Select Committee on Scottish Affairs Minutes of Evidence

Examination of Witnesses (Questions 481 - 499)




  481. Gentlemen, I welcome you to this session of the committee. For the purposes of the record, please introduce yourselves.
  (Mr Speirs) I am Bill Speirs, General Secretary of the Scottish Trades Union Congress.

  (Mr Fulton) I am Ian Fulton, regional officer of MSF.

  482. I understand that the GMB and T&G were also to be represented today but Mr Parker, Mr King and Mr Stanton have been unable to make it.
  (Mr Speirs) That is correct. They have had travelling difficulties for which we apologise on their behalf, particularly since by their absence the expertise relating to the brewing sector is lacking to some extent.

  483. There is no need to apologise. We regret that they are unable to be with us and we cannot benefit from their experience of the industry. I am sure that both of you will more than make up for it. Are there any opening remarks—but not too lengthy, please—that you want to make at this stage in the proceedings?
  (Mr Speirs) For the record, the STUC is an independent trade union centre. The unions affiliated to the STUC represent about 630,000 Scottish workers, a substantial proportion of whom are in the drinks and hospitality industries. However, many more members are in the drinks industry. One of the points that we flagged up in our earlier submission was that the distilling and brewing industries were highly unionised, relatively well paid and had good training, health and safety records. The other part of the industry—hospitality and tourism—is quite different. The level of union organisation is quite low and has not risen very sharply. To focus on the whisky industry, following the submissions made by Mr McFall and Diageo the STUC is acutely aware of the importance of the industry to the Scottish economy. Recently, Scottish Enterprise found that food and drink accounted for something like 17 per cent of Scottish manufacturing, with sales of £7.3 billion. Of that sum, 35 per cent is accounted for by whisky. The Scotch Whisky Association estimates that its sector alone employs directly more than 11,000 people, with 70 per cent of the inputs being sourced locally. That accounts for perhaps employment for a further 30,000. Therefore, the industry is a very substantial employer, although it is worth noting that in 1980 the whisky industry directly employed 22,000 people. We are talking about a workforce which in terms of direct employment has halved since 1980. However, it remains a major employer. That is one of the reasons why the STUC and Scotch Whisky Association have worked closely together for years in seeking to ensure that the industry continues not only to survive but develop as a significant contributor to employment and the Scottish economy. We have worked together in a number of areas both in terms of research but also the promotion of particular angles. We hope that the committee will lend its voice to the call for equal treatment of the spirits industry with other alcoholic drinks. The present regime results in discrimination against scotch whisky as well as other spirits. We believe that that causes a number of problems. Another factor, which perhaps reflects on a number of points made immediately before we came in, is that the process of mergers and acquisitions in the industry is one which can strengthen the ability of the industry to operate on a worldwide scale, but it also brings with it rationalisation and loss of local control. That is particularly so with a product like scotch whisky. That is one of the few cases where the Scottish brand can be protected and remain unique to Scotland. Loss of control to very large-scale multinationals can be worrying. In this industry as in others we hope to see a speedy move in the UK towards the right of workers to equal rights of information and consultation in the event of mergers and acquisitions, as happens elsewhere in Europe. I could perhaps elaborate on a number of other points in relation to the partnership approach within the industry and the nature of industrial relations in a number of different ways. We are pleased to have the opportunity to come along today to speak about a very significant section of the Scottish economy and trade union membership in Scotland.

  484. Mr Fulton, would you like to add anything?
  (Mr Fulton) Perhaps I may make some comments on the previous session of evidence. One of the effects of the closure of the Strathleven bond plant, which perhaps the committee has already taken on board, is that in relative terms the employees in that industry in Scotland are fairly well remunerated. That does not mean to say there is not room for improvement. They also are in highly skilled jobs and have good conditions of employment. When that plant closed down, particularly in that area, what was lost to the community were relatively highly skilled and paid jobs. That has always been significant in that industry. It is difficult to bring back that kind of remuneration. Mention was made in evidence about the possibility of a dispute at the Strathleven Bond plant. If we have a criticism of the industry's strategic development—in the past decade we have normally had a good relationship with the industry from a trade union perspective—it is that there has been so-called Rice Krispy-type consultation; ie, the first that the trade unions are made aware of some decisions, such as the merger between Guinness United Distillers and Grand Metropolitan, is on picking up the newspaper at 7.30 in the morning. It is understandable that in the first few days there may be a knee-jerk reaction from the workforce. That syndrome was not unique to the Strathleven bond plant; it affected the other plants of United Distillers at Kilmarnock, Shieldhall and Leven. If truth be told, initially all four plants were potentially vulnerable. We know what happened at the end, but in the first two or three weeks of the announcement we did not realise that, faced with four plants, there was probably one too many. The decision as to which one would close was a difficult one. It did not affect just Dumbarton; it had an effect on Kilmarnock, Leven in Fife and Shieldhall which are all difficult employment areas.

  485. Sadly, that kind of situation is not unique to the drinks industry?
  (Mr Fulton) Not at all. I just want to put it into perspective from our point of view.

  486. Mr Speirs, you referred to having many members in drinks, hospitality and tourism. How many members do the trades unions have in those three sectors, or is that not a figure that the STUC has?
  (Mr Fulton) That is a difficult question to answer. The manufacturing industry covers such a wide area. As the evidence shows, not only are people directly employed in the distilleries and the packaging operations but there is a multiplier effect which is at least three times. The industry extends into the farming community and the manufacturing of bottles, cartons and so on. The industry is so disparate that it is difficult to quantify.
  (Mr Speirs) In the manufacturing and distribution industries union membership would certainly be well in excess of 50 per cent. Once you get to the places where the stuff is sold the position is a bit different.

  487. You also referred to the equal treatment of whisky. Can you define what you mean? If you refer to taxation, we have a specific question on that matter. Are there any other qualities that you have in mind?
  (Mr Speirs) No. We are concerned particularly about tax.

  488. You gave some employment figures which may cut across or coincide with some of ours. Your memorandum notes that the drinks industry is a major contributor to the Scottish manufacturing economy. You also suggest that the major sector, scotch whisky, supports perhaps 40,000 jobs in Scotland. However, it is clear that employment in whisky has fallen heavily in recent years. You said that it had halved since 1980. However, the Scottish Whisky Association's figures suggest that total employment has fallen by 19 per cent in the five years between 1994 and 1999 (which is the last year for which figures are available). Do you accept that the economic importance of whisky to the Scottish economy has fallen in recent years, and is employment likely to fall further in future? If so, what concerns does the STUC have in that regard?
  (Mr Speirs) Proportionately, it has reduced, but it is only marginal. Mr Fulton may want to comment further on the likely prospects in the period ahead. One of the aspects of the scotch whisky industry that we regard as important, aside from the provision of direct jobs, is the extent to which it contributes to Scotland the brand. (I do not want to use too many cliches.) About 200,000 people are involved in the tourism and hospitality industry. The image of scotch whisky is distinctive and sends out a message about the quality of that industry but also Scotland as a provider of quality products. Therefore, even if the number of jobs is reduced there are technological aspects which mean that inevitably that will happen. That is one of the reasons why we say in our submission that it is important to grow the market if we are to sustain the level of employment at the same time as technology improves productivity. But where jobs are being lost in communities like Dumbarton clearly the effect is significant. If one has distillery closures in a community of a few hundred, let alone a few thousand, there can be absolute devastation.

  489. Do you argue that, far from the economic importance of whisky declining, it is becoming more important to the Scottish economy when you tie in Scotland the brand and other aspects?
  (Mr Speirs) Yes. I refer to globalised markets. (It is difficult to avoid falling into various cliches.) The particular niche markets and the edge that Scotland can achieve worldwide are related to a track record on quality production, whether it is in electronics or anywhere else, but also image and perception. Global headquarters can be located in Singapore or Seattle as easily as Edinburgh. That is where the people who take the ultimate decisions are located. Perhaps it should not work like that and should be more logical, but the image of quality matters.

  490. We shall turn to that later. You referred to smaller, perhaps fragile, communities in many areas where whisky is made. You argue that drinks are of particular significance in a number of remote areas. However, the concentration on whisky means that it is now produced at fewer sites in Scotland. To give some examples, employment in whisky in Grampian fell by 25 per cent between 1994 and 1999 and employment in Tayside was down by 64 per cent over the same period. There have been closures in a number of industrial areas. We talked about the J&B plant in Dumbarton earlier this morning. Does the increased concentration of production mean that whisky is no longer able to support fragile communities to the same extent as previously?
  (Mr Speirs) The evidence we have is that because of the approach adopted by the distillery companies on Islay and Jura they have been able to sustain farmers who are in difficulty through their purchasing policies. They have been able to operate in a classic cluster way in order to help sustain those communities, but obviously in any situation where there is a closure or someone goes there is not simply a reduction in the ability to sustain a fragile community; it is removed. It is much easier to close a distillery than to open one, particularly when all that expertise and quality cannot be replicated overnight, or even over a few years.
  (Mr Fulton) The problem is the ability of the distilleries to produce particular volumes of whisky. Remember that companies must forecast what their volume sales will be perhaps 10 years ahead. That is a particularly difficult balancing act given what happens globally in terms of the various economies. When the Asian market virtually collapses and basically a whisky lake is the result what do you do? There is no easy answer. Since the beginning of the early 1990s there has been a rationalisation of distilleries and some closures due largely to over-production.

  491. Do you agree that the concentration of production is likely to continue, and what are your main concerns about it? What can you do about it, if anything?
  (Mr Fulton) I believe that that is a wider strategic issue which this committee and others must look at. As to the current industry in Scotland, if we look at companies like Diageo the trade unions have been involved over the past few years, particularly recently, in partnership agreements which attempt to protect jobs from compulsory redundancies, acknowledging that over a period of time haemorrhaging will take place within organisations like Diageo. Mr Speirs referred to globalisation, mergers and takeovers.

  492. We shall turn to that later.
  (Mr Fulton) I intended to make a comment on one of the most recent developments which probably give the trade unions cause for concern.

Sir Robert Smith

  493. You referred to the economic importance of the industry. If it was not for the fact that the law required scotch whisky to be distilled and matured in Scotland would all of these rationalisations have occurred? Rather than our gaining the white spirits industry, do you think that a lot of our spirits would have gone south?
  (Mr Speirs) That can only be speculation. That is one of the reasons why we are thoroughly in favour of ensuring that the requirement remains that scotch whisky must be distilled in Scotland. We have not touched on the whole issue of the export of bulk malt and so on which historically the STUC and unions have opposed because of its knock-on effect on bottling in Scotland. We have seen white spirit production shift north. Obviously, as a Scottish trade union movement we are keen to see that develop. I do not know what the position would have been had there been a shift in the opposite direction and the rules and regulations had been different.

Mr Tynan

  494. The STUC argues that "high levels of union organisation among the main manufacturers. . .is reflected in relatively well remunerated, relatively high skilled jobs." However, it also recognises that companies whose headquarters are located outside Scotland control the majority of the whisky produced in Scotland at the present. In recent years both Diageo and Allied Distillers have moved high quality jobs out of Scotland. Does the fact that decisions concerning the whisky industry are increasingly taken outside of Scotland make it more difficult for the STUC to help maintain the quality of employment in Scotland?
  (Mr Speirs) Our general position is that when we deal with a company whose decision is taken a long way away the lines of communication, influence and pressure are more difficult. In the short term that will not be reversed. That is one of the reasons why, in encouraging the maintenance of quality jobs with the knock-on effect that that has, the STUC must work as far as possible alongside the Scotch Whisky Association to influence its constituent organisations, and also alongside government which has the ability to operate on a worldwide scale and bring some pressure to bear. Government has resources that the trade union movement does not have to bring pressure to bear on transnational companies. Certainly, it makes life more complicated. There is always the potential that the quality of jobs, work, training, health and safety can deteriorate, but it is part of the job of trade unions to make sure that that does not happen.
  (Mr Fulton) This is a crucial question. I give two examples. If one goes back three or four years to the merger of Grand Metropolitan and Guinness UD which formed Diageo, that decision certainly was not taken in Scotland; it was a strategic decision taken south of the border in London. I suspect that the decision to go ahead with it came as a complete surprise to many senior managers based in Scotland. They were kept out of the loop in terms of the strategic decision. We know what has happened since then. If there is a criticism it is the manner in which that particular issue was dealt with. If one looks to the present and future, recently a decision has been made by the Canadian company Seagrams, which owns one of the biggest spirits producers not only in the UK but abroad, to sell off its spirits division. Just before New Year the successful bidder was a partnership between Diageo and Pernod Ricard. I believe that the total figure was £5.5 billion. That decision was not taken in Scotland despite the fact that some of the major components of that are the Chivas brand and others whose production takes place in Paisley and elsewhere in Scotland. Again, Scotland was not in that particular loop. We are only now in the process of sitting down with the management to analyse the likely effect of that particular decision. Pernod Ricard, which is basically a French company, although a global one, with multi-spirit interests, now controls Chivas, Glenlevit and a number of other important brands in Scotland. At this moment it is uncertain what that means for the Scottish economy, the whisky industry and potential rationalisation.

  495. Do you agree that most of the important decisions which affect the industry are taken outside the country?
  (Mr Fulton) That is absolutely true.

  496. I move on to mergers. The STUC's memorandum urges that "full consideration is given to the public interest"—we heard about "corporate citizenship" this morning from Diageo—"including the prospects for jobs, in the process of approving mergers and takeovers within the industry." Where relevant, does the STUC feel that sufficient attention has been given to Scotland's economic interests, including those of employees when decisions have been taken on mergers and takeovers in the drinks industry? Do you feel that the regional economic interest should be explicitly taken into consideration during the decision process?
  (Mr Speirs) I have not been directly involved in too many of them, but in my time at the STUC I have been around when a whole range of mergers in different industries has taken place, including the drinks industry. I recall the interesting time when Mr Saunders and Guinness took over Distillers. I believe that in every case the particular Scottish and community dimension—we emphasise Scotland because we are talking about a Scottish organisation at the moment, although it could apply to the North West or South West of England, or anywhere else—is not sufficiently taken into account. It may be that we are wrong, but it would be easier to discover that if there was greater transparency as to exactly how decisions on mergers and acquisitions are arrived at. It is our view that that will become of increasing importance as the number of operators becomes smaller and smaller. Without being alarmist, it is not impossible to have a situation in which a spirits company with a global operation comes to the decision that scotch whisky is just a nuisance and would rather squeeze it out of the drinks industry altogether. I do not suggest that anyone is doing that, but in five or 10 years' time who knows? That is one of the reasons why the maintenance of competition in the industry, leaving aside traditional trade union arguments, is important to ensure that that kind of exercise cannot take place. Because this industry is so important for fragile communities and the Scottish economy as a whole, it is absolutely vital that when decisions are taken about mergers and acquisitions the impact on the economy is fully taken into account.


  497. You referred to your time with the STUC. You have been there for some time. Over what timescale have you not been consulted?
  (Mr Speirs) When I started at the STUC 22 years ago the City of Glasgow had a Conservative administration; that gives you some idea of the period.

Miss Begg

  498. In situations where large-scale closures are inevitable—obviously, that was the feeling in Dumbarton—what type of corporate responsibility should large companies exhibit towards the local community?
  (Mr Speirs) Earlier the question was asked whether once companies like Diageo had taken the decision to close a plant it could ever be overturned. It may be realpolitik to say that once it has reached that stage it will not change its mind. Therefore, one must focus on how to make the best of the situation, hold on to as many assets as possible and ensure that the company puts something into diversification, retraining or whatever. But the question then arises as to the extent to which the workforce and community do or do not have any input into the decision-making process in these companies. It flags up the issue of rights to consultation, not just 90-day redundancy notices, and information. Undoubtedly, workers in other parts of the EU have better access to that than those in this country. Therefore, we do not entirely give up the idea that a company's corporate responsibility should include genuine consultation and sharing of issues before final decisions are taken. One hopes that in the kind of partnership agreements which have been developed in the drinks industry we shall reach a stage where the workforce is genuinely involved in decisions not only when there are difficulties but when things go well. Where there is to be a closure it is reasonably straightforward: one wants full co-operation from the company. We argue that there should be financial investment to ensure that the workforce is given the maximum opportunity to secure future employment, and that the assets of the company are not stripped away. As to specific developments, PACE (Priority Action for Continuing Employment) has been introduced. That is a programme on which the STUC and Scottish Executive are working to increase the capacity among trade union representatives to anticipate potential closures and to be better skilled and equipped to deal with situations where that is being faced. One of the aspects is to ensure that everyone is geared up to put the maximum possible pressure on big companies. The bottom line is that these people have made a lot of profit out of the community and should be prepared to put something back. I notice that two of the top three highest paid directors in the UK work for Diageo, so obviously they are not short of a bob or two.

  499. What is your assessment of how companies in the drinks industry in Scotland have behaved in this respect? Given everything that Mr Speirs has said about corporate responsibility, what is your assessment of how well the companies in the drinks industry in Scotland have done?
  (Mr Fulton) There has been a radical change over the past eight years triggered off by the big rationalisation in the early 1990s with the closure of the Bells, VAT `69 and Haig plants. I remember a conversation with Lord Macfarlane, then chairman of United Distillers, on the whole aspect of corporate responsibility given the demographic make-up of the areas in which the company operated and the tragedy which resulted from those closures. That got home. Following that, the trade unions and companies such as Diageo have developed partnership working. The positive partnership agreement developed by us at the time was the marker for the rest of the industry. Its foundation took place against the background that if a company wanted to introduce major changes in flexibility, training and relocation the workforce must have confidence that in so doing jobs would not be lost per se. The background had to be the development of an employment security agreement. Therefore, from 1992/93 to date we have developed with companies like Diageo employment security agreements for the workforce which include no compulsory redundancies, which is of supreme importance. One can bring stability into the workforce, which means that if radical changes are made to the way a person works he does not do it at the cost of his job, albeit he may have to take on another job. That was reinforced in the middle of last year. We have extended it until 2003 with a whole of raft of issues to be discussed. The other spirits companies to an extent take their lead from Diageo which is the major player in the industry.

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