MACHINE TOOL INDUSTRY (Hansard, 16 January 1979)

§ Mr. Tom Litterick (Birmingham, Selly Oak)
I wish to bring to the attention of the House the subject of the British machine tool industry and its capability to meet the needs of the British motor vehicle industry. This subject is an important component in our economic thinking and is certainly a crucial element in the long-term success of the economy.
I am particularly pleased that my hon. Friend the Member for Nuneaton (Mr. Huckfield) is here in his ministerial capacity to respond to my speech. I know of his long-standing and enthusiastic interest in the subject.
The decline of the machine tool industry has been due to familiar factors—the failure of old-established firms to adapt to new circumstances, their failure to invest, their failure to produce new designs and their over-reliance on factoring and old standard products. The result has been that their ability to survive or resist the damage of slumps has been significantly reduced.
The decline has reached the stage at which the industry is unable to meet the current and future needs of British industry. For example, Ford United Kingdom last year had quite literally to scour 1672 the world looking for tooling capacity to meet the needs of its current investment programme. This included searching in places as exotic at Taiwan and Brazil, places we had hitherto thought were underdeveloped. Ford's procurement director reported to a startled British public that he had visited these places because he could not find the tooling capacity he required within the United Kingdom economy.
British Leyland, too, has been unable to discover within the British economy adequate tooling capacity to meet its current requirements. Imports of numerically controlled machine tools outnumber their exports by about three to one.
Such facts are evidence that in this sector of the economy at least the Government's industrial strategy, in spite of the efforts of my hon. Friend the Under-Secretary, has been inadequate and ineffective.
One of the contributory factors in the decline of this industry has been the decision of motor manufacturers to run down their design capacity. During the last decade Ford, Vauxhall and Chrysler have all run down their tool design capacity quite significantly. Chrysler used to employ 47 design engineers in the United Kingdom; it now employs five. Its most successful recent model, the Avenger car, was designed in France, Germany and Italy. That was not an accident. Chrysler deliberately brought it about.
Ford has eliminated its design centres in Birmingham, Doncaster and Southampton, and has greatly reduced its design capacity in Dagenham. Meanwhile, Ford Cologne has virtually taken over the design function for Ford Europe. Vauxhall has virtually centred all its design function on the Opel organisation in Germany.
British Leyland has attempted to rebuild its design capacity. For example, at one time it employed 80 jig designers; by 1977 it employed only 20. In 1972, it employed 182 designers; by 1977 it employed only 70. In 1977, it had to subcontract out 22,000 man-hours in design work abroad because the facility was not available within British Leyland and was not available, apparently, within the British economy. Now British Leyland is having great difficulty in recruiting skilled design staff in its efforts to rebuild its design capability.
1673 The current explanation by British Leyland for its placing of orders on a subcontract basis abroad is that at the moment the foreign service is better than that available in Britain, although within the trade union movement there are voices of dissent from that claim.
The importance of this situation is that, if the crucial design facilities of these vehicle manufacturing companies are being located outside the United Kingdom, it should not surprise us if these companies look abroad for the more advanced equipment that they need for their own production, since it is inevitable that the people who design the equipment will have connections with the people who produce it. Thus we discover, for example, that German machine tool design is becoming predominant in Western Europe.
One consequence of this is that not only can British Leyland not get all its machine tool requirements met within the United Kingdom but it cannot recruit the design staff that it needs to rebuild. On that will be based the ability of British Leyland to survive as an autonomous vehicle producer in the long term, since in the long term a company survives in so far as it has a significant slice of a large market and to the extent that the company is able to produce new designs as the market demands. For that a company needs people with the appropriate skills.
We have lost large numbers of highly skilled design staff from the British vehicle industry, partly, as I have said, as a result of deliberate decisions by multinational companies to relocate the design function elsewhere, and partly as a consequence of years of wages policy, which has imposed rigidities on companies such as the motor vehicle companies—indeed, on all companies—that make it impossible for them to create the kind of salary level which we now know this category of highly skilled work can command.
Foreign competitors of the British car industry are prepared to pay qualified and well experienced design draughtsmen up to £15,000 a year. So far as I know, there is no motor car manufacturer operating in Britain which could offer a design draughtsman £15,000 a year, because to do that he would have to rejig his entire salary structure; and to do that he would 1674 have to challenge whatever wages policy was in force. We all know that for a long time there has been one or another version of wages policy in force. Manufacturers simply cannot pay the going rate for this function which has become, not peculiarly, but certainly noticeably, internationalised.
People in jobs of this kind can move internationally and can command high salaries because their skills are scarce and because international conglomerates are seeking to buy them. For that reason, some sub-contracted design projects have cost British Leyland, for instance, a great deal more than they would have cost it had it been able to use an internal design facility and had it not destroyed its design capacity, or at least greatly reduced it, in the 1960s; it has been unable to recreate it.
That is one of the penalties, but there is a greater penalty. It is a penalty which is to be paid and is being paid by the British people as a whole. We would all agree that, given the development of countries which have hitherto been relatively primitive in industrial terms, we can succeed only if we offer the fruits of technical skills which are relatively rare.
What we have witnessed in the machine tool industry and in other industries, as my hon. Friend knows from his ministerial experience, is that industries which have been run down have been those which required the kind of high skills which once carried a premium in the British economy, and which could have been the industries which developed further high skills in the modern era but did not do so partly because of structure, partly because of ownership, and partly because of some of the factors I mentioned earlier.
Therefore, because so many organisations have in the past taken the easy way out, we are in danger of losing precisely the kind of element in our economy which would ensure that we should go on being a significant economy in industrial terms through the foreseeable future. It is costing dear both our British motor car manufacturers and the British people in general because we have neglected these high skills. For instance, the British Leyland design staff establishment is, as I understand it, currently about 148; that is the theoretical number of design staff it says it needs. In fact, it currently employs only about 90 qualified design engineers. A report from TASS—the 1675 Technical, Administrative and Supervisory Section of the AUEW—which I know my hon. Friend the Minister has read—has suggested that its real requirement is about 260 qualified design staff. If British Leyland is having difficulty in recruiting the more modest number of 148—an extra 50 more than it has—it seems to have precious little chance of recruiting 100 more than that, given the present situation.
That would not appear to be a prescription, if applied throughout the British economy, for Britain as an industrialised nation. I do not believe that our future lies in ice cream-making and flogging insurance, notwithstanding the importance or attractiveness of those two businesses, which I use as an example. Our future lies in our ability to sell the products of industry, which is based, if not on high technology, at least on the intellectual skills which constitute the basis of high technology in modern times. That means having highly trained people. We are allowing multinational companies to siphon off from the British economy those whose creative efforts are so necessary to the future survival of our economy as a genuine industrial economy.
Therefore, it seems to me that a number of prescriptions for courses of action are necessary to stem and reverse this trend. First, we must ensure that a tooling design capacity exists in Britain which is not vulnerable to the whimsical or opportunist decisions or interests of foreign-based multinational companies. So long as ownership is vested in those foreign-based multinational companies, there is not very much that we can do about it. 'Therefore, it would seem to me that if we are to create a British tool design capability which could serve all of British industry, this can be done, directly or indirectly, only through the State, since the character of private enterprise is such that we can never guarantee that it will not be snapped up by some foreign-based multinational conglomerate.
Thus, there must be an agency which, in effect, is a tool design servicing agency not simply for the British motor car industry but for all of British industry, which would serve as a nucleus of the highly skilled engineering design manpower that is available within the British economy, and one which would be guar- 1676 anteed a stable and permanent existence. With respect to my hon. Friend the Under-Secretary—I am pretty sure that he will agree with me on this—the agency would be underwritten only by the State and would, therefore, derive its stability and permanence from the State itself.
Whether we do this through the National Enterprise Board or through some other structure is neither here nor there. But we have the NEB, and there is no reason, therefore, why we cannot use the NEB for this purpose.
I know very well—I am sure that my hon. Friend will refer to this—that there is a fund, which has, I think, a maximum spending power of £30 million at present, which is available for investment in machine tools, or in machine tool design and so on. But it seems that that kind of control and influence is less powerful and less likely to create what we need than would be the creation of an institution, a firm, or an agency—whatever one wishes to call it—which had the single purpose of offering a high-skill design facility to every manufacturer in British industry.
Of course, it could also operate for the rest of the world, as now defunct firms such as Fisher, Ludlow used to service virtually the world at one time but no longer do so because of the influence of foreign-based multinationals. I think that it would be a valuable asset to the British economy. It would be a valuable policy tool. It would certainly be a valuable investment in the future.
Secondly, although I know that this matter is not within my hon. Friend's bailiwick, I think that the Government must recognise the urgent need for flexibility in salary administration in those large organisations which employ highly skilled staff. The fact is that these years of pay policy have driven out highly skilled staff from the British economy, and we cannot afford to allow this to go on. A means must be found to enable those companies to have flexible salary policies —to put it bluntly, to enable them to pay those people the international going rate for the job. It is no good the Treasury's saying "If we allowed this to happen the floodgates of inflation would be opened." We are bleeding to death through a lack of high skills, and that must be stopped.
1677 Thirdly, we should be more vigorous in our encouragement, if not our compulsion, of private industry to engage in more expensive, and certainly more ambitious, training programmes for young people, aimed at producing people skilled in high technology.
Fourthly, there should be an investment programme, which can be conducted only through the NEB, in research and development in engineering technology. It now seems fairly obvious that the private firms by themselves will not—for whatever reasons—do it.
Fifthly, one lesson is that there must be compulsory planning agreements with the large multinationals, particularly aimed, by incorporating clauses in the agreements, at compelling those companies to conserve high skill functions within the British economy. There must be no shenanigans about this. They should not be allowed, for instance, to export design functions to other countries and leave Britain bereft of these creative functions.
Lastly, we should seriously consider nationalising the machine tool industry. After all, it is partly nationalised anyway, and the bit that is not nationalised is limping along on public money. It would give the British people a better opportunity to restructure and reorganise their machine tool industry on a national, more stable and therefore more permanent basis if it were in public ownership.
Sixty per cent. of all the machine tools in this country are more than 10 years old. By itself the fact that so many of our machine tools are so elderly should tell us that there is a huge market for machine tools in this country. An age of 10 years is the commonly used benchmark in the machine tool industry for incipient obsolescence.
Beyond our own economy there is a vast market which we, an old industrial nation, are singularly unable to tap. This has happened because we have allowed the basic skill of this kind of industry, the skill of the creative people within it, to be destroyed.
The prescriptions I have suggested are the ones we should follow if we are to retrieve the situation for the long-term benefit of the British economy.

§ The Under-Secretary of State for Industry (Mr. Les Huckfield)
My hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) has been a long-term advocate on behalf of the machine tool and the tooling and design industries in this country. I congratulate him on the detailed, comprehensive and patient way in which he has put his case tonight. As a Midlands Member myself, I can assure him that there is a great deal of interest in the machine tool industry in West Midlands constituencies, but I see from the number of skilled Amalgamated Union of Engineering Workers Members present tonight that there is also an interest in the North-East. I recognise the interest of my hon. Friends the Members for Gateshead, East (Mr. Conlan) and Wallsend (Mr. Garrett).
The facts and figures that my hon. Friend has put before the House tonight present some of the worst sides of the picture. I should like to put it in full perspective.
In 1977 the United Kingdom machine tool industry had a turnover of just under £400 million. Nearly half—£185 million —was exports. Imports in the same period were £144.4 million, giving a surplus of £40 million, which is not bad in a market that is fiercely internationally competitive.
Many types of United Kingdom machine tools, such as multi-spindle automatic lathes and special purpose machines for engine block lines, are recognised as being as good as anything produced anywhere in the world. We have the capacity and can do as well as, and better than, other countries that are producing such goods.
My hon. Friend referred to some of the skill shortages in the industry. I should like to send him some material that was prepared for the discussion that took place in the National Economic Development Council on 6th December last year, in which the matter was discussed. Some of the shortages to which he referred were mentioned then.
I do not think that it is understating the case to say that the relationship between the car manufacturers and related companies, particularly those in machine tools, is possibly one of the most important examples of customer-supplier relationships in the engineering industry. That 1679 is why we in the Department of Industry have encouraged the motor car manufacturers, the motor vehicle producers and the machine tool producers to have the closest possible liaison. When we referred this issue, including some of the points raised by my hon. Friend, to the Secretary of State's tripartite group on the motor vehicle industry, the group submitted it to the Society of Motor Manufacturers and Traders. As a result, we have developed a much more close liaison between the SMMT and the Machine Tool Trades Association. I am glad to say that this is a flourishing relationship. From both the machine tool manufacturing side and the SMMT side, it has been felt to be definitely beneficial.
Also, through direct discussions between the MTTA and BL, the member companies in MTTA have been able to gain a clearer impression of British Leyland's requirements. I say to my hon. Friends that if the MTTA feels that a similar exercise would be useful in Ford, Chrysler UK and Vauxhall, I am willing to do all I can to assist.

§ Mr. Bernard Conlan (Gateshead, East)
I should like to ask about a specific case concerning Churchill's of Blaydon. Machine tools are being ordered by British Leyland from a German firm when Churchill's can supply comparable machines. What does my hon. Friend think about that when all of us are proclaiming that people should buy British Leyland?

Mr. Huekfield
I echo my hon. Friend's sentiment about driving British Leyland cars, representing a constituency with British Leyland interests myself. I cannot give an on-the-spot answer on the case to which he has referred, but now that he has raised it, I shall look into it and write to him in as much detail as I can.

§ Mr. W. E. Garrett (Wallsend)
Will my hon. Friend be assured that the matter will be brought to his attention at a later stage?

§ Mr. Huckfield
I take that underlining which my hon. Friend has just given, and I shall have to do something about it.
I give all three of my hon. Friends that assurance. I have taken some initiatives in conjunction with TASS and its 1680 former deputy general secretary, the late John Forrester, and with Gerry Eastwood, general secretary of the patternmakers' union. I have been able to organise a series of meetings between the tooling companies, trade associations, such as the Federation of Engineering Design Companies, and some of the major car manufacturers, which have brought their interests together. I received in November a letter from Gerry Eastwood saying that this initiative was going well.
I am glad that my hon. Friend referred to the useful presentation made to me by TASS in November. I note the similarity of some of the figures he used and some of those in this presentation, but I want to testify to the underlying interest these two unions and many more have taken in this issue since I have had some responsibility for it in the Department of Industry.
Although we have been able to do something in bringing together the trade associations, the trade unions, some of the manufacturers and some organisations with design capability, I want to stress that get-togethers and meetings between trade associations are no substitute for customers and suppliers getting together. That is most important. I want to do all I can to encourage it.
Michael Edwardes made a general commitment when he took office—a very public commitment—that no capital contract exceeding £1 million would be placed overseas by British Leyland without his personal permission and no capital contract exceeding £5 million would go abroad without his board's express approval. I assure my hon. Friend that British Leyland has established much closer links with machine tool manufacturers and my Department maintains a very close day-to-day liaison with British Leyland.
British Leyland Cars seeks to give us advance notice of machine tool purchases. When there is the prospect of an order being placed abroad, this arrangement ensures that my Department can bring to the notice of British Leyland all the United Kingdom capability available in that sector. These discussions between my Department and British Leyland are on an engineer-to-engineer basis. When British Leyland Cars has placed a sub- 1681 stantial contract for machine tools overseas there have been prior discussions with officials in my Department, including qualified engineers, who have been satisfied that there are overriding reasons for the decisions taken.
We are talking about substantial sums of money. Last year, British Leyland spent almost £200 million on capital equipment, an increase of one-third over 1977. An important element in that total will have been expenditure on machine tools. If we examine the purchasing performance of machine tools by British Leyland, we find that over the past three years about three-quarters of British Leyland's orders have been placed in the United Kingdom. United Kingdom industry as a whole in 1977 imported 46 per cent. of its requirements. British Ley- 1682 land therefore had a better overall performance than United Kingdom industry as a whole.
I understand that the policy of Ford and Vauxhall is to secure products from the United Kingdom whenever they can do so. We hope that a very important project, the Ford engine plant at Bridgend, will be a most substantial source of orders for the United Kingdom tool industry. I also want to stress that Chrysler UK purchases—