This is an unhappy tale: a parable for the fate that has overtaken so much of our manufacturing industry during the past 30 years. It is about a clash of cultures. On the one hand is a long-established, respected company managed by successive generations of the same family, who take the old-fashioned view that their responsibilities extend to their work force and to the public interest as well as to their shareholders. On the other hand are the City institutions, which acknowledge only an obligation to make for themselves and their clients the fastest buck in the shortest possible time, regardless of other considerations.
The struggle at Vaux brewery has been a long one. It was a boardroom battle worthy of a television soap, during which the company has lost its chief executive, its finance director and, eventually, its long-serving chairman. The ending is an unhappy one, because the barbarians have triumphed.
My main purpose tonight is not to influence events—it is probably too late for that. Instead, I intend to place on record a summary of the facts, and to draw attention to a number of issues that arise from what has happened at Vaux, on which I invite the Government to comment. Before doing so, I must pass on the apologies of my hon. Friend the Member for Sunderland, North (Mr. Etherington), in whose constituency the brewery is based. He is unavoidably detained elsewhere. However, I welcome a number of my hon. Friends from the region.
Vaux is one of north-east England's oldest and most respected companies. The brewery employs about 600 people in Sunderland, many of whom are my constituents, and more than 100 in Sheffield. Some years ago, the company successfully diversified into hotels. Before long, its Swallow hotel chain became the mainstay of the group. It is one of the few major companies whose head office remains in the north-east, although for how long remains to be seen.
Vaux has a loyal work force and, at the brewery, a management who are on first-name terms with most of their employees. Industrial relations are good; profits steady, if not spectacular; dividends have increased in each of the 27 years in which Sir Paul Nicholson was chairman. Today, earnings and dividends are more than 10 times higher than they were when Sir Paul took over, in 1971. So let no one say that it is a failing company. As Britain's brewing industry increasingly came under the sway of four big companies, however, Vaux came under pressure from the City to get out of brewing and concentrate instead on hotels.
In June 1998, soon after his 60th birthday, Sir Paul Nicholson stepped down as chief executive, although he stayed on as chairman. A new chief executive, Martin Grant, formally of Allied Domecq, was chosen to replace him. I have met Mr. Grant. He has done enormous damage, but he is charming and plausible, and it is always disappointing that one's demons do not conform to the stereotype.
From the outset, the signs were ominous. Mr. Grant made it clear that he would not be moving to the north-east, despite the fact that Swallow's headquarters is based there. Within a short time of taking over, he advised the company that it should get out of brewing. The board reluctantly agreed. It did, however, express a preference for the company's brewing interests to be sold as a going concern.
At that point, a ray of hope appeared. A management team, led by Frank Nicholson—the joint managing director, and brother of Sir Paul—made a bid for the breweries and certain of the pubs owned by Vaux. Sir Paul very properly took a back seat, in order not to be seen to favour his brother's interests. The management buy-out should have been the solution that satisfied everyone.
Initially, the main fear in Sunderland was that the management would be outbid by one of the four breweries, closed and asset stripped. However, on 20 November 1998—the deadline—we found to our pleasant surprise that none of the big four had made a bid for the entire company, which appeared to leave the field clear for the management buy-out. We had reckoned, however, without Mr. Grant. It soon became clear that Mr. Grant was determined to resist the management buy-out and opt instead for a scorched-earth policy.
In January, Mr. Grant submitted a paper to the board arguing that Vaux was worth £24 million more closed down and asset-stripped than were it to be sold as a going concern. His figures were clearly preposterous, and his advice was rejected. On 15 January, the board opted instead to open negotiations with Frank Nicholson and his management team.
Mr. Grant, however, did not accept defeat. He and the finance director, Mr. Neal Gossage, went behind the backs of the board and bad-mouthed the proposed management buy-out to City institutions with major holdings in Vaux. On 8 February, they were summoned by the board and sacked; but the damage was done.
Following the departure of Messrs Grant and Gossage, a spate of hostile stories began to appear in City pages. In March, the advisers appointed by the company reported back to the board, and it became clear that they were split. One of them was prepared to recommend the management buy-out, but the other declined to, arguing that an extra £15 million—3 or 4 per cent. of the group's market value—could be squeezed out of the assets if they were sold off piecemeal.
I should say that this figure is extremely controversial, and varies according to who one talks to. Specifically, it appears to be based on generous assumptions about the value of the site and the costs of clearing it. Sir Paul Nicholson believes the gap to be nearer £2 million or £3 million. The board, however, by a majority rejected the management bid, and has since rejected a revised offer. Scorched earth is now the most likely outcome.
On 27 March, Sir Paul resigned in disgust. He said:
There can hardly be any parallel where a plant closure has occurred when the board had a reasonable offer from the management.
Goodness knows, we in Sunderland have seen our share of redundancies in recent years, and redundancy is always painful. But what makes Vaux different from just about all the others in my experience is that it is not a loss-making company. The market for its product had not dried up; on the contrary—I cannot stress this too strongly—it is still a profitable company, for which a reasonable offer was on the table.
What has happened is wilful vandalism. More than 700 people are about to lose their jobs, and a respected trade name is about to disappear, in the hope—that is all that it is —of adding a few pence to the share price on the basis of some extremely controversial assumptions about the likely value of the assets once everything has been dismantled.
Before we start blaming the shareholders, let me explain that there are many Swallow shareholders in Sunderland and elsewhere who are as disgusted as everyone else with what is being done in their names. The problem is that they are outnumbered by the huge block votes wielded by a handful of City institutions, one or two of which, I am sorry to say, control the pension funds of employees, who, if only they had a say, would not approve of what is being done in their name. For the record, I shall name those primarily responsible for this debacle. They are Mercury Asset Management, the Bankers' Trust and Hermes Pensions Management Ltd.—formerly the Post Office pension fund.
As I said at the outset, my principal purpose tonight is to place on record those unfortunate events, which provide a classic example of the unacceptable face of capitalism. A viable company that has traded successfully for 150 years, and for which a realistic offer is on the table, is about to be destroyed by a handful of irresponsible City institutions. Of course, muggings—the taxpayer—will be responsible for the bill for clearing up the mess that will be left behind.
I pay tribute to Frank Nicholson for the heroic efforts that he and his colleagues have made to save the business. Rarely have I come across a business man so highly regarded by those who work for him. I pay tribute too, to Sir Paul Nicholson. As group chairman and brother of Frank, he has obviously been restricted in what he could say and do, but he has left no one in any doubt publicly or privately about where he stands.
I also thank my right hon. Friend the Secretary of State, who has taken a close interest in the matter from the outset. It is a measure of the seriousness with which he takes the issue that he has chosen to reply in person to tonight's debate.
The Government have done all that could reasonably have been expected to save Vaux. From the outset, they have made it clear that a generous offer of regional selective assistance was available to help the management buy-out succeed. I would be grateful if my right hon. Friend would confirm tonight that the offer is still on the table, in the unlikely event of any new buyer coming forward.
I finish by drawing my right hon. Friend's attention to several wider issues that arise from the affair. First, it has become clear that all the major brewers are in the habit of subsidising the price of their beers to the general market by charging their own estate —that is, the pubs that they own—a premium price. It is perfectly possible, therefore, that the big four might be in a position to put small breweries such as Vaux out of business using what is surely an unfair trading practice. That is a matter in which the Office of Fair Trading may wish to take an interest. I drew it to the attention of the director general some months ago.
Secondly, it is a matter of record that the irresponsible obsession of City institutions with making the fastest buck in the shortest possible time has infected British business with a culture of short-termism, which has proved deeply damaging to our manufacturing sector. What plans does the Secretary of State, no doubt in consultation with the Chancellor, have for addressing the culture of short-termism in the City?
Thirdly, it is also a matter of record that pension funds do not always operate in a manner of which their members would necessarily approve, or in those members' best interests. Is the Secretary of State satisfied that pension funds are sufficiently accountable to their members?
Fourthly, I would be grateful if my right hon. Friend would say something about the assistance available from the Government to help to retrain and re-employ the people who will lose their jobs.
I address my final remarks to the board of Vaux—the Swallow Group, as it is now called. Its members will be aware that what has happened to Vaux has caused outrage in Sunderland, not least among many small shareholders. They will also be aware that the calculations on which they have based their decision to close the brewery have been challenged, not least by Sir Paul Nicholson, who was company chairman for 27 years. I put it to them that, at the very least, they owe their employees and the people of Sunderland a detailed explanation. That could best be done by calling an extraordinary general meeting of shareholders, and I invite them to do so.
I congratulate my hon. Friend the Member for Sunderland, South (Mr. Mullin) on securing this debate. It is appropriate to bring this matter to the attention of the House this evening. The closure of a firm with more than 150 years of history and the prospect of some 600 job losses merits consideration on the Floor of the House.
First and perhaps most importantly, I want to emphasise that my deepest sympathies lie with those employees at the Vaux brewery, and at the Ward brewery in Sheffield, who stand to lose their jobs. Their interests have been and remain the main focus of our concern as a Government. It is a good reflection of the concern felt in the House that several right hon. and hon. Members are present to listen to the debate. My right hon. Friend the Member for Bishop Auckland (Mr. Foster)—a Sunderland lad, if I may say so—has taken a great personal interest in the matter. As a Salvationist, he has some difficulty defending the employment of people working in the brewing industry, but he represents the interests of many people in the Sunderland area so I hope that he will be forgiven in the appropriate quarter.
I also welcome my hon. Friends the Members for Tynemouth (Mr. Campbell), for Jarrow (Mr. Hepburn) for Houghton and Washington, East (Mr. Kemp) and for Stockton, South (Ms Taylor). Between us, we have probably contributed significantly to the profits of Vaux breweries over the years, although I certainly cannot say the same about my right hon. Friend the Member for Bishop Auckland. However, it is not the quality of the beer that brings my hon. Friends to the Chamber this evening, but their concern about the future of brewing in Sunderland and, in particular, of the Vaux brewery.
I also welcome to the debate my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts), who is present because of the implications for Sheffield and the Ward brewery. I shall address the issues specifically related to the Vaux brewery, as raised by my hon. Friend the Member for Sunderland, South. In doing so, I do not wish to diminish the difficulties faced by those individuals linked with the Ward brewery. Many of the issues that I shall raise about the Vaux brewery apply also to the Ward brewery.
As my hon. Friend the Member for Sunderland, South said, many people in the north-east regret the decisions that have been taken. The history and the sequence of the events were clearly explained by my hon. Friend. As he said, I have been fully aware of the seriousness of the situation and have taken a personal interest in the developments. The Department of Trade and Industry was approached at the outset by the management team bidding to buy the breweries. At that time, it was confident that a deal could be done that would save the breweries and the jobs of those who work for them. When it first emerged that financial assistance would be required to secure the future of the breweries, the Government office for the north east quickly responded and made an initial offer of support through regional selective assistance of £1 million.
It subsequently emerged that a significantly larger sum would be needed to try to secure a positive decision to maintain the breweries in Sunderland and in Sheffield. We were prepared to increase the offer of regional selective assistance by an additional £5 million, so that a total of £6 million would be available to a new purchaser of the breweries to secure future employment opportunities. Unfortunately, a mutually acceptable basis for agreement between the Swallow Group and the management buy-out team could not be found. I am deeply saddened that it should have come to that, especially for the employees affected, their families and the wider communities in Sheffield and Sunderland. We have to assume that the Swallow Group considered that alternative courses of action represented the best interests of the shareholders, but many people will share the concerns expressed by my hon. Friend the Member for Sunderland, South about the real motives behind the decision that the Swallow Group has taken.
I apologise for not being here at the beginning of the debate, but I was hosting a reception downstairs for 300 people from my old college in Oxford, for which I left Sunderland in 1957.
I congratulate the Government on their speedy and excellent action. They cannot be faulted at all, as they have done everything that has been required. However, as a very small shareholder in the firm, I do not accept that the board has acted in the shareholders' interest. Indeed, it has never put any information before the small shareholders, even though they own at least 15 per cent. of the shares—very nearly the largest tranche of the shares in the company.
I hope that my right hon. Friend will call in the board, and suggest to its members that they have a moral duty to the city of Sunderland—and to the Government, who may have to pick up the bill—to put the facts before the small shareholders so that they can be independently assessed.
I shall deal specifically with the relationship between shareholders and the company in a few minutes, and I should be grateful if my right hon. Friend could wait until I reach that part of my contribution. I think that that will be a more helpful way in which to tackle his very genuine concern.
Although we accept that it may be difficult in the days and weeks ahead to find a new buyer for one or both of the breweries, we have not given up hope. Someone who sees the excellent facilities at the both the Vaux and the Ward breweries may well decide that buying and maintaining the breweries would represent a viable commercial opportunity.
The Government's position is very clear. If new options emerge for preserving employment at the breweries, we stand ready to provide assistance. I confirm to my hon. Friend the Member for Sunderland, South that the £6 million that we offered a few weeks ago in an attempt to secure the future of the Vaux brewery in Sunderland remains on the table. I hope that someone will come forward, in the days and weeks ahead, and use the £6 million that the Government are prepared to offer to secure the employment of the 600 or more people who presently work at the Vaux brewery.
My hon. Friend the Member for Sunderland, South raised a number of specific issues that I shall address head on this evening. First, he mentioned the possibility of anti-competitive behaviour in the beer market, and suggested that the four big brewers may be acting and exerting influence in a way that would distort that market. My hon. Friend would be absolutely right to draw that possibility to the attention of the Director General of Fair Trading. It is exactly the sort of conduct that would be appropriate for him to investigate.
My right hon. Friend the Member for Bishop Auckland and my hon. Friend the Member for Sunderland, South will be aware that it is for the director general to consider the comments that have been made, and to decide whether an investigation should be carried out. However, I am confident that the director general will look carefully at what has been said in this debate, and at any further information that may be passed to him.
My hon. Friend the Member for Sunderland, South also raised the issue of action by certain large City institutions. The Government are very much aware of how such institutions can operate, and of those institutions' powerful position in relation to matters such as this.
We are considering ways in which to make the market for investment work more effectively as part of our wider agenda of increasing growth and jobs in the UK by improving productivity. We want City institutions to recognise that a short-term approach is often neither in the interests of individual companies that might be affected at the time nor in the long-term interests of City institutions themselves or the wider UK economy.
My right hon. Friend the Member for Bishop Auckland mentioned the position of small shareholders and the possibility that the views of a minority of shareholders may be ignored by those who command block votes. The 1998 pre-Budget report introduced by my right hon. Friend the Chancellor of the Exchequer discussed ways in which to bring greater transparency, responsibility and accountability to the relationship between institutional investors and the fund managers they employ. That work is being progressed right now. There are real issues about the interests and rights of small shareholders.
There are no easy or quick answers in this area. However, I can assure the House that I will talk personally to investors and fund managers about the points raised in the pre-Budget report and in the debate tonight about productivity and corporate governance.
On short-termism and regional assistance, I know that my right hon. Friend shares my concern about today's decision by Siemens to invest in a plant in France rather than on north Tyneside. Quite apart from the fact that the French factory will not be making the same product as the north Tyneside one, that suggests an appalling lack of commitment by Siemens to finding a secure future for the plant and for the work force.
Regional assistance is given to companies, and I welcome the decision to reclaim £18 million from Siemens. Will my right hon. Friend make sure that if regional assistance is given—
I note your point, Mr. Deputy Speaker, but may I say that we are offering regional selective assistance in relation to Vaux breweries? One reason why we are able to do so from our own budget, at £6 million, is that we will, with great vigour, reclaim £18 million provided to Siemens. Siemens has failed to meet employment conditions attached to regional selective assistance and will be required to repay the money. I can give my hon. Friends that assurance. We will also look carefully into the circumstances surrounding the Siemens decision.
My hon. Friend the Member for Sunderland, South mentioned the support that might be given to individuals who may, after all our efforts, lose their jobs as a result of any decision to close the brewery. The company announced last week that redundancies would take place. Meetings have occurred between the company, the local training and enterprise council, the Employment Service and the local authority. I commend the work of Sunderland city council in endeavouring to secure the future of the Vaux brewery.
The Government office for the north east stands ready to handle sympathetically requests for assistance that emerge from those discussions. The Government have put in place special rapid response measures which can be deployed when there are redundancies on this scale. They have been highly successful in previous cases, such as those of Fujitsu and Siemens. We will do all we can to help the people affected to find new employment and will put rapid response measures in place.
Sunderland as well as Sheffield will take the heaviest blow as a result of the decision to close the brewery. We understand the difficulties that the city, its surrounding areas and, indeed, the community face. But in Sunderland there has been some good news as well as bad news recently. My hon. Friend referred to the devastating impact in Sunderland of the decline in the shipbuilding industry, but Sunderland has been reborn since the closure of that very important industry. New jobs have been found and Sunderland is still a good place to do business. We have seen with Nissan, the most productive car plant in Europe, the potential that exists in the north-east of England. Nissan is currently recruiting to build its third model in Sunderland, with 800 new jobs being created as a result. That is good news for Sunderland and is a positive endorsement of the benefits of locating there.
In other areas of manufacturing, there has been good news as well, from the manufacture of pumps and plastics to ships' cranes by Liebherr. The service sector is also set to create several hundred jobs. This is all good news, as is the fact that the Government and the European Union will continue to provide funds to promote economic regeneration.
The current north-east of England objective 2 programme contains packages of projects targeted directly at the Sunderland area which, if all taken up, could utilise over £32 million in grants from the European regional development fund and the European social fund. That is £32 million that will be used specifically for the purposes of economic regeneration and job creation.
I have no doubt that if the Vaux brewery in Sunderland is ultimately closed, it will be a major blow. No one can ignore that fact. But it is also clear that the north-east has many strengths. One of them is resilience in the face of hostility and adversity. There is a good news story to tell about the north-east. For some of us, it is a community that we joined and have been welcomed into. For many people, it is where they have spent their whole life. There are many strengths in the north-east. It is those strengths that will be called on in difficult times as well as in good times.
My Department stands ready to help the communities affected. We will not stand to one side and see communities being devastated—