Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. Very clearly you are not saying, because you cannot, that the job losses are currently being proposed and who knows what might happen in the future because there are salami style job reductions at Rolls-Royce these days. You cannot say with any confidence at all that the net effect is going to be an increase in jobs. You simply made the obvious comment that all successful companies have to be competitive. I understand that and I understand the case for outsourcing. I understand the case for all sorts of changes which may be difficult but you are talking currently about substantial job losses of highly skilled workers. I am saying okay, if you say you have no alternative but to do that, please say that, but do not claim that the effect of this is clearly going to be more high value employment in the UK and that it is the jobs at the end of the day you are concerned with. I cannot understand how that could be the case.
  (Mr Maciver) May I make a brief comment on the overall situation as this is focusing on one company? The reality is that this industry has been very successful by comparison with most British industries in maintaining employment, maintaining business in the United Kingdom. That is not without pain, that is not without difficult decisions. I do not think any of us can pretend that there will not be difficulties at some time in the future. We could have a recession in the industry. It would not affect long-term growth but there will be painful periods as there are in the other industries. Not only do we have a history of maintaining a successful industry, we have the opportunity to maintain a successful industry. I really do believe it is that long-term focus and what we have to do, both in the creation of the skills base through the public sector into the training we do inside our company, likewise the investment in technology, these are the really important things. None of us, hand on heart, can say we will not confront difficult situations from time to time.

Mr Laxton

  61. The SBAC itself has produced this manifesto for the UK aerospace industry and you talk yourselves as an association about the risk of the hollowing out of the industrial base, talking about as the aerospace industry globalises the danger of the UK aerospace industrial base being hollowed out. Then you go on to talk about the action which is needed between Government and the UK industry on R&D. Side step that issue. If you continue down the road of outsourcing and globalising outside the UK, do you accept that would place in some jeopardy the continuing maintenance of highly skilled and experienced people who currently work within the industry? I have a feeling that if it goes beyond a certain point some of those very highly skilled and experienced jobs will themselves be at some risk.
  (Mr Maciver) That is the very point which we have alluded to throughout this session. There are risks but they are risks which can be overcome as we have to date. What we cannot afford to be is complacent. I do not believe there is any hollowing out of the total skills base today, in fact in the case of my own company over the past three years we have increased by 50 per cent the number of design engineers we employ. Some of that is spinoff from Rolls-Royce increasing demands upon us based on success in winning programmes. I do not believe we are seeing that situation. All of us share a concern that that should not happen. There are some very bad examples which none of us want to see repeated here but I do not think we are seeing that today. That is not where we are and it is not my impression of where my colleagues are.

  62. According to this it is a risk; there is a risk.
  (Mr Maciver) Yes.
  (Mr Weston) We have said this morning that we do see some trends; there are worries in that respect. At the end of the day it is not just a question of the competitiveness of the industry it is also the competitiveness of the environment in which we all have to make our investments. What we are saying is that in the UK at the moment, both in terms of some of the funding going into civil research and in terms of some of the purchasing patterns out of MOD, we are seeing some worrying trends that over time will have a negative impact upon the industry base in the UK. It is not because we are all sitting here and being unpatriotic and saying we are going to shift all these jobs offshore because things are better elsewhere. That is the reality of the economic marketplace in which we all have to operate. All of us sitting here in front of you today would like to see the UK industry continue to prosper and grow and we shall do our very best to make sure that is the case. It would also be irresponsible of us not to point out to you some of the underlying trends which we actually see in the marketplace in which we operate and what we believe other countries are doing.

Mr Cunningham

  63. Coming back to Rolls-Royce, can you tell us why £150 million has been spent on restructuring and yet that has resulted in job losses?
  (Mr Rose) It is quite important that we keep on focusing on the fact that what we have to be in the UK is a successful player in a global industry, not an unsuccessful domestic industry. That is the objective of our company and I am sure it is consistent with what Mr Weston and others have said. We made huge investments in doing that. We have spent £1.25 billion on capital over the last five years on our domestic facilities and about £1 billion on IT to support that. We are extremely committed to being a successful player in a global business. We have a significant orderbook and the prices in that orderbook are transparent to us. It is the double edged sword of large orderbooks. They give you a view of the future. We recognise in order to continue to be successful and to launch new programmes which will return a profit which allows us to make those sorts of investments we need to be at least as competitive as anybody else in the world. The consequence is that we will not necessarily within Rolls-Royce be able to employ all the range of people we have historically employed. We are creating a lot of jobs in the supply chain so frequently the jobs which are moving out of Rolls-Royce are occurring in the supply chain. It is not a loss of jobs to the industry, it is a migration of jobs from Rolls-Royce into the supply chain. If the UK supply chain is going to be the biggest beneficiary of that, clearly it needs to be internationally competitive because that is the environment in which we are operating. What we have said today has been largely to do with how we focus on the conditions which will ensure that for the longest time possible the UK will be as competitive as it can be and that will go to proper investment in R&T, proper support of training initiatives and so on. That is where the focus from our perspective should be because it is an industry which is global, it is an industry which is growing, therefore it is an industry which provides significant opportunity, but it will not always look like it did. That is not a statement of complacency: quite the opposite. It is a statement asking how on earth we can make sure that we can be as successful as possible in this industry of opportunity.

  64. Can I get some clarification on numbers of jobs which could actually be lost? Is it 2,000 or is it not 2,000?
  (Mr Rose) Chairman, with your permission, I have a separate meeting arranged with Mr Cunningham specifically on the jobs issue and we will deal with that separately. I think that is more appropriate. We would expect to be losing jobs from Rolls-Royce at the rate of between 1,000 and 2,000 a year over the next three years.


  65. I recognise that there may well be things which in a private meeting you are prepared to say which you are not prepared to say in public.
  (Mr Rose) No, it is just that it is to be a detailed discussion.

  66. If Mr Cunningham thinks that the detail you give him would be of use to the Committee, then perhaps you could send them to us at the appropriate time, if that is acceptable.
  (Mr Rose) I should be very happy to do that, indeed we have communicated with the DTI already.

Mr Cunningham

  67. To clarify for the Committee, we do not yet have a date for that meeting but it will involve other MPs from the Rolls-Royce plants; just so nobody thinks there is any chicanery here.
  (Mr Rose) I was not suggesting that.

  68. No, but I want my colleagues here to understand that.
  (Mr Rose) We have provided the detail that we can to the DTI in written form already but we are very happy to provide that to the Committee.

  69. I understand you are involved in negotiations and all that goes with that but there is a lot of public concern, particularly in the Coventry area, about the future of Ansty.
  (Mr Rose) The future of Ansty will be that it will continue as a place where we proceed with a number of activities. We would hope to grow our repair and overhaul activity there; we have a successful repair and overhaul business which is competing currently for a range of military repair and overhaul programmes and if successful in those we would see an opportunity to grow employment in that area. A number of activities will continue to be prosecuted on the Ansty site. We are looking at some specific rationalisation of where we do some engineering and some of those jobs will move to Bristol and Derby and some of those will no longer be required. Similarly with the manufacturing area, over time we would expect a change in the balance of manufacturing which takes place in Ansty, but manufacturing will persist in Ansty.

Mr Berry

  70. You referred to the job losses at Rolls-Royce giving rise to the creation of "lots of jobs in the supply chain". Could you give us some information on that in due course? I do not expect it now obviously. Clearly you have some estimates of jobs in the supply chain. It would be useful if the Committee could have those.
  (Mr Rose) I can give it to you now. It is bound to be an approximation but since 1995 we have increased about 10,000 jobs. The expenditure in 1995 in the UK supply chain was £600 million, it is now £1 billion and it will be about £1.3 billion in 2003. That will have the impact of creating further jobs between now and 2003.

  71. I am sorry, I do not think I made my question clear enough. My question was that as a result of the 5,000 job losses or whatever—1,000 or 2,000 jobs per year over the next two or three years—you advised the Committee that this would create lots of jobs in the supply chain. It is the specific effect of that decision in terms of direct employment at Rolls-Royce and the restructuring that involves, what the effect of that will be on jobs in the supply chain, some in the UK supply chain and some in the supply chain in other countries. That was the question.
  (Mr Rose) Let me be clear. Firstly, our ability to be competitive has created jobs in the supply chain. Secondly, we would expect that some of the outsourcing which takes place from the company as we change the balance will result in an increased opportunity in the UK supply chain. I cannot give you specific numbers at this point for how many will accrue to the UK supply chain because we have not been through the process; it will be a decision which takes place on a case by case basis. What I can say is that on the basis of the success we have already had in the market we have increased our spend in the supply chain with a resultant increase in jobs. Rather than speculating, I can tell you what has actually happened.

  Mr Berry: The trouble is that does not answer my question, but yes, I agree.


  72. What some of us are having a little difficulty about is that we understand there are programmes for outsourcing, there are programmes for increasing equipment, because you are more successful in selling, therefore you have to find more kit. What we are not very clear about is that when you strip out the jobs which were there originally, and these are now being done by people outwith the factory, outwith the plant, are these extra jobs? It is a bit like the way the Government sometimes counts money it gives to industry: it recycles the figures when it suits their purpose. We have come across this kind of arithmetic before so we are not really clear. You take bodies out and have them working somewhere else and there is a third element which is that new work is actually being created by you being leaner and fitter; as a consequence of stripping out this work your are able to get more business and sell more orders. It is that kind of logic? If you could give us the figures maybe that would help.
  (Mr Rose) I cannot give you some of the figures because as we look forward it is difficult to predict what the consequence of the competitions will be between prospective suppliers. I cannot give you with any accuracy what the outcome will be. Clearly work which needs to be done will get done somewhere and hopefully a proportion of that will occur in the competitive UK supply chain because there are significant reasons why one would like it to. They will clearly have to be competitive.

  73. Fifteen years ago these jobs might have been in Britain: they could now be in the eurozone or even more likely they could be in the very low paid but highly skilled workshops which are in the former eastern bloc countries which we now call more correctly central Europe, places like Poland.
  (Mr Rose) I should just like to go back to Mr Weston's point which is that in terms of the proportion of the total buy which is made in those areas it is a very small proportion of the whole. It is important to keep on coming back to this point. What we are trying to do is create a bigger pie.

Mr Cunningham

  74. What benefits or inducements have the Canadians given in the way you cannot get them here?
  (Mr Rose) In Canada there is an attractive environment of R&D funding which has been helpful historically in the development of our industrial power business. That is not available here. That is one of the points that both Mr Maciver and Mr Weston have made today about the internationalisation of the R&T community. It is terribly important that we as a country recognise the importance of investment in R&T both well before the market and at the time of product development.

Mr Chope

  75. You know that the Government is still intent on going ahead with the climate change levy. Do you think that is going to help or hinder the competitiveness of your industry?
  (Mr Marshall) I do not think it will help the competitiveness of the industry. Our industry has been seeking to strike an agreement for those members who want to be in one through a trade association but it is difficult to see how the system proposed actually improves competitiveness vis-a"-vis what is being done elsewhere.

  76. What do you think it is going to cost your industry?
  (Mr Marshall) It is difficult to say as whole. Quite a few millions of pounds which will not therefore be available to invest in the things we have been talking about this morning.
  (Mr Maciver) As a general answer it does not compare with some of the very high energy users but it is still a significant factor. The issue we would all see is that the way the burden is distributed does seem strange. That is the fact of the matter and there is nothing more we can say.

Mr Berry

  77. May I turn to the happy experience of the A380? In the DTI's note for the Committee they state that up to 22,000 new jobs will be created and 62,000 existing jobs safeguarded in the UK, including the supply chain and indirect employment. I simply note in passing that apparently Rolls-Royce has difficulty estimating these indirect effects but somebody has been doing it for the Airbus project. Of these jobs, is it possible to give us some idea of the breakdown between jobs at BAE and jobs elsewhere, if not immediately, certainly in writing in the future? I just want to get some feel for the extent to which others benefit.
  (Mr Weston) You will probably find it is one third, two thirds, but let me make sure I have actually given you the correct numbers.
  (Mr Maciver) I would make the point that while that is successful so far, a large number of the purchasing decisions on that aircraft are not yet made and that is particularly relevant to some of the equipment companies like my own where we are in competition for business on that aircraft. Many of these decisions will be taken on a very global basis indeed. We are still in head-on competition and there is a lot more to be won or lost on that aircraft. It is successful so far, it is an excellent thing, it is launched, but there is a lot more to play for.
  (Mr Weston) It does remain a fact of public life these days that the job losses tend to get more headlines than the job gains. We are busy building up our engineering resources at Filton at the moment and we will be building up our manufacturing resources at Broughton significantly as the programme progresses. We are now trying to hire 2,000 new engineers over and above our usual recruitment from the universities and engineering over the next year or two. We do not get a lot of publicity for those: we do get a lot of publicity for the areas who are having to manage the jobs downwards.

  78. Did the agreement surrounding the launch aid provided by the Government involve a commitment to build a specific or general number of jobs in the UK? Is there a link that as a consequence there is a guarantee of some jobs being created in the UK?
  (Mr Weston) We should like to refer to it as a repayable launch investment not launch aid.

  79. Absolutely. I think you described it as repayable investment by the Government.
  (Mr Weston) That was provided under the understanding that this was one of the issues associated with the formation of Airbus as a single company. Clearly there was a political desire to make sure that there was some long- term security for the centres of excellence of Airbus wing design at Filton and manufacture at Broughton. Both we and the DTI paid some considerable attention to that in the formation agreements together with AIC. Yes, there were some linkages between the repayable launch aid investment and getting satisfactory terms into those agreements. In a rational commercial world, if you looked at the risk of moving that centre of excellence out of either of those places and putting it elsewhere, it would be a crazy thing to do. The risk that anybody would ever want to do it, regardless of the ownership and control issues around Airbus on commercial made decisions, would not be an issue, but we all felt more comfortable with some linkage between them.

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