Britain’s Industrial Base

Lord Empey Excerpts

Tuesday 9th October 2012 Lords Chamber

[Lord Empey]

My Lords, like other Members I welcome the Minister to his new role. He comes to the Department at a very critical time. I also thank Lord Adonis for securing this debate, because if we listen to even today’s trade figures, we realise what a mountain this country has to climb.

Lord Adonis opened his remarks by telling a story about wind turbines. May I inform him that in my own home city of Belfast, Harland and Wolff shipyard now assembles wind turbines and works very closely with Siemens in building the transformers and power distribution systems that have to be at sea. We hope that that will be a source of considerable economic growth.

This country took a wrong turning in the 1960s and 1970s, when contempt began to emerge for our manufacturing sector. It was true that British industry was disfigured by widespread strikes and became a byword for how not to do things. Motor vehicles were the most obvious example of where things began to go wrong, poor quality being the most obvious flaw. But in Whitehall a view began to emerge that we could no longer make things that the world wanted to buy, so we should move over to the service side. Finance, insurance, tourism and, later, IT were among the growth sectors. It was believed that the service sector could make up the losses in manufacturing jobs that people would no longer need. Therefore they would no longer require apprenticeships but could be trained for the white-collar jobs emerging, including a big surge in the public sector. A by-product of this thinking was the redistribution of jobs from the north of the UK to the south-east, something which still haunts us today.

The massive increase in interest rates in the early 1980s extinguished large swathes of our manufacturing sector. People were paying up to 22.5%. While much of the sector was clearly uncompetitive, the rapid and uncontrolled demise of such a large part of industry was regrettable and we still live with many of the consequences. The belief that we could survive in the modern world without making things that people here and in other parts of the world wanted to buy has been shown to be wrong.

Traditionally, as an island nation, we have always been traders of manufactures. This was our lifeblood and we turn our back on this part of our history at our peril. The strength of any country’s industrial base comes from either the possession of large quantities of natural resources or from a highly skilled and motivated workforce with access to capital—or from a combination of both. There is a growing realisation that we have ignored manufacturing for too long and that our ability to pay for our public services is inextricably linked to our ability to export more goods and tradable services. Our trade deficit is running at about £40 billion a year—of which half is with China—and urgent action is necessary. We cannot permanently rely on borrowing to sustain our lifestyles.

People glibly say that the way out of our financial difficulties is to “grow the economy”. Who says that we are guaranteed a growing economy? What happens if the natural growth in world demand is met by emerging economies? What happens if we have to rely long-term on the current level of economic activity? The first thing that we must do is to ensure that we hold on to what we have and ensure that it is fit for purpose.

Ironically, as we speak, the future of our major defence company is on the line with the proposed merger between BAE Systems and EADS, as a number of noble Lords have mentioned. The UK is number two in the world in the aerospace sector, with approximately 17% of world markets. I fully understand that defence spending is under great pressure here, in the rest of Europe and in the United States, and the temptation to spread the load and the risk with this merger must be great, but this is one decision that we must get right. Like many, I feel most concerned that any defence supplier to Her Majesty’s forces should not be subject to any political pressure from any other Government, whether French, German or American.

We have seen examples in recent years of how Governments differ. In Libya last year, the German Government did not fire a shot in anger, and we recall that it was a French Exocet missile that created havoc for the Royal Navy during the Falklands dispute. What would happen if HMG took a different stance on a future conflict from either or both of those partners? How could we be sure that supplies of parts and spares would flow if those shareholders and HMG were on opposite camps? The Americans may have concerns over security of supply, but they also have commercial fish to fry; if they can find a way of pushing BAE out of the US market, there will be more to go around for US contractors. This is a very difficult decision, and I hope that we get an early chance to debate these issues before irrevocable decisions are taken.

As a nation, we must refocus on getting business the skills to train internationally, and I hope that the Chancellor will see to it that there are fiscal incentives to favour those companies and individuals that create wealth, rather than seeing them penalised for their entrepreneurship.