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Manufacturing Post Brexit

Volume 827: debated on Thursday 26 January 2023


Asked by

To ask His Majesty’s Government what plans they have to support manufacturing in the United Kingdom following the UK’s departure from the European Union.

My Lords, following the UK’s departure from the European Union, the Government are focused on transforming our industrial heartlands by attracting inward investment, future-proofing businesses and securing high-wage, high-skilled jobs. We continue to support manufacturing through programmes in strategically important subsectors such as aerospace, automotive and life sciences, and we have committed nearly £650 million to fund the High Value Manufacturing Catapult centres, and nearly £200 million to the Made Smarter programme.

I thank the Minister for his Answer. Trade exports with the EU are down 15% since Brexit; paperwork and delivery times are up, while regulatory divergence, which was heralded as one of the key Brexit benefits, has so far been very limited. As divergence increases, manufacturers see only additional cost, extra paperwork and further disruptions. What further steps is the Minister’s department taking to support UK manufacturers, their employees and their supply chains to overcome the frustrations that they face on a daily basis? What does his department’s detailed cost-benefit analysis of further and future regulatory divergence show?

There are tremendous opportunities facing the UK following Brexit. We can have regulatory freedom in a number of areas where we were constrained by the EU. I do not want to cast doubt on the noble Lord’s figures, but manufacturing in the UK is doing well. According to Make UK, which is the largest UK manufacturing trade body, manufacturers are continuing to increase investment in the next 12 months, more than half of manufacturers plan to increase investment in both people and training within the next 12 months, and a further 57% are planning to increase investment in new product development. Manufacturing is doing well. We should not talk it down.

When we look to supporting manufacturing industries, is not the immediate question what we are all going to do in the face of rising American protectionism and subsidies, particularly in the motor sector? Are we going to challenge them? Are we going to join with the EU in its enormous plan for subsidies to counter American subsidies, or are we going to do nothing or go it alone?

My noble friend makes an important point. The Inflation Reduction Act in the US is clearly going to have big effects on the UK and Europe. We need to work together with our friends and partners in engaging with the US to try and convince them that a rise in global protectionism is really not the way to go.

My Lords, if you talk to the trade associations—Make UK for example—they will also tell you that their members and the manufacturing industry are facing massive headwinds: increased costs, broken supply chains, increased paperwork when they try to export to the EU, a shortage of skilled people and a rising cost of capital. They look over the fence to other countries: they see Governments in the European Union and in the US that are seeking to work out plans to help their industries. Then they look here and see empty words and press releases, but nothing behind them. So when are we going to have actual plans, real road maps and proper support?

The noble Lord obviously wrote his question before I gave the earlier answer, because the figures that I quoted on increased manufacturing investment—more than half of manufacturers plan to increase investment in people and industry—were from Make UK, so the noble Lord is painting an unnecessarily gloomy picture.

My Lords, would my noble friend agree with me, in respect of manufacturing post Brexit, that R&D is a very important part of manufacturing growth? The ONS revised statistics show that research and development in the UK was £33 billion just before Brexit; last year, it was £42 billion. This is in part thanks to the Government’s R&D tax credits of £6.7 billion last year. Will BEIS encourage the Treasury to ensure that the scheme to combine SME and larger companies’ R&D will not prejudice SME companies in claiming the invaluable R&D tax credits they need?

My noble friend makes an important point, and I know that he is very expert in this area. The Government are taking steps to increase our international competitiveness, by increasing the research and development expenditure credit from 13% to 20%; we will increase our economic competitiveness in that way. As part of the ongoing R&D tax relief review, I know that the Treasury is looking at this issue carefully.

My Lords, Honda closed its factory primarily because of Brexit, when, unlike Europe, we removed those tariffs on vehicles coming in from Japan. Twelve years ago, the Government’s Automotive Council, which I had the privilege of sitting on, set aside £400 million—a lot of money in those days—to entice battery manufactures into the UK. It was small change compared to the billions of state money being put in by Germany, China and Japan. So, with respect to the Minister’s answer the day before, it is not nostalgic to nationalise Britishvolt; it is strategic, irrespective of the relatively small but very important battery production by some car companies that is taking place now. My question is: if we failed in battery mega factories, what is the Government’s strategy now for the industry? Is it hydrogen vehicles or whatever? Without investment and without strategy, we will have no industry in 25 years’ time.

I know that the noble Lord is passionate in his views on this, but I am afraid that I just do not agree with him that nationalising the car industry is the way forward. The noble Lord will have been around in the 1970s when we saw the decimation of the UK car industry under state control. The future is not state control; the future is what we are doing, which is incentivising manufacturers to move to the UK. The case of Britishvolt is very disappointing, but the money that we had available remains on the table. We very much hope that other companies will show interest in the excellent site in Cambois, near Blyth, and we continue to do all that we can to encourage investment in the UK.

My Lords, the Minister mentioned the Government’s support for life sciences, and I applaud the Government for their strong support. But recent reports, particularly from big pharma in the United States, suggest that despite the £1 billion investment we had last year, it is now slowing down compared with investment in Europe and the USA. What other encouragement can the Government give to have inward investment from overseas?

I know that the noble Lord is very expert in this area, and we have discussed it before. We need to do all that we can to encourage life science investment; the UK has one of the most successful life science sectors in the world. We need to make sure that investment continues to flow into this country, and we want to use all the policy levers open to us to make sure that that success story continues.

My Lords, why does the Minister think that UK car production has fallen to its lowest level since 1956? Do the Government have plans to invest in particular in the charge point infrastructure that will be needed for the UK car industry to make a successful transition to electric vehicle production?

The noble Lord makes a good point. We need to do lots of things to help us on the journey to electric vehicles. Charging infrastructure is an important point. We have very ambitious plans to invest in thousands of new chargers, which are being rolled out. We already have one of the largest charging networks in Europe, but we need to do an awful lot more. In addition, as I mentioned, encouraging gigavolt battery manufacturing plants in the UK is particularly important. There is a lot that we need to do to support our electric vehicle plans.

My Lords, Britain has over the decades sadly lost its pre-eminent position in nuclear power. Has my noble friend noticed that Rolls-Royce has today announced a new nuclear academy of excellence in Derby? Will he recognise that this is a real opportunity to move forward with the experience Rolls-Royce has in small modular reactors?

I completely agree with my noble friend. There is a great future ahead for small modular reactors. We want to support Rolls-Royce as much as we can in this area. We are rolling out support for Great British Nuclear and the SMR programme.

My Lords, I declare an interest as director of Business in the Community, the UK’s biggest responsible business network. The fall in manufacturing in the UK since the 1970s has been quicker than almost any other developed country, despite jobs in the sector paying 12% more than equivalent sectors and being seen as key to growth and bringing pride back to Britain. As the noble Lord from the Lib Dem Benches pointed out, it is reported today that UK car production is at its lowest level since 1956. It seems to us that the Government have accepted the decline, so what plans do they have seriously to arrest it? We have not heard enough from the Minister today and we do not hear enough from the Government on this point. We want manufacturing to recover. “Made in Britain” should be a slogan we should all be proud of.

I certainly agree with the noble Lord’s last statement, if not many of his earlier ones. There is always more that we can do. We continue to support UK manufacturing, but the UK is one of the largest manufacturing nations in the world—it is the ninth globally by output. Manufacturing contributed £205 billion of gross value added to the UK economy and supports 2.5 million jobs, most of them outside London, which is a good thing. Of course we always need to look at new policies and regulations. I am sure the Opposition will support our new regulatory freedom to help make things easier for the manufacturing industry, but let us get behind British manufacturing and not be so gloomy.