Business, Energy and Industrial Strategy Committee
Oral evidence: Industrial Strategy, HC 616
Thursday 27 October 2016, Coventry
Ordered by the House of Commons to be published on 27 October 2016.
Watch the meeting
Members present: Mr Iain Wright (Chair); Richard Fuller; Amanda Milling; Chris White
Questions 101 – 223
Witnesses
Dr Hamid Mughal, Director of Global Manufacturing, Rolls-Royce and Professor David Greenwood, Warwick Manufacturing Group.
Councillor Bob Sleigh, leader of Solihull Metropolitan Borough Council and Chair, West Midlands Combined Authority, Matthew Rhodes, board member of the Greater Birmingham and Solihull LEP, and Jonathan Browning, Chair, Coventry and Warwickshire LEP.
Andy Palmer, Chief Executive, Aston Martin, David Bailey, Professor of Industrial Strategy, Aston Business School, Rachel Eade, Automotive Supply Chain Specialist, and Tony Burke, Unite Assistant General Secretary for Manufacturing.
Written evidence from witnesses:
– [Add names of witnesses and hyperlink to submissions]
Dr Hamid Mughal and Professor David Greenwood.
Q101 Chair: Gentlemen, good morning. Welcome to the Business, Energy and Industrial Strategy Select Committee. We are conducting an inquiry into industrial strategy. It is nice to be outside of Westminster and I thank the MTC and the Catapult for helping us to host the visit here. We are very grateful. For the purposes of the record, gentlemen, could you identify yourselves and give us a very brief background in terms of your experience, starting with you, Professor?
Professor Greenwood: Certainly. My name is Dave Greenwood. I was just over 20 years in consulting engineering with a company called Ricardo before moving to Warwick University, where I am now professor for advanced propulsion systems at Warwick Manufacturing Group. My chair is sponsored by Jaguar Land Rover but I am not an employee of Jaguar Land Rover. I am an employee of the university and I am working with lots of different companies, so I am not tied to JLR specifically.
Dr Mughal: Good morning. My name is Hamid Mughal. I am director of manufacturing for Rolls-Royce. I started in the automotive industry, including BMW, before I eventually moved into Rolls-Royce. My experience base is initially design but manufacturing across the global footprint, and currently I cover manufacturing across the five businesses, which are civil, defence, nuclear, marine and power systems.
Q102 Chair: Thank you, gentlemen. As I mentioned earlier, we are conducting an inquiry into industrial strategy, so I suppose I should begin right at the beginning. What does industrial strategy mean? What would your definition be of what a strategy like that would entail?
Professor Greenwood: For me, it is a way of joining up the relevant parts of Government in a common direction in a way that supports the market as well as the industry that supplies the market and makes sure that we do not have counterintuitive things happening in policy in different departments. At the same time, it is something that allows industry to respond to that market in a very efficient way, in a way that produces the best bang for the buck for the UK. If we are putting money into these things or if we are providing mechanisms to incentivise certain things, we make sure that you are getting a good return on that investment that sticks in the UK and makes a difference here.
Q103 Chair: That joining up, do we have that at the moment? Out of 10, how would you rate the UK Government?
Professor Greenwood: I would say it varies from sector to sector. If you look at the automotive and the aerospace sectors, for instance, I would say that is very good. There has been a long-term dialogue between industry and Government and there has been a strategy in place around supporting product R&D and manufacturing R&D, around supporting organisations and their investments over time. That has come from building that dialogue over a period of probably a decade or 15 years. If you look outside of those sectors, that is perhaps less strong. Other industries like the construction sector, for instance, have seen that model and are moving in that direction but are not as far down the line with that.
Q104 Chair: Would you suggest that a sectoral approach is a correct one when it comes to an industrial policy, when it comes to joined-up thinking, or should it just be more horizontal rather than that vertical sectoral approach?
Professor Greenwood: I do not think you can look at either in isolation. I think there are faults with both. If you look at the advantage of a vertically integrated strategy, which considers an industry sector, all of the supply chain, the skills and the job creation that goes with that, it is a lot easier to understand a particular path over time that the industry is likely to take and, therefore, to put the right mechanisms in place that will encourage the growth that we are looking for. Equally, if we just look totally in individual sectors, we lose the opportunity to transfer skills and to transfer knowledge from one sector into another.
Q105 Richard Fuller: Just on that, why should Government get involved in a sector? Why can’t you just do it yourselves? What does the Government add that you cannot work out yourselves?
Professor Greenwood: A number of different things depending on the industry sector. If I talk about automotive because that is the one that is probably closest to the work I am doing at the moment, we are in a position where the industry is moving very quickly. You have seen the pace of technology change in the products on the road today, and clearly there is global competition to be the home for these new technologies that are coming through. If you look at the move from the cars that we have had for the last 100 years to what you can see happening in the next 50 years, we are looking at electric motors, power electronics, battery systems, components for which there is no industry right now. There is a global battle for who is going to be the new home for that and who will take the benefit from that. One of the things that Government can do, and it need not necessarily be just a matter of throwing money at it, is building the correct market and building the correct structure for industry to work within so that we do not get in the way of that growth.
Q106 Chair: Dr Mughal, can I come to you? What is your definition of industrial strategy and do we have one in the UK at present?
Dr Mughal: To add to some of the very good comments my colleague has made, I see it in two or three different ways. Number one, the global footprint of manufacturing is currently competing for investment from individual companies large and small—that is the first thing that you have to bear in mind—and companies by themselves are competing internationally for revenues from all those areas. The health and vitality of an industry in any country is a consequence of investment decisions made because of all these things.
Q107 Chair: On that point—sorry to interrupt—when we talk about an industrial strategy, industrial policy, is that synonymous with manufacturing and how does that relate to the characteristics of the British economy, which is very much services oriented these days?
Dr Mughal: Manufacturing, many of the successful industrialised nations—for example, Germany, Japan, China and Singapore—have used manufacturing as a central plank for their industrial strategy for a number of reasons. Some of them are very, very good reasons because manufacturing is not just production. It is a consequence of a series of things from ideas into research into development, creating a supply chain, producing, which is the element that we often associate with it, and then the sales support and, in the future in my professional judgment, there will be a very, very big growing sector of re-manufacturing because we will not be able to waste anything, frankly. Given scarcity of materials, high energy costs and all the technologies coming together, we will be able to return end of life products into as near good condition. Frankly, the public will demand it. Sustainability will become more of a fashion and a necessity than it is today.
In terms of my earlier point about these investment decisions, if we look across the globe, many, many countries are currently investing a huge amount of political resources and economic resources into enhancing their competitive advantage. They are creating infrastructures, physical as well as, as you say, information technology. They are creating attractive packages for companies to come and invest in their regions, to create high technology roles, advanced manufacturing roles, so that they spill over in the universities, research, all of that. We are competing intensely in a growing industrialised world and I often say jokingly that manufacturing has become more popular than football. In fact, that is the reality. Anywhere you go the Governments are keen to embed advanced manufacturing in their countries.
Q108 Chair: What is the best way for Government to help facilitate that? I just want to come back to a point I mentioned to Professor Greenwood. Is it that vertical industrial approach or is it more a question of we will have a great education system, we will put in place massive investment into our infrastructure, we will have flexible labour markets and, therefore, given that favourable and conducive environment to growth and to foreign direct investment, the market will decide what the shape and characteristic of a British economy will be like? Or is it we want to be good in electric vehicles and battery technology and we will focus targeted investment, almost picking winners, in that regard? Where is the best approach?
Dr Mughal: I am a great believer in learning from some of the best things across the globe. Countries are doing both because individual sectors have unique requirements. For example, aerospace has a long investment cycle of between 20 to 30 years. Some of the alloys take a long time by the time you invest and then the product is in service for 20 or 30 years beyond as well. It is a long investment cycle. It is a unique sector that requires a different set of variables and, therefore, understanding of what these are and what Governments can do to support investment in the technology and the infrastructure and the research to make sure we remain competitive are important. That is one illustration.
If you then do not do the horizontal enabling that you touched upon, which is the STEM skills, the global infrastructure and UK infrastructure, and an environment that enables an innovation pipeline, the ecosystem from ideas all the way to industrialisation, if you do not have all the elements together, if you do not pull them all together, you miss out. The horizontal and the vertical are equally very, very important here.
Q109 Richard Fuller: You have both very clearly said that you want the Government to pick winners, but you do not ever use that language. Surely we have to use that language because otherwise you are going to end up with us—you say countries are developing all this, so we have to choose some things otherwise we will be trying to choose what France and Germany and Japan and America are choosing. Then only one is going to win and four others are going to have a whole bunch of stuff they do not need anymore. Don’t we have to pick winners?
Dr Mughal: The reason I am reluctant to use the word “winners” is that we have to pick winners today but also potential winners for tomorrow. They do not exist today. We are at a threshold of what I would call radical change in the way industry will operate in the future. Many of the technologies are merging together through the next generational side of physical systems, interconnectivity and all those great technologies. That will enhance the competitive advantage of what we have today but enable new industries to flourish. We have to enable both. I would not use “winners” but I would say—
Q110 Richard Fuller: Politicians are incredibly sceptical about using it because they realise they are absolute rubbish at picking them. They have memories of the 1970s. We had Lord Heseltine and Vince Cable and they were talking about the 1970s, but the truth is that when you peel it all away this is just repackaging asking the public to subsidise bets in the industrial sector, isn’t it?
Dr Mughal: I am sorry but professionally I would differ with that view totally. This is not about public subsidising. I will give you an example on manufacturing that is closer to my heart. Economic benefits are easy to relate to, but again those metrics are very limited to the production aspects. The social capital of manufacturing, the skills, the pride, the resilience, the research, the intellectual, that is huge and that is what sovereignty is all about in the future. I am absolutely passionate about this. We have to see this through a wider lens and say, “We are not only creating success in individual companies, we are creating the bedrock and the foundation for the future sustainability of our economy and also sovereignty”. When the scarcity of materials bites the world, which will happen inevitably, designing and making world-class products and processes using your own resources will become absolutely crucial.
I think there is a broader agenda and I am very, very keen for us to have that kind of debate with an open mind. This is not about intervening. This is about enabling the UK to compete successfully with everybody else who is doing similar stuff and doing it much more vigorously and aggressively.
Q111 Chair: But don’t you enable by intervening?
Dr Mughal: Yes, okay, but intervening on a strategic landscape, long-term cycle. Short-term tinkering does not help.
Q112 Amanda Milling: Last year, the Government published the productivity plan. What I would be interested to know is how would an industrial strategy add more value than what was in the productivity plan last year? A lot of the things that we are talking about you would find in that document. It is a question to both of you.
Dr Mughal: Yes, our productivity has stalled but to me I have a broader view about productivity. It is not a metric to me. It is about a value proposition: is your value proposition better than your competitors’? That is the first point.
Number two, the value proposition comes from two sources: the excellence of your product and the efficiency of your process that delivered that product. To me, it is much more about how to create that value better and that comes into product process and supply chains.
The point about productivity debate was about what is wrong today, and part of that was leadership and ambition, infrastructure, everything else. My view is industrial strategy is not just meant to fix what is wrong today but to have a longer-term view about how it is that in the low carbon economy, with everything as I have said earlier about all the integration of new technologies, radical change of industry, we will maintain that success for the next 30 to 40 years. There is a trillion pounds of global market in SMRs, in the low carbon products, in aerospace, and aerospace beyond this earth. How are we going to grab that and what is going to sustain our economy in the future? Strategy has to address both, today and tomorrow.
Q113 Amanda Milling: Before we come on to Professor Greenwood on that question, how can you pre-empt what the future is going to bring? Let’s be honest, in the last 30 years, who would have expected where we are now in terms of technological advancement? Is it realistic to be able to have that kind of future vision?
Chair: Just following up from Amanda’s really important question, I always think about Concorde. Concorde was a fantastic engineering genius but commercially not so good, let’s put it like that. The British Government of the day backed supersonic flight. They backed the wrong winner. Isn’t there a danger that we will do that again?
Dr Mughal: Strategy will not be about specific products. It cannot be. Strategy is much more than that. I will give you an example. I have often said, and forgive me for repeating a little bit on that, we have to have a very compelling innovation pipeline from ideas all the way into industrialisation. The High-Value Manufacturing Catapults have plugged a massive gap that we used to have for decades and for me, honestly, if we had Catapult kind of centres 20 or 30 years ago, we would not have some of the issues that we now face in industry.
My point is this. One element is Government tone, language, policies, impact and all those investment decisions I spoke about earlier. If we have, for example, a pipeline with infrastructure for initial generation of ideas, university research, process demonstrations, product demonstrations, industrialisation, if we have this turning at a pace, we will develop and deliver products that are good for the customers and that customers want. Rather than specifying individual products, we enable the product creation, the research, and make sure that companies have a compelling place here, that they want to do work here and to design their products for the future here in the UK.
Professor Greenwood: I would like to work backwards from your question about how we tell the future and come back to whether it is the Government’s job to pick winners.
Depending on the timescale that you are looking at, individual industries have typical product renewal cycles. If you know what that kind of cadence is, that gives you a very good idea as to how far into the future you can see with a degree of confidence. For instance, the consumer electronics industry has something like a nine-month product development cycle. That means that you can probably see two or three product cycles from here with good confidence. If you look at automotive or if you look at aerospace, those are much longer timescales and, therefore, you can look with reasonable confidence 20 years into the future. While you might not be able to tell exactly the uptake rates of a particular technology, if it is not in somebody’s laboratory today, it is not going to be on the road for 15 years. So, you can see pretty well what is going on there.
What you cannot pick out are what I would call the disruptive technologies. If you look at the technology roadmaps that were written in the 1980s and the beginning of the 1990s, none of them saw the internet coming and, obviously, that has been a game changer. You do need to renew this roadmap vision every few years to look for those things that are coming in from left field. I do think that you can see for the overall direction of an industry sector what the future looks like, and it is not Government’s job to tell an individual company what specific technology they should be investing in for that future.
If we come back to the question of whether it is Government’s job to pick winners and take bets, I think you can separate that into two parts. The taking of bets is indicative of a view that Government put money into it. That is not necessarily the whole story by a long way and some of this is just about clearing some of the regulatory conflict out of the way that allows that market to play out in a reasonable way. In some cases, there is a need to derisk for industry where policy is looking to push the industry in a particular direction to accelerate progress. There is a high risk there, higher than industry could take on its own. There is perhaps a role there for Government to step in and de-risk that. We have had some really good mechanisms in the UK for doing that.
Q114 Richard Fuller: We have had rubbish ones, too. You talked about Concorde, Iain, but the A380 is the problem right now: massive public subsidies, massive Government support from the UK, France and Germany, and a complete, utter failure compared with Boeing.
Professor Greenwood: I am afraid my knowledge of the aviation sector is rather poor. I tend to work around automotive, but maybe Hamid could comment on that.
Dr Mughal: Could I just make one comment? There are some that are very obvious. If a wide-ranging industrial network tells you that is a big development, then I think we have to start believing it. For example, take the SMRs, small modular reactors. Everywhere we go people talk about a 400 billion to 500 billion market potential for that. We have to start believing some of those big banners that the world is talking about. Some of those are pretty obvious, but the others in terms of electric cars and the major changes taking place in aerospace, automotive, and pharmaceuticals for that matter, can be predicted I would say by looking across the roadmaps of individual companies and a collection of sectors as such. They are not difficult to predict, but the enabling mechanisms are very, very important to make sure that we get things right.
Q115 Chris White: With regards to Concorde, I heard that its function was to move 300 troops around the world faster than any other, but that might be for another day’s debate.
Hamid, thank you for what you have said so far. I think you are putting forward a very good case for an industrial strategy, which happens to be quite in line with what I think, so that is a good start for today, not least when you referred to manufacturing being used as a driver for our industrial strategy. In my speech on industrial strategy a couple of weeks ago, I said that while it is appreciated that manufacturing does not make up the majority of the economy, it can be seen as a driver for other sectors, efficiencies, processes, skills, exports and so on. I think we have talked a lot about picking winners and I want to go on to some issues about Catapult centres in a second, but do you think an industrial strategy would be about creating winners rather than picking winners, which might already, even along with Richard’s line of questioning, have existed?
Dr Mughal: I did say earlier, and thank you for your comments, that we have very, very good companies in the UK in aerospace, pharmaceuticals and automotive. It is a matter of ensuring they remain winners and absolutely, yes, that we have to develop winners for tomorrow. The market potential for tomorrow’s products to me is just revolutionary. When people talk about it being an industrial revolution, it really is. I have never in my working life been so confident that we have a radical shift coming our way and for once it plays to UK strength because of the innovation and knowledge base. If we organise ourselves really well, I think we can grab it with both hands. It is not about low-labour cost economies and not about some of the existing traditional constraints that we suffered in the 1980s, 1990s and recently. It is about knowledge, fast innovation, fast industrialisation, virtual, very fast data analytics, and all the wonderful things that will enhance our capability to take research from a university and turn it into industrialised success. It will. I am absolutely convinced it will play to our strength, but we need to get organised and this industrial strategy hopefully will help us to organise better.
Q116 Chris White: On that point, why do you think things are different now? When Wilson was talking about the white heat of the scientific revolution, do you think they were all round the table saying, “This is the time, this is right, this is what we all believe in, this is what we support”? Why is it different now? You are so enthusiastic about this being a time for radical change and revolution. What is it about now?
Dr Mughal: Technology is already playing a huge role in industrial competitiveness. We know that. Anywhere I go—and I am very fortunate we have bases in so many countries—we learn from others as well. Going forward, it will be the primary enabler for industrial competitiveness. That is universally accepted. Wherever you go, people believe that, and the rationale for that is a number of primary technologies and secondary technologies are maturing roughly at the same pace and will be integrated by cyber-physical systems. Our ability to analyse data at unbelievably fast speeds and the so-called next version of the global internet if you want to call it that, the next three versions of Google Earth where someone like me can use the virtual train and go into a factory, even if it is 6,000 miles away, virtually, interrogate any processes causing a problem, download any rectification that I need to do and come out of it while still sitting in my office, are very real. That is not hundreds of years away; 10 to 15 years away. Because of the integration of those technologies, because of the computing capability, advanced materials and our ability to implement these very, very quickly at a fast pace, that is enabling this revolution. It is nothing else but absolutely breath-taking technology that is coming together.
Q117 Chris White: On the back of what you have just said, as this is all now going to be on the record, you have talked about innovation and research and development. Can you explain to people what a Catapult centre is?
Dr Mughal: Okay. The original model for the Catapult centre is drawn from the Fraunhofers, which have had experience of doing this kind of work for over 70 years—as we all know, more so in the last 40 years than in first 30. This is about public/private partnership, which plugs the gap between fundamental research in universities, which we have always been very good at, but turning it into industrial success, industrialisation.
For example, I use manufacturing capability and readiness level, levels 1 to 9. One is an idea; nine is a cost-effective, fully proven solution. We have been pretty good at levels 1 to 4 for decades. Universities are very good at fundamental research, but good manufacturing, advanced manufacturing, requires a number of variables, machine tools, software, tooling, fixturing, putting them all together, a measurement system, variable control, process control, all of that. Universities run out of capacity beyond test samples, a small piece of this to prove out, material properties, manufacturing properties, and so on and so forth. It is when you put them in a real, full-scale environment where you can play with all those variables, introduce selective technologies and then enhance the manufacturing efficiency, not just for 5%, 10%, 15%, 20%, 30%, 40% that I have achieved in some of the projects here. That is what you need and that is the innovation sandpit where you keep trying.
You cannot do that on shop floors. Shop floors are dedicated to production, constrained by one company, and, therefore, you know what you know. Here you have universities. You have Catapult centres probably working with 2,000 or 3,000 companies, frankly, so you learn from others. It becomes a national success. People pass knowledge to each other and collaborate. For many of the projects I have done you have equipment supplies, tooling supplies, university associates, my own engineers, physically working on a programme and they get levels 6 and 7 proven here. You take it to the shop floor; it works. The reason why many white elephants—pardon my expression—in technology were created in the early 1980s when we wanted automation everywhere was that they had jumped from university straight into industry. That does not work. You have to prove the preproduction middle ground where you productionise it.
These Catapult centres are an absolutely ideal ground for those. It is about public/private partnership. Companies operate here. You learn from each other. They create an unbelievable skill base we have never had before. To me, my personal and professional view is it is probably the best initiative we have taken in my working life and I hope that we sustain it for a very long time.
Chair: That is very strong praise.
Dr Mughal: I have worked in different countries and I have been to 500 different factories across the globe. I think the UK was crying out for this. It is just that perhaps we did not know how to develop and define it. This is a really good model, and in my opinion it is more efficient than the Fraunhofers. Every project is industry led. There is no research going on for the sake of it. Every project is paid the way it should be paid by industry. Every project has a benefit case. Every project has a deliverable. I do many projects here and they are business led and they go on to the shop floor for efficiency, productivity or enabling a new product to be designed.
Q118 Chris White: Fantastic. That was a very good clarification. David, what do you think about industry’s interest in the Catapult centres? Is it hard to sell? Are they queuing around the block? What is the impact on industry? How does that work?
Professor Greenwood: The job of the Catapult is to be, if you like, one step but only one step ahead of where industry is so that there is a learning to be done. As Hamid said, to do the learning, particularly in the manufacturing sector, you need to be learning sometimes on equipment that costs millions or even tens of millions of pounds and individual companies simply cannot afford to do that. It would be ineffective to do that six or seven times over in the UK once in each individual company. Each of those individual companies would get one project’s worth of learning.
By centralising those into the Catapults as you have them now, it means that you only make the investment once. The skills develop in a centralised place and then can be shared among those different organisations, so you get a much more efficient form of learning for UK industry. With that in place, that is a very attractive model for industry because rather than having to do all of this on their own, they can come and learn from what other industries have done in the past. It reduces the risk. It shortens the timescale to market. Generally speaking, we find that in the very early stages of making the investment, because we are one step ahead of where industry is and we are looking at the technology roadmaps to see what that next one step is, there is an element of selling, to say, “Guys, look, this is the direction it is going. You want to think about this”. Once it is in place and once they can see that momentum moving, then that really builds and we get the industrial interest coming through. Our job then is to take the next step to pull the industry through.
Q119 Chris White: Catapult centres, though, all have their level of expertise in a specific area. Do you think there is a part of our knowledge or part of the jigsaw that we are missing out? Are there other Catapult centres that need to be created?
Professor Greenwood: There are different mechanisms for taking these kinds of innovations through. I think you could look at some other industry sectors and say some of those industry sectors could do with the kind of pull that automotive, aerospace and others have benefited from. The question is whether Catapult is the right mechanism for those. I think there are other mechanisms available to us.
One of the things that the UK has historically done very well is a joined-up approach to product development and process development support, starting with the university level with the EPSRC and Research Councils UK, moving through Innovate UK to do the midscale TRL and for the larger sectors, automotive and aerospace, having ATI and APC there to then take the next step. That has been a real strength in the UK. You do not see that in Germany. You do not see that in the US. When we are looking at whether the answer is a Catapult, first of all we need to be clear about what the question is and whether some of those mechanisms may be better to address them.
Q120 Amanda Milling: It is kind of linked to this, but one of my concerns is that there is a bit of a danger that we create hot spots and cold spots. The Chair and I have fairly similar constituencies. You are very steel based. I had energy production until recently. We have to find a new industry, but how does an area attract that new industry? Is there a bit of a danger that you can have Catapults, you can have innovation in particular areas, but we are not spreading it across the country? I look around here and go, “Wow” and I am going to go, “What do I need to do to make sure that happens half an hour away?” I do not know whether you have a view on this.
Professor Greenwood: The key is whether the investment is going to stick. If we over-incentivised in a geographical area where it does not make logical sense to have an industry because the supply chains are too long or because the need is incorrect or because the materials are not available, then that would be a poor investment. We need to make sure that where we are making those investments there is a good rationale for the investment. If it is going to be regional rather than national, we need to make sure there is a good rationale for that.
Dr Mughal: Could I add to that? If you look at these Catapult centres, the High-Value Manufacturing—I cannot answer for the others because I do not know enough about them—they are process based; for example, advanced machining, advanced forming, advanced measurement, composites, and so on and so forth. Therefore, they are cross-sector. They are applicable cross-sector. Wherever there is manufacturing, they are applicable to that. They are not product based. That is the beauty of these centres.
I think the better way to think about the very good dilemma that you put forward is how can some of those other industries make more use of these and, if they are specific technologies that they do not have access to within this group of centres, whether we can then selectively invest in those processes to enable them to make more use of these Catapult centres. I am very keen that we flourish and maintain these and not spread the jam too thinly and keep on adding because then we might just become uncompetitive in the long term. I do agree with you. You made a very insightful comment. It is about how to enable those areas to make more use of them, and there might be selective processes that we do not have at the moment and then selective investment will help out.
Q121 Chris White: I think we understand now the relationship between academia and industry. Why doesn’t that just work? What is the Government’s role in that?
Dr Mughal: There are a number of considerations. Successful manufacturing is a product of a very, very innovative product that the customers value and highly efficient manufacturing processes where innovation has enabled efficiency. Innovation is the heart of a very good industrial footprint today and tomorrow and will continue to do so, but innovation is a lot more than the Catapult centre. It is about skill base. It is about how attractive the UK infrastructure is for the companies, what incentives we might be able to package for big players and small players to come and play their game here, what kind of collaborative mechanisms there are. I often talk about the financial, I call it the capital impatient kind of culture, things like this. What is it that will enable innovation in product and process to flourish more? That is much bigger than just the Catapult centres. It is all aspects from skills to development to what is attractive about the UK and what might be attractive in the future, more research funding and things like this. It is a much wider vision.
Q122 Chris White: I will respond to that but, David, could I ask you? Going back umpteen steps, now we have the new Department, Business, Energy and Industrial Strategy—it used to be Innovation and Skills—how do you feel about the separation of those two Departments?
Professor Greenwood: In honesty, we have yet to see how that plays out in practice. I do have a slight concern over the separation of skills from industry because the two are so closely linked. If you look at where we are at the moment, we need to be developing not just products and processes but the people who are going to support those. It is too early for me to say whether that is going to have a positive or negative effect, but it is certainly something that we are monitoring.
Q123 Chair: Before I bring Amanda in, I am going to have Chair’s prerogative and ask three very quick questions. Forgive me, Amanda. Professor Greenwood, I think you were saying in terms of the value of the Catapults you can have large-scale investment for large companies that often would not have happened. You are talking about the Rolls-Royces, the JLRs of this world. To what extent do they also benefit people further down the supply chain, those smaller companies, the tier 2, tier 3 suppliers? How does that happen?
Professor Greenwood: I would not say that these investments are made purely on behalf of those large companies at all. Certainly, they are a beneficiary of it, but they benefit not just from the direct access but from the fact that their supply chains improve and they have access to a UK-based supply chain.
Q124 Chair: There is direct evidence of that, that it is really improving the competitiveness of the supply chain as well?
Professor Greenwood: Certainly, if you look at the Catapult that we are operating, the facilities that were guided by the large industries to say, “Look, these are the kinds of products and the kinds of processes we are going to need in the future”, we are serving small companies, start-ups that have spun out from universities that are looking to industrialise, who would have no way of accessing those kinds of facilities were it not for the type of Catapult mechanism that has been in place. We could name three or four start-up companies that have come through. They have had the clear visibility of what the end product needs to look like because that has been the guidance from the large companies, if you like, the top of the supply chain, but they have had the facilities to be able to deliver against that. It certainly is not just for the benefit of the larger companies.
Dr Mughal: It is a very good question. My numbers might be slightly out, but I seem to remember that last year 1,700 SMEs benefited from the Catapult centre.
To give you a view about the large companies as such, we built two of the most advanced manufacturing factories in the UK recently. One is at Rotherham, which is the single crystal factory, and the one in Washington, in Tyne and Wear. I took one of our very important customers there. He said it is the best manufacturing plant he has seen in aerospace. Quite a few of those technologies were developed in these Catapult centres. If you consider what it takes to create a factory, not just the infrastructure but the tooling supplies, the programming people, all the associated skills of the SMEs that enable that to happen, directly, frankly, there are about 60 or 70 SMEs and indirectly maybe a couple of hundred, just in these two.
Then I will give you another instance: for example, the Nuclear AMRC. In terms of the many the small, small SMEs who they have been working with and being fit for nuclear in the UK, they are on record saying that they want £800 million worth of collective orders because of the help and improvements they have. Yes, the large companies are players in these centres but, frankly, the spill-out benefits for skills capability and SMEs in terms of productivity and efficiency and their awareness and their knowledge of what is goodness in manufacturing is beyond some of the metrics that we perhaps float around. To me, it is a very positive picture.
Q125 Chair: Speaking of large companies and speaking of innovation, R&D and the correlation between that and economic prosperity, on the train coming up I read a report from PwC that was published today about innovation and R&D spend. It was fascinating. It established that correlation between R&D, innovation and prosperity. It mentioned the 10 most innovative companies, which is fascinating. I am just going to run down them very quickly: Apple, Google, 3M, Tesla, Amazon, Samsung, Facebook, Microsoft, GE and IBM; none of them UK-based companies. I think AstraZeneca was our largest in respect of that. It also highlighted that there is a dramatic shift in R&D spend across the world. North America is increasing year on year by about 8% to $300 billion. Europe has fallen by 9% and China has increased their spend by 19%. What do we in the UK have to be doing in order to make sure that we can stay at that top table of competitiveness and innovation and where do the Catapults fit in all of that?
Professor Greenwood: The first thing I would say is when we look at measures of R&D or innovation it is interesting to look at what the metrics are by which they are judged. For instance, very often these things are written around the number of patents that have been secured or they are written around the stated R&D spend for an individual company, and that is not necessarily the best metric for how innovative or what the impact of that will be in the marketplace.
If you look at the types of public support, for instance, that are given in the US and compare that with the type of public support that is given in the UK and Europe, it is done very differently. I would argue that the UK and European approach has a better return on investment. If you look at the US approach, it is not uncommon to see direct aid to individual organisations in order to support them. If you look at the Obama aid money that went in post-recession, for instance, quite large sums of money directed to individual organisations, having come through that period and looking at where the return on that investment is, you could argue it has not been particularly strong. The US factory industry was subsidised heavily during that period. Once the subsidies came away, several of those companies, like A123, frankly went under and were bought out.
Q126 Chair: The US example is a good one. Does the US try to pick direct winners and are they failing? That is counterintuitive in terms of what we imagine America to be like.
Professor Greenwood: I think that is the difference between the way that we in the UK have approached it and the way that the US has approached it. They have tried to pick winners in terms of companies where I think we have tried to pick winners by looking at technologies and markets and then let the individual companies pick their winning route through that landscape. As a result of that, the types of subsidies and the types of investments that we have made in there have required industry to have some skin in the game.
Q127 Chair: That is really important and it goes on to what Hamid was saying in an incredibly passionate and articulate exposition about how manufacturing is changing because of technological innovation. Just to return back to that PwC report, there was a quote from it that really struck me when you were speaking, Hamid, which is, “This technological infrastructure is still in its early stages of development but it is already transforming manufacturing”. Is that where our focus, our attention, should be, not on individual sectors, not focusing on aerospace or automotive, but thinking about picking winners through technology and having that sort of horizontal industrial policy in order to make sure we can win the manufacturing game like that?
Professor Greenwood: Can I make a quick comment on that? We talked about this fourth industrial revolution, but one of the key things that that is doing is really compressing the value chain. It is tying the design at the beginning of the process much, much closer to the product that rolls off at the end. Where we in the UK are historically very good is at the design and innovation part of the cycle and historically we have allowed the manufacturing to drift. The changes that we are seeing in the manufacturing industry bring all of that closer together so ownership of the knowledge, the design and the intellectual input at the beginning is much more closely linked to the productivity and the value in the product at the end. Hamid will probably say some more around this. That is why I think we are well placed at the moment to be taking this step into the next generation of manufacturing.
Dr Mughal: Your earlier comment about the USA and innovation, yes, I have often said that we should proactively benchmark what others are doing. Because you are playing in a global footprint and because of the intensity of the competition and the world is industrialising at a significant pace, benchmarking what others are doing would be a really good thing as a component of this industrial strategy. It will help us to try to establish a base from where we are operating to see a comparative. That is the first point.
Q128 Chair: That is possible to benchmark? That is a good suggestion.
Dr Mughal: Absolutely.
Chair: That is relatively easy to find out where we are?
Dr Mughal: Relatively easy and it will give us what are quantifiable. If I can give a view of where we are, number one, the US does both. From my knowledge of working in the USA and knowing other companies, they pick sectors, of course they do, but they also have, for example, the new investment they are making in manufacturing and innovation centres, $1 billion or so, $500 million every year. This is about innovation and manufacturing across the global footprint. It is not about specific sectors. It is about the horizontal enablers that I spoke about earlier.
You made a comment about the Industry 4.0. What I was saying earlier is exactly that; I just do not like calling it Industry 4.0. I prefer to call it knowledge-based manufacturing excellence—my terminology for that. It is knowledge-embedded intelligence into systems; intelligent machines; intelligent, smart factories that operate in real time with the real data, with autonomous decision-making, always making 100% right the first time; total transparency and optimising the resources to deliver the throughput and the revenue streams and the business performance that the companies want. Each one of these value chains should be designed in accordance with the company’s requirements.
Chair: I am going to bring Amanda in, but I am just going to squeak out one more question.
Amanda Milling: My questions are getting shorter.
Richard Fuller: I am after you.
Q129 Chair: This is really helpful and fascinating for the Committee. Professor Greenwood, you were talking about how, in terms of modern industrial processes, the value chain is getting shorter and shorter. When you think about an Apple product, for example, the iPhone says on its back something along the lines of, “Designed in California, made in China”. Is that going to continue? Given that design and innovation is absolutely integral to a successful product, are we going to see where something is designed be where something is assembled as well, because then you will have continuous process development and improvement? How will that affect manufacturing?
Professor Greenwood: There are two key things that determine where you manufacture something. The first is where the raw materials are coming from. If you have a logistics issue that means you have tonnes and tonnes to tranship, then clearly you are going to keep the manufacture close to the material. But when you look at high-value products—and that includes things like your phone, it includes your car, it includes aircraft—the manufacturing becomes much more closely tied. As we look at the information to enable the smart and connected plant type manufacturing, the thing that will anchor the manufacturing is the knowledge of how the product is designed, how the process is developed, how the process is run, how the IT systems run around that.
That shortening that I was referring to for these high-value products already happens. The key difference is we are no longer constrained by labour cost. As we look at increasingly automated and increasingly information-linked systems, the key thing that is going to drive the cost of the product is no longer labour costs, so it is not just a question of shipping to the lowest-cost economy to make a product in order to make it as cost-effective possible.
Q130 Chair: But this is great for UK-based manufacturing, is it not?
Professor Greenwood: Yes.
Dr Mughal: This is an interesting question. My own view is the manufacturing value chain will keep on extending. That is important, because the technologies I spoke about earlier will enable companies to extract value from all aspects of manufacturing: fundamental research; the development of manufacturing processes; development of the supply chain; the production process itself and packaging; different aspects of this value chain. You could well have manufacturing companies in the UK that are extracting most of their value from knowledge, others developing system solutions for others, producing stuff, remanufacturing, a number of these aspects for the technology enablers to create a manufacturing value chain that extends beyond just the physical entities. I think that is the power of it.
Q131 Chair: I am going to come to you, Amanda. I do apologise.
I do worry that one of the driving forces is that manufacturing—design, innovation, assembly, production—needs to be very close to the customer, because the customer will want to demand individual different nuances. In the case of Rolls-Royce, if Singapore Airlines are going to order a large number of Rolls-Royce engines, of course the Singapore factory will be enabling that and you will push further down the value chain into areas away from Europe, into perhaps Asia and the Pacific Rim. That is to the detriment of British-based manufacturing.
Dr Mughal: Not necessarily, because design and manufacturing is a very intense, complex process. It requires your company’s DNA, the skills, the capabilities, all the aspects that pull together. This is not something you can always do remotely. The reason why we have over 30 sites in the UK, the reason we have 9,000 engineers in the UK and the reason why we do so much research in the UK, is because that is where our skill base is. We will obviously make selective decisions about where we produce and all of that, but that is like any other company.
The fact that the majority of the skill base is here and in the US and in Germany gives you and gives us the opportunity to develop our products and our processes as well as our manufacturing bases from the extended teams that we have. That is very important. It is not just you design and develop somewhere else for the sake of it. No, you have to have the complete value chain design and then you make appropriate business decisions. We have a big presence in the UK, 30 sites in the UK.
Chair: Thank you. Amanda, you have been very patient; I do apologise.
Q132 Amanda Milling: We have covered skills shortages; tell me about jobs. I suppose one of the issues with automating and advances in technology, is that as a result of that you improve productivity, but you displace jobs in the process. Is there any way in which an industrial strategy can prepare for this or can accommodate this.
Dr Mughal: On the industrial side, of course you can prepare in terms of capacity, the capacity of the skill base that you require, but also the quality of the skill base, because that will be very different. It will be the physical kind of systems, systems-oriented, a huge amount of modern knowledge. If you look at the kind of work people will be doing, developing knowledge and technologies that can then be implemented, some of the work could be done remotely from the sites. It is understanding and road-mapping first the numbers of people that we may require across the industrial footprint if you grow at a certain rate, which we hope very much we will, but also the kinds of skills, the advanced material skills; the advanced intelligent automation skills; the advanced product skills that we need and the integration of different materials coming together. We could have self-healing material—that is a huge investment—and sensor technology embedded in products, sensor technology embedded in the manufacturing process that will understand the variables changing and therefore self-correct themselves; that is a new technology.
The kind of skill base that we will need going forward will be much more advanced and therefore much more scientifically based in at least the advanced manufacturing area that we currently have, but it will be also the kind of skill base that can operate across different sectors because the integrating technologies will be pretty similar. Yes, that is a very, very interesting and challenging question and we should have quality time, not just today, but the strategic outlook for the UK must include an ongoing assessment of the skills required and therefore as we learn more, we keep on embedding those ideas into the plans going forward.
Q133 Amanda Milling: Do you think our education is set up for that?
Dr Mughal: I am not convinced currently there is a joined-up approach. One of the answers I was keen to give was that industrial strategy should not be the hallmark of one Department. It is a Government strategy, so all Government Departments have a role to play in it. I really mean that and it is a real request here: just because a Department is leading it— which is good, somebody has to lead it—it should integrate all aspects of the Government, because that is what enables the UK to become attractive to existing industrial players and to the new ones hopefully who will see an attractive view and come here. That skill question is vital, it is challenging and vital, and we should give it quality time. Universities have a big role to play in this; industry has a big role to play with this. It is not something we will solve overnight and we will have to keep on working at it. When we learn more, we embed more, we plan more and hopefully the pipeline will turn.
Q134 Amanda Milling: In your experience of Government in the past, do you think that Government Departments are set up to do that kind of joined-up thinking? You are saying it is in what is now BEIS, but what are the challenges in terms of joining up with the other Departments if industrial strategy has to be delivered across all?
Dr Mughal: Compelling industrial strategy will link in all Departments. Honestly, it is an ideal mechanism to link Departments for a common purpose, which is UK industrial growth and success, with all the spillovers of employment, prosperity, balance of payments of everything else. If this doesn’t link everybody else in, I wonder what else will.
Professor Greenwood: I would second that. The industrial strategy gives the common objective, which means that even if the immediate linkages between Departments are not as strong as they might be, they are all heading in the same direction. That means that you end up with alignment, whether by design or otherwise. For me, that is the real benefit of the industrial strategy, it is bringing together the Government departments, it is giving industry a clear direction as to where they are heading and having that in a way that means that we do end up joining up the skills agenda with an industry agenda, with an environmental agenda and with an energy agenda.
Dr Mughal: Our quest is that it should be a longer term and therefore cross the electoral cycles and be cross-party, both parties, the large parties and others.
Richard Fuller: You can achieve the former without the latter at the moment.
Dr Mughal: But it will be. I am a great admirer of some of the strategies across the globe, in Germany, in Singapore, for example. It is a national strategy.
Richard Fuller: It is a one-nation state though.
Q135 Chair: But in terms of that, Hamid—and again I am interrupting Amanda, and I apologise—I was going to ask you at the end which countries can we learn from?
Dr Mughal: I learn from Singapore an awful lot. If you talk about—
Q136 Chair: But Singapore is essentially a city state. It is very different from the UK.
Richard Fuller: It is a one-party state.
Dr Mughal: We can learn from Germany and we can learn from Singapore, two different set-ups. Germany, absolutely passionate about the technology and the methods and research and turning research into industrial success. They have been doing it and they are very, very good at that. What I like about Singapore is their industrial strategy is joined up across all areas. There is no friction between different parts of the Government or parties or whatever. It doesn’t matter if it is small or large, it is very cohesive. I talk to anyone, whether I talk to EDB or to A*STAR or somebody from the Government, they all talk the same language, so it is cross-party, cross-department. Germany has learned how to take ideas into industrial success. We can learn from both.
Q137 Amanda Milling: One quick question. Going back to your point, Professor Greenwood, about industrial strategy will be across Departments, by the very fact that it is within one Department, does that not mean that there is a real danger that it gets ignored by the others?
Professor Greenwood: Yes, I guess there is of course a risk of lack of buy-in to it. I think the strength of an industrial strategy is it ties in the industry as well as tying in the Government Departments, which means that the Departments who were not responsible for writing it in the first place have an indirect link because of their interest in what is happening in industry and skills and the like. It is a risk; hopefully it is not one that will manifest.
Q138 Amanda Milling: The other point I want to ask is in terms of looking at the skills agenda and the skills that we need. What concerns do you have in terms of skills and immigration, if any?
Professor Greenwood: Let me pick that up from a university perspective. Clearly we recruit very broadly internationally for students, researchers and staff. We already do that worldwide and clearly the conversation around European immigration at the moment only affects a small part of that. We are already recruiting from the US, from Indonesia, from India, from China, all over the world. For us that is incredibly important, because it brings the best of the knowledge from around the globe in order to be able to collaborate. Challenges for us will be making sure that we can offer a stable situation to the people that we want to employ and that we can bring the best of knowledge together so that we can learn and we can progress quickly.
Amanda Milling: Any other points to add? Otherwise I am happy.
Q139 Richard Fuller: On the point about co-ordination of the strategy that, first of all, Theresa May has made this one of her top three priorities, and second, that she herself chairs the Cabinet Committee on Industrial Strategy, that is a good thing, is it? You would recommend that she should continue doing it?
Dr Mughal: Yes, absolutely.
Q140 Richard Fuller: I just want to be clear on that.
David, I do not like industrial strategy, which is no surprise to some. I do really, in parts. [Interruption.] Hold on, that was not an admission, I said “in parts”.
One of the things I have been struggling with is this review back to the 1970s, which I challenge you on, Hamid, “picking winners”. In the course of your session, you have broadened that out into five different pickings, but I found one, David, I might be able to make some progress with you on. You talked about picking winners; you did not like that. Picking technologies, Hamid, I think you were sort of veering towards, but I think you and I both agree that Government trying to pick technologies is worse than a random throw of the dice. Picking companies, nobody seemed to be particularly happy about that. Picking sectors has a bit of appeal, I think, but picking markets, I thought that was an interesting phrase. Do you think industrial strategy should be about picking markets, if it has to pick anything?
Dr Mughal: I said something, which is strategies that are sector-related, as well as enabling technologies and process, so both these things. The reason is because sectors and markets you can join up.
Q141 Richard Fuller: Not quite, not really. Anyway, I don’t want to get too distracted, but I picked on that because right at the start, David, you talked about building the correct market for growth. I thought that was quite interesting, because that brings in all participants, not just, “Hey, let’s just throw some subsidies at what we think might be core sectors” but with a market, you are also bringing in the interests of consumers.
Professor Greenwood: Yes. For any of those five potential winners, whether it is technologies or companies, for any of those to survive, there has to be a viable market in which those services or products are going to be offered. I think there is a role from a regulatory perspective. There is a role from a policy perspective in encouraging the UK to be at the forefront of some of those markets, because that will be one of the things that brings investment to the organisations who are going to manufacture products for it.
Q142 Richard Fuller: It is good we talk about regulation last, because we have not really talked about the importance of permissive regulation to assist the ways in which innovation in the future can happen. Are there any particular observations you have about what the regulatory stance should be? Do we have it right?
Professor Greenwood: Joining up of regulation across Government Departments is going to be one of the key areas. If you look at the automotive industry, for instance, we went through a period of having quite good linkage between the Department for Transport, between BIS, perhaps less of a link into DECC at one point, but around having policies that were encouraging buyers to move towards lower-carbon vehicles. We had taxation systems for company cars, we had vehicle excise duty, all measured on the thing that we wanted the consumer to take notice of and all pushing those sales in the right kind of direction.
With the change in the vehicle excise duty recently we lost a little bit of that link, which is unfortunate. Clearly we are now also looking at things like noxious emissions and thinking about how those tie into the picture and the danger is that we may lose that joining up. The danger is if we confuse the consumer, we make it very difficult for them to make the rational decisions that you are looking for.
Q143 Richard Fuller: In addition to coherence in policy, you say coherence in regulation across Government.
Can I turn to innovation? You talked extensively about Catapult centres. This is a Catapult centre, isn’t it?
Dr Mughal: Yes.
Richard Fuller: Thank God I can recognise one when I am in one. In addition to that, what would like Government to do on innovation? What is it doing well, what would you want it to do differently? Hamid, do you want to have a go at that one?
Dr Mughal: Of course. There are a variety of things. To me, turning ideas into industrial success, that is exactly what I think we should be after, and connecting all modal points. If you look at, for example, our size budget—forgive me if the numbers are wrong and outdated—£4 billion, something like that; if you look at the technology investment , it is about £400 million to £500 million a year roughly, is that the right balance? That is an important question. We tend to sort of ring-fence the size budget, but we do ever ring-fence the technology budget? That is important, how much effort and energy goes into the front end and whether we put the same kind of focus and attention on making sure those ideas do not just make the world a better place, but they contribute to the UK’s industrial growth and success and therefore we add value to the UK economy here. That is an important question we should consider and that should be part of the industrial strategy.
Then individual sectors have individual needs, as well as cross-sector requirement, so what kind of innovation incentives, I would call it, the Government needs to make to ensure that the companies, for example, in different sectors think about coming to the UK, inventing solutions here and then industrialising those solutions. Different sectors have different variables, so a deeper understanding of that and dialogue with industry.
One thing I forgot to mention, one very good thing that Germany and Singapore do is have a very close relationship with industry, they both learn from each other, have an open dialogue on a regular basis, so you learn about the variables, if I can call it that, of the different sectors and how to ensure that those variables are more conducive to the UK than anywhere else. Those are the kinds of things I would strongly recommend now.
Big demonstrations: I keep coming back to, for example, small modular reactors. That is a big, huge potential opportunity for the UK, but fundamental research will require demonstrators, big demonstrators, to make sure it can be proven out on an industrial scale. Is there a joined-up approach to that? Is the Government prepared to invest in that and help the companies, the collaborative companies, that will operate that, the demonstrators that are involved? For the future technologies—low-carbon economy and other products—we will similarly get opportunities to connect this pipeline together. There are a number of issues: STEM comes into it; universities come into it; centres like these come into it; the Aerospace Technology Institute. All those things come in and they all have a role to play, but connecting it and making sure companies understand there is a very good framework and articulating that to make sure people understand this exists and therefore they know what it is.
Professor Greenwood: The first thing here, we should not beat ourselves up on this. The UK is really good at this, really good. We have a fantastic academic sector and you can look at international benchmarks the world over, the UK is coming in at the top of that. In terms of the early stage knowledge generation, we are doing extremely well. We have a very good support mechanism in place for taking technology from early TRL1, early discovery, right the way through to preparation for manufacture through a mixture of research councils, through Innovate, through things like the ATI and the APC, for instance, although, as I said, that is not there in all sectors. We have the R&D tax credits, which for companies who make profits is a good mechanism. It does not work particularly well obviously for pre-revenue companies. So, we do some really good stuff already.
If there are a couple of things that we could do that could help us do things better, I think our investment community doesn’t have the same attitude to risk as you would find, for instance, in places like the US. If you look at trying to get a small-scale company up to a medium scale and a large-scale company, that is a relatively difficult thing to do in the UK compared to markets like the US. I think the other challenge that we have is around STEM skills from school age onwards. If there were two things that I could magically change tomorrow, those would probably be the two that would flick a switch on the level of impact that we see from that innovation.
Q144 Richard Fuller: Can I just ask, at the other end of the thing, so we do all this stuff and companies get rich and they grow and then along comes someone and buys them; they could be Japanese, they could be from anywhere. Should the Government strengthen its role in foreign takeovers to protect all this innovation, all this creation of future wealth or should we have an open market?
Professor Greenwood: The advantage to having corporate ownership in the UK is that when corporate decisions are taken, it tends to be the home site that is the last one to be negatively impacted and the first one to see positive investment. The disadvantage of not having UK-owned organisations is that those decisions are made in Japan or Germany or the US and inevitably that home site will be the one that they are thinking of first. We are where we are on that. What we can do is we can take huge value from the job creation, from the innovation, from the manufacturing, so there is plenty to be done. Clearly the more inward investment we can get and the more growth from UK-based companies we can get, the better, but we are where we are.
Q145 Richard Fuller: Just to probe you a bit on the question: would you recommend to the Government that they should review foreign takeovers by having a national interest clause?
Professor Greenwood: I am afraid that is outside my area of expertise. I would not like to comment on that.
Q146 Richard Fuller: Hamid, you are running a global corporation. You may have interest in buying companies in different parts of the world and vice versa. Do you think it is a good idea to have a national interest clause in foreign takeovers?
Dr Mughal: I only have a personal view. I cannot give a company view. My personal view is I think we should encourage inward investment, whichever form it takes.
Q147 Richard Fuller: That is a no, you wouldn’t want to have Government sticking its nose in?
Dr Mughal: Inward investment. If you look across some of the European countries and others, there is a level of nationalistic chauvinism, which has, one might argue, helped them in the past. Whether there is a balance to be struck is outside my area of expertise. I passionately believe if you are really good at designing and making stuff, you will be able to bring companies here and therefore that is what we should focus on.
Chair: Gentlemen, that was really instructive and informative. I am very pleased. Sorry that we overran, but we overran deliberately because we were getting so much out of it, so thank you again for your time. We really appreciate it.
Examination of Witnesses
Councillor Bob Sleigh, Matthew Rhodes and Jonathan Browning.
Q148 Chair: Gentlemen, many thanks for coming to give evidence to us. We are very grateful to be here outside of Westminster. For the purpose of the recording, could each of you introduce yourselves and tell us which organisation you are representing, starting with you, Councillor?
Bob Sleigh: I am Councillor Bob Sleigh. I am the Leader of Solihull Metropolitan Borough Council and Chairman of the West Midlands Combined Authority.
Jonathan Browning: I am Jonathan Browning. I am Chairman of the Coventry and Warwickshire Local Enterprise Partnership. I am also on the board of the Combined Authority, specifically now chairing the economic sub-board of the Combined Authority.
Matthew Rhodes: I am Matthew Rhodes. I am on the board of the Greater Birmingham and Solihull Local Enterprise Partnership and I run a small business called Encraft.
Q149 Chair: Thank you, and thank you again for coming to give evidence about industrial strategy.
It is probably best to start at the beginning. What do you each understand by the term “industrial strategy”?
Jonathan Browning: From our point of view, it is very much about bringing together a sense of focus by sector, but also a focus on geography. We certainly welcome the opportunity to have this conversation. There is a real, strong need in terms of ensuring we maintain and build our global competitiveness within Coventry and Warwickshire, but also at a West Midlands level, to bring together this sense of our priority areas of focus and the particular strengths of the particular part of the geography. We are seeing that strategy discussed in a number of areas, whether that be the enablers of driving productivity, the physical infrastructure, the digital infrastructure or indeed the skills that we have within a particular area. It is a broad landscape, but needs to have a very particular focus.
Chair: Anything else to add?
Bob Sleigh: Equally, how Government supports us in that process, in essence, if it is locally-based; it is important to us in the West Midlands to identify and understand what our opportunities are within the industrial strategy, what our strengths are, what our intelligence is within our systems to understand how we can best drive some of those economic imperatives. I think that that is where we are in the West Midlands.
Matthew Rhodes: You have to go back to industry being about creating wealth and opportunities for the people of the region and industrial strategy is the set of activities that identify the critical areas that create those opportunities. It is the fundamentals of the economy.
Q150 Chair: You have all touched upon this in respect of my next question. We had Lord Heseltine, George Osborne and Vince Cable before us a week or so ago and there was a common theme emerging, which is it is incredibly difficult to integrate industrial policy and regional policy. I think Vince Cable said one of his big regrets during his time in office was he could not really reconcile the two. As people who are leading local champions, as it were, in respect of this, what do you need Government to be able to do to allow that successful integration of industrial policy and regional policy?
Jonathan Browning: There clearly needs to be a very effective dialogue between local and national stakeholders to make sure that there is an alignment in terms of the broad priorities and thinking. The advent of the Local Enterprise Partnerships has been a very useful tool for having that dialogue. Every Local Enterprise Partnership has its strategic economic plan, so you have 30-plus mini-industrial strategies already existing across the country.
Q151 Chair: Do you have that successful dialogue in terms of does Government listen to you?
Jonathan Browning: We have a dialogue that is partially successful, but it is not sufficient just to have the complete dialogue, it is then to see the effective delivery of joining all the elements of the economic system that need to come together to work in harmony and then alignment. One step, therefore, is completing the dialogue; the other is then making sure all the delivery mechanisms tie into that in the same way. I think that is a significant shortcoming.
Bob Sleigh: In essence, I think we are well placed in the West Midlands to create a unique partnership between business, local authorities, the public sector, higher education and further education to understand what we need to do. Through the economic plans we have created, both from the perspective of the Local Enterprise Partnerships, Black Country, Greater Birmingham, Solihull, Coventry and Warwickshire, what we have done with the Combined Authority is we have created a further economic plan that creates an additionality over and above what those particular economic plans do. Where we are now is, in essence, discussing these issues with Government to see how best Government can support in delivering on those plans.
Q152 Amanda Milling: I would like to come in on this one thing. There are just so many different bodies and organisations involved. You talked about the dialogue with Government, but then there are two LEPs represented today. In my own patch, Cannock, we overlap between Stoke, Staffordshire, Greater Birmingham and Solihull, we have the West Midlands Combined Authority, then you have county councils, district councils. There are a lot of bodies involved, so I am just interested how it works in terms of a dialogue across all of you.
Jonathan Browning: My background is two and a half years in this role, coming in from the private sector, so somewhat a newcomer to seeing how this interaction works. My impression is the LEPs do a fine job of bringing those parties together at a local level. At a West Midlands level, the three LEPs involved—Black Country, Greater Birmingham, Solihull, Coventry and Warwickshire—have a very effective dialogue. The channel in bringing those parties together at a local level is well-established within this specific part of the country.
Q153 Chair: Did we lose something with the abolition of the Regional Development Agencies?
Jonathan Browning: That was before my time of engagement, but everything I hear was that the RDAs suffered from scale and somewhat from lack of agility in terms of real effective engagement with the different areas. The tighter geographic focus of the LEPs, the engagement of the different parties at a local level seems to work well in terms of getting those various voices together. Then at a West Midlands level, the activity of the three LEPs is delivering a lot of energy into the more regional agenda.
Matthew Rhodes: What is particularly important—and I speak as an SME, so I am in an SME that has been in this region now for 13 years—is that the LEPs and local bodies are so much easier to engage with and so much more meaningful to engage with, as a small, ambitious SME, than central Government is. I think in terms of bringing industrial strategy together within the regions, it is so important to have these bodies. They are organisations that can do something that makes a difference on the demand side for small businesses who want to go out and get into the world. It is very, very hard, however hard central Government tries, to do that on a kind of one-size-fits-all basis nationally.
It is an absolutely fantastic opportunity for this industrial strategy to make the most of the regions, but you have to allow diversity. This is the challenge: you have to allow different regions to do different things and make these strategies very meaningful. I think we have good mechanisms to do that. I am even fresher than Jonathan into the LEP—I have been six months on the Greater Birmingham and Solihull LEP board, maybe 18 months with the Black Country LEP as well—but once you get into them, once you get your head around them, it is much easier than central Government, much, much easier to engage with.
Bob Sleigh: Yes, there are different layers, but in essence we have created a partnership of common purpose, so everyone who is in this partnership is there freely, of their free will, and no one has been forced into this. They all recognise the principles on which we have built it. They all recognise, in essence, what they might be able to achieve from it and bringing business in has embedded the fundamental principle, that we can drive the economy forward by identifying what the challenges are. We are very clear on what those challenges are in the West Midlands in terms of the productivity gap, quite clearly. There is a whole issue around skills and training within the locality and our employers talking to their providers to make sure we identify the appropriate packages, we can fund those packages and we can deliver those packages to create, for instance, in the skills agenda a skills package that meets the needs specifically of the West Midlands, but then applied to the wider national economy to rebalance that economy. We have done that, I think, or we are certainly on the way to doing that.
Q154 Chris White: Good morning, everybody. Just to go back to what Matthew was talking about, I think you touched on an economy that works for everyone, which is the Prime Minister’s quote. How do you think the industrial strategy would contribute to that economy working for everyone?
Matthew Rhodes: The industrial strategy has been an interesting area for the UK for a number of years. Where we have, to a degree, failed in our industrial strategies connecting with the market; when I say “the market” I mean people who buy things. The opportunity with the industrial strategy, it is to start making those connections and to start helping people feel part of their local economy, essentially, so they are buying things that can be made locally with the local skills that are there, making those kinds of connections, which you can do at a regional level.
We are talking in our area of focusing on strategic areas and then setting up innovation zones, where we can build markets and whole industrial systems, not just investing on the supply side. You can invest in academics and world-class fantastic capabilities and knowledge, you can invest in fantastic world-class businesses like Jaguar Land Rover in the West Midlands, but you can also invest in whole areas that are appropriate to areas like the Black Country and Birmingham, where the people who are there with the skills that are there can start manufacturing and producing things with those skills that deliver to the people there and provides them with a starting point, essentially a step-off point, to get out into the world and export those things going forward.
Q155 Chris White: I want to talk a bit about the Midlands Engine. Jonathan, we have great admiration for the work that our local LEP does, but do you think it could do more? Do you think you are sufficiently resourced? What would you do if you had more resources?
Jonathan Browning: There is a desire to stay small, focused, lean and nimble; we don’t want to replicate the old structures. So I think the current set-up is good, there is some stability, but certainly in terms of responding to the bids that we have put in in terms of Growth Deals, greater certainty over being able to deliver the core funding around the infrastructure of the LEP—for example, our LEP only has five fulltime staff and we live somewhat hand to mouth in terms of releasing funding for that staff to continue to exist over time. Greater certainty over core funding for the LEPs would be certainly well rewarded in terms of consistency of delivery of projects into the marketplace. So, no massive increase in terms of core funding, but greater delivery against the Growth Deal asks that are in the system at the moment. Yes, I think you can look back now at a track record of the previous Growth Deals and see very effective engagement between public and private sector that has delivered real results in the local economy. I think there is a clear alignment in terms of some of the priority projects going forward that will continue to make a difference in the regional economies.
Going back to the previous question, it is not so much about choosing winners, it is about enabling the economy to be both robust but well-tuned to the future needs. Particularly in this part of the country, advanced manufacturing and engineering are very, very important, not just the top-tier companies, but right the way through the supply chain, very active engagement of SMEs, digital technologies and managing data, important skills across sectors, and then systems integration, whether that be in terms of physical infrastructure, whether it be power, all of those connection points that make regional and local economies work, those are the sorts of things that the LEPs and bodies like the Combined Authorities, working together, are well set up to prioritise on a local basis.
Q156 Chris White: We will go on to talk about the Midlands Engine. Is it more than a phrase? Is it a thing; is it tangible? Where could it be?
Bob Sleigh: It certainly is tangible in the sense that we are utilising it for trade missions as the banner under which we are operating. I think it has a tremendous advantage to us. For instance, we are off to China next week to talk under the Midlands Engine banner, to explain to people what the opportunity is within the whole of the Midlands region. The West Midlands Combined Authority plays a very prominent role in moving forward the whole of the Midlands Engine. Its key programme of course is around transport connectivity through Midlands Connect and I think that it is mature in that respect. I think we all understand what Midlands Connect will do to drive some of that infrastructure investment across the whole of the Midlands, but we have to work on what it can deliver over and above some of those particular areas. There is still some work to be done on where Midlands Engine goes from here.
Chris White: That is a helpful answer. Jonathan, what do you think?
Jonathan Browning: I absolutely agree with what Bob says. My background was in the automotive industry and the trick in the automotive industry was always to get scale and get the economies of scale, but then be very tuned to individual customer segments, individual markets. What the Midlands Engine helps is getting scale for us as a regional economy and does those things that Bob just mentioned, but what it cannot do is deliver the sort of focus that we see on a Coventry and Warwickshire level with the LEP or the Combined Authority level with the West Midlands. It is very important that we do not just focus on the scale opportunity that Midlands Engine represents, but we keep this speed and agility that I think is a real strength of the Combined Authority and the LEP structure.
Matthew Rhodes: I would like to add, taking the category of small businesses who are not in the supply chain of the big automotive world, that kind of world, from an ordinary small business perspective, an alignment between political and regulatory deliverability and community feel, which you get with the Combined Authority and the LEPs in areas like Birmingham and Solihull and Black Country, that is the market you are operating in. An industrial strategy makes sense for that kind of political entity and LEP level. It doesn’t make sense, just being straight about it, at a Midlands Engine level in the same way at all. There is no relationship as a small business person with that kind of entity.
Jonathan Browning: The Midlands Engine covers 11 LEPs, so it obviously is a big area. Some of the other things that can be done well at the Midlands Engine level, for example, the Science and Innovation Audit, I think that showed a real maturity for the Midlands Engine to be able to embrace that challenge of doing the Science and Innovation Audit at that level.
Q157 Chris White: Do you think it is a bit of a learning curve?
Jonathan Browning: Absolutely. We are all on different learning curves. I think we have matured quite well at the LEP level; we are maturing very quickly at the Combined Authority level and we are still making our way up that same slope with the Midlands Engine. There are tangible examples of good work being done at that level, but it must not try to do the things that it is not suited for, which is the local focused execution of the industrial strategy, as we have been talking about.
Q158 Chris White: Where would you put an industrial strategy? Would you put it for a LEP, would you put for Warwickshire and Coventry; would you put it for the region, wider Greater Birmingham?
Jonathan Browning: My point of view is you need to align the ambition and the ability to deliver, so you have the accountability and the responsibility. The construct for devolution is the West Midlands and I think that is the most natural focus for this part of the country, but within that we have different challenges, Black Country to the area you know well, Warwickshire and Leamington. It is important we still have that local agility, but I would look at an industrial strategy first at that West Midlands level and then have the specific elements within it.
Q159 Chris White: With your background with Volkswagen, would you have an idea of what a strategy would look like? Is there somebody in your huge team of five that is working on this?
Jonathan Browning: As I said earlier, we produced our strategic and economic plan both at the LEP level and for the Combined Authority. I think those bring a lot of the elements together. If you compare to the model in Germany, for example, it is not so much the written document, it is the behaviours over time and the consistency of that alignment between industry and Government in terms of the enabling factors. It is not a document, it is a behaviour; it is an alignment, it is a focus for the medium and longer term.
Q160 Chris White: In terms of your strategic plan, can you give me three ambitions of where you would like to be in the next five and 10 years, medium term and long term?
Jonathan Browning: Sure. I can reel off numbers, but the important things are the building blocks, the types of activities that we have within the strategic economic plan. For example, it is around the advanced manufacturing and engineering, but it is also around building the capabilities, the skills in the organisation and growing that talent base. It is also about making sure that we have the right infrastructure in place. Importantly, that is not just infrastructure. People tend to think first and foremost about the transport infrastructure, then they think about broadband. The key emerging bottleneck in infrastructure I would say is power delivery. It is not the capacity in terms of power generation, it is getting power to the points that we need it for employment land and for economic development. Infrastructure has to include power delivery within the economy.
Then it is also other sectors like culture and tourism, because people want to be proud of where they live, they want to enjoy where they live and work. A big part of managing growth is having proximity of living and working environments.
Q161 Chris White: Thank you. Can I ask you two further questions? You talked about skills and you talked about an ambition for skills. What is the role of a LEP in delivering that skills base or reducing that gap that we all recognise we have at the moment?
Jonathan Browning: It is twofold. One is being clear about the longer-term priorities, the strategy, but it also about helping deliver tangible results on the ground. I know Bob has a lot of examples for the West Midlands in total, but in Coventry and Warwickshire specifically, the LEP pulls together a careers fair every year. Last year we had 2,500 youngsters attend that. On the day, we had 500 people sign up for apprenticeships. Those are real actions taking place. It is not just the strategy and nice words and PowerPoint, it is real actions affecting people’s lives.
There are those sorts of things that can be done, but as part of our latest Growth Deal submission, our ambition is for Coventry and Warwickshire to be seen from an advanced manufacturing point of view as the knowledge capital of the UK. We have an ambition to add 1,000 high-level apprenticeships per annum through the delivery of the Growth Deal and working with local partners to build that capacity to see apprenticeships and more vocationally-based training coming through the system.
Q162 Chris White: Could you add a bit? You talked about power delivery. Can you explain that a bit better? Is that there is not enough power at sites that you could do something with? Is that what that is about?
Jonathan Browning: Often people think about an employment site, employment land, “Let’s get the road into that site”. You have to get the power into that site. There are countless numbers of examples of businesses starting up that have had to depend on standalone generators to get their power supply. I think Matthew is the greater expert in this field, but simply getting the foresight of power infrastructure into the right places, into the right development land and with the right capacity is a real bottleneck. Lots of people talk about land availability, skill availability. It is also about something as basic as getting the power connected for employment sites.
Chris White: Thank you. Matthew, it has been thrown over to you.
Matthew Rhodes: I just want to build on that by saying there is a challenge there. There is also a massive global opportunity in the power sector at the moment because worldwide power systems are changing fundamentally from a traditional model that has existed for the last 50 years to one that is much more distributed, much more accessible to smart technologies and this kind of thing, so the costs are now changing in the sector and people are investing. We have an industrial strategy opportunity, so we can bring all that together in the West Midlands. We have a challenge that can addressed.
There is a demand for new power technologies. We have manufacturing businesses that can build those power technologies and we can join those two things together and build a platform to go out to the world. We want to be the energy capital of the world, which is a phrase we have used as well. The thing that will stop us, which is within Government’s remit, is that energy-market regulation is designed for the power markets of the past, which are very national and structured in certain ways, without going into technical details. The energy markets of the future, when you talk to National Grid or Ofgem or anyone in this field, will be much more distributed and regulation will be more distributed, so we want to try to deploy local energy market regulation in this region as a pilot for the country and therefore provide a faster route to market for local innovators.
Q163 Chris White: Could we ask Jonathan Browning if we could have the strategic plan as part of the submission into the report?
Chair: I think in terms of arcane parliamentary rules, if something has been published already, it cannot be submitted as evidence. I am not entirely certain, but certainly we can make sure that—
Chris White: I just think if we can see something that could be used as a national example it would be quite useful.
Chair: I am sure we can find a way.
Q164 Chris White: Thank you. Just lastly to you, Matthew, you have just talked about an enormous thing. How big is your team working on that?
Matthew Rhodes: Very similar. Until recently, Birmingham had probably even fewer people than Coventry, but we are just recruiting into our LEP team; I think we are recruiting 10 people at the moment. What we do have in the region is we have the Energy Research Accelerator, which is a national investment, and Birmingham University, Aston University, Warwick University and the East Midlands universities as well and we have the Energy Systems Catapult, and we have collaboration. The Energy Capital Group is chaired by Professor Freer from Birmingham University, who is the lead on the Energy Research Accelerator on the thermal side. We have a group of very motivated people who have a lot of expertise working together on this at the moment.
Q165 Amanda Milling: Can I just come in on this? I presume that the fact that the Department has been rejigged to become the Department for Business, Energy and Industrial Strategy is a good move?
Matthew Rhodes: Absolutely; good move.
Q166 Amanda Milling: I have constituency here as well, so I am very clear on some of the benefits of LEPs and the Combined Authority but I suppose a question that keeps ticking away is do you need a national industrial strategy when something like this is happening regionally anyway?
Matthew Rhodes: I think there is an element of some things needing to be done nationally and some things needing to be done regionally. It depends on the sector. If you take something like aerospace, big engineering stuff, is done nationally quite a lot of the time. Then there are other sectors like construction and distributed energy, which I have just been talking about, for which the markets are growing from a local starting point and therefore you need local support for those markets to get from classically one academic, one spinout in a university to a global enterprise. It is that intermediate stage that the local economies provide, local entities like LEPs, which is absolutely vital in certain markets in certain sectors at a certain stage of their development. That is where we need to focus; then other things, nationally.
Matthew Rhodes: I think there is a need for a national strategy for some of the stuff that we cannot do within the region. For instance, infrastructure investment clearly has to bring together some pretty big stuff within Whitehall. Equally the whole skills agenda, we are talking to Government constantly about devolution of skills into the region to deal with the mismatch between what our employers need and what we can provide by way of further education or higher education. I think that is very much part of a national strategy. We can deliver locally and there should be a local element to this of identifying what your needs are, but quite clearly a national industrial strategy that deals at that level is something we cannot do within this region alone. That is really important for us.
Chris White: Sorry to just interrupt for a second.
Amanda Milling: I am used to it.
Q167 Chris White: It does occur to me that the vast majority of people we meet think that industrial strategy is a wise and sensible way forward. Why didn’t we do it sooner?
Q168 Chris White: Does anybody have a response to that? Jonathan?
Jonathan Browning: I am not sure I have the complete insight. There is a challenge in terms of the timeframe required to deliver the focus, so it does need to be something that endures. It needs to go beyond the life of a typical Parliament, the typical media cycles. It is instilling something that is pretty fundamental to our economic life but also the lives of communities and how the country operates. It is a collective failing that we have not had this alignment and consistency of understanding. Almost irrespective of political allegiance, there are certain things to be a functioning economy we need to do together.
Chris White: My last question and then I am not going to say anything else to the panel.
Amanda Milling: No, do not worry. Iain is about to interrupt as well.
Q169 Chris White: Are you suggesting that it is more difficult to have a long-term economic plan without an industrial strategy?
Jonathan Browning: Absolutely.
Q170 Chris White: The industrial strategy will underpin our economy?
Jonathan Browning: Yes. To me it is one of those foundations of the building that we are trying to create in terms of economic growth. How you then design it and what it finally looks like, those economic plans can go through different iterations and versions and different appearances on top but there are some fundamentals in terms of these long-term investments in capability building, in infrastructure, in those things that will make us a globally strong economy. Those don’t change year on year or even decade upon decade. Those need to continue to be nurtured together.
Chris White: Apologies Amanda. Thanks.
Amanda Milling: I am used to it. Iain?
Chair: Amanda, may I interrupt?
Amanda Milling: Yes.
Q171 Chair: I was really interested, Mr Rhodes, in what you were saying, because one of the reasons I wanted to call you for evidence is because in your written submission—you were saying to Amanda about a sectoral approach in respect of energy, but in your written submission you say sectoral approaches to industrial strategy have failed. Do you not think that we should have that sectoral approach to industrial policy?
Matthew Rhodes: In my submission I was trying to make the case for more demand side rather than supply side, and that is really what I think I was getting at.
Chair: Thank you.
Q172 Amanda Milling: Last year, the then Chancellor in conjunction with the then Business Secretary published the productivity plan. What I am intrigued to know is what the industrial strategy can do to add value versus the productivity plan. A lot of the issues that we talk about—infrastructure, skills, devolution and so on—are in the productivity plan. I need to understand what this is going to do, which is going to be more long-term, add more value, economic prosperity and so on.
Matthew Rhodes: In a word, I think the answer is innovation. A lot of productivity is about taking on existing assets, our existing supply chains and making them more efficient. In this particular context, innovation is completely new markets, completely new industries and transforming existing industries in a more fundamental way.
Q173 Amanda Milling: I am about to challenge you further, sorry. Chapter-something of the 17 chapters was about innovation, so are you suggesting that innovation is at the heart of industrial strategy rather than just one strand of a plan?
Matthew Rhodes: Innovation is a somewhat abused word. An operator on a production line in a factory who does their job twice as well is innovating in a way. That is what tends to be meant when you are talking about productivity innovation. There is also the innovation of the Googles and the Amazons that create whole new industries, and that is what you can miss out if you focus purely on productivity.
Jonathan Browning: It is also about getting on and doing it, rather than talking about it, and making sure everybody is aligning around the same priorities. I don’t think there are new statements about productivity, about getting these industrial strategy elements in place. It is about making sure everybody aligns around making that a reality at a local level as well as statements of intent.
Q174 Amanda Milling: Can I come in on that? Because there is an argument to say that the creation of an industrial strategy is going to take time and is quite counter to just getting on with it. We are now in October, so we are four months in since the new Prime Minister, the new team, the new Department, and we are still discussing some of the broad principles. I don't know how long it will take to create an industrial strategy, so I would say that getting on with it and the industrial strategy are not aligned with one another.
Jonathan Browning: If you only think about it as something that is a future vision but is not something you do today, you are never going to reach your future vision. The discussion around where you are trying to get to has to mature and be a sincere engagement across a lot of different parties, but there are some things that have to be done to move you along that journey. We have talked about a number of them around infrastructure, skills, especially in the skills area. After two years, I don’t pretend to start to understand skills delivery across the country. There are so many different players, different levels of engagement in terms of geography that I think the ambition in terms of apprenticeship delivery, in terms of careers advice, in terms of transitioning from education into the workplace. It is such a patchwork of different parties. Those are the things that can be changed in terms of delivery in the short term that help enable where we are talking of getting to in terms of skills, availability and provision in the longer term.
Matthew Rhodes: I also think it comes into the category of problems that are at a national level, as Jon has just described. It looks incredibly difficult because it is actually incredibly difficult and it may be a very difficult problem to solve, but at the local level it becomes a much easier problem to solve, so it is about the way you approach industrial strategy that makes that happen faster and listening to regions and letting regions put forward their own industrial strategies is probably a faster and lower risk way of just getting on with it.
Q175 Amanda Milling: Can I ask a question about the skills piece, which I think was what I was going to be covering anyway? Skills is now all in the Department for Education, so how do you envisage this working in the context that industrial strategy sits in the new BIS Department?
Bob Sleigh: The issue is the funding is not all in one Department, in essence, so we have the careers structures, we have DWP and we have careers and enterprise companies across the country. What we need to do is bring together the system relooking at the allocation of resources and try to identify how we create the single system that drives out the mismatch between the employers’ requirements and the skills offers that we currently have. I think that is very important to us in the West Midlands.
The constant refrain we get from employers is, “We can’t get the people we need to fill the jobs that we are creating”, and that is in some ways possibly because, from the perspective of a nationally defined set of programmes, we do not always meet the skills requirements that we need in this particular locality. We are very keen to be able to have a review of that within the West Midlands to try to align our skills mismatch with the employment we are creating, so a number of other areas from our perspective. As a Combined Authority, we will create a skills engine, which in essence is an ICT-based programme, which enables us to link together the packages that are on offer against what employers need. It is a dialogue between those employers and between further and higher education.
We are also looking in the Combined Authority geography for an apprentice accelerator, for instance, to make sure that we can move forward those skills requirements that we have been told are needed in the locality, and the opportunity we are trying to tap into is clearly the apprentice levy. From the perspective of the apprentice levy, we know that nationally the current skills budget is about £1.5 billion. The apprentice levy will create a fund of about £2.5 billion. We would want to have some influence on how that is spent within the West Midlands to make sure we do meet the skills requirements of Jaguar Land Rover. I am not going to quote today’s status for Jaguar Land Rover, or any other major employer—Rolls Royce, or whoever that may be—but in essence the constant refrain from them is, “We are not getting the skills out of the FE and HE sectors to fill those roles that we are currently creating”. We need to work on that as a Combined Authority and, equally, through the Local Enterprise Partnerships.
The point I want to make is the Combined Authority creates an additionality over and above what the Local Enterprise Partnerships do. It does not replicate what they do. It is an additionality to what they do over a larger scale, so that is where we are with regards to skills in the West Midlands.
Q176 Amanda Milling: Can I ask a supplementary on this point about skills, because I hear the same thing, every—
Bob Sleigh: Absolutely.
Amanda Milling: It is the same narrative. Has it been a problem for evermore and we have not addressed it or is it a particular problem now and why? What is creating this narrative and this sense that we are not—through schools or universities or through colleges—providing people with the right skills for work?
Bob Sleigh: In essence, the conversation between industry and local government has certainly got to a different stage in the West Midlands. We much more understand what industry wants and our further education sector is now working with industry, as is our higher education sector, to develop those packages of skills that they require. If I give you an example, there is a massive deficit in construction skills in this country. We are going to have to build HS2. We have created HS2 college. We are hoping to create 2,000 apprenticeships a year, but I am told—I don’t have firsthand evidence of this—within the construction sector the average age of a construction worker is towards the upper end of the 40s, maybe even 50, and we are not creating the skills base to fill the void that is going to be created when those people leave.
In a Combined Authority environment, we are now working with those sectors, the further education and higher education sectors, to say, “What do you need on the ground to do that?” That is where we are bringing some of this mismatch and creating a better environment for that dialogue to continue.
Q177 Amanda Milling: Is it the skills or is it actually interest in those sectors? Do you have somebody going through skills?
Bob Sleigh: That is an important point because I think there is a whole issue about the perception, both for young people about what may be available to them, what opportunities are available to them for further education, higher education. I have a UTC, as does Coventry, and it is a great new initiative as far as I am concerned to create those young engineers going forward. We are starting to pull together a much more unified understanding of what the skills deficits are within our economy within the West Midlands. We have identified those within the Combined Authority and we have some solutions as to how we can deal with them.
Amanda Milling: Yes. I could go on but I will pass back to Richard.
Q178 Richard Fuller: Thank you. What is the goal of your industrial strategy?
Jonathan Browning: Which industrial strategy, at the LEP level, at the Combined Authority?
Richard Fuller: I will presume at the Combined Authority; presumably there is some coherence between the two so let’s go with the Combined Authority, which is what each of the three of you is part of.
Bob Sleigh: Within our super-economic plan for the West Midlands, making our mark, in essence we identified the measures that we want to deliver on to show that we can create a better and more vibrant economy. We are looking to create something like 500,000 jobs over the next 30 years. We are looking to create a system where 30-odd percent more people achieve four GCSE A to C level grades than they currently do. As I said, we are looking to create over 2,000 apprenticeships. Within our particular strategy, one of our key planks of delivery, of course, is—
Q179 Richard Fuller: I am asking you what your goal is. You are each three constituent parts. You have all spoken eloquently about industrial strategy, but a strategy is to attain a goal. What is the goal?
Jonathan Browning: I think Bob talked about some of it, so 500,000 jobs, but, if you take the GVA measure, we talk about there the strategic economic plans as a family of plans, so there are the three separate LEPs and then there is this super set, umbrella set sitting on the top. If you look at that top level, the GVA at the moment or the latest data on an annual basis for the West Midlands is around £78 billion. Over the period through 2030 we are looking for that to pretty much double to £150 billion GVA across the West Midlands, so very substantial growth. That does not mean the plan is the only thing that delivers that but the interventions that we are planning at a West Midlands level, as well as at the individual LEPs, are looking to add to what was happening in the underlying momentum in the economy.
Q180 Richard Fuller: The goal is to double GVA?
Jonathan Browning: By 2030 at a West Midlands level.
Q181 Richard Fuller: That is what everyone agrees. That is the whole goal and the strategies are to achieve that goal?
Jonathan Browning: If you look at our West Midlands Combined Authority you would see that in there.
Q182 Richard Fuller: Below that goal, doubling GVA, there will be items such as to achieve that goal we need to create 500,000 more jobs.
Jonathan Browning: Sure, absolutely.
Q183 Richard Fuller: Very good. If you look at the biggest change over the last 20 or 30 years, in terms of the share of national income, it is that the share to the workforce, to labour, has decreased significantly. Shouldn’t a goal of industrial strategy be to rebalance that so that people who work get a greater share of the national income?
Bob Sleigh: I would think so; yes, I think that is exactly right. That is what we are trying to achieve.
Jonathan Browning: The whole objective is to have growth in these areas that is broadly shared across the community. I think that is an underlying assumption beneath all of that.
Q184 Richard Fuller: In addition to the goal of doubling GVA, your goal is to redistribute income in the region so that labour gets a greater share of the economic value added?
Jonathan Browning: The way we have framed it is to say that the average GVA that we are looking to deliver closes a deficit that we have to the national average and moves us to average. We have not defined who the recipient is, either by sector, by industry, by individual, but we are aiming that that average moves to national and above.
Matthew Rhodes: I think of that in a slightly different way, which might just help the conversation that I have articulated previously. Our industrial strategy is to focus on circumstances and we have a plan that would assist that. If I were someone who was graduating from a top university, say, in America or France or Germany, and I wanted to develop a business—so I have a capability, a set of skills, I want to build a business, I want to employ people—I would look at that sector and I would say, “I want to be in Birmingham” or “I want to be in the black country because that is the best place in the world to do that”. Then I come there and I come there because I can do what I do in this part of the world.
Me doing what I do could be interpreted as labour. That is me being rewarded for setting up that business, and that is a different world from one in which the only reason to be in the UK or to even engage in the UK is to buy and sell companies, for example, and make money out of financial transactions. In that sense, I am agreeing with you about the redistribution of wealth from one type of activity to another, but I do not see it in a kind of 1970s political way. I see it in a very entrepreneurial, “Let’s drive growth”, type of way.
Q185 Richard Fuller: I don’t think it is 1970s politically. I think it is the way now. What has happened since the 1970s is that the returns to labour as a share of the national income have gone down. In your industrial strategy your goal does not appear—if I have been listening through—it is not part of your goal. It may happen. It would be much more interesting increasing the cake than how it is split up.
Jonathan Browning: Increasing the cake, correct, but also, yes, addressing some of the gaps in terms of the potential to participate in taking a share of that cake. We were just talking about skills, so a very specific look at those who achieve no qualifications, for example, in the economy and making sure that we have capability to reduce the number or the proportion of people coming through the education system that end up with no qualifications, and that will produce a greater share of the cake.
Q186 Richard Fuller: I think my takeaway is: yes, at best, it sounds like it comes along with the overall goal and if it happens that is great, but it is not really a target. I am not saying it should be by the way. The reason I am pursuing that is I presume—you talked, Mr Browning, about not just to talk about stuff but to get things done, I imagine. I presume that the Local Enterprise Partnerships have quite a significant say now on Government investment. I know in my own area we have SEMLEP. They put in bids. I presume you put bids in, and so my question is: who elected you?
Jonathan Browning: Nobody elected me personally. I probably would not be sitting in this chair if I was to be elected. Nobody elected me but the construct of the Local Enterprise Partnerships is it is a balance between the private sector and the local authorities. Our democratic accountability comes through each of the leaders of the seven local authorities that make up the LEP board. It is finding that balance, that engagement point between the private and the public sector so there is democratic representation on the board of the LEP.
Q187 Richard Fuller: Don’t you worry about the movement of public money going from what was a nice locally elected councillor on your local council, who you could throw out if you wanted to? He or she may not know lots about the particular sectors—a bit like MPs—but they were democratically elected and it was public money. Do you ever think about or do you worry about the democratic change here, that we are allowing LEPs to say where public money should be spent but they are not the same as allowing councils to make the decision? Bob, you have sat on both, so what is your view?
Bob Sleigh: Two points. One is the Combined Authority is, in essence, a local government that we have created in the West Midlands. I am an elected politician. I happen to be the leader of the council. Therefore, with the mandate from my council I have been supported to be part of a Combined Authority.
Within the Local Enterprise Partnerships we certainly have checks and balances. We have a supervisory board within the Local Enterprise Partnership, which in essence is made up of all the constituent councils within the Local Enterprise Partnership, and that supervisory board is led by local government. So there are checks and balances within the system, within the LEPs, and there are clearly checks and balances within the Combined Authority. We have a scrutiny function in the Combined Authority that we have established at this point in time.
Q188 Richard Fuller: Just to close, Chairman, before we move on, with the establishment of the LEPs under the last Government, and with the current Prime Minister’s renewed commitment to localism, local decision-making, and an industrial strategy—whatever that may mean—it sounds to me that more and more resources, public money, will be diverted into one level or two of your approaches. I love democracy and I think that taxpayers get taxed so they should have a say over how things are spent. My concern is you don’t share that concern to that level of anxiety.
Bob Sleigh: Of course I have concerns about the whole issue about democratic accountability. I am an elected politician and I think within this process we have been as open and transparent as we possibly can be. Every decision I have taken is not my decision. I has been supported by my council and they are there representing their communities. We have done an awful lot to ensure that people do understand what we are doing and where democratic accountability lies within the Combined Authority. Certainly that is the case from our perspective.
Jonathan Browning: To reinforce that at the LEP level, I think the construct of the LEP has that accountability through the elected leaders on the board. At the same time you get a lot of power from this combination of public and private sectors together, and so I think it is a great forum. It is a great opportunity for alignment but it was also not designed to be purely a democratic elected body, it was bringing together different parties. There is value in bringing those together in this structured way but, clearly, the scrutiny, the transparency has to be there, because it is dealing with public funds. That is where it goes back through the accountable bodies for those in the same way as any other public funds are disbursed.
Richard Fuller: Thank you.
Chair: Gentlemen, many thanks for your time. We really appreciate it. Thank you.
Examination of Witnesses
Andy Palmer, David Bailey, Rachel Eade and Tony Burke.
Q189 Chair: Many thanks for coming. We really appreciate you giving evidence to our Select Committee. For the purposes of the record, could you introduce yourselves and tell us where you are from, starting with you, Rachel?
Rachel Eade: I am Rachel Eade. I am an independent. I have worked across the automotive supply chain supporting growth development for the last 20 years and I am a member of the Automotive Council.
David Bailey: I am David Bailey. I am Professor of Industrial Strategy at the Aston Business School.
Tony Burke: I am Tony Burke, Assistant General Secretary of Unite the Union with responsibility for our manufacturing sectors.
Andy Palmer: Andy Palmer. I am President and Chief Executive of Aston Martin.
Q190 Chair: I should declare on the record that I received money from Unite the Union for my general election campaign and, although Tony might dispute this, I would like to think of Tony as a personal friend as well.
Tony Burke: Fine.
Chair: May I start with how I have tried to start with every session, which is: how do you define industrial strategy? Are we all singing from the same hymn sheet? Do we all have a similar understanding as to what industrial strategy actually means? Rachel?
Rachel Eade: I think, and representing what do industry want from industrial strategy, it is around a national cohesive direction that sectors, companies can understand, can buy into and access that then helps them with their individual company’s growth developments but in some level of alignment.
David Bailey: I would agree with that. It is about long-term strategic commitment. It is about giving certainty to companies to underpin confidence in investment, in innovation or skills. I would add as well that it is a process. I think industrial policy increasingly around the world, where it is successful, is a process of discovery. I could list you a whole set of policies that we should pursue on this or that in relation to the auto industry. But what I think has been hugely successful in the auto industry and in aerospace is about this process of discovery, so Government working with industry, other stakeholders, to understand the nature of the industry, opportunities and challenges and how to overcome them and then, out of that, developing a set of policies that are appropriate. So industrial policy is a process that is fundamentally important I think.
Tony Burke: Thanks, Chair. In Unite we see industrial strategy to mean quite a number of things. At this point we are looking specifically at reversing the de-industrialisation of the UK. We are looking to rebalance the economy. We think the industrial strategy should do that to defend our manufacturing base, which is very, very important, including our foundation, industries such as steel, the creation of new and innovative industries, and using all the tools that are at the Government’s and industries’ disposal to create a stable economy, similar to what has happened in a number of other countries, particularly Germany where we can learn a hell of a lot. But overall, what we are looking at is being proactive, strengthening our innovation base, decent jobs and decent employment for the long-term of the future. That includes a wide range of issues, including skills, including investment, including research and development.
Andy Palmer: Tony has very elegantly put it and I agree. I think for me, having spent 13 years living in Japan and being involved somewhat in the Abenomics, first and foremost, industrial strategy is making some key choices. For example, are we really serious about reversing de-industrialisation? In the automotive business are we really serious about building an automotive industry in this country and to what level? Are we interested in attracting transplants, like Toyota and Honda and Nissan? Or are we interested in going deeper than that into intellectual property? I have certainly never seen either an automotive policy or an industrial policy that answers that basic question. Do we want industry in the UK? On this table, at least, the answer is yes. Do we want automotive in this country and to what level do we want automotive? Do we want it to the level of simply manufacturing or do we want to be in control of decisions that are made to bring manufacturing here, which tends to represent being in control of the intellectual property?
Q191 Chair: One of the things that shocked me about all of your responses—with the possible exception of you, Andy, if I may say so—is I would have thought to have heard on this panel more emphasis on a sectoral approach to industry policy, but I did not really get that. What I am trying to ascertain, as part of this inquiry, is: how do we pick winners? We have heard this—Richard was mentioning this—do we pick winners on a market basis? Do we pick winners on a technological basis? Do we pick winners on a sectoral basis? It is the key choices that you mentioned, Andy. To what extent is the right mix between a horizontal industrial policy, and a very targeted vertical industrial policy, based upon sectors in which we have a comparative advantage on where we want to keep that advantage in the future? Andy, as a very successful CEO of a great company in Britain, what is the right mix there?
Andy Palmer: You have to go deep in some areas and that will give you some of the horizontals that you are talking about. If you are deep in automotive—and obviously I guess we are all going to say that we should be deep in automotive—if you have a skills base that is capable of meeting the needs of deeper industrialisation, automotive, you will automatically start to get skills that allow you to go into other areas. If we talk, for example, of skills shortages, if we train more apprentices, if we train and educate more graduates in engineering, those skills bases are often quite generic, so, yes, you can have a specialisation in automotive but it can equally be applicable to rail or aircraft design.
So I would say, yes, you need something that is deep. We already have automotive very much in the West Midlands but around the country it is worth going deeper. I sincerely believe that we should be protecting intellectual property and we should be going into areas of innovation in competition with the likes of Germany, Japan and the United States, but I do think that that will set a fine foundation for other industries as well.
Q192 Chair: Anything else to add?
Tony Burke: I think on sectoral approach, Chair, there is a good argument for it, particularly when you have industries that are very, very important in driving the economy. Our automotive industry—as everybody can see—is one of the key industries that have been driving the economy forward. Aerospace needs are slightly different, probably a little bit more global in some respects but, nonetheless, as a separate sector it certainly is worth looking at and of course engineering and of course our science-based sector is very, very important.
What we probably would need to do, if you look at the automotive industry and why it has been successful, there have been a number of important innovations there. A lot of the driving force behind the automotive sector has been the creation of the Automotive Council, which brings together the whole of the industry to look at issues. The strategy that has been developed for the automotive industry has been put together by the industry itself and, of course, the policies that we have in bringing back the supply chain that went to South Asia and Central and Eastern Europe, we are a long way from bringing it all back, but we are making some headway, and that has been a strategic plan for automotive. Perhaps we should look at doing that in other sectors as well, certainly in research and development science.
Q193 Chair: I would like to come on in a moment to lessons learnt in respect of that but, Rachel, do you want to come in on that?
Rachel Eade: Following on from that, it is looking at the value add across the whole supply chain. I think all the questions that Richard was asking earlier, right down to the SME, the skills, the innovation, the levels of jobs, the reward that people get right across the supply chain, offers a whole range within the automotive sector and, therefore, that contribution and the sustainability of it, the capacity of it, in terms of the contribution to GDP and made in UK. Going forward, I think it is picking sectors’ industries that meet some of those returns on any investment around the long-term, the value add across all sectors.
Q194 Chair: How is that decided? Does Government sit in collaboration with industry and say, “In terms of return we will do that”? Would it be the selection of sectors along that strict criteria basis?
Rachel Eade: In terms of the academics of how we answer that, maybe David is best. I also think to a certain extent it is a little bit about sectors that shout the loudest, work together in that collaborative way and I think the Automotive Council has shown that the sector is doing that because we want to win, to grow and have that long-term sustainability.
David Bailey: Just to follow on, you clearly need horizontal policies that improve business competitiveness generally, but what we have seen is a return to sectoral policies. That started in the backend of the last Labour Government. It continued through the coalition Government. We have seen some of it continue through this current Government. The Automotive Council is a very good example of that. That is a sectoral policy. The way it was done was in a collaborative approach between Government and business where you have this process of discovery. Coming out of that then, were a set of policies on the supply chain, trying to encourage re-shoring, on innovation, on skills. There were a set of very specific policies that were then pursued. It was modest, it was small scale but it was successful, and I think we have some track record on doing industrial policy over the last six years or so that has been successful. We did not do industrial policy for a long time because of the failures in the 1970s, so it is not about picking winners in the sense of picking companies. It is about backing sectors successfully and improving competence.
Q195 Chair: I want to continue on this path if I may, and I will speak with you, David, if I can because I think you will be able to give us that broad historical sweep. It is great to be in the West Midlands and it is fantastic to be talking about the automotive industry because it seems to me 45 years ago the British car industry was a watchword for British industry in decline. Poor industrial relations, poor management decisions, poor quality. Now you have this fantastic renaissance where you have workers, businesses, all wanting the same thing, good collaboration with government. What are the lessons there? How did we get to this from death to renaissance and resurrection? Where was government’s role in this with regards to an industrial strategy?
Professor Bailey: If you look at the long term it has been a roller coaster so decline through the 1970s, revival with investment with the Japanese in the 1990s, a long period of exchange rate over valuation with the late 1990s through to the global financial crisis decline, and then a reboot again. The key has been this collaborate approach between government and business through, in this case, the Automotive Council. We can think about ways of doing industrial policy for other sectors if need be; aerospace has worked well. We have not seen it so much in some other sectors. We have had great success on the assembly side—and that has been very successful, and let’s hope that that continues—but going back to Andy’s point, we have not had enough success at rebuilding the supply chain.
One of the things that the Automotive Council has worked on is trying to rebuild that supply chain. We saw some interesting policy initiatives come out of that through the Manufacturing Advisory Service, through the advance manufacturing supply chain initiative, through the regional growth. Sadly several of those disappeared and we need, if we are serious about rebuilding supply chain, to put back in place some of those interventions because we have had some success but we kicked away the ladder for some of our supply chain companies. Great on assembly, not so good on the supply chain. There is still quite a lot more to be done.
Q196 Chair: Andy, in terms of a leading practitioner in a valuable British-based firm, what are the lessons that need to be learnt in terms of what has happened? Where do you want this to progress in the future?
Dr Palmer: I started my role in the industry in 1979 so in exactly the declining years. If we decide that we are—we are picking our way now—industry is important and automotive is important, what are the roles that government can play and what industry can play? For example, we need to think about what levers we use over the business environment. Let me give you an example. Foreign exchange rate policy. A weak pound, from my point of view, is a very good thing because it helps with export; 80% of Aston Martins are exported around the world. The weak pound makes them a more profitable product. That may be counterintuitive to other sectors of business but if we decide that industrial policy and industrial strategy is important we may want to promote a weaker pound in general. That is an important discussion.
Q197 Chair: Are you getting on one hand, because of the weaker pound, but your supply chain is based overseas and you are getting hit—
Dr Palmer: Net to date we are better off with a weaker pound so obviously we add more value than we bring in. There is an important second part, which is the supply chain. We rely very much on a supply chain that is offshore. Through the hollowing out of industry through the 1980s we have lost that supply chain and we have to try to bring it back because much of the intellectual property that exists in a car does not exist in the OEM itself, it exists within the supplier. If you do not have that industrial strategy and if you cannot protect the supply the OEM has all sorts of other problems, not least currency exposure in the current climate. At the moment, the weak pound helps us because we add more value than we bring in.
Other things that I would point to: skills and how we work with skills. The basic direction—as an ex-apprentice I am going to say this—towards apprenticeships is very good. We can talk a little bit about the levy and the application of the levy but in principle I am very supportive of bringing in apprentices because we have lost a whole generation.
Industrial relations—unions and employers—have to work together. I am not the best example of this even right now but we have to work together and we have to work to accommodate. Interestingly union and manufacturers have a common goal, which is all about longevity of industry in this country and in this region and basically keeping long-term employment.
The last discussion is probably one of devolution, which you tended to have in the last session, what powers did we give to the region and how do we ensure that they are not just short term—one year at a time—they need to have a horizon of one year, five years and probably 25 years.
Q198 Chair: I am keen to tap in as part of this conversation to be about the supply chain and that is why I want to bring you in, Richard, in a moment. But following on from Andy’s point and before I bring Chris in, I am very interested in the role of the unions and how does a worker fit into an industrial strategy in terms of making sure that there is that collaboration? It seems to me—tell me I am wrong—that in respect of automotive and aerospace there are good industrial relations going on, perhaps not with other sectors. What lessons can be learned in respect of this and how, in terms of protecting your members for the long term, does an industrial strategy work?
Tony Burke: It is based around what used to be. People have a vision of the UK car industry still there, that it was, “Hands up, brothers, we’re all out”. That is a long time ago. It is nothing like that. What it is is collaboration. You have the shop stewards and the union reps at factory level meeting their managers in all of the main OEMs on a regular basis, exchanging information. At European level of course we have European Works Councils. So there is a lot of exchange of information.
There has been trust built up, I believe, in many instances. That does not mean to say that everything in the garden is rosy but the reality is that there is an element of trust and consultation. If you talk to anybody who was in the car industry 30 or 40 years ago, they will say to you basically the unions and the employees sometimes deserved each other. That has been said by employers as well.
How do the ordinary workers fit into it? Ordinary members have well-paid jobs, stable employment, they know that they are going to be there hopefully for quite some time. Many of the jobs are very highly skilled. Many of them, as Andy said, have come through apprenticeships and just on that particular point alone, you look at the car industry and the number of apprentices that are coming through. We have our own apprenticeship structure in the car industry that is working where people come into the main OEMs and into the supply chain. So we have “the plan” figured out.
Bringing people through, workers feeling that they are working in a worthwhile job, that they are respected, that they have a skilled job adds a tremendous amount to the way that the industry operates. I know you will come back on to the supply chain, and I will say something about what we have all been doing in the industry to bring the supply chain back to the UK.
Q199 Chair: Does the structure of the sector help in terms of that collaboration? Also have you gone through the pain of perhaps mass job losses and a rise in automation and robotics in a way that perhaps other sectors have not? What lessons can be applied to this?
Tony Burke: We do have a continuing and growing use of robotics. Of course the car industry is right at the forefront now of industry 4.0, as we know—
Q200 Chair: Presumably, Tony, your members are saying, “Hang on a minute. I am going to lose my job to a robot. What are you doing to take my job?”
Tony Burke: That is the problem that we are dealing with at the moment. I will not go into massive detail but Unite is working closely with the SMT, the Society of Motor Traders, the main trade body in the industry, and others on this subject. We have had discussions and seminars with our colleagues in the Metal Workers Union in Germany who have far more experience than we have. They are about four years in advance.
Yes, we have robotics, most of the OEMs now have some form of either robotics. We have our first cobots in the supply chain where we have cobots now in a big supply chain company. The first one came in and is called Nigel. They are working alongside human beings.
It is going to happen so we have to get on with it and recognise it, but there are issues like skills. There are issues about training, they are about protection of employment. It is going to be a massive issue for us.
Professor Bailey: Every time a major car company launches a new model there is a competition across Europe to secure it.
Chair: We have seen that with Nissan today.
Professor Bailey: Absolutely. Unions and workers have played a key part in working flexibly, getting costs down, making the UK an attractive place to make the investment. They also played a key part and it has been the most productive industry in Europe. They are a key player.
Rachel Eade: On a supply chain and robots, at the lower end of the supply chain—and robots are there—but companies recognise that it adds value and the skill level of the jobs to be able to manage and maintain and work with the robots reinforces that long-term sustainability. If we can grow UK car manufacturing in the UK those jobs and those skills will raise but there is an issue about confidence and the long term, which links into the strategy bit, of how we all work together to make that happen.
Q201 Chris White: Could I start with you, David? You were introduced as a professor of industrial strategy. Was that an accurate description?
Professor Bailey: Yes.
Q202 Chris White: You started your remarks saying something if we wanted 10 points of how to improve the automotive sector you could do that, but that was not for this meeting. I would suggest that if those 10 points were available, it would be great if you could—
Professor Bailey: Sure.
Q203 Chris White: Presumably your first lecture after the industrial strategy became a new department what did you say to your students?
Professor Bailey: I do a whole course on industrial strategies. I will go through the history of what we discussed. One of the key things is that we have seen for the first time in our recent history a consensus that we need an industrial strategy and the form that it should take. That started under Mandelson, continued under Cable and now seems to be back on the agenda.
In the auto industry, the Automotive Council was there all along. That was the key body, bringing people together. Other industries might require different ways of doing it. So what works in auto might not be the same in another industry. Electronics is more diverse, for example. We have seen a range of policy interventions on things like skill, supply chain, innovation is another big one. The fact that there was a technology road map gave confidence to investors and the Government aligned its investment both through higher education and through to support to business to say, “Look, these are the six big technologies we are going back”; commercial companies say, “Right, there is a long-term commitment here, we are going to go for it”. It is that long-term commitment about where we are going to go that helps drive confidence and investment. If you are saying to an industry, “You have to change from producing dirty old smelly fossil fuel-powered cars through to electric cars and hybrids and, in the long term, hydrogen, government have to put its money where its mouth is and show some long-term commitment to it, and that is encourage investment from the industry.
Q204 Chris White: I do not know if that particularly answered my question. I appreciate the automotive sector is ideally placed for a strategy. It has long programmes that need supply chains, it needs—for the track to work a lot of things need to happen to take place. I do believe a lot of those things are transferable. It does not have to just be kept to the automotive sector. What did you say to your students? Was this a new dawn? Was this something different from under Cable, Mandelson and Heseltine—the march of the makers? Did you see this as an opportunity that something could be shaped in terms of a wider strategy, which was everything from the primary school child learning a STEM subject to how we invest in UKTI to make sure we have the right environment to maximise our exports? Is that how you saw it?
Professor Bailey: We are yet to see. I hope that that is the commitment, going back to some of the points that Tony and Andy were making, in the sense that this is a real commitment to certain sectors of the economy. It is not just manufacturing as part of an industrial policy, but if we are making a clear commitment to manufacturing, how does then everything stack up? Whether it is what exchange rate we want, whether it is finance for business in the supply chain, whether it is innovation policy, whether it is skills policy, do they all stack up to an overall strategy that goes in the same direction? Yes, I hope that that is what it will amount to. The march of the makers, there was a lot of talk. I do not think there was enough action. While we saw some successes in automotive and aerospace they were modest and they were small scale and we did not have it on a wider scale to the degree ideally I would have liked to have seen.
Q205 Chris White: A modest and small scale I would agree with you. I would also add the word “piecemeal” into that mix. I just wonder whether there is more to this so when we come through the autumn statement, at the beginning of the year when we can see something that is tangible that as a Committee we can debate again. Are you going to be submitting into that inquiry and into that debate? The other thing I would ask all the panel members is what I asked the previous panel: do you see an industrial strategy—whatever each of you thinks that is—is something that underpins our economic performance as a country?
Professor Bailey: Yes, the answer to that, I am more than happy to submit. What is the country in Europe that has the most successful manufacturing sector? Germany; 20% of their economy manufacturing. They have a clear industrial strategy that involves a whole set of different elements, including things like part-time wage support in times of crisis, regional financial systems. They have a system. We cannot replicate that here. We can learn from it and we can learn from our own recent experience, and other countries, to come up with a strategy that can underpin manufacturing success and performance. If we do want inclusive growth manufacturing has to play an important part of that. One of the reasons we have had—
Q206 Chair: Can I just ask about that, David? In terms of industrial strategy is that synonymous with manufacturing? In the dynamics of our economy with the importance of services and the creative industries, how is that incorporated into an industrial policy?
Professor Bailey: Industrial policy is about not just horizontal policies but which sectors you want to support. Some of them may not be manufacturing. Some of them may be business services. Increasingly successful manufacturers do manufacturing as part of a range of different activities. That is called manuservicing, and the servitisation we have seen. Rolls-Royce famously offer a service; power by the hour. Also if you buy Aston Martins—if you are lucky enough to do that—I do not know what the base price of your car starts off at, but you design a car with Aston Martin and the consumer co-creates it down to the leather, the design inside, and they are offering a service alongside the car.
Services are intricately involved in this, right down to technologies in terms of serious gaming as to how cars are designed now. Manufacturing is linked very much with services.
Q207 Chris White: Economy, industrial strategy: are they intertwined?
Rachel Eade: Yes, industrial strategy underpins economic performance and something about clarity communication will reinforce that.
Tony Burke: Definitely. Without having a broad industrial strategy that is clearly mapped out for industry, mapped out for politicians as well, it is going to be very difficult to drive forward an overall better economic performance.
David just mentioned, if you look to a good example, Germany, 20% of the economy is in manufacturing and they cover everything from the skills issue, because you know that dual system that they have—I am sure you are familiar with it—where the brightest and best go into different industries in manufacturing and in other sectors as well, but the support for the supply chain, the support for when there is a dip in the economy, the fact that the German economy did not dive like it did here, with the supply chain disappearing and companies going under, they supported their medium-size, what is generally described as mum and pop engineering companies. It is not entirely true in that sense but they do support through the Mittelstand programme.
There is this structure that when companies are in difficulty agreements are reached with the unions, with the Works Councils, in particular, on how you get over that problem. That is why they have continued to remain stable. What we would say is this—and David mentioned this—we go right the way back to Peter Mandelson when he intervened on the car scrappage scheme, if you remember. About 400,000 new models went through, there was a lot of money ploughed in that. That was the start to try to turn this around. We have had some good ideas and some of them have been scrapped. I think we have had the long situation that we had this year where the previous Secretary of State found it difficult to use the phrase “industrial strategy”. I think he used the phrase “industrial approach” rather. That was his decision. But now we have a definite Department, which we hope is not just going to be a nameplate on the door but we get what we believe needs to be done. I have to say the fact that the Prime Minister is able to say, “We will take industrial strategy seriously, we are the Minister for it”, is music to our ears.
Q208 Chair: Have you been called into the Department to discuss matters?
Tony Burke: Not at this moment in time. We have written to them. We are waiting for a call but there are a number of issues for the unions, not least of course the ongoing crisis in the steel industry, which we will be talking to them about.
Dr Palmer: Just a straightforward observation: is there a successful country or economy around the world that is not a powerhouse in industry? I do not think so. I cannot think of one. Obviously I have worked with lots of governments around the world in terms of choosing sites that manufacture and those that are successful and win new business are those that put an industrial strategy at the heart and they protect their industry. I am thinking of the Germans. I am thinking of the French. I am thinking of the Koreans, the Japanese, the Chinese, the Americans, the Mexicans. These are all successful economies that hold at their heart the skill of making things and they hold it deep. Not just the purely assembling things but at the intellectual property and the engineering that lies behind that. It is core. If you want a successful economy a part of that mix is a powerful powerhouse of making things.
Q209 Amanda Milling: There have been a number of comments where I just go, “Mm, that is interesting”. David, you mentioned this is a long-term commitment. Then also mentioned the fact that march the makers were all quite short term with lots of words than the actual reality. Tony mentioned about: is it the Department, is it going to be embraced? You may have to help me with it. The issue we have is over the last seven years we have had a lot of changes in government, from Labour, Coalition to small Conservative majority. We are coming to the end of 2016, this industrial strategy is still work in progress, and there will be another general election in three years’ time. What do you need to have in front of you to know that this is going to be a long-term commitment and is not going to chop and change so that it is effective?
Rachel Eade: Cross-party commitment, so engagement across the range of people and views that help inform the strategy, so that that is built in from the beginning and not added in later on. And the understanding that the supply chain there is at the different levels, so therefore how we address it. We need to build in those support mechanisms at varying levels because how industrial strategy and its output is viewed by the OEM, compared to both the middle size and the small SMEs, which are the large collaboratively employers, we need to get their buy-in as well.
Q210 Chair: Sorry to interrupt again, Amanda, I do apologise. A small business based in the West Midlands: how is an industrial strategy relevant to that?
Rachel Eade: It is relevant to them because it—
Chair: But they understand the relevance and they end up working towards that alignment?
Rachel Eade: Many of them are just getting on and doing, and in the current market where there is no business support availability to them by their trusted manufacturing business advisers, because they have been removed—my favourite saying is, “We do not know what we do not know”. Many of the MDs that I work with are working with myself and other colleagues because they do not know what they do not know, and they rely on us because they are engineers who are MDs. That is not their level of expertise, and that is why engaging with them down to the SME level to get their understanding of what they want from strategy is essential.
Amanda Milling: David was going to—
Professor Bailey: It is a very good question. The answer is clear long-term commitment for the sectors that you are supporting, whether it is on innovation or output or skills, and an institutional buy-in that gives industrial strategy the same sort of importance as monetary policy or fiscal policy with a regular review of that industrial strategy. So it has an institutional status. It is just as important as monetary policy. We tend to focus in our economic policy making on what is the interest rate going to be? That is important. What our long-term industrial strategy is going to be is equally important and having that institutional basis is fundamental, so we have a regular review of where we are and where we are getting to. Does it need to be refreshed? Everything should stack up whether it is the exchange rate, policy, whether it is energy costs, whether it is skills, whether it is innovation support, to try to achieve that strategy for that sector.
Q211 Amanda Milling: Do you think there is sufficient confidence in the political landscape that people have the confidence that the strategy has got legs? The political landscape is all over the place globally, not even just in this country so is there that confidence? I am challenging.
Tony Burke: it is a good point. You have to start from somewhere and that is where we are at the moment. We had the beginnings of some good ideas, as David said earlier on, with—for a start we had Mandelson’s car scrappage scheme and then of course we got to that period of Coalition when Vince Cable was involved in advanced manufacturing. That helped out the workforce. If you remember GM at Ellesmore Port when he intervened, and went to Detroit and came back with a deal, which saved jobs and kept that plant going, and very successful it is too.
You have to start from somewhere and I think we have to look at building on it. Lots of ideas have been put forward about what needs to be done. Some of the stuff is already there for us to build on but that point about small and medium-sized companies, when you say, “What does it matter? How does a small engineering company in the West Midlands fit in with an industrial strategy?” Well it does because they are part of the supply chain somewhere in the UK. That is the point. You just think about this: Nissan today have announced they are going to build a new model Qashqai and the X-Trail, which is great news. That is 7,000 jobs in the main OEM. You count up all the number of people that will be affected in the supply chain. You are talking about one to seven in the north-east. Fantastic.
Professor Bailey: We do not know what deal has been done but it is something about local content, so it is about Nissan sourcing one supply chain.
Q212 Chair: I was interested in that, and I was interested in Andy’s comments. I do apologise, Amanda. Andy’s point about every major developed economy in the world has manufacturing at its base. Is there a trade-off between having an open and dynamic economy and protecting—and “protecting” is probably the right word there in terms of your industry or base? To what extent do you have to intervene in a protectionist manner to say, “We need local content in the supply chain? We are going to restrict foreign takeovers”? How do you want an industry of policy to be shaped like that?
Dr Palmer: You have to understand the industrial driver. I am not allowed to comment on the Nissan decision but I will talk in general. Normally the driver of the decision for a manufacturer is what is called the total delivered cost. It is the ability to take raw material, bring it into the manufacturing plant, transform it, ship it out to market and pay whatever tariff is, in whatever currency it is. It is a balance that you look at across that whole supply chain.
The UK, without tariff and with a reasonable exchange rate, is good at making cars because towns like Sunderland and the Toyota plant or the Honda plant, Jaguar and Aston are good at that. We then need to think about if you add a tariff is that offset by an exchange rate? If we do not have a tariff maybe it is not so important. If we bring our supply chain closer to the manufacturer then you bring down your total delivered cost because your inbound logistics are less but you have to look at the volatility of the foreign exchange.
When you have an industrial strategy, you get it back down to the way that the manufacturer thinks, which is, “What is the cheapest place to make it and get raw material transformed into a car and sent to market?” Our primary market probably for the UK is Europe—not for Aston Martin but for the UK in general. We need to put the industrial strategy around that. That inevitably means that you have to bring your supply chains closer. You have to avoid tariff if you can. You need to manage, as far as one can, the foreign exchange. You need the skills and ultimately you drive that back, and you need the intellectual property.
Rachel Eade: About the supply chain—and let’s just use the example of the announcement today that we do not know the detail of—so to bring the supply chain local across the UK there will immediately be a pressure on to co-invest with their OEM to increase capacity, capability and technology and innovation and the skills. That is important where the industrial strategy is supportive of a whole supply chain because the support to the SME is very different from that to the OEM to secure the new models in the UK.
Tony Burke: Can I just add on that particular point? You made the point about protection and industrial strategy. There are a number of differences. If you look at what makes good industrial strategy it is having the best skills and the brightest and best people coming in to manufacturing. It is about high productivity, and you talked about that earlier on. One of the problems is that we had that burst of energy last year about we have to do something about productivity and then it sort of dissipated. We have to look at why people are more productive and why certain countries are more productive and the question of procurement. It is a fact, as we have said many times, you go to Germany and the police and local authorities drive their homemade produced vehicles.
A lot of it is also to do with having a workforce that is informed and consulted and understand what is going on and listened to as well. That helps with developing an industrial strategy as opposed just to being protectionist.
Q213 Chair: Are you suggesting that you think we should recommend that MPs drive Aston Martins?
Tony Burke: I will say the fact is that we have a number of great companies in the UK producing cars, right the way from Nissan in your own patch, to Aston Martins, Rolls-Royces, Bentleys—we do the bottom end of the range as well—and GM and BMW, Mini, so whichever we can do a deal for you.
Q214 Amanda Milling: I want to just pick up on the point about skills. I have information here saying that in the year up to September 2015 the Automotive Council said there were 6,000 job vacancies in your sector.
Tony Burke: There is.
Amanda Milling: Particularly high volumes here in the West Midlands. Why is there that gap? What do we need to do to fill that gap. One of the questions that I put to the previous panel was: is the education system fit for purpose and what do we need to do to get to a point where these job vacancies, we are filling these skilled jobs. Lots of questions in one.
Rachel Eade: It is a matter of promoting manufacturing, advanced manufacturing at younger children, and the engagement between schools and industry, teaching a STEM in a more engaging business and manufacturing environment. It is a hard ask but if we want to grow the attraction of people leaving schools while they go on to study or into apprenticeships in manufacturing, we need to get in at a younger age to make that engagement come to life and, as an industry—and it is one of the things the Automotive Council have looked at—is how do we promote careers that are long careers with opportunity, to speak languages, travel the world, drive a whole variety of cars. But as an industry, as a sector, we are not very good at promoting that as career opportunities.
Q215 Amanda Milling: Is it your sector or is it industry per se?
Rachel Eade: I am talking about the automotive sector.
Q216 Amanda Milling: The question was whether engineering is something we need to promote in schools but I do wonder whether there is a degree to which it is engagement of business in schools as well?
Professor Bailey: It is as very good point. There are some great examples locally of manufacturers that do engage. We do not think of it as a manufacturer but Cadbury, now owned by Mondelez, is great. They do a great scheme of getting schoolchildren into their operation to see that there are potential careers. It is exposure early on to arouse people’s interest, which is absolutely fundamental.
I would add on to this that yes, there is a big effort on apprenticeships. We are not going to crack that until ultimately we incentivise the big players to over train. It is very difficult for a small supply chain company to take on apprenticeships. There is a great scheme by the EEF whereby they have an apprenticeship scheme and then the apprentices go round different supply chain companies. That is great but ultimately we have to give a big incentive to the likes of Jaguar, Land Rover, Rolls-Royce, JCB, to train far more apprentices than they need. The ones they do not want they can then be released into the supply chain.
Q217 Chair: Does the levy help that?
Professor Bailey: I am not sure it does. To start with we need to devolve as much of the levy as possible to the regional level, so that we can start making decisions over skills more locally. But we need to think as well about whether it is incentivising companies to make that investment or not. At the moment businesses I talk to they see it as simply another tax. So there is not a link with how it can benefit them.
Tony Burke: We just make the point about apprenticeships and skills in general across manufacturing. First, we have to do a lot more to convince schools and colleges to look at coming into manufacturing, and a gold standard apprenticeship in manufacturing as being a real possibility rather than going into an academic qualification. There are a number of ways that have been suggested we do that. That gold standard—that is a generic term that we use—apprenticeship is certainly seen as something that is very worthwhile and is transportable and is recognised across industries. There has to be some pressure placed on the educationist, not to bring back the career services that used to be but to have some sort of professional advice and assistance for young people and to look at apprenticeships as an alternative to going into academia.
Secondly, is parental pressure. Everybody wants the best for their children and their grandkids, and going to university and academia is something that everybody is proud of if their kids do it. But going into an apprenticeship and completing that apprenticeship and being in a well-paid job, without any debt at the end of it, has to be an alternative. Our union has been working hard to promote apprenticeships in manufacturing and in particular to persuade young women to look at an apprenticeship in manufacturing, engineering or the car industry.
What we have done is we have brought some of our young women who have done their apprenticeship in the defence industry, in aerospace, and cars to talk to young people and others, and parents, and say there is a real benefit. One of our star performers has said, “Here I am, I have completed my apprenticeship. I do not live at home with my mum, I have my own car, I have a decent job and I am going on to extra qualifications”. It is fantastic what has happened. A lot of it goes back to starting back at school and getting people looking at apprenticeship as a very real possibility, highly-skilled apprenticeship rather than going somewhere else and ending up in a job maybe that is not necessarily suitable for them.
Professor Bailey: Linked to that is the success of the university technical colleges, UTCs. We have one at Aston, one at Warwick and that is about giving a broad-based education that is not only vocational but also academic with work experience. At the end of it those people are incredibly employable.
Rachel Eade: If you get a chance today, and I am sure if you go round the centre after the sessions are finished, you will see some fantastic apprentices and one star female apprentice who is worth talking to.
Q218 Amanda Milling: The points about skills were largely recognised in the productivity plan that was published last year. I am interested to understand how an industrial strategy is going to be a game changer in terms of trying to resolve the skills issue. Also, another question with that, is: what are your views on having education so separated now from business? Because you have talked about the need to connect business and the education system, and we have just completely disconnected the two.
Rachel Eade: There is a whole opportunity in terms of the strategy. If we can build in that opportunity element for young people and their parents, so the general public begin to understand some level of it, we can then begin to filter it through. But if we do not have the strategy that is encompassing the range of elements we are missing a trick.
Dr Palmer: I opened up my comments when you asked about strategy and strategy is important. Strategy is a conscious choice so you make a strategy that consciously chooses that you want to be making things in the UK. If you make that strategy then the next question is: do we only want to be assembling or do we want to be manufacturing? If you make that decision you make the question: do we want to be there for also engineering? If you want to be engineering then you need to have engineering skills in the country.
The strategy is important for an alignment and the alignment ultimately comes down to should we be educating people in the skills necessary, let us say engineering? If that is true then it has to wash down to the schools and it has to wash down to pushing people towards apprentices rather than necessary academia where it suits them. A strategy in there is important.
Q219 Amanda Milling: We have not had to wait for a long time in terms of trying to boost young people considering apprenticeships.
Dr Palmer: That was more bottom up, that is more about apprentices are a good thing for people who should not be going to university rather than answering the question from the top down, which is we need these skills because we want to be an industrial nation.
Professor Bailey: An element the industrial strategy could add to the productivity plan as well is not only that the apprenticeships that are part of it, but it is about lifelong learning. I have been out in Singapore this summer studying their industrial strategy. They have something called “Skills Future” where basically the Government recognises that the economy is going to change over time. There will be sectors that expand and contracts. There will be economic shocks that have an impact. They commit to training and retraining people throughout their lives.
We have had some success at that locally so when the Rover crisis happened there was a massive effort put in to retraining workers and getting them into jobs with some success. But it is not something we do very well. So if that element could be built in through an industrial strategy it would add value.
Rachel Eade: To give you a very quick example on that. I am working with a company in Birmingham who asked the question of me, “We want to train eight of our middle-aged warehouse operatives particularly in lean techniques, so to spread their productivity, and some skills leadership activity”. So I said to them, “Have you considered apprenticeships?” “No, they are all 30-plus.” When did they leave school? All of them to a man had left school at 16 with no further education. So where is their commitment to lifelong learning? “As their employer you can access a programme that will structure their training, their learning, over the longer term.” He was not aware of that. That is how we need to build it into a strategy so those options are there. He is an Aston Martin supplier as well.
Q220 Richard Fuller: As someone who passionately believes in the free market I am depressed. Let me just remind myself of a couple of things: today the United Kingdom released its growth forecast after a major shock and the United Kingdom is the fastest growing major economy in the West over the last week. The French authorities have been demolishing camps in Calais because people want to travel all across Europe simply because they want to come to the United Kingdom. The United Kingdom is a wonderful successful free country because we operate a free market. We want to be extraordinary sceptical about government intervention in that system and yet every single person at every single panel has been drinking the Kool-Aid of industrial strategy and yet none of us can say industrial strategy is X because we all have our own X. Mr Palmer’s X may be different from Ms Eade’s X. Certainly different from what we heard in the last panel. Tony’s X may be very different from Mr Bailey’s X. So how is the Government going to make everyone happy?
Dr Palmer: My impression is the X is not so different. I am sitting next to the head of the Trade Union. I do not think—
Tony Burke: No, I am not the head. Strike that from the record.
Dr Palmer: I do not think the differences are so great. In fact I do not see very many differences at all across this table. I think everybody you have spoken to is saying we need an industrial strategy for this country because we do.
Q221 Richard Fuller: That is saying we need X because we need X but the definition of X is different. So some people may want to emphasise skill. Some people may want to emphasise the role of the Government as co-ordinating or implementing. People may want to talk about going into ways in which supply chains operate. All of those are lots of asks and everyone points at the Government and says, “Do this for me” because success of the country’s economy has been because the Government have forewarned doing that under both the Conservative Government under Mrs Thatcher and Mr Major, and under subsequent Governments under Mr Blair, Mr Brown and Mr Cameron. Why are we throwing all that away or am I getting this completely wrong? Pull me out of my depression.
Rachel Eade: We have all said that an industrial strategy is not about doing unto but doing with, in collaboration with, and as guidance and the confidence of a longer-term continuity and support, I do not think any of us are asking for anything to be done on to, as you have just described it. We are not asking the Government to do on to us, as companies or as supply chains, but to do with us and in a supportive way and to set out some frameworks. In the Automotive Council we use the terminology “road maps”.
Richard Fuller: Why can you not to it yourself?
Rachel Eade: In the automotive sector we are. We want to make it further and embedded and more sustainable, working with our Government will add to that.
Professor Bailey: There has been £8 billion worth of private investment in the car industry over the last five years. Why has that come to the UK? For a number of reasons. It is to do with skills, workers, fantastic technology. Part of it is because industrial policy has helped underpin confidence in the direction of the industry in the UK, including our own technology road maps. That is Government and business working together. Businesses welcome this. This is not about top down, picking winners in the 1970s. That got us the Austin Allegro. This is about business and Government working together, collaboratively, to try to identify opportunities and challenges and overcome them together.
There is no other country in the world that has a free market economy that does not do this. It is part and parcel of what a modern free market economy is about. It is a provocative question to start with but this is about sensible industrial policy, supporting the market.
Tony Burke: As well you have to bear in mind that without having a strategy that works, that is understood by people collaborating and working together, what you get is what you have had here in the UK, deindustrialisation. You only have to look around and see what the result of that has been. Low pay, precarious employment, people working on zero-hour contracts. All of those sort of difficulties that have created—in some areas, in some parts of the country, and major city centres there has been a boom but outside in some of the less supported areas we have had a situation where is all you have seen is basically economic decay. There will be a price to be paid in the long term for that.
We have to work through the fact that if you look to what happened here in the great crash of 2007 and 2008, we suffered badly and the automotive industry prior to that suffered badly. The fact that we brought everybody together and made sure it did not happen again is a testimony to why we should bring people together, work together and try to find a way through these problems and get investment back into the UK in the automotive industry is a good example of that.
Q222 Richard Fuller: Mr Palmer, can I just say, what a beautiful piece of engineering Aston Martin cars—
Tony Burke: You want one, do you?
Richard Fuller: I know the chair is looking forward to his opportunity to test drive. Mr Palmer, you have had a fantastic career, and we do appreciate it, in automotive engineering. So should I be depressed? Make me happy.
Dr Palmer: No, you should not be depressed.
Richard Fuller: I am getting a little happier.
Dr Palmer: No, we should not be depressed. We have a vibrant industry. It has some weaknesses in the supply chain and I would argue it probably has some weaknesses in the ownership structures; we do not own much of our own industry any more. But it is an extremely efficient country in which to make motor cars. It is interesting that today Nissan made the decision to stay with the Qashqai and the X-Trail. I do not know the reason for that decision but I am sure that decision was made because Sunderland is extremely efficient, and that is great news.
It is also interesting that the CEO of Nissan felt the need to go and talk to the Prime Minister before making that decision, so inevitably industry needs clarification, it needs confidence in the longevity of the UK for making cars. But there is no reason to be negative about it. I just went through a sourcing activity for the next beautiful motor car, which is an Aston Martin SUV. Ultimately we decided to put it in Wales and we put it in Wales not because we felt we should do but because after looking at 20 different sites around the world Wales was simply the best place to put that car plant based on quality, cost and delivery.
Q223 Chair: Final question to the panel. You are advising the Government on the implementation of a proper industrial strategy, what do you need?
Dr Palmer: First, cross-party consensus as far as one can get it because it is an industrial strategy, it is not a three-year or four-year term, it is a 25-year term. We cannot go with the vagaries of changing Government. It needs somehow to be cross-party commitment to a structural investment, particularly in skills, innovation and the supply chain.
Tony Burke: What we need is a long-term plan, as Andy said. We need to have certainty and that there is a political consensus that across the board we need to have an understanding that in order to have an industrial strategy it cannot be chopped and changed. We have to stabilise our skills policy. Over the years we have had too much chopping and changing where the certainty has not been there. We need to provide help and support for industry, particularly small and medium-sized companies in the OEMs. We need to bring the workforce along with us and have the workforce not only highly skilled but informed and consulted about what goes on at their company. Not all the great ideas come from the boardroom. Many of them come from the shop floor and the office.
Professor Bailey: Clearly long-term commitment. An institutional footing, which means that it is here to stay and a commitment to that. Recognise that there are sectoral differences. Devolve wherever possible so that you harness ideas from the regions and make sure that different elements of policy stack up in a clear consistent direction, whether that is on supply chain, skills, innovation or other areas like access to finance.
Rachel Eade: I would endorse all those items: the long term, the vision, with the built-in review points that allow for the engagement across our sector the supply chain and the help and support at the varying levels of supply chain.
Chair: That was excellent. Thank you very much for your input, we appreciate it.