The impact of the current economic and financial situation on businesses in the West Midlands Region - West Midlands Regional Committee Contents


Examination of Witnesses (Questions 34-39)

DAVID CARO, DENISE CRAIG, CHRIS ROSIER, BARRIE WILLIAMS AND GARY WOODMAN

11 MAY 2009

  Chairman: I welcome everybody to the second formal evidence session of the West Midlands Regional Select Committee. I am Richard Burden, MP for Birmingham Northfield, and I am the Committee Chairman. On my extreme left is James Plaskitt. On my right is Joan Walley. They are both Members of Parliament and members of the Committee. On my immediate left is David Lloyd, the Clerk of the Committee. For those who do not know, the Committee is a new initiative for Parliament. Until now, all Select Committees in the House of Commons have shadowed and scrutinised the work of particular Government Departments—the Treasury, the Department of Health, the Foreign Office and so on. What we have not had is a parliamentary scrutiny mechanism to look across Departments at how big strategic issues are affecting the different regions of England. There was seen to be a gap, particularly where major areas of Government policy are co-ordinated or delivered at regional or sub-regional level. We felt that there was a gap in accountability. While we would not claim as a Select Committee to be the complete answer, we think that we can add some value. This inquiry—the first of our inquiries—is considering the impact of the current serious economic situation on our region. We took evidence from four of the high street banks at our first evidence session, and we are talking to you today as representatives of business around the region. In due course, we will be taking evidence from Advantage West Midlands and, we hope, from Ministers. We will produce a report to which the Government will be obliged to respond. We are all West Midlands MPs. We are all from this region—different parts of the region. We will hopefully play a role in scrutinising what is there and ensuring better accountability. Because we are from the West Midlands, we also see our role as part of the move to help our region punch its weight more effectively on the national stage. When I say the West Midlands, I mean the entire region: James represents this part of the region in Warwickshire; Joan is from Stoke in Staffordshire; I am from Birmingham; and we will be joined later by Adrian Bailey, who is from the Black Country. I am very pleased that James has been able to play a role in setting up today's meeting in his home area. We can now move to the evidence. In a moment I will ask you to introduce yourselves. Can I just say formally what I said to you informally outside? There is a lot we need to get through today. It is a huge subject, so please do not all feel obliged to answer all our questions. We have your written evidence, which has the same status as the oral evidence, and all of it will inform our report. We may at certain stages try to direct questions to one or more of you, particularly if what we are asking reflects something that you have perhaps stressed in your written evidence. I do not want any of you to feel that you cannot say things, if we do not address a question specifically to you. If there is some evidence that you would like to give us today, please give it. I ask for your co-operation, and indeed our co-operation, in getting through a very big subject in the time that we have available. We hope to try to finish today, if we can, by 1 o'clock at the latest. Can I ask you, just for the record, to introduce yourselves, please, starting with Mr Woodman?

Gary Woodman: My name is Gary Woodman. I work for the Herefordshire and Worcestershire Chamber of Commerce. We are a membership organisation that goes right across various sectors. We link into the West Midlands Chambers of Commerce, as one of the six. Equally, we run the UK Trade and Investment contract for international trade in the West Midlands. We have specialisms in eastern Europe, the food and drink sector and others. My role is policy and commercial, particularly in Herefordshire, so really I come today with that rural aspect, I suppose.

  Denise Craig: I am Denise Craig, the West Midlands Policy Manager for the Federation of Small Businesses across the West Midlands region. We have 18,000 members as a member-led organisation. Nationally, we have 215,000 members. As I have said, we are a member-led organisation, and I work in a policy capacity to support, advise and guide members. Part of my role involves policy research and helping to put forward proposals for policy development. The evidence that I will use today is based on surveys that the FSB has undertaken in the past 12 months.

  David Caro: I am David Caro, Chairman of Policy for the West Midlands Federation of Small Businesses, but I am primarily here to represent the automotive manufacturing sector. My company works in the automotive sector, and we do the flock coating for most manufacturers in this country—in case you are not sure what flock coating is, it is the furry finish inside glove boxes. Of course, we are suffering in this lovely recession that we have at the moment.

  Barrie Williams: I am Barrie Williams, Chairman of the West Midlands Business Council. It is an umbrella organisation with 23 members, which include the five national organisations that represent business, such as the EEF, the FSB and the confederation of chambers. We have only 23 direct members, but they represent a very large proportion of the working population in the West Midlands.

  Chris Rosier: My name is Chris Rosier. I sit on the West Midlands Business Council, representing the West Midlands Developers Alliance. It is an alliance of local developers—the majority of local developers in the West Midlands—who get together to try to get local government to consult developers more, so that we can perhaps proactively move development forward together. I am also a chartered surveyor, and a past chairman of the quantity surveyor division in the regional branch, and I also work closely with the Royal Institution of Chartered Surveyors in construction and property matters.

  Q34 Chairman: Thank you. The first question is about how you see things. We are facing a serious situation in this region, both in absolute terms and, to some extent, in comparison with other parts of the UK. Either Denise or David could perhaps say something on this: regarding the latest poll data from the FSB, would I be right in looking at that and saying that it shows at least some signs of optimism? Am I right about that or not? If so, what are the reasons for that? Perhaps in a while we can talk about some of the specific sectoral issues in automotive and construction. But, on the overall picture, how do you see things?

  Denise Craig: Optimism may be slightly too strong a word. I would say that there has been an easing, and I think I have put in the submission that things are less gloomy. There are reasons for that, and I think it is quite patchy—it depends on what sector you are in and where you are located in the West Midlands. There is some evidence that those located in the south-eastern parts of the region are continuing to trade with slightly less difficulty than others in the north-west of the region, notably Stoke, and certainly in the Black Country, Birmingham and Coventry. In the conurbation in the middle, there are a lot of problems. If you are in the manufacturing sector through the supply chain, particularly if you are connected to the automotive industry, then I think that you would probably say that it is very dire indeed, and perhaps David can comment on that. Again, I think it also applies to the construction industry. Retailers in towns and city centres have been feeling the blasts of this economic situation for a long time. Long before the media picked up on it, we were starting to see problems for independent retailers in the centre of Birmingham—rising costs, low footfall of customers and things like that, which have been well reported. That said, those businesses in the retail sector that are out in the more peripheral parts of town and urban centres and in village centres are reporting a slight improvement. People are looking at the total cost of a shopping expedition, and they are shopping more locally. They do not want to pay parking charges in town centres or other travelling costs, which was particularly true when fuel prices shot up. People who choose to shop locally tend not to spend as much, because they go in specifically for things and do not tend to get carried away. A beauty salon in Wall Heath has said that it is noticing an increase, because people are not going to the Merry Hill centre to spend an afternoon shopping, but they still go to that particular place to get Clarins products. So, again, if it is high end or niche, if it is local, or if it has got a loyal customer base, then the business will say that things are not so bad. However, if you are in the manufacturing sector or automotive, and if you are based in city centres or large shopping centres, then things are very difficult indeed.

  Q35 Chairman: And automotive?

  David Caro: The problems in the automotive area have been pretty well documented. From our own point of view, over the past two weeks we have had more requests for quotations than we have probably had in the past two or three years, but most of them are for models that are coming up in 2011-12, so it is not helping us in the immediate future. The problem that we are experiencing is a lot of work going to the continent. A lot of work that we would traditionally have done is moving to eastern Europe—the new "rim" countries, as we call them, in the eastern bloc, particularly the Czech Republic. We are seeing a lot of the new model work, which we would normally have done with Jaguar, go. Jaguar brought in a new interior supplier, a German company, which is just shipping work straight out. It is not even asking UK companies to quote, which I find disappointing. If we had been given a fair chance to quote and were then told, "Well, you are too expensive", that would be one matter, but when we are not even given a chance to quote and the work is disappearing, it is very disappointing. I have spoken to Jaguar about it.

  Q36 Chairman: Sorry to interrupt, but this has been an issue for some time. Have you seen that change since the economic downturn? Or is it a continuation of what was happening before?

  David Caro: It is ongoing. I have tried to persuade Jaguar that it should revisit this, or persuade the supplier to revisit it. Purely because of the weak pound at the moment, it is an ideal opportunity to bring work back into the UK. Jaguar is asking for Government money, and the ideal arm-twister would be to say, "We're bringing work back into the regional economy." We always hear arguments thrown against Jaguar Land Rover—gas guzzlers and so on—but it could be a little more environmentally friendly by reducing transport costs from the other side of Europe. In some ways, the matter is out of Jaguar's hands, in that once it puts work into a supplier's hands, it is up to the supplier where it sources its work from, although Jaguar can, of course, exert influence. It is disappointing not that the work disappears to the Czech Republic but that it disappears without our being given a fair chance to quote for it, which always happened in the past. That has all come about because of a change in supplier, over which we have no influence. We tried to approach the supplier—Jaguar said to us, "Well, speak to them." We e-mailed and phoned, but we got no response. We were stonewalled, which I find disappointing. I hope that the supplier did not receive money to set up its factory in this country, which is a warehouse building and small assembly works.

  Q37 Chairman: Some of the big manufacturers have said to me—they have not given formal evidence to the Committee in recent times—that with the economic downturn, to some extent they have had to look after some of their suppliers, particularly domestic ones. Would that be your experience?

  David Caro: No. You used to hear—you don't hear it quite so much now—this wonderful phrase, particularly from the Japanese companies, "partnership working" with suppliers. "We treat our suppliers well; we work in partnership with them." To put it crudely, it's bullshit—partnership to them is one-way partnership.

  Q38 Chairman: So there would be no situations where, for example, particular parts and supplies are not required because a major factory is on shutdown, but nevertheless payments could still be being made to some of those suppliers to keep them going?

  David Caro: I will give you an example. We are talking about Honda, obviously, because they have closed their factory for such a long time, which I find very strange when the other manufacturers are only closing for a week here or two weeks there and at least try to keep some continuity through the supply chain by working in reduced circumstances. We were doing a job for Honda. They gave us one and a half months' notice that they were withdrawing flock from a glove box as a cost-down measure, and they refused even to pay for work in progress. We had bought more than £250,000 worth of equipment that we were told to cost over five years. We got two and a half years' work out of Honda, with a walk-away, don't cause trouble, thanks very much for your help. We gave them no rejects in more than 250,000 parts in that time and they wouldn't even pay for the flock and the adhesive that we had in stock for that work. That's what they call partnership working. That was before this recession happened, but that's the way they work with their suppliers. They are even tighter in recessionary times like this. I don't know whether Honda are helping their suppliers, but if and when Honda start up again, it would not surprise me if some of the suppliers they were dealing with were not there any more. Another issue is that people here in Leamington like Johnson Controls are suffering great problems because of that Honda shutdown, which is causing problems for other manufacturers.

  Q39 Chairman: On development?

  Chris Rosier: You cannot get away from property construction and professional services. All three are interlinked. Obviously the construction industry has had a massive downturn because the public and private sectors are not requiring residential, industrial or commercial buildings. Although there is some work in the rental sector and the property investment sector, the downturn is: "Do we need to spend money?" "No, we don't, so we won't." The area where there is some movement is fitting out existing buildings. They are trying to retain existing tenants so they are reducing rentals and refurbishing buildings or parts of buildings. With professional services, the construction side has been particularly hard hit. The majority of project management and architect practices in the West Midlands have made at least one or two rounds of redundancies and some are on their third round. There are a number of practices on four-day weeks as well and in a number of practices the staff have taken voluntary pay cuts. The building industry was particularly hard hit in the 1989-93 recession. We never really recovered. We certainly lacked the work force in the construction industry. We also lacked the work force on the professional side. The concern is that we will get hit again. That will make procurement and the ability to build quickly much more difficult when we come out of the recession. In terms of residential property, the three main plc builders probably do about 22,000 units a year. All three will probably do about 28,000 this year. Most of your smaller house builders are just sitting on their land banks and trying to get rid of any sites that are part built. We think that nationally we are going to do somewhere between 50,000 to 75,000 units as opposed to the 175,000 we should have done. In the West Midlands we will probably be about 50% to 60% down on what we should be achieving. There is a lot of pressure on the West Midlands region to provide more housing and new guidelines for stepping it all up. That will just be impossible to do at the moment. We have a lack of resources, contractors are thinning staff down, sub-contractors are disappearing, some of your suppliers are going bust and I am sure we will talk about the credit issues later on. Because it is such a protracted procedure to get things going again, we are going to lag behind. Although we got into it first, we are going to be the last out of the recession. I think that if by the end of the year—I am taking that as a target date—things start to move, it is probably going to be six, nine or even 12 months after that before the construction industry follows through. If you look at the different sectors, the greatest need is probably for small industrial units because people are either downsizing or start-ups and there is very little stock. The major regional centres—Birmingham, Coventry, Wolverhampton and Worcester—have a lot of part-built empty sites and empty buildings. Until we get take-up from either the public or the private sector I cannot see a lot happening. In terms of residential sales, most estate agents have had to reduce the number of their offices and get rid of a lot of staff, because the throughput of properties has been pretty poor. I think that that is changing. In the past two or three months there have tended to be more properties put on the market and more activity. In the city centre apartment market there have been a lot of fire sales and stock has been taken up at very low prices, but there is no production, so, particularly in city centre and urban regeneration developments, nothing is coming through at all. If you go round Birmingham city centre, which is where we are based, you will probably find that there are only two or three sites that are actually being built. There are a lot of dormant sites and empty sites with planning permission that are not going ahead.

  David Caro: May I add a point to that? Something that business organisations bring up a lot is the problem of void rates—empty property rates. I know that the Government have brought in some measures, but it is also—


 
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