Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



Mr Morgan

  100. Yes, but in reference to increasing sourcing of components abroad, because of lower cost, and you said that Rolls-Royce are up against Pratt & Whitney and GE, who are doing that increasingly because of lower cost, do Rolls-Royce really have a choice?
  (Mr Robson) Again, some things are a good commercial argument, and there are link-ups and there are joint ventures and there are partnerships, which need to be recognised. If you are in a global market, you have got to play by global rules, if you are in a domestic market, well, you play by domestic rules. And it is an inevitable consequence of link-ups, partnerships, deals, and this, that and the other, that there will be work offset. Now we call on companies to justify that, give us an argument to offset the work, going into partnerships, and, eventually, it will not be to the detriment of UK jobs, in the first instance.

  101. Yes, but, even leaving aside offset, at the end of the day, if you are trying to produce a product which, among other things, will compete in price, you cannot source components which are going to be significantly more expensive than your competitors are going to put in their product?
  (Mr Robson) The first thing we do is find out the reason why. If, say, for instance, in America, you look at wage levels, and this, that and the other, and different costs, we need then to say to the company, "Why can we not produce that component in Britain, of the same quality, cheaper?" Because everything, even in the European market and the international market, it does not say that we have overpriced ourselves out of jobs, our social cost is nowhere near the European, so we need to have a look, and say, well, is it through investment, is it through new production techniques, that companies are now giving to the companies abroad what we would consider we could do cheaper for the company; because, at the end of the day, the company will go for the cheapest, providing the quality and the time factor are right. So we need to examine if our working practices, if our techniques, if the research and development, if the investment within the structure of the aerospace industry is right. Now I am not saying you can do it overnight and say, well, we can get the most modern German machines into the manufacturing process, but there is a case to be answered by companies, that, if they do not examine every avenue within their structures to compete abroad, whether it be in aerospace or any part of engineering, or any part of activity, we will lose out. Now if the argument is, well, on time, price, and whatever, on a level playing-field in production techniques, the competition will rule, that is why we have always been very, very pragmatic about it. What we object to is when companies will turn round and, as a first choice, move abroad without considering; and I can give you an example of that. There is a company in Belfast called Bombardier, it used to be Shorts; a few years ago that was on the brink virtually of closure. The Canadians took it over and ploughed a tremendous amount of investment into the company, new manufacturing techniques, new working practices, a new way of doing business. Now that company, being from virtually dead, is now one of the most successful parts of Bombardier, and possibly one of the most successful parts of the aerospace industry in the UK. So it is that type of argument we are looking for, notwithstanding the competition, because, as I said, if you are in a global market you have got to play by the rules laid down, but what we are saying is, if there are unfair rules, if there is unfair investment, or our Government or the company are not applying themselves to investment for the long term, we would certainly object and take that up. But there is always a realisation that, as far as the global economy is concerned, you have got to play the game by the rules laid down.

Mr Berry

  102. We have been given some examples of where outsourcing has taken place not to developing countries, where wages, obviously, are very low, but outsourcing to the rest of Europe, for example, we have been given the example of the transferral of Ansty composite material production to an Austrian firm, we have been told of Airbus work moving to Italy. Now these are not low-wage economies; what is causing outsourcing of hitherto UK work to other parts of Western Europe, why is work in the UK, presumably, more expensive, or how does this come about?
  (Mr Quigley) I do not know whether it is more expensive, in that sense. I think it goes down to a lot of points that Alan has made there, in respect of that the specialisation, I think, within the aerospace industry, certainly, within the supply chain, where companies, or two of them, set themselves up to be experts in that particular field. And you will find, even within the majors, they outsource work to one another, because that particular company has got an expertise in that particular field; for instance, Bombardier do, nacells, for a lot of the Airbus. So some of them become experts in a particular manufacturing process; and I do not really answer the question of whether it goes to Italy or it goes to Austria, but there may well be a factor of that in it as well.

  103. So it can be swings and roundabouts; we benefit from . . .
  (Mr Quigley) I can give you another example; for instance, Prestwick. Prestwick, when the JetStream stopped production, no longer manufactures a complete aircraft, it does work for Boeing and it does work for the Airbus, very successfully, and they have got out of lower-tier, detailed work and brought in more leading edge technology work to the Prestwick site, and it has been a success. But that depends on them bringing work from Boeing and bringing in work from Airbus, they do not have a product of their own.

  104. Can I ask one final question, Chair. Briefly, all these measures to improve competitiveness, presumably, they must have a sizeable impact on the working lives of your members; how would you describe that impact on your members?
  (Mr Quigley) I think that, if the company makes the case for improving the product, improving productivity and indicates quite clearly, if they can do that, that it makes the jobs more viable and makes the company more viable in the long term, our members will buy into that, they will not buy out of that, but it is a question of communicating that to the workforce. We have examples of where management, when they start sharing the problems that the industry has and the challenges that the industry faces with our members, get an excellent response, because, in many cases, instead of getting a consultant in then you have got hundreds of consultants on the shop floor, and they just need to be tapped into.


  105. Mr Wall, would you like to comment?
  (Mr Wall) Yes, it is on that same theme, and I think, really, it is at the core of the dissatisfaction and the concern that we have been expressing. It is being involved in the actual decision-making process, as John said, tapping into the consultants that we have, in their thousands, out there, and that is not just the shop floor, it is in the design areas, it is highly-qualified engineers, we have some of the best in the world. And what, quite clearly, there is a lack of is involvement in any sort of decision-making process; what has happened all too often is, the company has made a decision and then the workforce has been informed of that decision, and then we are chasing it, we are behind the game and trying to chase that game. And that, when it comes down to Mr Berry's point there, quite clearly, the impact is traumatic, people feel that their contribution is not valued, that the investment that they have made, in their working lives, in the industry, counts for nothing; and really we do have some very, very expert employees out there. What we have tried to do, particularly with Rolls-Royce, is talk about consultation, about building up forums, where they tap into this expertise, and try to get people to be a part of the actual decision-making process. Now, to date, we really have failed there, there has been probably a greater history of attempts in BAe Systems; but, again, there is a problem there. Quite clearly, there is a very, very deep-rooted feeling that they have not been valued, that their jobs are being shed, in exchange for outsourcing abroad. Now actually getting in there and evaluating that, coming up with the detail, is extremely difficult, because of the size of the actual task itself. But when you have a key industry, in this country, where actually the employees themselves feel that, at times, they are there just to receive a decision, then you have got a problem, a real problem, and we really have to be looking at how we can change the thinking within the industry to take the employees along with it.
  (Mr Moore) Can I just say, on the point about the countries with the same standards of living and economics, when they move it from here, there are the things that happen there. But, also, we were talking about globalisation, the globalised companies do not exist just in this country, they exist in others. And what we have found, even if we use the MoD as an example, albeit it was not directly associated with aerospace, but Courtaulds won an order, and we have asked questions in the House, in order to get clarity on it, Courtaulds won it, but it was done in Taiwan. So they are a global institution too, and they have facilities and other resources which they utilise. And there is a famous football team, up in Scotland, is there not, which utilise a particular company to do a very high-product jersey for them, they wanted to get something from Egypt, or somewhere like that, was it not, and it fell apart when they put it in the washing-machine. So, please, do not forget this particular part of it. Now there is globalisation taking part, and then all these companies in Austria and in Italy won the orders, I would like to know just where they were completed, and who they were done by, because it is a fact of life that that is what is happening within the globalised companies in the world.

  106. Can I just say that the globalised company which you referred to, I imagine, is the Celtic Football Club, and I have no interest whatever in it, other than my name happens to be the same as their manager's.
  (Mr Moore) I am not a member at the moment, so I do not support it, or anything of that nature, but it was just an example that came to mind, that was all.

Mr Hoyle

  107. You have to come from the North West to understand about these matters of great national significance. Obviously, what concerns me is, and I do not know whether you would agree, but it seems to me that the workers are being forced to play Russian roulette, where every chamber except one is carrying the bullet, because it seems to me that the workers carry the price every time. I just wonder if Dick Evans also has not put petrol on the fire, with that speech in Germany, in which he stated, "Unless there's more support, we will see more and more work going overseas." I do not know what you have got to say about that?
  (Mr Quigley) I do not know the detail of what Mr Evans said in Germany, but, certainly, he would say that, would he not; and I think all employers would say that, would they not, in order to try to extract the best deal they possibly can out of whatever Government it is they are dealing with. But I think you are correct, Mr Hoyle, that, at times, I think, we do feel we are playing Russian roulette, because, if we do not we are damned and if we do we are damned, in many ways. We are in a global market, we have got to realise that the aerospace industry, in many ways, is a very incestuous industry, they deal with one another, somebody manufactures parts here and transfers them somewhere else, and they are trying to get that added value out of it. But I think you are correct, and I think it is a question of how we can strike the best deal with the company in these circumstances, where they take a strategic decision either to move work or move employment to another area; as John says, we are constantly chasing that game, to try to keep on top of it. They usually make the decision and there is, as it were, a fait accompli in how we have to deal with it; and I think we would rather be consulted more on seeing how we can try to resolve it, or try to be part of a solution, rather than trying to chase some remedy at a later date. So I agree with you completely, in terms of how the people at the sharp end feel, it is their jobs, it is their livelihood, it is an investment they have made with their lives in the company, and I think they have got to be involved; we are all aware of the challenges in the world, but also we think we have got an opinion on how we can resolve some of these points. We do not believe that management, and management alone, have got a sole monopoly on how to resolve some of these challenges that we face, so I think we need to be involved more. And, certainly, we have been making that argument, and, to be fair, I think British Aerospace, more, British Aerospace Systems, more, than some of the other aerospace colleagues, have listened more to us, we are not saying we are satisfied with what has happened there, but certainly they have listened more than some of the other aerospace colleagues.

Mr Morgan

  108. Can I just ask you a question about offset agreements, which I suppose are a special kind of outsourcing, almost; are we seeing more and more agreements of that kind, or is the percentage fairly static?
  (Mr Quigley) I think that any of the less-developed nations, if they are purchasing, especially if it is a Government purchase, in terms of military spend, or whatever, are looking to build their own economy, and quite rightly so, and I think more and more of these deals are connected with either the technology, or, indeed, part of the manufacture of whatever product it is they are procuring. I have got to say that, offset, it is very, very difficult to get a finger on that as well, to get a real feel for it; we do watch with interest the fact that, the Americans, there is a presidential inquiry into offset in the US, it was set up under Mr Clinton, and carries on investigating the offset that America feels that it is not getting value for money on. I think we are going to see more and more, especially as the less-developed countries start to purchase a product, that they are going to look for a share of that particular purchase, with a spend in their own country. We have done a considerable amount of work with British Aerospace on trying to understand the offset, and many times the offset is not tied to the particular product that British Aerospace manufacture. Because of the size of the company and because of the clout they have got, they can interest, and they say it is their policy anyway, and we have got no reason to disbelieve them, that what they try to do is see if they can develop some other area of the economy and partner the country with another company to assist them.

  109. Can you give us an example?
  (Mr Quigley) I think they have been involved even in pig-farming and things of that nature, and they use that as part of the offset.

  110. So how does that work?
  (Mr Quigley) I think they are prepared to spend some money on training, and whatever, in order to assist a country with something that they may be better spending their money on and developing, rather than getting part of so many Hawks, that when the Hawk order finishes then the work finishes in that country. And I think there are examples that British Aerospace Systems have made to us, where the Americans, where they use offset, they use offset on a particular product and they will give somebody part of an F16, or whatever, and whenever the order is completed in that country there is no more work for those people, it is gone. So they are looking more to see if they can develop other industries, and if they have got to put some money in to assist in developing some other industries then that is the way they would rather go.

  111. That is the trade unions encouraging that as well?
  (Mr Quigley) I think we would be supportive of that. The only point I would make is, in some ways then what we tend to do is, in the offset deal, instead of, if you like, exporting our members' jobs, we may export some other UK members' jobs, as a consequence, and making that industry more viable in another country. It is very, very complex, the whole question of offset, and, as I say, we are watching with interest the conclusions of this presidential inquiry, or this presidential commission.

  112. I think, in the end, you have said it is fairly understandable that other countries want to do something like that, and that there is not really much we are going to be able to do about it, is there?
  (Mr Quigley) I do not think we will have much choice in that matter.

Mr Hoyle

  113. Just taking up that point, do you not feel that offset is an excuse that is being used to hide work going abroad; as an example, if we look at Romania and Uzbekistan, there is no way that they are actually going to be buying Typhoon, or, in fairness, any of the products, I would have thought, that are coming out of Warton, or Samlesbury, or Brough, where we are actually seeing the work being transferred?
  (Mr Quigley) First of all, I think, the work you are indicating that went either to Romania, Poland, or wherever, last year we carried out quite a lot of work with British Aerospace Systems in trying to identify the amount of work, and let us say that the amount of work that is going to any of these countries that you have mentioned is insignificant in the picture of the overall amount of work that is carried out by British Aerospace Systems at Warton, or on any other site. I think, what does give us some concern though, having said that, is that British Aerospace Systems do not indicate to us that that is straight offset, it is trying to encourage, or persuade, some of these countries to buy products, possibly at a later date; now I do not know how long that will be, and, given the state of their economies, it is very difficult to say. But the work that is actually going out is, in many ways, decisions that British Aerospace have taken, over a number of years, to exit from lower-tier work and concentrate on higher added value work. So it does give us great concern. We have tried to get a handle on it with British Aerospace, the amount of work that is particularly with Eastern Europe, because there is the accusation that it is going there because of a low-wage economy, it is to increase profits, and so forth, the amount of work we have identified. I make the point, it is work that British Aerospace have been exiting in any case, now exit, whether it was in the UK or elsewhere, they have been exiting that particular work, and the amount of work in question is really not that significant in the overall picture. That does not mean to say we have not big concerns about it, but the company's argument on it is they are trying to encourage these countries to buy into some of their products.
  (Mr Robson) I think there needs to be a definition of what we are talking about. Our perspective of offset is that, when the company enters into a commercial arrangement to buy a particular aircraft, there will be a commercial deal done, whereby possibly the country which is receiving the customer would require a certain amount of work placed into their country, either to develop their industries, or, indeed, whatever. In the case of the remaining argument, and again it is a bit of a fuzzy type of argument, we would consider that that is sub-contraction, because, you are dead right, I do not think, for one minute, Romania is going to buy one Typhoon, never mind anything else. So it is trying to get a definition, because what the company say is, "Well, sometimes we need to put work into countries to encourage orders," and at other times when, John has pointed out, quite rightly, they have identified work that cannot possibly be done, and it is their identification, in the UK, Tier 4 and 5 were the main ones, and they are saying, "Well, we can sub-contract that," and I think that is where the main example sits. But, on the offset, our definition is that, when a company goes seeking export orders, there has to be, in their eyes, some sort of accommodation given to the customer; in relation to the two, the effect is the same, as jobs go, one way or the other, but the company has convinced us of the argument that, in the commercial reality, half a loaf is better than no loaf, and we still continue to question that, on an ongoing basis, but, nevertheless, it is a reality of the situation. And you made a comment before, which, with your permission, I would like to comment on. When you mentioned the Russian roulette, I think it was a very, very pertinent point, but I would put it in the perspective of a global roulette, because, when the aerospace companies have recognised a global market, the leading lights within those companies have adopted a global posture. As I say, we questioned them many times, "You were a British company, where are the loyalties lying, would you give preference?", this, that and the other; so it comes back to, "Well, if you are commercial, if your price is right, your quality is right, you will get preference." Now we have had to recognise that, because Dick Evans, Bombardier, and all this, and we are talking about the industry in general, will play the global perspective, and so they will make a threat to us, or they will make a threat to the politicians, it will be because of their global perspective; they are no longer a British company, they are an international company, and they will deal where they can get the best deal possible for the viability of the global company. And it took us a fair bit of time to recognise that, although they bang on about being British, and quite rightly so, their perspective is not a British perspective, they have got as much work into Britain as they can, but, nevertheless, they are working in a global environment, there are integral links being made with the Americans, the Germans, you name it, and that is where their perspectives come on. So, whilst we are very dismayed about Evans' comments, if you look at the perspective that they have come from, it is not surprising.

  114. Can I take you on to some of the evidence that we have picked up, and it is from Warton and Samlesbury, where we were told about UK contractors, such as Hyde Tooling, who they believe are sub-contracting to Eastern Europe. Do you think that companies are making an effort to ensure that UK contractors create work in the UK, and, this is the big question, should there be an obligation on those contractors to state where the work will be carried out when they are tendering for the project? Because, at the end of the day, we have to recognise, on these, such as Typhoon, it is actually British taxpayers' money that is buying the product, at the end of the day, and that seems very odd to me, that suddenly we see, underhand, that work is being shipped abroad, at the expense of British workers who have contributed to buying these aircraft?
  (Mr Quigley) I could not agree with you more, and, in fact, that is something that we are hoping will come out of this research we are doing. But I go back to what I said earlier, we did an extensive amount of work last year, with British Aerospace Systems, in relation to work that they were putting out of the company, not necessarily out of the country but out of the company itself, outsourcing, and it was difficult, we found, other than what you said there, you are getting information, but try to consolidate that information on where, what supply company is putting it out elsewhere in Europe, we found it very difficult to get a handle on that and identify that work. We are hearing rumours, just like our workforce tell us about it, that they believe it is going to somebody under the arches, and they are putting it in Poland, or they are putting it in Romania, Uzbekistan, or wherever they are putting it; we found it difficult to try to trace that through the system. And what we are told by the company is that, when they do outsource work, bearing in mind that quality is of the utmost importance, where they do outsource it, they outsource it to a reliable contractor. Now I think that the jury is still out on where that reliable contractor is placing the work, and that is one of the reasons we are carrying out, at considerable cost to ourselves, trying to investigate just exactly what is happening there, because we find it very difficult to try to trace that through the system.

  115. Just a last question, Chairman. Obviously, a major concern for Lancashire is the fact, and I do not know how you feel about this, the lack of the number of apprentices that are going through these days, in fact, it has been reduced substantially, we have seen a 33 per cent reduction in the number of apprentices taken, it has gone from 120 apprentices annually and I think we are down to 40 now. I think that is writing on the wall. If you are going to invest in the future, do you not think we ought to start taking more apprentices back on?
  (Mr Quigley) Yes. I have not got the information here, but certainly we can supply the Committee with it. It is a major concern of ours, the question of apprenticeships. The company are recruiting 1,500 people in the next year, in the UK, 1,500 young people in the UK; we have actually got a breakdown of the split of that across sites and we can supply you with that information. But, I think, what we have also got to say is, because of the nature of the industry itself, the number of craft apprentices that would come into industry, just because of the nature of the production process now, is going to be lower than it was in the past, because there is a need for other disciplines and other skills in the industry now, and I think we have got to recognise that and take that on board. So you are right, you are absolutely right, the statistics of what you are saying in relation to craft apprentices, but, overall, the company are taking on 1,500 young people, this year, and we can supply you with the breakdown on that, because it was an issue we raised with the company last August, or whatever, because of our concern there. And the answer we are getting back is that, yes, they are taking on young people, but as far as craft apprentices are concerned then it is a lower number of that discipline than it was before. But we do share your concerns on that, and, in fact, I think all of us at this table here have come through craft apprenticeships, and we believe that, if you look at some of the major captains of industry, a lot of them, far from coming from universities, and we have got nothing against academics in any way, you will find a lot of them have been craft apprentices, because it instills not only a knowledge of the industry and a knowledge of the tools, it gives you some experience in life as well. So we do appreciate the point you are making there, and it is something we are taking up constantly with companies.
  (Mr Robson) Just on that issue, because it is very, very important, BAe Systems is one of the better companies, if you look at some of the large engineering companies, that do not even bother training, the malaise is right through the industry. We have been pressing, through the EMTA and the DTI, for a complete overhaul of the funding regime, because, obviously, the present system is not working, and possibly I might shock a few round the Committee, but I think the case for some sort of levy system to be reintroduced is overwhelming. Because BAe Systems do train, but the malaise is not so much in BAe Systems but in industry in general, and until somebody gets a grip of the funding argument, £45,000 for training engineers and apprentices is a lot of money for even the most successful of companies, unless we can get some sort of funding injection, and if companies are not prepared to train, well, at least they are going to pay for what other companies will do. Consideration should now be given, we are arguing constantly with the politicians, the employers, and, indeed, the training organisations, because there is only one problem with training, it is not the quality, it is the quantity and also the funding, and, until we get that funding right, we are always going to have that problem.


  116. We have been talking about the training of young people, what about upskilling, or reskilling, people who are already in the workforce? Obviously, new equipment, new practices, are being brought in, how do you feel about the amount of training which is done on the job, once people are there; is that sufficient, is that a high enough priority, do you think, do you have international comparisons that you can make with colleagues abroad?
  (Mr Robson) There is a big debate going on. We are part of the EMTA structure—

  117. Can you tell us what that is, the EMTA?
  (Mr Robson) It is the Engineering and Maritime Training Association, it is the largest training organisation in the engineering sector; and we were more than instrumental in constructing the Modern Apprenticeship. It has long been recognised, within the trade union movement, that there needs to be a process, because training should not be a one-stop shop, it should be a process where it is continuous, it is progressive and also it carries across the wide width of the workforce. There are a lot of programmes being developed by the trade unions, incorporated into training programmes, out-of-age training, training in new skills and techniques; and, again, BAe Systems, and the aerospace in general, is one of the better parts of the engineering sector. The big debate now developing is, the on-the-job training, is it cost-effective, and, at the end of the day, does it advantage the trainee, which is absolutely important, and indeed the company. One of the difficulties we have is that, getting that balance right, the main arguments start to develop round a small employer and the medium-size employer, so we do have a big debate going on as to the actual level of on-the-job training. But, it seems to me, unless there is on-the-job training, any training programme cannot carry the credibility of what it is trying to set out to do. But, certainly, in relation to training, the CSEU is being very, very progressive in that argument, we believe there should be no such thing, in the year 2001, as an unskilled person, we are talking about technology at a pace and yet we still have, within companies, unskilled people; it is an anachronism of the past and it should be buried with the past. We believe it is continuous and should carry on.

  118. I heard you using the word `levy', a minute or two ago; are there initiatives, are there incentives, that could be placed before managements, for industry to go into this? We hear talk of tax breaks for investment, but we do not hear often of tax breaks for training; what is your view on this kind of thing?
  (Mr Robson) What we have said, as far as training is concerned, is, whilst the principle of a levy is gaining pace, you will find all the large companies will tell you, in conversations, that they support the levy system, but we are of the belief, as a trade union movement, you hear tax breaks for investment, why should it always fall on the taxpayer to pay for training, notwithstanding that we consider that Great Britain plc is a massive benefit to the taxpayer, there is also a massive benefit to companies. We tend to lose track that companies benefit from a highly-skilled, highly-motivated, competitive, workforce; so when we look at that type of initiative we say, well, yes, the taxpayer, quite rightly so, should pay for training, but also there should be an equal payment coming from the companies. Now notwithstanding that the levy still has not found favour, there are other initiatives which the taxpayer can encourage. For instance, in the small company sector, and you can understand the difficulties, when you have got a small engineering workshop of 15 individuals, that will not have the necessary resources and the facilities to train apprentices; we are suggesting, to the EEF and any employers' organisation, why do we not have funded programmes, where we can group companies together, with the taxpayers' support, then to encourage training. But you are then still left with the paradox, who actually pays; eventually, it will be coming down to the taxpayer, but unless the companies recognise and the politicians recognise that the revenue generated from the taxpayer, as welcome as it is, as substantial as it is, is still not enough in comparison with their competitors, and we need to generate money, the sooner that argument is further examined and developed the better.

  119. One of the things which has come out of what you have been saying here, in relation to the workforce, is that there have been people laid off in one part of the country, and there have been people recruited in another; have you done any work on the number of people who have taken voluntary redundancy, and, quite frankly, were maybe 55-plus, and decided to take, in effect, early retirement? So you take them out of the equation, and then you have people who have realistic expectations of, say, 15 to 20 years of work, at least. Is there very much done to try to retain these skills within the industry by offering packages to them to move to another part of the country to carry on working for the company; is this an option which is favoured either by you or by your members? Or does the company concerned, like BAe, or Rolls-Royce, look at that, as one of the options, or is there this Gadarene-like rush for the redundancy money, and people jumping over the cliffs with their suitcases full of gold?
  (Mr Quigley) All the majors have relocation packages; but, again, the uptake is not significant, I think.

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