§ Motion made, and Question proposed, "That this House do now adjourn."—[Mr. James Stuart.]
§ Mr. Pethick-Lawrence (Edinburgh, East)
I understand it is the wish of the House to utilise the Adjournment Motion to-day for a discussion on the Report of the Public Accounts Committee which has been in the hands of Members for some time. I expect that most hon. Members present have read that Report, though I wonder whether all of them have tried, as I have thought it my duty to do, as a former Chairman of the Public Accounts Committee, to read through the rather voluminous body of evidence that was taken in a number of days' hearings by the Public Accounts Committee earlier in the present year. Those who have done so will, I am quite sure, agree with me in thanking the Committee for their arduous and patient labours in an endeavour to find out the truth on these matters of great public importance. I think further that there will be very few who will not come to the opinion that I have come to, that though there may be slight differences of emphasis, in the main the Committee could have come to no other finding than that to which they have, in fact, come.
I think there is a good deal of misunderstanding as to the precise functions of the Public Accounts Committee. Perhaps I may be permitted to make a very few remarks on that in opening what I have to say. The Public Accounts Committee is not concerned to pass a verdict of approval or disapproval on contracting firms. Its purpose is to see that the Government and their servants, the permanent staff of the Departments, carry out the will of the House of Commons, first, that they spend the money on the objects for which the House of Commons voted it; and, secondly, that they spend it with reasonable economy and with the care which business people, properly advised, would exercise. For that purpose, generally, it suffices that they should call as witnesses the accounting officers of the various Departments. In most years that is what they do, and the Report which they issue at the end of the year is based on that evidence. They have, of course, the assistance throughout of the Comp- 1240 troller and Auditor-General, who is the servant of the House and not the servant of the Government, and whose salary is on the Consolidated Fund in order to mark that important difference. They do not as a rule endeavour to elicit evidence from outsiders, and only in very exceptional cases have they taken this course.
On the present occasion it was thought desirable to go beyond the usual practice, and, in view of the great importance of the matter of inquiry, and also as a matter of fairness to the firms whose attitude was under discussion, representatives of those firms gave evidence on the subject which had been animadverted on by the Comptroller and Auditor-General in his Report. I propose to deal briefly with the immediate individual facts referred to in the Public Accounts Committee's Report, and then to make a few observations on the larger issues behind these investigations. Several cases came under the purview of the Public Accounts Committee, but I do not think anyone will deny that one case bulked much larger than the others. That was the case of the British M.A.R.C., with which the hon. Member for Grantham (Mr. Kendall) is personally associated. The pith of the findings of the Public Accounts Committee with regard to that are contained in paragraphs 28 to 30 of their Report. I think it desirable that so far as paragraph 28 is concerned I should read the salient sentences:In their opinion, in view of the circumstances prevailing in the spring of 1939, the Air Ministry had justification for agreeing to the fixed price claimed by the Company for the comparatively small number of guns under the first contract, particularly as the Ministry had reason to hope that for the second and much larger order the target cost system would be adopted and that the price would thereby be settled in relation to ascertained costs. Your Committee feel that the rejection of this arrangement by the Company has led to many of the subsequent difficulties.Asa result, the Ministry, in their anxiety to reach agreement, felt obliged to offer for this (the second) contract a fixed price which was high, but they believed they had secured a safeguard in an understanding with the Company's representatives that, in the event of the output of 1940 being larger than expected, the Ministry would be entitled to an adjustment. The error in failing to incorporate this understanding in formal contract terms is admitted. Your Committee regard the refusal of the Company to admit such an adjustment, except as part of a general settlement, as most regrettable.I understand that the Committee took evidence showing that the failure to incorporate this understanding was due to 1241 the evacuation of the Department, which led to the oversight, and which, although it did not altogether excuse it, explains how the mistake was committed. Paragraph 29 deals with the question of full access to books. There was some dispute in the evidence about that, and I do not think it necessary for me to read the whole of the paragraph. I will paraphrase it by saying that the Committee found that there was some stickiness as to the production of all the books and were of opinion that the Ministry of Aircraft Production should have used its compulsory powers earlier in order to compel production of all necessary information. With regard to paragraph 30, I will read just the opening sentences:The investigation recently made for the first time into actual costs discloses that the prices hitherto demanded by and paid to the Company, both fixed and provisional, have been altogether excessive. As a result large sums which greatly exceed any reasonable remuneration are in the hands of the Company.I would remind hon. Members that since the publication of this report we have had a White Paper, which was issued only last Saturday. In this White Paper the action taken on the strength of those words in the Report has been set out. Very large sums are being paid by this Company to the Exchequer, in accordance with the terms of this White Paper.
There was only one other matter of importance in the British M.A.R.C. question which was dealt with in the Report. There was alleged to be reluctance on behalf of the Company to deliver guns until their terms had been conceded. I think it would probably be the opinion of the Committee—I have not asked them, and I am judging only from reading the evidence—that although a great deal of time was devoted to that matter, it was not of the greatest importance. First, this question was largely in dispute in the evidence, and the whole matter arose prior to the outbreak of war, when firms were far more entitled to defend their own interests than they would be once the war had begun; and, secondly, I think that by the head men in the Ministry of Aircraft Production the threat to delay delivery, and, still more, to refuse delivery, was never taken very seriously. Therefore, I do not think the House will wish to take any great account of that matter, although it undoubtedly occupied a great deal of the attention of the Public Accounts Com-. 1242 mittee In view of that finding of the Public Accounts Committee, which I do not think the House is likely to wish to upset or to question in any way, and in view of the statements that are made in the White Paper of what has happened in consequence of the Report of the Public Accounts Committee, I, personally, do not think that we can go very much further into the matter, and for my part at any rate I propose to leave it there.
I pass to some of the wider issues on which this House and the public outside will particularly wish to be informed. My experience of the outside public in connection with these matters is that they start off with a predilection in favour of what they call competitive price. They say, "When we wanted to buy an article, before the war, at any rate, we had the choice of a large number of shops, and if we could not get the thing we liked in one shop, we went to another, and we generally found that the knowledge of that fact enabled us to get a competitive price and to buy the article in the best way." Of course, when business men were asking for articles which they required in the course of their businesses, on a small scale and in peace-time precisely the same thing appertained. There was a competitive price, and by putting a thing up to tender and as the result of a number of firms coming in to tender for the article, they were able to achieve the result which they desired. The ordinary member of the public wants to know why that system does not apply in the present circumstances.
I think the answer is not at all difficult to give. The reason is two-fold. In the first place, the quantity required is so large that only a few contractors can begin to tackle even a part of it. In the second place, it is so large that practically all the contractors who are capable of producing the article in question may be required by the Government to produce it, and there ceases to be any competition. There is another reason. There are cases in which the article required by the Government is one which has never been produced before, at any rate in the quantities for which the Government are asking, and in those cases it is exceedingly difficult, with the best will in the world, for either the Government or the contractors to know not only within narrow limits but even within wide limits what the 1243 cost per article will be when production reaches a considerable scale.
Then the ordinary public want to know why we cannot have a fixed price. The difficulty of the fixed price arises from much the same considerations as those to which I have already referred. Generally and in ordinary circumstances when a person is asking for an article which has been made many times before, it is easy to fix in advance a price which is fair and reasonable. But when the Government ask for an article which has never been produced before and which may, in certain circumstances, be subject to changes—necessarily, because of new inventions and discoveries made during the war, which must be incorporated in it—then, of course, the whole basis of a fixed price as commonly understood in ordinary business disappears. Therefore, the Government and the contractors both are confronted with a new, unusual and exceedingly difficult problem.
One of the attempts to deal with that problem is what is known as the target price. That means that after forming the best conclusions they can as to what the price should be, the Department and the contractors agree on a certain figure, as the price at which the contractor shall agree to deliver the article, but that figure is to be subject to certain provisos. If the contractor succeeds in producing the article at a much lower cost than was anticipated, he is to get some advantage but not the whole of the advantage arising from the difference. If, owing to circumstances over which the contractor has no control, the cost turns out to be more than was anticipated, I think I am right in saying that some allowance is made to the contractor. Of course, the target price and any other similar method involve costing. The costing system that is used is primarily a costing after the event, and into that costing comes the consideration of whether the methods actually employed were justified or whether there was unnecessary waste either unintentionally or in some cases by deliberate extravagance for purposes which were not necessary in the production of the article. Then there comes a further refinement in the matter by precosting, which is done by highly skilled technical accountants who advise and sometimes can correct the contractor as to the precise methods which he intends 1244 to employ, pointing out to him that if instead of doing what he proposes, he adopts other and better methods a considerable saving in cost might be effected.
I shall not go further into all these intricate matters. They are matters which came before me when I was Chairman of the Public Accounts Committee, and as I think the public is largely ignorant concerning them, I thought it necessary to say a few words upon them. I would issue this word of caution to the House. All these contracts are on a scale which was almost undreamed of before the war. The country, as a whole, is working very much harder; this costing system is elaborate and difficult, and with the best will in the world it is not too easy to find suitable accountants to carry out this highly complicated, very extensive, and often controversial costing system. Therefore, the House cannot expect that in the future this accounting will be possible in every case or that it will always be exceedingly prompt and up-to-date in its results. The House of Commons will have to forgo either the promptitude or the completeness of investigations which may be required in the future.
Having attempted to answer some of the questions which the general public has been asking; I now direct myself to some of the questions which business managers are asking. One such question is, "Why is the matter of prices of very great importance, when Excess Profits Tax can be reckoned upon to take care of the profits?" I would answer that question very simply indeed by saying that sloppiness in accounting is the basis of indefinite waste. About 10 years ago I was in Russia, and I was most interested to find that they had there an elaborate system of accounting. Their different enterprises were carried on by what they called trusts, and though all those trusts were under State ownership, and State management and all their so-called profits belonged to the State, yet they had found it to be of the utmost importance to have an elaborate system of accounts and to have payment from one trust to another. The idea with which the Soviet system started, that as everything belonged to the State there was no need to have any accounts or any money transactions, had been almost entirely abolished. The most elaborate bookkeeping and accounting were taking place. I suggest that if we in 1245 this country, in view of the fact that there is an Excess Profits Tax, were to think that we could abandon careful scrutiny of the processes involved in contracts, we should be landing ourselves in interminable difficulties, and there would be waste on an extraordinary scale. Those who want a fuller answer than the one I have attempted to give, I recommend to go to the Appendix to the Report of the Public Accounts Committee with which we have been dealing, and there they will see some comments by the Treasury on this very issue.
The position, as I see it, at the present time with regard to these contracts is that we are trying to work what I cannot describe as other than a hybrid system. I understand the system of capitalism and that the prime motive of capitalist society is profit, and, to a certain extent, the pride that a man has in building up a large and a successful business. On the other hand, the prime motive of Socialism is first of all a patriotism in what may be—[Laughter]—I am arguing the motives which are expected to run efficiently under various systems, and I do not think that I am attempting in any way to misrepresent either the one side or the other. At least, that is not my intention.
§ Mr. Pethick - Lawrence
That was rather unjustified, if I may say so, although I gave way, and I do not mind at all, I am trying to develop a serious argument of the motives which are supposed to operate, on the one hand, under a Capitalist system, and, on the other, on socialist services such as the Post Office and many others. The motives which are supposed to provide incentives in a Socialist system include the sense of serving one's fellows by good work and 1246 also power, privilege and preferment. I can see the motive-power either under Capitalism or under Socialism, but what we have at the present time is a hybrid system. We retain the form of Capitalism, and yet we take away from it most of the motive-power which, in ordinary circumstances, is expected to run it. The costing system to which I have been devoting some attention in the earlier part of my remarks is in fact designed to take away from the producer any large profits, and what is left to the firm is drained away by the Chancellor of the Exchequer in Excess Profits Tax. The costings system is designed to reduce profits to a minimum; the Excess Profits Tax is designed to drain off everything beyond a pre-determined maximum. The ordinary manager of the firm is expected to try and serve two masters. We have very good authority for knowing that "no man can serve two masters," and if any national or person can do a thing which is supposed to be impossible, I think the British national is the most likely to succeed. I am bound to say that we have gone nearer to working this exceedingly impossible hybrid system in this country during the war than anyone outside would have ever believed possible.
It does put, undoubtedly—everyone must agree to this—the ordinary manager of business in a great quandary. He is the trustee of his shareholders. It is his business to look after their interests and do what he can for them, yet that very motive is directly opposed in many cases by his patriotism and his desire to make use of his business mainly and solely for the benefit of the country as a whole. It is a remarkable tribute to the ordinary man in this country that so little friction and trouble has arisen. I think that these cases which have been referred to here are exceptional and by no means typical of what has taken place as a whole. I must not by that be thought to mean that there have not been considerable profits made and sometimes a good deal higher profits than some of us would think right. Under the rather peculiar workings of the Excess Profits Tax, some of these profits will be retained by firms in some shape or form after the war. But as far as it is possible to work this peculiar and difficult hybrid system, it has been done in this country. We should note this point with a view to the post-war arrangements.
1247 If the British people have worked this intricate hybrid system, they are capable of making big changes in our whole arrangement of industry, and of the adaptation of the life and work of the people to the needs of the community after the war. What these changes should be are matters of acute controversy, and they are dormant to-day. They are likely to be active in the future, when the war is over. I am not going at length into what they will be, but I would commend this point to hon. Members, because it applies to this particular field of munitions. I suggest that a minimum advance in this particular field should be an extension of the Royal arsenals and dockyards in times of peace. They at any rate provide something in the nature of a competitive standard, and if at the outbreak of this war we had had a larger amount of production being done in these national organisations, we would have had a much more complete standard, which would have helped us to form the contracts in the earlier period of the war. Of course, my friends and I would go considerably further; we would have the production of all war material, in peace-time at any rate, under national management and ownership. I know that that is disputed by certain hon. Members, and I do not want to raise purely controversial matters here at the present time. Of course, that question is only part of the still larger question of the gradual extrusion of a profit-motive as the main driving force in production, but I should be taxing the patience of the House and perhaps overstraining your indulgence, Mr. Speaker, if I were to deal with that subject any further than I have done to-day.
Before I sit down I want to put certain points to the Chancellor of the Exchequer, because I understand that in addition to a Ministerial answer from the Ministry of Aircraft Production we are likely to have a reply on the wider issues by the Chancellor himself. I therefore propose to ask him to deal with certain questions. First, with regard to the precise matters which form the subject of the Public Accounts Committee's Report, I do not imagine he will want to say a great deal, but I would like to ask him this: Is it his opinion that these cases are typical of the attitude of British industry, or does he think, as I do, that they are exceptional and that in general there has been a praise- 1248 worthy effort to work a very complicated hybrid system? Secondly, turning from the particular to the more general, I would like to ask him to say whether it is now his view, as head of the Treasury, that there is a possibility of an increase in fixed-price contracts in view of the greater stabilisation to-day of methods of production, and whether, in his opinion, any additional safeguards are required. Thirdly, does he share what I understand to be the view of the Public Accounts Committee that Departments ought not to go beyond what they consider to be fair and reasonable prices because they fear the effects on production and that if necessary, where firms show reluctance to furnish sufficient information, the Departments should not hesitate to use their compulsory powers to elicit it with a view to reaching reasonable prices? Finally, I would welcome assurance from the Chancellor, which will have wider publicity than the Public Accounts Committee Report, that the powers given to him by the Finance Acts to claw back for the benefit of the Exchequer excess profits are not a substitute for careful price-fixing on an economical and reasonable basis.
§ Mr. Kendall (Grantham)
In rising to address the House on the subject of the criticisms in the Public Accounts Committee Report, I know that I shall be forgiven if I refer extensively to the notes of my statement in view of the difficulty in covering in a single speech a good deal of ground, much technical matter and all the major points contained in the Report. I propose, with the consent of the House, to show the order in which I desire to take these criticisms and then to destroy them one by one. I intend to show that in major respects the Report of the Committee is inaccurate and that where it is not inaccurate the facts are capable of a very different construction from that placed upon them by the Committee, as has in fact been shown by the various reports in many of the national newspapers. The force of this is indicated by the fact that almost every newspaper printing sensational headlines from the latest White Paper has conveyed to the whole country a completely misleading impression of the company's position. It is wrong, untrue and wicked to suggest that the company has or could have made profits of £1,700,000, when all prices, except for the first two contracts for a 1249 small number of guns, were all at provisional or temporary prices and therefore subject in any case to adjustment based on actual manufacturing costs. Why is it that we have not been able to have a balance-sheet since 1939, showing our profit and loss accounts? It is because we have been working on provisional prices and only provisional prices until a few days ago. Therefore, I state that this type of headline in the newspapers and this preposterously unnecessary and nebulous figure of assumption in the White Paper is both aggravating and provocative. It is abundantly clear from the evidence published in the Blue Book that a figure of profit of £1,700,000 is a fantastic absurdity and impossibility, having no relation to any evidence nor to any fixed prices and being, in fact, a fictional and ridiculous supposition, and, therefore, non-existent.
Before I deal with the actual criticisms, there are one or two preliminary observations which, in the interest of the House itself, no less than in my own, I wish to make My first observations relate to the circumstances in which this Report comes before the House. The Report was printed on 21st July, 1942. It was circulated to Members of the House two days later and from that date onwards it was the subject of widespread publicity and comment. As soon as I saw this Report I desired the earliest opportunity of answering in this House the criticism it contained. I was told—and the House was told—that discussion of this Report could not take place until the minutes of evidence on which it was based were available to the House, and the House was also told by its Leader that the evidence would not be available until the next Session. The consequence of this is that the charges contained in this Report have had several weeks' run in the House and the Press without my being able to justify my company or myself in this place. That, I submit, Mr. Speaker, is an utterly unfair position in which to place me or any other Member.
My second observation is this: If a member of the public or one of the newspapers publishes to the world that a particular factory engaged on war work is situated at a certain place, that is properly regarded as a serious offence. As the result of the publication of this Report, there has been blazoned to the four 1250 corners of the earth the exact location of a factory engaged in producing, in large quantities, a particular type of gun. I can assure the House that my workpeople and I are quite prepared to take our share of the risk of bombing, but both my workpeople and I take the strongest exception to what I consider the extreme thoughtlessness which resulted in the publication of the exact location of a particular factory engaged in the making of guns. After all, this factory has already been bombed a number of times, and in those bombings 18 men have been killed and 100 have been seriously injured. I ask, How comes it that a Sub-Committee of this House, or, as I am given to understand, a higher authority, can commit with impunity what if somebody else did it would be a punishable offence?
Before dealing in detail with the charges made by the Public Accounts Committee, I wish to make one further observation. From the evidence itself, it is clear that this Report, based upon the findings of the Auditor-General, is drawn up in a most unsatisfactory manner. Certain statements and facts are extracted by the Auditor-General from correspondence and minutes and embodied in a Report. No effort is made to relate the correspondence and minutes to their context. Nothing is done by him to examine the facts which led up to the correspondence and minutes nor to consider the results or effects which came afterwards from his Report. He did not inquire or probe, or ask for reasons and meanings. This is substantiated in Question 5325 of the Blue Book, where he gives most unsatisfactory answers on these points. Now I wish to examine the way in which the Ministry deals with the Report when it is submitted to them in draft form by the Auditor-General. The Report was with the Ministry for two or three weeks for comment. It is shown in Questions 5295, 5296 and 5537 of the Blue Book that the Ministry did not make any careful check on the draft Report. On the other hand, the Ministry themselves say in evidence (page 248, Question 5545), that had they known the immediate reactions this Report has produced, they would have asked the Auditor-General to alter the Report. There are the two sides saying in their own evidence that the Report, firstly, was not carefully checked back to its source for proper interpretations, and 1251 secondly, was not fully considered as to the effect of its presentation.
And now I turn to the charges made by the Public Accounts Committee. What are those charges? They are three. The first is that my Company declined to deliver to the Air Ministry a single one of urgently needed guns until the Air Ministry had agreed to the price demanded of them. The second charge is that over a protracted period of time my Company withheld from the Ministry of Aircraft Production access to books and documents which were vital to a fair assessment of the Company's overhead expenses, and therefore, vital to a fair assessment of prices for the Company's product. And the third charge is that, in fact, the prices obtained by the Company were excessive. The Committee's Report occupies some pages of closely printed matter, but all that they have to say in fact boils down to these three points. If I dispose of these three points, I dispose of the Report and of the criticisms directed against my Company.
I will now take these charges in their respective order. The first point I wish to make is on the charge that my Company declined to deliver guns until its terms had been met. That charge is utterly untrue. I ask the House to note the inconsistencies shown in this charge against my Company. First, the Auditor-General says the Company "apparently refused to deliver guns unless their terms were accepted. Secondly, the Report of the Public Accounts Committee refers to the "adamant determination" of the Company not to deliver guns until a price had been fixed. Thirdly, the recent White Paper now says that the Ministry got the "impression" only that the Company would not deliver until a price had been fixed.
I can assure the House that I, personally, have never threatened to withhold deliveries in the course of price negotiations; nor in my hearing, nor to my knowledge has any other official of the Company done so. And, further, this alleged threat would have been useless in any case because the guns were not urgently required. There was no aircraft for them, and as late as Midsummer, 1940, the Minister of Aircraft Production at that period said himself that these guns were unproved and of doubtful value, and in fact his own Production Department 1252 called me and said that the production of this gun might be discontinued altogether. But notwithstanding this adverse criticism and absolute lack of any kind of encouragement from the Ministry of Aircraft Production, we continued to produce with unabated enthusiasm and drive so that when the call came—as I well knew it would come—the guns were ready and were delivered. And I wish to state that until a very short time ago every gun and shell of our type used operationally was manufactured by my Company and never once has any aircraft been held up for this very necessary armament. This is a fact of which all of us, workers and management, who have contributed something towards that output are very proud.
Further and far more important, I would ask the House to note that quite apart from any alleged threat, there has never at any time in fact been any withholding of deliveries. I notified the Ministry by letter on 17th April, 1939—that is to say, seven days before the meeting at the Air Ministry of which the Committee takes particular note—that the Company was ready to deliver guns in small batches. In actual fact, deliveries were commenced in the middle of the next month. The delay was due not to any price factors but to a query on the quality of our first gun. This gun did not meet with the approval of the Air Ministry inspection authorities, because we were experiencing unforeseen difficulties in the rifling of the barrels of the guns. This statement of mine is fully substantiated by the records of the Air Ministry Inspection Department. From that date onwards our deliveries have been progressively and substantially increased month by month. In the latter months of 1940 we were actually manufacturing and delivering guns without a price of any kind, either fixed or provisional. I offer this as further evidence of the utmost will and desire to deliver.
In further evidence, I would ask the House to note the remarks of the Permanent Secretary in Question 2557, page 22 of the Blue Book. After saying that the alleged threat not to deliver was not taken very seriously by the Ministry, he goes on—… in any case the firm made it clear that they would go on with production and a firm is not going to produce guns if they cannot sell them.1253 In further confirmation, I refer again to the Permanent Secretary where he says, in Question 2560:I do not think there is any doubt about it that in the production field this company has an outstanding record.We did get on with production. We did work 24 hours a day seven days a week way back from February, 1939. I will now take the supposition that this charge is true. I wish to remind the House that as the Report itself makes plain, the occasion of the alleged refusal to deliver guns was in April, 1939. Now in April, 1939, this country was at peace. And moreover, we had the assurance of the then Prime Minister that he had secured by his visit to Hitler at Munich the certainty of peace in our time. Where then was the rush? How ineffective a threat of non-delivery would be at this time of peace!
It is the habit of this country—so far as it goes—to organise for war in advance on the basis of the widest possible use of private enterprise. I do not agree with this policy. I think that the manufacture of armaments is so vital a thing to the country's life that it should not be left in private hands at all. And it will be remembered that in the very first speech which I had the honour of addressing to this House, I myself proposed that all establishments engaged in the manufacture of indispensable war products should at any rate for the period of the war be nationalised. Not only, therefore, am I not responsible for this way of organising for war, but I dissent from it. If the Government, instead of having their own munition factories ask private firms to produce the war commodities that they require, they cannot reasonably object that any company, including mine, should ask that some sort of price be fixed before it incurs heavy expenditure. So my answer to the first charge is: (1) that it is not true; (2) that, even if it were, there is nothing discreditable in a firm asking for a price of some kind to be fixed for the commodity which the Government is asking of it; and (3) there has not in face been any withholding of deliveries.
The second charge is that over a period of time my Company placed obstacles in the way of the Ministry's accountants and, in particular, that it withheld access to documents and books indispensable to a fair assessment of the Company's 1254 operating costs. There are two answers to this charge. The first is that the charge is not true and the second is that the Ministry at every stage had two complete remedies which it had the power to use. I repeat that the first answer to the charge is that it is not true. Nowhere in evidence is it stated that the Company refused the Ministry sufficient records to enable them to arrive at our operating costs. This is because such information was in fact always made available to them. The material and labour costs were always speedily and amicably agreed with the technical cost officials of the Ministry. Next there is a point which I want the House to bear well in mind throughout this statement of mine. The nominal ledger containing all overheads was always accessible to the visiting accountants of the Ministry and, when I say all overheads, I mean that nothing was omitted.
What is it, then, the Company is alleged to have withheld? It is, according to the evidence, full and complete information as requested by the Ministry. In detail it means that the Company did not produce the monthly salaries book and its trading accounts and balance sheets. As regards the monthly salaries book, I can assure the House that in total all the information audited and signed contained in the salaries book was posted to the nominal ledger to which I have just referred, and was therefore available to the Ministry. The individual figures of salaries were not, as a matter of principle, given to the visiting accountants, many of whom were junior members of the Ministry's staff and frequently changed. But these individual figures were given to the appropriate Department of the Ministry by my Chairman, and our auditors also gave to the independent accountants working for the Ministry these same figures. Therefore from two sources the Ministry had complete records of the details which both the Auditor-General and the Public Accounts Committee have made so much fuss about, and which, in any case, have not increased or decreased our profit by one penny. As regards the production of profit and loss accounts I ask the House to note that the last completed accounts of the Company are for 1939, and that these accounts were not signed until January, 1941. Thus, there did not exist any profit and loss accounts which I could have produced to the Minis- 1255 try officials during the negotiations to which the Committee refers. But at all times, the Ministry had available to them just exactly the same records of cost as the Company had. No different. And the Ministry could have produced therefrom, for itself, any financial statements thought necessary and similar to those produced by the Company.
My second answer to this charge is that at each stage the Government had two remedies available to their hands. The first was the power which the Government possess under the Defence Regulations to issue an Order demanding the production of any records which they regard as essential. If it were the case that we were withholding any records, they could have compelled us to produce them at any stage by the issue of an Order under these Regulations. The second remedy which the Ministry possessed lies in the character and the composition of the board of directors of my Company. In July, 1940, four of the original seven directors of my Company were of foreign nationality. In the same month these foreign directors were replaced, at the instance of the Minister of Aircraft Production, by British subjects chosen by him. From this point in time onwards, therefore, a majority of the directors of my Company consisted of the nominees of the Minister of Aircraft Production himself. The Ministry was, therefore, in effective control of my Company from this point onwards and through its nominated directors could have given whatever instructions it pleased. It is strange, to say the least, that these same Government directors had been with the Company for over two years, and yet the Auditor-General's Report, based on unconfirmed Ministry minutes, was published without any of the same Government-nominated directors having any knowledge that such a Report was likely to be issued. I trust that the House will agree with me that I have now completely disposed of charge number two.
I turn now to the third charge—the charge that my Company has extorted unreasonably high prices for its products. Under our contracts with the Government my firm has operated 19 contracts—seven for guns and 12 for shells. Of these contracts only two were operated on a fixed-price basis. In all the others there was a clause, which has been duly operating, 1256 providing for provisional prices and for a subsequent adjustment of those provisional prices in accordance with actual experience of the operating costs of the Company. Let me put this in another way. My Company has produced for the Government some tens of thousands of guns and many, many millions of shells. Of this enormous quantity, less than 6 per cent. of the guns were subject to fixed prices. That is, the number of guns covered by the first two contracts. And all the fuss and bother, all the innuendo and insinuation, all the censure which this Committee of ours imparts into its comments on my firm, centres on the price paid for less than 6 per cent. of the total guns produced. Had the Company gone slowly and been inefficient, then the small fixed-price contract would have been spread over a much longer period of time. Obviously the cost per gun to the Company would have been greater, and had this been the case, the Company would have received no criticism.
I believe the House will be with me in failing to comprehend minds which criticise a company giving speedier production and tremendous reductions in costs, even though it makes a profit on paper through increased efficiency, and which are returned in any case to the Government in Excess Profits Tax. And let me stress the fact that the manufacturing costs of my company were and are lower by far than those of any other manufacturing units manufacturing the same type of products either at home or abroad. How a company doing all these things and being left without any profit can be criticised is just unintelligible.
I propose to give the House a few figures showing the effects of Excess Profits Tax on my company. A few days ago the Ministry agreed with us fixed prices on contracts for guns and shells for 1940 and 1941. These prices show a profit of £90,000 for the two years, based on the very reasonable percentage of profit of 4½ per cent. for 1940 and 3½ per cent. for 1941. What happens to the two figures of £38,745 and £51,600 that go into making up this £90,000?
First, we shall be allowed 20 per cent. of these two figures at some date not in cash nor for distribution to the shareholders but for some purpose as yet unspecified. Second, from the £38,745 for 1257 1940, £30,745 is immediately returned to the Government in Excess Profits Tax, and of the £51,600 for 1941, £43,600 is returned immediately to the Government in Excess Profits Tax also, leaving us in both of these cases with our legislated standard of profit of £8,000 per annum. Thus, to summarise the situation briefly, on the total sales for the years 1940 and 1941 of £3,425,345, we have an agreed paper profit of £90,000, but after meeting our Excess Profits Tax liabilities we are still left with only the £8,000 standard of profit allowed us by legislation.
Now I would like to deal with this £8,000. First, £4,000—one-half—goes automatically in Income Tax, leaving £4,000. Of the £4,000 left, £3,200 goes in War Risks Insurance. My Company is left therefore with a balance of a few hundred pounds out of which all sorts of capital charges of one kind or another, and which are disallowable for taxation purposes, have to be met. But perhaps I can express this financial transaction a little better by adding one extra and very simple figure. The Minister of Aircraft Production will confirm what I now say when I state that over a period of three years and under contracts which in the aggregate have totalled many millions of pounds, the actual figure of net profit after taxation made by my Company is precisely £309. For three years very hard work—£103 profit per year. This is the measure of the storm which our Public Accounts Committee raise.
§ Mr. Kendall
All this expense, time wasted, and worry to people engaged on war production, have come upon a Company which it is stated in evidence did a magnificent job in starting up with a new weapon urgently needed, has a production record which is unrivalled and makes a profit of £309 in three years with costs which cannot be beaten for the same type of weapon. What an extraordinary position when one looks at the trading results of other armament firms in the last three years of war. One company has a net profit after taxation of £633,175, another £583,237, another £3,254,896, another £545,534, and another £1,984,561, a total of £7,001,403 net profit after taxation for five companies in three 1258 years. These same five companies earned for distribution in three years ended 1935 before re-armament a total of £4,472,017. During the war, notwithstanding heavily increased taxation, they have increased their profits by £2,531,986. My Company has earned after three years of hard work and after taxation a total of £309.
In placing before the House all these facts and figures, I submit that I have answered categorically every charge which this Report brings. I have stuck closely to facts and figures this day, but the House may be sure that I feel no small measure of bitterness and injustice over a Report which I submit I have shown to have no sense, right or reason. I have already mentioned that in the way of contracts my Company has already produced very large quantities of guns and shells. I wish the House to realise what those figures mean in terms of progressive and sustained increases in output. Perhaps I can best express it by saying that in the last three years the output of my Company has increased over its planned production by no less than 5,000 per cent., that is to say 50 times. This surely, is a grand record and a mighty effort at a time when what this country needs for its salvation is neither committees nor reports, but guns and more guns. This figure which I have just given is one of which my Company is proud and for which this House, I am sure, is grateful.
Long before this Committee assembled price adjustments were going on between my Company and the Ministry of Aircraft Production. They would have continued to go with or without the Committee's Report, as the Minister of Aircraft Production will be bound to tell you when he comes to speak in this Debate. Here I wish to put on record my appreciation of the sympathetic consideration and understanding which the present Minister of Aircraft Production and his principal officers are giving us with regard to our many problems.
I wish to make one final observation. When I first read this Report, with its mass of innuendo and insinuation, I expected when I came to the end to find that the Public Accounts Committee recommended at the very least a severe censure upon the, hon. Member for Grantham. That would have been a proper culmination if the charges set forth in this document had been justified.
1259 What, in fact, does the Committee say? It says, in rising to a superb and unprecedented anti-climax:''In the opinion of this Committee the matter calls for an early adjustment between the Company and the Department.I did not of my own desire come to Britain to make guns for His Majesty's Government. Before the war my home was in the United States, but I was posted to Paris to control a much bigger concern than British M.A.R.C. I refer to the firm of Citroen where I was in charge of 35,000 men and women. I came here not at my own request but at the request of the British Government, and I regard it as positively insulting that having put the manufacture of our type of gun on a sound and progressive basis over a period of three years, I should be the subject of such criticism as this Report has caused. Moreover, if I were so terribly misguided, so much an obstructionist, as apparently some people would wish to infer, would I have been chosen as a member of the War Cabinet's Automatic Gun Board? Immediately upon my election to that Board would I have been asked to serve as group leader of the manufacturers of this type of gun in this country and in fact to be responsible to the Gun Board for the production of these guns in England to-day? Would I have been chosen except on ability, since I have no friends in high places and no tremendous social background to call upon? I would like the House to examine why I was chosen. The answer is that I was selected surely not because I was running my Company badly or hindering my country's war effort. I presume I was chosen on merit and high productive ability, which is a record I have had, and which I still have to-day, not only in England, but also in the United States and, for what it is still worth, in France.
I have told the House the truth without fear or favour, without prejudice and without exaggeration, and I submit that I have shown that (1) the guns were delivered without threats as to price, (2) that all documents necessary to costings were shown and made available to the respective Departments concerned, and (3) that except for £103 per year over the last three years we are a non-profit-making Company. I apologise for having taken up so much of the time of the House, but Members in all parts of the 1260 House will appreciate that no man can leave such charges as these unanswered.
§ Lieut.-Colonel Elliot (Glasgow, Kelvingrove)
I am sure that we all sympathise with the hon. Member for Grantham (Mr. Kendall) in the difficult position in which he finds himself, and the difficulty that he has in making a case in this House as a new Member and as one faced with very grave charges; but I feel we shall all agree that the confidence which he has shown and the skill with which he has made his case before this Assembly indicate that he has not been put under any disadvantage thereby. The Report of the Public Accounts Committee is based upon the Report of the Comptroller and Auditor-General. It is not the first time, nor will it be the last, on which firms coming under the criticism of the Comptroller and Auditor-General have felt nettled, and even enraged, by criticism. The Report of the Comptroller and Auditor-General is a Report of an officer of this House which is made to Parliament as a whole and not to any Department. It is true that on several occasions the Report of the Comptroller and Auditor-General has criticised Departments, as it has to do and rightly must do. The Public Accounts Committee has expressed its opinion and has quoted its evidence, and the facts are in black and white before the House. In the development of the case which I shall very briefly put before the House, I should like to make one or two general remarks and then turn to particular points which the hon. Member for Grantham has laid before us.
I would say that audit is and must be a process which involves unpopularity and criticism. Those who are popular auditors are not, I believe, doing their best in the work which they are put there to do. The purpose of audit—it is complained against by many people, but it is vital and essential, especially in war-time—is the protection of the man who is doing his job of work and the assurance to the citizen that the moneys which are being produced by him through taxation are being properly expended. The argument that at the present time audit can be dispensed with or minimised, or that prices can be quoted without close reference to costings, is one which cannot be upheld. At the present time close quoting in contracts is more necessary than ever before, because it is vital to the maintenance of the morale of the Home Front. Wastefulness and ex- 1261 travagance are crimes against morale, and it must not be thought in any way that because the Excess Profits Tax comes to take away, as we all know, a great swathe out of the profit of firms, lax quotation in contracts may be winked at or overlooked. The hon. Member for Grantham knocked the bottom out of that argument in his own speech, when he pointed out that we have to deal not merely with firms who have been established only for a short time and have a low standard year, but with firms which have been established for a long time and have a high standard year. It may well be that to overlook inaccurate costings or quotations for war-like stores in the case of a firm with a low standard year may mean that the quotations are inaccurate in the case of a firm with a high standard year, and those profits would not be recoverable by the subsequent incidence of Excess Profits Tax.
But be that as it may, taxation is no substitute for close costing. A tax is not the method by which you can deal with inaccurate contracting or costs which have been badly or loosely arrived at, and therefore the whole argument that contractors may subsequently have great inroads made into their profits by the Excess Profits Tax is one that will have to be dismissed.
The Public Accounts Committee find, on the report from the Comptroller and Auditor General, that in the case of several Government Departments—the Admiralty, the Ministry of Supply and the Ministry of Aircraft Production—the attempt to secure fixed price contracts at reasonable prices had suffered because of certain failure to obtain full information as regards current costs. Of course the fixed price contract is the best type of contract, but it must be a contract at a price which is fairly fixed, otherwise great sums will undoubtedly pass into the hands of the firms concerned, and it is, I submit, rather a paradox to suggest that a firm which, on provisional prices, was entitled to obtain a sum of £1,700,000—an amount afterwards reduced to £90,000—was a non-profit making firm. It seems to me to prove too much.
The simplest of all ways to avoid making excess profits which are taken away subsequently by taxation is not to charge prices which will result in those enormous figures, and that is the gravamen of the 1262 charge againt this firm. The gravamen of the charge is not at all that the firm was lax or slack in production. The gravamen of the charge against the firm and against the Department is that costs were not accurately determined, at a figure which would not result in the outturn of these enormous sums. I agree with the hon. Member for Grantham that the Department was to blame and the Public Accounts Committee has commented upon the Department, and has said that in its view the Department should have taken action earlier to secure the information which it desired. But that does not entirely exonerate those who quoted the prices.
Let me take the points which have been made one by one by the hon. Member. As he hit hard he will not, I think, mind hard hitting in return. He said that he hoped to dispose of all the points which have been made in the report of the Public Accounts Committee. I suggest that he has entirely failed to do so; and I hope to prove that to the House. In the first place, he said there have been no fresh suggestions of the withholding of guns by the company. He said that if there had been, it would not have been a very reprehensible thing because that was before the war and they were entitled to do so. It may well be that the firm was quite entitled to do so, but I think it is going a little far to suggest that in April, 1939, there was no sense of urgency among those concerned in the collection of warlike stores for this country. We all know that the sense of urgency was very intense and that Departments were under tremendous pressure, not only from this House but from their own knowledge of events. They desired to equip this country with the utmost speed with the warlike stores necessary, in view of the crisis which had already developed and was coming upon us with fearful speed. If the Department concerned had not done so, they would have been subject to the justest criticism from this House. We know that they were working under the very greatest pressure and that a sense of urgency was felt by all those who were immediately concerned in the negotiation of the contracts.
On the point of delay in delivery if the price were not settled, I and a number of hon. Members of this House examined witnesses, including those who had negotiated on behalf of the Ministry, and 1263 came to the conclusion that undoubtedly the Ministry was conscious of pressure while those contracts were being negotiated. There was no doubt of it in our minds, as a result of the examination of witnesses and having people actually before us. It is true that the Permanent Secretary of the Ministry said he considered that it should not be taken seriously, but he was not at the negotiations, and he was not in the room where the discussion took place as were the witnesses whom we had before us.
§ The Minister of Aircraft Production (Colonel Llewellin)
I think he told the Committee that he had made extensive inquiries from the senior people then at the Ministry, whose responsibility it would have been.
§ Lieut.-Colonel Elliot
He did indeed, and the Committee took that into consideration. The Committee preferred to base their Report upon the statements made by the people who were there and whom they had seen, rather than upon the impressions derived subsequently from hearsay, whoever, and however highly placed the person was who laid the hearsay account before the Public Accounts Committee.
§ Captain Cunningham-Reid
Can the right hon. and gallant Gentleman give the specific reasons for coming to those conclusions?
§ Lieut.-Colonel Elliot
The specific reasons for coming to those conclusions were that the officials who were immediately concerned had said and minuted it was their impression that the Company was undoubtedly unwilling to deliver guns until its price had been fixed. We have to weigh impressions here, because there is a conflict of evidence.
§ Mr. David Grenfell (Gower)
Could not the simple fact be ascertained whether those guns had been manufactured and completed, but held up and not handed over?
§ Mr. Benson (Chesterfield)
As a matter of fact, the particular group of guns concerned in this dispute as to delivery were not delivered until the price had been fixed. [HON. MEMBERS: "On whose authority?"] On the authority of the Minister.
§ Mr. Kendall
The hon. Member is not stating the facts. A few guns were ready for delivery, when an inspector stepped in and said that the rifling of the barrels was not satisfactory and turned those guns down. I gave that in evidence before the Public Accounts Committee. I also said it at the meetings of the Ministry, and there was no complaint of nondelivery based on prices.
§ Lieut.-Colonel Elliot
The point is clearly one as to the views taken by a number of hon. Members of this House. I simply say that the Committee unanimously came to the conclusion, which they set down in their Report, that the firm was, apparently, adamant not to deliver. It is on page 12, question 5402 of these notes, which are contemporary, having been taken at the time by the Ministry. They were afterwards examined by the officials concerned. In our Report we say that it became evidentthat although they were proceeding with manufacture, the company were adamant in their determination not to deliver a gun to the Air Ministry until the price had been fixed. Your committee feel no doubt that officers of the Air Ministry in charge of negotiations were, in fact, influenced by the urgent desire to secure immediate delivery.That is based on contemporary records taken while that meeting was going on.
§ Mr. William Brown (Rugby)
I should be much obliged if the right hon. and gallant Gentleman would read the last phrase again. Does it say that the firm were adamant in their refusal to deliver a gun until "a", or until "its", price had been fixed?
§ Lieut.-Colonel Elliot
The Report has been before the House for months. The statement which I have just read out is until "a" price.
§ Lieut.-Colonel Elliot
I think that is a quibble. [HON. MEMBERS: "No."] The fixation of a price requires the consent of two parties, as the hon. Member will agree, and unless the Company consented, 1265 the price could not be fixed. What was in dubiety and in question was whether a price had been fixed or not, and the Company was adamant in its determination not to deliver a gun until a price, which involved its consent, had been fixed. Now we come to the second point.
§ Mr. Kendall
The right hon. and gallant Gentleman will remember the evidence put in by myself, based on the Ministry's own letter. It was that this price was one which the Ministry said they could substantiate and asked us to agree with. It was not our price in any case.
§ Lieut.-Colonel Elliot
The possible withholding of guns at that time was a matter of opinion, since the price was settled, and the guns were delivered. I do not wish to take up too much time on this point, but I say that it was the considered opinion of a Committee of this House, after hearing evidence, that at that time the Company were bringing pressure to bear upon the Ministry before they would agree to the fixing of a price and the delivery of their guns. As the hon. Member has said, that is a point of view which he considered not unreasonable at that time, seeing that, in his view, we were in peace, and that assurances had been given whereby the country would not, at an early date, find itself in war. Leaving that point—and that is not the only point—I come to the other two points made by the hon. Member.
§ Mr. A. Edwards (Middlesbrough, East)
Let us just clear up this point. If I followed the argument, it was that, except for 6 per cent. of the contract, there was a provisional price. Do the Committee agree that the price was subject to revision?
§ Lieut.-Colonel Elliot
No, Sir. The hon. Member for Grantham did not say that. He said his figures related to the total delivery of guns by his Company from the beginning of the war till now and that only 6 per cent. had been subject to a fixed price. He said 6 per cent. of the guns, and not of the contract. Next we come to the out-turn on the basis of the prices asked and paid to the Company.
§ Mr. Kendall
My first statement to the House was that this was untrue, and I still say that it is untrue that there was withholding of guns without a price being fixed.
§ Lieut.-Colonel Elliot
That was not the point which the hon. Member was just making. He was making the point that the fixed contract related to those guns to which this refers, a fixed contract or a contract of which only 6 per cent. was fixed. This was a fixed-contract price, and with that I think he will agree.
Mr. Munn (Newcastle-upon-Tyne, West)
My right hon. and gallant Friend says that the firm of the hon. Member for Grantham threatened to withhold delivery. He bases that apparently on records of impressions given to the inquiry. Is there any record of the Company having refused to deliver guns?
§ Lieut.-Colonel Elliot
Obviously the Company did not write letters saying that it would withhold delivery. There are numerous references in the evidence to the effect that the Company said that if certain things were not done, deliveries would be held up or production would be interfered with. The Ministry always climbed down because of the urgent need for the delivery of these warlike stores, so the contingency did not artise.
§ Mr. Kendall
There was a specific instance where we told the Ministry we should have to curtail production because they would not give us any money with which to pay our wages.
§ Lieut.-Colonel Elliot
The statement made by the hon. Member for Grantham as to the statement made by the Company is on record, that if more money was net given to the Company production would be held up. That can be dealt with in many ways. It is not necessary to overpay a company on a contract to get delivery of a warlike store. Coming to the next point, the costing of the guns, that is really the important part of the whole discussion, and the kernel of that is that in the evidence in this Report, on page 359, Appendix No. 2—I beg the hon. and gallant Member for Marylebone (Captain Cunningham-Reid) to give me his attention on this point, because this is not an impression but a recorded fact—the House will find for the first time a statement signed both by the hon. Member for Grantham and the Director of Contracts of the Ministry of Aircraft Production, and that is a costing for these guns. That shows that in 1940 it was agreed on both sides that the cost of the gun was, on the Ministry's costing, £124. Certain items 1267 were brought in, which the company desired to be brought in, bringing the figure to £129. During that year, 1940, the Department and the Company were in constant communication as to the price which should be paid for those guns, and the price which the Company was putting upon those guns at that time. In September, 1940, the Company suggested that a provisional price be fixed of £300 per gun, when the costing price turned out to be, on their own showing, £129. In October the Ministry agreed to pay a provisional price of £270 per gun. On 20th February the Company wrote that they considered it reasonable, and the Ministry replied on 24th February, 1941:The Department notes that you believe that the price of £280 represents a satisfactory reduction on the guns' price in a previous contract. On the information before it the Department is unable to accept this price as being reasonable.The Department, by subsequent negotiations, brought the figure down to as low as £168 a gun. During all that time the Company was standing out for the position that the gun in fact cost a great deal more to manufacture, and when £168 was suggested the Company sent back word that this was ridiculous, though the costing was afterwards brought out at £129 on the Company's own agreement. I suggest that shows a discrepancy which was totally unjustifiable.
Note should be taken of the date of this agreement as to costing—16th June, 1942, and the way in which this costing came about should also be taken notice of by the House. It was because of a direction issued by the Ministry to the Company to produce, not all the papers which the Company thought the Ministry ought to have, but all the papers which the Minister thought the Ministry ought to have, and there is a great deal of difference between those two points of view. It is not enough to say, "I have given you all the papers I think reasonable; I have given you papers out of which you should be able to draw your own conclusions." The important point is that the Company should deliver to the Ministry all the papers which the Ministry desire. Let me also point out to the House how that came about. It came about because of this direction issued by the Ministry on 24th March, 1942. Why was that direction issued? Because, during the earlier 1268 correspondence, the Ministry had written to the Company saying:—Possibly you do not realise that what we are asking from your company in the way of access to accounting and financial documents and records is exactly what we have obtained from other contractors where it is necessary to acquire such information. Also the investigation which our accountants have to make relate to supplies under a number of maximum price contracts where it is necessary to acquire such information; also that the investigations our accountants have to make relate to supplies under a number of maximum price contracts from the Ministry of Supply as well as to our supplies and we are bound to meet the requirements of that Ministry. Without the documents, so far withheld by your Company, our accountants cannot do their work properly.That is not an opinion expressed to the Committee or by the Committee but the statement of the Ministry which would have to account to the House later on that—without the document so far withheld by your Company our accountants cannot do their work properly.The final paragraph is:The representations in your letter are not relevant to the questions at issue. Consequently I must ask you to reconsider this again and let me have a reply at your earliest convenience.The hon. Member for Grantham said he would dispose of that point because all the documents had been made available to the Ministry, that they were always at its disposal whenever it wanted them. What was the Company's answer to this letter asking them for the document so far withheld? Was it in fact to say, "These documents are in your possession or will be made available to you or they could have been obtained by you at any time you wish"? No, the answer of the Company was:I have considered carefully your letter of the 16th instant with reference to access to our records, and, in view of what I feel to be a serious matter of principle involved, I propose to refer the subject to our next meeting of directors which would normally be held on the first Monday in February.If the document had in fact been in the possession of the Ministry for all those months, or if the Ministry could have had access to them at any time, surely the obvious answer was, "You have got them," not, "This is such a serious matter that we must have a meeting of our directors to consider it."
§ Mr. Kendall
It agrees with the facts that I have presented to the House that in fact the normal ledger which gives all 1269 costs was always at the disposal of the Ministry. The Board of Directors were Government nominees. I had to put before them the suggestion by the Ministry, and the Board agreed to ask that a direction should be issued to us. In any case, we asked for that direction. We do not mind the facts being stated.
§ Lieut.-Colonel Elliot
I can do no more than read the actual correspondence with, not the Public Accounts Committee or the Comptroller and Auditor-General, but the Department which will have to account to this House and to the country. We have often seen accountants and offered them papers, and found that they have asked for considerably more papers in order to be able to complete their investigations.
§ Sir Henry Morris-Jones (Denbigh)
Is there any reason why my right hon. and gallant Friend should confine his remarks to the third Bench below the Gangway?
§ Lieut.-Colonel Elliot
I apologise to my hon. Friend if I have not made myself audible to him. In a Chamber of this shape, it is necessary from time to time to make sure that one's remarks can be heard in a certain quarter. So far as I could understand, there was a certain amount of anxiety that my observations should be heard below the Gangway. I hope I have not been discourteous to Members in any section of the House. We are dealing here with the crux of the matter, which is that when the Ministry ask for papers without which its examination could not be carried out, the answer of the company was to call a directors' meeting. Why did it call a directors' meeting? Because it said that it wished for a direction. Why did it wish for a direction? It wished for this direction to protect the interests of the foreign shareholders, because, it said, "We are not merely nominees of the British Government but directors of a company, and we have a double capacity, and must be sure that these things are being done." It asks for a directors' meeting, without which, it said, it could not produce the papers. What becomes of this story that the papers had previously been produced? It is clear, on their own showing, that they were not producing all those papers beforehand. That weighed greatly with the Committee in its decision.
The first point is as to whether the Department was influenced or not in the 1270 course of the negotiations by the fear that if it did not come to a settlement the delivery of these vital warlike stores would be withheld and the second is as to the costings of those guns. The figures showed that in 1940 the price asked for every gun was around £280, and that the Company came to a very reluctant consent on the price of £168 after saying that it was quite ridiculous. The production of papers was not done until the direction was given by the Ministry, which direction was asked for by the Company on the ground that without that direction they would not be justified in producing those papers. [Interruption.] It was not the business of the Public Accounts Committee to ask for papers which the Ministry needed; it was for the Ministry to determine what papers it needed in order to carry out its job. The Ministry did not get those papers until it had given the direction asked for by the Company. These were the main points of the hon. Member for Grantham. He also made the point of whether the location of the factory should or should not be given. That question, of course, was laid before the security Ministries and considered by them, and they said that in their opinion the name of the factory, and thus the location of the factory, could not possibly be withheld.
As for the other points, I think they are dealt with by the White Paper. It is true that the hon. Member for Grantham, not consent with tackling the Comptroller and Auditor-General and the Public Accounts Committee, cast some very severe aspersions upon the White Paper, also. Naturally, I will leave that to the Government spokesman to defend, as it is the Government's White Paper. In general, on paragraph 122 of the Comptroller and Auditor-General's Report, the Public Accounts Committee felt it imperative upon them to take the points there made into consideration. The problem of taking the profit out of war is vital to the proper maintenance of the home front, and cannot be properly executed unless cases such as this are properly investigated and brought under public discussion. I think the Public Accounts Committee is justified in its investigation by the White Paper and the great sums which have been refunded to the Department, not to the Exchequer, so that it has passed cut of the power of the company to make any claims in respect of it.
§ Mr. W. Brown
The inference from what the right hon. and gallant Gentleman has just said is that large sums of money have been poured back from the Ministry of Aircraft Production as the consequence of the action of the Public Accounts Committee. If that is true that is one thing, but if it is not true it is another. [Laughter.] That observation may appear a little trite, but I must recognise that it is the House of Commons I am talking to. Is it not the case that before the Public Accounts Committee began work on this matter, before it reported, negotiations were going on between the Department and the firm on the variable price, and that if the Committee had never sat at all those sums would still have gone back to the Department?
§ Lieut.-Colonel Elliot
I am perfectly content to stand on the White Paper, the headings of the White Paper, and the findings of the White Paper. The cover of the White Paper bears on it the heading:Action taken on Contract Cases referred to in the First Report from the Committee of Public Accounts.The summary of the Committee's findings says that it considers that an early adjustment should be made. The action taken by the Department was that the sum of £90,000 was paid, compared with a total of nearly £1,700,000 had the price originally arranged been made final. Most of these prices—I want to be quite fair—were provisional and subject to adjustment in any event.
§ Lieut.-Colonel Elliot
Yes, the hon. Member will not deny that the negotiations, as I have shown, have been going on for years. Certainly it is within the knowledge of all Members here that, when the whole of Parliamentary interest and scrutiny turns upon a case such as this, it is essential to examine the case fairly, to back up the public service where that has to be done, if the Departments are to be sure that if they stand out in various cases the House of Commons will do its best for them. The public service is in the greatest difficulty in war-time, when, as I have said, the possibility of delay of warlike stores is a thing that no Department can stand up to. The only support in such cases is public opinion. Public opinion is brought to bear upon the case 1272 in point, and public action is taken in such a case. If you say that action would have been taken if the Public Accounts Committee had not sat, that is a matter of opinion. The Public Accounts Committee has sat and reported upon it, and certain action has been taken. I am content to leave it there, before the House of Commons, and I have little doubt the House of Commons will approve the action which was taken.
§ Mr. Simmonds (Birmingham, Duddeston)
I think the House will agree with me, having listened to the right hon. and gallant Member for Kelvingrove (Lieut.-Colonel Elliot), that were we to have complete calm in which to carry out all our transactions these days with adequate staffs of an experienced and professional nature, many of the problems that have happened in this matter need never have arisen at all. I think the House will also agree with me that it would be fair to all concerned, both to the Department and to the Company, to bear in mind that many of these matters were under discussion at a time when this Island, as the Prime Minister has told us, stood daily in the gravest peril. In my constituency I have the honour to have many hundreds of factories, and I know from what has been told me from time to time of the pressure—and, very likely, proper pressure—brought by the Supply Departments upon armament manufacturers to get out the material and leave out all incidental points of finance to be considered at a later period. If we wish to be fair to all concerned when we look back on these matters three years, two years or one year afterwards, we should recollect the circumstances of peril in which this country stood when many of these transactions were under discussion and review. That is not to say that I would condone for a moment many aspects of these transactions which are brought to light by my right hon. and gallant Friend's Committee.
But I would ask the House for permission to leave the detailed issues and to proceed as my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) did at the end of his speech, to consider some of the problems which are left outstanding from these discussions. I believe that any hon. Member who, in helping his constituents or otherwise, has come up against these problems of Wartime profits will agree that we are in fact trying to work an almost unworkable 1273 system. I refer particularly to the incidence of Excess Profits Tax. I have discussed this matter with hon. Members, and I sometimes feel that if they have not been involved in discussions with their constituents they do not fully see the force of the present system. I will take two companies, each having contracts from the same Ministry for £100,000 for a given product. Assume that the Ministry, as it may well have done in its wisdom, allows a profit of 5 per cent. on the turnover, so that each of these companies would show a nominal profit of £5,000. If the pre-War standard of company "A" was £1,000 and the pre-War standard of company "B" was £10,000, hon. Members will see that these two companies, rendering possibly equal service to the State, are put into entirely different positions.
It is at that point that any right hon. or hon. Gentleman will see clearly that owing to this wide disparity we must have costing. My right hon. Friend the Member for East Edinburgh hit on one of the kernels of this problem when he said that there were not sufficient professional and experienced men now available to do the costing which was necessary in the public interest. Hon. Members will recollect that on several occasions there have been not only questions in the House but letters in "The Times" in which the Chartered Accountants' organisations and other associations have pointed out the grave dearth of skilled personnel to carry on this particular work. We therefore come to the point that, although we have these two companies on a standard of £1,000 and £10,000 respectively, with £5,000 profit on the particular contract, we have up and down the country to try and cost every contract that goes out. We cannot do it. The Chancellor of the Exchequer needs to give some direction and help to the Supply Departments. It may be argued that the company that has the £1,000 standard should be costed more urgently because unless that is done there will be no initiative to economise. On the other hand, it may be argued that the company which will retain the £5,000 because its standard is one of £10,000 should be costed because it ought to show whether some smaller profit might not in fact be tolerable and fair. Although in some Debates the financial issue is cast aside as being secondary, in others the Chancellor of the Exchequer clearly warns the House that the financial issue 1274 is in some respects a perilous one. I say, therefore, that on balance, for the moment, as a first step, Departments ought to investigate all contracts where the major amounts of money would remain with the contractors and would not pass back into the Exchequer in some way or other. I felt that my right hon. and gallant Friend the Member for Kelvingrove was not quite sound on the grounds of public financial policy in suggesting that if the money was to be returned via E.P.T., that did not go a considerable way, if you cannot cost all contracts, to meet the situation, rather than insisting that all these contracts must be costed and that anybody who pays excess profits is guilty of dereliction of duty. That certainly cannot be argued.
I would like to ask my right hon. Friend the Chancellor of the Exchequer, when he replies, to tell us whether he has given any guidance to the Supply Departments as to the selection of companies which should be costed as a matter of urgency. The State, I think, should endeavour to limit all profits on contracts where those profits will rest with the contractor if they are excessive before it starts, as it did in the case of the company of the hon. Member for Grantham (Mr. Kendall), worrying too much about companies with a low profit standard where the moneys will revert to the Treasury in any event. This dearth of costing staff is becoming serious from the national standpoint in another way. I think I am right in saying that when Departmental discussions were proceeding with the Ministry of Labour as to what classes should be deferred, one of the principal reasons why accountants and auditors were deferred was that they were revenue getters for the Chancellor of the Exchequer. But, in fact, they are largely being prevented from being revenue getters because we are turning them into cost investigators. Members who are associated with large industrial organisations will know that some of the accounts for past years still remain open for what would normally be regarded as disgracefully long periods after the end of the accountancy period in question because there is no. accounting and audit staff to carry through this work.
What is the effect of that? It is that the Collector of Taxes cannot claim payment of taxes on any sound basis, and the Chancellor of the Exchequer is, therefore, 1275 through his tax gatherers in the country, appealing to large organisations for a little more on account without any justifiable basis for such requests. I see that the Chancellor agrees with me—
§ The Chancellor of the Exchequer (Sir Kingsley Wood)
Not at all.
§ Mr. Simmonds
I beg my right hon. Friend's pardon. I thought he nodded his head in assent, and I will certainly withdraw that observation. But whether he nodded or not, I am quite certain that he has been given this information from time to time by his staff, because it is clear and it is widespread. I feel that one needs to draw the attention of the House to this fact, namely, that the accounts of large organisations are getting more and more behind and that according to present probabilities in the 12 months to come there will be a further lag. That is a very serious factor in the management of any organisation and particularly bad in industrial organisations when its products are so urgently required. I would like to ask the Chancellor if he will frankly take the House into his confidence in this matter and tell us where we are drifting in having transferred so many of our accountants and auditors to costing work. It is extremely difficult, unless one has read the whole of the published evidence, for any Member to decide all points of issue in this respect, and I feel that the time has come when we want to be very clear about what is primarily in the public interest.
I maintain—and I hope the Chancellor agrees—that it is the duty of Departments to see that excessive profits do return to the Exchequer and not merely to go through the rigmarole of costing, which draws off a great number of productive engineers from their work to discuss these problems with the cost acountants of the Departments. I believe that is turning the war into a paper battle, and I think we must review how far we can spare man-power for many of these investigations. Somebody well conversant with these matters has estimated that over 50,000 men and women are engaged in the cost accounting of the Departments or serving cost investigators as they visit industry. In these days, when every walk of life is being combed for man-power—and many of these men and women have 1276 brilliant minds—I think this whole subject needs careful scrutiny to see whether, while maintaining public morale and a sense of justice, we cannot find it possible to cut our coats in these respects a little more according to the cloth that is available.
§ Mr. Douglas (Battersea, North)
I am glad that the hon. Member for Duddeston (Mr. Simmonds) has referred to the topics he has dealt with, because it was part of the purpose of the Report of the Public Accounts Committee to deal not merely with the case we have been discussing so particularly to-day but also, in continuation of its previous Reports, to point out the general principles which should be followed by public Departments in placing contracts and in fixing the prices which should be paid in respect of those contracts. The right hon. and gallant gentleman the Member for Kelvingrove (Lieut.-Colonel Elliot), who is chairman of the Public Accounts Committee, has referred to the aspect of public morale which is involved when the impression becomes prevalent that excessive prices are being allowed to contractors in respect of Government supplies, and there are many other important factors not only of public morale but also of economic policy involved.
If contractors are allowed to charge prices which are higher than a fair cost of production and a reasonable profit, they are encouraged to look less carefully at their costings and to allow the costs to become inflated, and then you will very soon be faced with a steadily rising standard of costs due to lack of attention on the part of managements of companies, who will feel that no matter what the costs are, they will be able to get the price from the Government. Certainly, that is a principle which might lead to the most dangerous consequences, and it is something which will not be corrected by the incidence of Excess Profits Tax or any other form of taxation, because there is not available, even if the Treasury had the power, the staff and the skill necessary to investigate in detail the costs of manufacturers in order to find whether or not those costs are reasonable. The investigation which is made by the Inspector of Taxes is of necessity a very different kind of investigation from that which is made by the skilled cost accountants of the various Supply Departments, 1277 and it is upon that investigation that we must rely primarily in order to ensure that the prices which are charged to the Government during war-time are on a fair and reasonable basis.
The principle of competitive tenders has to a very large extent gone by the board, for the simple reason that the State requires the whole of the productive capacity which is available, and therefore, if every producer is to be required to produce the principle of competition automatically disappears, and prices have to be fixed in relation not to a general standard but in many cases in relation to the conditions of each individual supplier. They have to be fixed, in the case of a supplier whose costs of production are greatest, on the basis that he must be kept in existence, and if that basis were used in the case of other suppliers whose circumstances of production were more easy and whose costs were lower, it would automatically lead to an excessive price and an excessive profit being gained. That is the reason costing is absolutely imperative in existing conditions. It may be true, as has been said, that it involves the services of a very large number of people in order to carry it out, but if those services cease to be available, it will be impossible for Departments properly to control these transactions and certainly it will not be possible for the Chancellor of the Exchequer, through the machinery of the Inland Revenue, to control the profits, even if the Income Tax and the Excess Profits Tax are altered so as to attempt to skim off more of the profit than at the present time.
It should be remembered that this Report, after all, deals with only half a dozen cases. It would be misleading for anybody to draw the conclusion that these cases are typical ones, and that they represent the conditions in which the public is being served at the present time. On the contrary, the very remarkable fact is that out of hundreds of thousands of contracts which are being placed by the Government for stores and munitions of war of all kinds, there are only half a dozen cases which have called for the kind of comment which has been made in the Report. I think this shows that, on the whole, the Departments have been carrying out the duties entrusted to them in a conscientious and an efficient manner, and it shows also that the way in which these matters have been handled by 1278 the firms which have been required to supply the needs of the nation has, on the whole, been upright and honourable.
There has been a discussion in which the conclusions of the Public Accounts Committee with regard to one particular case have been challenged. That Committee sat for 21 days considering the matters which are dealt with in the Report. The utmost latitude was given to the Company. Its witnesses were allowed to say whatever they pleased and to come as often as they pleased; they were supplied with the shorthand notes of the proceedings and with copies of every document laid before the Committee. I think every Member of the Committee will agree with me that the Company was given the most ample opportunity to place its case before us. But the Committee, nevertheless, came unanimously to the conclusion which is now placed before the House. There was only one occasion on which a Member went to the length of asking for a vote to be taken upon a proposed Amendment to the Report, and in that case—I do not say whether it was material or not—the voting was 10 to one. Therefore, I say that the Report of the Committee represents a considered and unanimous view, and indeed, it has erred upon the side of moderation. It has been framed in restrained language.
With regard to the particular case with which we are now concerned, the Committee could have gone further. They could have drawn attention to what is now revealed in the published Minutes of Evidence and the Appendices to them—that this company persistently and deliberately endeavoured to obtain from the Ministry of Aircraft Production or from the Air Ministry prices which were far above the real costs of production as those were ultimately ascertained and agreed by both parties. And those costs must surely have been known to the Company, within some relatively small margin of error, throughout the major part of the period covered by these transactions. The Committee might also have drawn attention to the fact that the chairman of the Company put before the Ministry of Aircraft Production proposals for payments of other amounts besides the prices of the guns or ammunition that were being supplied to the Government, demands for the payment of a large sum in respect of licences, for a very large fee 1279 for the construction of shadow factories, and for a payment to be substituted—
§ Mr. Kendall
It is a mis-statement to say that we asked for a very large construction fee. I know of no time when I myself, as managing director, asked on behalf of the Company for any large management fee or construction fee. We have only just recently accepted the proposal of the Ministry of Aircraft Production to pay us a small fee for managing their factories for them. Never at any time has it been in the mind of the Company or in my own mind to ask for any fee of any description from anybody to run their factories, which I claim we have done most efficiently.
§ Mr. Douglas
The figures are available to anyone who chooses to read this Report. The sum that was claimed in respect of royalties, and production at other factories, amounted to £234,000, the sum that was claimed as a construction fee in respect of the managed factories was £30,000, and, in addition to that, the company claimed that the mode of payment for the guns should be altered so that part of it should be turned into a capital claim, which obviously would not be liable to Income Tax or to Excess Profits Tax, and the amount which they suggested should be paid to them under that head was £140,000. That is a total of £404,000 which was claimed in respect of those matters, as well as a fee of £50,000 a year in respect of the management of the two adjoining shadow factories. Those are the claims of the Company and not the allegations of anyone else. In view of those facts and of the contrast between the prices asked and the prices ultimately ascertained, I say that the Public Accounts Committee dealt with the matter in reasonable-and moderate language which did nothing to exaggerate the case.
§ Mr. A. Edwards (Middlesbrough, East)
I know very little about this matter except what I have heard to-day. Until to-day I had never spoken to the hon. Member who is being discussed. I hope the Minister will give us some enlightenment on this. If, as he has told us, four of the directors were nominees of the Government Department, all the criticism against the Company appears to be against the nominees, because one man 1280 could not overrule four other people. Then we have the appointment of the chairman, a very eminent business man, trusted entirely by the Government. How is it that this was not brought out by him at a much earlier date? The attack seems to be on a single individual who is a Member of the House. Someone ought to tell us why it is not on the directors who are Government nominees. As far as I can judge from what has been said, it is the Government Department that is mainly to blame. No one will defend immense profits, but I have heard nothing to contradict what the hon. Member has told us, that in any case this enormous sum of money must have reverted to the Government and that at no time did he have any absolute control. I can say from first-hand experience of the War Expenditure Committee that there is an immense number of people engaged on costings. If a manufacturer succeeds in diddling all those people, it mainly comes back through Excess Profits Tax. Is there anyone with any knowledge of manufacturing who will say they could not have gone into the factory at any time and looked at the job and told him what he should have been receiving? He has told us, moreover, that the essential documents were always available. I do not think the right hon. and gallant Gentleman did justice to that point. I think he tried to slide over it. If the essential documents were always available to those investigating, it is not vitally important that this or that specific document was refused.
§ Lieut.-Colonel Elliot
The essential documents are those considered essential by the auditors. Anything beyond that is a matter for discussion.
§ Mr. Edwards
I agree, but that does not dispose of the point. [Interruption.] We are not talking about the last penny We are talking about an accummulation of £1,000,000. It is not a question of a few pounds more or less. That is always subject to revision. Someone could have fixed a target price—an agreed price. The right hon. and gallant Gentleman did not do justice to the point. Looking at the matter dispassionately, it was a point that any manufacturer under our present system had a right to make. Why should they put themselves to all this trouble and all this expense, organising production on a very large scale, without knowing whether 1281 they were going to pay their way? In the result they hardly did that. I do not think the position is quite as serious as has been made out. I have it on good authority that the Ministry of Supply has great difficulties about this costing business; I wonder if it would be an exaggeration to say that they are 60,000 cases behind in their costings. There are 60,000 cases in which they cannot fix the price. It shows how difficult it is to catch up with these things. I accept the statement that this is not a typical case, but I challenge anyone to say that there are not many more cases on the same basis, though there may not be such a large amount involved. If the right hon. and gallant Gentleman wants to pursue the job that he has started, I could put him on a better scent. I have disclosed to the Investigation Committee a case of bribery and corruption. They did not have the courage to face that. I wish we could set about some of those cases. It is not a new thing, as the Paymaster-General can confirm, for people to refuse to give their costs. It started very early in the war. Before the war the machine-tool manufacturers got into trouble through refusing to disclose their costs.
Why did not the Minister who issued this belated order issue it at once, instead of having all this nonsense? They had the power to control the hon. Member's establishment. They could put in a controller at any time they liked. Why did they not do it? Why did they go on month after month and year after year, and then make a fuss like this? If anybody is really to blame it is primarily the Department, which ought to have taken action earlier. It is unfair to let it develop as it has done and to make a scape-goat of one particular firm. We have had a lot of these investigations into costs. The Admiralty were placing contracts involving millions of pounds, but there was not a man who could tell the Admiralty that they were getting value for their money, except a man called a recorder who was then paid £4 10s. a week. We could tighten up a good deal in our costings with fewer people. What is wrong with an auditor of a company giving a certificate that a price is right? What is the difference between the auditor of my company giving the Government a certificate as to costs and then taking him away from me and putting him in a Government Department where he does 1282 the same thing? Very often the costing is done by incompetent people. The Government could have said to the Company, "You say this is the price you want; give us your auditor's certificate." It would have stopped all this trouble.
Why did not the Department give a tip to the War Expenditure Committee? That Committee could have dealt with the case with full authority to call witnesses and to get costs. It could have got the documents which we are told the Company refused to disclose and could have settled this matter within a very short time. Moreover, could not somebody have told by accumulation of funds that there was something wrong without having all this publicity about it? An intelligent person could have ascertained the costs without any trouble. I believe that this trouble and fuss could have been entirely avoided. It is unfortunate that it has been allowed to come to the House and to get all this publicity when the people in the Department were responsible. The right hon. and gallant Gentleman, in arguing against this Company that they put in a high price knowing they could manufacture cheaper, was not arguing against a particular company; he was arguing against a system which he supports. He cannot say that it is unusual for somebody to put in a price knowing full well that he can manufacture for half that price. Let me say something about a company with which I am connected. We were doing a comparatively small turnover in 1939. We imported some machine tools from America and had to ask a certain price for our goods. There had to be some costings and I went into it carefully. I found that we could reduce the price by 10 per cent. and no more. The turnover has gone up in the last few years and we can sell to-day at one-third the price. If the turnover goes up an enormous amount you cannot compare the costs of 1939 with those of 1942, and it is unfair to do it. Although it is right that these things should be investigated there are much more important cases that should be investigated. I hope that the Minister will accept my offer to put him on a much better scent than this one. If he really wants a job of this kind in order to keep the war clean so far as profiteering is concerned, I will collaborate with him and promise him that I will put him on 1283 a much more valuable scent than the one he has been pursuing.
§ The Minister of Aircraft Production (Colonel Llewellin)
One of the remarks that fell from the lips of my hon. Friend the Member for East Middlesbrough (Mr. A. Edwards) was that the Department and the Government directors of the Company are largely responsible for this matter. With any condemnation that has been made of the Department I will deal in due course, but I should like to make clear from the start how the four gentlemen mentioned became directors of this Company. There were two French gentlemen and two Swiss, who were either in Switzerland, from which country they could not get here, or in occupied France just after we had evacuated France and it had collapsed. It seemed right to Lord Beaverbrook who was then Minister of Aircraft Production—and I was in the Ministry with him at the time—that these four gentlemen, who were a majority of the board, should be replaced by four people resident in this country, who were British nationals. I should like to take this opportunity of thanking those four gentlemen for undertaking this task. None of them, as would be expected, got a large salary for doing so. They did it at the request of the then Minister of Aircraft Production, and I think that the country as well as the Ministry should thank them for taking on that work. Another thing which I very much appreciate about this Company is its extremely good record of production. In particular, the House should be grateful to the hon. Member for Grantham (Mr. Kendall) for that. He has been the mainstay of the production of that factory. He started it here, he manages two other shadow factories for us, and, as he told us, he serves on the Automatic Gun Board, for which also we thank him. He serves there because he is a good producer and a man who, talking about the production of guns, knows what he is talking about. I would like to thank him for what he has done.
§ Mr. A. Edwards
Is it clear that the other directors were equally responsible with the hon. Member for Grantham (Mr. Kendall)? It seems to have been suggested otherwise.
§ Colonel Llewellin
It is the board of the Company as a whole which is responsible 1284 for anything that might have gone amiss in the actions of the Company. Let me, however, make one other point about the four directors. Their positions are not quite the same as those of directors elected in the ordinary way at annual meetings. There was called a special meeting of the Company at which they were elected, but the difference between that meeting and a number of other company meetings is that 92 per cent. of the shareholders were not represented at the meeting at which the directors were elected. They were, therefore, elected by only 8 per cent. of the shareholders. That, I think, bears out a point that was made by my right hon. and gallant Friend the Member for Kelvingrove (Lieut.-Colonel Elliot) when he said that they had to think of the shareholders' interests, but what they were thinking of was much more the position in which they might be placed, having got control when 92 per cent. of the shareholding had never taken any part in electing them, indeed, had no opportunity of doing so because they could not get to the meeting.
Perhaps I may now deal with the speech made by the hon. Member for Grantham. He said that a lot had been said about the figure of £1,700,000 mentioned in the White Paper. It is true that many newspapers have quoted it as though it were a figure of profits that were going to be automatic, but if one reads on one finds that it is qualified by the words:Compares with a total of nearly £1,700,000 had the prices originally arranged remained final.There was no idea that those original prices were to go on during the whole of these three, four or five contracts for guns. Nobody suggested that they were going on the whole time.
§ Sir George Schuster (Walsall)
Will the right hon. and gallant Gentleman answer a question which has been puzzling me? What is the precise meaning of the words "the prices originally fixed"? My right hon. and gallant Friend the Member for Kelvingrove (Lieut.-Colonel Elliot) talked about the prices provisionally fixed. I want to know whether it means that the prices which were provisionally fixed on each contract as contracts succeeded one another, or refers to prices fixed for the original contract at the beginning of the whole period of production? Is it a com- 1285 parison between provisional prices as fixed over the three years or does it go back to the beginning?
§ Colonel Llewellin
I think it refers both to the provisional price contracts and to the prices that were the original prices on the first two contracts. Those were the two fixed contracts which there was no obligation in law—I say purposely "in law"—on the company to re-open and to go on with the provisional prices. Let me come now to the next point. It is not really one for me to defend, but I would like to say a word about it. The hon. Member for Grantham said he thought it rather thoughtless that the Public Accounts Committee should have given such publicity to a firm engaged in this production. All I can say, as it has had the publicity, is that one of the things to the credit of the hon. Member and of his employees, apart from their good production, is that they have the record of being the only factory in this country which has brought down an enemy plane with guns made and manned in their own works. It is just as well that everybody should know that they have got those guns there, and I have not the slightest doubt that they are determined to take the same toll again of any enemy who may attack them.
The nest point the hon. Member made was that the Department did not make any careful check on the draft report from the Comptroller and. Auditor-General. It has been explained that the Comptroller and Auditor-General is an officer of this House. It is not for a Department to check his comments. The only reason why his report is submitted to the Department, to be looked at before issue, is to ask whether he has got his facts right, and so the only thing open to the Department is a comment on the facts and not to comment on the Auditor-General's comments. The next point which the hon. Member made with which I think I should deal is that at one time the guns were not urgently required. In fact, he said that Lord Beaverbrook himself was wondering whether he ought not to close that production and go on to something else. I may say, because I was with him, that Lord Beaverbrook and I happen to be two people who always believed in this gun and believed that it would work. At that early time of the Battle of Britain we were using the ordinary 1286 machine gun in large numbers in fighters. There was, and it is quite obvious there was likely to be, a good deal of opinion one way or the other as to whether a mass of machine guns or a fewer number of the 20 mm. guns constituted the best armament for our fighting planes, but Lord Beaverbrook himself was most anxious to go on with this production. I remember several interviews which he had with different people about it, and eventually the Commander-in-Chief Fighter Command and the Air Ministry came round to the point of view that we wanted the cannon gun, either instead of or at any rate in addition to the machine gun.
The next point is a material one, on which I shall certainly disagree with the hon. Member. He said that it was not true that over a period of time the company withheld books that were indispensable to the inquiry. My right hon. and gallant Friend the Member for Kelvin-grove referred to the letter from the Permanent Secretary of my Ministry on 16th January, which said:According to the best professional advice available to me I am informed that no investigation is complete which stops short of tying up detailed figures of income and expenditure with those appearing in the final accounts.It was the books that would enable that tying-up to be done of which the Ministry had not at that time been able to get disclosure. This reply came from the hon. Member:I have considered carefully your letter with reference to access to our records, and in view of what I feel to be the serious matter of principle involved I propose to refer the subject to our next meeting of directors.The next meeting of directors considered the point, and thus it is only fair to refer to the next letter from the hon. Member on 18th March, 1942:The question of disclosure of accounts was referred to our Board at a recent meeting. After the discussion I was requested to inform you that as the Board as reconstituted in 1940 represents a number of absent shareholders it should, for its protection, ask for a direction to be given to the company for the production of accounts and balance-sheets.On 24th March we issued the necessary directions, which I sanctioned at that time.
§ Mr. Austin Hopkinson (Mossley)
Was that subsequent to the submission of the Report of the Comptroller and Auditor-General?
§ Colonel Llewellin
No, I think it was not. I have not the position quite clearly in my mind, but to be quite frank and honest with the House, when I went back to the Ministry I heard that this matter was being investigated by the Comptroller and Auditor-General and I did determine that we ought to get on to the matter pretty, quickly and the direction was issued not very long after that. Whether it was actually published before, I do not know, but I knew it was coming. Of course, the Ministry knew as well. We had not got the books that the auditor thought were fully necessary. Really, the charge which I have to face on behalf of the Ministry at this Box to-day is why we did not act sooner and use our powers. In their Report, the Public Accounts Committee say:Your Committee appreciate that the Ministry were anxious, in the interests of production, to have the voluntary co-operation of the company, but consider that they were seriously at fault in failing to recognise at an early date that the use of compulsory powers would be necessary.While this delay, if it be an unnecessary delay, was going on, we were paying only provisional prices. We had never, fixed a contract at all. We were paying enough money for the Company to carry on its production, which nobody wanted to stop. That was going on all the time, and from that point of view there was no great urgency in settling, because the guns were being produced. We were paying provisional prices only. If they were too high, we could get the money back at a subsequent date, and if the provisional prices were too low, which we did not think and nor did the Ministry, of course the Company could have the extra paid to them.
§ Lieut.-Colonel Elliot
Has the Minister's attention been given to the evidence of his own Permanent Secretary on that point, on the question of the provisional price?
§ Lieut.-Colonel Elliot
I am dealing with the transcript at the moment, where it says:If you fix a provisional price, unless the other party agree there is no possibility of modifying that price?Answer: No."
§ Lieut.-Colonel Elliot
That may well be, but I am taking what the Permanent Secretary said at that time. He said that if a provisional price was fixed without the consent of the other party there was no possibility of modifying it. That was given before the Committee in evidence. That was not my suggestion; it is the suggestion of the arrangement under which the Ministry of Aircraft Production was working at the time of the provisional price.
§ Colonel Llewellin
That may be. I cannot find the actual piece of evidence. I have read it all through and it took me an awfully long time.
§ Mr. Hopkinson
May I help the Minister by saying, as a contractor within his Ministry, that that is always the understanding I have had of that clause?
§ Colonel Llewellin
At any rate, whether that be right or wrong, let me say that we did not look upon this Company, and we do not look upon the Company now, as crooks. Let that be quite clear. I do not look, at the moment, upon the hon. Member for Grantham in the least in that light. After all, there were four gentlemen whose nomination had been recommended by the Ministry of Aircraft Production and they were a majority of the Board. We certainly did not look upon them in that light. If they had found, as indeed it turned out in practice, that the provisional payments were too high, we believed that they would make a refund. The White Paper that has been presented to the House seems to me to confirm us in that view, so do not let us all go round and say: "You cannot trust the people you are dealing with." The great point about the people in Great Britain is that you can trust the vast majority of companies and of individuals, and the British M.A.R. Company is no exception to that rule.
§ Mr. Benson
Is it not a fact that the form of provisional contract which is now in operation has been entirely recast and that the recasting is due entirely to the experience the Ministry have with the British M.A.R. Company?
§ Colonel Llewellin
To be quite honest, I do not know, but I am trying to find out. Let me now go on to the argument which I was putting to the House. It is true that we were at that time overpaying this company and that at the same time— 1289 this has not so far been brought out—the Government were thinking of purchasing this company. A great part of 1941 was taken up on the basis that there might be a purchase of the rest of the company, which runs in pretty well with the shadow factories, which are near it. From that time it became unimportant to go on with the investigation as to detailed prices, if we were to buy the whole concern. The third reason why this thing has—if it has—dragged on too long was referred to by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) who said in his opening remarks: "You cannot expect accountancy to be complete"—perhaps it is not quite in his own words—" and if it is to be complete it can sometimes not be speedy." That was the effect of his statement. It is a tremendous burden.
§ Mr. Pethick-Lawrence
I did not mean in any individual case. I meant that if the accountancy is to cover all the transactions and all the contracts you could not have a very speedy decision.
§ Colonel Llewellin
I did not mean to misrepresent the right hon. Gentleman but I took it that his argument was that there was such a mass to do that you could either have a complete accountancy in a certain number of individual cases or, if you had a lot of cases to deal with, you could not expect it to be speedy in all of them. I do not think that people in the House and in the country realise what a tremendous burden is placed on a few senior civil servants in a busy Ministry like mine and the tremendous strain that these men have to take. They have an immense number of contracts to deal with. The staff is expanded a bit but in the end the work practically all comes back on the shoulders of about half a dozen men. I would like to pay tribute to these men. They do their work extremely well. The fact that only a few cases come up from a Department such as mine to the Public Accounts Committee shows that the Comptroller and Auditor-General also thinks that, by and large, they do their work extremely well. With this tremendous amount to do, you cannot always expect things to be done quite as quickly as you would have them done under the less pressure of peace-time days. I ask the House not to be intolerant in matters of delay, because 1290 of the tremendous pressure that is being placed upon these men.
My hon. Friend the Member for Chesterfield (Mr. Benson) was quite right in saying that the form of the contract had been altered. It is true that the question arose during the examination by the Ministry of certain aspects of their relations with British M.A.R.C, but the alteration in the form of contract was not made because of any anxiety on the part of the Ministry that they would be unable to agree with the Company an equitable adjustment of the provisional prices originally arranged. I have dealt with this question of delay, but there is one other point with which I wish to deal which was made by my right hon. and gallant Friend the Member for Kelvin-grove (Lieut.-Colonel Elliot). He said that they had accepted the account of a junior officer of the Department as against the Departmental view as expressed by the Accounting Officer. I think if we draw that line we are getting on to rather dangerous ground. There may be a lot of people who say that the view in a Department about a certain matter is X. It may be that I, for instance, not being on the financial side, but mainly on the other side, have the advice given to me that X is what we should do, and also that Y is what we should do. There may be a large number of X's. I am thinking about a particular case. But the ultimate view of the Ministry must be that of the Minister who is responsible to this House.
I should have thought that the ultimate view on an accounting matter must be that of the Accounting Officer responsible to his own Minister and to the Public Accounts Committee, and I should have thought we were getting on to a dangerous line if we started departing from that principle. Apart, however, from this general question of principle, whether or not in the course of a discussion round a table somebody, in April, 1939, said, "We are not going to deliver the guns until you give us a price," I really think too much has been made of that. It is a remark which may have been made in bargaining. It is a remark that may well have been made to try to urge on a Ministry to fix a price which, naturally, every manufacturer rather wants to do. But to say that that means that the attitude of this Company was a kind of 1291 sabotaging of the war effort, or something like that, is really straining the remark beyond anything that ought to have been done, because, whatever may be said, this Company has produced the goods.
Let me, in my final words, deal with the White Paper. I think that neither the Public Accounts Committee nor myself on behalf of the Ministry can take the full credit for what is a good settlement, and of course the Company takes its share of having made this agreement with us. But a settlement of this sort would have been made, that I can assure the House, Public Accounts Committee or no Public Accounts Committee. On the other hand, I pay my tribute to the Public Accounts Committee for having fixed attention on it—my own attention amongst other people—because one cannot know everything that is going on in the Department. By their Report they enabled us to get what they recommended—an early solution of this problem. And I hope, considering the small sum which will be left to this company—and the hon. Member for Grantham as far as I can make out is right in saying they will get £309 actual cash profit which anyone can work out for three years—that the House will think it is a good settlement. I hope that now I shall not have to come before this House again on financial transactions, because my chief aim in my present Ministry is to go on getting larger and better production.
§ Mr. William Brown (Rugby)
I should like to say at the outset how much I value the speech of the Minister of Aircraft Production. I regard it as the fairest and the most judicial contribution to this discussion that we have heard from the benches on that side of the House to-day, and I compliment the Minister on his fairness and on imparting some sense of judgment into the kind of comment that has been based on the Report of the Public Ac counts Committee. I am interested in this matter from three points of view. My life for the last 30 years has been spent in and around the Civil Service, and in the Ministry of Aircraft Production, which is, together with my hon. Friend the Member for Grantham (Mr. Kendall), attacked in the Report of the Public Accounts Committee, there are some hundreds of members of my own trade union organisation. When the Civil Service does 1292 wrong I am not averse from seeing it criticised. Indeed, when I think it is wrong I sometimes take the lead in criticising it myself. But I have seen enough of the work of Government Departments to want, when criticism of this kind is made, to investigate the situation first before I am satisfied that criticism is valid. That is the first interest I have in this matter.
The second interest is the hon. Member for Grantham. Like an hon. Member who spoke earlier, I had never met the hon. Member for Grantham until I came into this place, but anybody who, standing on his own feet, fights with and beats the combined political caucuses of Britain at a by-election is a man who attracts, in his own right, my favourable notice and regard. That is my second interest, the desire to see that a fellow Independent Member gets some fair play. My third interest is the interest which every Member of this House has in the public interest involved. I wish to say a few words on each of these aspects. So far as the Ministry of Aircraft Production is concerned, there has been a more than adequate, indeed a brilliant, reply given by the Minister to the particular charges directed against his Department. May I add one word in his defence? It is a tragedy of the life of the Civil Service or of a Minister that his or its record is never judged as a whole.
If I am the head of a business enterprise, in that capacity I make many mistakes, but if at the end of the year my good decisions have outweighed my bad ones, the shareholders will approve what I have done. But with a civil servant no such general judgment is exercised. He is tried on each individual thing separately. If he has done well nobody praises him, and if he had done badly he is condemned on that isolated thing, and everything else is forgotten. If it were the case that the Ministry of Aircraft Production had erred in respect of the two charges made against it, the first of which is that it had made a fixed price contract for the second of these contracts—[An HON. MEMBER: "That was the Air Ministry."] Well, the umbrella of my charity is so wide that it embraces the Air Ministry as well as the Ministry of Aircraft Production—I would say, "Very well, but please look at the other side of the account." Some day somebody in this 1293 place will do justice to the work of the Ministry of Aircraft Production in preventing the defeat of this country in war, for, under Providence, one of the things which has saved us is the R.A.F., and they could not have done so without the work of the Ministry of Aircraft Production behind them.
I turn to the hon. Member for Grantham. The total effect of the unjudicial report of the Public Accounts Committee, plus the inevitable dramatisation of those criticisms in the public Press, has been to give my hon. Friend a very raw deal indeed. I did not know him before I came here, and I learned of this British M.A.R.C. issue in the same way as any other member of the British public did. It seemed to me that he was being pilloried in the eyes of Britain on charges of the utmost gravity, charges which, if not refuted, were bound to ruin his reputation as a decent, patriotic citizen. What were the charges? One was that he had blackmailed the Government. I am using blunt language, but that is how the man in the street talks. He is alleged to have said, "We will not deliver a gun until you have agreed to the price we have made." Secondly, he is alleged to have withheld over a long period material which the Ministry found it necessary to have. The third charge is that, in fact, the company has extorted vast unjustified sums from the public Exchequer, which were drawn back into the public Exchequer only as a result of the self-sacrificing efforts of the right hon. and gallant Member for Kelvingrove (Lieut.-Colonel Elliot) and his colleagues of the Public Accounts Committee. I challenge any Member to deny that the effect of the Report was to make that impression on the mind of every man and woman who read the newspaper reports. I agree that if those charges were true there ought to have been an impeachment of the Member for Grantham. The fact that they were not true is indicated by the lame ending of the Report.
§ Lieut.-Colonel Elliot
What does the hon. Member mean? Does he suggest that the Public Accounts Committee is in a position to go beyond the duty put upon it by this House?
§ Mr. Brown
I do not suggest that. I suggest that the right hon. and gallant Member has shown by this Report his 1294 incapacity for fair assessment of facts, and for drawing reasonable conclusions from facts. If any evidence were wanted you would find it in the utterly unjudicial character of the speech he has made today. I say to him that that was not the speech of an unprejudiced judge, but the speech of a would-be executioner. It was about as unjudicial a summing up of the facts as it has ever been my melancholy pleasure to listen to. Let me take some of the points he made. I do so for his good, so that he may never commit the same offence again; I want to bring home to him the enormity of his offence. He said that there was a refusal to deliver any guns until the firm had got its price. I intervened at that point, and tried to draw distinction between the phrase "its price" and the phrase "a price." The right hon. and gallant Member replied to me in a way which indicated that he saw not the slightest distinction between the two. There is all the difference in the world. It is one thing to go to the Government and say, "I will not let you have a gun until you agree to my price, which is £X," and another thing to say, "You ought not to ask me to lay down a plant and agree to vast sums of capital expenditure without a price being agreed." If the right hon. and gallant Member does not realise the difference, he may still justify his place in the Brains Trust but not hi;; place as chairman of the Public Accounts Committee of this House.
Take his point about the refusal to supply information. There is really no contradiction between what he says and what the hon. Member for Grantham says. He says, "Your firm withheld certain documents and papers." The hon. Member for Grantham says, "We gave all the information necessary to a fair computatiou." You can give information without necessarily giving the particular document. If the Minister had not already spoken I would have liked to ask him whether when the order was issued at the request of the company itself, for these documents to be produced, and the documents were produced, there was as much as a halfpenny difference in the estimate of the fair working costs
§ Mr. Brown
But the whole dispute was one not of substance, but of form. The 1295 firm says, "Here is the information"; and the Department says, "Yes, but we must be the judge of what documents we want." Now I come to the third point. The right hon. and gallant Member implied that it was because of the work of the Committee that large sums of money were going to be thrown back into the public Exchequer which would have been lost but for the work of the Committee. I interrupted at that point, and asked whether it was not the case that negotiations for the adjustment of the provisional price were going on before the Public Accounts Committee had sat, and that if the Committee had never sat at all, the ordinary Departmental processes would have thrown back the money into the Exchequer. The right hon. and gallant Member gave me a thoroughly disingenuous reply. He said that the fact was that the Committee had reported and that the money would now go back to the Exchequer, thereby confirming the innuendo that but for the work of this Committee the money would not have gone back to the Exchequer. I am glad that the Minister made it perfectly plain that ordinary departmental processes would have brought this money back to the Department.
§ Mr. Brown
You could not take much more. You have left the fellow only £309 for three years, the figure of £309 which the Minister confirms. Here is an identity of evidence between the Departments and the hon. Member—£309 for three years—and I say that the Chancellor of the Exchequer could not be much harder than that. But how disingenuous it was to leave the public under that impression. He talks about concern for public morale. Nothing can be more destructive of public morale than to allow the belief to grow that here is a rapacious firm charging outrageous profits which are only got back through the work of the Public Accounts Committee. This is just not true from my knowledge of the procedure, and from the evidence of the Minister himself.
§ Sir Irving Albery (Gravesend)
A matter of some substance has been raised by what the hon. Member has just said. As I recollect the evidence which came before the Committee, it became clear that 1296 the company would not be in a position to pay the amount which would be due from it under Excess Profits Tax because a great deal of the money had already gone into the assets of the Company. That appears to be borne out by the White Paper which explains that the Department has to buy some of the assets of the Company. I take it that by that means alone it is able to refund some of the money?
§ Mr. Brown
Certainly not. There is another and immediate obvious remedy. You could hold future contracts until you could adjust the balance. In any case you would have the assets. But this is not the point I am on at the moment. The point is that it is disingenuous. It would leave the House and the country, if there was no correction, under the impression, the thoroughly bad impression, that if it had not been for the Public Accounts Committee it would not have been found out. I have been at some pains to say what I think about the Public Accounts Committee for this reason. I am not going to follow the discussion into the social arrangements after the war nor the ideal functions of the-Committee as a Committee. But if the Public Accounts Committee is to do a good job for this House, it must so comport itself in its Reports and proceedings as to leave no shadow of doubt that it is an independent auditing body and not a political Star Chamber. I read through every page, and there were 600 or 700 pages, of the evidence—a penance but a necessary penance—and I make bold to say that from the time that case opens, in the book of evidence, there are men on that Committee who make it plain that they have made up their minds on conviction at the very start. If I am challenged I will mention names. It was obvious from the proceedings that there were men that were determined to have a conviction, and that is not the spirit in which to do the work of the Public Accounts Committee. I feel the House and the hon. Member for Grantham have been badly treated, and that the whole origin of that treatment is the injudieious treatment of evidence, pro and con, by the Public Accounts Committee.
There is really no substantial issue left. Agreement has been reached between the Ministry and the Company so that there is nothing to argue about there. There is 1297 only one issue left in this House in my view, and that is for the House to make it plain that we desire the Public Accounts Committee in future to be free from political bias, judicial in its treatment and evidence and in the character of the Reports it brings to us. If the Debate has done no more than make it plain that the newest arrival, even if he is an Independent, in this House, can rely upon people coming to his help to see he has a fair chance of a square deal, then it will not have been wasted.
§ Mr. Austin Hopkinson (Mossley)
I want to deal with one or two things that the hon. Member for Rugby (Mr. W. Brown) has just said. He makes an indictment of the right hon. and gallant Gentleman the Member for Kelvingrove (Lieut.-Colonel Elliot) on three grounds—first, that he made what in the opinion of the hon. Member for Rugby was a very disingenuous use of the difference between the expression "its" price and "a" price. The House is an intelligent body and knows that the issue raised by the hon. Member for Rugby was false, because "a" price means a price which has been agreed between the two parties which automatically becomes "the" Company's price at the same moment that it becomes "the" price of the Ministry. That is what the right hon. and gallant Gentleman the Member for Kelvingrove meant.
§ Mr. Hopkinson
It is the agreed price between the two parties, and therefore it is the price of both parties.
The next point is this: The Auditor-General's Report stated that there was a refusal to supply essential information. The hon. Member for Grantham (Mr. Kendall) backed up by his newly found friend the hon. Member for Rugby said that all necessary information was disclosed. That is to say, the standing charges in bulk were disclosed, But the essential points of what the Ministry wants to do by costing is not only to find out what the thing did cost but to get approximate information on what it ought to cost, and detailed standing charges are essential for that purpose. The evidence before the Public Accounts Committee, in spite of the adulation of Lord Beaverbrook expressed in telegrams to the hon. Member for Grantham, shows that the efficiency of 1298 the place is very low. It must be low. The size of the standing charges shows that the efficiency was very low indeed. In certain respects it is very difficult to get information from the available evidence, but in certain cases the standing charges amount to hundreds per cent. on the wages bill. My information, subject to correction, is that the wages bill was inflated from the start, and that the amounts paid by that particular firm to the workpeople were greatly in excess of amounts paid on similar works elsewhere.
§ Mr. Kendall
The hon. Member's statement is both disgusting and disgraceful, and I will not have it, as he says, that we make the cheapest kind of shell in this country. I say that is untrue.
§ Mr. Hopkinson
I said that my information was to the effect that the wages rates paid by the Grantham works were in excess of the wages paid for similar work in other works. The hon. Member for Grantham says it is incorrect and I accept his statement.
§ Mr. Hopkinson
I say on the point as to the disclosure of the detailed items of the standing charges that what did come out in evidence shows the scale of the expenses that were allowed in certain cases. What did come out was ultimately the sort of salaries that were being paid and paid tax-free in some instances. I say without fear of contradiction by experienced manufacturers and particularly engineers who like myself have spent their lives in developing new products, that these charges were thoroughly excessive even if accepting the hon. Member for Grantham's statement that the lowest possible wages were paid to the workers.
I can give an example. In my own works, which is largely engaged upon very difficult work of a highly varied nature—the Minister of Aircraft Production knows that a lot of it has to do with bottle-necks which other people have given up—for last year the ratio of standing charges to wages was 68.3 per cent., and this year it is going to be down considerably. But in some works we get hundreds per cent. 1299 added to wages which in many instances are undoubtedly inflated, and the wretched taxpayer has to pay. It was absolutely essential for the Ministry—and they should have done it long ago if they had done their duty—to know exactly how the taxpayers' money was being spent and to get at the private ledger.
The third part of the indictment of the hon. Member for Rugby was that the right hon. and gallant Gentleman the Member for Kelvingrove had claimed all sorts of things for the work of the Public Accounts Committee for which that Committee was not entitled to praise. Well, there might possibly have been, underlying the speech, a natural and right tendency to congratulate his Committee, but not to claim that the whole of the return of this money to the taxpayers was due to the work of the Committee. To suggest that he said the latter seems to me to be a complete travesty of what he did say. The whole world knows that the Ministry would never have acted as it has done, with such extreme haste and so severely, unless this whole thing had been exposed and brought before that Committee. I am not blaming the present Minister, but look at the position of the Ministry. If you go back over the whole history of the company, and the dealings with Lord Beaverbrook and his Ministry, I say that anybody who has taken the trouble not only to read the evidence but to make inquiries on his own in Grantham or elsewhere will agree with me when I say that here again we seem to touch that slimy trail to which I had made reference before in the House.
§ Sir George Schuster (Walsall)
I would like to ask the House to come back to the wider issues which were raised by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence). I think it is rather unfortunate that we have spent so much time on this particular case, because very important issues are involved in this Debate on the Public Accounts Committee's Report. The right hon. Gentleman the Member for East Edinburgh—the fairness of whose speech I think we all appreciated—referred to the practical difficulty of securing a proper system of controlling prices in war-time when the conditions of free competition do not exist, and when on many lines of contract it is impossible to get fixed prices 1300 settled in advance because neither side knows the conditions in which manufacture may have to be carried out. I am speaking in the light of experience as a member of another Committee of the House—the National Committee on War Expenditure. We are concerned—and I am sure my right hon. and gallant Friend the Member for Kelvingrove (Lieut.-Colonel Elliot) will forgive me if I say this—with what I might describe as the living body—trying to help production as it is taking place—while the Committee presided over by my right hon. and gallant Friend is concerned rather with post mortem examinations. In our view, we find that the system of post costing or other methods for controlling costs and profits represent an immense job. In many cases we believe these methods have had the effect of impeding production. At any rate a vast amount of time and man-power is absorbed by these methods, and the methods as originally applied in certain Departments are actually in danger of a breakdown because it has been impossible to keep pace with the work and find the staff to do it. The difficulties are immense, and although I am calling attention to their effects, I would like to pay a tribute to the Government Departments for the way in which they are trying to tackle their task in the best possible way. I have no criticism at all to make of them. But we must recognise the facts and ought in this House to be concerned with this extremely difficult problem.
The point I want to make is that with both these Committees of the House there might be considerable advantages if there could be some discussion on this subject between the two Committees which each in its own way is concerned with it.
I want to turn to another point. This House should be seriously concerned about the credit of the Public Accounts Committee. That Committee has immense power. I think anybody who has watched the working of the Government machine in its control of expenditure will recognise that an even more effective force than Treasury control is the influence of the Public Accounts Committee—the fear which exists in the minds of civil servants that they may be brought before that Committee if they make mistakes. I think that fear exercises a very 1301 considerable deterrent effect, and that it increases the reluctance of officials to take responsibility. The point I want to put is that this immense power needs to be extremely wisely exercised. In these days of war when the task of fixing prices is so difficult, when it is impossible to be sure of every detail in advance and when people sometimes must take risks if they are to "get on with the business," we should be reasonable in the use of criticism. We can be as severe as possible on anyone who has really tried "to get away with it." But I believe with my right hon. Friend the Member for East Edinburgh that they are in a very small minority, and so let us be reasonable in exercising these powers and let us do our best to evolve the best and most practical system which is possible.
§ Mr. Beverley Baxter (Wood Green)
I will not detain the House for more than a few minutes, but what I have to say has been prompted by the remarks of the hon. Member for Mossley (Mr. A. Hopkinson). I say with respect that the bleating of a cow has more variety than the thoughts which come from the hon. Gentleman—
§ Mr. Baxter
The bleating of a sheep then, or, if you like, the mooing of a cow. I remember when I was a boy that my grandmother, who was of a gentle and kindly nature, believed that everything from famine and pestilence to the San Francisco earthquake came from the Pope in Rome, and she died never deviating from that position. The hon. Member has substituted Lord Beaverbrook for the Pope of Rome. He mutters his name in corners and no doubt in streets and, possibly, in his sleep while he waits the hour to come here and mutter it in this House. Indeed, I was surprised that he left it so long in his speech until he recalled again what he described as the slimy trail of Lord Beaverbrook through the present case we are discussing to-day.
What is the exact situation? Perhaps I may explain it to the hon. Gentleman if he does not know, although I think he does, that in every Ministry there is an accounting officer appointed by the Prime Minister in consultation with the head of the Civil Service, and this officer is responsible for all financial dealings. It is true that in certain cases the Minister 1302 can override the officer, but if he does so, the officer can make his protest. In this case we are discussing to-day no such incident arose, and, therefore, I ask by what right or inference can the hon. Gentleman bring Lord Beaverbrook's name in on that ground.
Apart from that question of Ministerial responsibility over accounts, what actually happened? In the first place, the original contracts, which have occupied a big part in the discussion, were placed by the Air Ministry. It is true that Lord Beaverbrook was in existence at that time as a human being, but the Ministry of Aircraft Production was not in existence. That is an alibi which should satisfy Mr. Tony Weller himself. Lord Beaverbrook had no responsibility at that time. Once again, his Lordship is innocent, at any rate up to this stage. In July, 1940, after the fall of France, Lord Beaverbrook appointed four British directors. I do not suppose the hon. Member objects to that. It had to be done. The men whom he appointed were men of position and integrity.
The one case to be made against the Ministry of Aircraft Production at that time is that they should have acted sooner. Probably that is true. The Public Accounts Committee says that by the end of 1941 it was apparent that the books should have been applied for and that the Ministry of Aircraft Production should have used its authority to press for the production of the private ledger. But it is quite understandable that the Ministry of Aircraft Production was more concerned not to upset the flow of production, which is admitted on all hands to have been excellent. It is quite understandable that a Service Minister would be more concerned with that than with looking into accounts, no matter how important they might be.
§ Mr. Hopkinson
As the hon. Member has made a kindly reference to me, perhaps he will forgive me if I interrupt him. Will he explain how the production of guns would have been prejudicially affected if the books of the company had been disclosed to the Ministry? In what way would that have prevented the guns from being made?
§ Mr. Baxter
That is not the point at all. I was dealing with the question of the Minister using his overriding 1303 authority. For reasons which I will not go into now, certain accounts had been withheld. The Minister then had supreme power over the Company. Had he utilised it—
§ Mr. Baxter
Had he done so, he would have taken away from the head of the firm that concentration necessary to production. That is all. The point is quite clear.
§ Mr. Hopkinson
I am afraid I am very stupid, but it seems to me that the Ministry went to the firm and said, "Show us your books, your private ledger"; the firm said, "No"; and the Ministry did not take any steps for a long time to insist that they should see the books. I understand from the hon. Member, who is no doubt an industrialist of experience, that having to go to the safe and take out that ledger and give it to the Ministry's representative would have seriously prejudiced the manufacture of the guns in the works. It seems to me that that is not quite correct.
§ Mr. Baxter
Again the hon. Member is drawing a red herring across the slimy trail in his imagination. The point seems to me to be clear. Such papers, books or ledgers as the Ministry required quite obviously should have been forthcoming. For reasons which I need not go into now, they were being withheld. The Minister had it in his overriding power to give them a directive. He did not want to use that power if by using it he would have upset the temper and tempo of production, providing that he could get the information and the books without that action. Lord Beaverbrook resigned in April and disappeared from the scene. What I have said to-day is a protest against the constant attacks by the hon. Member for Mossley (Mr. Hopkinson) upon a man who is not beyond criticism but to whom I think the country owes a great deal, and whose non-employment to-day seems to me a very serious misuse of brainpower. I feel that the hon. Member opposite, in discrediting this ex-Minister at every possible time, discredits himself and does little dignity to the House. Since he is obviously a Dickensian, because Dickens must have thought of someone 1304 like him once or twice, I would advise him not to leave a slimy trail too often. Dickens invented a character named Chevy Slyme, and that name might stick to the hon. Member if he is not careful.
§ Major Petherick (Penryn and Falmouth)
I do not agree with my hon. Friend the Member for Walsall (Sir G. Schuster) that it has been a mistake to consider the affairs of one company, because I believe that two things will arise out of the discussion. One is that a number of errors have been committed by the Ministry of Aircraft Production and the Company and, after being exposed, they may well be remedied, and it has also shown that the House of Commons is an active body, vigilant in seeing that irregularities, when committed, are disclosed. May I take up one point raised by the hon. Member for Rugby (Mr. W. Brown) as to the difference between "its" price and "a" price? I am sure they are ultimately the same. May I offer this simple analogy? Suppose I have a horse to sell and say its price is £50, and the hon. Member for Rugby says, "I will not give it." I proceed to explain the very high cost of breeding in time of war and that the horse is very well worth £50. I then say I cannot sell until a price is fixed. He then comes up to £40, and I sell. Surely that means that ultimately "its" price and "a" price having been agreed between the parties concerned, are the same. However, that is a small point, hardly worth arguing.
The hon. Member for Rugby rather fiercely attacked my right hon. and gallant Friend the Member for Kelvin-grove (Lieut.-Colonel Elliot) and the Public Accounts Committee, and accused it of being a body which had made up its mind already and was only out to get a victim. As a Parliamentarian with a great affection and respect for this House, I strongly resent such a suggestion. The hon. Member said that my right hon. and gallant Friend came here practically as an executioner. He did not. His position was that of a judge who has to consider all the evidence and has to come to a certain conclusion on the evidence. Then he comes to the House and explains the reasons why he has reached that conclusion. My right hon. and gallant Friend was in a difficult position. He was unable to make his speech without a fire of interruptions. He is very able to look after 1305 himself and is calm when being shot at, and to-day he lived up to his previous record in that respect.
When I first heard about this case I read the Report and then plugged through miserably, as the hon. Member for Rugby did, the evidence which was presented. I listened to-day to the hon. Member for Grantham (Mr. Kendall), who is concerned in the affair. I do not think he can claim that the House, has treated him other than very generously, because he was allowed to make his full statement without one interruption, whereas those who were criticising the conduct of himself and his Company, such as my right hon. and gallant Friend the Member for Kelvin-grove, were subjected to a constant fire of interruptions which made it difficult to make out a sound case. After listening to all the speeches to-day, I am still not clear on a certain number of points. It may be that I am stupid and have not seized the points of the evidence as I should have done. There is the matter of the immense sum of £1,700,000 which has now been paid to the Ministry of Aircraft Production.
§ Major Petherick
It will presumably ultimately be paid back, because it appears to have been disclosed in the Press that it has to be paid back to the Ministry.
§ Mr. Kendall
No such sum as £1,700,000 has ever existed, even on paper. Therefore, it can never foe paid back.
§ Major Petherick
The statement has been made, as I understand it, that this figure has been paid or is credited to the Ministry of Aircraft Production.
§ Major Petherick
It is rather difficult to get an answer across the Floor of the House in this way. Perhaps the hon. Member will tell one of his friends, who will be able to explain to the House what the position is. Whether that exact figure is going to be credited to them or not, it is the figure which has been brought forward as the amount which appears—I say appears—to have been overpaid to the Company. That surely indicates that the costing has been very very wrong and that there has been inefficiency on the part of the Company 1306 and also that the costing has rather deluded the Ministry of Aircraft Production, which has also made a mistake. Here we have a figure, however explained, of £1,700,000 in respect of a Company whose whole capital is some £67,000. I really think: that that ought to be explained. It is very curious that so far as the public and the House are concerned the figure only arises after the publication of the rather critical report of the Public Accounts Committee and not before. I do not wish to make much more of that point, but I should be pleased to get an exact explanation of what that figure £1,700,000 represents.
My second question is rather a delicate one, and I hope the hon. Member concerned will not think I am putting it because he happens to be a Member of this House. I should like to know how it was that this very large tax-free salary was paid to the managing director. Attention has been drawn to the fact that the figure of the tax-free income, if put as a gross figure would be £93,000. A sum of £93,000, whether it is in the form of salaries to the staff or in the form of salary to the managing director, must inevitably increase the costs to the country and must subsequently fall upon the taxpayer. Therefore I think it is a matter which should receive the attention of the House. Then there is the question of expenditure. I think we are entitled to hear a little more about the expenses incurred by various persons concerned in the firm, of which, as I understand, the accounts were not always presented. In the expenses sheet I notice one peculiar item—liquor. It is only an item, but I do mention it.
§ Major Petherick
No. I am only saying that, as I understand, from the Report of the Public Accounts Committee and the evidence, the hon. Member I think on one occasion got £12,500 tax-free. If you reckon the gross sum, that is £93,000. Surely the Company in assessing its costs has to take that sum of £93,000 as part of its costs, and that must increase the cost of the guns for which the country has to pay.
§ Mr. Kendall
I never have had, nor has it ever been suggested by the Public Accounts Committee or anyone else that 1307 I have ever had a salary of £12,500 tax-free.
§ Major Petherick
Well, if that is the case, my memory is very wrong, but I know it stuck in my mind that that was the gross figure—that on one occasion a tax-free income of £12,500 was paid and that the gross figure was £93,000. If I am wrong, I shall, of course, withdraw it. Perhaps some hon. Member will confirm what I have said or reject it.
There is the question of private books, and a great deal of discussion took place on the subject of the withholding of those private books. The Ministry of Aircraft Production asked for further details, and the details in the private books were not presented. Usually the most confidential dealings are entered in books of this kind and put into a private safe, and it was very unwise of the company concerned to withhold them for so long before presenting them to the Ministry of Aircraft Production. Since that time there has been an inquiry into the whole concern. Of the sum of £67,000, a considerable proportion was held in certain hands, and I think that the House is entitled to know who are the beneficiary owners of those shares. I do not regret that this Debate has taken place, in the interests of the House and of the Ministry. I hope I have not been unfair. I have endeavoured to probe one or two matters, and I hope that the questions which I have asked will be answered during the later course of the discussion to-day.
§ Mr. Hutchinson (Ilford)
I do not propose to deal, except in so far as I must, with the mass of detailed evidence which was given before the Public Accounts Committee. On a matter of this nature this House is sitting in judgment not only upon the hon. Member for Grantham (Mr. Kendall) but upon the Ministry of Aircraft Production and to some extent upon the Comptroller and Auditor-General, and, indeed, upon the Public Accounts Committee itself. I will endeavour to avoid, as far as possible, acutely controversial matters, but there is one matter which seems to be non-controversial and to which insufficient attention has hitherto been given.
As I understand the White Paper which was published on Saturday last and which contains particulars of the settlement 1308 which has now been reached between the Ministry and the British M.A.R. Company, the effect is that, if the prices which originally formed the basis of the contracts between the Ministry and the Company had been maintained, the Company would have earned, in its two years' trading, a profit of £1,700,000; but, by reason of the fact that those prices have now been, or will be, adjusted, the profits which the Company will have earned in those two years' trading will be reduced to £90,000, before taxation. That has been justified, as I understand it, upon the ground that the prices which were at first the basis of the contracts were merely provisional and subject to ultimate adjustment. No doubt that is a perfectly proper arrangement to make, but it does not seem to me that the result which has followed from that adjustment is the sort of result which one would expect from a mere adjustment of the price which had been initially agreed between the parties. Here is a Company with a paid-up capital—not quite paid-up capital, but with capital at its disposal—amounting to £67,000. A number of contracts are placed with it by my right hon. and gallant Friend's Department, and as a result of these contracts, after two years' trading, the profit which it would have earned, if the price had not been adjusted, would have amounted to £1,700,000; whereas, when the prices are adjusted on a basis of profit amounting to 4½ per cent. in the first year and 3½ per cent. in the second year, the profits would have been £90,000.
Now, if one looks at the background of the whole of this business, as it is brought out in the volume of printed evidence, through which I, like the hon. Member for Rugby (Mr. W. Brown), have patiently read, one finds that throughout those two years the Ministry of Aircraft Production were not satisfied with the discovery of material information which was being given to them by the Company. I will not enter into the particulars of all that. There is, of course, a controversy as to what particular documents were asked for, and as to whether it was, or was not, reasonable to withhold them, but the fact remains that the Ministry's accountants throughout this period were not satisfied with the information with which they were being furnished. And I do not think one can exclude from one's consideration this further fact. Evidence 1309 was given before the Public Accounts Committee by some of the officials who had taken a personal part in the negotiations as a result of which these prices were fixed—or, rather, were not fixed but were agreed upon as a provisional arrangement—and the impression that their evidence gave to the members of the Public Accounts Committee was that this company would withhold deliveries unless the prices for which they were asking were accepted. When one looks at the outcome of all this business, and one finds a potential profit written down from £1,700,000 to about £90,000, and one finds in conjunction with that all those circumstances to which I have just referred, surely it was right that my right hon. and gallant Friend's Committee should look with the greatest possible suspicion into this matter.
We are told that he has not acted in a judicial capacity. After all to-day the Committee is not the judge; this House is the judge and my right hon. and gallant Friend the Member for Kelvin-grove (Lieut.-Colonel Elliot) comes before it as an advocate. When we are told that he has not acted judicially, that too much has been made of this, and too much has been made of that, when one looks at those matters to which I have ventured to draw the attention of the House, and which are matters which are wholly beyond controversy, can it be fairly said that we do not owe a very great debt of gratitude indeed to my right hon. and gallant Friend and his Committee?
§ Sir Henry Fildes (Dumfries)
Could my hon. and learned Friend tell the House how much of this £1,700,000 would automatically have gone back to the Treasury in any case?
§ Mr. Hutchinson
I am certainly not in a position to answer that question. This House knows very little about the composition of that £1,700,000. We are told that that was the profit the company would have earned if these prices had not been adjusted, but, apart from that, we know nothing about it. My right hon. and gallant Friend the Minister for Aircraft Production has described this as a good settlement. No doubt, from the point of view of his Department, and indeed of the public, who are not going to hand over to this company a profit of that magnitude, it is a very good settlement 1310 indeed. But this House wants to be satisfied about something more. We have to be satisfied that the methods by which these contracts were negotiated were satisfactory from the public point of view. That is one of the most important issues in the whole of this business. We have to be sure that this costings method has not resulted in some other contractor getting away with a profit of £1,700,000, with a company having a paid-up capital of £67,000. I leave some of my hon. Friends on the other side of the House below the Gangway to calculate what sort of return that shows on their paid-up capital. The investigation which this case has received will assist us to be satisfied, as it is the duty of this House to be satisfied, that the methods by which such a result might follow are not being employed in the case of other contractors.
§ Mr. Price (Forest of Dean)
As a member of the Select Committee on National Expenditure, I am naturally very interested in this Debate. I think the right hon. and gallant Member for Kelvingrove (Lieut.-Colonel Elliot) and his Committee have done invaluable work in bringing before this House a matter which ultimately affects the public morale and the carrying on of the war. This House in having this Debate is carrying out one of its ancient duties as guardian of the public purse. As I say, this matter has a particular effect in war-time on public morale. I think nothing would have a worse effect in our coalmines, munition works, and other industries having anything to do with the war effort, than the suspicion that undue profits are being made. It may be that much exaggerated ideas go about, and that profits are, in fact, not as great as appears at first sight, but the public are very suspicious after what happened in the last war, when large fortunes were made, and this House cannot be too careful in scrutinising every case where it appears that something which is not quite right has taken place.
It has been argued, and there is something to be said for it, that the Excess Profits Tax, and taxation generally, may very much lower the actual profits that are made. As the hon. and learned Member for Ilford (Mr. Hutchinson) has just shown very large gross profits do seem to have been made on this transaction, temporarily at least, until the price was 1311 actually fixed by the Ministry. Although the greater part of it, as the hon. Member for Grantham (Mr. Kendall) has shown, has gone in Excess Profits Tax and 10s. in the pound Income Tax, that does not justify in the least degree any sloppiness or inefficiency in accounting or any dilatoriness in fixing prices. The public mind will get hold of these items. The public will not immediately understand that a great part of it may go in Income Tax and Excess Profits Tax and it may affect public morale. Moreover, any long delay in fixing prices in these contracts tends to inefficiency in the Departments concerned.
I remember that on the Select Committee on National Expenditure we have gone into the whole question of contracts and one of the earlier reports made by that Committee last Session, before I was a member of it, condemned root and branch the whole system known as cost-plus and advocated a more accurate system of costing. As I have occasion to know, from looking into this matter on sub-committees of which I am a member, it is very difficult sometimes to make fixed contracts. I know of one case where certain underground quarries were concerned. It was not possible to tell the kind of work that would have to be done, so that one was between the devil and the deep sea. The question was: should cost-plus be allowed, or should it be a fixed price? The target system whereby you make a fixed price temporarily, subject to readjustment after every few weeks or days, to see whether there has been a change in the cost or the rate at which the thing can be done, seems to be the method. If there is anything to be learned from this Debate it is that the Government Departments concerned should look into this matter and try to work out for the contracts they have to place, methods which could speedily be applied and guard the public interest, maintain public morale and prevent anything like what we are debating to-day from happening again. The right hon. and gallant Member for Kelvingrove and the Public Accounts Committee have done a great public service, for which the House ought to be deeply thankful.
§ The Chancellor of the Exchequer (Sir Kingsley Wood)
I rise to make some observations and answer some questions on 1312 the general issues which have arisen in connection with this discussion. The House of Commons to-day has fulfilled its proper function and duty, and this has been a useful and a timely Debate. I would like to express my indebtedness—without in any way commenting on the verdict of the Public Accounts Committee—to the Committee for the work which they have done and the promptitude with which they have performed that work. The Committee represents this House of Commons, and so far as I have understood their conclusions they have pointed out what they regard as the merits of the matter as regards the particular contractors and the Department itself, and I think it would be a very bad day indeed for the House if at any time we did anything, at any rate without any considerable cause, which would affect the influence of this important Committee. Reference has been made, with a great measure of justice, to the importance of the fact that the House of Commons should consider this question, having regard to public opinion. In these days of high taxation, hardships and sacrifices it is vital—and the country is entitled to no less—that we should see that the vast sums we are spending on stores and on services rendered to the nation should be spent with circumspection and care, that there should be no question that prices should be fair and reasonable, that unfair and undue rates of profit should not be taken, and that economy in the placing of Government contracts should be regarded as essential to the war effort. That is the very least the country expects from us at the present time.
The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Law-rence) asked me whether I could say whether the facts which have been disclosed in the cases we have been considering to-day are in any way typical of contracts generally. I must say that I think it would be quite wrong to assume that the circumstances disclosed in certain of the cases reviewed by the Public Accounts Committee in their Report are in any way' typical of the whole. In money value they are, of course, but a tiny fraction of the total contracts turnover. It is very interesting to observe that the three Departments concerned in the year ended 31st March, 1941, expended, in respect of contracts for weapons, munitions and equipment, about 1313 £900,000,000. In the following year it was a much larger sum. I think it can be said that in the great majority of cases we can be confident that on the whole prices and profits have been reasonable, that contractors have performed their work very well, with a full sense of their public responsibility, and have co-operated fully with the Departments on production and contract negotiations. I am sure my hon. Friends will agree with me also when I say that it would indeed be a great pity and a great mistake if, as a result of this Report and the Debate in the House, any contrary impression should go forth to the country. I observe that this is confirmed by the Comptroller and Auditor-General, who is the servant of this House, who stated before the Public Accounts Committee that, as regards the cases to which he had called attention, he did not intend to imply in any way that the matters which needed attention, as far as he was concerned, were widespread or universal.
My right hon. Friend asked me how I, as Chancellor of the Exchequer, regarded a matter which has been discussed by a number of hon. Members, namely the Excess Profits Tax and the steps and methods taken to deal with profits in regard to particular contracts. I think there is in fact very little I can add to the Report which was issued by the Public Accounts Committee, and I would particularly refer hon. Members to the important memorandum supplied by the Treasury which appears at the end of the Report. I would like to quote to the House—because the matter is an important one—the following extract which I think sums up the position pretty well:Contracting Departments aim at securing fair and reasonable terms for stores supplied to or services performed for the State, paying no regard to questions of taxation. This policy has been laid down by the Treasury and is well established. The State in this respect acts as any other prudent and reasonable purchaser would act.Whatever we may say about the amount and height of the Excess Profits Tax, that tax is designed not merely for the purposes of raising revenue but for the control of profits; but I would emphasise to the House, that it is not an instrument which is designed in itself to provide a general standard of fair and reasonable profit on Government contracts. It is intended as a reserve measure to deal with increased profits as compared with the 1314 pre-war standard over the whole field of industry. I at once admit—and a good many hon. Members in all parts of the House have constantly said it—that the Excess Profits Tax itself is no protection against uneconomic or wasteful methods of production. Nor does it ensure efficiency or prevent the waste of man-power and materials, and I would stress—and I hope hon. Members will emphasise this particularly when they are speaking to the workpeople, as it is a matter that is very important and on which I am afraid a full understanding is not always obtained—that nothing is further from the fact than the statement which is sometimes made that prices do not matter because every tiling goes in Excess Profits Tax. That is quite contrary to the facts.
My right hon. Friend also asked me what is the attitude of the Treasury and myself to the question of the compulsory power of Departments to obtain information concerning matters which may from time to time arise in connection with the very many contracts which are now the subject of consideration between contractors and various Departments and whether I supported the view that the compulsory powers should, if necessary, be invoked. It has only been since the passing of the Ministry of Supply Act that the Minister has had power to cost any contract and to compel contractors to produce their books and records. He has this further power given to him that, if he is satisfied that the records are insufficient to enable a fair and reasonable price to be determined, he can direct the firm to keep such records as may be specified in the direction. I certainly agree with the principle that, where Departments are not furnished with sufficient information, they must not hesitate to use their compulsory powers and they should direct the firm to keep sufficient records. That does not mean of necessity that, in days of great scarcity of cost accountants, everyone should be compelled to set up a full-blooded costing system, but those are the lines which I think should be generally followed. It is not for the contractors to say what are the material books that are to be produced. That is for the Minister himself to determine, on the advice that may be given him. No firm is entitled to say that the books asked for are not material, nor are they entitled to say that the books already produced have given sufficient information and they will give no more. The power is 1315 complete in the Minister to say what books shall be produced and to direct that they shall be produced in accordance with the Act of Parliament.
My right hon. Friend also asked me whether, in negotiating prices and settling contracts, the Departments, actuated perhaps by the fear of the breakdown of financial negotiations through pressing for certain particulars, should stay their hand. A Department ought not to go beyond what, on full consideration, they consider to be a fair and reasonable price solely because they fear a breakdown in financial negotiations. There is, however, a natural hesitancy to break off negotiations, when a Department is terribly anxious and keen to get on with the work of production and to remain on good terms with the contractors, and this makes them strive to persevere with the negotiations in the hope that even at the last moment agreement may be reached. There may be cases, especially where a new store is being manufactured, where there will be a genuine element of doubt as to what constitutes a fair and reasonable price. Then the Department might be justified in going somewhat beyond its original ideas in the course of negotiating a contract settlement. It is right and justifiable to keep matters on a negotiating basis and within reasonable limits to make proper concessions, for good will in all these matters is all to the good. The good will argument cannot however be invoked to justify the payment of high and unreasonable prices.
Questions have been asked with regard to the policy generally in the directions which the Treasury have given as to the type of contract which we have been discussing. The report of the Public Accounts Committee relates to one type of contract only, namely, the non-competitive fixed-price contract. There is considerable advantage in this form of contract, provided that adequate steps are taken to control and check it. In 1941 the Public Accounts Committee agreed that where information is available as regards costs, fixed prices are likely to be fair both to the public and the contractor, and they recommended that steps should be taken to cost a selection of fixed-price contracts in order to secure that prices continued to be fixed in relation to cur 1316 rent costs. The Treasury agree with all the authorities that have examined this matter that a fixed-price contract, provided that it has a solid foundation, is the best form of contract and is most likely to secure the required stores at the cheapest price. That is the first object of the Government as of any other prudent purchaser.
Ordinarily, as my right hon. Friend the Member for East Edinburgh indicated, the best solid foundation would be provided, if it were possible, by free and effective competition. As he has pointed out, however, the area of effective competition is progressively lessened in war, particularly as production expands. The value of the fixed-price contract would be seriously impaired unless some other means could be found of ensuring that the fixed price is fair and reasonable. Special risks are involved in the fixed-price contract in war-time conditions, when many new stores are being manufactured, many manufacturers are turned on to things they have never made before, and the output in many cases increases steeply for some time. It is fair that these matters should be taken into account. We have to remember that for all these reasons manufacturing costs are likely to be high in the initial stage and to fall steeply as knowledge increases, manufacturing methods improve and turnover grows, and if fixed prices are to be fair and reasonable, the knowledge of costs must not only be accurate but, what I would emphasised particularly to the House, must be up-to-date.
There are, of course, several methods of obtaining this knowledge. There is the method of pre-costing investigation, involving an investigation of the cost of the productive processes by technical officers and an estimation of the overhead expenditure by accountants, and there may be considerable value in this. But, after all, it is estimating costs before the event, and in certain cases may very well be subject to large margins of error. There is also the post-costing investigation, which, as many of my hon. Friends appreciate, consists of an examination after the event of the true costs in respect of a particular contract. It is, of course, the method used to ascertain what falls to be paid in a costed contract. Where a store is manufactured by a number of firms or in a number of Government factories, comparison of the costs in the 1317 different manufacturing units may prove to be sufficient information for the purpose. It also may be possible to get enough knowledge by investigation of the total results of a firm's trading over a period. All these processes are available, but I would draw attention to the recommendation which the Public Accounts Committee made last year, to this effect, that a selection of fixed-price contracts should be post-costed in order to ensure that prices continue to be fixed in relation to current costs. Of course, if the first object is to limit profits, the most certain means of achieving it is the costed contract; but if the primary object is to get what you want as cheaply as possible, the best instrument, in the judgment of all, I think, who have considered this matter, is the fixed-price contract, provided it can be fairly based on a reasonably accurate knowledge of current costs. It has been said frequently during the Debate, and we all know it, that cost accountants are to-day at a premium. The Departments, the contracting firms and the accounting profession are extremely short of qualified men.
All I would say, in conclusion, is that for all these reasons it may be desirable to move away from the costed contract to the fixed-price contract, and the information necessary for the purpose of settling the fixed-price contract should be obtained wherever possible, having regard to the difficulties of to-day, which are likely to increase, without recourse to costing. Where adequate information cannot be obtained without recourse to costing, it is probably better not to cost previous contracts right through but to cost a batch of current production. I offer those observations to the House because this is a very important matter, not only from the general national point of view but from the financial point of view.
I think those are all the observations I desire to put. My purpose has been only to speak on the general matters which arise from this important Debate, which I have no doubt will be studied in the country, not only by contractors, but by a very large number of people who are very interested in the subject. They will recognise that the House of Commons has performed a service by devoting one of its Sittings to what I regard as a highly important matter, not only in relation to the war effort, but to our national affairs generally.
§ Mr. Stokes (Ipswich)
I hoped to catch your eye, Mr. Speaker, to speak for a few moments before the Chancellor. I do not propose now to detain the House long, but to make three observations to the Chancellor and one on behalf of my hon. Friend the Member for Grantham (Mr. Kendall). First, to the Chancellor. The hon. and gallant Gentleman the Member for Penryn and Falmouth (Major Petherick) spoke of the desirability of knowing the nominee shareholders of this company. I commend that remark to the attention of the Chancellor, and I would ask him to pay attention particularly to what has been said in this matter many times before when we have asked him to introduce legislation abolishing once and for all the practice common in the City, which enables large holdings in public companies to be in the names of banks and other nominees. It is a thoroughly unsatisfactory practice and one which we would like to see done away with.
Secondly, the hon. Member for Mossley (Mr. Hopkinson)—I am sorry he is not here, but I do not think he will disagree with what I am going to say—referred to the very low rate of on-cost charges, 68 per cent., prevalent in his firm, and stated that the firm of my hon. Friend the Member for Grantham had charges which were several hundreds per cent. We all know that dealing in percentages is very tricky. I myself have knowledge of, and have had to deal with, firms whose charges were lower than 68 per cent. and also with others whose charges were higher than 200 per cent. Without examination of the details, it is impossible for any man to say which set of charges is right. In justice to my hon. Friend, who has had a pretty rough time—he has been pilloried in the Press very badly—I would not like to sit here while those things are said and let the House think that because the hon. Member for Mossley's firm has 68 per cent. charges it necessarily follows that my hon. Friend's charges, which are considerably higher, are too high for the work which he is doing. It entirely depends upon the type of business.
My next observation to the Chancellor is to call attention to the very great difficulty in which some small firms, or even moderate-sized firms, are finding themselves, with regard to their capital set-up. My hon. Friend's firm has a capital of about £67,000, which is ridiculous for the 1319 work that the firm is carrying out. I understand they have spent over £200,000 or £300,000 on plant and machinery. I do not know the details of this firm, but I know the details of others, and I know also that smaller firms are getting into a very embarrassed position owing to the fact that they have to keep their places in a decent state of repair—all of which charge is not necessarily allowed to be deducted as a revenue charge before the calculation of excess profits—to keep up-to-date and to get such machinery as they can to deal with bigger output. Also we have to pay perfectly enormous Excess Profits Tax. It is quite right, and I am not protesting. I suggest that the Chancellor should tell his Treasury officials to be a little patient about the actual collecting of the cash. I believe in the 100 per cent. Excess Profits Tax, but I also know the difficulties at the working end of it, and we cannot be expected to finance ever increasing work in progress, keep ourselves in a fit and proper state of repair and efficiency and pay all taxes promptly.
My last observation to the Chancellor relates to his own complaint of the shortage of cost accountants in the country. Many years ago—and I am not sure whether it was in my maiden speech, but it was certainly very shortly afterwards—I urged on the then Chancellor, now Lord Chancellor, that firms should be required to render a statement of the cost of their contracts and the amount of profit earned on them, and should then pay back to the Treasury whatever they earned in profit over an agreed amount.
By agreement with one or other of the Departments, firms with which I am connected have done this for a long time, and it has worked admirably. I know it is not popular in the industry, because it is the most difficult way of swindling the Government. If I, as managing director, have to sign a document stating what the profit or loss is on a particular contract, I am going to see it is right, because I am always subject to a Government investigation. The Government can even ask that the document should be signed by the firm's auditors if they have any doubt, and in addition they may come down and inspect for themselves. When settling annual profits for the year the firm's own auditors deal with the Inland Revenue authorities, and settle what is to be the 1320 profit for the year and my right hon. Friend knows there is very little fuss and bother. I understand that some Departments are behind in settling costs in tens of thousands of contracts. In consequence, firms are not paid for the work they have done, because 10 per cent. is held back until costs have been settled. I ask the Chancellor to look into this again and see whether he cannot extend this system of signed statements, which I believe would be welcomed by honest manufacturers, with great saving of time and money, and would lead to a great improvement in efficiency all round.