Extract from Urgent Question on Rolls-Royce Redundancies - June 14

To ask the Secretary of State for Business, Energy and Industrial Strategy to make a statement on the announcement by Rolls-Royce of 4,600 redundancies over the next two years.

As the right hon. Lady has said, Rolls-Royce announced this morning that as part of an ongoing restructuring of its business, it intends to reduce the size of its worldwide management and support workforce by up to 4,600. As the company’s main management base is in Derby, it has said that that is where the biggest reduction will be felt. Although the company will embark on a statutory consultation with staff and unions, it is obvious that the news will come as a blow to the workforce, and that this is a very worrying time for the dedicated and talented employees who did nothing to bring it on themselves, but who will be affected. 

 

Rolls-Royce is one of our most important companies. It is a world leader in new technology, and plays a vital role in our industrial strategy. I spoke to Warren East, the chief executive, yesterday evening. Mr East explained that the company’s view is that the job losses are a necessary part of a drive to make the business more efficient and therefore more competitive. The jobs are principally in management and corporate support facilities rather than engineering and operational roles. Rolls-Royce has informed me that the announcement does not reflect a reduction in growth by the company; indeed, it reflects the reverse. It has a growing order book amounting to more than £170 billion, and Mr East told me that it would need more staff directly employed in both the manufacture of components and assembly to meet that demand. The company has told me that it will continue to recruit engineers, technicians and apprentices. It is continuing to invest in research and development. It invested £1.4 billion last year, and about two thirds of that investment was in the United Kingdom. Last year it filed 704 patents, more than any other single UK company. 

 

When I visited Rolls-Royce at Derby just a few weeks ago, it was to break ground on the new test bed, part of an £150 million investment to ensure that the next generation of aero-engines will be built in Derby for many years to come. We will work closely with the company, the unions, the local enterprise partnership, councils and, of course, the right hon. Member for Derby South (Margaret Beckett) and other colleagues to ensure that each and every worker is supported in finding new work. We will continue to support a company, and an industry, of which we can be proud, and our biggest contribution will be to ensure that everyone in Derby, and in Britain as a whole, is able to benefit from a growing, modern economy that creates good jobs now and will do so long into the future, so that when jobs are lost, people can find new ones to support themselves and their families.

I thank the Secretary of State for his statement. I hope that he understands clearly the enormous economic and social impact that this announcement will have—particularly, as he said, on the city of Derby, but throughout the east midlands and anywhere else in the country where manufacturing is considered important, and particularly where manufacturing excellence is highly regarded. 

 

I was pleased to hear the Secretary of State say that he recognised the huge importance of a world-class company such as Rolls-Royce, especially as we approach our departure from the European Union. These are the kind of jobs, and this is the kind of industry, that we want for the future, because of its export potential and because of its potential throughout the world. However, will the right hon. Gentleman say a little more about what the Government can do to address some of the problems that will be caused as an inevitable consequence of the announcement? I heard the company’s chairman say this morning that he hoped that most of the redundancies would be voluntary, and that the company would abide by agreements made with the trade unions, but that there might be some compulsory redundancies. What can the Government do to ease the situation? 

 

I was pleased to hear the Secretary of State note the company’s emphasis on the need for continued investment. I know that, as he said, it is continuing to hire engineering expertise and to maintain its apprenticeship programmes, and to do the things that we hope it will do for the future of the company and of our country, but I want to press him a little more on just how close a relationship the Government have with Rolls-Royce. I know that he visited the company recently, but I think that that was his first ever visit. 

 

I am mindful of the fact that we have corresponded with the Department about the issue of investment in small modular reactors. The company invested substantial resources of its own money in that technology, without any corresponding commitment, even in decision making frankly, by the Government, which I know has been a great disappointment to the company, especially as this technology is thought to have great export potential. 

 

The Secretary of State referred to the need for continued investment, and I note that the title of his Department includes the words “industrial strategy”, which I welcome, but if there is an industrial strategy, what is it if it does not include a strong partnership with companies such as Rolls-Royce that might, one would hope, avert announcements like today’s?

I am grateful to the right hon. Lady for bringing this matter to the House in such a timely way. She has a long record of engagement with what is not only a very important employer but a very important national force. It is important to stress the point I made in my statement, and which Mr East has emphasised: the company is expanding its production. It expects to employ more apprentices, technicians and engineers, and has a growing order book; it has a waiting list for orders to be placed. As the right hon. Lady knows, that is in the context of growth in manufacturing in Derbyshire and across the east midlands, and it is very important that that is supported.

 

The skills among the employees whose jobs are under threat are valuable. The fact that they may be in management does not mean that they are not highly valued, in an economy nationally and in the east midlands that has a great demand for those skills. We will work very closely through the rapid response service that the Department for Work and Pensions provides to make sure that opportunities are offered, whether they are new jobs for existing employees or new opportunities to train in an expanding manufacturing sector in the east midlands. As the right hon. Lady knows, Infinity Park, for example, is continuing to attract new investment; just in recent days Airbus has announced an intention to establish an important facility there. 

 

Our relationship with Rolls-Royce is very close, and it is at the heart of the industrial strategy; it is one of our most important aerospace partners. I have met numerous times with the management of the company all around the country. Since 2015 some £150 million of Government investment has been deployed in partnership with Rolls-Royce. It has been a major force in shaping our industrial strategy. Precisely for the reasons the right hon. Lady mentions, the industries in which it is engaged—aerospace, defence and the power sector—are some of the industries in which Britain leads the world, and we will do everything we can to drive that expansion forward.

I thank the Secretary of State for what he said about Rolls-Royce, but is it not true that it announced its restructuring programme in January and that that was followed by very good year-end results in March? Is it not absolutely necessary that as Rolls-Royce has growing revenues, it must now restructure itself so that it is simplified and has the agility and pace of production to remain one of the world’s leading industrial technology companies?

My right hon. Friend is right to stress that it is important for any British company in an internationally competitive market to be efficient. The company has been very clear about its intentions: that it is a growing company in a growing market. But having made a number of profit warnings over recent years, the management have been on a programme to make it more efficient. It is in all of our interests that this company, which is so important to the UK, continues to be successful around the world and to be at the leading edge of innovation, as it has been and as we are determined to see it be in future.

When I left school in Derby in 1972, Rolls-Royce employed around 35,000 people. Today, it employs just under 12,000. If these job losses go ahead, the workforce will be reduced to around 8,000. That is a huge reduction. The company made a £4.5 billion profit last year, and when the Prime Minister hosted a meeting with the aerospace industry in March, she talked about a successful collaboration with the industry. Indeed, the Secretary of State has talked this morning about the close relationship with the industry and with Rolls-Royce. But talk is cheap. Is it not time for the Government to legislate to have workers on the boards of companies so that there is somebody there to represent the interests of the workforce? At the moment, we are seeing expanding order books while the workforce is diminishing. Is not this a failure of shareholder capitalism, which basically sacrifices jobs on the altar of higher shareholder dividends?

I understand why a Member with a strong constituency interest in the workforce there would be anxious and combative in defending their interests. I will ensure, as will the trade unions, that the interests of the workforce are strongly represented. It is not true that all the redundancies will be at Derby, although the hon. Gentleman is right to say that a proportion of them will be. It is important that the company should adhere to its agreement with the trade unions, and I will of course make sure that it does that. In terms of the hon. Gentleman’s overall statement about the efficiency of companies, I think he should just reflect that his desire to overthrow capitalism would make it very hard for anyone to find work in any private company at any time.

Does my right hon. Friend agree that the aerospace industry has gone from strength to strength under successive Conservative Governments? Looking more closely at Redditch, many of my constituents work for another engineering giant, GKN, and they want to know what the Government are doing through the industrial strategy to support and encourage the skills for the next generation of young people in engineering subjects, so that these companies can flourish in the future. Will he update the House on those plans?

My hon. Friend is absolutely right to say that aerospace is one of the sectors in which our already strong reputation is growing. Through the industrial strategy, we are making a big investment in research and development and also in training, including retraining, so that an expanding industry can have access to the skills that it needs in the future. This will benefit her constituents and those of many others around the country.

I also thank my right hon. Friend the Member for Derby South (Margaret Beckett) for securing this important urgent question. This is deeply disturbing news, not just for the city of Derby, which relies heavily on Rolls-Royce for local employment, but for the sector as a whole. Despite Rolls-Royce making a substantial profit of £4.9 billion last year, this recent restructuring means that more than 4,000 workers will lose their jobs. This is on top of 5,000 job cuts already announced by the company after a series of rationalisation programmes. What discussions has the Secretary of State had with the company to ensure that it will honour previous commitments that there will be no compulsory redundancies? 

 

Will the Secretary of State also outline what assessment the Government have made of the economic impact on local communities that are reliant on Rolls-Royce jobs? There is a real risk that redundancies of this scale will have a detrimental effect on the future of skills in a sector with a substantial skills gap. What action will he take to ensure that these vital skills are not lost? What measures will the Government take to directly support a reinvigorated local industrial strategy? Finally, will the Secretary of State tell us whether he has made any assessment of the causes and of the potential knock-on effect on jobs in the supply chain, and what steps he is taking to support the automotive and aerospace sector more generally?

I am grateful to the hon. Lady for her constructive questions. When it comes to redundancies, as I said to the right hon. Member for Derby South (Margaret Beckett), there will be a statutory consultation. Rolls-Royce has confirmed to me that it will of course abide by its agreements with the trade unions and will seek to avoid compulsory redundancies wherever possible.

 

As for the impact on the supply chain, it is significant that this news comes in the context of a company that is continuing to expand production and manufacturing and its use of components—the principal suppliers to the business. The job losses are coming from management support, which will of course have an impact on the local economy. We will be working closely with the local enterprise partnership to ensure that the opportunities that exist in Derby and the west midlands are taken up.

 

The hon. Lady will know that unemployment has fallen substantially in the east midlands, so good opportunities are available. For example, she mentioned the automotive sector, and Toyota at Burnaston, which is not too far away from Derby, has invested a quarter of a billion pounds in the next generation of vehicles. We will ensure that the employees who are not continuing at Rolls-Royce will have our full support. Vacancies will be drawn to their attention, and they will have help with skills to ensure that they have everything they need to enjoy prosperous careers in the future.

I, too, recently visited Rolls-Royce’s campus in Derby in my capacity as envoy for the Year of Engineering, and I saw all the good work and investment that is going on. That said, this is obviously unsettling news for those in the management function of the business, whose jobs are potentially at risk. What assurances has my right hon. Friend had, or what assurances can he seek, on the behalf of the management and business process apprentices employed by the business to ensure that they are not affected?

My hon. Friend raises an important point. The company has a firm commitment to apprenticeships, and I will emphasise the importance of continuity in the training offered to apprentices.

Any job losses are clearly a concern, so the potential loss of 4,600 jobs is a huge concern. I have constituents who work at the Inchinnan Rolls-Royce plant, so will the Secretary of State advise us of whether the restructuring will have any impact on jobs in Scotland?

 

While people often talk in general terms about having too many chiefs and not enough Indians, does the Secretary of State share my worry that it seems counterintuitive that Rolls-Royce says it will employ more engineers, continue to increase investment in R&D and expand massively while it is restructuring and downsizing the management? That does not sound quite right to me. Will the Secretary of State confirm that the Government will work urgently with Rolls Royce, the unions and staff affected by the job losses to ensure that they can find alternative employment, if required, and that they get suitable retraining to find other jobs?

 

Will the Secretary of State advise the House on whether Brexit will have an impact on Rolls-Royce, in terms of the customs union? The company has already said that it is thinking about relocating the jet engine design approval process to Germany from the UK, so could that have an impact on jobs? What impact will the rules of origin have on the company’s manufacturing? What discussions has the Government had about the potential impact on Rolls-Royce’s aspirations for small modular nuclear reactors?

I am grateful to the hon. Gentleman for his questions. It is too early to know the distribution of the proposed redundancies across the United Kingdom. As I said to the right hon. Member for Derby South, the management headquarters is obviously in Derby, so the expectation is that most of the UK job losses will happen there, but the company and I will keep Members up to date as the consultation takes place.

 

As for the combination of an intention to expand the production of aerospace engines and a growing order book with the need for fewer managers, that is not uncommon across competitive industries, and most industries are becoming simpler in their internal processes. That is not to say that the skills, commitment and loyalty of those who are affected are not extremely high and that they will not be in strong demand elsewhere, and it is important that we support that. We will provide all the help and assistance we can if retraining is needed.

 

The hon. Gentleman asks about Brexit, and Rolls-Royce has been clear that this is about making the company more efficient. It has no relation to Brexit, although it is fair to say that the continued ability to operate a just-in-time production system once we leave the European Union will, of course, be very important to the company.

I represent constituents who work at Rolls-Royce both in Coventry and in Derby. This is clearly a sad day for those affected by this decision and their families, but I am heartened that Rolls-Royce is looking to expand the number of engineers at the company and to take on more apprentices. How will the Government work with companies such as Rolls-Royce, and with other manufacturing companies, to make sure we can bring through the next generation of engineers and bring them into our economy?

My hon. Friend makes an important point. In fact, the demand for engineering skills is increasing right across the country, including in both the east midlands and the west midlands. Rolls-Royce itself plays an important role in training engineers. I met some of the young engineers in Derby, and they can look forward to a wonderful career in engineering.

 

Through the industrial strategy, as my hon. Friend is aware, we are placing greater emphasis on science, technology, engineering and maths skills in schools and colleges, and we are creating institutes of technology. With the aerospace and automotive sectors in the east midlands and west midlands, we are now creating more places for apprentices through those joint initiatives so that we can supply the growing order books, based on the skills that are needed.

I worked at Rolls-Royce when the company collapsed in 1971, and I can tell the Secretary of State that a lot of people at Rolls-Royce will be very worried indeed about their future. We have a plant just outside Coventry, as the hon. Member for Nuneaton (Mr Jones) mentioned. What will be the impact on, for example, the Ansty plant in Coventry and the Bristol plant, and on other plants across the country? Equally, this will have an impact on the supply chain, because I do not believe Rolls-Royce has 4,000 managers.

The announcement was made at 7 o’clock this morning that there is a proposal to reduce the headcount. Rolls-Royce has specified that the reduction will be in the management and support functions, rather than in the engineering and operational aspect. When further information is made available, I will make sure the hon. Gentleman, as the Member for a constituency with a great interest in the matter, shares in that information.

 

It is important to emphasise that the aerospace sector is characterised by growth. The proposed redundancies at Rolls-Royce—I make no bones about it—are clearly devastating news for those who may be affected but, overall, aerospace, including Rolls-Royce in this country, is enjoying higher order books. We will work together to make sure that, including in the test beds we have established together, we are at the forefront of the latest technologies in the future, as we have been to date.

Rolls-Royce is a worldwide brand of which our competitors are clearly jealous. What extra assistance can my right hon. Friend or the Department for International Trade provide, as we leave the European Union, to increase the opportunities for Rolls-Royce worldwide?

Rolls-Royce is already one of our most successful exporters. All around the world, my Department and the Department for International Trade work closely to support the company’s export push. The industry is very competitive, and there is a requirement to be at the cutting edge of technology, so our investment in research and development is an important boost to that future international competitiveness. When it comes to trade promotional support, there is already a close relationship between the company and the Government.

The Secretary of State has talked about the aerospace industry in this country doing well and growing, but he will be aware that BAE Systems is making people redundant at Brough. Will he say a little more about what he is doing to protect the home of the Hawk by encouraging orders for it from around the world?

The hon. Lady knows—we have had previous exchanges on this across this Dispatch Boxes—that the future of the employees there depends on defence export orders. I think she would acknowledge that there is no one more vigorous than our colleagues in the Ministry of Defence, the Department for International Trade and my Department when it comes to meeting businesses and those who are in defence procurement to emphasise the good quality and importance of our aerospace industry right across the country.

As my right hon. Friend knows, I am a big supporter of the value of the industrial strategy for midlands manufacturing, so what specific role does he see for Rolls-Royce within it?

Rolls-Royce has a huge role nationally, but of course it also has a particular role in the east midlands. We see that in the number of people who acquire their skills, and in many cases their inspiration to go into careers in engineering and advanced manufacturing, from the experience of having Rolls-Royce in their midst. That is one reason why we have such a close partnership with it, as I said to the right hon. Member for Derby South. We have made £150 million of joint investment with it since 2015, which shows the depth of that commitment. The reason for that is not just the importance of the company succeeding, but its galvanising effect on the rest of the UK economy.

Today’s devastating news will affect a lot of families, and the promise of jam tomorrow may not satisfy them. There are also reports that Rolls-Royce is intending to move some operations into Europe. Will the Minister confirm what discussions he has had with Rolls-Royce to prevent these moves as a result of our departure from Europe?

As I said to the hon. Member for Kilmarnock and Loudoun (Alan Brown), Warren East has been clear that the proposals that have been made today have nothing to do with any Brexit discussions; they are about the efficiency of the operation. When we talk to those in the aerospace sector, as I do, we find that Rolls-Royce is prominent among them in emphasising the absolute importance of ensuring our ability to export free of tariffs and with a minimum of frictions, and that that is fundamental to the sector’s ability to be as prosperous in the future as it has been to date.

The aerospace industry is one of the jewels in the British industrial crown, so will the Secretary of State tell the House what reassurances he has given the industry with regard to Britain’s exit from the European Union?

I have extensive consultations with all players in the industry. I listen to them, and make clear in our discussions in government and in our negotiations that what they require in precision terms to be able to operate the efficient system that they do at the moment must continue. As the hon. Gentleman says, this is a jewel in the crown of British industry. It is an industry where demand is expanding around the world. We have a wonderful opportunity to continue that success, and it is vital that we should be able to continue to trade with our European partners without any interruption to that.

Normally when the House is told of big job losses at a company it is because that business is in financial trouble, but Rolls-Royce is profitable and has a growing order book. It would seem that it is making these job losses in order to become more efficient. It would also seem from what the Secretary of State is saying that a lot of those who are, sadly, going to lose their jobs have very highly transferable skills. Will he ensure that the local enterprise partnership and neighbouring LEPs have the resources they need to place those highly skilled people in alternative employment?

I will certainly do that. My hon. Friend characterises the situation this well; this company has issued profit warnings in the past and has committed to take action to be efficient. These are the decisions of the management, but I think every Member of the House would acknowledge that it is important that our companies are competitive. He is right to say that the skills of the people employed in Derby, whether in management or in other supporting roles, are in great demand in the expanding economy there; unemployment has halved since 2010 in the east midlands. I will work with the neighbouring LEPs to make sure they have every support and that businesses that want to employ those people have every support in identifying what could be talented and welcome additions to their workforce.

Rolls-Royce is an iconic industrial asset for Britain, and its relationship with Glasgow goes back as far as the second world war. Even to this day it drives huge innovation in the city, from the Advanced Forming Research Centre to supply-chain companies such as Castle Precision and East Kilbride Engineering Services, all of which benefit from the huge industrial presence of Rolls-Royce. One difficulty that the company has had in recent years is the development of new products, particularly for the small airliner market, which is restricted because of this country’s lack of capacity for long-term industrial investment through state investment banks. Will the Secretary of State consider how we can support industrial development in the longer term by developing such capacity in the UK through a state bank for new product development?

Part of the reason for the development of the industrial strategy, which prominently includes the aerospace sector, is so that we can have the long-term support that is required. When I talk about I support, I mean for research and development programmes, which can take many years to come to fruition. We are known as and have a reputation for being one of the best places in the world for that, and that is a deliberate policy objective. It is exactly the same with skills.

 

On what the hon. Gentleman describes as a state bank, we have various means, including the British Business Bank and UK Export Finance, which have been set up to support businesses in pursuance of our industrial strategy. Rolls-Royce is an active participant in that.

Given Rolls-Royce’s announcement of nearly £5 billion profit for 2017, this news, or certainly the scale of it, will have come as a shock to Rolls-Royce workers throughout the UK, including those in Inchinnan in my constituency. My thoughts are very much with those workers and the affected families. In addition to what the Secretary of State said to my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown), will he outline what his Department is doing to assist Rolls-Royce to ensure that no further jobs are lost?

The plans that the company has set out today, as several colleagues have said, are part of a programme to improve efficiency to which it committed some years ago. I agree with the hon. Gentleman that for people who are employed there, the fact that the company has an expanding order book and is continuing to invest in research and development and production will be small comfort, because they will be losing their connection with an employer for which I am sure they have been proud to work over many years. We will do everything that we can to make sure that those employees, whose skills are in demand, are matched with other employers who I hope and intend will be able to make use of their talents and give them a flourishing future career, such as they have enjoyed with Rolls-Royce in the past.