Leaders Lunch
Does the panel believe the ever-increasing volume of regulation from Brussels could seriously damage the long-term competitiveness of this region? Isabella Moore, president, British Chambers of Commerce
Rowe: In a word, yes. I hear it from all the companies I deal with every day - they are getting more and more frustrated. Everyone has their favourite story about EU and government regulations, how they don't make sense and how much time they take up. A company boss told me that he had to have all his buildings checked for asbestos even though he had all his buildings constructed after it became illegal to put asbestos in property. Apparently that doesn't count, you still have to have your building surveyed and produce a certificate. You get to the point where regulation seems to have no point and every business is spending much too much of their precious management time in trying to solve some of these problems. That is the key issue. Senior management time, the most scarce resource that a business has, is unnecessarily tied up by each new regulation.
Jones: Most certainly yes. Isabella's question is has regulation damaged the competitiveness of this region. Well, it has damaged the competitiveness of 450 million people in the whole of the EU too. Does this make for less competitiveness? It most certainly does because it's blatant ignorance, politically motivated and ideologically harking back to another age. The more worrying aspect of all this is when that directive gets to the implementers in Whitehall and sometimes in a region via a local authority or the Health and Safety Executive, etc. Then we indulge in what Brits are world champions at - the sales prevention team take over. More local regulators often have no concept of the relevance of the directive they are implementing. So often it is not the directive, it is the way it is implemented in the UK. We make it our hobby among our public servants not only to impose directives on business but to do it in a way that stifles the lifeblood and takes management time away from what it should be doing. There won't be a public company director in this room who hasn't spent most board meetings in the past six months more on corporate governance, health and safety or environmental issues than they have on doing what they are there for in the first place, namely creating wealth and creating jobs.
Mapp: I agree very much with what Digby has just said. It is not just about the so-called aspirations of Europe, it is about our desire to be world champions at regulation introduction. A friend of mine has a restaurant in Majorca. He had to get some new kitchens signed off by the
environmental health officer, yet in the whole of Majorca there were only two such officers. There were more than that in Chesterfield when I ran the Tom Cobleigh pub chain. While we are all looking for fair trade and aspirational standards, don't forget that Europe is only a very small part of the world in which we now trade.
Sterling: I would agree with the rest of the panel. I'm afraid higher education is not exempt from this either. We, like you, are employers and subject to all kinds of regulations. Perhaps the difference is that we don't control the price or volume of our product so we perhaps have less degree of freedom to cope with this. What happens is we divert resources away from our prime objective of producing quality graduates into meeting an endless stream of directives. I share the frustration of other panel members.
Jones: If you run a hospital in the UK you have to comply with the regulations that come out of 32 different regulators. 32 different people have been paid by taxation and created departments often of 400 or 500 people. How on earth a small business ever copes I'll never know.
Does the panel agree that the government has shown no interest in maintaining any manufacturing in the UK? John Roskalns, managing director, Swisstulle UK
Jones: I don't agree with that. If the questioner means have governments over a period of time taken manufacturing for granted, including this one, then I do agree. Most governments have understood at the end of the day that the sector is the primary wealth creator in the nation and what they have done is talk fine words but frankly implemented nothing to help. At the moment manufacturing accounts for about 19 per cent of UK GDP and last year put about £3150bn into the UK economy. Put that into context, that is two health services. That is without the knock-on effect into the service industry. I think the real problem goes back to the first question. Manufacturers would say that the government doesn't set us free, it doesn't create an environment that allows us to get on and create wealth. It comes back to systemic regulation. However, one thing Britain has done, and the government should be applauded for this, is that it has been driven both fiscally and legislatively towards structuring our manufacturing economy into the value-added, innovative, quality-brand end of the market. America still passes laws protecting their commodity makers, France protects their commodity makers and we do not. We therefore are ahead of the curve when it comes to going to the value-added end. What we need is just a bit of help in doing so. That means an academic philosophy that delivers the skill product we need from primary through to higher education. Huge advances have been made there but not enough. It also means a fiscal stimulation that is probably going in the right direction - for instance, we probably now have the most competitive capital gains tax regime in the world. If we create all these things, then manufacturing not only matters but governments understand that it does.
Mapp: I don't agree with the questioner that the government has shown no interest, but it has struggled with understanding how it can make a difference. I along with Digby have attended a number of manufacturing seminars where the great and the good talk about the importance of manufacturing but it doesn't seem to crystallize into a simple plan after that. The biggest problem with governments is that ministers are supported by civil servants who do not really understand manufacturing in the same way as industrialists in the Midlands do, and who believe that the only way they can demonstrate their support for manufacturing is by interventionist policies which are actually contradictory to what many manufacturers want. One of the interventions which we have argued over of late is when the region is bidding for national contracts. The importance of certain sectors to this region just doesn't seem to be taken into consideration in the same way as it is in other European countries. It is not taken into consideration that if you are, for instance, bidding for a major train-building contract then if that bid is not successful for British manufacturing then the actual impact will be to not only make 5,000 people redundant but probably make another 20,000 who are on the supply chain worse off. That is not to prop up uncompetitive businesses but it is to recognise that if you really believe that this is a country that must retain its heritage in manufacturing because it is the catalyst that creates so much else, then you have to act accordingly. This government, because of successful pressure by unions, RDAs and bodies such as the CBI, have shown some interest in manufacturing but I think we will have to probably find a way of doing it more without them than with them and ensuring that they don't create an environment which makes it more difficult.
Sterling: I would say that successive governments have actually tried to show interest in manufacturing, but perhaps our difficulty is the definition of manufacturing. Some of the more traditional areas of manufacturing have self-evidently had difficulties but is software and IT part of manufacturing? In my book it certainly is. I think the record there of governments has been much better. If we encapsulate the mission of the UK as being a globally leading knowledge economy, which seems to be where we are heading and where we are trying to compete, then to deliver that you have to deliver graduates of an internationally competitive level in order to power that knowledge economy. Now I am less sure that we have done everything that we could. We have certainly increased the number of graduates, but have we increased them in the right areas to power that knowledge economy? When you look at some of our competitor countries then they are doing a lot more than we are. Take engineering. In 2001 China produced 832,000 engineering graduates - that number will be larger by now. The comparative figure in the UK is 20,000. Clearly China is a bigger country but even in proportion they are putting much more of their resource into their engineering base. Much more needs to be done in thinking through what the manpower needs of the country are, otherwise we won't have a manufacturing base even if we are competitive because we won't have the staff to drive it.
Rowe: In the West Midlands one of the interesting things I have observed over the past 20 years or so is the significance of the skills vested in people from the manufacturing sector who have then made the transition from one of the mainline manufacturing sectors and have moved into what one loosely describes today as the knowledge space sector - computers, software, etc - and very successfully too, in large numbers. But who do they serve? The majority when they get going serve the companies from which they came, the manufacturing sector. Although if you look again at the statistics over time you find that more and more they take their skills and they diversify them into other sectors as they expand their businesses. Still, a very high proportion depend on the manufacturing sector as their customer base. We are in a period of transition because we are seeing mass manufacturing moving abroad, we are seeing a transition from the manufacturing to service sector, but if the whole thing moves too fast it could collapse. There is a very strong set of interdependences between the different sectors and I don't think some of these factors are really appreciated in the way that they should be by government.
What one initiative would the panellists like to instigate to make the Midlands a more attractive location for businesses to locate to? Andy Carswell, Bank of Scotland
Mapp: As far as the East Midlands is concerned one of my pet things has been to try to bring about a more positive planning regime. Not that we say yes to everything, but that we deal with things promptly, alertly and with the right degree of quality so that someone who has a handful of money on a really good idea can proceed quickly. If we could get local authorities across the Midlands to believe that that is a competitive advantage throughout the whole of Europe and especially the UK, we capture most of the inward investment and expansion opportunities that are available. But we don't. Instead we have similar problems that we mentioned before regarding legislation from Europe. We have our own legislation in planning that I believe is one of the biggest economic breaks that we have, but we don't seem to be able to do anything positive about it. The first thing I would do is do something very positive about our planning system to make it quick and decisive and which gave an opportunity for an appeal procedure that was equally quick and decisive in case we got it wrong.
Sterling: When I moved to Birmingham three years ago the thing that struck me most about this region was the poor transport situation. I know the regional development agencies in this area have this as their number one priority, and it is no surprise that seven of the nine RDAs also have it as their number one priority. It is a real issue across the country. Looking around the world also puts it into context. For instance, if you look at China again and see the infrastructure that is going in in cities like Beijing and Shanghai it is amazing. The transformation over a ten-year period over there has been quite extraordinary. The other thing the Midlands ought to be doing is to build on some of its strengths, like its cluster approach, where you have a strong cluster in particular sectors. The other thing that seems in short supply is the intermediate skills in the workforce. At the moment, if you have an expanding IT or manufacturing business can you actually get the people you need to drive it? I suspect the answer is probably that you cannot.
Jones: I would say that what is missing is the word infrastructure, which can be both physical and human. Physically, Michael has just put it very eloquently and I would endorse all that. I would just say one other thing, don't forget the airports. You put a million people through an airport you create 1,000 jobs. In the East Midlands we have got the best airport in Europe for freight. DHL, Fedex, TNT are all there and all want to expand. But the other aspect is human infrastructure. If you are faced with an employer wanting to get into a region, or indeed if the government itself wants to take jobs out of London in the public sector and bring them into the regions as is called for in the Lyons report, then we have got to be attractive by putting at the disposal of the employer skilled people. There will not be jobs in the UK for unskilled people inside five years. We have got a lot more to do in the region to provide that pool. We now have the most literate ten-year-olds in Europe because a lot of time, money and effort has been put into primary education over the past five years, while we also have one of the top three higher education systems in the world - probably the best. What we need in between those two is to get the rest right. Intermediate skills, as Michael has said. But we in business have to play a much bigger part than we are and all of us have to try just that little bit harder. Today we have three and a half million people in this country who draw a wage but who cannot read. Just think what that does to our business productivity. We have got to put our arms around them and teach them and help them and do it in a way where they keep their self-respect. Another example - we have got to get businesses into prisons. If a business gets hold of someone in prison in the last couple of years while they are there, then gets them learning a skill - welding, forklift driving, plumbing - and then takes them out on their day release and into the world of work, 90 per cent will not reoffend. That is the biggest challenge that this region has got: to be able to deliver to tomorrow's employer - both private and public sector - the people who will take the economy to the value-added end.
Rowe: One thing on my wish list is to see the West Midlands go back to being perhaps the most enterprising and innovative region in the UK. If you look at the number of new businesses being created and the number of successful businesses, the West Midlands is now well down the pecking order in the UK. In addition, many of those people who do run their own companies are quite happy to see them tail off before they reach their full potential. There is nothing wrong in that, but if there were ways in which it could be made more exciting for them to go on, drive further and higher, then it would make a big difference to our economy. Also, if you have more enterprise and innovation you are going to be in a much better position to adapt to the many changes that are going on in the world.
How much longer can this region cope without a 21st century rail network and what damage is being caused over the inertia over redevelopment of New Street Station? Jim Pendrill, Insider
Sterling: Clearly there are major problems and the structure we ended up with post-privatisation was sub-optimal. Recent changes are supposed to have addressed that but it is unclear whether they have helped. If you cannot rely on the rail network people are not going to use it, so overhead costs become higher, fares get higher and it becomes a downward spiral. Massive sums of investment are required.
Jones: There is a big difference between the train operators and the infrastructure itself. For the train operating companies privatisation has definitely worked. They are carrying about 25 per cent more passengers and carrying about 36 per cent more freight than they were pre-privatisation while competition has been a damn good thing. The infrastructure aspect is lamentable and Michael is right in what he said there. If you look at New Street I think the private sector has got to sort this out itself. Richard Bowker at the Strategic Rail Authority has put it very far down his list, it doesn't even get in his top ten projects, and it is perfectly clear the redevelopment is not going to be done by taxpayer's money alone. Birmingham has got a wonderful track record of sorting out its own problems and never letting people down. If we as a private sector could get together - call it a property play, call it a civic vision - if we could do an ICC or Millennium Point to New Street Station then we would find that governments would fall over themselves to be associated with it. But I have come to the conclusion after four years' going on about New Street Station in seriously important places that we in Birmingham have got to do this ourselves because others are constantly going to put it to the bottom of the heap.
Mapp: New Street Station is nothing to do with me except as a visitor and it is a bloody awful place to visit. The sooner you sort it out the better. As far as the train network is concerned, the one thing I would say about the private operators becoming more successful is that I use the train more because it is just impossible to travel by road and probably a less worse evil. They are both as bad as each other. We have got a funding crisis and some of the work led by Advantage West Midlands on behalf of all RDAs to look at ways in which we can create more innovative funding solutions to some of the transport problems that we have is to be applauded. We have to find a way of breaking the impasse. We cannot continue as we are at the moment
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