In the seventh episode of Talking Manufacturing, Conservative MP for Hitchin and Harpenden, Bim Afolami, speaks about why manufacturing is so important to the British economy and our local communities.
Based on the key pledges of the JMI Manifesto released in 2021, Bim Afolami and host Brendan Chilton discuss the role that manufacturing has played in building strong communities and jobs for generations, plus how the decline of the industry has impacted these communities. They also talk about why the industry should be financed through equity rather than debt, and how the government needs to invest in new industries such as sustainable energy to get ahead of the global competition.
You can listen to the episode below. Episodes will be released monthly, so be sure to follow the podcast to be notified.
Transcript
Transcript prepared by Profile
Brendan Chilton (BC): 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're 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.
Today we'll be focusing on the impact of manufacturing on communities across the UK, and to talk through this issue I'm joined by Bim Afolami, Member of Parliament for Hitchin and Harpenden.
He's the chair of several cross-party groups, including the All-Party Parliamentary Group on Renewable and Sustainable Energy, the All-Party Parliamentary Group for Financial Markets and Services, and he is the founder and chair of the Regulatory Reform Group.
Welcome, Bim, and thanks for coming on!
Bim Afolami (BA): Not at all, thank you!
BC: So, let's jump straight into this. So we know that manufacturing has always been dependent on the people that make it possible. And we had Stephen Kinnock on the podcast previously.
BA: Great man, good guy.
BC: Good guy, who spoke about the Port Talbot steelworks and how they're connected with the people there. So, I mean, just to kick off, why do you think manufacturing is so critical for communities?
BA: Manufacturing is critical for communities for, I think, probably two main reasons. The first is that it offers a wide range of jobs. In certain other sectors, let's take the sector I came from, financial services, where you also get a wide range of jobs, but they are less fixed to a particular place.
Manufacturing is anchored in a place, whether it be a factory or some other location, which means that you're not just getting the range of jobs, you're getting them fixed in the community, and that allows the emotional connection to develop between the business or the group of businesses, and the people that it works with. And I think that that's what's so special about manufacturing.
BC: I think it also creates, doesn't it, that sense of identity and place. I mean, you go down the Clyde, it was the shipworks. You go to Port Talbot, it's the huge steelworks, and people can identify with those venues, with those communities and they have that sense of worth and value.
And unfortunately with deindustrialisation, we've kind of lost that in parts of the country. And I think we've suffered as a result.
BA: We have, we've suffered not just in the social ways that you described, but also economically. I mean, when people talk about levelling up, that can happen in all sorts of different ways and different aspects to it, whether it be educational, financial, and the like.
But unless you can offer new opportunities for people to be not just economically but socially better off in large swades of this country that used to have the steelworks, ship building, whatever it is, as you described. Unless you can offer that, the jobs that are there, even if they're quite good paying jobs – it's a mistake to say that all these areas of destitute, they're not.
BC: No, of course.
BA: But those jobs are much less rooted in their communities. Those jobs do not offer people the same sort of respect and the same sort of self-worth that manufacturing has always done. And that's why I think, economically, because it's really significant in terms of improving levelling up, and socially, manufacturing's so key. There's a lot of things we need to do around a lot of the technical, fiscal and monetary policy to improve the position for manufacturing in this country. And particularly that's related to exports, it's particularly related to how the City of London operates within our own country.
The City of London has too often been something that services the globe rather than servicing British, homegrown businesses, and obviously you've got to do both. And I think that frankly, a criticism of our financial services sector over generations has been it's always thought much more about international – its international purpose, rather than its domestic one. And so there are lots of other aspects to that, but I think fundamentally, improving manufacturing is better for our economy and better for our society.
BC: I think you touched on quite an important point there, the access to finance and manufacturing. Manufacturing's not like other business, it does need that long-term patient capital that was longer than the sort of arrangement other businesses would have. What can we do to try and gear banks, finance, to that kind of lending for manufacturers.
BA: So, when people – and before we went onto this, I said how technical can I be? And you said you can be as technical as you like.
BC: You go for it, Bim.
BA: So I'll do this, but I think it's really important, right. So, there are two ways of financing a business: debt or equity. Broadly, the law benefits debt finance rather than equity finance because it can be written off against your profits and various other things.
So we have always tended to think, when we think about financing a business, can the bank give me a loan? Can the bank give this business a loan to tide it over or to improve it? Now, debt finance has a key place, debt's very useful, but we need to actually get much more long-term equity finance into British manufacturing.
And there are people doing this work. There are good people doing it, but I think it's really, really important that we do more of it. We move away from a system where we rely on bank lending, and more to equity lending. Why does that matter? It matters because if you want a long-term view, you need people invested in the long-term growth of the business.
A bank or any other funder giving you debt, doesn't frankly care about the long-term view of the business. What they care about is that you can pay the debt back. And if it looks like you can't pay the debt back, they will have security normally, and they will take your assets, they'll take the buildings, they'll take the factory and whatever it is.
And that is their right. I mean, that's what people signed up for, they're not doing anything remotely inappropriate, but I don't think that that serves the country best. What we need is much more long-term equity. There are great people doing it, but we need to promote that through tax policy and legal changes so that we can encourage much more long-term equity finance.
And there's something else, which I think I should have mentioned earlier, which is so critical for the development of manufacturing, isif you look at the long-discussed difficulties with British productivity in comparison with our partners in the G7 or the OECD, frankly, over the last 15 years, what was a moderate problem has become a very, very bad problem.
The delta between our productivity, for example, and the United States, or our productivity and Germany, has grown over the last 15 years. The Bank of England – a Bank of England working paper that I read a couple of weeks ago, explained that, and look, this isn't a hundred percent proven, but the economists at the Bank of England are pretty good and they know what they're talking about.
And, they said that actually a significant part, a significant majority of our problems with productivity are related to the problems of our productivity in the manufacturing sector. If we can improve the productivity of our manufacturing sector, we actually improve the productivity of the UK as a whole, and we much more equitably distribute the profits, the economic wealth that's generated across the country. It's very hard to do that in services, because in services there are just hotspots that are – basically in this country you've got London, the South East, and Edinburgh, and that's mostly where most of the services wealth is generated. Manufacturing, the magic of it is that it happens everywhere.
BC: But just on that though, the question of getting that investment. One of the challenges that manufacturers say to us is, at the moment the cost in the UK of investing in manufacturing is just too high, and it's far easier to go off to China, go off to Malaysia, Vietnam, because costs there are so much cheaper.
How can we – we've got a much higher standard of living, costs here are much higher. How can we balance that against these other economies where frankly you can employ a worker for, you know, five, ten percent of what it costs here in the UK? The cost of sticking up a factory there is far cheaper as well.
How can the UK compete on that level when you've got these other countries around the world that can undercut us?
BA: Well, it depends what you're manufacturing, right. So, broadly speaking, if you're manufacturing something that is of low value, that is plentiful, then it really is bargain basement. You want the cheapest person, in the cheapest place, with the cheapest materials doing it.
However, the better-quality thing you're manufacturing, the higher quality and skill you will need to do it, the higher in terms of knowledge and understanding you'll need to do it, and therefore that is something that fewer people can do.
By definition, if lots of people could do it, it would be cheap and easy, and then you could do it anywhere. So, where we need to be is maintain our position at the top end of the value chain, but make sure that we work a bit harder to maintain that. So, what does that actually look like?
Let's take the green economy, for want of a better word, let's say where we failed. So, we were pretty much the world leader in offshore wind. We have amazing designers of the wind turbine; we had great location for it because the North Sea in particular is like one of the windiest places in the world.
BC: You can't get any windier.
BA: You can't get any windier. We had a really positive in terms of government policy in the financing, but yet these wind turbines were made somewhere else because we didn't invest in homegrown British manufacturing and there wasn't a sufficient push from government to make sure that enough of the early contracts were going to British businesses, which will build up a British supply chain and a British knowledge base, so that Britain becomes the place to design and make your wind turbine, not somewhere else. If you look at what countries like Taiwan have done on semiconductors. Now, I'm not now by the way, saying we can be a semiconductor hub because I think that frankly that ship has sailed.
BC: Just a bit. Yeah, Taiwan now owns, I think, the world market!
BA: But look, it's a small country, very small country.
BC: Limited resources.
BA: Very limited resources. And yet, because that was something which they had an expertise in and they built on it, and they developed it, and they supported it. And I think that as a Conservative, one of the things that we have not – where I think we have failed, over probably since the Thatcher era, is recognising that not having an industrial policy or strategy is a version of a policy or strategy. And we need to be bolder in supporting strategically important areas such as high-skill, high-wage, high-end manufacturing, so that we can anchor those jobs in this country because it's not just good because it looks good or feels good, it economically benefits this country to have a much more balanced economy in that regard.
BC: Bim, you touched earlier on, on what government can do in terms of contracts. I just want to turn now to levelling up and the current government policy. Do you think manufacturing features enough in the levelling up agenda? Do you think government is aware of the importance of manufacturing, and what's government doing? The three questions here! What's government doing to drive manufacturing as part of that agenda?
BA: So, I mean, everybody's aware of the importance of manufacturing.
Politicians are very good at talking about the importance of things. The question is, what do you do? And, I think we've just not been sufficiently clear about how manufacturing sits within our broader vision for the future economy of this country.
What do I think that means? I'd focus on a particular area, in fact, energy, and I'll talk about old energy and new energy. Old energy – North Sea, oil and gas. It is critical in the short term that we have more oil and gas.
BC: Entirely agree.
BA: Right. And the reason for that, and I say that as somebody who is well known in my party for being very pro-environment, is that in the short term, unless you can get more oil and gas that we control, we're going to be importing more from the Middle East and more from other parts of the world, and it will increase the cost of us making the transition to net zero because the wind turbines, the solar panels, the rare and critical metals that you need in order to make those things – how do people think they get out of the ground?
It's not an electric car, I tell you! It's really heavy machinery – it's a very energy intensive process, and right now we almost need to have a bit more of the old in order to really move to the new. This is one area where there are so many economic opportunities for this country, particularly in Scotland, around that area of manufacturing.
That is something that we just need to spell out, explain, think of all the opportunities for young people with skills, high quality apprenticeships, maybe leading on to degree apprenticeships, hundreds of thousands of jobs in that sector. But then we talk about the new economy, new energy rather.
New energy, I mentioned wind, solar. A lot of these jobs, even if it's down to changing in people's houses, moving from boilers to heat pumps, or whether it be solar panels; solar farms are going up all over the place. These things are going to require significant numbers of jobs and they're going to require significant amounts of investment in the private sector to provide the supply chain to make bits of these things that are being done.
So, you know, if your main wind turbine is being made in, I don't know, China, there are still bits that get made in the UK. So let's invest in those bits because we know we're going to need more of them. So I just use these as two examples. I just think we've got to be clearer about how that fits into our broader environmental strategic goal, as well as talking about manufacturing as almost old. We talk about manufacturing as nostalgic, or it's going back to the steelworks, or it's going back somewhere. The bit I want to rediscover is the community.
But everything else is new and I think that message has not been sufficiently clear. Part of it is because I think Conservatives have always felt a bit uncomfortable around manufacturing because I think the legacy from the 1980s, it was very politically contentious, the deindustrialisation at the time, and since then. And, I think Conservatives have therefore felt a little bit uncomfortable about actively doing things in the economy and worrying about picking winners and this sort of thing.
I just think we've got to get over that. The United States, hardly a socialist heaven, is in industrial policy in a big way. The European Union, fine, a bit more socialist – in industrial policy in a big way. China, industrial policy in a big way. Singapore, industrial policy in a big way. Australia, industrial policy in a big way. We've just got to move beyond the aspiration to use manufacturing to fill in some of those gaps.
BC: You've touched there as well on young people, and you were involved in the Missing Millennial Report.
BA: I did. I went onward with the report. I went on with the idea and then we got the work done.
BC: One of the things we find is, you know, when you go to universities and college and all the rest of it, and you say to people, what career do you want to go into?
It's normally a service-based job. Do you think there's a big job we need to do, around manufacturing, saying actually, it's not all dirty warehouses with grease and soot on your hands? There's, as we've discussed, high-tech, green jobs that are very well paid and perhaps there's a whole skills and education agenda as well that we're not focusing on here as part of public policy. So, encouraging young people into manufacturing and driving the skills and education. What do we need to do there to provide the workers that are going to do these jobs of the future?
BA: I think there's an aspect of this that's easy and an aspect of this that's hard. The easy bit is we need to talk about it more, show that it can be aspirational, and there are ad marketing people who know how to do this, but it doesn't take that much to really do a proper campaign, to show, look, these jobs are there, this is an interesting skill. Young, attractive, fun people like you can do it. I think there's a lot we can do there, but the hard bit is the broader environment.
And if you're a young person now and – I'm saying this now doing a lot of work with young people. Even if you aren't that wild about going to university, and a lot are not, for very good reason in fact, for a lot of them. All the people around them will say, look, I know why you think that, I know the debt might be a lot, I know you're not wild about the degree, but at least it gives you options.
If you go and do an apprenticeship in a business, you know what Britain's like with manufacturing, how long's that business going to be around? Is the government really going to support that sector? Which sector are you looking at? And you think, yeah, that's definitely going to be around in twenty, thirty years’ time.
Why don't you go and study that degree? It'll give you greater options. You can figure it out later. And until we give business owners and the broader society enough confidence that we are serious about manufacturing, you don't deal with this problem. So I actually think it's more on the government and on the broader politicians and public policy to really make some big bets and support British manufacturing.
Another thing, and this is something that I am acutely aware of having worked in the City of London when I left Oxford, before I went to politics, is simply earnings. You know, the services sector at the high end for lucky graduates who have certain skills and have the option, pays better, much better than anything else. But, when you go to the next level down, once you get outside, say the top 10% of graduates, manufacturing pays better than most the services jobs that these guys will do. But I don't think they know that. I think they think that manufacturing is at the lower end of earnings, and it just isn't. So, I think that we really need to communicate the money aspect to this.
And the last thing I'll say, and I mentioned energy and I should have started almost with this aspect of it, is we need to give investors and business owners confidence that we are going to have cheap energy. There is no economy in the history of the human race that has grown, at any significant rate, without cheap plentiful energy, and that cheap is the most important bit.
Our manufacturing sector is DOA, dead on arrival, if we do not get our energy policy right for business owners, not just households, and far too much of the regulator's time and effort has been about individual families and households. By the way, look, I'm an individual in a family and I represent a hundred thousand people or so, so I get that it matters, but businesses need cheaper energy too.
And broadly speaking, the policy that we've adopted, but rather the regulators have adopted, has been: bear down on costs for individuals and households, but allow costs to be a bit higher for businesses, and manufacturing – that really screws. Service industry, yes, they have big buildings often, they have to heat them and light them and all the rest of it. But it's nowhere near as energy intensive, and that is absolutely critical. We need a better deal for businesses in manufacturing that gives them cheap, plentiful energy over the long term. And that ties back to what I was saying about both we need old energy and new energy.
BC: Bim, if the Prime Minister's having a reshuffle at any point and he needs a Secretary of State for Industry, I think he should give you a call.
BA: You know what, I've told him this! He was non-committal at the time.
BC: Well, you're speaking the language, I think, that manufacturers want in – let's just say if you were, you know, click your finger, Secretary of State for Industry in this country, or Secretary of State for Business, I think it's called now, isn't it. The three priorities, if you were head of department, what would they be, to drive manufacturing in this country?
BA: Well, part of it, actually, is what Grant's doing at energy, and I know Grant really well, he's my constituency neighbour. Grant's absolute focus is the cheap, plentiful energy, almost to the point of absurdity, bearing in mind how often he talks about it.
So, I think we're doing the right thing on energy. I do think on trade, and we haven't had a top chance to really talk about trade, but it's clear that more needs to be done to make it easier. With supply chains to the European Union, it's clear that there are still too many completely unnecessary bureaucratic hurdles.
And to be honest, the European Union really is at fault for most of them. They've been, in my view, very unnecessarily obtuse and difficult, to make a point. And I think that we just need to get back to a sensible place where we are just stopping that – it's just that little bit too hard for some of the smaller manufacturers to export.
We need to make that easier, and that will increase profits and increase the confidence in the sector. So I think that's one area I'd definitely look at. And another thing is, and I mentioned strategy and the unwillingness to broadly pick winners and whatever. The sad thing is we actually do have strategies in almost every area of industrial policy, but what we haven't done is communicated all of those things we're doing, to the sectors, to the broader public.
And so often people say, well, there isn't a strategy for that. And I'm like, no, there is, but we're not really communicating it properly. And of course, having a strategy and not communicating it, you're losing a big part of the point of having a strategy, which is the communicating bit. So I think that there's just a lot of dots that we should join up as well.
BC: Finally, we'll just touch on – you mentioned that the issues with the European Union and trade – there are, as we've highlighted, challenges with some manufacturers accessing European markets. How can we deal with that, just very quickly?
BA: We basically need to continue, but I would say accelerate and intensify our discussions with our European friends and partners, that Brexit is over, and they've got to stop trying to punish Britain for leaving the European Union, and to get back to a policy which is being as pragmatic as conceivably possible. It doesn't really affect the big manufacturers in a significant way, but the smaller manufacturers being put off from exporting, reduces the productive capacity of the economy, which means that you are more prone to higher inflation, I think.
And we're just not making as much money for the economy as we should. So I really think our European friends need to just be a bit more flexible and less bureaucratic because it will benefit both sides. And by the way, things are better than they were a couple of years ago, there is no doubt.
But let's continue along that journey and intensify it, so that we can have better trade between both our country and the European Union.
BC: Well, Bim, this has been a real tour de force and I think we've covered a fair bit of ground. Thank you very much indeed for coming on!
I look forward to seeing where all this goes. I think manufacturing is absolutely key to Britain's success in the coming century. And we need people like you to keep banging the drum for the sector, in government as well.
BA: Great, thank you.
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...
