Too often dismissed as irrelevant or denigrated as harmful, in fact the chemical industry is an essential part of British manufacturing...

Why Britain needs its chemical industry

WORKERS, MAR 2014 ISSUE

Britain’s chemical industry, grouped with pharmaceuticals, represents an eighth of all manufacturing and is the fourth-largest after food, engineering and transport. Sales for the sector, amounted to £55 billion in 2011, generating £20 billion in added value for gross domestic product. It was the largest export earner last year after motor vehicles and parts, according to government data.

A strong chemical industry can underpin efforts to rebuild Britain as a manufacturing nation because chemicals and materials are an essential component on which manufacturing is built.

The products and services of the chemical and pharmaceutical industry can be found in every area of our lives such as vital medicines, food and clothing, housing and transport. The products are the raw materials for most other areas of manufacturing, including paper, textiles, aerospace and electronics.

An industrial landscape: East Yorkshire is one of the main centres of chemicals production in Britain.
Photo: shutterstock.com/Jerome Whittingham

Adding value

Chemicals and pharmaceuticals are often compared with aerospace. The industry has an average “value-added” per employed worker of £92,000 which is nearly 25 per cent more than aerospace. Yet average pay is £42,000 per worker, only about 10 per cent more than aerospace. This is presented as a great advantage by employers – and it is, for them, since it really means that workers in chemicals and pharmaceuticals produce more surplus value.

For an industry which is clearly so important you might think that investment would be a priority – but all is not well in chemicals and pharmaceuticals. In recent years the industry has lost around 10 per cent of its workforce, as well as whole sites, and job losses are continuing.

Many of these job losses have come about as a result of “mergers and acquisitions” but many more are at risk because of Britain’s high energy costs. These high energy costs have been driven by EU and government policies ratcheting up energy prices.

Unite, a significant union in the chemical and pharmaceutical industry, says: “The UK’s energy market arrangements, particularly for intensive users of energy, are undermining the sustainability of the UK’s chemical industry ... large-scale users of gas are paying more than their European competitors. We are concerned that the current energy prices will displace manufacturing in the UK ... The key issue for Unite and its members in the chemical industry is the relative competitiveness of energy prices compared both to European and global markets.”

A study by the British Geological Survey found fields in northern England’s Bowland Basin may have enough shale gas to meet demand for almost 50 years. The term “fracking” is often used; this is shorthand for hydraulic fracturing, the technique used to release oil and gas from shale rock using high pressure water.

While reserves in the North Sea decline and imports rise, the British government is nominally encouraging shale drilling by fracking – through lower taxes – but drilling has barely started. Planning regulation has been allowed to delay the start of drilling.

The government’s recent announcement that it will allow councils that back fracking to keep more money in tax revenue as part of an "all-out" drive to promote drilling is a feeble attempt which would be more convincing if they hadn't cut council revenue in the first place.

The anti-industry environmentalists insist the only way forward is efficiency and “renewables”, which could only result in further decline of the chemical industry in Britain as well as other areas of manufacturing.

The chemical industry is losing sales to lower-cost competitors, previously far east countries such as China but now including the US, where new supplies from shale gas drilling have reduced prices for natural gas. The price of gas, also used to make electricity and steam, now averages about two-thirds less in the US than in Britain, the steepest discount in five years.

Foreign-owned

Chemical and pharmaceutical employers are represented in Britain by the CIA (Chemical Industries Association) and to some extent by the ABPI (Association of the British Pharmaceutical Industry). The CIA seems inordinately proud of the fact that 70 per cent of its members are “overseas headquartered” (foreign-owned) but this picture has arisen over many years through mergers, acquisitions, closures and large job losses. But the CIA is also among those pushing the government to clear obstacles for drilling shale rock.

One example of the damage caused by “mergers and acquisitions” (known as M&A in business circles) is the dismemberment of British-based ICI, once a byword for British industry. The acquisition of part of the company by Akzo Nobel has turned part of a British owned company into a Dutch-owned company. Ineos also acquired half of ICI as well as BP’s former refining business, among others.

Originally based in Britain, Ineos moved headquarters to Switzerland in 2010 (as Ineos Group AG) to avoid taxes in Britain – having been given tens of millions of pounds in tax relief on its £6 billion debt for its acquisitions. Only a small part of ICI remains. Ineos was at the centre of a closure threat earlier in the year (and is still under threat of major job losses).

Key production areas

Chemical production is distributed throughout Britain but at the heart of the industry are four principal regions:

• The North West has a highly diverse industry which directly employs 50,000 workers and up to three times that number indirectly employed.
• The North East is significant for the sector, encompassing pharmaceuticals, biotechnology, speciality chemicals, polymers and rubber, petrochemicals and general commodity chemicals. The sector directly employs around 35,000 with another 200,000 indirectly employed. Teesside is the main production area within this region.
• Yorkshire and Humber has expertise in petrochemical refining, personal care products, pigments and colours, agrochemicals, fine chemicals, paint and coatings, surface treatments, speciality chemicals and general inorganic and organic commodities.
• Scotland, where the chemical industry contributes almost 10 per cent of the British output, employs almost 14,000 workers directly and 70,000 indirectly.

In the middle of 2013, British-based pharmaceutical company GlaxoSmithKline (GSK) became embroiled in corruption allegations in China which are still not fully resolved. The company is a classic tale of M&A: in 1989 Beecham Pharmaceutical and SmithKline merged to form Smithkline Beecham. In 1995 Glaxo and Wellcome merged. Finally in 2000, Glaxo-Wellcome and SmithKline-Beecham merged to form GlaxoSmithKline (GSK). In a little over 10 years, four companies became one, with accompanying job losses.

2013 saw a raft of job losses. In some cases energy costs were linked both to closures and to decisions on future investment. An early blow came in March, when AstraZeneca announced the closure of its Alderley Park R&D centre in Cheshire just five months after receiving a £5 million grant to develop the site. The closure means the loss of 550 jobs with another 1,600 jobs to be moved to Cambridge. It also announced 150 jobs to go elsewhere in Britain. AstraZeneca has a history of job cuts: just over a year before, the company had announced 7,300 jobs to go (worldwide), in addition to 20,000 jobs over the previous five years.

In April, petrochemicals manufacturer SABIC UK (Saudi Basic Industries Corporation) announced a “restructuring plan”. These always involve job losses, in this case 110 jobs at its Teesside operation which represents more than one in seven of the 700-strong workforce.

SABIC came to Teesside in 2006 after acquiring former petrochemicals business Huntsman for £350 million. The company’s base in Wilton produces chemicals which are used in plastic drinks bottles, CDs, car interiors and tyres. The production complex also features aromatic chemicals which are the building blocks for medicines, food packaging, sports equipment and computers.

SABIC has also announced that it is actively seeking a partner to form a chemicals venture in the US to benefit from low-cost shale gas supply.

In October, BASF announced the closure of its chemical site in Paisley, just west of Glasgow, with the loss of 141 jobs. This site had been producing pigments to colour paints, paper and plastics for almost 60 years. It had been run by Swiss firm Ciba before being acquired by BASF in 2008. In 2010 the company made 232 workers redundant “to safeguard its future”.

Also in October, Tata Chemicals Europe announced the closure of its soda ash factory at Winnington in Cheshire with the loss of 220 jobs, some at the nearby Lostock site (which will continue to produce soda ash). The Winnington site had produced the chemical since 1874. Tata Group is an Indian company which acquired the soda ash production from Brunner Mond in 2006.

In November, Polimeri Europa UK Ltd announced the closure of its factory in Hythe, Hampshire, with the loss of 120 jobs (and up to 300 jobs including contractors). The site, which had operated for more than 50 years, manufactured synthetic rubbers, mainly used to make tyres and moulded foams.

Also in November, pharmaceutical multinational Novartis announced the closure of its site for respiratory research at Horsham in Sussex with the loss of 371 jobs as well as up to 170 jobs at third party suppliers and contractors. The decision was part of a “restructure of operations” as a result of a global review of research operations and “realignment of its other global R&D sites”. Manufacturing at the site was stopped two years ago with job numbers reduced from 950 to 450 people.

In December, Dow Chemicals announced the closure of its Grangemouth-based site manufacturing its impact modifiers, a specialist product used in the packaging and construction industries.

Investing in the US

The US-owned company said the proposal to shut the facility had arisen out of a “comprehensive review” of the Dow Plastics Additives business. They are planning to invest heavily in the US as a result of low energy costs, mainly as a result of the development of shale gas.

Despite these job losses, workers in the British chemical and pharmaceutical industry are highly skilled and productive but are not always valued as such. Ineos owner Jim Ratcliffe (who also moved to Switzerland) took the opportunity in an article for the Daily Telegraph in November 2013 to praise unions in German Ineos sites and non-unionised US Ineos sites.

While talking about the decline in manufacturing industry in Britain, he also managed to denigrate and (at least partly) blame British workers and their unions. Despite his claim that employers should not be seen as the enemy, he is still determined to push through major job losses at the Grangemouth site. ■