Blair's promises fail to soften Northern grit

What do small businesses and industry expect from Labour? Diane Coyle investigates in Lancashire

It takes a drive down a cobbled street into a scene that couldhave been painted by Lowry to reach the turn-of-the-century, red brick factory of James Halstead, a Bury-based manufacturer of vinyl flooring. It would be hard to feel more removed from the corridors of Westminster than this.

But it is the reactions of the managers running businesses like these that will determine whether Labour's policies for manufacturing will work, after a period that has seen jobs in the sector almost halve since 1979 and recent investment run in real terms at below the level achieved then.

The three key planks of the policy - a stable economy, the encouragement of long-term investment and improved skills - are uncontentious. The specific twists - changing the structure of capital gains tax, for example - are more so.

Yet, on the whole, businesses do not object to these Labour priorities. Nor, however, do they think these are things a Labour government could deliver, or at least deliver any better than the Tories.

Roy Murphy, James Halstead's managing director, is not especially hostile to Labour. He just thinks, like many businessmen, that the best thing government can do for industry is precisely nothing. "The only thing that has affected my investment decisions is whether we had a good business case. Is it necessary and is there a payback?" he says.

Low inflation and interest rates are crucial, he says. It is a widely- shared opinion. A few miles from Halstead's lies Chadwicks, a Swedish- owned manufacturer of food packaging. Its managing director, Stephen Crow, underlines the fact that a pounds 4m piece of equipment can take more than two years to deliver and install. "German businesses have been able to predict what interest rates and inflation would be in four years' time. For the first time in my working life there is a culture of stable inflation here. It makes long-term investment much more viable."

But he trusts the Conservatives more than Labour to deliver that. "I'm sure I could live with Tony Blair if he's as good as his word. But I don't believe he can control his left wing."

There is surprisingly little enthusiasm for the temporary extra capital allowances which Gordon Brown has proposed - even at P&P, a high-tech computer services company a few miles north of Bury which represents the new face of North- west business. But John Atkin, P&P's finance director, says his company's major overhead is the continuous training needed to keep pace with that change.

"We have to train all the time, and if the Government is prepared to subsidise us for it, that's great. We would welcome more encouragement for training."

He, however, is suspicious of Labour's desire to implement the EU Social Chapter - a distrust that is near universal among businessmen who believe that the new flexibility of the UK labour market has given them an advantage over Continental competitors.

Halstead's employs between 15 an 30 temporary contract workers out of a total of 500 staff and uses overtime extensively to vary output. "Other European firms would give their right arm for that benefit," Roy Murphy says.

But there is surprisingly little objection to the minimum wage. Smaller companies are the most worried. DRM is a family-owned textiles business, making up items for the health service and commercial laundries. Its staff of machinists is mainly female, employed on piece work, earning pounds 4 to pounds 5 an hour, depending on productivity - a differential which a legal minimum makes harder to maintain.

Peter McGuinness, DRM's managing director, says: "We had to spend a lot of effort making sure the wages council agreements were followed. Since their abolition, employees have not suffered and it has freed up a lot of our time."

Mr McGuinness's top priority for government action, however, is the benefits trap. There are three single mothers on his staff, and one who has just quit. "Caroline could make pounds 180 or pounds 200 a week before tax working here, or pounds 140 a week with no tax on benefits. People like her end up in a position where working does them no good. They can't better themselves."

Businesses identify other pressing problems. Agreement on the failure of the education system to deliver an adequate work-force is unanimous. Mr McGuinness says he does not hire school-leavers. "We're better off taking people who are more mature and know you have to turn up to work on time." School-leavers arrive thinking 50 per cent is a good mark in an exam. They cannot adjust to quality targets that have to be met nearly 100 per cent of the time, he says.

Perhaps the biggest encouragement for Labour is how pro-European these down-to-earth Northerners are. They see the Government's split over Europe as damaging their interests.

However, while businesses in Bury believe they can do business with Labour, the biggest task now facing Tony Blair and Gordon Brown is one they can probably only fulfil once they are in office - making the business community trust them. Labour says it will run a stable, low-inflation economy. These businessmen will believe that when they see it.