HC Deb 06 November 2003 vol 412 cc999-1008

Motion made, and Question proposed, That this House do now adjourn.—[Jim Fitzpatrick.]

4.28 pm
Mr. Bob Laxton (Derby, North)

II am grateful for the opportunity to bring before the House a matter of vital importance to my constituents and to others in adjoining constituencies in Derbyshire.

Derby has been at the centre of train manufacturing for 163 years. It is a long and proud tradition. Its economic growth has been due in part to its location in the middle of England and to the strategic importance that that gave it in a country that was building trains as it raced into the age of industrialisation.

According to Brian Radford, a local historian and writer in Derby, from 1839 to the 1960s, most trains had to go through Derby to go from the south to the northeast or Scotland. That served only to convince me as I grew up in Derby that Derby truly was the centre of the universe.

Since the 1960s, when the manufacture of locomotives moved to Crewe, and later, when privatisation saw the growth of intense international competition, Derby has seen a slow decline in its railway fortunes. Following the closure of Alstom's site in Washwood Heath in Birmingham, Bombardier in Derby is now the only train manufacturing company left in the UK.

In July, the Strategic Rail Authority gave the TransPennine franchise to FGK, a consortium consisting of First Group, a British company, and Kelios, a French company. For eight years from 2004, FGK will run trains from Hull, Leeds, Durham and Sheffield to Manchester, Liverpool and Lancaster. Siemens and Bombardier came forward when FGK announced that it was accepting bids to supply the new franchise with 56 new diesel-electric trains. Siemens won the bid, which was a severe blow to Bombardier and train manufacturing in the UK. The bid was worth £200 million—more if a maintenance and logistical contract is included for the full 30-year life of the trains. Although Bombardier won an order worth £3.4 billion from London Underground in April, it will not start working on that 15-year contract until 2008, leaving a gap of about three years in its order book, from the end of 2004 to 2008.

To put that in perspective, when Alstom closed its Birmingham site in the summer, it had an order-book gap of six months. What chance does Bombardier stand with an order-book gap of 36 months? It has already said that it intends to review its European operations, and a gap in its order book could put Derby at the top of the list of sites for closure. It employs 1,800 people at its Litchurch lane plant in Derby. Moreover, it sources 80 per cent. of its manpower and materials in the UK, payment for which amounts to £450 million. A sum of £30 million is spent on its wage bill, while £50 million goes to suppliers within a 30-mile radius of Derby. Ten thousand people in the supply chain could be affected by closure of the site.

By contrast, the winning Siemens bid will result in the shell for British trains being created in the Czech Republic and the fittings being manufactured in Germany. My right hon. Friend the Minister for Industry and the Regions has not yet visited Bombardier, but if she speaks to our hon. Friend the Minister of State, Department for Transport, who visited Derby in September, she would learn about the depth of feeling, both in Derby and well beyond, about a possible closure. I thank my local newspaper, the Derby Evening Telegraph, for the excellent and energetic campaign that it ran over the summer against the possible job losses at Bombardier.

That campaign was supported by more than 3,000 individuals, including people across the UK, in Argyll, Cumbria, Newcastle, and all over the world, in Australia, Vancouver in Canada, Michigan in the USA and, closer to home, Brittany in France. This is not just another loss of manufacturing jobs and Bombardier is not just another company manufacturing an obsolete product in an obsolete fashion. It is a high-quality company with highly skilled workers who are manufacturing something that I am certain the Government do not view as an obsolete mode of transport.

Laura Moffatt (Crawley)

I am grateful for an opportunity to contribute to this important debate. My hon. Friend knows that I went to Derby as a member of the Industry and Parliament Trust, and that we visited the Bombardier operation with the Go-Ahead Group to look at the way in which trains are manufactured. I was shocked at the excellence and cleanliness of Bombardier's fantastic operation and the way in which it attracted women into a heavy-engineering business. The loss of such an operation will be felt not just in his constituency but much further afield.

Mr. Laxton

I thank my hon. Friend for her intervention. No one could fail to be impressed by Bombardier's operation in the city of Derby. I well remember visiting the old loco and carriage-side works as a young person, and left feeling that I needed a scrub down, given all the oil, swarf and so on. Bombardier is a high-tech company—one feels that one could almost eat one's food off the floor. Manufacturing processes have been completely revolutionised over the years.

I have already mentioned that UK suppliers would be badly hit if Bombardier ceased manufacturing at the Litchurch lane site in Derby. A number of those suppliers are based in Derby. AVE Rail is based at the Bombardier site itself, and rents its building from the company, which seems logical as it sends 50 per cent. of its production to the Bombardier factory next door. AVE employs 160 people, and its work with Bombardier brings in £8 million a year.

Time 24 is a company that won the Derbyshire business of the year award in 2000. It manufactures the heating, lighting and air conditioning parts of Bombardier's trains. It employs just under 200 people, and 75 per cent. of its output goes to Bombardier. The impact of Bombardier's closure would ruin small and medium-sized companies, such as AVE Rail and Time 24, around the UK.

The Government have sought to tackle the chronic lack of investment in the railways dating back to the 1970s. The haphazard manner in which the railways were privatised did not help. However, many engineering companies that traditionally worked hand in hand with British Rail, and later with the privatised franchises, have survived well.

After the devastating decision by FGK to grant the order to Siemens, I received a letter from a Mr. A. J. Hough, the managing director of Engments, a Derby-based engineering company. He said that his company had "toughed out" the period after privatisation, when virtually no orders were placed, secure in the knowledge that the industry was in the position where new trains were desperately needed, and that new orders would be placed once the industry settled down after privatisation and establishment of the new Rail Franchises". He went on to say that although the period of inactivity was extremely painful, we felt reasonably assured of a long term future". The loss of up to 1,800 jobs at Bombardier is bad enough, but we could also be talking about up to 12,000 additional jobs in the supply chain if we consider the domino effect of the additional closure at Bombardier.

What is even more scandalous is that FGK has won the TransPennine franchise for only seven years. Beyond that, there is no guarantee that it will run the service. However, the Government, using British taxpayers' money, will have to underwrite—that is, guarantee—the purchase of rolling stock. A Department for Transport spokesperson, commenting on the decision by FGK to grant the contract to Siemens, said that the decision was "wholly" that of FGK. Indeed, my hon. Friend the Minister of State, Department for Transport, said in a letter that it is not the Strategic Rail Authority's business to influence bidders over the choice of suppliers or subcontractors". That position has also been taken publicly by the head of the SRA. Richard Bowker.

If the long-term risk of the venture lies with the Government, should not they have a say in the decision on the bid? Why should the British taxpayer subsidise jobs at a Siemens plant in Germany, for example? That has already begun to happen. Soon after receiving a contract for work with London Underground, Alstom pulled out of the UK. If Bombardier closes its Derby site, all future orders for UK trains and underground trains will be manufactured by companies outside the UK.

Following the Bible of free-market economics and the law of comparative advantage only goes so far in improving the living standards of the British people. What is the true financial cost of Bombardier leaving? It is more than the value of the contract that we are losing and the consequent effects on the balance of payments. How many people will have to depend on benefits after leaving Bombardier? We all know from the Thatcher years that the social cost of unemployment is devastating, and we are still dealing with the effects of long-term unemployment 24 years after Mrs. Thatcher was elected. We need to take a hard look at how we go about allocating our railway franchises, and, subsequently, at how the companies that receive those franchises operate.

Mr. Mark Todd (South Derbyshire)

Has my hon. Friend looked at how rail operators on the continent choose to manage their procurements? He may have seen examples of much tighter regulation that ensures that much of the work in replacement vehicles goes to local manufacturers.

Mr. Laxton

I thank my hon. Friend. I shall come to that issue, which has been a particular interest of mine, later in my speech. For sure, some of the comments are anecdotal, but they give a good flavour of the differences between our procurement procedures and those of some other European countries.

It is fair to say that we play by the rules that the European Union has set, but do all countries do the same? Let me give an example. The Derby Evening Telegraph sent one of its reporters out to Crespin in France, where Bombardier has a site. A Monsieur Louadoudi, who worked on the site, expressed horror that the UK Government could let trains that were to be used in England be built in another country and expressed fears that something similar to what happened to Bombardier could happen in Crespin. That seems unlikely, however, because France, Germany, Italy and Austria all stipulate that at least 60 per cent. of their trains must be made within their national borders. That explains why Bombardier has sites not only in France, but in Germany, Austria, Switzerland and Sweden. None of the Governments of those countries would consider buying their trains from a company that intended to use foreign suppliers.

My local newspaper, the Derby Evening Telegraph, quoted me as saying that the UK plays cricket while our competitors play karate. Admittedly, that was an unfortunate slur on a Japanese art form that has rules as stringent, if not as strange, as those of cricket. What I am saying, though, is that other European Governments do not hesitate to muscle in if they see the need to protect their core infrastructure and industries. I am not advocating that the Government subsidise Bombardier—Bombardier has made it clear that it does not expect a subsidy— and I am certainly not advocating that the Government do as the French have, and buy a share in a company such as Alstom simply to sustain financially its manufacturing in France. I am advocating that the Government take a more active approach in ensuring that the UK maintains an industrial base.

Train operating companies in the UK do not have to think twice if the train that they have commissioned to be used by a UK passenger is manufactured in Derby or in, say, Bruges. Someone who works in the railway industry told me that when train companies made bids in countries such as France and Germany, the Governments of those countries repeatedly stressed to them that they should use local suppliers. I hope that the Government will seriously consider doing the same.

Train manufacturing is not simply a part of Derby's past—it is part of the UK's future. There is little point in investing additional money into raising the standards of vocational engineering courses and encouraging more students to take up this shortage occupation at degree level if we insist on exporting their jobs to other European countries.

It is well recognised that labour laws in the UK are more flexible than those of our continental European cousins. If the Government do not seek to tie the hands of international companies with inflexible labour laws, we should, for the sake of future generations, tie their hands in a different way. An international company that is granted a franchise should be made to carry out at least 50 per cent. or, better, 60 per cent. of its production within the UK. In its time, FGK has given two contracts to UK-based firms and two to overseas firms. As a Bombardier spokesperson said, It is now obvious that firms do not have to be based in the UK to win UK orders". From Bombardier's point of view, there are a number of actions that it could take to save the Derby plant. It could delay the order placed by Govia, part of the southeast franchise, to reduce the gap in its order book—but it would be penalised contractually for doing so, and that would hit it hard financially. It could seek to bring forward its order to start the production of new London Underground trains that is due to start in 2008, but that would mean that completed trains would sit around idle without Bombardier receiving payment for them. Again, that would financially penalise the company; and the question would arise of what work Bombardier would have from 2008 to replace the London Underground slot.

Bombardier could look to its European network to transfer any excess work from a European site to Derby. That was done in the past at its Wakefield site, which had such a tight deadline for meeting an order from Virgin Cross Country that work was moved to Bombardier in Belgium and France. Colin Walton, Bombardier's vice-president of sales, mentioned that possibility. However, in view of a more recent briefing by the company, I understand that it is a remote possibility as there are other Bombardier sites in Europe with gaps in their order books.

Mr. Patrick McLoughlin (West Derbyshire)

I congratulate the hon. Gentleman on raising this issue which, as he rightly said, is causing great concern in his constituency and throughout the southern part of the county. Does he agree that as the days go by, uncertainty about when decisions will be taken is causing increasing concern? Members on both sides would like to ask the Minister to say to the company that it should let people know what is going on. The hon. Gentleman made several points that would answer some of the problems that are perceived as a serious threat. I agree with him that we must put pressure on the company to come to a conclusion and show those who have worked loyally for it that there is a bright future.

Mr. Laxton

I thank the hon. Member for West Derbyshire (Mr. McLoughlin). I understand that it is soon to become Derbyshire Dales, and not before time. I agree with him entirely. The situation is not being helped by the fact that the chief operating officer of Bombardier is constantly being quoted about overcapacity in Europe and is actively looking at the closure of sites in Germany and the United Kingdom. All that adds to uncertainty about what will happen, whether the gap will be plugged and whether the work force will have jobs. To be absolutely fair to the work force, from talking to trade unions it seems that they perhaps take the view, "We have been here before and survived." They seem reasonably buoyant, but as time goes by they are bound to get stressed out from all the doubt and indecision.

Can the Minister give us an indication of what help the Government can give Bombardier? Will they help it look for work from Scotland, Ireland and other parts of the world? Bombardier is a world-class company with a world-class work force in Derby. I hope that the Government recognise that and will offer some help, perhaps in the form of export guarantees to assist Bombardier win work from abroad or bringing forward orders to replace the high-speed 125 train.

As the hon. Gentleman said, uncertainty is the real difficulty. It is problematic for the work force. Close to 14,000 jobs are at stake. After 163 years of train manufacturing in Derby, is it going to disappear and will there no longer be a train manufacturing or assembly site anywhere in the United Kingdom? Will all future orders for British Rail and the underground network have to be sourced and built outside the United Kingdom? Surely not.

4.48 pm
The Minister for Industry and the Regions (Jacqui Smith)

I congratulate my hon. Friend the Member for Derby, North (Mr. Laxton) on securing this debate, doing a good job representing Bombardier and its work force in this House and working hard to convince us that Derby is the centre of the world. As I am outnumbered in the Chamber, I will concentrate on Bombardier as opposed to the first part of his speech.

I am aware of reports in the media suggesting that Bombardier is looking at closures in Germany and the United Kingdom. I can assure the House that my officials are in regular contact with Bombardier's senior management team in the United Kingdom. Recently, I met my hon. Friend the Minister of State, Department for Transport, who has visited Bombardier. I have not yet had the opportunity to visit it, but I have been fortunate to visit manufacturing companies in Derby, which I consider to be important. In discussions with my hon. Friend, I was able to discuss the situation at Bombardier and wider issues concerning rolling stock procurement—issues that we both take extremely seriously.

The most recent announcement from Bombardier was made on 7 October, and while I fully understand local concerns about the future of the Derby plant the—hon. Member for West Derbyshire (Mr. McLoughlin) made a very fair point in that regard—it might be useful to recap on what the company has actually said, against a background of the general over-capacity in the rolling stock sector in Europe. Paul Tellier, Bombardier's Canadian chief executive, said that the company needed to cut its overheads in Europe to remain competitive. It has started an audit of its sites, and consolidation to remove excess capacity is expected quite soon, possibly starting in the new year. He has mentioned plants in Germany and the UK. However, until that review is completed, there will be no further comment from the company.

I fully appreciate that, as my hon. Friend the Member for Derby, North has said, this will be a cause for some anxiety in Derby, but there has been no suggestion at this stage that the Derby plant will be closed. It would therefore be premature to talk about major job losses in the rail supply chain. I strongly agree with my hon. Friend, however, that the UK needs high-tech, high- value, high-skill manufacturers such as Bombardier. I very much hope that Bombardier and companies like it will form the backbone of the future of manufacturing industry in this country, not least for some of the reasons outlined by my hon. Friend the Member for Crawley (Laura Moffatt).

My hon. Friend the Member for Derby, North pushes us on the position with regard to train manufacture, and I hope that I can reassure him that the Government want train manufacturing in the UK to have a strong future. I would certainly not wish to see the end of train-making in this country, and, as my hon. Friend has ably pointed out, continued production at the Derby site is hugely important to the locality, the industry and the supply chain. Furthermore, the company is a major inward investor in the UK, with more than 5,000 people employed in its rail business. When it acquired the Adtranz train building operation in 2001, it quickly resolved inherited problems and made an excellent job of turning round the company. It is making a significant contribution to improved efficiency and standards in the UK rail network.

My hon. Friend raised the issue of the TransPennine express order, and I understand that it will have come as a disappointment to Bombardier, and to the work force and unions, that it did not win the order for those trains. There is strong competition for all rolling stock orders, particularly in the light of the over-capacity in Europe at the moment. Procurement decisions are for the train operators, not for Ministers, but I know that the loss of that order has understandably led to a great deal of concern in the Derby area. That is why, at the request of my hon. Friend the Member for Derby, North, my hon. Friend the Minister of State, Department for Transport has reviewed the award of that contract. He was satisfied that fair and open competition had been conducted, and that the decision on manufacture would deliver the desired value for money required by the Strategic Rail Authority. In spite of the setback, Bombardier has an excellent track record and a highly skilled work force, and I look forward to it winning further orders.

The Derby plant is currently embarking on an 18-month period of unprecedented production volumes. It is taking on staff to cope with the increased output needed to deliver a large order of new Electrostar trains next year to replace slam-door trains in London and the south-east. I know that Bombardier has also won contracts for Nottingham trams and large orders for London Underground, to be delivered from 2008 onwards. This is a tribute to Bombardier's management and its work force. As my hon. Friend has pointed out, however, the Derby site has a gap in its order book between 2005 and 2007, and we need to put that into context.

The company is currently doing well. Nevertheless, I fully understand local concerns. I am aware of Bombardier's importance to the Derby area. It is a major employer providing valuable skilled jobs, including, as my hon. Friend said, jobs in the rail supply chain. I also know that Bombardier's management is actively trying to plug the gap, and is investigating the scope for rescheduling existing orders. The company is a major player, highly successful and well managed, and more than capable of winning further contracts.

My hon. Friend mentioned support for exports, and I shall say something about that shortly. He also raised the issue of rescheduling. Although, as he said, considerable difficulties are involved, I am sure that sensible proposals from the company would be considered, although I make no commitments.

It has been suggested, although not, I think, by my hon. Friend today, that the problems of Bombardier and all UK train manufacturers are caused by our failure to invest in the industry. That is not true: rail investment is running at unprecedented levels. Between 2000 and 2010, there will be £33 billion of direct investment. By 2005, the Government will be spending twice as much on rail as we did in 2001. This year we are spending £73 million a week on improving the railways, and bringing in a similar amount from the private sector.

Rolling stock is getting its fair share of that money. We are in the middle of the biggest rolling-stock replacement programme ever seen in this country: some 40 per cent. is being replaced between 2000 and 2005. Since 1997 there have been 41 rolling-stock orders, representing nearly 4,500 vehicles. It is certainly not true that all the business has been going abroad, although I will deal later with some of my hon. Friend's worries in that regard. No fewer than 35 of those 41 orders have been won by UK-based companies, which means that three quarters of all vehicles ordered since 1997 have been built here. Bombardier has been much the most successful single firm, having won 28 orders and built nearly 2,500 vehicles—more than twice as many as its nearest rivals.

My hon. Friend is worried about the scope for ensuring that UK investment benefits UK industry, but the answer cannot be insisting that rolling stock for use in the UK must be built here. Naturally people ask why we should insist that contracts go to UK manufacturers if taxpayers' money is used to buy the trains, whether directly or through the subsidies paid to train operators. The Government have a role in ensuring that there is a full and fair procurement process, but they cannot dictate where orders are placed or where vehicles are manufactured. The placing of orders is a matter for the train operators, and in many cases European Union procurement rules mean that orders cannot simply be directed to UK builders. Of course we want to see UK companies winning UK orders, but we also have a responsibility to taxpayers and fare-paying passengers to ensure that we get the best possible value for money when investing in new rolling stock.

Competitive bids are the best way of guaranteeing that. Artificially restricting the number of firms allowed to bid is a sure way of driving costs up and getting poor value for money. It has been suggested, however, that even if we insist on awarding our own contracts fairly, the procedure may not always be followed so scrupulously elsewhere. That point was made by my hon. Friend the Member for South Derbyshire (Mr. Todd), and the trade unions have raised it as well. We are taking it very seriously. The Department for Transport and the Department of Trade and Industry are to look into the award of rolling-stock contracts in other EU states over the past seven years to establish whether a clear pattern can be identified. It is crucial that there be a level playing field across Europe.

As I have already pointed out, most trains bought by British train operating companies in recent years have been built in Britain, but this is an area that warrants further investigation. The Chancellor announced in his recent speech at Bournemouth that the Government would review UK businesses' experiences, good and bad, of competing for public procurement contracts in other EU countries—

Mr. McLoughlin

The Minister has just made an important announcement. Can she give us any idea how long that inquiry will take, and when she expects the inquiry involving both the Department of Trade and Industry and the Department for Transport to report?

Jacqui Smith

I cannot give an undertaking now about how long the inquiry will take because, as hon. Members have already pointed out, part of what we are talking about is people's feelings about the process. We want to try to identify where the evidence is, and decide what that evidence suggests to us.

As I was saying, the Chancellor said that the Government would review UK businesses' experiences, good and bad, of competing for public procurement contracts in other EU countries. That will include their concerns about unfair application of rules, different approaches to the application of the single market and international rules on public procurement, and the impact that those have on contract opportunities for British manufacturers and their workers. The Chancellor will announce details of the review later in the year.

From the success that Bombardier has enjoyed in recent years, I am convinced that its staff and management are well able to secure orders provided that they can compete fairly for them, and I am clear that ensuring that it can do so will prove a more effective way of securing the firm's future than seeking to skew the system artificially in its favour.

My hon. Friend the Member for Derby, North also touched on a broader issue of public procurement. The award of rolling stock contracts is, as I have said, a commercial matter for transport network providers, but the Government have a role in ensuring that an open and competitive procurement process occurs, while not prescribing where orders should be placed or stock manufactured.

We are keen to find ways of improving the way in which public procurement processes operate in this country, so that our manufacturing companies have the best possible opportunity to compete for business while delivering the best possible value for the taxpayer. That is why my right hon. Friend the Secretary of State for Trade and Industry hosted an event on 3 September that brought together representatives of manufacturing business, trade unions and Government to discuss practical steps that we can take to achieve that.

That event, in which Bombardier participated, explored a range of issues that could help business to respond effectively to public procurement needs—for example, through better forward planning, greater transparency and increased professionalism in procurement and innovation. The Department of Trade and Industry is working with the Treasury and the Office of Government Commerce to ensure that the themes that came out of that event are used to inform the work that the OGC is taking forward in formulating an action plan for improving public procurement.

Rail procurement by private sector operators was not a specific focus of the event, but I am sure that the lessons to be learned are equally applicable to private and public sector procurement.

My hon. Friend asked about support for the company with regard to exports. UK trade and investment officials stand ready to provide help and advice, and are already in regular contact with Bombardier UK at the highest level. Indeed, Bombardier serves on UK Trade and Investment's rail sector advisory group, which helps to formulate UK Government export strategy, particularly in delivering Government support where the UK rail industry believes we can add value to its efforts in pursuing international business. I hope that, not only through that contribution but through the support that we can provide, that will help with those important export opportunities that my hon. Friend highlighted.

I welcome my hon. Friend's raising this issue, which, as he and others have pointed out, is clearly of importance to the company and its Derby work force. I have given, I hope, some sign of Government support and action, and some reassurance about the current status of decision making, but that does not mean that there is any room for complacency. I shall certainly monitor the situation closely, and my officials will continue to work with the company on its future strategy.

I must applaud the efforts of my hon. Friend, who is not only acting as a very important ambassador for the company and its work force, but talking to leading figures in the rail industry supply chain to try to help the company win further orders. That is practical and important work, and I can assure my hon. Friend of the Government's support in trying to find a way to achieve what we all want to see, which is the continuing efficient production of trains in his Derby constituency.

Question put and agreed to.

Adjourned accordingly at five minutes past Five o'clock.