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British Cellophane

11 am

Mr. Ian Liddell-Grainger (Bridgwater) (Con): I am delighted to have secured this debate on British Cellophane in Bridgwater. Its name is, in fact, Innovia Films, but it is known to all and sundry as British Cellophane. I wish, unusually, to thank a few people before I start my speech, the first being the Labour candidate for the constituency of Bridgwater at the next general election, Mr. Matthew Burchell, which may seem slightly strange. He works for the Leader of the House of Commons, and without his help it would have been a lot harder to reach the point at which we are today.

I wish to thank the Transport and General Workers Union for its help, especially Mel Dando. I wish also to   thank John Bloomfield, the managing director of Innovia Films, Bridgwater. He has supplied an enormous amount of information. When the news was announced, the Secretary of State for Trade and Industry was incredibly helpful and made it clear that she would do all that she could to help.

British Cellophane has a long and honourable history. It has an enormous background of industrial muscle and might in Bridgwater. It came there more than 50 years ago. I suspect that members of the community did not mind about the smell and were not worried about it environmentally, but just wanted manufacturing capacity. Bridgwater is the only industrial town in the west country. Over the long term, the work force at British Cellophane has been reduced, but it has always had outstanding productivity and an outstanding relationship with its employees and given outstanding help to the town at all levels. I believe that there has only been one industrial dispute and not once throughout its time in Bridgwater has Cellophane been anything other than a massive asset.

Thirty or forty years ago, Cellophane produced about   500,000 tonnes of cellophane. Cellophane is on everything. In fact, you are probably drinking out of a cellophane container at the moment, Mr. Deputy Speaker. It is a massively important commodity throughout the world. However, over the years, its production has reduced from about 500,000 tonnes to 60,000 tonnes. The commodity has to be produced in highly productive, motivated and profitable plants.

Believe it or not, 124 different types of cellophane are made in Bridgwater. There is an enormous number of different ways to use the film. That shows the level that cellophane has reached. It is a film that can be used for almost anything and it is now in use every day, almost without parallel. However, problems have occurred. Over many years, there have been changes of company and ownership and, in the past few years, the company has changed dramatically. It was bought by Candell Investments. I want to talk about three of its five plants. Two plants are in Britain and one is in America. The two in Britain are productive, motivated plants—one is in the north and one is in Bridgwater.

I wish to dwell on the plant in Kansas. Over the past few years, Cellophane has felt the strength of the pound. I do not expect the Minister to be able to solve that problem overnight. We know that it is a problem for all manufacturing companies in the United Kingdom.
 
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I   know that the Minister agrees that manufacturing matters strongly in this country. The problem is something that successive Governments have wrestled with and not always been able to solve because of outside forces, such as the strength of the pound, dollar and euro, but manufacturing should be protected at all times. We cannot allow it to disappear.

Last year in Bridgwater, we lost Federal Modal; 400   jobs went to Poland because we could not compete. The Government were helpful and, although we have ongoing problems with the pension fund, I cannot fault them for what happened. However, I am greatly worried about the situation in Kansas. I hope that the Minister can help. Kansas state legislators have passed an enormous amount of money to the plant in Kansas—we are talking about millions of dollars, not a few hundred thousand. They voted publicly to give public money to a plant to enable it to undermine us in the United Kingdom. It does not stop there. The plant is unproductive and does not make a profit. Why would one give money to a plant that does not make a profit and is not productive, whether it is in China, Australia or America?

I hope that the Minister agrees that it is worrying that British jobs in a profitable, highly productive plant are being put under threat by a plant that is not profitable, not productive and makes about half the types of cellophane that we do. It cannot even keep up with our production levels, yet we are losing to that plant money that should come to us.

Today at 3.30 pm, a deputation from the Transport and General Workers Union and Glyn Ford, the MEP for the south-west, are meeting Peter Mandelson in Europe to discuss this matter. I know that the Minister is fully aware of that, and I am sure that she has been fully briefed by her staff. The subsidies are unfair trade, unfair dumping and the use of unfair competition against profitable plants, and we should not allow that to happen. I hope that the Minister will give some assurance that, in this world of free trade, the World Trade Organisation should be asked to consider this matter, either through the EU or the British Government—ideally both.

Innovia Films has started a 90-day consultation. Last night we had a meeting with Sedgemoor district council, which was attended by all the political parties—well, both of us, there were no Liberals present—the   chief executive of Innovia Films, Mr. David Beeby, and Mr. John Bloomfield, the managing director at Bridgwater, at which they laid out their stall as to what they need. This is the crux of the matter, and why we are here today. The Minister is aware that we have a meeting in just over a week to try to move the matter on.

One of the biggest costs at the plant is the production of power. There is a power station on site, as there has always been. If one drives down the M5, one will see the chimney of the power station. However, the power station is old. I am sure that the Minister knows that a few years ago British Cellophane paid 12p a therm for gas whereas today it pays 116p a therm. That gives some idea of the difference in the cost of the energy that it needs to produce.

I have here some figures from John Hall Associates, which show the difference between Dutch and French production and levels of cost as of today. Ours are
 
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enormously higher—about a third. I am happy to give the Minister those figures after the debate. That shows that Innovia Films, or British Cellophane, is finding it hard to compete in the market. In yesterday's Financial Times, there was a quote—it has just dropped off the desk, so I will not hunt around for it—saying that energy costs are making it so hard for companies in this country to compete that they are considering moving abroad for that reason alone.

I will return to the issue of the power station, but there is also a problem with water. The plant uses a massive amount of water in its production process. Last year, the cost of water at the plant went up by £200,000 in one year. If one takes 2000 as a base year, the cost of water for British Cellophane has gone up by 25 per cent. in four or five years. It gives some idea of the cost to the company that it now hopes to buy in its energy services. Never mind the actual cellophane itself—we are talking just about production costs.

What can I ask the Minister to do to help? We need a new power station. Sedgemoor district council has a proposal on the table for a wood-burning power station. That would create not only 20 jobs but enough power to look after British Cellophane, put 15 per cent. back on to the grid, use 145,000 tonnes of wood that normally goes into landfill and help the Government to   hit their targets on biodiversity, biofuels and renewables. I say that with four nuclear reactors down the road at Hinkley Point.

We have the opportunity to do something special in Somerset. The power plant is there, and there will be no change of use. If we could get the permission, it could be   done. However, we need an indication from the Government, either through the regional development agency or directly, or from Europe on energy production, that that could happen. The company needs to know that we are listening and doing what we can—I mean all of us—to help.

It will be an enormous challenge. Every year, £20   million goes into the economy from British Cellophane—in wages and direct and indirect goods. It has been the lifeblood of Bridgwater in many ways. Going down the M5, it can be smelt at every turn. However, that is British Cellophane; that is what we are proud of. On Saturday, on the march organised by the Transport and General Workers Union, I marched with Matthew Burchell together with hundreds of people, from all walks of life, in Bridgwater, a manufacturing town whose lifeblood is making things. We need Government help.

It is rare that an MP pleads with the Government, but I am doing so on behalf of Bridgwater. I have laid out a stall of what we need. We have deputations going to Europe and people who are prepared to sign petitions in their hundreds, and I hope that the Minister will listen. I give another pledge to the Government; we will do what we have to. Sedgemoor district council has cut business rates to the plant straight away. Although it can give no direct money, the county council has passed a resolution to do what it can to help. Last night, at the meeting, the RDA said that it would do everything that it could to help via government, directly and indirectly.
 
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The challenge, Minister, is to look after manufacturing per se—

Mr. Deputy Speaker : Order. The hon. Gentleman is speaking directly to the Minister, when he should be addressing me.

Mr. Liddell-Grainger : I stand castigated. I think that you can tell, Mr. Deputy Speaker, that there is a certain passion in this situation, and I apologise.

As you are aware, Mr. Deputy Speaker, and as the Minister is aware, we are now in the 90-day consultation period, which will end in the middle of May. If we get   this right and get the right feedback from the Government, we can consider the proposals. The plant and the company are prepared to do so. That is the challenge that we face.

11.13 am

The Minister for Industry and the Regions (Jacqui Smith) : I start by congratulating the hon. Gentleman, not only on obtaining this debate but on the obvious passion that he has shown and the action that he has already taken in talking to my right hon. Friends and pressing the case very strongly.

I also thank him for the deserved and well-natured credit that he gave to Matthew Burchell, the Labour prospective parliamentary candidate in Bridgwater and to the T and G, which has also strongly lobbied the Government on the issue.

I would like to start by expressing my sympathy for the position in which the hon. Gentleman's constituents find themselves. It is certainly the case that the company's recent decision to begin consultations with a possible view to closure of the Bridgwater site is disappointing and distressing news to those people who, as the hon. Gentleman has pointed out, have in many cases put a lifetime of commitment into the plant. It is because we understand the seriousness of the issue and the impact on the local community that as soon as we learned that Innovia was considering the future configuration of its manufacturing operations, officials from my Department and from the South West of England Regional Development Agency immediately visited the company to understand the background and to explore what assistance might be available.

The hon. Gentleman emphasises the importance of manufacturing, as I frequently do. The company has received assistance from the Process Industries Centre for Manufacturing Excellence, an organisation that promotes the development of lean manufacturing, and was established with financial aid from the Department of Trade and Industry. However, we wished to see whether there was anything further we could do to assist the company. We also wanted to understand the background to any decisions that might be made. Part of the background is the current situation for cellophane production. Although the hon. Gentleman made a strong case for the continued importance of cellophane, cellophane production has been in decline for many years, as alternative products have been developed to meet the needs of the market. At the peak of demand, there were 23 production units in Europe and 15 in the United States, and they were operated by a number of   different companies. Today, Innovia supplies
 
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70   per   cent. of the world market—outside Japan—of cellophane products from only three manufacturing sites. As the hon. Gentleman said, one of those sites is in the USA, another is at Wigton in north-west England, and the other is at Bridgwater. Despite that, we understand that Innovia's production capacity is currently 50 per cent. higher than demand for the product. Put simply, there is a continuing decline in worldwide demand for cellophane products, and no company can continue producing more than the market requires. It is that dramatic change in the market that is forcing the company to consider rationalisation of its production capacity.

Of course, the company will need to base its decision on any rationalisation on sound commercial grounds, including the relative strength of the remaining markets, product range, proximity and time to the markets served, plant condition, and operating costs. As the hon. Gentleman points out, account will also have to be taken not only of specific financial assistance but of the whole framework of support that may be available in different areas. Alongside the support that is already provided, the local community, the local authority—Sedgemoor district council—and local agencies are making major efforts to find a solution that retains the manufacturing jobs in the area. I understand that the   district council is exploring whether the company could pay less in business rates.

As recently as last night, the regional development agency—the prime agency in the region for economic development and business support—met with the hon. Gentleman, and senior representatives of the company and the community. Today, the hon. Gentleman raised important points about power and the power plant. He also mentioned the pressure that manufacturers are currently feeling in respect of energy prices. I do not dispute that that is a considerable challenge for manufacturers, but I slightly dispute the angle that the hon. Gentleman took. He put us in a very bad position in respect of international competition, but the DTI estimates that UK gas prices remain below the EU   median in 2004. However, it is an important issue. That is why my right hon. Friend the Secretary of State for Trade and Industry met representatives of energy-intensive users last December, and why my hon. Friend the Minister for Energy and E-Commerce has had meetings to discuss the issue with some of the most affected companies. It is also why I discussed it recently with the Engineering Employers Federation. We are determined to find ways both to make sure that the market operates effectively to maintain competitiveness in energy prices and to ensure support for manufacturers.

The hon. Gentleman made a specific point about the development of a new power plant at Bridgwater. I want to look carefully at the figures that he and the company have forwarded to us about that challenge. I also want to set that in the context of the considerable support that the Government have already provided for alternative sources of energy, including exemption from the climate change levy for fuel inputs and electricity outputs from good-quality combined heat and power, eligibility for enhanced capital allowances, and a reduction in VAT to   5 per cent. for certain grant-funded domestic micro-CHP.
 
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More recent developments include securing the future of the community energy programme until at least March 2008 with a total funding of £60 million, creating incentives to develop innovative products and putting in place shortly revised guidance for power station developers, obliging them to consider fully the options for CHP and community heating.

I also understand that within that framework the particular situation in Bridgwater is important. While I   cannot give the hon. Gentleman any undertakings this morning, I can ensure that across government we will carefully examine the issue and see whether or not further support is available.

Let us be clear about one important point. We are not discussing a company that is deserting the UK—far from it. The company has its group headquarters in Wigton in the north-west, where it employs 850 people in both manufacturing and research and development. In 2002, it invested €12 million in a new global research and development centre at Wigton. That was in addition to more than €100 million invested in production facilities at the Wigton site during the past decade. There is a commitment to UK manufacturing, although that is not, I accept, a comfort to the hon. Gentleman, who is   rightly concerned about the Bridgwater site in his constituency.

The hon. Gentleman raised the particular issue of the funding that, it is argued, the US authorities and local authorities in Kansas are providing to the American plant. He rightly highlights the fact that the route for identifying whether or not that complies with World Trade Organisation rules is through the European Commission, which, of course, negotiates for the European Union on such issues.

I was pleased to hear about the meeting that is taking place with the Commissioner for Trade, Peter Mandelson, to whom the hon. Gentleman referred. I can also assure him that my officials have been talking to the Commission to confirm whether the US support complies with WTO rules. We want to maintain that contact so that we can interrogate the facts about the extent of the support in the US and whether it constitutes unfair trade under WTO rules.

So, while it is hard for those involved, this is, in some ways, a story of change and of companies in the UK responding to such change. In manufacturing—even manufacturing within this particular area of support—one of the difficulties with the market is that as we innovate and develop new products that compete with cellophane, there is a change in the way such manufacturing happens. There is not, incidentally, a shift of manufacturing out of the UK.

Other companies in the UK are producing the new alternatives that are replacing cellophane. For example, last September, my hon. Friend the Minister for Trade and Investment formally opened a new £65 million investment by the Japanese company Nippon Gohsei at Saltend, near Hull. That plant uses cutting-edge technology to produce a new environmentally-friendly polymer used in the food packaging industry, 90 per cent. of which is exported to Europe. That, once again, creates new jobs in the UK.
 
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Mr. Liddell-Grainger : The Minister is right in everything that she says, except that we are talking about a profitable and highly-productive plant. It has done everything to change and it outperforms the Americans by far. It produces more and it produces better quality. I accept what she says, but I take issue on one point. The plant has done everything to stay profitable and we should not allow it to be sacrificed simply because an American plant can get away with something that we cannot. Does she agree?

Jacqui Smith : I understand the hon. Gentleman's point, which is why I said two things. We need to investigate the extent of the aid being offered in the US   and ensure that we do everything possible to assist the UK plants, particularly the Bridgwater plant. However, we also need to do that with an understanding of the market. Where there is massive overcapacity, rationalisation is needed. The hon. Gentleman is quite right to argue the case for the plant in his constituency. I certainly hope that we can create and maintain jobs in the sector in the UK. As a Government, we will do what we can to support that, but in the end those decisions must be taken by the company, taking into account the market situation and a range of commercial factors.

We will continue to provide support for manufacturing, through the manufacturing advisory service and the investment that we are putting into science and innovation. For example, in the 2004 spending review we provided an extra £515 million in new money to boost science and innovation. Those incentives are being provided at a time when the UK is enjoying the longest period of sustained low and stable inflation since the 1960s, with interest rates close to historically low levels.

The effect of that is obvious. Gross domestic product has grown strongly over the past year, as has manufacturing output. As the hon. Gentleman said, we need to put in place the framework to enable UK manufacturers to compete. We need to add specific financial assistance to that, whether it is for innovation or is put into those areas that have been identified for selective investment.

We must ensure that local economies are doing as well as possible. I know that the hon. Gentleman will share my satisfaction that the economy of Somerset is now
 
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performing better than the national average. For example, unemployment is 1.3 per cent., which is relatively low compared to regional and national averages. More specifically, in Bridgwater more than 1   million sq ft of new factory space is being built at the recently opened 100-acre Express Park, less than a mile from the Innovia site.

At the end of last year, a planning application was submitted for an additional 50-acre employment site just two miles south of Bridgwater. Further from Bridgwater, there are two new development sites, at Glastonbury and Taunton. The Glastonbury development alone is expected to create 850 jobs, on a 35-acre site. To help with training, the South West of England Regional Development Agency has assisted in the establishment of an £11 million training programme through the Somerset skills alliance, as well as a single regeneration budget programme and a "Building Communities" pilot project in Bridgwater.

My argument is that, although the Government cannot always influence or determine commercial decisions about rationalisation and plant closure, we can provide support where possible and maintain the   macro-economic framework to allow the hon. Gentleman's constituency to flourish and ensure that there are jobs for local people. That is not to diminish in any way the painful position in which Innovia's Bridgwater work force find themselves, through no fault of their own. However, in that specific case a number of both local and national agencies are already engaged in seeking ways of assisting those who will be affected if—I stress "if", because I do not think that the decision has been taken yet—a decision is taken to close the Innovia plant.

I know that the cellophane plant in Bridgwater has been a key feature of the area for several generations. The announcement that it is being considered for closure was bound to be sad news for the employees, their families and the local community. I can only give the hon. Gentleman and that community my assurance that officials at local, regional and national levels will continue to explore what assistance might be provided.

11.29 am

Sitting suspended until Two o'clock.

 
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