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Westminster Forum "The Way ahead for UK manufacturing"

The Rt. Hon. Stephen Timms MP,  Former Minister of State for Competitiveness
KPMG,  23 October 2007

I am delighted to be here. One thing which has become very clear in my work since June as the Minister responsible for Manufacturing is the passion and commitment of the people involved. That makes manufacturing a particularly rewarding area to be responsible for.

Generating one sixth of our overall wealth, two thirds of our exports and 3 million jobs, manufacturing plays an absolutely vital role in the UK economy. The Government is determined that it should continue to do so.

And something else which has become clear to me over the past few months is that UK manufacturing is doing well. A series of reports – from the Engineering Employers Federation, Chartered Institute of Purchase and Supply and the CBI – have underlined the point. And you sense it in visiting manufacturers as I have been over the past few months.

Britain is the sixth largest manufacturing economy in the world. We are making almost twice as many cars in Britain today as we did twenty five years ago. Of over a million new Minis made at Cowley so far – I was there to launch the new Mini Clubman last month, and BMW told me its their most cost efficient plant in Europe – almost 80% have been exported around the world. The Mini has won export markets in places where UK-made cars have been absent for decades, as I observed in a visit to Sarawak in the summer, where the last UK-made family cars sold were Morris 1100s. Our bioscience industry is the 2nd biggest in the world, with over 40% of the world’s new biotechnology drugs in late stage clinical trials.

We need to point out to people that manufacturing in Britain is doing well – on passion and commitment, without question – but for growing success as well. And in Government, and on the Manufacturing Forum which I chair with representatives of employers, trade unions, academics and others, we have been looking at how best we can celebrate the achievements of manufacturing over the period ahead, to help attract young people to contribute to future success.

Seven of the global top 10 vehicle makers and 19 of the top 20 auto parts makers have a manufacturing presence in UK. Over 75% of the cars made in UK are exported, and independent surveys show UK car plants to be amongst the most productive in Europe. Our aerospace industry turns over £19 billion; our pharmaceutical industry has discovered and developed a fifth of the world’s top 75 medicines.

After the floods in the summer, I visited one of the factories in Hull which had been affected. It was the factory of what is now called Reckitt & Benckeiser, on the site of the original factory opened by Isaac Reckitt in 1840. They make virtually all the Lem Sip in the world there. And they told me about a competition within the Group for the contract to supply Dettol to Australia. It came down to a contest between Hull and a plant in Indonesia – with its obvious advantages in labour costs and geography. But Hull won – because they were smarter. And that is exactly how British manufacturing can continue to do well around the world.

I called on another factory which had been flooded – a manufacturer of touring caravans. The managing director asked me to estimate what proportion of caravan sales in the UK is accounted for by imports. Anyone like to guess? I had no idea, but I was – as he anticipated – astonished when he told me the answer was 5%. 95% of the booming market for caravans is accounted for by products made in Britain, 80% of them around Hull, where the trade goes back to the 1930s when plentiful supplies of wood imported into the docks provided the raw material. 5000 people around Hull work in the manufacture of caravans and mobile homes.

Globalisation

Of course the sector has been through very tough times. And manufacturing employment is continuing to fall. Globalisation presents massive challenges. India and China have wage costs around 15% of European Union levels – and are expected to account for nearly half of all global growth over the next 15 years.

Intense challenges will continue. Globalisation, changes to trade barriers, rapid technology making it possible to transfer work to locations around the world. We can’t hold back global development and protectionism certainly isn’t the answer. But let nobody say that – despite all the challenges – we can’t continue to do well in UK manufacturing. General Motors’ placing the next Astra at Vauxhall Ellesmere Port is a recent example of global companies seeing the UK as a good location today.

Advances in information and communication technologies, materials, biotechnology, fuels, and nanotechnology offer scope for innovation in manufacturing, and, together with the opening up of world markets, great opportunities for UK manufacturers. Globalisation need not be a one way street where only Asia benefits.

Competing on price and scale alone will no longer cut it. The companies best placed to prosper in the knowledge economy are those that invest the most in R&D, that are most alive to the commercial opportunities of the ideas they generate; that most successfully bring their ideas to market. Low tech assembly line work ha shifted to countries with low wage costs, but high know how companies can thrive in Britain.

Manufacturing today is not just about production. It includes research, design, maintenance, sales and marketing, logistics and distribution too. Companies like Rolls Royce earn a large part of their turnover from servicing and repair.

New manufacturing opportunities are emerging in green manufacturing. New sectors are emerging as we rethink how to deliver products without exhausting natural resources. Environmental industries are already growing at 10% a year, and there are major opportunities here for UK manufacturing.

Of course in many cases the names on the door may have changed – but that is the nature of the global economy. BMW is the 3rd largest car producer in the UK, employing around 8,000 people and spending over £1 billion a year with UK suppliers. A German company making an immense contribution to the British economy. Nationality of ownership today is not what matters. What matters to Government is to create a business environment that allows world-leading businesses to invest and grow here – and, of course, create high quality jobs.

Government Manufacturing Strategy

What can Government can do? First of all we need to get the fundamentals right: a stable economic framework; open competitive and flexible markets, and a good business environment.

We introduced our Manufacturing Strategy in 2002, the first by any Government in over 30 years, to help companies to compete successfully in world markets. Its based on raising investment, on applying science and innovation, design, world class practice, and a high level of skills.

To help steer the Strategy we set up the Manufacturing Forum in 2004, with unions, employers and government.

With the Regional Development Agencies, we’ve set up the Manufacturing Advisory Service with a centre in every region. It has been a major success and we are expanding it next year. We will continue to support it strongly.

We launched the National Manufacturing Skills Academy in January this year to bring world class training to the sector. It is delivering courses designed by industry for industry, with the goal of training 40,000 students a year by 2012.

The R&D Tax Credit has provided £1.8 billion in support for business – over three-quarters of that to manufacturers - supporting £16.6 billion worth of R&D expenditure since 2000.

We’ve put £355 million into the Technology Programme so that manufacturers can capitalise on key technologies. There are over 600 projects across 40 technology areas and business plus government investment in the projects will add up to almost a billion pounds.

We’ve been working with the Design Council to follow up the recommendations in the Cox Review to ensure that UK manufacturing takes advantage of our design and creative expertise. The Design Council Designing Demand programme, funded by the RDAs, is running in four regions, with a full UK roll-out expected next year.

We’ve increased the Science & Research Budget from £1.3 billion in 1997/98 to £5.4 billion in 2007/08 billion. And, as announced in the Comprehensive Spending Review two weeks ago, to £6.3 billion by 2010.

This work is given added impetus by the Sainsbury Report with its aim to position Britain’s knowledge economy at the forefront of 21st century innovation. We are working very closely with the Department of Innovation, Universities and Skills (DIUS), to ensure Britain strengthens its position as one of the best places in the world for science, research and innovation. DIUS will lead on a detailed strategy for science and innovation, with plans for implementation of the Sainsbury Review. We will be aiming to deliver:

• better support for early-stage high-technology companies through a reformed Small Business Research Initiative;
• more effective use of Government procurement to drive business innovation;
• a national ‘proof-of-concept’ fund; and
• RDA support for incubators and high-technology clusters.

Conclusion

So there is a great deal to do, and no room at all for complacency. But I think we can afford to be optimistic, building on the opportunities created by what the IMF has described as “a decade-long record of strong and steady macroeconomic performance”. And in Government we are determined to build the right conditions for modern manufacturing success.