§ 10.15 p.m.
§ Mr. Jim Lester (Beeston)I am sorry that this matter should need to be raised on the Adjournment, but the telecommunications industry is in a state of grave uncertainty. Although I intend to deal with the effect of the Post Office cuts on a factory in my constituency, I am not unmindful of the situation elsewhere, in Liverpool, Sunderland, Coventry and South Wales, and I shall understand if the Minister chooses to speak to a wider audience. But it is essential that he speaks, because it is now five weeks since the initial cuts were announced and during that time it appears to many in the industry that little has been heard.
First, we are talking not about a lame duck, out-dated or under-invested industry, but about an industry with enormous potential for exports and raising standards which is not fully understood. It cannot meet that potential and take the hammer blows from its principal customer that it has been required to take this year.
I am not trying to pour blame on the Post Office. One realises that it has a vast task and major problems—whether the pension fund or the borrowing requirement. I am trying to point to the effect of what I believe to be an ill-considered decision on an industry and a particular section of it, and to do so constructively and, I hope, with some suggestions for the future.
I know that much of the discussion has been concerned with the main exchanges but the Plessey factory in Beeston principally manufacturers what it calls "subs apparatus", or private communication systems, and there are 5,000 people employed on that site manufacturing these things. The result of what is said to be a commercial decision to raise prices in this area has been an overall cutback in orders in this section 364 of the business of 55 per cent. But in my constituency and this part of the factory it has meant a cutback of 72 per cent. of production on orders for the Post Office. That is a considerable cut and means over 40 per cent. of the total production in that area of the factory. This is a proposed order level decline from 18th September for deliveries from April 1976.
It is incredible that the results of this cut were not realised by the Post Office when it made this decision. In human terms, a cutback of 40 per cent. on 5,000 employees means 2,000. That is an unacceptable level to be threatened in so short a time. The social consequences are most serious, not only to those immediately affected, but to the surrounding community. Such a steep rundown in so short a time, when there are no other similar vacancies, without consultation or the ability to adjust, is a major matter.
There are also economic consequences on the site itself, because a cutback of this proportion affects the viability of the site and of the other productions. There is also the viability of the export production on this side.
What is equally important—I should like to emphasise this—is the effect of the decision on the Post Office. By the raising of the prices in one jump on 28th April not only was the market distorted—one has written to the Post Office and realises that it has not changed its prices since 1969—but its production line could be destroyed as well. I cannot believe that to be a good commercial decision.
Good telecommunications equipment is a vital part of any modern concern or business. No one can do without it for long. Eventually the market could readjust to the prices, but it might take a year or two years and by then new orders from the Post Office could be only at a much higher unit price if at all, because they would mean setting up new production lines to replace those dismantled. One cannot replace the dispersed skills of the people currently making this equipment.
I am advised that adjustment to a supply cut of this proportion is not possible. It is normal within the industry 365 at indicative levels to get variations—that is normal in any commercial enterprise—but a 20 per cent. cutback over 12 months is a major cutback needing a great deal of thought about adjustments. However, a cutback of over 40 per cent. in six months is not commercially viable. I do not believe that this cut was made with any ill-will but when one has a spending power of some £800 million, it is a question of not realising the consequences of one's action.
There is no question that the consequences have been realised now. I am satisfied that the management has communicated at every appropriate level with the Post Office and spelled out the true effects to both the Post Office and the industry. The joint union committee has campaigned vigorously and done a good job in contacting not only myself but other local Members of Parliament, including Ministers, and it has left no stone unturned to support the colleagues and employees of the firm.
After five weeks in this sector we are still waiting for some indication of whether there is to be any restitution of any form of support. It is with great disappointment that we have yet to hear of anything resulting from our efforts. Order reductions are critical to the future supplies of the Post Office. It is understandable that the union should request the cuts to be restored in full, but it may well be that that is not viable or possible. However, one would like to see the cuts restored sufficiently to continue balanced production in the interests of all.
I do not want to persuade the Post Office to buy out-dated equipment, nor to overstock to uneconomic levels. Could not the Post Office with the industry start a vigorous sales drive from 1st January to promote and sell the equipment that it has by offering rebates and three months' free rental if necessary? Surely it is better to get the equipment moving, installed and used than for it to remain in store and for the whole of the pipeline to disintegrate.
The Post Office has traditionally made its profit from telecommunications and calls. I hope that it will continue to do so. The Post Office's record on the telecommunications side is good in investment and productivity. I hope that it will be 366 good in the sale of private communications systems. If nothing is done and that decision proves to be wrong, who will carry the responsibility. There are many points that I should have liked to make, but I know that other hon. Members may wish to make a contribution.
Concerning exports, the Plessey Company has gone in for a vigorous sales drive and has more than doubled its sales overseas from 1973–74 to 1975–76. It has sold private systems worth millions of pounds. This drive has been based on a balanced production on the site. It is difficult, when there are already 3,000 men on short time, to persuade anyone to come in especially to do an export order at the weekend. That is understandable. Whatever the sales drive overseas, it cannot replace the cutback in the volume which is lost. One knows that in new markets in Ghana, Egypt, Kuwait and Syria there is no tolerance for default or poor performance on delivery.
The company has set higher targets still for its export drive and is setting on new staff to expand and sell still more. Therefore, a major home selling promotion effort by the Post Office would be of direct support to the energetic efforts made by the company in exports and would help to restore some sense of balance to the industry.
The third point concerns research and development generally. If the new System X exchange is to come in and has an export potential, the equipment designed to fit it will also have an added export potential. Therefore, now is the time, when there is a fallow period, for joint development contracts and for private and public investment in research and development to be made in these new areas. Surely it is possible to bring forward massive schemes of development, if the decision is to have the System X, to try to even out the design capability rather than to make redundant the managers and designers whom it is almost impossible to put on short time.
Research and development in the industry are difficult. With one major customer it is difficult, unless there is co-operation, to design what that customer wants and will buy. There is no future in designing anything in telecommunications that will not be required by the Post Office.
367 The last point concerns imports and import control. It seems incredible that only on 21st May, I got a letter from the Post Office indicating that, because there was such an upsurge in ordering of Plessey equipment, it was buying and putting in a Thorn Ericsson exchange costing £30 million. Yet by September we have a severe cutback.
Again, I can understand, though not necessarily agree with, the union's demand for some form of import restriction. The union wants me to make the point that there is a reasonable case for local authorities and public bodies spending either £250,000 or £500,000 on equipment from overseas getting clearance from the Department. I hope that the Minister will comment on and consider that matter.
I have tried in a short time to talk about sub-assemblies and private systems to try to make clear that I do not believe that the decision which has been taken is in any way commercial in the true sense. Its results are savage on people and skills. It harms future supplies to the Post Office and, through that, the industry's efficiency and our export potential. I am convinced that there are the brains, the will and the energy at all levels in the industry and that they can respond to the challenge of today's difficulties, given half the chance. There may be only a few here, but there are thousands outside who will be interested in the Minister's reply.
§ 10.29 p.m.
§ Mr. William Whitlock (Nottingham, North)The hon. Member for Beeston (Mr. Lester) has raised an important matter and put fairly and forcefully the view of the employees at the factory in his constituency. I am glad of the opportunity of supporting the hon. Gentleman, since many of those employees live in my constituency.
My right hon. Friend the Secretary of State for Industry is reviewing the long-term relationship between the Post Office and the telecommunications industry. I hope that that means that there will be an inquiry into the industry. The Post Office is a monopoly concern, but its suppliers are also monopoly concerns, and the Post Office and consumers have suffered from the lack of enterprise in the telecommunications industry.
Employees at the factory feel that the Plessey management has taken advantage 368 of the present situation to indulge in what amounts to a cost reduction exercise and that it is now seeking to lay the blame for the consequences on the Government and the Post Office. Overseas orders in the telecommunications industry are few and far between because in the past the industry has evidently not considered exporting to be fun. It has been content to concentrate on Post Office equipment, for which there is no demand in other countries.
The position is changing with the new generation of equipment, for which there is likely to be considerable export potential once is has been fully developed. If we are not ready with that equipment at the right time, we shall lose out in important export markets and we shall be in danger of losing the specialised skills at the Beeston factory if the men are made redundant and drift into other industries.
The demands of the employees, as put to me, are that the development of System X should be brought forward, that the Government should invest capital in the telecommunications industry in specific products, and that there should be controls on the importing of equipment that can be made here. This is a very sore point with the workers in the industry.
§ 10.32 p.m.
§ The Under-Secretary of State for Industry (Mr. Gerald Kaufman)I am grateful to the hon. Member for Beeston (Mr. Lester) for giving me the opportunity to comment on an issue that is of great concern to my hon. Friends and to myself. My hon. Friend the Member for Nottingham, North (Mr. Whitlock) has voiced, with his usual eloquence, the concern felt by hon. Members on this side on this subject.
The hon. Member for Beeston talked about ill-considered decisions and questioned the basis of the policies being pursued. I have no wish to engage in recrimination, but it is appropriate in view of his remarks that I put the record straight. Essentially what we are discussing is one more example of the outcome of the mistaken policies towards the nationalised industries followed by the party opposite when last in office These are the root cause of the Post Office's current problems.
369 In the period from 1970 to 1974, the Conservative Government applied severe price restraints to the publicly-owned industries, and these were more stringent than those applied to companies in the private sector. In particular, Post Office tariffs were prevented from rising in line with costs. As a consequence, the demand for telecommunications services was artificially inflated. To make matters worse, when this inflated demand led to lengthening waiting lists and calls for better services, the hon. Member's colleagues, as part of their so-called "race for growth", pressed for an increased investment programme. Thus at one and the same time the Post Office was persuaded to invest more heavily in new plant but was prevented from operating it profitably under the price restraints which were applied to it. This situation had all the seeds of disaster and we have been reaping the harvest ever since.
The Post Office telecommunications business is a growth industry and is inherently well able to pay its way. But by the time we came into office in 1974 its financial state had become desperate. Tariffs were so far out of line with the costs of providing services that large subsides had become essential. These had to be provided at the expense of other more pressing calls on the public purse. Clearly, we could not allow this situation to continue, and we immediately instituted measures to bring prices more nearly into line with costs. But, as my right hon. Friend the Chancellor of the Exchequer explained in his Budget Speech in March last year, the situation in respect of many of the nationalised industries had gone too far to be corrected by a single round of price increases. This was true of the Post Office, and we have therefore encouraged it to increase its tariffs progressively since then to the point where now, with the latest rates just introduced, there is every prospect that the telecommunications business is back on an even keel. This is, of course, in line with our overall economic strategy, which requires that the nationalised industries should operate on an economic basis subject to normal market considerations, and that subsidies should be brought to an end just as soon as practicable.
370 The hon. Member for Beeston appeared to criticise the outcome of this policy, but it is a policy that has been repeatedly pressed upon us from the Opposition Front Bench. All Front Bench speakers during the recent Statutory Corporations (Financial Provisions) Bill pressed for this economic pricing for the Post Office and elsewhere and praised us for instituting it. I would hope that the hon. Gentleman would support the present line of his Front Bench on this and not advocate a return to the sterile policies that gave rise to such an uneconomic and imprudent use of national resources and removed financial disciplines from the nationalised corporations. In talking of the restoration of cuts the hon. Gentleman is calling for increased public expenditure.
Unfortunately, corrective measures of the kind we have had to apply are, in the short term, inevitably unpleasant, not only for the industries concerned, but for their customers and for their suppliers. In the case of the telecommunications business, the return to realistic rates of charging has had its effect on demand. This has occurred at a time when external economic factors have led to an unusual reduction in the normal pattern of traffic growth. To add to this, the Post Office has responded to our calls for greater efficiency by finding ways and means of using its existing plant more intensively. The production cycle for much of the equipment that the Post Office needs is of the order of two years or more. So it is still experiencing the effects of the inflated ordering put in hand under the previous Government. Taken with the downturn in demand resulting from the factors that I have just mentioned, it finds that it now has enough equipment in hand or on order to cater for two years' normal growth over and beyond the reserves it considers to be prudent.
Clearly, and especially in view of the repeated calls from the Conservatives for restraint in public expenditure and the utmost scrutiny of public expenditure, and recalling the remarks from the Opposition in the recent unsuccessful censure debate on the Post Office, it has had no option in these circumstances but to reduce the forward ordering programme. This it has been doing in stages over the past year or so as the situation has developed and become clear to it. For our part, we do not feel that we should 371 interfere with this process and seek to persuade it to buy more equipment than it judges it needs, equipment that would not earn revenue for it. Hon. Members opposite would surely accept that, if an industry is required to operate on a commercial basis, it cannot be expected to buy large stocks of equipment that it does not currently need.
It may be argued that the Post Office has over-reacted to the situation and has altered its ordering programme too drastically or at too frequent intervals. But the demand for its services is sensitive to the level of business activity in the country at large and to other factors outside its control. Because of the long ordering cycle, it is not easy to forecast accurately, particularly in the face of a rapidly changing economic situation such as we have experienced recently. In such circumstances, it is necessary to be flexible and to keep forecasts up to date with the latest available information. This is why there have been changes in its forecasts.
The reduced pattern of forward ordering by the Post Office comes at a time when it is beginning to change over from the traditional but obsolescent electromechanical designs to more modern part-electronic equipment—TXE 4. This new equipment requires relatively less labour to produce than the traditional designs, and the industry had hoped to be able to contain the resulting reduction in manpower requirements by natural wastage. But, in the light of the later Post Office estimates, this seems to be no longer possible, and redundancies have become inevitable.
The Government are deeply concerned about the redundancies, particularly since they bear so heavily on areas where there are at the moment few opportunities for alternative employment. In the past few weeks my right hon. Friend the Secretary of State and my hon. Friend the Minister of State have met a wide and representative selection of union delegates from the work forces affected, as well as from hon. Members and local councillors. We have also spoken to the Post Office and the managements concerned to establish the extent of the problem and to see what 372 could be done to help. Following these meetings, my right hon. Friend asked the Chairman of the Post Office to re-examine the estimates put to the manufacturers in September to consider whether they were in any way over-pessimistic, or if they could be re-arranged to alleviate any part of the problem.
As a result of this approach the Post Office was able to indicate to the manufacturers that the September figures represented the "worst case" situation, and gave revised estimates which showed the "best guess" at the likely outcome. The manufacturers are considering the implications of this latest forecast, but Post Office estimates are that they may preserve up to a thousand jobs as compared with the September figures. The implications of this for particular plants such as Beeston are of course for the companies to decide. We shall continue to keep in touch with all concerned.
The Government and the Post Office believe that the well-being of the industry and of its employees rests squarely on the early growth of more modern designs. The part-electronic equipment I have already mentioned is almost entirely unaffected by the downturn in the ordering programme; the main constraints on its more rapid introduction are the need for the manufacturers to convert their factories and retrain their staff to deal with the very different type of product involved. This part-electronic design leads in turn to an advanced design—system X—development of which is already under way as a co-operative exercise between the manufacturers and the Post Office. We intend that this equipment should not only be capable of meeting the needs of the Post Office in the 1980s and beyond, but that it should have major export potential, as has been demanded from both sides of the House in this debate. If we can build up a much greater share of the export market than we have at present in telecommunications, this will go a long way towards ensuring a prosperous future for the industry and those who work in it.
§ Question put and agreed to.
§ Adjourned accordingly at seventeen minutes to Eleven o'clock.