UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 281-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

WELSH AFFAIRS COMMITTEE

GLOBALISATION AND ITS IMPACT ON WALES

Tuesday 30 January 2007

MR DAVID ROSSER

MR DEREK WALKER and MR ANDY RICHARDS

Evidence heard in Public Questions 1 - 72

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Welsh Affairs Committee

on Tuesday 30 January 2007

Members present

Dr Hywel Francis, in the Chair

Mr Stephen Crabb

Nia Griffith

Mrs Siān C James

Mr David Jones

Albert Owen

Hywel Williams

Mark Williams

________________

Memorandum submitted by CBI Wales

Examination of Witnesses

Witness: Mr David Rosser, Director, CBI Wales, gave evidence.

Q1 Chairman: Good morning, welcome to the Welsh Affairs Committee. This is the very first session of our inquiry on globalisation and its impact on Wales; very appropriately, this morning, we have representatives from CBI Wales and the TUC. Could you introduce yourself for the record?

Mr Rosser: Good morning, my name is David Rosser; I am the Director for the CBI for Wales and the South West of England.

Q2 Chairman: Could I begin by asking you the obvious question and that is, in general terms, what has been the overall impact of globalisation on employment patterns in Wales?

Mr Rosser: In general terms there has been a shift from employment in industries which are producing goods primarily, or services, which are bought on cost and can be manufactured or produced elsewhere, so you can take two or three key industries which have those features inherent in them - textiles would probably be one and consumer electronics would be another; in the past Wales has had significant employment in both those sectors - which now have shrunk dramatically and a shift towards employment in sectors which are inherently more local in their nature, so the hospitality and tourism industry, personal services, local services, which are bought perhaps less on cost and are less easily traded and imported.

Q3 Chairman: Are there particular regions that are suffering from globalisation or alternatively benefiting from globalisation within Wales?

Mr Rosser: If you look at the nature of the employment which I suggested has shrunk and the sectors in which those were, then those areas of Wales which were strong in those sectors have been particularly impacted. Therefore, it is predominantly the industrial areas of Wales, as manufacturing has had the biggest impact and has suffered the most, so the south-east corner of Wales and the north-east corner of Wales have seen the biggest shift in employment patterns, although if you look at the textile industry there were pockets of textile employment across the country and in some rural towns the textile industry was one of the largest employers, so whilst the numbers might have been small, the effects might have been disproportionate.

Q4 Chairman: In addressing the question of globalisation in Wales, would you agree with me that one of the key issues which has not been given sufficient attention is the subject of the Leitch report, and today of course there is a conference in Wales on the way in which the Leitch report will impact itself on globalisation in Wales and so on. Do you think that the issues around the Leitch report need to be seriously addressed, perhaps more than anything else, in tackling globalisation?

Mr Rosser: The issue of skills and employability is the single biggest issue, both in assisting companies who are already within Wales to remain, to be competitive and to increase their competitiveness, but also for the individuals who might be adversely affected by the inevitable process of globalisation. How we re-equip those individuals and re-skill them to take part in the economy of tomorrow which might be quite different from that of yesterday is going to be fundamental. I find there is a lot of discussion around skills, training, education and the need to link that with the needs of employers and employment. It is not an easy thing to do, as we have proven over quite some time.

Q5 Mr Jones: Good morning, Mr Rosser. Your memorandum points out that "Wales has a significant proportion of its larger private sector employers which are subsidiaries of international business" and that these are more likely to relocate completely away from Wales than indigenous companies. Do you consider that the predominance of multi-national subsidiaries is a pattern that is likely to persist as globalisation proceeds and would you consider it desirable for Wales to move away from this pattern, or indeed is it possible for it to do so?

Mr Rosser: The presence of international businesses in Wales has been a wholly positive one for the economy and also for our indigenous companies who have benefited from the transfer of people, transfer of technology and sourcing opportunities. They are more global in their outlook and therefore are better able to take advantage of relocation opportunities when they arise in indigenous Welsh companies. I hope we will always see international companies in Wales and Wales will not be alone in that; therefore we need to encourage our indigenous Welsh companies to become more international in outlook themselves and to start acting more like the largest international players. The bottom line is that if we try and make Wales the best location, a location that is attractive to business in general, then it will be equally attractive to international businesses as well as a good location for Welsh companies to grow and prosper; the fundamentals are the same for both types of companies.

Q6 Mr Jones: What is your view as to the prospects of that actually happening or do you feel, possibly, that globalisation will result in an outward migration of multi-national companies from Wales?

Mr Rosser: It is resulting in a transfer of employment within multi-national companies out of Wales and the challenge for Wales is to make itself an attractive place for new employment to be created by multi-national companies. Our memorandum points to some of the key issues that will make that happen; some of them are common to the UK - we have talked about the taxation system, the regulatory environment which makes it easy or not easy to conduct a business - and some of them are more specific to Wales, and the question of skills is probably the single most pertinent point in that respect.

Q7 Mr Jones: Your memorandum points out that globalisation does create opportunities as well as challenges; can you give any examples of the kinds of opportunities that globalisation is providing for the creation of jobs in Wales?

Mr Rosser: I will give an example of a company I know quite well in mid-Wales, Control Techniques, which is one of the larger private sector businesses in Newtown, making electronic products for the private manufacturing sector. It employs 400 to 500 people in Newtown and is part of a wider US conglomerate and has recently opened up a factory in China. What it is doing is gradually moving its lower end products out to be manufactured in China, taking advantage of opportunities to source components in China, both for its Welsh and Chinese operations, and so making itself more competitive. At the same time its product development function in Wales is bringing on-stream newer products of higher value which it is continuing to manufacture in Wales. It will probably employ similar numbers of people in future in Wales as it has done, but they will be more highly skilled, hopefully therefore more highly paid and more highly trained. Clearly, that brings opportunities to the company, it enables it to compete on a larger scale, in a more competitive way and brings opportunities to its workforce, its employees in Newtown but, clearly, they do have to be capable of being up-skilled and retrained and willing to go through that process.

Q8 Mr Jones: We talk of up-skilling and retraining; are those the sorts of things Welsh companies ought to be doing more in order to take advantage of the opportunities presented by globalisation?

Mr Rosser: They certainly ought to be doing that and hopefully they are, and no doubt they could be doing more of it.

Q9 Mr Jones: What else do you think they should be doing apart from up-skilling and retraining?

Mr Rosser: Productivity generally is going to be key to competing in the new global marketplace, so investing in plant and equipment. Sometimes productivity means that fewer numbers of people will be employed, but they should certainly be investing in productivity, they should certainly be innovating. A company which continues to do the same thing today as it did five or ten years ago probably will not be doing it in five years time. The companies which stand still are the ones which are going to suffer from globalisation.

Q10 Albert Owen: Good morning, if I could just move on to gross value added, infrastructure and energy costs, three separate issues, the first question on the GVA is that, as you know, Wales has the lowest of any UK region compared to other UK regions and 20% below the average of the UK in 2005. What are the prospects of closing the gap as the Welsh economy responds to globalisation?

Mr Rosser: That is very unclear. Globalisation offers Welsh companies the same prospects as those elsewhere and as production becomes more competitive and as markets are opened up, companies in Wales are no longer reliant on the Welsh market or just the UK market, they have the whole world in which to compete, as do companies elsewhere. Welsh companies will be driven away from low value added, low margin production and employment and will be driven more towards high value added production, employing more skilled people who are earning more. If all companies and all individuals rise to that challenge and make the move, then one could see that the GVA in Wales ought to rise to match the UK average. If companies or individuals do not or cannot make that move then prospects for certain parts of our economy are good and certain parts are actually quite poor.

Q11 Albert Owen: Do you think that concentrating on GVA as a measurement is right, because there are lots of improvements in the Welsh economy as I have read in many of your organisation's reports; is it fair to compare GVA with different regions of the UK?

Mr Rosser: It depends what region you are looking to compare it with. A company will pay more attention to its markets and how it is able to compete in them than the overall economic picture which probably exerts the thinking of politicians and maybe people in my position. GVA at least is an international comparison, it has some rigour to it, it is reasonably up to date as economic indicators go, although it would always be helpful to have more recent data. People are struggling always for a better one but keep coming back to GVA; it is possibly a question for your economic advisers rather than for me.

Q12 Albert Owen: If I could just move on to the infrastructure, you mention in your memorandum that "Connectivity with markets will also increase in importance with globalisation. Road, rail and air connections from Wales will also require upgrading." Those are your words. To what extent does Wales' transport infrastructure affect the economic development of Wales and are there specific areas of Wales that are doing less well because of its infrastructure?

Mr Rosser: It continues to be the common factor most often mentioned by companies when you ask them about the characteristics of specific locations as a good place to do business or not. It is partly Wales specific and partly UK specific, the fact that the whole transport infrastructure of the UK appears to many people to be slowly grinding to a halt impacts on the UK's attraction as a place to do business alongside many other things. Companies in North Wales seeking to transport goods or indeed people to the south-east of England or onto the continent will struggle on the motorway system around Birmingham; companies in South Wales have complained bitterly for some time about the strategic quality of the M4 in south-east Wales to get to external markets. Individuals in companies in south-east Wales in technology sectors in particular will refer to air travel. I was at Alcatel in Newport yesterday; they are still part of a French company and now merged with a US company and executives travel regularly and frequently to meetings across Europe and the airport connectivity is not as good as one would wish in south-east Wales. If you take the example of Alcatel, which has now merged with Lucent, they have four sites along the M4 corridor now between Maidenhead in the East and Newport in the West and as it is a newly merged company one can imagine that they may be looking to determine what to do with the number of sites that they have across Europe. It is in instances like that that the transport infrastructure and proximity to airports starts to become a big issue. For individuals who might be affected by the relocation of employment, for example from some of our manufacturing heartlands to employment being created more in the cities along the M4 corridor, the quality of the public transport infrastructure connecting individuals to where new jobs are most easily being created is a key factor. Most CBI members in North Wales are along the A55 corridor and feel that that road serves them fairly well and the proximity of Manchester Airport is a distinct benefit, but again if you take the issue of Control Techniques in Newtown they are very happy manufacturing in Newtown, but they maintain their sales office in Telford because those are the people who need to be connected to customers across the UK and Telford is a far better place to be than Newtown. They would like to have them co-located, so transport keeps coming back to being an issue.

Q13 Albert Owen: Do you see any benefits with greater North-South links?

Mr Rosser: From a purely economic standpoint there would be some benefits in enabling companies in South Wales to do business in the North and vice versa, where currently they choose not to do so. They are probably marginal benefits because trade patterns expand along transport corridors and companies in South Wales will move down the M4 corridor as they expand their operations into the Midlands, companies in North Wales will move into the north-west of England. They might move from South to North within Wales were the transport links better, but for a company in North Wales the market in South Wales is actually quite small compared to the north-west of England and vice versa as well. I remain to be convinced that the economic benefits would repay the presumably significant costs of the infrastructure improvements.

Q14 Albert Owen: You did not mention the sea and I notice that sea trade is very important to Wales. As somebody who represents a poor community I can see the benefits of that, particularly for transferring some dangerous goods et cetera from the Republic of Ireland. That is just a comment. What do you think is the impact of rising energy costs on investment decisions of companies located in Wales and, importantly, those considering locating in Wales? Do you think it is just a blip or do you think there is a trend of higher energy costs?

Mr Rosser: I wish I could forecast the market, but I suspect a lot of that is down to some decisions that government and private businesses take together over investment in the near future. In the short term the impact of energy costs is just the absolute price rise where companies are tied into supply contracts and if they do not have energy escalators built within those then there are immediate impacts. In the medium to long term the bigger issue is the competitiveness of energy costs as opposed to their absolute level. Take an example of a paper company in Wales, part of a European group, runs one of the most efficient mills within that group and yet last winter was making a loss because of the UK energy prices. Its sister plant elsewhere in the UK shut down for a period during the winter and production was transferred to Finland because Finland has abundant, cheap electricity through its nuclear power fleet. The competitive plant for the plant in Wales in terms of production was in France and France's energy costs were in the middle between Finland and Wales and production was not transferred. In the short term, therefore, there are impacts for companies, in the medium to long term if companies are not convinced that the UK is taking the serious strategic decisions which would guarantee a competitive energy price then that will have locational implications.

Q15 Albert Owen: Do you think the energy review is helpful for planning medium and short term?

Mr Rosser: The recent energy review certainly was a lot more helpful than the one two or three years ago. Delivery is everything.

Q16 Albert Owen: What do you see as the main difference in the one three years ago?

Mr Rosser: Clearly the issue of nuclear, at least at a UK level, seems to have been tackled head-on by the Government, but that needs then to be translated into a regulatory framework, a pricing framework, within which companies can come forward with proposals. There are some very useful statements about the planning procedures for strategic energy projects and again, as I say, delivery is everything. Coming out with the plans, we now need to see this happening, we actually now need to see an energy structure being put in place.

Q17 Mark Williams: Turning now to specifically education and training, you touched on it in earlier answers but perhaps we can talk about that in a little more depth. Your memorandum states "it is concerning that basic skills levels within the existing workforce and school leavers are not high enough when the prospects for low-skilled employment will diminish." How do you see Wales as comparing with the rest of the UK in that context?

Mr Rosser: Equally concerning; I am not convinced that the situation in Wales is particularly worse than that across the UK and CBI members would be concerned about those issues across the UK.

Q18 Mark Williams: Have you detected an improvement in the level of basic skills?

Mr Rosser: No, I do not think we have.

Q19 Mark Williams: Moving on to questions that, again, you have touched on before, what should industry be doing or Government be doing to increase the level of basic skills, in particular in Welsh industry, to raise the level of skills in the workforce? What, at the micro level and at a macro level should we be doing?

Mr Rosser: If we focus particularly on basic skills, a number of companies do have programmes in place to tackle literacy, numeracy and basic computer skills within the workforce. I have to say this is an area where companies tend to do quite good work jointly with the trade union movement on delivering this. I have to say it frustrates a number of people running businesses that they have to do this, but they recognise that both for the individuals and for their own companies the level of basic skills within the workforce has to be increased and worked upon but businesses generally do not see it as something they ought to have to do. Many would probably tackle this with somewhat better feeling if they felt that they were dealing with the stock and the flow had been turned off as well, but the fact is that most companies recruiting new entrants to the workplace believe that the education system is still producing people with basic skills problems at the same sort of rate as it generally has done, so they find difficulty with the stock when the flow is still turned on.

Q20 Mark Williams: Are there any particular areas that your companies or companies you have worked with have highlighted specifically that need to be addressed? You talk about basic skills and that is a general term, it covers certain areas.

Mr Rosser: Literacy and numeracy are the obvious ones.

Q21 Mark Williams: Are there improvements in IT?

Mr Rosser: The CBI will then take that further to communication skills and key skills - I am gradually getting to understand the jargon - moving into key skills away from basic skills, so communication, IT, teamwork and problem-solving et cetera are all issues which are valued highly by companies and will be more highly valued as we focus more on productivity as customer service becomes a differentiator for companies because products are being commoditised.

Q22 Mrs James: I would like to focus a little more now on higher education. The CBI memorandum to the Treasury Select Committee inquiry into globalisation stated that "funding for universities must shift to focus more on meeting the skills, research and innovation needs of business". Do you think this is happening in Wales?

Mr Rosser: No, the funding for universities is twofold, clearly one for teaching - and therefore the courses which universities can fill essentially, which is why some universities are moving away from science courses - and funding for research and development, which is largely still based on research assessment exercises which is the assessed quality of more traditional blue sky people research, if you like. To my knowledge the funding mechanisms are the same in Wales as they are across the rest of the UK. There are some schemes over and above that which are there to facilitate knowledge transfer between higher education and business and industry, but they tend to be actually quite small-scale - the money is quite small compared to the traditional funding streams. There is clearly a strong role for fundamental research for blue skies work and I do not think the CBI would want that to be turned off because the UK has traditionally done very well in that kind of fundamental innovation research. It is more a question of how we move towards research that supports business and the economy, not turning off one tap and turning on the other.

Q23 Mrs James: Both working side by side.

Mr Rosser: Yes, it is just a question of rebalancing.

Q24 Mrs James: You have touched on the second part of my question here really about the knowledge transfer. I sense that perhaps it is not as effective as you possibly might like it to be, or the CBI might like, this knowledge transfer, between universities and industry and businesses. Have you any idea how that can be improved, or is there any work that you are aware of where there are good models of practice or something that we could build on?

Mr Rosser: It would be very wrong of me to sit here and suggest the problem lies entirely with the university sector. My new boss, Richard Lambert, was probably best noted before he joined the CBI for his review into collaboration between business and HE and he concluded that a lack of demand by business was as much a problem as lack of willingness or desire by universities to do this. A particular problem in Wales where the company base is not strong in the kinds of large, research-intensive companies that will have the capacity and interest to go and work closely with universities - the corporate base in Wales has a particular problem on this one, and I imagine that if we encourage a lot of universities in Wales to transfer knowledge into business they may well not be doing it into Welsh business. I do not think there are any easy solutions to this; experience suggests that money and funding tends to sharpen minds and change practices which is why the CBI would suggest that a process that sits alongside the RAE that provides a cash incentive for both parties to up their game in this area is one that could be very useful.

Q25 Mrs James: Bringing both sides together.

Mr Rosser: Yes, and if some of the funding for research specifically has to be commercially focused then that would encourage universities to transfer more energy into that, and if businesses know that there is funding for this research it will encourage them to get involved in a rather more constructive way as well. There are roles for both parties here.

Q26 Mr Crabb: How concerned is CBI Wales about the adequacy of science departments within Welsh universities? We have seen the closure of at least one major chemistry department in recent years; do you anticipate further closures of chemistry and physics departments and how does that affect the ability of higher education to support Welsh business in responding to globalisation?

Mr Rosser: I do not think this is specifically a Welsh problem; I am not sure I could distinguish and say that the situation in Welsh HE was better or worse than that for HE across the UK. Science departments are closing in universities across the UK and companies are increasingly now talking about the lack of graduates with training in physics, chemistry, mathematics and it is starting to become an impediment, particularly for those companies that we might hope would lead our charge into globalisation. I have to say that when I sit in front of a group of innovative, technology-based companies and ask them what they pay their science graduates when they bring them into the workforce, compared to what legal firms will pay lawyers or City banking firms will pay bankers, there tends to be a lot of shuffling of feet and glancing down at the table. Having studied some economics, I would have thought the market ought to come out in this area, so it is becoming a problem for a number of companies, I do not think it is specifically a Welsh problem and globalisation here actually could be one potential solution. Globalisation is about moving people as much as it is about moving goods and companies. If I think of the example of GE in north Cardiff which used to be Amersham and now is GE Healthcare, since being acquired by GE all jobs in the group are advertised on the company's intranet and so all of a sudden Amersham are receiving job applications from people in India, across the globe, interested in coming to work for them, and we will see a lot more people moving around.

Chairman: Mr Crabb, you now want to ask some questions on taxation?

Q27 Mr Crabb: That is right. In recent years there has been a significant amount of evidence suggesting that the UK has fallen down the international league table of competitiveness; to what extent do you think that helps explain what is currently happening within Welsh industry and particularly Wales with regard to manufacturing?

Mr Rosser: There are many contributory factors to the attractiveness of a country, of a location, to a business; taxation is one of them but a very important one. It will have two impacts on companies and the companies who are, if you like, Welsh indigenous may have a lower propensity to go elsewhere. Higher tax takes by the Treasury, coupled with increasing costs, mean that there is less money to reinvest in productivity enhancement, in training, et cetera. Companies which are global by their nature will have operations in many parts of the globe and they will take location decisions and, in my experience - I used to work in inward investment for the Welsh Development Agency - particularly for US companies tax was a very significant part of that location decision. I was with an insurance company recently, actively considering moving its headquarters - this company is not in Wales - to Ireland; in the UK we do two things, we apply a much higher capital adequacy requirement to insurance companies than the EU norm so for every £1,000 of business you write in the UK you have to maintain £10 of capital, while if you are in France or elsewhere in the EU it might by £5, so it is immediately double the capital, and we are increasingly becoming uncompetitive on tax. This company is thinking of moving to Ireland because it will have to maintain half the capital for a given amount of business and will be taxed at 12.5%. These are not difficult companies to move, so the fact that the UK has been tax-competitive and our trend is going in one direction whilst the trend of certainly our EU competition is moving in the other direction is becoming an increasing problem.

Q28 Mr Crabb: In the memorandum submitted by the CBI to the Treasury Select Committee inquiry into globalisation the CBI argued that commercial activities of companies should not be hampered by "excessive regulation, taxes ... and other barriers to competitiveness." Are you able to offer us just a few examples of where you think that the need for good job security, pension security, good working conditions should be more appropriately balanced with the need for labour market flexibility? What I am getting at there is business organisations always talk about the need for a light touch of regulation, yet they often come up with specific examples. Are you able to offer a few here?

Mr Rosser: I have just given you one about the capital adequacy requirements for insurance companies. Many of them are about implementation - one hesitates to use the term policing because it sounds as if you get away with it elsewhere and you do not in the UK, which is not what I mean to suggest. Look at a company like Dow Corning, operating a chemical plant in South Wales; it operates chemical plants across the EU and they know that the way in which environmental and health and safety legislation, for example, is implemented, regulated and appraised in other EU countries is lighter touch than in the UK. It requires less management time being given to completion of forms, it requires fewer inspections and at lower cost. Dow Corning is a highly reputable US company which will employ the same safety standards wherever it will be; it does not have accidents in its EU plants that it does not have in the UK because of this. There are a number of examples, each of which may seem small in their own rights, but when you accumulate them, and international companies feel this quite strongly because they experience it and environment managers from different places will get together and will be puzzled at the way the UK companies have to do things. We appear not to regulate and implement on any kind of risk-based assessment in the UK where it is almost tempting to think that our regulators and inspectors will pay more attention to the responsible, visible, open companies than they will to the cowboys in the back street, because it is easier.

Q29 Mr Crabb: What effects do you think devolution, the creation of the Assembly and now the new Government of Wales Act and the increased powers of the Assembly are having on the regulation of Welsh business?

Mr Rosser: To date, modest - a modest difference, a modest impact. Most will tend to be in the technical implementation of specific regulations rather than the broad brush approach, so some delays in implementation of regulations happen in England but will happen in Wales six or nine months later with consequent procedural difficulties for companies in the meantime. On other occasions it is in a different direction, so we are implementing the smoking ban in Wales three months ahead of England and, given the usual time it takes to get planning applications through, that will give a problem to some of our companies in the hospitality industry to cope with that. Largely they are quite minor and sometimes in Wales' favour, regulations are implemented rather more sensibly in Wales than perhaps might be done by the Whitehall machine here, but to date there has been a modest impact. We are looking quite carefully at what the implications of the Government of Wales Act might be for businesses in Wales and we would like the Assembly to take quite a proactive approach to understanding the impact of what it might consider doing on business, we would like to see some form of regulatory impact assessments or some such tools being applied before regulations are introduced and not afterwards. We just need to be careful that the Welsh Assembly Government does not regulate because it has now the powers to do so. The whole purpose of this inquiry is that business is mobile, and Wales is quite a small market; we make it terribly different at our peril.

Q30 Mr Crabb: Thinking about the European level, what is the impact of European regulation on Welsh industry and, specifically, the prospects for further inward investment?

Mr Rosser: I had a meeting with some members yesterday with the head of the European Commission representation in the UK who was very strongly making the point that it was not European regulation per se, it was the way the UK implemented it; I suspect it is a bit of both. Despite all appearances to the contrary, business and the CBI will not fight against every bit of legislation that comes in, but we would look to see that it has a purpose and that it takes into account the competitiveness of the EU as a whole with economies that we are competing with elsewhere in the globe, it is not sufficient to have a level playing field just within Europe, so regulations such as the Reach directive, for example, on the use of chemicals can significantly change the attractiveness of the EU as a whole as a place to do business with certain categories of companies. That will impact on businesses across the UK fairly evenly, so Wales is not particularly disadvantaged or otherwise by those.

Q31 Mr Jones: Just a brief supplementary question, in your view is the phenomenon of gold-plating of EU regulations by the UK a real phenomenon or is it another urban myth?

Mr Rosser: We think it is a real phenomenon. As I say, examples such as companies who have operations in many countries across the EU will tell us that the UK is very stringent in the way it applies EU regulations and overly bureaucratic in the way that it monitors and polices them. It would be nice to have more examples from companies coming forward, which is always frustrating.

Q32 Hywel Williams: I would like to ask you a question about corporation tax and inward investment. How significant or insignificant is the rate of corporation tax in Wales in influencing inward investment in your opinion?

Mr Rosser: It varies from company to company and it impacts certain source countries more than others. As I say, from my experience in having worked in inward investment it was always a very major factor for American companies. American companies seem to have their effective rate of corporation tax as a key performance measure for them, and therefore American CFOs would always have a very close look at the impact of corporation tax in the country they are going to on their own overall performance. The fact that American companies had a propensity to look at Ireland anyway, where the disparity is probably the greatest, did not help that; in my experience it was less of a factor for Japanese companies. International companies also clearly apply tax management techniques which are far beyond my understanding to post profits in the countries that are most conducive in terms of corporation tax rates, so it is partly the impact it has on the fundamental location decision and it is equally where a company then chooses to post the bulk of its profits and hence pay revenues, so for both reasons a lower corporation tax rate would seem to be more beneficial for the UK economy overall.

Q33 Hywel Williams: Are you familiar with the debate in Northern Ireland around reducing corporation tax there because of the perceived competitive advantage of the South?

Mr Rosser: I am aware it is being discussed, yes.

Q34 Hywel Williams: On both sides of the political divide in the North. Do you have any observations about varying corporation tax within a unitary state such as the UK on a regional basis?

Mr Rosser: As to its feasibility, that is probably one for the Treasury rather than the CBI. Undoubtedly, varying - lowering, which is hopefully what we are talking about - the rate of corporation tax would have a far greater impact on companies than the range of business support schemes et cetera that we spend money on currently. It also has the added benefit of supporting profitable businesses, which presumably we would all like to do. I am aware of this debate in Northern Ireland and aware that it is starting to be talked about within Wales and I have talked to some companies about this in Wales, as to their likely reaction. I have to say it is mixed; those companies which are traditional recipients of significant grant income sometimes take the view that actually they are likely to get more benefit from receiving grants than paying a lower rate of corporation tax, but many of the representatives of some of our international companies will focus far more on rate of tax. I guess there are winners and losers and, overall, reducing some of the grant dependency in Wales and focusing our efforts on supporting profitable companies is probably a more attractive proposition philosophically.

Q35 Hywel Williams: Thank you. Can I just refer to a phrase that you used in point 8 in your submission, which is the need to encourage free trade and the movement of labour. What changes to the tax regime in general would you recommend in order to encourage free trade and the movement of labour?

Mr Rosser: The UK does pretty well with its credentials on free trade and movement of labour, better than most, certainly within the EU. A number of our retailers are very disappointed at some of the tariffs reintroduced, for example, on some items of clothing within the EU which just serve to put up prices to our consumers here in the UK. The UK has a pretty good story to tell on this, and certainly the stance we have taken on welcoming migrant labour to the UK over recent years has had a significant boost to the economy overall in moderating wage increases and keeping inflation down, and in helping many of our companies in the UK and Wales to fill labour shortages.

Q36 Nia Griffith: The CBI memorandum to the Treasury Select Committee talks about needing an increase in the research and development tax credit; what sort of scale are we talking about, what sort of increase would be needed to actually make any difference in terms of investment in job creation in Wales?

Mr Rosser: That memorandum, which was prepared by my colleagues nationally, refers to an effective 10% take as being appropriate and I will defer to their greater expertise. I have to say if you talk to any of the individuals running Terry Matthews' businesses in Wales - Terry Matthews' commitment to Wales cannot be questioned - they refer to the far greater incentives for doing research and development that he will experience in Canada compared to the UK, far greater than the 10%. At the moment it is quite a narrow application of research and development tax credits and we could do with seeing both the scale of tax credits but also the scope of it, the expenditure for which it can be claimed, increased and just made easier. One sense at the moment is that it is those companies who are always participating in research and development who are largely claiming it and hopefully doing a little more as a result of it, but I am not sure I pick up too many signs from businesses that it has significantly changed behaviour yet. I would have thought that the 10% figure quoted in that memorandum would probably be at the lower end of what was needed to effect significant change.

Q37 Nia Griffith: Perhaps we could move on now to the labour market and migrant labour. It has come as quite a surprise and a shock to people in Wales to find that areas where there is high economic inactivity or traditionally high levels of unemployment have in fact themselves now got quite a large component of migrant workers, and you yourself refer to this in your memorandum. Can you give us some examples of where migrant workers have come into these areas and what sorts of industries do actually employ migrant labour in Wales? Does that indicate any skills shortage; are there any reasons why that is actually happening; what is the motivation behind it?

Mr Rosser: I wish I understood this fully and I keep being astonished by the variety of companies that have particularly Eastern Europeans employed. Traditionally one first detected it in the agricultural sector, in food processing, some of those industries that you traditionally associate with being low skill, low wage. I have to say that it has gone way beyond that; I find lines of Lithuanians in automotive components factories. Airbus, I believe, recently started employing Polish engineers and I came across a company the other day employing a Polish surveyor; sometimes you can pigeonhole it as these are jobs that Welsh people do not want to do, they do not pay much, other times you can look at them and think skills shortages are being solved here. It just seems to be across the board.

Q38 Nia Griffith: What sort of relationship do you have with agencies? Are agencies, shall we say, proactive in terms of pushing their services on companies; are they marketing the migrant workers, perhaps in a way that would not happen in, say, job centres or something?

Mr Rosser: They certainly are active in helping companies fill vacancies with migrant workers. I do not have much experience, I am afraid, of whether the job centres are doing that or not. Some agencies have set up offices, including Welsh agencies, in Warsaw in Poland, and they will manage the procedures around assessing skills, providing paperwork, providing accommodation. When that process is undertaken by an agency the cost of employment to the employer in Wales is higher than if they were employing Welsh workers, so it is not a low cost or cheaper option in that sense. Other times, companies will report that individuals make their own way here to the UK, or they follow people they have known who have made the trip and will be applying to companies in their own right as individuals.

Q39 Mrs James: I have come across this in my constituency and one of the things that concerns me greatly is that the employer, i.e. the company where the agency worker is working, is very quick to say this person is not my responsibility, he is actually the responsibility of the agency. Do you perceive a blurring of the edges of the responsibility of an employer to an employee?

Mr Rosser: There are different employers just as there are different workers. I equally know employers who will take migrant workers on and, after six months, will put them on the books as permanent workers. After six months they have got a bank account, they have got an address; they have got what it takes to set up as a citizen in this country. Where an employer is looking to recruit with a long term need I would hope that is what thy would do; where an employer is looking to fill a seasonal vacancy then maybe they are more likely to take the route that you have experienced. As I say, there are a variety of approaches, but certainly I know employers who now have Eastern Europeans on the workforce, they regard them as long term employees and those workers are putting down roots.

Q40 Nia Griffith: Can I just ask you a bit further about the agencies again? Is there an advantage that companies see in not taking on that employer responsibility that Siān has just been referring to, and they can, say, have 100 workers one week, 50 the next week or whatever, they have a flexibility with that agency link. Is that a factor at all that you have found?

Mr Rosser: Yes, it is very much a factor. It is a factor whether it is agency workers who are Welsh or whether they are Polish. There is a flexibility benefit in having agency workers for certain employers for certain requirements, and every time we ratchet up employment laws that advantage increases. There is a balance for employers; for some it is seasonality, but equally we are talking about a full employment situation in this country where skilled, good people are not easy to come by. If you get a skilled, good worker it would be in most employers' interest to do what it takes to keep them, whether they are Polish or Welsh.

Q41 Nia Griffith: Do you think there are any particular barriers to indigenous unemployed people getting back into the workplace, any reasons why perhaps they are not being taken on?

Mr Rosser: I have never yet met an employer who has looked me in the eye and said "I would rather take a Pole than a Welsh person." As I say, if they are taking them on through agencies it is generally more expensive to take on a Pole rather than a Welsh person and the employment experience for Eastern Europeans is wholly positive, they are regarded as exceptionally good workers. Why is it that companies in Anglesey or the Heads of the Valleys will be employing migrant workers when there is a high level of economic inactivity? I am not sure I know but I can imagine there are three possible types of reasons: one is employability, is the individual employable, and given that a number of these roles are relatively unskilled that will be a factor in some cases; another presumably is that an individual who is not working has responsibilities which make it difficult for them to enter the workforce - caring responsibilities seem to be the obvious one - and the third, I have to say, is probably desire or desire set against cost-effectiveness for that individual of leaving their current arrangements and coming back into the workplace. I am not sure I have sufficient knowledge to unpick those; there are probably people far better placed than me to do so, but I am struggling to think of other factors that do not fall into one of those three categories. As I say, I have yet to meet employers who will discriminate against Welsh people to get in Poles; you might say they would not tell me that, but they have not.

Chairman: Could I thank you for your evidence today and draw your attention to the fact that, as you already know, later on in the inquiry we will be exploring as a theme population movements, food, broadcasting, creative industries. If you feel that you would like to give written evidence on those subjects, we would be very pleased to receive it. Thank you very much.

Witnesses: Mr Derek Walker, Head of Policy and Campaigns, Wales TUC and Mr Andy Richards, Executive Member, Wales TUC, gave evidence.

Q42 Chairman: Good afternoon, could I welcome you to the Welsh Affairs Committee and, for the record, could you introduce yourselves please?

Mr Richards: My name is Andy Richards; I am an executive Committee Member of the Wales TUC.

Mr Walker: My name is Derek Walker; I am Head of Policy and Campaigns at the Wales TUC.

Q43 Chairman: Thank you very much. Could I begin by asking you in very broad terms what has been the impact of globalisation on employment patterns in Wales?

Mr Richards: Could I say first of all, Chairman, that obviously Derek and I deal in different fields in the Wales TUC and obviously it will be the Derek and Andy show today. As far as the impact of globalisation in Wales is concerned, it has generally been bad news as far as manufacturing industry is concerned. Obviously, globalisation has made a huge difference to the quality of life of people in the UK and across the world, but there are victims as well as winners and too many British workers are losing their jobs when companies move abroad or fail to compete. The Wales TUC point of view is that cheap DVD players and clothes are scant compensation if you are being downgraded to poor quality, insecure and low-paid work. Of course, we cannot put the genie back in the bottle now, we cannot say stop the world I want to get off and turn back the tide as far as globalisation is concerned, but we do feel the Government must provide support to older and unskilled individuals to help them adapt to the opening up of world markets and ensure that all UK workers benefit. The UK also has a responsibility in our view, Chairman, mainly through international trade agreements, to make sure that workers in developing countries have access to decent work. The figures that we are quoting to the Committee give a stark reflection of the toll that globalisation is having on our manufacturing sector in Wales. Manufacturing employment declined from 207,000 in December 1999 to 171,000 in December 2006, which represents 5,142 job losses a year, 428 job losses a month and 14 a day. Although there will be other contributory factors this decline in manufacturing such as the lack of coherent manufacturing strategy and the number of closures that we can attribute to plant relocations to countries with cheap labour costs is direct evidence of globalisation's effects. The negative effect of globalisation, of course, is magnified in Wales, in the Principality, because manufacturing makes up a larger proportion of its economy than most other parts of the UK. You will note that in December 1999 manufacturing represented 20% of all Welsh jobs and in December 2006 manufacturing now represents 14% of all Welsh jobs. If the negative impacts of globalisation are allowed to go unchecked, recent research undertaken by one of our affiliated organisations, the T&G, has predicted that 2038 will be year zero for Welsh manufacturing; in other words, Chairman, there will be nothing left. UK employees are more vulnerable than their European colleagues for three main reasons, we feel.

Chairman: With all due respect you may be anticipating a number of other questions, so if you could pause at that point and I will ask Mr David Jones to ask the next question.

Q44 Mr Jones: Good afternoon. You have given an indication of the negative effects of globalisation upon Welsh industry; which industries would you say have been particularly adversely affected by globalisation and, on the other hand, are there any industries that are gaining from globalisation.

Mr Richards: The number of industries gaining from globalisation does not slip readily from the tongue.

Q45 Mr Jones: You cannot think of any?

Mr Richards: No, not really, and of course the worst effects of globalisation, as I have said, are affecting manufacturing industry. We have seen a number of industries relocate from Wales - we do have that data with us. In recent times we have lost Continental Teavis, Dura Automotive Systems, Hills Industries, Sanken Power Systems, Crabtree & Evelyn, Thomson Broadband, Panasonic - the list goes on and on.

Q46 Mr Jones: These are different sectors; they are not particularly the same manufacturing sectors though.

Mr Richards: Predominantly manufacturing we say.

Q47 Mr Jones: What about the different types of manufacturing?

Mr Richards: Yes, in the manufacturing sector.

Q48 Mr Jones: Would you say that some regions of Wales are feeling the impact of globalisation more than others?

Mr Walker: If I could come in there, it is probably true to say that we are losing manufacturing jobs across Wales and all parts of Wales are affected. As David mentioned earlier, perhaps because of the predominance of manufacturing industry in south-east and north-east Wales those areas are particularly affected, but I do not think any part of Wales is immune from losing these jobs. It is perhaps useful to think abut the types of people who are losing out from globalisation rather than the regions, and I guess it is going to be those with the lowest level of skills and older workers who particularly suffer from globalisation, who cannot then transfer to other areas of work.

Q49 Mr Jones: Is that a uniform pattern across Wales?

Mr Walker: This is happening across Wales, certainly; yes, that is the case.

Q50 Mr Jones: What has been the impact of globalisation upon trade union representation in Wales?

Mr Walker: Trade union representation across the UK at the moment is fairly stable, although in the past it has been falling. Wales still has a higher level of trade union representation than other regions of England; we are roughly around about 37% whereas English regions may average around 27%, so in Wales we have a fairly traditional make-up of trade union membership, with high numbers of male members working in manufacturing sectors and we have been hit hard by that. Unions have been able to recruit in growing areas of the economy, those areas of the public sector that have grown and those areas of the private sector that have grown such as retail and hospitality and the like.

Q51 Mr Jones: In terms of the impact of globalisation on trade union representation, it is not significant.

Mr Walker: At the moment it is a stable situation.

Q52 Chairman: Can I follow up on that question? How has the Wales TUC responded to globalisation in terms of strengthening its links globally? I know that some unions, like the Transport & General Workers, have historically had strong links with other unions through Ford and whatever; how has that accelerated as a result of globalisation and does Wales TUC have a particular role to play in that?

Mr Walker: Yes, we do, certainly. The TUC in particular is developing links with unions across Europe and beyond in order to share information and good practice, particularly of course in terms of migrant workers and giving migrant workers - perhaps we will come on to this later - good information about the circumstances they are likely to come across when they come to Wales, so we are looking to extend that work and that has largely been led through Congress at the moment, but at the Wales TUC level we are looking to do that as well through various projects.

Mr Richards: If I could amplify that, obviously the individual unions are investing a lot of time, effort and resource into strengthening the international links that they already have with global union organisations such as the T&G has links with the *SEIU and its sister unions in the States and elsewhere, the Teamsters Union, simply from the point of view that if we are going to engage with companies on the global stage we have to have, obviously, global trade union links. It is more difficult in some countries, obviously, particularly in Colombia, where trade unionists are being murdered daily and of course in China, the greatest competitive threat to Europe, where, given the nature of the regime, free trade unions are absolutely banned. We feel, therefore, that the development and strengthening of international trade union links is crucially important, yes, and we are doing a lot of work on that.

Q53 Nia Griffith: We hear a lot about the need for greater flexibility when we talk about globalisation, but how can that apparent need be actually reconciled as a need for job security, acceptable working conditions and retirement benefits, because most of us would understand flexibility as meaning possibly an erosion of some of those provisions.

Mr Richards: Not necessarily; flexibility within the workplace is the key element to a company surviving. There are many examples where the unions have been involved in flexible and lean manufacturing agreements with companies to concentrate on a core workforce, core activities and perhaps departing from some of the practices which are very costly to a company. But those agreements, in the best unionised companies, are always based on the fact that there is no compulsory redundancy clause. If we allow that transition to be made through natural attrition then we have no problems with it, it does not necessarily follow that there are ill-effects. I can say that one of the key sector support initiatives that was taken by the Welsh Assembly Government recently, the Accelerate Wales programme, focused heavily on manufacturing efficiencies and lean production, but against the background that if you are going to ask a workforce to adopt flexible working practices and say that the result of that is that you are going to be thrown compulsorily out of work, you are not going to get too far on the agreement, but flexibility in itself is one of the key parameters that that initiative is working to.

Q54 Nia Griffith: In the case of redundancy or reduced earnings, you have mentioned the role of the trade unions and industry; is there also a role for Government in terms of tackling the problems of workers who experience the negative effects of redundancy or reduced earnings?

Mr Walker: Certainly. The effects of redundancy, as I have said before, have particularly hit certain groups and what we need to concentrate on is retraining and constant training for people who are particularly vulnerable to the impacts of globalisation. What we see some of evidence of is that where big companies close down or relocate and they get the glare of publicity retraining packages and support and careers advice are very much available and proactively available, but we think they also need to be made widely available to those smaller companies that might relocate out of the glare of publicity. I am not an expert on the types of support that are available. I know there is a ReACT programme run by Careers Wales which provides training support to everyone, but for smaller companies that proactive approach to offer support and training to people likely to lose their jobs is not always there. Our experience also is that if there has been a culture of learning within the company, ideally in partnership with a union, then there are more likely to be better learning outcomes and better training uptake when redundancy situations arise.

Q55 Nia Griffith: You mentioned the lack of manufacturing strategy and the CBI say in their memorandum that preserving low cost manufacturing operations in Wales is ultimately a fruitless exercise, so what should be done to deal with this problem of the vulnerability of manufacturing jobs and the fact that we do have still significant numbers of low-skill jobs?

Mr Richards: It is a huge debate and a multi-faceted question that you pose there. Obviously, there are a number of key parameters against which companies decide to set up in the UK or in Wales but transportation is one part of that. The provision of low cost energy which is safely supplied to industry is another facet of that. Taxation plays a part in that. From our point of view, what my colleague from the CBI may have been referring to is that a lot of the low-skill, low value-added jobs are most at risk from exporting overseas and there is some truth in that. What we have to build on in my view is industry support programmes which do not simply give money to companies to put in their pockets and run away with. We want to give money to companies to provide support which is designed by the industry itself. Let me say something about this Accelerate Wales programme that we have put together to help smaller manufacturers in the automotive supply chain in Wales. That was designed by the industry itself and what we did was to take champions out of places such as Ford and other big companies who were well versed in lean production, lean manufacture, training, et cetera, and second those into smaller companies. Some of the companies have since moved out, that is true, and Continental Teeves was one, but a number of automotive supply companies benefited from the advice of a specialist being provided for them by our programme. The overseeing committee of Accelerate Wales was made up of people like myself and people from the Society of Motor Manufacturers and Traders and the Engineering Employers Federation. We had to have the odd civil servant there, of course, but it was a most effective way of assisting companies to protect themselves from within, not by giving them X amount of money so that they could run away with it. There is an argument, of course, that the recipients of public money exercised for private means should have some form of regulation upon them and there should be some penalty if they simply up sticks and move away. It is a multi-faceted argument and most certainly the big benefit of the Accelerate Wales programme was that it was not just giving money away; it was saying to employers, "You are going to have to help yourselves as well as us helping you". It was a key initiative and I am surprised that more has not been reported about that.

Q56 Nia Griffith: The TUC memorandum to the Treasury also mentions developments in places like Sweden, Denmark and Germany for specific types of industry there, like environmental industries. Do you see a role for government in pushing or promoting specific developments?

Mr Walker: Certainly. We are really trying to encourage governments to go beyond just providing the so-called horizontal measures of a good environment for business, including tax skills, which are obviously important, but also taking a far more proactive approach to developing our industry and our manufacturing and identifying those businesses that have particularly got good growth potential with high value-added products, where we already have an expertise that we can build on and develop clusters of industries that can work together and play off each other. If we lose that industry it is very difficult to get it back. There needs to be government supporting intervention in those cases but also in those industries that might not fit those criteria but have an important impact locally in terms of the economy and the devastating impact that would be felt by that economy if they were to leave.

Q57 Hywel Williams: Do you think that the WDA and the Government in the past and now the Welsh Assembly Government are good at spotting winners?

Mr Walker: That is an interesting question. It is very difficult to anticipate sometimes what could be a good business. Who would have anticipated Google, for instance, being such a huge company 20 years ago? It would just be impossible, but we can do work to anticipate growing sectors of industry and support them. What we are advocating is more than just picking winners. It is identifying strategic areas, not just businesses but strategic areas that we can coalesce around and develop and build within Wales so that they are less likely to leave because of the support and the skills and all the rest of it within the country.

Mr Richards: The WDA was a brand name known around the world. They were particularly good, and they were well thought of by many multinational companies that I have dealt with, particularly Ford, and they were very good at support for indigenous industries. There were, of course, some bad patches that they went through, one of them being, of course, the LG plant, but in the main, whilst I believe that the WDA suffered latterly with the size of the Crewe admission, I think in its day it was well thought of by most of the industries, and copied, by the way. I went to Chihuaha engine plant one time in Mexico and they were talking about the WDA as if it was their own, so it was well known there.

Q58 Mrs James: I want to turn to education and training. How well placed are Welsh workers to meet the demands of new industries? How do you see the education sector in Wales is responding to the need for a better, well-educated workforce?

Mr Walker: You mentioned earlier on the Leitch Review. Although we have not done our formal response at the Wales TUC yet, we were encouraged by the approach set out in that document and the need for a real culture change in terms of education and skills. The feeling we have also is to support the recommendation in the document for compulsion on employers to train their workforce because what cannot be expected is for the state to be doing all of this. It needs to be done by the companies that benefit from this themselves. Some of our affiliated unions will talk of experience whereby in some companies it would be cheaper to poach workers who were already trained by someone else than deliver the training themselves. I think we might all recognise that picture.

Q59 Mrs James: The TUC's memorandum to the Treasury Committee argues this point, that it is a joint role between employers, employees and the Government to ensure that training needs are met. What is your role as a trainer, and I am very aware of WULF, the Welsh Union Learning Fund, so could you tell us a little bit more about that and how successful it has been?

Mr Walker: From our perspective it has been very successful. An approach that involves trade unions with employers putting learning on the agenda and delivering it has been hugely successful. The advantage, obvious to us maybe but not obvious to everybody, of the union being involved in this process is that we are far more able to reach atypical workers, part-time workers and so on, that employers would not be able to reach. Also, there is a barrier to people explaining their basic skills needs to their employer, whereas that does not happen so much with the union, so the union really adds value to this picture. The model that we use generally in terms of union learning is for there to be a union learning rep identified and for them to be trained, for there to be employer commitment to joint working in this area; otherwise it does not work out, and therefore for the union learning rep to undertake a skills analysis to identify what is needed in that workforce in terms of vocational skills but also basic skills. You mentioned WULF. What often happens then is that a bid will be put into the Welsh Union Learning Fund to develop the capacity and the infrastructure for the learning environment in that workplace. Where that infrastructure is put in place it is more likely that there will be an ongoing commitment from the employer to training and learning. There are a number of very positive WULF projects around Wales. I think we have had about 104 so far which are making a huge difference to the learning culture within workplaces. There is a company in Ystradgynlais called SEWS, where a project has been so successful that something like 70% or 80% of the workforce have taken up the opportunity to do training and a good proportion, maybe 40% or 50%, of those have gone on to do further training, so it has proved to be very successful and I know Andy has good WULF projects within the T&G.

Q60 Chairman: Could I ask a supplementary here? What you are describing is very interesting. Could I suggest that it is somewhat introspective in relation to the fact that you have now had the Welsh Union Learning Fund for ten years. This is an inquiry on globalisation. Are there any projects that actually address that fundamental question, the impact of globalisation on the workforce?

Mr Richards: One of the issues that we are dealing with here is that a number of questions have been asked about the use of migrant labour by companies in this country and, of course, the Welsh Union Learning Fund has been quite crucial to us. I will give you an example of the Arriva buses in north Wales. We have been through that programme teaching bus drivers how to speak English and Welsh, and so it is quite key. Obviously, we would want employers to take up their responsibility to provide training in-house. One of the examples that we had was the educational development scheme at Ford, because we realised that a lot of the workers within these industries had left school at 15 and had not learned since that time, so those sorts of initiatives are going to teach people how to learn again. WULF has had a spin-off in many different areas.

Mr Walker: Can I follow up on that? Far from being introspective, I think the opposite is the case. What these projects are doing is giving people the basic skills and the transferable skills for them to be able to cope within a global economy and find new work if their companies relocate so I think it is fundamental to the globalisation issue

Chairman: Perhaps my observations have been coloured by reading the review of the Welsh Assembly Government support for union learning dated 12 July 2006 where one does not get a sense that it is located anywhere in a global situation. That is an observation on my part and perhaps it is a question we need to pose to the Welsh Assembly Government rather than to you.

Q61 Mark Williams: We have concentrated our remarks just now on training opportunities in the workplace. What about retraining opportunities for those who have been made redundant? What is available for those people? Are people taking advantage of those opportunities and what is the role of the trade union movement in helping workers to retrain?

Mr Walker: Much of what I was saying earlier answers this point. There are programmes available for people who are made redundant and extra training is made available when there is a lot of publicity around the closure, but when there are small companies that close down they perhaps do not receive the same support and they need to. I am not an expert on the different training programmes that are available. ReACT is one I mentioned earlier that is available. To answer your point about the union role in this, the union role is crucial because if the unions are involved in delivering and supporting learning within a workplace and they are able to ensure that that learning culture happens within that workplace, then those people who are possibly made redundant after that are able more easily to find work because it is those with the lower skills that find it difficult to find work, especially if they have to move sector.

Q62 Mark Williams: I cite one example from my constituency, the Dairygold factory that closed. That was not a unionised plant and you are right. We managed to get more publicity on that case and the media swung in, as did Careers Wales and the county council with some success. There were some good attempts to get people back to work but, as you say, the lack of sufficient inside training fostered by the union was very regrettable.

Mr Richards: If I may offer a point of view on this, the dilemma for us is this. Retraining redundant workers over the years, and obviously we would prefer to have workers upskilled and trained as highly as they can be while they are in work so that they can contribute to the competitiveness of the company, has been seen - and forgive me; I am not criticising yourself - as a sop, has it not? "We are losing 100-odd jobs down the road, so we will retrain them all". The difficulty we have got now with the effects of globalisation that we have seen so far, plus the potential effects of globalisation that we know are to come, is that this is going to affect a number of companies, although not Corus. We are going to have to deal with literally thousands of people all at one go coming out of work from the Rover crisis. You can train people as much as you like but in that situation where you have got masses of people being made unemployed you are simply upskilling the jobless. We are not creating any jobs from that; that is our worry, and, of course, future product sourcing and investment decisions which will have been made five, maybe six years ago, are coming out now with a delayed action impact upon us. Engine programmes, for example, in the automotive industry have a six-year cycle, so decisions made six years ago are going to have a knock-on effect for us. China, which is the big industrial threat to us, are training graduates at a rate of knots. They are already producing Boeing wings and Airbus wings virtually in the same factory over there. Once their steel mills come on line very shortly the amount of hot-rolled slap that is going to be cheap and that is going to be entering world markets is going to have a further effect. We do not want to paint too black a picture but things are not exactly rosy as far as manufacturing and the impact of globalisation are concerned.

Q63 Mark Williams: You are aware of high levels of economic inactivity in some parts of Wales. Over and above what you have already said, and I appreciate what you have said in particular about the limitations of training given what is going to be happening and now it is a much bigger picture than that, what barriers do you feel are currently preventing the economically inactive from participating in the rapidly changing labour market and what measures should be taken to ensure that the current economically inactive can at least have a chance?

Mr Walker: You are right to identify this as an important issue. If far more of these economically inactive people are able to join the workforce then that is going to greatly add to our GDA. The barriers are multiple and complex and I do not profess to understand them all. The Assembly did some work on this a couple of years ago and it looked into the issue of low levels of skills. That was a big problem. Obviously, there are fewer jobs now you can do if you have no skills. It also talked about softer skills, where people's confidence and self-esteem and other issues might play a role in getting people back to work. Child care was another issue, caring responsibilities, the benefits trap. There were more mentioned in the report. It is a hugely complex picture. One of the initiatives that we really welcome from Jobcentre Plus has been the Wales Want 2 Work programme which they are piloting in a few areas around Wales and which has been very much about working with people to get back to work. It is about understanding what the barriers are for those individuals and helping them to break down those barriers in terms of dedicated specific skill support, mentoring and ongoing learning when they are in that workplace. They have also done work around benefits, I understand, so that people feel secure that if it does not work out they are able to get the benefits that they were on previously. From our perspective that is a very good initiative and I think it is showing results.

Q64 Hywel Williams: Can I ask you about government support for research and development? What does the Government here in Westminster and the Welsh Assembly Government need to do to ensure that there is a sufficiently high level of research and development to promote innovation and competition within industry?

Mr Richards: The Government has implemented R&D tax credits to encourage investment in research and development but we believe that such is the importance of research and development in securing companies to their locality that these should be increased in size and scope and we should be looking at spreading government support for science and industry collaboration beyond the existing concentration at Oxbridge, the south east and the home counties. Aside from encouraging existing employers to invest in research and development there is a need for universities to become far more involved in the delivery of R&D to manufacturers. Our higher education establishments are an invaluable source of knowledge and expertise and, unlike multinationals, are indigenous to Wales and rooted within their communities. R&D does anchor companies and plants to the locality. We have had a classic example in Llanelli just recently where it was decided that the research and development centre there, which included a state-of-the-art wind tunnel, should be moved to France and, of course, as a result of that we are into all sorts of negotiations down there in Llanelli now where it looks very much like the company see France as being the sexy location to produce. With regard to research and development and technology training centres, and certainly those which have been funded by government grant aid, we really should be saying to these companies, "Look: there is a penalty if you are going to up sticks and move off".

Q65 Hywel Williams: Are you aware of any differential take-up in R&D tax credits between companies, between different aspects of industry? I am just thinking in terms of what the actual activity is or actual size of the company. For example, do small companies take them up to a lesser degree?

Mr Richards: No.

Mr Walker: I do not have any awareness of the difference.

Q66 Hywel Williams: I was just wondering whether the overall size of the companies in Wales might be smaller. Can I just ask you about regulation? Whereas the UK Government and the CBI have argued that reform of regulation is a necessity and a priority, the TUC says that in terms of regulation "reforming it should not be a priority for globalisation policy". It seems to take a diametrically opposite view. Can you explain your position on this?

Mr Richards: I cannot. I did not write that.

Mr Walker: The research we have done on regulation, for example, around employment and redundancy shows that Britain, the UK, is lowest or near to the lowest of all the tables looking at regulation. This is on the agenda because business organisations have been very successful at putting this on the agenda, but I do not believe it is such a big issue. We compare very favourably to most of our competitive countries in terms of regulation. Research that we point to in our submission also quite clearly shows that when you get to a certain level of development in terms of economy with property rights, intellectual property rights, company law and so on these slight changes make very little real difference in terms of business decisions and whether businesses are attracted to coming to Wales or its profitability. We refute that argument wholeheartedly.

Q67 Mrs James: I want to turn to infrastructure. Earlier on we heard from the CBI about the challenges for companies with the transport infrastructure in Wales. Do you believe that the transport infrastructure meets the needs of a globalising economy and what are its strengths and weaknesses?

Mr Richards: For certain, if you were looking at simply the A55 corridor and the M4 corridor, I guess we have got a fair amount of transport infrastructure there, but the reason that Laura Ashley was the most famous example of mid-Wales industry in Carno was the fact that it was about the only one. We have got huge transport problems. I will give you an example. Corus has to move coil up to Shotton for processing and then back down the road to Trostra. That sort of transportation of materials from Port Talbot to go back down is very costly even if it is on a motorway. The types of roads we are talking about from south to north and north to south, and I have had an association with many companies and meetings in board rooms, that sort of lack of infrastructure, means that no manufacturing company in their right mind, certainly not one that is involved in last-minute supply to its assembly plants, would ever locate there. I do not quite know, not being a politician myself, what the answer is. I think probably it needs to be looked at. There is a large tract of Wales that is never going to have any hope of having employment such as we enjoy in the north and south and I think it is a crying shame and it cries out for something to be done about it.

Mr Walker: Obviously, a good integrated transport system is essential and we have welcomed further devolution in transport powers because I think that is going to be very important in making sure the transport priorities for Wales meet the needs of our economy, so we welcome that. We have also kept an open mind about congestion charging. We heard earlier about the bottlenecks in certain parts of Wales and the costs that those will have on business, but when we look at these congestion charging schemes we need to make sure that there are good public transport systems in place to enable people to get to work and that we look at the competitiveness. Is it going to affect the competitiveness of our businesses? If it is going to adversely affect it then we need to be careful about proceeding.

Mr Richards: I think we generally welcome the fact that there are more devolved powers to the Welsh Assembly Government now and in fact we are holding a transport conference shortly to debate this very thing. It is quite a key issue for us in Wales.

Q68 Mrs James: The next part of my question is about conditions of employment. We are all aware as Members of Parliament that churn that is going on, company closures and we are all concerned about it, but for every person who has come to see me and expressed concern about losing their job says the same thing: "They would not be able to do this to us in other parts of Europe". They say that we seem to be the easiest country where this happens. It would not be allowed elsewhere. Do you think that it is easier to make people redundant in Britain and should Welsh workers who are made redundant receive better compensation and fairer treatment than at present?

Mr Richards: Absolutely we do, yes. We do not enjoy the full considerations of the European directive on consultation. The redundancy packages are far lower in this country. As far as consultation goes, we generally at this point in time get more news about potential plant closures in Wales from members of European works councils, from our European counterparts, than we do from companies over here, so without a shadow of a doubt it is easier and cheaper to sack workers in this country. Companies can relocate elsewhere. Even companies that have received significant grant aid can up sticks and move elsewhere, leaving nothing in their wake other than destruction without being compelled to put in a social plan to deal with the effects on the community or whatever, so most definitely it has been our argument for a very long time that we are not playing on a level playing field as far as Europe is concerned. Our colleague from the CBI obviously will argue that we have too much protective legislation but I think we have got far too little and it is something now which is hamstringing us as a country with the amount of jobs that we are losing, so it is about time that the UK Government made its mind up as to where it is going on that.

Q69 Chairman: Could I end with a couple of questions in relation to inward migration? Much of your evidence has been informed by questions in relation to migrant labour. Is there any evidence in Wales of a skills shortage and that migrant labour is being used to fill that gap?

Mr Richards: We have had examples where there has been a skills shortage and it has had to be filled by migrant labour. I went down last year to the energy project in Milton Haven and was surprised that we could not get basic carbon shutterers(?) for concrete pouring, so in meeting the employer up there it was one area where there was a shortage of skills in the locality that had to be replaced by the basic carbon shutterers, as we said. We can debate the reason why we are so devoid of these basic skills in the communities. There have been a lot of apprentice training programmes over the years, there have been colleges putting more emphasis on drama and media studies than on the basic skills, et cetera, that is one example. Of course, our experience in the main of the use of migrant labour is in wheat processing and food, and to an extent as well in Hereford with fruit picking where there are some quite disgraceful conditions that these people are having to endure, and we can give plenty of information on that. Not all of the agencies that procure and supply migrant labour are bad organisations, by the way. We recognise that there are some that apply proper standards but that is that end of the scale and at the other end of the scale are agencies who deploy migrant labour who are more akin to Organisation Todd in the thirties and forties than what we would expect in this day and age, and there are horror stories that my union in particular has investigated, such as young women and young male Polish people having to live in Llanelli 20 or 25 to a house, hot-bedding it. I guess you know what hot-bedding means. One shift worker leaves the bed and another goes in. They sign contracts to come over here in good faith to find work and instead of a welcome they find they have signed contracts which bind them to deductions from their wages for accommodation, £35 a week for accommodation, £25 a week for transport, which usually takes the form of a transit van, and it is these agencies that provide this labour to companies. Companies in the main abrogate their responsibilities to these agencies and simply say, "Procure me X amount of workers". They do not ask about the conditions that people work in, but whenever we raise this to their attention, such as Tescos, et cetera, "Do you know how these people who are being supplied to the meat packaging plant that supplies you are treated?", we generally find that we have a good hearing from them. The issue of the growth of migrant labour working in Wales and the way in which they are treated by some, not all but by some unscrupulous gangmasters, is something that needs stronger and further debate for sure.

Q70 Chairman: What strategic role has the Wales TUC in dealing with protecting the rights of migrant workers? What exactly is it doing on this issue?

Mr Walker: There is a number of roles there and it is a big issue, but it has not been researched. It has been done in other parts of England but not in Wales. What we are now commissioning is research to put the evidence together about the good and bad practice faced by migrant workers in Wales. We are commissioning that and hoping to have that by the end of March/April time. That has not been done and it needs to be done in order to make sure we are putting policies in place that are the right ones, because also the evidence that Andy talks about is very real evidence but it is often dismissed as anecdotal, so we will be researching that and publishing it.

Q71 Chairman: Do you work in partnership with bodies like the Commission for Racial Equality and other educational bodies to address these issues?

Mr Walker: Yes. We have worked quite closely with the Commission for Racial Equality We recently produced a leaflet about the myths around migrant workers and refugees as a campaign tool to change people's misperceptions about migrant workers. The far right often claim that migrant workers are taking people's jobs and that just is not true. Migrant workers are contributing far more to our economy than they are taking out in terms of services, but it is our role to make sure workplace reps and then on through the workplaces know this to be the case, so we can do more but we have done some of that work already. Our race equality committee had its conference on the issue of migrant workers just two years ago when we were facing this very subject.

Mr Richards: There is a big social and moral dimension to this. We have dealt with all sorts of difficulties and, by the way, it is not a minority problem; it is a big problem. These workers who are employed by the unscrupulous agencies have to sign what are termed zero hours contracts and it is something that we are have a campaign in Europe on. There are no offers of guaranteed hours of work, but the costs that they have to pay in terms of the £35 and the £25 are there whether they work or not and that is how the gangmaster enslaves them economically. We are having to take these agencies on because they usually bring a Polish enforcer over to make sure that these Polish people do not step out of line. We had three young Polish women in Swansea whom he had thrown out of the house at midnight, who landed on the streets along with a number of others who had all been treated the same way, and then they have to find places to sleep in the city, particularly in Swansea, and then they are abused by racist thugs simply because they are Polish people and they should not be sleeping on the station or whatever. It is a big problem and it has taken us way beyond the boundaries of normal trade unionism, I can say that here, but it is our moral obligation to look after these people and share this problem. It is a growing problem in Wales, which is why, as my colleague has indicated to you, we are doing so much work in preparing a paper to send to the Government on it.

Nia Griffith: Perhaps you can send us a copy of the leaflets.

Q72 Chairman: Yes. Can I thank you for your oral evidence today? Could I ask you also for a written memorandum. We normally ask our witnesses to provide that, and in that written memorandum could you include that particular leaflet that you referred to about demystifying the issue of migrant labour? Also perhaps you could give us some evidence of the work of the Welsh Union Learning Fund.

Mr Richards: Yes, Chairman.

Chairman: As explained earlier today, we are also going to be moving on to look beyond employment at population movements and your work on migrant labour would be very interesting to us and we would like to hear about that. We are also going to be looking at food and broadcasting. If you feel that you can respond in a written form to any of those areas of our inquiry we would be very pleased to receive your evidence. Thank you very much for coming today.