International Computers Ltd.

HL Deb 19 March 1981 vol 418 cc873-8

4.10 p.m.

The Minister of State, Department of Employment (The Earl of Gowrie)

My Lords, with the leave of the House, I should like to repeat a Statement being made in another place by my right honourable friend the Secretary of State for Industry, on International Computers Ltd. My right honourable friend's Statement reads as follows:

"With your permission, Mr. Speaker, I wish to make a statement about International Computers Ltd.

"The House will be aware that the Government is a user on a substantial scale of ICL computers with equipment to a value of more than £300 million supporting vital operations in some 20 departments including defence, revenue assessment and collection, agriculture, health and social security. Because of this dependence upon ICL's products we have therefore shared the concern expressed by the company's chairman at the annual general meeting on 3rd February about the deterioration in its tradign position. In reporting the results for the year ta 30th September 1980 he indicated that there had beeo a sharp drop in profit in the second half of that yern, that the company was currently trading at a loss and that adverse trading conditions could continue well into the current year. However, given a revival in markets, the chairman said that ICL expected a significant improvement in the profitability of its operations.

"The trading position of the company is of course essentially for its management, its shareholders and its bankers and it is to the banks that ICL looks primarily to maintain its credit facilities on a world wide basis. However, the Government have a special interest in ICL as a substantial customer for its products. To protect this special interest we have, therefore, given a positive response to a proposal that the Government should provide a limited, temporary measure of support for ICL. This support for ICL, in addition to a contribution towards R and D which could be available under existing criteria, should give the company the chance to review its longer-term business opportunities. I am glad to be able to say in this context that the company's principal banks are continuing their support for the company in an amount of £70 million.

"I therefore intend to seek from the House at the earliest opportunity its authority to provide a guarantee for further facilities to be provided by banks for ICL under Section 8 of the Industry Act 1972. The terms I will be proposing to the House will be for a guarantee of up to £200 million for a period of up to two years. Such a guarantee will not lead to any public expenditure unless it is called. I emphasise that it will be a limited amount and for a limited time".

My Lords, that ends my right honourable friend's Statement.

Lord Beswick

My Lords, I thank the noble Earl for the Statement and, given the facts as set out in it, the Government would seem to be taking the right decision. I am sure that the House will be especially interested in this decision as another case when the non-interventionist dogma just does not fit in with the realities of the modern world. May I ask the noble Earl to refresh our memories of the date on which the National Enterprise Board were instructed to sell their interest in ICL; and, with hindsight, may I ask him—I am sure he will think it is a fair question—would it not have been better for this support to have been provided by the NEB? Is that not what the board was for?

May I also ask the noble Earl whether, in making this not inconsiderable sum available, the Government have satisfied themselves about the future strategy of the company? Is there, for example, any question of collaborating with any other companies, perhaps in Europe? Finally, arising out of that last question, if this Statement is to be taken as a proof, and a welcome proof, of a determination to maintain a United Kingdom position in this modern, high technology growth business can we take it now that there is no question of allowing American companies to take a dominating interest in ICL?

Lord Avebury

My Lords, while we also welcome this Statement, and the continuing support that it affords for what we consider to be an essential national enterprise, should it not have been accompanied by some admission on the part of the Government that the number and the scale of the commitments which they are now making to rescue industry from the consequences of the Government's own policies are incompatible with past declarations that they have made, such as that of the right honourable lady the Prime Minister on 21st April last, when she said: Loss makers must be free to do what is needed to get rid of their losses"? Does the Minister also recall the Prime Minister saying that it was assumed that no large enterprise could be managed successfully without the help of the State?

Is it not true that as a result of the Government's policies and, particularly, their maniac adherence to high interest rates and the unrealistically strong pound, most of the key industries of this country are, in fact, bleeding to death and requiring the kind of help which the Government are now forced to announce? Where they have not plummeted into the red since monetary extremism began to rule, have not many companies been forced to reduce their research and development staff and to close laboratories in a desperate attempt to cope with their cash flow problems, so that when the recession comes to an end it will be that much more difficult for them to recover against the competition which they face from the United States and Japan?

When are the Government going to start listening to the cries of agony that are arising from the industrial heartland of this country, and recognise that unless there is a prompt and substantial reduction in interest rates, accompanied by a lowering in the value of the pound, there will have to be many further rescue operations of this kind, with the result that the public sector borrowing requirement will not be under control, but will be incalculable because of the scale of commitments, such as the present one, which they will have to enter into?

Is it not highly damaging to a company such as ICL to persist with a policy of indiscriminate cuts in public spending, which means that, while it is being made impossible, because of the strong pound, for the company to compete overseas with the Americans and the Japanese, the orders which were the vital basis of their prosperity in the home market have dried up? So should not Government departments be given authority during the present recession to increase their orders for computers, so that, first, companies such as ICL which are in the business of information technology—which is, after all, an essential business of the 21st century—are in a position to compete once we emerge from the recession; and, secondly, the public administration would benefit from the use of computers which ICL could provide? I have in mind my noble friend's Registry of Business Names, which is a perfect example of where computers can help.

What is the contribution towards research and development which is mentioned here? Is this an industry Act provision? Has ICL submitted proposals for assistance under that Act and, if so, how much has it asked for, on what date and when do the Government expect to reply? The guarantee is for £200 million compared with the borrowing of the company, at the moment, of £70 million. Is it, therefore, anticipated that the cash flow of the company will deteriorate to the extent of £130 million during the current year? Finally, may I ask the Minister whether the company is now in a position, as the chairman hoped at the annual meeting, to sustain as far as possible levels of investment in key areas of business, so that they can remain competitive and be in a position to respond when demand returns?

4.19 p.m.

The Earl of Gowrie

My Lords, perhaps the noble Lord, Lord Beswick, will forgive me if I take the questions in reverse order, as it were, as the noble Lord, Lord Avebury, asked me so very many. I cannot tell the noble Lord, Lord Avebury, about the applications by the company for research and development assistance outside this contingency rescue fund. If I may, I will write to him about that, or if he cares to put down a Question for Written Answer and the House is interested I will, of course, answer that.

On the general issue, I think that both noble Lords are, perhaps, overstating the position a little. The bankers of this company, which has been affected strongly by the world recession and the fact that, inevitably, expensive investment in hardware suffers during a recession, are prepared to continue funding the company to the degree of £70 million. But this was not sufficient. The Government's contingency reserve for this purpose will cover the needs of the company during this limited period.

I cannot accept the arguments about monetary extremism because they are so circular. The noble Lord, Lord Avebury, wishes us to bring down interest rates and thereby, by proxy, the pound; but simultaneously he wishes us to borrow more money. Those two things are not compatible. The more money which the Government borrow, the higher interest rates are liable to be and the higher the pound is liable to be. Obviously the company has been hit, as other companies have been hit, by high levels of sterling, though it is the lower demand for orders which has probably hit them most. I do not know whether the noble Lord, Lord Avebury, has suggestions to make to us as to how sterling should artificially be brought down, but it would involve Government expenditure on a quite massive scale. I do not see how one could equate that with aid to companies or lower interest rates.

The noble Lord, Lord Beswick, asked me whether it would have been better to keep this company in the hands of the National Enterprise Board. I do not accept that. We are not yet clear whether this contingency fund will be called on, or to what extent. I am glad to be able to say that the company has placed major orders internationally in the last few days. It may be that it will be able to pull itself up by its own bootstraps, so to speak. We should all wish to see that.

Both noble Lords were interested in our continued commitment to high technology industries. Of course I am happy to say that we have made such a commitment. This is clearly the way that industry in this country must go. It is because we are so heavily involved in this particular industry as a purchaser that we have made the facility available. I would say to the noble Lord, Lord Avebury, that the Government are, as the Statement suggests, still placing major orders with ICL, and that can only help its position.

Finally, the noble Lord, Lord Beswick, asked me about any foreign involvement in the country. No one to my knowledge has expressed an intention to make an offer for the company. If there were to be any approach, our attitude as the Government would depend upon the particular circumstances, the nature of the approach and, of course, upon where any such approach came from. I shall have to rest on that.

Lord Beswick

My Lords, I asked the noble Lord a specific question as to the date upon which the NEB was instructed to sell its interest in this company. Looking back, is it not inconceivable that the Government did not know of the difficulties which would arise in a business of this kind where investment is so high and where lead times are so great? In the circumstances, would it not have been advisable to have left it with the NEB? Does not the noble Earl recognise that in an industry of this kind one has to have Government involvement?

The Earl of Gowrie

My Lords, the date which the noble Lord is seeking is December 1979. At that time the company looked very healthy. However, as the noble Lord is well aware, the recession has deepened since that time and the position has deteriorated since then.

Lord Beswick

My Lords, may I press the noble Earl? There is a case on major national grounds for getting some European industry into this computer business. If there is to be any collaboration, is the noble Earl telling me that there is to be no endeavour to find a suitable European partner?

The Earl of Gowrie

My Lords, the future is all before this company. The noble Lord is going too fast for the Statement. The Statement refers to the provision by the Government of a limited amount of funds for a limited period of time to ease the company over a severe cash flow problem. The Government are doing that for this particular company because of two things: first, as I said to the noble Lord, Lord Avebury, because of our commitment to high technology industries, and secondly because we are substantially involved in this company as a major purchaser and placer of orders in a number of sensitive areas, including the revenue and defence areas. That is the reason why we have made available this contingency liability. What happens now that the acute cash flow difficulties of the company have been eased is a matter for the company, though of course the Government will take a very close interest in any suggestions which are made to them.

Lord Kaldor

My Lords, is the noble Earl aware that the traditional method for regulating exchange rates throughout the 19th century and, indeed, this century has been through variations in interest rates? If the Government really wish to bring down the exchange rate, the normal method is to bring down very substantially the interest rate, which makes the country a less good place to lend in and a better place to borrow from. Is the noble Earl also aware that there is nothing whatever in the Government's argument that a higher public sector borrowing requirement requires higher interest rates, because that is offset by higher private sector lending requirements, which bring down interest rates. All the historical evidence tends to suggest that the times when the nation's borrowing requirements were highest—as, for example, during the Second World War—were the times when interest rates were particularly low and when medium and long-term borrowing took place at very low rates.

The Earl of Gowrie

My Lords, during the Second World War, as the noble Lord with all his experience is well aware, the world was not awash with "hot" money looking for favourable rates of return. If the Government increased their borrowing at the present moment in time and in present market conditions, they would have to compete in the money markets of the world for that money. At the moment the prime rate in America is, I think, 18 per cent. That would be very uncomfortable competition in which to have to engage.

Lord Boyd-Carpenter

My Lords, are the Government supporting this company also by using their very considerable influence throughout the public sector by securing that bodies in the public sector place their purchases with a British computer manufacturer and not overseas?

The Earl of Gowrie

My Lords, the Government not only are doing this but have been doing it for some considerable time. It is because the Government are so involved in this company as a purchaser or placer of orders, as I said, that they have made available this tide-over provision.

Lord Polwarth

My Lords, would the Government bear in mind, in applying their policy, that however desirable it may be to maintain a strong British-based company in this industry, there are a number of overseas-owned companies with substantial manufacturing operations in this country which give considerable employment, notably in a number of the regions?

The Earl of Gowrie

Yes, my Lords, I am well aware of that.

Lord Polwarth

My Lords, I thank the noble Earl.