Queen’s Speech

My Lords, I will speak about some of the inter-relationships between manufacturing, energy policy and climate change. My speech covers business and economic topics that will be discussed tomorrow, but their relationship to energy and the environment prompted me to speak today. In assessing manufacturing and its impact on the economy, I draw upon a recent report of the Electrical Research Association entitled The Sustainability of the UK Economy in an Era of Declining Productive Capability. The report points out that the UK’s adverse trade balance has intensified at a rate of 20 per cent a year since 2000, approaching a negative £60 billion, nearly 5 per cent of the UK’s GDP, in 2007. Finished manufactured goods showed the largest gap, being offset only partly by the surplus in financial services. Sir Alan Rudge, chairman of the ERA, said: ""This is a picture of a country consuming more goods than it is able to pay for by means of its export of goods and services and its earnings from overseas investments"." It is unlikely that we will recover this situation without restoring the magnitude and competitiveness of our manufacturing industry—which even in its depleted state remains the leading contributor to the balance of trade—but this is not happening. Richard Lambert, director general of the CBI, speaking to journalists about the CBI report published yesterday, pointed out that over the past 20 years, while bank balance sheets everywhere expanded rapidly, powered in good part by the huge growth in financial transactions of all kinds, here in the UK other types of lending became increasingly focused on commercial real estate. Between 1986 and 2008, manufacturing’s share of bank lending to non-financial companies fell from 29 to 5 per cent, while the real estate share rose from 11 to 36 per cent. Doing the sums in a different way, the Bank of England said last Thursday that the real estate share is now close to 50 per cent. I will return to this at the end of my brief remarks. I turn to energy and climate change. We have an energy policy that assumes that climate change is going to be extremely serious and we have set ourselves carbon reduction targets that are among the most aggressive in the world. With admirable intent we wish to set an example for others to follow. Many doubt whether we will attain the targets. The Government’s initial renewable energy strategy made little engineering sense, but what is certain is that it will significantly increase the cost of electricity. Official estimates released in July 2009 and quoted by Ruth Lea in last Friday’s Wall Street Journal Europe point to an increase of 70 per cent for business users and 33 per cent for domestic users by 2020. This may be unavoidable because of the global threat of climate change, but it will certainly further damage our manufacturing industry and must be taken into account. We need to reassure ourselves that our assumptions about climate change are reliable. At present, estimates of the degree and rapidity of warming—the most serious consequence of climate change—vary hugely. That is not surprising because they are based on extrapolations made from temperature data, such as those quoted in the Government’s low-carbon transition plan, where the signal to noise ratio in the data is about only 2:1 and, as has been shown, the temperature increase over the past 95 years has been only 0.75 degrees centigrade. The retreat of glaciers and the reduction in Arctic ice are surer indicators of warming and seem to have been accelerating over the past two decades, although, as with the temperature data, it is difficult to use those to make accurate estimates of timescale. The lack of an adequate quantitative relationship between the percentage of carbon dioxide in the atmosphere and warming adds to the uncertainty. We need to strengthen support to those who are modelling and measuring these phenomena to assure ourselves that we are taking appropriate action, neither underestimating nor overestimating the seriousness of the dangers. At the same time as we work on improving our understanding of the seriousness of climate change, we should be getting on with what was referred to in the 2009 Budget as "Building a Low-Carbon Recovery". I was greatly encouraged when I read this chapter of the Budget with the immense spending proposals that it lays out, which are intended to enhance manufacturing while meeting our carbon objectives. It boasted that £50 billion of low-carbon investment over the next three years to 2011 was already built into existing policies and that a further £1.4 billion was to be added. Some £405 million was committed to low-carbon industries and advanced green manufacturing to make the UK a world leader. But where is this money? Little of it seems to have arrived. In terms of R&D funds, the Carbon Trust has about £20 million, and renewed efforts are being made to distribute this money, which in a foolish error initially required the R&D to be completed before it could be funded. Our inability to get going means that we may have lost the race in nuclear and wind, but there are other technologies where we might succeed and I will mention just one. Tidal turbine technology has the virtues of finite scale, predictable output and zero visual impact, and it is a technology where we have several small firms with competitive offerings that, with appropriate support, might be able to build worldwide businesses. There are other, comparable technologies, all waiting for funding to accelerate their activities. Perhaps the Minister will be able to tell us how much money has actually been deployed on the "low-carbon recovery" referred to in the Budget. Are we getting on with it at a rate that will ensure that we are competitive? Would the Minister also please reassure us that we have abandoned the idea that we can survive with an economy that depends on the service and financial sectors alone, and that we will do what we can to ensure that our banks focus on investing in manufacturing, especially in the manufacturing technologies that enable a low-carbon economy, rather than on the seriously flawed real-estate sector?