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Lord Bach: My Lords, no, I am not in a position to be able to tell the noble Lord that. I would of course if I could. I am sure that in due course there will be an answer to that question.

Lord Campbell-Savours: My Lords, is there not a strong argument for involving elements from within the peshmerga in all UK and indeed many American operations in the field, for reasons which I am sure we would all understand? What can my noble friend report on the earliest possible reformation of a properly maintained and equipped Iraqi army?

Lord Bach: My Lords, we shall take away and consider my noble friend's point about the peshmerga. As far as concerns an Iraqi army, I know that the United States have started to put together an Iraqi army. That process is in its early stages. A number of people now make up that force, but there is no doubt that it has a long way to go.

Baroness Sharples: My Lords, can the noble Lord tell us what is the exit strategy after this appalling incident?

Lord Bach: My Lords, I shall not go into details concerning exit strategies. Perhaps I may just say to the

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noble Baroness, that, although yesterday was an appalling day—an enormous tragedy for all those involved and shocking to this country—the fact is that some excellent work has been and continues to be done by our troops in Iraq. It would be dreadful to allow yesterday's incident to deflect us from our efforts to make Iraq a better place.

Lord Hylton: My Lords, is it not clear that armed attacks on allied forces must be resisted by military means? However, the amount of looting and smuggling that continues surely indicates that the first priority in the civil sector must be to reorganise and retrain an Iraqi police force. That, in my view, is far more important than recreating an Iraqi army. That can happen later. Will the noble Lord report to and consult his colleagues on the need to draw into Iraq Arabic-speaking police officers from the rest of the world?

Lord Bach: My Lords, the noble Lord makes a very important point. We have been doing a great deal of work on that issue. The Chief Constable of Hampshire has been advising. Of course, our own Royal Military Police—and again I am not talking about this incident—along with civilian police officers have been busy trying to assist to build up a police force in Iraq. For example, not in our own area of operations but in Baghdad, 18 police stations are now running and five more are due to open in the next month. In the south of the country, in our area of operations, since the middle of April we have helped to set up a police force that is already having an influence on securing civil life.

Lord Desai: My Lords, before the war started, many of us were afraid that there might be hand-to-hand combat and much guerrilla fighting during the first phase of the war. That first phase was mercifully short but the tail of the war will be long. We must be prepared for a long engagement. We should not lose heart at this stage just because of this dreadful occurrence.

Lord Bach: My Lords, I entirely agree with my noble friend. We hope that the engagement will not be very long, as he surmises that it may, but we must not lose heart. It is important to keep going. Otherwise, the forces of evil really will win.

The Earl of Sandwich: My Lords, does the Minister agree that the vast majority of Iraqis want peace and must now feel regret about the loss of our servicemen? Is it not a matter of great regret that our media are unable to report the feelings of that majority?

Lord Bach: My Lords, the noble Earl is right. I am sure that the vast majority of the Iraqi people want nothing more than peace and freedom and are as appalled by yesterday's events as we are. As for the media, some properly report that fact, but perhaps they should do so a little more prominently.

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Earl Attlee: My Lords, I remind the House that I am still technically an officer serving in her Majesty's regular Armed Forces. Next week I shall be unmuzzled. I did not hear the Minister agree with my noble friend Lord Vivian or the noble Lord, Lord Redesdale, that the tactics of the operation are a matter for the General Officer Commanding and his staff in theatre. It is essential to get that right.

Lord Bach: My Lords, I have never known the noble Earl to be muzzled, but he is absolutely right to remind me of a question that I did not answer, which I should have done. Of course, the noble Lord, Lord Vivian, is right: tactics must be a matter for commanders on the ground. There is no suggestion—I do not think that the noble Lord thinks this is so—that Ministers in Whitehall will start issuing orders for British troops on the ground in Iraq.

Lord Inge: My Lords, I am grateful to the Minister for what he said. First, I associate myself with the condolences to the families of those who were killed. I say that having at one stage in my life had the privilege of being the Colonel Commandant of the Royal Military Police. I endorse what was said. I also endorse what has been strongly argued: it must be the local commanders on the ground who dictate tactics.

The main lessons that we should draw from that tragedy are, first, that Iraq is a much more dangerous country and operation than many people have been prepared to accept. It is unfortunate that we have had a sort of beauty contest between ourselves and the Americans, which helps no one. Secondly, I heard what the noble Baroness said about an exit strategy, but if we talk about an exit strategy now—although we may think about one—we send a terrible message to the people on the ground. We must recognise that if we are to be there, as the noble Lord, Lord Desai, said, we must be there for the long haul. That is enormously important.

I was relieved to hear the Minister say that there are plans for reinforcement. I know that some people among the American forces and our own feel that we do not have sufficient troops on the ground to deal with the situation. Finally, as the noble Lord, Lord Redesdale, suggested, we must be careful about getting some troops from here and some from there. If we get a mismatch of forces, without any clear concept of operations, we shall make the situation worse rather than better.

Lord Bach: My Lords, I am most grateful to the noble and gallant Lord, especially for his condolences, bearing in mind the positions in which he has served in the Royal Military Police. I agree with all his comments about the dangers in Iraq and the stupidity of having a beauty contest between the Americans and ourselves. I agree with every point that he made.

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Steel Industry

4.3 p.m.

Lord Brookman rose to call attention to the state of the United Kingdom steel industry and of United Kingdom manufacturing generally; and to move for Papers.

The noble Lord said: My Lords, first, I congratulate my noble friend Lord Davies of Oldham on his elevation to Deputy Chief Whip. From having campaigned with him in South Wales, I know that he has a keen interest in steel and manufacturing in general. So I await with interest what he has to say on the Government's behalf when he sums up. I should also like to say how much I appreciated the telephone call that I received yesterday afternoon from my noble friend Lord Sainsbury of Turville, who is in America seeking further inward investment. He apologised for being unable to be here, but apologies are unnecessary, because the work that he is doing in America is vital for jobs in this country. I hope that he has success.

I am pleased to have this opportunity to raise the state of the steel industry and other manufacturing industries, many of which depend on steel. I speak as the former general secretary of the ISTC, the community union, which has in its membership the great majority of employees in the British steel industry, as well as an increasing number of people in other manufacturing sectors.

Your Lordships might think that I should have applied the adjective "former" to the British steel industry, as well as to my earlier job, as what appears most in the media is news about cuts in employment and closures. Indeed, some take the view that we have no steel industry, saying, "Steel industry? What steel industry?". However, the truth is quite different. The steel industry of this country is among the very top national industries in terms of adding value to inputs. Although steelworkers are relatively well paid throughout Britain, less than one-fifth of the operating costs in steel are employment costs and the people who are employed are, according to the Iron and Steel Statistics Bureau. the best in the world in terms of output per employee.

Further, it may come as a surprise to some to know that productivity in the British steel industry has improved at, on average, a rate of 10 per cent annually during the last quarter of a century. So if the question of the failed productivity challenge is raised, I sincerely hope that steel is not cited. Unfortunately, among the manufacturing industries, steel has lost as high a proportion of jobs as any other sector. Indeed, steel companies employ only a tenth of the people whom they did 30 years ago. They produce only a slightly reduced tonnage, but Britain has declined from being the second largest producer of steel in Europe to fall behind France, Italy, Turkey, Spain and, this January, even Belgium.

Closures of plant have resulted in Britain becoming, in 2001, a net importer of steel for the first time in history. Would that that were all. At the end of April, Corus, once British Steel, announced that it would

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close its plant at Stockbridge in Sheffield and cut off its major steel-producing plant in Teesside from the main company, to fend for itself, it would seem, as a producer of slabs. If all that comes to pass, a further 3,300 jobs could be lost directly in the steel industry and several times more would be lost in the communities depending on steel plants for their livelihood.

I hope that your Lordships will forgive me the observation that the steel industry has gone the way of other strategic sectors of the economy that have been privatised. In telecommunications, water, electricity generation and supply and other key industries, companies are experiencing serious problems, suggesting to me, at least, that there must be better ways of ensuring that strategic national interests are properly protected than the present arrangements. That is just an observation.

In the case of steel—and here I speak of Corus—no informed and impartial observer would deny that its present plight is due to a variety of factors, one of which, I am sad to say, is strategic decisions, or rather the lack of them, taken at board level at Corus during the past three or four years.

Yes, of course, throughout nearly all that period sterling was at a rate against the euro that made it difficult for British production to compete, but the paying out of 700 million to shareholders, the accumulation of massive debt, the frequent switches of strategy and misreading of the signals, in my view—and, more importantly in the view of those working for the company—significantly contributed to the serious financial situation.

I am sure that, like me, all noble Lords wish the new chief executive, Frenchman Philippe Varin, and the new chairman, Jim Leng, every success in their daunting task of turning the company around. However, it is worth noting that, since the privatisation of British Steel in 1988, two previous chairmen have made their position abundantly clear. They said, "We are in the business of making money and not steel". In my capacity at the time I saw that comment as insensitive, given that thousands of jobs were lost. I hope that noble Lords share my view that there is an urgent necessity for the board of that company, the trade unions and the Government to ensure that, from the current weak position, they take appropriate action so that both the company's and the nation's interests are safeguarded.

I speak today not with nostalgia—although I wish to show why that matters—but with a desire to discuss the present position of manufacturing. In February, 3,449,000 people were employed in manufacturing—154,000 fewer than at the end of 2001 and 272,000 fewer than at the end of 1999. Manufacturing output has fallen by over 5 per cent since 1995. In the same period, the United States saw an increase of 21 per cent and even the so-called sclerotic euro-zone saw an increase of 17 per cent in manufacturing output.

The most significant reason for that decline has been a deplorably low rate of investment in plant and equipment. As a result, American employees have a

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quarter more capital stock than British workers; French employees have 40 per cent more, and Germans have 60 per cent more.

I hope that noble Lords share my view that we have an opportunity to reverse the decline. The exchange rate against the euro has moved sharply in favour of British manufacturers—by 10 per cent since the beginning of the year. That makes it much more difficult for competitors in the European Union to export to the United Kingdom and to make a profit, given the heavy cost of transport. We know that we have lost so much of the market share in Britain and that there are therefore vast areas in which to recover sales. That applies to the whole of manufacturing. If sales follow the improvement of British competitiveness, all British companies will be better placed to win back home markets and to penetrate markets overseas. Many people—probably some noble Lords—will say that the pound has appreciated against the United States dollar. But for steel and many other products, that, too, is an advantage because raw materials and energy resources are priced mainly in US dollars.

If we do not take this chance, the economic and social outlook for the whole country will be grim. Few Peers on these Benches—and, I am sure, across the Chamber—would argue against the Government's response to the crying need for investment in schools for our children, and in the NHS to provide medical services that our ageing population needs and deserves. It is a question of services vis-a-vis engineering, and so on. From 1979 to 2000, British manufacturing productivity more than doubled while productivity in services increased by a third, and in the whole economy by a half.

Without the contribution of manufacturing to the increase in national productivity and economic growth, Britain will not be able to raise the revenue to sustain the expenditure needed to pay for the improved NHS, schools, universities and other public services that the nation needs.

Without the recovery of manufacturing, the trade deficit will continue to widen. We already have a trade deficit of 52 billion, and sooner or later the inflow of foreign funds will dry up, leaving us with an insoluble foreign payments problem. My key point is that Britain will not have a manufacturing base to sustain employment and production on a scale necessary to be competitive unless it has a successful national steel industry to supply it.

The cost of importing steel is a major part of the package. The costs of nearly all our manufacturing output would be increased by a significant margin. There would be an attendant substantial cost on the future demise of the British steel industry stemming from the deep wounds that closures inflict on the communities that have provided the workforce for the blast furnaces, mills and all the other jobs surrounding steelworks.

Noble Lords know the communities involved and appreciate the human damage in places such as Ebbw Vale, my home town, where 50 years ago I joined my father and brothers in the steelworks. Even before the

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closure of that works in 2002, it was an area of high unemployment and social deprivation. The situation is extremely difficult, and I seriously applaud the National Assembly for Wales and Blaeneau Gwent Council which are both working tirelessly to alleviate the consequences of the closure of a works that once employed 13,000 people. My heartfelt wish is that the people of Teesside are not to have a similar fate. It must not happen.

That degree of human misery is bad enough, but it comes with a further price. Costs to social services and the funds that must be allocated for employment, regeneration and training are huge. The Prime Minister, whom I applaud, and other Ministers have already shown awareness of those problems. They readily support trade unions and the regional initiatives to generate employment and to equip former steelworkers with new skills. But only so much can be achieved through training and investment packages.

In that respect, I regret that Ministers in different administrations since 1979 have promoted mistaken ideas about the decline. I am reminded of a colleague who once looked at me and said, "You should understand, we live in a post-industrial society". I do not know how noble Lords feel about those words, but they haunt me. Should we really accept such a prospect, if it is a prospect at all? I think not.

    "Steel as a material remains vital to economic development, indispensable to construction and the raw material of choice for a vast range of industrial applications".

They are not my words, but those of UK Steel, a division of the Engineering Employers' Federation giving evidence to the Trade and Industry Select Committee in another place.

I feel more comfortable with that approach, as I do with the words of my successor, Michael Leahy, to the same committee:

    "The British Steel Industry is a capital-intensive, strategic asset operating in a highly cyclical sector. Without a national steel industry of at least present dimensions, crucial national and public interests would be jeopardised".

I share his views and hope that noble Lords do, too.

It helps nobody to say that services have replaced manufacturing in the scale of economic assets. A further interesting statistic is that, during the period 1979 to 2000, British manufacturing productivity more than doubled, while productivity in services increased by a third and in the whole economy by half. I say that because I strongly believe that services will simply not be able to generate the level of growth we need.

We know that the scope for the Government to help is, in some ways, limited. But much more could be done to stimulate research development; more could be done with public purchasing policy to ensure that UK-based manufacturing takes full advantage of the long-term orders being generated in the public sector, and much more could be done to match the public resources offered in active industrial policies in nearly

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all the other European companies. We must work to change the culture of "short-termism" that is destroying manufacturing.

It was pleasing for me—I am sure that it was pleasing to all noble Lords—to be told that the Cardiff steelworks, Allied Steel and Wire, where 900 workers were made redundant in July 2002 will re-open. As noble Lords know, the Spanish steel maker, Celsa, stated that it would definitely start making steel next month. It may be ironic that it has to be a Spanish steel manufacturer, but it is welcome news. It will invest 100 million in Cardiff in the steel plant Allied Steel and Wire and produce higher tonnages than was previously the case. From my perspective as a former general secretary of a trade union who has a warm affection for the people there, I hope and wish that the pension situation can be resolved to the satisfaction of those who lost their jobs last year.

I want to be optimistic, not pessimistic or defeatist, about the future of manufacturing in general and the steel industry in particular. I want the Government to give support in every conceivable way. I want employers and employees—particularly the new team heading Corus—to consult the trade unions properly. By that, I mean that it should happen before decisions are taken, not after—in partnership, if you like. Together with a proactive government, they can sustain and maintain a viable industry, which is vital to the future well-being of our country.

What is the alternative?

    "We are literally staring into the abyss".

Again, those are not my words. They are those of Derek Simpson, joint general secretary of Amicus, the main trade union in engineering. My Lords, I beg to move for Papers.

4.21 p.m.

Lord Roberts of Conwy: My Lords, I compliment the noble Lord, Lord Brookman, on securing this much needed debate. He has spent his life in the steel industry and knows its past as well as its present. I hope that I do not sound too patronising when I say that we had an excellent opening of the debate from the noble Lord. I found myself in agreement with a great many of the points that he made.

Those of us who remember a thriving steel industry and a growing manufacturing sector in the United Kingdom are concerned about their evident decline. We are not reassured by the fact that they are similarly in decline in the United States, in their share of gross domestic product. That only extends and deepens my concern about the future.

Some may wonder about my credentials for speaking in the debate. They are based on the fact that Wales was a major producer of steel. It still has Port Talbot—I am delighted to see the noble Lord, Lord Morris of Aberavon, in his place. Some of our place names are synonymous with steel: Ebbw Vale, where the noble Lord, Lord Brookman, was brought up, Port Talbot, Llanwern—I was present at the opening of the Llanwern works in the 1960s. There is Shotton—I am delighted to see the noble Lord,

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Lord Jones, here—Brymbo, Trostre, Velindre and so on. I visited them more than once, and I know that much of our manufacturing industry was drawn to neighbouring areas by the proximity of the steel plants. Ford at Bridgend is a good example of that.

It is sad to see Shotton and Llanwern today. So much investment is idle, so many skilled jobs have been lost. The Brymbo steelworks was sold to China and transported there bit by bit. I am sure that it now contributes to the increase in Chinese steel output. However, I shall not dwell on the past.

I am concerned about certain present matters. The first is the growth of competition in the steel trade world-wide and the obvious need to ensure that there is a level playing field, especially as far as concerns subsidies. I understand that talks are under way, under the sponsorship of the OECD, and I hope that the Minister will be able to report progress and possible lines of action, particularly with regard to EU candidate countries who are steel producers.

We all know that demand for steel in the United Kingdom has fallen by 35 per cent in the past 30 years. Since 2001, however, imports have accounted for more than half of our consumption, compared with 13 per cent in 1973. Another fact to which noble Lords will want to pay some attention is that, although demand fell by 12 per cent between 1998 and 2002, the import share rose by 7 per cent in just two years—from 1999 to 2001. Was that entirely due to the strength of the pound, or were there other factors at play that account for that enormous increase in imports and their percentage share?

We know that the Americans have taken a tough, protectionist stance and have imposed tariffs of up to 30 per cent on foreign steel imports. The EU retaliated, and I am happy to compliment the DTI on the part that it played in that. The United States has not adopted the Kyoto Protocol; neither have the Australians. Here in the UK, we appear to be more complacent. We are prepared to tolerate the cost penalties of environmental inhibitions and measures. I am not sure that we have the balance of our interests right in that regard.

As the Engineering Employers' Federation pointed out, much of the benefit of energy market reforms has been eroded by the imposition of the climate change levy and the obligation to purchase escalating amounts of highly expensive electricity from renewable sources. Those requirements are already adding to the steel industry's costs. In the longer term, the effect of the environmental measures will be to raise industrial electricity prices by up to 25 per cent by 2020 and gas prices by 30 per cent. Is that inevitable? Is it avoidable? Can it be ameliorated?

I am told that the German Government recently approved special arrangements for firms, including steelmakers, whose competitiveness is threatened by high-cost green electricity. Without something similar here that is not regarded as a subsidy, the situation hardly augurs well for the future of the steel industry in the United Kingdom. Sooner or later, the conditions of steel manufacture will have repercussions for steel users,

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including the construction and manufacturing industries. We face a serious situation, unless something is done to alleviate the high costs of energy to the steel industry.

I shall be brief in my comments on manufacturing industry. We all know that manufacturing output fell by 4 per cent last year, according to this year's Budget Statement. It was the sharpest fall since 1991. Other sources indicate that manufacturing investment is at its lowest point since 1984.

As your Lordships know, on a number of occasions I warned the Government that the Chancellor was over-optimistic even when he described himself as "cautiously optimistic" in his growth forecast for the economy as a whole. I also warned about the debilitating effects of increased taxation on investments. I regret as much as anyone that these gloomy forecasts are now coming true, partly because of the burden of extra taxation and regulation on business, estimated at 47 billion and 20 billion respectively since 1997. These are very substantial sums to take out of industry and then expect a good performance on industry's part.

The Government should be very uneasy about our economic prospects. Alarm bells should be ringing at the DTI and the Treasury. For a start, the Government should be giving the economy the higher priority it deserves if this country is, as the noble Lord, Lord Brookman, said, to produce the wealth necessary to sustain our standards of living at work, in retirement and, of course, the social services on which we depend. Mr Peter Hain, the Leader in the other place and Secretary of State for Wales, part time—but would-be Chancellor of the Exchequer, full time—was not right to think that the answer to the problems of wealth creation is more taxation. I am glad that senior Government Ministers stopped him from uttering his thoughts. Public sector jobs are not the answer either. The service sector is fine so long as it has productive sectors to serve.

Finally, there are strong rumours that the United States will reduce interest rates in the very near future. If it does, I hope that we follow the example to stimulate growth and investment in manufacturing and other productive sectors of the economy. The Government cannot simply revel in their largely inherited prosperity. They must look to the future and do what they can to restore the steel industry and return manufacturing to the path of growth.

4.33 p.m.

Lord Livsey of Talgarth: My Lords, it is a great privilege to speak in this debate. I congratulate the noble Lord, Lord Brookman, on his fine opening and the noble Lord, Lord Roberts, on his contribution. I am a former leader of my party in Wales. More importantly in relation to this debate—iron and steel are very close to my roots—my ancestors worked in Cyfartha ironworks in Merthyr. They were blacksmiths. They made thousands of nonconformist chapel gates from wrought iron. They conducted the Cyfartha band—indeed, the composer Joseph Parry wrote for it—which celebrates its centenary this year. Some remained on the land, others in iron and steel.

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By the end of the 20th century, the Crawshays had left Merthyr for Caversham Park, Reading, from which the BBC now benefits. All that was left was desolation and unemployment in Merthyr Tydfil. How many times has that been repeated in Wales? I can mention Dowlais, Blaenavon, Tredegar, Duport, Llanelli, and so forth and, in recent times, there were the cutbacks of the 1980s when thousands were laid off in Port Talbot, Newport, Ebbw Vale, Shotton and Brymbo. ASW and Corus have now closed plants in Ebbw Vale and Gorseinon and the labour force at Newport has been stripped out.

In the historical sense of the UK as a whole, it is a disastrous situation. Thirty years ago a quarter of a million people were employed in the steel industry. That figure decreased to 22,000 by 1999. Indeed, there were more successive waves of closure and some people estimate the current figure to be as low as 11,000. As noble Lords have said, there have been phenomenal increases in productivity. The labour force must be congratulated on that increase and on the flexibility with which it has operated. Sadly, the same cannot be said about the quality of the management of the industry. It is a very sad state of affairs. Since Corus took over the industry in the United Kingdom, it started at 18.5 million tonnes of steel produced. That has now gone down to 10.5 million tonnes—almost a halving of steel output since Corus has been in place.

There are many facets to the steel industry. There have been cutbacks on Teesside in the north-east of England and a complete shutdown of the industry in Scotland. From a once-great industry, we now have about 4,000 employees only left in Wales. I believe that employment in the industry has been squeezed down to the lowest amount possible. It cannot go any lower. Really, it is a frightening prospect with which we are confronted. One has only to look at the plight of that once famous steel town of Ebbw Vale and the real efforts being made by the National Assembly to create employment there. But, sadly, steel—an industry invested in by government to regenerate the community in the depression years—has gone for ever.

Steel is a fundamental building block of any economy. Manufacturing flows from it. The decline of manufacturing in the United Kingdom has resulted in a decline of demand for steel. The cause of that decline has been competition—some of it subsidised—which undercuts the steel industry. The tariffs put on by the US in protecting its own industry have had a devastating effect. Crucially, monetary exchange rates with the euro and the dollar have not helped, particularly in previous years—perhaps not in the past six months.

There has been poor management in the United Kingdom. Huge competition from large plants in Brazil, the Far East, India and eastern Europe has hit the UK steel industry very hard indeed. It is essential to have a strategy to keep the steel industry going. It is a crucial foundation of an industrial manufacturing base. It was a mistake for British Steel to amalgamate with Hoogovens of Holland in order to form Corus. But we are left with that situation; I wish the new management well in its efforts to rejuvenate the industry.

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There must be an action programme if steel production is to be kept going in the United Kingdom. It is important to keep the steel manufacturing industry in British hands. There have been efforts to amalgamate Corus with producers in the Far East and with CSN, for example. Only two or three months ago that was a real possibility. The Government have to act to save what is an important industry. It may be necessary for public sector ownership on a temporary basis to see it through. After all, last April Corus was worth only 280 million, a futile amount. The shares were worth 8p. I understand that the share price has now risen to 26p. But the company is worth very small beer in terms of the valuation on its books. It is absolutely crucial to have greater investment in bigger integrated plant, in particular at the Port Talbot works, so that the industry can compete internationally with the steel industries based in South America, India and the Far East. Some investment plans have been made, but I reckon that they will be insufficient to enable the industry to remain competitive.

Given that we have just been discussing the second Gulf War, it is extraordinary to think that, in the future, we could be using Challenger tanks made from steel possibly produced in South America. That is not a prospect that I or any other Member of this House should welcome. We need our basic industry and we need a secure defence structure for this country. We need to continue to produce template and alloy steels as well as developing our heavy engineering.

We need to build end-product production lines alongside some of our steel plants. I say that because part of the problem is that there has been insufficient demand for steel in manufactured goods to utilise the production from our steel plants. I have never quite understood why a new car production line has not been built close to a steel plant either in South Wales or in the North East, resulting in an integrated production system and ensuring demand for British-produced steel.

The relevant development agencies face a huge task in encouraging more demand for steel. But of course our steel has to be competitive on the world market. That has been a considerable problem. I congratulate the All-Party Steel Group which was formed in the other place. I know that Members of this House belonging to that group have been very active in promoting the steel industry. Manufactured products are vital in relation to the industry. To that end, an example of good co-operation has now developed between Teesside and Llanwern for the hot-rolling of steel.

In the meantime, I believe that the board of Corus has been thrashing around in pursuit of mergers. There are deeper problems here in which the Government must involve themselves. They must help in a fundamental restructuring of the industry. There may be a case for doing an "MG-Rover" exercise on the steel industry to resolve the problems the industry faces.

As a Welsh Member sitting in this House, what is important to me is the fact that manufacturing activity in Wales represents around 25 per cent of all its industry

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and employment. It is absolutely vital that both in Wales and in areas such as the north-east of England, where manufacturing is still an important factor for the local economy, we keep this fraction of the manufacturing base going. I know that greater value of output can be achieved in the service and high-tech sectors, but we must have a balanced economy.

Although I do not like to say it, I believe that both the steel industry and manufacturing generally have been victims of this Government's failure to join the euro. The Government, and in particular the Chancellor, have prevaricated over setting out the stall to ensure that the United Kingdom joins the euro. It is certainly vital for the survival of the steel industry. Of course the exchange rate has improved over the past six months, but that may be temporary. It is my belief that only by joining the euro will we see the business environment for steel and manufacturing improve and become secure for the long term.

4.44 p.m.

The Lord Bishop of Peterborough: My Lords, I am conscious that many of your Lordships have a much closer acquaintance with the steel industry than I have—most noticeably the noble Lord, Lord Brookman. I associate myself with those who have thanked him for initiating this debate. Perhaps it is presumptuous of me to seek to add to the detailed comments already made, but I should like to draw attention to the social consequences of the decline in the steel industry and, indeed, the decline in manufacturing generally. Those are consequences of which we are all aware and which need to be addressed. In doing so, perhaps I can add an English voice to the Welsh ones we have so far heard.

The diocese of Peterborough contains the town of Corby. Along with Consett, a town I know well from my time in County Durham, along with others that have been mentioned, Corby is renowned for the major reduction in British Steel's activities in 1980. Corby was a small village in Northamptonshire until the workforce for the original Stewarts & Lloyds plant was imported from Scotland, Ireland and Europe. Indeed, the predominant accent to be heard in Corby is still Glaswegian; it still boasts a Lithuanian church, while the Church of England probably has fewer adherents than the Church of Scotland and the Catholic Church.

The effect of the closure of the Corby steelmaking plant in 1980 was to make some 5,500 steelmen redundant, which at the time represented a quarter of the town's workforce. Happily the tube-milling plant remained and continues to operate to this day, while Corby has made great efforts to create new jobs. But at the time, in April 1980, the Economist described the town as having,

    "the social problems of a Clydeside ghetto in the midst of the squires and spires of Northamptonshire".

Corby was said to be the black hole of the East Midlands, sucking into itself any industry that moved. But two problems remained. First, it needed labour-intensive, male-employing industry, when much of the new industry was capital intensive and wanted a placid, female workforce. Secondly, it needed new business to start up before its skilled workers moved away, not after.

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All that was 23 years ago. While some of the social problems remain, Corby has benefited from new investment and new business. But the effects of the decline in steel manufacture on the social fabric of the town were both devastating at the time and lasted for several years. In some cases the effects are still to be seen, such as the vast acreage on which the empty plant stands.

Steelmen do not immediately leap at the opportunity to produce Golden Wonder crisps, which was the alternative employment in Corby at the time; other brands, of course, now come from Consett. When those men's skills are in heavy industry, they need appropriate jobs to replace the ones that have been lost.

As noble Lords have reminded us, all manufacturing industries have been affected by major world trends, in particular technological change and the globalisation of purchasing. Nevertheless, my colleagues in Yorkshire tell me that we are still at the top of the world league in the production of high-quality steel and in the manufacture of specialist goods which use that steel. We still export scalpels from Sheffield all over the world. My right reverend colleague the Bishop of Sheffield has spoken of a hopeful future for the industry in South Yorkshire, but he has also drawn attention to the recently announced closures in Stocksbridge, to which reference has already been made, in Rotherham, in Tipton in the West Midlands, and in Teesside. While Corus may hope that many workers will take redundancy or early retirement, it cannot disguise the fact that another 700 well-paid jobs are to disappear from the South Yorkshire economy and will need to be replaced.

If we are to learn the lessons of Corby, Consett and other places which have faced substantial cuts in manufacturing industry, particularly in steel, three issues need to be addressed. Unless that happens we shall not be able to minimise or reverse the social consequences of industrial change.

First, while there is clearly a future for specialised engineering steels, it will require investment to remain competitive and the remainder of the industry will continue to require investment. We must recognise that, even given such investment, this may involve fewer jobs.

Secondly, if the shift away from manufacturing to knowledge-based economies is to be challenged and even reversed, it will require a collaborative approach involving governments, regions, cities and towns. We must create the right conditions in major towns and cities for economic, industrial and cultural regeneration. The last of those needs equal attention with the others. As I said in referring to Corby, we need to create appropriate jobs for those who have been made redundant in manufacturing industry—what the economists in 1980 called the "male employing industry".

Thirdly, the human consequences of change need to be managed effectively. The human spirit is, I am pleased to say, immensely buoyant and resilient, but we neglect the impact of industrial change on social conditions at our peril.

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4.52 p.m.

Lord Davies of Coity: My Lords, I, too, thank my noble friend Lord Brookman for introducing this important, if somewhat overdue, debate.

United Kingdom steel production, on the one hand, and United Kingdom manufacturing, on the other, may well have differing characteristics, but the disastrous circumstances they face are not dissimilar—closures, contraction, lack of investment and job loss. That is the record—a record of which this country cannot be proud. That is not to say that those working in these industries have not worked well, co-operated with change and done all that has been required of them; but it does mean that those with the executive responsibility for running these industries have let us down.

Throughout my working life I have been associated with both steel production and manufacturing, for the first 20 years working in a steel plant in South Wales and then for the next 28 years as a trade union official representing manufacturing workers with USDAW—a trade union which, although described as the "shop workers union", had in 1978, when the union's membership was nearly 480,000, 60,000 members working in manufacturing industry. They were mainly employed in food manufacture and chemical/pharmaceutical, working for companies such as United Biscuits, Unigate, Kellogs, Weetabix, Nestlé, Unilever, Glaxo, Boots and Fisons, to name but a few. I am now advised that the number of USDAW's members working in manufacturing today is 30,000, half of what it was in 1978.

Let me deal first with the steel industry. In 1997, production of UK crude steel was 18.5 million tonnes. In every year since then production reduced dramatically until, in 2002, it had fallen to only 11.7 million tonnes. In one year, between 2001 and 2002, UK crude steel production reduced by 14 per cent and since 1997 it has fallen by a staggering 40 per cent. In 1975 the United Kingdom steel industry employed 184,000 workers. By 1990 that figure had reduced to 51,000 and today only 23,000 people are working in steel production in the United Kingdom.

No steel producing country in the world has shed labour as much as the United Kingdom. In the European Union today's labour force is 28 per cent of what it was in 1975; in the United States of America it is 31 per cent; but in the United Kingdom it is only 12.5 per cent. But, despite the job losses and reduced labour costs, steel production in Britain in 2002 was the lowest since 1938. And yet, at the same time, import penetration of steel into the UK reached 51 per cent in 2002, while our exports reduced by 10 per cent for the same year.

Is it any wonder, therefore, that executive responsibility in the industry, particularly at Corus, has been changing hands? But, as we all know, when executive managers fail in British industry their failure is not reflected in their remuneration. Having failed, they leave with a handsome package, whereas workers who are victims of their failure are cast aside with virtually nothing, very often after having given a life-time of conscientious service. I welcome the fact that the

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Government are now giving serious consideration to curbing the means by which obscene benefits are provided to failed "fat cats".

It was in 1969 that I left the steel plant in Port Talbot, known then as the Steel Company of Wales. At that time, 17,500 workers were employed there. By 1997, although more steel was being produced, the number employed was down to 3,500. Without the co-operation and active support of the workforce, such an enormous reduction in the labour force could not have been achieved. No "Luddite" attitude could have existed there.

This observation reminded me of my own experience of productivity bargaining at the plant in the 1960s involving the introduction of new technology, work study and job evaluation. We recognised that, in the short term, this potentially meant a reduction in jobs. However, those of us representing the workforce in those negotiations were persuaded that increased productivity, leading to lower costs, would, in the long term, mean improved competitiveness and thereby a greater demand for our product, creating increased expansion and thus more job opportunities. But that never happened. As demonstrated, our steel industry has collapsed.

And why? We cannot blame the workforce. The workers have done all that has been asked of them. Can the Government be blamed? Perhaps there is some justifiable criticism for a failure to act as the state of the industry has unfolded. But I believe that the root cause is more fundamental. Can we simply blame the state of the world market, the euro, protectionism or government subsidies for our competitors overseas? That is what the executive management would have us believe. Although there may be some element of that, I firmly believe that the true source of our decline lies closer to home and that blame must be directed at those charged with the responsibility for executive decision making, for which they have been well rewarded.

Whereas United Kingdom steel industry production fell by 14 per cent to 11.7 million tonnes between 2001 and 2002, in the European Union as a whole, for the same period, production was unchanged at 159 million tonnes. Globally, the 2002 production figure was the highest ever at 902 million tonnes. The demand is there but we are not getting our share.

The picture of manufacturing as a whole is not, unfortunately, dissimilar. Britain was at the forefront of the Industrial Revolution and was at one time known as the workshop of the world, but not so today. At the end of the Second World War, less than 60 years ago, manufacturing accounted for 40 per cent of the United Kingdom economy. By 1980, it had reduced to 26 per cent and today it accounts for only 14 per cent. In 1982, almost 6 million people were still employed in manufacturing. By 2002, the figure had reduced to 3.5 million. That is 2.5 million jobs lost in 20 years, a reduction of over 40 per cent.

In this year alone, United Kingdom manufacturing has been shedding jobs at the rate of 400 a day. By the beginning of this month, another 42,000 jobs had gone this year. Import penetration of manufactured goods in 1982 was 23 per cent; in 1992 it was 56 per cent, more than double. The United Kingdom trade balance in

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manufacturing between 1997 and 2000—just three years—deteriorated by a staggering 18 billion. Britain's share of the world trade in manufacturing reduced by approximately 23 per cent between 1950 and 2002. Between 1993 and 2000, manufacturing investment as a percentage of total investment in the United Kingdom reduced by 22 per cent. From these figures, is it any wonder that it is generally acknowledged that the UK manufacturing industry has suffered from years of under-investment?

In the sectors in which USDAW is involved, the job loss between 1992 and 2002 has been 32,000 in food manufacturing, 42,000 in chemical/pharmaceutical. One hundred USDAW members lost their jobs this year when the food factory at Rowallan Creamery closed. Some 700 will lose their jobs when Glaxo closes its Merseyside plant in 2004. Another 1,000 will be made redundant when Boots shuts down its operation in Airdrie later this year.

It is clearly recognised that without expansion, the increasing introduction of new technology and improved productivity will result in lost jobs. But there can be no excuse for United Kingdom manufacturing output declining, despite increased productivity, when our competitors are improving their position.

Since 1995, the United States has increased its output by 21 per cent, the euro-zone by 17 per cent, but United Kingdom manufacturing, over the same seven years, has declined by 5 per cent. Again, the workforce, who have participated in productivity improvement and lost their jobs, cannot be blamed. Perhaps some criticism can be levelled at the Government for not maximising the aid that the DTI is legally entitled to provide. But I do not believe it is fair or just to direct blame towards the Government when the root cause of the industry's core problems arises from failed executive management over decades.

For a generation or more, when our international competitors were continuing to employ engineers with innovation and inventiveness in the top decision-making jobs, British industry has been engaging number-crunching accountants, who have different skills. They look at bottom line figures, even if it means contraction, with less, if any, thought about the inventiveness required to expand. It is short-term accountancy compared to long-term engineering vision. How many times have we witnessed British inventions being successfully commercialised abroad because there were no takers in British industry?

When I frequently visited manufacturing plants in which USDAW members were employed, I was constantly disappointed to observe that the machinery used was invariably from France, Germany, Italy or Holland, and the answers to my questions were always the same. They said, "We would love to have machinery built and installed by British makers, but nobody makes it, nobody will make it, no one can provide it on time, no one will provide after-sales service". What an indictment. It seems clear to me that if this approach does not alter, the only future we can look forward to is further decline.

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We, my Lords, in our lifetime have witnessed the demise of once proud and thriving areas of British manufacturing, not because demand has disappeared but because overseas competitors have captured the market and we have been driven to the wall—or, perhaps more accurately, we have surrendered our position. Of course it can be argued that as manufacturing has declined, the service industry has expanded, and that is true. But in my view, that should not be used as an excuse. It would be much better if the service industry expanded but at the same time the manufacturing industry was prevented from such a disastrous decline. In any event, the service industry is now going through changes that will result in further job loss.

Both service and manufacturing are essential to our needs—both are crucial to this nation's well-being and quality of life. Therefore, it is my sincere hope that the Government will do all they can to stop the decline and support the rebuilding of our once great manufacturing industry.

Much more important, however, is for the industry to appoint those to the top decision-making executive management posts who have the vision, the innovation and the inventiveness—the risk-takers, with the initiative of those we had in the past—to drive forward the UK manufacturing industry once again.

5.5 p.m.

Lord Jones: My Lords, Mr Alan Jones, the distinguished industrialist and currently managing director of Toyota Motor Manufacturing (UK), made a keynote speech at a conference at Lumley Castle, Durham, last year, chaired, I think, by the right revered Prelate the Bishop of Durham.

From his experience, Mr Jones insisted that Britain's manufacturing's biggest need was to lower the fixed cost unit. He said that we need cost reductions, flexibility, the very best quality and the quickest delivery. Mr Jones stressed the need to recruit the right people. His recipe for a manufacturing revival included even more investment in the industrial infrastructure. He called for huge improvements in training levels. Above all, this industrial leader asked for a pro-manufacturing atmosphere in Britain. He said that there are danger signals. He fears that we are becoming designerless, headquarterless, technical-less. He instanced the car industry, where the supplier base is falling away. He said that when that happens, we lose competitiveness.

This distinguished industrial leader at the heart of British manufacturing stated that if we retreat to niches, then we are lost. The sad fact is that manufacturing, as a percentage of GDP, has slipped below 20 per cent and is falling fast.

The noble Lord, Lord Brookman, is to be congratulated upon obtaining the debate and on his speech. He was a very distinguished General Secretary. He gave leadership to British steelworkers, and he gave that leadership in very, very turbulent times. Personally, I am grateful to him for the help he gave me in the most desperate of situations.

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Like the noble Lord, Lord Brookman, I, too, congratulate my noble friend the Minister upon his promotion.

The noble Lord, Lord Roberts of Conwy, laboured for many years as a Minister to make a better Wales. The noble Lord, Lord Livsey of Talgarth, showed a grasp of the history of the steel industry in Wales. The right reverend Prelate the Bishop of Peterborough spoke with an English voice in a very caring way about the problems of the dispossessed steelworkers in Corby. Earlier, the noble Lord, Lord Thomas of Gwydir, was in his place. As Secretary of State for Wales between 1970 and 1974, he worked very hard to defend the steel industry of Wales.

Mr Michael Foot once took aside a very new entrant into another place and told him that the politics of steel were brutal. He was right. Today, the large Ebbw Vale steel works that he served is closed, empty and silent. Shotton steel works, where it was my duty to serve, once employed nearly 14,000 people. Today it barely employs 700, and all the time it suffers salami-type cuts. Brymbo steelworks once employed 5,000 steelworkers. It was closed and exported lock, stock and vessel to the Republic of China, where it is now in production. I actually saw that steelworks on low loaders trundling on the Chester bypass to Birkenhead docks. The once mighty steelworks of Llanwern is but a shadow of itself—cut in half, and worse. The Cardiff East Moors plant is but a distant memory. That Welsh list of cutbacks and closures is not exhaustive.

Westminster Wales and Water, the cogent and fascinating memoir of the noble Lord, Lord Crickhowell, who was a substantial and long-serving Secretary of State for Wales, describes the Cabinet manoeuvres that enabled the Scottish steel plant, Ravenscraig, to survive through two widely spaced general elections. The noble Lord leaves one in no doubt that a Secretary of State for Scotland, in all his pomp, was a big advantage in the fight to retain the "Craig".

We are now in danger of possessing a Cheshire Cat steel industry, of which only the grin remains. At one time the constituent parts of Corus were the engine-room of the industrial revolution, but the de-industrialisation of Britain has inevitably dragged steel down with it. Surely, as the Guardian said, Corus has fallen so low that it can only go upwards.

Since 1970, I have engaged and debated in a very minor way with every British Steel and Corus leader, from the legendary Julian Melchett through Sir Monty Finneston, Sir Charles Villiers, Sir Robert Scholey, Sir Ian McGregor to Mr Brian Moffatt. Not every one of those chairman was as good as his quality workers. The anxious workforce cannot swallow "fat cat" pay and botched strategies when redundancies rain down on their ruthlessly targeted plants. However, I wish the new chief executive and chairman well for the future. It is so vital for Britain for them to succeed.

It is the case that the social consequences of steel redundancies have been very distressing nationwide. In one fell swoop there were 8,000 redundancies at Shotton. They were said to be the largest ever in

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western Europe, and even then there were thousands more later. Some Deeside estates and streets suffered 25 per cent male unemployment. The community was scarred. A drug culture emerged. Families came under pressure and some families fell apart. The tensions then entered our schools, and a whole generation was affected. The consequences remain. It is a fact that only tradition, loyalty and the essential goodness of Deesiders held social catastrophe at bay.

My plea is that the steelworks of Wales should now be rewarded for their productivity, co-operation, de-manning, flexibility, loyalty and technical success. They should be rewarded with stability. In Wales we are saying, "Enough is enough". We have given enough. Wales has made her sacrifice and must now have a respite and justice. What remains must remain.

A steel industry is the foundation industry of the economically viable modern state. Britain remains a military power, but how can Britain in the future promulgate a foreign policy and prosecute just wars if it does not possess a viable steel industry that remains in British hands? As Harold Macmillan said, our steelworkers and coal-miners helped to defeat the Kaiser and Hitler. In modern times, we have fought in Korea, Malaya, the Falklands, the Gulf, the Balkans and Iraq. Self-evidently, Britain is a martial nation. That is her history, and it remains so. How, in future years, can our country have battle honours such as those if our steel industry shrinks beyond viability and falls into foreign hands?

It is the case that steel is power. Steel is nationhood and independence. We are now in need of a national recovery strategy for steel. Britain now needs our Government to make steel and manufacturing a very real priority.

5.17 p.m.

Lord Jordan: My Lords, I commend my noble friend Lord Brookman for initiating the debate. Using his unparalleled experience of the steel industry, he catalogued the trials currently experienced by the industry. I shall concentrate on the wider manufacturing industry. The debate will help to reinforce the message of the vital importance of manufacturing to our country's economy.

For the past 250 years, manufacturing has been a crucible for scientific and technological progress and a source of sustained wealth and job creation. We will preside over its decline at our peril. Manufacturing's slide from its pre-eminent position is visible and dangerous. Three and a half million jobs have been lost from manufacturing in the past two decades. Manufacturing output is a mere 7 percentage points above the level that it reached 30 years ago. With manufacturing investment falling by 18 per cent last year, it is a matter of current concern that another 80,000 jobs are predicted to go this year.

The manufacturing industry is a value-adding industry. It creates mainly better paid, full-time jobs within the industry and, additionally, spawns valuable jobs in the service sector. It promotes research and development and is a breeding ground for ideas. And, in

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a world of accelerating change, ideas will prove to be the competitive advantage. Significantly, manufacturing more than punches its weight in helping Britain to pay its way. Although it employs only 14 per cent of the total workforce in this country, it provides 62 per cent of our exports.

The globalisation of trade has had, and continues to have, a tremendous impact on the manufacturing economies of the developed world. The inclusion into the world's free market trading system of two-and-a-half billion people from the underdeveloped nations was an opportunity that the multinational corporations could not afford to ignore—nor have they.

For more than a decade, an average of 40 billion dollars of mainly manufacturing investment has been going each year into one country—China. This massive and sustained transfer of investment is understandable when one considers that the labour costs of the leading manufacturing industries in Europe and America can be anything from 10 to 20 dollars an hour, while in China they will be nearer to 1 dollar an hour, or less. And there are more than 150 million manufacturing workers in southern China alone.

If one also takes into account countries such as Korea, Taiwan, Thailand, the Philippines and Indonesia—the latter with a population of more than 200 million and all as destinations for manufacturing investment—one begins to realise the dimension that globalisation has added to the need for manufacturing competitiveness and the size of the challenge that Britain faces if it wants to stop the erosion of its manufacturing base. And stop it, it must.

Globalisation presents a challenge to our manufacturing industry to re-evaluate where its competitive advantage now lies in a radically changed market. It is clear that the manufacture of low-cost, unsophisticated products, where the labour cost significantly affects the selling price, is not a route that it can take. But globalisation has opened up a vast and growing market for more complex manufactured goods. And Britain, with its legacy of engineering experience and expertise, is well placed to take advantage of this development.

The aerospace industry and Airbus, in particular, are good examples of that. The aerospace industry makes a contribution of more than 18 billion to the UK economy, 60 per cent of which is composed of exports, creating within the industry a positive trade balance of 3.8 billion. The airbus is a product of a European manufacturing consortium in which the UK plays an important role and is establishing itself as a world beater.

The chattering classes, whose forte is making money for themselves rather than creating wealth for the country, would have us believe that manufacturing is yesterday's fashion. They are wrong. Of the world's 25 largest corporations, 15 manufacture large or complex products, such as cars, power station turbines, computer hardware and consumer electronics.

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Governments, manufacturers and trade unions must form a more visible partnership to promote the manufacturing industry. They must tackle together the more tangible reasons for our failure to halt the shrinking of our manufacturing sector.

One of the principal reasons for our inability to improve our competitiveness is our productivity record. We lag significantly behind the United States and, worryingly, have failed to catch up with our principal European competitors—France and Germany. The factors underpinning high productivity are well known. It requires a sustained investment in technology, research and development, and skills. With regard to the first two, a recent DTI paper on competitiveness confirmed that UK companies on average operate with smaller capital stock and invest less in R&D than their competitors in Europe and the United States. It is to be hoped that business will respond to the export-encouraging fall in the value of the pound and the Chancellor's 400 million research and development tax credit by significantly raising investment in the much-needed new technology and research and development.

There has been a chronic shortage of manufacturing skills ever since the collapse of Britain's traditional engineering apprenticeship system. I have found that companies that dominate world manufacturing—those we call "world class"—demand a high level of skills throughout the organisation and are prepared to ensure that that happens through a regime of continuous training. To their credit, the Government are promoting a training infrastructure for industry that currently has 128,800 young people on foundation modern apprenticeships and 113,300 on advanced modern apprenticeships. But, even with an employers' national expenditure on training of more than 23 billion, we still have a position where one-third of all adult workers either have no qualifications or are qualified below level 2.

A tidal wave of technological change is sweeping through the manufacturing industry, transforming every product and service, and only adequate skills can transform its potential into productivity, quality and competitive products. The Government do take many initiatives to encourage the renaissance of manufacturing—if anything, too many initiatives, often lacking in depth, direction and funding. Government must concentrate on and stick with a small number of measures that affect the fundamentals of a manufacturing-friendly environment.

Employers and trade unions should resist the temptation to blame and battle with each other over events that neither caused and neither control. And employers and unions should thrust aside the culture of begging bowls and war drums and recognise that, unless they find a way to work together more effectively and harness the help that government are willing to provide, then the forces of globalisation will continue to eat away like a cancer their jobs and their industries.

I would like to finish on an optimistic but realistic note. Globalisation is exhibiting many of the characteristics of the industrial revolution. That

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historic period saw this country emerge to dominate the world of manufacturing, through a combination of the will to work, a proliferation of skills, and an abundance of ideas. Those factors are just as potent in tackling the challenge of globalisation. This country still has those qualities; our job must be to harness them effectively—and we can.

5.30 p.m.

Lord Desai: My Lords, here come the chattering classes.

I am grateful to my noble friend Lord Brookman for introducing the subject of the steel industry and of UK manufacturing generally. It takes me back 12 years. On 19th June 1991, I made my maiden speech to you Lordships' House. It was about the manufacturing industry. I said then—if you do not mind my quoting myself—

    " we must move away from metal bashing—I do not mean to offend anyone by that—to a more innovative line of products which are intensive in ideas".—[Official Report, 19/6/91; col.178.]

I then said that we could not continue with the same mix of manufacturing. Until my noble friend Lord Jordan spoke, I was distressed that I would have to disagree with all the previous speakers; but in fact, I must only disagree with all but one.

I think that he is quite right. His message was not that we should preserve the steel industry, heartrending though the stories my friends tell me of what has befallen its glorious estate may be. We did not become as rich as we have by preserving industry. The noble Lord, Lord Jones, said that steel is very important for our army and our defence. For 1,200 years before that, the British Army fought not on steel, but on agriculture. When the Parliament passed Corn Laws in 1845, lots of people warned that to destroy agriculture would be to ruin the country, to make it weak. Of course not. We globalised our agriculture, and we prospered.

We have heard complaints about manufacturing shutting down. Are we poorer today than we were 20 years ago? No. The reason is that we are doing more value-added things; things that provide good jobs which survive in today's climate. If we only cared about physical productivity, we would be what East Germany or the Soviet Union used to be. The Soviet Union measured inputs—how much capital per worker. When Krushchev said in 1961 "we shall bury you", he was saying that the Soviet Union would produce more steel and cement in 25 years than the United States. He was right; the Soviet Union did produce more steel and more cement than the United States. However, it was an utterly useless thing to do, because real value-added activities had moved on.

In today's economy, people want what I would call abstract goods: goods which incorporate fashion, design, and ideas; goods which are light in material, but high in price. When one buys a pair of Nike shoes, which are usually manufactured in China or Indonesia, the labour cost is less than 10 per cent. The real genius is in the design, and the computer

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translation of the design, which is transmitted across to China. Sixty per cent of the added value of that manufacturing good is here, not there.

So do not look at where manufacturing output is produced; look at how the value is divided between different locations. I said some 10 years ago—if only anyone would read what I said—that manufacturing has become a multi-location, multinational enterprise. We do bits here and bits there, and we combine it all in a third place.

The important thing for us to remember is not that manufacturing has declined. So it has; agriculture has also declined. So what? What matters is that we have profitable jobs and profitable companies. Whether they produce clay pigeons, steel, or corn, what is important is that someone out there will buy what we produce. It is not enough to have a strategy as we combine together. The market test is the severe and the correct test. This country became rich by passing the market test, not by defying the market test.

People talk about the glorious Industrial Revolution, but 50 countries were ruined by our Industrial Revolution. They were ruined because we could do things cheaper than they could. The challenge is not that we ought to preserve our glorious industrial structures. The challenge is to go on changing again and again, faster and faster, because change, progress and profits come from unexpected quarters.

All my life I have produced nothing concrete. I have talked; I have written; some people may say that I have even produced some ideas. The London School of Economics, where I work, has won a prize for export competitiveness. What do we export? I hardly move around—students come to us. If someone buys a product, it may be through computer software, films, or Harry Potter: that is British export.

British exports are not actually carried away in trucks. They may go across electronic waves; they may be television programmes, theatre, or opera. We must get away from this misplaced concreteness. The practical man, or the practical woman, thinks that it is bad if something solid does not come out of production. No, it is neither solid nor liquid; it is what creates value, and what creates value is not necessarily good engineering. One can have the finest engineering—as the Soviet Union did—but if nobody buys it, it is junk.

Therefore, we must be careful. We should celebrate with my noble friend Lord Jordan that China is acquiring a huge manufacturing industry, because China will be the market for our sophisticated goods. Let China, India, Indonesia, Thailand and Malaysia produce simple, basic industrial products—we ought to get out of that. We ought to be in high research and development in terms of products; we ought to be in high value added products. We ought not to be devoted to the past. I know that the past is glorious, and I have a lot of practical experience of all the misery caused now.

However, your Lordships will notice that there is not a single speaker from Scotland in this debate. Remember when the Ravenscraig steel works were so

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necessary that if we shut them down, the Scottish economy would fall apart? Who remembers Ravenscraig? It is shutting down, and the Scottish economy is more prosperous. People manage. People have to manage change. Rather than keep a declining industry in operation by subsidy, which is the worst disaster that we can think of, let us shut it down and move on.

There was a time when the leader of the mine workers expressed his ambition that his children and grandchildren would work as coal miners. Thank God, that did not prove to be true. Children and grandchildren of coal miners will be working as software engineers or ballet dancers. That is where the money is. We must realise that as much as we love our constituents, as much as we love Scotland, Wales, or England, these things came because when they were built, they were profitable. They were at the cutting edge of the technological frontier. When they stop being there, they should not cry or try to hang on; they should move on. If we continue to move on—if we adopt the strategy of never subsidising a failed industry or protecting what we should abandon—we will prosper.

Some people say that our EU rivals are producing more steel than we are. The state aid directive will come in very soon: next year. I promise noble Lords that steel production will decline. It is not worth Germany producing steel. It should redeploy its resources to do something that is higher value-added. That is what will happen. I do not believe that it is in the interests of developed countries to get stuck in low value-added simple technology products. That is not a very pleasant thought.

We have a world economy in which steel is no longer in buoyant demand, no matter who manufactures it. Products incorporate less and less physical material because people want light products, not heavy products. They want new material, not steel, plastic or glass. That gets us into nanotechnology and other issues.

Today, we have more people in employment. Our global exports for the past 10 years have been better than those of our rivals, who produce more steel. What matters to me is that people have good jobs and that our children can look forward to a prosperous growing economy in which they will get jobs because they go to school and acquire skills. Happy is the country in which the child does not have the job that his or her parent used to do. Let us hope that that long continues to be the case.

5.42 p.m.

Lord Selsdon: My Lords, the noble Lord, Lord Desai, and I have been opposite each other for many years. He has often confused me, although he has always interested me. However, he confused me from a much higher level, and I felt that it was appropriate that I should sit at the same level in the House as he does, on the Back Benches. From this lonely and very exposed position—as an hereditary Peer who is here by some strange Act of Parliament—I realise that I learnt much of what I know

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in life from Wednesday debates in your Lordships' House. It saddens me now that when a political party initiates a debate, usually the only speakers are from its own side, whereas previously we might have had 20 or 30 speakers, all of whom informed each other.

I am very privileged today to recognise the great strengths of Welsh oratory and I thank the noble Lord, Lord Brookman, for giving me a chance to participate. I have been in your Lordships' House for so long and I spent my early days in manufacturing, speaking about the decline of the manufacturing industry and serving on Select Committees. There is a certain form of schadenfreude when one realises that everything that was predicted by those committees has come to pass.

I suppose that I should declare an interest and see whether I can speak first on steel and secondly on manufacturing. I started my life manufacturing asbestos and moved briefly to Germany, where I worked pouring steel for cast-iron baths. The wonderful thing about cast-iron baths is that they were outdated in every other country in the world except for England, where for years everyone wanted a cast-iron bath. They were so extraordinarily heavy that you felt warm in them.

By accident, I ended up for many years helping an Italian group as an international director. We made baths to begin with, and we ended up cornering 50 per cent of the British bath market. The noble Lord, Lord Callaghan, wrote and complained when he was an MP that we had been guilty of dumping. I had to take that up and we went to the Commission and explained that the situation was rather embarrassing. We pointed out that the steel with which we had made the particular consignment of baths came from Wales, that the presses came from the United Kingdom and that the electrostatic enamelling process was the latest technology from the British. I suggested that because we had such good technology, they should come and look at things in England, buy a business and help to regenerate it.

We had already moved into washing machines by then, and we went and bought this nice company called Colston from a man called Charles Colston. He was a remarkable designer. His dishwashers lasted for far too long. The higher that one moved up the social scale, the less likely one was to change one's car, white goods or three-piece suite. Charles Colston's technology was rubber, which was based on the empire. The rubber seals that he made could stand hotter water than any other seal, which meant that he could put enormous quantities of very hot water in, which cleaned the plates much quicker and took off all the crests of the china of the chattering classes.

We thought that we would like to talk to other people who made washing machines in this country and turned to a company called Hotpoint. The name came from the ability to create the maximum heat at the end of the point of an iron. That was why it was called Hotpoint, and it made some of the first and most successful irons. In those days, that great company looked down its nose at an operation from southern Italy that received EU grants, that could not speak

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English and that was part Communist and part everything else, and it said no. Fortunately, a couple of years ago we bought Hotpoint.

Over the years, I came to realise that white goods—fridges, diswashers, cookers and so on—are simply cheap steel boxes that are full of air. What goes with them is the technology that allows one to say that a washing machine is not a steel box but a computer, because that is its greatest technical part.

I learned much from the Italians and Germans. The Italians are full of competent engineering mediocrity with flashes of sheer brilliance and the Germans are full of very heavy engineering with no brilliance at all.

I thought that I should like to be in the steel business and, encouraged by the Italians and the Americans, went off to Albania. I realised that the highest quality steel that one could get in the world was effectively stainless steel. I did not know what stainless steel was but I was told that it came from a combination of iron and chrome. I think back to some of my earlier days and shall try to remember Kipling. He said:

    "Gold is for the mistress—silver for the maid—

    Copper for the craftsman cunning at his trade.

    'Good!' cried the Baron, sitting in his hall,

    'But Iron—Cold Iron—is the greatest of them all'".

That led me to think back to Thomas Jefferson, who said in the United States in 1809 that we should encourage manufacturers so that we can use the raw materials that we produce. In general, manufacturing in this country has been related to the availability of a large supply of relatively low-cost raw materials. As soon as those raw materials have moved away, the ability to create added value in-house is increasingly difficult.

On steel, and stainless steel in particular, Albania is the only country in Europe that has chrome. The world needs 15 million tonnes of stainless steel a year, often in the automotive industry and in the defence industry in particular. We in the United Kingdom probably produce about 600,000 tonnes a year, whereas Germany produces 1.2 million tonnes, Italy 1 million tonnes and France 800,000. None of them—I also refer to the Japanese and Americans—has ferro-chrome, which must be imported from South Africa or Kazakhstan.

Having looked at the source of raw materials, we should look at our own raw materials. Of them, we must say, "They have all faded away". The cotton that we had from our empire has gone, and with it the erosion of the wonderful textile machines that we made. Looking at the base of large industry, there is still colour roll and some of those machines. However, the textile machinery brigade has lost a market.

We had some of the best coal mining machinery in the world, including that for longwall mining, which was absolutely fantastic—it is still sold in China. However, the industry that went with it died and, with it, the manufacturing capability.

I hate to correct the noble Lord, Lord Desai, but he should know better by now. My name is Malcolm McEacharn Mitchell-Thomson, my great-grandfather

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was provost of Edinburgh and my grandfather held the last Conservative seat in Glasgow; 50 per cent of the ships of the world were made in Glasgow at the time of my birth. I am a Scot through and through and I still believe that the Scots are the best engineers in the world.

I turn to the comments of the noble Lord, Lord Davies. A mentor of mine, Sir Monty Finniston, was chairman of the Engineering Industries Association, with which I was involved—I had some of its representatives to lunch here the other day. He asked why more than 50 per cent of the inventions of the world were made in England but only 10 per cent were developed here. Should your Lordships wish, I could place in the Library a long list of all those inventions. The basic question is what is the basic resource of this country.

I am sorry that the noble Lord, Lord Ezra, is not in the Chamber. Actually, I am pleased that he is not here because he has already heard what I am about to say—I have said it again and again. Our Select Committee investigated the issue of what happened when the oil ran out. This country had a natural resource but turned it into the most expensive energy commodity in the whole of Europe and the rest of the world. We need heat and energy, and we have gas and oil. Why do we therefore have a taxation policy which makes gas and oil so expensive that our transport costs are the highest per kilometre of any OECD nation? It is possible to produce hydroelectric power at less than two cents per kilowatt hour but we cannot use that raw material because of taxation.

Our real raw material still lies in the quality of the Scots and Welsh peoples. I have left out the English for the moment. In general, the Scots have long been extraordinarily interested in engineering. The trouble is that, despite all the training programmes, very few of those who study engineering at university go into the manufacturing sector. They may well instead become analysts, instructors or tutors.

The question is how to create the added value to which the noble Lord, Lord Desai, referred. If one sends a piece of textile machinery to India where it produces a product which we buy back for use in our health industry, one would create more added value than one would by selling masses of textile machines. In places such as Iran, and all around the world, the image persists that British machines are the best. Indeed, our machine tools were sufficiently good that the Japanese copied every one of them. Even in Sheffield added value is still being created in quality steel products, and that is creating greater added value as a proportion of turnover than ever before. We see Japanese and French knives in most of the kitchen shops, but we still have the skills in this country.

I do not know where the solution lies. I wish that I was an engineer. We can still design and manufacture here. JCB—one of my favourite animals—is currently setting up a plant in the United States. It could not manufacture sufficient quantities here without Japanese co-operation. Mr Dyson created a technologically advanced hoover but is now manufacturing his machines in South East Asia. However, the added value from the sales of those products in Europe is substantial.

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The solution lies not in trying to support the big battalions, who are often in yesterday's game, but in concentrating on what the DTI calls micro-businesses which have fewer than nine employees. The next largest businesses are called minor enterprises and have up to 50 employees, after which we have the SMEs with up to 240 employees each. Those businesses can do without bureaucracy. They are run by people who, in the engineering sector for example, established the entire base for Formula 1 motor racing. I should explain that my father, although supposedly a member of the chattering classes, spent his life racing cars. A consequence of their work is that 75 per cent of all Formula 1 cars, including Ferrari, were prepared in the United Kingdom.

We still have the skills. I therefore ask the Minister to do a few things. We need 100 per cent capital allowances on all businesses employing fewer than 250 people. There should be no inheritance tax on anyone who sets up a business of that sort. We should use taxation methods to provide greater freedom. Older people are prepared to start small businesses now more than ever before because of the small pensions they receive.

It has been a great pleasure to attend this debate. I shall finish with a quote from a previous Prime Minister. In 1878, Gladstone promised all the peoples and all the subjects of the Queen much legislation, much prosperity and universal peace. Afterwards, a Tory, Randolph Churchill, asked what Gladstone had in fact given them. He said that he had given them nothing but chips. He went on to elaborate:

    "Chips to the faithful allies in Afghanistan . . . Chips to the manufacturer and artisan . . . Chips to the agricultural labourer",

and so on. I did not understand what he meant by that, so I inquired at the Library. He was not talking about chips as we understand the term today. It appears that Gladstone used to chop trees and chop down institutions. Churchill was saying that that government, like the current one with regard to rural areas and the manufacturing industry, was giving nothing much more than chips.

5.55 p.m.

Lord Dixon: My Lords, I, too, congratulate my noble friend Lord Brookman on initiating this debate and on the marvellous way in which he introduced it. He has fought hard all his life for the steel industry, not only before but since he became a Member of this House.

My noble friend spoke about Teesside. There is great concern about the future of steel on Teesside and Corus's plans for the Redcar and Lackenby works. Although Corus has decided to concentrate on the United Kingdom markets, it says that Teesside's slab and beam production will have to export to a highly competitive international market. They are supposed to do that without even the support of a sales unit on Teesside to sell the product. There are serious concerns about the 2,900 steel industry jobs and the 7,000 workers in the supply industry. All of those jobs will be placed in jeopardy.

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Such is the concern on Teesside that Middlesborough's Evening Gazette organised a steel summit at the Redcar Bowl on 1st June. The event was well attended by workers and their families, politicians, government agencies, councils and unions. The Corus representatives were the only ones invited who did not attend. A great deal of anger was expressed at the summit. Someone said that Corus's plans for the industry were a death penalty postponed for three years. Ironically, others expressed the view that while thousands of workers and whole communities had a bleak future, Corus's chairman was about to retire with a 300,000 annual pension. It would be a tragedy for Teesside and the North East if anything happened to the Redcar and Lackenby works.

We have heard from various speakers about the loss of manufacturing jobs in this country. We are losing too many manufacturing jobs in the North East. Last month, in answer to a question asked in another place by my right honourable friend Derek Foster about the loss of a further 340 manufacturing jobs in his constituency—bringing to 1,600 the number of jobs lost in the past 12 months—the then Leader of the House of Commons, Dr John Reid, said:

    "Manufacturing has been going through a difficult period for some time. The Government have tried wherever possible to support it. Every job loss is a tragedy".—[Official Report, Commons, 22/5/03; col. 1166.]

More than 175,000 jobs in our area depend on manufacturing. I do not underestimate the value of other employment, but we cannot live by call centres, retail and dotcom alone. Manufacturing has a key place in our economic future.

I should like to concentrate the rest of my remarks on the shipbuilding industry, which is so closely linked with steel. I was born and have lived for almost 75 years in the shipbuilding town of Jarrow. Like my father and grandfather before me, I worked in the shipbuilding and ship repairing industry, from the time that I left school at 14 until I was elected Member of Parliament for Jarrow in 1979. Britain is a maritime nation and it needs sea power. Shipping and the capability to build and repair our ships are a vital part of our prosperity.

From my many years in the shipbuilding industry I know that the industry has always, unfortunately, been subject to boom and bust. It is a highly skilled industry and cannot be employed intermittently—to be available only when required. When there is a downturn in orders, fewer apprentices are trained and skilled men leave the industry. When the industry recovers, there is invariably a skills shortage. To be effective, shipbuilding and ship repairing require constant improvement and continuous investment in men and materials. At present the warship sector looks good in terms of prospects over the next few years. Here I pay tribute to my noble friend Lord Bach, the Minister for defence procurement, for his efforts in assisting the securing of the MoD's naval programme, which is the largest for a number of years. It includes three Astute class submarines, six Type 45 destroyers, four landing craft and the latest order of two aircraft carriers—incidentally, the two largest naval vessels

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ever built in this country. Those two aircraft carrier orders will provide and maintain employment on the River Tyne and the River Tees for some 2,000 workers over the next decade. However, having said that, I put the following point to my noble friend—whom I congratulate—who is to reply to the debate. At the moment the MoD is discussing the MARS project—Military Afloat, Reach, and Sustainability—as the vessels will be involved in support for fighting vessels. Following our unfortunate experience with the order for the roll on, roll off ferries, will the Government ensure that these, and wherever possible ships that are ordered by the MoD, are described as naval vessels? That would ensure they are built in the United Kingdom.

At the moment there is a vast distinction between the MoD's current naval programme and the market prospects for merchant shipping. While the warship sector in the United Kingdom looks favourable in terms of its prospects over the next 10 to 12 years, the market for the merchant shipping sector remains difficult. On repair and conversion, the United Kingdom is generally competitive in northern Europe for routine refit and maintenance work and for the more complex conversion projects. On the River Tyne AMEC will soon have successfully completed the topside of the Bongo project—a floating production storage and offloading vessel. Incidentally, it is the largest vessel ever seen on the River Tyne. As my honourable friend Brian Wilson, the ex-energy Minister, said when he visited the Tyne last month,

    "The Bongo demonstrates that the River Tyne can compete for, win and deliver world-class projects in an increasingly competitive market".

AMEC successfully completed a similar contract on the "Shearwater" on time and within price a couple of years ago.

However, the United Kingdom shipyards are generally unable to compete with the Far East on larger merchant vessels. There are allegations, for example, that Korea is winning orders at prices below production costs. Following a Question I tabled to my noble friend I was surprised that the shipbuilding intervention fund was closed to new applications in December 2000. To my knowledge that fund was set up primarily to deal with unfair Far Eastern competition. There are also allegations that some of the northern European shipyards are using cheap steel from the Ukraine.

Shipbuilding in the UK has always had to be competitive and has been subject to a number of examinations and reports. I recall when I worked in the industry we had in 1962 the Patton report, in 1966 the Geddes report, in 1972 the Booze-Allen report and then, of course, nationalisation in 1976. The shipbuilding industry has always tried to help itself to increase or even retain its market share which has meant sharpening its competitive edge.

It was against that background that the Shipbuilders and Shiprepairers Association put in hand in 2000 a comprehensive and interrelated programme of activities designed to improve productivity in United Kingdom

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shipyards. To launch that improvement programme the DTI contributed some initial financial assistance as a Link project matched by an industrial contribution to the total costs. Activities within the overall programme include business improvement master classes; research and development; innovation; marketing services; special interest groups; and skills and education. Having engaged attention and having begun to rebuild the confidence of United Kingdom shipyards there is more to be done. The Link project expires at the end of this year and is fully committed.

Following a further Question I tabled to my noble friend last month I know that discussions are taking place between the DTI and the Shipbuilders and Shiprepairers Association. I hope that the Government will listen to its representations and continue their commitment to the programme.

When I first started my apprenticeship as a shipwright, my grandfather told me that I had chosen the right trade and that as an island nation there would always be work in the shipping and shipbuilding industry. He told me a tale which I believe is worth repeating. He said, "Mr Jenks used to deliver manure by horse and cart, and he did so, despite the arrival of gas turbine motor cars, aircraft, et cetera, because with his horse and cart he could deliver manure with the economy and certainty that pleased his customers. Manure for the fields of England and food and goods for the rapidly increasing number of underfed people in the world needed neither aircraft nor cars, just a safe and certain means of transport. If Mr Jenks's horse became a Pegasus and grew wings, it might be able to lift about 15 pounds and carry it through the air. However, if he taught his horse to swim, it could probably tow 9,000 pounds through the sea. Horse power is extremely important—only 15 pounds by air, but 9,000 pounds by sea". That is an important and common-sense view even today when we are so concerned about energy and conservation.

I make a final point about ports and shipping in regard to the unfair navigational taxes—light dues—which are disadvantaging United Kingdom ports. Most EU countries fund lights and navigational aids through general taxation. With the United Kingdom ports facing ever increasing competition from our continental neighbours, it is high time that the tax was abolished. It is a tax incidentally that we condemned when in opposition for causing commercial disadvantages to British port operators and shipowners in our policy document, Full Steam Ahead.

I have raised points on shipbuilding and ship repairs, which come under the DTI. I have mentioned MoD and naval vessels, which come under the Ministry of Defence. I have mentioned ports and shipping which come under the Department for Transport. I recall that in the early 1980s the Trade and Industry Select Committee report dealing with the then nationalised British shipbuilding industry made a recommendation:

    "The Government should set up a high-level interdepartmental working group to consider the full implications of a maritime policy for the United Kingdom embracing both shipbuilding and shipping".

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I agree with that policy and I hope that one day the Government will introduce such a policy.

6.8 p.m.

Lord Hardy of Wath: My Lords, I join all noble Lords who thanked my noble friend Lord Brookman for his initiative in securing this debate and for the notable way in which he introduced it. It has been a very good debate. Many splendid points have been made. We shall certainly not forget Mr Jenks's horse even if we forget about the manure.

Interesting ideas have been put forward in the debate. My noble friend Lord Desai suggested that the death of industry—a view criticised by my noble friend Lord Brookman—had to be taken seriously. But I wonder how seriously we would take a plastic scalpel or a leather aircraft engine. It is wrong to compartmentalise—I know that my noble friend did not do that—and it would certainly be wrong to assume that we are in a different age and can forget all about industry.

I wish to speak largely about the engineering steel industry. I shall refer to Stocksbridge, as did the right reverend Prelate the Bishop of Peterborough. I am grateful for his remarks. Stocksbridge is part of South Yorkshire some distance from my former constituency. It is an astonishing decision on the part of Corus to close down part of it but to leave part there. Indeed, I do not know what Sheffield will say if the lot is taken out because Sheffield still claims to be the city of steel. The city of steel, apart from Stocksbridge, is really Rotherham. The part at Stocksbridge that remains is vital in terms of securing added value for the industry. The only reason why part of it is being closed down but the other part is being left is that to transfer the adding-value part of Stocksbridge somewhere else would be ridiculous and extraordinarily expensive.

I was fortunate to represent my constituency, Rother Valley, from 1970 to 1983, and then, when it was divided, Wentworth from 1983 until 1997. Throughout that whole period, a great part of Britain's engineering steel was based in my constituency. Although I did not work in that industry, as my noble friend and my noble friend Lord Davies of Coity did, I was in very close contact with it throughout those years. I knew when there was cause for rejoicing—there were occasions when rejoicing was justified—and when there was cause for anxiety and, indeed, sometimes considerable anger.

For example, there was rejoicing when the Thrybergh Bar Mill was built in my constituency, and built as a result of co-operation of good management and first-class workers in a way that broke records for the speed in which a steel plant was built, established and commenced operation. There was cause for rejoicing when Thrybergh Bar Mill shattered world records in shift, day, week, month and year production for bar mills. It would have been able to maintain that record had there been some sensible investment policies by Corus in recent years. Unfortunately, Corus was far too keen to spread out the profit, declare a dividend, and pay salaries to the leaders of its business that those managers whom I knew in the

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1970s and 1980s would not have dreamed of seeking for themselves, even though they would have earned them.

I am concerned about the high-quality work force in the engineering steel industry who have watched foolish decisions being made, watched lack of investment or misdirected investment, and then seen salaries increase while they themselves have been told not to have a real pay increase for some years. We have seen an appalling situation.

I recall when the crisis of electricity prices was faced. When the Conservative government privatised electricity, they put the prices up as a sweetener. The unfortunate consequence of that was that the cost of operating electric arc furnaces was enormous. The Rotherham engineering steel industry was the biggest customer for electricity in our region. I actually told it, "The best thing you can do is to tell them that you are going to build a power station yourselves if you do not have some sensible price". Management had changed, and it was not quite as vigorous in hostility to the ridiculous situation as it should have been.

However, the community, the industry and the workers got together and had a deputation of responsible trade unionists and responsible local representatives to the Department of Energy to see the then Minister. The management said, "We're not joining you, because we meet the Minister socially and we'll be able to have more effect in social contact". We met the Minister, and he was very courteous. We put the case for the enormous bills for using electricity to produce steel. The Minister and the officials listened and said, "We've got a suggestion. Why don't you consider installing off-peak storage radiators?". They thought that we were talking about keeping the workers warm inside the plant.

I was proud of those who were with me, because not one of them lost his temper. They all looked at the ceiling. Whether they were seeking divine comfort or trying to avoid catching the eyes of the rest of the delegation, I do not know. Anyway, profits were made on electricity, so the price came down and we went back to crashing world records at the Aldwarke electric arc furnace.

There has been co-operation, skill, ability and dedication, and all that they have seen is what can only be described as the greed and incompetence of those who direct the industry. The other day I was on a defence visit, and looked out of the window to see an hotel. It was called the Corus Hotel. I wondered whether Corus was going to extend into tourism, and what would happen with that prospect for Britain's future.

We have to accept that although many changes are taking place in industry, we have to have certain kinds of steel. We need cutting steel for tools. The noble Lord, Lord Selsdon, mentioned that. Some years ago, I recall being asked to open a small building at a steelworks in my constituency, and to declare a spectrometer open. I am not a technician, but we put a bit of steel in the spectrometer. A few seconds later,

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it printed out a complete analysis of the contents of steel—so much banadium, tungsten, manganese and all the other various things that go in to make steel.

The next time I saw a spectrometer was when I looked at some tools—supposedly cutting tools—that had been imported. We put those in, and they came nowhere near meeting BS specifications. Some of what we automatically put into steel in South Yorkshire to make it a good cutting instrument was completely absent. The capacity of that tool to stand any pressure at all had gone. There is certainly a case for ensuring that we maintain the capacity to produce and make profits from those areas of steel that have ensured Britain's democratic survival.

Sometimes we have not been very happy about the speed at which governments have responded. When the supergun affair was proceeding and the people at Sheffield Forgemasters were fulfilling a contract to make some pipes, they knew that those pipes were of the same quality of steel as are used to make gun barrels. It has made gun barrels in that area for centuries. They were probably quite puzzled. They were even more puzzled when they loaded the pipes on to a lorry, the lorry got to Greece, the news broke, and the Select Committee in the House of Commons decided to embark on an inquiry.

I have never seen government move so rapidly and stealthily. At two or three o'clock in the morning, the people responsible at Sheffield Forgemasters found the Gestapo at their door. They were arrested and taken away, and their wives were mortified and horrified. The security forces were very bright. They did not put those people into cells in Sheffield where one would have expected. Instead, they were very quietly taken to be incarcerated in a small police station in my constituency. I was able to express my views on that matter in three minutes when the House of Commons debated the issue some time later.

Governments can move with speed, but they did not move with speed when we looked at the appallingly unfair competition from within the EU in the 1990s. The noble Lord, Lord Paul, will recall the situation. The Rotherham plants produced the best engineering steel, on the basis of world production records. Their particular competitors were two plants in Germany and one in Spain. They could not live with us, but there was no subsidy for South Yorkshire at all, merely the skills of the work force and better management than we have had since.

One German firm had its capital completely restructured when it changed hands for three deutschmarks. The other German firm was given vast public subsidies from central government for R&D in the electric arc furnace, which was already long-established technology. The Spanish government were even more bold-faced; they simply picked up the labour bill. We did not think that very fair. We thought that the government—not this Government, but the previous one—would listen, so we made representations and continued to make representations. Then the government

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said, "We have achieved success. Brussels is going to establish a monitoring committee to look into the situation".

We were all supposed to express deep gratitude; we were relieved a little. However, nothing happened. About a year later, I had to table a Question to ask if the government had set up a monitoring committee to monitor the monitors. They did not seem at all happy about that. We are sometimes too supine to respond to unfair competition. We have to make gestures to the third world, but we have no reason to accept that we can subsidise malpractice in another advanced industrial nation.

I have one other point, because my constituency included an awful lot of coal as well. I agree with the noble Lord, Lord Selsdon, that we may be seeing the death of coal, but we should not be. It is now possible to burn coal cleanly. It is possible to burn coal cleanly and produce hydrogen, which may be the fuel of the future. It is possible to burn coal cleanly and trap CO 2 . That can be used to enhance production offshore if it is properly used instead of writing off oil and gas fields when more than half their reserves are left. Yet we are in danger of throwing away that technology, even though George Bush is providing billions of pounds from US federal funds to establish and develop the industry in the USA. The technology and the capacity exist and they should be pursued.

I am most anxious about that because another small-scale industry could have a similar experience. Five miles from my home is a colliery called Hickleton. The methane from that colliery is being extracted and it will produce the equivalent of 30,000 cars a year for 20 years. There are eight such schemes in Britain and there could be more than 100. We have seen three Ministers, but it is obvious that unless something is done the methane will continue to leak out from the coal fields of Britain. It has a poisonous effect, 22-times more obnoxious than those from the power stations about which we are mainly concerned.

For a modest sum, we could convert dirt, filth and waste into capital and wealth. We could continue to change our atmosphere and attitude. We would then be making a common-sense contribution. I did not think it sensible when an official blithely said, "Oh, I shall look at it and carry out a financial appraisal and finish it by the end of 2005". That kind of decision should be capable of being made within a fortnight and not after two years.

I have spoken at length. Again, I congratulate my noble friend and I hope that his speech is listened to most carefully. It ought to be.

6.22 p.m.

Lord Paul: My Lords, I am grateful to my noble friend Lord Brookman for initiating this debate, which is so important for the survival of the UK industry. On a personal note, let me pay tribute to my noble friend with whom I have had the pleasure of working since 1975 when he was an official of the Iron & Steel Trades Confederation. I have found him always very interested in the welfare of the UK steel industry and I am delighted to see that he continues to be interested today.

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Your Lordships will excuse me if I do not talk today in my Welsh accent. I also declare an interest. I am chairman of Caparo Group, a company in the business of manufacturing steel and engineering products.

Noble Lords will be familiar with the continuing problems faced by the steel sector and UK manufacturing in general—and it is not my intention to repeat them. However, in my contribution today, I want to reiterate the importance of manufacturing to the UK economy and look at some of the issues that both government and industry need to tackle if UK manufacturing is to remain competitive and to thrive again.

Turning specifically to steel first, as a material it remains vital to economic development; indispensable to construction; and the raw material of choice for a vast range of industrial applications. Steel demand world-wide has been growing on average by 2.5 per cent a year. However, most of that growth has been concentrated in the newly emerging economies.

In 1972, the EU accounted for 26 per cent of world production, whereas today it is only 18 per cent. In the same period, the share taken by Asia, including China, increased from 20 per cent to 45 per cent.

In the UK, there has been a long-term decline in steel demand—a 35 per cent fall during the past 30 years. More significantly, demand in 2002 was 12 per cent below the 1998 level. This was accompanied by a steady increase in the share of the market taken by imports, which took 51 per cent of the market for the first time in 2001 compared with an import share of just 13 per cent in 1973. In the five years since 1997, steel output has declined by 40 per cent.

The fundamental cause of this decline has been, until very recently, the adverse sterling/euro exchange rate. That has impacted directly on the steel industry by making imports more competitive and by reducing the competitiveness of UK steel exports. Indirectly, the exchange rate has contributed to the weak performance of steel's major UK customer—manufacturing.

The fall in UK demand is therefore directly attributable to the state of UK manufacturing in general, which has struggled since sterling began its long rise against the Euro in 1996.

Between the beginning of 1996 and the fourth quarter of 2002, sterling appreciated by 35 per cent against the euro. This has had two major impacts on demand for steel. Manufacturing output stagnated and then contracted heavily, and manufacturers sought to move costs abroad by importing more components rather than sourcing them from the UK.

I am delighted that the euro has become stronger against sterling. And if it stays that way, I am sure that the UK industry will regain its export vigour both by increasing business and by reducing the country's trade deficit. As a matter of fact, the manufacturers have already started exporting quite an amount.

I hope that your Lordships will excuse me for raising this issue, but I have never been impressed by the argument about whether sterling is too strong, or the euro too weak, or vice versa, because, for manufacturers,

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it is exactly the same. Indeed, we spend a lot of time in the UK worrying about the state of manufacturing and the value placed on it within the economy. Too often, this gives the impression of meltdown and disappearance of manufacturing altogether. In fact, only this morning Derek Simpson, the general secretary of AMICUS, warned that in 25 years all manufacturing jobs can disappear.

Yes, there are pressures on manufacturing and, yes, it is reducing as an overall percentage of GDP. However, in the UK, it still plays a large and vital role in the economy—18 per cent of GDP; 60 per cent of exports; and employs almost 4 million highly skilled people. A balanced economy needs an integrated manufacturing and service sector.

If we are to keep a strong, vibrant, skilled and high-tech manufacturing base in the UK, many of the solutions to the problems faced today are for business to resolve. But government must also provide the right economic environment for business to grow and prosper.

I believe that there are four key areas. First, government and industry need to address, as a matter of priority, the issue of innovation, not just in products but also processes. The Government have gone some way towards addressing this through the research and development tax credit, and plan to improve the supply of research scientists and engineers, as well as the increased spending on science. I congratulate the Government on that.

On investment, decades of under-investment are a key cause of the productivity gap. With so much of UK investment linked to internal finance, we are in a vicious circle that means that it is hard to break out of the cycle when margins are so low. I remain, to some extent, concerned that the Government have yet to grasp the extent of the decline that we have seen. Investment incentives must increase. I know that creating new jobs is important, but retaining manufacturing jobs should be considered just as important.

On skills, it is heartening to see the increased funding that the Government are devoting to education. Yet we still need to raise skills at all levels, including the alarming shortfall in modern apprenticeships; for example, removing the ceiling on funding for modern apprenticeships.

Finally, industry must increasingly embrace the lean manufacturing and high performance management techniques that research, conducted by the EEF and other groups, shows delivers higher productivity. It is imperative that we close the productivity gap with our major competitors as a matter of urgency. We must remember that today more cars and aircraft are being constructed, more roads being built, and more steel being made than ever before. As the 67 per cent of the world that earns less than 2,000 dollars a year develops, they will want more tangible, practical manufactured goods, and someone will need to make them.

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There is no doubt that manufacturing will continue to face change at an ever-increasing pace and that British companies will need to adapt. Fortunately we have large numbers of very good and dedicated managers who are working very hard for very little money to keep the industry going. We are still fourth in the G7 most powerful economies, we still have fabulous companies competing across the world, in fiercely competitive fields. As Darwin said:

    "It is not the most intelligent of species nor the strongest that survive, but those that are most responsive to change".

I am optimistic that manufacturing in the UK will thrive again.

6.32 p.m.

Baroness Golding: My Lords, I add my thanks to the noble Lord, Lord Brookman. I hope that he will forgive me as a Welsh woman wanting to make my contribution to this important debate by speaking of the industrial decline in the area that I now know best, North Staffordshire. North Staffordshire still has one of the highest percentages of its people employed in manufacturing in the United Kingdom despite the thousands of jobs that have been lost over the years.

When I first moved to North Staffordshire in the late 1960s there were mines such as Holditch, Hem Heath, Wolstanton, Florence, Silverdale; the steel plant at Shelton Bar; wires and cables at Lucas Rists; Michelin tyres; ceramics; brick and tile making; and of course pottery. There were world-famous names such as Royal Doulton, Wedgwood, Minton and many other factories producing ware.

What has happened? Gone are the mines; gone are the foundries; gone are the cable makers; gone are the tyre manufacturers; and gone are the steelmakers. The potteries have gone from employing 50,000 in the 1970s to employing fewer than 12,000 now. Manufacturers were told to modernise, reduce the workforce and invest or die. They did, but the cost and competition for many was far too high. To many firms the ease of world transport and the cost of foreign production with its low wages meant that to compete in the world market they had to make the decision to move some, or all, of their production abroad. That is called "outsourcing", which is a rude word in North Staffordshire.

What has remained in some areas of the country because of modernisation has resulted in fewer and fewer workers being needed; there are fewer and fewer job opportunities, leaving many areas desperate for help. I remember the last mine to close in my former constituency of Newcastle-under-Lyme; indeed, it was the last remaining pit in the West Midlands—Silverdale.

The mine owners called me in months before the pit closed and told me that they had hit a bad fault in one of the seams and had serious concerns about the future financial viability of the mine. However, there was still coal in the mine so they would keep mining and keep me informed. They gave me telephone numbers; they showed me plans; they talked about future plans; but

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the mine had to close. They discussed everything and expressed deep regret that the last mine in the Midlands may have to close.

In contrast, what happened when Corus decided to close Shelton Bar, the steelworks in Stoke-on-Trent? There had been huge investment in the mill. It was highly efficient, the cost of production was low and the workforce was excellent. Then came the announcement that it was to close. The Stoke MPs, Mark Fisher, George Stevenson, Joan Walley and myself, were stunned. We demanded an urgent meeting but we need not have bothered. No effort would be made to keep the mill open. The company had not bothered to consult with the city council about the future of the land; in fact it was not at all certain who owned it. In any case, it was not the company's problem. As for the workers who had done everything asked of them, they too were someone else's problem.

I had never been so angry in my life when I came out of that meeting. Added to that, I was ashamed that it was a Welshman who had brought that uncaring view. How could Corus be so indifferent? It was a sign of things to come. The fight for Shelton Bar was over, so let us hope that the new management of which the noble Lord, Lord Brookman, spoke, have different attitudes towards the workforce now.

Regeneration has become the key word and for some it seems a long time coming, but not for all. My old constituency has been transformed. What has happened? Newcastle-under-Lyme, that area of mines and foundries, has been transformed into industrial sites, filling up as fast as they become vacant. New jobs are replacing old industry. Old industrial villages and the town are winning Britain in Bloom contests, even international contests. Council estates are being regenerated. Despite large out-of-town shopping sites surrounding the town, it has managed to keep its thriving village communities and a town centre and a new street of 30 shops has just opened. Its restaurants and pubs thrive during the day and swing for the young at night. Newcastle has succeeded thanks to early forward planning and to a good Labour council led by a hard-working leader, Councillor Eddie Boden.

However, that other area of North Staffordshire, the city of Stoke-on-Trent, has not thrived, but not for lack of effort. Three years ago we felt as though the regeneration of the whole area would get up and run and then the Minister, Stephen Byers, visited the area and the North Staffs task force and partnership was formed with 50 million to spend on co-ordinating ideas and achieving results. Unfortunately Advantage West Midlands held the purse-strings and failed to give the partnership the support that it needed.

Stoke-on-Trent is in urgent need of strategic regeneration. Not only has it suffered the loss of the steelworks, mines and Michelin tyres, but it suffers from the disadvantage of being the area where most of the potteries in this country have been based. As the pottery industry shrinks, so the knock-on job losses are concentrated in Stoke. Only a few weeks ago

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Wedgwood announced that another 1,000 jobs are to go, and last week the effect was felt in a packaging factory that was to close with the loss of 140 jobs.

The Ceramic and Allied Trade Union is working non-stop to make sure that workers rights are protected and that they receive the money to which they are entitled. Its work never ends in trying to bring new jobs into the area, supplying training for redundant workers and lobbying all the government agencies. It works hard to protect its remaining workers on the issue of back stamping, so that all ware is stamped with the country of origin. Therefore, people who want to buy British and to support British manufacturing can do so. What happened to the "Buy British" campaign? Have we forgotten about it?

Who would be a CATU official or a shop steward these days? Not me, I can assure your Lordships. Geoff Bagnall and his members have had a hard job keeping the pottery industry going and high praise is needed for all their efforts.

Jobs keep leaving north Staffordshire. Yet, earlier this month Advantage West Midlands told the city council that it had spent only 13 per cent last year of what it could have spent in north Staffordshire—I repeat, 13 per cent of the total amount it could have spent. Stoke-on-Trent is one of the last big cities yet to see progress in large-scale urban renewal.

I do not blame the people of Stoke-on-Trent. The trade unions, MPs, MEPs, businessmen, councillors and government agencies have worked hard to regenerate the area and to keep down unemployment. Millions of pounds of government help have been put in for new schools, new hospitals and new roads, but there is a continuing crisis in manufacturing in north Staffordshire: 20,000 jobs have been lost in manufacturing alone in the past four years with all the knock-on effects. It is time that the Department of Trade and Industry examined what Advantage West Midlands is doing, or rather not doing, for Stoke-on-Trent. It has been one of the country's greatest manufacturing cities. We owe it and its people the means to become a truly great thriving, but still industrial, modern city. The people of the potteries deserve nothing less.

6.42 p.m.

Lord Razzall: My Lords, on behalf of the Liberal Democrats, I join other noble Lords in thanking the noble Lord, Lord Brookman, for initiating this extremely valuable and important debate and indeed for sticking to his guns when his previous debate was cancelled.

It is clear that all noble Lords who have spoken agree with the economic analysis that in recent years there has been a significant and—some would say—catastrophic reduction in manufacturing capability in the United Kingdom. We can disagree about the figures, but it would be reasonably common ground that only about 20 per cent of the UK economy now consists of manufacturing. A number of noble Lords have defined manufacturing as taking raw materials and putting them into a plant and producing an end

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product. Clearly, manufacturing in that sense amounts to significantly less than 20 per cent because much of what passes for manufacturing in this country is actually the assembly of component parts, often brought in from oversees. So industries such as the steel industry and the mining industry are manufacturing industries in the purest sense, but they represent today only 10 per cent of the UK economy.

Between us, we would probably agree the reasons for that situation. I do not need to rehearse arguments made by other noble Lords. There is the continuous policy of global free trade—pursued by western governments for more than 100 years—which has significantly benefited UK consumers. It clearly has a knock-on effect on manufacturing capability in the United Kingdom, in particular the ability of other countries with cheap labour to compete with our higher-paid industries. A knock-on effect from that is that the strength of the UK currency, on which a number of noble Lords have commented, has not benefited the manufacturing sector. I suspect that even the noble Lord, Lord Desai, would agree that that matters.

A number of noble Lords referred to the typically and wonderfully hyperbolic comment today by Derek Simpson, that, if we continue the way we are going, by 2028 we shall have no manufacturing whatever in this country. Were that to be the case, I think that it would be common ground among noble Lords that that matters for two reasons. First, the process of reaching that position would result in an unacceptable degree of personal distress and destruction of people's lives. A number of noble Lords referred to that issue, including the right reverend Prelate the Bishop of Peterborough.

Secondly, I am reminded of what occurred in the early 1980s when those on these Benches and noble Lords on the Government Benches fundamentally disagreed with the economic policies that were being pursued by the then Thatcher Government. Let us take a restaurant in a service industry and a steel plant or an engineering company in the North East. If the economy is run in such a way that a restaurant closes down because of recession and the absence of consumer demand, when the economy picks up again that restaurant will invariably re-open. It may be under different ownership, but it will re-open as the economy picks up. If, however, the economy is run in such a way that a steel plant closes down, it will take years and years before that steel plant will be recreated because the decision to open it again often has an eight, nine or 10-year time line. In the early 1980s, a great deal of manufacturing industry was destroyed. However, when the economy picked up, the industry was never replaced. It may have been replaced by service industries, but the skill-sets and the communities simply disappeared.

The noble Lord, Lord Desai, may well say that that process is a good thing. Indeed, no one would want to go back to 1918 when 800,000 people worked down mines. No one suggests that we should return to that world; it has gone for ever. No one would think that we should go back to 1918 when the biggest single

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employment was of maids and butlers. I do not believe that even the hereditary Peers would think that we should go back to that world. Nevertheless, it clearly matters if we allow our manufacturing industry to be destroyed.

Is the process inevitable? I believe that most noble Lords think not. Let us take the mining industry. I was very interested by what the noble Lord, Lord Hardy, said. The mining industry in this country has almost disappeared. If one asks the Treasury to look at the productivity figures for the mining industry, or industry as a whole, it will say that the most productive industrial sector in this country is the surviving mining industry. It will also say that the least productive sector is the banking and financial services industry. That is not, however, an answer one would get if one went to a venture capitalist to try to persuade him to invest money in a mining project.

Northern Italy still has a thriving manufacturing base. There is absolutely no reason why this country's manufacturing capacity should not be on a par with northern Italy. It is now a high-wage, high added-value economy. There is absolutely no reason why we should not have the same. The Italian statistics are pulled down by what happens in the area south of Rome.

Most noble Lords would agree with what I have said so far. The trouble always with this kind of discussion is that we have speech after speech that bemoans what has happened. It is easy to analyse what has happened; the difficulty is deciding what we should do about it. If government do not do something about it in areas where they have the power, this steady decline will continue.

I want to suggest four remedies, some of which have been suggested by other noble Lords. First, several noble Lords have referred to the fact that if we are to operate a worldwide, free-trade, non-subsidy, global economy, everyone must be made to play by the rules. We cannot have hidden—or overt—subsidies from the United States, France and Germany. The Government must do everything they can to ensure that everyone is playing by the rules. Incidentally, it is significant that the one remedy that no one mentioned—had this debate taken place in your Lordships' House 10 years ago, everyone would have been suggesting it—is significant subsidy to "prop up" failing industry. Not one noble Lord suggested that; it is interesting that the argument has entirely disappeared because people now accept that it is just sticking a finger in the dyke, if that is not a mixed metaphor.

Secondly—a point on which no one has touched but that the Treasury has grasped—if the Government want to do something positive to help manufacturing industry, they need to stick to their commitment to give a high priority to the reorganisation of domestic housing finance. One factor—albeit on the margin—damaging British industry at present is high interest rates, which inevitably feed into a higher exchange rate.

One reason why the Bank of England does not cut interest rates to worldwide levels is because it is concerned about the effect on domestic inflation of the

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housing market. So much of our housing market is geared to floating interest rates. For that reason, the Government's announcement last week, or the week before, that they are seriously committed to doing something about moving people from variable to long-term finance in the housing market will, paradoxically, feed through to help manufacturing industry on the margins.

I turn to the third area, on which several noble Lords touched. As the noble Lord, Lord Desai, said, the future of manufacturing in this country inevitably lies in increasing our capability in the high added value field. That requires a continuing commitment to the relation between industry and universities; to the development of parks such as those in Oxford and Cambridge and of scientific colleges; and for the Government to do nothing that will damage the ability of our intellectual capital to be mined. As the Japanese say, that is the mining of the gold in people's heads, which will in due course feed through to our engineers, scientists and those who will develop high added value products. The Government can give a commitment to that.

Finally, it is unsurprising that I should mention entry to the euro, as did the noble Lord—I almost said Lord Caparo, which would have been a Freudian slip—Lord Paul, and my noble friend Lord Livsey. I was struck when on the day of the euro announcement I listened on the "Today" programme to the managing director of the UK branch of Siemens, which has plants in this country. He said that it was taking decisions that week, next week and the week after about where plants would be located around the world in 2010, 2011 and 2012. He said that a major factor for the Siemens board that would be common to many multinational companies with plants in the UK was whether there was a firm commitment by the British Government to have entered the euro by then. If we are not in the euro and it is thought that we shall not be, that will be seriously deleterious to the decision-making process on where plants are located.

We should listen to the noble Lord, Lord Paul. He made the position extremely clear as a major industrialist. That is my fourth reason. I again thank the noble Lord, Lord Brookman, for introducing this extremely valuable debate to your Lordships' House.

6.54 p.m.

Baroness Miller of Hendon: My Lords, I join other noble Lords in thanking and congratulating the noble Lord, Lord Brookman, on having secured this debate on two most important topics, and for the charming, courteous and informative way in which he opened the debate, which was followed by excellent contributions from all who have taken part.

The standard of debate in this House never fails to amaze me. I know that noble Lords who have been Members of the other place will forgive me when I say that listening to debates there sometimes one just cannot compare the two. It seems as though they must say something; but in this House, noble Lords say something only when they have something important to say. It was interesting to listen to people with

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knowledge of Wales, of steel and of manufacturing, and to hear the right reverend Prelate and the noble Baroness, Lady Golding, talking about what happens to towns and cities when industries close down. It was also interesting to hear the noble Lord, Lord Desai, say that things were not so bad and that we must think of niche markets and so on. I agree with the noble Lord, Lord Razzall, who said that that involves many different agencies working together and takes time.

Having said all that, the tone of the debate gave a depressing picture of what has happened in the steel industry and manufacturing generally. Every noble Lord cited figures, and I have the same ones as everyone else, but they bear repeating because they bring home to all of us that something needs to be done. Again, I agree with the noble Lord, Lord Razzall. Surely, the noble Lord, Lord Desai, does not think that all will be well and that it does not matter if our remaining manufacturing disappears because something will take its place. The situation is more involved than that.

We on these Benches share the concern of the noble Lord, Lord Brookman, about what is happening to the steel industry. It has suffered enormously. There has been a 35 per cent fall in demand. If people are not asking for something, we cannot just continue to produce it. That fall in demand has increased substantially recently. In 2002, demand was 12 per cent less than in 1998; since 1997, steel output has declined by 40 per cent. That rate is frightening. At the same time, imports have increased. In 2001, they comprised more than half of the market. That had never happened in this country before. That is the real problem.

To try to get rid of that disastrous situation, British Steel decided to merge with its Dutch counterpart and came up with the name Corus. That has not stemmed the tide. As the noble Lord, Lord Brookman, said, there are more than 3,350 British job losses in the pipeline. That is another 13 per cent of an already depleted workforce. That is terrible. The company has lost a lot of money and the share price has plummeted.

Why has that happened? Apart from the agreement in some quarters about the level of the pound, the real problem is the slump in demand. We must face the fact that a high proportion of new cars is now imported and that those that are made here use less steel and more aluminium and plastics. The noble Lord, Lord Razzall, mentioned component parts being assembled. So there is a change in how things work in this country. We are also caught in the nutcracker of ruthless competition from the Far East and elsewhere on one side, and by punitive, possibly illegal, tariffs imposed by the United States of America, mentioned by many noble Lords, to protect its domestic steel industry.

In 1972, the EU accounted for 26 per cent of world steel production. Today, the figure is only 18 per cent. I think that the noble Lord, Lord Paul, cited the same figures. But the share taken by Asia has increased from 20 per cent to 45 cent. When we really consider them, those figures should cause terrible concern all over the

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place. But that also throws up the issue of surplus production of steel, which, with lower labour costs, means that extra steel is available to export to the EU.

In terms of output per employee, the UK steel industry is broadly comparable to its major competitors in the EU, and productivity has increased by 340 per cent. So no one can say that the workforce has not done its best. It has, and it has produced good results. But, on the other hand, steel prices are 13 per cent lower than in 1987. That causes an enormous problem.

Despite that increased efficiency, the share of Corus's burdens, in the form of cutbacks and job losses, has fallen disproportionately heavily on the UK arm of the organisation due to the predominant influence of the Dutch main and supervisory boards. The Dutch supervisory board vetoed the sale of an aluminium plant for 518 million on the grounds that it would merely,

    "prop up the loss-making United Kingdom operation".

What can the Government do to support this essential UK industry? The noble Lord opposite might be surprised when I say from these Benches that the Government have already been very supportive and have done what they wanted to do. Pressure was put on the United States Government to help to get some of our specialist steel and niche products exempted from the 30 per cent illegal tariff.

The DTI has supported the retaliatory counter-quotas that the EU imposed in reaction to the United States tariffs and then pressed for the broader product coverage introduced last September. That is good news. We also welcome the Government's support for the current talks under OECD auspices to try to discipline steel subsidies. The noble Lord, Lord Razzall, also mentioned that.

The Engineering Employers' Federation, in its recent evidence to the Trade and Industry Select Committee of the other place, urged yet further measures on the Government. In particular, it calls for a reduction in the disproportionate impact of its environmental measures on industrial energy costs, as mentioned by the noble Lord, Lord Hardy of Wath, and others, which would improve the competitive position. Such a reduction would include removing the oppressive climate change levy, which will subject the industry to a double whammy when the electricity industry becomes subject to EU emissions trading in 2005.

Diverting from the subject of steel, I agree totally with what the noble Lord, Lord Hardy of Wath, said about clean coal technology. Drax has put a lot of money into having clean coal, and it does not produce terrible emissions, but it must still pay the climate change levy. It pays more to produce clean coal but gets hammered for having done so—that is terrible.

The EEF also calls for a reduction in the renewables obligation on electricity supplies to energy-intensive industries, of which steel is among the foremost sufferers.

I shall now discuss the second leg of the noble Lord's debate: the dire straits of the British manufacturing industry. I am not so happy with what the

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Government have done in that respect. Since I have congratulated them on the help that they tried to give the steel industry, it is quite fair to point out what I think they have done wrong with manufacturing generally. In a way, it depends on the neighbourliness of the two residents of Downing Street.

The Director-General of the CBI recently said:

    "The UK's reputation as a place to do business has never been under greater threat".

Therein lies the problem. Britain has fallen from ninth on the world competitiveness scoreboard in 1997 to just 16th in 2002. Business investment is falling at its fastest rate for 36 years. To return to the remarks of the noble Lord, Lord Desai, without investment, none of the other wonderful things will happen. Half a million manufacturing jobs have been lost since Labour came to power. The UK has the largest trade deficit on record. Productivity is growing half as fast as under the last Conservative government. Since the noble Lord, Lord Razzall, mentioned the Thatcher years, it is only right that I try to put the balance into perspective.

In the 2002 Budget, the Chancellor of the Exchequer predicted that manufacturing output would grow by 2.25 to 2.5 per cent in 2003. By this year's Budget he had downgraded that prediction to a miserable 0.25 to 0.75 per cent. He also confirmed that manufacturing output fell by 4 per cent in 2002. That is the sharpest fall since 1991. In the 2002 Budget, the Chancellor predicted that business investment would grow by between 5 per cent and 6.25 per cent in 2003. But by this year's Budget he had downgraded that super-optimistic prediction to minus 1.5 per cent. That is terrible. Business investment fell by 8 per cent in 2002—the largest fall since 1991.

I apologise for bombarding noble Lords with all these statistics, but they illustrate some very important matters. First, it is no good for the Chancellor to make such predictions, making everybody think that everything is OK. Companies invest and work on the basis of predictions of changes that did not happen at all. At the beginning of his office the Chancellor had the opportunity to coast along on the very fine economies that the previous Conservative government left. Now the serious mistakes in the Budget predictions have ruined all the plans for meeting the ever-growing government expenditure. It is very important that we can do that. We need to generate capital for public services but we must do so properly.

What the Labour Government have done to British wealth creators is to milk business of no less than 47 billion in new taxes. That is a disincentive to have the money to invest. Meanwhile, 20 billion in the cost of new regulations have been piled on to commercial concerns. That is a problem; we must get manufacturing right. That extra cost is before what amounts to the new payroll tax in the form of an extra 1 per cent National Insurance to be paid by every employer on every employee's salary.

That brings me to the share of the blame for industry's woes caused by the other resident of Downing Street, the Prime Minister. The noble Lords,

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Lord Livsey of Talgarth and Lord Razzall, and possibly the noble Lord, Lord Paul, may not agree with my next point because I know that they were talking about the euro. One of the problems is that no sooner had the Prime Minister got into 10 Downing Street than he had signed up to the Social Chapter, which removed the opt-out that John Major had secured for us.

In one stroke, out went flexible labour markets and in came social on-costs that, until then, had been strangling the rest of the EC. Now they were strangling the United Kingdom, too: we became indistinguishable from Germany and France from the point of view of providing incentives for inward investment—an issue that practically every noble Lord has spoken about. People will not invest if there is no incentive for them to do so. If noble Lords would care to listen carefully—they probably will not like what I say—they might hear the "shooshing" sound of all the UK jobs disappearing in the direction of Poland, the Czech Republic and all points east.

The noble Lord, Lord Jordan, talked about manufacturing in China, the Philippines and other countries that are there to do the work that we used to do but no longer have. The tax take has risen under this Government from 207 billion in 1996–97 to 405 billion this year. In 1997 the tax burden was 34.8 per cent of the GNP; it is now 36.3 per cent and is due to rise to 38.2 per cent in four years. When, as his first act as Chancellor, Mr Brown confiscated billions from the utilities as a so-called windfall tax, what effect did he believe it would have on their ability to invest in the necessary infrastructure and research and development?

When in the same act of piracy he imposed 5 billion pounds worth of taxes on pension funds, not only did he rob people of their savings but he discouraged further investment—here we reach the same point—and deprived industry of the vast amounts of investment that it depends on for future development. If there were ever a case of burning the seed corn those two acts of fiscal vandalism are it.

But that is not the end if it. There were stealthy back-door changes in corporation tax. I have also mentioned the climate change levy, which the Government say is "broadly tax neutral". But it has hit manufacturing industry the hardest, according to a joint study by the CBI and the Engineering Employers' Federation. Small businesses are being forced to close because of the burden of liability insurance, which the Government have imposed, but which the insurance industry is unwilling to provide except at a prohibitive cost. The agency workers directive will cost another 160,000 jobs in the United Kingdom. Increases in business rates, stamp duty, national insurance contributions—red tape—all take their toll of industry.

Several noble Lords, including the noble Lord, Lord Brookman, mentioned today's article by Derek Simpson, the joint general secretary of Amicus, in which he said that, by 2028, manufacturing would be dead. He said that job losses were running at 20 an hour, or 13,000 a month. He made only one suggestion, which

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no one has mentioned, as to how the situation could be improved. He said that we must strengthen employment protection. Some employment protection, some red tape and some of the regulations have caused the problem. We must try to stay competitive. That is not to say that we do not protect employees, but there has to be a level playing field. We must see that we do not go too far down that road.

The Motion moved by the noble Lord, Lord Brookman, ends with a call for Papers. The situation into which the Government have got the steel industry and manufacturing industry generally calls for more than papers. It calls for what Winston Churchill used to call "action this day". I hope that we will see that.

7.11 p.m.

Lord Davies of Oldham: My Lords, I begin by thanking my noble friend Lord Brookman for his kind remarks about my elevation. He probably knows it, but I assure him that flattery is completely wasted on Whips, and I remain of that body. I am grateful nevertheless. I am even more grateful, as are other noble Lords, for his introduction to the debate, which has been, as we will all agree, of a high calibre.

Some significant points have been made, not least by my noble friend, who set the tone for a stimulating debate that combined expertise in and knowledge of the issues with a proper degree of passion about the costs that communities pay for economic change. We all recognise that those costs must register with all those who take decisions, whether they are in government or in industry. If things go wrong for communities, it means terrible privation in sections of our land. I appreciate that several areas were specified in the debate. What I had not anticipated was what my noble friend Lady Golding said about the economy of north Staffordshire. That is another indication of why we need proper investment and structure in the economy to create and develop jobs.

In sharing the concerns expressed about the decline in the steel industry, I shall, I hope, rebut some of the more pessimistic contributions made this evening. The message is not only that the Government care about the steel industry and about manufacturing but that we have a contribution to make to improving things in the future. Of course, the Government want to see a successful and profitable steel industry that will underpin UK manufacturing and feed into the many supply chains that use steel in a vast range of applications. A competitive and prosperous manufacturing sector will depend on a reliable local source of high-value steel products now and well into the future.

Corus accounts for over 90 per cent of UK steel production. Its announcement in April that it must undertake further restructuring came as a blow, following the job losses, referred to in the debate, that the company announced in 2001.

As was recognised in the debate, steel remains an increasingly difficult market in which to operate. My noble friend Lord Paul described the situation most graphically. The problem is that the industry has been

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beset by global over-capacity and weak prices for years. At a time when European Community demand has remained static, global production has been boosted by the rapid development of capacity in the emerging economies of Asia, especially China, and South America. The low cost of labour and raw materials, the exploitation of economies of scale and the latest technology have given those producers a competitive advantage.

I agree with my noble friend Lord Jordan, who presented that case in its most explicit form. He emphasised that we must recognise the comparative cost advantages of certain Chinese manufacturers as against Europe and ourselves. We cannot compete in those fields, with those statistics. That is why it is tremendously important that we recognise that, in our manufacturing development, we must look to the high value-added, high skilled areas in which we have a comparative advantage over such economies. That is where our future lies. I shall develop those things a little more in my speech.

It is true, as noble Lords testified, that some wonderful achievements in productivity were recorded in the British steel industry over the decades. UK workers are among the most productive in the industry, but we all know that we continue to have problems. Corus is still seeking to reduce costs. All the major European steel manufacturers are having a difficult time in a tough global market. The decision to restructure is a commercial one for the company to take. The job losses will be spread over the next two to three years, and the Government will, of course, do what we can to help the communities affected.

I stress that Corus will remain a major UK manufacturing company and steel producer, employing well over 20,000 people. We must welcome the investment decisions included in the announcement, which will strengthen UK sites. We note the positive statement on 4th June regarding the company's progress towards the renewal of its working capital financing. That is to be welcomed.

The noble Lord, Lord Livsey of Talgarth, said that it might be necessary for it to be taken into state control for a short time. That is not the position with Corus, given its financial position and the support from its bankers. Things are not as critical as that. We must have a degree of faith in the new management. We certainly had clear evidence of mistakes in the past, and we needed new management in Corus. However, there are indications that we should have some faith that lessons have been learnt. For instance, the lesson has been learnt that management will get nowhere unless they take the workforce with them, which requires consultation. That issue was raised in several contributions this evening.

The fact that there is a strong Dutch component to Corus emphasises the difference between, on the one hand, the effective consultation that they are used to in the Netherlands and the way that companies deal with Dutch workers and, on the other, the much less forthcoming position adopted throughout the steel industry and much of manufacturing and the failure to

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engage the workforce and the trade unions in investment decisions and in the developing structure of the company. My noble friend Lord Jordan emphasised that point. We see the new leadership making progress.

I assure the House that the Government have not been and will not be dispassionate observers. We shall not stand idly by and watch development as regards Corus. That is why my right honourable friend the Secretary of State for Trade and Industry has been in contact with the company at the most senior level on a number of occasions in recent months. To give some reassurance to my noble friend Lord Dixon, she visited the Teesside works last Friday to demonstrate our support for the plant, the workforce and the people of Teesside and to give recognition of the importance that Corus must attach to that particular path.

Of course, we have been talking to the unions. The company has been as open as it can be with us, given stock market rules, as its decisions emerge. We have also been in contact with Dutch colleagues about decisions there. There was a recent report from a delegation of four Members of Parliament who went to The Netherlands to discuss the developing situation there. They came back with as positive a report, given their obvious experience and detached scepticism, about the new plans for the company as we could reasonably expect.

DTI Ministers are actively encouraging the new management team to work in partnership with its outstanding workforce and the unions to optimise the company's assets in the United Kingdom and to put it on a much sounder basis. Attempts to shield domestic producers from foreign competition serve only to preserve inefficient industries. I think that has been appreciated in a number of contributions today. I am having difficulty in taking lessons from the Conservative Front Bench about the problems with regard to job losses and the loss of manufacturing industry at this time. My noble friends and others across the House depicted the collapse of British manufacturing and the descent of steel over the past two decades. Therefore, the party opposite might be just a little restrained in its present stance and the criticism voiced about the action of this Government.

This is not the end of the steel industry in Britain. Restructuring is a painful exercise. However, Corus assured us that this strategy is necessary for a continuing viable steel industry. Once the proposals have been implemented, the company will still be counted among the top five European producers in terms of output. Like all noble Lords, the Government wish to see a strong, innovative and profitable steel industry. For the most part, business success is down to the actions of businesses—a point emphasised by my noble friend Lord Paul.

The Government have a role to play in seeking to create the best environment they can for businesses to flourish. We recognise that the climate has been tough for all manufacturing—not just steel—but we firmly believe that the UK economic fundamentals remain a

25 Jun 2003 : Column 358

strong foundation for industry when compared to Europe and the G7 countries. Business needs a supportive—

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