Examination of Witnesses (Questions 620
- 639)
WEDNESDAY 28 APRIL 2004
FSB
Q620 Albert Owen: Is that reflected
across your membership?
Ms Sommer: I think so, yes. I
have some quite good personal experience in that from UK companies,
especially from the north, where my own company actually took
them to Latvia 10 years ago before there was even talk about the
EU ascension. The main problem they had was they literally needed
somebody to take their hand and take them there, make the contact,
make them comfortable, show them how it is done and then once
they are going they are fine. This hand to hand holding is very
costly. Wales Trade International do trade missions and I was
involved in their set up, advising them what should be done, but
it is a very costly exercise. It is one thing to go to an exhibition
abroad; it is another thing to go back and start negotiating with
certain companies and I think the fear factor is fairly high.
So if you have individual consultants, call them whatever you
will, who look after these people then yes, that is something
the Government could do but it is very costly and in the end I
think there are about 2,000 organisations in the UK as a whole
who deal in export help of some sort or another from export clubs
to the Institute of Export, whatever it is. So there is a lot
of help out there and I agree with Steve, it is down to the individual
to do that. However, please keep in mind that because they are
small companies if you go for export a fair share of your entire
resources goes away and is concentrated on export. You have to
have resources left to deal with the ongoing domestic market otherwise
you lose your business.
Mr Cottam: I think one of the
messages there is really that the Government may need to promote
the services it already has rather than a need to create more
services. There needs to be a greater awareness made of the services
which are already in place. We mentioned Wales Trade International
and certainly the feedback that has come to the FSB from Wales
Trade International is on the whole positive, but possibly Wales
Trade International themselves have not sold themselves to the
extent that they may well need to.
Q621 Mr Williams: Just to go back
to a point Ms Sommer mentioned about a Baltic country, some of
the Baltic countries are held up through their economic performance
as examples of how countries about the size of Wales could perform.
Are there any lessons that we could learn from the Baltic countries?
Ms Sommer: As you say, they are
the same size as Wales, yes, and when I went there with my husband
the reason we found a local partner very quickly was because they
realised we are coming from Wales, which is a very small country,
and there was an affinity there straightaway. Now, our own business
is based in Latvia but we did spend a lot of time in Estonia,
which is way ahead now of everybody else, and I think the reason
they are way ahead is because they are learning from the mistakes
we have made. They are going in at a different level. I was in
Geneva two weeks ago at the enterprise week from the UN and it
was very interesting to see their comment on business support
in Estonia because they looked at all the support that is available
in the UK and other EU countries and they picked what they think
is the best and they implemented that. They only have one agency
dealing with two subjects and that is it, and they apply those
to the whole of Estonia because it is easy, it is small, it is
tiny, and it seems to be extremely successful. So they can learn
from us, whereas we have to make our own mistakes and have to
find out the best way. But yes, the size of the country is very
relevant.
Q622 Mr Williams: If now we could
turn to Government assistance, do you think that a move towards
a value added criteria for the Regional Selective Assistance schemes,
whilst desirable, might be difficult to implement; for instance,
the companies might find it hard to estimate value added numbers
and the Government find it difficult to evaluate those applications?
Mr Jones: It might be difficult
to implement different measures, but I think it is necessary.
Looking again at the key measure right now, which is clearly jobs
created or safeguarded, that kind of conflicts with the value
added wealth creation aim. I will give you an example of that.
We keep saying or we keep getting told that the UK is behind other
countries in terms of productivity; Germany is always held up
as an example. Well, if we keep increasing job numbers and keep
increasing the labour element in producing a product then that
will always be the case. Where we need to invest in automation
it is difficult to get support for that because quite often we
are not creating jobs, we are not safeguarding them, we are cutting
jobs. What is great at the same time is if you are experiencing
growth as well, so then you are sustaining it, but quite often
that is not the case. But if we are going to become a value added
economy, if you like, a high value economy and perhaps because
we can compete at the low end against other low-cost countries
then RSA is sort of in conflict with that. I also cite the additionality
part of it as well. It has often been a difficult barrier to overcome
and it is quite often down to individual interpretation. It is
really not black and white. Again, that causes conflict in itself.
The view quite often is, "Okay, if you've got such a great
project it should generate its own funding." So then the
individual has got to say, "Well, yeah. Okay, maybe it isn't
so great." "Ah! If the project isn't so great it's not
going to succeed," and you always have this kind of juggling
and balancing act. It is a game really, unfortunately. It needs
to be clearer.
Mr Davenport: It needs to be more
open. At the moment virtually every grant that is given is discretionary
and when you make an application for a grant you have no idea
whether it is going to be successful or not and you are never
given reasons why it was not successful. So the problem becomes,
"What do I do now if it fails?" and that tends to put
a lot of people off actually applying in the first place.
Ms Sommer: Could I come back on
that. I am involved in a timber industry in south-east Wales through
my work and if you go to a carpenter or joiner in south-east Wales
they have lots of people working there and very old machinery.
If you look at the same window of manufacturing in Austria, which
I happen to know quite well, you have got three people in there
and a whacking big machine and that machine makes them very competitive,
so they stay in the market and they compete, whereas we in south-east
Wales have to struggle. So automation is the point; it is not
all about job creation.
Q623 Mr Williams: In your memorandum
you focus on soft loans rather than grants. What benefits would
this change provide?
Mr Cottam: Initially, first and
foremost in theory soft loans could be self-sustaining in terms
of the support mechanism over a number of years essentially, possibly
10 to 20 years, but eventually it is essentially a self-sustaining
support system. There is also the issue that soft loans do not
necessarily require personal security in the same way that a bank
loan or a grant might do and that is a big issue for our members.
If you have a larger organisation you may be able to put up the
security of your work premises; if you have a smaller organisation
you may well be forced to put down personal security such as your
house. That is a big issue for our members, who face very, very
uncertain times, possibly less certain obviously than the larger
manufacturing organisations. If I could hand over to Tina. I know
she has got a couple of views on soft loans.
Ms Sommer: My view of this in
general is against grants, full stop, simply because it can end
up in a postcode lottery; it depends where the grant is available.
We have 21 local authorities in Wales and they all have different
grants and it depends where your business is located. Sometimes
you get more and others get less. It does not create a level playing
field, which we do advocate. If you do have soft loans it becomes
a sustainable source which, as we will come on to later, is a
sustainable development. Even if you lose 20% because it cannot
be repaid, or whatever, it is not 100% as it would be with grants
and really the FSB has lobbied initially for the Development Bank
of Wales, which ended up being Finance Wales. The whole idea behind
that was to stop grants, use that fund and create a soft loan
pot, so to speak. The main source here is that there are no personal
guarantees required. Yes, of course you have to look at the viability
of the project and the sustainability of the business, but the
personal involvement is the problem.
Q624 Mr Williams: But if soft loans
became the way to do business support, would you not just end
up with the same sort of postcode lottery with one local authority,
"Well, we'll do it softer than you can do it"?
Ms Sommer: No, because you would
run it as an all-Wales project; it would not be down to the local
authority.
Q625 Mr Williams: So you are advocating
really local authorities not taking part in the economic development?
Ms Sommer: Well, they do take
part in the economic development. You are talking about one section
of this and that is loans.
Q626 Mr Caton: It sounded like what
you are advocating is that we basically give up on having any
sort of regional policy?
Ms Sommer: No, I am only talking
about loans now. It is one way of dealing with access to finance.
Q627 Mr Caton: But I thought you
wanted to get rid of grants?
Ms Sommer: Yes. We would like
to, yes. You are saying economic development is all about grants
and nothing else?
Q628 Mr Caton: I am not saying anything,
I am trying to find out what you are saying. The reason we have
differential grants at the moment generally, and even if we changed
it to loans I think most people in government, both Assembly government
and UK government level, would want that to be directed to areas
where there is a particular history of economic problems or particular
needs. Are you saying that you think that approach is wrong?
Ms Sommer: No. You have to have
a regional policy because every region is different. I totally
agree with you there, but does it have to be done through grants?
Are there other mechanisms to do that? I am not against a regional
policy. Of course you have differences.
Mr Caton: Thank you. You have cleared
that up.
Q629 Hywel Williams: Just to clear
up a point, what do you mean by "a region"? Is Wales
a region or are you looking internally in Wales?
Ms Sommer: Internally. It can
be a local authority, it can be south-east Wales, four regions
usually, it can be all of Wales; it depends on the definition
of the body who is dealing with it.
Q630 Mr Williams: You mentioned Finance
Wales. Does anybody hold any views on how it has worked, how successful
it has been?
Ms Sommer: You cannot really tell.
It is a bit early. It has not been in place for that long yet.
I think they are trying to do a good job. I had an interview with
somebody a few weeks ago and he was explaining how it works and
it all looked very straightforward to me. It was not quite what
we advocated for initially, but I think it is too early to tell.
We really have to give them a chance.
Q631 Mr Williams: Transport is often
indicated as a problem for industry, manufacturing in particular.
There is an argument for higher taxation in order to fund improved
infrastructure. Is that something you would support?
Mr Cottam: I think, with respect,
this is an issue for the Government rather than businesses. Businesses
will obviously baulk at any measures which increase their costs,
even to the business rates in terms of business burdens, many
of which obviously exist at the moment. I think we would be very
worried about getting too engrossed in a debate about how infrastructure
development should be funded. What is very clear from our perspective
is that in relation to the infrastructure certainly within Wales,
as Steven has already mentioned, in terms of getting to export
markets it is not so much a problem but there are significant
problems in getting your product around Wales, notably north and
south, and east and west into Pembrokeshire. How you fund that
is, with respect, I think possibly for the Government and the
Assembly to fight it out. For our part, we will obviously fight
our corner to make sure that the burdens are not too great on
businesses because in saying that we are funding infrastructure
for the good of not the manufacturing sector but the economy in
Wales we do not want to stifle the economy in Wales by creating
burdens for them anyway.
Q632 Mr Williams: How has the devolution
settlement for Wales affected the UK Government's approach to
economic development in Wales? Really, I think we are looking
for the relationship of the DTI and the Assembly.
Mr Cottam: I think from our perspective
devolution, if I could just slightly veer away from your latter
point there, has brought business closer to policy making, for
the policy making that most regularly affects it, obviously economic
development, and certainly many of our members feel that for our
organisations' part it is easier for the FSB to get to the high
levels of Government and to have high level discussions within
the Government. In terms of the DTI, it is very difficult to tell
whether the settlement has changed the relationship between manufacturers
in Wales and the DTI. Manufacturers in Wales tend now to deal
to a greater extent with the Assembly rather than the DTI. As
an organisation, our central operation in London, our central
lobbying operation, would deal more largely with the DTI than
we would in Wales and in that sense it is very regionalised. But
I certainly do not think it has damaged the relationship with
the DTI. I do not think the DTI is any less proactive in Wales
than possibly it was. It is very difficult to say how much more
proactive it might be, though.
Mr Williams: Thank you.
Q633 Chairman: Before we leave financial
assistance, do you have any views on how Objective 1 funding has
affected the manufacturing sector in Wales, for good or ill?
Mr Davenport: I am on the committee
of the Objective 1 for Caerphilly and Caerphilly Borough Council
and one of the main advantages of Objective 1 was to improve the
environment and that has been very successful. It takes a long
time for the effects of Objective 1 to actually start turning
down into jobs; it is not an instant thing. It was never portrayed
as being an instant thing; you are looking at five or 10 year
cycles. It is certainly happening. Things are certainly changing,
certainly in the Caerphilly Borough Council area dramatically,
I think, visually and over the next two years with the rail system
being improved and the rail coming down from Ebbw Vale into Newport,
which was a dead line at one point, those sort of things are going
to start rippling out into more jobs, more movement of businesses
into the valleys instead of cycling around Cardiff, which they
tend to do at the moment. Cardiff is beginning to overheat from
a transport point of view, so I think the time is coming to move
things into the valleys and that is what we are trying to do.
Q634 Chairman: So indirectly it will
help manufacturing?
Mr Davenport: Eventually, yes,
but it is never an instant thing.
Mr Cottam: If I could add, very
quickly, there will be an overriding suspicion, as there is in
all sectors of the business community, that the Objective 1 has
been largely sort of dominated by the public sector and that is
a problem. It is very difficult to see where the manufacturing
sector per se sits within that, but within the business
sector more generally—and you have probably heard this more
times than you would care to recall—there is a perennial
suspicion that not enough of this is going into projects for wealth
creation and I think that has to be the overriding view on this.
It is not a huge bottomless pot of money and so it has to be used
wisely and the FSB's position on this is that certainly more needs
to be channelled into sort of high value wealth creation schemes
rather than just local authority projects.
Mr Davenport: One of the pluses
of Objective 1 was that the infrastructure so far as broadband
is concerned has been rolled out incredibly quickly. Probably
in less than a year almost it has gone from one end of the valleys
virtually to the other; it is almost complete now. That is beginning
to make quite a change. So it does have effects but they are not
direct. They are not instantly quantifiable from A to B, they
just filter through.
Q635 Albert Owen: Just to return
to a subject which Mr Jones touched on, the Working Time Directive,
you state in your paper that you are strongly opposed to the 48
hour week. Is this due to the differences in implementation in
Europe, because further on in your paper you argue for a level
playing field and yet most of the European countries do have the
Working Time Directive in place and do have a 48 hour week? So
there is a slight contradiction there, if I may say so. I know
you have commented on it, Mr Jones, but does anybody else want
to?
Mr Davenport: To give you an example
of the situation in Germany, one of Steve's colleagues went to
a meeting there and at a precise moment, "Oh, we have to
go today," and they get up and walk out, everybody. Now,
if you are going to get that scenario, you have got increased
costs, you have got people having to stay overnight and so it
goes on.
Q636 Albert Owen: That is an extreme
example. What I am trying to get at is if your workforce and a
comparable European country work 48 hours and you are asking for
the level playing field, that implementation is done throughout
Europe, then I cannot see how it puts you at a serious disadvantage
where they argue in other countries that the length of the hours
affects productivity in a negative way.
Mr Davenport: I think the level
playing field was more in what is happening with import and export
rather than anything else.
Mr Jones: The level playing field
is certainly something that I would argue for in terms of not
giving us any competitive disadvantages with the world, not just
Europe. However, looking beyond that, why not let us have advantages
over Europe? We do not have to, as the Chairman put to me, come
down to the level of other parts of the world. We have to look
at how we can be competitive in Wales compared with the rest of
the world and really this is a key for me. It is not job creation,
it is about competitiveness. I would not expect anyone to work
a 48 hour week permanently for the whole of their business career.
My personal view on that is that that is too much. But over periods
of time it is necessary and to have that restriction would be
a serious restriction.
Q637 Albert Owen: My understanding
of the Working Time Directive is that it does have that flexibility
built into it for the example you gave earlier on about production
over a weekend or whatever. That could be done.
Mr Jones: It could be. If it is
going to go ahead in the way it is being proposed I think it is
going to be an average over a 13 week period, so the odd weekend
is built into it. What is not built into it is the situation that
we have right now and I hope a lot of other companies have in
Wales in the near future where they have certainly sustained growth
over a period of time.
Ms Sommer: Could I ask you a question?
Why are so many German manufacturers moving out of Germany?
Q638 Albert Owen: There are many
factors. We are here to ask the questions, with respect. Do you
think then that there is an advantage of working extremely long
hours? Do you think you have got a very productive workforce when
they work excessive hours? The reason it is being brought in in
the rest of Europe and in this country is to curtail the excessive
hours that some companies impose on their workforce. Again, I
speak to many of your members, and indeed in the retail and leisure
centres, who see an advantage of people who have less time in
work and more leisure to do it. Those are the factors I am referring
to.
Ms Sommer: I think you will get
a number of opinions here. I have also spoken to employees who
are not happy about it because they say, "I need the overtime.
I need that money. Now I can't do it any more," and they
have not got the money. They are just going to have more contracts
or have more jobs. So you get an opinion on everything from different
people. The other thing it does not take care of is seasonal work.
There are companies who have a season, let us say in summer, where
they have to work tremendous hours and in the winter it is almost
nothing. So that does not cater for it because it goes beyond
the 13 weeks.
Q639 Albert Owen: The opt-out does
cover that, actually, flexible working for part-timers.
Mr Cottam: More generally, it
probably is more of an issue arguably for the manufacturing sector
with a sort of cyclical working, if you like, where an order book,
especially for a smaller operation, might not be so constant.
Again, this is something which has to be explored in greater detail
and it is very difficult to see how such legislation can be employed
across the board, but obviously the smaller manufacturing sector
does have a problem in that it cannot look six months ahead; it
cannot look four months ahead in many cases.
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