Paul Flynn (Newport, West): Three weeks ago, 235 people in my constituency were made redundant, although on 18 December last year they had been informed that the company's orders had increased and that it looked good for going into profit this year. The blow was savage and brutal, and people who worked on the night shift were told when they came off it that they would not be paid. One such worker expressed his views to me in a letter:
According to his calculations he was eligible for £12,000, which would have been a useful cushion against the loss of his job, but he will receive 10 per cent. of that. He is highly skilled and was devoted to a company at the pinnacle of high technology that ran one of the largest semi-conductor plants in Europea plant of the future. However, 235 jobs have gone this month, 179 went last year and the firm has gone into receivership.
On 4 December last year, Alcan announced the loss of 310 manufacturing jobs in its aluminium works, and by the end of the month a further 220 jobs had gone. We also debated the issues raised when 1,300 jobs went at Corus in February last year. That makes a total of 2,284 manufacturing job losses in one town. In the microcosm that is my constituency and that of my right hon. Friend the Member for Newport, East (Alan Howarth), there have been huge losses of manufacturing jobs, and that pattern has been repeated throughout the country.
Every statistic points to an accelerating slump in UK manufacturing. The job share of manufacturing has fallen from 18 per cent. in 1990 to 14 per cent. in 2001. Output has fallen from 23 per cent. to 19 per cent., and that has accelerated in the past year, which contained the worst year-on-year fall since the end of 1991. Job losses in manufacturing industry totalled 112,000 in 2001, and that process is occurring at the same time as another damaging trend.
In Scotland, Wales and the north of England we have relied on inward investment from other countries to replace those jobs. Many jobs in those areas consist of people working for firms that came into the country from elsewhere, but that flow has dried up. Those three areas are vulnerable to the downturn because
Why is that recession happening? It is complex and I would not suggest that there is a simple solution. One matter that comes up again and again, and which has great force, is our position outside the eurozone. We know that opinion in Denmark and Sweden has changed, and that they are likely to join. We see a future in which we could have the great dollarzone on one side, the eurozone on the other and the United Kingdom, with its small currency, isolated in the middle. Noticeably these days, very few Conservative MPs wear their £ badges. There is a good market for them10 £ badges for a euro. That is a sign of the loss of conviction by those who oppose the eurozone.
Corus in Newport, and Alcan, have stressed time and again that, above all others, the problem that caused jobs to be lost in the UK was our position outside the eurozone and the lack of hope of entering it in the foreseeable future.
Mr. Philip Hammond (Runnymede and Weybridge): If the hon. Gentleman sees going into the euro as the solution for Corus, Alcan and other hard-pressed manufacturing industries, can he tell the Chamber at what rate it would benefit those industries for Britain to lock into the euro?
The problem for Llanwern was that the strength of the pound and the weakness of the euro meant a £15 premium on every tonne of steel. That was enough to ensure that jobs were lost in Newport, not Holland, which had a far poorer productivity record. There is the danger of seeing again what happened to the party represented by the hon. Member for Runnymede and Weybridge (Mr. Hammond) when, in an unfortunate period in the 1980s, a huge chunk of our industry was lost because of a persistently overvalued exchange rate. We are now in a position in which that is continuously happening. We must find some way, even if it is not through the euro, to get an exchange rate that is acceptable and realistic. There may be different ways in which we can adjust our exchange rate accordingly, but it essential to move forward.
Jobs are being affected here. When companies have a choice and decisions are made internationally, they may find it irresistible, as we have seen in many cases, to lose jobs in Britain. We must consider measures to engineer a revaluation before more of our manufacturers migrate to eastern Europe, Ireland, Spain or Asia.
It came up last week, and last year, that it is easier to sack people here than in euroland. The information consultation on economic matters in the United Kingdom and Ireland is voluntary, whereas detailed requirements exist in almost all other European countries. The deal done between Alchemy and BMW last year would have been impossible elsewhere. Compared with our continental counterparts, employers in Britain are relatively free to decide and announce massive changes with no obligation to consult
The national and local trade unions representatives we met felt that the decision to close Dagenham, rather than Cologne, owed more to the absence of constraints on shedding labour than to nice calculations of returns on capital or the inherent characteristics of the two sites."
The picture is bleak and sad. I have read the splendidly upbeat and positive speech by the Secretary of State in which she rightly praised all the aspects of British manufacturing industry that are attractive and forward looking, but while it is right to accentuate those positive aspects, it is extremely dangerous to ignore the negative. The Secretary of State pointed out that many other countries have suffered losses in manufacturing industry, especially since 11 September. That is true, but if we look at the picture in similar European countries during the past 10 years, our situation is worse than it is in theirs . The United States Bureau of Labour Statistics carried out an examination and published a comparison of European manufacturing companies' output. With the possible exception of Germany, all the other countries examined had a lower loss of manufacturing jobs and capacity than we did. They included Belgium, Denmark, France, Italy, the Netherlands, Norway and Sweden.
There is the good news that the Secretary of State emphasised, and there is encouraging news even in the picture that I painted of Newport in that many of the people made redundant have found other jobs. However, I believe that the bad news of the slump in manufacturing industry is being masked by growth in other parts of the economy. It is a great credit to the Government that we have a strong economy, but the problem is that many jobs replacing those in manufacturing are in the candy floss economyin call centres and dot.com companies that are here today, but gone tomorrow. We have seen them disappear rapidly. They are not as secure and permanent as manufacturing jobs.
A dangerous loss of critical mass is also taking place. Four years ago, Britain made more television sets than any other European country. Today, production of all small and medium-sized models has switched to lower-cost factories in eastern Europe. We still have a small, low-volume market of high-value televisions, but it is questionable whether that can continue. Electrical goods suffered the worst decline in output of all manufacturing sectors between 2000 and 2001. There is a danger that the telecommunications sector will shrink beyond the point of no return. We are all familiar with that phenomenon. Without the critical mass of suppliers and people contracting in, suddenly the service will implode and not have the necessary strength to continue.
There will be trouble there if the wider UK industry is in trouble. Sir Ian Gibson, chair of the Department of Trade and Industry's automotive innovation and growth team, commented that, because of the loss of critical mass, the car industry may have gone beyond the point of no return already. He said:
Manufacturing workers have a special pride that comes from creating something tangible instead of moving papers around or talking to people on the telephone all day. That is good for their psyche and morale. There is an especially fulfilling reward to be gained by those who can create an object of value, usefulness or beauty. We lose that at our peril.
Mr. Hammond : The hon. Gentleman is making an eloquent plea in support of our heavy manufacturing industries, especially those in his constituency. What has been the impact of the climate change levy, which was introduced last year at a critical time for those industries?
Paul Flynn : For the steel industry, the original plan was that the industry would pay £120 million. That was negotiated down to £8 milliona huge reductionon the evidence that Corus gave to the Trade and Industry Committee. The climate change levy is unfair in that it hits the manufacturing sector in Britain, but the retail sector in other parts of the continent. It does act as a burden on the industry, but Conservative Members tend to forget that there was a quid pro quo in that £1 billion was taken from the national insurance scheme as compensationalthough that is unfair to the extent that it goes mostly to labour-intensive industries such as call centres and Marks and Spencer. It is not an enormous factor, but it rankles with manufacturing industry. However, we are all environmentalists now, and there is not much point in putting a burden on call centres and Marks and Spencer given that some of the most prodigious users of electricity are large manufacturing industries.
Over the years, our extraordinary record in science has been reflected in Nobel prizes, of which we have won 70 in chemistry, physics and other technologically significant fields. Japan has won seven; many far eastern countries have won none. However, as was mentioned by the Secretary of State last week, the innovative genius of the British people has never been translated into large-scale manufacturing jobs and prosperity.
I shall conclude, because many hon. Members want to speak. Manufacturing is undergoing an almost invisible slump that does not sufficiently engage the attention of the nation or the press. Some suggest optimistically that it may be a U-turn and that we will bump along the bottom and come out of it. Others say that it is a V-turn, and that we will come out of it more suddenly. I fear that it is an L-turn and that, having reached the bottom, we will continue until we fall off the end. That will be the consequence of accelerating decline and lack of critical mass. We could well be at the edge of the abyss, and the fog is gathering daily.
Adam Price (East Carmarthen and Dinefwr): I congratulate the hon. Member for Newport, West (Paul Flynn) on securing the debate at such a critical time for manufacturing industry. This is the second Westminster Hall debate on manufacturing in which I have participated, which reflects a wide concern with the continuing problems of industry.
Unfortunately, in recent months and years a host of manufacturing companies have gone to the wall in Wales, including Corus, Panasonic, Sony and Valeo. I have a list that goes half way down a page, but time does not allow me to name them all. The Welsh economy has suffered such ill luck recently that it reads almost like a roll call of first world war battles. Incredible damage has been inflicted, especially in manufacturing. In a sense, the problems in Wales go much deeper and much further back than the recent manufacturing recession. As an economist, I find nothing surprising about the asymmetric shock that the Welsh economy has suffered over the past eight years. Over the past five years the decline has quickened as part of the wider recession.
It is welcome that there is at last some resonance from the Government in terms of their recognition that manufacturing has problems. I read the Secretary of State's speech at Merrill Lynch. It was a good speech, in which she railed against the myths about manufacturing. That begs the question of who is propagating those myths. Commentators such as Will Hutton have been called paranoid for talking about the vested institutional interests of the City of London and the Treasury view, which has been the spectre haunting British economic policy for more than 100 years.
The manufacturing summit gave a higher profile to the problems of manufacturing, but the Government need to go much further. We have a Minister for Industry and Energy and a Minister for E-Commerce and Competitiveness, and it is high time that we had a designated Minister for manufacturing to get to grips with the long-term decline of manufacturing industry.
The hon. Member for Newport, West mentioned the problems in the early 1990s; there was also a massive haemorrhaging of jobs in the early 1980s. There is a 10-year cycle of huge, concentrated decline in manufacturing jobs. Like the manufacturing recession of 1979 to 1982, it was particularly severe in Wales and the regions of northern England, Scotland and Northern Ireland that are disproportionately dependent on manufacturing jobs.
The problems of manufacturing industry have a regional and spatial dimension. The Government need to grasp the tools of regional policy that are available. The main tool, regional selective assistance, goes back to the 1970s and an earlier age of regional policy. It is only discretionary assistance, which distinguishes it from the tools that were available throughout large periods of the 1960s and 1970s, especially the regional development grant, which was an automatic capital grant available to all firms in the designated regions. The regional employment premium invented by Nicky Kaldor was possibly one of the most successful examples of intervention in economic policy in the post-war period.
The Government are committed to the concept of evidence-based policy makingwhat works is what counts. I advise the Minister to look again at the evidence for the success of the more directive regional policy tools that were available in the 1960s and 1970s. Some of the firms that have not closed and remain in business were diverted to Wales in the 1960s, and some even go back to the 1940s. Those old-style regional policies were fairly successful. The emphasis in the Labour party's new regional policy is on bottom-up assistance and helping regions to help themselves. There is something to be said for that. We need a more judicious balance between bottom-up and top-down policies, especially with regard to the problems in the manufacturing industry.
We spend less on direct regional aid to firms in the United Kingdom than does almost any other European Union country. Spain is the only major exception, although many Spanish industrial regions spend more than we do. We spend less than one third of the EU average per capita on direct aid to firms. In the 1970s, we spent £2 billion a year at current prices on such aid. That figure is down to £400 million a year, which is a significant decline in regional aid. To be fair to the Government, most of that decline occurred under the previous Administration. The Government have kept the spending pretty much at the level that they inherited.
Now is the time to grasp the potential of reinvigorated regional selective assistance. We need to give the aid to more firms and to get nearer to the ceiling imposed by the EU. We should also make it more automatic, as there is a problem of uncertainty. Many consultants make a lot of money from helping firms with their RSA applications. The system should not work like that. There should be automatic trigger mechanisms. The Government should reconsider the issue of enterprise zones, especially in disadvantaged regions such as the heads of the valleys in Wales. They have taken a zonal approach in many of their policies, and should reconsider wide-ranging packages of tax incentives for local areas.
The exchange rate has boosted imports and held down exports, especially in many sectors that are important for the economy of south-east Wales where there has been a large concentration of job losses, and in sectors such as steel, cars and textiles in other parts of the UK. It has hurt other sectors such as farming, coal mining and other primary producers that had to match the low prices of imports, and has increased joblessness in areas with an employment rate that was already below the average. There has been a convergence in unemployment rates, but a divergence in employment rates. The employment rate among people of working age in Berkshire is about 85 per cent. In large parts of south Wales the rate is below 60 per cent. The Government's unwillingness actively to intervene to make the exchange rate more competitive is a major part of the problem.
Adam Price : The technical jargon is "sterilised intervention". It is a widely used tool in which pounds are sold and euros are bought through Government bonds, and is a neutral way of intervening in revenue, as distinguished economists such as Charles Goodhart, who invented Goodhart's law, have said. The head of the UK's leading investment fund, Gerry Holtham, who was formerly director of the Institute for Public Policy Research, has also widely made the same plea. It is a respected position among economists. We need a Government response on the issue.
The Government have been lucky on the macro-economic front, because of the state of the world economy. The international economic outlook has changed. The Government's mantra is that the best thing that they can do for manufacturing is to ensure macro-economic stability. However, if that stability disintegratesthere are many signs that that is happeningsupply-side policies, which have been at the core of the Government's approach, will seem, however well intentioned, pretty irrelevant. As the hon. Member for Newport, West said, the problem with the damage to manufacturing capacity is that it is likely to persist. It is difficult to rebuild the capacity and the competence that have, in many cases, been built up over generations. Once they are lost, they are gone for ever. No Treasury Minister is present, but I stress to the Government that
Alan Howarth (Newport, East): I congratulate my hon. Friend the Member for Newport, West (Paul Flynn) on obtaining the debate and on speaking with characteristic deep feeling and knowledge about manufacturing, in particular the problems faced by manufacturing industry in Newport. We are proud in Newport of our manufacturing tradition but, as my hon. Friend described, it has suffered a series of recent blows. The question is how we can rebuild our manufacturing capacity in Newport, as elsewhere, in modern form.
Steel, which dominates the economy of my constituency and of the south-east Wales economic region, is these days a high-tech business involving the highest level of industrial skills. As my right hon. Friend the Secretary of State for Trade and Industry interestingly noted the other day, 70 per cent. of the steels used in cars today did not exist 10 years ago. The industry is at the forefront of new technology.
The main problems facing British manufacturing are global recession and, in many sectors, including steel, global overcapacity. That is why manufacturing output in Britain fell by 5.5 per cent. last year; it also fell by large amounts in many competitor industrial countries.
What should the Government do? What is their role in addressing the problem? I read with interest and admiration the speech made by my right hon. Friend the Secretary of State on 23 January. I believe that her analysis is correct.
The Secretary of State stressed that the Government's primary role is to ensure financial stabilitya stable economic context within which manufacturers can take necessary decisions. The Government have done that admirably, against a background of increasingly difficult world economic conditions. We have the lowest long-term interest rates since the 1960s, an achievement based on sound management of the economy. Low inflation has meant that the Monetary Policy Committee of the Bank of England has been able to cut interest rates aggressively over the past year to mitigate the effects of impending recession. We have also enjoyed the benefits of the counter-cyclical expenditure increases that my right hon. Friends the Chancellor and the Chief Secretary to the Treasury have planned and announced and which not only give the promise of greatly improved public services but help us to weather the economic storm by enabling us to maintain levels of demand that would otherwise be lacking. It is crucial that we as a country do not throw away those two advantagesthe freedom to operate both our interest rate policy and our fiscal policy on the basis of our judgment of economic conditions and what is best for Britain.
My right hon. and hon. Friends should be aware that devaluation has often ended in tears electorally. General elections following devaluations in 1951, 1970 and 1997 were lost by the Government of the day. I certainly hope that my right hon. Friends will reflect on that.
Devaluation is one matter, but entering a fixed exchange rate such as the economic and monetary union of the European Union is quite another. Let us recollect that sterling's membership of fixed exchange rate systems has not been a happy experience historically, whether under the gold standard, the Bretton Woods systemunder which we did quite well for a period, but it ended in tearsor indeed the exchange rate mechanism catastrophe of more recent memory.
Joining the euro will certainly not be a panacea. A "one size fits all" interest rate is difficult enough within the UK. The Monetary Policy Committee conducts its affairs admirably, but cannot establish a single interest rate that is appropriate for manufacturing in south-east Wales while at the same time restraining the excesses of the property boom and consumer spending in south-east England. We see the effects of that policy in the generation of inflationary conditions in Ireland and recessionary conditions in Germany. If we were to devalue in order to enter the euro, we would risk increasing inflation at the same time as we abandon our capacitythrough a unilateral interest rate policyto remedy it.
There will be enormous pressure to increase tax revenues going to the structural funds, which will be distributed extensively across an enlarged European Union in a fairly short time. It is clear that they will not be distributed to Newport. Under the present arrangements, Newport is not an objective 1 area. In my hon. Friend the Member for Newport, West's constituency and mine there are wards with great poverty and deprivation, but under the present dispensation we do not receive assistance to help attack those problems, and that will be far less likely within an enlarged Community.
The United Kingdom, while outside the single currency system, was last year the number one destination for inward investment in Europe. My advice to hon. Members is that we should retain these advantages, at least for the foreseeable future. We stand a better chance of sustaining financial stability outside the system.
The Government have an obligation to ensure a first-rate infrastructure in the United Kingdom so that our industrialists have the best opportunities in a competitive world. In Wales, that means we urgently need a positive decision on building the M4 relief road. That will be good for not only my part of Wales, south-east Wales, but for south Wales and south-west Wales.
I am grateful to my right hon. Friend the Secretary of State for taking advantage of what is permitted under the protocol between the Government and the Assembly in relation to issues of national strategic importance. I know that she has drawn this factor to the attention of Sue Essex, the Minister responsible in the Assembly. It matters a great deal that we have first-class infrastructure in Wales. Wales is poor in relation to the rest of the United Kingdom. Its infrastructure is in many ways inferior. There is a vicious circle; unless we get the investment we need we stand less chance of catching up with the performance of the rest of the United Kingdom, which otherwise we should be well placed to do.
I was disappointed that the Strategic Rail Authority produced no plans to do other than patch and mend the mainline railway system into Wales. We are talking of a system designed by I. K. Brunel, the great engineer. The Government have put the Great Western railway on the tentative list for future world heritage sites. That is fine, but it is not an industrial policy. We need not just patching and mending, but serious modernisation. Corus draws attention to problems of track access charges, which perhaps the Minister will be kind enough to look at. It mentions that port and shipping costs are high and discusses a curiosity relating to infrastructure: that the costs of maintaining it fall upon industry rather than on general taxation. It has to contribute £4 million out of the total £30 million cost of maintaining the lighthouse service. I thought that that was odd: perhaps the Minister will look at it.
The Government need to make sure that in a global knowledge economy our institutions of education, training and research are the best they can possibly be. I am pleased that there is a new emphasis on technical education in schools. That is yet another attempt to remedy the failure following the Butler Education Act 1944, which was intended to set up a tripartite system of grammar schools, secondary moderns and technical schools. The technical schools were never established. More than 50 years on, we need that strong technical stream of educational opportunity.
As a former Minister with responsibility for science, I can only congratulate the Government and say how pleased I am that they have enjoyed greater success than I did in securing greater investment in science and a greater emphasis on technology transfer. However, unless the Government attend to the need to improve PhD stipends and lecturers' salaries, we will be at risk of not having a first-rate academic system.
I am conscious of the time, so I shall be brief on the framework for competition that the Government should maintain. If President Bush decides, perhaps in March, to invoke section 201 to impose steel quotas, I hope that our Government will take extremely tough action. I hope that my hon. Friend the Minister will assure us that vigorous diplomacy is already taking place. If, unhappily, the US Administration impose quotas on steel imports, and steel is consequently dumped in Europe, I hope that the Government will act vigorously through the World Trade Organisation and will also seek to reform the glacial procedures in the European Union for taking anti-dumping measures.
It is for the Government to ensure that we have the right structures of governance and administration to give effective, practical support to manufacturing and other economic sectors. I am talking about structures in which decisions can be taken rapidly, based on effective consultation and expert advice, and executed to a brisk timetable that matches the needs of the economy and communities. We do not have that, as I shall illustrate with the experience of Newport in the year since the Corus redundancies were announced. Of course, the prospect of redundancies loomed for many months previously.
Since the announcement a year ago, Newport has lost another 1,400 jobs, and I believe that we have yet to see the worst effects on the supply chain of the ending of steel making in Llanwern. Admirable support has been given to the workers who lost their jobs there, but trying to develop a regional or sub-regional economic strategy and a regeneration strategy has been like wading through treacle. We have had endless debate, and a plethora of agencies, boards and taskforces have been set up, all of which do useful and dedicated work. There have been endless meetings, academic studies, consultancy reports and announcements, including a number that have promised money to be spent. However, there has been little so far that is precise and actionable.
I am grateful for the First Minister's announcement that Newport is to have an urban regeneration company, with £10 million from the Assembly and another £10 million over three years from the Welsh Development Agency, particularly because elements in the WDA fought a bitter rearguard action against that policy. The simple decision has been announced, but we know nothing of the detail, and it is expected that another consultancy will advise on the structure and scope of the URC.
What do we need? We need a board, which I should like to see chaired by the leader of the local authority, because civic leaders should lead the process whereby their communities develop their own regeneration policies. The major players should be represented on that board: the council, the WDA, Education and Learning Wales, the academic and business sectors, environmental and voluntary organisations, and creative outsiders. They would all contribute to a strategy for Newport and contribute funding to what we might genuinely term a single regeneration budget.
I am told that to hope for such an outcome is pie in the sky, but I do not see why. The Government say that they want joined-up government and to restore powers to local government. We must be confident and decisive in putting that in place. My request may be too Utopian, but at least in the context of devolution and regional government, with all the multiple layers of government and the cat's cradle of accountabilities, let us design arrangements to ensure that decisions needed by businesses and communities are taken and can be carried through.
Mr. Bill O'Brien (in the Chair): Order. I appealed for brevity. Three hon. Members have still to speak, and I want the winding-up speeches to start at 10.30 am. Therefore some Members who applied to speak may not be able to do so, which is sad.
Mr. James Gray (North Wiltshire): I shall speak briefly, to raise a matter of great concern that was brought to my notice this morning. I apologise to the hon. Member for Newport, West (Paul Flynn) for not being in the Chamber for the start of his remarks, but I was listening to a press conference about the matter that I want to raise.
In my maiden speech in 1997, I praised Dyson, the vacuum cleaner manufacturers in my constituency, as one of the fastest growing and best manufacturing companies in the United Kingdom, for which it won a variety of awards. James Dyson typifies the best in British enterprise; he invented and designed his high-technology vacuum cleaner and was a leader in his field. His factory employed about 2,000 people at its peak. Just before Christmas, James Dyson announced that he would lay off 180 people, and at the press conference this morning he said that he would not continue manufacturing in the United Kingdom, and will move his entire vacuum cleaner manufacturing process to Malaysia, where the job costs are lower and there is greater proximity to the suppliers he needs to manufacture his vacuum cleaners. He will lay off 1,000 people in my constituency this year.
His announcement came hard on the heels of a similar announcement by Lucent Technologies, based in the town of Malmesbury in my constituency, which has a population of 4,000. The very successful, high-tech, American company announced just before Christmas that it is to close its manufacturing operation in the town, at a cost of 2,000 jobs. There is no manufacturing in Malmesbury nowa significant loss of jobs in a small Cotswold town.
The end of Lucent and Dyson is a severe crisis in my constituency. Dyson, especially, has been a beacon of excellence in UK manufacturing and the fact that even James Dyson is wrapping up his manufacturing operation in the United Kingdom shows precisely what is wrong with the nation's manufacturing sector. My constituents and those in Newport and elsewhere want the Government to do something that they have not done: focus on the manufacturing sector as opposed to the service sector. A country that cannot make things better and more cheaply than others and sell them overseas cannot prosper. This country is going in that direction and I call on the Government to focus on manufacturing industry.
Mr. Tony Lloyd (Manchester, Central): I congratulate the hon. Member for North Wiltshire (Mr. Gray) on his brief speech. I want to pick up one of his themes. It is a tragedy for his constituents, and for the country, when a company such as Dyson disappears. I was interested in the reasons that the hon. Gentleman gave for Dyson leaving. Obviously, labour costs are significant, but Britain can never compete globally with the low labour costs of countries in the far east. Equally, we cannot compete on the same basis with countries that are close to the supply chain. However, none of those issues is fundamental. In the past five years, manufacturing in the United Kingdom has grown by about 5 per cent. At first, that appears to be a healthy figure, but it is less healthy when compared with the United States, where manufacturing grew by 33 per cent., or with Germany, where it grew by about 20 per cent.
There are issues concerning the pound. I disagree profoundly with the analysis of my right hon. Friend the Member for Newport, East (Alan Howarth), who should consider the history of devaluation, especially the period when the pound was floating. The movement of the pound relative to other competitive currencies was extraordinary; it was valued upwards and downwards on an irregular basis, but the economic record of the time shows that the process of devaluation was good for manufacturing. What is less good is a sharp and precipitous devaluation. I join the calls to consider the competitive value of the pound, particularly in my constituency, where some two thirds of manufacturing companies are operating well below capacity. A significant issue that they raise is the value of the pound.
A rather different issue that should worry the hon. Member for North Wiltshire concerns the Dysons of this world. While Mr. Dyson has enjoyed enormous entrepreneurial success, he is not a good employer if he
Mr. Gray : I apologise to the House if I did not make it plain that James Dyson has made it clear that the matter is under consultation at this stage. There are 900 jobs under threat and he will go through the proper procedures, consulting the work force and seeking ways of fulfilling the conditions that the hon. Gentleman described. For the sake of brevity, I did not go into that, but I am confident that James Dyson and his managing director, Sir Richard Needham, will do all that they can to ensure that this is let down as gently as possible.
One of the things that concerns people in the employment sector of manufacturing is that it is far easier to sack employees in this country and to waste their skills and talents than it is elsewhere. I received a letter about that recently from a trade union in the north-west. It wrote:
That union was right. We need to look at the ability of firms to disinvest in the United Kingdom. We lag behind other European countries in the aid that we give to the manufacturing sector. While I congratulate the Department of Trade and Industry for its new attention to manufacturing, it is vital that we invest in research and development. We should rectify the imbalance and push Britain to the top of the research and development league.
Mr. Frank Doran (Aberdeen, Central): I thank the hon. Members for North Wiltshire (Mr. Gray) and for Manchester, Central (Mr. Lloyd) for their brevity. I congratulate my hon. Friend the Member for Newport, West (Paul Flynn) on securing the debate. Clearly manufacturing industry is extremely important to us. I want to focus on a narrow point that relates to a company in my constituency called Richards plc. Aberdeen, as the Minister knows, is the energy capital of Europe. We are perceived to have a fairly rich economy. The manufacturing industry that we tend to talk about is the oil and gas industry.
Richards has existed in my constituency for over 300 years. It is a textile company operating in a difficult market. It suffers from all the problems that hon. Members have described this morning. It is an exporting company and it has problems with the rate of the pound. Over the past few years it has faced serious difficulties. There were management problems and the management has been replaced. There is the problem of competition and the problem that the whole UK textile industry faces. Its main competitors are based in Belgium and it is concerned that the Belgians can invest more and pay higher wages but can still undercut British companies in the price of their carpets. The company has sought to address that problem through Europe and has lobbied the Government persistently.
For some years the company has been attempting to refocus. It owns plants in Aberdeen, Cumnock in Ayrshireclose to the Minister's constituencyand Wetherby in Yorkshire. It has worked closely with the Bank of Scotland, which has been totally supportive. The bank's attitude changed slightly after the events of 11 September because of their effect on the export markets and, as one of Richards' largest customers is the Hilton hotel chain in the United States, there were problems for the company's exports.
In all respects, the company seemed to be moving forward. However, it recently went to the bank to ask for a restructuring of its finances and found that the bank's attitude had changed significantly. It decided that it wanted to have another look at the company and instructed the accountants KPMG to produce a report. The company was consulted in that process, but the directors were extremely disappointed by the narrowness of the report. It focused just on protecting the assets of the bank, not on the company's wider strategy, a strategy with which I was familiar because I had been closely involved in some of its aspects during the past three or four years. When the bank received the KPMG report, it decided that it could not support the company any longer. A pistol was effectively put to the head of Richards' directors, and it went into receivership just last Monday.
A decision was then made to appoint KPMG as the receivers. I find that difficult to understand. As a lawyer, I am conscious of the rules on conflict of interest and have brushed against them myself in the past. That is the clearest example of it. It is one that faces many small manufacturing companies that go through difficult times, have a close relationship with their bank and are constantly on the edge. I am concerned about not only whether the individual case of Richards will resolve itself, but what the case shows, particularly as another bank has taken a different approach.
The Bank of Scotland shares its attitude with almost all other British banks, but there is an example that I urge the Government to examine. Four or five years ago the Royal Bank of Scotland decided to change its policy on such incidents and chose not to allow firms that were sent out as consultants to be appointed as receivers. Consultants were clearly told that receivership work was not on offer to them. Such a move puts accountancy firms in a difficult position. In the Richards case, the estimate of receivership fees was in excess of £1 million, which is quite a carrot for a company. I am not suggesting that anything illegal or dishonest has happenedI have no evidence to do sobut the perception is important.
The Royal Bank of Scotland found that its customers were reluctant to comply or co-operate with consultants in such situations. That led to delays in final decisions being taken and uncertainty being created in the work force, so it changed its practice. There have been positive benefits. Figures given by the Royal Bank of Scotland show that, despite having 35 per cent. of business customers in Scotland, it was responsible last year for only 18 per cent. of receiverships. That is a positive benefit, which the bank believes has enabled it to have a different relationship with its customers. There is no
It is a small point compared with the other points made by hon. Members this morning, but it is no less important to the thousands of small businesses up and down the country, particularly in manufacturing, that are facing difficulties in the present economic climate. I urge the Government to examine that practice, which will be on their mind after Enron's collapse and details of its relationship with its accountants have emerged. There is ongoing discussion about whether auditors should be allowed to do consultancy work, and that falls into the same territory. There are clear conflicts of interest that are not good for the accountancy profession or, in particular, for manufacturing in this country.
Dr. Vincent Cable (Twickenham): I, too, congratulate the hon. Member for Newport, West (Paul Flynn) on introducing the debate. I have attended three of these debates over the past 18 months and have noticed a vivid contrast between the low-key way in which we debate the crisis in manufacturing and the reaction in Parliament and among the public to problems in agriculture. Clearly, that sector has problems that should be exposed but, lest we forget, it employs less than a 10th the number that manufacturing employs and contributes about a 10th of what manufacturing contributes to the national economy.
To put the matter in context, it was right for previous speakers to emphasise the problems of Wales, which are acute, particularly in the south. Manufacturing employment in Wales is slightly above the national average. However, we have not heard about the real manufacturing heartlandsthe west midlands, followed by the east midlands, the north-east, the north-west and Yorkshire. The biggest contraction in manufacturing employment is taking place in those areas. [Interruption.] The hon. Member for Manchester, Central (Mr. Lloyd) made a valuable speech about his region.
In many ways, this is a long-term problem. Manufacturing has lost 2.5 million workers since 1979. There has been a staggering decline in manufacturing employment, from 30 per cent. of total employment in 1979 to about 15 per cent. now. Even within the western world, such decline is almost unprecedented. Some people glibly say that it does not matter much because the decline in employment is the result of higher productivity, and manufacturing still contributes to wealth creation, even if jobs are lost. Certainly, within the past couple of years, there have been striking increases in productivity of, I believe, 6 per cent. in 1999 and 4 per cent. in 2000.
However, we must not be complacent. Such an approach assumes that the workers affected find something more productive to do. I do not know whether the Department of Trade and Industry still does tracking studies, as it did in the 1970s, but I suspect that most of the people who have been displaced from manufacturing industries disappear from the labour force. Many are men in their 50s who do not register as unemployed but simply drop out of the labour statistics. Thus, in a meaningful sense, national productivity is not increasing.
In addition to the long-term problem, there is a short-term crisis. This is where the Government's responsibilities kick in. Despite the fact that productivity has been growing, manufacturing output has grown by only about 1 per cent. a year since 1977. Growth is virtually stagnant, and all the signs are that the situation is becoming worse rather than better. Two key studies have been done during the past few months. One is the Confederation of British Industry study of industrial trends, and the other is by the Engineering Employers Federation. Both produced extremely negative and worrying predictions about what is likely to happen in manufacturing in the next year or so.
That leads us to consideration of policy and the Government's responsibilities. There are three fundamental causes of the current crisis in manufacturing. One of them is international and is, largely, beyond our control. There are worrying signs that the temporary recession in the United States, which has a serious problem of debt overhang, may become more permanent. The right hon. Member for Newport, East (Alan Howarth) made a helpful intervention about trade. There is a real danger that, if the international recession drags on, countries such as the United States may deal with it through beggar-my-neighbour policies. Other countries would retaliate, and industries such as steel would be dragged into a trade war. The Government have a responsibility in Europe to make clear our commitment to an open trading system and our willingness to fight for it.
The second cause is home-grown policy. The Government have pursued policies that have been helpful to industry; for example, interest rate stability and low inflation. However, in some ways, they have made the problem worse. The climate change levy has been mentioned. The Government should not be allowed to get away with the idea that it is part of the price that industry must pay for an environmentally friendly future. The point has been made many times that, if the Government really wish to deal with carbon dioxide emissions and climate change, there are methods of taxation that can be applied upstream, such as the carbon tax, which would avoid problems for manufacturing industries. Instead, they chose a cumbersome route that is particularly onerous for industry.
The third cause, which the hon. Members for Newport, West and for Newport, East touched on at length, is the role of the exchange rate, on which I am closer to Newport, West than Newport, East. Two distinct aspects of that issue have been blurred. First, the exchange rate has nothing to do with the pros and cons of entering the eurozone, but if we are to enter the euro, it must be at the right rate.
Last week, the Chancellor took a key step by commissioning Professor Wren-Lewis of Exeter university to determine the right exchange rate for our entry into the euro. The exchange rate has appreciated by 30 per cent. in real terms since 1995 in relation not only to the euro but to currencies such as that of Koreaa country against which we compete in manufacturing. More than any other single factor, that has created the current crisis. Companies had their margins squeezed; because their margins were squeezed they stopped investing; they are now laying off large numbers of workers. The exchange rate is critical to the current debate about manufacturing.
Secondly, and this is a separate issue, exchange rate stability takes us to the heart of whether it is a good thing to enter the euro. In manufacturing one needs a stable environment. A variation in the exchange rate of 10 or 20 per cent. in a short period wipes out improvements that one may obtain by improving performance. The Government have a role in ensuring greater stability through the exchange rate. That is why a commitment to a zone of exchange rate stability should be a key part of their long-term strategy, which would mean entry into the eurozone.
Mr. Philip Hammond (Runnymede and Weybridge): The hon. Member for Newport, West (Paul Flynn) has been assiduous in trying to get debates on the Floor of the House on job losses in manufacturing industry. That is the subject of today's debate, and I shall try to focus on it.
The facts speak for themselves: between 1998 and the end of 2001 nearly 500,000 manufacturing jobs were lost. Manufacturing jobs as a percentage of the total work force have decreased from 15.8 to 13.8 per cent., in sharp contrast with previous years during which the percentage of manufacturing jobs was stable and the number of such jobs rose slightly.
The right hon. Member for Newport, East (Alan Howarth) mentioned that manufacturing output fell by 5.5 per cent. during the past year. Turnover in the engineering industries was down by more than 7 per cent. in the last three months of 2001 compared with the previous three months. More worryingly, order books in the engineering industries were 12 per cent. lower in the last quarter of last year than in the last quarter of the preceding year. We are therefore running record trade deficits.
Manufacturing output and employment have been hit before, but we are seeing the sharpest fall in output for a decade, and it differs from previous recessions in that the manufacturing sector is being disproportionately hit while other sectors of the economy continue to do relatively well. Hon. Members have sought to put their fingers on the causes of the problem, and of course currency exchange rates and our ability to operate in the international arena have something to do with it.
I do not intend to debate exchange rates, because we have already been round that course, but it is apparent to Opposition Members and other observers that the Government have their own agenda in relation to the euro and currency exchange rates. That agenda does not include what matters to manufacturing industry; it concerns the politics of the decision on the euro, and the Government's particular problems over that decision. That is deeply unhelpful to industry.
Currency factors are only part of the package, because industry examines its total costs and burdens. The hon. Member for Twickenham (Dr. Cable) mentioned productivity, and despite the Chancellor's exhortations the gap in productivity between the United Kingdom and the United States has stubbornly failed to closeindeed, it is widening. Labour productivity in manufacturing is driven by several complex issues, but with profits squeezed and investment in new machinery and training down, productivity improvements are unlikely to be strengthened.
In the short term, the Government could help to offset the foreign exchange effects from which industry is suffering by fiscal policies, easing the burden of regulation and encouraging flexibility in labour markets. Unfortunately, in every case the Government have done precisely the opposite of what industry needs, despite their rhetoric. They have piled an extra £5 billion a year on business in taxes, many of whichthe climate change levy in particularare targeted at manufacturing. A report out yesterday suggests that there is worse to come if Britain is to meet its Kyoto targets.
The Government have piled on bureaucracy and red tape, transferring to businesses a large part of the burden of running our social welfare system. Last year alone, there were 4,642 new regulations, a 50 per cent. increase from 1997. The British Chambers of Commercenot usually quoted as a friend of the Oppositionsaid recently that
Just as our competitors are beginning to deregulate and recognise the need for greater flexibility in labour markets, Britain under a Labour Government is going in the opposite direction, reducing flexibility and making Britain's competitive position even worse. Government policy exacerbates rather than ameliorates the impact of the exchange rate on our manufacturing businesses. The response that we get from the Government is largely lip service. We have had manufacturing summits, the announcement of a new tsar for manufacturing and, perhaps most bizarrely of all, the announcement in the House of Commons in December 2000 of the ministerial group on manufacturing job losses. The Leader of the House told us that that would consider a range of manufacturing issues. Answers to written questions have established that the group, announced with such a fanfare, has never actually managed to meet, despite the shake-up of nearly half a million jobs in our manufacturing industries.
What manufacturing now needs is action: action on tax, on regulation and on skills and competitiveness. We need an immediate moratorium on the introduction of the new and costly environmental and employment regulations in the pipeline. We need a breathing space for manufacturing industry to regroup and recover so that profits, and therefore investment in plants and training, can resume in order to underpin the long-term health of our manufacturing economy.
If he talks to some business men, he will find that the issue is about tax and regulation. This Government stand charged with breathtaking complacency and gross hypocrisy as they now act out in office the caricature that they painted of the previous Government's attitude to manufacturing industry.
Those are the words of the now Chancellor of the Exchequer in October 1991. I have the honesty to acknowledge that what he said then was true. I will be interested to see whether the Minister will have the decency to acknowledge that that is true today of this Government and this Prime Minister.
In 1993at the bottom of the cycle of manufacturing job losses, just before the situation stabilised and jobs in manufacturing started to increase, as they did during the following four yearsthe Minister said of the Conservative Government:
I acknowledge that mistakes in monetary policy were made in the late 1980s and early 1990s. With the support of the then Labour Opposition, a wrong policy was chosen. The question is whether he, as a member of a Government apparently committed to pursuing the same mistaken route, has the guts to accept responsibility for the disaster that is decimating British manufacturing industry and struck the constituency of my hon. Friend the Member for North Wiltshire (Mr. Gray) only this morning.
The Minister for Industry and Energy (Mr. Brian Wilson) : I congratulate my hon. Friend the Member for Newport, West (Paul Flynn) on securing this debate. The Government believe that manufacturing matters and must play a central role in our future as a leading knowledge-driven economy. I shall be happy to discuss where responsibility lies and other issues to which the hon. Member for Runnymede and Weybridge (Mr. Hammond) referred.
We accept that we have an immediate priority to meet, which is in gross contrast to our predecessors. Where difficulties arise, we get in alongside industry, the community and trade unions to work for the best possible outcome. We want to try to prevent the loss of jobs and, if they are lost, to find new ones. That could
Mr. Wilson : The hon. Gentleman has delayed me, even with his short intervention, by coming to Dyson. I will deal with that in the course of my remarks; unlike past Tory Ministers, we do not necessarily stick to the script in front of us and can improvise in response to issues that arise during debate.
Manufacturing accounts for more than one fifth of our national income, and almost £150 billion of output each year. The sector employs about 4 million people directly, and millions more depend on manufacturing for their livelihood, including 2.5 million in the service sector. It is led by some of our most innovative businesses investing heavily in research and development. Manufacturing drives innovation in the rest of the economy, creates jobs and prosperity, and is responsible for productivity improvements across the whole economy through advances in technology, new goods and processes.
As hon. Members have said, it is tough for manufacturing and its workers right now. Output in manufacturing has gone down by 5.5 per cent. in the past 12 months, and 153,000 jobs have gone from the sector in that period. However, as my right hon. Friend the Member for Newport, East (Alan Howarth) said, the problems that manufacturing industry is experiencing are far from unique to Britain: last year, manufacturing output fell by 5 per cent. in Germany, 6 per cent. in the United States, and 14 per cent. in Japan. The simple message of those statistics is that no country can isolate itself from the downturn in the world economy. For instance, there has never been a recession in the United States that has not caused a contraction in Britain.
It is worth noting that in the past 20 years the proportion of people employed in manufacturing as a share of the total employed fell from 23 per cent. to 13 per cent. At the same time, in real terms value, the goods that they produced rose by a huge 36 per cent. A big element is that fewer are working in manufacturing to produce more goods of higher value. That is why we must keep producing new products and companies, and try to create a self-renewing process. Only in that way will we prosper in competition with low-cost producers. Our aim is to have many highly skilled, highly paid people working in manufacturing.
I want to deal briefly with specific issues that have been raised, and will be pleased to pursue further discussions on each and every point. The hon. Member for North Wiltshire (Mr. Gray) referred to the disappointing announcement by Dyson today. I want to make it clear that, according to the information that I have received in the few minutes since he spoke, the Department of Trade and Industry has had no contact with Dyson about that. No notice has been given of the announcement.
Through the medium of this debate, I say to Mr. Dyson, and to Sir Richard Needham, a former Tory Minister at the Department of Trade and Industry, that it would have been useful if the Government had had an opportunity to work with the company in advance of the announcement to see what could be done. I would welcome such contact now that the announcement has been made. In his press release, Mr. Dyson states:
I take comfort from the statement's conditional tense: there must be room for discussion, and I hope that there is more to Dyson's calculations than the obvious statement that labour is cheaper in Malaysia than in Malmesbury. There are other factors, such as loyalty, to be taken into account.
I hope that we can have meaningful discussions with Sir Richard Needham, with Mr. Dyson and with the hon. Member for North Wiltshire. We did not know of the announcement about this symbol of British industry and excellence until this morning; we should be able to discuss the matter to see what can be done to soften, or remove, the blow to the hon. Gentleman's constituents. I cannot do anything unilaterally: I can help only if the company says that it is interested in discussions and has not already decided to go to Malaysia.
I recently visited a plant in Indonesia that makes Royal Doulton pottery and pays its labour force $30 a month. I do not think that hon. Members, even on the right wing of the Tory party, would want their constituents to work for such a wage. If it is just a matter of wage rates, we lose, but there are many other factors in the Dyson case, and I hope that we can discuss them.
My hon. Friend the Member for Aberdeen, Central (Mr. Doran) raised several matters. I want the Bank of Scotland to tell me why it is appropriate for KPMG to occupy both roles in relation to Richards plc, but it is a mattercertainly in this instanceon which we cannot legislate. However, I note what my hon. Friend said and ask for a response from the Bank of Scotland.
My right hon. Friend the Member for Newport, East raised the matter of steel and the WTO. We are represented in these matters through the European Union, and if the United States acts in the way suggested, the EU will seek action through the WTO in response to such a threat. It is for individual member states and the EU to consider any compromise solution that the US may propose. Much thought has been exercised on the matter in the trade policy division of the Department of Trade and Industry.
I have dealt with individual cases, so I shall not say much more in general about manufacturing, except to state that the Government, particularly since the wave of manufacturing job losses, are not merely reacting to events. Our approach is to be proactive: we are working alongside companies, trying to improve our support and the flow of information available to pre-empt such developments.
There are many successes in manufacturing industries, and the worst thing would be to talk them down or to ignore them and thus to suggest that the entire British manufacturing sector is blighted. Most importantly of all for the future of modern manufacturing, we must continue to strengthen our