Oral statement to Parliament

Manufacturing Summit 2012

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

There is a temptation to say that because a lot of the things we recognised as industry years ago have gone, that is the end of manufacturing…

There is a temptation to say that because a lot of the things we recognised as industry years ago have gone, that is the end of manufacturing in this country. But of course it isn’t.

Although these facts are very familiar, they are worth repeating: manufacturing has about 12% of our economy, roughly the same as the United States or France, but it has about half our exports on the goods side. So if we want to be a successful trading country that is going to come through manufacturing industry.

Most of the productivity in our economy comes from manufacturing; and about three quarters of business R&D is in manufacturing ; and it provides jobs for around 2.5m people. So for all those reasons, manufacturing remains absolutely central to what we do.

But I think one of the reasons we are still grappling with the ghosts of the past is that the nature of manufacturing has changed. About half of the value added of the industrial sector now comes from what we call intangibles - intellectual property; related services; design. In fact we have a design sector in this country that employs 230,000 people: it’s world class, and a lot of it is linked to manufacturing industry.

So that is the modern message we are trying to communicate and this government is putting manufacturing at the heart of what we are trying to do for the economy.

The phrase we use is rebalancing the economy and it really does mean something: it’s about shifting resources into those parts of the British economy where business invests, and exports and manufactures.

It was for that reason that we launched the Manufacturing Summit last year and what you want to know is that we have been doing something since and delivering on our side. So I just want to itemise some of the things we have done over the past year in order to build on the discussions we had a year ago, and where we think we are making some headway on the manufacturing agenda.

First is concentrating on innovation and technology, and doing what government can to support the private sector. We are launching a whole series of Technology and Innovation Centres - now renamed Catapults - to smooth the path from original research to commercial success.

The first of these was launched some months ago and got £140m over six years to support advanced manufacturing. I came to Bristol to launch the National Composites Centre n Bristol which is a key part of that Catapult.

Two weeks ago I was up in Glasgow to launch the third of these Catapults, which is centring in offshore renewable energy. It’s headquartered in Glasgow but it is partnering with four Scottish and six English universities.

We are rolling out these centres, one after the other, focusing on the key technologies that Britain is going to need in the long-term if we are serious about developing our manufacturing base.

Second, we have modernised the Manufacturing Advisory Service and put in extra money to support supply chains through it. We now have a revamped service, more commercially focused, I think, and particularly focused on small companies.

Third, we have introduced a £125m supply chain initiative. Inevitably, a lot of the focus is on the household names, but the supply chains really count and many of them are having difficulties getting access to finance and this fund will help them with training, R&D, or investment capital.

We are going to be announcing very soon the process by which companies can bid for it - successful bids will have to be based on real business demand and have buy-in from prime manufacturers.

Fourth, we have launched a two-year project to investigate the long-term future of UK manufacturing up to 2050. There is so much pressure to look at quarterly economic data because of the news cycle, but actually the big decisions are very long-term so it’s really important to get that perspective.

This Foresight project, led by the Government Chief Scientific Adviser, Professor Sir John Beddington, working with industry and academics, and Sir Richard Lapthorne, Chairman of Cable and Wireless Communications, has just been appointed to chair the project’s Lead Expert Group.

Fifth, we have come up with a £250m package to help energy intensive industries. One of the government’s main objectives, again thinking very long-term, is to deal with the effects of climate change and there is a lot of potential job-creating activity there for industry. But it does put pressure in the short run on some of our more traditional energy intensive industries such as steel, aluminium or ceramics.

We don’t these companies moving away - it would be totally counterproductive. We want to keep them in the UK so this package will offset a substantial part of the extra costs of the carbon price floor and other policies we have had to adopt.

Finally, we have established the Green Investment Bank which is now active, and we have a team working in my department setting up the first succession of projects until we get full State Aid clearance. They are looking at projects in offshore wind; waste processing; energy from waste generation; non-domestic energy efficiency; and the Green Deal for households. We expect the first projects to be getting of the ground in the next financial year.

That is quite a lot of progress to report in a year but there is a lot more to be done. So let me look forward now and talk a bit about what we are trying to achieve.

There is a lot of uncertainty at the moment, in business in general and in manufacturing industry, about the Eurozone. It’s looking better now than it did a few months ago, but the short term position is difficult, mainly because of these external factors and our extremely difficult economic inheritance, which we are addressing.

But we have to try to think about economic structures and about manufacturing in a genuine long-term sense, and I don’t accept for a moment the old idea that there is an inherent tendency for Britain to decline as a manufacturing country because of the competition we face from the Far East, and other factors.

You can see the potential that exists in the big emerging markets, in the so-called Bric countries, and the extent to which at present we massively underperform. The Germans, the French and the Italians are ahead of us and have a bigger market share because they were there first. But that is not inevitable and with a combination of supportive policies and a competitive exchange rate we have an opportunity to turn that around.

There are a lot of good news stories we need to talk about more, which illustrate what is now going on.

Jaguar Land Rover is investing £355m in a new engine plant in Wolverhampton. BMW has committed itself to putting up to £500m into its UK production operation. Nissan has chosen to make the next-generation Qashqai here.

In aerospace, Airbus has opened its £400m factory in Broughton, North Wales, should soon be opening its £70m engineering campus and facilities here in Bristol at Filton. The Filton site also has a £1.4m provisional offer from the Regional Growth Fund, which will see extra engineers recruited.

British aerospace firms are pioneering a lot of breakthroughs - a self-repairing aircraft fuselage, or the hybrid airship, or the work being done on helicopters.

This morning I visited GKN Aerospace, which is making the composite rear wing spar for the Airbus A350 - thanks in part to a £60m Repayable Launch Investment by my department.

All these examples illustrate the expertise we have here. But we can’t take it for granted - we will have to invest large amounts in R&D to keep ahead of the game, and government has a role there, but we have potential here and something to build on.

And one of the issues that came across this morning when we were talking to the management and the apprentices, is the need to recruit talented engineers and technicians.

We are committing a lot of resources to apprenticeships, we have got a big increase in numbers and we are trying to focus on advanced manufacturing and on high-level apprenticeships.

This isn’t going to happen overnight, you need years of recruitment and training before you get the skilled staff at the end of it, but there is a real commitment to it.

The question is, how do you get young people interested and engaged and wanting to take up these opportunities? One of the real heart-warming experiences I’ve had over the past year is going along to some of the See Inside Manufacturing visits which were pioneered in the car industry, but which are now spreading into food and drink, aerospace, and defence.

These involve getting kids to come from their schools, look around the factories and see that the reality is totally unlike their perceptions; it’s about enthusing them. When the message gets through I think there is real enthusiasm, but it’s got to be backed up by the right priorities in government in terms of education.

I do know that employers are concerned that some of the reforms to school vocational qualifications are reducing the status of engineering. I recognise this is a complex issue and it has to do with school league tables and how we reform that, but I have heard your concerns and I have communicated them to the Education Secretary, and I want to be completely unambiguous about this.

I will champion engineering and quality vocational training across Government and across the manufacturing, and we want your involvement in making sure we have a vocational system that actually works for industry.

There are just two other issues I would like to touch on briefly. One is access to finance and the other is government procurement.

In terms of access to finance we do recognise there is a problem here, and a lot of it has to do with the crisis we have just had in the banking system. We have been working with the banks to get out more credit to SMEs - it has been going up, but I know there is a lot a frustration about it, and there is a worrying trend in net lending.

This reflects the way the banks have adopted a more conservative approach - to be fair to them, off the back of tougher government regulations on holding capital and liquidity. But we are taking a number of initiatives to ensure capital does get through to companies that need it.

But we will have to start looking at increasing non-bank sources of finance for SMEs. That’s why I have asked Tim Breedon from Legal and General to look at diversifying finance options.

Finally, I just want to say a little bit about procurement. I think it’s fair to say government has failed in the past to use its buying power to work with the grain of British industry and we want to change that.

We undertook a big exercise last year looking at public procurement and it was very clear that the way it was done was too transactional, legalistic, short-termist, risk averse and people were frightened unnecessarily of European Union rules. We were getting the wrong results. So we are determined to look at this, not in a protectionist way, but in a way that is more strategic and does support manufacturing industry.

Now there’s still a lot more to be done, but I hope I have outlined some of the positive things happening, and we have a very clear commitment to manufacturing. I look forward very much to hearing what you have to say today.