Correspondence with the Secretary of State for
Trade and Industry
We wish to bring to your attention the worsening
business conditions in the plastics, rubber, and associated machinery
and tool making sectors. Since our members supply an enormous
range of semi-finished and finished goods to a diversity of markets
and the plant which underpins the plastic and rubber industries,
we believe that they provide serious pointers to the real condition
of manufacturing industry in the UK.
Each week the industry trade press reports closures among plastics
and rubber processing operations and among their customers. Here
are some recent examples:
Valeo, a French owned automotive components manufacturer,
announced in February closure of two sites with potential job
losses of 580. Reason: cut-backs in UK automotive production by
Rover and Renault.
McKechnie Vehicle Components announced in February
its withdrawal from all continental European supply contracts
with potential job losses of 155. Reason: high value of sterling
against the Euro.
Diaplastics, a component supplier to the electronics
industry, announced 50 job losses. Reason: drop in orders from
Sony and Panasonic who in turn cite the sterling rate for their
reductions in the use of UK suppliers.
Such events are not in the public eye, they do not attract a political
focus, nor individually are they on the scale of the recent Motorola
announcement. Yet cumulatively the impact is as great or even
greater. We attach a list of the key pressures on our sectors
and suggestions for action from government.
This situation is severely undermining the confidence of investors
and if it continues can only lead to a significant curtailment
in manufacturing in the plastics and rubber industries and a loss
of jobs. The only beneficiaries will be other EU Member States
and world trading zones.
The sad irony is that the plastics and rubber industries are arguably
UK national economic strengths. Unlike many other countries we
have ready access to the oil, gas and other chemical feedstocks
required to produce the raw materials and each sector of the plastics
and rubber processing industries includes world class companies.
The crucial role of the UK plastics and rubber industries in the
supply chain is such that the DTI have highlighted them as a target
of competitiveness initiatives: the Partnership in Plastics Project
(PiP), the Plastics and Rubber Industry Forum (PRIF), the Sector
Challenge for the rubber industry and the Rapid Product Development
Initiative for the tool making sector. However the plastics and
rubber industries in this country cannot operate without an extensive
customer base of Original Equipment Manufacturers located in the
UK. Without doubt these customers are drifting away.
It is our view that government could play a major role in helping
to ameliorate this situation. We greatly appreciate the plastics
and rubber competitiveness initiatives led by Alan Johnson. However
our customers and indeed our own industry require greater assurances
and action from government that it sees manufacturing as a central
activity essential to the UK economy. We need assurances that
overall government policy really is informed by an accurate appreciation
of the consequences for manufacturing competitiveness of the strength
of sterling, the increased burden of regulation and taxation such
as the damaging Climate Change Levy and other concerns as highlighted
in our note.
We would very much appreciate a meeting with you to brief you
on the current performance of our sector and the impact of public
policy on it. We would also be very grateful for your own views
on the attached paper and any solutions which you yourself and
government colleagues have in mind. The total sales output of
our industry is over £20 billion and our contribution to
exports is £5 billion. The total number of firms in our sector
exceeds 6,000 and we account for approximately 300,000 employees.
We look forward to hearing from you.
Director General, British Plastics Federation
Director, British Rubber Manufacturers Association
Chief Executive, Packaging and Industrial Films Association
Director, Flexible Packaging Association
Chief Executive, Gauge and Toolmakers Association
Chairman, Polymer Machinery Manufacturers and Distributors Association
Chairman, Northern Ireland Polymers Association.
Key Concerns of the Plastics, Rubber, Machinery and Toolmaking
Profitability is at its lowest level since 1993.
25 per cent of companies surveyed by the EEF are considering
locating production overseas.
We accept there is little the Government can do until the Government's
economic tests are met and a referendum held on joining the Euro.
We reject any harmonisation of direct, indirect and corporate
taxation with the EU where the UK has an advantage and which encourages
inward investment and the creation of jobs.
The UK has tumbled from 16th to 19th place in the IMD's
international competitiveness league.
CBI figures show the tax burden on UK business is 9.4
per cent of GDP.
The Government since 1997 has imposed an extra £5
billion of tax burdens on business, increasing the tax burden
from 35.2 per cent of national income to 36.9 per cent.
UK spending on R and D has slipped from equal first
amongst industrialised nations in 1981 to sixth in 1999.
A further £1 billion per annum will be raised
by the Government from hard pressed businesses with the Climate
Change Levy. Plastics processors will pay at least an extra £60
million per annum for electrical energy alone, but receive only
a fifth back on NIC's reductions. Plastics processors and general
rubber goods manufacturers are discriminated against by the CCL
since glass and metals will receive an 80 per cent discount because
they are high energy users. In Northern Ireland, where before
the CCL the highest electricity prices in Europe obtained, the
Levy has widened the competitive disadvantage of the plastics
and rubber industries still further. A French proposal for such
a levy has been rated "unfair".
We were disappointed the Chancellor did not decide to cut the
tax burden on UK business in the Budget but we welcome the consultation
paper announced on an R and D tax credit. We believe a 50 per
cent R and D tax credit should be introduced and the project budget
for Faraday Plastics should be doubled.
We believe Government proposals to allow Councils to impose a
supplementary rate on business, in addition to the uniform business
rate has been scrapped. This we welcome.
The damaging and unfair Climate Change Levy, the new energy tax
on business should be repealed and replaced with voluntary measures.
The Levy will directly harm the competitiveness of the plastics
and general rubber goods industries. Failing action to repeal
it, more firms should be made eligible for discounts under the
levy and competitive distortions eliminated.
According to the CBI, 10 new business regulations a
day were made in the past year, adding £14 billion in compliance
costs since 1997.
More new employment rights have been introduced in
the last two years than in the previous 20, the biggest changes
being minimum wage costing £5.4 billion and working time
Directive £2.3 billion.
The American Business Magazine "Forbes Global"
(16.2.01) wrote that Britain had become a "red tape factory",
not an encouragement to inward investment.
The Government's Deregulation Task Force under Lord Haskins has
been a failure. We call on the Government to put deregulation
under a Cabinet Minister advised by a panel of businessmen with
specific annual targets for reducing regulation, past and present.
We welcome the recent reductions in interest rates.
This momentum should be maintained further, closer to the European
level to simulate trade and investments.
We repeat our request made to the then Trade and Industry Secretary
in 1998 that the Monetary Policy Committee (MPC) which sets interest
rates, should have appointed to it people with manufacturing experience.
5.A NEW DEAL
The Manufacturing sector's contribution to GDP has declined to
19 per cent. However, a thriving, growing manufacturing sector
is vital for the economy. The level of UK investment fell by almost
15 per cent in 1999 and only grew 2 to 3 per cent last year.
We need a new programme to attract inward investment, which has
an emphasis on targeting investors in manufacturing. The inward
investment programme of the 1980'searly 90's was successful
in attracting a large number of American and Asian manufacturers.
This coincided with the microchip revolution to produce new applications
and an expansion of business development opportunities for our
industries. Now regrettably we are losing some of the firms that
invested in that period.
The incentives offered to target firms should also be reviewed
to retain a competitive edge over incentives available from other
We have seen a huge increase in gas prices to the plastics industry
at a time when gas from Britain is being sold at low rates from
our deregulated market to the French regulated market. We ask
the Government to request that OFGEM investigate this.
Fuel taxes in the UK are considerably greater than those in EU
states. This adds greatly to transport costs and damages competitiveness.