Examination of Witnesses (Questions 481
- 499)
WEDNESDAY 31 JANUARY 2001
MR BILL
SPEIRS AND
MR IAN
FULTON
Chairman
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.
Chairman
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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