The John Mills Institute for Prosperity is proud to announce the first episode of our new podcast series, Talking Manufacturing, hosted by Director Brendan Chilton. Chilton speaks to distinguished politicians and experts in manufacturing policy to get to the bottom of the industry’s enduring issues and how we can fix them. It is now available on all major podcast platforms.
The podcast is based around the JMI manifesto released in 2021, with each episode discussing a different manifesto pledge. The manifesto’s 10 points cover all the bases required for unlocking our economic potential, including the most effective financial incentives and policies that benefit both supply and demand in manufacturing. The podcast will give new insights into why these pledges are important from the people who understand them most. Central to the podcast and manifesto are the pressing need to put manufacturing at the heart of policy and prioritise its role in economic growth, boosting the North, and supporting the communities which rely on it.
The first episode features Shadow Minister for Immigration and MP for Aberavon Stephen Kinnock. Chilton and Kinnock discuss how the decline in manufacturing has impacted Aberavon, which is home to the famous Port Talbot steelworks, and what the government needs to do to reverse this. Kinnock outlines what the Labour Party must bring to the table to boost the UK’s economic growth while reindustrialising and decarbonising. He also explains why JMI’s pledges must be central to a new industrial strategy.
You can listen to the first episode below. Episodes will be released monthly, so be sure to follow the podcast to be notified.
Brendan Chilton: 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 today we'll be discussing the first manifesto pledge which is all about increasing the role that manufacturing plays in our economy. And to help us understand this topic, we are going to be talking to Stephen Kinnock, MP for Aberavon.
He's also the Shadow Minister for Immigration, which I'm sure is a very interesting job, and is a vocal advocate for improving the state of manufacturing in the UK as well as tackling fire and rehire, promoting language learning and solving issues that impact Aberavon most. Steven, good to see you again. How are you?
Stephen Kinnock: Hello, Brendan. How are you? Good to see you.
BC: Right now, looking at where manufacturing is today, Stephen, there's been a huge decline in the past few decades. Your constituency is of course home to the famous Port Talbot, which I came to see.
So can you just kick off by talking about how you assess the state of manufacturing in the UK in 2023?
SK: Brendan, you're absolutely right that the collapse of our manufacturing sector that we've seen over the last decades, really, is at the heart of so many of the weaknesses in the British economy.
If you look at the crisis of productivity that we have, the huge imbalance between London, the South East, and the rest of the country, you can see that our collapsing manufacturing sector lies at the heart of those problems. You know, it was 25% of our GDP in the 1970s, and it's around 9% now. And that compares very poorly to countries such as Germany, which has managed to keep its manufacturing sector at a very strong and healthy level in terms of its overall GDP, and that's enabled them to have a much more balanced economic model.
But it's more than that. It's also about the sense of identity and self-esteem that we need in our communities. And with the larger steelworks in the country still being in my Aberavon constituency, we are very fortunate that it's still there, but the number of people working there has reduced radically in recent years. And we are also seeing it constantly in a state of crisis just clinging on by its fingertips because we haven't had government support, we haven't had a proper industrial strategy, and we haven't had an ambitious vision for the future of manufacturing in our country.
BC: You've mentioned there ‘industrial strategy’. I mean, what do you think an industrial strategy should look like in this country at the moment?
SK: There's no silver bullet with an industrial strategy. It has to, by definition, cover a whole range of areas and too many – and varied – for us to go into all of them now. But if I had to pick the sort of top three or four things, absolutely around energy costs, and having an energy policy and strategy that promotes long-term investment and enables companies to be clear and have that stability about which way our energy policy is going. Procurement is hugely important. For far too long, we've had government procurement policy, which knows the cost of everything and the value of nothing. So, it hasn't built into the tender process this idea of social value and ensuring that we have supply chains here in the UK.
An obvious example of that, of course, has been the explosion in the number of offshore and onshore wind farms in this country. There isn't a single ton of British steel or British produced steel in any one of the thousands of wind turbines that we have in our country, both offshore and onshore. So that just speaks volumes really. And of course, technical skills, technical and vocational training, getting a much better partnership between business and government to understand where the opportunities are for developing the skills that we need for the future, for industries of the future and for manufacturing of the future.
I think it's really important to make it clear that, you know, the steel industry is not a sunset industry. I mean, almost all of the grades of steel that are being made now didn't even exist 10 years ago. So it's a highly innovative, cutting-edge industry and we need a skills policy that actually matches the ambition of our steel workers and our steel makers across the country.
BC: I know that the government talk a lot about levelling up, and I know the Labour Party are also talking about levelling up communities around the UK. I think that the phrase is now ‘Take control’. So, manufacturing of steel in your case, it forms part of that agenda because you can't increase the prosperity of those communities that have suffered deindustrialisation unless you've got some form of reindustrialisation taking place.
So, do you think that should feature as part of a levelling up strategy?
SK: That's absolutely right. At the heart of this, it has to be how do we decarbonise our economy without deindustrialising our economy. And in fact, the way to look at this is to embrace the challenge and see it as a huge opportunity.
One example is floating offshore wind. A whole new technology whereby wind farms can be manufactured here and deployed, for example, in the Celtic Sea. And they're floating substructures, so they're not actually fixed to the seabed. It's a huge opportunity for manufacturing and supply chains in this country, and for the steel industry. And it could be, you know, the Port Talbot steelworks could be producing some of these substructures and also turbines. So, I think the key here is to say, places like Wales, you know, were the cradle of the first industrial revolution. There's absolutely no reason why we can't be the cradle of the green industrial revolution.
So, it's how do we marry together the opportunities around the transition to a greener economy with the need to have a modern manufacturing renaissance. And those two things actually feed into each other and complement each other. They're certainly not working against each other. Quite the opposite. BC: The energy crisis isn't going away anytime soon. I know we've got to become more self-sufficient with some of the ways you've spoken about. But how do we ensure that our remaining industries that we have got can get through this energy crisis, which I think is going to be here for quite a few years to come, without suffering further deindustrialisation and the diminishing of the sector?
SK: Yeah. I mean, the government likes to talk about all the support that it's given to industry in terms of the energy bill support scheme that was set up because of COVID. And, of course, all of that support is welcomed, but that support, the objective of it should be about delivering a level playing field.
The support that is given to British industry isn't really going to help us if we are still lagging far behind our international competitors. So, the government's announcements around reducing the amount of support that's given to energy intensive industries leaves our steel industry at a 63% disadvantage in comparison to Germany.
And if you also look at the issues around the transition that we need to do in the steel industry away from blast furnace technology to electric arc furnaces and hydrogen and DRI-based steel making that if you look at the amount of support that the French government, the German government, the Spanish government, the Canadian government. In the United States as well, we've seen, you know, huge support coming through for their manufacturing sector. Absolutely nothing is happening here in the UK and that is creating huge uncertainty about the future.
You're looking now, I think, at the steel industry reaching a fork in the road in terms of where we go and does this country want to have a steel industry or not? Or do we just want to import all of our steel from countries like China and Russia?
BC: Stephen, I've seen obviously the steelworks at Port Talbot. It is a huge facility and it's obviously a major employer in your constituency vote. Just for our listeners, would you mind just going through how embedded it is in your community, how important it is, and also for the South Wales economy and the British economy as a whole?
SK: Steel is Port Talbot and Port Talbot is steel. Nobody really knows where the steel works ends and the town begins. Every single family, every single community, every single street is connected to the steel works in one way or another. Everybody in the town has got friends or family working there and you've got actually steel workers whose fathers, grandfathers and great-grandfathers have all worked there.
So, you're looking at something which is— it's about our pride and our identity as a town and as a community. But, there's also some very hard facts around what it delivers to our economy. Steel workers’ salaries are way ahead of the average pay in South Wales. And it's also, I think, about those meaningful jobs.
Of course we need a mixed economy, we need a variety of jobs and activities that people can do and our future is based on allowing our key foundational industries like the steel industry. To close down, to just import all of that from countries like China and Russia, I just think that's potentially disastrous for the future of our country. And it will also lead I think to, potentially, even more disillusion and disconnect and then becomes quite fertile ground for populists and extremists.
BC: People, I think, are not fully aware at the moment of our growing strategic dependency on China for much of our imports and rare earth materials. If we're going to ensure that we are not in a position in relation to China as we have been with Russia, you know, needing to import gas from regimes that we don't necessarily like.
We know China has got intentions towards Taiwan and there could be trade difficulties with the chip industry as well. Do we need – not just from the Labour Party, but on a cross-party basis – some sort of strategy that decouples us from those sorts of regimes? Brings back, reshores industries to this country and ensures we are more self-sufficient as an objective?
SK: I don't agree with the idea of decoupling because I think that China is so deeply integrated in the world economy. And also, let's be clear that the benefits for China of being integrated in the world economy have been huge.
It's lifted millions. hundreds of millions of Chinese people out of poverty over the last decades. And that's got to be a good thing. But I think that we have to be very clear-eyed about the dangers that we see with the Xi Jinping administration and what his real agenda is.
I think we have to be ready to challenge countries like China around issues of human rights and respect for international law. We also have to be ready to compete with them, which means working much more closely with partners in other democratic countries, like in the European Union and with the United States.
But we also, of course, have to be ready to cooperate with them. We are never going to address the climate change challenges unless we have a country like China on board. I think that is absolutely vital.
I welcome the government's National Security and Investment Act. I welcome the ability to call in certain investment vehicles, which are from countries where we have serious questions about what their broader political and even industrial espionage strategy might be. But we have to ensure, then, as well that we invest in and develop our own.
BC: Is Labour developing a line on this strategy for this particular area?
SK: We have brought forward an industrial strategy and it has these missions that we want to work on, and that's absolutely at the heart of it is this idea about technology clusters that are working with universities and bringing business together, boosting R&D spending and moving that forward.
But we are obviously also in a bit of a situation where if we do win the next election, we're going to inherit a very messy economic situation. So, it hasn't been possible yet to put numbers in terms of the amount of investment that we want to bring in, but I think that's something that we're going to have to start doing this year.
BC: I suppose obviously, the big issue in British politics at the moment is getting growth in our economy.
Do you think that both parties need to be giving a much greater focus to growing our manufacturing sector? Because if we want to pay for all those public services that we all need and want, surely manufacturing's got to be front and centre of it.
SK: I absolutely agree with the proposal in our Institute for Prosperity manifesto, that we should be looking to raise the share that manufacturing has of our GDP from 9% to 15% within one parliamentary term.
That's a hugely bold and ambitious target. Labour has committed to a green prosperity plan. It's £28bn of investment generated through borrowing on the international markets. £28bn. £3bn of that will be for a clean steel fund.
So that clean steel fund is going to support the transition from blast furnace technology to electric arc furnace and hydrogen and alternative inputs for cleaning up our steel industry and making sure that we have a strong and vibrant future.
But there's also a big chunk of that which is about insulating homes, and then there's a big opportunity for us. This is a debate we're having, it's a live debate within the party as to how we put more flesh on the bones of that £28bn fund. Clearly, it's got a very strong green focus. But I think a lot of it's got to be about reshoring our supply chains to make sure that we are taking advantage of the green industrial revolution.
BC: A lot of new and emerging technology is coming through very, very quickly. You've got huge investment in the United States, as we mentioned earlier, and in China and in South Korea. Is Britain lagging behind?
SK: We are falling behind, that's the answer to your question, Brendan. And we are falling behind because we've ended up with a financial model that is driven by consumption and by financial services, and services more broadly, and not by manufacturing.
And that has led to a dangerously imbalanced economic model. And that has left us lacking in resilience. We've already talked about some of the kind of geopolitical aspects of this. The fact that we've got such an underpowered manufacturing sector has definitely left us more exposed.
It's a big reason why we've got the lowest growth in the G20 apart from Russia. We've got high inflation.
So there's all sorts of issues around our economic model. The question is, you know, are we going to be able to get policies in place which deliver a real partnership between business and government, industry and government to get our financial system working properly.
So, if you look at our banking system it's been based on a model of lending people money for mortgages that they can't really afford, rather than actually having banks, which are really in the fabric of local communities and lending to small manufacturing businesses that enable them to either start up or scale up. That's the sort of famous Mittelstand model in Germany which has been at the backbone, really, of their economic miracle, enabling them to transition away from heavy industry to small, often family-run, manufacturing sectors that are selling widgets to China.
You know, we don't have anything like parity of esteem between academic education and technical and vocational training.
And then you've got this kind of broken industrial relations model where, certainly since Margaret Thatcher in the eighties, the government's political agenda has been about breaking the trade unions, removing them from grown-up dialogue about the way a business should work.
So there's a huge piece of work to do around just resetting the way the British economy works. I believe that it's possible. We're not going to solve all of these problems in one parliamentary term, my personal view is that we need at least two consecutive Labour governments to be able to get anywhere near.
I think it's what Kier Starmer has called a decade of national renewal. And many of the issues are because we've had this sticking plaster approach to politics, with kind of short-term sticking plaster solutions, ignoring the deep-seated structural problems that our economy faces. So, it's a huge challenge, but we're definitely up for the fight.
BC: Stephen, that is a huge agenda, and it's an optimistic line to finish on.
BC: So, thank you very much for coming on. It's been a pleasure to hear about your expertise in this area, particularly on steel, which I know you're very passionate about.
Manufacturing in this country is evidently in a bit of a tricky place, but as we've said, it's not too late to turn it around and put the UK in a really strong position for the future. But policy needs to be rethought in a new and radical way and, I think, to truly revive the sector and bring the biggest benefits to local communities. And it's those communities that need to be kept in mind throughout.
So thank you once again for coming on.
SK: Thank you, Brendan, it's a pleasure, as always. Thanks.
BC: Thank you again to our guest and thank you for listening. For more information on the Institute and what we do, visit www.instituteforprosperity.org...