WIREDGOV

Make no mistake, the agenda is extremely challenging. I know Governments always blame their predecessors. But we truly inherited an awful mess when taking office.

Long-term weaknesses were exposed. Our banking system had virtually collapsed and was – is – unfit for purpose: failing to support the real economy. Manufacturing had been neglected and hollowed out. The public finances involve large unsustainable deficits. The private finances of many households were unsustainably burdened by debt. The economy – having contracted by around six per cent – was still in catatonic shock.

Those problems were not caused by trade unions, or by the workers they represent. In fact, trade unions like yours did a lot to help the private sector through the recession by negotiating realistic deals to restrain pay, vary shift patterns and work flexibly. You saved many jobs as a result. Employment fell during the recession, but that fall was a lot less than it might have been.

Since taking office we have not flinched from taking the difficult decisions to stop the rot. A recovery has begun. I do not fool myself into believing that recovery will be swift. It will be a long haul to rebalance the economy – towards investment, towards exports, towards manufacturing – given the severity of our problems and the loss of output we experienced.

It will take a sustained effort through this Parliament and beyond to correct the economy’s weaknesses and put us on a long term path to growth.

Like it or not, fiscal policy has to remain tight for the forseeable outlook. We have to work other levers to stimulate private investment and business’ capacity to generate jobs. This involves creating the right regulatory and policy framework to encourage trade, investment and enterprise.

Manufacturing

Let me explain what this may mean for manufacturing, which you have debated this morning.

Like you, we appreciate that manufacturing is key to our future development. We will not rebalance the economy and spread prosperity more equitably around the country unless manufacturing thrives.

Previous Governments of different parties failed to appreciate the significance of manufacturing. They were lulled into believing that growth could be delivered indefinitely by the service sector, especially financial services. The idea that ‘Britain doesn’t make things any more’ is widely believed – wrongly.

Despite its neglect, the UK remains an important manufacturing country. It accounts for 55 per cent of our total exports. Thanks in part to the depreciation of the pound, manufacturing has led the way of the recession.

We have to be realistic. We cannot unwind the last three decades or more – though there are some encouraging signs of supply chains returning in the motor vehicle industry for example. And we cannot, and should not, depend on currency movements to underpin future manufacturing growth. Our goal is to ensure the UK becomes Europe’s leading exporter of high value goods and services. We have therefore taken a range of measures to back the real economy in the longer term.

For example, we have ring-fenced the science budget. This signals the importance we attach to this expenditure and to the support it provides to industrial innovation. And my Department is launching a series of Technology Innovation Centres, starting with Advanced Manufacturing, to support the technologies of the future.

Improved skills are vital to our manufacturing success and to our ability to adapt to the rise of China, India and other manufacturing competitors. We are therefore investing an extra £180million to deliver at least 250,000 more apprenticeships over the next four years than was previously planned.

The skills agenda is very much a trade union agenda. We are therefore continuing to support Union Learn and the efforts of the GMB and other trade unions to promote lifelong learning at the workplace. I regard this type of union activity as especially helpful, and I want it to continue. We are committed to spending over £21 million this year on it.

The first round of the Regional Growth Fund bidding concentrated in particular on financial support for high tech manufacturing, particularly in the motor vehicle industry. The next round will provide more. I welcome trade union participation on the advisory panel.

Much of manufacturing also stands to gain as we move towards a low carbon economy. I know trade unions very much appreciate the potential from greening the economy. Last month, I established detailed plans to establish a Green Investment Bank an institution which will help finance the development of the country’s green infrastructure. Initially, the bank will have a capitalization of £3 billion pounds, and it could mobilise an extra fifteen billion pounds of private investment.

Rebalancing the Economy / The Regions

The GMB is a union with a strong regional focus. Like you, we want to disperse growth more evenly around the country. Too much growth, wealth and prosperity is concentrated in one part of the country, the South-East. It has been for a long time.

Previous attempts to redress that chronic imbalance have not narrowed the gap. We are therefore developing a new approach to local development through the establishment of Local Enterprise Partnerships. These will radically reshape the way business and the government interact at the local level. They will free the way for a bottom-up approach to local development, which the RDAs never managed to achieve.

I know some RDAs were well regarded in the union movement and undoubtedly did some sensible and worthwhile things – but, in truth, they failed to deliver the necessary buy-in from employers, local authorities and other economic players. They behaved as the regional arms of central government.

RDAs did have a role in encouraging inward investment to the regions. This activity will now be undertaken by UK Trade and Investment. In the past trade unions have met potential investors and helped convince them to come to this country. Your involvement has helped dispel misconceptions about the flexibility of UK workforces and the attitudes of trade unions towards new ways of working. I want to ensure that trade unions continue to play a role with UKTI in selling the benefits of locating in this country. I have therefore opened discussions with the TUC to see how union involvement in this activity can be enhanced.

Ownership and Workplace Regulation

The rebalancing of the economy requires more private investment creating real jobs. That will ideally involve a partnership between enlightened forward-looking companies and a committed workforce. In the best firms this happens – and I see in action the many companies where it does. Workers in these companies are treated well and regard themselves as partners, as a valuable resource. But by the same token there are poor employers, and in extreme cases, exploitation.

I last occupied my present office a third of a century ago when I worked for John Smith when he was Secretary of State in the Callaghan government. We tried to put through legislation on worker participation, following the Bullock report on the German model. That is long forgotten. But the underlying philosophy is carried forward on employee owned companies, like John Lewis and Arup, in social enterprises, coops and mutual. I want to encourage these developments and we are looking at legislation to strengthen the ‘third sector’ of employers.

But most employment will be in competitive private enterprise where we rely on regulation to preserve a proper balance between the interests of companies, their employees and their customers. Modern shareholder capitalism, as experience it in the UK, has considerable strengths as a system, but also weaknesses. One is a tendency to what is called ‘short-termism’: a pre-occupation with short-term, often quarterly, profitably and shareholder value at the expense of long-term growth. It says something when private equity investors are considered to be long-term – because they plan over five years. Long-term institutional investors who manage pension funds, for example – seem to be eclipsed by those solely interested in the short term – and managers have those short-term goals embedded in their incentives. I am determined to change this short-term culture.

Second, we are seeing too many company takeovers which reduce or destroy value and are driven by the fat fees earned by the lawyers and banks who facilitate them. I have made it clear – post Cadbury – that there have to be changes and I am pleased to see the Takeover Panel has come up with modest but useful changes to reduce unnecessary takeovers.

And third, there is executive pay. Top pay has escalated to ridiculous levels, particularly in the banking system but also more generally. High levels of pay and the underlying differentials within companies often are unrelated to management performance. Rewards for failure abound. And the inflated salaries and bonuses are in turn translated into top pay in the public sector. I am currently looking at practical measures to address this problem: more transparency; more effective control by shareholders over remuneration; tighter regulation of bonuses in financial services.

Just as government needs to intervene to curb the excesses on the side of the owners or management we also need to look at workplace regulation to establish whether it is proportionate and fit for purpose.

In the past, Governments have though they could change attitudes and cultures by regulation and diktat.

Our approach to workplace regulation, and indeed other regulation, is very different. We want regulation when it is necessary. I am at the receiving end of an endless barrage of complaints from business – especially small business – saying that employment legislation is stopping them taking on more staff because of the hassle involved. Too much time is taken up with form filling, target monitoring and box ticking. This bureaucracy is a headache and a diversion to managers and workers alike. For small companies which do not have compliance and HR departments to sort these things out, there is a major problem. That is why I have introduced a moratorium on new regulations for firms under 10 employees, and start-ups.

The Government has also issued a Red Tape Challenge to obtain the public’s views on thinning out the dense thicket of current regulation.

We have also embarked on specific initiatives to review certain aspects of employment law. For example, we know that too many disputes are going employment tribunals, and tribunals are taking too long to process them. Tribunal reform is needed to encourage more conciliated settlements and the earlier resolution of problems. Both employees and employers can benefit from change in this area. Recourse to legal action should truly be a last resort.

We want to the first Government in history to reduce the overall burden of regulation, rather than increase it. However, we will regulate and introduce new rights where there is a clear case for it.

Last month, we announced proposals for a new system of flexible parental leave and an extended right to request flexible working. These changes are necessary on social grounds to reflect the modern family life. But they also serve solid economic purposes. By extending an individual’s ability to combine work and family life, fewer people will drop out of the labour market, losing their skills and prospects in the process. Also, research suggests the employers experience better workplace relations where flexible working occurs. Good businesses are already flexible and we want this to be the norm.

Strikes

Whilst I am talking about workplaces, I should also mention the state of industrial relations, which is very much in the news.

Later this month, we may very well witness a day of industrial action across significant parts of the public sector. The usual suspects will call for general strikes and widespread disruption. This will excite the usual media comments about ‘a summer’ or ‘an autumn’ of discontent. And another group of usual suspects will exploit the situation to call for the tightening of strike law.

We are undoubtedly entering into a difficult period. Cool heads will be required all round. Despite occasional blips, I know that strike levels remain historically low, especially in the private sector. In fact, until March this year the number of days lost through strikes was lower than at any time since 1931. And of course the right to strike is a fundamental principle. On that basis, and assuming this pattern continues, the case for changing strike law is not a compelling one.

However, should the position change, and should strikes impose serious damage to our economic and social fabric, the pressure on us to act will ratchet up. That is something which both you, and certainly I, would wish to avoid.

Union Engagement

Conference, I have tried to sketch out my agenda. There is much to discuss and develop. I want trade unions to contribute to that process.

There are many examples where this is already happening. I meet Brendan Barber most months. I have also presented out Plan for Growth to a senior TUC delegation. Other BIS Ministers have similar patterns of engagement. For example, our review of advanced manufacturing directly involves union experts in the field. BIS is by no means an exception here.

The Government is committed to further engagement with trade unions. We genuinely want your input. This is not a Government which simply listens to employers, though they are an important voice. We do not treat their views as ‘gospel’. We want to consider evidence from all sides.

I know that feelings are running high in trade unions, as the demonstration on March 26 th showed.

But, despite our differences, we have much in common. We share many policy aims. We face the same economic challenges. Let’s address them together. I believe this is what ordinary union members what their unions to do.

Notes to editors: