Select Committee on Trade and Industry Third Report


Labour flexibility and loss of jobs


   86. The UK enjoys a number of advantages as a centre for vehicle manufacturing, including a stable macro-economic environment. One advantage often referred to in evidence to us and in informal discussion is workforce flexibility. Most of those we spoke to praised the radical turnaround in recent decades in the attitude of the workforce, and their willingness to accept changes in working practices and in terms and conditions. Shift patterns and weekend working, which would have been unthinkable in the recent past, are now commonplace.[118] The use of temporary employees is also now an accepted part of the industrial landscape.[119] Vauxhall referred to its 1998 pay deal as "revolutionary" and praised the introduction of flexible working practices by the workforce.[120] We have heard at some plants of an end to a culture of excessive overtime and in one case a move from the traditional day/night shift pattern to two day shifts. In recent months, there have been some strains over the details of new working arrangements being introduced at many big assembly plants. The cooperation of the industry's workforce cannot be taken for granted as demands for weekend working and flexible hours grow. But in broad terms no manufacturer raised any complaints about the attitude of their workforce, and most praised the radical change in attitudes. Mr Ghosn, in announcing Nissan's decision to bring the new Micra to the UK, noted that "Overall our workforce has shown great flexibility and courage in providing a responsible reply to the challenge we face". It must not be forgotten by those who own and manage the industry that a large measure of the success of the industry over the past decade should be attributed to its workforce. They are now entitled to some return for their efforts and their loyalty.

Labour laws

  87. Our attention was drawn by all the trades unions representing the workforce in the industry to the alleged ease with which employers can shed surplus labour in the UK, in comparison with the situation elsewhere in the EU. This allegation is not of course peculiar to the situation in the vehicle industry: the unions representing the workforce in the steel industry gave very similar evidence to us in November 2000. It is however particularly salient in vehicle manufacturing because of the stark choice confronting global employers between reductions in the workforce at one large site in one country and another site in another country. The national and local trade unions representatives we met felt that the decision to close Dagenham, rather than Cologne, owed more to the absence of constraints on shedding labour than to nice calculations of returns on capital or the inherent characteristics of the two sites. Workforce representatives at Luton expressed similar views, referring in particular to the lack of prior consultation and the breach of clear agreements entered into in good faith on both sides.

88. The suggestion that it is easier and cheaper to dispose of employees in the UK than elsewhere seems to us to have been shown to be factually correct.

  • legally binding labour agreements may in practice not always make jobs more secure; but the possibility of facing the legal and financial consequences of a breach of contract — as opposed to simply reneging on an undertaking given in good faith — may cause an employer to "stop and think";[122]

  • statutory minimum redundancy payments are lower in the UK than in many other EU countries;

  • there is no requirement on an employer in the UK to fund a "social plan" in the event of a major redundancy.

89. It is perhaps misleading that these issues should have been raised in relation to Ford's plans at Dagenham or to Vauxhall's plans at Luton. Both seek to rely on voluntary rather than compulsory redundancy. Both have given long notice of their plans, although Vauxhall's came out of the blue and was first discovered by the workforce from media reports. Ford are paying those likely to lose their jobs substantially the same as, or more than, the sums they would pay equivalent employees in Germany and more than they have paid in similar circumstances in Belgium.[123] They told us that this had been their practice in previous reductions.[124] As we heard on our May 2000 visit to Dagenham, Ford are in addition devoting serious effort and real funds to making good the wider local effects of their decisions.[125] Vauxhall are paying an enhanced package.[126]

90. Component companies may be less able to afford such expenditure. If a multinational component company suffering from overcapacity or falling demand or insuperable price pressures is obliged to select one of its plants for closure, the perception that it is easier and cheaper to do so in the UK may well weigh heavily in the balance. The terms for the employees made redundant as a result are unlikely to match those which can be offered by a global giant such as Ford or General Motors.

91. The allegations made to us, not only in this inquiry but also in relation to the UK steel industry as well, that British workers are losing their jobs because it is easier to sack them than their European counterparts is sufficiently grave to justify the devotion of some time and effort to examining it. The EU Council of Ministers is currently considering yet again the proposed Directive on informing and consulting the workforce, which would cover smaller companies and those only operating in one member state. While this would have little or no impact on the global vehicle manufacturers, it might well on the smaller component firms.

Government view, June 2000

  92. In our Report on BMW, Rover and Longbridge, we recommended that the Government should provide in response a detailed analysis of the lessons it drew from the affair for "Government policy on national and EU law on protection and consultation of employees".[127] The Government response stated that —

    "as regards collective redundancies, the Government is satisfied that the current   provisions contained in the Trade Union and Labour Relations (Consolidation) Act 1992, constitute a proper implementation of the EC Collective Redundancies Directive and strike a proper balance between protecting employees and placing burdens on business"

and that —

    "The Government's view is that it does not follow from the present case that there is any   inherent weakness in the European Works Council directive, as opposed to a failure, for whatever reason, by the parties in this case adequately to make use of the consultative machinery already in place"

and that —

    "the BMW affair does not lend support to the case for the proposed directive [on informing and consulting employees].......The Government is pursuing the objective of improving employment relations, including the information and consultation of employees, through its broad Fairness at Work programme, including the promotion of a Partnership agenda and procedures for statutory recognition of unions."[128]


  93. The Secretary of State suggested in his 13 December 2000 statement on the Luton closure that the operation of the European Works Councils and collective redundancies directives — both already transposed into UK law — needed to be looked at carefully "to ensure that we do not see a repeat of yesterday's events." Rather than accept the draft information and consultation directive, he suggested the possibility of "the need for us to come up with our own domestic arrangements". In response to questions he confirmed that —

On 18 January 2001 the Secretary of State announced during oral questions that he had that day written to the TUC and CBI inviting them to take part in a "review of existing collective redundancy legislation ,and in particular to consider what more should be done to promote effective consultation". He emphasised in subsequent exchanges the failings of the proposed EU directive and his view that the issues were better dealt with in the UK "domestic setting".[129] The announcement was welcomed by the TUC General Secretary. The Director General of the CBI was reported as being willing to discuss the fine tuning of domestic legislation, described as "already pretty demanding".[130]

94. We welcome this review. We are not persuaded that simply calling for the UK to sign up to the directive will be of great assistance. The Government has settled objections, on grounds of subsidiarity, to the EU seeking to establish law at this national level. If there are parts of the regime proposed by the directive which it is agreed could usefully be introduced into UK law, there is nothing to prevent their passage as primary or secondary legislation, without waiting for the passage of a European Directive. The best course of action is to look to improve our domestic law, drawing on the proven advantages of some elements of the proposed European Directive and of the national systems on which it is based, but without some of the perceived inflexibilities. We share the sense, which we expressed in our Report on BMW , Rover and Longbridge, that there is something amiss in the European Works Council system as shown in this instance and others. It is capable of working, as evidence from the unions suggested.[131] We had already been minded to recommend a general review of employment legislation with a view to identifying those elements of other European systems of employment protection and of the proposed EU directive which could and should be extended to the UK.

   95. We have to sound a note of caution about the proposed terms of reference of the review announced on 13 December 2000 and again on 18 January 2001. The justifiable criticism over both the Dagenham and Luton closures and the BMW decision on Longbridge was that the workforce were given no opportunity to comment on the proposals being developed and to come up with alternatives before final decisions were made and announced. There is evidence that viable alternative options overlooked or summarily dismissed by management can come out of such consultation. Prior consultation can make good management sense. The proposed review must explicitly address this point. It has to go beyond "fine-tuning" of the law and practice of redundancy if it is to carry any credibility. Nothing must be ruled out, including primary legislation. The review must also be conducted transparently and swiftly. We recommend early publication of a date for the conclusion of the review. Subject to those observations, it is in our view a welcome development, although too late to save jobs recently lost in the car industry.

Sterling and the euro

   96. We have of course discussed with all concerned in public evidence and private meetings the issues of the value of sterling and future UK membership of the euro.[132] Most UK vehicle manufacturers have made public statements of their desire for a cheaper pound or a stronger euro, sometimes combined with an appeal for greater currency stability. Some have explicitly called for the UK to join the euro or at least commit itself to doing so in the near future. Greater currency stability and in particular a steady sterling:euro rate could theoretically be achieved without sterling entering the ERM, let alone the eurozone. The rate might not be to the taste of the companies. A sterling:euro rate closer to the assumptions made a few years ago by many of the companies, of around 2.90 or 3DM, may well be on the horizon, following the rallying of the euro in the last months of 2000 and early part of 2001. This would please UK vehicle assemblers, although not those engaged in exporting their vehicles to the UK. The prospect of a downturn in the US economy leading to a stronger sterling rate against the dollar would in contrast be a blow to those parts of the UK vehicle industry looking predominantly to the North American market. There have been serious short-term problems caused by the sterling:euro rate, but most of the big players in the industry have a sufficiently long-term view of prospects in the UK and the eurozone. For smaller UK-based component companies, it has been and remains a major problem.

97. Whether to join the euro or make a time-specific commitment to do so is of course a question with ramifications far beyond the interests of any one industry or indeed of all industries. It is not and should not be seriously suggested that the UK should commit itself to join the euro as a means of preserving one particular part of its industrial base. There is no evidence that such a step would have the desired effect; nor that not taking that step will cause long term damage to industry. The vehicle industry illustrates the arguments for and against UK membership of the euro, particularly because of the global alternatives open to the assemblers and to the major component manufacturers, and the high proportion of vehicles which are traded in intra-European trade.


98. The evidence presented to us confirms that the UK still has a successful automotive component industry, ranked third in Europe behind Germany and France. The scale and nature of component suppliers vary widely. At one end of the spectrum are a handful of multinational firms, one or two of them of UK origin, employing thousands of people around the world and supplying all the major assemblers, usually from a plant near the point of final assembly. These so-called "first-tier" suppliers are increasingly engaged in production of complete sub-assemblies, comprising a range of individual components, and are engaged in research and engineering design independently or in partnership with assemblers.[133] They are in turn supplied from a second-tier of medium-sized firms. At the other end is a mass of SMEs with a single plant, dependent on sales to a first — or second — tier supplier, and with a small range of products. Some of these may be wholly dependent on sales to vehicle component manufacturers. Others also supply the aerospace or general engineering industry and are sufficiently flexible to be able to change their products to meet market demand.

99. The continuing presence of vehicle assembly operations in the UK is a crucial condition for the survival of the UK component industry. It is theoretically conceivable that a component industry could rely largely on exports. Some UK component firms are indeed successful exporters. But in reality any reduction in assembly operations in the UK has an impact on component design and manufacture. Investment by major first-tier suppliers is highly mobile and follows the point of final assembly. Components are often bulky or difficult to transport safely and undamaged. First-tier suppliers as well as assemblers use "just-in-time" delivery methods to reduce the expense and space of holding large stocks. Some contracts therefore specify a maximum distance in terms of delivery times to the point of final assembly.[134] The loss of a plant or a reduction in output can have what the IME called "an avalanche effect", as the first-tier supplier moves the point of production outside the UK and in turn requires supply from that new location.

100. There have been many reports of car manufacturers threatening to change their suppliers because of the euro:sterling rate, or of asking their existing suppliers to quote in euros or to lower their sterling prices to be able to compete with prices in the eurozone. There is no doubt that some component suppliers are in difficulty and that assemblers are seeking to reduce their costs in this way. It is in practice unusual and inconvenient for a manufacturer to change supplier in the middle of a model production run. We were told on our visits that a change takes months rather than weeks to bring to fruition, involving inspection of a new supplier's premises and transfer of the necessary technology and proprietary information.[135] However, the respecification or redesign of a component during the life of a model offers one opportunity to seek a new supplier or at the least to seek a reduction in its cost.

101. It is also possible for a large first-tier supplier —

  • to shift supply of a sub-assembly from its plant in the UK to its plant in another country where the same sub-assemblies are already being produced for the same or a related model, subject of course to capacity constraints there and the logistics of transport from that plant to the UK; or

  • to seek in turn to reduce its costs by sourcing its components from the eurozone, particularly where they are not technically complex and readily available from a reputable source. As the Managing Director of Peugeot UK put it " is quite often the first- tier supplier making the decision that he will supply us from a continental market...those suppliers increasingly are able to supply us with more competitive products by sourcing those components from European countries...".[136]

The assemblers may not have any objection to the first course of action and have no good reason to be aware of the second course.

102. It is not easy to ascertain the UK content of vehicles assembled in the UK, by which we and most others mean the proportion by value of the content which is produced in the UK, whatever the ultimate ownership of the producing company. EU rules do not allow for overt or covert discrimination between EU suppliers. Assemblers record EU content by value, and are able if pressed to produce an approximate figure for UK content based on the proportion of supplies invoiced in sterling. Assemblies and sub-assemblies, including engines and powertrain, which themselves comprise components from different countries, will be recorded as UK content if that is the place of their assembly. The figures can also include non-physical content expenditure, on advertising and marketing.

103. The three Japanese manufacturers were committed by a gentleman's agreement to minimum levels of UK content when setting up in the UK. These have been quietly dropped. Vauxhall told us that the current Vectra and Astra models had around 60/70% UK content by value, and that the new Epsilon would have around 50%.[137] Peugeot's new derivative of the 206 to be introduced at the end of 2001 will have UK content as low as 20%.[138]

104. From our discussions and from evidence presented to us, it is indeed evident that the UK content of vehicles assembled in the UK has fallen, is falling and is likely to fall further, almost entirely as a result of the weakness of the euro. Those in an advanced stage of planning for new models or who have recently introduced such models have shifted towards sourcing from elsewhere in the eurozone or outside it. The danger with this trend is that it is not readily reversible, even if and when the euro strengthens against sterling or if the UK were to join the euro in due course. The loss of component manufacturing capacity cannot always be replaced, in particular in small firms with insufficient other markets for their products.

118  Eg Q 141 Back

119  Qq 209-210 Back

120  Q 83 and Ev, p 18 Back

121  Q 195: Ev, p121-2 Back

122  Ibid and Qq 198- 9, 230 Back

123  Qq 7ff and Ev, pp 120-5 Back

124  Q 12 Back

125  Q 46 Back

126  Q 302 Back

127  HC 383, para 26 Back

128  HC 634, pp vi-vii Back

129  HC Deb, 18 January 2001, cols 498-501 Back

130  Guardian, Financial Times etc, 19 January 2001 Back

131  Q 217; Q 391  Back

132  Ev, p 17 and Q 83; Qq 144, 153, 162, 185; Q 191 Back

133  Qq 103ff, 111 Back

134  Q 110 Back

135  Qq 98ff Back

136  Qq 156-8 Back

137  Q 89 Back

138  Q 156 Back

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Prepared 8 February 2001