Speech

CBI conference 2012

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Vince Cable tells the CBI conference what the UK's long-term plans for business will be and how this will create growth.

Introduction: competitiveness

You have heard the PM speak about achieving economic growth and jobs in the UK in an environment where there is intensifying international competition. Global growth is undeniably good news. We should welcome the fact that the vast swathes of humanity who until recently were subsistence farmers are now clawing their way out of poverty. They will expand the markets into which we sell - as the Prime Minister pointed out, exports are growing fast to Brazil, Russia and China. And we need to do a lot more to offset years of neglect of emerging markets.

But we can’t forget that these countries also generate more commercial competitors. And every other developed country, including a recovering United States, is relying on these markets to grow and looking at how to be more competitive.

We don’t live in a zero sum world but it may not feel like that in countries that are struggling to grow.

In the UK we have had a difficult time, but there are some reassuring figures on job creation, falling unemployment, and business start-ups. If the more upbeat mood in business is to be sustained, there has to be a clear pathway to resumed and then sustained growth out of the financial crisis.

Growth in the short run - the next year or two - depends largely on an expansion of overall demand. In the past two years the ongoing Euro crisis and the persistent challenge of dealing with the legacy of damaged banks and a collapsed property bubble has not been helped by a big rise in energy prices. It is little wonder that business confidence has been faltering.

The government is determined to do what it can to support demand. Our determination to put in place a credible plan for deficit has allowed the Government to pass on the benefits of a credible balance sheet to the wider economy. That, and our independent monetary policy, is why we have been able to announce innovative schemes like Funding for Lending. And we will not sit on our laurels till the economy is growing strongly.

Investment in human capital

But in the longer term what matters for growth is the attractiveness of the investment climate, the quality of physical infrastructure and the supply of high quality human capital. Some government decisions have an immediate impact: movement on infrastructure projects and regulatory certainty for energy investors means activity and jobs in the near term. I recognise the frustration in the business world that these things are moving slowly.

Human capital calls for substantial investment in training, further and higher education as well as schools and research leading to innovation. Where is this going to come from? Most of it, of course, takes place in companies. However, for wide swathes of training and education there are valuable spillovers which mean that the private sector needs support from the government. That is why I have been so determined to protect and grow apprenticeships and put higher education on a sustainable footing.

I recall that at the beginning of this government we were forced to make difficult cuts in pursuit of deficit reduction and we enjoyed the support of the CBI for that. But the CBI was critical of certain cuts in particular and argued for more spending on education and science. Now the government faces serious financial constraints on account of the large fiscal deficit: a problem which will continue beyond the middle of the decade. We cannot repeat what we did before when we replaced grant funding with student loans repayable from graduate incomes. Now the main areas of higher education that still enjoy considerable financial support from government are subjects like engineering and science and the research ringfence which is the basic minimum to protect Britain’s competitiveness.

Growing demands

Indeed in the coming years I see a growing call on government in two areas in particular. The first is in post 18 vocational education. We have made a big step forward with partially funded apprenticeships which have increased to over 1 million in the last 2 and half years, a growth of over 60% - and we are shifting towards a more employer led system where the funding flows from the company to trainers. But apprenticeships cover only a modest proportion of the student leaver population and we badly need a system of training that deals better with the so-called NEETS. This means having real ambition for the further education sector.

A second is in research and development before commercial innovation. I am delighted at the progress we have been able to make with the Technology Strategy Board and in introducing the Catapult centres - in advanced manufacturing, cell therapy, new offshore renewables and space, with the connected digital and transport technologies catapults to come. Even though we have managed to protect the science budget from serious cuts we must not be complacent. We have noted the criticisms of the CBI that the valuable Smart Awards and Knowledge Transfer Partnership have been squeezed and are giving priority to supporting innovation when we have opportunities to invest more.

We need to build on our excellence in science, and improve how we turn great ideas into great businesses - just last week the Chancellor laid out eight technologies where Britain could be a world leader. And you only need to look at the proposals coming out of NESTA and CASE to show that there is no lack of opportunities.

There has to be some prioritisation connecting public spending in areas which contribute to recovery and growth, not on the political soft options. And this is an issue I have spent a lot of time reflecting upon in recent months during the work I have done with colleagues across government to formulate a new long-term plan for UK industry.

Industrial strategy

The resulting Industrial Strategy, is underpinned by two principles. First, a recognition that is necessary to plan for the long-term, prioritise activities and allocate resources accordingly - just as any successful company does. And second, an understanding that government must work with industry to tackle genuine market failures where they occur.

But this does not mean picking winners. We will be flexible in our approach, rigorously evaluating where we best use our resources, and open to new, disruptive industries as they develop. This is not about entrenching the old industries, but rather ensuring that the UK is ready to take advantage of new opportunities as they develop.

Nothing fits these two principles as clearly as getting the skills system right. This task is long term: to have the skills we need in 2020 or 2030 we need to start acting now. And the benefit that the whole economy receives from talented people makes investment in skills a classic market failure, requiring permanent government support. It is also an area where working with business is utterly essential - too much failure in the past has come from the government ignoring the input of industry. That is why it is so welcome that the CBI chose this theme in its report “First steps: A new approach for our schools”.

Engineering skills and education

So to ensure long term success we have to plan, now, to ensure an adequate supply of skilled workers.

There are many strands to this work. We need to remain open to the many talented and entrepreneurial people that throng to our shores to learn, work and invest - that is how over the years Britain has gained so much of its industrial and business expertise. Being open for business means being open to overseas talent as well as overseas investors.

It also means we need our schools system to produce people with the soft skills required by all employers, such as the ability to cope with the routines and demands of the workplace, as well as equipping them with the management and leadership skills they need to progress. I applaud the emphasis being placed by my colleague the Secretary of State for education on raising the standards of maths and English in school and on standards in general. But we also have to develop credible pathways of vocational education in schools including engineering, and to introduce school children to the importance of enterprise and entrepreneurship.

And there is a clear and growing demand in British companies for specialist technical skills.

Time and again, large manufacturing companies come to my department and tell me they are worried about looming shortages of skilled engineers. It is one of my major priorities as Business Secretary to address this problem.

The Royal Academy of Engineering has published estimates of long term demands for engineers, and there is no doubt that these are very challenging. My Department’s Chief Scientific Adviser, Professor John Perkins - himself an eminent engineer - is working closely with the Academy and others to see what more might be done, including areas such as diversity and redressing the pronounced gender bias, and helping people return to the profession. On this I’d like to commend Allan Cook, Chairman of Atkins, for picking up and running with the idea of the ‘Talent Retention Solution’ an industry group set up originally to match jobs with engineers leaving the defence sector, and now running with more than 500 companies registered - currently still free for SMEs. I’m very pleased to announce that the TRS which is now funded and managed entirely by business is being extended now and is working with Universities so that students can put up their profiles & search for jobs - effectively an ebay for talent. The industry group see this as an important move towards supporting young people into engineering and manufacturing jobs and will be progressively using TRS to source new and experienced talent in the years to come.

Perceptions of engineering

The constraints on engineering supply are clearly complex and rooted in a number of factors, ranging from the influences of parents and teachers to the outdated perceptions of industry that are a world away from the well remunerated, rewarding and dynamic careers on offer in engineering today.

I am always astonished by how different engineering is from the stale image of repetitive badly paid metal bashing. Instead I’d point to recent visits such as one to a McLaren factory, which felt more like a space ship than the classical image of a factory floor. Equally on a modern car production line, like the ones I’ve seen in visiting Toyota and JLR over the past months, you are just as likely to see women as men.

And even as we gradually turn this perception around, by the time young people reach the age where they might want to choose engineering, they may have failed to gain the educational and/or technical skills needed to take it forward.

This is the reason we are running a number of programmes designed to increase the numbers passing through every stage of the pipeline.

The See Inside Manufacturing campaign has been a successful way of opening young people’s eyes to the career opportunities available in engineering by showing them around some of the UK’s leading industrial companies. Complementing this, we have programmes such as STEM ambassadors, Apprenticeship ambassadors, Make It in Great Britain, and the very successful Big Bang Fair which inspires the very youngest and this year involved 170 organisations with 56,000 people at the main event in Birmingham. Last Wednesday, I opened the Skills Show in Birmingham which welcomed 100,000 young people over the next three days to competitions and talks built around high levels of skill.

A prestigious new award, the Queen Elizabeth Prize for Engineering, has also been launched. A range of private sector partners have contributed to the endowment of the prize fund, and the £1m prize will now be awarded bi-annually by the Royal Academy of Engineering. It has real potential to inspire future generations of engineers.

Many manufacturers and professional bodies are highly pro-active in reaching out to inspire and inform young people. It is gratifying also to see Engineering UK’s ‘Tomorrow’s Engineers’ programme take this to the next level, by helping companies and academies join forces to engineer a vital step change in perceptions for the long-term.

Lord Heseltine has supported the move towards greater Business Engagement in the school curriculum. He is right, and we are working with the careers service to connect the businesses, LEPs and schools to make this happen.

But once their interest has been engaged, we have to ensure that opportunities to develop the requisite skills are available. University Technical Colleges provide a model for meeting that need.

Our UTC programme will establish at least 24 new colleges by 2014, offering around 20,000 14 to 19 year olds rigorous training in a number of engineering, science and technical disciplines. Details of the first 15 were announced in May and include partnerships with household names such as Jaguar Land Rover, British Airways and Virgin Atlantic.

Access to jobs

However, following their technical education, would-be engineers need access to jobs and training so they can start and develop their careers. If an adequate pipeline of British Engineers is to be created it cannot be down to government and future engineering graduates - through their fees - to do the financial heavy lifting. I hope we can see a reciprocal number of industrial sandwich schemes, paid internships and individual sponsorship from the private sector.

One area where there is real progress is apprenticeships. The investment we have ploughed into apprenticeships over the past two years has led to record numbers.

I don’t pretend that apprenticeships can solve the skills supply issue at a stroke - but they are an important part of the solution. Specifically apprenticeships in engineering and manufacturing technologies have doubled in recent years to 49,000 starts in 2010/11. We recognise that in focusing on quality as well as quantity we need more advanced apprenticeships in engineering, construction and digital skills.

Smaller employers may need some extra help to absorb the costs of taking on an apprentice, so we are offering grants of £1,500 to support those with fewer than 1,000 employees that have not hired an apprentice in the past 12 months, and we have recently streamlined the process to make it as easy as possible for employers to recruit apprentices.

It is gratifying also to see that the bids for Employer Ownership Pilots that I announced on the 11th September have included a number of high-quality bids from employers seeking to meet their specific engineering needs.

Also, the development and delivery of higher level apprenticeships, equivalent to degree level, is being supported through a £25m fund that will build the engineering skills base in a range of disciplines, including environmental technologies, space, energy and utilities.

Engineering in HE

Our commitment to engineering is just as strong in the higher education system. Since 2009, the Higher Education Funding Council for England has invested in measures to increase the demand and sustain the supply of strategically important subjects within STEM. Engineering and technology are by far the largest of these subjects in terms of undergraduate numbers. This year, when we introduced the new student financing system, demand to study engineering held up better than for any other subject, as students have taken an increasingly hard-headed view about career options.

In addition, earlier this year an extra £12m was invested by the Engineering and Physical Sciences Research Council in new doctoral training programmes in four of the EPSRC Centres - Emergent Macromolecular Therapies, Continuous Manufacturing and Crystallisation, Ultra Precision, and Composites. Each training programme will support three cohorts of doctoral researchers and will provide specialist research and technologists specifically for advanced manufacturing industry.

This programme will reinforce the £300m Research Partnership Investment Fund, which will be used to leverage over £1bn investment in science and R&D collaborations. The fund, run by HEFCE, will support the creation of more cutting-edge research facilities and help promote long-term strategic research partnerships between universities, businesses and charities.

A number of innovative projects have already been given the green light. For example, a £60m partnership between the Birmingham University and Rolls-Royce to establish a casting and simulation research facility. And a £92m partnership between Warwick University, Jaguar Land Rover and Tata Motors European Technical Centre for a new National Automotive Innovation Campus.

All of these interventions are designed to stimulate innovation, reduce the risks associated with investment in new technologies and R&D, and bolster the skills pipeline all the way along. The ultimate aim is to nurture a thriving innovation ecosystem which attracts the most talented people to careers in engineering and science.

Conclusion

But I am a realist and I recognise that the initiatives I have outlined will take time to bear fruit. I know, too, that more needs to be done to reverse the constraints on skills that have resulted from the historic lack of investment. It will also be necessary to win battles in Government to prioritise this agenda. Nevertheless, I am confident we will succeed in bolstering the skills base as we develop and implement our long-term plans for UK industry.

It’s an ambitious agenda and we stand ready to work with the CBI and others as it is implemented in the months ahead.