§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. loan L. Evans.]
§ 4.17 p.m.
§ Mr. Brian Parkyn (Bedford)
I am glad to have this opportunity to raise a matter of grave concern to the leather industry in North Bedfordshire, affecting the livelihood of about 300 of my constituents. There has been a leather dressing industry in North Bedfordshire for at least 150 years. Two of the firms still operating were established over 100 years ago.
There are two reasons why the leather industry originally came to this beautiful area of rural England. First, leather dressing and dyeing require adequate supplies of pure water. Harrold is situated in the valley of the Great Ouse and lies on thick beds of gravel, which are only a few feet below the surface, so the industry had ready at hand a plentiful supply of pure water. Second, the area is very close to Northamptonshire, a county long renowned as the centre of the boot and shoe industry, and for many years the local leather industry supplied most of its dressed skins and hides to the boot and shoe industry in the nearby villages of Northamptonshire.
But for the past 40 years or so an increasing percentage of its production has been exported overseas, since it is considered by many to be the finest leather available anywhere in the world. It is a small, specialised industry, consisting of about half a dozen firms, but it now produces about £1 million worth of exports each year. The British Leather Federation wrote to me recently stating thatThe industry exports 30 per cent. of its total production, and some firms export as much as 90 or 95 per cent. of their output.The leather firms in North Bedfordshire fall into the latter category and export about 90 per cent. of their entire output. This is a remarkable achievement at a time when the Government are urging all industry to become more export-minded. Yet by a strange anomaly, this very success in the export field is now jeopardised as a result of 910 devaluation. I will attempt to explain briefly how this has come about.
The main raw material for the industry is raw tanned leather, skins and hides which in North Bedfordshire come mainly from sterling area countries such as India, Pakistan and, to some extent, Nigeria. The rough leather cost is about 60 per cent. of the final production cost of the finished leather. As a result of devaluation, all other things being equal, it costs the industry 16.7 per cent. more to import its rough leather. Yet the price advantage in exporting, all other things being equal, is only 14.3 per cent. The average cost of imported hides has increased by 12–15 per cent. and of calf skins by as much as 20 per cent. The 90 per cent. of the production which goes to export markets goes principally to the United States and Canada and is, therefore, a good dollar earner, but considerable quantities also go to Scandinavia, most of Europe, South Africa, Hong Kong, Australia and New Zealand.
One of the firms, Reginald Dickens Ltd., has shown me its present costings, which indicate dramatically the effect of devaluation on the industry. A line of kip hides which sold in the United States for 27½ cents before devaluation now sells for 28 cents. Calf leather which formerly sold for 50 cents. is now priced at 52 cents. In other words, the industry is now up to or above its former dollar prices taking into account the export rebate, but when this is abolished after 31st March the position will be extremely serious.
I realise that I might be out of order if I pursued the whole problem of export rebates today after last night's debate on the Second Reading of the Revenue (No. 2) Bill. I merely wish to point out to my hon. Friend the great importance and significance of the export rebate to this unique industry in helping to bridge the gap between 16.7 per cent. and 14.3 per cent., the effect of devaluation on a successful exporting industry which depends overwhelmingly on imported raw materials.
Another firm, the Odell Leather Company Ltd., has informed me that its raw materials cost has increased about 20 per cent. as a result of devaluation. It says:We find that our export prices are now just as high as before devaluation.911 The Harrold Leather Manufacturing Co. Ltd., another firm in the area, has written making the same point, that the export rebate just gave a sufficient margin to offset the effect of devaluation on the cost of its raw leather.
In addition, the industry has been faced with the growing protectionism which is all too evident in Europe. From 1st January this year on average an extra 3 per cent. protective duty has been put on imports of finished leather to E.E.C. countries. I have a letter from the German agent of one of the Bedfordshire leather firms who explains that the introduction of the Mehrwertsteuer—the added-value tax—in place of the Umsatzsteuer—the turnover tax—means that, instead of 7 per cent. duty, there is now a duty of about 10 per cent. on dressed leather.
Furthermore, three of the export markets have devalued their currencies—Finland, Denmark and Hong Kong—and this adds to the difficulties of the industry. Also, Pakistan, one of the principal sources of good quality raw leather, is now finishing its own leather and promoting it with an export-incentive scheme of up to 40 per cent.
Some may argue that, if the difficulties of this industry arise basically from a high content of imported raw material, import savings should be achieved by using British hides and skins rather than those from India and Pakistan. In this market, that is not possible. India and Pakistan produce a unique cow hide of high quality which few other countries can produce. The English cow hide is similar to the American cow hide and American purchasers are not so interested in buying what they can produce quite well themselves. The demand in the high quality market not only in the United States, but throughout the world is for the very special type of hide available only in certain countries such as India and Pakistan.
In the light of what I have said, it may be all too easy for hon. Members to think of this small, specialised industry of North Bedfordshire as a declining, old-fashioned, out-of-date industry. Nothing could be further from the truth. The output of one of the firms, Messrs. Reginald Dickens, Ltd., has increased by 912 30 per cent. in the past ten years without any increase in the number of those employed. It has been due to increased productivity. The other firms in the area are also constantly bringing in new and efficient machinery and keeping their dyeing and finishing processes fully up-to-date.
This is a small but virile industry. It may have been founded many years ago, but its export achievements must surely compare favourably with the best anywhere in the world. It is a forward looking industry which sees its future in jeopardy because of its great export successes, for it does not have a sizeable home market to cushion the effect of devaluation and the loss of the export rebate. I urge my hon. Friend to consider sympathetically the peculiar, unusual and possibly unique problems of this industry.
§ 4.27 p.m.
§ The Parliamentary Secretary to the Board of Trade (Mrs. Gwyneth Dunwoody)
I thank my hon. Friend the Member for Bedford (Mr. Parkyn) for the constructive way in which he has initiated this debate and for the close interest he takes in the problems of the tanning industry in North Bedfordshire. The Board of Trade has been at pains to maintain close relations with the leather industry. Our officials discuss problems with the British Leather Federation regularly and, whenever possible, the industry is fully consulted on the matters that are of interest to it.
We try to help wherever and in whatever way we can in the day-to-day problems which are bound to occur in international trade in a world commodity like leather. Of course, the industry is also fortunate in having an excellent research association—the British Leather Manufacturers' Research Association.
The British leather industry is one of which we can be proud. It is one of the world's foremost exporters of leather, as my hon. Friend has pointed out. Indeed, it already has three winners of the Queen's Award for export performance. As a whole, the industry exports about 25 to 30 per cent. of its production, but, in addition, makes a valuable indirect contribution to exports in footwear and leather goods and comparable subsidiaries.
My hon. Friend referred particularly to the question of the export rebate. Some 913 of the difficulties which arise in relation to the leather industry are not confined to it alone or, of course, to North Bedfordshire. I remind my hon. Friend that the export rebate scheme was introduced in October, 1964 as a means of providing an incentive to exporters. The scheme was designed to assist the export trade by relieving goods of the burden of certain indirect taxes—the hydrocarbon oil duty, the motor vehicle duty and some elements of Purchase Tax—which enter into production costs of exported goods.
The rates of rebate range from 1¼ per cent. to 3½ per cent. of the price of goods, excluding freight and depending on the category. Leather footwear attracts 1½ per cent., leather and leather clothing, travel goods and rawhides and skins all attract 2 per cent. Payments under the export rebate scheme have been running at the rate of just under £100 million per annum which, of course, is the total of all payments to all industries. Although the rebate is to cease on exports after 31st March, arrangements made to continue it after that date for exports made under certain pre-devaluation contracts have been taken into account.
The rebate was withdrawn on devaluation, which gave all firms an opportunity immediately to obtain an increased profitability on export order I should explain that if the exporter maintains the pre-devaluation price in foreign exchange terms, he will be significantly better off in sterling receipts and this will give him an advantage in terms of unit profits. Alternatively, if he maintains the pre-devaluation sterling price, or raises it only to the extent of the rise in his production costs and reduces his foreign exchange price, he can aim at a very big increase in the volume of his sales.
§ Mr. Parkyn
That is all very well, but is not my hon. Friend aware of the big problem in the case which I presented in which there is a high import content relating to the raw material costs?
§ Mrs. Dunwoody
I will come to that later. I appreciate that my hon. Friend has raised a specific problem.
However, whichever course the manufacturer chooses, he should have very much larger margins within which to work, but this advantage will, of course, 914 vary with individual firms and individual products.
Although we have always maintained that our form of export rebate was consistent with international obligations, it has been under considerable attack and we were faced with the possibility that some countries would introduce countervailing duties, or would be parties to a more general challenge under the General Agreement on Tariffs and Trade. In the circumstances, it was decided that the scheme should be withdrawn to ensure that our devaluation was generally acceptable and not widely followed by other countries.
The export rebate is only a part of the much larger issue of devaluation. Devaluation will give exporters the opportunity to adjust their overseas selling prices to be more competitive. One of the effects of devaluation has been that imports of goods from countries which have not devalued now cost more, which is the point which my hon. Friend is anxious to make. My right hon. Friend said that the price of rough tanned leather from India and Pakistan had gone up about 16 per cent. I understand that in the leather trade generally the cost of raw materials is reckoned to be only about half of the total cost of production, and the increase must be regarded in that light.
Even after allowing for these increased costs and the others directly or indirectly connected with devaluation, such as loss of the export rebate and, except in development areas, the S.E.T. premium, many exporters who sell to countries which have not devalued ought to be able to make their prices more competitive. It is up to the exporters to use the opportunities created by devaluation to maximise their foreign exchange earnings. If they sell for sterling, they may have to increase their prices to cover additional costs, but their delivery price in foreign currency should still be less than before devaluation.
If they sell and deliver in foreign currency prices, they can reduce prices by up to 14.3 per cent., after taking into account their increased costs, and increase the volume of sales, or maintain prices and make additional profits which may be used to step up overseas marketing activities. Each exporter must make 915 his own decision on his revised price structure and in almost all cases there should be a margin of between 4 and 8 per cent. within which to manœuvre.
It should be accepted that the leather industry has problems. The main user of leather is still the footwear industry, but in the last 10 years there has been a striking change. Leather-soled shoes are something of a rarity nowadays. Rubber and synthetic materials have really taken over. The use of leather for lining shoes also decreased and the production of lining leather has declined steadily from a figure of 94. million sq. ft. in 1961 to 64. million sq. ft. in 1966.
At the same time, the industry has kept up total production because of the demand for other types of leather. Overall, we feel that the world demand for leather is likely to grow rather than decrease as population and, we hope, prosperity, increases. There will be many opportunities there for those who seek them. Nevertheless, the last two years have been difficult for tanners and their customers.
Their raw materials, hides and skins, are by-products of the meat and wool industries, and they [...]liable to fluctuations in supply. A shortage such as that which occurred in 1966 leads to high prices, and the effects of this, together with the economic measures of July, 1966, made the operating conditions extremely difficult. The footwear industry, upon which the tanners in my hon. Friend's constituency so largely depend has felt the impact of the economic measures.
The demand for footwear was at a low level and the uncertainty which this created in the footwear trade was reflected in demands upon the leather industry. There were distinct signs of a recovery in the footwear industry in late 1967. The leather industry will gradually feel the benefit of the tariff reductions agreed during the Kennedy Round. This is a valid point to make in view of the fears that my hon. Friend has expressed about the added value tax, particularly in relation to the E.E.C. countries.
916 The United States of America, which is our best individual overseas customer and the E.E.C. countries, who are another very good market, will stage significant reductions. Those firms in North Bedfordshire who specialise in lining leather will benefit in time from a cut of over 50 per cent., from 8.5 per cent. to 4 per cent. in the United States duty. As far as the United Kingdom is concerned all imported raw hides and skins will eventually be duty-free. Since the average depth of United Kingdom reduction in duties on leather is 20 per cent. and, since most imports are duty-free from Commonwealth sources, we feel that the practical effect of cuts will not mean that the domestic industry is subjected to much greater foreign competition.
The prospects in the industry in future are on the whole very fair. We are convinced that devaluation should considerably help, but that the tanners will need to make the most of the opportunity which it presents. My hon. Friend has mentioned that the whole question of the export rebate was debated very fully yesterday on the Revenue (No. 2) Bill. The Government do not underestimate the difficulties that will be found in individual industries that have to rely to a great extent ' imported raw materials. Nevertheless w[...] quite convinced that the opportunity presented by devaluation is one which should be seized very energetically by the firms in the leather industry.
We feel that this is the way in which they can develop, not just their export markets, but continue to be a thriving and active part of what has always been one of our traditional highly-skilled industries, and an industry which can contribute greatly to our future economic stability. I am not unhopeful that my hon. Friend's constituents face a future which, although it may have some temporary difficulties, will, in the long run, be of great use not only to tie community, but also to them in their own particular industry.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-one minutes to Five o'clock.