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Paper Industry

1 pm

Mr. Jonathan Shaw (Chatham and Aylesford): I am grateful for the opportunity to debate one of the United Kingdom's great manufacturing industries. As chairman of the all-party group on the paper industry, I can tell the Minister for Small Business and E-Commerce that those hon. Members with paper interests in their constituencies are concerned about the pressures that the industry faces and believe that the Government should be seen to take those concerns seriously. Therefore, my purpose today is to highlight the industry's valuable contribution to UK manufacturing and present its concerns to the House.

The UK has 98 pulp, paper and board mills, employing about 21,000 people. Those mills produce hundreds of grades of paper and board, which convert into a wide range of products for industry, commerce, education, communications, distribution and personal use in the home, together with a host of other specialty papers for industry. It is estimated that 12.7 million tonnes of paper were used in the UK last year. Sadly, more than half of that paper came from imports.

Mills in the UK are concentrated in Lancashire, the west country, central Scotland and my own county of Kent. In the Chatham and Aylesford constituency, the industry has an annual production of approximately 1.4 million tonnes of paper and board, making it the largest single concentration of production anywhere in the UK, employing more than 1,000 workers.

The industry is highly capital intensive. A new paper or board mill can cost well over £200 million and may take up to three years from the design stage to commission. To obtain an adequate return on such an investment, a mill needs to operate 24 hours a day. Such huge investments make the industry volatile to fluctuations in demand. If the economy slows down, so does the demand for paper.

The measures taken by my right hon. Friend the Chancellor have created the type of stability that the paper industry needs. Yet, as I said, the market is a European one, with 80 per cent. of imported paper coming from Europe. During the past three years, the value of the pound has led to job losses, mill closures and lost markets. Within such a competitive market, it can be difficult to claw back those markets.

The paper industry takes seriously its responsibility to the environment. During the past 20 years, the industry has reduced its water consumption by 70 per cent., its energy consumption per tonne of paper is falling year on year, and many of the UK operations have transferred their energy needs to combined heat and power plants. Earlier this year, following negotiations with the Government on the climate change levy, the industry agreed tough targets. Before her transfer to the Department for Trade and Industry, my hon. Friend the Minister was very much involved in those negotiations, particularly at the preliminary stage.

I welcome the outcome of the negotiations. The industry felt that the Government had a genuine desire to listen and it responded. But there remains some anxiety in the industry, in particular about what is good quality combined heat and power, because it is that

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which will be exempt. It would be of great help if my hon. Friend were able to say when that matter will be clarified.

The industry knows that, if it is to compete, it must invest. Last year saw £300 million of capital expenditure, and, coupled with that investment, the industry has increased efficiency. Since 1989, output has improved by 43 per cent., and productivity per operative has increased by 140 per cent.

The paper industry is different from other traditional manufacturing industries in that capacity is increasing, not contracting. It is important to recognise that the industry has massive potential, and, with the right economic conditions, most of which are in place, it has the ability to beat all comers. As I say, despite technological advances, paper consumption has not declined but increased. The Government make their own contribution to that with their endless White Papers, Green Papers and consultation documents, all of which, I am sure that my hon. Friend will agree, make excellent and stimulating reading. Some may be better than others, but I shall leave it to my hon. Friend to say which. That also creates jobs.

In 1990, the UK consumed 1.8 million tonnes of newsprint, and in 1999, that had increased to 2.5 million tonnes. In the UK, we buy more papers and magazines than any other country in Europe, having recently overtaken Germany. I am bound to say that, indisputably, the best newsprint comes from Aylesford.

Given that the market is growing, with a forecast growth of 2 per cent. in the UK and between 1 and 3 per cent. throughout the rest of Europe, the question for us in the UK is whether our paper industry will be able to capture those markets and take advantage of the extra business and prosperity that that will bring. At present, we are at a distinct disadvantage.

Last year was a record year for production, with a turnover of £3.5 billion, yet the industry realised a pre-tax profit of just £150 million. The main problem facing the industry is the strength of the pound and the weakness of the euro.

The Graphical, Paper and Media Union, the main union representing workers in the industry, advises me that mills throughout Britain have closed, principally due to the strength of the pound. We have seen examples in Kent where profitable mills, such as Kimberley Clark Ltd. in Larkfield in my constituency and the Buckland mill, which produces the world famous Conqueror paper, owned by Argo Wiggins are in the process of closing operations, with about 400 job losses in Kent.

The industry knows that, to a certain extent, it must live with a strong pound. But to be told that it must be more efficient does not inspire confidence, particularly given the background of the figures to which I have referred. Cost-cutting and efficiency improvements have been made at the cost of many jobs--2,500 in the past two years, representing 10 per cent. of the work force. Importantly, they are well-paid jobs.

The Paper Federation of Great Britain recently held a referendum among its members regarding entry into the euro, and 60 per cent. favoured entry, believing that it was the right move for the industry, although obviously at the right rate. That view is shared by the GPMU.

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It is vital that industry takes part in the debate. When we have a referendum, industrial leaders will have more influence on what is a major democratic decision than ever before. People who work in mills, textiles, and in the car and steel industries will ask their employers and union leaders what it will mean for their industry, job security, ability to pay the mortgage and have a holiday. Those are the issues that matter and those are the arguments on which we should concentrate. I should like the Government to take a more robust line as the matter is taken forward.

I have spoken about the great efforts that the industry is making in investment, productivity, the environment, and about the pressures that it faces. However, it is also important to highlight some of its shortcomings. The industry has an appalling health and safety record, which puts mill owners in the United Kingdom to shame. Twelve deaths have occurred in the past six years and scores of serious accidents.

Two years ago, the industry set itself a target of reducing serious accidents by 50 per cent. It is widely acknowledged that progress has not been satisfactory. Earlier this year, George Beattie, the GPMU national officer, told a meeting of the chief executive officers of the paper industry that they were not improving enough or even at all. That is a damning indictment.

The industry kills. There are examples of people being allowed to work 34 12-hour shifts without a break. The industry asks people to work for 40 days without a day off. Paper mills are dangerous places, and the industry has not taken health and safety seriously enough. The culture is far too macho, and there is a lack of interest in health and safety. The consequences are fatalities. People are dying in the industry.

There must be change, and I hope that the industry will take its commitments to targets seriously. There must be a wake-up call, and a sea change in the industry's attitude. The targets that the industry has set are not unrealistic because there are examples of good practice throughout the country in various mills, which have reduced their accident rates by 50 per cent. If some can do it, others can learn and follow their example.

Against the background of appalling safety, the GPMU will not sit back. I endorse its campaign themes. Its message is:


The industry is good for Britain. With the right economic conditions, it can be a world beater because it has a skilled and dedicated work force. The Government need to listen and understand the anxieties and do everything in their power to create the right economic conditions for it to thrive. If we do that, it will thrive.

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1.13 pm

The Minister for Small Business and E-Commerce (Ms Patricia Hewitt): I warmly congratulate my hon. Friend the Member for Chatham and Aylesford (Mr. Shaw) on securing the debate and on his election as the new chairman of the all-party group on the paper industry. I also congratulate him on his excellent speech, which was made not only on behalf of his constituents who work in the industry, but on behalf of the whole industry.

I checked the parliamentary online information system--POLIS--and found that the paper industry was last debated in the House 14 years ago. I appreciate that my hon. Friend spoke on the importance of recycling in the industry in the Budget debate earlier this year. However, it is extraordinary that such an important industry has not been the subject of a debate before today. I therefore especially congratulate my hon. Friend on securing the debate.

I strongly agree with my hon. Friend's remarks on the industry's importance. This country has an extraordinary tradition of excellence and self-sufficiency in paper and board making. Fifty years ago, we were not only wholly self-sufficient in producing paper and board, but a major exporter. For a variety of reasons, that position has been steadily eroded until a nadir was reached in the mid-1980s. Employment in the industry has fallen from 52,000 in 1980 to less than half that number today.

The shrinking in employment does not provide an accurate view of what has happened in the industry. I am glad that my hon. Friend emphasised its productivity improvements and output growth. Both have been striking. In the past two decades, total annual production has nearly doubled from 3.8 million tonnes to 6.6 million tonnes.

There is still significant employment in the industry. As my hon. Friend said, some 21,000 employees work in fewer than 100 mills in several different parts of the United Kingdom, including, of course, my hon. Friend's constituency. If one takes the wider definition of the industry by the Office for National Statistics--it includes pulp, paper and paper products--the sector contributes more than £4 billion of value added to our gross domestic product. That is comparable to the manufacture of textiles and aircraft, and greater than the manufacture of steel and computer hardware. We are therefore considering a sizeable, high-productivity, high-technology manufacturing sector.

The industry's other distinctive feature, to which my hon. Friend referred, is its position not only in a European but a global marketplace. That is clearly reflected by the industry's ownership structure, with some 60 per cent. of capacity owned by overseas interests, including Nordic and North American interests. My hon. Friend rightly mentioned that we import more than half our total paper requirements. We are in a major market; our consumption is the fifth largest in the world and, as my hon. Friend said, it is growing. Imports are also growing fast. Exports have remained steady, but imports are growing rapidly. Our ability to recover paper from the urban forest--the newsprint and other forms of paper that have already been used--is crucial to our future competitiveness.

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The strong level of investment that continues in the industry is welcome. It has often been encouraged by Government grants. In the last three financial years, 93 offers of regional selective assistance grant have been made and accepted. They total some £19 million of Government support for investment in paper, paper products and packaging. Of course, the total value of the investments is far greater. That is encouraging for future productivity and the management's confidence in the capacity of the UK industry. The large amount of inward investment in the tissue products sector is especially welcome, as is investment in environmental improvements.

Although the industry faces competitive challenges in a global marketplace, and employment in the sector is contracting, it is fundamentally in good shape. Output has continued to increase, and productivity has been increasing substantially.

I should like to say more about the growing importance of recycling in the paper industry. As my hon. Friend knows, the so-called waste paper utilisation rate--the proportion of our paper production that is derived from waste paper and board--is among the highest in the world, at around 65 per cent. Aylesford uses only recycled stock for its newsprint production.

The other side of the coin, the recycling rate--the proportion of our total waste paper that is collected and recycled--is disappointing. It is less than half the utilisation rate. One of the reasons is that we consume far more paper and board than we manufacture. Consequently, several million tonnes of paper are landfilled each year. That is clearly a wasted opportunity for environmental sustainability and industrial competitiveness.

Waste Strategy 2000, the waste strategy for England and Wales, which we published in May, sets out the various steps that we are taking to increase the recycling rate. It has been good to see the response from the paper sector to the White Paper and the recent call for proposals under the recycling programme of the Department of Trade and Industry to support research and development, and to underpin projects that are designed to increase demand for recycled materials. We are now in the final stages of assessing those projects.

Mr. Shaw: This subject is close to my heart, and I spend much time lobbying every Minister about the need to provide more facilities so that local authorities can collect their waste in a way that means that it can be recycled. Does my hon. Friend agree that the three mills that can take newsprint and magazines are full to capacity and that no new mill has been built for nearly five years? The mills that have come on stream have been in Europe. It is a European market, so there is only so much capacity. We need to increase capacity and it is essential that the Government provide assistance for that. Without that, the strategy will not work.

Ms Hewitt: My hon. Friend makes an important point and I am well aware of his long-standing interest in the issue and the proposals that he has made to

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colleagues and myself. In the Waste Strategy 2000, we announced that we would set up the waste and resources action programme--WRAP--to overcome some of the barriers to reuse and recycling. The objective of that new body, which will be established later this year, will be to promote more sustainable waste management generally, but, in the first instance, to focus on developing markets and end uses for secondary materials. I hope that it will be able to tackle some of the market failures that exist in recycled materials, especially newsprint. Both the Department of Trade and Industry and the Department of the Environment, Transport and the Regions have committed resources to that new organisation to give some muscle to the strategy.

My right hon. Friend the Minister for the Environment recently reached an agreement with the newspaper publishing industry on increasing its recycled content targets. I am sure that my hon. Friend agrees that that was an important development.

My hon. Friend referred to the climate change levy that will be introduced next April. That levy is a key element in our strategy to tackle the issue of global climate change and to deliver on our international and domestic targets to cut emissions of greenhouse gases. We have worked hard with industry--the paper industry and more broadly across manufacturing--to ensure that we get the design of the CCL right to achieve our environmental objectives in ways that do not damage, and indeed could enhance, the competitiveness of British industry.

As my hon. Friend will be aware, the Chancellor announced important revisions to our original proposals in both his pre-Budget report last November and in his Budget statement in March. When we announced the levy--I was involved as Economic Secretary to the Treasury--we made it clear that we would take especial notice of the position of the energy-intensive sectors that are subject to intense international competition, including, of course, the UK paper industry. I am therefore pleased that the Paper Federation of Great Britain, on behalf of its members, has negotiated with the Government an energy efficiency agreement which will qualify the industry for an 80 per cent. discount on the levy. That is an important step forward for the industry's competitiveness and the wider objective of improving environmental sustainability.

My hon. Friend rightly referred to the exemption from the levy for good quality combined heat and power. My right hon. Friend the Minister for the Environment announced on 17 May how good quality would be assessed, using a simple and definitive methodology called CHP quality assurance. That followed valuable consultations with the paper industry and other CHP users. My right hon. Friend will issue the full details in the next few days, and they will be circulated to all companies using CHP.

It is worth stressing that the CHP plants that have been approved during and since the review of energy sources for power generation include four paper mill developments, totalling nearly 350 MW. I warmly congratulate the industry on those multi-million pound investments in new paper production technology.

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My hon. Friend mentioned the issue of the exchange rate and the weakness of the euro. We know that that is causing difficulties for British industry, particularly paper and board manufacturing, 75 per cent. of whose exports go to the European Union. As my right hon. Friend the Chancellor has said on many occasions, the problem is the weakness of the euro, rather than the overall strength of sterling. Indeed, sterling had been stable for four years against the dollar, although more recently it has fallen to a six-year low against the dollar. The Government must take a long-term view of how to achieve the economic stability that, as my hon. Friend began by saying, is crucial to investment and confidence in the paper and other industries. We will not allow short-term pressures to risk returning us to the days of boom and bust and a constant change in policy that made investment in the UK's productive capacity so inadequate.

It is worth remembering that in the paper industry, and more broadly across manufacturing, we are seeing improvements in output, productivity and exports. Although manufacturing employment has fallen by some 160,000 jobs in the past three years, we should remember the period between 1979 and 1997, when manufacturing employment fell, on average, by 140,000 every year. The scale is very different today.

As my hon. Friend will be aware, the Government's policy on the single currency remains as it was when my right hon. Friend the Chancellor of the Exchequer set it out in October 1997. The determining factor that must guide any Government decision is whether the economic case for the UK joining is clear and unambiguous. We have set out five economic tests that have to be met before any decision to join can be taken, and we have made it clear that once the Government have made a

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decision, it will be put before Parliament, but that the final decision must be made by the people in a referendum.

I shall end, as did my hon. Friend, on the issue of the health and safety performance of the industry. I am glad that he tackled so trenchantly the appalling health and safety record that mars the otherwise highly impressive record of productivity and investment. I know from discussions with the Graphical, Paper and Media Union how hard it has worked with management, in a model of partnership with industry, to tackle that problem. The accident rate in the paper industry has persistently remained some 50 per cent. higher than the average achieved by all manufacturing industry. That record is simply not good enough.

For the past two years, the industry, the unions and the Health and Safety Executive have co-operated in a major initiative, strongly backed by Ministers in the Department of the Environment, Transport and the Regions. The initiative was designed to reduce accidents by 50 per cent. over three years, but the accident figures remain stubbornly high. That is unacceptable. We expect from the owners and management of the mills a commitment to safe working practices, and a culture of safety and continuous improvement in which people's health and lives are not regarded as expendable commodities in the quest for higher output. That safety record is the one blot on the record of an industry that is enormously important to this country, which has made real improvements in investment and productivity and which certainly has the backing and the practical support of the Government.

Question put and agreed to.



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