HC Deb 05 April 1967 vol 744 cc256-68
The Minister of State, Ministry of Technology (Mr. John Stonehouse)

With permission, Mr. Speaker, I should like to make a further statement about Bristol Siddeley Engines Ltd.

I should like, first, to deal with the events of 25th March. Following the newspaper reports and comments that appeared after my previous statement in the House, I telephoned my officials from Cornwall on Easter Saturday, advising them to answer Press inquiries with such information about the background to this case as was already available in the Department. I added one political comment which I said could go out, from me, if required.

My instructions were misunderstood, and, following a whole series of telephone calls between officials working from their homes or holiday addresses, this background information, together with my own comment, was, in error, issued as a statement by me. As drafted it did not, and could not, have my authority, and it was withdrawn as soon as this was understood.

I has been brought to my attention that some of the words in the statement that was issued erroneously are open to misinterpretation. I should like to make it clear that the company did not put a figure to the amount of the overcharging when first reporting it in December, 1964. Nor at any time later did it suggest that it was only a few hundred thousand pounds. This was the impression formed by officials at the end of 1964, and the full extent of the sums involved became apparent only after the most detailed investigations.

I should also like to make it clear that there was no contradiction between my criticism of the company for its original over-charging and double-charging and the fact that the senior directors behaved with correctness in reporting the matter and throughout my dealings with them about the repayment. The long delay in negotiating this repayment, which I reported to the House, arose in part from the fact that it was not until February of this year that we were able to obtain from the firm the full information that we required on the actual costs incurred.

Hon. Members

Why not?

Mr. Stonehouse

Nor is there any truth whatsoever in the allegation that my right hon. Friend the Member for Sheffield, Park (Mr. Mulley), who preceded me as Minister of Aviation, gave any sort of undertaking to the firm that if a prompt and full payment were made, the Government would moderate its comments in the subsequent announcement in Parliament.

With regard to the case itself, which raises important matters of public interest, my right hon. Friend has decided to institute a full and independent inquiry. The terms of reference of this inquiry and the names of those who will conduct it will be announced shortly.

I think that the House will wish to have some background information with which, of course, the inquiry will be concerned.

For the years 1959–60 to 1962–63 fixed prices were agreed with Bristol Siddeley Engines for engine overhaul contracts and repair of spares contracts for, among the engines with which they were dealing, Sapphire and Viper engines. These prices were based on quotations made by the firm and were agreed by the Department. By the middle of 1964 the Ferranti case had come to light and, as a result, instructions had been issued by the Department that prices should not be fixed solely on the basis of estimates for work which had already been done and on which it was to be expected that actual cost information was available.

In relation to the 1963–64 and 1964–65 contracts, the Department therefore asked for figures of actual hours worked and materials used on the earlier contracts, but we had not obtained the firm's agreement by the end of 1964. In December of that year the firm drew attention to the fact that the quotations given for the Sapphire and Viper engines for 1963–64 and 1964–65 were too high by a considerable margin and would be reduced. This was the first indication which the Department had that excess profits might have been made in earlier years.

In February, 1965, the revised quotations were received from the firm and showed considerable reductions, in some cases of the order of 50 per cent., on the previous quotations. A detailed examination was then launched by the Department into the pricing of engine overhaul contracts with special reference to Sapphire and Viper engines, and as a result a report was produced in December, 1965, based on the actual costs of certain work done in 1964–65 which were made available to us by the firm.

This showed that there had been overestimation of the costs of overhaul and also revealed for the first time that there had been double-charging in respect of the stripping and rebuilding of certain assemblies which, although covered in the specification and price for the engine overhaul contract, had been charged to the repair of spares contract. I should here make it clear that this double-charging arose from errors in the operation of the firm's procedures and that from the time of its discovery the firm has been willing to make restitution in full.

As regards the over-estimation of price, negotiations with the firm continued until February, 1967, with a view first to obtaining details of the firm's actual costs from 1959 onwards and, secondly, to agree what a reasonable rate of retained profit should be. I would remind the House that these were fixed-price contracts. The firm had quoted prices and the Department, after an examination—in the outcome clearly an ineffective one—had accepted them, and it was clear to the Department that a legal claim could not be pursued.

None the less, the negotiations led the firm to offer a refund. In February, 1967, we obtained separate cost figures for Sapphire and Viper engines, on the one hand, and the remaining engine overhaul and repair at the Coventry and Bristol factories, on the other. This disclosed for the first time that there had been excess profits on the overhaul of other engines. On the basis of the figures, a refund was agreed at £3,960,000 including repayment of double-charging of about £500,000.

As for the future, I must make it clear—once again—that the Government require equality of information, including post costing in contracts of this kind.

Mr. R. Carr

As to the sorry events of Easter Saturday we welcome the Minister's apology as far as it goes. [HON. MEMBERS: "Oh."] The Government have been responsible for so much contradiction and confusion, and this has been a long statement, and I therefore hope that I shall be allowed to put several questions to the Minister without interruption.

First, is the Minister aware that we welcome very strongly his promise of a full and independent inquiry into the whole matter? But will he answer two questions about that inquiry? First, will he assure the House that it will cover the whole history of this affair up to and including the extraordinary events of Easter Saturday? Secondly, will he give the House some idea of the sort of composition of the committee of inquiry into this matter? We are not asking for names, but it seems to us to be extremely important—

Hon. Members

Hear, hear.

Mr. Speaker

Order. I hope that the House will listen to the questions.

Mr. Carr

—that this inquiry should be seen to be independent in every sense of the word. We should like some indication of the sort of composition.

My second main point is this: is the Minister aware that we welcome his categorical reaffirmation of the statement which he made to the House on 22nd March that the directors of the company have behaved correctly throughout. [HON. MEMBERS: "No."] I am asking the Minister whether he realises that we welcome the reaffirmation which he has just given and that he has thereby categorically denied the very serious implications against the personal integrity of those directors contained in the subsequent statement and other background information issued by his Department after the House rose for the Easter Recess. Can he tell us how such serious and now, admittedly false, implications ever came to be made?

Lastly, while supporting the Minister's insistence on equality of information in the placing of contracts, will he tell the House what he intends to do about the implication of the whole range of the Lang Commission recommendations? Does he not realise that the importance of these are as a complete package?

Mr. Stonehouse

I welcome the right hon. Gentleman's support on the setting up of the independent inquiry. It will, of course, be able to cover the whole history of the affair. We welcome its investigation into any aspect that it considers to be important. The composition of the inquiry will be similar to the Lang inquiry, but I would ask the right hon. Gentleman and the House to await a detailed statement which my right hon. Friend intends to make on this inquiry.

I reaffirm, of course, what I said in my statement on 22nd March, but there has been some misunderstanding about this statement. I clarified the two aspects of this event. I went out of my way to explain that in my dealings with the firm during the negotiations it behaved perfectly correctly. How can I have said otherwise when it did what I asked it to do in producing its costs, and repaid the sum of money which I asked it to repay? There has been some confusion in some people's minds in relating this assessment of the firm's correct behaviour to the original over-quotation, events which I did not excuse. In fact, I condemned them in my original statement.

I can give an assurance to the right hon. Gentleman that the Government have accepted most of the detailed recommendations of the second Lang Report and that many of these have already been implemented.

Mr. Edelman

Is not this whole affair a grave national scandal which requires a public and impartial investigation of the aircraft industry as a whole? There are many people who believe that this is only the tip of the iceberg. How can my hon. Friend reconcile his original remarks on 22nd March, when he said that Bristol Siddeley had behaved correctly throughout, with the proceedings of the last two years, when it is quite clear that it fought a prolonged rearguard action in order not to repay the money?

Mr. Stonehouse

I do not want to be drawn, in a statement of this character, on the wider aspects of the case. The House will no doubt have other opportunities of debating the problems of the aircraft industry.

In my statement of 22nd March, I was referring—and it is quite clear from the context—to the correctness of the senior directors' behaviour in these series of negotiations, particularly those that they had with me during the last few weeks of negotiation. I am grateful for the opportunity to clarify the confusion that has been caused outside by certain comments on this point.

Sir Ian Orr-Ewing

Could the hon. Gentleman say what excess profits have been refunded to the firm, because, presumably it has paid rather more than 50 per cent. taxation? [HON. MEMBERS: "Oh."] Secondly, may I reiterate what my right hon. Friend said in welcoming the public inquiry. We very much hope, on this side of the House, that the inquiry will not be an excuse for not getting ahead with designing a profit formula over the whole field of his responsibility which could give an incentive to efficient firms and, at the same time, protect the taxpayers. This is vital, not just in this matter but over the whole field of aerospace.

Mr. Stonehouse

The second point is a matter for negotiations between the Government and the C.B.I., and I do not want to comment on the talks that are being conducted.

The tax refund was taken into account in the repayment that the firm made to us. That repayment was finalised on 21st March and an auditor's certificate was made available to us by that date. That was the simple reason why the statement was made on the day before we rose for the Recess.

Mr. Ellis

Would the Minister say, in view of the long delay when the company did not produce its books to his Department, why he did not make use of Section 10 of the Ministry of Supply Act 1939, mentioned by the Lang Committee, by which he could have made a Ministerial Order making the firm produce the books? Some of us are most concerned about this matter. We believe in the aircraft industry, but we are not prepared to stuff money down the throats of the private enterprise side of industry for ever more in order to have an efficient aircraft industry.

Mr. Stonehouse

We prefer to work by negotiation which, in the end, produced a very satisfactory result indeed. I should also like to make clear that the reason why the costs were not called for, and could not be called for by any compulsion, was because of the contract procedures that the Opposition had established during the period that they were responsible for this.

Mr. Corfield

The hon. Gentleman said that when it was found that the statement which was made on Saturday could not be suitably attributed to him it was withdrawn. As I understand, that was not the case; it was first attributed to his Department and then withdrawn. Will the inquiry be into how a political matter came to be attributed to a Ministry statement as opposed to a Ministerial statement? Can he also confirm whether the inquiry will be held under the 1921 Act?

Finally, may I ask him whether it is not true that the real issue between the aircraft industry and the Ministry is whether the profitability should be assessed contract by contract or overall? If it is overall, why is it that the nationalised industries base theirs on an overall—

Mr. Speaker

Order. We are not debating this issue. Questions must be reasonably brief.

Mr. Stonehouse

For those reasons I do not intend to be drawn on the third point made by the hon. Gentleman. The statement was unauthorised, and as soon as it was realised that it had gone out it was withdrawn.

The inquiry will not be established under the 1921 Act. The Lang inquiry was not so established.

Mr. Robert Howarth

Would my hon. Friend confirm that full responsibility for this sorry story, industrially and politically, rests in quarters other than the Government Front Bench, and that his major rôle in this has been the commendable one of exposing the record of past Conservative Administrations for their gross failure to protect the taxpayer?

Mr. Stonehouse

My hon. Friend is absolutely correct. It is significant that the Opposition have expressed absolutely no regret for this sorry state of affairs. The fact is that the firm and the Government were operating under contract procedures which the party opposite had laid down and which it now acknowledges were wrong.

Mr. Burden

Can we take it that the Minister will ensure that in future no statements are issued by his Department without his authority? Secondly, would he not agree that it would appear that there are some shortcomings in the effectiveness of the costing section of his Ministry? In view of the tremendous technical "know-how" which is required in aerospace, will he ensure that, where costings are concerned, he has the quality of men in his Department able to cost properly?

Mr. Stonehouse

Steps have been taken to ensure that similar mistakes do not occur again. The technical cost Department has been increased in strength by 21 per cent. and the purchasing branch has been increased by 18 per cent. We are taking steps to continue to strengthen this very important contracts division of the Ministry.

Mr. Lubbock

While I accept that the directors of Bristol Siddeley have no stain on their reputation at all, would the hon. Gentleman agree that they must be ultimately responsible for the errors of the employees of that company, just as he would be held responsible for any errors committed by the employees of his Department? Secondly, did he consider whether the inquiry could be undertaken by the Public Accounts Committee instead of by an organisation outside this House? Will the inquiry have power to consider other cases of overcharging which might have occurred, apart from the Bristol Siddeley Engines case?

On the question of the contract procedure—

Mr. Speaker

Order. Questions must be reasonably brief.

Mr. Lubbock

I have only one more question, Mr. Speaker. It was a long statement.

Mr. Speaker

That applies to every hon. Member who is trying to get in.

Mr. Lubbock

On the contract procedure, the Minister said that it was the fault of his predecessors that it was not altered. May I ask him whether Standard Condition No. 43 applied to this contract and, if so, whether the Ministry would have had access to the current cost records of the company if it had so wished?

Mr. Stonehouse

As I said twice in my statement in the House on 22nd March, the senior directors of B.S.E.L. are ultimately responsible, and I reaffirm the point.

The Public Accounts Committee can, if it so chooses, carry out its own inquiries.

We have improved out contract procedures, and no fixed-price contracts on repair and overhaul business have been concluded with B.S.E.L. since these events came to light.

Mr. Barnett

My hon. Friend said that this is a very satisfactory settlement. Could he say why he settled for a 20 per cent. margin of profit when the normal margin is 7 per cent.? Is it because he expects the company normally to exceed or treble the profit he originally negotiates? If an inquiry is to be undertaken by the Public Accounts Committee, since, unfortunately, it did not previously notice overpayment because it was not able to see the books of Bristol Siddeley, will it this time have the opportunity to see the books of the company?

Mr. Stonehouse

On the percentage of the profit on costs which is left, the House must be aware that this was a fixed-price contract and that there was no legal compulsion on our side to demand anything back from the firm. It voluntarily gave us a refund. Of course, the arguments of the firm on its side were considerable, and this was why the negotiations took some time. I do not want to be drawn too far on this point, because it will be investigated by the inquiry.

It is for the Public Accounts Committee to demand what documents it requires. My Department will be very willing to supply it with all the material at its disposal.

Mr. A. Royle

In view of the Minister's earlier comments about the Conservative Administration, will he give an assurance that no excessive profits are being made on any contract at present under way from his Ministry?

Mr. Stonehouse

I can certainly give an assurance of that character. [HON. MEMBERS: "Oh."] If the hon. Gentleman means whether there are at the moment any contracts reported to the Ministers in which any such discrepancies apply, of course I can give that absolute assurance.

Mr. Cronin

While it is clear that my right hon. Friend has acted properly throughout, would not he agree that an inquiry into a single case is not sufficient and that there should be a thorough investigation of the whole system of placing contracts? Would not he agree that there should be powers to have post-contract sharing of costing information and powers to renegotiate contracts when situations such as this arise?

Mr. Stonehouse

Yes, we are anxious to have post-costing as well as equality of information. It will be for the Government to decide what further steps they should take when the report of the inquiry is available.

Mr. Emery

Does the Minister recollect that in paragraph 74 of the second Lang Report there were direct recommendations about the training of staff, oversight procedures and cost estimating and accountancy principles and that it was said in the next paragraph that the contracts division and the establishment and organisation division of his Ministry rejected these recommendations? Will he ensure that this matter is looked at again and that the inquiry is able to make recommendations about the upgrading of the supply section of his Ministry if it considers it necessary?

Mr. Stonehouse

We shall consider very seriously any proposals which the members of the inquiry put to us.

Mr. Mendelson

Does my right hon. Friend recall that when the Ferranti scandal was disclosed in detail by the Public Accounts Committee both he and my right hon. Friend the Member for Sheffield, Park (Mr. Mulley) were Members of the House? In view of that experience which they both went through, why did they wait until February of this year before coming to the House and making a disclosure of the company's refusal to give them access to the books? In the light of that experience, what entitles my hon. Friend to say this afternoon that he knows that no overcharging is taking place at present? Has he access to the books of all the companies now involved?

Mr. Stonehouse

We were satisfied that the negotiations would come to a satisfactory conclusion and we were hopeful that we would get a refund of reasonable proportions. In fact, we achieved that, and I think that the House can be satisfied about the result achieved. If there had been a premature disclosure of some aspects of this case, the negotiations could have been prejudiced very seriously. The Government are now asking for equality of information and post-costing in order to avoid—[Interruption.] No, of course we have not got it yet. This is exactly why we demand it.

Mr. Shinwell

Am I to understand from my hon. Friend that it is the Government's intention in respect of contracts of this character that the costing section of his Department will demand access to the books so as to ascertain whether excess profits are being made? Will that be done? If so, how far will it extend? Will it be retrospective over a period of years?

Mr. Stonehouse

This is a question which is currently under negotiation between my right hon. Friend the Chief Secretary and the C.B.I. I would prefer to await the general statement which my right hon. Friend will make on the negotiations. But the Government are determined to get these rights in regard to both equality of information and post-costing so that such scandals can be avoided in future.

Mr. Maxwell-Hyslop

Can the hon. Gentleman say whether any of the Service Departments or Ministries had permanent technical representatives resident with Bristol Siddeley at this time? If so, how many, and why was it that nothing was noticed by the technical representatives resident in the company at the time?

Mr. Stonehouse

The problem arose because the technical costs department in my Ministry was understaffed at the time and because of certain procedures in the firm. I do not want to be drawn further on this, because I believe that these are detailed questions which must be studied by the inquiry and it would be quite wrong of me to anticipate them.

Mr. Maxwell

Would my hon. Friend agree that if his predecessor in the former Conservative Administration had drawn these contracts more correctly so that the Government were given the right to know what hours were worked and what materials were available this overcharging would never have occurred? Would he further tell the House whether he is willing at this stage to say that he will not enter into any fixed-price contracts unless firms are willing to give him right of access to the books in exactly the same way as happens with all defence contracts in the United States?

Mr. Stonehouse

What my hon. Friend says is absolutely correct. The real villain of the piece here is the Conservative Administration of up to 1964, who absolutely failed to overhaul the contract procedures and put the present Government in the position of having to clear up this shocking mess.

We are, of course, determined that we shall get this equality of information—we hope by negotiation; but if that is not possible we shall ensure that we obtain it by some other means.

Mr. R. Carr

If the villain of the piece is the form of contracts which the previous Conservative Government entered into, why is it that two and a half years later exactly the same form of contracts are still being entered into by the Government in spite of the fact that as a result of the action of the Conservative Government the present Government took over the recommendations of the second Lang Report ready to be implemented?

Mr. Stonehouse

Because the present Government are insisting on having the right terms and conditions with the C.B.I. and the other firms involved. That is the reason. As to the placing of fixed-price contracts and as regards the firm in question, as I said earlier no fixed-price contracts have been placed for any repair and overhaul work.

Mr. Atkinson

In view of the guarantee given by the Minister that excess profits will not be made, and as this company now has something like £140 million worth of contracts for the future, will my hon. Friend define what he means by "excess profits"?

Mr. Stonehouse

If my hon. Friend reads the detailed paragraphs in the second Lang Report, he will see a full description of the profit rate that was applicable at the time. I do not want to anticipate the result of the inquiry which is being held, or the negotiations which are being conducted by my right hon. Friend with the C.B.I.

Mr. R. Carr

Is the hon. Gentleman still placing fixed-price contracts of the old form with other companies? He said that he was not doing so with Bristol Siddeley, but what about other companies?

Mr. Stonehouse

Hundreds of contracts are placed by my Department. As far as possible we obtain details of costs, but in the absence of an agreement with the industry, which we intend to get—[Interruption.] It would be premature for the Government to have insisted on these conditions prior to the negotiations taking place. If we had done that, the Opposition would have accused us of bad faith. What we are doing is reaching an agreement with the firms so that this matter can be satisfactorily resolved.

Several Hon. Members rose—

Mr. Speaker

Order. I know that I must disappoint some hon. Members, but we must move on.