May I say first how grateful I am to you, Mr. Heath, for agreeing to chair this Conference.
Not only are you the head of one of our largest and most successful engineering companies but both you and your predecessor at GKN have been conspicuously robust in defending the interests of manufacturing industry and free enterprise. [end p1]
I don't think that our Conference could be in better hands today.
This Conference, which Michael Heseltine and his Industry team have taken great pains to organise, is a new venture for us.
If you judge it a success, I hope it will be repeated. [end p2]
We are at this moment deciding how the next Conservative Government can restore the all-important climate of confidence in which manufacturing industry can once again flourish and expand—not least in the West Midlands.
We have organised this Conference so that we can have the views of the widest possible range of industrialists before coming to our conclusions. [end p3]
I stress that we are here to listen—as well as to talk.
For that reason the majority of time will be devoted to contributions from the floor. [end p4]
The importance of manufacturing industry
Manufacturing industry is of critical importance to our entire economy and to the well-being of every family in Britain, whether they are personally engaged in manufacturing or not.
Of course the service industries play a key economic role as well, but Britain cannot live by them alone. [end p5]
It is sometimes suggested that there is something old-fashioned about being in manufacturing; that manufacturing is a hangover of our Victorian p* that as countries become fully developed they should deliberately move out of manufacturing.
I believe this thinking is mistaken.
The economies of all the advanced industrial countries—the United States, Japan, Germany, Britain—are still firmly grounded in manufacturing and this seems certain to continue. [end p6]
In Britain today the private sector of manufacturing industry provides nearly one third of the jobs, nearly one third of our Gross Domestic Product, and nearly all our exports. Start of first filmed section
It has often been said, we must export or die.
I would add that we must manufacture, or die even quicker. [end p7]
However, there is no disguising the fact that, taken overall, our industrial performance since the war has been disappointing, although some British companies have been spectacularly successful by any standards. [end p8]
The last two years have been particularly difficult for industry.
Today industrial production is actually lower than it was during the 3-day week in February 1974 due principally to the present Government's disastrous mishandling of our economy. [end p9]
A nine-point programme for Britain's industrial recovery
What industry needs is a long period during which industrial recovery and steady growth can be sustained a long period of stability and freedom from excessive Government interference; freedom from more legislation; a long period in which all those who work in industry are encouraged and rewarded instead of being frustrated and overtaxed.
It is my hope and intention that the next General Election will usher in a long period of Conservative Government which will see growth in prosperity comparable to that of other advanced industrial nations. [end p10]
Government can't create that growth but it can stunt it all too easily.
We believe it is time Government did less directing and more rewarding.
Time to use less stick and more carrot.
Time to leave more industrial and commercial decisions to those who have day-to-day experience of industry and commerce. End of first filmed section. [end p11]
It is from that viewpoint I want this morning to put forward a nine-point programme for Britain's industrial recovery. [end p12]
1. A reduction of Government expenditure
First, Britain's industrial recovery is dependent on a substantial reduction in Government expenditure. Start of second filmed section
In the last two years the present Government has brought about a highly significant and deeply disturbing structural shift in our economy.
It has made much the largest, and much the fastest, shift of resources out of the private and into the public sector of our economy since the last war. [end p13]
When we left office, public expenditure represented 51%; of National Income—virtually the same as when we came into Government in 1970.
At the end of last year public expenditure had shot up to nearly 60%; of GDP and this year it looks like going up further to about 62%;.
Under this Government, for the first time in thirty years public spending is taking a greater share of our resources than even in the peak war-time economy at the end of the Second World War. [end p14]
The danger of this trend will be apparent to you all.
What the Government is doing is to denude the productive and wealth-creating sector of the economy of resources which are being used instead to pay for Government spending which is largely non-productive. [end p15]
In business terms most Government expenditure is an overhead.
Like any other overhead, some elements are highly desirable; indeed they are indispensable to a caring and orderly society.
But equally we all know what happens if a firm fails to control its overheads, and allows them to grow faster than its capacity to pay for them. [end p16]
This is exactly what the Government has done and is continuing to do.
The Government has massively overspent since February 1974, and it has overspent by a greater amount each year it has been in office.
Its spending has long outstripped the capacity of the taxpayer to pay.
Consequently it is now having to borrow at the rate of £1,000 million a month., £250 million a week, £35 million a day, and £381 a second. End of second filmed section. [end p17]
Industry is constantly being asked by Ministers to run faster and faster, but at the same time it is being made to carry a heavier and heavier burden of Government expenditure on its back.
Of course, industry must run faster to survive in the intensively competitive world markets of today. [end p18]
But if industry is to run faster, if it is to expand, Government spending must be cut and industry must be left with more of its own resources to provide Britain with the jobs and the wealth of tomorrow.
It's no good the James CallaghanPrime Minister and the Denis HealeyChancellor of the Exchequer just talking about cuts.
The test is not what they say but what they do, and we are still waiting for action rather than words. [end p19]
But the powerful Tribune Group, over 80 strong, has made its views clear.
It wants more Government expenditure, not less, and would rather see still more taken out of the pay-packet in higher taxation than even a small cut in public spending. [end p20]
2. A restoration of profitability
Second, we must restore a healthy level of profitability to industry.
I want to stress the seriousness of the deterioration in the level of company profits that has taken place, not just over the last two years, but over the last two decades.
This was brought out graphically in a paper published earlier this year by Adam Ridley, who is the chief economist in our Research Department ( “The Problem of Public Expenditure” by Adam Ridley, Conservative Research Department, 23 Feb. 1976) [end p21]
This showed that the rate of return on capital of all UK companies, at replacement cost and after providing for stock appreciation, has plunged fairly relentlessly over the last twenty years from over 13%; in 1955 to under 2%; in 1975.
NEDO National Economic Development Office figures based only on manufacturing companies show exactly the same sharp downward trend.
This trend must be reversed. [end p22]
There is no way that existing capital will remain tied up in manufacturing companies—still less will new capital be attracted by them—unless their profitability is restored.
It is noticeable that the Pension Funds of the nationalised industries don't seem to be very enthusiastic about investing in British industry.
The Post Office's fund has been investing £20 million in property—not in Britain but in North America—and British Rail's fund is reported to have invested £½ million in a Picasso. [end p23]
To help us restore profitability I ask you to intensify the battle to get the public at large, and your employees in particular, to understand the meaning and importance of profits.
A few months ago Michael Heseltine wrote personally to the Chairmen of a thousand companies about the possibility of using company annual reports to explain to employees exactly how profits are used.
A number of companies, not least your own, Mr Chairman, have been doing this for some time. [end p24]
I hope that more will follow your example.
We must show that profit is not a dirty word, but a clean, wholesome, and very desirable word.
Profit means higher pay.
Profit means secure jobs.
Profit means better holidays and better amenities at work.
Profit means higher pensions and higher bonuses on life assurance policies. [end p25]
Profit means better hospitals, better schools, better homes and greater prosperity.
Profit means a better and brighter Britain.
Let's go out and preach the message that profits are good for you. [end p26]
3. A restoration of incentives for those Who work in industry.
Profits are made partly by machines, and partly by people—by people's willingness to work harder.
And that brings me for my third point, we must restore proper financial incentives for those who work in industry.
You can't expect most people to work harder unless you make it financially worthwhile for them to do so. [end p27]
You can't expect highly skilled workpeople and our most dynamic managers to stay in Britain if it means accepting much lower after-tax pay than they can command abroad. Start of third filmed section
In the last two years, the Socialists have systematically destroyed personal incentives.
Our starting rate of income tax on earned income at 35%; is not merely the highest in Europe—it is actually the highest in the world according to a Treasury Minister. [end p28]
In addition only three countries in the world—Algeria, Egypt and Portugal—have a higher top marginal rate of income tax than our own 83%;.
Not only has direct taxation become comfiscatory but however hard people work, however much additional experience and training they acquire, and however skilful and enterprising they are in their job, it has become impossible for them to build up capital out of their earnings. [end p29]
The burden of taxation is such that if it increases much further we shall be reduced to what I have called a ‘pocket-money society’—a society in which the state grabs the lion's share of our pay packet leaving just pocket money with John Citizen to spend as he wishes.
We must leave more in the pay packets of those who work in industry not only to restore personal incentives, but also to halt the drift from the private to the public sector. [end p30]
Time and time again I hear of people leaving their firm to work in the public sector with no greater responsibility but at substantially increased pay.
Only last week I was told of a systems analyst who was working on a public sector contract in a mixed team drawn from both the private and the public sector.
Whilst continuing to work on the same job on the same contract, he switched employment from the private firm to the public authority. [end p31]
His salary when he left the private firm a year ago was £3,750.
His new public authority employer gave him a starting salary of £5,200; it has since increased his salary further to £6,100 and he will shortly also receive his £6 a week increase under the present pay policy.
No wonder so many people opt for the easier life of the public sector and spurn the tough competition of free enterprise.
As a party we believe in personal incentives and we shall restore them. [end p32]
We shall encourage profit sharing, wider share-ownership and other forms of capital participation.
In particular we attach prime importance to reducing the now crippling burden of income tax as soon as the economic situation we inherit will allow. End of third filmed section.
4. A substantial relaxation of the Price Code
Fourth, to help our drive towards profitability, we must bring about a substantial relaxation of the Price Code. [end p33] Start of fourth filmed section
After three years experience of the Price Code, two things are quite certain.
First, the Code has become increasingly costly for companies to administer, and second the Code itself is riddled with anomalies.
I am told that the Code is costing Unilever £300,000 a year to administer, and ICI £½ million a year.
As far as those companies are concerned that is money down the drain—money that can't be used for investment, for dividends, or for servicing additional capital. End of fourth filmed section. [end p34]
Examples of business anomalies being produced by the Price Code are now innumerable.
I will cite just two.
The CBI have drawn attention to the case of a large engineering company that has rejected an investment proposal which, without the Code, would have given an estimated profit of £1 m.
It was rejected because under the Code it would have resulted in a loss of £300,000. [end p35]
Then there is ICI who has shown that its extra export business, on which prices are of course not controlled, has reduced its unit costs and has led to an enforced cut under the Code in UK prices.
The result is that additional export orders of £1.16 million by ICI has produced a derisory overall profit increase of just £10,000.
The Secretary of State for Prices, Mrs. Williams, acknowledges that industry's present rate of return on capital of 2%; is “disastrous” , but what does she do about it? [end p36]
She puts it up by a derisory 1%;—hardly likely to induce the necessary confidence for new investment.
The CBI President gave her marks of “two out of ten” .
Even these days that can hardly be a pass mark.
We want to see price controls relaxed so that they become effectively a reserve power, and industry allowed maximum price freedom coupled with maximum exposure to competition. [end p37]
5. A lifting of the fear of nationalisation
Fifth, the return of the next Conservative Government will lift the fear of nationalisation which is now extending right through industry. Start of fifth filmed section
Although the James CallaghanPrime Minister says he believes in the private sector, he doesn't believe in it strongly enough to take action to drop the nationalisation of aircraft and shipbuilding, but to expect a moderate Socialist politician to practise what he preaches would be a triumph of hope over experience. In practice, they will go with the left. [end p38]
I must stress that the Labour Party are now giving their nationalisation programme a wholly new dimension.
Gone are the days when Labour talked of nationalisation in terms of certain public utilities and a few specified industries.
Their objective now is clearly to extend nationalisation the length and breadth of both manufacturing and service industry. [end p39]
If anyone is sceptical about that, I recommend them to read “Labour's Programme for Britain” recently approved by the Labour Party's National Executive Committee.
This Programme advocates the extension of nationalisation to: the banking industry the insurance industry the agricultural industry the food-manufacturing industry the pharmaceutical industry the construction and house-building industry [end p40] companies in the fuel industry—Burmah Oil, Castrol, Halfords and Rawlplug are specifically mentioned and to companies in more than thirty sectors of industry now being studied by NEDO National Economic Development Office.
The Marxist Left of the Labour Party who now dominate the Party's policy thinking have given notice that they will not rest content with anything less than the wholesale nationalisation of British industry and British agriculture. [end p41]
Their nationalisation programme is financially senseless, and industrially disastrous.
We shall resist it with all the strength we can muster, but to resist it successfully we need to be in Government and not in Opposition. End of fifth filmed section [end p42]
6. A reduction in the time spent by industry in dealing with bureaucracy
Sixth, we must reduce the time spent by industry in dealing with bureaucracy.
I am afraid that successive Governments have failed to recognise the cost to industry of the bureaucratic burden imposed on firms by one Act of Parliament after another.
For industry, time is money. [end p43]
Every minute, every hour, every week taken up on form-filling is money lost.
The burden of form-filling is now massive.
One of my colleagues in the House, Nicholas Fairbairn, put down a Parliamentary Question to find out just how many forms industry has to fill up each year. [end p44]
The Industry Minister replied that in the year to June 1975 the Department of Industry sent out 520,000 statistical forms to firms in manufacturing, construction, mining and quarrying, and another 260,000 forms to firms in the distributive and service trades (Hansard, 22 January 1976, Written Answer).
In addition another 2½ million forms were sent out by other Government Departments.
This means that British industry is now on the receiving end of nearly 3½ million forms a year. [end p45]
The cost in time of filling them up must run into tens, if not hundreds, of millions of pounds.
Is all this form-filling necessary?
I doubt it, and we shall see whether we can consign at least some of these forms to the waste-paper basket. [end p46]
7. A reduction in over-manning
Seventh, we must reduce over-manning in industry itself.
We all know the areas where over-manning is at its worst.
The British Steel Corporation's figures show that the output of liquid steel per man in the BSC is barely a third of that in Japan, half that in the United States, and significantly lower than in France, Germany, Italy and the Netherlands. [end p47]
If we turn to the motor industry, the Central Policy Review Staff report showed that in Britain we need twice as many men as on the continent to assemble the same car using the same capital equipment.
There is no way we can compete on this basis.
Our choice in some industries is either to reduce overmanning—humanely, making maximum use of natural wastage, generous redundancy payments and retraining—or to go out of business. [end p48]
It is the job of responsible politicians to help people face up to that choice before it is too late, and not to foster illusions until the situation becomes irretrievable. [end p49]
8. Greater emphasis on the needs of industry in higher education
Eighth, we must put greater emphasis on the needs of industry in higher education.
Ultimately, British industry depends on the skills of those it can attract.
What is disturbing is the growing reluctance of British students to take up places for courses in applied science and technology at Universities. [end p50]
These places are instead going increasingly to foreign students.
Last December, Lord Bowden the Principal of the Institute of Science and Technology at the University of Manchester gave the following warning:—
“Until about 1970, we were confident and pleased with what we had done, but in the last four or five years, most of our efforts seem to have been in vain. Englishmen no longer want to study any discipline which would fit them for a career in productive industry. [end p51]
“They have deserted university schools of science and technology in droves.
“The places they left vacant have been filled by a multitude of eager foreign students, who have come here to learn how to make their native countries prosperous … . [end p52]
“The change in the composition of some of our classes has become alarming in the extreme.
“This year the Masters course in Textile Technology has twenty-eight foreign students and none from this country. [end p53]
“The corresponding course in Polymer and Fibre Science has ten foreign students and two Englishmen … .
“We used to have the biggest undergraduate school of Chemical Engineering in Europe. For a decade or more it recruited ninety Englishmen and half a dozen foreigners every year. This year it admitted twenty three Englishmen and twenty-five foreigners.
“Our post graduate school of Production Engineering used to admit a couple of dozen Englishmen and a few foreigners every year. Today it has four times as many foreigners as it has Englishmen. [end p54]
“Our Masters course in Hydro-carbon Chemistry upon which the oil industry depends was mounted by the great oil firms and by the Science Research Council. We had forty-six students in the class last year of whom two were English, and this year we have forty-three students of whom one is English.”
Lord Bowden's address carries a clear warning that we must heed.
We are ceasing to attract bright young men and women with a scientific bent into industry. [end p55]
It is only when we have once more made a career in industry satisfying, prestigious and well-paid that we will find our young people eager to take up places in the applied sciences at the universities. [end p56]
9. A new stimulus for small businesses
Lastly, we must provide a new stimulus for the small businesses.
They make a vitally important contribution to our economy. They employ about one-third of those who work in the private sector and they contribute one-fifth of our National Product.
But the small businesses contribute something else—less tangible, but equally important. [end p57]
They provide Britain with a reservoir of entrepreneurs who are both willing and able to stand up to the Government of the day.
The entrepreneur is by nature unbiddable. He argues and he resists. He has faith in himself and he fights his corner.
He has roots in the community. He has too much to lose. He is not the raw material on which to build a Socialist society. [end p58]
It is perhaps not altogether surprising that the small business has been singled out for vindictive and punitive tax treatment by the present Government.
The Capital Transfer Tax coupled with Capital Gains Tax ensures that no family can create and retain a medium size company.
We are committed to changing that position. [end p59]
We cannot tolerate a tax that makes it attractive to keep companies small when they could grow large—where a father has a vested interest in leaving a job half done for fear that his very success could impose unacceptable financial strains on his son.
We are not content to see the gobbling up of small businesses by large, simply because of the tax system.
In a free society any individual should have the right to start a small business, to build it up and to hand it on to the next generation without incurring a tax penalty that may destroy the business entirely.
We shall restore that right. [end p60] Start of sixth filmed section
I consider the recovery and sustained expansion of British industry is the most important single task of the next Conservative Government. On that everything else depends.
I see no intrinsic reason why Britain should not be able to match any other European country in industrial prosperity.
We have a highly developed capital market.
We have an abundance of inventiveness. [end p61]
We have energy, enterprise and competitiveness when we encourage it.
We have a skilled work force, which is co-operative as long as management is modern and personal, and trade union leadership is responsible.
Our job in Government will be to do all in our power to help and not to hinder.
That we shall do in the knowledge that industry alone can create the prosperity of this generation and the next.