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5.43 p.m.

The Minister of State, Department of Trade and Industry (Earl Ferrers): My Lords, we have had a most interesting debate, initiated by my noble friend Lord Trefgarne. I should like to repeat what others have said and thank my noble friend for having given the House the opportunity of discussing the important subject of manufacturing industry.

A thriving manufacturing industry means a healthy small firms sector. There are nearly 3 million firms in the country, and 96 per cent. of them employ fewer than 20 people. Therefore, a thriving manufacturing industry implies, and is dependent on, a thriving small firms sector.

I agree with my noble friend Lord Skelmersdale that small firms are important. My noble friend also referred to charities which are important too. He raised some specific points about charities which I should like to look into before writing to him. I am unable to give him an answer immediately on what is obviously an important matter.

The Motion brings together the two strands that are at the very heart of the Government's industrial policy. I refer to the small firms sector and the need for a thriving manufacturing sector. I would want to leave your Lordships in no doubt as to the Government's commitment to a strong and vibrant manufacturing sector. Manufacturing has traditionally been the way by which a country can increase its growth, whether it is a third world country or a developed country. After decades of decline, the 1980s saw a significant improvement in the competitiveness of our own manufacturing industries.

Since 1981 manufacturing output in the UK has risen by 25 per cent.; productivity has risen by over 75 per cent.; and exports are up by well over 80 per cent. That is a good performance, particularly when we bear in mind that it has taken place over a period when we have witnessed a world recession of almost unparallelled severity. But this strong performance is continuing.

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Manufacturing output is 5 per cent. higher now than it was a year ago—and that is the strongest growth since 1989.

I know that in making these remarks I shall upset the noble Lord, Lord Ezra. He says that the fact that we always mention the good points shows that we are complacent. I do not think that that is the case. I make no apology for mentioning the good points. I believe that as a country all too often we denigrate ourselves and mention only the bad points. Yet when we do well and say so, the noble Lord, Lord Ezra, says, "You're complacent". The noble Lord's speech was, as always, fascinating. But it was also a bit depressing. The noble Lord said, "We'll have to wait and see what happens to firms when we have the next economic cyclical downturn". That reminded me of the lovely song that Stanley Holloway used to sing, "Oh my word, you do look ill". That almost encapsulates the otherwise fascinating speech of the noble Lord, Lord Ezra.

Manufacturing is important, but so also is the service sector. The two are vital. It is not a matter of trading one off against the other. We need both to be competitive. What is more, they need each other. The Government also recognise the true value of small firms. Many of your Lordships have referred to their importance. They are a vital source of new ideas and new products. They also provide services and, very importantly, new jobs. They stimulate competition and they help individuals to realise their personal ambitions. That is no bad thing. From among their ranks some of the great names of tomorrow will emerge.

Small businesses are built up by hard work, by dedication, and, very often, by personal sacrifice. I welcome this opportunity to applaud the success of those who are involved in small businesses and to assure your Lordships that the Government are determined to see that their well being continues.

Taken as a whole, the role of the small firms sector in creating jobs has been particularly impressive. It is worth reminding ourselves that in just two years, between 1989 and 1991, firms with fewer than 20 employees created an additional 350,000 jobs. When one looks at the number of extra jobs created and the number of small firms that have started up, it is interesting to note that six out of 10 were initiated by people with no prior business experience. I do not think that that is something to be ashamed of; I think we can take great pride in the fact that there is an entrepreneurial spirit in our people and a determination to try to do their bit for their families and their country.

Taken as a whole, the role of the small firms sector in creating jobs has been particularly impressive. The number of business start-ups remains buoyant at about 400,000 a year. There is every indication that firms of that nature will remain a crucial and vital source of new jobs. Small firms have a powerful influence on the economy. They are at the forefront of economic recovery. We have only to look at the survey of smaller manufacturing firms carried out in the summer by the CBI in conjunction with Panell Kerr Forster. It shows that output and new orders, particularly export orders, have increased strongly. No less importantly, but rather

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less tangibly, the survey shows an increase in business optimism, in employment, and in export confidence. I hope that that will encourage the noble Lord, Lord Ezra.

There is further evidence of the prospects for small manufacturing firms. The last Quarterly Survey of Small Businesses in Britain undertaken by the NatWest and the Small Business Research Trust shows that throughout 1994 manufacturing was one of the most optimistic sectors in terms of expected sales and that it remains the single most optimistic sector for growth in employment. Those are encouraging facts.

The objective of the Government's policies for all businesses, small and large, can be summed up in one word. I make no apology for using it. That word is "competitiveness". Competitiveness means having what it takes to obtain business in world markets against the competition of others. It is the only way to guarantee our future prosperity. It does not necessarily mean producing the cheapest item, although cheapness is of course important. It means providing the best value for money; it means producing goods of the right type, at the right time and in the right place; and it means creating confidence in the purchaser. People will often buy something which is not the cheapest, merely because they have confidence in the product and, in particular, in the manufacturer.

Markets are increasingly global rather than national. The pace of change is accelerating. It is not slowing down. When I was a young man I went to Singapore. The journey took four weeks. I went there two months ago; it took 13 hours. Everyone said what a terribly long journey it was. But, of course, it is not. It is, relatively speaking, around the corner. So are all the other places in that part of the world. There are tremendous opportunities there for us. But there are threats too. I agree only marginally with the noble Lord, Lord Peston, when he says that countries in the Far East are producing goods at a rate we cannot possibly match. To some extent, that is true. However, I was surprised to be told the other day that women's wages in Korea are higher than those in Northern Ireland. That was as much a surprise to me as I dare say it is to the noble Lord.

Lord Peston: It is indeed.

Earl Ferrers: What all this means is that our companies are operating in an increasingly competitive world, especially with the emergence of the fast-growing nations of the Far East and the new markets in eastern Europe. Those changes bring tremendous opportunities but they also bring threats. Improving competitiveness is essential; it is fundamentally down to individual companies and their managers to achieve it.

I agree with my noble friend Lord Caldecote that governments have to set the conditions. On the whole he felt that industry had not made the best use of them in the past. He said that much has been done, and he is right. Much has been done. But it is also, as he said, being done by our competitors too. We cannot stop the search for increasing competitiveness. That is something which will go on and on.

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Earlier this year the Government published a White Paper. It was not a DTI White Paper. It was a White Paper which articulated, for the first time, policies across all government departments which have a bearing on the competitiveness of industry. It is, I suppose, the first time that any government have said, as a matter of policy, that before they bring forward any legislation they must first ask the question, "How will this affect the competitiveness of industry?".

Enhancing competitiveness is not something one can achieve by turning a knob, issuing a diktat, or passing a law. Competitiveness is a culture of continuous improvement. Everyone has to play his part in that, including smaller companies. They have a crucial role to play.

New regulations are framed with small businesses in mind. We require that all legislative proposals brought before Parliament, which impact on business, must have an assessment of their compliance costs. That must include a small business test to show how the regulation will impact on small businesses. My noble friend Lord Skelmersdale said that he wanted the climate to be right. He wanted low inflation, low interest rates, more deregulation, and less tax. I agree. In some ways he asks for Utopia. We have already done a great deal. The policies the Government have been pursuing have resulted in inflation running at its lowest level now for over a quarter of a century; interest rates being brought down to their lowest level for 17 years; and unemployment dropping by 400,000 since the beginning of 1993. That means that more people are employed.

An essential ingredient in getting the climate right, particularly for smaller enterprises, is to minimise the burden of bureaucracy. Industry cannot get on with its job of producing and selling if it is perpetually strapped around with red tape. Deregulation is an essential part of the Government's strategy for improving competitiveness. Our aim is not just to strike out regulations which are unnecessarily burdensome on industry but to ensure that regulation which is necessary is thought out properly and soundly and properly based. The new powers available to us under the Deregulation and Contracting Out Act are a major advance in the deregulation campaign.

My noble friend Lord Trefgarne was right when he said that industry must become more efficient. I agree. It must. Much of it is, but a great deal of it has a long way to go. My noble friend was also right to applaud the fact that we are not part of the social chapter. The noble Lord, Lord Peston, said that he could not see that being out of the social chapter could be good for staff relationships. The noble Lord looks worried. I am paraphrasing what he said. He looks less worried now, so perhaps I have it right. I can tell him why it is good for staff relationships. It means that other people invest in this country. Forty per cent. of investment from Japan into the EU comes to this country; 43 per cent. of all investment from America into the EU comes to this country. Why does it come to this country? It is because

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we have a better climate; our labour costs are more competitive than those of other countries. That produces good jobs, and that is good labour relations.

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