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17 Dec 2008 : Column 111WH—continued
My hon. Friend the Member for Birmingham, Northfield referred to Government procurement. I hope that the Minister will take that point very seriously. I understand that the Department for Work and Pensions is taking a lead in a large-scale Government procurement. If it follows the actions of the Driver and Vehicle Licensing Agency, which put up a Seat as a prize for one of its competitions, it will be doing a huge amount of damage to the industry. I say that with due regard to the distribution industry which distributes and markets products
that are made abroad. It is an important part of the economy and we should not underestimate that, but, as a Government, we should support products that are made at home. For example, many police forces use Vauxhall Astras made in Ellesmere Port. We could sell considerably more to other such people, including to Ministers for the Government fleet.
The issue around environmentally friendly vehicles is particularly important. The SMMT has said that companies should be encouraged to invest in new technology and product development using existing research and development programmes, but with greater focus on low-carbon technologies. That will be fundamental to the long-term success of the industry.
Finally, reference has been made to chapter 11 with regard to the three big players in the United States. I do not think that any of those companies will go into chapter 11 in the conventional sense because who would buy any of those products? If we take the General Motors situation, who would buy Hummer as a going concern? I cannot see that as a real issue. We must work with our partners across the pond and ensure that the solution that the White House and Congress come up with protects the interests of European and British workers. After all, for all three companies, it is Europe and Britain that provide something close to a break-even point for them. It is the United States element that is in deep trouble.
I thank my hon. Friend the Minister for contributing to the engagement with the companies. I urge the media to focus on the facts. I am fed up with hearing about secret talks with Vauxhall. As the Minister can confirm, no such secret talks have taken place—they would not be secret if they were in the public domain. Moreover, there are stories about employee sabbaticals to which the hon. Lady referred. As she said, they are something that some people may regard as an interesting option on a personal basis. However, the newspapers have said that such sabbaticals are something that will be imposed on the whole work force. The company is not in that sort of trouble. It has a short-term finance problem, which the Government can help with. The Government can also help with moving towards more environmentally friendly vehicles. It is a strong company within a strong industrial base. I hope that the Minister will leave us with some confidence that the Government will do something to ensure that the industry can see its way through these troubles.
Frank Cook (in the Chair): Fourteen and a half minutes are available, with three Members bidding.
3.15 pm
Mr. Fraser Kemp (Houghton and Washington, East) (Lab): I congratulate the hon. Member for Romsey (Sandra Gidley) on securing this important and timely debate. I recognise the time constraints, Mr. Cook, and I will try to keep my remarks very short.
My constituency has the highest concentration of motor manufacturers of any constituency in Britain. That is because of the Nissan car plant, which is a great source of pride for those who work there and supply it and for the wider community. Clearly, this debate is about not any one particular company, but the entire industry, which has been hit very suddenly by the downturn. In the year up to September, Nissan’s sales had increased by 16 per cent. on the previous year. Yet, we are faced
with a very serious downturn. There are some positive aspects. Over the years, there has been good Government support for many of the models that have been developed there. Inevitably, car manufacturers are now having to take action to deal with the downturn.
Like Unite the Union, I want to praise Nissan for the way in which it has dealt with its staff. Since its arrival in the 1980s, the car industry in my constituency has transformed its operations. Who would have believed 30 years ago that we would be talking about the export of cars to Japan? That is the reality, and cars are exported on a regular basis to Japan.
Earlier on, there were some references to protectionism. I would caution against that. In my constituency, and in many others, we export something like 76 per cent. of what we produce to Europe and the rest of the world.
Our debate today has to be far removed from what goes on in the United States, or from the sorts of debate that we had about state intervention in industry 30 years ago, because we face a wholly different ball game. As my hon. Friend the Member for Birmingham, Northfield (Richard Burden) said, the British motor industry has transformed and modernised itself beyond all recognition. In the United States, where this debate is reflected both in the Congress and the Senate, there is a divide between some of the new car plants in the south and some of the older and more traditional plants in the north. We can be pretty proud that we do not have that divide in the United Kingdom. We have an efficient car manufacturing base that is often the envy of many other countries in the world. Members have stressed its importance because of the jobs that it produces and the £50 billion turnover that it generates for UK manufacturing.
The problems that car companies face at the moment are nothing to do with how they operate or with their efficiency. They are to do with the global turmoil that we all face. I welcome the Government’s engagement with the industry, and it is right that we examine how we can assist. This is not about a huge bung to the industry. The industry, trade unions, manufacturers and the supply chains are considering sensible measures to assist. The SMMT has one proposal to open up the fiscal situation for car credit, which should be separated from the manufacturing side because it is more of a fiscal stimulus. Many of the finance houses that are involved in the motor industry operate like banks and are multi-billion pound operations. They should be treated similarly to those companies that have benefited from the fiscal easing within the financial sector, so that we can increase liquidity.
Reference has been made to the Train to Gain budget, which I should like to praise, because it is working very well in my area. It means that people are using this down time in production to reskill, so that they are ready when the turnaround comes. Many of my constituents would face Christmas on short-term earnings if there was no Train to Gain budget. The budget makes sense, because it ensures that we can upskill the work force.
Whatever happens with the global crisis, it will end at some point. Inevitably, there will be a reduction in global capacity, but we in the UK must ensure that we come through strong when the global turmoil ends. Hon. Members may disagree on when it will end, but it will end, and losing vehicle manufacturing capacity in the UK, the skills that we have developed, technologies, or the dedicated work force, would be a real tragedy.
Many companies are thinking about how to position themselves to take advantage in domestic and global markets—we must ensure those things. We must ensure that we do not lose the advantage that we have in skills and capacity. That is why I think that many of the practical suggestions need to be seriously considered by the Government, and quickly.
3.21 pm
Mr. David S. Borrow (South Ribble) (Lab): The town of Leyland, in which there is a long tradition of commercial vehicle manufacturing, in particular of trucks—Leyland Trucks is one of the biggest truck manufacturers in the UK—is in my constituency. When I was elected in 1997, 600 people worked there. When I visited the plant in August, at the start of a night shift, it had record levels of production and a big order book, and the work force was up to 1,600 people. I remember asking the managing director, Jim Sumner, whether there were signs of recession. At that point, there were no signs. Haulage companies were still placing orders and were in the queue for receiving their orders, and everything seemed well.
Within six weeks, it had gone off the cliff. Haulage companies that had planned programmes of regular orders suddenly backed off, either because they could not get finance, or because they were concerned about their cash flows. They were asking, “Can you delay it a few months?” again and again. There has been a reduction in orders of about 40 per cent., and one round of redundancies has gone through and another is due in the next couple of months.
It is not that the company is asking for financial help—it is strong. Eleven years ago, there was a management buy-out after the collapse of the old Leyland Truck and Bus company in the 1980s and early 1990s, and the company is now owned by Paccar, an American company, which is very sound and which has a lot of money behind it. Paccar has invested a lot of money, and it is a very good company. However, if haulage companies cannot afford to go through with their orders, we in Parliament need to look at what can be done to enable them to do so.
Several hon. Members mentioned extending the various financial guarantees to leasing and finance companies, which is key to allowing companies to go ahead with orders. Often, such companies have plenty of work and regular routes by which to deliver goods, and for years have had programmes to replace a percentage of their fleets. However, they are now being told by their finance companies and banks that they cannot have the money that they need. In 18 months’ or two years’ time, those orders will need to be met. The existing fleet will be falling apart and it will need to be replaced.
The truck industry is always hit by the peaks and troughs of the business cycle; it is affected as much as, if not more than, anybody else. The industry is used to that, and companies build it into their plans, so that if a recession comes, they can cope with a 10 or 15 per cent. reduction in output—that happens. This time, we are talking about a huge drop in orders, even if they will come through in two years.
This year, Leyland is taking 40 per cent. of the UK market—its best ever share. It is a good company, so what can the Government do to enable the orders to come through early—they will come—to allow the
production to continue, so that my constituents can continue in work, and so that the company is kept strong? Finance, whether it is through high street banks lending to small companies or leasing, is crucial, and something must happen on that.
A couple of other things have been thrown in the pot in my discussions with the company, which have occurred frequently in the past couple of months. They are not the biggest things that need to be done because finance is the key, but they might make a difference when it comes to allowing and encouraging haulage companies to continue bringing their orders forward. First, we could look at capital allowances for corporation tax and a 12 or 18-month window in which companies would get 100 per cent. tax relief to encourage them to bring orders through early rather than delay them for a couple of years. That could have some effect.
Secondly—again, this is at the margin, but it could make a difference to companies’ ability to go through with orders—the changes that the Chancellor made in the VAT and duty regime in the pre-Budget statement has affected the UK haulage industry. For those of us who drive cars, it has made no difference to what we pay for diesel or petrol, but the amount that haulage companies can claim in VAT has gone down, and the amount that they pay in duty has gone up, so their running costs have increased. Those are relatively minor things, but they could make a difference and help orders to come through.
Thirdly, we could look at public procurement. One of the big Government organisations that buys trucks from Leyland is Royal Mail. We should see what can be done to bring orders through early via public procurement, to enable companies such as Leyland Trucks to go ahead. The orders would come in any case, but such a measure would bring them forward. Let us keep people in work and ensure that, when the recession ends and work picks up, we have an industry that is capable of dealing with the inevitably increased work load.
3.28 pm
Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): I am sorry that I turned up late, Mr. Cook—I was detained on other House business. I apologise if I mention points that were made earlier.
What lessons can we learn? The No. 1 issue, as far as I see it, is the poverty of understanding and expertise in our boardrooms—it is a massive problem. The words “retained profits” never pass the lips of industrialists in this country; rather, it is always borrow, borrow, borrow, and retained profits are distributed as income to shareholders. Now we have massive over-leverage in a lot of companies, from prime users all the way down the supply chain. That lesson has to be learned.
Proper borrowing is sensible and prudential, but borrowing on the scale that British industry and motor manufacturing undertook in the past 20 years is close to suicidal. We no longer have a competitive currency; we have an import-export, balance of payments problem that will get worse, not better; and, regrettably, our competitiveness agenda has not been fully developed, despite the best efforts of the Government to push it along. We have ignored it in my constituency, which is related to the motor industry in a big way.
Goodyear was facing massive problems. It worked hard and used other agencies to help and advise it—this is an American company, by the way—and improved productivity by almost 30 per cent. It can be done. However, because we are not competitive, we are having worse problems in this recession than many other countries, especially those that put long-term factors in front of short-term gains. In this country, money that should have been retained was distributed as profits for investment.
We have problems with the exchange rate and, although it is helpful overall to have a lower, more realistically valued pound, we are facing reverse premiums in dollar markets, which will cause us even more problems.
I appreciate that you have allowed me to speak for a moment, Mr. Cook, and I can see that you are looking for me to conclude. We need training and more training but, most of all, we need to get those ideas into the boardrooms of the motor and other industries, such as aerospace, in this country. Let us ensure, when we come out of this, competitiveness, and a proper understanding in boardrooms of the need to retain and invest profits rather than overreaching through borrowing.
3.30 pm
Lorely Burt (Solihull) (LD): I congratulate my hon. Friend the Member for Romsey (Sandra Gidley). I, too, was in the ballot for this debate, so I am delighted that she was successful in bringing this matter forward.
We are living in times of a double whammy with tumbling demand and scarce credit. There is huge difficulty and I would argue that car manufacturing and construction are among the worst affected industries in this country. Land Rover is based in my constituency so I understand the problems closely. Jaguar Land Rover had record sales last year. Of its vehicles, 63 per cent. are exported, so hopefully the weak pound will at least help in that respect and overseas markets will recover. The UK car market represents 11 per cent. of this country’s exports, so it is hugely important.
Jaguar Land Rover provides 15,000 jobs and there are 50,000 indirect jobs. We must think of the families of all those people. The company is doing all it can. We have spoken of the things companies are doing such as scaling back production and cutting shifts. Jaguar Land Rover has released 850 agency staff and allowed people to take sabbaticals. Employees of Jaguar Land Rover are on 80 per cent. of their pay so they are being less generously dealt with than Ford employees. There have been 600 voluntary redundancies already. The company is doing all that it can and there is great camaraderie. However, it needs urgent financial help. Next year will not do because it is vital. I spoke to Land Rover this morning and that is the message that it wants to give the Minister today.
My hon. Friend mentioned what some other countries are doing so I will not dwell on it. The US Senate rejected a $14 billion package of loans because unions refused to accept a pay drop. However, a replacement package is being worked on and an announcement is expected any day. In Europe, France is providing €400 million for the development of electronic and hybrid cars along with a €300 million investment for restructuring. Spain has a €800 million package for the automotive industry, which is part of a €9 billion stimulus package over two years. In Sweden, there is a £2.35 billion
increase in research and development investment and state credit guarantees. Other countries are helping their car industries. This country must do the same and we must do it urgently.
I hope that in his speech the Minister will not just reiterate the information in the letter he sent to vehicle manufacturers for their suppliers. The measures in that letter are very welcome, among them the small business finance scheme and the £1 billion guarantee facility for exporters. We want to hear what the Government will do specifically to help vehicle manufacturers. Small manufacturers will fall like a row of dominoes if nothing is done. Such action is urgent and important.
My hon. Friend mentioned stimulating responsible spending on vehicle renewal. Last year, Land Rover spent £800 million on green technologies. This year, the new stop-start Freelander is coming out, which has a reduction in emissions of 18 per cent. Will the Government introduce measures to stimulate responsible spending on vehicle renewal, such as a vehicle scrappage system for older vehicles to encourage take-up of fuel efficient technologies and to renew the vehicle fleet on our roads?
The Society of Motor Manufacturers and Traders urgently wants short-term access to Bank of England special liquidity schemes; loan guarantees or direct loans; a speeding up of the allocation of existing funding; R and D investment, including investment in blue-sky thinking; and an increase in capital allowance for fleet buyers. Another suggestion I put to the Minister is to introduce measures on trade credit insurance, which would be welcome not only to the supplier base, but to companies all over the country. Such measures would protect companies from the risk of default or insolvency among their customers.
We have all been shocked by the demise of Woolworths and MFI and their coming disappearance from the high street. Both had their trade credit insurance cancelled and were not able to find new insurance. That has been a body blow to many companies. Baroness Vadera has intimated that the Government may be prepared to look at a guarantee scheme. If they do not, this industry and many others will suffer needlessly. Such a scheme would not be a huge expense for the Government compared with the investment they have made already.
In conclusion, I reiterate the urgency of this matter. The Government say they are listening and Lord Mandelson has met with motor manufacturers. However, they must do more than listen. They must do something and they must do it urgently. It cannot wait until after Christmas. Please will the Minister indicate what the Government will do now?
3.38 pm
Mr. Geoffrey Clifton-Brown (Cotswold) (Con): I am grateful to serve under your chairmanship, Mr. Cook. I pay tribute to the hon. Member for Romsey (Sandra Gidley) for securing this important debate.
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