Manufacturing and SMEs

Andrew Smith Excerpts

Wednesday 4th September 2013 Westminster Hall

[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.

--- Later in debate ---

[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.