Industrial Strategy

Adrian Bailey Excerpts

Wednesday 18th April 2018 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I welcome this industrial strategy for two reasons in particular. First, it recognises that business productivity is vital for growth, competitiveness, our standard of living and the funding of our public services. Secondly, it acknowledges that the hidden hand of free-market competition is inadequate to ensure that market forces will deliver resources in a way that will both maximise our economic potential and meet our social needs.

I am less convinced that the strategy fully grasps and incorporates the challenges that come from recognising that our taxation policies, public spending priorities and regulation are all vital to our productivity. An industrial strategy is vital to ensure that they underpin and help, not hinder, our objective.

I acknowledge that balancing conflicting public priorities with the need to promote our productivity is not always easy. Different Departments have different priorities, but the success or failure of the strategy will ultimately depend on the ability of the Department for Business, Energy and Industrial Strategy to get other Departments to sign up to and promote the strategy’s objectives in their departmental priorities. My right hon. Friend the Member for Wolverhampton South East (Mr McFadden) raised that issue, and the Secretary of State made reassuring noises, which was good, but I must mention one or two obstacles that have emerged since the strategy’s publication and cause me grave concern.

I represent a constituency that is heavily dependent on the success of the motor industry. Indeed, it has been a great success, with 70% of the cars that are manufactured in Britain—we are almost at record levels—exported abroad, including 56% to Europe. Productivity in that industry is vital to our national productivity and our balance of payments. Leaving aside the industry’s issues around Brexit, the ill-considered and hasty announcement by the Department for Environment, Food and Rural Affairs on the target abolition of diesel engines, however worthy, has caused havoc in the industry. The Society of Motor Manufacturers and Traders has aptly called it the demonisation of diesel. Arising from that, Jaguar at Solihull is laying off 1,000 workers and Vauxhall is closing 326 dealerships. That is hardly a ringing endorsement by other Departments of the strategy’s importance.

I fully understand the support for research and development and the extra funding for life sciences, but the strategy fails to recognise that success will depend on recruiting from schools students who take STEM subjects. There is an acute shortage of those, and although the problem is partly cultural, it is also due to the inadequacy of school funding for delivering the necessary courses and equipment.

We have some of the best universities in the world—I am not talking down Britain; they are terrific. However, to maximise their potential, they need to be able to recruit the best brains from all over the world. Unfortunately, as a result of the Home Office visa regime, there is currently a perception that Britain is no longer the best place to come for would-be students from other countries. We are taking a declining proportion of an expanding market. The Windrush scandal has exposed the culture of the Home Office, which does not seem to be signed up to the crucial objective that the strategy and our economy need.

I could mention many other aspects, but in the time available, I will finish by considering another element that I welcome: the independent strategic council—effectively, an Office for Budget Responsibility for the strategy. It is designed to develop and measure success and evaluate strategic performance. It could be crucial, but I emphasise to the Minister that it must not just be a monitoring body. It must be tasked with identifying blockages to performance not just in BEIS but in other Departments as well. How it develops will be a test of the Government’s commitment to the strategy. I suspect it will become more unpopular the more successful it is. It is a challenge, and I wish it well.

GKN: Proposed Takeover by Melrose

Adrian Bailey Excerpts

Tuesday 27th March 2018 Commons Chamber

[Greg Clark]

Such long-term commitments and partnerships are important, which is why they were among the concerns I raised with the bidding company, although it is obviously a matter for shareholders to decide. It is fair to observe that GKN has also proposed to make some changes to the ownership of its activities on the automotive side. My hon. Friend is absolutely right about our commitment to the very successful focus of our industrial society on the automotive and aerospace sectors, and I expect the owners of GKN—whether the existing management or an alternative—to maintain that very deep involvement in a very successful set of arrangements.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Melrose commitment not to sell the GKN aerospace division before 2023 falls well short of the investment cycles of 20 to 40 years needed in the aerospace industry. It also fails to meet the concerns expressed by companies such as Airbus about the security of the long-term availability of the products they need. Will the Secretary of State commit to take whatever action is necessary, including blocking the bid, to preserve this division?

[Greg Clark]

The hon. Gentleman, who formerly chaired the Select Committee, went through the experience of Cadbury and Kraft and knows there is no ability to extract commitments on these matters. I know from speaking to him about this that he thinks the use of the new powers is a step forward in that respect. When it comes to investment in the future, it is for shareholders to compare the approaches offered by the management. He knows very well the powers I have and the regime I operate under, but, as I have told the House, on the grounds that I can consider, I will look very carefully at the advice I am given on the question of national security.

GKN: Proposed Takeover by Melrose

Adrian Bailey Excerpts

Thursday 15th March 2018 Westminster Hall

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I beg to move,

That this House has considered the proposed takeover of GKN by Melrose.

I start by saying what a pleasure it is to serve under your chairship, Mr Stringer. I think it appropriate to mention as a matter of interest that, as a trustee of the Industry and Parliament Trust, a few years ago I undertook a secondment at GKN and witnessed some of its activities throughout the world at first hand. It is also appropriate that I mention Professor David Bailey of Aston University for the work he has done on this issue, which in part informs my comments today. I know there are other speakers with specific constituency interests who want to participate in the debate, so I will try to leave plenty of time following my introduction for them to make appropriate and relevant contributions.

I sought this debate because of the strategic interest of the issue for British manufacturing, but also because of its wider implications for long-termism, investment and responsible capitalism. In a former incarnation, when I was Chair of the former Business, Innovation and Skills Committee, we held inquiries into the Kraft-Cadbury takeover and the proposed Pfizer-AstraZeneca takeover. They flushed out many of the relevant issues. They are now even more relevant and are highlighted by this proposed takeover. Although GKN may be a rather different sort of manufacturer from Kraft and Cadbury, or Pfizer and AstraZeneca, the issues are very similar.

Following the deliberations of the Select Committee on those issues and its recommendations, there was an enhancement of the takeover code, particularly in the context of post-offer undertakings, which arose from Kraft reneging on the commitments it had made to Cadbury during the course of negotiations. I am pleased to say that that issue was highlighted in the inquiry by my hon. Friend the Member for Leeds West (Rachel Reeves) on this particular takeover. I note that my hon. Friend commented this morning that Melrose, in the context of this takeover, has refused to commit itself to the sort of post-offer undertakings that would be legally binding and potentially give reassurance to GKN shareholders.

[Mr Bob Seely (Isle of Wight) (Con)]

Does the hon. Gentleman agree that in many cases Melrose aims to own businesses for only between three and five years, and during that time seeks to maximise shareholder value, selling on the parts of those businesses that it sees as underperforming, sometimes without regard to the long-term benefit of the business and its individual plants? Therefore, a takeover by Melrose may mean a break-up of GKN. Does he share my concerns and those of others like me, who are fearful for the GKN plants in their constituencies? There is one in the Isle of Wight.

[Graham Stringer (in the Chair)]

Order. I would remind Members that interventions should be brief.

[Mr Bailey]

The hon. Gentleman has put his finger on an issue that I will develop at some length during my speech. He is absolutely correct.

Perhaps I should state that, from a philosophical or ideological point of view, I am not anti-private sector. I am not anti-City. I recognise that globalisation is a potential force for good, even though it does throw up some considerable challenges and needs to be managed. I feel, however, that the role of Government must be to ensure that where vital national interests are at stake, the private sector is regulated in such a way that those interests prevail over what are often the short-term or illusory interests of the shareholders involved or the myriad City professionals and advisers that tend to make a lot of money from takeover bids. Some of the issues that arise from this proposed takeover bid are specific to GKN and Melrose, but others throw up broader, national issues.

GKN is a company of enormous strategic importance to the British economy. In 2015, it made sales of more than £16 billion worldwide and contributed £1.36 billion to our economy. It is one of the major—perhaps the major—tier 1 providers within the automotive and aerospace industries.

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend has brought a timely debate. I have worked in defence industries. The Secretary of State has got to look at this in the context of the national interest, because the real danger is that the Americans will hive it off piece by piece. The hon. Member for Isle of Wight (Mr Seely) is right when he says that Melrose only keeps businesses for about five years, makes a profit for shareholders and is gone. This is probably one of the last bastions of Britain’s independent defence industries. More importantly, there are 6,000 jobs at stake. No doubt Melrose has its eye on the pension scheme as well—most of them do.

[Mr Bailey]

My hon. Friend anticipates some of the points in my speech. I agree with him completely.

GKN holds the position as one of the world’s greatest tier 1 providers in part because of the number of portfolios it holds worldwide with other joint venture companies, as well as with British companies, but also because of its research, development and technological advances, particularly in the automotive and aerospace industries. The UK aerospace sector is the largest in Europe, second globally to the USA. It supports more than 210,000 well-paid jobs in this country and delivers £29 billion in exports, generating £32 billion in turnover each year. GKN, as the only large tier 1 supplier, has a strategic role in the growth of the sector and, as I said earlier, it makes a total contribution to the UK economy of more than £1.3 billion.

GKN’s identity as a sector leader is largely based on the large amount it invests into research, development and technological advances. The distinctive focus on research has for decades been the cornerstone of the company. By its very nature, research and development involves long-term investment projects. The benefits of such programmes are often enjoyed only decades or even longer after the investment has started.

Typically, the motor industry has a product cycle of seven to 10 years, but at the moment major car manufacturers are looking for long-term partners to invest in future generations of electric vehicles. Because of its long-standing association with those companies, GKN is currently well placed to be a partner in such ventures. The aerospace sector has a product cycle of 20 to 40 years, again highlighting the importance of a company investing long term with the companies it serves. Since 2000 GKN has invested more than £561 million. That has created long-term, well-paid, highly skilled jobs that are of particular benefit to our regional as well as our national economies.

[Rachel Maclean (Redditch) (Con)]

I agree with the speech the hon. Gentleman is making and his excellent points. Will he touch on the issue of the productivity gap between the south-east and the midlands? We are midlands MPs, so is he concerned about that in relation to the takeover?

[Mr Bailey]

Absolutely. The hon. Lady puts her finger on a very important point. Productivity in the motor and aerospace industries is way ahead in manufacturing overall, and in other types of business as well. Anything that damages such industries will damage the level of productivity in our economy, which we all know is a matter of considerable concern.

GKN not only invests in research and development in its own companies, but partners universities up and down the country—Leeds, Manchester, Warwick, Nottingham and Sheffield, for instance—again helping to underpin regional economies, driving research excellence and giving students the level of skills that they need and an involvement in manufacturing that is absolutely crucial for developing our future skills base. As the hon. Member for Isle of Wight (Mr Seely) mentioned, the Melrose business model appears to be fundamentally incompatible with that approach.

I was chided by the Melrose chief executive for calling Melrose a hedge fund company. It says it is not; it says it is a turnaround company. In the Business, Innovation and Skills Committee it was called an asset-stripping company. Whatever we call it, it has a short-term strategy reminiscent of the way in which hedge funds work. It aims to buy and sell companies within a window of between three and five years. Despite protestations that it does keep companies for the longer term, one example that must be considered is that of Brush of Loughborough, a UK company that makes gas turbines. It was taken over by Melrose 10 years ago and is failing. Melrose has been unable to sell it on in its desired turnaround window because of the huge structural change in the sector owing to the move away from fossil fuels. Melrose has failed to invest in development to mitigate the changes and save employment within the company. It has already halved its workforce and has recently announced another 270 job cuts.

Although Melrose has invested £230 million in research and development in various companies over the past five years, the significant thing is that that is less than it paid its top 20 executives in the past year alone. That does not seem to be indicative of a company that is committed and wedded to long-term investment in research and development.

Many Members will have seen the announcement from Tom Williams of Airbus. The Financial Times has today published an interview with Tom Williams, the chief executive of Airbus, which is one of GKN’s biggest customers. He said it would be “practically impossible” to give new work to the engineering group if Melrose succeeded in its hostile bid. He cited the lack of “strategic vision” and the lack of long-term investment owing to the short-term ownership model. We could not detect a more telling intervention and substantiation of the point being made. We must remember that Airbus is only one customer of GKN, but Airbus’s public statement sends a signal to many other strategic customers of GKN.

Another cause for concern is the relative size of the companies. Last year alone GKN had revenue in excess of £10 billion, compared with just over £1 billion at Melrose, which proposes to finance its bid by borrowing £3.5 billion.

In addition, GKN employs 60,000 people across 30 countries, a level of personnel management that Melrose has no comparable experience of. As part of its takeover bid, Melrose has revealed plans to sack the entire board of GKN. Melrose as a company would double in size, but with no commitments to further capacity and an absence of the management expertise that has historically been part of GKN. Furthermore, Melrose has never taken over a company that specialises in aerospace manufacturing, which is perhaps one of the most concerning issues of all.

GKN’s prominence in the aerospace sector means it has a unique stake in the maintenance of our national security. As a leading world tier 1 supplier, it operates on a lot of UK defence platforms. As its order book with the Ministry of Defence is relatively small, Melrose has claimed that that issue is not significant. It ignores the fact that many of GKN’s customers are foreign companies that provide defence equipment that is subsequently procured by this country, so there is a much greater strategic involvement than the figures quoted by Melrose suggest.

GKN’s military aerospace involvement includes Lockheed Martin, Lightning, Raptor, Boeing, Eagle, Hornet, Harrier II, Eurofighter, Typhoon, Panavia, Tornado, Saab, Gripen and the new B-21 engine—a huge range of engines and vital components in a vast range of our defence components and needs for the future. Significantly, our own Defence Secretary felt the need to raise this issue with the Department as he no doubt responds to concerns that lie within the industry. I hope the Minister will refer to that when he sums up.

The US Government are highly likely to review any takeover via their Committee on Foreign Investment. The UK has a clear interest and should do the same. The public interest test applies under the national security element of section 58 of the Enterprise Act 2002, and the UK Government have the power to consider whether the takeover is in the public interest.

[Mr Cunningham]

Earlier, I mentioned the fact that GKN is one of the few companies that now gives Britain its independence in defence terms. It has been known for years—and if we think about it, it is a matter of the national interest—that, for example, Pratt & Whitney has always been after Rolls-Royce. That gives an indication of what is likely to happen at GKN if Melrose takes it over and asset-strips it. American companies will come in, and we will no longer have an independent role to play in manufacturing our own defence equipment.

[Mr Bailey]

My hon. Friend anticipates, with great foresight, some of the potential developments if the takeover were allowed to happen.

I believe that there are broader issues, however. The GKN takeover is a case that goes well beyond defence. It is relevant to our productivity, as the hon. Member for Redditch (Rachel Maclean) said, to our economy and research capabilities, and to the jobs and pensions of about 6,000 people in the UK. I am not here to argue that GKN is a perfect company and perfectly managed—that issue is widely acknowledged; but in view of the contribution that it makes to our industry as a whole, the highly paid and highly skilled jobs that it provides, its innovative research-led developments in key sectors of the economy and its commitment to maintaining a strong manufacturing industry in the UK, its future development needs to be carefully thought through, balancing the interests of shareholders with the vast number of other stakeholders involved.

Neither the takeover, nor a hastily contrived reorganisation in response to it, is the best way to deal with the problems. A solution centred on preserving shareholder value at the expense of all else would be disastrous for regions, such as the west midlands, that depend on manufacturing, and for productivity and the economy. The far-reaching implications of the proposed bid should prompt the Secretary of State to look at widening his powers of intervention on takeovers to include broader considerations of public interest. I appreciate that it was a Labour Government who withdrew that consideration, in the Enterprise Act 2002, but since then the global nature of the world economy has changed rapidly. Welcome adjustments were made to the takeover code relating to post-offer undertakings following the Kraft-Cadbury takeover. However, it is time to re-examine the situation, and to seek a more robust set of criteria that acknowledge the integrated investment and research-led nature of the 21st-century global economy, to ensure that the globalisation that benefits many areas does not decimate others. That could be done by broadening the criteria for defining the public interest, from the existing four, by increasing the percentage of shareholders who have to vote in favour of a takeover, or in other ways. It is time that the question was re-examined, to get a more robust set of criteria, which would preserve vital national interests.

In answer to a question on 7 February, the Prime Minister said at column 1494 that she would act in the “national interest”; and in August 2016 she launched her Cabinet Committee focusing on delivering one of her Government’s top three priorities—an economy that works for everyone, with a strong industrial strategy at its heart. The case of the GKN takeover provides the Prime Minister with a chance to prove the strength of her commitment to her self-defined mission to make Britain a country that works for all.

[Several hon. Members rose—]

--- Later in debate ---

[Mr Bailey]

My experience of parliamentary scrutiny of takeover bids, from Kraft and Cadbury to Pfizer and AstraZeneca and, I hope, this one, is that, irrespective of the outcome, the fact that Parliament has scrutinised it has benefited the outcome—first, by holding the Government to account, and secondly, by holding the participant companies to account.

I make no apologies for having the debate, because I feel it is performing an essential role of Parliament. Today’s debate has demonstrated that, by demonstrating the unanimous strength of opinion on both sides of this House on the issues arising from this particular takeover bid, and the earnest desire that the Government use all the powers they have to intervene in the best interests of not just GKN but our economy, our productivity, our employment, our pensions and so on.

I understand the quasi-judicial role that the Government have in this matter and how that might inhibit any public pronouncement, but in this debate we have spoken clearly and demanded action. The debate reflects the opinion of Parliament in general, and I ask the Minister to act in the best interests of GKN and our economy.

Pubs Code 2016

Adrian Bailey Excerpts

Wednesday 24th January 2018 Westminster Hall

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I beg to move,

That this House has considered the application of the Pubs Code 2016.

It is a pleasure to serve under your chairmanship, Mr Robertson. I would like to say that it is a pleasure to speak in this debate, but I spoke in the equivalent debate in January last year and I hoped then that I would never have to speak in such a debate again. However, given the way things have evolved, it is obvious that I need to, so I am here yet again.

I am something of a veteran of this issue. The initial predecessor to the Select Committee on Business, Innovation and Skills did an inquiry into it in 2004, and subsequent inquiries were held in 2009, 2010 and 2011. I was a member of the Committee in 2009 and Chair of it in 2010 and 2011. Looking back, I remember that Ted Tuppen, the former chief executive of Enterprise Inns, described the MPs who were campaigning on pub companies as morons. I am proud to say that I am probably one of the last surviving morons—by that definition—in this House.

The issues have been standard and constant throughout the evolution of this debate and the subsequent legislation. They arise first around the tensions between the pub companies and their tenants—I know they are commonly described as pub operating businesses now.

[Nick Thomas-Symonds (Torfaen) (Lab)]

I congratulate my hon. Friend on securing this debate and the way he has pursued this issue. Like him, I contributed to debates on it in the last Parliament. I was pleased, as were many colleagues, to see the pubs code at last, but does he agree that the key now is to see it implemented throughout?

[Mr Bailey]

Absolutely. My hon. Friend makes an important point. This has been pursued through Parliament for nearly 15 years. If, at the end of the day, we do not demonstrate that our pursuit of this issue and the implementation of the legislation is effective, we will have failed in our duty. I am dedicated to ensuring that it is successful.

The crux of the issue is the mismatch between the power of the pub companies and their tenants. With that mismatch in power comes a mismatch in rewards. Basically, many pubs were being driven into closure and tenants into bankruptcy by virtue of the fact that the pub company was taking a disproportionate amount of the income that they were raising through their services.

[Sir Greg Knight (East Yorkshire) (Con)]

I congratulate the hon. Gentleman on initiating this debate. Does he agree that another problem is that the adjudicator has a tendency to make his decisions in private, thereby preventing a bank of knowledge from being built up by tenants, who could perhaps use some of the decisions as precedents?

[Mr Bailey]

I thank the right hon. Gentleman for that intervention. To a certain extent, I was going to cover that, but his precise point is a welcome addition, because transparency is the key. That would give guidance to tenants who were looking for the market rent only option. It would enable them to see how viable their application is and on what grounds they could challenge the pub company, if the pub company refused or obstructed it.

[Rachael Maskell (York Central) (Lab/Co-op)]

I will be writing to the Minister about my constituents’ experience of the Pubs Code Adjudicator following Paul Newby’s visit to York, at my invitation. Despite his commitments about expediency and communications, pubs such as the Golden Ball in York are still waiting 13 months later to hear what is happening about their case. How can that be fair, and how can it be right?

[Mr Bailey]

My hon. Friend raises an important point. I know that many tenants feel that this procrastination over resolution is playing into the hands of the pub companies, and that it is, in some cases, deliberately designed to drive up expenses and deter anybody from making such applications.

[Lilian Greenwood (Nottingham South) (Lab)]

I congratulate my hon. Friend on securing this debate. I want to ask a question on behalf of the Nottingham branch of the Campaign for Real Ale and its pub protection officer, who wrote to me about this issue. The point they make is that the process of obtaining a market rent only option is massively complicated and virtually impossible for an unsupported tied tenant to use without expensive legal support. Does my hon. Friend agree that if the legislation is to be useful, it must be easily accessible?

[Mr Bailey]

My hon. Friend makes an important point. That is one of the complaints, and I will be discussing some of them in a few moments.

Prior to the implementation of the legislation, subsequent Committees sought the industry’s agreement on a voluntary code, but subsequent inquiries demonstrated that the pub companies, despite paying lip service to a voluntary code, were actually not conforming to it and not making any progress on it. It was then in exasperation—almost desperation—that the Select Committee decided that enough was enough, and that it was time to implement legislation. Subsequently, the legislation materialised.

The key issue, above all else, is tied tenancies and the market rent only option. The argument is that tied tenants have to pay a disproportionate amount of money for their stock and other services, and that, as a result, the pub company gets a disproportionate share of the income arising from the premises. If a tenant seeks to go free of tie, the pub company will implement conditions in the negotiations that remove any financial advantage from that course of action. The legislation, by giving tenants the option of applying for a market rent only option, is designed to overcome that handicap. The way in which the process is being implemented is a matter of huge concern, and it needs further consideration by the Pubs Code Adjudicator and the Government.

The Pubs Code Adjudicator report in July 2017—bearing in mind that the legislation came in one year earlier, in July 2016—said that there were two overarching principles in the code. The first was “fair and lawful” dealings in relation to tied tenants. The second, which I have touched on, was the “no worse off” principle, which sets out

“that individual tied tenants should not be worse off than they would be if they were free of the tie”.

Eighteen months after the introduction of the pubs code and the Pubs Code Adjudicator, it is time to take stock and assess whether the objectives set out in the pubs code—I just defined them—are being met, and, if not, what needs to be done.

Before I do that, I have to touch on the controversy that raged over the appointment of Paul Newby as the Pubs Code Adjudicator. I will not dwell on the whole catalogue of concerns, but it is well known that there are accusations of conflicts of interests arising from his past employment with the valuers and surveyors Fleurets, because it had extensive interests with the pub companies, and from his personal investment in it. I said in the debate last January that unless he divested himself of that particular investment, then in no way should he be the Pubs Code Adjudicator because he had an obvious and transparent conflict of interest. He has not done so. Given that confidence in his commitment and impartiality is crucial to earning the trust of pub tenants, that must be of huge concern. I will come back to this issue in a moment.

He has had opportunities over the past 18 months to demonstrate his effectiveness; however, looking at his performance, we see that it is possibly a slight understatement to say that the implementation and the progress made under his supervision fall short of the level needed to achieve the legislative objectives. The first concern is the slowness of the adjudication process. Between July 2016 and March 2017, arbitration awards were made in only 15 of the 119 cases accepted for arbitration. In the cases specifically relating to the market rent only option, the figure was 12 out of 104. Later in the year, in August, the adjudicator published a market rent only verification exercise report, which demonstrates that of the total of 497 market rent only notices, only 11 were actually converted into agreed market rent only tenancies. Of the 130 arbitration cases listed on 31 July 2017, 79 had been delayed for more than three months, and 12 for more than six months.

Now I will come back to the point that I was making earlier. The slowness of arbitration is not the only issue; impartiality is also a problem. The Chartered Institute of Arbitrators has upheld four of the 12 challenges made by pub tenants to the adjudicator’s decisions. That demonstrates the lack of confidence of tenants in the industry in the robustness and impartiality of the way in which he is exercising the code. To have a one-third failure rate in such a key, sensitive position is absolutely unacceptable.

[Rachael Maskell]

My hon. Friend is making a very solid case. A further conflict of interest in dragging out these cases is that doing so is economically disadvantaging tenants. Has he discovered the same fact?

[Mr Bailey]

Again, my hon. Friend makes an important point. The more we drill into this subject, the more comes out of it. Unfortunately, I am too constrained by time to go into every single issue that arises.

[Toby Perkins (Chesterfield) (Lab)]

I am keen to intervene before my hon. Friend moves on from that point. As I understand it, in the four cases in which the Chartered Institute of Arbitrators found that there was a conflict of interest, Mr Newby has continued to arbitrate. He has not accepted the verdict of the Chartered Institute of Arbitrators. An important question for the Minister is whether he thinks that if the Chartered Institute of Arbitrators believes that there is a conflict of interest, Mr Newby should respect that verdict.

[Mr Bailey]

My hon. Friend raises another significant point. By continuing to act on the case, Mr Newby is acting in breach of the code of conduct of the professional institute of which he is a member.

It is also significant that successful negotiations between the pub companies and tenants were rare. Eight times as many cases were referred to the PCA for arbitration, and four times as many went to independent agreement, as decided by bilateral negotiations between the tenants and the pub companies. It is not difficult to understand why. There is now overwhelming evidence that the pub companies’ historic antagonism, intimidation and bullying has continued, and the confrontational culture has prevailed, deterring tenants from taking, seeking or achieving market rent only options as a result of bilateral negotiations with the pub companies.

That is confirmed by the market rent only verification exercise of August 2017. The report states:

“Almost without exception, tenants and tenant advisers reported that while the POBs are abiding by the letter of the Pubs Code, to varying degrees they are not acting within the spirit of the Code; and that some are taking a legalistic approach to the Code.”

The second highest number of calls to the Pubs Code Adjudicator inquiry line related to the behaviour of pub companies, and they included accusations of intimidation, bullying and delay tactics. Those are not my words, but the words of the report.

I do not have time to examine every device used by the pub companies to frustrate negotiations but will pick out just a few. First, they include processes in their negotiations with tenants that are designed to push up costs, and include conditions not commonly found in tied tenancies or pre and non-code free-of-tie agreements.

Secondly, there is insistence by the pub companies for a brand new tenancy agreement, rather than a deed of variation to an existing tied tenancy. That enables pub companies to introduce new terms and requirements not historically found in a free-of-tie agreement, but that introduce substantial additional upfront costs.

Thirdly, deposits and advance rents are designed to make the market rent only option unaffordable. Lastly, there are unreasonable, unexpected and novel improvements of dilapidation requirements, including things such as a new roof, new pumps, resurfacing of car parks, cellar cladding, fire rules assessments and, I believe, patios as well. I would stress that those are only some of the strategies used by the pub companies to circumvent the spirit of the law.

Arising from a letter from my hon. Friend the Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee, on 3 November 2017, the Pubs Code Adjudicator acknowledged

“that very few MRO notices served by tied pub tenants convert into MRO tenancies, and that bilateral negotiation and agreement between pub-owning businesses and tied pub tenants appear to be by exception.”

That is a formal confirmation from the Pubs Code Adjudicator that, in effect, it is not working. It is clear from the verification exercise that the pub companies are using their legal expertise and superior bargaining power to perpetuate the status quo and to thwart the intended objectives of the pubs code legislation.

In the same letter, the Pubs Code Adjudicator says that he is prepared to use his enforcement powers to ensure compliance if necessary. We have been operating with the code for 18 months, and there is overwhelming evidence that it is necessary and reasonable to ask why—given the evidence that has emerged in that period —he has not done it already. Instead, the adjudicator has published a compliance code for pub companies which, frankly, we would have expected to have been produced much earlier. Predictably, the pub companies have reacted with an antagonistic letter to him. I am afraid that, on the basis of earlier precedent, it is only the threat of legal action that will move the companies.

In the same letter, the adjudicator says that he will make recommendations to Ministers about business practices that he believes are unfair to tied pub tenants but are not breaches of the pubs code. Again, the evidence about that has been there for a long time, so why has he not done that before? I ask the Minister this question: if the recommendations from the adjudicator are forthcoming, or indeed even if they are not, will he make the appropriate changes to the legislation to ensure that it meets its objectives?

In his letter to my hon. Friend the Member for Leeds West, the Pubs Code Adjudicator asserts that his aim is to help to reshape the culture of the industry. To date, there has been absolutely no sign of that. The pub companies are intransigent and have enormous resources at their disposal. To change the prevailing culture, a much tougher approach is needed. The PCA is running out of time and it is time that the Government sought a replacement.

The Government need to make a couple of headline adjustments to the legislation or the code to ensure that the code is effective and the problems that I have outlined are overcome. Many such changes would do that, but there are two key ones. The first is to ensure that the definition of the market rent only option makes clear the right of a tenant to pay an independently assessed market rent, and only that rent, to the pub company. Secondly, the only changes to deeds of variation that should be allowed are the severing of tied terms and the rent being an independently assessed market rent. Those two alterations would go an enormous way to addressing some of the important grievances that have emerged so far, but many others could be made.

I will conclude by saying that, as I said earlier, I have been involved with this for a very long time—many Members from all parties in the House have been equally committed. I pay tribute to my predecessors as the Chair of the Business, Innovation and Skills Committee and its predecessor Committees, and the many campaigners in the many voluntary groups who have been so assiduous and dedicated to ensuring that we drag these companies kicking and screaming, by whatever legislation is necessary, to confront their responsibilities as operators of important community facilities that play an absolutely vital role in so many people’s lives, and in the lives of so many communities. I will not rest until that is done and I hope that other Members and the Government will work with me to ensure that we achieve that goal.

--- Later in debate ---

[Jim Shannon]

I thank the hon. Gentleman for that intervention.

[Mr Bailey]

I agree with my hon. Friend the Member for Chesterfield (Toby Perkins). In fact I received a comprehensive brief from Greg Mulholland about an hour before I came into the Chamber. I had a feeling that somehow his beady eyes would be upon us today to ensure that we would articulate the viewpoint on which he has campaigned so effectively for many years.

[Jim Shannon]

I thank both hon. Gentlemen for their comments which, along with mine and others’, are a recognition of the tremendous work that the gentleman in question put in, in this Chamber. We all recognise that his efforts were one reason we have got so far forward.

Others have endeavoured to take us the extra mile through their efforts, and I was made aware of the details from the briefing that was most helpfully provided by the Library. We do not often say it, but I thank those researchers for their diligent work. They provide tremendously factual and detailed information to sharpen the memory a wee bit and help in recalling what is important—the briefings also provide a signpost to further excellent information.

I am aware of the importance of pubs in my constituency, as all hon. Members will be. In rural areas in my constituency, more often than not the pub is the central focus of attention for meeting, entertaining and eating—just somewhere to meet. The importance of pubs cannot be underlined too strongly. I think it was just a few weeks ago, perhaps just before Christmas, that there were pubs closing. The rate of pub closures across the United Kingdom of Great Britain and Northern Ireland is alarming. I think that the pubs code and the Pubs Code Adjudicator are part of a methodology to try to hold back the tide of closures, so it is important that that is in place.

There was a community project where a collective got together and used their own investments to restart their pub with a major refurbishment. They did so for a purpose. They recognised that the community had lost something important and they wanted to reinstate it. Pubs are important in contributing to the economy and providing jobs, and as focal points for leisure and meeting.

It seems to me that hon. Members stepped in to stop the monopoly that was affecting small pub tenants. The spirit of the law under the pubs code was to allow a tenant to request a quote from their pub-owning company for a rent only agreement when their tenancy was due for renewal. We also established a position whereby there could be arbitration and mediation to ensure that the spirit of the law was being followed. That job lies squarely in the hands of the Pubs Code Adjudicator. Members have outlined credible and legitimate concerns, and we look to the Minister, as we often do, for a comprehensive response. Questions have now been asked as to whether the adjudicator is impartially fulfilling the role. In a few cases, the professional arbitrators body has stepped in to ask for someone else to arbitrate. Sometimes we must ask why something is happening: is there a failure in the present system? Some Members have set out a case that there is. The Minister must deal with that in his response.

I believe that the spirit of what we strove for was giving the little man or woman a chance. That might not mean every case being granted, but it does mean every case being fairly considered. Perhaps that means that the involvement of a third person is needed. I stand by the bringing in of a deputy to take up the cases that are questionable or that need to be reviewed or looked at again. That is what the spirit of the law has been. No man in this world is infallible and we all understand that we must submit to allowing others to step in at some stage to give oversight to something if there is a different way of seeing it or a clearer way to understand it.

As an example of such a difficult issue, if a lady came to the constituency office for help with serious intimate problems, she might prefer to speak to one of the girls in the office. Anyone would know what to do: set themselves aside so that they could do that. Why cannot that happen in the present difficult matter as well? I have no issue about handing such a case to one of my capable staff, who understand the issues very well. The best interest of the people in the case is most important. That is the view to take.

We must look at what we sought to achieve and find a way to bring that about practically. That is what I support today, and what other right hon. and hon. Members have argued for. Just as an auditor would be entitled to audit my affairs, they must be open to having what they do audited. That is true accountability. Each one of us is ultimately accountable to someone. That was the spirit of the pubs code—to help the little man or woman. Let us uphold that spirit today.

--- Later in debate ---

[Mr Bailey]

I belatedly welcome the Minister to his new role and portfolio. I do not envy him trying to grasp the ins and outs of the issues surrounding this topic, which some of us have been dealing with for many years. Having seen him perform before, I am confident that he will demonstrate both the commitment and competence to address our concerns properly and effectively.

A couple of things emerged from the debate, the first of which is the enormous expertise within the ranks of the House. I refer particularly to my hon. Friend the Member for Chesterfield (Toby Perkins). Without his actions in 2015, we would not be as far as we are in the debate, and I think that deserves formal recognition, as does the work of Greg Mulholland in the past. I also thank my hon. Friend the Member for Sefton Central (Bill Esterson) for his prosecution as locum for the other shadow Minister, my hon. Friend the Member for Sheffield, Brightside and Hillsborough (Gill Furniss).

I welcome the assurances given by the Minister, and would be very happy to work with him whenever I can to ensure that the issues that have been raised today are addressed. On the point about conflicts of interest, I was open-minded, but I think that the decisions of the Chartered Institute of Arbitrators and the implications are serious. I ask him to examine those very carefully.

Question put and agreed to.

Resolved,

That this House has considered the application of the Pubs Code 2016.

Sector Deal for Steel

Adrian Bailey Excerpts

Tuesday 19th December 2017 Westminster Hall

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Sir Henry. I congratulate my hon. Friend the Member for Aberavon (Stephen Kinnock) on securing this debate and on all the work that he has done on behalf of the industry. It is a superb demonstration of how effective a Back Bencher can be in shaping Government policy in key areas.

I rise as the representative of a constituency that is not a primary producer of steel but heavily dependent on steel. West Bromwich West has more foundries than any other constituency in the country, and those foundries depend heavily on supplying parts to the motor industry. It is interesting that each and every speaker who has contributed to this debate represents a steel-related industry that is vital to the core economy of some of the most deprived areas of the country. For that reason the issue should be considered, due to its impact on the wider regional policies of this Government.

Equally, we must consider the national contribution to the economy. Our £72 billion motor industry is recognised as a world leader, is vital to our exports and has a productivity level three times the national average at a time when the country is desperately seeking to improve its productivity. Any industry forming part of a chain that delivers that is worthy of special consideration, respect and a commitment that has hitherto not been afforded to the steel industry.

Other stated objectives in the Government’s industrial strategy, which I welcome, include a deal on autonomous and electric vehicles and construction, all of which are strategically dependent on a successful steel industry. The fact that an industry on which so many Government objectives and policies depend seems to have been neglected is a matter for concern and needs an urgent remedy.

In the short time available, I want to make two or three other points. First, the motor industry in my area and nationally has adopted a policy of reshoring. It makes sense, because it is cheaper to do so, it provides security of supply for the most part and, of course, it accords with low-carbon and energy-saving targets. Locally, Jaguar Land Rover has led the drive. I believe that there is a national target to improve the number of British-built cars for which British steel is sourced from 35% to 50%, and Jaguar Land Rover in particular is well on schedule to do so. However, the policy could be compromised without security of supply and an adequate supply of steel at a competitive price.

Secondly, I point out the Government’s objectives on electric vehicles, which we are currently world leaders in developing. We produce more than any other country with the exception of the US, which of course is a lot bigger. As my hon. Friend the Member for Aberavon pointed out, all those electric vehicles are just as dependent on British steel components as our historic petrol and diesel-driven vehicles. The Government’s objectives could be blunted if we do not preserve the steel industry.

My last point, which I will not labour because my hon. Friend the Member for Newport East (Jessica Morden) made it very well, is that we export more scrap than any other country, yet import raw steel. That seems crazy. Again, I join others in pointing out that Liberty Steel, which has a substantial presence in Oldbury in my constituency, is a potential game-changer. Liberty, seeing the implications of the current energy situation, has bought up renewable energy generators in Scotland and other parts of the country, with a view to getting a perfect combination and integrated supply of low-carbon energy to melt scrap cars and metal and reshape them into castings and hot stamping for the industry.

Steel is a core industry for so many of this Government’s wider economic and social objectives. It has come up with a series of solutions that would embed it in those policies and deliver on their objectives, and that are worthy of special consideration for adoption by the Government.

Oral Answers to Questions

Adrian Bailey Excerpts

Tuesday 12th December 2017 Commons Chamber

[Greg Clark]

Both Honda and BMW have been part of the sectoral council that has helped to create institutions that have trained people, and developed research and development; they are a very valued part of the sector deal, which has been so warmly welcomed by the industry.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

My constituency contains many small businesses involved in the supply chains for the motor industry. These chains stretch right across Europe and are largely regulated by European Union law. Will the Secretary of State make a commitment that these will not be disrupted by Britain’s exit from the EU?

[Greg Clark]

Given what he said, I hope the hon. Gentleman will welcome the supply chain initiative, which is at the heart of the sector deal to increase the level of UK content. But one way or another the motor industry, like so many others, is based on its good relations, not just across Europe, but around the world, and it is essential that the deal we do allows that to continue and indeed to prosper in the future.

Vauxhall (Redundancies)

Adrian Bailey Excerpts

Monday 16th October 2017 Commons Chamber

[Claire Perry]

I remind the hon. Lady that urgent questions are always tabled about job losses, but I do not recall ever answering one about job announcements. We have the lowest level of unemployment in the country for 40 years and the highest level of employment among women and young people. It is a fact that overall the UK economy has been a huge jobs-creating success in the last eight years. However, there will always be bumps, concerns that come along, particularly for people who are worried. In the run-up to Christmas, this is a very worrying time. That is why I do not have to be forced to come to the Chamber; I am very happy to come here and try to reassure Members on both sides of the House and the constituents whom they represent.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Minister spoke about the widespread consultations and the need to send the right messages. Given the importance of the European single market to the motor industry—productivity and exports—what conversations is she having with Cabinet Ministers and Conservative Back Benchers? They are prepared to leave the European Union irrespective of our commitment to the single market. What messages does she think that that is sending to would-be investors in this crucial industry?

[Claire Perry]

I assure the hon. Gentleman that both my right hon. Friend the Secretary of State and I hear the messages loud and clear from the auto sector and, indeed, from the business community as a whole—from businesses large and small. My right hon. Friend is assiduous in ensuring that the voice of business is considered in every aspect of the EU negotiations. That is what we have been doing. We continue to work on the best possible deal for Britain, and we will get behind it.

Oral Answers to Questions

Adrian Bailey Excerpts

Tuesday 12th September 2017 Commons Chamber

[Greg Clark]

Our exchanges this morning show the potential and the strengths that we have in successful sectors such as the automotive, healthcare and medicine, and satellite and space sectors, in which we are creating very good jobs. However, my ambition and my Department’s ambition—which I hope the hon. Gentleman shares—is to increase the proportion of women and other groups who are under-represented in those industries, because there is talent there that we should be using, and part of our drive is to get the best talent into those world-beating industries.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

A recent report produced by Sheffield Hallam University found that the challenge fund had too narrow a sectoral focus, which was disproportionately benefiting areas in the south-east at the expense of traditional manufacturing areas in, for instance, the west midlands. What elements of the fund will benefit areas such as mine?

[Greg Clark]

I have not seen the report. I will look at it, but I think it is mistaken. The challenge fund includes, for example, the Faraday challenge, which I launched at the University of Birmingham along with many industrialists and academics from across the west midlands. It is proposed that the west midlands should be at the heart of the challenge. Investment in driverless cars, and in satellites and space, is taking place throughout the country. One of the big features of the challenge fund is that it reaches every part of the country, and, indeed, every part of the United Kingdom.

Tuition Fees

Adrian Bailey Excerpts

Wednesday 19th July 2017 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I chair the Business, Energy and Industrial Strategy Committee. Before tuition fees were trebled in 2012, the Committee held a session during which it interviewed the then Secretary of State for Education. He said—I quote from the report—

“When the Government’s economic policies have produced the successful outcome that we all expect, we can return to the question of how universities can be supported in a more generous way, but at the moment we face a massive financial crisis.”

The current proposals are actually less generous, not more generous. Are we still experiencing a financial crisis? If not, when will the present Minister and the current Government live up to the commitment given by that Minister?

[Joseph Johnson]

I am puzzled by that intervention. Our per-university, per-student funding has risen by 25% as a result of our reforms. If the hon. Gentleman wishes to read the report published last week by the Institute for Fiscal Studies, he will see that, on a per-student basis, our universities, per degree, are better funded than they have been at any point during the past 30 years.

Sale of Student Loans: Regulation

Adrian Bailey Excerpts

Tuesday 7th March 2017 Westminster Hall

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

rose—

[Mr Philip Hollobone (in the Chair)]

Order. Mr Bailey, are you wishing to speak? Do you have the permission of the Minister and the proposer of the motion to do so?

[Mr Bailey]

I do, Mr Hollobone. I apologise—I was under the impression that you knew.

[Mr Philip Hollobone (in the Chair)]

There has been some confusion. I am delighted that you are able to speak, Mr Bailey. We must allow the Minister at least 15 minutes to reply, so if you could, temper your remarks accordingly.

[Mr Bailey]

Thank you, Mr Hollobone. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Coventry South (Mr Cunningham) on securing the debate, and I thank him and the Minister for allowing me to make a short contribution.

I wanted to contribute because I was Chair of the Select Committee on Business, Innovation and Skills in 2014 when it examined the Government’s proposals on this issue, which were mooted by the then Business Secretary. The Committee’s report posed a number of questions and made a number of assertions, which are as relevant now as then. Arising at least in part from the Select Committee’s contribution to the debate, the sale was subsequently withdrawn as the then Minister said he did not consider it to be value for money. The basis on which he made that observation is probably as relevant to this sale as it was to that previous attempt.

I would like to pose a number of questions to the Minister about the sale. I understand that the structure of the sale will be different from the previous one—it is not a whole loan sale going to a single investor, but is to be packaged up in the form of bonds. That is what I read in the Financial Times of 7 February. It seems to me that that process will redistribute the risk involved in the sale from a particular company to the bondholders. In view of that, I wonder whether the discount that the Government will give will have to be even greater to attract would-be bondholders to buy.

The arguments about discounts and the potential revenue to the Government were highlighted by a number of academics, and Rothschild, prior to the previous sale. The basic problem is that the dividend stream—the revenue stream—is now determined as 0.25% plus 1%, and of course the retail prices index is running at 3% and is projected to be between 3% and 3.2% in the next three years. It will be difficult to persuade any investors to invest when the return will be less than the rate of inflation.

Rothschild said that the Government would have to give some sort of “synthetic hedge” in order to attract purchasers of the debt. The crucial underlying paradox that comes with marketing the debt underlines the value for money principles that we should be looking for in such a sale. Rothschild estimated that it would realise only £2 billion of the £12 billion that the Government projected—ironically, I see that they are projecting £12 billion on this occasion. If the calculations were done, I suspect that that may well be scaled down to the sort of figure that Rothschild projected before.

Is the Minister prepared to guarantee that the current loan terms will not be changed as a result of the loans being privatised? What are the estimates of future income that the Government would have if this loan book were not sold? What sort of discount would be offered, and what would the total revenue be if they were sold under the processes that appear to be outlined at the moment? Finally, given that Government projections can be wrong—heaven forbid—what processes will be put in place to evaluate the Government’s approach and ensure that there is value for money for the taxpayer?