Minister in secret alert on job losses

Colleagues warned in leaked letter

Ian Lang, President of the Board of Trade, has sent a confidential note to ministerial colleagues warning that manufacturing industry is threatened with a sharp fall in jobs during the run-up to the next election.

Mr Lang has forwarded to the Treasury a pessimistic assessment by his officials of the prospects for the manufacturing sector after exposing a startling discrepancy between official figures for manufacturing output and those for jobs.

The assessment is attached to a note from Mr Lang - both documents leaked to the Independent - expressing concern to William Waldegrave, the Chief Secretary to the Treasury, over what he calls the "puzzle" of why manufacturing employment last recorded its sharpest annual increase in 20 years at a time when output was static or falling.

The official draft of the March issue of the Department of Trade and Industry's Monthly Economic Assessment - an internal Whitehall bulletin produced by the department's economists for circulation to the Treasury, Bank of England and other government departments - warns that the "balance of risks" suggests that employment in manufacturing will start to fall. While it rose dramatically last year, the trend of manufacturing employment has been downward for three decades.

The bulletin says the "continued sluggishness of our European markets and the substantial stock over-hang [the building up of stocks as demand fails to match production] present considerable threats to future output." It adds that recent surveys by both the Confederation of British Industry and the British Chambers of Commerce "indicate that firms are expecting to shed labour over the coming months".

Ian McCartney, Labour's employment spokesman, seized on the leak as evidence of widespread job insecurity and that there was a "feel-bad factor" in much of industry. He said: "This correspondence belies what ministers are saying in public. In public they are talking up the economy but in private they are much more worried. This exposes their fear of being found out."

Most of the DTI's official Assessment is taken up with a detailed exploration of possible reasons for the apparent conflict within the statistics and concludes, in the words of Mr Lang's summary, "that either manufacturers are extremely optimistic about future prospects or that we should expect to see employment falling over the next few months".

But the officials' Assessment makes clear they see the prospect of falling employment is much more likely given that any suggestion of optimism by manufacturers "about the prospects for rapid future demand growth" is not borne out by evidence from the CBI's survey of business prospects.

The officials also give a markedly sober view of manufacturing prospects, pointing out that the net result of rising employment and falling output is "falling productivity" with the result that unit wage costs were 4.5 per cent higher in the last quarter of last year than a year earlier.

It points out that manufacturing investment rose by 8.5 per cent in 1995 compared with the Treasury forecast of 10 per cent and that it actually fell by 9 per cent in the last quarter of 1995. It adds: "Manufacturing investment is of course notoriously volatile. Nonetheless the severity of the fall casts further doubt about the underlying health of the manufacturing sector."

The DTI analysis examines other possible explanations for the apparent growth in employment and slowing of output.One is that there may be classification discrepancies, with some sectors being classified as manufacturing for some purposes and service industries for others.

The department said it refused to comment on "leaked letters" but one Whitehall official said it was normal for economists repeatedly to look at underlying trends thrown up by statistics. .