What’s the story labour, tory?

Is politics about more than just taxes on cigarettes and alcohol? Or can it change the face of industry too? It took both David Fowler and Helen Knight to find out.

Is politics about more than just taxes on cigarettes and alcohol? Or can it change the face of industry too? Three politicians spill the beans…

PROFILE 1: Martin O’Neill: Labour, Trade and Industry Select Committee chairman

As chairman of the backbench trade and industry select committee, Labour’s Martin O’Neill has wielded considerable influence. Over the last Parliament his was one of the most productive committees, churning out a series of hard-hitting reports.

It was his committee that accused General Motors of ‘panic’ in its decision to close Vauxhall’s Luton plant. Corus managers were on the receiving end of similarly trenchant comments. BT bosses were summoned for a grilling on the vexed question of slow progress in offering broadband services. The government itself came in for criticism when the committee backed many complaints from industry about the climate change levy.

The son of a fitter, O’Neill gained a BA in economics at Heriot-Watt University. He was first elected to Parliament in 1979, becoming an opposition spokesman on Scotland from 1980-84, and on defence from 1984. He was promoted to the front bench in 1988, first as shadow defence secretary, then as shadow energy minister until 1995, when he took up the select committee chairmanship. His constituency, Ochil, is just north of Scotland’s central belt between Edinburgh and Glasgow, where most of its industry is concentrated.

O’Neill’s record as select committee chairman shows he does care about manufacturing and is not a man to toe the party line. So what is his verdict on his party’s record in office? Does he agree that Gordon Brown’s emphasis on economic stability to the exclusion of all else has harmed manufacturing?

‘I think the emphasis on stability has given industry the ability to plan ahead,’ he says. ‘We’ve had interest rates falling, price stability, labour market stability. The changes we’ve had in the labour market were not surprises to anyone.

‘A lot of the people who complain about red tape do so because there’s nothing else they can complain about from a government they didn’t vote for. But maybe there has not been the dynamism in the economy. That’s in part due to the fact that our currency is overvalued against the euro. In that sense manufacturing industry has been operating at a disadvantage.’ Downward pressure on prices has led to lower profits, reduced investment and a lower level of productivity. That is perhaps the most worrying aspect of the government’s performance: its inability to secure a dramatic improvement in productivity.

‘I think that in part this has been recognised by the present Budget, which has provided tax relief for research and technology. But I think insufficient coherent support has been available for training and investment.’

If Labour is re-elected, he says, ‘the test will be the ability of the government to secure improved productivity over the next four years. We have to see where other countries have been more successful and try and push the UK up the league.’

He argues for a rethink of capital allowances. ‘There has been quite a lot of support for investment in IT, but not in IT manufacturing kit, so that if you have machine tools and the like with a computer attached to them they attract precious little in the way of capital allowances.’

Yet Gordon Brown has made much of trying to encourage productivity in his various Budgets: have his measures been ineffective?

‘Gordon Brown has been concerned with economic stability and the promotion of e-commerce,but I don’t think there has been sufficient emphasis placed on help for manufacturing.’

Two of the biggest complaints from industry to the government have been problems caused by the exchange rate, and the climate change levy. Could more have been done to address these concerns?

‘I doubt they could have done very much on the question of sterling. The pound was overvalued slightly; the euro was undervalued, because we have been more competent and rigorous in our monetary policy than the Europeans. ‘I don’t think we could have joined the euro in the past four years,’ he continues. ‘If we had wanted to, we would had to have joined the European Monetary System, and at a far lower exchange rate than we were at, so there would have had to be a devaluation. Now we’ve got to just wait till the convergence criteria or something like them are met.’

On the climate change levy, he says the original idea was that because energy prices had fallen, the government felt that industry was paying insufficient attention to reducing energy consumption and energy efficiency. In addition, the UK, having committed itself to its Kyoto targets, felt it had to set an example.

‘I think, therefore, that we didn’t have a great deal of choice, and while there’s been a lot of arm-wrestling over the CCL, most companies have ended up with far smaller bills to pay than originally expected.’But I realise that for a number of manufacturers which were already under the cosh, this represents just another blow to them, and that’s why I argued along with others that the scheme be modified, and to a large extent it was. But we were never going to move far enough for those who didn’t want it at all.

‘Ironically, we’ve now seen industrial gas prices rocket, so people are no longer living in the fool’s paradise they might have been before.’

O’Neill says that, on the whole, the DTI has acquitted itself fairly well, but adds the proviso: ‘What it has not been able to do sufficiently well is command the consistent attention of the

Treasury and make it realise that manufacturing still has a role to play in the UK: manufacturing accounts for 60%-plus of our exports, and merits a degree of support across the spectrum.

On last year’s Rover crisis, the committee exonerated industry secretary Stephen Byers from the criticism that he should have been better informed about BMW’s intention to sell its subsidiary.

Similarly, on job losses at Vauxhall and Corus, it was the companies’ managements that took the flak from O’Neill and his colleagues.

‘With Vauxhall, the people in the UK didn’t know until the last minute. The Corus one was more difficult in that the management had just given up the ghost and didn’t want to talk to the government. I think that while each of these has resulted in high profile redundancies it nonetheless has to be said that the industries concerned were not going to be saved by state aid.’

If he is successfully re-elected as an MP (he has a majority of 4,652), O’Neill is hoping to continue as committee chairman in the next Parliament. But on the campaign trail, will he be able to look constituents in the eye and say Labour cares about manufacturing? ‘There are a number of things we’ve done which have helped manufacturing. We haven’t done everything that people wanted, but by and large we’ve not been bad.’

2. PROFILE: David Heathcoat-AmoryConservative, Shadow Trade and Industry Secretary

In any list of industry’s grievances, the burden of red tape and taxation is always close to the top.

The Confederation of British Industry estimates business taxes have risen by £5bn since the last election, and the organisation’s director-general, Digby Jones, recently warned that the burden of regulation was putting the UK’s competitiveness at risk.

Tories argue that the Department of Trade and Industry is too weak to stand up to Gordon Brown’s tax plans. shadow trade and industry secretary, David Heathcoat-Amory, says red tape and business taxes should have been kept under better control. ‘Labour has forgotten about manufacturing, the extra business taxes and regulations have clearly hit the sector, making the UK less competitive in world markets.’

The Tories blame this burden for the UK’s slump in the international competitiveness rankings from fourth to ninth place, and for the 350,000 jobs lost in manufacturing since 1997.

Ministers have failed to understand or listen to manufacturers, he says. ‘I don’t believe in state rescue operations, but they should have listened to what companies were telling them about some of these taxes.’

While the DTI’s expenditure has grown 53% since the last election, the department has actually weakened, says Heathcoat-Amory, who is defending a tiny 528 majority in Wells, Somerset. The DTI failed to stop Gordon Brown’s plans for damaging business taxes such as the climate change levy and IR35, because the Treasury has no interest in the concerns of individual sectors, he says.

‘The DTI doesn’t stand up for the interests of business against the tax plans of the chancellor. What you need is a department that spends less money but punches harder in Whitehall.’

One recent suggestion for strengthening industry’s voice within government, particularly in negotiations with the Treasury, is to have a dedicated manufacturing minister within the DTI. Sir Ken Jackson, general secretary of AEEU, has recently called on the government to appoint such a minister. But Heathcoat-Amory says: ‘I think it’s a bit of a gimmick to have someone who calls himself Mr Manufacturing.

You need a change in the culture and leadership of the DTI – that’s more important than changing the job titles of some junior ministers.’

Recent figures show the UK’s trade deficit rose to a record £7.7bn in the first quarter of 2001, with the deficit in goods and services hitting £5.2bn, the highest level since 1989. The UK must not become over-dependent on the service sector, says Heathcoat-Amory. ‘We must not abandon manufacturing. It is crucial that we have a balanced economy, so that when one sector is doing badly it is supported by others.’

But increasing manufacturing exports to improve the trade deficit is not easy, and to a large extent depends on the exchange rate between the euro and pound becoming more competitive. The euro’s weakness is obviously out of the government’s control, but Labour’s spending plans have prevented the Bank of England cutting interest rates to ease the situation, he says.

‘If you run a fairly loose fiscal policy and signal you’re going to put up spending faster than growth, then you make the Bank of England stricter about its interest rates than it otherwise would be, and that has kept the pound higher.’

To some within manufacturing, exporters will only ever be as competitive as their counterparts in mainland Europe when the UK joins the single currency. But the Conservatives are committed to keeping the pound for at least the length of the next Parliament. So are they turning their back on firms like Honda, Nissan and Toyota, who have each said membership of the euro would make good business sense? ‘Obviously we listen to these companies very carefully. They have continued to invest in this country, even though it is clear that neither party is going to join the euro in the near future.’

What exactly this ‘near future’ means is a question that has split the Conservatives for years , despite William Hague’s claims to lead a party unified on the issue.

When Heathcoat-Amory lists the benefits to the UK in staying out of the single currency, he sounds more like a man against euro membership in principle, than for the next Parliament. By staying out of the euro, he says, interest rates can be set to suit UK conditions rather than those of other European countries, while joining would mean moving closer to the EU model of high tax and high regulation. ‘Remaining independent in our monetary and economic policy is more important for the UK’s future as an industrial country than any decision to join the euro.’

PROFILE 3: Matthew TaylorLiberal Democrat treasury spokesman

The issue of the euro has finally burst into the open in the last weeks of the election campaign, but you could be forgiven for thinking none of the nation’s political parties were keen to discuss the single currency prior to this – after all, the Conservatives are still divided, and Labour is playing the waiting game.

Not so the Liberal Democrats, who have always seen the single currency as the answer to almost all manufacturing’s woes. Since the last election, a third of a million manufacturing jobs have been lost, investment in the sector has fallen in every quarter for the past two years, and the UK’s share of international investment and the world market has shrunk, says Liberal Democrat front bench treasury spokesman Matthew Taylor.

‘We’ve got a highly uncompetitive exchange rate, and with the creation of the eurozone there is a vastly more attractive area to do business in, sitting on our doorstep.’

Taylor says the government must make it clear the exchange rate is the most important condition of entry to the euro, decide a range it believes is competitive, and confirm it is working towards it. ‘In every other European country, once the markets were clear they intended to join, they had no difficulty keeping exchange rates within the bounds agreed for euro membership.’

He accuses Labour of leaving it to business to explain the benefits. ‘Businesses know the benefits and we’ve seen big exporters such as car makers and Corus reflecting concern about whether the UK will join the euro, but the main job is for the government.’

Another worry for the Labour government, and for chancellor Gordon Brown in particular, has been the productivity gap between the UK and US. Research by the EEF earlier this year showed UK manufacturing’s productivity gap with the US stood at 60%.

Taylor, defending a 12,501 majority in Truro and St Austell, believes high UK interest rates relative to the eurozone are dissuading firms from investing in equipment that could boost productivity. ‘The skills and will are there, but it is harder to justify investment when interest rates are relatively high.’

Taylor also believes the government should support manufacturers that invest in environmental technology, to help the UK become a world leader in the field. ‘Huge markets could be opened up.

Businesses would make themselves more competitive and attractive to customers, and the government should help with this.’

One of Labour’s least popular industry measures has been the climate change levy. Taylor, environment spokesman from 1994 to 1999, believes the government is right to try and tackle climate change.

‘But it has come up with possibly the worst way of doing that, because the CCL isn’t related to the carbon content of the fuel, so it doesn’t give a direct incentive to reduce carbon content and invest in other fuels instead.’

Perhaps the worst feature of the levy is that it has been introduced in one big push, he says, as companies cannot change their investment in plant and technology overnight. ‘You’re really taxing past bad decisions which UK manufacturing can do nothing about, rather than influencing future ones. We would change it to a fairer carbon-related system, to be phased in gradually.’

So how would the LibDems sum up Labour’s treatment of manufacturing over the past four years?

Under both Conservatives and Labour, the city has not taken manufacturing as seriously as retail and the service sector, says Taylor. Governments have lost confidence in much of manufacturing, and have sat back and watched huge job losses, plant closures, and the erosion of the UK’s share of the international market, in a way that no other government in the developed world has done, he says.

‘The tragedy is that because the our government has not been able to deliver the right conditions, BMW and Corus, world leaders in what they do, haven’t been able to make their businesses the success story we would like them to be in the UK.’