asked Her Majesty’s Government:

What is the latest annual figure for the trade deficit in manufacturing; and what steps they are taking to reduce it.

My Lords, the UK’s trade deficit in total manufactures was £59.1 billion in 2006, the latest period for which a complete set of annual figures is available. Through maintaining a stable macroeconomic environment, the Government have achieved an environment conducive to manufacturers planning ahead and investing for the long term. The Manufacturing Advisory Service, established by the Government in 2002, provides companies with practical advice to help them in improving productivity and increasing global competitiveness.

My Lords, I am grateful to the noble Lord for that reply. However, am I not right in thinking that the manufacturing trade deficit, at £59 billion, is a record high and that only the surplus on services is keeping the overall trade deficit at a tolerable level? Should we not be trying much harder to extend our manufacturing base and to close the productivity gap between ourselves and the United States, France and Germany—or are the Government content to rely on the continuing success of the service sector, mainly financial services, and the City?

My Lords, the Government are never content but seeking always to see improvement in performance. However, we recognise the significance of the service sector to the British economy. The noble Lord will recognise that there have been significant improvements in manufacturing output, which grew by 1.3 per cent in 2006 and, in the first couple of months of this year, is again showing an increase in growth. He is right that productivity is the key. The Government are directing their energies to improving productivity, not least with the skills agenda which very importantly relates to this issue. The Government are not content with manufacturing performance. On the whole, however, services play a roughly comparable role in the British economy to that which they play in many other advanced economies.

My Lords, will my noble friend tell the House to what extent exports by the creative industries in the same period offset the trade deficit in manufactures? How, in the new configuration of government, do HMT, DBERR, DIUS and DCMS plan to work together to nurture the creative industries?

My Lords, my noble friend introduces a very important dimension of what he refers to as the creative industries; as he indicated, these industries cover such a wide range of activity that a number of good departments, not all of which I can pronounce, are involved in their work. It is certainly an important growth sector in the British economy and, as noble Lords will recognise, has to play its part in the evolution of an economy that, in the 21st century, looks somewhat different from the way that it looked 50 years ago.

My Lords, as I am sure the noble Lord, Lord Jones, the former chairman of the Tourism Alliance, will confirm—we welcome him, with no membership card or with three membership cards—if you take a new hotel under construction in our service sector in this country, you will find that it is likely that the ownership will be American, Middle Eastern or Irish, the financing will be from heaven knows where, and the staffing predominantly from eastern Europe. But the manufactured content of a new British hotel is around two-thirds. Given the complementary nature of manufacturing and service, is it not somewhat outdated just to focus on the narrow definition of manufacturing statistics?

My Lords, I do not think that it is outdated, because manufacturing industry is a very important part of the economy and employs a very large number of people. However, the noble Lord is right that we have to look at the issues in the round. The House will delight in the fact that, the year before last, the UK was the number one country in the world in foreign direct investment flows—which shows that our economy is being built upon strength.

My Lords, in May 1997, the then Chancellor said:

“No one should doubt my determination to create the conditions in which British business, and manufacturing, can flourish”.

Since 1997, over 1 million jobs have been lost in manufacturing and the trade deficit has increased to almost £60 billion. Has the former Chancellor not in fact created the conditions for UK industry to wither on the vine?

My Lords, the House will be astonished that the Opposition dare to raise the loss of jobs in manufacturing industry, given their record in the 1980s and early 1990s. The noble Baroness will appreciate that there has been continuous economic growth under this Government, reflecting the fact that the former Chancellor has ensured—and his successor will of course continue this excellent work—that the economy of Britain has been in good hands and has prospered.

My Lords, is my noble friend aware that, in a modern manufacturing economy, most manufacturing companies employ more people to service products and customers than they do to make the products? Is that not one reason why there has been perhaps a drop in the number of people in manufacturing but an enormous increase in the number of people in services?

My Lords, my noble friend is accurate and right in what he says, but that does not alter the facts. I would not want this short debate to conclude without emphasising that the Government are concerned that our manufacturing industry should flourish. That is why we have been concerned to ensure that our business taxation, corporation rate taxation and other aspects of business taxation should be highly competitive with other major countries—to ensure that the manufacturing sector, with other sectors of the economy, flourishes.