Ford UK (Duty of Care to Visteon Pensioners)

Geraint Davies Excerpts

Tuesday 4th December 2012 Westminster Hall

[Geraint Davies (Swansea West) (Lab/Co-op)]

I, too, congratulate the hon. Member for Finchley and Golders Green (Mike Freer) on securing the debate. I know that you, Mr Caton, have a great knowledge and awareness of this business because some of your constituents have been directly affected. Against the backcloth of news reports about global companies having to take responsibility for tax, we are here to talk specifically about Ford and its responsibilities to its former workers and employees, whose pension funds have been asset-stripped by what is basically sleight of hand.

As you will know, Mr Caton, the background in a nutshell is that Ford set up Visteon in 2000, seemingly as part of a strategy to reduce input costs and increase profits. By creating an arm’s length company that it had control of in terms of the prices that it was giving that company, it was then able to set up a pension fund that in the first instance was underfunded by some £49 million. It controlled and pressed down the prices paid to Visteon, with the net outcome that Visteon made losses in each of the 10 years of its existence, in the order of $100 million a year. The net outcome of that was that the pension fund was further suppressed, and pensioners and workers who spent decades working for Ford in good faith now find themselves short-changed.

I am glad to be accompanied by hon. Members from both sides of the House in calling on Ford to do the right thing, as part of a wider debate to bring global companies to account where they employ people and make profits, so that they provide decent products and are also decent to their work force.

[Dr Francis]

On the point that there is broad cross-party support in relation to this issue, will my hon. Friend join me in congratulating the all-party group that was set up several years ago to ensure justice for Visteon pensioners and in congratulating our hon. Friend the Member for Swansea East (Mrs James) on the sterling work that she undertook in the early stages? I also thank him for the work that he has done, because although the Visteon plant is located in my constituency, the vast majority of the workers or former employees are located in Swansea. I have constituents from Baglan, Briton Ferry, Skewen and Cwmafan, but the vast majority are in his constituency and hers.

[Geraint Davies]

I am glad to have had that intervention. It is very important to remember that this issue has been bubbling for 10 years. My hon. Friend the Member for Swansea East (Mrs James) has done an enormous amount of work, and obviously my hon. Friend the Member for Aberavon (Dr Francis), who has just intervened, had the original factory in his backyard. As this situation has gone on so long, Ford may be under the misapprehension that the issue will go away. It has been mentioned that some of the pensioners may in fact die and nobody will take much notice of it. However, what we see here, on the foundation of the work that has been done in the past, is the coming together of a new all-party group. I pay my respects to the previous all-party group for keeping the issue moving, but we now have a new sense of energy.

The significance of this debate, of course, is that it will put it not just on the UK airwaves but on the US airwaves that Ford is not just a whiter-than-white company. It needs to take responsibility for its employees around the world, not least the British cousins of the US workers, who have worked so hard for Ford throughout their lives in good faith and now feel that they have been shoddily treated. We all know that the matter will be carefully argued in court by very rich lawyers, but what we are saying here, and what the Ford directorship in the US needs to understand, is that a cross-party group of parliamentarians in Britain will focus on it and keep it on the agenda, and ultimately that will have an impact on the brand values that Ford relies on for its profitability. We are saying not only that this is a moral obligation, but that Ford must financially do the right thing; otherwise, it will pay the price one way or another.

[James Duddridge (Rochford and Southend East) (Con)]

The hon. Gentleman almost anticipates the point I was going to make. Does he agree that this is not only an historical issue, but about the future of Ford Motor Company? Who in their right mind would work for an organisation that has treated its employees so dishonourably? It is about not only Visteon pensioners, but the future of Ford, the nature of its corporate and social responsibility and its future relationship with employees and customers.

[Geraint Davies]

That is precisely the point that needs to be made. There is great empathy with Ford in Britain. Everyone has heard of Henry Ford and thinks of the motor car as coming from Ford. As the story comes out and is amplified by more groups, people will think, “Why should I choose a Ford car over a Nissan or a Honda, who are investing hundreds of millions of pounds in new production in Britain this year?” We have a loyalty to the people who work in Britain, as well as a wish to buy the best product. If 3,000 pensions are affected, it is our responsibility to stand up and let the people we represent know what we are doing and why we are doing it. They can make judgments about which cars they choose to buy.

The original £49 million gap in the pension fund in 2000 was alongside a significant surplus in the main Ford pension fund. We should obviously ask why; it seems an unacceptable start. Since then, the gap has grown to something like £350 million. As the hon. Member for Finchley and Golders Green said, Ford had almost a monopoly over the supply of parts coming out of Visteon, so it was in a position to drive down prices unilaterally. There was no proper market. I have a Visteon internal e-mail from December 2000, which states:

“Ford have reduced PATS prices twice this year…9.2% as part of the EWC agreement…and then reduced prices again by 10.5%. This was never agreed.”

In that one year, prices reduced by 20%. If one company is supplying a company that controls the prices, it is not surprising that costs can be transferred. In one year, 2005-06, Visteon Europe lost £700 million and Ford Europe made a £700 million profit. Who makes a profit and who makes a loss is clearly determined by Ford. It had a direct knock-on effect on the value of the pension fund, which is now £350 million in the red.

Visteon had to buy inputs from Ford. It bought materials from the Ford foundry at Leamington, for example, which it could have sourced more cheaply elsewhere, to make parts that it then sold back to Ford at a price that Ford dictated. Clearly, this was all part of a strategy for Ford to manage down its costs and gradually outsource from Visteon, to places such as Korea, in a way that did not invoke any business discontinuity that would have cost it profits. It was carefully managed, but the people who really suffered were obviously the Visteon workers.

Meanwhile, on the Visteon trustee pension directorate, a separate pension fund was set up—the Visteon engineering scheme for cherry-picked Ford personnel. One of the people we invited to speak to us, who has not as yet agreed, is Mr Phil Woodward, a company-nominated Visteon pension trustee director. He was on the trustee board, where he had a duty of care to the Visteon pensioners, and transferred his pension to the new fund, taking money out of the Visteon fund. All the transfers and the voluntary redundancies would again deflate the Visteon pension fund. At that time, he was also involved in the closure of plants in Bridgend and Belfast. There certainly seems to be a conflict of interest there.

I shall not keep hon. Members much longer, as I know many others want to speak. The simple point is that there will ultimately be a decision in court, but we are saying that, from the evidence we have received—we are happy to receive other evidence from Mr Woodward or representatives of Visteon, who have not come to us either—we believe that there is a duty of care to our constituents who have been sold down the river. We will not let this rest until we get justice for the pensioners.

--- Later in debate ---

[Nia Griffith]

I am coming to that point. In fact, it was the Ford actuarial team that decided the amount of the transfer. The initial £49 million deficit in Visteon’s pension funding was clearly determined by Ford.

Can anyone imagine that there were not already thoughts, in some big boardroom in Ford, about how it could get rid of its liabilities—that nobody had in mind the thought that its biggest problem was the pension deficit and how to fund it for the future, and wondered what it could do to get rid of that? Can anyone tell me that they really believe that Ford had not already thought of hiving off the bits in the supply chain for which it could get cheaper prices, thinking that it could use its 90% purchasing power over Visteon UK to force down prices, before it embarked on the separation plan? It seems clear to me that Ford was determined to drive down prices even further than what it had agreed in the separation plan.

I agree with the hon. Gentleman that there was a very determined plan from the beginning. To me, it seems that there was a cunning plan: Ford wanted to maximise profits and to drive down costs on the backs of the workers in Visteon UK plants. Once it had managed to hive off certain sectors and to form Visteon, we heard that Ford was starting to drive down prices to ones that were significantly lower than those in the original separation agreement.

We also found that Ford tried to source components elsewhere. There were the dreaded confidentiality agreements: “Don’t tell Visteon that you’re making the bits that we get from them now, and that you’ll stockpile them so that we have them ready for when we get rid of Visteon altogether.” Do not tell me that somebody was not already thinking about that right back before 2000. If we look at the whole thing from beginning to end, there was a distinct plan of maximising profits for Ford and trying to get rid of the parts of the company providing components that it could find more cheaply elsewhere.

For Ford to do that on the backs of workers who worked loyally for it for 20 or 30 years is absolutely despicable and totally morally reprehensible. I fully concur with my hon. Friend the Member for Swansea West (Geraint Davies), who said that people have to make ethical choices about from whom they buy products. People need to know how Ford has treated the Visteon workers.

[Geraint Davies]

People should also know that the lot of Visteon workers in the UK is far worse than those in Germany or the United States. That suggests that there has been a carefully choreographed judgment about where Ford can get away with ripping off workers. The view was that it could do it in the UK—covertly lining up alternative suppliers, and telling them not to tell Visteon that that was done to knock Visteon out—and the whole thing really stinks.

[Nia Griffith]

Indeed. My hon. Friend is absolutely right. With Visteon workers elsewhere not being treated in the same way, we must question what went on. It seems to me that there was a massive cover-up and a real attempt to drive down prices in a way that, as I have said, was completely morally reprehensible.

--- Later in debate ---

[Stephen Metcalfe]

I thank my right hon. Friend for his intervention, and yes, that is really why we are having this debate. Ultimately we all believe that, whatever the outcome of the court case, Ford has a moral obligation and that if it does not meet that moral obligation we will continue to highlight the fact that it has failed its former employees. One of those former employees worked for Ford for 30 years before working for Visteon for only three months, but they have now suffered a significant loss in pension.

As I have said, the courts will test the legality, but the moral case stands for itself. Ford wanted out of this expensive business, and that is why it spun off Visteon. Ford talks about being a “family”, and the reason why its former employees feel so aggrieved is that, because they felt part of that “family”, they trusted their employer, Ford. Ford is a blue-chip firm with a history going back to before the first world war, and its employees were told that their pension was secure. The employees took that at face value. Of course, perhaps in hindsight they should have sought a little more clarity and explored what that promise meant, but they were allowed to take away the general impression that their rights were protected and that they were still part of the Ford “family”.

If those employees had looked a little more deeply and if they had considered the nightmare scenario of the business collapsing and the pension fund being underfunded, perhaps things might have turned out differently; perhaps they would not have transferred and perhaps it would have been more difficult for Visteon to spin off. But they did not do those things. They took Ford at its word and Visteon was floated off in a vessel that I believe was already holed below the waterline even though it was trying to make its way in the world.

[Geraint Davies]

It is bad enough that Ford basically agreed terms of reference—it agreed wages and conditions, and pensions for a group of workers—but then hived them off and looked, as it were, to the future for lower costs. However, does the hon. Gentleman agree that the pension costs are actually historical costs that should be honoured, irrespective of what happens in the future? Those pension costs are a part of the contract of employment in the past that should be signed and sealed. The workers thought those pension costs were signed and sealed, but now they find that they have been ripped off.

[Stephen Metcalfe]

I agree with the hon. Gentleman. People were left with the impression that they had protection and that a pension was their right, whatever happened. They were also left with the impression that once they retired, at that point their pension was secured for them. Little did they know that it could be cut at some later date from a business that they might have been detached from for the best part of a decade, and suddenly they would turn round one day and find that, because of something they had virtually no involvement with, they are now seriously disadvantaged.

--- Later in debate ---

[Stephen Metcalfe]

Yes. That is a very interesting point and one that, as a group, we should pursue. We have been communicating with Ford UK and Ford Europe, but we should take this matter all the way to the main board of Ford in America.

It is interesting to note that the arrangements in the US are different from the arrangements here. The former employees of Visteon in the US have not been disadvantaged in the same way as the former employees of Visteon in the UK, and if this issue was on the doorstep of Ford’s head office and the 3,000 Visteon employees had been so disadvantaged closer to home, we might have had a different outcome.

[Geraint Davies]

The hon. Gentleman knows that the all-party group in support of Visteon pensioners has no power to require people to appear in front of it, but of course Select Committees can summon people. Does he agree that it would be helpful if the Minister perhaps signalled that that was something that he would encourage so that there was redress and people had to be accountable?

[Stephen Metcalfe]

Yes. I have written, and I know that other colleagues from across the House have written, to the Chairmen of various Select Committees, asking them to look at this issue, either on its own or as part of a wider inquiry into pension transfers. We can renew that call now; summoning people before a Select Committee would be a very positive step.

As I have said, I believe that people within Ford knew at the time that Visteon was spun off that there was no long-term future for Visteon. I do not want to damage my relationship with Ford; I have great respect for the company. I want it to succeed, and it has a great and noble history in this country. But even the best employers or organisations occasionally get things wrong, and on this occasion that is what has happened—Ford has got it wrong. It needs to stand up and meet its obligations. If it does so, I believe that people in this House and outside it will view Ford as being all the better for having done so.

That is why I am championing the cause of the Visteon pensioners, and why I am standing up for my constituents. I will continue to do that, and I will continue to fight until I get justice for them.

--- Later in debate ---

[Steve Webb]

Absolutely. This is like trying to grasp something that we cannot quite grasp; we are all trying to see how we can produce a fairer outcome for the Visteon pensioners. We would be happy to engage constructively with any parliamentary process that could assist with that, so I am grateful to the hon. Gentleman for that suggestion.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East raised the interesting question: does the existence of the Pension Protection Fund mean that corporate Britain is tempted, shall we say, to shovel off its pension fund liabilities and hope that someone else will pay for them? Clearly, the anti-avoidance powers of the Pensions Regulator are crucial in that regard. The Pensions Regulator did not exist when the Ford Visteon transaction took place, but it exists now, and central to its remit is protecting the Pension Protection Fund and, indirectly, the levy payers of British industry. The regulator can, and does, therefore, initiate action to require firms that have allowed their deficit to get out of control to put money in and put up collateral against the pension fund.

There is a balancing act to be struck. I hear what the hon. Gentleman says, and clearly we do not want people shovelling off their liabilities on to everyone else, but if the Pensions Regulator goes in too heavily and presses companies, particularly at a difficult time in the economic cycle, to pump more money into the pension fund, which perhaps then precipitates problems for the firm, we get criticised from the other side. It is a delicate balancing act, but what is good about the new regime is that it is scheme-specific. Whereas when the Ford-Visteon transaction took place there was a reactive regulatory regime in place—the Occupational Pensions Regulatory Authority—which reacted to whistleblowers but did not go out proactively, the Pensions Regulator does go out to look at schemes, and acts on a case-by-case and a risk-assessed basis. We can only speculate about what it would have done had it existed in 2000, but in similar cases now the regulator would consider whether a deficit would be properly funded, and if a parent company had tried to pass a liability on to a spin-off company, it would want to take action.

[Geraint Davies]

Is the Minister saying that if a global company created an arm’s length company that supplied itself, set it up with an underfunded pension fund and then unilaterally reduced the prices and therefore squeezed the pension fund still more, the Government could, under current regulations, act to stop that and to prevent the kind of injustice we have heard about today from happening in the future?

[Steve Webb]

I am grateful for the hon. Gentleman’s intervention. He has played an active role in the campaign. If a new pension fund is set up under trust, the trustees have a responsibility to look after the interests of the members. The scheme would have to be valued, and if there was a deficit a recovery plan would have to be agreed between the trustees and the new employer. The role of the Pensions Regulator at that point would be to sign off the recovery plan, on the grounds that it was a realistic basis on which the scheme could go forward. That could happen if, for example, a promise by the employer to make certain contributions over a period of time, or the actuarial assumptions, were considered realistic.

However, if a scheme were set up with a large deficit and the recovery plan was not credible, the Pensions Regulator could look at the parent company and require it to put up an asset as collateral or make a direct financial contribution to the scheme. Sometimes the regulator does that by passing a directions or issuing a notice, but often, as with good regulation, a mere threat is enough to get a firm to comply. Judging the effectiveness of the regulator by the number of times it uses its big stick is missing the point, because the point of the body is to spot things before they go wrong and get in there first, with enforcement as a last resort rather than as something immediately jumped to. In this sort of case, the regulator has far more power than it had back in 2000, under the previous regime.

This has been a broad debate, and for understandable reasons I have focused on the position of the pensioners. I hope that I have explained why the Pensions Regulator, while doing what it can, could not use its powers. We are, however, looking at whether the role of the Pension Protection Fund could be improved, so that the Visteon pensioners who have ended up in the fund through no fault of their own—principally those who have been capped—can get a fairer deal. That is something we will return to in the House.