Examination of Witnesses (Questions 66-79)
NICK BEAUMONT-JONES,
VIV RAYNER
AND DAVID
ROSSER
8 JUNE 2009
Q66 Chairman: Good morning. Apologies
for starting a little bit later. I am afraid that there was an
incident at Southwell which slowed the First Great Western service
down. For the purposes of the recording, could you just briefly
introduce yourself?
Viv Rayner: My name is Viv Rayner
and I am the South West Policy Manager for the Federation of Small
Businesses.
David Rosser: I am David Rosser,
the Regional Director of the CBI South West.
Nick Beaumont-Jones: I am Nick
Beaumont-Jones. I am on the council of the Swindon Chamber of
Commerce. Prior to that I was very much part of the Swindon retail
and property sector.
Q67 Chairman: Thank you all for
coming. This is our first Select Committee out of London, so I
am very grateful to you for responding. Could you start off by
setting out your assessment of the south-west economy at the moment
from each of your individual perspectives? We will then come back
with more questions.
Viv Rayner: The latest research
conducted by the Federation of Small Businesses was done in April
and we are about to do more next week. Therefore, my information
is a little dated, but looking at the trend I think that things
are, if not actually bottoming-out, then almost there and looking
to improve. In April, when questioned on business over the last
two months, 27% of members said that it had actually increased
and some 31% said that it had stayed the same, so that is two
thirds, or 60%, of members saying that business has either increased
or stayed the same. That is on the right side and is certainly
an improvement on the previous quarter. In the south-west, we
have the influence of tourism. The bookings for summer are looking
quite encouraging. We are just keeping our fingers crossed for
the weather and that the Highways Agency helps us and we avoid
all the tales of long tailbacks on the M4 and M5. The latest news
about fuel prices is a concern. That could set things back a bit,
but we are cautiously optimistic. The other thing that has started
coming through is the impact of run-down stocks. We have businesses
reporting that they are being held up because of a lack of stock.
Delivery times are lengthening. It is only around 10% or 12% that
are reporting that.
Q68 Chairman: Are you getting
a sense that that is because suppliers are slowing down output
and perhaps laying staff off and therefore product is not coming
out as quickly? What are the reasons?
Viv Rayner: It is difficult to
say. There are several comments and that is one of the comments
that has come back. The other comment is that suppliers have run
out of stock because they have cut things dead. It is too early
to say why, but the fact that those other comments are coming
through is quite encouraging, I think.
David Rosser: First, as the Committee
will know, the south-west is an incredibly diverse economy and
different sectors have been hit in different ways. For a while
it seemed to us that the south-west was going to escape relatively
lightly from the UK downturn. We were probably affected late into
it, but there is no question now but that the economy in the south-west
has been impacted. Manufacturing companies, particularly in the
north of the region, have been impacted by a drop in UK and international
demand. The aerospace sector has held up relatively well so far,
but I think there are longer lag times in that sector as order
books are getting booked out. The sector may not escape. Notable
has been the impact on professional services, which in previous
recessions has coped reasonably well, I think. This time, the
professional services sector, including legal services, in the
south-west, largely around the Bristol area, has been hit quite
badly. I think we are now starting to see some of the lagged downturn
in financial services hitting employment in the region. We are
now starting to get fairly widespread messages from companies—I
need to phrase this very carefully—that we are reaching,
have reached or are approaching the bottom. Things are not getting
worse anywhere near as rapidly as they were, which is different
from saying that things are getting better. One hesitates before
offering false optimism, although we are clearly looking for optimistic
signs at the moment. Things are not deteriorating to anywhere
near the extent that they were. One part of that is the de-stocking
issue, which Viv referred to. All companies throughout supply
chains have tried to manage their balance sheets and cash positions,
and turning stock into cash has been part of that. We are now
starting to get signs that, actually, our supply chains are exceptionally
lean. There are some supply problems in one or two areas and we
may see companies decide that they have cut things back too far
and start to put a little bit more stock back into supply chains.
That might explain those comments. Going forward, we are optimistic
and we see no reason why the south-west, which was a relatively
high-growth region within the UK, should not resume that position
as and when a recovery takes hold in the UK.
Nick Beaumont-Jones: I pretty
much concur with what Viv and David have said. I would add that
the retail footfall in the south-west has been the worst in the
UK over the last month or so. Swindon is fairly typical of trends
in the south-west, although I think we have some special problems
here. There has been quite a lot of retail development in Bristol
city centre, Gloucester, around Swindon and as far east as Reading.
There are peculiar problems in Swindon in that we are not keeping
up with the competition. We have heard that things are picking
up a little bit now in hospitality. Swindon is probably not regarded
as a major tourist centre, although we are surrounded by some
very attractive tourist places.
Q69 Chairman: We are in one.
Nick Beaumont-Jones: Exactly.
We expect to benefit from this, but there are concerns, which
I guess we will talk about later, about whether the Government
are fully supporting the hospitality industry. Construction also
is generally fairly depressed at the moment. Development schemes
are being proposed for Swindon which may or may not have a positive
effect on construction, but there are concerns at the moment.
Otherwise, I concur pretty much with what has just been said.
Chairman: Any comments about Bristol?
Q70 Dr Naysmith: I was just going
to pick up a little bit on the aerospace industry, which was briefly
mentioned. At the moment, Airbus and Rolls-Royce, which are the
two big businesses that seek bits from the supply chain all over
the south-west, are talking about a slowing of orders. There is
not a cancellation of orders as such—they have pretty full
order books—but customers are coming to them and renegotiating
contracts to say that they are going to have their planes not
this year or the year after but in the future. That means they
are slowing down production, and that will affect the supply chain
in the south-west. Are you picking that up and is it a problem?
David Rosser: There is certainly
a nervousness about the future outlook within the aerospace manufacturing
industry in the region. As I have said, there is quite a long
lead time in that sector, as we all understand, so production
has not yet been hit, but there are concerns about what the cancellation
of affirmative orders will do to production over the next two
years. Most of the aerospace companies are trying to do what they
can to support their customers and continue tacking their products,
but it is probably too early to say how successful that will be
and how it will play out.
Q71 Dr Naysmith: But if it gets
more serious and the effects begin to show, we will need support,
because these industries will be needed again. Just as you are
saying now that stock is not available, in two or three years
there will be a shortage of essential parts.
David Rosser: And the preservation
of skills is another issue for the companies concerned.
Viv Rayner: The general engineering
sector has been quite badly hit by the recession. Some of our
members who have extremely successful engineering businesses have
commented that business is just falling off the edge of a cliff.
Picking up on David's point about skills, which was well made,
if you look at the age structure of the engineering industry you
will see that around 50 to 60 % are over 50. When companies such
as Renishaw are laying off staff, the prospects for the future
supply of skilled engineering workers is of grave concern. One
of the comments our members have made to me is that, although
they welcome the flexibility in the Train to Gain programme, the
trouble is that the sector skills council has nominated business
improvement techniques as its flexible programme, whereas what
will be needed, maybe not now but in six to nine months, is some
basic training to get someone who has the dextrous skills and
is good with their hands trained to be a productive shop floor
worker. Therefore, that is what we are pushing for for the future.
At the moment getting someone trained to that basic level of skill
is quite a long and tortuous process and very expensive. Coming
out of the recession, that will be a real problem.
Chairman: Before we go on, we are having
difficulty picking you up, so we would be grateful if you would
speak a little louder when answering, for the purposes of the
recording.
Q72 Mr Drew: I want to talk about
manufacturing first and move on to other matters such as potential
training programmes a bit later. Do you think that one of the
problems is that in the wider UK the south-west is perceived as
not being a terribly important manufacturing area? We have to
do an awful lot to persuade people that, in terms of the aerospace
industry in Doug's case and of Renishaw in my case, manufacturing
is at the core of the south-west's economy, because I can tell
you now that colleagues in the north, in the midlands and even
in London will say, "Well, you're all about tourism and the
environment, so manufacturing does not really matter to you."
I hope you agree with me that that is a really difficult and dangerous
place to be.
Viv Rayner: Yes.
Q73 Mr Drew: You say yes, so how
do we change that perception, because it is a real problem that
we in the south-west actually give out that message? It is not
that our colleagues elsewhere in the UK are wrongly perceiving
it: that is a message we often give out.
Viv Rayner: The regional development
agency's campaign for the south-west, "Lighting the Flame:
It's In Our Nature", is along the right lines, but the concern
is that it just does not have enough funds to put behind it. It
also needs to be backed up with a PR campaign in which you talk
to the press and promote through its editorial sections what we
do here in the south-west. You mentioned the aerospace industry
and manufacturing, and you have the specialised marine sector.
You have an awful lot here in the south-west, but that is just
not realised. The only way you are going to get that over is by
a proper communications programme, and, as with so many other
things, unlike the bodies that do that work elsewhere in the UK,
the body in the south-west does not have the funds. I am talking
about the RDA.
Q74 Mr Drew: So it's a funding
issue. One of the things that always worries me is that because
we are such a long, stretched region, there is very little cohesiveness.
When people talk about the West Midlands, we are all fairly clear
what is meant. Do you think that there is a continuing problem
in the locus of the south-west? Let us take the food processing
industry, for example, which is very important in the south-west,
yet you do not necessarily hear much about the south-west in terms
of food processing. Perhaps the two gentlemen might like to say,
besides funding, what is the programme? The FSB is very clear
on this. Where and how should we be launching something that may
get us out of the current recession but certainly deals with the
problems of where we go—how we go forward from here?
David Rosser: I think the point
you make about the geographical differences within the region
is a very real one. Manufacturing is important to the south-west,
but clearly it is much more important towards the north of the
region, here in Swindon, than further down the peninsula. As you
go further down the peninsula, tourism, food, agriculture and
food processing become far more important. It is actually very
hard to take one clear message about what the south-west is and
get that across when the south-west is very different in different
parts of the region. The disparity within the region is something
that we all struggle with. Ironically, some of the difficulties
facing companies such as Honda here in Swindon, or Renishaw, might
serve to get the message out that manufacturing is quite important
in the region, and that we need to support and preserve it as
we pull out of the recession.
Nick Beaumont-Jones: I think it
depends on the profile of the business that you are talking about.
Multinationals such as Honda probably are not going to be all
that interested in the identity of the south-west. Its concern
probably is more about whether it can get what it wants from this
part of the world, but, essentially, it could transplant its factory
anywhere in the UK. From where I sit, there is a big problem with
geography. Swindon is almost a one-off. It is not typical of the
type of towns and cities in the south-west. We have a lot of what
used to be called cutting-edge industry here, and a lot of commerce
as well. Exactly how one portrays the south-west as an economic
base, I am not too sure, but I think that first there needs to
be some kind of agreement among all the various stakeholders that
there is an issue there, and then take the strategy from there.
Q75 Chairman: So there is not
general consensus at the moment between different stakeholders,
in your view.
Nick Beaumont-Jones: I do not
sense one, no. The organisation I am representing here today ought
to be the catalyst for that kind of communication, I would have
thought. I would not have thought that it would be that difficult,
because, at the end of the day, we are all trying to do the same
thing.
David Rosser: Surely the reality
is that the south-west is a very diverse economy. We need to get
that message across, but it is far harder to get that message
across than to decide, yes, it is tourism, or, yes, it is agriculture,
or, yes, it is manufacturing. That kind of one-dimensional message
is much easier to portray. We think of the West Midlands, we think
of manufacturing. The south-west is very diverse. It is hard to
capture that. It is hard for organisations such as the RDA to
get a simple, clear message across in that way.
Q76 Kerry McCarthy: Do we actually
need that cohesive sense of a regional identity as a sort of marketing
tool or whatever? Is there any evidence, for example, that manufacturing
industries are not coming to the south-west because they do not
think of it as a manufacturing hub, or would they actually look
beyond the surface perception? If they know their sector, they
will know, for example, that Swindon and Bristol have that kind
of base. Are we trying to create something that actually does
not need to be created by trying to present the south-west as
a particular sort of region?
Viv Rayner: It depends on the
object of the promotion. My background is in marketing, and your
communication strategy all depends on the idea behind the promotion.
I agree that people do not think of the south-west in terms of
manufacturing, but they do think of Yeovil and Bristol in terms
of planes and they think of Gloucester and Swindon in terms of
engineering. It is really a case of what we want to promote for.
However, the south-west is still important, because it is only
by hanging together as a region that we can get the resources
into the south-west to make it fit for business. The south-west
has suffered as a result of its perhaps cuddly image because we
do not get the investment. With broadband, for example, 20% of
businesses are unlikely to reach 2 megabytes, so we are the worst
English region. South-west businesses are second only to those
in London in using the internet for their business, but because
we are not seen as an industrial area, we do not get the investment.
Similarly, it now takes longer to get to Plymouth by rail from
London than it does to get to Newcastle upon Tyne, but Plymouth
is closer. The same is true of the roads: we do not get the investment
that other places do. It would make sense if we could get more
investment through a more cohesive promotion of the south-west
as a whole. Otherwise, yes, it makes sense to focus on the reason
for the promotion.
Chairman: Can we move on to attempts
to tackle some of the economic impacts across the piece? David,
do you want to start?
Q77 Mr Drew: Can I look at wage
contributions? The FSB has a very clear stance on this with the
TUC, so I will take that as read—I hope that colleagues
will go along with me on that. Even Wales now has ProAct set up
to support people with training packages. To be fair, Renishaw
and Delphi have a training package ready to go, but, as always,
the sticking point is wage contributions, and that could be a
back-cloth to this issue. However, is there a real concern in
your mind that unless we do something similar, we will lose valuable
people and, more particularly, valuable skills, which will give
our continental neighbours and Wales a real head start when we
see some recovery, as we hope we are now? Perhaps you can start,
Viv, because you are very clear on this.
Viv Rayner: Two things. First,
one of the things that foot and mouth taught us was the value
of using downtime to improve people's skills, but we have forgotten
that lesson. The wage contribution that is supposed to be there
through Train to Gain is useless. Under the current Train to Gain
scheme, you do the training, you get the qualification and then
you can apply for the wage support, so it is no good in terms
of supporting the business's cash flow. The business has to pay
the member of staff and to keep them on during training, and the
support only comes in and helps at the end. If wage support is
to be any good during training, we have to go back to what we
had during foot and mouth, which is support during training.
Q78 Mr Drew: Gentlemen, I am not
sure where you both stand on this or whether you are more sympathetic
to the Government's dilemma, which is that this will be expensive.
We are talking about £1.2 billion, which is not a huge sum
in the great scheme of things, but it comes on top of what is
already there.
David Rosser: We are very sympathetic
to the Government's dilemma. The CBI's membership has very mixed
views about whether Government support for wage subsidies is the
right approach. It would be far more expensive to take that approach
in the UK than in some of our continental competitor countries,
because of the nature of unemployment subsidies in those countries.
A number of our members fear that there is a great danger of supporting
companies that are unlikely to survive anyway. We think it is
a very real difficulty. On the other side of that, we have members
in internationally competitive manufacturing industries and within
global groups who believe that if they do not get that sort of
support, either competitor organisations or sister companies within
the group will be better at retaining their productive capacity
and skills. We will hear when the upturn comes that some of our
productive capacity may no longer be in place, so it is a very
difficult issue. If Government are going to get into the game
of providing wage subsidies, they should certainly link that to
training. There is no point in paying people just to sit at home.
If they are going to do it, they should link it to some training
package. To that extent, what has been offered in Wales hits that
button, although I think the extent of the support on offer in
Wales, while it will be useful to the companies receiving it—CBI
member companies have applied for support and are receiving it—is
relatively small scale in terms of keeping a work force going
for a long time. It might help if it is a short downturn. Whether
it would help in the longer term depends, I guess, on the Government's
willingness to keep putting money into it. I am afraid that we
share the Government's dilemma on this.
Nick Beaumont-Jones: The sense
that we are getting from the information we are getting back is
that we are at that stage of the recession now when, although
nobody is actually looking to recruit, very few people have laid
off staff. Honda is a good example. Its policy is not to do that.
We are getting this feedback from a lot of other businesses. However,
they are also not seeking to recruit at the moment. They are going
to wait and see how things develop. Some of our members who are
involved in recruitment and training have said that this recession
has been quite different from previous ones, in that training
has been maintained despite the fact that business is clearly
falling over a cliff. They have kept the training standards up
and tried to recruit staff wherever possible. Swindon has peculiar
employment issues. There is no unemployment in Swindon—or
there has not been historically—and things have not really
deteriorated too badly compared with the national average in recent
months. I do not know that here is a good place to ask that question.
Q79 Chairman: So you are suggesting,
in a sense, that because there seems to be a bottoming out at
the moment—if we can describe it as that—the need
for such a scheme may have passed.
Nick Beaumont-Jones: It depends
on whether one's view is that we are bottoming out or that we
are going to go into a W-shape or whatever shape. Certainly, many
of our members are concerned, while we might be V-shaped or bathtub-shaped,
about what is going to happen in 2010. We might well be in a position
this time next year when such an initiative could actually be
very useful.
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