The Rt. Hon. Patricia Hewitt

Chemical Industries Association Annual Business Outlook Conference

I also want to say something about what's going on in Europe and the Chemicals Review, but let me start by underlining how important we think your industry is. One hundred and seventy thousand people directly employed and of course several hundred thousand more indirectly dependent upon you. Twenty-six billion pounds of chemical products manufactured in Britain every year, more then three quarters of that exported. What I find so exciting, as I learn more about the industry and visit more companies, is the amount of innovation, the leading edge science that is being applied in the industry. New materials for engineering, electronics and opto-electronics. New materials for the fashion industry and new energy systems. To life science products for health and food production.

Johnson Matthey, for instance, are investing tens of millions of pounds into research, and manufacture components for fuel cells which will be a hugely important part of shifting, amongst other things, the transport sector to the low carbon future that we need and we want. BASF producing cheaper and more efficient car paints and printing links. ICI producing the fragrance for Christian Dior perfumes. Contract Chemicals in Merseyside producing the vinegar bit of the flavouring for the salt and vinegar crisps produced for Walker crisps in my own constituency in Leicester. So, as consumers, as patients, citizens, employees and Members of Parliament, the chemical industry matters to all of us.

But we all know that none of us can stand still. We are all having to cope with increasingly tough global competition, with markets opening around the world, with technology changing at an extraordinary speed, and the report from the innovation and growth team, I think, really matches up to scale against those challenges. Let me just say on that, for the innovation and growth team report recommendations, industry will need to lead, but backed and supported by government. We think that is the right way to develop the working relationship that we need with industry, not just in your industry, but also right across the piece.

Yesterday we had a most interesting presentation from Michael Porter, one of the world's leading experts on competitiveness, who was arguing very strongly that a country like the United Kingdom has really done most of what needs to be done in terms of creating fairer markets and getting stronger competition, privatisation, those sort of structural reforms. The new agenda is the innovation agenda, and for that we obviously know we still have regulatory challenges and I will come back to them. But for that new innovation agenda, the issue is really how we get the institutional framework right and how we create partnerships that are backed by government and that engage universities and our science base and then support and encourage the innovation that you in industry have to do. I think by forming the Chemistry Leadership Council you are demonstrating your own commitment to action on these challenges and we will back you all the way.

Let me talk a bit about reputation. Now this is very dangerous for a politician. I know perfectly well that when I became a Member of Parliament six years ago, I was joining a profession that runs somewhere around the level of estate agents in public esteem and affection. I hope that none of you is married to an estate agent, but the chemicals industry also isn't at the top of the public affections poll. Your favour ability index has been falling for years. It is now around 20 per cent, as the "Enhancing the competitiveness of the UK chemicals industry" report of the CIGT, published December 2002, says and all of you have acknowledged. This isn't a peripheral issue. It really is a central business problem because it affects the chemical industry's ability to get the people and the capital that you need.

I know that the European Parliament has warmed your hearts this morning with the new pamphlet that was being handed around called "Troubled Waters", comic-strip book trying to sell attractions and value of European Parliamentary policies and procedures to the young, but which, in the process does not do the reputation of the EU chemical industry many favours. Reputation issues impact on the number of young people studying chemistry, which is falling very rapidly. Now, within the declining total, we are getting far more girls doing chemistry and that's good because we will never deal with skills problems and vacancy problems if we only recruit from half the human talent pool. But it is a falling number overall. Last year we had a fifth fewer chemistry degree level students than we had just seven years ago and the recent MORI poll confirmed that the city has a poorer view of the chemicals industry than any other. So, reputation is a real problem and opportunities are being lost when hearts still have to be won.

I think if we can work with you and outline some of the ways forward to insure that, instead of the often frankly outdated view that people have of you, young people and their teachers can improve their perception. We would like to work with you to actually convey, particularly to young people, but also to wider communities, a more positive image, and the huge contribution that you are already making and can make in the future to people's quality of life. And the contribution you are making to the quality of our environment, as well as to job creation and economic competitiveness. But, of course, in order to do that this industry also has to step out to the challenges of innovation and all of us here, I think, know very well that in the global economy, there is an extraordinary rate of change. China, for example, is joining the World Trade Organisation. Ten new member states are coming into the European Union next year. Competition will intensify, not only from very low cost countries but also from countries that offer lower wage rates combined with high levels of technical and scientific education. Their productivity can at least match and sometimes surpass our own. We are not going to compete in this economy on the basis of low cost, low skill, low margin, and low value added goods. Investment in commodity chemicals, not surprisingly, has already shifted to the Middle East and to Asia. And of course, we don't want to compete on low wages, even if we could. So, our success in the future is going to be in the high value added products, the stuff that is at the leading edge, the highly innovative products and processes. I think it is hugely encouraging that we are already doing better on speciality chemicals and consumer products than the United States and Germany, and that is pretty good and we need to hang on to that lead.

Now, right across industry, we are backing innovation. For instance, with the creation of the regional centres for manufacturing excellence tied into a network of the best academic industrial centres creating links across the country in national manufacturing advisory services. In the chemical and process sector we sponsored the creation of the Process Industry Centre for Manufacturing Excellence, better known as PICME. That has been very successful. Twenty companies have already secured benefits of 14 million pounds. So for every pound that we put in, industry has seen returns of ten pounds. Jeff Cromey, for instance, the team manager of Novartis said "We are very pleased with the results and have plans in place to expand the learning throughout the plant."

The General Manager of Fisher Chemicals said, "I was hugely impressed by how quickly the team moved from regarding this as an improvement project through to the delivery of real bottom line financial benefits." This industry forum, and the others on which it was modelled, provides hands on practical help, particularly in SMEs, and this can make companies more profitable. I am announcing today that we are contributing an additional two and a quarter million pounds over the next four years so that PICME can expand those efforts and I hope there will be many other companies that take advantage of this.

But let me come to address an immediate challenge that we face in our industry and that's the challenge of EU Chemicals Review. In developing a partnership approach to this I was delighted to see that John Monks and Digby Jones (Director General - CBI) have lined up together. And I recently met both your Association and the trade unions to discuss this issue. The joint agreement between the CIA and all the major industry unions (GMB, T&G, Amicus and USDAW) has helped us, in Government, to develop our own position paper and I know that the Association has welcomed it. We know very well, just as you do, that if the European Union gets this new legislation wrong, it could be devastating for the competitiveness of the European Chemicals Industry, and not just the British Chemical Industry but also the downstream users of chemicals. We are making some real progress on this.

We have succeeded within the European Union in creating a new Competitiveness Council where I represent the United Kingdom. Previously an awful lot of these issues around competitiveness were fragmented between different directorates and different councils of ministers in the European Union. At the meeting we had a couple of months ago I lead the way in getting agreement from my Competitiveness Council colleagues that the Competitiveness Council must review and be engaged in the decisions on the Chemicals Review. Although the Chemicals Review is expected to be led by the Environment Council, it cannot be left to the Environment Council alone because of the implications for competitiveness.

Two day's ago I was in Brussels speaking at the launch of the European Union New Industrial Policy Communication. That Communication is a good step forward and one that has drawn, I think, quite extensively on our own new manufacturing strategy. Again, there was huge support and real understanding of the need for the Competitiveness Council to play a role, which has, understandably, a different perspective to the Environment Council whose focus is obviously is not on competitiveness. What we risk is all the new investment and much of the existing industry simply moving off shore if we get the legislation wrong. That would damage jobs and our economies more generally and we don't get any gains to the environment either if it is not designed properly.

We have also got the European Union signed up to a better regulation action plan, which means that every regulatory proposal, including this one, has to go through a proper analysis of the cost as well as the benefits. That will be applied to the chemicals review. I also had the opportunity, on Tuesday 21st January, of a good discussion with my opposite number in Germany where, of course, they have an enormous chemical industry. And just as we are in agreement with our industry and the unions in the industry, the German government is in agreement with their industrial social partners. So, we are making common cause on this one and I think the agreement that we have already achieved on the role of the Competitiveness Council gives us real hope that we will get agreement within the Environment and Competitiveness Councils on a sensible set of proposals that the industry would be happy with, for instance, on intermediate products, which doesn't damage our competitiveness in the appalling way that some of the proposals that have been made could actually do.

This industry matters hugely. Not just today but also I think it will matter even more for the future. We thank and applaud your efforts to strengthen this industry and we will go on supporting those efforts and I hope working in an even more successful partnership in the future.

Thank you.