BIRMETALS FACTORY, NORTHFIELD (Hansard, 8 July 1980)

§ Mr. Jocelyn Cadbury (Birmingham, Northfield)

I asked for the opportunity to debate the closure of the Birmetals 511 factory for three reasons. First, the closure will have a serious effect on the level of unemployment in my constituency. Some 600 employees of the company, who were dismissed last month, are still unable to claim unemployment benefit. Secondly, I hope to highlight the lessons that both management and unions can learn from what went wrong at Birmetals. Thirdly, I believe that the closure of this factory has certain implications for Government policy, and I should like to make some suggestions regarding the Government's industrial strategy.

I think that it would be helpful to my hon. Friend if I gave some of the background which led to the closure of this factory.

Birmetals is part of the Birmid Qualcast Group and until recently employed a total of 900 people in my constituency in the production of aluminium and magnesium alloy components. In recent years the market for aluminium products has been fiercely competitive. Imports of rolled aluminium into the United Kingdom have now reached 40 per cent., and the importing companies, based mainly in Germany and Belgium, have benefited from the appreciation of sterling. In fact, they obtained a 6 per cent. increase in earnings last year without having to negotiate any price rise with their United Kingdom customers. That meant that Birmetals was hardly able to raise its prices at all last year. At the same time the company suffered severe cost inflation. The combination of these two factors squeezed Birmetals in a nut cracker and led to trading losses in the years 1977–78 and 1978–79.

Despite these difficult circumstances, Birmetals planned to break even this year, but it was then that it was hit by the final body blow—a disastrous internal dispute.

In August last year the company negotiated a six-month wage deal worth 12½ per cent. with the understanding that it would talk to the unions again in January this year about a possible supplement. However, during the latter part of last year the economic climate deteriorated so rapidly that the company felt unable to agree to a further wage increase on top of the previous 12½ per cent. But the unions involved, of which the Transport and General Workers Union had the largest membership, insisted on a 20 per cent. increase, which would have meant 512 a cumulative total rise in wage rates of 32½ per cent.

Industrial action followed. The unions blacked about 20 key jobs and that soon brought the factory to a halt. During the subsequent two months the company was forced to lay off the majority of its work force and it accumulated losses of £600,000.

Management at that stage, both in its negotiations with the shop stewards and in letters to the work force, emphasised the disastrous effect that the dispute was having on its cash position. It was highly regrettable that the main union concerned—the TGWU—apparently did not take these warnings seriously and continued to urge the men to back sanctions.

At the end of May the company made a final effort to get the men back to normal working. This failed, and on 12 June the management dismissed those 600 employees on strike on the basis that they had broken their contracts. At the same time the company announced its decision to close the factory and to make most of the remaining employees redundant.

Having listened to both unions and management, I feel that it is unlikely that Birmetals will reconsider its decision to close the factory.

What has been lost by this closure? The damage has been twofold. First, the British-owned aluminium industry has lost one of its two remaining manufacturers. Therefore, the closure represents a serious strategic loss to our industrial base.

Secondly, up to 900 jobs have been lost at a time when the engineering industry in the West Midlands is in serious decline and unemployment in the Birmingham area has risen to 6 per cent. It will be difficult for these people to find new jobs.

I come now to the three specific issues that I want to highlight. The first is that for those employees who were dismissed while in dispute with the company, the consequences have been compounded by the fact that they have been unable to claim unemployment benefit and have received no redundancy payments.

I appreciate that this matter does not lie within the province of my hon. Friend, but I ask him to convey my concern to my right hon. Friends the Secretaries of 513 State for Social Services and for Employment. I learnt only a few hours ago that the regional insurance tribunal, which heard a test case today, has declared that the stoppage of work is still continuing, and therefore the 600 dismissed employees will still not be eligible for unemployment benefit. That is an absurd decision. How can a stoppage continue when the employees concerned have been dismissed, and when, in the eyes of the insurance tribunal, will the stoppage come to an end? This a serious matter for those 600 people, and a rational decision must be made in the near future.

My second main point concerns the lessons that both management and the unions in the Midlands and throughout the country can, and I hope will, learn from what happened at Birmetals. It is difficult and unwise for an outsider to try to apportion blame in an industrial dispute, but it should be made clear that despite all the problems that faced Birmetals, management had no intention of closing the factory until this dispute. It was determined to battle on. It was not the recession, the value of sterling or imports, that killed this factory, though they certainly weakened it. The immediate cause of closure was the industrial dispute.

If there is one major lesson to be learnt from this case, it is that industrial action, whether all-out strikes or blackings by a handful of men, destroys jobs. I am sure that this dispute could have been avoided. It seems incredible that the unions concerned could have taken a decision to bring the factory to a halt when they knew the critical financial position of the company. Management had warned the shop stewards and the men of the company's predicament, yet the unions, particularly the Transport and General Workers Union, chose to ignore the warnings. That was wholly irresponsible. It is vital that union negotiators, in the Midlands and nationally, take note of what happened to Birmetals when they start to bargain in the coming round of wage negotiations. Unions must take account of the commercial circumstances of each individual firm if further tragedies of this nature are to be avoided.

On the other hand, the company and the management could have begun their communications exercise earlier and 514 talked more directly to the employees. If senior management had spoken directly to the men on the shop floor, the message might have got through. From talks that I have had with ex-employees of the company, there seems to have been a widespread lack of understanding of the position by the work force.

The second lesson that can be learnt from this dispute is the need for British management to improve its communications with its work force and to build up confidence among its employees. Then, when the real crisis comes, the work force will be more likely to believe management and show restraint in negotiating wage levels.

I conclude by making certain suggestions to the Government in order to prevent further tragedies such as that at Birmetals. Again, I am aware that some of the suggestions involve Departments other than that of my hon. Friend. The Government must set a better example on public sector pay than they did in their first year of office. There is no doubt that high wage settlements in the public sector have made the task of managers in the private sector—in companies such as Birmetals—more difficult when arguing the case for wage restraint. I believe that the Government have a responsibility there which they must face up to in the coming year.

Secondly, I think that the Government could do more in their battle for wage restraint if they established some kind of independent pay forum. By that, I do not mean a pay board which would recommend norms, but I believe that it should be some sort of body which would point out to both sides of industry the effect on the level of unemployment of settling at different wage levels. In other words, it would point out to people the consequences of their own actions. I think that at present there is a lack of understanding by some union negotiators, and I think that the Government could do more to help in that respect by establishing such a pay forum.

Thirdly, there is the qustion of sterling, because there is no doubt that in the Birmetals case the fact that importers were given what amounted to an increase in their profits without any need to raise their prices had a serious effect on the British-based producers. Besides further reductions in the minimum lending rate, 515 I believe that the Government could take more positive action to reduce the value of sterling. They could do this by imposing controls to discourage capital inflows. This has been done by both the Germans and the Swiss. The latter have had some success in using a two-tier interest rate system, with a negative rate for foreigners depositing funds in Switzerland. That is something at which we in this country should look seriously.

Lastly, I believe that the Government should take action to improve industry's real rate of return, which is now down to a pathetic 2 per cent. The best form of relief for manufacturing industry would be either to reduce or to abolish the national insurance surcharge. This is a thoroughly bad tax imposed by the previous Labour Chancellor. It is simply one more financial burden on industry which is damaging to both employment and exports and which encourages imports.

In conclusion, I think that if the Government took up some of these suggestions the present harsh economic climate for manufacturing industry would to some extent be mitigated, and I think that we would see fewer tragedies such as the closure of Birmetals. I am a firm supporter of the Government's general objective of bringing inflation under control, but, while we must pursue that policy, it is essential that we do not inflict such damage on our manufacturing base that we are unable to take advanatage of the economic upturn when it comes.

The West Midlands is the engine room of this country. We must ensure that the powerhouse survives intact for the future.

§ The Under-Secretary of State for Industry (Mr. David Mitchell)

I congratulate my hon. Friend the Member for Birmingham, Northfield (Mr. Cadbury) on having secured this Adjournment debate and on his tenacity in remaining here until half-past four this morning in order to bring to the attention of the House the very serious effect on employment in his constituency, the loss of some 900 jobs, of the closure of the Birmetals factory.

My hon. Friend referred to the need to draw three lessons from what has happened. I believe that he is right to 516 do that, because here was a company which suffered a serious squeeze on its cash and was caught, as he put it, between the nutcracker of the high pound, high inflation and rising imports—a company weakened by these things but not killed by them—and killed by industrial action, killed by a dispute which dragged on, killed by a claim for a wage settlement which the business could not afford.

My hon. Friend rightly said that the first lesson to be learned was that 900 jobs were lost. They were lost not because of the external difficulties facing the company but because of its internal problems, as regards industrial action.

Secondly, my hon. Friend drew attention to my old trade union, the Transport and General Workers Union. I am surprised and disappointed that it did not recognise the consequence that would flow. A sad lesson can be learned that may save other firms, and save others from losing their jobs.

Thirdly, my hon. Friend drew attention to the management's possible failure to communicate. I was disconcerted to hear my hon. Friend say that things might have been different if the management had gone on to the shop floor. Given British management today, I would have thought that management would have been on the shop floor. If it was not on the shop floor, making its views known, it must carry part of the blame for any communications failure.

My hon. Friend pointed out that as the firm folded up while the dispute was in progress, those on strike at that time have lost any entitlement to unemployment benefit. This is not a matter for the Department of Industry. I shall draw it to the attention of my ministerial colleagues in the Department of Employment. My hon. Friend has highlighted a situation that may easily be repeated. Indeed, it will be repeated throughout the West Midlands and the country if the warning is not taken.

We face a tough year. We are now on the flood-tide of inflation. It was caused some 18 months ago, by lack of control over the money supply. In ordinary English, money was printed. The Government seek to cure inflation, and they have had to embark on a policy of very high interest rates. Consequently, all businesses face acute financial shortages. 517 A high inflation rate means that a business needs more money to achieve the same volume of sales. A high minimum lending rate means that it is expensive to borrow more money. If those factors are coupled, it becomes clear that any business will face severe financial strain.

The pound is strong because we are fortunate enough to have an oil well in our back garden. Any country with an oil well is attractive to foreign currency. There is nothing that we can do about that. It is a blessing that does not have a completely silver lining. It makes it more difficult to sell abroad. It makes it easier for our competitors to sell goods here. Against that background, all businesses will face a tough year. Everyone must be aware of the dangers of the situation, and of the responsibility that lies on those involved in wage negotiations. If more money is given for the same amount of production, or less production, it can only lead to higher production costs, higher prices, less ability to compete, fewer sales and fewer jobs. All parties involved must bear that lesson in mind. There is a responsibility on Ministers to put that message across clearly. There is a responsibility on management to spell it out—on the shop floor, not sitting in their offices above it all. There is a responsibility on management to ensure that those involved in the business know the situation that faces the company, the consequences for jobs if unacceptable wage claims are pressed, 518 and the damage done by strike action to the ability of the business to pay.

There is a responsibility on Ministers, management, workers and those engaged in trade union negotiations. The warning should go out loud and clear from this example, on the basis of the facts presented by my hon. Friend. A wage claim of 20 per cent. was pressed in March 1980. The company said that it could not afford to pay, the workers then blockaded the goods leaving the factory, and five weeks later it was all over.

The results include the loss of British aluminium semi-manufacturing capacity, a loss of potential jobs in the companies supplying the raw materials to the factory, a loss of income for the pensioners and pension funds that had invested in the company, and the loss of 900 jobs. There will be less for everyone—less production for the country, less wealth creation, and less for the people who worked in this business who were so sadly misled into taking industrial action to try to secure wage claims that the firm could not possibly stand.

Sadly I join my hon. Friend in agreeing that it is right for him to have drawn this matter to the attention of the House, but equally I believe that all outside the House should note the lessons to be learnt from this sad tale.