Long-term decline of UK manufacturing ‘not as bad as other countries’

July 15, 2009 at 12:59 am Leave a comment

by Nick Alderton

Last week the House of Commons discussed the “matter of UK manufacturing.”

Pat McFadden, the Minister for Business, Innovation and Skills, said in his opening speech that “the UK is the world’s second most popular destination for foreign inward investment.

“Investment projects in advanced manufacturing have increased this year by 18 per cent, so even in the midst of a downturn inward investment in manufacturing is a UK success story, and we must not forget it.”

But he later conceded that “manufacturing has had a tough time during the recession” and “in the year to April, manufacturing output declined in this country by 13 per cent.”

In contrast to the decline in other industrialised countries though, such as the USA, Japan and Germany all of whom have seen their industries decline from 14.6% to 30%, he said the UK was not as badly affected.

Jon Penrose, Shadow Minister for Business, Enterprise and Regulatory Reform, said that there was a long-term decline in the manufacturing industries, which had “been going on under Governments of all stripes, not just this one, for many decades.”

Mr Penrose also made the point that although the UK “has a good record in research-led innovation… unfortunately we are not as good as many other countries, particularly America, in converting theoretical science into practical manufactured products that can be sold abroad.”

During the debate, Mr McFadden appeared unwilling to commit the Government to the issue of short-time working, a scheme that has been trialled in other European countries.

Instead, the minister pointed out the other schemes that have been put in place to either stimulate demand or help workers that have been laid off, such as the Vehicle Scrappage Scheme the Train to Gain scheme and the success of the Manufacturing Advisory Service.

Mr McFadden said that the Government “will certainly not stand by and watch the recession take its course,” but “we must do more to prepare for the upturn.”

As an example of how the Government planned to prepare manufacturing to weather the recession and to prepare for the upturn, the stimulation of demand was key to saving the manufacturing industries.

In terms of the stimulation of demand for the steel industry, the Government had “brought forward spending for social housing, for additional investment in schools and hospitals and for initiatives such as the car scrappage scheme so that there is demand for the steel that is made.”

Mr Penrose said that a particular problem with the manufacturing industry was that they use a lot of energy, the price of energy was not only high but “particularly volatile. Volatility makes planning extremely difficult, and is particularly difficult to cope with for those in heavy industries; it therefore needs to be dealt with.”

Mr Penrose brought up the issue of protectionism by saying that “protectionism is an arrow aimed at the heart of our manufacturing sector if we cannot fend off those siren voices and ensure that the forces of protectionism are held at bay.”

He added that in order to remain competitive, and to fend off the protectionist voices, in the global manufacturing market, was to have ‘a simpler tax regime, and lower taxes wherever possible” and the Conservative’s aim was “to cut corporation tax and payroll taxes for small firms, to defer small firms’ VAT bills, to introduce measures such as small business rate relief, and to make the latter mandatory.”

Sir Nicholas Winterton (Con) wanted assurances that the Government would start encouraging the manufacturing industries and no “de-incentivise them” by measures “such as an increase in national insurance, Government-generated energy price rises, fuel tax and regulation.”

He said the banks were offering “little or no meaningful assistance to hard-pressed manufacturing via the necessary increase in lending.”

This was echoed by Richard Burden (Lab) who earlier said that the Government needed to “intervene to nurture manufacturing” when the banks are unable to do so or needed a guarantee.

Members from all parties agreed that the issue of climate change had provided the UK manufacturing industry with an opportunity to assert itself, particularly in areas such as renewable energy.

John Thurso, the Lib Dem spokesman on Business, Enterprise & Regulatory Reform, said that Pentland Firth have a tidal resources dept that has “companies such as Rolls Royce, Atlantis and International Power are all involved” and that “we have the opportunity to be the first in the world…to centre the industry in this country, with jobs in the UK.”

Mr McFadden said:

“A critical part of our manufacturing strategy is that we take advantage of the opportunities presented by the change to a low-carbon economy, whether that involves new nuclear capacity, low-carbon vehicles, or wind and wave power.”

Nia Griffith (Lab) believed that investment in “Clean Coal” technology would reduce the UK’s dependence on overseas oil and said “if we could get ahead in that game and produce the necessary materials and technology, we could sell them to the world rather than allowing others to overtake us.”

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