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GKN Aerospace, Kings Norton

Volume 658: debated on Wednesday 24 April 2019

Motion made, and Question proposed, That this House do now adjourn.—(Amanda Milling.)

I am grateful for this opportunity to raise the case of GKN Aerospace in Kings Norton. It is a year to the day since the Business Secretary made a statement to the House to tell us that, while he would not intervene to block Melrose Industries’ hostile takeover bid for GKN last year, we could all take comfort in the legally binding undertakings that the company had given him about the future. Indeed, at the time, Melrose was falling over itself to assure everyone of its commitment to manufacturing in the UK. For example, on 13 March 2018, Melrose’s chief executive Simon Peckham wrote to my hon. Friend the Member for Leeds West (Rachel Reeves), the Chair of the Business, Energy and Industrial Strategy Committee, setting out particularly clearly what the company asked us to believe about its intentions. He said that the company’s commitments included:

“Returning GKN to be a British manufacturing powerhouse—competitive on the global stage. Committed to innovation…Investing in skills, R&D and productivity to support the Industrial Strategy…Working with suppliers and customers to boost Britain’s industrial base and the wider economy.”

On 5 April, just over a year since Mr Peckham wrote that letter, workers at the GKN Aerospace plant at Kings Norton in my constituency were told what these assurances meant for them when GKN’s management announced that the plant is to be run down over the next two years and closed altogether in 2021, with the loss of over 170 jobs. The company says that the work undertaken by the factory will be transferred to

“other GKN Aerospace sites or low cost areas”.

By “low cost areas” we can safely assume that the company means overseas.

Does the hon. Gentleman agree that this breach of faith cannot go unchallenged by this House or by the Minister lest every other big business that reaps the benefits of Government contracts, Government funding and Government subsidy decides that it too can go against its word and move its work to Mexico, Morocco or elsewhere? Shareholders can enjoy the benefits while our own hard-working men and women—the hon. Gentleman is a friend and a hard-working MP—wonder how to keep their homes and feed their families.

The hon. Gentleman is quite right, and I thank him for his kind words. This breach of faith needs to be challenged, and I hope that the Minister will assure us that it is not only Opposition Back Benchers who are challenging the decision and that the Government will do so as well.

Although my hon. Friend says that 170 jobs will be lost, we actually have to multiply that by two or three because of the supply chain. Such figures can be utterly misleading. I am sure that my hon. Friend will recall that national security and the whole defence industry were mentioned when this matter was first debated. Despite the assurances received by Ministers, such companies have not honoured their agreements. There is a pattern of asset stripping with this company and others, and it is about time that the Government got tough with them. The Government also need to consider national security, because I have worked in the defence industry and know what it means.

My hon. Friend is right to mention national security. It was raised last year, and I will refer to it later in my speech, because GKN Aerospace Kings Norton manufactures windscreens, windows and other transparencies for both military and civilian aircraft.

My hon. Friend is making an important point, because this matter is not restricted to the defence industry. Asset stripping has a wider impact across our manufacturing base, and if this Government are serious about growing this country’s industrial base and manufacturing capability, they had better get a grip on these matters and insist on statutory provision and legislation to back up the obligations on private capital to deliver in the national interest. Does he agree?

My hon. Friend makes a good point, and I hope that we hear some strong statements from the Minister about what the Government are going to do.

Last year, not only had Melrose sought to assure the Business, Energy and Industrial Strategy Committee of its intentions, but it provided a series of similar undertakings to Ministers. In the Business Secretary’s statement to the House on 24 April, one year to the day before this debate, he declared:

“I look to the management to honour its commitments in both the spirit and the letter, and to create a strong future for GKN, its employees, its suppliers, and the industrial sectors in which it will play a major role.”—[Official Report, 24 April 2018; Vol. 639, c. 760.]

He also said:

“Melrose has also agreed to meet my officials and me every six months to provide updates on its ownership of GKN.”—[Official Report, 24 April 2018; Vol. 639, c. 759.]

In the light of all that, one might have expected Ministers to have told the company this month that, rather than close the Kings Norton site, they expected it to honour the spirit, as well as the letter, of the undertakings it had given. Instead, in a written answer to me on 16 April, I was informed that the Secretary of State had been told that the closure plan was the result of

“an internal strategic review by GKN”

and that it was

“a commercial decision for GKN Aerospace and not in contravention of the deed of covenant agreed between BEIs and Melrose.”

If Melrose has indeed been meeting the Secretary of State’s officials every six months as promised, has anything been said in those meetings about the future of the Kings Norton plant being in doubt? If so, what alternatives to closure did BEIS urge on Melrose, and what was the company’s response? If not, what on earth is the point of these six-monthly reviews if they are not expected to cover an issue as important as the closure of a plant?

Of course, BEIS is not the only Department with which Melrose entered a deed of covenant last year. The Business Secretary told the House that the Ministry of Defence had received undertakings that would

“prevent the disposal of the…business, components of a business or assets without the consent of the Government”.—[Official Report, 24 April 2018; Vol. 639, c. 759.]

The Kings Norton plant produces windscreens and windows for military as well as civilian aircraft, so can we assume that the MOD will now step in? Apparently not. A written answer from that Department on 15 April told me that, as defence work is being “moved, not stopped”, the Secretary of State for Defence would not be issuing a note of concern under the covenant.

I assume the Minister spoke to his colleagues in the MOD before this debate, so can he tell me whether GKN has made an unambiguous commitment to retain in the UK all defence-related work undertaken by the Kings Norton plant? What has GKN said about how it plans to dispose of the Kings Norton plant after closure?

No doubt the Minister will tell me about the various investments GKN has announced in its aerospace and automotive divisions at other plants in the UK, and I welcome those investments. However, the first that employees at GKN Aerospace in Kings Norton knew of the company’s plans to close their plant was when they were told on 5 April 2019. That is simply not good enough, and it is a breach of faith with what Melrose said last year.

If the company believes there is a profitability issue at Kings Norton, should not Ministers be telling it that the spirit of the undertakings given last year means that it should first discuss the situation, and the options for the future, with the trade unions representing employees before decisions are made, rather than simply informing them afterwards? When Melrose said last year that its mission is “to power” the Government’s industrial strategy to secure “the best outcomes” for employees, suppliers, customers and the wider economy, is it not reasonable to ask what assessment it has made of the impact of closing the Kings Norton plant on the local economy? My hon. Friend the Member for Coventry South (Mr Cunningham) made that point earlier. Has BEIS asked the company that question and, if so, what has been the company’s response?

I do not believe that GKN now telling the Government it has conducted a strategic review is satisfactory. Do Ministers accept the need to press the company further? How did GKN reach this decision? What alternatives have been, or still could be, considered? What, in detail, is going to happen to the defence work carried out at Kings Norton, and how does GKN plan to dispose of the asset that is the Kings Norton plant? Finally, what impact, in practice, will closing Kings Norton have on the industrial strategy in Birmingham?

Without clear and convincing answers on those points, I ask the Minister to join me and other hon. Members in saying that Melrose and GKN should think again.

Thank you, Mr Deputy Speaker. It is always a pleasure to see a fellow Lancastrian in the Chair.

I start by congratulating the hon. Member for Birmingham, Northfield (Richard Burden) on securing the debate. I pay tribute to my predecessor, my hon. Friend the Member for Watford (Richard Harrington), for all the work he has done to support UK business and industry, which I am sure he will continue to do for many years to come.

I represent the constituency of Pendle, which is home to several large aerospace businesses, so I fully appreciate the pride that the constituents of the hon. Member for Birmingham, Northfield feel in working for a company like GKN, which can trace its roots back to 1759 and the birth of the industrial revolution. I also appreciate the impact of the loss of jobs on an area, with aerospace jobs typically paying around 43% above the national average. I greatly sympathise with the staff who will be affected by the company’s decision to close the Kings Norton site by 2021. I say that as someone whose family has a long-standing association with the aerospace sector, with three generations of my family working at Chadderton and Woodford for Avro, the firm that produced the legendary Lancaster and Vulcan aircraft. I know the pride that my family members felt in working for such a great British company, and even years after his retirement, my uncle Tom worked on projects celebrating the company’s achievements. I know that employees of GKN share a similar sense of pride in working for such a great British company, and I commend the hon. Gentleman’s dedication and passionate advocacy on behalf of his constituents.

I turn to the points raised by the hon. Gentleman. I can confirm that Melrose informed both my Department and the Ministry of Defence of the proposals to close the site on 1 April. Since then, there have been ongoing discussions between GKN and the Government on how best to support workers. He asked whether any alternatives to closing the site had been discussed. I am sure he will appreciate that this was a commercial decision for the company, but in our conversations GKN has said that it is at an early stage in the process. It has confirmed that it will do all it can to support the 172 affected employees, including providing help in seeking alternative employment both within and outside GKN.

Thank you, Mr Deputy Speaker. As they did during the merger of GKN and Melrose, the Government continue to act to ensure that mergers result in the best outcomes for the United Kingdom. Our merger regime is a key part of the UK’s dynamic economy. Mergers and takeovers can bring great benefits to consumers and the economy. The UK has the third highest foreign direct investment stock in the world, behind the US and China. That investment means jobs in growing sectors and more opportunities to develop our skills base, and it helps companies to deliver products and services at competitive prices.

It was remiss of me earlier not to welcome the Minister to his new position on the Front Bench. Can I ask him to address the question of alternatives? Frankly, saying that employees will be supported to find other jobs is not the same as asking the company whether it has looked at alternatives to closure. Has that question been asked, and what was the result? Is he not rather worried that nothing was apparently said about any of this in the Department’s last six-monthly review with Melrose?

The company has emphasised to us that it is at a very early stage in the process. It has not started formal consultation with workers, but it thought it was appropriate to set out its long-term vision for the site. I hope that the hon. Gentleman and others who meet the company will discuss alternatives to the site, and I hope that we can work together to support the 172 workers who are directly affected and those in the supply chain who will also be affected.

I fully appreciate the hon. Gentleman’s opposition to the takeover, which he set out today and in a debate in Westminster Hall on 15 March last year. I also understand the concerns that have been raised this evening by the hon. Members for Coventry South (Mr Cunningham), for Glasgow North East (Mr Sweeney) and for Strangford (Jim Shannon). However, I emphasise that mergers are an important part of our economy, and they can bring real benefits to consumers and the economy as a whole by attracting investment and promoting growth and innovation.

The Minister is making a fair point about the potential for mergers and takeovers to be positive. He also mentioned foreign direct investment, but does he recognise that there are two types of foreign direct investment—developmental and dependent—and that the bulk of the FDI activity in the UK is dependent? It involves purchasing existing UK-owned assets and does not add to the overall capital stock of the economy or grow the economy in a sustainable way. Does the Minister recognise that that is a big flaw in the Government’s industrial policy? If he recognises that, perhaps he will start to deal with it.

No, I think foreign direct investment is a power for good in our economy, and we should work to attract more investment into the economy. Some of our best firms have grown through mergers and acquisitions, and we have seen huge investments in different sectors with the help of foreign direct investment. It is worth saying at this point that GKN has grown through mergers and takeovers, both here and abroad. I think the firm actually bought the site from Pilkington in 2003.

The UK’s merger regime is highly regarded around the world because of how it is designed. It is based on transparent rules that are administered consistently by expert bodies. It recognises that decisions are primarily a matter for the shareholders and restricts the role of Ministers to transactions that raise public interest concerns. As a result, the regime offers clarity for businesses and maintains investor confidence. An example of that is the independent Takeover Panel, which governs the takeover code. The code provides a robust framework to ensure that takeovers of listed companies are conducted in an orderly manner, with fair treatment of all shareholders.

On 12 January 2018, GKN announced that Melrose had made a takeover approach and the Secretary of State spoke to both parties to understand their intentions. The Government’s priority was to ensure that the national security concerns raised by the transaction were addressed. The Government completed a thorough and detailed assessment and concluded that they should not intervene under the Enterprise Act 2002.

Melrose voluntarily agreed post-offer undertakings with the Takeover Panel. As a result, for a period of five years, Melrose committed to sustain GKN’s current level of expensed research and development at 2.2% of sales; maintain a UK stock exchange listing; remain headquartered in the UK and ensure that the majority of directors are UK resident; and guarantee that both the aerospace and Driveline divisions retain the rights to the GKN name. In addition, Melrose agreed to sign a deed in favour of the Department for Business, Energy and Industrial Strategy that commits the company not to sell the core aerospace business before 1 April 2023 without the Secretary of State’s consent.

I welcome the Minister to the Front Bench—I should have said that earlier. In response to my hon. Friend the Member for Birmingham, Northfield (Richard Burden), he indicated that he has had discussions with the Ministry of Defence about the current situation. What was the MOD’s view?

The MOD shares my Department’s view that these job losses and this closure are highly regrettable but do not contravene the terms of the deed and the undertakings made during the takeover. Melrose agreed a deed with the MOD that includes clear obligations and commitments to maintain capacity and to support certain military goods, and requires that the Secretary of State for Defence be notified if Melrose plans to transfer production outside the UK. Melrose also made commitments to invest in skills and innovation, support sector deals, and support the supply chain during its ownership of the business.

Since the transaction completed, the Government have been monitoring Melrose’s compliance with the terms of the deal. My officials had a meeting with the company in October 2018 and will meet it again next month. Furthermore, on 1 April Melrose publicly reported that it is in compliance with the post-offer undertakings as required by the Takeover Panel. We are currently content that Melrose is compliant with the commitments that it made to the Government. Although GKN Aerospace’s decision is a huge disappointment for both the Government and the 172 staff members who will be affected, it does not contravene the commitments that were made at the time of the takeover.

The hon. Member for Birmingham, Northfield asked whether I had spoken to my colleagues in the Ministry of Defence; I have spoken to the Defence Procurement Minister, and he confirmed that they are content that Melrose has complied with its requirement under the deed with the MOD.

Prior to the Melrose bid, GKN had itself planned to restructure the business, which could have resulted in job losses, and intended to sell the entire automotive division to the US company Dana, which likewise might have decided to close UK manufacturing sites. The Secretary of State spoke to GKN Aerospace’s chief executive officer, Hans Büthker, and he informed us that the announcement does not in any way reflect a reduction in growth by the company. In fact, he said it is quite the opposite: the decision is the result of an internal strategic review by GKN to invest in high-value technology- driven production. That same review proposes to invest more in other UK sites.

I understand that a meeting has now been arranged between the hon. Member for Birmingham, Northfield, the Secretary of State and the CEO of GKN Aerospace for further discussions on the matter, including on how we can best support his constituents who work at the site. I hope that will be an opportunity to discuss and explore alternatives to the site, and that that is something the hon. Gentleman can take forward from this debate.

As I mentioned earlier, GKN has confirmed that it will be doing all that it can to support the affected employees. We will continue to work closely with the company, the unions, the local enterprise partnership, the Mayor of the West Midlands Combined Authority, Andy Street, and councils to help with this effort and ensure that each and every worker is fully supported in finding new work.

Aerospace is one of our most rapidly expanding sectors and skilled and experienced employees are in strong demand. The UK aerospace sector is a great success story, and we punch well above our weight on the world stage. We are a world leader in the design, manufacture and maintenance of some of the most complex and high-value components of an aircraft, including the wings, engines, aerostructures and advanced systems. Our industry turns over £39 billion a year and the vast majority of what we make in the UK is exported globally.

Around half of the world’s modern passenger aircraft have wings designed and built here in the UK, and GKN Aerospace-manufactured products are on more than 100,000 flights a day. The hon. Gentleman asked what impact the closing of the Kings Norton site will have on the industrial strategy in Birmingham. Yesterday, I attended a meeting alongside five of my ministerial colleagues to discuss the midlands engine and the progress of our west midlands local industrial strategy. This will set out an ambitious long-term vision for the west midlands economy to increase productivity, drive economic growth, and support manufacturing and technology in both Birmingham and the wider region.

The midlands has long been renowned as a hub for manufacturing, and it is not short of opportunities for advanced engineering jobs. More than a third of the UK’s automotive sector employment is in the midlands, and the region boasts many globally recognised companies, including Jaguar Land Rover, JCB and Rolls-Royce. More widely, the midlands is also home to the Manufacturing Technology Centre in Coventry, which operates some of the most advanced manufacturing equipment in the world.

The past year has seen the largest GKN Aerospace UK technology investment since 2012. This includes the announcement of a £32 million UK Global Technology Centre in Bristol and the large investments made to support its additive manufacturing capabilities in the UK—both have been supported by the Government through co-funded research and development grants. This co-funded investment will support GKN’s growth in the UK and will help safeguard and create high-value jobs in the company and its supply chain.

Hon. Members will be pleased to hear that GKN has also confirmed to us that there will be further investment at some of its other UK sites, including those in Luton and Portsmouth, which will soon become technology centres of excellence. This comes on top of GKN’s recent announcement of £300 million in new investment to ramp up its activities in the fast-growing market for electric vehicles, something that I am sure the hon. Gentleman, as chairman of the all-party motor group, will welcome.

I can assure hon. Members that the Government will continue to support those affected by this site closure in the years ahead. Finally, I thank the hon. Gentleman again for giving the House the opportunity to debate this important issue.

Question put and agreed to.

House adjourned.