HC Deb 13 February 1956 vol 548 cc2067-9
42. Mr. Beswick

asked the Minister of Supply on what basis, whether on cost-plus or otherwise, his Department allocates contracts for the development and production of guided missiles.

Mr. Erroll

The Ministry of Supply makes fixed-price contracts whenever possible but contracts for development are usually paid for on the basis of ascertained cost, plus a sum calculated to give a reasonable return on the capital employed.

Mr. Beswick

As very little of the capital employed is contributed by outside shareholders and most of it has accumulated from previous Government contracts or has been borrowed on the basis of Government contracts awarded, and as production seems to be in inverse ratio to the profits now made, will not the hon. Gentleman agree that there is a case for looking into the matter again?

Mr. Erroll

I do not agree with the statements made by the hon. Gentleman in his supplementary question. Capital should be serviced, and the rates at which it is serviced in these contracts are extremely reasonable.

43. Mr. Beswick

asked the Minister of Supply whether, in view of recently-announced profits of firms engaged in the manufacture of aircraft and guided missiles for his Department, he is satisfied that the margin of profit allowed for individual contracts are reasonable; and if he will make a statement.

Mr. Erroll

The total published profits of a firm are not necessarily a guide to the profit earned on its Government work. Where competitive tenders cannot be invited, profit margins on Ministry contracts are negotiated in accordance with well-established principles designed to give a reasonable return on capital employed.

Mr. Beswick

As the profits of one firm engaged largely upon Government contracts have risen from £656,000 in 1951 to £2,159,000 in 1955, and those of another have risen from £6 million to £15 million over the same period, is the hon. Gentleman really of the opinion that the rewards are reasonable? Will he not look into the formula used in giving profits?

Mr. Erroll

The formula which is used has been examined by the Public Accounts Committee and approved by it in its 1953–54 Report. With regard to the second of the two companies referred to, I would point out that the figures of Canadian Income Tax paid by the firm and published by it show that a very substantial part of its profit was earned in Canada.

Mr. Beswick

Is the hon. Gentleman satisfied that the production of operational aircraft is commensurate with the size of the profits?

Mr. Erroll

Yes, Sir, reasonably so.

Mr. D. Price

In considering the formula, will my hon. Friend bear in mind that gross profit figures unrelated to turnover and capital are most misleading?

Mr. Erroll

Yes, Sir. One must distinguish between profit expressed as a percentage of issued capital and profit expressed as a percentage of production, for they are two very different things.