Back to top

Talking Manufacturing podcast: Sir Vince Cable discusses the difficulties in financing manufacturing

In the third episode of Talking Manufacturing, Sir Vince Cable, former Leader of the Liberal Democrats, discusses the structural problems that are impacting the ability of British manufacturers to secure funding, and some of the strengths and difficulties faced by the industry today. It is now available on all major podcast platforms.

Based around the fourth pledge of the JMI Manifesto released in 2021, Cable and host Brendan Chilton talk about the problems facing manufacturers looking to finance their growth and entrepreneurship, created in part by risk-averse regulators, still reeling from the financial crisis.

Cable also challenges the argument that the UK’s manufacturing sector cannot compete against manufacturing powerhouses such as China and Vietnam. He argues that through a combination of offering something advanced and unique, and the right support for businesses, companies can reshore much of our manufacturing.

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 (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, hello everyone. And the next manifesto pledge we're going to be looking at is all about financing manufacturing. So, to tackle this today, we are joined by the former Secretary of State for Business, Innovation and Skills, former Leader of the Liberal Democrats, and former MP for Twickenham, Sir Vince Cable. He has a huge amount of experience dealing with the fine details of what makes industry work, and he's one of the few people who can truly appreciate what goes into cabinet-level decisions on this issue.

Welcome to the podcast, Vince.

Sir Vince Cable (V): Thank you.

B: Thank you so much for joining us. So, let's begin by setting the groundwork for our discussion today. Could you talk us through how industrial finance currently works in the UK?

V: As far as finance is concerned, I think Britain has had a combination of a structural problem and a particular set of problems that arose from the financial crisis. I think the big structural problem is that on the lending side, we have these big universal banks, which are, you know, global in outlook and operate in a way that works very well for a lot of companies. But they're basically focused, they want secure investments, mortgaged against property, they're not terribly interested in entrepreneurial small grain companies, and particularly if they're out in the sticks.

And the equity markets, at the same time, are built around a global stock exchange which is largely based around Blue Chip companies and their shares, and dealing with pension funds and so there's this structural problem and, you know, starting in 2008, the whole banking system just ground to a halt because of the financial crisis.

Britain had the biggest banks in the world. They were worse affected than almost any other country. There was basically a famine of credit for several years — that was the point I came in. And it was just, my task was actually just getting the banks lending to business again, because they weren't.

And gradually, the situation eased and one of the things I did was setting up the British Business Bank, providing new kinds of funding for business in general. And we were quite innovative but still, the problems hung around for quite a few years and still do.

B: Okay, so, in terms of comparing financing for industry to other parts of our economy, do businesses in the service sector have to jump through quite so many hoops as manufacturers do?

V: Well, I think it depends who they are. If you look at creative industries, they have real problems getting bank credit. Because they're often just based on people's creativity and their brains – they don't have physical property to set up against a mortgage. So they have the same kind of problems as entrepreneurial manufacturing companies that are very much based on export markets, and science and new technology.

So, I think there is a particular problem in the manufacturing sector because it's very much export based – it's a high level of uncertainty, and although I'm very much in favour of industrial strategy and boosting manufacturing, I think one has to be a bit clear that there's a very fuzzy edge – what is manufacturing and what isn't?

B: So, obviously, when you were Secretary of State, you said your job was basically to get in there and get the banks lending.

How would you do that now? Because obviously we're operating in very different times: we've got higher inflation, the government are committed to quite tight fiscal policy, and we've got all sorts of problems in terms of our relationship with the European Union – there's the war in Ukraine. How would you, right now, get banks lending to businesses, particularly manufacturers, to get our economy growing again?

V: Well I don't think supply of credit is currently top of the list of those manufacturers or business concerns in general. Where there is a problem is in specific types of funding. I mean, if you've got a company that's started up, it's going well, but then you really want to scale it up so it's a unicorn — getting funding for that is quite troublesome.

If you're a high-risk company that, you know, banks don't like the look of, you can go to the AIM market, but that's questionable. And also, the lack of local banking; we don't have a Mittelstand system in the UK.

You know, after the financial crisis, our regulators are very risk averse. So, it's not the banks themselves, it's the regulators who stand behind it.

B: In terms of SMEs, in particular, I mean, they have particular problems as well because by definition they're smaller than some of the more big, established companies. Do you think they're struggling at the moment with getting the lending they need to scale up?

V: Well, the problem with SMEs is the problem of the British economy in general. Where we're going into a recession, we've got all kinds of deep economic problems – I'm not sure the supply of credit is top of their list, but there are some specific issues – if you're in a supply chain, how do you get supply chain finance? I mean, one of the problems I encountered in government is that it was easier to get a bank loan to buy a house than for a builder to get a loan to build it.

And that kind of unbalance in the system — the reason I set up the British Business Bank, which is actually doing very useful work and actually is what kept a lot of SMEs going during the pandemic – was supporting unorthodox, new kinds of funding. Like funding circle, peer-to-peer lending, asset finance — getting that market going.

One of the things we also set up – a sort of quiet success story – something called the Business Growth Fund which was particularly for companies which have got off the ground that can't raise the next level of finance, whether in loan or equity. And, we need a lot more support for bodies of that kind.

B: You mentioned earlier on the industrial strategy. Obviously, at the moment, the government haven't got an industrial strategy. We obviously can't go into every nook and cranny of an industrial strategy, but the top, sort of, headlines of a Vince Cable industrial strategy, what would they be right now?

V: Well, just go back a little bit. In the Blair years, they didn't really believe in it until towards the end when we had the financial crisis. Peter Mandelson was very proactive, he set up industry working groups – the Automotive Council was a big success. I need to take hats off to the people involved.

When I did it, again, the overall environment was very critical. The ideology of the government wasn't that way inclined, but they did, after a lot of persuasion, buy into it. Then, it kept going until the end of the coalition. Then Sajid Javid came in, was a bit of an ideologue and he wanted to scrap it.

Going back to it, I think it needs to start with the fact that you've got different dimensions, you've got different sectors, all of which need some kind of focus. Because what you're really trying to do is get people thinking long term, not just day-by-day or even within a parliament.

You've got thinking long term and private sector working with the government. So, you've got to do it on a sector basis. You've got to do it on certain, what you might call horizontal issues, like financing, training, innovation, and you've got to have the right instruments for that.

And then something, frankly, I didn't really do much on, which was the whole geographical dimension, which has now been taken forward with this left behind stuff. But getting those three dimensions integrated is what has to lie behind a good industrial strategy.

B: Just on those horizontal issues, I suppose one of the big ones in this country is skills. Obviously in Germany, for example, they've got, you know, education there is designed to provide skilled workers for their manufacturing sector. Do you think we can do anything in this country to try and turn that around so that we are turning out more STEM graduates, that we have got that skilled workforce there for manufacturing? Because we can sit here and say, "we want more manufacturing" – if we haven't got the people to go in and do it, it's not going to happen.

V: Yes, we need to, and it's a terrible British failure that goes back over many years. I mean, as it happens, my dad was a teacher in a tech college. He used to teach building trades in a tech college. And he actually designed – this is back in the sixties/fifties and sixties – training schemes for the building industry.

Well, I mean, you know what happened. Training, really just gradually declined. It was particularly in the factory years. But the whole business of belief in vocational education was never really there.

And, I encountered this very strongly in government. I mean, it was very obvious that the treasury officials, my own officials, and the whole establishment; you know, their own kids go to university, right. They've been to university. The idea that the people out there, working class kids who want a good skill, you know – skill level three, four, five, it just didn't occur to them. The problem of SMEs, who are in a slightly different position from the big companies because they invest in training and they're pinched by another company.

So, getting it all right is very difficult. And we were starting to, I think, get a reasonably sensible vocational training approach. And then they introduced this apprenticeship levy that sort of killed it. It was basically taxing companies training. Completely perverse. And it was just treasury just looking at another pot of money. It did a terrible amount of damage. So, they've got to sort out all the problems associated with the apprenticeship levy and then restate that reprioritisation of vocational education.

B: We hear a lot in this country, you know, "we don't make anything anymore, we are no good at this anymore". What would you say are the current strengths in British manufacturing?

V: Well, there are some wonderful companies, I mean, some brilliant companies. It's, of course, it's much reduced in volume. But, you know, one of the great privileges I had – I had five years in the job. I tried to make sure I went out every week, around the regions, visiting interesting companies. And there are so many of them, and they're brilliant.

So, we do have some very, very good creative companies. Secondly, we have this linkage into the higher education system – very good universities which are these days much more applied, and we tried to strengthen them by introducing the Catapult Network which acts as a bridge between companies, academia and government.

So, the strengths are we already have some very, very good companies which have survived all the downs and the pressures. Secondly, we have this very good link with many of the universities through the spinoffs and things of that kind. I mean, there are some real strengths there but I think what's happening over time is that the middlingly successful companies have gradually been winnowing out.

B: Do you think, I mean, obviously, China at the moment is the workshop of the world – India is rising very quickly. Do we just need to, sort of, accept the inevitable, that actually, you know, manufacturing will move and that we will just become a service-based economy? Or can we compete with them, in specific areas?

V: I think we need to make some kind of distinctions. China has been the workshop of the world. It's becoming less so, partly because China's becoming a richer country; its wage costs have risen, a lot of companies are moving out of China, partly for that reason, partly because they're worried about Western sanctions. India is talked about but isn't a particularly successful manufacturing country – it's better at software/IT. Vietnam is an up-and-coming manufacturing country in low-cost, relatively low-skill-type activities.

But the general point is that, you know, globalisation has had the effect in all countries, not just in the UK. But particularly in the United States. It's in Australia. Less so in Germany and Japan, but even there, where companies that are just competing on volume and price in manufacturing really stand very little chance against these emerging economies.

But where companies have something distinctive; advanced manufacturing, something unique, some creativity. Also things where transport costs matter. Yeah, there is certainly a future. The challenge we have is trying to make sure that those companies that have survived are able to flourish and that we're able to attract some of the companies which are reshoring, actually. Reshoring is not just a political thing, I mean, it's happening commercially.

B: Do you think our relationship with the European Union – it obviously is having an impact, one way or the other, on our economy. How do we get that relationship sorted out, so that our manufacturers don't suffer and that they can continue to grow?

V: Well, sadly it's done a lot of harm, but it's Brexit, I'm afraid. It's British exporters because of the uncertainty. We've seen the evidence of a drying up of business investment, and sort of investment heavy firms. Manufacturers particularly have been disproportionately affected. We didn't get a customs union – that was actually what really mattered to the manufacturers.

So, yeah, damage has been done and if Mr Starmer gets into power, and I hope there is a change of government – his main task, actually, is going to be restoring many of our links with the European Union. We're not going to rejoin, I mean, that's not going to happen. Quite apart from anything else, the European Union wouldn't want us back, after all the trouble we've caused.

But renegotiating many of the elements of the single market, common standards, things like chemicals — and it's just basic common sense. And if there's a change of government, that will probably be number one on their agenda.

B: If you could sit now in government and implement three things that would get British manufacturing growing faster, what would they be?

V: Well, I would start with an industrial strategy. And it's not that it's going to produce miracles, because it isn't, but it does give you a framework and it does tell business: "look, we want to work with you, we want to think long term, we want to encourage you".

I think, secondly, going back to the training agenda, we all recognise this is a mess. It's been a mess for decades. But, you know, it really is crucial. We no longer have the escape valve of the European Union Mobility, so we are going to have to, like it or not, train more of our own people. So, you know, the training agenda is crucial.

And I think, probably thirdly, where we started which is in the finance agenda and trying to do much more. Greatly extending the British Business Bank, making sure that there's a much bigger variety of funding streams available for innovative small companies, particularly manufacturing — absolutely crucial.

B: Do we need more tax incentives for manufacturing firms?

V: I think that at the moment, there is a perverse tax policy which is that companies get relief on their borrowings, but they don't get relief on risk capital. And so is effectively a subsidy to interest. It's not very good for an entrepreneurial culture. It's quite difficult because, of course, a lot of firms are heavily indebted that you don't want to drive them to the wall. But I think moving away from that kind of incentive is desirable.

And I think, more generally, although none of the major parties, including mine, want to talk about it, is that we are entering into a higher tax world. I mean, there actually is no alternative. We want better schools, hospitals, the rest of it — we're going to have to have higher levels of tax. Mainly on individuals, on property and land, but on companies too probably.

B: So, in terms of the future then, Vince, you say we're going to be entering into this higher tax world. Obviously, we've mentioned some of the global challenges we face, in particular the financial challenges we face, as well. Are you optimistic about British manufacturing for the future? Or do you think we've really got some big problems piling up?

V: I think somebody once said that the ideal state of mind is pessimism of the mind and optimism of the will. And I think, you know, you've got to have a positive vision and you've got to throw yourself into it and make things happen. But, you know, we are starting from a difficult place. I mean, there's no doubt about that.

The British economy is now one of the weakest in the G7. We're steadily falling behind relatively. Actually, Indonesia has now overtaken the UK in terms of size of economy. As you pointed out earlier, there are a lot of eager-beaver manufacturing exporters like Vietnam – they're all hitting world markets.

So it's a tough environment, but there are many really good things about Britain, and we've got to be optimistic that we can make some of them work.

B: Well, I think that's a good note on which to wrap this segment up. So, I'd like to thank you, Vince, for coming on the podcast today and sharing your experience – particularly your experience in government with us.

It seems like the difficulties in raising funding for manufacturing is seriously something that needs to be looked at by government. And I think if we want to see a reliable manufacturing sector grow, if any government, minister, or opposition spokesperson is listening, they need to come and speak to Vince.

But, it's good to end on that positive note though, that there are opportunities and we can fix it, and get manufacturing back up as a higher share of our GDP. So thank you so much for coming on.

V: Yeah, well, thank you for inviting me. Just a quick rejoinder – one simple message I'd like to get across – please don't keep reinventing the wheel.

B: Yes.

V: Britain has a lot of experience of industrial strategy, whether in capital letters or not, and let's learn from it.

B: Yeah. Use what works.

V: Use what works.

B: Thank you very much, Vince.

Thank you again to our guest and thank you for listening. For more information on the institute and what we do, visit

Back to news
From The John Mills Institute for Prosperity

Updates from the John Mills Institute for Prosperity.


“To increase prosperity, growth and equality by putting a more successful economic future at the heart of British political discourse.”