Economy and City Link: Coventry

Jim Cunningham Excerpts

Friday 23rd January 2015 Commons Chamber

[Mr Jim Cunningham (Coventry South) (Lab)]

First, I thank Mr Speaker for granting this debate, the purpose of which is to discuss the general position of Coventry’s economy, which looks very positive on many counts. I also want to take a harder look at the labour market.

The Government are using all sorts of means to make the employment figures look good, but that can mask problems with pay, stability and the type of work involved. The recent collapse of City Link is a good example of why we need to look at the type of work more closely.

I start with the positives of Coventry’s economy. The Centre for Cities annual “Cities Outlook”, published this week, looked at 64 UK cities. There is plenty of good news for Coventry. Coventry came 10th for housing stock growth, 9th for highest business growth, 7th for jobs growth, 6th for the highest private sector jobs growth, and 4th for patents issued, largely in the automotive industry. I welcome that good news. There is much to be proud of.

In the same report, however, Coventry was ranked 59th out of 64 for its employment rate. I understand that that is 8.3% lower than the UK average. The employment rate has fallen by more than 3% in the past year. I want to guard us against sitting on our laurels; it is that background that makes any announcement about job losses very serious.

All that brings me to the situation with City Link. Let me be clear: it is not that Coventry is in trouble, but we need to be watchful of every major loss of jobs. We cannot be complacent and we need to make sure that we do not see a pattern of job losses. City Link provided 404 jobs in Coventry, the vast majority of which have now been lost. The collapse was announced on Christmas eve. Better Capital, the private equity firm that owned the company, is expecting to recover £20 million from the £40 million loan it gave; as a secured creditor, it will rank ahead of staff when proceeds from the company’s liquidation are distributed. The taxpayer has to foot the redundancy bill.

Why is that significant? Any unwanted job loss is a tragedy for the individual concerned. Getting new jobs is the immediate priority, and I am very pleased with how Coventry has risen to the occasion and businesses have come forward with jobs, but there are worries. I am very concerned about the self-employed drivers; at least, they are technically self-employed, but the idea is absurd—they were allowed to work only for City Link. They have been made redundant through no fault of their own. They will be doubly hit—they will not get redundancy payments, as things currently stand, and nor will they be eligible for jobseeker’s allowance.

We need to look into that type of employment, which is dangerously precarious. We need to consider the law in relation to this matter, and I am pleased that the Secretary of State for Business, Innovation and Skills agrees. We need to look carefully into what happened in the build-up to the company’s going into administration. I have met the Business Secretary, who intends to wait until the report by the administrator is complete before deciding whether the situation warrants an investigation. I personally believe that an investigation is warranted already, but I appreciate the Business Secretary’s position. Once the report is published, I will be keen to call for an investigation.

We cannot have a situation in which asset strippers can toy with workers so that thousands lose their jobs with no warning while the management are able to make plans. This is a good example of a situation in which many people who were counted as self-employed were left very vulnerable when the company collapsed. Furthermore, the owners were able to walk away with millions, while giving workers no notice period in which they could have started looking for jobs. Your type of work matters, your pay matters, your employment status and rights matter, your security and stability matters, your quality of life matters: it not just about the headline figures.

In addition to the recent job losses at City Link, a number of other companies have announced their intention to cut jobs in Coventry. This includes the recent closure of the Marks & Spencer warehouse, where about 150 jobs are expected to be lost, and recent job losses at Sainsbury’s. Peugeot Citroen will be cutting jobs, although the number now looks to be under 100. In November, Severn Trent announced plans to cut 600 jobs. Given that the city has had a decreased employment rate in the past year and is already below the national average, we need to make sure that there are no structural reasons behind this, so we must take each case seriously. I urge the Minister to pay close attention to the picture of jobs in Coventry and to comment on the attractiveness of Coventry as a place to do business.

I want to flag up a number of other concerns. Median annual pay in 2014 was £499 down on the 2013 figure, and that is £1,505 lower than the average in England. Gross weekly pay for a woman in Coventry is over £100 less than that of a man. Perhaps most alarmingly of all, Coventry was 63rd of 64 for the highest percentage of people with no formal qualifications—15.8%. That is something we really need to look at and work on.

That brings me to the bigger picture, which is that the Government are throwing taxpayers’ money at subsidising companies that pay low wages. We are seeing people pushed off JSA to become self-employed, often earning very little indeed and needing substantial income support. There is no training, support or career development—it is all about being able to keep unemployment figures down. Similarly, a third of jobs in Coventry are part-time. That figure does not show how many of these people cannot get full-time work. I have constituents who are technically employed, but for only a few hours a week. They want to work more hours, but they are not offered them, and the Government then have to top up their income. I urge everyone to watch last week’s Channel 4 “Dispatches” programme, “Low Pay Britain”. I am concerned that the employment figures are masking the reality and papering over the real problem, which is a lack of proper, well-paid, stable jobs that pay enough to live on and include future career opportunities. I ask the Minister to take this seriously, as I am sure she will. It is not enough to say there are jobs—it matters what types of jobs they are.

Cuts to local government funding have meant that Coventry city council has already cut well over 1,000 jobs and is expected to cut many hundreds more. For example, proposed cuts to the local welfare assistance scheme by central Government mean that payments under the scheme would have to come from council budgets rather than central Government. This would hurt those in the city who are in the most urgent need of help. I ask the Minister to raise this with her counterparts at the Department for Communities and Local Government. These cuts to local government mean that the council is not in a position to offer the support to the economy that ideally it might have done.

Coventry needs to take a hard look at the real story behind the employment figures to make sure that we are not storing up problems for ourselves in future and that we have a healthy and sustainable labour market that pays well and offers people a high standard of living.

--- Later in debate ---

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. I hesitate to interrupt the hon. Gentleman, but I ask the Serjeant at Arms to investigate the fact that a bell is ringing somewhere.

[Mr Jim Cunningham]

I apologise, Madam Deputy Speaker—I did not realise that my phone was not switched off.

[Madam Deputy Speaker]

I take back that request to the Serjeant at Arms and accept the hon. Gentleman’s apology. The mystery has been solved.

[Mr Robinson]

Thank you, Madam Deputy Speaker, for allowing me to take part in this debate. The Minister also agreed to my taking part, as did my hon. Friend the Member for Coventry South (Mr Cunningham), whom I congratulate on his initiative. I also thank Mr Speaker for granting this important debate.

The only mystery that remains to be solved is why exactly Jon Moulton made this acquisition in the way he did in an industry that was already in difficulty. One feared very much what the outcome would be for a company that had already experienced many years of extreme difficulty. The situation will no doubt be unfolded once the Department finishes its report and we have read its conclusions. Perhaps a further investigation will be necessary; indeed, my hon. Friend has called for one.

In the few minutes available to me, I want to address four aspects of concern. My hon. Friend has already said that we cannot be complacent in Coventry, but perhaps he will agree that the new leadership in Coventry has sent a very loud message that Coventry is open for business and to the new businesses of the 21st century. The internet and internet shopping are clearly going to generate a lot of such businesses. Indeed, we thought that that was what Mr Moulton was investing in and that there was a reasonable prospect for City Link’s future, although there was never any guarantee. It is a pity that the early venture has come to such a tragic and sad halt.

It is tremendous to see the approach being taken by Coventry’s leadership. After years of not making the progress we should have been making, the new leader, supported by her deputy, has made it plain that things have changed in Coventry’s approach to openness. We are looking to do things differently and are encouraging others to join us in a way that we might not have done in the past. It is in that spirit that we went down the City Link and other routes.

[Mr Jim Cunningham]

May I make it perfectly clear to my hon. Friend that in no way is this situation a reflection of the leadership of Coventry city council? I was analysing the general situation.

[Mr Robinson]

I take that point entirely and agree with my hon. Friend. Coventry has new leadership, but we have had a very bad setback. Some 400 jobs have been lost—which is a lot—on top of the other losses, to which my hon. Friend has rightly referred. We can ill afford such losses and we cannot and will not be complacent. That is why my hon. Friend wants to make sure that this has been properly handled.

I understand that Mr Jon Moulton, who guards his reputation jealousy—he has had a fairly good record up until now—is concerned that his motives be fully under- stood. The mystery is why on earth he invested to the extent he did in the first place, but that is for him to explain. He goes around saying that he has lost £20 million of his shareholders’ money—his company’s money—and £3 million of his own. That is a great pity, but he also caused the state to lose £20 million and—this is my second point, which I will come on to in a moment—1,000 drivers to lose their jobs. One can only ask: why would anyone put themselves in a position where ultimately they are held responsible for the collapse of their company? That will no doubt come out in the Department’s report.

The closure on Christmas eve was unpleasant. That is not a serious way for a businessman who guards his and his company’s reputation so jealously to run an enterprise for which planning is essential. That raises questions that should not have been raised, but Mr Moulton will now have to wait while they are investigated and we get answers.

I know that the Minister agrees with me. When we met the Business Secretary, he was very forthcoming and said that he wanted to make sure that nothing odd was going on. He was phoned on 23 December—one day before the announcement was made. The company had been trading with bad losses for months beforehand under Mr Moulton’s ownership and for years before that. What happened is hardly a surprise. The inevitable impression is that it was somehow or other contrived to be done in that way at that time. That impression will persist until we get the Department’s report in, I hope, the very near future.

If the report calls for an investigation, I know that the Minister—whom I am very pleased to see in her place—and the Secretary of State will approach it in the spirit of totally dispassionate and rigorous scrutiny. If such an investigation is needed, we shall, despite whatever embarrassment it might cause to those who agreed with Mr Moulton’s decision to make his investment, which has cost the taxpayer £20 million-plus, go to whatever lengths necessary to get to the truth of the matter. We have to do that for Coventry. We have made a new start and we are doing relatively well. We are certainly doing much better than we were. Frankly, we can do without setbacks such as this one, which came out of the blue on Christmas eve.

We look forward to the Minister’s response and I hope that she will answer the points that have been made about the report. Before I finish, I have one more important point to put to her. I am sure that everything about this incident will come out in the report, but I hope that it will also address a more general point that was alluded to by my hon. Friend the Member for Coventry South. It does not relate directly to this administration, but it does concern the 1,000 self-employed drivers. As I understand it, the drivers were self-employed but, under the terms of their contract, were not allowed to work for anybody else. They were self-employed, but they were really employed by the employer. This is a fine point of law. I am sure that the law is quite clear that the drivers were technically self-employed and that they were therefore not eligible for redundancy pay or jobseeker’s allowance, even though they had been paying in.

This is a wider point about self-employment. I know that the Treasury does not really like self-employment. It is not entirely right in that, but it is not entirely wrong either, as is always the case with the Treasury, damn it! This may be a narrow point, but the Treasury and the legal department should look at it in the context of the whole. It cannot be right that self-employed people who are making a contribution, paying their way and making no demands can end up in this situation.

There is good news about Coventry, with its new leadership. This is a setback, so we must have a report to clear it up and to see, once and for all, exactly what went on. Lastly, the position of the drivers has brought out a general point for us all to consider, and we wish to hear the Minister’s views on it.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I congratulate the hon. Member for Coventry South (Mr Cunningham) on securing this debate at such an appropriate time. He called it to talk about City Link, obviously, but also about the wider issues relating to jobs in Coventry. I know that he has been a passionate supporter of businesses and workers alike in his constituency over the years.

We all agree that this is a worrying time for the individuals who were reliant on City Link for work, a significant number of whom were based in Coventry. There is a huge amount of sympathy for those who have lost their jobs through no fault of their own. The timing of the announcement has been mentioned. It is difficult for anybody to hear that bad news, but to hear it immediately before Christmas, when people hope to be celebrating with their families, is particularly difficult, so one cannot help but feel for those individuals.

That is why our focus is on ensuring that those who have found themselves out of work as a result of the City Link administration find new work as quickly as possible. We are helping the employees and subcontractors to do just that. We are also ensuring that City Link employees who are eligible for statutory redundancy payments get the money that is due to them as quickly as possible. The Jobcentre Plus rapid response service is available to employees and subcontractors at City Link. That is delivered at the discretion of each local district. That support is already being provided around the country. It can include things such as information, advice and guidance, help with job searches, CV writing, interview skills, identifying transferable skills or any skills gaps, and training to update those skills and to get certification to improve employability.

In Coventry, Jobcentre Plus is working with a local skills and employment company to provide extra support on employability and moving into work. Earlier this month, three sessions were held to support workers. In addition, the Coventry city council job shop and the local enterprise partnership’s growth hub are working closely with Jobcentre Plus to identify employers who have vacancies. It is positive that a number of local employers have expressed an interest in taking on City Link staff in Coventry. Although this remains a difficult time, it is encouraging to hear of City Link workers in Coventry who are already finding new work.

When the employer’s insolvency has led to dismissal, employees are guaranteed to receive—subject to certain limits—their wages and other payments they are owed, and that money comes from the national insurance fund. A dedicated team in the redundancy payments service is already processing those payments, and we will ensure that claims are processed as quickly as possible. Any City Link employees who want guidance on that redundancy pay can find that information at gov.uk.

Hon. Members mentioned those who are self-employed and could not necessarily work for any company other than City Link. They do not qualify for redundancy pay because of their self-employed status. We recognise that that issue is significant and has grown over recent years. We have protections for employees, a separate set of protections for workers that are not quite as enhanced, and then there are the self-employed. For many people, being self-employed works well, but some employers try to use different categories so that those people do not have the same level of employment rights. The Department for Business, Innovation and Skills is undertaking an employment status review to consider those issues in detail.

[Mr Jim Cunningham]

In one case that I am aware of, the individual is owed something like £90,000, which puts them in a terrible position.

[Jo Swinson]

Indeed, and individuals will be in different circumstances. As I said, for some people being self-employed works well depending on their circumstances, but the difficulty comes if that is used effectively to mask what is an employee-employer relationship. In addition to any concerns the Treasury might have, there are also issues about workers’ rights.

[Jo Swinson]

I am not a lawyer so I will not give legal advice, but employment tribunals can consider the facts of any case in front of them. It is not simply what is declared in a written contract that determines the nature of an employment relationship; it is also about the facts of the case. Employment tribunals are able to interpret a case based on whether there is mutuality of obligation, and in previous employment tribunals, judgments on exclusivity clauses have been used to demonstrate that kind of relationship. I will not pronounce on any individual case, but there is flexibility in the employment law system for employment tribunals to consider individual facts. Because there is uncertainty about different types of employment—some of that is related to growth in zero-hours contracts and we are legislating to prevent the kind of exclusivity clause that has been outlined—we are undertaking that employment status review. I do not suggest that the solution is straightforward or simple, because a wide range of issues are being considered. Employment law and status have developed over many decades, and that review is an important piece of work.

The hon. Member for Coventry South mentioned the importance of quality jobs. Positive employment figures are a great good news story, but as the economy recovers we want to encourage employers to ensure that the jobs they create are quality jobs, and that where they can afford to they do not pay just the basic minimum wage. That safeguard and safety net is rightly there as a protection for the most vulnerable people in our labour market, but the minimum wage should not be a target. Responsible companies that are profitable and doing well generally want to pay above the minimum wage, and the Government encourage them strongly to do so.

On an investigation into City Link, the process after any company fails is that we ask whether it has been managed correctly, which is fair. We need to establish the full facts before coming to a judgment, as the hon. Member for Coventry North West (Mr Robinson) said. As a result, the administrators have a legal duty to report confidentially to the Secretary of State within six months of their appointment on the conduct of the directors. We are trying to reduce that time in legislation to three months. It is important to point out that we do not expect a report to take six months; they are often done earlier than that. Insolvency Service investigators are currently in contact with the administrators and expect to be able to identify any matters that should be investigated well before that final six-month deadline.

When the necessary information has been received from the administrators, the Insolvency Service is in a position to consider whether there are any grounds for bringing disqualification proceedings against the directors. The administrators’ view is a relevant consideration, although ultimately the assessment of whether grounds for the disqualification of directors exist will be based on the Insolvency Service’s independent view and conclusions. A director can be disqualified for anything between two and 15 years. It is important to set out that process. We need to wait for the information. On a point of clarity for the hon. Gentleman, the report that is produced on the directors’ conduct by the administrator is produced confidentially to the Secretary of State. That will be assessed by the Insolvency Service. On that basis, it will then decide whether further action should be taken.

We have discussed the importance of City Link, but the hon. Member for Coventry South set out wider issues in Coventry’s economy. We are dealing with the damaging City Link situation, but it is worth recognising that there is a lot to welcome in the local economy in Coventry and Warwickshire. It is one of the higher-performing local enterprise partnerships in terms of investment and jobs created through foreign direct investment. It is an important location for firms experiencing employment and growth. Last weekend, Newcross Healthcare Solutions announced plans to open a new base at the Middlemarch business park, where City Link was based, which will create 100 new permanent jobs.

Others have chosen Coventry recently, such as LeanNova Engineering, which is creating 60 jobs, and Sitel UK, which is set to create around 300 new jobs, with potentially more to follow. They sit alongside high-profile names such as Capita and Bupa, which are expanding within Coventry. That builds on Coventry’s major manufacturing and engineering base, including such major employers as Tata, Jaguar Land Rover, Aston Martin, BMW, Rolls-Royce and Alstom.

It is not just the Government and I who see signs of encouragement. Coventry’s success was highlighted in a Centre for Cities report published this week, which notes that Coventry has outperformed its west midlands counterparts over the past decade, achieving an 8% increase in jobs and a 22% increase in business stock, which is a third higher than the national average. It has the second-fastest growth in private sector jobs among UK cities. I appreciate the concern about other companies mentioned in the debate, but there are none the less reasons for optimism in the Coventry economy.

[Mr Jim Cunningham]

I do not disagree with the hon. Lady. Lots of good things are happening in Coventry. I made that point, but I also considered other areas where we have got to do better.