Labour put too much faith in City, admits Mandelson

Business secretary announces £150m of aid for manufacturing and says industrial sector crucial to UK economy
Heather Stewart and Emily Martin
guardian.co.uk, Tuesday 28 July 2009 19.52 BST
Business secretary Lord Mandelson conceded that Labour put too much faith in the economic prowess of the City over the past decade, as he announced £150m-worth of government aid for manufacturing, with most going to the engineering firm Rolls Royce.
Saying that taxpayers' support would secure or create 800 jobs in aerospace and nuclear power, and bring four new Rolls Royce factories to deprived areas of Britain, Mandelson said a healthy industrial sector was crucial to building a successful British economy.
He said: "We, like other governments, had taken for granted that our wealth would continue to be generated from the size of the financial sector, and that this would be replicated in the coming decade – but it won't."
With more than a million manufacturing jobs lost since 1997, industry groups long complained that the government neglected them, in favour of the hefty tax revenues and high international profile from the success of the City.
Sir John Rose, Rolls Royce chief executive, who appeared with Mandelson as he announced the government's investment, said it marked a welcome change of approach.
"It's extremely encouraging that there's now a recognition from the opposition and from the government that we need a much more balanced economy," he said. "I hope that this will reverse several decades of aversion to industrial policy."
Asked whether opportunities had been missed over the past 12 years to support British industry, he said, "the shape of the economy that people say they want will affect the decisions that people make when they're at school or university. If people go on about the 'post industrial age,' then people will make decisions based on that."
Mandelson has helped secure a marked shift in policy since he returned to government last year, moving the emphasis towards a more activist industrial strategy, instead of the laissez-faire approach of the past decade.
"What we have in a department like this is every pool of spending and every policy lever now joined under one roof, to make coherent sense of what government does in pursuing its strategy."
The announcement included £45m to secure four new Rolls Royce factories in the UK, plus £45m from the government's Strategic Investment Fund earmarked for low carbon technologies, which Rolls will use to develop greener aeroplane engines.
Rolls Royce is also leading a research programme called SAMULET – "Strategic Affordable Manufacturing in the UK with Leading Environmental Technology," which received another £40m, much of it from the government's Technology Strategy Board. This will be used to support research centres in Sheffield, Glasgow and Ansty, near Coventry.
Rose said the injection of cash would help to fulfil his £55bn order book, much of which involves projects to be delivered beyond 2011.
Adam Marshall, Director of Policy at the British Chambers of Commerce (BCC) welcomed the news. "The future of the UK economy must be built on more solid foundations, and advanced manufacturing should be at its heart," he said. "The government's investment is a welcome boost for new technologies, particularly in aerospace, where the UK has a competitive advantage."
Several other, smaller investments were also announced as part of the £150m state aid package, including £4m to expand the Manufacturing Advisory Service so that it can help small firms to go green, and £500,000 in a Centre of Excellence for Silicon Design in the South West.
However, with the emphasis firmly on aerospace and nuclear power, green groups complained that the government was backing "white elephants," instead of nurturing new industries.
Andrew Simms, director of the New Economics Foundation argued that because aviation is capital intensive, the government would get more bang for its buck by supporting green technologies.
"Rather than new jobs in new industries, this is a small number of jobs in white elephant industries," he said.
Sarah North, campaigns director at Greenpeace, said, "Mandelson's vision for Britain's clean industrial future is proving neither British nor clean." The government, she said, was supporting, "the fastest-growing source of carbon emissions – aviation."
However, Mandelson insisted that his department was, "backing winners," instead of "picking winners," the much derided industrial strategy of the 1970s and early 1980s.
Earlier, the business secretary had visited a much smaller hi-tech firm, 'Visual Planet', in Cambridge. With a staff of 20 the firm produces a range of touch-screen technology, exporting 85% of its output
Visual Planet's commercial director, Mike Cole, welcomed the new-found enthusiasm for manufacturing, saying it was, "right on the money". "Anything that can be done for small businesses is great news," he said, particularly if it, "utilises the British ability to invent".