Business chiefs warn over euro jobs

MPs are examining the pros and cons of the euro

Jobs could be cut in the UK if Britain stays outside the euro, MPs have been told.

Executives from two multinationals warned the Commons treasury committee that they could pull operations out of the UK.

Paul Barron, UK president of engineering firm Alstom, said he would recommend that the company move 50% of its manufacturing to France or Germany "as soon as possible" if it became clear the UK was staying out of the euro.

The warning was echoed by Alan Wood, chief executive of Siemens UK.

But WH Smith chairman Martin Taylor told the MPs he just didn't believe that firms would take such drastic action.

The MPs are investigating the UK and the euro ahead of the Treasury's decision on whether its five economic tests for entry have been met.

Difficulties

Mr Wood said closing the door on the euro would make multinational companies think again about their UK operations.

"Up to now, while we have been facing difficulties of being outside the euro and we have had to make difficult decisions about our supply chain and which sub-contractors we would use, we have continued to be believe that the UK will go in to the euro.

"And therefore we have a long term view that it is what's going to happen and therefore it is in our interest to maintain the base here and continue investing.

"If that door is closed and we then start to believe that either never ever or say for the next 10 years we are not going to go into the euro, that puts a very different complexion on the whole thing.

Shock

"You stop fighting quite so hard to retain a base and say 'let's just at least shift some of that production to an area where we can exclude at least part of the risks of the overall operation'."

But Mr Taylor, who is also chairman of Goldman Sachs Asset Management International, said all the companies he deals with are planning on the UK not being in the euro in the next five to seven years.

He said there would be no "enormous economic shock" if UK does not join the euro.

He said: "I believe that these gentlemen are not complaining really about the euro, they are complaining about the strong pound."

He said it was a familiar concern from major exporting companies when sterling was strong.

Poor

He said it was likely that Siemens and Alstom would look at the manufacturing costs over the next two to three years and decide to stay in the UK.

"So I don't believe them I'm afraid," he said. "I don't believe that they will do what they say."

Ruth Lea, head of policy at the Institute of Directors, there had not been sustainable convergence between the UK economy and the eurozone - one of the treasury's tests.

Ms Lea said growth prospects for the eurozone were poor compared to the Far East, China and the US, once the latter has overcome its current problems.

"There are such problems in the eurozone economy such as very high regulations, high labour costs, lack of flexibility on macroeconomic policy, that these countries I don't think look very good growth prospects in the future at all."

Prediction

Mr Taylor said the UK economy was now more convergent with the eurozone, but questioned whether it was sufficiently in line.

He predicted that Gordon Brown would announce in his Budget this year that the tests had not been met sufficiently and that he would reassess them in the next parliament, assuming Labour wins the next general election.

He said the Treasury should do more to bring about convergence. "If there were real agreement at the top of government that it was the right thing to do there would be more of an attempt to...bring convergence about."

Ms Lea said there had been a little convergence, but not enough. She said it was not a case of never joining the euro - but it was "a case of certainly not now and not in the foreseeable future either"

She said the UK needed to think very hard about a decision which would "throw away our ability to run our economy as we want to"