Financial Services Outsourcing

Mr. Robert Key (Salisbury) (Con): I congratulate the hon. Member for Edinburgh, West (John Barrett) on raising such an important issue. I have no intention of going over ground that has already been covered in this excellent debate.

A constituent of mine, Kate Williams, drew my attention to the serious impact that outsourcing jobs in the financial services sector has had in my constituency. She e-mailed me on 17 September, saying that she worked in the insurance sector and that the company that she worked for was involved in outsourcing. She said:

" I feel worried for my job, which is sad because I am only 21. Many employers in Salisbury are in the position where outsourcing is a feasible and real option."

She worked for Friends Provident, which has 900 employees in my constituency. It is an excellent company with a record in corporate social responsibility that is second to none. I am grateful to the chairman, the chief executive officer and the Amicus branch secretary for educating me a little on the problem of outsourcing in financial services.

The big conversation now should be about where the new jobs are coming from. In the 1970s and '80s we lost 4 million jobs in steel, shipbuilding, railways and coal, but the UK defied the prophets of doom and we ended up with lower real unemployment than in 1967. I am old enough to remember the reaction of previous Labour Governments to the winds of economic change, as are other hon. Members in the Chamber. The policy was to subsidise declining industry and technology and to tax sunrise industries and jobs. Who can forget the selective employment tax and the Wilson-Castle fiasco, "In Place of Strife"? Perhaps no-one in that era really believed that the nation's whole economy could be transformed in a generation. Well, it was, and we had better believe that it can be again.

In the 1980s and '90s, the new jobs came from service industries, including financial services, and information technology. Millions of new jobs were created. It was all made possible by the introduction of supply-side reforms in the economy, which made UK plc competitive at home and abroad, and the deregulation of industry and financial markets. The answer to the outsourcing problem for this country does not lie with new regulations or Government-imposed labour market rigidities, yet that is exactly what is happening. The Government are forcing financial services out of the country.

EU employment legislation such as the working time directive is starting to bite in the financial services industries. Growth in the housing market at the same time as a downturn in equity markets has brought new business to the protection market, which is operated by insurance companies and underwriters. There have been huge shortages of trained, senior underwriters. Companies have had to bring people out of retirement to cope, but it is much easier to source the new demand from India. For example, physicians in India are trained to the same standards as our own, are half the price and are quicker to train in assessing medical risk.

The demand does not just affect call centres or clerical jobs, however. India is producing 1 million graduates a year who are hungry for work. The Indian economy has a glittering future. We should also keep an eye on China, as it is not far behind.

The Treasury's new capital regulations for the financial services industries mean that insurance companies have to hold more capital. That leads to rigidity and inefficiency in resource allocation, and to companies becoming internationally uncompetitive. That is a mistake.

The problems have been accelerated by the stakeholder price caps. Ron Sandler's report in summer 2002 criticised the financial services industries for being inefficient, but the price caps that were imposed forced companies to put costs first, even if that meant outsourcing. That shows a failure to understand the financial services market.

The products sold by the financial services industries are now very similar, but what differentiates them for the consumer is the service offered by the company. The harder the Government squeezes companies on cost, the more jobs will be outsourced. The risk-takers running the industries recognise that there is a limit to outsourcing. In India, call centres train their work forces in accent—whether it should be British or American—and in the cultural backgrounds of the markets that they serve. However, for the customer, a policy is often a once-in-a-lifetime purchase, and a good insurance company, such as Friends Provident, wants to stay customer-based, in close contact with and in full understanding of its customers' needs.

The Treasury is sitting on the fence over price capping. The industry wants to know what the new regime will be, and the uncertainty is not helping it. Will the Chancellor please make up his mind? Will he also roll back the 1997 plundering of the financial services industries, and restore the £5 billion a year that he took away in dividend tax? Perhaps he will tell us something about that in his pre-Budget statement later today.

It is said that the French and German Governments protect their financial services industries, but I suspect that that is fanciful. Let us talk about language. The Germans, and many other EU nations, are naturally protected against outsourcing, because German is not spoken by people in China, India or anywhere much else. The French may use francophone Africa to outsource some jobs. For the British, however, the world, particularly India and, in future, China, is our oyster. It is ironic that the genius of the English in exporting our language has become our Achilles heel.

Amicus does not advocate protectionism any more than I do. It reasonably asks employers and the Government where the new jobs are to come from. It also fights for employees in the financial services industries whose clerical jobs are at risk and who will not be able to cope with information technology. As the Salisbury branch officer said, "When their jobs go to India, where will they work—McDonalds?"

The big conversation must be about where the new jobs will come from. I have an informed hunch about that—science. The UK is not just resistant to science; it is anti-science. Powerful pressure groups and the ostrich-like media rant and rave against progress in science and technology, yet science makes the UK a cutting-edge contributor to a new world order. Instead, public opinion and prejudice forces scientists and businesses, especially those in biotechnology and nanotechnology, away from the UK, and discourages young people from studying science at school and university. That trend must be reversed. Future jobs will depend on science education, science education, science education.