For the fourth instalment of the ‘Talking Manufacturing Podcast’, John sat down with the Brendan to discuss his thoughts on the future of Britain’s manufacturing sector. Brendan and John discuss the role AI could play in the sector, the Carbon Border Adjustment Mechanism, and how manufacturing compares to service industries. Listen in to hear how we can get ahead and be at the leading edge of new technologies in manufacturing and beyond.
Transcript
Brendan (B): Hello and welcome to the JMI Podcast. My name is Brendan Chilton and I’m the director of the John Mills Institute for Prosperity, and in this series we are going to be discussing the issues at the heart of the institute, working through each of our manifesto pledges and inviting guests to bring their unique perspective on the place manufacturing takes in the UK economy, and in our society as a whole.
So, in this episode, I will be challenging you and our guests to think outside the box and to be as ambitious as possible. We want to forget the limitations and the practicalities, and shoot for the top. And after this episode, I really want to understand where we are headed as a sector and I want to feel that we have the level of ambition, and the level of excitement and confidence to put this into action.
And to help us do this today, we are joined by John Penrose, the Conservative MP for Weston-Super-Mare, who’s been an MP since 2005. He’s involved in a huge range of activities across Parliament, including the Inclusive Growth All Party Parliamentary Group – that’s a mouthful – campaigning for more affordable housing and pushing for numerous improvements in his constituency.
So, John, welcome.
John (J): Glad to be here!
B: And thank you very much for letting us record this in your splendid office. Very kind of you.
J: Delighted to be able to help.
B: Right. So, let’s keep things off then with why you’re part of the Institute. As we already know, you’re a very active member of Parliament and have interests across the whole breadth of politics. But why do you think manufacturing is such an important part of our economy?
J: Because ultimately, I care about overall economic growth. If we’re going to have the lives that everybody wants, if we’re going to be able to pay for the public services that everybody wants, we’ve got to have a healthy economy. And manufacturing has been a long-term struggler, relative to the rest of the economy.
And I think it’s really important that we ask ourselves some pretty fundamental questions about why and what we need to do to fix that, because I don’t think we can just let it carry on struggling indefinitely. And I think it can be fixed, but it will require some changes. And you’ve only got to look at what’s happening, for example, on international energy markets, to see the way that things can alter very, very fast in the modern world, and we cannot just let ourselves continue to drift the way we have been.
B: And do you think – I mean, at the moment there’s enormous geopolitical pressures on the country. You’ve obviously got the war in Ukraine, we’ve got still countries and economies emerging from COVID, there are always risks around the relationship between China and Taiwan. There is a huge case, I think, for sort of more self-sufficiency, producing more here in the UK. Do you think government and the opposition are tuned into that at the moment and really prioritising?
J: Well, I think part of the problem is that because this is such a long-term trend, it’s been going on under governments of all colours and types, from Tony Blair right the way through to the present day.
So nobody’s really got the answers. And I think that therefore, that’s why the institute’s work is so important to try and address that. I think you are right as well that given what’s going on internationally, and you mentioned a couple of really good examples there – we all know that the winds of change will continue to buffet not just British manufacturing, but many other manufacturing sectors too. That may create problems that could also create some opportunities for British manufacturing.
The only thing where I just would be a bit cautious about it is: yes, it’s important to create the right conditions for us to make and build as much as we can here. I’m a free trader though, so it isn’t a question of us just trying to sort of pull up the drawbridge, build some walls and ramparts around the country and build things no matter how expensive it is here. We’ve gotta create the conditions where we are the best in the world, the cheapest, the most ambitious, and the most cutting edge, but also the best value in the world. Rather than just trying to create some sort of sheltered environment where other people can’t compete.
B: Yeah, and our goods are practically worthless on the world market because there’s no competition. You don’t want that.
J: Exactly.
B: So in terms of the sector as a whole then. You’ve spoken there about, you know, us becoming the best in certainness. What should it be aiming for? I think manufacturing at the moment is around 10% GDP.
Although it contributes much more to the overall economy than just 10% of the workforce. What should it be aiming for? What should it be impacting. Where do we want it to be?
J: So, I don’t know if it’s possible to put numbers on it at the moment, just because I think anybody who does is sort of picking up a nice round number out of the air.
It’s a slightly arbitrary process. But I do feel really strongly that we need to make sure that we start to get growth again in both the total amount of manufactured goods created in the UK, but also it as a percentage of our GDP as well. If we can just turn that long-term, sideways or downwards trend around so that both those numbers are going up – get that trend moving in the right direction to start off with would be step one.
Then when we’ve got it moving in the right direction, then we can start working about how far we can push it. But let’s at least just turn the dial and turn the direction of travel to begin with.
B: I think one of the things, it’s not sort of comforting, but it’s something worth acknowledging, it’s not just Britain that’s experiencing this decline in manufacturing – the whole of Western Europe – I was reading an article in Polity the other day.
In France and in Germany. Germany, which was traditionally an economic and manufacturing powerhouse has been struggling with its manufacturing sector.
So taking that into account that you’ve got this huge shift in economic power to the East. You’ve got the West that’s had de-industrialisation and is at risk of even more de-industrialisation. Is it realistic for us to be able to turn it around?
J: So, yes it is, but I go back to my earlier point. I don’t think that everybody – I don’t think anybody knows all the answer. There’s a whole series of things that we can start doing which will make a big difference. And I don’t think that we should assume that just because something’s been happening for a couple of decades, which is sort of the drift of manufacturing jobs from the developed West to tiger economies in Southeast Asia and places like them.
I don’t think we should assume that that’s going to happen forever. And if you go back half a century, everyone would’ve said it’ll never happen – jobs won’t go to Southeast Asia. They have, there’s nothing to say that that’s got to be the future just because it’s been the past.
B: Just looking at the moment, at sort of current policy. Obviously we don’t currently have an industrial strategy. Do you think the government should prioritise putting one in place?
J: So, I’m a bit too much of a free marketeer to be terribly comfortable with industrial strategies, if they turn into code for flipping politicians, flipping, measuring in, meddling…
B: Subsidising everything that moves.
J: But not just subsidising, although that’s often distortive and therefore bad, because it stops investment going efficiently where it should be best deployed in the economy. But also because politicians meddling often means that you end up with them taking decisions which aren’t commercial decisions. They’re often based on who’s got the best lobbying organisation, rather than what’s the best commercial decision. And that in the long term is really, really bad for any sector of our economy, because it means you end up feather bedding them, making them less competitive. And it means that ultimately then they’re less able to win export orders and the like.
So, I think you can have an industrial strategy if it doesn’t involve that, and if it’s trying to equip British businesses with the skills that they need in order to employ the staff they need to flourish, that they’ve got the regulatory environment to deploy the latest tech without having to wait for permission from a regulator, they can just get on with it providing they are safe and doing business in the right way. If that’s your industrial strategy, then I’m all for it and we’ve got bits of that in place already – that’s part of Britain’s traditional strength.
But we can probably do an awful lot more to improve it. But the moment it moves across the line into politicians meddling and picking winners and subsidising, I think we’re in very dangerous territory.
B: We must avoid that like the plague.
In terms – just looking at info under the levelling up agenda. I know we’ve had sort of various guises of what levelling up means. I think we are starting to get a definition now of, you know, all communities being more prosperous, et cetera. Do you think manufacturing can play quite a big role in that, and do you think the government needs to – and indeed the opposition as well, need to hone in on manufacturing as a means to level up those parts of the country?
J: Yeah, I really do, and I think for a number of reasons. One is that if you’ve got a successful manufacturing business or a successful manufacturing sector, the scale of growth and the scale of positive returns on your investment is huge compared to an awful lot of service industries.
Not saying service industries are bad, far from it. They’re essential as well. Just the operational gearing of successful manufacturing businesses means that they can do great things because of just – inherent of the way the economics work in the sector, providing they’re growing, providing it’s successful.
So, that’s a really big opportunity. And also, because the things that make a manufacturing sector successful are often different from the traditional strengths of Britain’s currently service-led economy. So, it might very well be that if you are, close to a power line that’s coming ashore from an offshore wind farm, and that gives you really cheap energy. That could be, if you are in an energy intensive sector and your factory is sited on the coast, you might be able to get incredibly competitive energy prices and that will give you a competitive edge internationally.
That’s not going to happen necessarily if your factory is in the West coast, or the Western edge of London or somewhere in the M4 corridor. But it might very well happen if you’re on Teesside. So the opportunities for levelling up, just because of those sort of natural differences, are very, very profound and very, very significant.
B: In terms of the issues facing manufacturing at the moment, we’ve touched a little bit on energy earlier on in the conversation.
We know at the moment the support that government is giving to everyone on the cost of energy at the moment is going to be changing in the next few weeks. What should we be doing for manufacturing? Because obviously if you are in industry, one of your biggest costs, particularly for energy intensive industries, is energy.
J: Yeah, absolutely right.
B: And how do we tackle that at the moment? Because obviously we’ve got – the war in Ukraine is not coming to an end anytime soon. So the price of energy going to stay roughly where it is, I would imagine. How do we get our manufacturing sector through that energy crisis?
J: So, the fundamental answer here, the sort of medium to longer term answer is a sort of nerdy answer, something called a Carbon Border Adjustment Mechanism.
But basically what that is, is a sort of long-winded way of saying, if you are importing manufactured goods from abroad, they’ve all got embedded carbon in them. Because they’ve used energy to create whatever it is, lump of steel, whatever it might be, in that foreign country before it’s imported.
And you’ve also got to pay for the shipping. And shipping big AV stuff uses up fossil fuels as well. So you’re importing carbon every time you unload something at Felixstowe Docks, and that means that we need to level the playing field and a CBAM, as it’s called, basically levels the playing field and says, right, what’s the amount of embedded carbon in the thing that’s coming in? We’re going to charge it as if it’s made here. And that levels the playing field and means that countries that subsidise their energy more than we do, or which use really, really dirty, fossil fuel technologies, which emit far more carbon into the atmosphere and are therefore polluting the planet and boiling the planet much faster than we are.
B: The source of most of our imports lately – far Eastern countries at the moment.
J: With some honourable exceptions, but yes, absolutely. That then gets levelled out so that they don’t have the cost advantage of being bad polluters and bad emitters.
So that does two things. Firstly, it gives British manufacturing, particularly energy intensive manufacturing, a level playing field. And that’s, you know, vitally important so they can compete against all those imports. But also it makes it much more likely that Great Britain will hit our net zero targets, which let’s not forget are important as well.
And you know, I don’t think it should be a trade-off between hitting net zero or having a manufacturing sector. I think we can, and we should and we absolutely must be delivering both those things at the same time.
B: Because you’re pursuing this particular issue, aren’t you? How are you getting on with that? Is the Government listening?
So yes they are, but the convoy seems to move at the speed of the slowest ship. So, yes we are, I mean the government’s actually issued a statement, a couple of months ago now, saying they like the idea of this Carbon Board Adjustment Mechanism: CBAM.
J: They’re looking at how to do it. It’s a fiendishly complicated technical exercise.
B: It would have to be, wouldn’t it? It would have to be, with a name like CBAM.
J: Exactly. It’s sort of a nerd fest, but we are helped by the fact that the EU is also headed in the same direction as well.
B: Okay.
J: And that makes it just – I mean, we can do it slightly differently from them but it means that we aren’t just trying to sort of do it completely unilaterally, and it just makes life a little bit easier. So I think that we are moving, and we’re moving in the right direction. I’d like us to get there in weeks or months. I suspect it may take longer than that, sadly.
B: Well, at least it’s on the table it’s being looked at.
J: I’m just impatient, but yes.
B: No, you’re a carbon – CBAM nerd. You want it to happen.
J: Oh, absolutely right.
B: Looking at the tax at the moment on manufacturing, one of the things manufacturers say is because they tend to have far more resource intensive/energy intensive setups than services, they should be treated differently when it comes to things like corporation tax. Would you favour looking at a different rate of corporation tax, for example, for manufacturers as opposed to services?
J: So I personally wouldn’t. But that’s because, going back to our point earlier about trying to avoid politicians meddling and subsidising. If you want to have a fast growing, successful, competitive economy, you want the investment in that economy to be going to wherever it can be most profitably and effectively competitively deployed.
And that means that you want to have, in principle, an equal taxation playing field as well, so that it doesn’t favour one area against another, because otherwise, again, all that happens is you get armies of lobbyists being deployed and whoever’s got the deepest pockets to afford the best lobbyists tends to win.
And that really means it favours the current incumbents as opposed to the challengers. And given the amount of technical change and the amount of technological change in manufacturing at the moment, we do not want to be stuck with old technologies when there are so many new ones emerging every day which could completely transform any manufacturing sector tomorrow.
And if the incumbents are basically cutting themselves a sweet deal at the expense of taxpayers in order to hang on to their position and stop those challenges, those new technologies being developed, they’ll be developed somewhere else and we’ll wake up in a couple of years’ time to find that the new cluster in whatever the industry is of tomorrow has been set up in a different country, and not ours.
B: You mentioned that – I want to come back to this issue of new technologies in a moment, but you’ve mentioned lobbyists quite a few times and I think this is quite an important point. In many European countries, particularly Germany, manufacturing has a very well-established voice which the government listens to, which banks listen to.
In the UK, manufacturing doesn’t appear to have that vocal presence in the same way that it does abroad. Now, you’re an MP, you get lobby’s and letters all the time from constituents, business, whatever.
J: It’s a risk of the job.
B: Part and parcel of it. Your post box must be enormous. But is manufacturing as vocal in this country? Is it, or are we just talking it down all the time? Have they got that presence or do they need to work harder at letting everyone know what’s going on?
J: Everybody tries to get their voice heard. I don’t think manufacturing is asleep on that at all. I think the thing I would say is that the problem which we faced in manufacturing in this country for generations is, I’m afraid, without wanting to put too fine a point on it, is snobbery.
There’s been this sort of slightly looking down your nose view of a lot of manufacturing as being a bit sort of oily rag and blue collar. And not so highly paid and not where the future lies. And I just think, given what’s happening in technologies at the moment, I don’t think that that view is probably ever fair or true, but it certainly isn’t fair or true now.
And it’s getting less fair and less true, now and in future as well. So I just don’t think we can afford to do that, and I think it will take not just manufacturing being an effective lobbying. Unit. Every sector needs to be able to talk to ministers of any government or MPs like me.
But it’s also, I think, going to take something a bit more fundamental. I think it’s going to take the rest of society just putting that old-fashioned attitude behind it, and saying, no, actually, manufacturing jobs can be, really challenging and also pretty cool. And I think probably some of the digital industries that are now emerging have started to win that argument because people understand that those are technologies, even if they aren’t quite manufacturing technologies.
B: Associated with it.
J: But people understand that tech can be cool. And that is sort of a first step, but we aren’t there yet.
B: We’re constantly told that we are going through another industrial revolution right now: the tech, AI, industrial revolution. You’ve touched on there the emergence of new technologies and how quickly they’re coming.
Is this country ready for it? Do you think we are as advanced – you look at places like Japan and South Korea, the United States, to an extent. They seem to be jumping on every new patent that comes out and you’re constantly hearing about the manufacturing jobs in America, and everything sort of technological batteries and all the rest of it, has got made in South Korea written on it. Where’s Britain in all this? It worries me.
J: That’s where we go back to the question you asked earlier about an industrial strategy. Because my version of industrial strategy would, as we said before, not be about subsidies and favouritism and all that sort of stuff, and political meddling.
It would be about creating the most amazing ecology of opportunities for anybody who’s looking to invest. And that means really good cutting-edge skills, which are technologically literate and which allow people to retrain in whatever tomorrow’s tech is, which wasn’t invented yesterday.
And also, the regulatory environment, which means that you don’t have to go and get a million different bits of permissions and forms signed before you can start. And providing you hit your outcomes in terms of not polluting and, treating your staff okay and those sorts of things. Providing you can hit those, people shouldn’t be too fussed about how you get there, because at the moment politicians and regulators start worrying about how, providing it’s safe, then it slows everything down. So I think that’s where our industrial strategy needs to focus.
And that’s probably where, I don’t know whether or not we are a lot behind others, I think we certainly have been in terms of our skills in the past. I think that’s getting better now. But there’s absolutely no doubt we could be an awful lot better and we’re going to need to be an awful lot better, because everybody else won’t be standing still either.
B: I want to ask this last question: if we don’t get to grips with reviving manufacturing, doing those things you’ve discussed, what are the sort of political, social, and economic consequences for this country and our role in the world? Because I think a lot of people are thinking at the moment about Britain’s role in the world, it’s position. If we don’t jump on this horse now, what’s the consequences going to be?
J: I think it’s really profoundly important and potentially a very profoundly depressing question. But you’re absolutely right to ask it because if you look at what’s happening in, for example, artificial intelligence, quite a lot of what this country’s economic success over the course of the last 40 or 50 years has been built on, is potentially at risk because, I don’t know if you’ve seen the new ChatGPT AI bot that you can get online. I mean literally, if you call it up on Google and say, I want a thousand-word essay on nuclear fusion, it’ll be in your in-tray within about 10 seconds and it’ll be pretty good.
Now, just imagine what that does to service industries. Not all the service industries, but parts of what currently is the bread and butter of Great Britain plc, could easily get hollowed out by those kinds of trends. Now that means that our traditional strengths are potentially going to be eroded in the same way as British manufacturing was eroded by far Eastern competition a generation ago. That could be about to happen to at least part of our service industries over the course of the next 10, 20, 30 years. We’ve got to reinvent ourselves. We can’t just sit here and carry on doing the same old, same old.
And that means that getting up to date with being at the leading edge of the new technologies, be they manufacturing, be they anything else, but manufacturing’s going to be a key part of it, is not just desirable, it’s absolutely essential because we can’t just assume that what’s currently traditionally been paying the bills for Great Britain is going to carry on paying them tomorrow.
B: Well, I think that’s a very good note on which to finish. And I just want to say, John, thank you very much for this. I think it’s been a fascinating conversation. I certainly feel a lot more informed and motivated after we’ve had this little talk, and I hope our listeners are too. Now, these are the kind of discussions we all need to be having in the public sphere to make sure manufacturing is prioritised once again, and to think critically about where our economy is today and where we’re going to be in the future.
So John, thank you very much Indeed.
J: Pleasure. Thanks very much.
B: Thank you.