Examination of Witnesses (Questions 120-130)
DR LAURA
COHEN, MIKE
SHIRLEY AND
BRIAN STANDBRIDGE
8 JUNE 2009
Q120 Mr Bailey: Would you say
that that is a fairly standard experience and not just yours?
Mike Shirley: We also bought another
company called Hudson's out of administration. That was exactly
the same situation, although we managed to get invoice discounting.
Q121 Mr Bailey: Do you think that
the perceived higher risk of purchasing a company coming out of
administration was the reason, and that it may not be such a big
problem for those who just need additional cash-flow facilities?
Mike Shirley: Possibly.
Brian Standbridge: Our company
is owned by Bain, a large private equity company, so our dealings
with banks are on a more international basis. My only dealings
recently were in a period of short-time working when we gave support
to our employees. We all know what sort of support we have been
getting from the banks in such times. They were not very helpful.
In the end, we had to have Citizens Advice and such providers
come in-house to help employees through the difficult times.[4]
Q122 Mr Bailey: Anecdotally, there
are horror stories from other sectors about credit insurance.
However, on talking to automotive suppliers, it appears that quite
a few of them have never used it because it is too expensive.
How big an issue is it in the ceramics industry? How has the withdrawal
of credit insurance affected that industry?
Dr Cohen: I know that some construction
firms have used it heavily and that it has affected their business.
There is a particular problem with export credit insurance. A
number of our members contacted us in November, when the big three
insurance suppliers stopped providing insurance. We welcomed the
news in the pre-Budget report in November that there would be
help for exporters, and our members were pleased because it would
allow them to take advantage of the drop in exchange rates. However,
despite a call to an official at BERR and follow-up letters to
the Department and Lord Mandelson, we did not get a reply until
recently, and that said that a consultation is starting now. It
feels like too little help, too late.
Q123 Mr Bailey: I was going to
mention two issues. First, the withdrawal of credit causes problems,
but the Government proposals do not assist with that. Have you
come across that as a major factor? Secondly, are the Government
doing too little, too late on exports, given that they have no
scheme and are now consulting on one?
Dr Cohen: I would like to add
something about the measures taken in the Budget in April that
effectively double the available trade credit insurance. If your
credit insurance has been withdrawn completely, as has happened
to a number of firms in the construction sector, those measures
do not help because double nothing is nothing. The example I came
across arose the day after the Budget. One of our members had
been asked for a large deposit from an energy supplier. They still
had some trade credit insurance that they could get and they asked
their energy supplier to explore whether it was possible. The
answer was yes, it was possible, but only for an extra £80,000
of cover. This means a lot to our member in terms of reducing
their deposit[5].
Although it was small fry for the energy supplier and they apparently
deemed it not worth their while to take it up. We have definitely
got a mismatch there, and the scheme, based on that example, does
not seem to be working well.
Q124 Mr Bailey: If you could look
at Government initiatives and your needs and match them, what
do you think are the most effective Government initiatives and
what measures do you think the Government need to take to fill
the gaps, as far as sustaining your industry is concerned?
Dr Cohen: I suppose that first
on my shopping list is access to finance for businesses, but also
it is about ensuring the industry can continue to employ skilled
people. As Brian Standbridge said, getting a level playing field
in Europe, with some sort of temporary short-time working compensation,
would allow us to retain skilled workers in whom, as you can see,
a lot of investment has been made for some time. Similarly, we
have had some examples of how training has been accessed. I gather
from some of our members that where full funding is available
for NVQ level 2, it is not always available at higher levels,
so some flexibility there would help to retain skilled staff.
We would welcome some practical help, such as the Government increasing
funding for social and affordable housing and honouring commitments
around Building Schools for the Future. It is about getting capital
projects going, to keep people in employment in the construction
industry and generate more jobs. Would my colleagues like to add
anything?
Brian Standbridge: Yes, I have
got some items. We talked about short-time working support, cash
benefits for this, finance, and other areas—it could be
the water regulations, or low-flush systems for sanitary ware.
Obviously if there are potentially 10 million homes out there
still with high-flushing systems, it is all right putting the
meters in, but unless you put the hardware in that saves the water,
all we are going to do is measure the high usage. That could pull
through the whole supply chain: plumbers, supply chain and manufacturers.
Q125 Mr Bailey: What could the
Government do on that?
Brian Standbridge: Well, you have
introduced a scrappage for cars scheme for the automotive industry,
although I am not suggesting you take an old bathroom suite in.
On initiatives—well, you go to B&Q and there are low
energy bulbs and loft insulation. I have not seen anything on
the water useage of sanitary ware.
Q126 Mr Bailey: That is very interesting,
because I have not heard a thing about this before, and obviously
it is an idea that we might want to pursue. You have listed energy:
are you satisfied that you are getting enough advice and support
to get the most economical energy packages for your businesses?
Dr Cohen: No, I do not think so.
Brian Standbridge: That problem
is affecting the smaller players more than the large. We can leverage
the bigger companies and get the best deal, and we are on day-ahead
or fixed contracts, so we are in better shape than the smaller
manufacturers, who have been hit hard, particularly by this forward
payment programme.
Mike Shirley: I do not think there
is really much choice for the small businesses. The situation
is that you are told that you need three months' deposit, which
can be, for both energy suppliers, something like £250,000,
which you have to pay up front. You are really looking at what
is the cheapest deposit, rather than the energy price, and a lot
of suppliers will not even consider you. If you have not got a
Dun and Bradstreet reference, they do not want to know you. Well,
how can you have one if you are coming out of administration with
a new company? I think we basically got two offers to compare.
Dr Cohen: A number of our members
have found it very difficult, even if they have filed their accounts
at Companies House, to get any energy quotes at all. One of our
members asked for 12 quotes seven companies refused to quote;
three demanded punitive deposits and got back two that did not
demand punitive deposits up front, and they had some very interesting
small print in the contract. In addition to demanding large deposits,
some suppliers will withdraw and put companies on a deemed rate,
which can be four times the spot price or even higher. That is
difficult. There is another problem with energy. Under national
law, we have to reduce our emissions by 80% by 2050. We have a
good opportunity now, if we can get some investment, to start
to make some moves toward that target in the longer term. We have
made a start through the climate change agreement, but we have
picked the low-hanging fruit. It is important that we start to
make the step changes in technology that are needed. Grants are
needed, rather than just loans. It is not just about energy efficiency.
It is going to be about step changes in technology. This is a
good time, if the Government can provide the money, to invest
in the technology that is needed to meet those targets for the
future.
Q127 Mr Bailey: You have more
or less pre-empted my supplementary question. Obviously there
are huge issues with the energy supply market. Parking for a moment
those that need to be dealt with on a national or European scale,
what could the Government do with more specific initiatives to
help your companies with their energy problems? You touched on
that earlier. Does anything else come to mind?
Brian Standbridge: Any greater
access to small spending initiatives would help. We have done
it in housing—householders have done energy-saving bulbs,
loft insulation and cavity wall insulation. That is great for
domestic users, but for industrial users, it has to be a blue-sky
initiative or something like that. There is very little available,
however, so we are having to do self-financing. So we save energy
on energy projects and back invest that money into our factories.
There is no support for the large takers.
Q128 Joan Walley: Can I come in
there? At the start we talked about Advantage West Midlands and
the way in which the taskforce had come together to help businesses
across the region. Given what you have just been saying about
the need to have more innovation and more new technology, and
what you said about the aspects of energy that are linked into
the climate change agreements, do you feel that there is a mechanism
that allows you to relate your ideas for innovation, either in
services or in manufactured goods, to the Government so that policy
changes can be made that could provide the climate in which you
could manufacture reduced water sanitary ware at Ideal Standard
and meet those targets? Do you see what I mean? Is there a mechanism
whereby you can feed through so that something comes out the other
end in terms of a policy initiative? I do not quite see where
that policy mechanism is.
Dr Cohen: We try to work with
organisations like the CBI. We have been putting forward some
ideas on how to reduce energy use and the types of grants that
might be needed there. There could be some wider opportunities
for working with regulators such as the Department of Energy and
Climate Change to start to draw a bit of a roadmap for how to
get to the energy reductions that we need in the future.
Brian Standbridge: I am not sure
where we are falling between the gaps. Michael Fabricant takes
a particular interest in the local business, being the MP for
Lichfield and with the Armitage factory not very far away—he
has visited twice. We have spoken to him about that. We have invited
and had visits from Lord Jones of Birmingham—Digby Jones—to
our plants, where we have talked about these issues. I am frustrated
that we have still not seen a great deal of benefit from that.
I do not think that it is those gentlemen's fault. We are just
falling between the gaps somewhere.
Q129 Chairman: I suppose this
goes back to the question that I asked earlier. Could one of the
gaps be the way in which the business voice is co-ordinated? Part
of the equation must be whether a response comes back from Government,
but are the links sufficiently robust? You referred to working
with the CBI, but the CBI is not part of the West Midlands Business
Council, which has representation from different bodies. A lot
of business organisations said the same thing about how they feel
that they should be co-ordinating together, but does government
in this region hear a consistent business voice that can then
be translated through into a presence on this body. Is that something
that needs to be done?
Dr Cohen: As a trade association,
we work with a number of bodies. It is important that we give
consistent messages through a number of forums.
Q130 Chairman: Do you get messages
back from the regional bodies? Obviously, our arena is critically
a regional one. There is Advantage West Midlands and a regional
taskforce, which is looking at the impact of the economic downturn.
There are councils of economic advisers for the regions—no
doubt you have heard of that. Do you get messages back on what
they are doing that you can then respond to and push?
Dr Cohen: We get some information
back from the regional bodies, which we pass on to our members
where appropriate. I think that the challenge is getting across
the national messages. We have members all around the UK, so it
is important that we provide information for all of them.
Chairman: That has been very helpful.
You have given us some good information and suggestions about
areas in which further action can be taken. Thank you very much.
4 Note by witness: I am also aware with the industry
there has been financial restructuring of large companies due
to the pressures on results and bank agreements in place. Back
5
Add as it clarifies: in terms of reducing their deposit. Back
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