§ Mr. Bob Laxton (Derby, North) (Lab)I am pleased to have been granted this debate because it gives me the opportunity to raise the concerns of a sizeable number of my constituents and those in surrounding constituencies who will either lose their jobs or find that their jobs are at risk because of decisions by a number of companies—two in my constituency—that have decided to offshore some of their call centre work to India.
To set the scene, around 6.000 call centres operate in the United Kingdom, some small and some sizeable. They employ around 500,000 people, which is equivalent to about 1.7 per cent. of the total work force. Call centre work has developed and a number of years ago, when we had high unemployment, that work was often directed into areas where traditional manufacturing work had disappeared. Call centres have been a mainstay of some of those areas ever since.
A research study by Mintel showed that competition from low-wage rival call centre companies in India could mean the closure of perhaps one third of all call centres by 2005. That would equate to about 90,000 jobs. Other pundits have said that hundreds of thousands of jobs could go as call centre work is offshored, not just to India but to other parts of the globe as well. However, I do not believe that that will be the case.
There has been a lot of debate in the media about protectionism—about how the Government can engage with this process and stop it from happening. In reality, they cannot, and should not, be in the business of passing legislation designed to protect call centre work in this country. I am not about to argue that protectionism should be introduced in any way, shape or form. There are benefits in some of the work going to India or wherever. As the economy develops in countries such as India, there will be a ramping up of trade and we will see other benefits as a result. Protectionism should not feature in the debate.
For some, the argument might, from a simple point of view, involve protectionism. However, it is not a case of protectionism versus free trade but of quality of service versus as yet unproven levels of savings from offshoring call centre work. Even the national Call Centre Association admits that there is evidence that organisations that have taken the offshoring route because they thought it would be an effective way of making savings and improving quality of service have failed to realise those benefits.
There have been two announcements in my constituency. Some 170 jobs will go from the Abbey bank call centre based in the city centre by the end of the year. I contributed to a debate on BBC Radio Derby and listened to what people who rang in before and after the debate said. What was interesting was that almost to a man and a woman, all of them said, "We are not happy about Abbey bank doing this. We have been with the Abbey bank and its predecessor, the Abbey National building society, for many years. but if UK jobs are being lost through the work being offshored"—although not necessarily to India—"we'll remove our accounts and place them elsewhere." Companies need to take serious note of that.
313WH The other jobs that will be affected are those in the National Rail Enquiries service. It is a complex process operated by the Association of Train Operating Companies. The private rail companies that operate the National Rail Enquiries service contract the work out to BT, which sub-contracts it to a company called ClientLogic. A decision has been taken to offshore 50 per cent. of the National Rail Enquiries service. That work will be going out to India later this year. As a direct result, nearly 400 jobs will go from the ClientLogic call centre in Derby. Very regrettably, that poses some threat to the whole ClientLogic call centre operation in Derby, which employs about 700 people.
The Call Centre Association has raised issues relating to quality of service. Unlike Abbey bank, where individuals can say that they are not happy with the company's policy and move their accounts elsewhere, the National Rail Enquiries service is a national, single point of service and there is no alternative for customers. We are, therefore, left with that service. If it deteriorates, the customers ringing it will not be interested in whether it is the fault of the Association of Train Operating Companies or the National Rail Enquiries service, BT or whatever. The buck will stop at the Government's door. I have had some discussions with the Secretary of State for Transport on my concerns about that.
§ Mr. David Clelland (Tyne Bridge) (Lab)Is my hon. Friend aware that Lloyds TSB is proposing to close a call centre in my constituency with a loss of 1,000 jobs barely two years after the call centre was opened with a fanfare of trumpets and a promise from the chairman that they would be long-term sustainable jobs? Does he think that Lloyds TSB should have some loyalty to this country and its employees? If it and other companies are not going to be loyal to this country, that will fall at the Government's door, as he said. It is not good enough for Ministers to say that this is a global economy. With thousands of jobs under threat and others haemorrhaging from this country as a result of offshoring, surely the Government have to do something.
§ Mr. LaxtonBoth my hon. Friend and I will listen with great interest to the Minister's comments. I am aware of the decision taken by Lloyds TSB. It must take account of the impact that that will have on its customer base if customers are not happy with the work going to China, India or wherever. If they are not happy that it is being offshored, they have the opportunity to move their accounts elsewhere, which would he to the overall detriment of Lloyds TSB. My point about National Rail Enquiries is that as customers we have no alternative as to where we place our business if we are unhappy with its decision to offshore its work.
In some of the discussions bandied around and some of the Select Committee meetings that I have sat in on, I have learned that the National Rail Enquiries service expects to save around £25 million in the cost of its operation as a result of offshoring. There are, however, concerns about the quality of service. Some interesting research has been undertaken. One of the studies by an industry analyst, ContactBabel, published in January this year, found that the service provided by offshore 314WH Indian call centres was not all that it was made out to be, but I am sure that there are good and bad call centres in India, as, of course, there are in the UK.
The general analysis was that calls were answered more quickly because the staffing levels were higher than they would be in the UK, but from a customer's point of view problems are answered, dealt with, expedited and resolved much more quickly and simply in the UK, which is something that businesses must take into account. Cost savings can be made by offshoring, but in my view they will he outweighed by frustrated and angry customers if they do not receive the quality of service that they expect.
Research carried out by Phil Taylor at the university of Stirling and Peter Bain at the university of Strathclyde also found communication difficulties. That might be a problem in the UK. I would have difficulty understanding some of the regional dialects of people in the part of the country represented by my hon. Friend the Member for Tyne Bridge (Mr. Clelland). However, customers and companies need to take those issues into account rather than just looking at the bottom line and saying, "We can make lots of savings—let's go for it."
We have carried out research on other call centres in my constituency. Egg, which is the banking arm of the Prudential, is committed to keeping its work in the UK and in Derby. It uses few external consultants and does pretty much all of its work in-house. Companies such as Alliance and Leicester, Northern Rock and mmO2 said that the cost-savings from offshoring would be modest and outweighed by the loss of control over their operations. They also thought that offshoring would mean losing their most vital form of communication with their customers, which they believe to be a good way of generating business.
Nationwide has also pledged not to move work offshore and is opening a new centre in Swansea. Some 20 per cent. of its business comes from UK call centres. It has stated that it is staying put because it values having roots in the community. It has also said that there has been an overwhelming customer response to its announcement that it will stay in the UK. I am sure that the Minister will pick up on my point, which I repeat ad nauseum, that this is not just about companies saying, "We can make huge savings by offshoring"; they need to consider the other side of the equation as well.
There is a wider impact. The UK service sector makes up about 70 per cent. of gross domestic product, and many call centres are concentrated in areas where there used to be manufacturing jobs, including both my constituency and that of my hon. Friend the Member for Tyne Bridge. Of course, offshoring does not only involve call centres. We might be seeing the start of many jobs being moved offshore, including those that require workers of low or medium skill, or perhaps even those who are highly, skilled. What impact would that have on the service sector and our GDP?
I reiterate that the issue is about companies weighing up the economics of moving work offshore. They must consider the costs, benefits and the supposed gain from lower-cost services. It is also about weighing up the politics. I cited as an example the possible deterioration of National Rail Enquiries. That would be a political issue because the buck would stop with the Government, not with the companies involved. The 315WH problem is companies thinking in the short term, by putting immediate and unproven cost-cutting and profitability above quality of service.
The Government need to help UK companies to innovate and invest so that there s employment and growth in the service sector. There is already some growth in that sector and new call centres are coming online. We hope that that will continue. From a fiscal point of view, the Government should consider the situation with regard to VAT. The way in which it is currently imposed encourages firms to offshore because they do not then pay it on certain elements of their business activities. The Treasury should consider the fact that that acts as a financial incentive for companies to offshore. It has closed a loophole but opened another of which companies may wish to take advantage.
Those are the sorts of issues that the Government should consider. We have nothing to fear from offshoring, but we need to help companies. We need the Government to say to them, "Look it isn't just a simple matter of saving costs. That has to be balanced against the impact that it may make on your company's productivity and the level of business activity within your company." I wait with interest to hear the Minister's response to my comments, in particular about how Government can assist companies in this context.
§ The Minister for Energy, E-Commerce and Postal Services (Mr. Stephen Timms)I congratulate my hon. Friend the Member for Derby, North (Mr. Laxton) on securing this debate on an important and topical issue. The House last debated it in Westminster Hall on 10 December 2003, and it seems that hardly a week goes by without an announcement of one kind or another about intentions to offshore, or concerns about the impact on jobs in the UK.
The bulk of the announcements, as my hon. Friend said, have related to call centres. The debate in December followed some high-profile announcements by companies in the financial services sector of intentions to place both call centre and back-office processing work overseas, and in India in particular. The IT sector, as I have seen on a couple of visits, including one just a few weeks ago, is another area where India is very strong; a quarter of the 1 million graduates that it produces each year are qualified in science and IT.
We need to keep the issue in perspective. Outsourcing is not new. Companies have been buying in services, instead of providing them in-house, for years. Most outsourcing by UK companies is still placed with other UK companies. Even offshoring—that is outsourcing abroad—has gone on for a long time. British Airways first offshored some of its business processes to India in the early 1990s.
The advance of new technology, however, and the development of e-commerce, have certainly increased the scope for services offshoring. Communication costs have fallen and speed and efficiency have increased. For example, the cost of a telephone call from India to the UK has fallen by more than 80 per cent. in little more than three years.
316WH The recent spate of announcements has given the impression of an increasing trend. My hon. Friend made a valid point about this: offshoring will suit some companies, but not all. He mentioned some companies, to which I would add the Royal Bank of Scotland, Alliance and Leicester, and Nationwide, which have all announced their intention not to offshore. Others have tried offshoring and decided to return work to the UK. Littlewoods, for example, recently announced that it would be closing its Indian call centre and returning the operation to the UK.
Offshoring is not, therefore, a one-way street. Not every service, in any case, can be delivered across borders. However, where that is possible, other factors such as customer relationships of the kind that my hon. Friend spoke about can have an impact on the offshoring decision.
We need to remember that this is not a zero-sum game. Last year in the UK we succeeded in attracting 700 inward investment projects into the UK, including 19 from India. India is becoming a major inward investor into the UK. Those 700 inward investment projects generated between them nearly 35,000 new jobs; the figure included 35 new customer contact centres.
Globalisation is a reality that means more opportunities, including opportunities for the UK. We are not, as my hon. Friend said, in a position to stop it, but neither should we want to, because the UK in particular is a large net beneficiary of what is happening. A point on which I agree with my hon. Friend is that the UK call centre sector remains a UK strength. Despite the apparent trend towards offshoring there are still 5,500 call centres in the UK, employing about 400,000 people. The evidence, as my hon. Friend said, is that that figure is continuing to rise.
There is much going on, and still much that we need to know. To deepen our understanding of offshoring and the current drivers, my right hon. Friend the Secretary of State for Trade and Industry announced, in December, three important initiatives. First, we published a consultation document asking for comments and reaction by the end of January. We received 40 replies, which we are now studying. The consultation document was called "Services and Offshoring: the Impact of Increasing International Competition in Services". It is still available on the Europe and world trade section of the DTI website; indeed, we would still be glad to receive further responses to it. Having studied all those replies, the Government will respond to the consultation in the White Paper on trade and investment that, as my right hon. Friend announced recently, will be published in the summer.
Secondly, we commissioned an independent study of the competitiveness of UK call centres. We have appointed a consortium of three firms, including ContactBabel, which is due to report to us in April. Call centres have a huge variety of roles, from direct selling to customer relations management, across nearly all commercial and industrial sectors, as well as the public sector. There are a great many conflicting predictions about current trends in call centre numbers and employment. The study will therefore capture a fuller picture and identify the UK industry's main strengths and weaknesses. I also hope that that analysis will 317WH inform actions that the industry can take, in partnership with the Government or alone, in response to the increasingly competitive worldwide market for call centre services.
Thirdly, my right hon. Friend hosted a round table early last month at which a number of businesses, trade unions and academics gave their views about offshoring. That round table was held under the Chatham House rules and a report was not published, but there were some important messages of consensus. The first is that companies' decisions on location in the era of global competition must be commercial. If Governments sought to interfere in those decisions, there would be a greater risk of business as a whole being driven offshore, with the loss of even more jobs. It is important, however, to involve the work force in the decision-making process. That is why I warmly welcome the examples of Barclays and HSBC, with which Unifi has reached a consultation agreement. I also welcome the example of BT, which has a similar agreement with Connect and has successfully undertaken offshoring, but by agreement.
Secondly, in reaching decisions on where to locate, companies need, as my hon. Friend rightly emphasised, to consider the business case carefully. There was broad consensus at the seminar that the UK cannot compete on labour costs alone and should not try to do so. Offshoring decisions are driven principally by low labour costs, but, as my hon. Friend rightly said, businesses need to take account of other factors as well, because if standards of customer service decline, they will soon see the impact on their business. Companies understand that, but it is important that they do their homework carefully, as my hon. Friend said.
Where decisions to offshore result in the loss of UK jobs, we must do all that we can to get people back into work as quickly as possible. Jobcentre Plus, our rapid response scheme, can play a key part in that, by intervening when there is a problem. The regional development agencies can help by encouraging new businesses into towns or regions that are affected by offshoring decisions. The learning and skills councils can help people to learn new skills and improve their employment prospects.
§ Mr. ClellandWhat would be the point of Jobcentre Plus, the learning and skills councils or anyone else encouraging people to take up jobs in call centres, for instance, when the evidence shows that there is absolutely no security of employment?
§ Mr. TimmsI do not think that that is the position. As I have said, the number of people working in call centres in the UK continues to increase. We shall see what the study that we have commissioned says when it reports at the end of April, but we are determined to do what we can to work for the competitiveness of the UK call centre industry in the competitive conditions in which it 318WH operates. At the moment, around 60 per cent. of jobseeker's allowance claimants leave the register within three months of joining it and 80 per cent. leave within six months. We have the lowest levels of unemployment in the UK that we have seen for three decades or so.
The seminar's third key message, which reflects the growing consensus in business and trade unions, is, as my hon. Friend was right to emphasise, that recourse to protectionism is not the right way forward. We are a trading nation, and are heavily dependent on open markets throughout the world for our exports of goods and services. We are the second largest exporter of services in the world. We export more than £85 billion-worth of services, compared with imports of £70 billion, and simply cannot afford to close our markets to services provided from abroad, because we would lose far more employment than we could possibly gain. Closing our markets would also be inconsistent with our aim of helping developing countries out of poverty through trade. Indeed, it would be perverse to do so when countries such as India are growing through the sort of international trade that we in the United Kingdom have encouraged. Fortunately, no organisations on this side of the Atlantic are calling for protectionist responses, unlike organisations on the other side of the Atlantic, whose calls I noted when I was in Washington last week. Such steps would be profoundly mistaken and would severely damage the UK and our trading partners.
Offshoring is an innovative business process. It can drive down costs and drive up productivity, benefiting firms and consumers. For the UK economy as a whole, offshoring brings opportunities as well as challenges. That was well illustrated to me in a couple of discussions that I had when I was in India last month, in which we talked, among other things, about outsourcing and offshoring. The UK deputy high commissioner in Mumbai told me that a group from Germany had travelled to Mumbai just before Christmas with the brief of trying to persuade Indian companies to form exactly the sort of partnerships with German companies that they had formed with UK companies. The German group was there because it could see that the UK is developing a significant competitive edge and is attracting more inward investment into the UK because of the competitiveness benefit of such partnerships between UK and Indian companies.
I also had a discussion with Mahindra British Telecom, an enterprise that started as a straightforward offshoring of BT software development activities, but which has become an important supplier of software to the telecoms industry in its own right. It is now investing back in the UK, and has its European headquarters in Britain. It is employing people and creating new jobs in the UK, based on the success of its previous activities.
We need to bear in mind the full scope of what is happening and rise to the challenges that offshoring offers us.
It being twelve minutes to Five o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.