HL Deb 25 April 2001 vol 625 cc239-50

5.28 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, with the leave of the House, I shall repeat in the form of a Statement the response made to a Private Notice Question in another place by my right honourable friend Stephen Byers. The Statement relates to redundancies announced yesterday by Motorola and reads as follows:

"I know that the honourable Member will share with me and I think most Members of the House the feelings of regret and disappointment caused by Motorola's decision to close its plant at Easter Inch in Bathgate. This is a bitter blow for hard working people and their families.

"In considering our response to this announcement we need to be aware of the reasons for Motorola's decision and the steps that will need to be taken to help those individuals affected and the communities in which they live.

"There is no doubt that Motorola is facing a difficult position with the sharp downturn in the market for mobile telephones and this was the reason given for yesterday's decision. As a consequence of this global decline, Motorola announced trading losses of £140 million for the first quarter of this year.

"The closure of the Easter Inch factory is part of the wider rationalisation of global production capacity by Motorola's Personal Communications Sector—that is, the mobile phones division of Motorola.

"Since December Motorola has announced plans worldwide to cut 12,000 jobs from this sector alone. It is closing two plants in the United States and cutting its workforce in Brazil. In Europe, Motorola has sold its Dublin facility, with a major loss of jobs.

"The Scottish Executive has been in constant contact over the past few weeks with Motorola, both in the UK and in the United States. The UK Government have backed the Scottish Executive's efforts. The Prime Minister, the Chancellor of the Exchequer, the Foreign Secretary and I have all made representations to Motorola.

"In the end Motorola took a decision that it believed to be in the long-term commercial interests of the company, but there is no doubt that this will be an extremely difficult time for all those affected by the announcement. It is a devastating blow for the individuals and the families of all those involved and for the whole community.

"The first priority must be to pursue with Motorola future options for the Bathgate site. We need to explore every possible future use of this excellent facility. There are a variety of options to explore with the company. One is its sale as a going concern, including to a contract manufacturer of mobile phones or to another related business. The other alternatives include new employment for a new employer purchasing the site. Invest UK stands ready to assist the Scottish Executive in that task.

"In order to assist the individuals affected, the Scottish Executive is setting-up a task force with Scottish Enterprise Edinburgh and Lothian, the Employment Service, West Lothian Council, the Careers Service, the Benefits Agency and the Scottish TUC.

"The task force will draw up an action plan to meet the needs of the Motorola workers. Subject to the agreement of Motorola, it is likely to include an on-site job shop, business start-up workshops and other support to help people to find jobs. The task force has already been set up and begun its work to give those individuals the help that they need. The action plan will meet the details and the needs of those individuals. The Scottish Executive is setting aside up to £10 million to help fund the action plan.

"It has been made clear to Motorola that it will now have to pay back the £16.75 million in regional selective assistance that it has received for the Bathgate plant over the past six years. This will be the largest clawback ever of RSA grant in Scotland.

"Although the Bathgate decision is a real body-blow, we must not forget that Motorola will remain a major employer—and the largest electronic manufacturer—in Scotland. The company has given assurances that its semiconductor operations at East Kilbride and South Queensferry are unaffected by yesterday's decision. We welcome that. Motorola remains committed to a software development centre at Livingston and to the planned next generation of semiconductor technology in Dunfermline. Despite the decision towards the end of last year to reconsider the timing of the project at Dunfermline, Motorola has emphasised its underlying commitment to it.

"We expect that workers from Bathgate will have the opportunity to retrain and apply for those new jobs being created by Motorola. The company has confirmed that it looks forward to building on its 32-year association with Scotland and sees the Dunfermline site as the cornerstone of its future investment.

"It is clear that at a time of globalisation many sectors of industry are going through major restructuring and that there are bound to be implications due to the slowdown in the world economy, particularly in the USA. We should not overstate our difficulties. Most forecasters expect manufacturing output to grow this year. The medium-term prospects appear good, with productivity having grown at 6 per cent. Exports are also growing, with manufacturers' export volumes up by more than 10 per cent in the past year.

"No country can ever insulate itself from world economic events. However, because of the decisive action that we have taken—introducing tough fiscal rules, reducing the national debt, making the Bank of England independent and delivering the lowest inflation for 30 years—British economic policy is much better placed than it has been in the past. We are on course to continue to deliver stability and sustained growth.

"It is an extremely difficult time for individuals and communities when jobs are lost as industries restructure in the face of change. It is even more frustrating, as in this case, when such losses arise because of global managerial decisions based on financial problems in one sector despite the success and profits coming from the plant that is earmarked for closure. This will be a difficult time for all those who will lose their jobs as a result of this announcement. The Bathgate workforce are productive and highly skilled. I know that, working with local and national agencies, the Scottish Executive and the UK Government will do all that we can to assist them to find new employment.

"The closure of Easter Inch will take place over a period of six to 12 months. Motorola, the Scottish Executive, the Employment Service and this Government will work together to ensure that employees are found new employment before redundancy takes effect.

"Bathgate has suffered from job losses before. In the 1980s, unemployment reached 17 per cent. Through hard work and commitment, the situation has been turned around. As a result, the current rate of unemployment in West Lothian stands at 3.8 per cent. That is a great success story. However, I am the first to acknowledge that those figures will be of little comfort to the workers affected by this announcement. Many in this House will understand the anger and frustration that they feel. We must do all that we can to help them through the difficult months ahead. By working together with the Scottish Executive, I am confident that we will be able to meet the challenges that lie ahead and as a result offer real hope for the future to those affected by Motorola's announcement".

5.36 p.m.

Baroness Miller of Hendon

My Lords, I thank the Minister for repeating the Statement made in answer to a Private Notice Question in the other place, although I was surprised that the issue has been dealt with here, because I thought that employment was a devolved matter. I gave the Minister notice of that point. Perhaps he can clarify it for me, because nobody else seems to know the reason.

The situation is a great tragedy for all the 3,100 employees who will lose their jobs. It is a tragedy for their families and for everyone in Bathgate, in Scotland and in the United Kingdom. It is particularly sad that a new industry that was so warmly welcomed in the hope that it would replace the employment in coal, steel and shipbuilding that had been lost has ended in this way.

I say at the outset that we welcome the efforts that the Minister has mentioned to try to alleviate the situation and find alternative employment for the workers and an alternative use for the factory, wit h the setting up of the task force and the combined work with all the agencies. We wish all those efforts well.

However, one good thing that might come out of this is that the situation should bring vividly to the attention of the Government their role in the severe problems that seem to have beset our manufacturing industry in the past four years. Some 350,000 jobs have been lost in manufacturing. High taxes and the enormous burden of regulation have taken their toll. Today's press release from the CBI points out the trend of future loss of orders. I was interested to hear the Minister saying that many sources predicted strong growth. I hope that that is correct, but it is not what today's CBI press release said.

The emergency interventions by the Prime Minister, the Chancellor, the Foreign Secretary and the Secretary of State for Trade and Industry are all very well, but Motorola will not have a change of heart unless it is in the company's commercial interests to remain at Bathgate. The announcement that the company lost 200 million dollars, or £140 million, in the first three months of this year tells its own story. Intervention, however well intentioned, cannot combat the harm done to manufacturing industry by over-regulation. That point was made by Corus after a similar intervention only a short while ago.

Apart from the general difficulties in manufacturing industry, Motorola faces a downturn in the market for mobile telephones. The same effect has been felt by Ericsson recently. As the Chancellor has said—and as I am sure that the Government will continue to say—we cannot remain unscathed by the global turndown. But at these very times it is absolutely necessary for the United Kingdom to remain competitive. Indeed, that issue was highlighted in the Statement, which said that the Government believe that, thanks to their policies, they may avoid the worst scenario. We certainly hope so.

However, confidence should be tempered with a hint of caution. While, on the one hand, the IMF—in a leaked report, I believe—predicts that the British economy will grow by 2.6 per cent this year, on the other hand, the highly respected Item Club predicts that it could fall as low as 1 per cent both this year and next. And what has happened to our manufacturing industry is a warning of which we should take notice.

The honourable Member for the West Lothian area mentioned in his speech in the other place a little earlier today that Motorola has been an exemplary employer, having had a 32-year commitment to Scotland. I managed to catch his words only at the last moment as I rushed into the Chamber for the aborted Statement. However, I believe that he said that the company had provided 20,000 quality hours of employment in Scotland and that it was a model employer, having spent much time and effort on training its workforce. I certainly hope that that will prove beneficial to those who have lost their jobs and that it will help them to find employment in the future. I simply make the point that I do not believe that we can lay the matter at the door of the employer; it is an issue which concerns the general scene surrounding the company.

Perhaps I may ask the Minister just four questions in addition to the earlier one on which I have already touched. My first question is: has the slow roll-out of the GPRS (the general packet radio service) by the mobile phone operators been a significant reason why Motorola has incurred so many job losses? Secondly, is the reason why the mobile phone companies are not able to afford the infrastructure the £22.5 billion that was taken from them in the government spectrum auctions?

Thirdly, perhaps I may ask whether the slow take-up of the GPRS and WAP (wireless access protocol) is an indication that people will not want the services provided by third generation mobiles. Lastly—I am sure that the noble Lord will be pleased that this is my last question—does that mean that the 3,000 job losses at Motorola are only the tip of the iceberg which could sink the United Kingdom as the best place to do e-business?

5.42 p.m.

Lord Newby

My Lords, from these Benches we, too, welcome the Minister's repetition of the Statement in this House. As did the Minister and the Opposition spokesman, we also wish to express our sympathy to the workers at the Motorola plant, many of whom have already been made redundant once and, in some cases, twice. Clearly, for them this is a terrible blow.

We obviously agree with the Government that at this stage it is crucially important that all the agencies involved at national level—the Scottish Executive—and at local level in Lothian work very hard to examine the job opportunities that may be available. However, I believe that it is worth pausing to reflect that the rate of unemployment in Lothian is 3.8 per cent. If many of us who grew up learning economics in the 1960s and 1970s had been asked what was the rate of unemployment in Lothian, we should have been more likely to say 13 per cent or, possibly in some places, 30 per cent rather than 3.8 per cent.

The economy in that part of Scotland has been extremely buoyant. That is, of course, one reason why there is now cause to revise the Barnett formula. However, in this case we are not talking of a situation quite like that which appertained—to a certain extent, it still does—in the Welsh Valleys or South Yorkshire. There, whole industries have been swept away and high and endemic levels of unemployment now exist. We are talking about an area which is, or has been, close to its capacity but where, as we speak, there are skill shortages. The key issue now is not to talk in terms of doom and gloom and of an entire region failing but to look at how we deal with a particular, severe problem which affects that single plant.

Neither do I accept some of the more gloomy prognoses of the Opposition Front Bench. I believe that this is the third time since the previous general election that Members on that Bench have argued that we are about to enter a severe recession. They have been proved wrong up until now. Although clearly there are problems in relation to the world economy, I believe that at this stage it would be mistaken to talk down too far our economic prospects.

However, this closure raises a number of issues which need to be investigated and on which I should welcome an initial response from the Minister. The first is the extent to which he believes that there are features of the UK economy and the UK labour market which make Motorola and other international investors more likely to close down plants in this country than they would equivalent plants elsewhere. The noble Baroness referred to the questions of taxation and regulation. I add to that list the question of whether any aspects of our labour market legislation make it more attractive, cheaper, easier and quicker to close down a plant such as Motorola in this country than it does to close an equivalent plant elsewhere in the European Union.

Secondly, what implications does this type of closure have for the Government's cluster strategy for industries? It is all very well to group together a large number of facilities which produce equivalent or near-equivalent products when times are good. But when times are bad, the danger is that a downturn in a single sector will have a disproportionately high effect in an area. The closure of one factory and a reduction in another in the same industry can, in the short term, lead to a severe shift downwards in the number of jobs and employment levels. Taking a long-term view, does the Minister still believe that pushing hard for clusters makes sense?

Thirdly, does the Minister accept that the continuing and high level of job losses in manufacturing over recent years has been made worse by the continuing high level of the pound? Does he accept that the Government's complete failure to do anything about the level of sterling has caused, is causing and will continue to cause job losses in manufacturing and, indeed, in other sectors, including tourism?

Finally, on a more general point, do the Government have an industrial policy? Do they accept that, in effect, the market rules unfettered, or do they believe that they could and should affect investment and disinvestment decisions by multinationals such as Motorola?

5.47 p.m.

Lord Sainsbury of Turville

My Lords, perhaps I may deal with some of the questions that have been raised. First, I turn to the question of whether this matter has been an issue of devolution. That was a point that I raised when I was asked to repeat the Statement. The answer is that the Secretary of State has made a Statement about the Motorola situation. Therefore, it was considered right that, in these circumstances, he should make a further Statement.

We need to be clear that in this case we are dealing with a very specific situation which relates to the mobile telephone market. I do not believe that it has anything to do with the strength of the pound; nor does it have anything to do with over-regulation. It has everything to do with the demand for mobile phones and how that has moved in recent years.

In relation to UK subscriber and owner figures, it is as well to remind oneself that in June 1999 there were 15 million owners of mobile phones—that is, 26 per cent of the population. In June 2000, the figure was 30 million—that is, 52 per cent of the population. The latest figure is 42 million, which is 72 per cent of the population.

I do not believe that it is totally irrational to accept that, as those figures begin to be reached, the demand for basic mobile phones will begin to tail off. I believe that that is the clear reason behind the fact that, at the end of the year 2000, the big three handset manufacturers—Nokia, Motorola and Ericsson—all revised downwards their forecasts for demand.

Here, we are dealing with a specific situation in which production was geared up in order to meet that extraordinary increase in demand. Clearly, the company counted on the fact that the next generation and the replacement market would begin to pick up that demand. That has not happened as it would have liked. I hope that the Opposition's references to the overvaluation of the pound and to over-regulation do not mean that they are making the mistake of losing touch with the fact that a specific industrial situation occurred in this case.

On GPRS, the answer is, no. It is being rolled out—companies are developing it. They wanted it to have moved faster, but it is moving. The decision does not have anything to do with the auction of GPS3 or 3G, which is also moving ahead and which was always a long-term investment. In this case, a licence lasting for 20 years—until 31st December 2021—is involved. The situation is moving forward but not as fast as the industry would have liked. However, that has no relevance so far as e-business is concerned. The demand for e-business will continue to move forward. It will not go in a straight line, but that is not what happens with innovations; demand comes in spurts.

The noble Lord, Lord Newby, asked about the labour market. The costs and procedures for UK redundancy agreements are in some cases higher than those in other European countries. That was not relevant to this decision, although it will he a source of great aggravation to people in this plant.

A major tax issue with the German plant, which has tax advantages of 300 million dollars, is involved. That is due to the losses that were incurred in the plant—the company has a credit for that. It would have lost that if it closed the plant. There is no doubt that that affected the decision. That is clearly a great blow to those working in the Scottish plant, which has an exemplary record for efficiency and profitability.

I turn to clusters. The Government do not impose clusters on companies; companies want to adopt them to secure innovation. Increasingly with investment, companies want to go to places where there is a skilled workforce that is relevant to the industry. That has the implication that during periods of boom those areas do well, although particular industries may get into difficulty.

The level of the pound was mentioned. That undoubtedly puts pressure on companies to increase their productivity in order to upgrade the industry. That is very difficult in some industries, especially those that are dependent on large amounts of tins killed labour and which do not have the scope of going to added-value markets. The issue was not relevant in this case; we are dealing with a specific problem in this sector.

5.53 p.m.

Lord Monro of Langholm

My Lords, I voice my grave concern about the situation in Bathgate and express my sympathy with the employees and their families, especially because the workforce is so highly skilled. I was glad to hear—perhaps the Minister will confirm this—that Motorola will pay substantially above the minimum redundancy rate to those who will lose their jobs.

I am a little disappointed about the fact that there was political content in the Statement in another place. After all, it was after the closure of the British Leyland works near Bathgate that the Conservatives were able to bring new industry, such as Motorola, to Bathgate and to bring down the unemployment levels so dramatically.

Is it not a little counter-productive for the Government to require the repayment of the grant of £17 million? Will that not be a deterrent to new industry and incoming investment? Surely that money would be far better used if it went towards retraining and helping to re-employ the present employees.

Does the Minister agree that the German tax situation, in relation to which tax losses can be carried forward, is a substantial part of Motorola's decision to leave Scotland? As he rightly said, however, we should bear in mind that Motorola will continue to be a large employer in Scotland.

Lastly—this point was made by my noble friend Lady Miller—the fact that we have had a Scottish Statement in another place and in your Lordships' House must surely have created a precedent by which we can ask questions about Scotland in this House.

Lord Sainsbury of Turville

My Lords, there have to be clear rules on regional selective assistance. Those clear rules must be that if one receives regional selective assistance, one pays it back if one closes the relevant factory. It is for the government to make money available for retraining and other activities, but that should be seen as a separate exercise from the payment back of regional selective assistance. If we said, "You can have RSA and if you close the plant and go, you can keep the grant", that would send precisely the wrong signals.

On the carry-forward of losses in relation to the German tax system, the situation is no different from the British approach to carrying forward tax losses. The difference in this case is that the plant in Germany has already made those losses, which is what makes closing it down particularly unattractive. That is a wrinkle in this case but it does not, so far as I understand the situation, involve differentiating between the British and German tax systems.

We must be clear about the fact that the decision is a body-blow to people in the company. Equally, however, we must be clear about the reasons why the decision was taken. It was due not to the failure of the plant or the workforce, which has performed extremely well, but to particular factors. There was a very rapid decline in this relatively high-tech sector, which meant that the company, in the face of rapidly mounting losses, had to cut back.

Lord Palmer

My Lords, I understand the point made by the noble Lord, Lord Monro, and the Minister about the RSA—the situation is rather like the question about the chicken and the egg. Will the Minister explain how the money will be repaid? Has he made it abundantly clear that it has got to be repaid?

Lord Sainsbury of Turville

My Lords, there is no particular complexity about the matter. A cash payment was made to the company and the company will have to pay it back. I do not know whether discussions have yet taken place about the relevant time-frame.

Baroness Carnegy of Lour

My Lords, in view of the terms of the Scotland Act, it is excellent that the Department of Trade and Industry is still able to help Scotland, as it is currently doing. There is great anxiety in Scotland about the possibility that the industrial situation there is somewhat different from that in the UK as a whole. The noble Lord, Lord Newby, asked the Minister various questions about the UK's industrial position compared with other parts of the world.

In their discussions with people in Scotland, have the Minister or his right honourable friend heard any whisper from Motorola about whether doubts about the future level of personal taxation in Scotland affected its decision? The anxiety is that doubts about the tax that employees may have to pay, and what they would expect in their salaries, may have affected the decision.

There is pressure from some people in the coalition in the Scottish Executive to put up the basic rate of tax. The pressure from Westminster is apparently growing somewhat in favour of altering the Barnett formula so that Scotland receives less money from Westminster. That would also possibly mean tax going up in Scotland. The Minister will not want to comment on what the Scottish Executive might do, but has he heard any whisper that doubts in that regard in Motorola have had anything to do with the fact that it is in relation to the plant in Scotland, as opposed to anywhere else, that the closure decision has been taken?

Lord Sainsbury of Turville

My Lords, Motorola has been absolutely clear about its reasons and has discussed at great length with the Scottish Executive and with the UK Government why it is making that decision. As I said, it is faced with an extremely difficult situation in one specific part of its business. It is extremely noteworthy that it has confirmed that it is going ahead with the higher value-added investments which it is making in the Scottish economy. Clearly, if the company had doubts about the economic climate in Scotland, it would not be making those investments.

It is those investments which are most important in this situation. The Scottish Executive are seeking to ensure that there is more of an upgrade in the design areas—the sales and marketing areas—of those industries which are more value-added. They are seeking also to make arrangements to train people to go into that higher value-added sector. But the fact that Motorola is continuing to make those very important long-term investments indicates to me that it is continuing with its position of being a long-term and very good investor in Scotland.

Lord Borrie

My Lords, perhaps I may revert to the matter raised by the noble Lord, Lord Monro, and, indeed, earlier by the principal spokesmen from both the opposition parties; namely, that one of the reasons for closing the Bathgate plant rather than a less successful plant in Germany was the fact that losses had been made in Germany and they can be carried forward. Therefore, there are good commercial financial reasons why one plant rather than another should be chosen for closure.

The Minister has very fairly said that our tax laws relating to carried forward losses are rather similar. My question is slightly different but on the same point. When it is determined that selective assistance be given on a regional basis and when other forms of assistance and encouragement are given to a global company to start a plant in the UK, whether in Scotland or elsewhere, are such matters taken into account? What knowledge do we have at that point that there are other plants of the same company in other countries which may not be doing very well? If there is a global down-turn, we should perhaps know in advance that our plant may be the one which is closed down.

Lord Sainsbury of Turville

My Lords, one must have a reasonable approach to those issues. When one is trying to attract mobile investment to come to this country, to ask those concerned to tell us about the financial arrangements of all their plants around the world and what their tax losses are so that we can judge, in a down-turn, which particular plant decisions would be made is, frankly, unrealistic as a way of approaching the situation. It is quite unrealistic also in relation to forecasting the position in five or 10 years when those businesses are faced with decisions about having to close plants. That is not a realistic way forward.

It is a bitter blow to the people involved in the company. When a decision is made on those grounds, I believe that anyone working in the plant concerned, which has been highly successful, would be extremely bitter about it. But I doubt that it is a sensible approach to try to forecast the future tax-loss position of different plants.

Lord Roberts of Conwy

My Lords, whatever the extent of devolution of industrial policy, it is, nevertheless, a fact, as the noble Lord said, that the Secretary of State for Trade and Industry, the Chancellor of the Exchequer and, indeed, the Prime Minister himself were all involved. That is perfectly understandable in view of the severity and painfulness of that major closure. Nevertheless, can the noble Lord give some indication of the helpful lines which I am sure the Prime Minister and his colleagues pursued with the company?

Lord Sainsbury of Turville

My Lords, the Prime Minister became involved because, in the final analysis, it appeared to be a rather close decision and he was keen to see whether his personal intervention could change it. A plant had to be closed and it was a question of which plant should be closed. It was also a matter of seeing whether anything could be done in relation to tax or assistance which would weigh in the balance of that decision. In the event, it was not possible to do so, but it was wholly right and proper that, at the very highest level of government, an attempt should have been made to see whether there was any way that we could put factors into the balance which would redress the balance in favour of the Scottish plant, which, as I say, was accepted to be more efficient and more profitable than the German plant.

Lord Northbrook

My Lords, first, I declare an interest as an investment fund manager. Does the Minister agree that a major cause of the closure of the Bathgate plant was Motorola's worry over the future of 3G? We all wish 3G well, but it is not without its element of risk, with the sums of money involved

Secondly, the Minister will be aware that there has been a fair amount of speculation that the terms of the £22.5 billion auction of 3G licences is being renegotiated. Will the Minister comment on that, with particular reference to some of the noises off from the European Commission on those lines?

Lord Sainsbury of Turville

My Lords, the situation on 3G, as I said, is that it is going ahead and clearly it is going ahead faster rather than slower, given the very heavy prices which have been paid in the auction. Companies make commercial decisions, which they are perfectly entitled to make. However, other companies make other decisions and then do not get the licences. In those circumstances, it is extremely difficult for government to turn round and say that they will change the rules and undertake the matter on a different basis. Leaving aside any other considerations, one would come under legal attack if one started to roll back on that situation. However, I do not believe that that is a major consideration in this decision. As I said, it is due to the fact that there has been a very sharp decline which has caught many companies unawares and which has forced them to cut back their forecasts for the future.

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