House of Commons - Business, Innovation and Skills Committee

Full speed ahead: maintaining UK excellence in motorsport and aerospace - Business, Innovation and Skills Committee Contents

Memorandum submitted by Unite the Union

This response is submitted by Unite the Union. Unite is the UK's largest trade union with almost two million members across the private and public sectors. The union's members work in a range of industries including manufacturing, automotive, aerospace, financial services, print, media, construction, transport and public services.

MOTORSPORT—EXECUTIVE SUMMARY

— The UK Motor Sports industry leads the global field and has been successful in creating both employment and revenue in UK manufacturing with £3.6 billion of exports annually.

— It is an industry centred around clusters of highly specialised small and medium sizes enterprises (SMEs), predominately based in an area known as "Motor Sport Valley" (Midlands, Eastern and South-East England).

— The industry has traditionally had a heavy focus on research and development (R&D) which is essential to its long-term sustainability; it has however seen factors that restrict its capability to continue this commitment.

— These factors include both economic considerations and Motor Sport rules which are designed to increase competitiveness and safety but not necessarily increase innovation.

— In order to remain competitive globally it is important to improve the UK industry's capability to produce low-cost products and widen its export market potential.

— Recently there has been a concerted effort to improve ties between education, academia and the industry. Unite believes it is vital to continue to strengthen this collaborative working.

— The current economic recession has affected the sector, although perhaps not as drastically as in other manufacturing industries. The way the industry is structured and the UK's enviable position in the Motor sport world market have meant the sector has succeeded in remaining resilient.

— Unite believes it is vital not to be complacent about the ability of the industry to remain sustainable in the current economic climate and government needs to look at ways to support and invest in the sector and the workers in the sector.

— The supply chain is of vital importance to the motor sport sector and shares many SMEs with the Aerospace and Defence sectors. Government must ensure the supply chain remains in the UK.

— Government must acknowledge the importance of the Motor sport sector as an exemplar industry where research and development and innovation are easily transposed to other manufacturing sectors such as Aerospace and Defence.

1. INTRODUCTION

1.1 The Motor Sport industry in the UK leads the global sector in terms of research and manufacture. Indeed the UK has become the centre for this particular industry. More specifically the region encompassing the Midlands, Eastern and South-East England, known as "Motor Sports Valley", provides a base and knowledge sharing cluster for Motor Sports manufacture and research in a similar way that Silicon Valley does for the computer industry.

1.2 The industry as a whole is a success story; it turns over £6 billion annually and employs around 40,000 (of which 25,000 are highly skilled) people within the UK. As the UK is a market leader in this industry there is large demand globally for UK products and services, indeed £3.6 billion of annual turnover is exported.[31] UK companies benefit from opening up new export markets particularly Japan, as well the US which is the traditional export market.

1.3 The industrial workforce includes drivers, stewards, track officials and so on but it is the manufacturing and research side of the industry which is the most significant in terms of employment and revenue created for the UK economy.

1.4 Motor Sports Valley refers to a cluster of small and medium sized enterprises (SMEs) There are said to be around 4,000 companies[32] (almost all SMEs) involved in the Motor Sports industry. It is these SMEs that predominately form the sector. It is companies employing less than 500, indeed often less than 100 workers, manufacturing specific components and services rather than more general manufacturers that are market leaders.

1.5 These companies have an opt-out of the European Working Time directive on the grounds that flexibility is required within the industry however, Unite would like to see this opt—out reversed and the sector work towards increasing jobs rather than making the existing workers work longer hours.

1.6 A key part of the industry is its focus on research and development. Whereas companies in other sectors on average reinvest around 2% in research and development, Motor Sports companies reinvest an average of just over 30% in R&D.[33] Indeed it is a sector that has been associated with innovation, with some of the technologies and techniques used and discovered within the industry gaining more general usage; for instance lightweight fishing rods and wheel chairs owe their development to technologies and materials designed by Motor Sport companies.

1.7 This heavy focus on R&D, as well as the nature of the technologies being developed has led the industry to become increasingly associated with both the Aerospace and Defence sectors. Many Motor Sport companies have manufactured and developed for these sectors. The high intensity, high performance nature of Motor Sport technologies have meant that application in these sectors has been successful; aerodynamic, lightweight materials for instance as well as less obvious examples such as the application of pit-team efficiency for engineers working on Apache helicopters.

2. GOVERNMENT POLICY

2.2 While the industry in the UK is thriving and leading its field this does not mean that it does not need government support or investment. Both as a result of the global economic down-turn and Motor Sports industries in other countries attempting to challenge the UK dominance of the market, there are significant threats to the sustainability and expansion of the industry and thus the livelihoods of those working within it. Unite believes it is of crucial importance therefore, that government policy is driven to retaining the prosperity of this industry and enabling further expansion and exploiting export opportunities.

2.3 At present at both a national and regional level there is surprisingly little in the way of specific policy regarding active support for the industry. While regional governments in areas where Motor Sport manufacture is concentrated ("Motor Sport Valley") have been active in promoting initiatives encouraging greener Motor Sport and establishing greater academic resources and ties (particularly through "Motor Sport Academy") it has not been actively involved in economically supporting the industry.

2.4 Unite believes this could be due to complacency at both national and regional level because the industry has continued to perform successfully. There are however two key areas where government policy can focus in order to maintain the prosperity of the industry; in the manufacture and provision of low-cost products and in the export market.

2.5 While the UK remains the preferred choice for top of the range Motor Sport technology, in the lower cost market, which is a key source of revenue and opportunity, there is significant competition both from the US and in countries such as Germany and Italy where companies often receive state support in an effort to establish the industry in those countries. This state support needs to be explored and matched by the government in the UK to ensure the industry maintains its edge across the board.

2.6 Exports constitute over half of turnover in the UK Motor Sports industry. Traditionally the US has been the favoured export market for Motor Sports companies and there is significant value to this market, however it is extremely important that the industry realises its full global export potential.

2.7 Recently there has been a concerted move into the lucrative Japanese market. It is essential that UKTI provides full support in enabling companies to sell themselves abroad in all potential export opportunities. Though there has been some support provided in this area, there is certainly room for further encouragement as the UK has a significant advantage in being acknowledged globally for its excellence in this field.

3. THE ROLE OF SMES

3.1 As has been stated Motor Sports is an industry in which SMEs are dominant. Almost every component of Motor Sports vehicles are manufactured separately with further SMEs concerned with bringing the various parts together. As such companies are highly specialised in their particular area of expertise but relatively small in size as their production demands are comparatively small. This also means there are very clear supply chains and symbiotic relationships, as many different companies are required to create a fully functioning Motor Sports team. This also means that Motor Sports valley can be said to have a "critical mass" meaning that there is always consistent demand for specific products so long as other companies within the supply chain are still functional.

4. UNIVERSITIES AND MOTOR SPORT

4.1 Motor Sport like many industries has been pushing for further industry focused qualifications to be offered by universities. Due to the sector being predominantly comprised of SMEs (which are traditionally reluctant to engage with academic institutions) progress has been late in coming. However more recently there has been success in involving both the industry and academic institutions. A large number of universities now offer specific Motor Sport qualifications with courses specifically driven toward working within the industry.

4.2 Initiatives such as "Formula Student"[34] and the government funded "Motor Sports Knowledge Exchange"[35] provides examples of events in which students are able to engage with people involved in the industry, showcase what they are capable of and present research. It also allows employers the opportunity to spot talented and able prospective employees. The "Motor Sport Academy"[36] which is supported by regional governments is one of the best examples of how the industry is utilising academia.

4.3 A greater understanding and relationship has thus been established between universities and the industry as a whole allowing both talent and research to be focused within the academic community on Motor Sport and Motor Sport related issues. Both the industry and those looking to work in it are thus benefiting greatly from an improved affiliation between academic and industry institutions.

5. THE RECESSION

5.1 The industry has certainly not been immune to the recession. The sector has seen sales in general fall by around 10-15% and sponsorship which is an important revenue stream for the Motor Sport teams has been less forthcoming in the financial climate. Indeed there have been several high profile teams at the top level of Motor Sport that have been forced to withdraw (Honda in F1, Suzuki and Subaru in World Rally for example) which obviously has a negative effect across the supply chain.

5.2 However, there has not been the drastic impact on grass-roots and recreational Motor Sport that had been anticipated. Indeed comparative to other sectors of the economy Motor Sport remains comparatively strong during the economic downturn. This is certainly aided by the inter-dependency of Motor Sport Valley meaning the closure of individual companies does not necessarily mean significant damage to the sector as demand remains consistent and thus new companies (and jobs) can be created in place.

6. RESTRICTIONS ON INNOVATION

6.1 As has been mentioned previously, innovation, research and development are key aspects of the industry and it has a proud record of promoting and sustaining this kind of activity. However, there are certain factors, both traditional and more recent, that can limit the capability of many companies to retain a commitment to innovation. There has always been the fear at the very highest level that attempting radical innovation would lead to significant damage both financially and to prestige if it were to fail. There is also a more general fear for intellectual property that can lead to more conservative philosophies. Added to this many companies have bemoaned the lack of dedicated resources that are required for future development and innovation.

6.2 Motor Sport as a sport is of course subject to regulation and in Formula One, the pinnacle of the sport, the Fédération Internationale de l'Automobile (FIA) imposes regulations designed to increase competitiveness and safety and to restrict spending that limits the scope for innovation. Indeed the most recent budget caps the FIA has imposed have been seen by many as significantly restricting the capability of teams to innovate and have also threatened jobs.

6.3 Restrictions show a financial climate in which big spending is no longer unquestioned and indeed many companies have threatened to cut back on reinvestment in R&D as a response to the recession, this of course is only a short term solution as innovation is such a key part of giving Motor Sport companies their competitive edge in the market.

This submission should be read in conjunction with the Unite submission for the Aerospace sector.

UNITE RECOMMENDATIONS

— Unite believes the UK Motor Sport sector presents an ideal business case for government support through policy driven initiatives.

— The sector is thriving but Unite would like to see strategic regional and national government policy to enable the sector to achieve further export contracts which will secure current jobs and create future jobs for the workers in the sector.

— Unite feels it is imperative that government acknowledges the crucial role SMEs play in the supply chain for this sector. Government must ensure that the supply chain remains in the UK.

— Unite believes it is vital that the sector is given support to explore and innovate further for the establishment of products in the lower cost market. This will enable the sector to diversify and increase exports further.

— The UK is acknowledged as a world leader in the Motor Sport industry and UK Trade and Investment (UKTI) needs to provide full support to the industry to enable SMEs the opportunity to compete effectively in a global market and achieve their full export potential.

— Government needs to work with the sector and other interested agencies to ensure the resources and the economic environment are created to enable companies to innovate successfully.

— Government must acknowledge the sector has been very successful in creating highly skilled jobs and export revenue for the UK economy and do all they can to ensure these highly skilled jobs remain in the UK.

AEROSPACE—EXECUTIVE SUMMARY

— The UK Aerospace sector is one of the few manufacturing industries that are managing to sustain itself in the face of a global economic recession.

— Manufacturing is of vital importance to the UK economy, it creates a fifth of our national output, employs over four million people and produces over half of all exports.

— Unite believes it is vital that research funding and collaborative working between industry and research institutions is encouraged, supported and invested in by government.

— Unite believes that for the UK economy to rise out of the current economic downturn and be in a position to take advantage of the global economic recovery, it is imperative that world class industries like Aerospace are given substantial consideration when government is formulating manufacturing policy.

— Unite has very serious concerns regarding current education policy. There have been a number of significant policy changes over the past decade and, although there has been sustained financial investment by government some of the decisions made around education policy have been at the least flawed and at worst disastrous.

— Unite would like to see government formulate education, skills and training policy that prioritises key areas and addresses major substantive issues.

— Unite agrees that the UK based Aerospace companies have benefited extensively from a positive and pro-active approach to manufacturing policy and financial investment. However, there are areas that need further consideration from government and this includes workforce training, R&D investment, promoting innovation and facilitating exports.

— Government policy must consider the supply chain in any decision making process. The small and medium sized enterprises (SMEs) in the supply chain are crucial to the Aerospace sector.

— Although the sector is weathering the current economic storm there have been problems in the sector, especially around export orders for engines, the slowing down of available credit, the fallout from the collapse of the banking sector and job losses and closures associated with the stigma that has been attached to items of ostentation such as business jets.

1. INTRODUCTION

1.1 The UK has the world's largest Aerospace industry outside of the USA. Turnover for the industry in 2008 reached more than £20 billion with a potential for exports of over £35 billion.[37] The sector employs a highly skilled workforce of over 160,000 with a further 200,000 workers reliant on the success of the sector.[38] The sector is also renowned for its commitment and success in recruiting and training apprentices—the highly skilled engineers and technicians of the future.

1.2 The UK Aerospace sector is one of few manufacturing industries that are managing to weather the storm of a global recession; a recession that has impacted severely in the USA and the UK alike and where some sectors such as Banking have had to be supported financially by the government and more crucially the UK tax payer.

1.3 Unite believes that the financial support given to other sectors of the UK economy have raised serious concerns in the Aerospace industry about the prospect of future investment funds from government being diverted away from Aerospace. There are also concerns about government cuts in public sector spending and whether this too will have an impact on investment in the Aerospace sector.

1.4 It is vital that research funding and collaborative working between research institutions and industry are encouraged and supported by government. Unite believes that for the UK to come out of the current economic downturn and be in a position to take advantage of the global economic recovery it is vital that world class industries like Aerospace are given continued government support.

1.5 Unite has serious concerns regarding current government education policy, The latest debacle over the reduction in university places for UK students has created a zenith in the educational ambition of many young people in the UK. Unite believes there is a clear economic case to be made for extensive investment in the education of young people and the training and up-skilling of workers.

1.6 The importance of these tenets for manufacturing industry in the UK cannot be underestimated. In its manufacturing strategy government identified having a highly skilled workforce as one of the key dynamics that is instrumental in reshaping global manufacturing. A globally competitive and technologically advanced UK based manufacturing sector is entirely predicated on manufacturing companies having access to a highly skilled workforce.

2. GOVERNMENT POLICY

2.1 It is clear that the Aerospace industry is coming to the end of a much needed and successful defence industrial strategy. Unite believes the strategy proved to be an exemplar of what can be done when everyone; companies, workers, trade unions and government departments work together for a common goal. However, with the UK armed forces involved in two serious conflicts the defence of the country and the quality and supply of defence equipment and defence spending has never been more important.

2.2 Unite therefore welcomes government's strategic plan for manufacturing in the UK. Manufacturing is of vital importance to the UK. It creates a fifth of our national output, employs four million people and produces over half of our exports.[39] The continued success of manufacturing in the UK is therefore crucial to our country's prosperity, now and in the future, added to this the UK is part of the world's largest single market.

2.3 The Aerospace sector in particular has welcomed the advanced manufacturing support package presented by Lord Mandelson. The package will see over £200 million being made available to assist businesses in the UK to innovate and expand, creating jobs and wealth, facilitating a shift out of the economic downturn towards a new sustained and invigorating period of financial investment, job security and economic prosperity.

2.4 Government policy has also meant that the Aerospace industry will benefit from £24 million worth of government investment into a variety of projects; including a study into the development of innovative new wing technology. Unite believes government must be aware of the importance of ensuring that the UK is seen as a centre of excellence for Power and Lift. It is crucial that Aerospace research and development, innovation, intellectual property and ultimately workers jobs remain in the UK.

2.5 Unite is acutely aware that government policy in relation to manufacturing is providing for a significant level of investment in the UK Aerospace sector, however there are a couple of areas of concern which Unite would like to see addressed. The most important of these is the issue of education, training and skills in relation to manufacturing. The second being improvements that are needed to ensure a cohesive and effective supply chain for the Defence and Civil Aerospace supply chain.

3. EDUCATION, TRAINING AND SKILLS

3.1 It is clear that the Aerospace sector is one where the employees are highly qualified and highly skilled. However, a number of key reports have indicated that a shortage of skilled employees may be hampering growth in manufacturing industry as well as limiting the potential for any changes in highly technical operational processes. Unite believes that procurement decisions by the MoD and ultimately government must take into account training, skills and ensuring the key skills in the sector are retained. Long gaps in the awarding of contracts can generate serious problems with skills retention and skills shortages.

3.2 Unite is keen to see that companies within the sector do not become complacent about training their existing workforce. It is vital for workers to continue their training and development while in work and it is the employer's responsibility to ensure that the workforce has this opportunity. Unite believes that if employers are not prepared to train their workers then there should be a statutory training levy implemented. Skills gaps can become a serious issue within manufacturing companies and as such could seriously affect productivity.

3.3 The present government has made it clear that they want to see a highly educated and highly skilled workforce for the future growth and prosperity of the UK economy. There are two key factors driving demand for skills within this sector.

— Replacement demand—where job opportunities are created by retirement, occupational mobility and where there are skills shortages within the sector.

— Structural change driven by international competition—the important role of skills in improving productivity relative to international competitors cannot be underestimated. Structural change within the sector, such as the huge changes in technology and the products required by the armed forces, are broadening the types of skills required within the sector.

3.4 Unite believes that ensuring strong workforce skills is a matter of shared responsibility between government, employers, unions and individuals. It is clearly documented that trade unions have played a pivotal role in encouraging workers and employers to participate fully in the learning agenda, this role can now be extended to include on the job training and skills development for all workers.

3.5 Unite has also expressed serious concern with current education policy in the UK. There have been a number of policy changes in education over the past five years that have had a serious detrimental impact on the production of science, technology and engineering apprentices and graduates. There must be an acknowledgement by government that the building blocks of an education system are the key to a thriving, innovative and technologically advanced manufacturing sector.

3.6 An example of this is Singapore, in the last Trends in International Mathematics and Science Study (TIMSS) survey of maths and science standards in 49 countries, Singapore came first for science and second for maths.[40] Since the scheme known as Singapore Maths was introduced in the 1990's, the nation has not only moved to the top of the survey but no longer has a bottom stream of low achievers.

3.7 Although the UK has improved its standing from 25th place in 1995 to seventh place in 2008,[41] there are still more than one-fifth of children who fail to pass the National Curriculum maths test. In 2008 only 78% of 11 year olds and 77% of 14 year olds reached the standard expected for their age.[42] Unite believes there must also be a strategic focus on the 835,000[43] 18-24 year olds who are not in education, employment or training. These young people are being left behind and so far none of the current government education or training policies has achieved a reduction in this total.

3.8 It is clear from these figures that, although the UK has a respectable position in the international TIMSS chart, it is the countries that are our direct manufacturing competitors who are creating educational policy that will ensure the educational opportunities are available to produce the highest number of highly skilled mathematicians, technicians and scientists.

3.9 Government must take evidence such as this seriously and implement education policy that recognises that industry in the UK is not only about the service and finance sectors. It is crucial that research and development, innovation and intellectual property remain in the UK. This will only happen if there is enough home grown talent to fill the ever growing skills shortages in manufacturing and that workers will be sufficiently educated to address the onward march of technological change.

3.10 Unite would like to see government formulate education, skills and training policy that prioritises certain areas and addresses major current issues. These include; improving basic standards of literacy and numeracy across all age groups in society. Increase the number of young people studying STEM subjects and achieving apprentice places in manufacturing and technology industries. Build stronger links between employers and educational establishments; schools, universities and further education colleges. Invest in improving vocational education and legitimise qualifications. Have a root and branch review of the current qualifications system. If qualifications have no value for the student or the employer what use are as a signifier of a highly educated and highly skilled workforce?

4. RESEARCH AND DEVELOPMENT

4.1 One of the key areas for consideration in the sector is the importance of research and development. With government's commitment to a "green" agenda and demand for more efficient and quieter aircraft there needs to be a step change in research and development investment to ensure the UK sustains its position in leading the world in Aerospace R&D. However, current evidence shows there has been a decline in R&D investment in the UK, this has fallen by around 24% from £2.4 billion in 2007, to £1.8 billion in 2009.[44]

4.2 Unite believes that investment in research and development helps to sustain high-value jobs and increases the competitiveness of UK companies. However, manufacturing companies that find more beneficial environments overseas are more likely to move their R&D to other countries, with the consequent jobs being created outside of the UK and the almost certain loss of intellectual property means those jobs will never come back to the UK.

4.3 Unite believes it is vital that government recognises that investment in R&D ensures that the future of the Aerospace sector will be in the UK. Unite believes that government should work with unions, workers and companies to provide a real opportunity to create a coherent and holistic policy that supports a through life regime for all the elements that create a truly great UK based industrial sector.

5. IMPACT OF RECESSION ON AEROSPACE

5.1 Although the aerospace sector has enjoyed significant investment and support from the UK government it has not been immune from the impact of the global recession, and this global perspective has been the key feature. The aerospace companies based in the UK are predominantly global companies and as such the onset of such a severe global economic downturn has created problems for companies in the UK. For example Rolls Royce is an exemplar UK based company yet some export orders for engines from overseas buyers have been cancelled or suspended.

5.2 There has been a significant slow down of available credit to buy aeroplanes on lease. The fall of the banking sector has had a significant effect on the civil aerospace sector and there are concerns about the impact on the production of the single aisle aeroplanes and the orders for the A380.

5.3 One example of where the sector has been significantly affected is business jets. Since the banking crisis there has been a stigma created across the world in the use of business jets, as it is seen as ostentatious in the present economic crisis. As a consequence the market in business jets has collapsed with the loss of 20,000 jobs.

5.4 In the UK Bombardier also became a victim of the downturn with the loss of 1300 jobs. As such, Unite would expect to see government financially supporting any need for short-term working contingency plans. This is vital in ensuring that those workers with the skills needed for manufacturing and in particular the Aerospace sector will still be in the workplace once the economic recovery happens.

5.5 Although the short-term outlook is for a decline in output, the long term outlook for the sector remains positive, with industry forecasts predicting a requirement for 30,000 new fixed wing aircraft worth $2.6 trillion up to 2026 and 30,000 rotorcraft worth around $300 billion up to 2027.[45]

This submission should be read in conjunction with the Unite submission for the Motor Sport sector.

UNITE RECOMMENDATIONS

— Unite believes the time is ripe for Government to lay out its long term view of the sector, similar to that of the previous defence industrial strategy, this is to ensure that the UK remains a market where investors want to invest, exports will continue to rise and jobs will be created.

— Government must acknowledge that a UK based Aerospace and defence sector is vital in prioritising the needs of the UK armed forces and to avoid any supplier country from acting against the UK by withholding equipment.

— Any further reductions in defence spending as part of a strategic review could undermine UK security, have an adverse impact on the UK economy and create significant problems with the retention of skills in the sector.

— Unite believes that government should increase investment in the Aerospace sector by around £2 billion per year; this would go someway to reducing the current disparity between the UK's military commitments and government expenditure.

— Government must acknowledge that at a time of real economic challenge, the Aerospace sector makes a significant economic contribution to the UK economy and remains one of the key capabilities for UK manufacturing.

— Unite believes that education policy in the UK needs to be reviewed and there must be a clear commitment from government to raise and invest in opportunities for all people in education or training in the UK.

— The UK has the worst record for R&D investment in Europe, government must ensure that investment in R&D increases and provide mechanisms which assist UK based companies to increase their investment in R&D and innovation.

— Government must recognise that although the sector is dynamic and vital there is still room for improvement. Further reform of the procurement process would assist with greater efficiency and reduce costs.

— There needs to be an acceptance and a commitment by government that through life capability for the whole life of equipment provides better value for money than conventional equipment procurement.

— Unite believes there needs to be a greater acknowledgement of the role that SMEs play within the sector especially in relation to the lack of government investment in entrepreneurial research and development in the sector.

8 September 2009