HC Deb 06 May 1937 vol 323 cc1387-400

6.0 p.m.

Mr. T. Johnston

I make no apology for raising once again the subject of profiteering in armaments, with special reference to shells. It is the duty of an Opposition, and especially of a Labour party Opposition, to maintain a most vigilant eye upon the operations of a Government which believes in a system of private profit, and which proposes to spend some £1,500,000,000 of public money with contracting firms in this country. While this Debate takes place under rather cramped conditions as to time, it is necessary to remind the House of the conditions which emerged in the last War. Those conditions, we believe, threaten the nation once again. I would remind the House of the evidence placed before the Royal Commission on the Private Manufacture of and Trading in Arms—official evidence supplied from the Ministry of Munitions of War. On page 120 they discuss the movements in price of some half-dozen kinds of shell. I take one, the 4.5 inch shell.

The Ministry estimated that the average cost of production of that shell, as at January, 1916, was from 27s. to 29s. They proposed to the armament manufacturers that the manufacturers should charge 34s., leaving them a very reasonable and adequate margin of profit. Messrs. Armstrongs did not charge 34s.; they had been charging 47s. Messrs. Vickers were charging 52s.; Messrs. Firth, 6os.; Messrs. Hadfield, 63s: 9d.; and the National Projectile Company no less than 65s., for a shell the cost of production of which was from 27s. to 29s. We have the evidence of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George), who, on 23rd June, 1921, in this House, in reviewing the work of the Ministry of Munitions, and especially the work performed by that great public servant whose services have not, so far, been adequately recognised in this country—I refer to the right hon. Dr. Addison—said, with reference to the 4.5-inch shell, that when the Ministry of Munitions set up their national factory these shells were being charged to the Government at an average price by private manufacturers of 54s. The Ministry of Munitions got that price down to 29s., and in pretty similar ratio, although not to quite such a large degree, in the case of other classes of shells a considerable reduction was secured.

The right hon. Gentleman went on to say that Dr. Addison and the Ministry of Munitions succeeded in breaking the arms rings prices and saved the nation no less than £90,000,000. If that is disputed, I refer hon. Members to the evidence on the Committee of Public Accounts of 18th May, 1916, page 176, where the precise reductions that were secured on shells as the result of Ministerial action is stated. These prices justify to the hilt what the right hon. Gentleman the Member for Carnarvon Boroughs said in the House and what Dr. Addison has said elsewhere. Hon. Members who want the story in detail may also look up Dr. Addison's two volumes, "Politics from Within." They have a title of some political significance, but the preface of commendation was written by the late Lord Carson, who was also conversant with the facts. Dr. Addison assures us that 18-pounder shell cases were being produced by the largest armaments firms at 23s. each and by smaller firms at 12S. 6d., but the Government got the price down to as low a figure as 9s. 1d.

The same ramp has begun. It is not so fast and furious, but it has begun. I have been putting questions to the Minister for the Co-ordination of Defence regarding increases in the retail price of steel joists, for example. The Minister replies that manufacturers have only increased their prices by 10 per cent., but merchants in the city have issued circulars to the firms with whom they deal intimating increased prices of 100 per cent., and I know that the Minister for the Co-ordination of Defence is seriously perturbed about the rake-off that is going on between the producers of these steel goods and the merchants who handle them. Since these questions have been put, it is remarkable that no further quotations are now being given in these weekly circulars by the merchant firms which are supplying the trade. I have here a circular from a firm of outside brokers—I will not advertise them by name—headed: Further rise coming in base metals. How you can participate. Facilities we oiler. They give details and then say: In addition, there is the vast sum that is going to be spent by the Government upon our defence forces. In other words be in time. Be in time while the going is good. They give illustrations of how, on the Metal Exchange, copper moves £2 a ton, and sometimes more, in a day and tin frequently has an even bigger rise. Very big profits, therefore, can be made and can be made quickly. The "Economist" last week gave some particulars of the share prices of most of our big armament firms. I do not know that it would be quite fair to quote the increase in value of these shares compared with a year ago, because many of these firms had suffered a very considerable devaluation in their shares during the depression. Nevertheless, it is the fact that the Whitehead Iron and Steel Company's £1 shares are standing in the market at 135s., Vickers 10s. shares at 29S., and Babcock and Wilcox £1. shares at.46s. 10½d. Most of the shares are standing at a very considerable premium.

Into the maelstrom of profiteering and expectation of profiteering comes a firm called Ransomes and Rapier. Much of the story is now common knowledge and is no longer the subject of controversy. I will endeavour to state, in a series of propositions, what I think is common ground between ourselves and the Government. If the Secretary of State for War disputes any of the points which I am about to make, I shall be happy to endeavour to justify them on the spot, but there is no use in wasting time flogging points that are already the subject of general agreement. (1) This firm was invited by the War Office to assist in the production of shells. They were so invited as far back as July, 1935, but specifically they were invited in May and July of 1936. (2) This is an old estalished and reputable firm which made, so I am informed, 111,000 shells during the last War, plus 500,000 base plates, plus very considerable quantities of what is called the Stokes Gun. (3) The firm said, in reply to the War Office, that they were agreeable to produce shells upon a no profit, and no loss basis. That is to say, they did not desire to make a profit, neither did they desire to suffer a loss. (4) They finally submitted a price. The word "price" may be disputed by the right hon. Gentleman, but I am willing to call it an estimate, if he wishes. They finally submitted a figure on 12th October of 17s. 11d. for each 3.45 shell. (5) The Director of Army Contracts, on 24th August, 1936, suggested that an interview should take place between representatives of Ransomes and Rapier and of the War Office at Caxton House to discuss the financial basis of the contract. This is important. It was arranged by telephone. As far as I can gather, there is no documentary evidence available upon this point, but it was arranged by telephone that a meeting should take place on a particular date.

Mr. Stokes, the managing director of Ransomes and Rapier, appeared and saw a Dr. Rowall. Dr. Rowall had on the table before him the tender or estimate of 175. 11d. submitted by Ransomes and Rapier. This was on 20th October. Dr. Rowall, I am informed, is an officer of the technical branch of the Industrial Planning Department. At this interview Mr. Stokes says that he informed Dr. Rowall that in the 17s. 11d. was included a 10 per cent. cover for contingencies, in other words, for the possibility of loss, and that Dr. Rowall said, "What about the cost of the building?" In reply to that Mr. Stokes said that the cost of the building was covered, and would be covered, in the price of 17S. 11d. On 24th October the Director of Army Contracts was informed in writing that an interview had taken place between Mr. Stokes and Dr. Rowall, although the details of the interview were not communicated to the Director of Army Contracts. Four days afterwards, and without further inquiry or the slightest attempt to elucidate any dubious points, Ransomes and Rapier were told that their offer was turned down. That is the point where the cardinal blunder was made. There was no inquiry as to what precisely Mr. Stokes meant by his price of 17s. 11d.; the offer was simply turned down.

Several explanations have been offered why this offer of Messrs. Ransomes and Rapier's was rejected by the War Office. First we were told that it was rejected partly on the ground of the exceptional vulnerability of the Ipswich site to German bombing planes. That is a post facto discovery, because the War Office invited Messrs. Ramsomes and Rapier to tender for the contract knowing that their buildings were already at Ipswich and, secondly, after the shell offer was turned down the same alleged vulnerably situated factory was invited to tender for tanks. The argument of vulnerability is, therefore, insufficient and inadequate to explain the facts. In the second place, we have an explanation of another character. We were told by the Parliamentary Secretary to the War Office on 24th March that the tender of Messrs. Ransomes and Rapier of 17s. 11d. was higher at that time than the price at which contracts had been entered into. Then we were told on the same day by the Secretary of State for War that the price of 17s. 11d. was "much too low" and that the shells would cost more than Ransomes and Rapier anticipated. It could not be too high and also too low on the same day, and the same contradictory arguments be legitimately used for rejection of the tender. As a matter of fact the statement that the price was "much too low" was repeated by the Financial Secretary to the War Office on 21st April in this House. Therefore, we had a declaration made twice that the Ransomes and Rapier tender of 17s. 11d. was turned down because the price was "much too low."

We also had another reason, if it can be called a reason, a somewhat witless, or, to put it more politely, an artless suggestion, made by the hon. Member for Rusholme (Mr. Radford). He said that the managing director of Ransomes and Rapier had been a Socialist candidate at the last election. I am sure the Secretary of State for War did not thank the hon. Member for Rusholme for that brain wave of assistance. I will do the right hon. Gentleman the credit to believe that no such consideration ever entered his mind, but it is indicative of the type of mind on the Government benches that it would be prepared to import political considerations into what is purely an economic question and purely a question of fact as to the reason why the tender of 17s. 11d. was turned down.

We were also told that Mr. Stokes of Ransomes and Rapier had really intended that, while his price was 17s. 11d., the War Office should be responsible for any eventual loss which might arise. We have been told that repeatedly. That argument could have been instantly dissipated by inquiry of Ransomes and Rapier as to what their 17s. 11d. offer meant. Both prior to and subsequent to the tender they said that they did not want to make a profit, nor did they want to make a loss. Surely when the 17s. 11d. tender was submitted, it was the duty of the War Office to inquire directly at Ransomes and Rapier if there was any doubt in their minds as to what the 17s. 11d. price covered. Finally, that argument about the possible eventual liabilities of the War Office was dissipated in my presence at the War Office when Mr. Stokes offered to give the Minister for the Co-ordination of Defence, in writing, an assurance that he was prepared to go on now and to produce the shells at 17s.11d. He was prepared to give a written guarantee to the War Office that he would not ask the War Office to help to bear any loss which might fall upon him at the price of 17s. 11d.

Now I come to what may he more controversial matters between the Secretary of State for War and ourselves. Let me return to the question of the price of 17s. 11d. and of what it is composed. I understand that the new buildings which Messrs. Ransomes and Rapier would require to put up for the production of these shells would cost something in the neighbourhood of £7,000, and that the plant which the Government would require to instal would cost about £30,000. On these figures I take it there is no substantial difference between us. According to Mr. Stokes, his production engineers and the people who make the estimates, the price of 17s. 11d. was made up in the following manner: 15s. 5d. for each shell; 10d. to cover possibilities of rejects—I suppose no firm could undertake that all its production would be ma per cent. efficient—and 1s. 8d. to cover the cost of buildings. If Messrs. Ransomes and Rapier had got the contract in October, 1936, and even if it had taken the Government 14 months to give them the plant, so that they could not start production until December, 1937, they could produce 1, 000 shells a week, or 100,000 shells by December, 1939. With the 1s. 8d. a shell surplus which they provided for in their tender, they would have been able to cover the whole cost of the building in these two years.

There remains the question of the cost of the plant, about which the right hon. Gentleman made so much at Question Time a few days ago. I ask him to stop me if I quote from or refer to any document which I ought not to mention in public, but according to the special conditions issued by the War Office to contractors, on which the tender was based, the plant was to be owned by the War Office for a period of six years after it was installed. I take it that that is a common form of special condition, and that it applies to other firms besides Messrs. Ransomes and Rapier. I take it that the War Office would have the ownership of the plant for six years. At the end of those six years, it is not clear what would be done with the plant. It would have to be maintained in a state of efficiency, and be ready if the War Office should desire a continuance of the contract for the supply of shells. I am dealing for the moment solely with the ownership of the plant. It appears that the plant was to be provided by the War Office as they were providing plant for other new firms producing shells on a similar basis. The plant was to be maintained by the firm, and for six years the War Office was to be the owner of it. Before we could arrive at what would have been the gain or profit to the State through the acceptance of the offer made by Messrs. Ransomes and Rapier, we should require to know what other firms in similar circumstances have been charging, are charging, or are going to charge the War Office for shells.

If there are cheaper tenders, we ought to know the names of the firms and the prices. It is idle to say that this is a grave public matter in which secrecy is of such importance that we are not to be given this information. We shall get to know it in any case at the Public Accounts Committee. We shall get to know it sooner or later, and very much sooner than later, and it would be far better now to have a frank and full disclosure of the comparative and competitive prices tendered by other similarly-circumstanced firms who are making a profit. Let us know whether our statement is correct or not, that the War Office is accepting tenders from other firms at something in the neighbourhood of 22s.—not 17s. 11d. If the War Office could save 4s. per shell, that would mean, on 100,000 shells, in two years' time, a saving of £20,000 to the State in the cost of the plant. If 150,000 shells are manufactured, then the War Office will save £30,000. We ask here that the right hon. Gentleman shall give us the fullest information, consistent with his duty as Secretary of State for War, first as to the conditions upon which other firms have got this plant, and secondly, the amount of the tenders which they have submitted.

If the right hon. Gentleman gives us that information, he will not be doing anything which is not done by other Departments of State. In the Naval Estimates we get particulars of the amounts which the Admiralty are giving for extensions of plant and works, for the manufacture of armoured plate, guns, and so on by private firms. We know that the Air Ministry are supplying shadow factories to private firms and putting down plant, and we know the amounts involved. Why should we not get similar information in this case? There is no purpose to be served by any policy of obscurantism here. I have never made any accusation against the right hon. Gentleman or his Department of graft or corruption or anything of that kind. That can all be wiped out, but what we do say is that a cardinal folly has been committed, a folly which, against the background of what happened M 1914–1918, is almost inexplicable. When we see the nation being robbed and plundered and cheated day after day, when the War Office know this as well as we do, when we realise that the capitalist system, which the right hon. Gentleman and his friends defend, depends upon profits, surely we are entitled to ask that a firm which comes forward with a new method of approach should, at least, have its tender used as a guide or a measuring rule by which to prevent profiteers from "soaking" the nation.

I do not wish to raise any political issues to-night. I never met Mr. Stokes until this matter was raised. I have no interest in the firm of Ransomes and Rapier, and neither, as far as I know, has any hon. Member on this side. But it is our duty in the public interest, as an Opposition, to see to it that the national purse is not robbed, as we believe it is being robbed now, by private armament manufacturers. We ask the right hon. Gentleman to abandon any party advantage that there might appear to him to be in this matter and to let the House have the fullest possible information. Let us take whatever steps are available from now onwards to limit the plunder that is taking place. The Chancellor of the Exchequer has estimated £1,500,000,000 as the amount that will be required for rearmament. That would be the figure at the prices of six months ago, but at the prices of six months hence we may require to spend, not £1,500,000,000, but it may be £2,000,000,000 to get the same quantity of armaments. It would be idle to wait until it is too late, when the bills come in. It is when the tax collector goes round that the real import and purpose of this Ransomes and Rapier offer will become obvious to the nation, and we are giving the right hon. Gentleman to-night an opportunity to make the fullest pcssible explanation of the matter.

6.37 p.m.

The Secretary of State for War (Mr. Duff Cooper)

The right hon. Gentleman in his opening remarks referred to the scandals that had taken place in the past, especially in the Great War, in regard to the vast profits that had been made out of the manufacture of arms. He will not expect me either to deny the statement or to defend all that happened in the course of the late War. Conditions are very different to-day from what they were then, largely because, owing to the shortage of supplies, especially at the beginning of the War, manufacturers were in a position to demand almost any profit they liked, and a part of our effort at the present time is so to prepare ourselves in time of peace that, should a similar catastrophe occur, we shall be in a stronger position to resist excessive demands on this nation. I cordially welcome the co-operation of the Opposition and of the right hon. Gentleman in carrying out this task. He stated that the vast programme upon which we are engaged imposed upon the Opposition the duty of watching closely in order to be sure that no excessive profits will be derived from it. I welcome the cooperation of the Opposition in that work, and I have no objection at all to any- thing that the right hon. Gentleman has said this afternoon.

I hope that I shall be able to convince the House, as I am convinced myself, that the particular instance which he has brought to the notice of the House is one in which the War Office is not in any way to blame. I welcome his statement that he does not believe us to be actuated by any unworthy motive, that he is simply suggesting that we have missed a chance of doing a good piece of business in regard to the actual offer which was made, and that we should have brought into this business a firm which would have served us as a standard or as a watch-dog over other firms. With his account of the details of this transaction I am in the main in agreement, and also as to the facts, but there is one small detail which he omitted in the early stage of our negotiations with the firm. That was that their first letter, when they replied to my invitation, was to the effect that they did not wish to go into this business at all, that they disliked the idea of the manufacture of armaments and would prefer not to go into it. But later they reconsidered that position, and I think that fact should be borne in mind that they had a deep-rooted objection to this business, and that they would undertake it without any enthusiasm. We had to consider whether that lack of enthusiasm might lead to lack of efficiency as it usually does.

The right hon. Gentleman has said that entirely different excuses have been put forward from this side in order to account for the non-acceptance of the offer. He put it forward in a way that seemed to convince hon. Members behind him, and in a way that might have convinced anybody. He said that we first said the tender was too high and at the same time we said it was too low, and that it could not possibly be high or too low at the same time. It certainly looked at first sight as if that would be an impossible position. We were merely saying at that time, however, that we had then actually bought at a cheaper rate, but that when we took into consideration the sums that would have to be put down for the construction of the plant the figure that they gave was not a correct figure of costs. It was too low in that sense; not too low in the sense that we wanted to pay a higher price, but that it was not an accurate estimate since it did not represent the price we should really have to pay.

The right hon. Gentleman said we also brought forward the excuse that Ipswich was in a position of vulnerability and that, therefore, we did not wish to buy shells from a place situated so near the coast, and that we then suggested to the firm that they should construct tanks. The vulnerability argument was one of many taking into consideration the fact that their price was not in any way better than that of the other firms, that, in fact, it was a little worse. However, we might have considered it; but when in addition to that we had to envisage the investment of a considerable sum of capital in a place where there was a danger of air attack, we preferred to take these things into consideration and look elsewhere for our supplies. The bulk of the work engaged in by this firm is heavy work in the nature of tanks, and I am under the impression that for the construction of tanks they would have not been under the necessity of setting up so much new plant, and that so much new construction would not have been necessary. It is, therefore, a perfectly logical position for us to say that while we were prepared to accept an offer—it seemed a very good offer—from Ipswich, other things being equal we preferred to look elsewhere for our supplies. I do not think the intervention of my hon. Friend the Member for Rushholme (Mr. Radford) the other day was intended in a way that the right hon. Gentleman suggested, although I agree that he generously stated he did not entertain the suspicion. I do not think that my hon. Friend meant that we refused to deal with a firm, the managing director of which had stood as a candidate. I am convinced that that point had no influence over the minds of the right hon. Gentleman and his friends, and I am sure he was not aware of the fact that he was a candidate.

As to the actual offers that were made, two were made by this firm, one for shell in bar and one for forged shell. I will deal with the one for shell made in bar. I will deal with shell made from bar because that is the kind to which the right hon. Gentleman referred. The quoted price per shell was 17s. 11d. Taking into consideration with that 17s. 11d. the £30,514, which was the estimated cost of the plant, the provision of shell would work out at the following rates: On the basis of 40,000 shell, which is all that could be supplied now in the time—I quite agree that had it been taken earlier more could have been supplied—the price. would be 33s. 3d. per shell; on the basis of 65,000 shell being provided if the order had been given at once it would be 27s. 3d.; and on the basis of 150,000 it would be 22S., but 150,000 could not possibly be provided, even if the work had been given out in October, by the stipulated time.

Mr. Johnston

On single-shift working?

Mr. Cooper

All the contracts were made on the basis of a single shift, in order to have the power of expansion and, in emergency, to work double or treble shifts. I do not propose to reveal the names of the three other firms—though I shall be perfectly prepared to show them to hon. Members—whose names I have written down here, and the prices at which we were able to obtain shells from them. In the case of one of them, for 80,000 shell and with the cost of the plant £4,971, the quoted price per shell was. 18s. 2d. Taking into account the £4,971, those 80,000 shell would be produced at a price of 19s. 5d. The other two firms had the plant already and it was unnecessary to introduce any new plant. One of them would produce shell, 104,000, at 18s., and the other, 102,000 shell, at 21s. 6d. The last is the highest price, and it is still 6d. less that the price at which Ransomes and Rapier could have produced 150,000 shell.

Mr. Johnston

In the case of the firm which produced shell at 21s. 6d. you do not own the plant and have nothing to, do with it.

Mr. Cooper

That is perfectly true, but though we should have a lien on it, the firm could use the plant for their own purpose if we were not ordering goods from them. Still, while we should own the plant if we provided it, as I said earlier we thought it would be unwise to set up expensive War Office property in such a vulnerable situation as the East coast, and that is just the reason, or one of the reasons, why this offer was turned down.

Mr. Johnston

Will the right hon. Gentleman say whether it is not his belief that a firm which is charging him 21s. 6d. for shell and has the plant already, that price being only 6d. less than that of a firm which requires to spend £30,000 on plant, must be exacting an unduly high profit?

Mr. Cooper

I am not in a position to give the right hon. Gentleman details as to why that figure is as high as it is. There are, no doubt, reasons for it. No doubt they had to introduce special tools. I have not got all those facts, but I will look into the position and let the right hon. Gentleman know. At any rate, the fact remains that that price, although it does seem high in comparison with other prices was, after allowing for the construction of plant, a lower price in fact than Ransomes and Rapier's price. I hope that we have now really disposed of this case. The suggestion, the perfectly fair suggestion, that we have missed a chance of doing good business is not, I think, borne out by the facts as they stand. I do not think the right hon. Gentleman ever meant to put forward any other suggestion. A critic from one quarter did go so far as to say that we were deliberately opposed to the firm on the ground that all those who sit on these benches are in league with manufacturers and wish them to make as large profits as possible. Since that Debate, my right hon. Friend the Chancellor of the Exchequer has disposed of that suspicion, if it is suspicion, behind the right hon. Gentleman's questions.

It is almost impossible, when there is suddenly an enormously increased demand, for no matter what the commodity may be, to prevent considerable or large profits being made in that commodity. I am not very deeply impressed by the rise in armament manufacturers' shares to which the right hon. Gentleman refers. He must remember that for a long period those firms produced no dividends at all. They have been barely keeping their heads above water since the War, and when some demand for what they can supply returns, it is equally sound to expect an increase in the value of their shares. On the evidence, I do not believe that any large profit is being made out of armaments in this country, but I can assure hon. Gentlemen that the Government are anxious to secure that no large profits shall be made. We shall always hope for the co-operation of the Opposition to assist us in that task.

6.52 p.m.

Mr. Johnston

The right hon. Gentleman will no doubt appreciate that we want to clear up this matter. He gave three instances of competitive and comparative prices at that time. One of them was a price of 21s. 6d. against the price of 17s. 11d. of Messrs. Ransomes and Rapier, plus plant, which would have brought the price up to 22s. May I ask whether the 21s. 6d. related to the production of shells by a German lathe which is now regarded by the War Office as unsatisfactory and is not encouraged in other firms? Would the right hon. Gentleman not agree that, in the case of Messrs. Ransomes and Rapier, he would still own the plant? Would that not be a very material financial factor in any sum? In the other cases he would not own the plant.

Mr. Cooper

Yes, I appreciate that we should own the plant, but we are not in a position in which we wish to own or to create property of value. I was not aware of the other point mentioned by the right hon. Gentleman, but I understand that the story about the German lathe is not correct.

Mr. Johnston

Have you not been using a German lathe?

Mr. Cooper

I cannot answer that at the moment.

Mr. Johnston

I appreciate that the right hon. Gentleman is not in a position to answer immediately, but I suggest that he might make inquiries. I understand that the German lathe turns out a very much greater proportion of shell bodies, but is most unsatisfactory for other reasons.

Adjourned accordingly at Six Minutes before Seven o'Clock, until Monday, 24th May, pursuant to the Resolution of the House this day.