Cameron government to destroy another part of British Industry

The UK’s Cameron government, in the form of its Transport minister Philip Hammond, confirmed last week that the German firm Siemens would receive the £1.9 billion contract to build rolling stock (1200 carriages) for the Thames Link railway in London.  This is equivalent to 50,000 man years of employment in the country’s manufacturing industry.

This is a public sector contract to be paid for by the UK taxpayer.  Awarding this contract to Siemens (who built and equipped the Athens metro) has the effect of destroying the Derby railway works owned by Bombardier of Canada, who also own Shorts Brothers plc, the aircraft company in Northern Ireland which produces nacelles, fuselages and flight control systems for both Bombardier and Boeing.

Hammond maintains “It is the correct decision” because under EU competition rules he was obliged to accept a tender drawn up under wording agreed by the previous Labour government.  But anyone who has ever been involved in drawing up tendering rules, will know that they can be shaped to ensure that a particular company, or perhaps one of very few, will be the winner.  Similarly, experienced bidders for public sector contracts (and Siemens is certainly that) know the phraseology to use and buttons to push in order to influence British civil servants who are often naïve in evaluating bids (as for instance in a whole series of public sector IT contracts, e.g. for the National Health Service and the UK Border Agency awarded to US software firms – these can be particularly adept at exaggerating the benefit to cost ratio from often superficial pre-bid assessments).

This matter is not just one lost contract by a British manufacturing firm.  It is an act of destruction.  European railway systems are all government-owned except in Switzerland where a number of privately-owned branch lines feed into the federal network (Schweizerische Bundesbahn).  The idea that a foreign company would be allowed to displace a local supplier to the Deutsche Bundesbahn or SNCF in France on a major contract is simply unthinkable and wouldn’t be allowed to happen, whatever (EU) competition rules allegedly say.  That such an award would have the effect of closing down an entire domestic engineering industry in favour of a foreign supplier would be seen as treason, as it is in the case of Bombardier’s Derby railway engineering and manufacturing concern.

Public procurement is the single most effective tool for rebalancing the UK economy towards UK manufactures.  Despite its fine words the Cameron government has simply walked away from the 1400 engineering jobs which are to be lost in Derby, along with the permanent loss of expertise and the manufacturing capital equipment already bought and paid for.

As a longer term consequence, not one piece of rolling stock for the colossal £35+ billion cost of the mooted high-speed train to Birmingham and thence to Manchester and Leeds or the £8.0 billion Cross Rail project in London, will be made in Britain.  All items will have to be imported and paid for by what exactly, Mr Cameron?

Different Treatment for the Oil Companies

This brainless surrender of our railways’ manufacturing capability is to be contrasted with the tenderness with which the North Sea oil and gas companies have been treated, following the howls of outrage which greeted the UK Chancellor when in his March budget he imposed an additional 12% windfall tax on oil fetching more than $75 a barrel.  Threats to close down North Sea operations were accompanied by much talk of job losses in Aberdeen.  With the Scottish National Party riding high (comparatively), Westminster politicians are always very sensitive to talk of lost contracts and jobs in Scotland.

To add to the pressure, the British company Centrica ostentatiously announced in April that it was shutting down production from its Morecombe Bay gas field in England’s North-West.  Most observers thought this was really due, not to the new tax regime, but to excess of supply and slackening of demand for gas in the exceptionally warm April in Britain.  Centrica’s restoration of production last Friday (1st July) attracted little public notice.

Oil Companies obtain a partial reprieve from the tax

As a result of the oil companies’ pressure, the Treasury announced a small softening of the impact of the windfall tax by allowing companies to carry forward (for six years) against tax more of their expenditure in loss-making years (which clearly is of benefit in the preproduction period of new wells).

The total sums involved are relatively small, perhaps £50 million per annum in tax foregone by the Treasury, compared with around £1.5-2 billion per annum additional tax paid while the oil price remains about $75 (which may be for ever).  Nonetheless, on the basis of this, the Norwegian State company, Statoil, immediately announced it was resuming work on one oilfield it was in the process of developing and the share prices of the several small companies involved jumped by 9-20% on the strength of this news.

What should be done?

The first thing is to request under the Freedom of Information Act that the government disclose the basis on which Siemens was chosen instead of Bombardier.  In one of his more unhelpful comments, Lord Young of Graffham (Secretary of State for Industry 1987-1989) opined (on the basis of no apparent actual information) in the Times of 7th July that this was because “Bombardier could not supply the best product at the most competitive price” (about £1.5 million per carriage).  Young also offered his reason for this – a saloon bar comment apparently retailed to him 40 years ago that “German engineers are all PhDs while British engineers are bloody mechanics”.

Was the award purely on price and delivery?  If so what was the difference in percentage terms?

Was Bombardier (and Siemens) given any chance to amend their outline bids as is often the case in very big contracts with a major public interest?

Did Hammond’s civil servants attempt to split the contract, or insist on collateral such as investment in training for UK apprentices and long-term railway technology development in Britain?  In short did they even try to steer this contract, with all its implications for our long-term manufacturing capacity, Britain’s way?

If, as it has been claimed, the Cameron government inherited an outline agreement about the tendering conditions from the previous Labour government, why did they not declare that no British government can bind another in the absence of a Treaty and that they proposed to change the conditions?  This is what other countries do[1].  Why must the British government always play the “boy scout” at the expense of their own people?

Foreign governments and companies are adept at playing on British sensitivities about “fair play” and “doing the right thing” while rejecting any such sentiment themselves.  We should do the same.

[1] When drawing up the contract to build the Concorde with Britain in the 1960’s, de Gaulle insisted that it be in the form of a Treaty for just this reason.

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