§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Waddington.]1.52 am
§ Mr. John Garrett (Norwich, South)
I wish to raise the question of the condition of the footwear industry, with particular reference to Norwich. The footwear industry is of substantial economic significance in Britain. It consists of some 560 firms employing 74,000 people directly and a further 25,000 in 1398 supplying industries. It had a value of output of £728 million last year.
In spite of being bigger, for example, than the paper industry and the machine tool industry, the footwear industry until recently has received remarkably little attention from the Government or from the House. For years, in spite of a catastrophic decline in employment and severe trading problems, it was rightly called "the forgotten industry". Part of the reason for this neglect may well be its location, principally in country towns outside the great industrial areas—in Norwich, in Northampton, in Leicestershire, in Lancashire and in Somerset. These locations in predominantly non-industrial areas give it an even greater significance in the local economy, because it tends to be situated in low-wage areas. As an industry employing 56 per cent. female labour, it often provides a second, much-needed wage packet.
It is an industry with good labour relations and with a good record for improving labour productivity. As much as anything else, this has been due to the progressive attitude of the officials of the main trade union in the industry, NUFLAT, to whose general president, Mr. H. Comerford, all those who know the industry pay tribute.
The physical output of the industry peaked at 202 million pairs in 1964. Since that time output has declined steadily. In 1979, it fell to 151 million pairs, the lowest annual output since the war. Employment was over 100,000 in the late 1960s. Up to the mid-1970s, the decline in employment in footwear exceeded that of any of the main sectors of manufacturing industry. At least 25,000 jobs have been lost in the past decade. The contraction of the industry in Norwich has been much greater than the national average with a 35 per cent. loss of jobs in the decade. Today, the Norwich industry employs a little over 5,000 workers in 10 firms in 26 factories against an employment of over 8,000 in 1969. The Norwich industry is the fastest declining sector of the fastest declining industry in the country. Between 1971 and 1978, there were 11 factory closures in Norwich. In 1976 factories were closing at the rate of one every two months.
Against this background, a group of Labour Members in 1975 decided that something had to be done. We were concerned that the condition of the industry 1399 was never discussed in the House. We therefore secured an Adjournment debate and demanded action. As a result of this pressure from Labour Members, the Labour Government, to their everlasting credit, acknowledged that the industry needed help and set up a thorough study of the industry that led to the important report of the footwear study group, on which I had the honour to serve, and eventually to a scheme of assistance for the industry in the form of a footwear EDC that has produced its second annual report.
In this short debate, I wish to raise three issues: Government assistance to the industry, the structure and influence of the retail trade and trade matters—namely the uncontrolled flood of imports and obstacles to export. The footwear study group sat for two years and produced a comprehensive analysis of the industry and its problems and a most imaginative prescription for reviving and promoting growth in the industry. To be honest, it found that one of the most important problems of the industry was the weakness of its general management, its export management and design. It therefore proposed a scheme of Government assistance in nine sections, five of which involved the assembly of new management cadres for the industry in these functions. The total cost of the scheme, spread over five years or more, was only £11 million, which the industry would more than match. The cost for the whole industry would be little more than the cost of a modem fighting aircraft.
The Government response was much less imaginative, though welcome. In April 1978 the Secretary of State announced a scheme of financial assistance with an initial allocation—he clearly said an "initial allocation"—of £4.5 million for 50 per cent. of the cost of the use of consultants by small and medium-sized firms, for 25 per cent. of the cost of new machinery and for concessionary loans for rationalisation projects. This scheme was taken up enthusiastically by the industry. The response was the highest of all to such industry-wide schemes. By the end of last year, 329 applications for assistance had been received for projects costing a total of £19 million. Thirty-three applications, of which 21 have been approved, came from Norwich. The initial tranche of £4.5 million will run out at the end of this month and the Govern- 1400 ment have said that it will not be extended.
My first request to the Minister is that the scheme should be extended by further Government funds and developed in new areas such as the areas for development of the industry originally proposed by the footwear study group. This scheme has an exceptionally high cost-benefit ratio. The industry can effectively use a further tranche of Government funds and there is still much modernisation work to be done. In particular, the industry has requested of the Government further assistance for one crucially important but modest project—namely, a scheme to encourage freelance designers into the industry, originally proposed by the study group and now wholeheartedly endorsed by the footwear EDC. This scheme could markedly improve the design capability of the industry and be of particular importance to the fashion end of the trade in Norwich.
On 30 January the Minister attended a meeting of the EDC and refused a request for financial assistance for design. I urge the Government to change their mind and grant this modest but important request. The cost is no more than £½ million over five years—one might say half the cost of a battle tank spread over five years. The impact on the performance of the industry would be out of all proportion to the cost.
When we come to the structure and behaviour of the retail trade, we are on less tangible ground. The issue here centres on the enormous power of the footwear multiple retailers and the way they use that power. Two-thirds of all footwear sales are through specialist footwear shops, and of this two-thirds are through multiples. No less than 20 per cent. of the market is held by one company—the British Shoe Corporation, which totally dominates High Street trading.
The footwear study group was much concerned about this concentration of power. The independent consultants employed by the study group were highly critical of the use made by the British Shoe Corporation of its buying power. They considered that this had a detrimental effect on the manufacturing industry in that it enjoyed very high margins, but it reduced the profits of manufacturers and enfeebled British 1401 design by a policy of copying rather than innovating in design. The consultants proposed that no retail chain should have more than 300 to 400 shops. This would have led to the conclusion that the British Shoe Corporation should be broken up.
The footwear study group could not go so far as to accept that recommendation, although it was sufficiently impressed by the analogies to make a recommendation that a study should be carried out of the feasibility of referring footwear distribution to the Monopolies and Mergers Commission. The most telling aspect for a group which included Conservative Members of Parliament was that the study group suggested that the Government of the day should discuss a planning agreement with all distributors, including the British Shoe Corporation. Just imagine Conservative Members of Parliament signing a report calling for a planning agreement with a large private enterprise!
In June 1978 the Price Commission reported on footwear distribution. It found that in 1977 gross margins in footwear distribution ran at 40 to 53 per cent—the third highest of all retail trades. Net margins for multiples other than the British Shoe Corporation ran at 8 per cent. while the British Shoe Corporation managed a 16 per cent. net margin. The Price Commission concluded that gross margins achieved by footwear distribution multiples had become higher than could be achieved in a fully competitive market. It observed that the BSC was an efficient company and did not deploy its competitive strength in the market to the fullest extent. But it was not asked to comment on the behaviour of the British Shoe Corporation vis-a-vis its suppliers in this country, its purchasing practices or its threat to manufacturers.
One sore point is the extent to which the British Shoe Corporation and other multiples import their products. Today 50 to 60 per cent. of the stock of these multiples is brought from abroad. It was to this problem that the concept of a planning agreement was directed. The Department of Industry did not fancy producing a planning agreement—the civil servants in that Department did not know how to cope with it. The result was the retail commitment produced by the 1402 Footwear Distribtuion Federation in May 1978. This pledged co-operation and support for British manufacturers in an effort to buy British. The EDC now reports disappointment at the extent of progress under the retail commitment. It has certainly not fulfilled its objective in maintaining the volume of home manufactures at the level of 1976.
The position of the multiples in general and the British Shoe Corporation in particular calls for constant pressure and vigilance by the Government. I ask the Minister to make a standing reference to the Monopolies and Mergers Commission of the British Shoe Corporation and to call for an investigation by the Director General of Fair Trading of multiple retailers. If he really believes in limiting the abuse of market powers—this Government always say they are in favour of doing this—let him show us. I suggest that he also talks to the boards of the top two or three multiples in this country about the retail commitment and asks them whether they think that they are behaving in the national interest.
I come finally to the present crisis in the industry. The footwear industry is being ruined by a flood of uncontrolled imports, many of them unfairly priced or produced under substandard working conditions, and also by the loss of exports due to the rising value of the pound. That is partly caused by ours being a petro-currency and partly by the monetarist policies of the present Government and the draconian restrictions in foreign markets. Import penetration of the home market has reached 46 per cent. to a value of £350 million. Increasingly, imports are moving into the higher-quality leather sector.
The case of low-cost COMECON imports is well known. There is a limitation on COMECON imports. However, we limit them to a lesser extent than any other EEC country. The average cost, insurance and freight value for a pair of shoes from Poland and Czechoslovakia is now £3.50. It has risen by only 50p to 96p since 1977. Their costs must have risen as our have.
It is cumbersome to prove dumping from these countries. As in other cases, the process is extremely slow, by means of the Department of Trade and the EEC. Imports from the Far East are produced at low wages and in appalling conditions. 1403 Low-price shoes flood into Britain from Spain, Brazil and Portugal. Much of that trade is at unfair and probably dumped prices. Anti-dumping action is handled with sluggish deliberation by the Department of Trade.
Brazil is notorious for an export subsidy and for rigging its leather export trade. The major problem facing Norwich is that of increasing Italian imports. Last year 32 million pairs of shoes were imported. That is 30 per cent. up on 1978. Those imports occur right in the Norwich sector of high-quality women's fashion shoes.
On 24 February, The Sunday Times reported on the conditions under which Italian shoes are produced. They are produced in a "submerged economy". Home workers do piecework for 25p a shoe. A woman must work all day to earn £100 a month. Home workers have been paralysed by poisonous glue. They are inadequately protected in terms of health and safety. They do not pay social security contributions and neither do their employers. That is a clear example of unfair trading and should be limited.
At present, the Americans are threatening to limit imports of Italian footwear. For some reason, the Italians have already guaranteed that they will not send as much footwear to the United States next year as they did last year. At the end of last year, the Government ended surveillance licensing of footwear imports from some non-EEC countries. They did not consult the industry. Surveillance licensing—for which some of us argued for a long time —was abolished by the Government without any consultation. The British Footwear Manufacturers' Federation protested strongly. Of the world's shoe manufacturing capacity, 75 per cent. is protected from our exports. We have import quotas, for example, in Australia, New Zealand, Canada and Japan. The United Kingdom should also have some protection. The industry is putting its house in order. The EDC has been set up and is doing good work.
In Norwich, the industry produces high-quality footwear with increasingly modern styling. Its management has improved its performance in recent years. It is alert. Its work force is superlatively skilled. The industry simply needs more help. It is no good saying that import controls will cause retaliation from other countries. 1404 Retaliation has already begun.
The previous Labour Government did an enormous amount for the footwear industry. Do the Government consider the industry expendable in the interests of free market, non-interventionist ideology? I hope that the Minister has come prepared with some news of action in the three crucial areas that I have tried to identify.
§ 2.8 am
§ Mr. Michael Morris (Northampton, South)
I am glad that the hon. Member for Norwich, South (Mr. Garrett) has raised an Adjournment debate on the problems facing the footwear industry. Norwich is probably the queen of the women's shoe industry. I hope that he will not think me too boastful if I say that Northampton is the king of the men's shoe industry.
The hon. Gentleman is right to say that the footwear study group was set up on an all-party basis and that it was highly successful. It is also true that it took three years to get it going. My hon. Friend the Under-Secretary has spent only nine months in office. He therefore has some time in hand.
On the multiple side, the hon. Gentleman is right to say that there was a firm commitment from the retail trade to co-operate. If the retail trade is not cooperating—according to our evidence—the Director General of Fair Trading should be informed.
As regards exports, I recognise that there is no doubt that this industry is still unusually skewed towards the former colonies and towards the richer nations of the world.
There are increasing restrictions in Australia, Canada and the United States, which the hon. Member for Norwich, South did not mention, which affect the sale of the sophisticated men's shoes that are made in Northampton. Yet the penetration into Europe is under 2 per cent. So the export of shoes is a major problem for the industry.
Conversely, we have enormous import penetration. As soon as we close one hole, another one appears. We closed the hole made by COMECON in 1975 and now it is Brazil that is carrying out a dumping operation. Who knows which country will be next if we manage to 1405 curtail Brazilian imports?
The Minister must be under no illusions. The footwear industry is important and significant. It has a long record of success in terms of man mangement and productivity. It needs help in organising itself. It may be that the Government will say that the £4.5 million needs to be analysed in terms of its success. If that is what my hon. Friend says, when he carries out his analysis he will discover that the money has been well spent. If necessary, the industry should look again at the other propositions laid down some time ago. Nevertheless, much of what the hon. Member for Norwich, South said deserves my hon. Friend's very serious consideration. I agree with much of what the hon. Member put forward.
§ The Under-Secretary of State for Industry (Mr. David Mitchell)
I begin by congratulating the hon. Member for Norwich, South (Mr. Garrett) on bringing this important matter before the House, even at this somewhat early hour of the morning. I also congratulate my hon. Friend the Member for Northampton, South (Mr. Morris) on his perceptive contribution. He is also intensely interested in the footwear industry. The Government appreciate the importance to the United Kingdom economy of a healthy, viable footwear industry and we are anxious to encourage it.
The hon. Member for Norwich, South listed the size and importance of the industry and I agree that it is an important industry. It is a basic industry and we are anxious to ensure that it continues in a prosperous fashion.
I recently received a delegation from the footwear economic development committee and I visited the Footwear Manufacturers' Federation. I am, therefore, already aware and anxious to study more of the problems currently facing the industry and intend to take a personal interest in it. I expect that from time to time the hon. Member for Norwich, South and I will be able to discuss the industry further.
I appreciate the industry's worries about import penetration, the number of closures and the extent of short-time working. However, I understand that companies in Norwich are less hard- 1406 pressed than other parts of the footwear manufacturing industry. The hon Member for Norwich, South is exceedingly fortunate. As he will know, the Norwich travel-to-work area has a 4.4 per cent. unemployment rate, which is well below the national average of 6 per cent. Indeed, I am told that at present there are about 12 footwear manufacturers in the Norwich area employing about 3,000 people in the manufacture of children's shoes and ladies' quality fashion and comfort footwear.
Trade in Norwich is generally buoyant with almost all companies reporting to us having full or near-full order books for at least the next six months. This contrasts fairly substantially with other parts of the country. Significant business for the companies operating in Norwich has been secured in the EEC markets, but I am under no illusion about the problems facing other parts of the industry. There some 10,000 on short-time working and 2,000 are under notice of dismissal. Those are serious figures for the industry, but, as it happens, less so in Norwich. It causes me substantial concern.
At the invitation of my hon. Friend the Member for Rossendale (Mr. Trippier), I visited a shoe factory in his constituency to see for myself. I intend before long to visit the trade union headquarters.
§ Mr. Michael Morris
The headquarters are in the constituency of my hon. Friend the Member for Wellingborough (Mr. Fry). My hon. Friend will be welcome there, and I hope that he will spend a little time in Northampton discussing our problems.
§ Mr. Mitchell
I am grateful for that invitation. Perhaps we may discuss it in greater depth on another occasion.
The hon. Member for Norwich, South will appreciate that I am concerned about the industry and its problems. He first made a plea for further Government funds for modernisation. There are many applicants from different industries for Government funds. Regretfully, I tell the hon. Gentleman that money is not available for the long queue of industries and individuals seeking support. It is easy for a Government to dole out parcels of money if they merely print more money. We are suffering substantially 1407 from the previous Government resolving their problems in that way. The inevitable consequence is inflation. We are suffering the full flood tide of the printed money madness of the previous Government 18 months ago. It will lead us to levels of inflation of 20 per cent. and possibly 21 per cent. in the next couple of months. We shall not follow that path. We dare not risk the consequences of further money madness.
I am anxious to see modernisation in the industry, and there is a system of 100 per cent. allowances against investment in plant and machinery.
The hon. Gentleman's second point concerns the scheme for financial assistance for freelance design facilities. The hon. Gentleman is right to say that I met the economic development council for the industry. The hon. Gentleman used the phrase "only £½million", as if money grows on trees. It is a substantial sum when all the applications for a little bit here and a little bit there are added up.
§ Mr. John Garrett
I made the point about £½million compared to the size of the industry. Many smaller industries have received much greater subventions. That amount could make a substantial difference to the fashion end of an industry that employs 100,000 people.
§ Mr. Mitchell
I do not disagree. There is a need to raise the standards of design and fashion consciousness in the industry. I dispute that it is necessary to spend £½million of taxpayers' money to enable the industry to do what is in its own interests. In the United Kingdom we already have three freelance design operations. One is in the Northampton area and another in London, if my recollection serves me right. I am discussing with the EDC small practical plans to try to encourage more people to operate in that area.
Let us be clear about the fact that much of the design work is carried out by people who work for firms in the industry. Much of the work is concerned with going to fashion exhibitions and looking at the most advanced designs. The themes are picked up and then repeated in varying forms within the firm or the design capability in this country. I shall certainly look further at that point with representatives of the industry.
1408 The third point raised by the hon. Gentleman concerned the concentration of High Street retailing in the multiples. He named a particular company. This is a matter for the Department of Trade but I will make sure that its attention is drawn to the point made by the hon. Gentleman. He also referred to unfair imports and the draconian barriers to exports, as did my hon. Friend the Member for Northampton, South. I am bound to say that I am enormously impressed by the determination of the industry to succeed. I agree with the hon. Gentleman that the industry starts from the sound base of good industrial relations. That is one of the reasons why I plan to visit the trade union at its headquarters before very long. I have already visited the main trade association, which is an effective organisation. The EDC in its 1980 conference programme has emphasised design and the importance of technology.
I turn to the points about imports and the problem of closed overseas markets. I want to mention at the same time the growing opportunities for sales into Europe. I am pleased to see the increase that has already taken place in sales into Europe, but I have to say that they now account for 1.3 per cent. only of the European market. However, I hope that it may be possible for the industry to build on the expansion it has already achieved in that market.
I would draw the attention of the hon. Gentleman to the clothing industry. Last week I attended the launching of the first report of the clothing industry's resources agency. The agency did a survey of 23 English companies and one German company. Its report reveals some interesting facts about the capability of a major industry—with problems not dissimilar from the boot and shoe industry—for improving its own productivity, competitiveness and ability to export without Government aid.
§ The Question having been proposed after Ten o'clock on Tuesday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
§ Adjourned at twenty-two minutes past Two o'clock.