Where's the meat in 'apple pie'?

Give us a stable currency, says David Chidgey

"MY COMPETITIVENESS White Paper is the most business-friendly document any Labour government has produced," claims the Secretary of State for Trade and Industry. Well, it is certainly high on style and fine on ideals. But the question business will be asking is, "Where's the action?" New Labour is making a virtue out of being non-interventionist, but it cannot wash its hands of government responsibility to create an economic climate in which competitiveness thrives and businesses prosper.

In the village of Hamble on the edge of Southampton Water, the Government's pledge to "create world class science and technology and convert it into commercial success" will have a hollow ring. Local engineering firm Carbospar has just gained one of Peter Mandelson's Millennium Product Awards for new technology that is revolutionising ocean sailing. Yet, this year, it lost half its forecast overseas sales because of the uncompetitively high value of the pound.

Another Millennium Product Award winner, Lancashire Fittings of Harrogate, has suffered a salutary experience. Its new design could change the face of the pipe fittings industry. Armed with pounds 2.5m in advance orders, it went in search of capital to set up a production line. But offered a miserly 5 per cent royalty to have the product taken off its hands, it is negotiating a deal in Sweden, with the result that hundreds of manufacturing jobs in Britain will be lost.

Back in Hampshire, Alstom has announced redundancies for up to a third of the labour force at its Eastleigh railway works. Old-style working practices, poor competitiveness in a reducing market and lost orders are blamed. But will the White Paper make a difference?

Mr Mandelson has produced a sensible analysis of the shortcomings in Britain's office and factory culture. But this will not make up for decades of neglect. The problems faced by firms in Hamble, Harrogate and Eastleigh can be found up and down the country. The White Paper will do nothing to stop our industrial sector falling into recession or prevent up to 400,000 job losses over the next two years, which would take manufacturing employment in the UK to its lowest level since the industrial revolution.

Industry faces an uphill battle to remain competitive. Sterling is still almost 10 per cent higher than in May 1997 on a trade-weighted basis and 27 per cent higher than in May 1996. Investment capital remains a luxury while interest rates at 6.25 per cent are more than double the 3 per cent enjoyed in continental Europe. Our real exchange rate is higher than in the 1990 recession. Real interest rates are higher than in the 1980 recession.

To prevent another recession, it is not enough to preach motherhood and apple pie solutions to companies that already realise their problems.

If the Government is to help improve Britain's competitiveness, it must take a lead on Britain's entry into EMU by setting out a clear commitment in principle and a programme to prepare for the euro, stabilising sterling exchange rates in the process. It must also bring forward changes in fiscal policy to force down interest rates. Above all, business needs certainty to be competitive in the global market.

The Government must look to reduce business burdens through greater deregulation. And it should simplify taxes on small business and raise the VAT threshold, rather than produce complex tax wheezes.

It should not doubt the determination of business to innovate, to dispense with out- moded practices, and to recruit and reward the skilled and committed. But it must remain the responsibility of government to create the climate in which the able can compete and succeed. Otherwise, Mr Mandelson's Millennium Products plaques will be just so many bits of worthless tin.

David Chidgey is the Liberal Democrat spokesman on trade and industry. Copyright: IOS & Bloomberg