HC Deb 22 January 1957 vol 563 cc153-62

Motion made, and Question proposed, That this House do now adjourn.—[Mr. E. Wakefield.]

9.45 p.m.

Mr. John Woollam (Liverpool, West Derby)

I wish to raise the question of whether adequate finance is likely to be made available over the next decade for British tanker construction programmes. This matter has been raised outside the House in the last few months, preeminently by the managing director of the Shell Petroleum Company, Mr. Stephens. I wish to quote from part of a very long speech he made in November. Mr. Stephens said: I do not wish to underrate the difficulties involved in developing adequate and suitable finance for tanker construction, nor am I suggesting that the institutions should approach the problem in anything other than a strictly businesslike manner, but there is no question that tankers, although they are well defined and easily segregated assets, which are backed by firm contracts with the major oil companies, have so far not received from British institutional investors and finance houses the attention which we feel they merit as an investment, and which we feel they deserve on national considerations. Mr. Stephens went on to say: It is hard to see how the current level of tanker construction in this country can be maintained without the positive interest of the institutional investors through whom such a large part of the nation's total savings are nowadays channelled, and it would be of significant consequence to the British economy if we were forced one day to rely to an even greater extent on the ships of other nations merely because our financing mechanism was inadequate for the task of financing those of our own. That speech of last November was followed very shortly indeed by two announcements abroad. One was the announcement in Amsterdam that the Royal Dutch Shell Company was financing a £23 million tanker programme for the years 1959–62 and was going to finance it by raising the money from Dutch institutional investors at 4¼ per cent. over a 20-year period.

In the following week there was an announcement from Washington that the American savings banks were prepared to enter the field of loans for ship construction, pre-eminently construction of tankers. They were prepared to do that as a direct consequence of the decision of the American Government—this is most important and something which I commend to the Economic Secretary to the Treasury—to insure fully the repayment of both interest and principal on loans of this kind. I should like to give some actual figures of what this means. In America at the moment savings banks and other lending agencies are now permitted to make ship construction loans of up to 75 per cent. for a vessel built in the United States and mortgage loans up to 87.5 per cent. The American Government is insuring 100 per cent. of repayment of interest and principal.

A comparison with this country cannot be commenced because the saving institutions, finance houses and institutional investors for the most part will not contemplate this sort of investment. British joint stock banks will advance against mortgage only up to a maximum of 60 per cent., and on their valuation, not on the valuation of ship brokers of the tanker or ship concerned.

That announcement from Washington of what was a tremendous step forward in American tanker construction drew a comment from the shipping correspondent of the Financial Times from which I wish to read two sentences. The comment said: This development is in sharp contrast to the reluctance by British institutional investors to finance the building of ships. It must be admitted, however, that no encouragement comparable to that in the U.S. has been given to the institutions here by the British Government.… The new loan and mortgage policy is expected to give a stimulus to the big tanker building programme upon which the U.S. is embarking. Those circumstances provoke many questions, especially when we find they are so adverse to us who pride ourselves on being such leaders in the world financial community. They become even more depressing when we consider the relevant facts and sets of circumstances of the present time. We have, first, the need, even before the Suez dispute, somehow to solve the future of oil transportation. That has been clear, given the projected demand figures that have been worked out over the next 10 or 15 years.

Second, we have had to consider, since the Suez dispute, the possibility of achieving economic independence of the Suez Canal; at least, economic independence of the Canal in so far as this particular commodity and its transport is concerned. I hesitate to quote the Financial Times a second time, but there was a very good leader in it on 16th November on this question of the relevance of the Canal to our supply of oil, and it put the matter like this: In practice, this means that Suez as soon as possible should be used only as a marginal route for oil. It means that at every stage the British economy will have to be adapted to make way for the construction of an adequate fleet of British super-tankers. I realise that that carries many implications, not only in the financial world, but for the steel industry, and for the provision of dry docks and the ship repairing industry as well. These are two needs—one which arose before and one which has arisen since Suez—which aggravate the already adverse trend between ourselves and other nations.

There is the third need of not being dependent upon the foreign operators and foreign owners of tonnage. It is possible that we can jump from the frying pan into the fire, and escape from the foreign control of a transport route and find ourselves at the mercy of foreign control of a method of transport. For example, this year, it is true that British tanker tonnage still leads the world, but this year, for the first time, the combined tanker fleets of Panama and Liberia will exceed this tonnage. What is worse, the projected programme for the next few years will widen that discrepancy. One is not being alarmist to point out the dependence of this country on foreign-owned and controlled tanker fleets. This is a further factor which makes this financial reluctance at home so worrying.

Last of all there is the size of the financial problem. It has been estimated that the tanker construction programme outside North America for the next five years will cost at least £300 million a year and we have to set that on top of the capital commitments which the oil industry has already taken on, such as exploration and the development of existing installations. It is quite beyond the capacity of the industry to do both these jobs. In any case, I do not think it is fair to ask the oil industry to attempt to do both, because these companies are mainly oil producers and refiners, and there is a sensible and prudent limit beyond which they should not go in owning their own shipping transport.

These are four sets of circumstances which in the last few months have raised the question of how to build tankers and find the money for British tankers, and which make the whole thing so depressing. All these circumstances are within the knowledge of the Treasury, and I hope that these circumstances have already provoked questions. I hope that the implications of those questions have already produced some tentative solution in the mind of the Government. I hope the Economic Secretary to the Treasury will therefore tell us that there is some action which the Treasury could take or some advice which the Treasury could give to those people who are prepared to listen to the Treasury on a matter of national importance.

What is for me, in raising this question, the paramount consideration is that British financial institutions are at present so reluctant. Is there a difficulty in respect of which the Treasury can help? I do not know; perhaps the Economic Secretary can help me. Why do our financial institutions take the view which they do take about investing in tanker construction and in ship construction generally? Such investment is quite comparable to investing in real estate. They would have actually something on the stocks, a mortgage situation and a charter party, which is something comparable to a longterm lease. It is quite comparable; indeed, I think that many oil companies are a better security than many property companies.

Our institutions and finance houses take a view as to the merits of that sort of investment entirely different from that of their opposite numbers in the European and North American countries. I should like to know why. I hazard this as a suggestion. It may be in some way connected with the present structure of short-term and long-term interest rates. It may be that the structure of British interest rates is such at the moment that it is not sufficiently remunerative for people to put their money into tankers or the period of investment is too long. If that is so, it is within the power of the Treasury to consider how far the interest rate structure can be altered so as to produce an incentive to those who have the money to invest in tanker construction.

What I think cannot be said is that the money is not there. The money is always there, but at the moment it is going into something else. The question at issue is why it is not going into tanker finance and the construction of tankers as it is in Europe and in North America. Many fine things have been said about British finance and the British financial mechanism. In an Adjournment debate perorations are never quite in place and usually there is not enough time to make them anyway. However, I should like to say that the tradition of British finance, as I understand it, is not only one of integrity; it is also one of adaptability and enterprise, especially when it is presented with a novel problem or a new need.

If we in this country are to continue for the rest of this century as world bankers—and, as sterling area bankers, we are world bankers—we have to solve this problem and similar ones. If we fail to solve it and we allow others to enjoy the fruits of their initiative, that will be our own fault. In the jargon of the City, there will be big pickings, very large profits, which we should not allow to pass to overseas financial centres.

I hope that the Economic Secretary to the Treasury will say something tonight which will show an alertness to this problem and a determination to do something about it.

9.58 p.m.

Commander J. W. Maitland (Horncastle)

First I wish to congratulate my hon. Friend the Member for Liverpool, West Derby (Mr. Woollam) for taking the opportunity to raise what, I think, is one of the most urgent and important questions of how we should use our financial resources, especially at present. Although nowadays our tanker fleets are perhaps the most important part of our mercantile marine, it is nevertheless true, as the Economic Secretary knows very well, that this problem of raising the money to build ships, either to increase the size of the fleets or to maintain and replace existing ships, also extends to other branches as well.

Our supremacy in mercantile marine is one of the last supremacies which we have, and behind it has been built up many of our invaluable invisible exports, The City of London, Lloyd's, merchant banking—so many of these things have been built up on the development of our mercantile marine. It is difficult to see how they would be able to carry on in the position which they have achieved if we were to sink to second or third place in importance in the sphere of merchant shipping.

This question of tankers is absolutely vital. I should like to go a little further than my hon. Friend. The question of resources and materials goes deeper than he suggested and further than can be discussed during a short debate like this. It is no use building big ships unless we have deep-water harbours for them. It is no use trying to build big ships on slips which cannot accommodate them. There is a tremendous amount of capital investment to be faced if we are to go in for a policy of big tankers, as I believe we must.

It being Ten o'clock, the Motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Barber.]

Commander Maitland

It is not a problem facing only this country. In the Gulf, in America, they have very much the same problem. There they can handle only small tankers, but they will very soon be turning to the various problems hingeing upon this question of the building of large tankers. We are starting level. It would be an absolute tragedy if we allowed them to pass us.

I agree with every word my hon. Friend the Member for West Derby has said, but I do not think he made this point, that the problem of finance is bound up with the very size of the ships the building of which is contemplated. If we are to be completely free of the Canal, we shall need 80,000-ton ships. If our tankers are to use the Canal just in ballast, the least that will be much good economically will be 65,000-ton ships. Those ships cannot be handled at present in this country.

This is a matter which really does need imaginative Government action. The question of finance is vital, and I hope that the Government will realise how important it is and what a tremendous, complicated business it all is, and that it will require enormous finance to get and to keep supplying this country's oil requirements, if that is to be done by big tankers, and if we are to continue to lead the world in merchant shipping.

10.2 p.m.

The Economic Secretary to the Treasury (Mr. Nigel Birch)

My hon. and gallant Friend the Member for Horncastle (Commander Maitland) has paid a very well deserved tribute to my hon. Friend the Member for Liverpool, West Derby (Mr. Woollam) for the way he introduced this subject, and I think the whole House and, indeed, the country are indebted to him for raising a subject of the utmost importance which is very much in all our minds today.

I would start by putting on record certain things which are common ground between us all. I think we all agree that it is vital that the United Kingdom's tanker fleet should be expanded as rapidly as possible in order to meet the demands of an expanding trade. It is also, I should say, a matter of common agreement that the commercial incentive for that expansion does exist. By commercial incentive I mean that the tanker freights are relatively higher and more remunerative than freights for other classes of traffic. It is also common ground that it is in the highest degree desirable that British owners should have a greater share in the world's tanker tonnage.

At present British owners have 8 million tons of tanker shipping, and that is about 18 per cent. of the total tanker tonnage in the world. Of the United Kingdom's tanker tonnage about one-third is owned by United Kingdom oil companies. Of course, their own tankers do not anything like meet their requirements, and they, therefore, use independent British owners, and also, and to an increasing degree, they are forced to charter foreign tankers. Therefore, as I say, it is obviously most highly desirable that there should be a rapid expansion in the proportion of oil products which are carried in British ships.

This debate, of course, is about finance, but it is to put things rather out of focus to suppose that finance is the main difficulty with which we have to deal. It is fair to say that the main difficulty is the shortage of capacity in British shipyards and the shortage of material, particularly of steel. But though finance is not the main obstacle, it certainly presents certain difficulties, and the Government are by no means complacent upon this matter.

It is, however, a mistake to suppose that any difficulties that exist at the moment have very much to do with the credit squeeze. The directive to the Capital Issues Committee classes shipbuilding as being an industry having a definite urgency under current requirements. That means, in fact, that if finance is sought for this purpose it will be available. That is to say, the Capital Issues Committee will put no obstacle in the way of the money being raised.

It is perfectly true that the practice of British banks is different from the practice of a great many foreign banks. Many foreign banks grant what are called term loans, that is, they are willing to grant a mortgage on a tanker, repayments being made over the period of the time charter and, in some cases, even over the period of the life of the ship, whereas, though they sometimes grant term loans, British banks more generally grant credit only for the actual construction of the vessel and they leave the longer term finance to be provided by other institutional investors. These institutional investors, which of course include the insurance companies, have very substantial sums available and they normally like to lend on fairly long term and have their loan secured on the assets of the company seeking the loan.

But in addition to the banks providing short-term finance and the institutional investors providing longer loans, other special facilities are provided in the City of London by the Ship Mortgage Finance Company, which was set up in 1951 for the express purpose of lending on ship mortgage for ships built in United Kingdom yards. Therefore, it is true to say that there is in the City of London a wide range of financial facilities. Oddly enough, in some ways foreign owners seem to have been keener to take advantage of these facilities in the City of London than have been British owners. But having said that there is this wide range of facilities, I think that there is force in the criticism that there is a gap, that is to say, that there is not sufficient capital available for term loans secured on tanker mortgages, and it can be said that the banks in Britain lend too short and the other financial institutions lend too long.

My hon. Friend the Member for West Derby asks me to show sympathy and alertness. I assure him that the Treasury, as ever, is both sympathetic and alert to everything that tends to the good of the country. I can say that this matter is engaging our most earnest attention. My hon. Friend will not expect me to issue or to expound a new policy, but we are aware of the difficulty. We are neither unalert nor unsympathetic and I trust that means will be found.

Mr. Collick

Before the Minister finishes his speech, could he give the House some further information? Would it be correct to say that our tanker building capacity in our shipyards at the moment is fully used, or is it less than fully used?

Mr. Birch

As far as I am aware, it is fully used. The hon. Gentleman interrupted my eloquent peroration. All I was saying was that we will do our best, and I am deeply grateful to my hon. Friend for raising this very important matter.

Question put and agreed to.

Adjourned accordingly at eleven minutes past Ten o'clock.