Memorandum from the Northern TUC (NE 01)
INTRODUCTION
1. The Northern TUC co-ordinates and articulates
the collective views of trade unions in the region. A voice for
trade union members in and out of work, and in local communities,
the TUC represents over 450,000 working people and their families.
We are grateful to the Committee for the opportunity to participate
in its review of industry and innovation in North East England.
Our response to the Committee's call for evidence seeks to illustrate
the importance of manufacturing to the region, the role renewable
energy and green technology could play to support industry in
the current economic climate and its potential to advance progress
towards a balanced model of sustainable development.
SUMMARY
2. In summary the submission provides:
— An analysis of the major economic and
social challenges confronting the North East and implications
for policy makers.
— Comments on the capacity of manufacturing
to supply highly skilled, well paid jobs with good terms and conditions
of employment for the region's workforce.
— Explores key areas of industrial strength
in renewable energy and green manufacturing that could supply
consumer demand for goods and services in the low carbon economy;
specifically offshore wind, carbon capture and storage technology
and electric vehicle production.
— Considers the policies; governance arrangements,
planning, infrastructure and resources needed to unlock new industrial
development capable of meeting these green growth objectives.
3. An assessment of industry and innovation
in North East England is a step in the right direction towards
resolving long standing structural weaknesses in the economy that
have rendered the region more vulnerable to economic shocks and
left it ill disposed for recovery.
4. What does this mean for industrial policy
in the North East Economy?
— An over reliance on low wage, low skill
business models compounded by the threat these jobs will be outsourced
to countries with even lower labour costs.
— A significant proportion of the region's
potential manufacturing capacity has been under-utilised in favour
of service sector employment.
— A low wage economy employing workers
with fewer skills, training opportunities and on poorer salaries.
— A highly segregated labour market marred
by rising levels of unemployment coupled with significant concentrations
of worklessness in former industrial communities.
— A branch plant economy—much of
the region's private sector is owned and controlled outside the
region resulting in many employers acting as "cost centres"
rather than "profit centres" and thus are reluctant
to commit capital or workforce investment.
— Transitory foreign direct investment.
— Given the current economic climate companies
will be making cautious projections regarding future skills requirements
and to generate perceived cost savings will cut back on training.
This tendency can act as a critical constraint in the upturn.
— It is widely accepted that climate change
will disproportionately impact on more vulnerable sectors of the
economy and society. In light of its socio-economic profile, the
North East may find the threat of climate change and transition
to a low carbon economy more challenging without appropriate Government
support.
5. Until recently, the North East enjoyed
steady, albeit modest growth and regional governance partners
are to be congratulated for regeneration initiatives that have
alleviated the worst effects of economic decline. Policy makers
have succeeded in identifying the right conditions for growth:
increasing the employment rate and improving productivity; however
the TUC believes the strategy should, given the current economic
climate, now aim to secure and embed a better balance between
different industries and promote the type of good quality job
creation required to conquer deep seated poverty and inequality.
6. Position of Manufacturing in the North
East
Despite losing a significant number of manufacturing
jobs, around 14% of workers in the region continue to be employed
in a sector that produces a fifth of North East GVA. Furthermore
manufacturing industries consistently contribute to a positive
balance of trade. In 2006 the North East had a positive balance
of trade of £2.5 billion, up £100 million on 2005. This
puts the region in a relatively positive position, with an export
value representing 59% of total international trade in goods.
In fact, the North East has maintained a positive balance of trade
of between £2 billion and £3 billion every year since
1998, whereas the UK has seen its trade gap widen up until 2004.[1]
7. In a labour market where the quality
of employment is deteriorating, manufacturing industries provide
a reasonably good proportion of skilled occupations with higher
than average salaries and relatively better terms and conditions;
vital to an area with the lowest average pay of any English region
and a proliferation of vulnerable, insecure work.
8. What role can manufacturing play in creating
the conditions for growth?
Astute moves on the part of Government to reassert
the importance of manufacturing in rebalancing the economy and
tackling climate change are especially welcome. Investing in developing
the manufacturing industries of the future would arguably promote
a better model of sustainable development by helping to stimulate
growth, facilitate the creation of good quality, well paid employment
and minimise the detrimental effects of economic activity on the
environment.
9. Manufacturing continues to be a key strength
for the North East. This offers Government considerable scope
to address national policy concerns and pursue an underlying commitment
to achieve a more even distribution of wealth in the regions.
POTENTIAL FOR
GROWTH
Offshore Wind Technology
10. Whilst the UK has no major wind turbine
manufacturing capability and limited, proven supply chain capacity,
the North East has developed transferable expertise in existing
engineering sectors that could be harnessed to transform the regional
economy. The region is actively seeking to capitalise on the proximity
of local manufacturing sites and ready labour supply to support
the development of offshore wind technology in the North Sea and
beyond. Building on an existing shipbuilding and offshore engineering
supply chain, the North East's ability to manufacture essential
components for the offshore wind industry such as towers, blades,
hubs, rotors, shafts and generators, and at lower transport cost
cannot be overstated. These assets, plus an abundance of natural
resources are prized by investors looking for a cost effective
way of gaining entry to UK/European renewable energy markets.
Moreover, the availability of blade and generator testing facilities,
at the New and Renewable Energy Centre in Blyth enables the region
to offer potential investors a full complement of testing and
consultancy services necessary for the development of the offshore
wind sector without the need for further additional capital expenditure
by the public and/or private sector. Securing the appropriate
scale of investment would transform the region as a Centre of
Excellence on a pan-European scale with the potential to open
up new market opportunities.
A ready-made supply chain on the doorstep offers
a lucrative pull to potential investors for a number of strategic
and operational business reasons:
— Manufacturers can exert tighter quality
control the closer they are located to their suppliers representing
significant cost savings and lowered investment risk.
— Decisions on business location will be
influenced by logistics and the proximity of assembly line production
facilities to the product's final destination.
— Offshore wind turbine assembly involves
sizeable components and heavy engineering processes. The greater
distance these components or finished products must travel to
their final destination increases transportation damage liability
costs.
— The opportunity to benefit from sizeable
economies of scale in the North East is an attractive incentive
for inward investors. Potential advantages to Government from
investing in green manufacturing are twofold:
— Maximise the creation of good quality
employment opportunities for the benefit of the region's communities.
— Manufacturing good quality product that
are needed in a sustainable society to protect the welfare of
its people, natural resources and smooth running of its economy.
11. RDA involvement has been instrumental
to a number of major potential investment projects in the offshore
wind sector coupled with encouraging growth of the local supply
chain to support incoming companies.
12. The River Tyne and its surrounding communities
are the focus for this development. It is estimated that the location
of new facilities for large electrical generator and wind turbine
blade manufacturing on Tyneside could employ close to 2000 engineers.
In addition to this further jobs would be created indirectly through
the supply chain. To quantify benefits for the regional economy,
the generator facility alone would produce an additional £25
million GVA per year. With co-located assembly and supply chain
activity this figure could double.[2]
Low Carbon Vehicles
13. Recession and climate change concerns
are driving change in the automotive industry towards greener
vehicles. The North East is at the forefront of this innovation,
creating the charging infrastructure required to promote the manufacture
and use of electric cars. Constructive partnership working between
the region's local authorities and private sector made this project
possible and is predicted to deliver high value adding, spin off
opportunities for regional businesses.
14. A Memorandum of Understanding between
Nissan and One North East has added impetus to this agenda in
light of the company's decision to study the feasibility of electric
car and battery production in Sunderland. Being the first region
in the world to synchronise piloting new infrastructure with the
electric car's production should stimulate demand and lead to
a new line in sales for companies like Nissan. Short term this
intervention should help to propel the North East out of recession
and in the medium to long term safeguard vital jobs in the region's
automotive industry. To complement activity at Nissan, two regional
companies are participating in an Ultra Low Carbon Vehicle Demonstrator
research project in conjunction with Newcastle Science City. Whilst
Smith Electric Vehicles in Washington are already the world's
largest manufacturer of electric light commercial vehicles and
supply technology to Ford. The company would benefit from continued
investment to expand its footprint in the industry.
Carbon Capture and Storage
15. The TUC appreciates the route to obtaining
secure, affordable, low carbon energy supplies whilst maintaining
business competitiveness is fraught with potential challenges.
Government is to be commended for taking a global lead on this
issue and being quick to recognise opportunities for the creation
of new high tech low carbon industries, more jobs in advanced
green manufacturing while simultaneously helping some of the highest
energy users to cut polluting emissions. Industry cannot improve
its stewardship of the environment in which it operates overnight.
This ambition is neither realistic nor economically desirable
for businesses or workers employed in traditional energy sectors.
For this reason the TUC advocates a balanced portfolio of mixed
energy supply. Finding ways to burn fossil fuels cleanly by reducing
the harm this process causes the environment will buy valuable
time to allow the economy and workers adapt to new forms of power
generation from low carbon sources. Government proposals to nurture
the development of a CCS cluster on Teesside with the aim of creating
a new generation of jobs in the low carbon economy are welcome.
However it is imperative Government take swift action to consolidate
these regenerative investment plans given the potential loss of
2,000 jobs at the Corus steel plant, which will have a devastating
impact on workers and their families in the locality.
DEVELOPMENT CONSTRAINTS
Finance
16. Prioritising activity where there is
growth potential and eliminating barriers to seizing the opportunities
that exist clearly constitute sound principles on which to base
key policy funding decisions. The nature of Government assistance
available and manner of its implementation are influential factors
in determining whether projects to test new technology can be
carried out and deliver results. Outcomes from R&D projects
are often uncertain and require large, upfront investment. Project
risks include both "market risks" and "technology"
risk. Where they are aggregated, many projects find it impossible
to obtain funding and potential private investors are deterred
by apparent public sector unwillingness to pool risk resulting
in many regeneration initiatives not being undertaken.[3]
The TUC is acutely aware that winning a greater share of global
inward investment to support the advancement of green technologies
and vital employment growth will not be easy, especially in the
context of a world recession. Nevertheless the TUC considers Government
measures to improve access to finance for high stake projects
would persuade private sector investors to get on board if risks
can be evenly shared.
17. A common criticism of British innovation
is the propensity to back projects that are not technology ready.
Much of British R&D funding goes into university research.
However profitable innovation leading to significant job creation
tends to come from projects where the technology is sufficiently
well developed to pilot mass use. Projects of this type possess
the capability to generate adequate returns on investment which
can offset the higher levels of risk involved. Too often innovative
ideas emerge in Britain but are developed for commercial purposes
elsewhere producing only one off fleeting benefits for the economy.
To maximise the potential employment benefits arising from knowledge
transfer partnerships between research institutions and business
the TUC endorses recent Government thinking to promote projects
with higher technology readiness levels such as offshore wind
technology and CCS demonstration. Consequently the TUC welcomed
announcements in the Budget that UK and renewable energy projects
stand to benefit from up to £4 billion of new capital from
the European investment Bank, removing blockages in project financing
and a new funding mechanism will be introduced to support up to
four CCS demonstration projects with up to £90 million spent
on preparatory studies.
18. Funding certainty however is another
issue. Critics of Government innovation policy highlight the paucity
of long-term funding as a real problem. A piecemeal approach to
awarding small grants on a competitive basis is incongruent with
the foresight required by successive Government administrations
to secure a sustainable industrial legacy by seeing regeneration
projects that are in the region's long term interests through
to completion. This trend is compounded by the corporate profit
motive. Attaining the benefits from long term planning will always
be compromised in circumstances where shareholder interests dictate
short-term investment priorities. We already lag behind European
competitors deriving energy from renewable sources and leading
advances in green technology. Energy producers and consumers that
are latecomers to the debate on climate change vividly illustrate
this point. Although the TUC is pleased Government appears alert
to these dangers having acknowledged that "the actions of
Government inevitably affect the climate in which business operates,
and that Government needs to take an active role in
Planning and Infrastructure
19. The planning regime will no doubt be
in need of reform to accommodate new industrial land use. It is
essential planning instruments are used to meet the dual goal
of facilitating sustainable economic development together with
adapting to and mitigating the effects of climate change. Delivering
economic transformation through the planning system requires decision
makers to oversee the adoption and co-ordination of a coherent
spatial strategy across all tiers of Government. Planning permission
criteria for new and existing developments should reward applications
that will contribute to the development of sustainable regional
economies by making products closer to their end use point and
generate employment opportunities for deprived local communities.
Early progress installing supporting physical infrastructure could
prevent supply chains going overseas. The existing planning framework
is currently too fragmented to meet this obligation.
Skills
20. Until recently the region's industrial
base was incongruent with global economic trends. Subsequently
the economic and skills base lacked relevant competencies to cope
with the demands of globalisation. However the necessity to produce
renewable energy and green products, coupled with extant workforce
capacity provides scope for sustainable industrial expansion in
the North East. Leading edge manufacturing industries, operating
in relatively uncharted territory, will thrive where they can
build on transferable skills already established in the region's
skills base. But the skills system needs to overcome a number
of hurdles to enhance support for the redevelopment of regional
industry.
21. The notion of a demand-led skills system
commands TUC support. However the TUC is unconvinced an approach
which focuses almost exclusively on employers' perceived skills
needs shall resolve growing demand in the energy and manufacturing
sectors. Many sectors of the green economy are already experiencing
skills shortages. This is indicative of market failure hence a
key area for Government intervention. The TUC believes opportunities
afforded by the green economy are pivotal to future economic growth
prospects and believes there is a strong case for Government giving
serious consideration to a greater role for regulation in driving
up the necessary skills base.
22. Increasing apprenticeship numbers is
highly dependent on growing employer commitment. It is crucial
in the current economic climate that employers do not lose sight
of the need to retain current apprentices and recruit more to
cope with increased demand in the upturn.
23. The time lag between the development
and application of new skills needs to be shortened.
24. Expansion of training initiatives should
provide opportunities for unemployed individuals to acquire the
type of skills required by jobs in a green economy.
25. Occupational segregation is a major
cause of labour market inequality. Consideration should be given
to promoting the employment of under-represented groups in industry
to tackle pay and opportunity gaps.
Policy and Governance Frameworks
26. Clearly Government plays a key role
setting the overarching policy, investment and regulatory framework
to shape market conditions conducive to the development of a low
carbon regional economy. At the regional tier public agencies
design initiatives and administer resources to facilitate business
growth, job creation and skills development. In turn local authorities
and Job Centre Plus provide infrastructure and support individuals
and communities to access job opportunities available in the labour
market. Although public sector agencies have distinct remits they
coalesce to promote the economic prosperity and wellbeing of the
people they serve. Delivering industrial innovation in the North
East obviously requires joined up policy thinking, external relationship
building and a strategy for public engagement but this can become
disjointed in practice. Government will need to ensure appropriate
connectivity exists between different parts of the system. This
must feed through into practical ways of working that can deliver
the changes needed to transform the region's industrial base and
secure a sustainable future.
1 Rowan K, Manufacturing Now, The Future of the North
East, Smith Institute. Back
2
ibid. Back
3
TUC: Building a Competitive, Sustainable Economy; an agenda for
a strong post recession Britain. Back
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