House of Commons Hansard Debates for 11 Jun 1993

Hansard

House of Commons

Friday 11 June 1993

The House met at half-past Nine o'clock

PRAYERS

[Madam Speaker-- in the Chair ]

Manufacturing (Productivity)

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Nicholas Baker.]

9.35 am

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Patrick McLoughlin) : This is the first debate in which I have taken part since my move to the Department of Trade and Industry two weeks ago. I am delighted to be back in the Department where I first served as PPS to Lord Young of Graffham when he was Secretary of State. Since then, there have been a number of changes at the Department--it now has responsibility for energy matters and the coal industry. I was involved in the coal industry before I came to the House ; I worked for British Coal from 1979 to 1986.

When I first entered the House, I was a consultant to C. M. Spectrum and A. S. L. Alliance, engaged mainly on helping with their work for the coal board. I look forward to seeing some of the developments that have occurred in the Department since I was last there.

This debate is about productivity and performance in manufacturing industry. It is worth spending a little while outlining the situation that we inherited in 1979. The technical definition of productivity is how much output is produced from a unit of input. That is a fundamental measure of economic performance. It is one of the main determinants of our competitiveness and, thus, ultimately of our standard of living.

Manufacturing productivity is especially important because of the role played by manufacturing in our balance of payments. About two thirds of our exports are of manufactured goods. High productivity keeps our costs down and enables us to compete in key areas such as quality and reliability.

It is vital that we match, or better, the productivity performance of our major competitors if we are to continue to perform well in overseas markets. Our productivity performance was transformed during the 1980s. During the 1970s, it was very poor. Between 1973 and 1979, manufacturing productivity grew by just over 1 per cent. a year in the United Kingdom. That was less than all our major competitors achieved. We fell further behind their levels of productivity. For instance, with France the gap increased from less than 20 per cent. to almost 40 per cent., and with Germany it increased from less than 45 per cent. to 70 per cent.

It is not hard to see why we performed so badly. Inflation averaged 15.5 per cent. between March 1974 and April 1979, and peaked at over 25 per cent. in 1975. It remained high and variable for much of the 1970s, creating a climate in which it was impossible to invest or plan with confidence. Public spending was an increasing burden on the wealth-creating sector of the economy. Marginal tax

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rates were so high that many people were discouraged from extra effort. There were--believe it or not--nine higher rates of income tax, ranging from 40 to 83 per cent. ; and if the investment income surcharge was included, the highest marginal rate was no less than 98 per cent. Corporate taxes were also a heavy burden on small businesses and industrial relations were extremely poor. We lost 29 million working days through strikes in 1979 and strikes became known as the British disease. Trade unions tried to usurp the role of management rather than working co-operatively to improve the lot of their members. They delayed the introduction of new technology and modern working practices.

The nationalised industries suffered particularly badly and often experienced falls, not increases, in productivity. That was hardly surprising, given the level of subsidy that they received. In 1978-79 alone, subsidies totalled £2.2 billion at today's prices. That sustained overstaffing and featherbedding and contributed to poor productivity. In addition, industrial policy was directed at helping old industries survive rather than encouraging new products and new technologies.

Perhaps I have said enough about what we inherited in 1979. It was not a happy picture, but, if we believe the Labour party, everything was fine, there were no problems and the sole concern of the Labour Government was manufacturing which, apparently, they did so much to help. What I have said shows how little they did and how little they cared.

Mr. Tam Dalyell (Linlithgow) : I was a Member during those years. The Minister has given an incomplete and distorted picture. He spoke about lost working days. At least in those years 3 million people were not unemployed and in some of them there was full employment. Matters should be put into context because the Minister's description is glib and superficial.

Mr. McLoughlin : I can understand why the hon. Gentleman tries to justify the position in 1979 and the strikes. He speaks about high employment, but between 1974 and 1979 unemployment doubled under the Labour Government. While the rest of the world was becoming more competitive, Britain was slipping and that did nothing to sustain employment or present employment opportunities. I am surprised at the hon. Gentleman, because he is occasionally more open and honest about some of the changes that need to be made in manufacturing.

Mr. Charles Hendry (High Peak) : Can my hon. Friend confirm that in 1974 when Labour came to power there was a three-day working week and that five years later, when Britain was back to a five-day working week, it was producing less than it had been producing in a three-day week?

Mr. McLoughlin : I agree with my hon. Friend. I am surprised that somebody as distinguished as the hon. Member for Linlithgow (Mr. Dalyell) should try to persuade us that what happened in the 1970s was good for United Kingdom manufacturing and business ; it was not.

Mr. Bernard Jenkin (Colchester, North) : Does my hon. Friend agree that the rise in unemployment during the 1980s and more recently is not due to a fall in employment opportunities? On the contrary, there has been a steady increase in rates of employment. There are structural and

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demographic reasons for the increase in unemployment and it is staggering that we have contained unemployment to the extent that we have. We have a better record than most of our European competitors.

Mr. McLoughlin : My hon. Friend is right. The United Kingdom has one of the highest levels of female employment in the Community. Our record is bettered only by Denmark.

Perhaps we have spent enough time on that. We have heard from one Opposition apologist about the position prior to 1979 and we should now examine some of the dramatic changes that have taken place since the 1970s. I shall contrast the poor productivity in the 1970s with that in the 1980s.

Between 1979 and 1989, productivity grew by more than 4 per cent. a year. That was a better performance than that of all our major competitors and we moved from the bottom of the league table of productivity growth to the top. That dramatically improved performance reflects the success of the policies that we have pursued over the years. We stopped supporting lame ducks and trying, unsuccessfully, to pick winners. Instead, we created an economic framework within which businesses could plan and invest with confidence. We brought inflation under control and today it is at its lowest for nearly 30 years.

We have undertaken major supply-side reforms in the labour market and in taxation. We have privatised 46 major businesses, and every one of those privatisations was opposed by the Labour party. These reforms have enabled firms to prosper in the low-inflation environment that we have created and have allowed us to attract substantial investment.

It was clear in 1979 that the trade unions were a major cause of Britain's being at the bottom of the growth and productivity leagues. The ability of managers to use resources as they saw fit had to be regained if they were even to begin to catch up. Our trade union legislation has restored the right of managers to manage. It has made trade unions more accountable to their members by requiring the direct election of union leaders and the balloting of members before industrial action. The closed shop was made unlawful and the scope for demarcation disputes was reduced. Those reforms were fundamental in helping us to improve productivity in the 1980s, but every one of them was opposed by the Labour party.

Mr. Mark Robinson (Somerton and Frome) : Does my hon. Friend agree that that is exactly why it was so important to secure the opt-out from the social chapter?

Mr. McLoughlin : My hon. Friend is wholly right. [Laughter.] The hon. Member for Tooting (Mr. Cox) laughs. He is the only Opposition Back-Bench Member present for this important debate. My hon. Friend is right about the opt-out and I shall later examine some of the implications of that and the importance of competitiveness. It is important that my right hon. Friend the Prime Minister was successful in not signing Britain up to the social chapter.

Other reforms have improved the working of the labour market. We have encouraged direct employee involvement in the success of companies through tax relief for profit-related pay and employee share schemes. Our tax reforms have also helped productivity. We have given

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individuals incentives to greater effort because the nine higher rates of income tax have been replaced by a single higher rate of 40 per cent. We have reduced the basic rate to 25 per cent. and have introduced a 20 per cent. band.

Our marginal tax rates are among the lowest in the advanced world, making Britain an attractive place for the brightest and best to work. We have cut corporation tax from 52 to 33 per cent. and our corporation tax is now the lowest in the EC or the Group of Seven. The taxation of companies is much simpler and it is without many of the distortions that we inherited in 1979. Companies now invest according to their commercial judgment, not in the pursuit of tax breaks. As a result, the quality of investment has improved, boosting productivity.

Mr. Jim Cousins (Newcastle upon Tyne, Central) : How does the Minister respond to the approaches being made to the Government by the CBI and the Engineering Employers Federation? They want the Government to put back some of those tax breaks, especially for certain kinds of investment. They say that although corporation tax is low, the take is extremely high.

Mr. McLoughlin : Those matters are being put to my right hon. and learned Friend the Chancellor of the Exchequer, who will no doubt consider them before making his announcement on the Budget. The hon. Gentleman would not expect me to comment on those matters. Since 1979, privatisation has been a cornerstone of our policy. In that time, it has radically changed the United Kingdom's economic and industrial structure. I have already described the poor performance of the nation-alised industries in the 1970s. Giving these companies commercial objectives and exposing them to market discipline was essential if their performance was to improve. Requiring them to compete for investment funds on the capital markets, rather than obtain them from the taxpayer, was vital.

We gave managers clear incentives to improve performance--and it was not just for managers that incentives changed. More than 90 per cent. of eligible employees became shareholders in the privatised firms in which they worked. That gave them a direct interest in improving productivity and performance as well.

The result has been some dramatic improvements--in British Steel, for example. In 1979-80, it took more than 13 man hours to produce one tonne of liquid steel. Now, it takes less than five man hours. It is that sort of productivity improvement that has made British Steel the EC's most efficient integrated steel producer and one of the most efficient in the world. British Gas has increased the number of customers per employee by about 19 per cent. and gas sales per employee by about 21 per cent.

Mr. Cousins : Will the Minister give way?

Mr. McLoughlin : I shall give way once more, but, as a number of my hon. Friends wish to take part in the debate, I must make progress.

Mr. Cousins : Can the Minister explain why defence manufacturers are concerned that they cannot buy armour-plated steel in Britain but have to import it from Sweden? Can he explain why some people in the car industry are extremely concerned about their inability to buy stainless steel in Britain? If it is such a wonderful story, why are those people so concerned?

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Mr. McLoughlin : Once again, the Opposition spokesman is trying to justify everything that happened in 1979. He will not accept that there have been real structural changes in the steel industry. He would like to take us back to 1979, when there was a nationalised steel industry which was not competing and was unsuccessful. I well remember that time, when certain companies were closing and their car parks were full of foreign cars--yet people were complaining that British Steel was not selling its products to British companies.

Mr. Jenkin : Does my hon. Friend think that the fact that German industry sometimes has to import British steel sends it into despair?

Mr. McLoughlin : Certainly not. I shall say more about international comparisons shortly.

The supply-side reforms of the 1980s made the United Kingdom an attractive, low-cost EC country for investment by successful overseas companies. In 1991, the United Kingdom accounted for 36 per cent. of the stock of United States investment and 40 per cent. of Japanese investment in the EC. Toyota and Nissan have undertaken in the United Kingdom two of the biggest inward investment projects in Europe. Between them, they will eventually create more than 7,000 jobs. Since 1986, an estimated 146,000 new jobs have been created in the United Kingdom from inward investment. There are many reasons why firms have chosen to invest in the United Kingdom. Toyota, for example, quoted our strong traditions both in the motor industry and in the skilled work force as reasons why it chose to invest here. Inward investment has helped to reinvigorate key sectors such as vehicles, office equipment and chemicals. It has boosted productivity by bringing the latest technology and the best international management practice to the United Kingdom.

Research by the German chamber of commerce shows that more than two thirds of German-owned manufacturing concerns operating in the United Kingdom achieve productivity levels at least as high as comparable units in Germany. Kodak reports that productivity at the Kirkby plant, which produces its main synthetic chemical, is the highest among its worldwide operations.

Productivity in the car industry increased by 82 per cent. between 1981 and 1992, well above the average for manufacturing industry. The vehicles industry is producing 300,000 more vehicles a year than it was 10 years ago, with 100,000 fewer people. In 1992, the United Kingdom produced more than 500,000 vehicles for export and by 1995 we expect to be a net exporter of cars--a position which could not have come about without significant productivity improvments and the fact that the United Kingdom attracted that inward investment when it could have gone to any part of the European Community. When businesses look for the best place to invest, they know where it is ; it is just a shame that the Opposition do not.

The benefits of inward investment to the car industry can be seen by the fact that Nissan UK is aiming to achieve by 1996 productivity levels at its Sunderland plant equal to those in Japan. Inward investment has also made the United Kingdom a net exporter of colour television sets and a major European producer of personal computers. The continuing benefits of our supply-side reforms can be seen in the recent behaviour of manufacturing productivity, which, in the first quarter of this year, was

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almost 8 per cent. higher than a year earlier. That is the highest growth rate for more than six years. In earlier recessions, in the mid and late 1970s, productivity growth was much lower and often negative.

The much-improved growth performance since 1979 has resulted in a substantial narrowing of the gap between the United Kingdom and our main competitors. The true extent of the gap that remains cannot be determined with certainty. In measuring productivity, allowance has to be made for the different quality of goods produced, for the number of part-time workers and for the number of hours worked. Moreover, the availability and quality of data vary from country to country.

Nevertheless, studies have universally recorded a reduction in the productivity gap. Recent estimates suggest that, between 1979 and 1989, the manufacturing productivity gap with Germany fell from 70 to 30 per cent ; that with France fell from almost 40 per cent. to about 25 per cent ; our gap with the United States fell by 20 percentage points to about 65 per cent. Those figures, although encouraging, show that we still have some catching up to do. At the same time, we must be careful not to read too much into averages--there are sectors in the United Kingdom economy that have productivity levels among the highest in the world. For example, we exceed German productivity levels in metal manufacture, chemicals and electrical engineering, and French productivity levels in electrical engineering, printing and publishing.

Pharmaceuticals is an industry where the United Kingdom ranks among the best in the world. The United Kingdom pharmaceutical industry boasts four world-class companies--Glaxo, SmithKline Beecham, Wellcome and Zeneca. The first two are in the top 10 internationally. Output per employee in the pharmaceutical industry has risen steadily for a generation.

The United Kingdom aerospace industry is equal with France as the second largest in the western world in turnover. It contributed about £2.5 billion to the balance of trade in 1992. Even in those sectors where we are some way behind, there are still some world-class United Kingdom companies. However, there is no room for complacency. That is why our policies will continue to focus on areas vital to sustaining productivity growth.

Mr. Dalyell : For the sake of the Minister's officials, I give notice of a question that I hope to put to the Minister later. What is the position on the moneys that have been frozen for Glaxo exports to Iraq of urgently needed pharmacological products? I understand that the managing director of Glaxo, Dr. Richard Sykes, is considering the problem. What is the Government's position on, first, the export of Glaxo pharmacological products to Iraq and, secondly, the particular problem of those pharmacological products for which the Iraqis say they have already paid? Those are urgently needed medicines and insulin which, apparently, are being held back. I do not expect the Minister to answer now, but I hope that his officials will investigate the matter.

Mr. McLoughlin : I am grateful to the hon. Gentleman for giving notice of his questions. I hope to answer them later.

Perhaps the most important of the vital areas to which I referred is education and training. A recent study by the National Institute of Economic and Social Research

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estimated that more than half the gap in productivity levels between United Kingdom and German manufacturing was accounted for by differences in labour force skills. It is clear that a skilled and flexible work force is vital if we are to sustain productivity growth and catch up with our main competitors.

I have said quite a lot about what we have done through the supply side, such as creating a flexible labour market through our trade union reforms. The Government have done much to transform education and training and to make those relevant to the needs of industry. Our education reforms will improve the quality of young people entering the labour force. The national curriculum, with its greater emphasis on work-related subjects, will play an important part in that. Design and technology, for example, will, for the first time, be studied by all pupils up to the age of 16.

An integral part of our education reforms is testing in schools. Testing is a fact of life, and our firms are tested every day in the world marketplace. Testing in schools is therefore an essential ingredient in preparing our children for the future. Many of our efforts on training have been channelled through training and enterprise councils, which were established three years ago with the objective, among others, of improving the quality and relevance of training. TECs are responsible for delivering a wide range of training services, including the investors in people programme. That programme aims at encouraging employers of all sizes to improve their business performance by linking the training and development of employees to business objectives. The standards set by it are national, but are delivered locally by TECs, the boards of which are dominated by local, private-sector executives. Local employers know best what training is required and the ultimate responsibility lies with them.

I am greatly encouraged by statistics published earlier this week by the Policy Studies Institute showing that in the past five years nearly two thirds of workers have increased the level of skill that they use in their jobs. We still have a long way to go, but we are making progress.

Innovation--the successful exploitation of new ideas--is a key factor in productivity growth. The recent science and technology White Paper contains proposals that will improve the focus of public spending in that area.

Many more companies will be able to gain access to science and technology and innovation best practice. In particular, small firms will have better access to science and technology. Small firms are a vital source of innovation and productivity improvements. The Government support small firms with a variety of measures. Innovation is encouraged through the Smart and Spur programmes, which assist such firms in the development of new products and processes involving significant technical advance.

The shift in emphasis towards giving greater help to small firms in science and technology underlines our commitment to that sector. I am confident that it will bring with it an increase in competitiveness and associated gains in productivity.

In 1985, my Department launched the deregulation initiative. That on-going exercise is designed to eliminate

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the burden of unnecessary regulation on firms--a burden which imposes costs that reduce productivity and damage competitiveness. My right hon. Friend the Prime Minister recently gave fresh impetus to that assault on red tape. As a result, we are systematically reviewing all existing regulations and other forms of red tape that the Government impose on business. Wherever possible, we will remove or simplify regulations and procedures so as to minimise the costs to small firms--and no further regulation will be imposed on business without the costs having being spelt out in Parliament first. There has been a substantial improvement in our manufacturing productivity performance since 1979. In the short term, of course higher productivity often means fewer jobs--but in the long term, increased productivity boosts investment and growth and creates a substantial number of sustainable jobs.

We have a higher proportion of the adult population in work than any other EC country except Denmark and Luxembourg--a point made by my hon. Friend the Member for Colchester, North (Mr. Jenkin)--and the gains that were made will be shown to be real and long lasting as we we emerge from recession.

The policies currently pursued by this Government will build on those improvements. Paramount among them are the constant efforts that we are making to keep inflation low. At 1.3 per cent. in April, retail prices index headline inflation was the lowest for nearly 30 years, and underlying inflation is the lowest for 25 years. We have set clear targets for inflation.

Our success in the fight against inflation has allowed interest rates to come down to their lowest level for 15 years. Low inflation, low interest rates and rising productivity are essential ingredients of industrial success. Productivity is sharply up, and in the first quarter of this year manufacturing unit wage costs were 2.9 per cent. below their level a year earlier--the best performance since records began in 1970. Provided that we stop talking of the decline of manufacturing and appreciate more the excellent manufacturing sectors and firms that we have, we can build on the progress that we have already made. And we can look forward, with confidence, to continued growth in manufacturing productivity during the rest of the 1990s and beyond.

10.3 am

Mr. Jim Cousins (Newcastle upon Tyne, Central) : The Minister read us largely a history lesson. I am not sure how good it was, but it is not history lessons that we need now. After a week for the party of government full of such sturm und drang, I suppose that the Government might turn to history for a little comfort.

The Minister's case amounts to saying that during the 1980s, Conservative Governments applied to British industry some of the most volatile swings in policy change, interest rates and so on, ever imposed by any Government. There are some survivors and the Government seek to take credit for that. The technique is the same as electro-convulsive therapy. Those who do well out of it bring to the therapy a native robustness and good health that is capable of enduring the experience. The Government cannot take much credit for the survivors of that dreadful experience of the 1980s, with all its wild swings of economic intentions and performance.

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The most worrying aspect of even the positive elements of the 1980s is the other side to them. It is true that the 1980s saw a considerable increase in manufacturing productivity and I will refer later to the reason why that might have happened. The Minister rightly identified two key sectors--aerospace and the chemical pharmaceutical industries--which, if we can get it right, will be the main motors of British economic success in years to come. Their present record of productivity and production is extraordinarily powerful and important and provides a model for the rest of the economy.

The Government's difficulty is that while there have been productivity gains in manufacturing, it is equally true that productivity across the whole economy has not improved to anything like the same degree. If the service sector--distribution, retailing, banking, insurance and financial services--in which employment grew throughout the 1980s is to be put to the storms through which manufacturing industry went in the early and mid- 1980s, the consequences for employment, particularly in the southern part of the country, are likely to be devastating.

The hon. Member for Colchester, North (Mr. Jenkin) made a significant remark. The Minister was having difficulty at the time explaining manufacturing productivity and its connection with employment. If one increases production 5 per cent. and gets rid of 2.5 million or 2.75 million jobs in the process, no one can take credit for that--but if one increases production and maintains employment, that is a triumph. That is not the Government's record. Their record is of increasing manufacturing production by 5 per cent. and of disposing of 2.5 million to 2.75 million workers.

Conservative Members should think carefully before quoting that as a great success. The consequences of that policy are to be found on every street corner in every town and city in the country. They are to be found in the reduction in the feeling of belonging to society which is suffered by so many. As a Member of Parliament representing a Tyneside constituency, I have seen for myself and in the media men leaving Swan Hunter shipyard, which is currently in great difficulty. Many jobs there have already been lost and now the jobs of the skilled men who walk up the bank from that shipyard--men with meaningful skills such as electricians, fitters and other high-productivity workers--have been laid low by that company's financial position and lack of Government orders. Those men aged 40 with young families and mortgages are saying openly and publicly that they never expect to have a proper job again. Many of them are looking for contract jobs at the other end of the country or abroad. If they get such jobs, they will never see their young families or participate in growing up with them. That is the economic fate that those men see for themselves. I doubt whether anything that is said by Conservative Members this morning will change the harsh realities of their situation.

That is the reality of some of the productivity gains. It is the sort of thing that we mean when we talk about structural and demographic trends. It is the reality of city life and town life when we dismiss so many skills and so much experience and commitment and say that it is a structural and demographic change. It is an unfortunate approach to take.

Mr. McLoughlin : No one underestimates the seriousness of people being made unemployed and the

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devastation that it can have on individuals and their families. The hon. Gentleman should tell us whether he believes thatve than those of other countries. We must compete. It is no good trying to get away from the fact that we will not be able to do that without increased productivity.

Mr. Cousins : Clearly, I have not said that. Unfortunately, the sector industries in which the productivity gains have been the highest are the most exposed to economic difficulty at present. That is precisely the problem.

We should take a brief excursion into history to look at the sort of community that existed in the 1930s. I do not represent such a community-- my constituency is described in all the handbooks as middle class residential and I do not argue with that. A better comparison would be to consider the shipbuilding areas on Tyneside down the river. With the level of unemployment that existed in the 1930s, men were at the shipyard gates every morning seeking work. Throughout the depth of the 1930s recession, people never stopped being in their own minds riveters, welders, fitters, boilermakers, platers or platers' helpers. The reality of the economic situation brought about by the Government today is that once a man in those industries loses his job, he throws away his identity and has no credibility that he will ever work at his trade or skill again.

Mr. Julian Brazier (Canterbury) : I have listened carefully to what the hon. Gentleman says and I understand his point. But I shall put two points to him. First, if we are looking at a comparison with the 1930s, the level of unemployment in what was a much smaller work force was 25 per cent., so to compare it to today's level is a false analogy.

Secondly, the hon. Gentleman is absolutely accurate--this is not the Government's fault. It is not the fault of the Governments of Spain, France, America or any other country in the developed world. The hon. Gentleman is talking about a phenomenon that always occurs--a loss of identity of this sort--when there is a great revolution in productivity, whether it is the agricultural revolution, the industrial revolution or the technological revolution. When there are great changes, people lose their working indentities. It is a challenge for every country in the industrialised world.

Mr. Cousins : The hon. Gentleman is right, but what he has not come to terms with is that all Governments in the European Community, whether Christian Democrat or Social Democrat, accept a measure of responsibility for that. Perhaps Christian Democrat parties and Governments provide a good model for Conservative Members. If we had a Christian Democrat Government, rather than a Conservative Government, matters would be different because we would not then have the wiping of the hands of responsibility for those matters that we see in the present Government. A Christian Democrat Government would not wipe away their responsibility for the problems to which I have drawn attention. We see Christian Democrat Governments standing behind people in their time of difficulty, accepting a great measure of social responsibility and devising welfare systems that are

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precisely targeted at enabling a long and painful but necessary transition from one sort of employment to another. Christian Democrat Governments across the European Community are asking employers to accept obligations to be actively involved. Was not that the purpose of the whole debate about the social charter and the social chapter?

Mr. Brazier : To suggest that somehow or other all over the continent they are doing something that we are not is manifestly nonsense. To give one example, the United Kingdom is the only country in the EC that guarantees all school leavers a training place if they do not have a job. If one looks at the whole EC, our level of youth unemployment among the age group immediately above is lower than that of most of our economic partners for that reason.

Mr. Cousins : If the hon. Gentleman looked at the training policies pursued by Christian Democrat parties and Governments in the Netherlands and Germany, he would be ashamed to say what he just said, because the attitude of those parties and Governments is completely different. They do not regard training as a residual after all the economic forces have been at work--one finally offers, inadequately in many cases, a residual commitment to find a training place in some sort of scheme. That is not the case. Those parties and Governments want their young people to be full members of their economies and participate in significant training that is immediately locked into the patterns of occupations and the pattern of employment. That is an entirely different policy from the one followed by the Conservative party and the Conservative Government.

Mr. Jenkin : I am listening carefully to the hon. Gentleman's comparison between our employment and industrial policies, especially our training policy, and those on the continent. The House would be most interested to hear about the measures, spending and activities in which he thinks the Government should be engaging. What proposals does he envisage which we are not carrying out at present? His general comments have left us in the dark.

Mr. Cousins : It is a pity that the hon. Gentleman did not ask the Minister that question when he was reading his historical lesson. I accept the point of correction. We shall come back to the narrow task and examine it.

I have made the point that we must be worried about the comparison between whole economy productivity and manufacturing productivity. There are some dangerous signs there, because, if productivity improvements are to be made in the service sector by the same mechanisms as have delivered productivity improvements in manufacturing industries, there may be some remarkable reductions of employment in precisely those sectors of the economy in which employment has grown recently.

In response to a point made earlier by the hon. Member for Canterbury (Mr. Brazier), perhaps the most worrying thing about the present recession is that 2 million jobs have been lost, but only 1.3 million people have been added to the unemployment register--700,000 people have apparently, for these purposes, disappeared. What is the explanation? There are some extremely worrying facts. Many people are still part of the economic life of the

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country but do not register as unemployed because they believe that there is no point in doing so : there are no jobs on offer or, more significantly, the sort of employment that they had did not provide a continuing basis of national insurance contributions to trigger the right to unemployment benefit.

It must be a source of anxiety to us all that so many people are employed on the basis of either low wages or casual or temporary employment which does not allow them to obtain unemployment benefit when they lose their jobs. Their contribution records do not entitle them to claim unemployment benefit. The existence of such a large number of people who are on low wages, mostly in the service sector, but in certain manufacturing sectors as well, should be a source of grave anxiety to us all.

We are all aware of the unemployment problem, but there is now a massive problem of sub-employment--people who work in a twilight sector of the economy that does not enable them to build up sufficient credits, through the national insurance system, to enable them to obtain unemployment benefit when they lose that source of employment. When there are shake-outs in manufacturing industry, people with young families find that regular employment, which they are entitled to expect, is no longer available to them and that they have to seek casual, temporary work--often a long way from their homes--if they are to have any sort of income. When the industries in which they are then employed also fall on hard times, they find that they cannot register for unemployment benefit.

Productivity gains have been achieved by the loss of jobs. They have not been achieved by improving the human or physical capital of industry. I exclude the two sectors to which I have already referred : chemicals and pharmaceuticals and the aerospace industry. There have been significant productivity gains in the chemicals, pharmaceuticals and aerospace industries, on the basis of larger human or physical capital inputs and rising production.

Mr. Jenkin : Does the hon. Gentleman seriously propose that there has been no increase whatsoever in the skills base in the motor manufacturing industry, for example, in steelmaking and in a whole range of other industries? The hon. Gentleman's proposal is absolutely preposterous.

Mr. Cousins : Most of the productivity gains in almost every sector of industry can be accounted for by loss of employment, not by other changes. I did not say that there had been no increase in skills, but loss of employment has made the largest contribution to productivity gains. In a limited number of industrial sectors, more has been contributed by larger capital inputs and rising production than by loss of employment. The chemical and pharmaceutical industries stand alone in that respect.

Mr. McLoughlin : The hon. Gentleman's point is fairly weak. Is he suggesting that we should keep employment up and productivity levels down? He states that there has been no growth in employment. How, therefore, does he account for the fact that Toyota and Nissan have made major investments in this country and have created jobs for people here, with the result that, by 1995, we shall be a net exporter of cars? Is the hon. Gentleman telling us that, somehow, that is a bad thing?

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Mr. Cousins : Let me put the point to the Minister in another way. The innovation unit of the Department of Employment issued this week what is called a company reporting scoreboard on research and development expenditure. The foreword to it was written by the President of the Board of Trade. He takes pride in the fact that the reported spend, according to company reports throughout the industrial sector--every large British company is to be found in this report--increased by 6 per cent. However, the President of the Board of Trade then said :

"We cannot however be complacent. Internationally the figures reported by the top 200 companies have risen by 8 per cent. and the UK's top spender is only 47th in that league. It is also sobering to see that the top international companies spend some 4.6 per cent. of their sales figures on research and development where UK companies spend 1.6 per cent. These figures can only underline my statement about the need to increase the effectiveness of the UK's research effort."

He also talked about

"developing an innovative culture where new ideas are readily exploited".

That may be a matter of contention for the hon. Member for Colchester, North, but it is not a matter of contention for the President of the Board of Trade. He recognises the point that I make. He recognises that productivity gains have not been achieved on the basis of success of the kind with which the Minister seeks to deceive us this morning. According to the President of the Board of Trade, on the basis of his Department's own figures, the United Kingdom's top spender is 47th in the international league of the 200 top companies. That is the real record of this Government which they must try to defend.

One of the great problems with British industry is the lack of training and management at middle level. Technicians and supervisors are often called on to perform on the basis of inadequate preparation. That fact is well attested. The Minister is able to point to the example of Toyota and Nissan only because their great contribution to British industry is that they have not made that mistake. Nissan is a company which, as one would expect of a Member of Parliament with a constituency in the north-east of England, I know well. Toyota and Nissan perceive that industry succeeds on the basis of supervision, technicians and middle management. It is as a result of the team work for which those men and women are responsible that productivity is increased.

The remarkable increase in productivity in manufactu-ring industry in my region has been brought about substantially by those companies and by the spread of the culture and insights that they brought with them to other related companies. That is what we should seek to do right across industry. There is an enormous amount to be achieved by backing up technicians and supervision and by building up workplace practices on the basis of teamwork. That is the secret of the success of Toyota and Nissan and of the success of the aerospace and pharmaceutical and chemical industries, which already had in place precisely those management techniques.

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