Westminster Hall Debate on the Outsourcing of Financial Services

Speech by Brian Cotter MP delivered to House of Commons on Wed 10th Dec 2003

Brian Cotter (Weston-super-Mare) (LD): First, I congratulate my hon. Friend the Member for Edinburgh, West (John Barrett) on initiating the debate. It has clearly brought out many interesting points. He produced an enormous number of statistics showing how serious the problem is not just in his constituency, but in many other parts of the country. I am pleased to see that the Secretary of State has initiated an investigation into this. I shall look forward to seeing what comes out of that. There are many issues to be addressed, including the competitiveness of our own service industry.

Although it is regrettable that businesses choose to move their operations overseas, we should draw a few lessons from what is happening. First, we must meet the challenge by identifying how we, as politicians, can make the UK a more attractive place for companies to invest in. Cost is a major factor for many companies choosing to outsource their operations abroad, and many choose to move to places such as India because of the availability of a highly skilled, highly trained work force.

To get businesses to invest in Britain, it is imperative that the Government invest in the British people and equip them with the skills that are needed to keep the UK as a leading international competitor. Despite being the world's fourth-largest economy, we rank 12th out of 15 EU countries and 18th out of 30 countries in the Organisation for Economic Co-operation and Development in GDP per head, the best single measure of living standards and competitiveness. The training gap is affecting British productivity, and unless we act to boost the skills of our workers, companies will continue to look abroad to access the skills that they need to make their companies competitive.

Secondly, we must ensure that those who are unfortunate enough to lose their jobs as a result of the announcements have access to maximum support from the relevant Government agencies to help them to find alternative employment as soon as possible. It has been said that call centre workers are today's miners, and many colleagues have referred to manufacturing, where many jobs have been created but in which there is a risk, once again, that those jobs will go. The service industry provides an important boost to many communities where jobs are disappearing, especially in manufacturing.

Our job is to create sustainable communities in different regions of the country, so that the outsourcing of jobs does not have a disproportionate effect on local communities. The Government stressed that the regional development agencies should play a key role in achieving sustainable economic growth in the regions, and the Liberal Democrats supported that, so why are the Government not allowing the RDAs to get on and do it? Why do they have to spend valuable time and money complying with Whitehall diktats? As outlined in a recent National Audit Office report, the Department of Trade and Industry forced one RDA to write a £500,000 corporate plan that was so irrelevant to the agency's needs that it had quickly to draw up another. Would not that time have been better spent actively promoting the region's long-term economic expansion rather than wasting time and resources complying with the orders of the vast army of Sir Humphreys in the DTI? As the Minister knows, my party is very concerned about the DTI and centralisation.

Thirdly, despite the distress caused when companies choose to move their jobs overseas, we must resist the urge to plump for protection. It is no use our lecturing other countries on the merits of free trade within the WTO if we restrict the right of British businesses to purchase labour from other nations. Rather than protecting jobs, such an approach would make workers more vulnerable by damaging the long-term competitiveness of British industry and undermining foreign investment. Furthermore, the United States' experience has shown that commercial investment can pay dividends at home. A recent report by McKinsey Global Institute found that every dollar that a US company invests abroad boosts the US economy by $1.45 to $1.47, a point to be taken on board. By investing abroad, UK companies can consolidate their interest in Britain, allowing them to create more jobs at home and attract increased levels of trade and investment, which will sustain the economy in the long run.

We should remember that despite the announcements, Britain retains a strong trade in services, with service exports currently at £82 billion—a situation that we must continue to promote—and imports at £69 billion. It is also likely that the continued outsourcing of jobs to India will force up wage rates there and make the area not quite so attractive in the long run.

Fourthly, although we must ensure that businesses are not hampered by restrictive constraints, we must recognise that they have responsibilities towards both their staff and customers. As such, it is essential that companies wishing to relocate should consult fully with their employees about any proposed changes and offer as many voluntary redundancy packages as possible.

Furthermore, companies wishing to relocate must remember that consumers will vote with their feet if they object to their corporate policy—an issue that we are addressing at the moment. Research by Amicus, which has been referred to already, shows that 68 per cent. of customers take into consideration the location of call centres when purchasing services, and 70 per cent. feel that businesses have a moral duty to remain based in the UK. That is something for businesses to consider.

A British company will have to consider carefully whether it wants to risk its corporate reputation by making such a move—a factor that will influence the market much more effectively than the introduction of restrictive Government regulations. The other point is that customers are unlikely to support the outsourcing of call centres if they believe that the company fat cats, to use a common expression, will be the only beneficiaries of any savings. The companies concerned would be foolish not to pass on savings to consumers.

The chief executive of National Rail Enquiries recently claimed that outsourcing the service to India could save the train operating companies up to £25 million over several years. If the jobs at the two existing Newcastle call centres move abroad, there will be an understandable public outcry if passengers do not see the benefit of savings in reduced ticket prices.

Many companies have found that far from improving customer service, the outsourcing of services has upset many consumers, who have been unable to communicate effectively with call centre staff in far-flung corners of the globe. We must accept that the outsourcing of financial services is a phenomenon that is likely to continue if British businesses are to maintain their competitiveness within the global economy. However, the challenge for politicians is not to prevent that happening by protectionist means but to build an economic and skills base that will make British firms never want to leave.