Examination of Witnesses (Questions 584
- 599)
WEDNESDAY 28 APRIL 2004
FSB
Q584 Chairman: Welcome to the Welsh
Affairs Committee. We are looking at manufacturing and trade in
Wales, as I am sure you are aware. I am sorry about the delay.
I am afraid there may be other delays. I have to warn you now
that we have got the Finance Bill going through the House. It
is an inevitable result of the change of the hours, I am afraid,
so I have to crave your patience. If you could all introduce yourselves
for the record. Perhaps we can start with Mr Stephen Jones.
Mr Jones: Steve Jones. I am managing
director of DBK Technitherm, a manufacturing firm based in Llantrisant.
Mr Davenport: Clive Davenport.
I am the owner of a computer controlled machining centre company
in South Wales.
Mr Cottam: Ben Cottam. I am Welsh
Policy Development Officer for the Federation of Small Business
in Wales.
Mr Lawson: Russell Lawson, Press
and Parliamentary Officer.
Ms Sommer: I am Tina Sommer, member
of the FSB and the Chair for Trade and Industry for the National
Policy Committee.
Q585 Chairman: Thank you very much
indeed. If I could just start off with a broad question on the
current situation in Wales. In your submission you bemoan the
lack of an extensive and timely statistical base regarding the
health of the manufacturing sector in Wales. Would your members
be willing to shoulder an increased reporting burden to facilitate
better information or are you talking about making better and
quicker use of the existing information?
Mr Cottam: I think really what
we are saying is the emphasis should essentially be on a body
like the Office for National Statistics. We do currently glean
information from our members on a fairly extensive basis but of
course, as you will appreciate, that takes significant resources
and of course it has to be in conjunction with other organisations
doing the same. What we have said in our paper is that essentially
this needs to be gathered from the centre obviously at the same
time, so that we can at any one point have a snapshot of exactly
where the sector is rather than, as I say, just being left to
individual organisations at specific points which is convenient
to that particular organisation reporting on manufacturing in
whatever sector. Obviously you have regular reports from the CBI
and the FSB for its part undertakes a bi-annual survey of its
membership, but other than that we obviously fail to have the
resources.
Q586 Chairman: What benefits would
accrue from increased statistical information of that kind?
Mr Cottam: I think essentially
we need some capacity to be able to tell where we are at any one
time. Obviously in Wales we have a National Economic Development
Strategy but very little way of telling exactly where the sector
is and therefore where the sector sits within other sectors of
the economy in Wales. I think that is a significant problem because
we cannot obviously judge where we are but neither can we judge
success at any given point. If we are setting ourselves targets
for 2010, not just necessarily for the National Economic Development
Strategy but if we are setting ourselves targets for the future
it is very difficult to tell where we are at that point if we
do not have the base to start.
Chairman: Thank you.
Q587 Albert Owen: You mentioned that
the CBI does a regular industrial trends survey. Its most recent
one, and I have a copy of yesterday's Daily Post, is quite
optimistic. Its most up to date survey says: "The business
optimism in Wales has risen to its highest level since 1995."
Do you think you would be giving us a different report if you
had more accurate and more up to date facilities?
Mr Cottam: I think in terms of
business optimism yes, there are indications that optimism is
high. That has to obviously translate into orders and therefore
there are the productivity issues surrounding that. I do not think
there is any denying that optimism is high, but if I was to be
brutally honest we are coming from a low level where to be optimistic
is to survive to a certain extent.
Q588 Albert Owen: But it does say,
if I can, Chairman, with your permission, that the proportion
of firms working below capacity has fallen and that output is
up. That is the most recent survey from the CBI in Wales. Do you
think that is an accurate reflection of the current situation
as it is today with the most up to date statistics?
Mr Cottam: I think on balance
you could probably support that. It is very difficult to say exactly
how that is reflected in the small business sector, as I say,
without the sector-specific information, if you like.
Mr Lawson: Yes. Just to add, there
would obviously need to be a more detailed analysis of that. Although
firms might be working to capacity or greater capacity, obviously
we do not know how they are doing profitability-wise or turnover-wise.
When you are working in a global economy such as manufacturing
is at the moment, you might be working flat out but, as you could
say, you are a busy fool. You are not actually making any money
out of it.
Q589 Albert Owen: It says there was
a rise in output. I am just making the point that you say you
have a bi-annual report, whereas the CBI has a quarterly report
and it is reflecting slightly different from what you are telling
us in your submission.
Mr Cottam: Yes, I certainly concede
that, but I would also say that neither should it necessarily
be left solely to the CBI to judge the health of the sector. We
do need to be able to glean information from all sides of the
sector, the manufacturing sector, to be able to give us accurate
information as to where we are as a whole.
Q590 Hywel Williams: Good afternoon.
You argue that the growth target of 90% of the UK average is not
achievable by 2010. Why do you think this?
Mr Cottam: I think essentially
what we are saying now is that we would have to grow at a rate
that the Welsh economy has never grown, certainly in recorded
history. We are talking about a rate of some 4% per annum, actually
a rate nearer the GDP growth or the GVA growth of London year
on year. We have been growing, I think, at a rate of some 1.8
to 2% per annum, but it is not going to bring us up to that 90%
GDP target by 2010. It is very unlikely that that is going to
happen, so essentially what we are looking for is a sense of realism.
There is a lot of merit in having high aspirations for the economy
but it is the case that this might be a step too far, just that
little bit too high to reach.
Q591 Hywel Williams: How would you
like to see economic success measured?
Mr Lawson: I think traditionally
it has been a problem politically that we try to measure success
in terms of job creation and that is not necessarily the best
indicator. What we really should be looking towards is wealth
creation because, of course, when you create wealth then the jobs
follow. So really the kind of measures I think we would be looking
at would be more to do with how profitable are the firms, how
are they doing turnover-wise, how are they doing in terms of international
trade, and then we can gauge on the back of that what their potential
for growth is. Then we can look at how we can actually grow the
economy and we can start looking at proper GBA rates.
Q592 Hywel Williams: So I would be
right in saying that you are unhappy with the way it is measured
usually at present?
Mr Lawson: Yes. I am not saying
that we should not measure things in that way, that we should
not measure how much employment there is in Wales. Obviously we
need to, but when we are talking about growing an economy we need
to be looking at how an economy grows and of course it grows by
wealth creation. Similarly, in the way that we look at how strong
a small business sector is we usually look at business birth rates.
Well, that is not necessarily the best way. Surely we should also
be looking at business survival rates as well.
Mr Cottam: If I could also add,
in terms of job targets in the approach to full employment in
Wales, which has obviously got to be welcomed, we may well need
to sit back and think whether this is the time to reassess how
we evaluate our economy. Is it now best to look at issues such
as wealth creation rather than solely job targets, as we have
almost attained that to some degree? There may well be an argument
to say that wealth creation and issues surrounding wealth creation
are a more appropriate judgment of the health of our economy.
Q593 Hywel Williams: But qualitative
measures like that are notoriously difficult to apply in any scientific
sort of way.
Mr Cottam: Yes. It would require
a sort of radical overhaul of the way we think of gauging our
economy because obviously in the past years we have gauged our
economy largely against job targets and against the number of
people we have in work. It would require all sectors and academia
coming together to work out what specifically might be the best
gauge of the health of the economy but it is certainly a question
worth throwing into the ring at this point as we approach full
employment in Wales. It might well be worth starting to think
about how we might do that.
Q594 Hywel Williams: Thank you. Those
are very relevant points. In your paper you note that manufacturing
output in Wales dropped by 4.9% in 2003 while output across the
UK dropped by only 0.1%. Why do you think that the Welsh economy
is not performing as well as the UK average?
Mr Jones: It is possibly the result
of historical actions, perhaps. Over the last year or so there
has been quite a large number of large companies in Wales which
have either declared that they are closing, downsizing, etcetera,
and with measures such as job numbers being perhaps the prime
one, certainly for support and certainly for performance measure,
perhaps that is hiding some of these factors. Where traditionally
we have had jobs that have paid 25, £30,000 a year, they
have been replaced by call centres and that equivalent at perhaps
£15,000 a year. That is kind of hiding something. So like
for like we have got, yes, one job lost, one job created, but
in fact the value of that job is not quite the same. I think this
is recognised. I think it is recognised anyway in Wales. Perhaps
that is one of the reasons anyway.
Mr Davenport: If I could just
add a little bit to that. If you took Corus as an instance, the
amount of people left after two years who were out of work with
Corus was comparatively small, about 2,000 out of the 13,000-odd
that disappeared. What happened was that the small businesses
which fed Corus were damaged heavily and many of them closed.
Because there are four, five or six people, very small businesses
in themselves, you end up with that not really hitting the indicators
in quite the same way. So jobs have disappeared without a large
hoo-ha about it.
Q595 Hywel Williams: In the decline
in the manufacturing output the difference between Wales and the
UK is quite gross, is it not, 4.9% and 0.1%? Are those one-off
factors relating to large closures reflected historically in the
figures?
Mr Davenport: Yes, but I do not
think it is just Corus. There is quite a few large inward investment
companies which have come to Wales and then after two, three,
four or five years disappeared. That has happened in the last
three or four years. Quite a few of those closed at the same time.
So it was not only Corus that was doing it but it was certainly
an influencing factor because again, you know, small businesses
get hit and therefore have to contract because they feed off the
larger ones.
Q596 Hywel Williams: Finally from
me, what are the most pressing problems faced by small manufacturers
in Wales and which do they find particularly difficult to address?
Mr Jones: There are many. You
have asked for the most pressing. I think for us, if I could just
list them initially, certainly skills across the board are a restricting
factor. Certainly in my own business that is the case. Regulations
certainly have not helped and the burden of regulations as well
on business, in particular small businesses. I would cite an example
there of the way tax credits are managed. Additional staff are
needed and additional costs are needed to deal with that, for
example, and the burden on business is increasing obviously. Next
I will go on to global competition and essentially having a level
playing field, as I will put it. I have clearly no problem with
competition. We source globally and we export and that is fine.
The issue is in having a level playing field from which to compete
and perhaps the way we adopt certain pieces of legislation quite
vigorously, in particular EU legislation, is a factor that has
to be looked at. The way we sort of gold-plate this and put ourselves
at a disadvantage is certainly an issue. This is not really a
criticism and it is not sort of historical but looking forward
perhaps what we need is a joined up strategy for Welsh manufacturing.
Where do we want to go as a country with our manufacturing base?
We have inherited a lot of things and there are certain initiatives
right now, sector initiatives, market initiatives, of course,
and there is a lot of these. In fact people are kind of fed up,
initiative fatigue, if I can term it as such. Really there needs
to be a strategy. Just like I have a strategy for my business,
perhaps a country strategy for manufacturing might not be a bad
idea, for everyone to understand where we are going.
Q597 Albert Owen: In your list there
you mentioned tax credits and the additional burden to the company.
The purpose of them is obviously for R&D. Are you suggesting
that the paperwork at your end is difficult or is the communication
between your company and the Treasury and/or the Inland Revenue?
Mr Jones: I may not be using absolutely
the correct term. What I was referring to are the tax credits
that are given to individuals in the company to bring their earnings
to a minimum level. That is what I was referring to, not the R&D
tax credits.
Q598 Albert Owen: I am not clear
what that is, the tax credit that an individual might be entitled
to.
Mr Jones: As I understand it,
there is a minimum level of earnings that an individual should
have and if their pay is fairly low that is actually made up by
giving a tax credit to them and the burden of that is not on the
Revenue, it is actually on the company to do so.
Q599 Albert Owen: So it was not the
R&D tax credit you were referring to
Mr Jones: No, it was not.
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