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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