The failure of MG Rover and the closure of the Longbridge Car Plant in 2005 dealt a major blow to the economy of the West Midlands. What lessons can we learn from this for promoting resilience to sudden economic shocks?
In this piece we look back on the experience of two Task Forces set up to deal with the closure of MG Rover at the beginning of this century, and ask what lessons we might draw for supporting the resilience of an economy to a major factory closure? The article draws heavily on research undertaken by Professor David Bailey and colleagues at Aston University.
For decades, the name Longbridge was synonymous with car manufacturing in the UK. Yet, in 2000, its then owner BMW announced it was breaking up the loss-making Rover Group and threatened the closure of the Longbridge manufacturing plant in the West Midlands. Closure was averted with the sale of the factory to Phoenix Venture Holdings, for the nominal sum of £10, who rebranded production as MG Rover. The stay of closure was, though, short-lived and MG Rover placed itself in administration in 2005. All production and trading activities ceased over-night, resulting in the direct loss of more than 6,000 jobs and several thousand more affected in the supply chain.
The threatened closure in 2000 was wholly unexpected and raised awareness of the extent to which the West Midlands’ economy was dependent on one manufacturer. It provided a salutary warning that galvanised action in the form of what is now known as the first Rover Task Force. The eventual closure of the MG Rover plant in 2005 was less unexpected and the Department of Trade and Industry had convened a joint planning group to prepare for such an eventuality in 2004, which formed the nucleus of the second Rover Task Force.
As Bentley et al (2010) note, Task Forces have been used extensively in British economic policy, typically as a response to a particular shock. The value of a Task Force is seen to be its ability to draw together cross-governmental agencies coupled with a desire to involve parties beyond government. In the case of the second Rover Task Force It included national government departments, MPs, local authorities, the Regional Development Agency, Trade Unions, Skills Agencies, employers and employer bodies. It did not include Job Centre, which was later seen as a potential oversight. The aim of the Task Force was to help affected workers find new jobs, assist the communities affected, and help suppliers to keep trading and diversify their activities.
The first Rover Task Force primarily targeted employers in the region. It aimed to diversify the economy and reduce reliance on MG Rover’s operations. The success of this programme of diversification and modernisation in mitigating the economic shock to the region is widely acknowledged. In 2000, some 161 companies were reliant on MG Rover for at least 20% of their activities. By 2005 this had fallen to 74 companies. It is estimated that the programme ‘saved’ at least 10,000 jobs that were at risk across the region in 2000 but were no longer vulnerable when the MG Rover plant closed in 2005.
A key lesson is the success that measures promoting diversification and modernisation can have when married to firms that are aware of their own vulnerability and wish to reduce their reliance on particular markets. The Accelerate programme, which formed the backbone of the approach, was also a pre-existing instrument that the Regional Development Agency was able to extend both in scope and reach (to ensure that it was available to firms in all parts of the region), meaning that actors were not designing new programmes from scratch.
A second lesson is that countering short-term cash flow concerns is crucial to maintaining the resilience of an economy to a major closure. Financial support consisted of aid packages totalling more than £180m spread over three-years. Ex-post evaluations have suggested that it was the ability to defer VAT and PAYE payments that proved most valuable to affected suppliers, alleviating their immediate cashflow pressures. For workers, support such as extending or refinancing car loans also proved valuable, as this helped them to retain their mobility in searching for new jobs.
Lesson three is the importance of providing an immediate response. In this case the Task Force began working within a day of the firm being placed in administration in 2005. This proved critical to protecting jobs in the affected supply chain, as well as supporting those workers made redundant (financially, psychologically and in terms of employment and training advice). Many of the managers, professional employees and skilled engineers proved able to find new jobs relatively quickly through their own contacts and initiatives. Others were supported through government schemes which rewarded firms taking on an ex-Longbridge worker.
The fourth lesson is that the effects of firm closures are not felt equally and, for many are long-lasting. Overall, around 90% of ex-workers were found to be in work 3 years after the closure, but two-thirds were working for reduced wages. Older and less-skilled workers were least able to find new jobs. New employment was also more precarious with workers reporting that they were more likely to be made redundant during a downturn (such as that of 2008/09). Job gains of ex-workers were also often at the expense of the existing unemployed, with strong displacement effects reported.
Lesson five demonstrates the value of a diversified economy for regional economic resilience, and the value of prior preparation. The work of the first Rover Task Force is credited with preparing the region for the eventual demise of MG Rover. Crucially, this was not just targeted on the MG Rover supply chain but also encouraged other firms in the region to consider how they might grow their business using the engineering expertise of firms in the region. The approach was to build an economy connected by skills and knowledge rather than by production chains.
A final lesson is been the importance placed by the Task Force on transforming the economy rather than seeking to extend the life of the Longbridge plant. Whilst automotive manufacturing continues in the West Midlands this tends to be focused on niche, higher value, production processes. This was a conscious strategy. Most ex-Longbridge workers found new employment in the service sector representing further evidence of the evolution of the regional economy and also highlighting the transferability of many of the administrative, financial, design and managerial occupations employed in a major manufacturing concern.
The experience of Longbridge demonstrates the positive impact a Task Force can have, but also the long-lasting effects of the closure on the regional economy. Whilst the sheer scale, and speed, of the closure as well as the breadth of occupations involved proved challenging to the agencies involved, there is no doubt that the presence of the Task Force was a major contributory factor in supporting the resilience of the West Midlands’ economy. As Bailey and colleagues note, in the context of a crisis, action is imperative and deliberation is a luxury, to be seen to act is the priority using whatever tools there are to hand. In such circumstances, it is “helpful to have knowledge and actors in place rather than attempting to ‘firefight’ after the event” (p.69).
Dr. Adrian Healy is a UKRI Future Leaders Fellow. All views expressed are his own. A version of this blog first appeared in a report for Welsh Government (Strengthening Economic Resilience: A literature review) published by the Wales Centre for Public Policy.