John Barrett (Edinburgh, West) (LD): I am delighted to have secured this important debate because it highlights not only a local concern for my constituents and those living throughout Scotland's capital, but a national concern, as shown by the number of hon. Members who contacted me before the debate. I am grateful for their interest.
That said, I hope that hon. Members will understand if I concentrate part of my speech on the impact that outsourcing has had on my home city of Edinburgh, which is heavily dependent on the financial services industry. One term that we shall hear a number of times today is "offshoring". That relates to jobs that were formerly done in this country but which have now gone abroad. Local newspaper headlines along the lines of "City hit as 2,350 Aviva jobs go east" and "50,000 jobs lost to India" have, understandably, heightened local concerns, as shown by the number of letters, telephone calls and e-mails that my constituency office is receiving. The issue will also be the subject of debate during tomorrow's meeting of City of Edinburgh council on a motion tabled by the Liberal Democrat group leader, Jenny Dawe.
I want to mention the work of my constituency neighbour, the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz), who is present. I hope that he will contribute to the debate. We have already had a joint meeting with interested parties, a practice that I hope can be continued, because one thing is clear: there is cross-party concern on this issue and the concerns are spreading to many homes throughout the country in the run-up to Christmas.
I accept that this is not just a local concern for Edinburgh or even Scotland as a whole; most UK call centre jobs remain in the south-east, and the Lloyds TSB losses will have a massive effect on Tyneside. This is far from just an Edinburgh problem, so I look forward to hearing contributions from other hon. Members on issues local to them. I also accept that outsourcing is not exclusive to the financial services industry. However, the announcements by HSBC, Lloyds and Aviva, which stand out from the rest, show the particular relevance of outsourcing to this industry. That is why I mention it in the title of the debate.
A number of other jobs have already gone overseas, and that has been the case for many years. Last week, I read about sporran and kilt production in India, which is even considering producing whisky and exporting that to Scotland. Today, however, I shall concentrate on the financial services industry.
Last week's announcement by the Secretary of State for Trade and Industry about setting up a study of the call centre industry is warmly welcomed. I hope that this debate will allow hon. Members to feed into the early stages of that study. The announcement is welcome partly because it contrasts starkly with the Prime Minister's comments last Wednesday. If he thinks that by saying that the job losses are just the way of the world he will soothe the fears of the people he serves, he is sadly mistaken. The Government, the Department of Trade and Industry and the Secretary of State must not downplay these issues, although admittedly the study recognises that there is a problem that needs to be addressed. Of course, the Government are right to say that we are not in a panic situation yet. However, the problem is part of a trend and we need to address it now, or we will face a very serious crisis in the not too distant future.
Why is the outsourcing of jobs, and financial services jobs in particular, so important? The UK call centre industry employs more than 790,000 people in more than 5,000 call centres. It employs almost 4 per cent. of the working population of Scotland, with nearly 100,000 people working in such centres. The figures for other parts of the country are just as stark. More than 4 per cent. of the employed population work in contact centres in the north-east and north-west of England. In many cases, the rise of the service sector, financial services and contact centres has occurred in parts of the country that suffered from a serious fall in manufacturing. The thought of yet another upheaval in industry in those areas brings dread to many people.
The first Adjournment debate that I secured was on the manufacturing industry in Scotland. In that debate, the former Secretary of State for Scotland, the right hon. Member for Airdrie and Shotts (Mrs. Liddell), made the point that the decline in manufacturing could be tolerated because of Scotland's booming service sector. I did not buy into that argument, but if it is true, the movement, or at least the beginning of the movement, of service sector jobs from Scotland to the Asian subcontinent should deeply concern us.
Answers to my parliamentary questions have revealed a 16,000 net decrease in manufacturing jobs north of the border in the past year. Without question there is greater dependence in Scotland on financial services, and the future of that industry is key to the future of the country. I accept that jobs move and that little in the global market remains the same. I am also aware that it is not all one-way traffic; there are benefits to companies in terms of cost reductions. We will naturally try to encourage jobs to come to our country, and it would be naive to think that other countries will not do the same. We welcome improved opportunities in the developing world so that those ravaged by hunger and poverty can hope that one day their lot will improve.
The figures on outsourcing show, perhaps contrary to some comments by the DTI, that people are right to be concerned. Firms have outsourced more than 50,000 jobs that serve UK customers to India over the past two years. India is not the only destination for jobs; South Africa, Malaysia and the Philippines have also gained from outsourcing.
Outsourcing of call centre work is expected to increase by 25 per cent. over the next five years. Andrew Stewart, the managing director of the industry consultant Troika, has warned that 40,000 jobs in life and pensions and general insurance, along with 60,000 in banking, are likely to be moved abroad within the next few years. The announcements made last week by three financial giantsHSBC, Lloyds TSB and Aviva, owners of Norwich Unionhave rightly received much publicity. The combined intentions of those companies amount to the transfer of about 7,000 jobs abroad. Those companies stand out because of the numbers involved, but it would be wrong to say that they are alone. The list of companies that have transferred jobs overseas, or are considering such a move, is extensive and includes Powergen, British Airways, British Telecom, Vertex, Thomas Cook, Prudential, Citigroup, JP Morgan, Scottish Widows, National Rail Enquiries, Tesco, Abbey National, Barclays, BSkyB, Royal Sun Alliance and Churchill Insurance. That extensive list shows the scale of the trend.
As was recently reported by the business section of the BBC, the list of processes that can be moved to the Asian subcontinent is almost endless and includes customer reservations, telemarketing, payroll processing, insurance claims and credit card and loan applications. Many contact centre jobs have already gone. Yesterday there was an announcement about legal jobs moving. Tomorrow it will be accountancy. Accountants should be warned that they are next.
It is not difficult to work out the reasons for this turn of events. British Telecom's workers in India are paid approximately 75p to £1.25 an hour compared with the £5 to £10 paid to contact centre staff in the UK. All the evidence suggests that labour costs are on average 40 per cent. cheaper than those in the UK, despite the fact that many call centre workers on the Asian subcontinent have two university degrees.
It would be wrong to suggest that we can compete with such low wages, and we should not try to do so. The Government are to be commended for the work that they have done to improve worker pay, and that
As I mentioned, the outsourcing of jobs has taken its toll on workers in Edinburgh. Some 60 of the 187 jobs at Norwich Union in the capital will be lost. That follows earlier job losses in July when the company shed 900 jobs nationwide. Abbey National has plans to move an estimated 100 Scottish Provident jobs from Edinburgh and Glasgow, and last month Lloyds TSB-owned Scottish Widows revealed plans to move several back-office processing jobs to India. All the evidence suggests that in the event of further outsourcing, Scotland in particular will be hit hard. Contact Babel, the call centre industry analysts, produced a report that concluded that Scotland was especially vulnerable to the trend that we are now seeing. It stated that the spectre of "mass unemployment" now hung over Scotlandhardly the backdrop that we want in the run-up to Christmas.
I should make it clear that not all financial companies have taken the decision to outsource. Standard Life, for example, one of the biggest employers in Edinburgh, with around 8,000 staff, has been firm in its commitment to keep jobs in the city and the country. Its director of human resources, Marcia Campbell, said:
I applaud those views and have carefully filed those comments away should the suggestion of a U-turn ever come about. On the positive side, it does show the corporate responsibility for which many of us in this place push so strongly. The success of large and, in some cases, multinational companies has come from the ability, tenacity and hard work of their UK staff. It is easy to understand the anger of those who feel betrayed when that hard work is repaid by the transfer of their jobs overseas. It is not only the company that deserves the loyalty of its employees; the employees who build it up also deserve its loyalty.
The big question is what we, and the Government, can do. I accept that these questions are not easy to answer, but we must have a strategy and a mechanism to deliver job protection, rather than the void that has existed so far. The study announced by the Department of Trade and Industry comes on the heels of a similar effort in Scotlandthe setting up of the financial services strategy group, chaired by the Scottish Deputy First Minister and Minister for Enterprise and Lifelong Learning, Jim Wallace. The group's membership is impressive and includes the chief executive of Standard Life, the Bank of Scotland governor, George Mitchell,
The Secretary of State for Trade and Industry rightly said that we have a competitive international market. Our heads must not be in the clouds. We must not think that there is a magic solution or, as I said, that we can compete with low wages. I also oppose the view expressed by some that trade barriers should be erected to try to prevent the drift of jobs to places like India. We have a good trading relationship with that part of the world, which benefits us far more than it damages us. We must learn from the experiences of companies like the ones that I mentioned earlier, which have, for whatever reason, decided against outsourcing. What works well for them must be replicated to ensure that the business market remains competitive. Clearly some businesses see the UK as having lost that competitive edge. We need to work towards understanding how and why that has happened and what can be done to regain our pole position.
The various polls of public opinion on the issue of outsourcing have proved interesting. The research group Mitial found that 60 per cent. of the UK public were opposed to the idea of outsourcing jobs and a similar poll found that 78 per cent. believed that companies had not clearly addressed customer opinions on the migration of jobs. That may not be too surprising. However, the survey delivered by the TUC last September found that 63 per cent. of respondents would take the location of jobs into account before making a purchase.
The potential for consumer power is considerable. Several constituents have already contacted me, telling me that they have already cancelled or intend to cancel their policies with a certain financial company not only because of its decision to outsource a substantial number of jobs, but because of the way that the announcement was made. We will have to see whether that attitude and type of action will increase over time.
I am keen for other hon. Members to have an opportunity to contribute to the debate. However, as I have said, there is concern that what we are seeing now may be the thin end of a large wedge and that more substantial outsourcing and job losses will occur soon. The Government take pride in the levels of employment in the UK. Although I accept that such an accomplishment is important, I have to warn the Minister that if she responds to the debate merely by trumpeting the well documented employment figures, she will leave those concerned about the future of their jobs feeling let down.
In the run-up to Christmas, I can imagine the best possible present for the thousands who work in the call centre industry and financial services industry would be a commitment from the Minister that her Department and the Government take the matter seriously, perhaps more seriously than the Prime Minister suggested last week, and that a strategy for the future protection of such UK jobs will be a priority in the new year. I assure
Mr. Frank Cook (in the Chair): Order. Those hon. Members who are well versed in the protocols of this Chamber will not be surprised to hear the following announcement. This is a 90-minute Adjournment debate and normal practice is to commence the three winding-up speeches 30 minutes before terminationin other words, at 10.30 am. Seven hon. Members seek to catch my eye, four of whom wrote to alert me beforehand that they wished to speak. I appeal to everyone to make their comments pertinent and as brief as possible, and to be judicious in accepting and responding to interventions. In doing that, hon. Members will help the Chair to allow everyone to speak.
Hugh Bayley (City of York) (Lab): I believe that politicians should tell the truth, even if it makes them unpopular when they are the bearers of bad news. The sooner that we face an unpleasant realitythe reality that India can now do some office jobs more efficiently than we can in Britainthe sooner our businesses will start to adjust to the new competition and the more British jobs we will save.
I regret the loss of financial services jobs, whether those jobs are lost in my constituencywhere, following the recent announcement by Norwich Union, the number of redundancies will thankfully be fewor elsewhere in the UK. I want the financial services industry to minimise the number of redundancies and to retrain and redeploy the maximum number of staff, but simply wringing our hands and blaming the companies, or the Government, will not help the workers. That is as useful as shouting at the driver of an express train when it is racing towards us, and asking the driver to stop. We should not pretend to ourselves, or to the public, that protectionism provides an answer. If we put barriers in the way of trade, it is like putting concrete blocks on that railway line. It may derail the train, but it will crash where we are, not where it started the journey, and we are likely to get hurt as well.
So what can we do? We can slow the process if we help financial services companies in this country to operate in an efficient environment. Companies in India get a lot of help from the Indian Government, who are creating new cities and industrial parks to house the new call centres and back-office administration jobs. They are investing to make their IT revolution happen. Norwich Union Life Insurance, which has its headquarters in York, in my constituency, says that City of York council helped it to find new premises when it recently expanded its operations at Monk's Cross and at Clifton, which are both in York, and when it needed to dig up a road at short notice to lay a communications cable. It has a good working relationship with the local authority. However, in some of the other cities in which it operates, it does not have such a helpful and flexible response from the local authorities. It would help industry if York's attitude were more common.
We need also to adjust now; later will be too late. We can already see the train on the track, or as Gary Withers, chief executive of Norwich Union Life, told me earlier this week, we can see the tide coming in. Those who respond early and plan changes at their own pace can avoid many redundancies. For example, earlier this year Norwich Union established 1,200 jobs in call centres in India, which resulted in just 21 redundancies in the UK. The alternative to globalisation is to watch costs in one's company rise, to lose UK customers as a consequence and to end up making emergency job cuts to try to balance the books. That could cost thousands of jobs.
How can it be that one can outsource thousands of jobs to India and lose far fewer in the UK? Suppose that a company wants to create 2,300 administrative jobs. Taking into consideration such factors as the salary, the cost of the premises and the tax paid by the employer, that might cost £19,000 per job in the UK, a total of some £45 million. The same exercise in India might cost £4,000 per job for salary and on-costs, or £10 million in total. To that, one should add the same again, some £10 million, for telecoms links to the UK. A saving of some £25 million could be made, but where would be the benefit to Britain? First, it would be in the telecoms. They might well be provided by BT or Cable and Wireless, so half of the cost of a relocation might come back to the UK. Secondly, the saving of £25 million could be used by the company to develop and market new products in the UK or in other markets overseas in which it has subsidiaries and from which it repatriates profits to the UK.
The expenditure in India could help the British economy, too. If a British company pays sterling for the resources that it buys in from abroad, that sterling will eventually be spent by somebody abroad to buy goods or services from Britain. Even the spending power of the Indians who are earning in the offshore subsidiary will buy goods and services, such as mobile telephones and insurance policies. Aviva, the parent company of Norwich Union, has set up an insurance sales subsidiary in India and the profits from that can be repatriated.
The insurance industry is going through a period of great restructuring. I believe that in 10 years or so, we will end up with six or eight massive global companies. I would like some of those leading companies to be Britishperhaps the Pru or Avivabut if our companies do not retain their competitive edge, they could be swallowed by others. I would rather see
Finally, we parliamentarians should spare a thought for India. When I was a child, our image of India was of a country facing endemic famine: of a man wearing a loincloth and holding a begging bowl. India still has more people living in absolute povertyon less than $1 a daythan any other country. However, it is changing fast. India's skills and hard work, its enterprise and its investment in education, together with our aid, and investment, are turning India into a development success story. It is in our interests that India should prosper, as we would be paying the country less in aid and we would export more goods there. India would benefit from development, but so would we. We do not make ourselves richer by keeping Indians poor.
Mr. Frank Cook (in the Chair): Order. That was a move in the right direction, but it was not tight enough. We now have 34 minutes to accommodate the six hon. Members who seek to catch my eye. I call Mr. Peter Luff.
I agree with every word spoken by the hon. Member for City of York (Hugh Bayley) save for one. India does not want our aid. It is already an economically successful country, and it can develop its own way to success. I speak as chairman of the Conservative Parliamentary Friends of India. I was there recently on a two-week visit, and I saw many of the issues at first hand.
I agree with the hon. Gentleman that there are three basic reasons why we should resist the seductive arguments and tell the truth. First, it is in the interests of the survival and success of British companies. Secondly, it is in the economic self-interest of the United Kingdom. Thirdly, it is about moralityhelping India out of the poverty that has afflicted it for far too long. Indeed, the openness of the IT sector in India stands in stark contrast to the many sectors that are still too heavily protected, particularly the retail sector. The success of IT in India is an exemplar to the Indian Government and the Indian people, showing that free trade can bring real benefits; it has been responsible for driving the liberalisation process in India.
I must tell the hon. Member for Edinburgh, West (John Barrett) that that is not a problem, as he said, but a challenge. I concede that it poses a challenge to the British economy, but it is not a problem. That is a big difference. As the Government have said, we need to drive up skills in the UK to enable us to compete in the globalised economy. There is no point in crying over spilt milk or trying to pretend that we can put that genie back in the bottle; it has happened. However, if we do not respond appropriately, our constituents will pay a heavy price.
There is a mythology about India. People say that it is has a low-skill economy. That is not so; highly skilled jobs are now going to India. For instance, Indian bankers are returning from New York, where they
As the hon. Member for City of York said, through our monstrous agriculture policies, we have for years forced India to export agricultural jobs. For many years before that, during the time of the British empire, we forced India to export its manufacturing jobs to Britain. The boot seems now to be on the other foot, but as the hon. Gentleman said, there is a mutual benefit to be had from responding appropriately. The correct response will lead to gains for all. The hon. Member for Edinburgh, West told us that Tesco's chief executive, Sir Terry Leahy, had spoken about investing in India. Sir Terry said:
Businesses cannot just stand by and watch their global competitiveness being eroded. The US economy has already benefited to the tune of some $16 billion in cost savings, while the British economy has saved only $1 billion. The nightmare scenario of the hon. Member for City of York will come true unless we respond appropriately and achieve the same cost savings. That is the way to maintain effective corporate strength and job creation in the UK. Companies have to make a difficult choice. If they do not outsource, they will probably go under. Some jobs may be lost in the process in the short term, but the gains are considerable.
In the specific context of Scotland, I ask the hon. Member for Edinburgh, West whether he has seen the report by Professor Phil Taylor of Stirling university and Professor Peter Bain of Strathclyde university. It noted that Scotland has had a net growth of 10,000 jobs in call centre employment during the past three years, while in the same period, the number of call centres in Scotland grew from 220 to 290. Of those approached by the authors, 92 centres said that they expected to add more jobs by 2006. Doom and gloom should not be preached. The job losses always make the headlines, and the successes are often ignored.
It is also important to remember that in Britain we are gaining from the outsourcing of call centre jobs from the continent of Europe to Britain. We are gaining employment from other European countries, and I have a word of warning to the Minister on that. We need to maintain not only our skills but job market flexibility, which is also key to that process. What is more, Indian businesses are investing heavily in the UK, including in a call centre in Belfast, and generating jobs in many other sectors too.
Mr. Jim Cousins (Newcastle upon Tyne, Central) (Lab): I congratulate the hon. Member for Edinburgh, West (John Barrett) on securing the debate, which is not simply about call centres, but our future knowledge base, because where the call centres go, many ancillary services will follow. We are talking not just about what my hon. Friend the Member for City of York (Hugh Bayley) described as office jobs, but about a great prospect for the future.
Some 1,000 jobs have been lost at Lloyds TSB in Newcastle. We are not losing our old economy, but our new economyan economy that we have had for only 18 months, announced in the presence of the then Secretary of State and accompanied by a snowstorm of booster press releases. Those employed at the Lloyds TSB centre in Newcastle are largely young people and disproportionately from the British Asian community. The passion for opportunity, coupled with the lack of opportunity, especially in Newcastle, is a feature of that community. I always bear that fact in mind and want to stress it in debates.
Certain features of the financial services sector are of great importance. My hon. Friend the Member for City of York said that all the tax would come back to us, but the Government need to consider the corporation tax situation for companies that relocate. Will we face a major problem with future corporation tax revenues when companies relocate, particularly if that is accompanied by us losing a great part of the knowledge base that is associated with them?
We need to consider what data protection issues arise as a result of relocation because information about British consumers will be held on a massive scale in another jurisdiction. We also face regulatory issues. Every time I ring Lloyds TSB as a customer, I am asked whether I want to buy my gas from the company. In future, changes to financial services will allow banks to sell insurance and other products. What is the regulatory position of sales made over the phone from another jurisdiction? That applies especially to some of the relocations that directly affect insurance, which has important regulatory implications. As someone from Lloyds TSB explained to me at a meeting in the City only last week, call centres are in the front line of our defence against financial crime. How will the relocations affect that? How will British legislation on financial crime be reflected and carried out in relocated call centres?
Parliament recently passed draconian legislationcorrectly, I thought at the timeon terrorism that involves money laundering. What implications does that have for the relocation of major information and service delivery centres for finance, banking and insurance services to other jurisdictions? The Government need to apply their mind to such issues rather than simply deliver rather old new Labour lectures on the need for workers to face change.
Annabelle Ewing (Perth) (SNP): I congratulate the hon. Member for Edinburgh, West (John Barrett) on securing this important and timely debate. He set out clearly and concisely the importance of the financial services sector to the Scottish and UK economies and,
Aviva's announcement last week of its intention to offshore 2,350 jobs next year caused some alarm in Perth among both the Norwich Union staff and the wider population. Fortunately, this time we were assured that there will be no direct impact on jobs in Perth. None the less, the staff remain fearful about what lies ahead.
Financial services sector companies that are offshoring jobs say that it brings great cost savings 40 per cent. in some casesand that that is good news for everyone. I wonder if, and to what extent, those savings will be passed on to the consumer. The process appears first and foremost to be shareholder driven, not consumer driven.
Given the time constraints, I shall focus on giving the Minister some helpful suggestions. The Government's response to date has been somewhat disappointing. An initial period of silence was followed by some hand wringing, then the Prime Minister said, "Well, that is the way of the world", and finally, last Friday, the Secretary of State for Trade and Industry was forced to act. The Minister shakes her head. She will have the opportunity to comment when she responds. In any event, it is welcome that the Secretary of State is to commission a study into the sector.
I understand, however, that the study is limited to call centre jobs and offshoring. Will the Minister at least assure us that she will speak to the Secretary of State with a view to making representations to widen the remit of the study to include back-office IT and administrative jobs? That is crucial. As the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) said, it is the added-value jobs that are increasingly being shipped offshore. He also said that we should consider the extent to which the offshoring of jobs in the financial services sector is compatible with legislation, in particular the plethora of European Community single-market financial services legislation, to which all such companies are subject.
The Minister should consider the implications for data protection. Life insurance and health care insurance work are increasingly being offshored. Such work involves extremely sensitive information. Companies are moving from a paper-based approach to scanning paper online, and crucial issues of data protection should be examined. I urge the Minister and the Government to take on board what I think are helpful, constructive suggestions to consider how we can stand up for jobs in Scotland and throughout the UK in the important financial services sector.
Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I declare an interest as the unpaid chair of a parliamentary group for Scottish Financial Enterprise. I congratulate the hon. Member for Edinburgh, West (John Barrett) on securing this debate.
I want to take up a couple of points made by my hon. Friend the Member for City of York (Hugh Bayley) and the hon. Member for Mid-Worcestershire (Mr. Luff) about the response that we should make to the move towards outsourcing jobs in the financial services sector and other sectors. It is not my position and, I suspect, that of other hon. Members in the Chamber, that every job that is outsourced should be regarded as a retrograde step. I recognise that in many cases that option makes the best business sense for companies and is in the interest of the remaining employees in this country. However, I cannot accept the argument that outsourcing is always inevitable and that nothing can be done about it. We accept, as an objective of the Government, that we must try to defend our manufacturing industry. As I understand it, decisions taken on the defence industry are specifically designed to maintain employment in this country, and we have heard that the Indian Government do not care to protect employment. Like other hon. Members, I am suggesting that our response to outsourcing should be more discriminating. We should not assume that there is nothing we can do in every case and that outsourcing is an inevitable effect of the global market.
A number of considerations have a bearing on our approach to the loss of jobs and outsourcing. First, when companies choose to outsource jobs, they should be bound by the same rules that would apply if they were transferring their business within the UK or the European Union. They should be prepared to pay the extra costs of the loss of pension rights and other benefits that they would probably have faced if they were transferring jobs within the UK. The same rules should apply if companies are outsourcing jobs outside the European Union. That may mean that some outsourcing would not take place. It would certainly mean that the workers whose jobs would go if companies moved abroad would get better compensation for their loss of employment.
Secondly, it is noticeable that the financial services companies that have made it clear that they do not intend to outsource are extremely successful and have shown a strong commitment to this country. So companies do not need to outsource to be successful. The hon. Member for Edinburgh, West mentioned the Royal Bank of Scotland, which has its headquarters in Edinburgh, and Standard Life, a mutual company. It is clear how important it is for the Government to take decisions to encourage companies to stay owned and headquartered in this country. They should not intervene to prevent people from entering the market, but should encourage strong UK-based companies, particularly in the regions and nations of the UK.
We must encourage new businesses. That applies to Edinburgh and Scotland in general, where the business formation rate is too low. It also applies to part of north-east England. Above all, there must be a recognition of the scale of the threat to the financial services industry in Edinburgh, where it is a major private sector employer, and in other parts of the UK. I welcome the decision taken by the Scottish Executive and the Secretary of State for Trade and Industry to set up a working group on the subject because the issue is
On the morality of responding to the outsourcing of jobs to India or elsewhere, the problem is that such policies will not benefit the landless poor or the urban poor who are on $1 a day or much less. Instead, those policies sometimes benefit the highly educated sectors in those economies and, above all, the financial services companies themselves. Such moves do not necessarily result in sustainable development in those countries. We already know, for example, that some of the jobs that have been outsourced to India are now being subcontracted to China.
I am not arguing in favour of protectionism, but my comments emphasise what a complex phenomenon globalisation is. The issues are not as simple as they sometimes first appear. However, let us not assume that the process is inevitable or that there is no response other than simply sitting back and accepting that such moves will take place. We should recognise that the issue is complex and that Governments in countries such as India are trying to support their jobs and economies. Let us also ensure that we are as proactive in defending our jobs and interests as those other countries are in their own way.
Mr. Robert Key (Salisbury) (Con): I congratulate the hon. Member for Edinburgh, West (John Barrett) on raising such an important issue. I have no intention of going over ground that has already been covered in this excellent debate.
A constituent of mine, Kate Williams, drew my attention to the serious impact that outsourcing jobs in the financial services sector has had in my constituency. She e-mailed me on 17 September, saying that she worked in the insurance sector and that the company that she worked for was involved in outsourcing. She said:
She worked for Friends Provident, which has 900 employees in my constituency. It is an excellent company with a record in corporate social responsibility that is second to none. I am grateful to the chairman, the chief executive officer and the Amicus branch secretary for educating me a little on the problem of outsourcing in financial services.
The big conversation now should be about where the new jobs are coming from. In the 1970s and 1980s we lost 4 million jobs in steel, shipbuilding, railways and coal, but the UK defied the prophets of doom and we ended up with lower real unemployment than in 1967. I am old enough to remember the reaction of previous Labour Governments to the winds of economic change, as are other hon. Members in the Chamber. The policy was to subsidise declining industry and technology and to tax sunrise industries and jobs. Who can forget the selective employment tax and the Wilson-Castle fiasco, "In Place of Strife"? Perhaps no-one in that era really
In the 1980s and 1990s, the new jobs came from service industries, including financial services, and information technology. Millions of new jobs were created. It was all made possible by the introduction of supply-side reforms in the economy, which made UK plc competitive at home and abroad, and the deregulation of industry and financial markets. The answer to the outsourcing problem for this country does not lie with new regulations or Government-imposed labour market rigidities, yet that is exactly what is happening. The Government are forcing financial services out of the country.
EU employment legislation such as the working time directive is starting to bite in the financial services industries. Growth in the housing market at the same time as a downturn in equity markets has brought new business to the protection market, which is operated by insurance companies and underwriters. There have been huge shortages of trained, senior underwriters. Companies have had to bring people out of retirement to cope, but it is much easier to source the new demand from India. For example, physicians in India are trained to the same standards as our own, are half the price and are quicker to train in assessing medical risk.
The demand does not just affect call centres or clerical jobs, however. India is producing 1 million graduates a year who are hungry for work. The Indian economy has a glittering future. We should also keep an eye on China, as it is not far behind.
The Treasury's new capital regulations for the financial services industries mean that insurance companies have to hold more capital. That leads to rigidity and inefficiency in resource allocation, and to companies becoming internationally uncompetitive. That is a mistake.
The problems have been accelerated by the stakeholder price caps. Ron Sandler's report in summer 2002 criticised the financial services industries for being inefficient, but the price caps that were imposed forced companies to put costs first, even if that meant outsourcing. That shows a failure to understand the financial services market.
The products sold by the financial services industries are now very similar, but what differentiates them for the consumer is the service offered by the company. The harder the Government squeeze companies on cost, the more jobs will be outsourced. The risk-takers running the industries recognise that there is a limit to outsourcing. In India, call centres train their work forces in accentwhether it should be British or Americanand in the cultural backgrounds of the markets that they serve. However, for the customer, a policy is often a once-in-a-lifetime purchase, and a good insurance company, such as Friends Provident, wants to stay customer-based, in close contact with and in full understanding of its customers' needs.
The Treasury is sitting on the fence over price capping. The industry wants to know what the new regime will be, and the uncertainty is not helping it. Will the Chancellor please make up his mind? Will he also roll back the 1997 plundering of the financial services
It is said that the French and German Governments protect their financial services industries, but I suspect that that is fanciful. Let us talk about language. The Germans, and many other EU nations, are naturally protected against outsourcing, because German is not spoken by people in China, India or anywhere much else. The French may use francophone Africa to outsource some jobs. For the British, however, the world, particularly India and, in future, China, is our oyster. It is ironic that the genius of the English in exporting our language has become our Achilles heel.
Amicus does not advocate protectionism any more than I do. It reasonably asks employers and the Government where the new jobs are to come from. It also fights for employees in the financial services industries whose clerical jobs are at risk and who will not be able to cope with information technology. As the Salisbury branch officer said, "When their jobs go to India, where will they workMcDonalds?"
The big conversation must be about where the new jobs will come from. I have an informed hunch about thatscience. The UK is not just resistant to science; it is anti-science. Powerful pressure groups and the ostrich-like media rant and rave against progress in science and technology, yet science makes the UK a cutting-edge contributor to a new world order. Instead, public opinion and prejudice forces scientists and businesses, especially those in biotechnology and nanotechnology, away from the UK, and discourages young people from studying science at school and university. That trend must be reversed. Future jobs will depend on science education, science education, science education.
My reason for speaking is that, in my constituency, 1,700 people work for Lloyds TSB, and there are several other call centres. The current position is worrying for those workers. I congratulate the hon. Member for Edinburgh, West (John Barrett) on securing the debate. The problems that we experience in Wales are similar to those that he mentioned; my hon. Friend the Member for Preseli Pembrokeshire (Mrs. Lawrence) experiences a similar situation in her constituency.
We have lost the long-established manufacturing jobs that were highly skilled and permanent, and that we thought would last until our grandchildren's time. Those jobs have been replaced by jobs in call centres, which have always been candy-floss jobsthey look wonderfully attractive when they come in, but quickly disappear, leaving a sickly taste in the mouth. Such jobs are not well rooted, and it has always been a concern
When Tony Benn was a Minister, an enterprise was set up in my constituency through the National Enterprise Board. Does anyone remember that far back? The company was known as Inmoss and for nearly 20 years it provided highly skilled, cutting-edge jobs in the high technology business. It was a world leader, and it was set up through a Labour Government enterprise. Sadly those jobs were siphoned out of my constituency. They exist now under a nationalised French company in Grenoble. It is sad that one cannot equate this between one party and another.
I believe that what has been said is right. No one has argued that we should apply protectionism. Many have argued against it. We have protectionism for one industry, farming, and it has a doubly bad effect on developing countries. It subsidises our production, sells it below price to the developing world and puts up barriers to their production. It is unfair to tell workers in our constituencies who face the prospect of losing their jobs, particularly at this time of year, that there should be one rule for agriculture but an entirely different set of rules for them and that they are to be exposed to the full blizzard of international competition and to take the consequences.
It is right to support the Amicus campaign. There is a special value in call centres where we can have direct contact with someone who lives in these islands, and accents and cultural backgrounds are understood. Progress can be made. One accepts that there is a highly competitive business out there, but the rules that were imposed on the financial service industries are correct. There was a long period in which they behaved in a way that could not continue in many areas. For the past 20 years the financial service industries have behaved in a cavalier way towards their customers.
Judging by how their pensions and endowments fared during that time, many people may have concluded that they were more likely to be robbed by someone sitting on the other side of a polished desk, speaking in a soft voice and wearing a pinstriped suit, than by a burglar or a mugger. Unfortunately, if one loses out on pensions, endowments or other financial services, the theft goes on for a much longer period. We have a serious problem here, and the answer must lie in enterprise and innovation, which can ensure that we have jobs with added value.
I am concerned about vulnerable areas such as my constituency, where there have been heavy losses in manufacturing jobs. However, there has not been a drop in employment. Probably more people are employed in my constituency than at any other time in the last 50 years. It is extraordinary how resilient the economy becomes. We must ensure that we at least give the same kind of protection to those jobs as other countries clearly do. We cannot write this off as an inevitable
Brian Cotter (Weston-super-Mare) (LD): First, I congratulate my hon. Friend the Member for Edinburgh, West (John Barrett) on initiating the debate. It has clearly brought out many interesting points. He produced an enormous number of statistics showing how serious the problem is not just in his constituency, but in many other parts of the country. I am pleased to see that the Secretary of State has initiated an investigation into this. I shall look forward to seeing what comes out of that. There are many issues to be addressed, including the competitiveness of our own service industry.
Although it is regrettable that businesses choose to move their operations overseas, we should draw a few lessons from what is happening. First, we must meet the challenge by identifying how we, as politicians, can make the UK a more attractive place for companies to invest in. Cost is a major factor for many companies choosing to outsource their operations abroad, and many choose to move to places such as India because of the availability of a highly skilled, highly trained work force.
To get businesses to invest in Britain, it is imperative that the Government invest in the British people and equip them with the skills that are needed to keep the UK as a leading international competitor. Despite being the world's fourth-largest economy, we rank 12th out of 15 EU countries and 18th out of 30 countries in the Organisation for Economic Co-operation and Development in GDP per head, which is the best single measure of living standards and competitiveness. The training gap is affecting British productivity, and unless we act to boost the skills of our workers, companies will continue to look abroad to access the skills that they need to make their companies competitive.
Secondly, we must ensure that those who are unfortunate enough to lose their jobs as a result of the announcements have access to maximum support from the relevant Government agencies to help them to find alternative employment as soon as possible. It has been said that call centre workers are today's miners, and many colleagues have referred to manufacturing, where many jobs have been created but in which there is a risk, once again, that those jobs will go. The service industry provides an important boost to many communities where jobs are disappearing, especially in manufacturing.
Our job is to create sustainable communities in different regions of the country, so that the outsourcing of jobs does not have a disproportionate effect on local communities. The Government stressed that the regional development agencies should play a key role in achieving sustainable economic growth in the regions, and the Liberal Democrats supported that, so why are the Government not allowing the RDAs to get on and do it? Why do they have to spend valuable time and money complying with Whitehall diktats? As outlined in a recent National Audit Office report, the Department of Trade and Industry forced one RDA to write a £500,000 corporate plan that was so irrelevant to the
Thirdly, despite the distress caused when companies choose to move their jobs overseas, we must resist the urge to plump for protection. It is no use our lecturing other countries on the merits of free trade within the WTO if we restrict the right of British businesses to purchase labour from other nations. Rather than protecting jobs, such an approach would make workers more vulnerable by damaging the long-term competitiveness of British industry and undermining foreign investment. Furthermore, the United States' experience has shown that commercial investment can pay dividends at home. A recent report by McKinsey Global Institute found that every dollar that a US company invests abroad boosts the US economy by $1.45 to $1.47, a point to be taken on board. By investing abroad, UK companies can consolidate their interest in Britain, allowing them to create more jobs at home and attract increased levels of trade and investment, which will sustain the economy in the long run.
We should remember that despite the announcements, Britain retains a strong trade in services, with service exports currently at £82 billiona situation that we must continue to promoteand imports at £69 billion. It is also likely that the continued outsourcing of jobs to India will force up wage rates there and make the area not quite so attractive in the long run.
Fourthly, although we must ensure that businesses are not hampered by restrictive constraints, we must recognise that they have responsibilities towards both their staff and customers. As such, it is essential that companies wishing to relocate should consult fully with their employees about any proposed changes and offer as many voluntary redundancy packages as possible.
Furthermore, companies wishing to relocate must remember that consumers will vote with their feet if they object to their corporate policyan issue that we are addressing at the moment. Research by Amicus, which has been referred to already, shows that 68 per cent. of customers take into consideration the location of call centres when purchasing services, and 70 per cent. feel that businesses have a moral duty to remain based in the UK. That is something for businesses to consider.
A British company will have to consider carefully whether it wants to risk its corporate reputation by making such a movea factor that will influence the market much more effectively than the introduction of restrictive Government regulations. The other point is that customers are unlikely to support the outsourcing of call centres if they believe that the company fat cats, to use a common expression, will be the only beneficiaries of any savings. The companies concerned would be foolish not to pass on savings to consumers.
The chief executive of National Rail Enquiries recently claimed that outsourcing the service to India could save the train operating companies up to £25 million over several years. If the jobs at the two
Many companies have found that far from improving customer service, the outsourcing of services has upset many consumers, who have been unable to communicate effectively with call centre staff in far-flung corners of the globe. We must accept that the outsourcing of financial services is a phenomenon that is likely to continue if British businesses are to maintain their competitiveness within the global economy. However, the challenge for politicians is not to prevent that happening by protectionist means, but to build an economic and skills base that will make British firms never want to leave.
Mr. Henry Bellingham (North-West Norfolk) (Con): I should like to declare my interest as stated in the Register of Members' Interests and to congratulate the hon. Member for Edinburgh, West (John Barrett) on securing this debate. We have had an excellent, wide-ranging discussion and a lot of contributions.
Several companies have been mentioned, including British Airways, Barclays, Aviva, HSBC and, most recently, National Rail Enquiries. I agree with the Liberal Democrat spokesman, the hon. Member for Weston-super-Mare (Brian Cotter), that there is a special dimension to National Rail Enquiries, as taxpayers' money, in the form of grants to the train operating companies, has arguably been used in exporting jobs.
I want to refer to the point about onshoring. I have been contacted by about a dozen constituents who are IT consultants. They are struggling to find work as a result of the extra work permits that have been issued to IT consultants from the Indian subcontinent, and there is certainly an argument that too many permits have been issued.
There is no doubt that the Government's reaction in announcing the study is to be welcomed, but the Secretary of State's comments at the CBI conference were complacent. She appeared to be relaxed, and indifferent to the problems of those individuals. I agree with my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) that this is a challenge rather than a problem, but it is certainly a problem for people who have lost their jobs.
He welcomed the jobs exodus, saying that it was good news for India's economy and the poor. That is insulting to the people who have lost their jobs and who will have a miserable Christmas. The Government are right to set up the study, but they should listen to what businesses are saying. Towns and cities in east Anglia are also affected, and every business that I have spoken to or corresponded with has made it clear that there are two main reasons for the problem: the skills shortage, and the huge increase in red tape, regulation and employment legislation.
The skills problem has already been mentioned, especially by the hon. Member for Weston-super-Mare. Despite the Government's claims, the problems of literacy and numeracy are not being resolved fast enough. The Ofsted report published yesterday says that nearly half of teaching in English primary schools is inadequate, mainly because teachers do not know enough about literacy and numeracy, and that a quarter of all 11-year-oldsmore than 150,000 childrenmove on to secondary school without reaching the expected levels in English and mathematics. The Government missed their targets last year and will almost certainly do so again this year. Unless we can sort out these basic problems in literacy and numeracy in schools and address some of the vocational skills shortages, we will not deliver to British businesses the pool of skilled labour that they need and deserve.
As my hon. Friend the Member for Salisbury (Mr. Key) pointed out in an interesting and historical discourse, this Government inherited an economy that was in very good shape and a supply side that was the least regulated in Europe and the envy of the world. By 1997, the balance between employer rights and employee rights was probably fair. The work-life balance was also probably just about right. Above all, the previous Government secured an opt-out from the social chapter.
Since then, however, there has been an avalanche of burdens and extra pressures. Individually, those burdens and regulations are not show-stoppers or deal-breakers. It is the combined weight now bearing down on business that is starting to destroy entrepreneurial growth and that, above all, will destroy jobs, especially in small and medium-sized enterprises. The problem has been hidden to some extent by the large number of extra jobs that have been created in the public sector. The result is simple: Britain is no longer the best place in Europe in which to do business.
A recent CBI survey contained worrying findings. Some 70 per cent. of business leaders believe that in the past five years the UK has become a less attractive place in which to do business, and that the situation has worsened since 2002. Two thirds of business leaders believe that the Government place a low priority on delivering a favourable business environment, and 75 per cent. believe that the Government are less business-friendly than they were five years ago. Ministers should certainly take note of those beliefs.
Some 44 per cent. of business leaders are under pressure to outsource activities abroad. That indicates just how globally mobile businesses have become, but it also illustrates the scale of the problem that we are discussing today. The Government must examine some of the home-grown legislation that is being introduced. In the past few years, we have had employment legislation that includes the right to flexible contractsanother home-grown measureand we now have the Employment Rights Bill. That represents another shift away from management's right to manage. I hope that the Minister of State does not share the Secretary of State's seeming obsession with the work-life balance agenda; they should be talking about skills, lifting the burden of regulation and, above all, listening to business and giving businesses the climate that they want.
As for Europe, since we gave up the opt-out from the social chapter we now face the agency workers directive. If temporary workers are given full contractual rights after six weeks, that could be damaging; it will add to the pressure on businesses to move abroad. We shall be equally powerless to do anything about the information and consultation directive, which will also put more pressure on business. As my hon. Friend the Member for Salisbury pointed out, although the working time directive does not come under the social chapter because it deals with health and safety, we secured an opt-out for individuals, who can opt out of that directive by agreement with the employer. That is a satisfactory arrangement, and it suits everyone extremely well.
Every business organisation and trade association to which I have spoken has been completely unequivocal about the fact that the individual opt-out is vital to the general health not only of their competitive position but of business generally. It is pretty well mission-critical to the health of British business. Although the Greek presidency tried quite hard to push for the removal of the individual opt-out, it did not reach the agenda of the last Employment Ministers Council. However, it remains in the background and is almost certain to come back at the next Council meeting.
I find it depressing that we are getting mixed messages from the Government. First, Socialist MEPs are pushing hard to have the UK's individual opt-out removed. Stephen Hughes, the secretary of the group of European Socialist MEPs, together with Alejandro Cercas Alonso, has helped put together an "own initiative" report on the subject. The Government have said that they are keen to keep the opt-out. Where do they stand? Do they support their MEPs in Brussels? Will they support the initiative to have it removed, or will they listen to our business organisations, particularly those that represent smaller businesses, who have been pushing hard to keep it? The opt-out is popular with firms and employees alike.
As my hon. Friend the Member for Salisbury pointed out, the supply side of the economy is vital. Unless that is right, and it is maintained at its current level, the atmosphere for business will become a great deal less favourable. Unless the Government, and particularly the DTI, get a grip not only of the skills problems but of the overall regulatory framework, the steady flow of jobs offshore could become a torrent. We need a fundamental change of approach. I hope that the Minister is going to tell us that there will be such a change. If not, the results of next year's CBI survey, "Is Britain a good place to do business?", will be considerably worse than this year's, and those were a great deal worse than last year's. We look to the Minister to take action, and we hope that she will listen to what business is saying.
The Minister for Industry and the Regions (Jacqui Smith) : I am grateful to the hon. Member for Edinburgh, West (John Barrett) for leading this useful and constructive debate on an increasingly important subject.
I agree with the hon. Member for Mid-Worcestershire (Mr. Luff) that this is not a zero-sum game. Headlines do not always tell the whole story. They miss the thousands of jobs created or safeguarded by companies choosing to locate in the UK. They also miss the many companies that consider offshoring but choose to stay in the UK. Headlines report the jobs relocated to Asia and other developing countries, but not the 1 million people employed in the UK financial services sector.
Despite the words of doom from the hon. Members for Salisbury (Mr. Key) and for North-West Norfolk (Mr. Bellingham), I must pause to note that, judging by the latter's contribution, Opposition policy on developing the financial services sector mainly comprises people seeing less of their children and working longer hours. I am not sure that that is the most appropriate way to develop the sector. In 200203 alone, it saw inward investment creating more than 5,000 jobs. The recent decisions by a number of firms to offshore their back office operations must be set in that context.
As several hon. Members said, the decision about where to locate operations is a commercial matter for companies. Labour costs are one issue that companies may well consider, but there are others. Falling communication costs, coupled with the spread of technology, have made it easier for some services to be provided across long distances and international borders, including in developing countries. However, even if services could be undertaken abroad, companies may also, and many do, factor into their considerations the need or desire to be located close to their customers. For that reason, many companies choose not to offshore.
Those companies, and in particular those that took the decision to offshore but now wish that they had not, say that they failed to envisage the difficulty of managing staff, of maintaining standards when staff are thousands of miles away and of offering proper customer service if staff, however good their education, have never been to the UK. Companies weigh those issues seriously in making their decision.
We do not yet have the information that we need about the scale of or motivation for offshoring. We see examples of activity, but we need to open up the debate on offshoring to understand better what is happening and what motivates both companies that offshore and companies that do not.
We must also deal with some fundamental misunderstandings. The first is that the UK call centre industry is in terminal decline. In reality, we have more call centres than any other European country and new
The second misunderstanding, which was ably identified by my hon. Friend the Member for City of York (Hugh Bayley), is that protectionism offers a solution. Protectionism is clearly not the right response. UK exports are worth £270 billion a year; that includes £86 billion of service exports. Many jobs depend, as my hon. Friend outlined, on open markets abroad. Given our leading position as a global exporter of services, we must keep pressing for further opening up of markets for our exports. We are doing that in Europe through the proposed new services directive and in the wider world through the Doha round of the World Trade Organisation.
We cannot at the same time have a protectionist response to offshoring by companies at home, and nor should we. As we saw when the EU expanded to include poorer countries such as Ireland, Greece, Spain and Portugal, as they have grown, so have we. Our exports to them have increased, generating jobs and profits here, as has their investment in the UK. There will be opportunities to enable developing countries to develop further.
I agree with my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz) and with parts of the contribution made by my hon. Friend the Member for Newport, West (Paul Flynn). Instead of taking protectionist measures, we must enable and encourage firms in the UK to invest in new technology and work force skills. I agree with the hon. Member for Salisbury that we must ensure that our excellent science base is translated into business success. We must also move into advanced, high-value activities. We should continue to make the UK an attractive place in which to invest and do business. Our response to competition is not to be complacent, but to recognise the arguments that have been made about protectionism. There are three arguments.
First, we should be raising our game, ensuring that companies and their staff continually upgrade their skills and technologies. That is why in July we published our White Paper entitled "21st century skillsRealising our potential", which outlines the strategy of the DTI and the Department for Education and Skills for tackling the skills challenge. It firmly links skills to productivity, competitiveness and economic performance at national, regional and local levels. It details, for example, the way in which e-skills and other skills have developed, and how that will continue to make the UK an attractive place in which to base that work.
Secondly, I agree with the hon. Member for Weston-super-Mare (Brian Cotter) that, where jobs are lost, we must do everything that we can to help people to find new jobs, and new skills, if necessary, as quickly as possible. We shall call on the services of the reformed Jobcentre Plus, particularly its rapid response service, which focuses on redundancies where particularly intensive work is needed.
Thirdly, we are taking action to do even more to build strong and sustainable economies in all regions of the UK. I ask the hon. Member for Weston-super-Mare to return to the NAO report on RDAs, particularly the section that emphasised the progress and success of RDAs over the last five years. Those successes include raising the business birth rate, forging strong partnerships between the regions, universities and business, developing the skills that the regional economy needs, attracting more inward investors and improving local infrastructure.
All that success is important but, as I suggested, there is much more that we need to know and do. That is why, last Friday, my right hon. Friend the Secretary of State announced in her speech to the CBI Welsh conference the publication of a DTI consultation paper entitled "The Impact of Increasing International Competition in Services". Copies have been placed in the Library of the House. The paper outlines the main issues, and highlights areas for further research, and is intended to lead an informed debate giving all stakeholders an opportunity to contribute. We should bear in mind the fact that the consultation will be an important way of addressing some of the issues, such as data protection and financial crime, raised by my hon. Friend the Member for Newcastle upon Tyne, Central, and by the hon. Member for Perth (Annabelle Ewing).
The Secretary of State also commissioned a new call centre competitiveness study to ensure that we maximise the advantages that I have outlined, as we compete worldwide for more high-skill, high-value and high-wage call centre jobs. Our record shows the priority that the Government have given to job creation: there have been more than 1.7 million new jobs since 1997. We know that we cannot rest on our laurels, and our policies will continue to be geared to our long-term economic interests, based on our ability to innovate, to produce high-value added goods and services that need a highly skilled work force, high-calibre managers, forward-looking unions and knowledgeable consumers.
The Government take seriously the issues that this interesting and informative debate has raised. As well as taking the initiatives that I have outlined, we shall be discussing the issues with all interested parties, including employers, trade unions and businessesboth those who have decided to offshore and those who have decided not toin a round-table seminar in the new year.
The Government will be focusing all their efforts on keeping the UK economy strong and stable, generating more and better jobs by raising skill levels, supporting enterprise and raising business innovation and productivity. We will also be vigilant as regards the impact of globalisation on regional and local economies. We will ensure that the UK economy is best equipped to respond to such challenges and that it has the successful individuals that it needs.