Technology | 2010.03.09
Saving Britain's industrial heart | David Gow
Peter Mandelson\'s unlikely championing of industry is on the right track – only manufacturing can save our economy
Labour, we\'re told, has rediscovered its manufacturing heartbeat after more than a decade of flirtation with unbridled finance capital culminated in the mother of all post-second world war recessions. Unlike the unreformed Tories, the mantra goes, Labour wants to rebalance the economy with an "unashamed" policy of "reindustrialisation of Britain", in the words of new self-styled industrial activist Peter (Lord) Mandelson . The Tories haven\'t given the issue even a scintilla of attention .
Mandelson is an unlikely champion of manufacturing industry; he would more than likely have joined his friend Nat Rothschild at a hedge fund or private equity firm if Gordon Brown had not astonishingly called him back to the cabinet in 2008. And it\'s not an easy beat either. Already, the ex-Hartlepool MP has been forced to watch, powerlessly, the mothballing of the huge Corus steel plant on Teesside and the loss of 1,600 jobs. The pledges he extracted from Kraft that its £10bn takeover of the Quaker industrial icon Cadbury would enhance manufacturing output and employment are hollow when the US group has already rubber-stamped the closure of a Somerset plant with 400 job losses.
Now the UK has come perilously close to losing a sizeable chunk of its interests in Airbus, the aircraft manufacturer, to Spain because the government has mishandled negotiations over the biggest defence procurement project in Europe – the 27.5bn euro contract for the new A400M military transporter . As the treasury, ministry of defence and Mandelson\'s business department squabbled over how – or even whether – to fund Britain\'s share of a 3.5bn euro rescue plan for the project, Spain audaciously offered to buy up key manufacturing facilities in Filton, near Bristol, and ship them to Seville where the A400M has its final assembly line. Yes, cash-strapped Spain, supposedly a eurozone candidate after Greece to need a bailout.
The UK has retained a 20% share in work on Airbus programmes and, crucially, company-wide pre-eminence in manufacturing state-of-the-art aircraft wings at Filton and Broughton in north Wales. And that is even though BAE Systems sold its 20% stake in Airbus several years ago to focus on buying up US defence firms manufacturing arms for the Pentagon. Ministers have jealously fought against French and German political and industrial interests wanting a piece of the lucrative Airbus wings business to preserve that 20% "workshare" that helps guarantee 11,000 jobs in the UK – including 800 directly put at risk by the Spanish manoeuvre.
But Spain\'s move, including an offer to buy and ship the huge jigs that cradle the wings during their manufacture and assembly, could have cut the UK\'s workshare almost in half to 11%, according to some insiders privy to the negotiations. What\'s more, that would not have been a one-off. Spain, which holds just 5.5% of EADS, the parent of Airbus, desperately wants to increase its stake – and to raise its Airbus workshare permanently as part of the Zapatero government\'s post-recession strategy to create jobs in a country where unemployment is around 20%.
Spain has identified aerospace as a core segment for growth. So, ironically, has Mandelson together with the prime minister and chancellor. Of course, defence contracts are notorious for cost overruns and the A400M is one of the worst: it is four years behind schedule and already costing at least a third more than originally estimated. There is no guarantee even now that the 3.5bn euro rescue package agreed by the seven governments backing the project will be enough: almost half is predicated on future export orders.
There\'s also the small matter of the squeeze on defence spending, which is likely to harden after the general election when ministers start cutting the overall £175bn budget deficit. Despite the squeals from armed services chiefs that prompted Brown to tell the Chilcot inquiry he would sanction a £100m new spend on lightweight but better-protected patrol vehicles for troops in Helmand province, the MoD\'s £10bn-plus annual procurement budget is bound to be slashed whoever is in power.
The A400M, however, represents an investment in innovation and employment. Like the new-generation civilian aircraft, Boeing\'s Dreamliner and Airbus\'s A350, it uses new lightweight composite materials and is more fuel-efficient. It also embodies a substantial European challenge to the super-dominance of the Americans (Boeing and Lockheed Martin) in the field of military transportation. That\'s certainly how the French, Germans and Spanish see it.
But they, who together control just over 50% of EADS/Airbus, see the continuing merits of investing in strategic industries and of forcing their banks to do the same. It may even be one reason why Britain\'s nearest economic rivals have suffered shorter recessions. If we genuinely want to rebalance our economy we should start putting serious money into manufacturing, including into engineering education, or else carry on watching helplessly as yet more industrial jobs are lost on top of the 1.5m since 1990 and we sink into a fading financial and retail backwater.
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