology businesses later on, with varying degrees of success. Business is a huge opportunity for this nation and for individuals, and it can transform the lives of people right across this land, whatever their background. There is also an opportunity for the consumer here, of course, as this technology revolution in particular is transforming the way in which consumers shop and travel, and how they can socialise. We need to look at how some of these channels will be dominated by huge businesses and at the potential opportunities—or even the lack of opportunities, which I am most concerned about—within their supply chains for small business.
Let me touch briefly on the pipes that we need. My hon. Friend the Member for Wells (James Heappey) talked about ensuring that the country has the right infrastructure, and this is about mobile phone communication—not just 4G but 5G—and our broadband. We do not want a sticking-plaster approach, because we need to get fibre not just to cabinets, but right through to premises. Only 2% of premises in the UK have a fibre-to-the-premises connection, which is the futureproof solution that we need. In Spain, the figure is 60%. I have welcomed the Government’s £1.7 billion investment in this area in the past, particularly for rural areas, as it has made life much easier for many of my constituents and businesses. Nevertheless, I fear that we will hit the same bottlenecks in five and 10 years’ time unless we step up our investment.
Jesse Norman
Did my hon. Friend note the brilliant report on broadband that the Culture, Media and Sport Committee published in July, which highlighted the underinvestment by BT in the national broadband network that independent experts estimate to be in the region of hundreds of millions of pounds a year? That is directly attributable to the way in which BT’s investment policy is carried out, and it is to the detriment of shareholders.
Kevin Hollinrake
My hon. Friend hits on one of my favourite topics: the culture of corporate obfuscation that we get from BT and its willingness to underinvest to maximise profitability. We absolutely need to get BT to up its game. I agree with Ofcom, which says that one solution is to open up the ducts and poles to other operators. Perhaps in future, when there are bidding rounds for Government investment, local authorities or the delivery authorities should themselves be held responsible for ensuring that third-party operators—smaller operators—get access to those ducts and poles in the local areas for which money has been committed.
The Government are supporting small businesses and innovations in many ways. As the Minister mentioned, there has been a 38% increase in investment in Innovate UK since 2010. Research and development tax credits have a hugely beneficial effect on companies that want to invest in new technologies. The enterprise investment scheme has unlocked investor capital for new start-up businesses and made such businesses possible on the back of these tax concessions. I support the retention and perhaps expansion of the concessions to make sure that we get new businesses to take advantage of these opportunities.
The failure rate for high-tech businesses is very high, but investors will countenance that because the rewards are also very high. Investors know that it is almost a winner-takes-all bet. They know that if they get it right, they can land themselves with an Amazon, a Google, an Uber, an Apple, or even a Rightmove or a Zoopla. In many sectors, there is either no competition or competition from just one other body, which puts those businesses in a hugely advantageous position.
In some areas of technology, business inevitably wins, and the other thing that will inevitably win is the machine. I spent my summer holidays reading a very interesting book by Matt Richtel called “A Deadly Wandering”, which talks about the ability of machines to multi-task. Richtel talks about the cocktail party effect. He describes a person in a conversation at a cocktail party. He says that it is not possible for them to listen to another conversation if they are truly engaged in their own conversation, as they can only do one thing at a time. Apparently, they can recognise their name being mentioned, but that is about it. Computers, on the other hand, can do millions of things at the same time, and they can do them better. A new computer called AlphaGo was built to try to beat the world champion of the game Go. That is not just a game of logic, but a game of intuition, yet the computer beat the world champion Lee Sedol five times in a row. The computer hones its own skills. So machines will win and big business will win.
The biggest worry I have about some of the businesses that will win in the future is their ability to dominate the entire supply chain. Uber is a good example. When it first came along, we saw it as just something that connected people who wanted a taxi with people who were taxi drivers. Uber has been clear that in the future it wants to be the taxi driver as well. In fact, it does not want any taxi drivers; it will have autonomous vehicles, and will no doubt link up with huge car manufacturers. Toyota, Nissan and other companies are looking at this. Uber will be end to end, taking away small business opportunities from taxi drivers, delivery drivers and HGV drivers.