The impact of the current economic situation on the North West and the Government's response (HC 696-i) North West Regional Committee 15 Jun 2009

Evidence presented by Federation of Small Businesses, Chambers of Commerce North West, Confederation of British Industry North West, TUC North West. Jobcentre Plus North West and Learning and Skills Council North West
Holly Bonfield, Chairman, North West Policy Unit, Federation of Small Businesses, Chris Fletcher, Member of the Regional Policy Committee, Chambers of Commerce North West, and Damian Waters, Regional Director, Confederation of British Industry North West
Mike Baker, Customer Services Manager, Jobcentre Plus North West, Peter Jamieson, Regional External Relations Manager, Jobcentre Plus North West, and John Korzeniewski, Regional Director, Learning and Skills Council North West.

Q4 Mr. Eric Martlew (Carlisle): Scrappage is not in yet, is it?

Damian Waters: It is in, but that won't necessarily be a big boost to the economy and the automotive sector in the North-West. I don't think people view £2,000 off a Bentley or a Land Rover as a big incentive.

Mr. Eric Martlew (Carlisle): They might do if they had a Pirelli tyre factory in their constituency.

Damian Waters: Yes.

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Q6 Mr. Eric Martlew (Carlisle): On finance, you made the point that it is still very difficult. What are the two gentlemen's opinions on that? There seems to be a diversion from the Chamber of Commerce and Government North-West. What are your feelings?

Chris Fletcher: There are a couple of points. Linked with the previous point on manufacturing, niche manufacturers and specialist engineering firms are doing fairly well. Also, there has been a great deal made about exporting manufacturers surviving better than others, so it is not a broad-brush approach, by any stretch of the imagination.

About accessing finance, we have done surveys on how businesses feel their relationships with banks have been over the last few months. In the first one, roughly 60% of respondees said that the relationship was the same. Whether that was good or bad, it has not worsened. In our most recent survey that figure has increased to 72%. The relationship is fine, but some problems start to come out when trying to access finance and we have seen an increase in the cost of that finance over the last three months. The figures we are pulling together show that businesses which want to make an approach to banks for finance are seeing the cost go up. Anecdotal evidence tells us that a lot of members come back to us and say "Actually it seems as though the banks do not properly understand what the Enterprise Finance Guarantee is about." A few months ago, in conversations with business managers from within the same department of the same bank, I was getting different messages from different people over how that scheme should be best rolled out. These were people who virtually worked side by side. Part of that has to be the urgency with which the Government got the scheme out there; there was very little follow through from the point of view of people on the front line, who were making the decisions to get that money out to businesses.

Q7 Mr. Eric Martlew (Carlisle): Is that getting any better?

Chris Fletcher: Marginally, but some people have decided not to go down that path. Some manufacturers I have spoken to recently are self or privately funded and would never go down the route of asking for finance. It is something that we are watching and we are doing a follow-up survey in quarter 3 on whether things are getting better, from the point of view of getting the access to finance out there. I still don't think it is right by any stretch of the imagination.

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Q13 Mr. Eric Martlew (Carlisle): On that point, I represent a seat in Cumbria and I look at the figures. First, the only sector that is growing now is the agricultural sector-I think it is 1.5%-everything else is in decline. Then I look at unemployment and I see unemployment in the urban area near the national average. When I look at, say, Westmorland, I see it has about 1.5% and Penrith and The Border has about 1.3%. This does not tally with your idea that rural areas are suffering more than urban ones.

Holly Bonfield: That is a different argument, with respect. If unemployment is lower, maybe people are moving out of rural areas, so there are not as many people who can be employed.

Q14 Mr. Eric Martlew (Carlisle): That is not the case, if you look at the figures on population.

Holly Bonfield: I would have to look at those figures, I don't have them in front of me. The fact is that we have to accept that rural communities are disappearing. As different services disappear from villages, those villages become smaller and smaller.

Q15 Mr. Eric Martlew (Carlisle): That is not my experience in Cumbria. The villages are expanding because people who work in the urban area go to live in the villages.

Holly Bonfield: Unfortunately, that is not my experience from our figures, and we do get figures from our rural areas, particularly in Lancashire and Cumbria. I would have to look into and respond to that separately.

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Q18 Mr. Eric Martlew (Carlisle): You say that interest rates were down to 0.5%. What are they charging your members? What are the banks asking for?

Chris Fletcher: The feedback we are getting is that as opposed to costing x per cent they are seeing an increase of 0.5% or 1% over the interest rate that was charged before. Nobody has come back to say that they are charging me 8%or anything like that but the rate is slightly increasing. Again, there is the discrepancy between what is right in people's minds and what they are being told in their meeting with the bank manager.

Damian Waters: We historically got used to finance at artificially low levels. There will therefore be a re-setting in the marketplace. It might be that we just have to live with more expensive finance. I have anecdotal evidence of some of our bigger members supporting their own supply chain through their own cash-flow but that is not a sustainable position either. There might be that element stored up in the economy that still has to filter out. When that source of support runs out we might see further reductions in the supply chain in the North-West.

Q20 Rosie Cooper: Do you think there is more that Business Link could do? Has the umbrella RDA responded as quickly as you would want?

Damian Waters: There is a bit of frustration. Business Link and the RDA have their hands tied behind their back because they can only operate at the same speed that central Government operate. A classic example is the venture capital loan fund. I know Business Link has been geared up since January to deliver that and the latest estimate is that it will be launched in June. It is almost fighting with one arm tied behind its back. That process should be slowed up.

It was an issue over the Treasury signing off that delayed that. There has to be a recognition from central Government that there has been a six-month delay and maybe a seven or eight-month delay. Businesses are going bust. If that process is speeded up, Business Link and the development agency can deliver more quickly. I have some sympathy for them that there has been a whole wave of announcements and policies that take a long time to filter down. Expectations are raised therefore for things to be delivered now but it then takes maybe months or maybe a couple of quarters of the year for that to filter down into action on the ground. I have a lot of sympathy for Business Link and NWDA on that side.

Holly Bonfield: Certainly that was the case with the Enterprise Finance Guarantee fund. It was announced and welcomed but it took a long time before it reached even some of the banks.

I would also echo what Damian says about Business Link being responsive. It has changed its product offer and put a health check in. It has made it possible to give advice on access to funding very quickly. I do not think it could have done more in the time it has had available, given that it is limited by national decisions.

Chris Fletcher: That is true to a certain extent but when you look for example at the permanent support service from HMRC that was virtually done overnight-the idea of implementation and the roll-out. On occasions when it works, it works effectively; that has been reasonably successful, and the Government deserve some credit for that. However, on the more fundamental things it is taking far too long. The flash to bang time, as it has been described-from the announcement being made to actual implementation-is way too long.

Holly Bonfield: Do businesses know about the HMRC payment support line?

Chris Fletcher: That is another thing. The level of information being given out around things like that could also be stepped up a gear.

Q21 Mr. Eric Martlew (Carlisle): Is that getting better?

Holly Bonfield: Well, Business Link is doing quite a lot of marketing, but it is not enough. That HMRC payment support service helpline is something that our members are not talking about. They don't know about it.

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Q43 Mr. Eric Martlew (Carlisle): Alan, can I take you back? One of the things that has been highlighted is that employees are prepared to accept short-time working. In previous recessions, employers and employees might have wanted redundancies. That creates problems of its own, does it not? I have a tyre factory in my constituency where people are currently working one week in five. They are losing a lot of money. Across the channel on the continent, Governments are giving support and money for short-time working. We don't have that. What are your views on it?

Alan Manning: We are very much in favour of that. Your analysis is absolutely right. We have short-time working and work forces are agreeing to pay cuts and freezes. There is a different mood from the early '80s. There is a clear desire to try to work to sustain and maintain organisations and companies. That has an effect on people's spending power. It has an effect on their ability to meet their mortgage payments. Deferring on such things has implications. We have argued strongly for a short-time working scheme. You don't necessarily have to look to the continent. The Welsh Assembly Government's ProAct programme has introduced elements of support for companies using short-time working. That is clearly possible and it clearly works in certain circumstances.

Q44 Mr. Eric Martlew (Carlisle): The other issue is Train to Gain. In some areas that takes off and in others it does not. That is another way of paying people to up their skills. Is it a success? Is there enough money in it?

Alan Manning: The evidence in this region is that Train to Gain has been very successful. I am encouraged that even in a recession, the rate at which employers have come forward to use Train to Gain to upskill their work forces has increased steadily. That is partly because we have been successful in convincing employers that the best way of preparing for the future is to ensure that the skills are there. There is an irony that we are now having to manage demand, to use a euphemism that is used in the LSC.

Mr. Eric Martlew (Carlisle): Rationing.

Alan Manning: Yes. The demand is outstripping the resources. I would say to any Chancellor that if resources are available, they would be well spent if invested in upskilling the work force. The evidence in this region is that we could spend considerably more than we currently have.

Q45 Mr. Eric Martlew (Carlisle): You mentioned the LSC in your answer. However, we are in a recession and the LSC is disappearing. What is your view of that?

Alan Manning: I think that it is a bad time for yet another reorganisation of the way in which we fund skills. Having said that, we are where we are. My concern is about the way in which the successor arrangements will come in. I have specific concerns about the adult skills agency and the extent to which wider stakeholders and partners will be able to influence it. With the LSC, there is a regional council with an employer voice and a trade union voice. I see nothing in the proposals for the Skills Funding Agency that would provide anything like that. That is a concern. Our ability as trade unions to influence funding for younger people, when we are talking about consortiums of local authorities, will be much more problematic. As I say, we now have another reorganisation, with skills now being with Peter Mandelson's Department.

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Q51 Mr. Eric Martlew (Carlisle): Can I start on apprenticeships? I hear about all sorts of schemes and initiatives coming from Government. I shall give you an example. I had a phone call on Friday afternoon from a mother who was very distressed and not very happy with the Government-and my Government at that-because her son, who was a 17-year-old apprentice plumber, had been paid off and she could not find anywhere where he could continue his apprenticeship. Is that a general factor across the region? Are initiatives being talked about but nothing is happening? I phoned Jobcentre Plus and was told I had to phone Connexions and somebody else. What is the reality on the ground for apprentices who have been paid off up and down this region about them continuing their training?

Mike Baker: Can I introduce myself? I am Mike Baker, the director of customer services at Jobcentre Plus, and I started last month. Peter Jamieson, our regional external relations manager, is here to deal with some of the detail. Peter, would you like to deal with that question?

Peter Jamieson: There is a package of support available as part of the rapid response service for all individuals faced by redundancy. Specifically for apprenticeships, LSC offers support for individuals not currently on apprenticeship programmes but facing redundancy. John, can you continue?

John Korzeniewski: First, there is no issue in funding apprenticeship places. The issue is the take-up by employers. You described a particular issue we are having to respond to at the minute where youngsters may be laid off as a result of the recession. There are a number of things that we can do. We are setting up employer pools where employers can share. We are setting up college-based provision where youngsters can finish their apprenticeship by doing the last few months-depending on where they are in the system-off the job, as it were. We are aware of the issue and we do have things in place. There is no issue about funding provision; it is about dealing with the individual cases as they come through.

Q52 Mr. Eric Martlew (Carlisle): Can I clarify that? I am using this example. A small employer decided he could not afford it any more. A young lad had done a year and was made redundant. Are you saying there is a guarantee that he will be able to complete his apprenticeship?

John Korzeniewski: No, I didn't use the word "guarantee" because the issue is about the individual circumstances and the place. What I am saying is that we have schemes in place, which in most cases will be able to deliver what that young person needs. It is difficult to talk specifics without having that in front of me. One route is to allow employers to share apprenticeships; another is to allow providers such as colleges to finish off with that youngster, if they have got so far. We also have schemes where, although we cannot use the word "subsidy", we are able to provide a small amount of funding to help an employer support the costs of employing that person. We do have a range of things in place.

Q53 Mr. Eric Martlew (Carlisle): This is general knowledge out there in the community, is it?

John Korzeniewski: If you are asking me whether every single employer in these circumstances knows about all of this, then, well, you are quoting an example of an employer who does not, but we are doing our best to ensure that the knowledge does get out there.

Q54 Mr. Eric Martlew (Carlisle): Can I go on more generally now? What effect has the recession had on your workload?

Mike Baker: To make a general statement and add in some detail. It has had a significant and quite huge effect. In the last 12 months the jobseekers' register has gone up in the North-West by 75%, which is just below the national curve but nevertheless a significant increase. We are still taking vacancies. We take in 35,000 vacancies per month in the North-West, which is below the figures we would have expected last year but they are holding up. An important point within Jobcentre Plus is that typically throughout 2008 we had around 26,000 people coming on to benefit and broadly that number leaving benefit. The figures now are 35,000 leaving the register, so although we have increased our off flows, which is a positive point to make, it has not kept pace with the on flows. Overall, we have responded in three ways. We have recruited people in the North-West, the second biggest region in Jobcentre Plus-we announced in April that we would employ an additional 1,800 staff. We have also looked at how we can maximise the use of our premises. Very importantly, we have looked at our processes, because not only have we had this huge increase, but we have got a very different type of customer coming through-or some of our customers are very different-and they will be presenting as unemployed for the first time. So, our package of measures has had to change.

Q55 Mr. Eric Martlew (Carlisle): When we had full employment, did the numbers employed in Jobcentre Plus go down? Did the numbers you employ go down?

Mike Baker: Yes.

Q56 Mr. Eric Martlew (Carlisle): Was that the right policy?

Mike Baker: Well, in the spending review 2004 we were set the challenge overall-Department for Work and Pensions had a head count reduction from 130,000 to 100,000. I know that we are now reversing that trend. Whether the policy was right, I'm not sure I'm qualified to say.

Mr. Eric Martlew (Carlisle): Perhaps that was a leading question.

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Q59 Mr. Eric Martlew (Carlisle): Mr. Baker, you said that you have 35,000 vacancies a month. What areas of work are they in?

Mike Baker: They are changing. I shall ask Peter to help with the detail. Probably the most sought-after jobs are in the professional and managerial areas, and those are not where the vast majority of jobs are. There has been an increase in public sector jobs and retail trade is holding up well, particularly in Liverpool. Across the region we have certainly got very different levels of employment and unemployment. Peter, do you want to deal with the sectors?

Peter Jamieson: One of the growth areas in terms of vacancies notified is, as Mike has pointed out, the public sector. The other growth areas are business administration and retail. Those are the three sectors where we are seeing the majority of vacancies notified. Unfortunately, the vacancies sought by many of our jobseekers are in different occupational areas. We are seeing a high number of people from a professional and executive background, and a high number of manufacturing jobseekers coming on to the market. So there is an issue in terms of the correlation between vacancies sought and vacancies notified, but the majority of vacancies in terms of our growth have been in the retail service sector and the public sector.

Q60 Mr. Eric Martlew (Carlisle): So the mismatch in skills will create a problem for the Learning and Skills Council? Are you responding rapidly to that?

John Korzeniewski: We are working with Jobcentre Plus to ensure that our programmes knit together with its responsibilities around redundancies. Typically, we are trying to create an end-to-end service that starts with the job centre talking to the people concerned, and, as a result of that guidance, skills provision is procured through our providers.

Q61 Mr. Eric Martlew (Carlisle): We had a lady representing small businesses talking about the problems in rural areas. One of the things that we have done over the years is close jobcentres in many small towns. How are you responding to that? Are you going to open them again?

Mike Baker: We don't plan to open a vast amount of job centres. Part of our service delivery plan is to have a look at all of the 97 job centres in the North-West, for which I am responsible, and ensure that we have the capacity to deal with the inflows. In some of the more rural areas, we have already introduced a number of options where, if there are difficulties in travelling distances from home to the jobcentre, we offer our services in outreach and partner premises. We also have some mobile services. I would not say that we have any plans to open any new outlets at the moment, because we believe that, broadly across the network, we probably have enough seats to do what we need to do.

Q62 Mr. Eric Martlew (Carlisle): You must understand that there is a feeling that people in small towns are being forgotten?

Mike Baker: Yes. The model for Jobcentre Plus when we took over from the Benefits Agency and the Employment Service was one in which we had a vastly higher number of outlets than we currently have. The one thing that we have done over the past few years is become a virtual network with a lot of our business done by telephone, so we deal with most of our benefit inquiries over the phone, and most of our first contact is over the phone, too. In terms of first contact, the vast majority-well over 90%-of our customers will get through first time, so we actively encourage our business through that network first.

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Q85 Mr. Eric Martlew (Carlisle): Mr. Baker, earlier in the meeting we heard that we don't have a support system for short-time working-that is, we don't pay. The Government say that support should come from jobseeker's allowance and tax credits. Does that create a problem for you? Somebody who is working may be paid off for five days and then be back at work in three or four weeks. Is that an issue? Do they get paid properly?

Mike Baker: They do, and I mentioned earlier that we are generally meeting our targets. We have a target for paying benefits, and the first interaction that we have with a customer will not be about finding work, it will be about how much they may be able to get in terms of financial help, because we know that they are not going to look for work if they are worried about their money, so we focus on that. We are meeting all our targets in terms of paying benefits.

It clearly is a problem and I know from my previous post, which was a policy post, about whether the Government are going to look at things such as wage subsidies, for example, as opposed to having any interaction with Jobcentre Plus. If someone is working less than 16 hours, or not working full time and they present to Jobcentre Plus, we have a role to deal with them and to help them.

Q86 Mr. Eric Martlew (Carlisle): Say you have a factory with 800-odd people-a reality-and a quarter of them are off. Does that mean that they have to report to the jobcentre? Imagine that a quarter of them are off for one week and a quarter are off for another week.

Mike Baker: We have rules about short-time working and we have rules to do with people being laid off.

Q87 Mr. Eric Martlew (Carlisle): Is it short-time working that you are talking about specifically?

Mike Baker: Yes. I don't want to make an incorrect policy statement here, so Peter, do you understand the short-time working policy?

Peter Jamieson: There is financial support available to individuals where they are working under 16 hours in a week. They are entitled to some benefits. They would be classed as a short-time worker. We refer to them as a temporary stock of customers. As someone who is temporarily unable to work for a short period, they can claim benefit for a short period and then obviously return to work, so it depends on the contract with the employer.

Q88 Mr. Eric Martlew (Carlisle): So do they have to come to the jobcentre to do that? Do they have to come down every time they are off short term?

Peter Jamieson: Their claim would be handled clerically. It would be handled in a slightly different way and, in some cases, claims like that are taken on the employer premises, so they are not necessarily part of the mainstream offer.

Chairman: Thank you very much for your evidence. Can I say how grateful we are to all of the witnesses today, not just for the evidence that they have presented, but for the efforts that they are making towards taking this region out of these economic difficulties. Thank you again.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.

On behalf of Eric Martlew, 3 Chatsworth Square Carlisle Cumbria CA1 1HB