Select Committee on Trade and Industry Minutes of Evidence


Correspondence with the Secretary of State for Trade and Industry

We wish to bring to your attention the worsening business conditions in the plastics, rubber, and associated machinery and tool making sectors. Since our members supply an enormous range of semi-finished and finished goods to a diversity of markets and the plant which underpins the plastic and rubber industries, we believe that they provide serious pointers to the real condition of manufacturing industry in the UK.

Each week the industry trade press reports closures among plastics and rubber processing operations and among their customers. Here are some recent examples:

    —Valeo, a French owned automotive components manufacturer, announced in February closure of two sites with potential job losses of 580. Reason: cut-backs in UK automotive production by Rover and Renault.
    —McKechnie Vehicle Components announced in February its withdrawal from all continental European supply contracts with potential job losses of 155. Reason: high value of sterling against the Euro.
    —Diaplastics, a component supplier to the electronics industry, announced 50 job losses. Reason: drop in orders from Sony and Panasonic who in turn cite the sterling rate for their reductions in the use of UK suppliers.
Such events are not in the public eye, they do not attract a political focus, nor individually are they on the scale of the recent Motorola announcement. Yet cumulatively the impact is as great or even greater. We attach a list of the key pressures on our sectors and suggestions for action from government.

This situation is severely undermining the confidence of investors and if it continues can only lead to a significant curtailment in manufacturing in the plastics and rubber industries and a loss of jobs. The only beneficiaries will be other EU Member States and world trading zones.

The sad irony is that the plastics and rubber industries are arguably UK national economic strengths. Unlike many other countries we have ready access to the oil, gas and other chemical feedstocks required to produce the raw materials and each sector of the plastics and rubber processing industries includes world class companies. The crucial role of the UK plastics and rubber industries in the supply chain is such that the DTI have highlighted them as a target of competitiveness initiatives: the Partnership in Plastics Project (PiP), the Plastics and Rubber Industry Forum (PRIF), the Sector Challenge for the rubber industry and the Rapid Product Development Initiative for the tool making sector. However the plastics and rubber industries in this country cannot operate without an extensive customer base of Original Equipment Manufacturers located in the UK. Without doubt these customers are drifting away.

It is our view that government could play a major role in helping to ameliorate this situation. We greatly appreciate the plastics and rubber competitiveness initiatives led by Alan Johnson. However our customers and indeed our own industry require greater assurances and action from government that it sees manufacturing as a central activity essential to the UK economy. We need assurances that overall government policy really is informed by an accurate appreciation of the consequences for manufacturing competitiveness of the strength of sterling, the increased burden of regulation and taxation such as the damaging Climate Change Levy and other concerns as highlighted in our note.

We would very much appreciate a meeting with you to brief you on the current performance of our sector and the impact of public policy on it. We would also be very grateful for your own views on the attached paper and any solutions which you yourself and government colleagues have in mind. The total sales output of our industry is over £20 billion and our contribution to exports is £5 billion. The total number of firms in our sector exceeds 6,000 and we account for approximately 300,000 employees.

We look forward to hearing from you.

Peter Davis,
Director General, British Plastics Federation

John Dorken,
Director, British Rubber Manufacturers Association

Jim Pugh,
Chief Executive, Packaging and Industrial Films Association

Martin Unwin,
Director, Flexible Packaging Association

Steve Eyles,
Chief Executive, Gauge and Toolmakers Association

Brian Thorne,
Chairman, Polymer Machinery Manufacturers and Distributors Association

Brian McCann,
Chairman, Northern Ireland Polymers Association.

Key Concerns of the Plastics, Rubber, Machinery and Toolmaking Sectors

    —Profitability is at its lowest level since 1993.

    —25 per cent of companies surveyed by the EEF are considering locating production overseas.
We accept there is little the Government can do until the Government's economic tests are met and a referendum held on joining the Euro. We reject any harmonisation of direct, indirect and corporate taxation with the EU where the UK has an advantage and which encourages inward investment and the creation of jobs.

    —The UK has tumbled from 16th to 19th place in the IMD's international competitiveness league.
    —CBI figures show the tax burden on UK business is 9.4 per cent of GDP.
    —The Government since 1997 has imposed an extra £5 billion of tax burdens on business, increasing the tax burden from 35.2 per cent of national income to 36.9 per cent.
    —UK spending on R and D has slipped from equal first amongst industrialised nations in 1981 to sixth in 1999.

    —A further £1 billion per annum will be raised by the Government from hard pressed businesses with the Climate Change Levy. Plastics processors will pay at least an extra £60 million per annum for electrical energy alone, but receive only a fifth back on NIC's reductions. Plastics processors and general rubber goods manufacturers are discriminated against by the CCL since glass and metals will receive an 80 per cent discount because they are high energy users. In Northern Ireland, where before the CCL the highest electricity prices in Europe obtained, the Levy has widened the competitive disadvantage of the plastics and rubber industries still further. A French proposal for such a levy has been rated "unfair".
We were disappointed the Chancellor did not decide to cut the tax burden on UK business in the Budget but we welcome the consultation paper announced on an R and D tax credit. We believe a 50 per cent R and D tax credit should be introduced and the project budget for Faraday Plastics should be doubled.

We believe Government proposals to allow Councils to impose a supplementary rate on business, in addition to the uniform business rate has been scrapped. This we welcome.

The damaging and unfair Climate Change Levy, the new energy tax on business should be repealed and replaced with voluntary measures. The Levy will directly harm the competitiveness of the plastics and general rubber goods industries. Failing action to repeal it, more firms should be made eligible for discounts under the levy and competitive distortions eliminated.

    —According to the CBI, 10 new business regulations a day were made in the past year, adding £14 billion in compliance costs since 1997.
    —More new employment rights have been introduced in the last two years than in the previous 20, the biggest changes being minimum wage costing £5.4 billion and working time Directive £2.3 billion.
    —The American Business Magazine "Forbes Global" (16.2.01) wrote that Britain had become a "red tape factory", not an encouragement to inward investment.
The Government's Deregulation Task Force under Lord Haskins has been a failure. We call on the Government to put deregulation under a Cabinet Minister advised by a panel of businessmen with specific annual targets for reducing regulation, past and present.

    —We welcome the recent reductions in interest rates. This momentum should be maintained further, closer to the European level to simulate trade and investments.
We repeat our request made to the then Trade and Industry Secretary in 1998 that the Monetary Policy Committee (MPC) which sets interest rates, should have appointed to it people with manufacturing experience.

The Manufacturing sector's contribution to GDP has declined to 19 per cent. However, a thriving, growing manufacturing sector is vital for the economy. The level of UK investment fell by almost 15 per cent in 1999 and only grew 2 to 3 per cent last year.

We need a new programme to attract inward investment, which has an emphasis on targeting investors in manufacturing. The inward investment programme of the 1980's—early 90's was successful in attracting a large number of American and Asian manufacturers. This coincided with the microchip revolution to produce new applications and an expansion of business development opportunities for our industries. Now regrettably we are losing some of the firms that invested in that period.

The incentives offered to target firms should also be reviewed to retain a competitive edge over incentives available from other countries.

We have seen a huge increase in gas prices to the plastics industry at a time when gas from Britain is being sold at low rates from our deregulated market to the French regulated market. We ask the Government to request that OFGEM investigate this.

Fuel taxes in the UK are considerably greater than those in EU states. This adds greatly to transport costs and damages competitiveness.

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Prepared 14 June 2002