Making it

As the unemployment figures and growth projections suggest, the recovery will be slow and painful.

Much hangs on the outcome of the Eurozone crisis where we are far from the driving seat of our own destiny. So let me focus on a vital area where we have our hands more firmly on the wheel — Manufacturing.

In 1970 manufacturing contributed 30% of our output — today that figure is just 11%. Manufacturing employment has tumbled from 5.8 million in 1981 to 2.5 million today.

Conversely, services have taken up the slack — so should we be concerned about this decline? The answer is yes and here's why. Firstly, there is an inherent weakness in an economy that is too far balanced towards any one form of output — witness the recent performance of our financial services.

Secondly, there are areas of Britain that are far more reliant upon manufacturing than others. In the East Midlands it accounts for 13% of jobs compared with just 3% in London. So manufacturing matters in tackling the North-South divide.

Thirdly, manufacturing drives half of UK exports and finally, there are areas in high-end manufacturing with huge potential profitability for the future — eg, biotech.

Governments have taken two broad approaches to supporting manufacturing. The first is 'interventionist' — prevalent in the 1970s this involved ministers 'investing' in businesses which in too many cases simply served to elongate their decline.

The second approach is to create the 'environment' for growth by easing taxation (especially to encourage investment), cutting red tape, boosting skills and strengthening the link between knowledge and production in Higher Education. The 'interventionist' approach is about politicians trying to pick winners — something they seldom do well.

This Government is improving the 'environment' for manufacturing — already cutting red tape, lowering corporation tax and rapidly increasing apprenticeship numbers.