FERRANTI LTD. (LANG REPORT)

HC Deb 30 July 1964 vol 699 cc1801-65

3.55 p.m.

Mr. Harold Wilson (Huyton)

I beg to move, That this House, noting the findings of the First Report of the Inquiry into the Pricing of Ministry of Aviation Contracts, deplores the failure of Her Majesty's Ministers to provide adequately for the protection of the taxpayer in respect of contracts placed with Messrs Ferranti Limited. It is appropriate that the final debate of this dying Parliament should relate to one of the themes that has dominated our debates over the past five years—the latest and, in its way, most dramatic manifestation of the Government's failure to control waste and secure a proper value for the expenditure of the taxpayers' money on defence projects. This Parliament, which, in its earliest months, debated the explosion of the Blue Streak myth, now whimpers its way into history on the Ferranti disclosures.

It is equally appropriate that the final debate of this Parliament should take the form of a Motion of censure on the Minister of Aviation. No Minister has deserved less of this House. None has discharged his duties with less regard for the interests of the taxpayer. No other Minister charged with his responsibilities, not even his predecessor, has equalled his achievement in reducing both civil aviation and the aircraft industry to a state of near bankruptcy, redeemed only by costly doles from the public purse.

It fell to me some years ago to criticise the right hon. Gentleman's appointment as Minister of Aviation, and if there were any standards in the Government's conception of what public life requires I should today be pronouncing the obsequies following his resignation. What has happened and all that he has wrought in the discharge of the important responsibilities entrusted to him—these are the price of nepotism.

Mr. Peter Emery (Reading)

Shame! Cheap !

Mr. Wilson

Before I come to the financial aspects of the Ferranti business, I should like to refer to the manner in which this House has been treated, not for the first or for the 51st time, in that we read the first detailed summary of the Lang Report not in a White Paper duly laid before Parliament, but in the columns of the public press. This has been the hallmark of the right hon. Gentleman's administration.

The right hon. Gentleman may on this occasion tell us that he was not responsible for the leak, nor was his Department. He may tell us that the fault lay, exceptionally, not in Whitehall but with Ferranti. If that is his defence, let him say so. Then let him explain why the Lang Report, the Report of a Committee set up as a consequence of the Report of the Comptroller and Auditor General to this House, was given to a private firm, to which neither the Ministry nor this House owes any particular consideration, before it was presented to Parliament. If the right hon. Gentleman tells us that the leak came from Ferranti, I am sure that the House will accept what he says.

What we will not accept is any denial that on issue after issue affecting the Ministry's conduct of affairs, including vital, secret aspects of our national defence, secret information has been systematically and deliberately leaked to the Press—and not to one paper only—by his Ministry. [HON. MEMBERS: "Secret?"] Yes, secret. This is a serious matter, because there have been many cases. Government intentions to buy particular weapon systems, particularly aircraft—and obviously this is secret, whether from this country or, as is increasingly the case, from the United States—have been leaked to the Press at the very time when Ministers have hedged and stalled and dodged at the Dispatch Box and asserted that no decision had yet been taken.

During the difficult process of settling the Defence Estimates—difficult for any Government; we all recognise that it is a process involving great issues of defence policy, national security and the public purse—we have time after time read carefully leaked statements that this or that aircraft or weapon was to be ordered. In the event, the right hon. Gentleman was as often as not turned down by the Cabinet. One cannot easily calculate what purpose lay behind these leaks other than a desire to condition a Cabinet decision through Press and public pressure.

Then we had the VC10 story. Leaks came almost daily. The nature of the compromise which the right hon. Gentleman was proposing appeared in the Press before the Cabinet had met. Then appeared the news of the Cabinet rejection. Then the actual figure of the intended purchases. The decision communicated at a private meeting last Sunday week between the right hon. Gentleman and Sir Giles Guthrie appeared on the Monday morning. Only two persons knew what had been said, apart, of course, from the Prime Minister, who had received a lunch-time report—and we certainly acquit him.

If time and the rules of order permitted, I could give the House a whole series of these cases of security leakages. In fact, we have had one all-night sitting, last night, and I do not suppose that the House wishes to be kept up by my going into these details. I have here a file of many of the cases which have occurred in this Parliament. If the Prime Minister is interested, I shall be quite happy to give the details, although I should be very surprised if he does not know about them already. Debate after debate has certainly convicted the right hon. Gentleman's Department of incompetence. To this, must be added the graver charge for one who is responsible in the most secret matters of defence, the charge—I use this phrase in the strict "Oxford English Dictionary "definition—not only of incompetence but a degree of incontinence which makes him unfit to hold office.

I should like to make clear that our charge is not against the journalists concerned—there is more than one of them—but against the Minister and his Department. The journalists have their job to do and we shall defend—as we did a year ago and more—the rights of a free Press. But it is not the job of the Defence Minister to make that job a push-over for these journalists.

These journalists—I do not only have Mr. Chapman Pincher in mind, though he really is too distinguished to set up in business, as he did this morning, as the apologist and P.R.O. for this particular Minister—are voracious in their appetite for any tasty morsel which is thrown to them. That is their job. But it is the job of a Minister responsible for defence security to see that these morsels are as rare as it is humanly possible to ensure.

Now I turn to Ferranti and the £5 million. The Lang Report, the first Report, has entirely justified the Comptroller and Auditor General, the Public Accounts Committee and the Opposition in the strictures each has made. I think it fair to say, and let us recognise, that this affair would not have come to light but for the vigilance and effectiveness of the Comptroller and Auditor General and his staff. Privileged as I have been for four years to see the work of the Comptroller and Auditor General and the Exchequer and Audit Department at close quarters, I feel, as would many hon. Members, that it would be churlish for this House to fail to place on record its appreciation of their tireless and back-breaking work on behalf of the taxpayer.

The deterrent effect of the Comptroller and Auditor General and the Public Accounts Committee in preventing waste and abuse—to which I have drawn attention in previous debates—obviously cannot be measured. We cannot measure the waste saved because of prevention. In this case, where £4¼ million of mispent appropriations have been returned to the taxpayer, I think that it is possible for all of us, the Press. the public and for this House, to be able to identify and to quantify a particular and very welcome success.

The Lang Report criticises particular servants, and I will come to this in a moment. If the Comptroller and Auditor General and the officers concerned at Audit House had been employed in private industry, I think that they would have received a sizeable bonus from their grateful employer for what they have done on this occasion. I repeat, this refund is due to the ex post facto vigilance of a small number of public servants where the Minister responsible has failed to exercise the vigilance which his duty to the public required.

When the Comptroller and Auditor General reported to the House, the Minister, hastily—that very same day—appointed the Lang Committee. It was his hope, no doubt, that this would head off the Public Accounts Committee from any inconvenient inquiry, and that the whole matter would be swept under the carpet until a spring General Election was nicely out of the way. But this neat calculation ignored two things. First, the dedication and sense of responsibility of members of the Public Accounts Committee from all parties. Secondly, it ignored the political timidity of the Prime Minister. We did not get a spring election so the timing has gone wrong. We had the Report of the Public Accounts Committee. The House debated the Report and we were fobbed off with references to the Lang Report in that debate.

Now we have the Lang Report, what is the excuse to be? Is it to be—as the Press seems to have been briefed this morning—that it is all the fault of one or two technical civil servants? We had that ore on the Radcliffe Report on the Vassall case—except that there we had the highly convenient fact that the civil servant in question was dead. We had it more recently over the responsibility of the Home Secretary for de Courcy's escape, where the right hon. Gentleman failed even to "come clean" with the House. Honour was satisfied—his honour anyway—by reprimanding two prison warders.

I understand that there is to be a disciplinary inquiry into the Ministry of Aviation, and I do not seek to prejudice that inquiry. There is one thing that anyone concerned with the maintenance of the traditional standards of public conduct will not tolerate, and that is the persistent effort to shift ministerial responsibility for departmental action on to the shoulders of civil servants who are not in a position to defend themselves.

We know, of course, that under this Government, standards have fallen. Does anyone think that Lord Attlee would have tolerated this debasing of our standards? Or, indeed, within the 13 years of Conservative rule, that the right hon. Member for Woodford (Sir W. Churchill) would have done so? In the Crichel Down case the responsible Minister—who enjoyed and deserved the respect and affection from this House that the right hon. Gentleman the Minister of Aviation has never enjoyed nor deserved—Sir Thomas Dugdale, who is now Lord Crathorne, resigned on a very strict application of the rule of ministerial responsibility, and he earned the respect of the whole House for doing so. Not any of the Ministers responsible in this case have done so. Of course, the right hon. Gentleman can say that he was not the Minister responsible when a large part of this was happening. But it is much easier—if the right hon. Gentleman is not responsible someone else is, and we have heard no suggestion of his resignation—to blame the civil servants.

On the question of the civil servants, let me draw the attention of the House to one of the findings in the Lang Report. The fact is that the Department, obsessed by a penny wise, pound foolish, doctrine of economy, has persistently run the branches concerned on a shoe-string, woefully understaffed, and unable to do the job which needed to be done if the public purse and the taxpayer were to be protected. I have—I think that this is true of a number of hon. Members—never underrated the difficulties of financial control of these R and D contracts. In the first Report with which I was concerned as a member of the Public Accounts Committee this was frankly stated and the difficulties analysed.

Again, in the first debate we ever had on a Public Accounts Committee Report, in December, 1960, my colleagues and I chose this subject—the unique difficulties of controlling finance and expenditure on R and D contracts—as the one theme for the first debate, and it has featured in subsequent debates. If we are to embark on these ventures, and deal with firms who—as this case shows—are less than frank, less than open, with the Department concerned, if we are to set up a system where the dice are so heavily loaded in favour of the firm and against the Exchequer, we have a duty to staff the relevant branches on a basis which will enable the financial controllers to do their job.

But, of course, this would not happen, because it has been a central theme of the Government that civil servants are wasteful, unproductive, parasitical and a drag on the economy and that their numbers should be reduced regardless of the consequences, never mind if there is a much greater increase in the numbers employed in advertising, financial speculation, property racketeering, or gambling, or the enforcement of monopoly power—because these things are good and productive and because they make a profit. The result of this philosophy is the under-staffing and scamped work in a vitally important Department of State.

I do not propose to weary the House with all the detailed criticisms of the internal operations of the Ministry, of the individual failures of the Directorate of Technical Costs and of the Directorate of Accountancy Services, still more the complete failure of all concerned to bring these two Departments together and to co-ordinate them. These matters were very fully dealt with in the P.A.C. Report and in the previous debate. What Sir John Lang has done, with great authority and with the painstaking research which he and his colleagues have brought to this inquiry, is to underline all that was said by the Public Accounts Committee and in the debate.

There is one thing on which he has been able to improve on the P.A.C. Report. He has been able to measure the total loss. One of the most unsavoury aspects of this business was Ferranti's refusal to give the Public Accounts Committee, a Committee of the House, access to his books. I am glad that he was persuaded to be more forthcoming with the Lang Committee. We now know the figures. Ferranti made a profit of £5,772,964, representing 82 per cent. on its costs.

The Report is equally frank in assessing the responsibility of Ferranti. It was smart; it was very smart. They submitted quotations and agreed prices which they knew were very likely to yield profits that the Ministry would not regard as fair and reasonable, profits which can only be described only as excessive. That is a quotation from the Lang Report. It was secretive, evasive. It was still producing for the purpose of price negotiation, producing at a very late stage in the production process, when the order was nearly complete, cost estimates for the Ministry which production experience had already falsified. As paragraph 28 makes clear, in July, 1960, the firm increased its estimates basing their prices, as before, on the prime cost estimates agreed with the Ministry's technical cost officers but applying 558 per cent. as the overhead rate on direct labour. Their revised quotation related to the quantity of missile equipments—about 80 per cent of the total—expected to be delivered by 31st March, 1961. At the time of quoting"— that is, quoting these so-called estimates— nearly three-quarters of the items covered by the quotation had already been delivered or were in course of manufacture. The firm must have known at that time that the figures it was quoting to the Ministry had already been falsified by production experience.

One thing is very clear and that is the danger of basing a price on a direct cost, be it labour cost or anything else, to which is then applied a multiplier in terms of overheads running into several hundreds per cent. It is an extremely dangerous way of calculating prices, because a small error in the prime cost, or, for that matter, a small degree of waste, for which this system provides every incentive and which is rewarded six times over, can be exaggerated several times over by the multiplier.

Let it be noted that in September, 1961, when 90 per cent. of the order had been delivered and probably 95 per cent. of the order produced, the firm pressed for an overhead rate for the last 20 per cent. which had been produced and delivered of 630 per cent. overhead rate on direct labour—and the Ministry agreed.

What are the lessons of this regrettable affair? The first is that if we are to do business in this way on what is really an open-ended contract, we need to see that the public interest is adequately represented and adequately staffed. The Lang Report underlined what all of us felt—that once we move into this kind of operation, we are moving in shark-infested waters and we need care, we need vigilance and, what was lacking above all, we need toughness. We are getting a refund now thanks to the vigilance not of the Department, but of the Comptroller and Auditor-General.

On the subject of this refund, we should like to know what truth there is in this morning's Daily Express report that Ferranti is now likely to get £10 million more of new contracts in the next fortnight for equipment in connection with the P1154 fighter. Can we be told whether this is so and how this is known, since presumably the tenders and any decision of the Ministry itself will not have been taken—which I doubt. How can it be known outside?

The second lesson is that while, as I have said and as many others on both sides of the House have said many times, none of us under-rates and never has under-rated the tremendous difficulties of cost control in this kind of operation—and, goodness knows, cost plus, a system of ascertained costs plus a percentage profit, has its dangers and a built-in tendency towards waste—it is clear that a fixed price arrangement so clearly weighted in favour of the contractor is likely to lead to profits which are excessive by any standard.

What is wrong is that the private contractor, inevitably preoccupied with a desire to maximise his profits, which is understandable, and the public Department, whose job it is to protect the taxpayer, should be operating at arm's length from one another in conditions which put a premium on withholding and concealing relevant information from the Department concerned.

Four years ago, we warned that the interests of the taxpayer in such cases could be protected only by a system involving an assertion of public responsibility and public control. In our last debate, my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) quoted from a little work called "Signposts for the Sixties"—this, of course, was sufficient to send the right hon. Gentleman into one of his ideological orbits where he is always much happier than when he is performing the humdrum rôle of protecting the taxpayer.

Let me tell the right hon. Gentleman what should be done if we are to be involved in any future case of weapon development where the problems and the cost of both development and subsequent production, as in this case, are unpredictable. Let me say what might have been done in this case. When we embark on a weapon, Bloodhound in this case, we should set up a joint company, a £100 company, possibly called Bloodhound Project Ltd., in which 50 per cent. of the shares would be held by the contractor and 50 per cent. by the Ministry. The price would be fixed, as in this case, as we went along. It would be nice to have estimates; before the production of any large unit and not after it had been produced. Mistakes might be made and we all recognise the possibility of mistakes in this kind of job, but the 50 per cent. arrangement would mean automatically that half of any miscalculation would go back to the Ministry.

Furthermore, with both sides in on both production—[HON. MEMBERS: "What about a loss?"]. Hon. Members opposite ask what would happen if there were a loss. In almost every case, because prices are controlled in this way, whenever costs were rising the Ministry would hear about it. There has been only one case, the Argosy case, full details of which were leaked to the Press the Sunday before our last debate, which will be quoted in extenuation. But in that case the contract was given to the company concerned to help it out of a financial hole. There was no question of the Ministry having to go in with some new and difficult development, so that that was not a parallel.

However, there is another advantage in what I have suggested. Both sides would be involved on a partnership basis both on production control and on price ascertainment and it would, therefore, be much easier for all concerned to know the costs and prices and to relate them to known facts arising from the process of production. The fact that in the case I have envisaged—if it had been the Bloodhound case—Ferranti's directors and the Ministry's directors would be sitting around the same board table at the monthly board meetings, would have made it inconceivable that the firm's directors would withhold from their colleagues, partners and co-directors, information in their possession which they knew to be relevant.

The third lesson relates to the failure of the Treasury and Ministers generally to exercise their responsibilities in the matter of costs. When the Plowden Report was published I expressed my doubts—and I know that some people thought it a bit old-fashioned—about the fact that the Treasury was relinquishing its traditional control to the spending Departments before the Departments themselves were organised in a way which would enable them to provide effective departmental control, and this case has underlined the doubts which I expressed on that occasion. Certainly, the record of the Treasury in permitting this case to arise betrays a deplorable lack of financial control by the Treasury, which was responsible for supervising it.

I hope that the Chancellor of the Exchequer, who, I gather, hopes to catch your eye, Mr. Speaker, and who is becoming adept, if not happy, at running in double harness with his right hon. Friend in our fortnightly—or is it weekly?—aviation debates, will answer some of the questions. He always puts on a polished performance without giving the House any figures. I hope that on this occasion he will deal very seriously with the problem of the Treasury's own responsibility in this matter, for we are not satisfied, and any perusal of the Public Accounts Committee's findings will suggest that the Treasury did not play the part in this case which it should have played.

I should like to feel that not only the Chancellor of the Exchequer, but also the First Lord of the Treasury was concerned, on the taxpayers' behalf, because he is responsible both for his Ministers and for the administration of the Government. Hon. Members may have seen that in an outburst of macabre humour, in the leading article of The Guardian today, there was a reference to the right hon. Gentleman as the Prime Minister "who might have brought order into the great spending Departments, but did not". This is carrying sick humour too far. To suggest bringing in the Prime Minister to get a grip on any situation involving administration, industry and the details of finance is about as relevant as to suggest bringing in the Dalai Lama to the conduct of affairs.

In any case, even if he were capable of it, he is too busy shooting round the country ineffectively delivering the same speech to long-suffering audiences. [HON. MEMBERS: "What about you?"] It is not the same speech in my case. Hon. Members may read the Penguin in which they will find that all the speeches are different, and they are all my own work, too.

After that brief "commercial", I feel that, having studied the Lang Report, if right hon. Gentlemen, from the Prime Minister downwards, would spend 1 per cent. of the time which they now spend on playing politics with the nation's defence, for electioneering purposes, in facing up to the realities of the defence position and cutting out even a fraction of the wasteful expenditure which they pour out on missile projects, most of which are scrapped before they leave the drawing board anyway, they might begin to look like Ministers.

The Ferranti disclosures—and this is my fourth and last point—represent the consummation in a long and weary list of defence financial failures which, whatever the differences in their chequered history, have this in common—a prodigious waste of public money. I hope that the Prime Minister, if he will take a suggestion from me, will devote a party political television broadcast to giving the nation a record of the last seven years in defence expenditure—since the White Paper of 1957. There has been Minister after Minister, each with a new and more costly alternative to the favoured project of his predecessor. In 1959, we had the right hon. Gentleman now Secretary of State for Commonwealth Relations. We remember his White Paper and the Press headlines—"Blue Streak in, Polaris out". We remember the long Press briefings to show why Polaris would not work.

In 1960, we had a new Minister, Mr., now Lord, Watkinson. Blue Streak out, Skybolt in. We were told that Skybolt was the answer to the foolish virgin's prayer. More expenditure, more projects, more waste. In 1962, there was a new Minister: Skybolt out, Polaris in—which the Government had rejected four years before with such contempt. During the four years there had been hundreds of millions of pounds expenditure in this nuclear La ronde in which Ministers are engaged.

In 1964, last week, we had the party political television broadcast by the present Minister of Defence. He said: That is the Polaris submarine. It provides the most indestructible type of retaliation known to man. That was just the exact opposite to what had been said in February, 1959, by his predecessor but one. Thus we had five years, £8,000 million and three Ministers—and they all had this in common: each one of them, before becoming Minister of Defence, had been either Minister of Supply, or in one case Minister of Transport and Civil Aviation, or Minister of Aviation. Each of them had served his apprenticeship in the aviation field. Each of them had passed out after that apprenticeship with the highest honour in the sense of wasting the maximum amount of the taxpayers' money even before he was given Cabinet responsibility.

It is fair to say that the present Minister of Aviation is still at the apprentice stage. but in his aptitude for pouring the taxpayers' money down the drain, with nothing to show for it, he has—I grant him this—transcended the achievements of every one of his predecessors. One trembles to think what the Defence Estimates would be if, his indentures completed, he were to pursue his predestined path to the Defence Ministry.

But this, at least, will not happen. Not because he will resign We know that the contrast between his standards and those of Lord Crathorne is as marked as the contrast between those of the present Prime Minister and those of the former Prime Minister, who accepted Lord Crathorne's resignation over Crichel Down. I do not propose to waste any words asking him, or any of his predecessors who were responsible for this affair, to resign, because it is not necessary. A. few more weeks, and he will have to obey a call more urgent and authoritative than his own conscience—and he will not be alone when he does it. Then, and only then, shall we have a Government with a sane and relevant defence policy and an economical and efficient means of carrying it out.

4.30 p.m.

The Minister of Aviation (Mr. Julian Amery)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: while recognising the difficulties involved in estimating costs in relation to novel and complex fields of manufacture, and noting the findings of the first report of Sir John Lang's Inquiry, endorses the action already taken to strengthen the contracts organisation of the Ministry of Aviation and the intention to take such further steps as may be necessary in the light of Sir John Lang's further report and approves the acceptance of the offer of Ferranti Limited to refund a total of £4,250,000. The right hon. Member for Huyton (Mr. H. Wilson) has been a distinguished Chairman of the Public Accounts Committee, so I have listened with very great care and respect to what he has said on the more detailed aspects of the Bloodhound contract. I should like to join with him in paying my tribute to the Public Accounts Committee's Report, to the work of the Comptroller and Auditor-General, and to the work of Sir John Lang, although the right hon. Gentleman will remember that his appointment was somewhat criticised from the other side of the House as likely to be prejudiced.

The right hon. Gentleman is also something of an authority in his own right on leaks, a subject of which he made a considerable study. I propose to turn at the end of my remarks to what he said on the subject of premature disclosures. But before I turn to these, which inevitably are of a controversial and personal character, I should like to deal with the broader issues before us and take them first in terms of responsibility of my Department and therefore myself in the matter and afterwards of our relations with Ferranti Ltd.

The story of Government contract services is a long and honourable one. There were some murky passages in the eighteenth century, but after that the Contracts Branch was kept very much apart from the rest of the Administration. This was not so marked in the Admiralty, but in the War Office and the Air Ministry, before the war, the Contracts Branch was almost a little empire of its own. It may have preserved its integrity, but I cannot say that its efficiency did not suffer to some extent from this.

This Service tradition was carried on in war time in the Ministry of Supply and Ministry of Aircraft Production and maintained in the reorganisation which took place in 1946 when the war-time system was adapted to our peacetime needs. Since 1946, the organisation has evolved as weapons systems have become more complex. The Technical Costs Branch, in particular, has been enlarged in size and improved in quality and it is stronger today in both respects than it has ever been before in war or peace.

Generally, I would claim that this organisation has stood the test of experience and that our procurement of weapons systems under it has on the whole been successfully accomplished. The right hon. Gentleman talked about the nuclear La ronde. Well, Blue Streak was fired successfully. No doubt if the party opposite came into office Polaris would be abandoned and the nation would have to rely on whatever United States President comes into power. I believe that our procurement system of weapons has, on the whole, been successful and I do not believe that excessive profits or losses have been common. We know what the profit figures of the aircraft industry are. So much Government business is conducted with it that we would very soon detect them if there were any excessive profits in that sphere. I am speaking of airframes and aero-engines.

We have, of course, less information about the electronics industry because so much of this work is carried out on private account, but with the advantage of hindsight I had a special inquiry made by a retired Deputy Director of Contracts in my Department into the recent Ferranti contracts we have let. We have not, of course, got all the information about it, but we have a good deal and the report I have received gives no evidence of excessive profits in any case. All the information we have leads to this conclusion, but I freely agree that the Bloodhound contracts do show the need for some overhaul. [Interruption.] I would ask the House to be very careful before it dismisses the work of the Contracts Branch as inefficient. Sir John Lang is to report in the autumn on the organisation as it stands and to make recommendations for improving it.

A good deal of thought has been given by us to changes which may be necessary. We have to consider very carefully whether the Contracts Branch is strong enough either in size or quality. We have investigated the pros and cons, the advantages and disadvantages, of using outside consultants. We have not only considered the adoption of incentive contracts with risk-sharing provision, but we have made a contract with Ferranti Limited for a particular component in TSR2 in which we would share in savings or losses and it looks as if we shall share in the saving.

I have also considered the need for high-grade "project officers" and we are making an appointment of this kind where the P. 1154 is concerned. I am making these points not to announce decisions about them, but to show the way our minds are moving pending Sir John Lang's second report.

Sir John Lang found in his Report a central mistake on the Ministry's part from which the others have flowed. The Technical Costs Branch miscalculated the direct labour content of the job by over 100 per cent. In other words, it thought that the human effort required to complete the job would be twice as large as it proved to be.

Mr. Ellis Smith (Stoke-on-Trent, South)

Time and motion study would settle that.

Mr. Amery

There is no evidence in Sir John Lang's Report—indeed he finds the contrary—that a revolutionary process was introduced by Ferranti. It was a mis-calculation. This mistake was magnified by the addition of overheads calculated at the rate of about 500 per cent. This labour content estimate was the basic mistake but there were two chances open to our contract organisation to remedy it. The estimates, as the Report shows, were made at the end of 1959. The prices were not agreed until the end of 1960 and 1961. At that time the job had been largely completed and we could have insisted on looking at the work and calling for figures. Sir John Lang makes this clear in paragraph 48 of the Report. This was not done. Had it been done, I have no doubt that the firm would have protested, but it could and should have been done.

There was a second chance. This was to compare the figures of direct labour in the overhead calculations of the accountancy services with the estimates of direct labour by technical costs. This was not done for reasons which I explained in detail in the last debate. It is only fair to say that Sir John Lang does not regard this as negligent contracting. We find that in paragraph 51 Sir John shows where our contract organisation went wrong. He does not show so clearly why it went wrong. This is something I am determined to find out. I have started a stringent investigation into the question of personal responsibility in all this. The Permanent Secretary of my Department will be in charge of this and the new Deputy Secretary who has just come from Admiralty, where he has had great experience of contracts, Mr. Mackay, will help. All this will be done in close touch with Sir Laurence Helsby.

Yesterday's Press was full of stories about disciplinary action. There is no foundation for this any more than there is for the stories in today's Press that there will be no disciplinary action. The investigation is only beginning and we would not hesitate to take disciplinary action if it were proved to be necessary. I come now to the question of ministerial responsibilities. I think that it would be wholly unsuitable in a matter of this kind where the taxpayers' interest, as has been proved, has been adequately defended, to make any charge against any Minister—[An HON. MEMBER: "This is absurd."]—in this affair.

I have studied very carefully the records of resignations in matters of varying kinds over the last 50 years. Sir Austen Chamberlain is, I think, always regarded as the Minister who showed the most punctiliousness in a matter of resignation and his responsibility for the matter in question was very tenuous.

Mr. Denis Healey (Leeds, East)

The right hon. Gentleman is not a judge.

Mr. Amery

The Leader of the Opposition has called on me to resign. Surely I have a right to reply. It was said of Chamberlain, by an unkind critic, that he always played the game and always lost it. No one will ever say the first part of that aphorism about the Leader of the Opposition.

I want to say something now about the action which has been taken in my Department since the Report of the Public Accounts Committee came into our hands. The Director-General of Aircraft Production in the Ministry has made a detailed study of the Technical Costs Branch. Our purpose was to break down the separation which has existed to some extent between the Contracts Branch and other parts of the Department and a number of recommendations have been made.

The first and most important is that it has now been laid down that it is to be the responsibility of the firms with which we deal to make the estimates and the Technical Costs Branch will check those estimates. In recent years, the technical branch has tended to make estimates of its own and compare them with those of the firms. That has been an unsatisfactory procedure.

The Accountants' Branch has also been transferred from the Finance Division to the Contracts Division so as to avoid in future the "ivory tower" criticism made in Sir John Lang's Report. Instructions have been given to the contracts staff to inform themselves of actual costs on an early production batch before they accept technical cost estimates for the major production batch.

As a matter of routine, the Accountancy and Technical Costs Directorates will compare labour figures in overhead calculations with direct labour estimates although, as I have said, the number of cases where this will help will be relatively few. In conjunction with the Treasury and other purchasing Departments, we are making a full study of the form which contracts should take where there is no competition, and no open tender.

We are also examining closely the treatment of overhead costs. Means must be devised to reduce the chances that errors in forward estimating of direct labour costs should become exaggerated by a large overhead factor.

I turn now to Ferranti's part in the matter.

Mr. Arthur Lewis (West Ham, North)

Which one?

Mr. Amery

Ferranti Ltd. It would be very wrong for the hon. Member for West Ham, North (Mr. A. Lewis) to suggest anything else.

Mr. Lewis

Where is the hon. Member for Morecambe and Lonsdale (Mr. de Ferranti)?

Mr. Amery

The main contracts for Bloodhound I components and equipment were placed in 1956. In 1960 and 1961 prices amounting to £12 million were agreed, which allowed for a 7 per cent. profit on costs. Sir John Lang has seen the Ministry's books and Ferranti's books. He finds that the actual costs were about £7 million. Ferranti thus took a profit of £5,770,000, or about 82 per cent. on cost.

The essence of a fixed price contract is that the contractor undertakes risk and I have spoken in the House, in our debate in April, about the Argosy contract and the very heavy loss which Hawker-Siddeley suffered under it. An 82 per cent. profit is, by any standard, excessive, but I confess that I would have hesitated to press for a refund had there not been special circumstances.

Sir John Lang found that there were special circumstances. He concluded that, when prices were agreed, Ferranti must have known more or less what the outcome would be. He concluded that on the first batch it must have known within narrow limits and on the last batch pretty accurately.

Standard Condition 43, the provision which governed this contract, lays down that prices must be fair and reasonable. Sir John Lang judged that, in the light of the knowledge available to Ferranti the prices agreed could not be regarded as fair and reasonable. In these circumstances, and these alone, I felt justified in reopening the correspondence we had begun with Ferranti at the time of the earlier debate and I sought a refund.

Ferranti has certain reservations on Sir John Lang's Report, but it has felt bound to abide by the result of what it acknowledges was an impartial inquiry. It has accordingly offered a refund totalling £4¼ million, leaving the firm with a 21 per cent. profit. That is certainly a substantial profit. In the debate on 29th April, I expressed the view and explained to the House that, while our Contracts Department would set a profit margin of about 7 per cent., an efficient firm might beat that and secure something in the region of 15 per cent. to 20 per cent. profit.

My right hon. Friend the Secretary of State for Defence said in that debate: By an excessive profit, I do not mean 15 or 20 per cent."—[OFFICIAL REPORT, 29th April, 1964; Vol. 694, c. 538.] The Permanent Secretary to the Ministry, Sir Richard Way, gave evidence to the Select Committee to the same effect. This job was carried out in time, to a standard of high efficiency and there was no contractual obligation on the firm's part to make a refund. We therefore accept the firm's offer as reasonable. The timing and details of the repayment will be settled between my Department and Ferranti. It is not easy for any firm to repay a sum of this size over a short period. We have no wish to penalise Ferranti or hinder work for the Department.

The right hon. Gentleman asked for information about future contracts. We have made it plain that we would not discriminate against the firm. Nor would we discriminate in its favour. We shall place future contracts where we think it is best in the national interest to do so.

Mr. J. J. Mendelson (Penistone)

Can the right hon. Gentleman confirm or deny what has appeared in several reports—that Ferranti made it a condition of offering to repay this money that the right hon. Gentleman should make a statement that he would not discriminate against it in future? Or did the firm offer to repay without condition?

Mr. Amery

We asked for a repayment. We and we alone are responsible for the statement we have made. We are dealing with a firm—[Interruption.] The hon. Member asked a question. Perhaps other hon. Members will give him a chance to hear the reply. We are dealing with a highly efficient firm with which the Government have every interest in working. We have no interest in discriminating against it. We shall work with it and, what is more, I believe that, in the light of the events which have taken place, this will not prove a difficult task. [HON. MEMBERS: "Answer the question."] There were no conditions.

The lessons for the industry are clear. It does not pay to take advantage of the Government.

Mr. R. T. Paget (Northampton)

What!

Mr. Amery

All this happened some time ago. We in my Department have learned a good deal from it. So, I think, has Ferranti.

Mr. H. Rhodes (Ashton-under-Lyne)

So has the country.

Mr. Amery

At any rate, that is my impression from the negotiations my Department has had with the firm at different times in the last year or two.

Mr. Charles Loughlin (Gloucestershire, West)

Why does not the Minister prosecute the firm?

Mr. Amery

The hon. Gentleman does himself and the country no good by decrying the ability of a highly efficient firm which has a great contribution to make. After what has happened, I am confident that our relations with Ferranti will not again be clouded by events like those we are discussing. That is why we have made it clear that we have no intention of discriminating against the firm in the allocation of future contracts and we look forward to harnessing its skill to the national interest.

Sir Arthur Vere Harvey (Macclesfield)

Will my right hon. Friend confirm that in the decision not to discriminate against the firm he has considered the interests not only of the firm itself, but of all the men who serve the firm and who have helped to build it up over the years?

Mr. Amery

The tribute that I paid to the skill of Ferranti applies to all those who serve in the organisation.

Mr. Eric Lubbock (Orpington)

rose—

Mr. Amery

The debate is very short. The clock is moving on. I must get on.

Sir John Lang's First Report finds that serious mistakes were made, both by the contracts organisation of my Department and by Ferranti. Ferranti has agreed to make a refund, which I understand is very inconvenient to the firm. What is more serious is that public confidence in relations between Government and industry has suffered a pretty serious jolt. In this business of large Government contracts there must be a relationship of confidence between the Government and industry. There are people in industry—I come across them every day—who think that our contracts people tend to press industry too hard. In this case there seems to have been a clear tendency to take advantage of the Government. Neither course can be in the best interests of either the country or of the parties concerned.

The right hon. Gentleman said that we were sailing in shark-infested waters. This is no kind of language for a man who seeks to work closely with industry. I have had the chance of discussing these issues recently with the heads of the electronics and the aviation industries. My belief is that the lessons of these events have been taken to heart by them and that they will strengthen the partnership between the Government and these two industries which we have been trying to foster.

I freely admit that mistakes have also been made by my Department, but I am sure that the House will recognise that the task of the Contracts Division is an immensely difficult one. It is costing at the frontiers of knowledge and estimating the cost of the unknown. This is a tremendous responsibility, but with it goes a great deal of routine, and even tedious, work. It is not easy, believe me, to get the right men in the right quantities to staff the technical costs branch, whatever salary is offered.

These, after all, are very highly qualified engineers. It has been assumed for a long time that Britain was so rich in talent that we could get people for any job the Government wanted done, but with industry booming the way it is it is difficult to tempt qualified engineers from productive work to what is essentially monitoring work. The supply of skilled men in this country is not inexhaustible, and the technical Civil Service is already strained.

Right hon. and hon. Members opposite should remember this when they talk about extending the public sector. It is all very well talking about a 50 per cent. interest in a company called "Bloodhound". I do not know where the men would be found to protect the interest on the scale hon. Members opposite envisage. The right hon. Gentleman also needs to remember that we need our best men on the creative and productive side in industry. I believe that the Bloodhound I incident is the exception to the general course of contracts between the Government and industry. This is one occasion, the only one I have come across, where the Contracts Branch of my Department has actually overestimated the cost of a project. The Department nearly always underestimates the cost and comes back for more. This time it over-estimated the cost, and that is very rare.

Nevertheless, I freely agree that what has happened shows the need for an overhaul. I have already announced some of the decisions we have taken, and more will follow when we have the second part of Sir John Lang's Report. Meanwhile, the taxpayer, I am glad to say, has suffered no loss. This is a happy conclusion which we owe to the Comptroller and Auditor-General and to the efforts of the Government. [HON. MEMBERS: "Oh."] Before I sit down, I want to deal with the allegations of the right hon. Gentleman about premature disclosures.

Mr. Ellis Smith

I want to ask the Minister a question based on a careful study of the Lang Report. The Report states that the Minister's accountants withheld information from the technical officers. What action has the Minister taken on that allegation?

Mr. Amery

I thought that I explained earlier in my speech that we have now brought the accountancy branch and the technical costing branch into the same division of the Ministry. I explained that some minutes ago.

I turn to the right hon. Gentleman's allegations about premature disclosures. The right hon. Gentleman claimed in a question on the business statement last week that Ministry of Aviation business, Ministry of Aviation secret reports, Ministry of Aviation proposals "—[OFFICIAL REPORT, 23rd July, 1964; Vol. 699, c. 695.] had been privately leaked to a single newspaper, for reasons which he could only surmise. He charged that this had happened on at least 15 occasions this year. These are very serious charges. The right hon. Gentleman raised the matter, as he told the House, with the Prime Minister, and he said that he had suggested an inquiry into the long succession of security leaks from one Ministry.

My right hon. Friend the Prime Minister is the most loyal of chiefs and colleagues, and I understand that the right hon. Gentleman referred in particular to reports by Mr. Chapman Pincher on the VC10 on 20th July and on Sir John Lang's Report on 23rd July.

Mr. H. Wilson

And the Defence Estimates.

Mr. Amery

I had notice only of these two points. These are the only two of the 15 points of which I have had any detailed information. Investigations into them have been carried out under the direction of Sir Laurence Helsby, the Head of the Civil Service. We have no reason to believe that there was any leak from the Ministry of Aviation in either case.

Mr. Chapman Pincher's article of 20th July about the VC10 contained nothing that was not already in the week-end Press, in the Daily Telegraph of 18th July, and in the Daily Mail of the same day. It is true that he was well-informed about my movements on Sunday. This was not very difficult, as there were Daily Express reporters posted outside my house. Indeed, when I left my house, leaving Sir Giles Guthrie and the Permanent Secretary in it, to go to see the Prime Minister a Daily Express reporter said to me, "I am from the Daily Express. May I have a statement, Sir Giles?" I lost a golden opportunity.

Sir Laurence Helsby is equally convinced that the report on the Lang Report did not emanate from Ministry of Aviation sources.

Mr. Loughlin

Where did it come from?

Mr. Amery

I have been trying to tell hon. Gentlemen.

Mr. Loughlin

Hurry up, then.

Mr. Amery

Mr. Chapman Pincher spoke to my Chief Information Officer that morning, and all that he elicited from him was the fact that the Report had been received in the Department. Mr. Pincher has himself denied that he received any information from Government sources, and there is internal evidence in the story itself, because it says: Mr. de Ferranti told Sir John"— that is, Sir John Lang— that the company lost more than £1 million on computers which were costed by the same method because of unexpected technical trouble. This was not in the Lang Report. It may, for all I know, have been in the evidence given to Sir John Lang, but if so, no one in my Department except the Secretary to the Lang Committee would have known that. It is also perhaps of some significance that Mr. Pincher got the figure wrong. He quoted it as £4 million, instead of £4¼ million.

The House will understand that there were a number of copies of this Report in Whitehall, and now I come to deal with the point made by the right hon. Gentleman. We showed the Report to Ferranti, and we were right in doing so. Sir John Lang's Report was based on information supplied by the company when it opened its books. It was up to the company to consider the Report, and what action it should take on it, and I think that it would have been intolerable not to have shown the Report to the company before it was published. After all, this was not a report commissioned by Parliament. It was commissioned by my right hon. Friend and myself.

The House will realise that industrial issues are very different from policy or military issues. If one is discussing an industrial matter, a number of people outside the Government very often have to be consulted on it. There are conflicting interests, and the Press is vigilant to see what information it can pick up. We are not here dealing with security issues. I think that the right hon. Gentleman used the phrase loosely last Thursday. Of course, civil servants who leak information of this sort would be guilty of an offence, but anyone in industry who did so would not.

It is not a bad rule in a matter of this kind to see who could have been advantaged by such a leak. I deplore leaks of this kind just as much as, in fact, probably rather more than, the right hon. Gentleman. My statement on the VC 10 and on the Ferranti repayment would have had a much better reception in the House if they had not been disclosed before. I was not the gainer by this, nor was my Department in any way. The only gainers were the Opposition, but I am not suggesting that any improper action was taken by the Opposition, though to do so would be much less wild than the charges which have been levied against us.

The right hon. Gentleman has given us no details of the other 13 leaks. He told us that he had a file on the subject. Let us see it. The separate study that I have made shows no indication of one leak, let alone 15, during the last year. I think that the right hon. Gentleman seriously underrates the Press and the methods by which it operates. We realise that he is cross and narked with Mr. Chapman Pincher and the Daily Express for what they have done to expose his sabotage of our exports to Spain. [HON. MEMBERS: "Oh."] I might add that I have a little list of other contracts which might have been won but for the ideological eccentricities of members of the party opposite. [HON. MEMBERS: "Resign !"] Cannot they take it? The right hon. Gentleman's policies have cost the country a hefty sum of money, and I do not see him getting the money back.

Mr. Stephen Hastings (Mid-Bedfordshire)

On a point of order. It is impossible to hear what the Minister is saying. [Interruption.] Why should not hon. Gentlemen opposite be forced to take their own medicine?

Mr. Deputy-Speaker (Sir William Anstruther-Gray)

It occurred to me that it was difficult to hear, and I think that it would be better if the House allowed the Minister to make his speech.

Mr. Amery

The difference is that I do not see the right hon. Gentleman getting the money back.

As for the suggestion of an inquiry, I have not seen a shred of evidence produced that would justify it, and I think that the right hon. Gentleman should remember that he burnt his fingers on the Bank Rate Tribunal.

In all the circumstances, I hope that the right hon. Gentleman will withdraw these allegations, which are disgraceful, which do no credit to him, and which lower the tone of the House of Commons.

5.10 p.m.

Mr. James H. Hoy (Edinburgh, Leith)

I can certainly speak for all my right hon. and hon. Friends—and I think I can speak for many hon. Members opposite, if they are honest about it—in saying that we have just listened to a most deplorable speech from the Minister. I could not have believed that any Minister could sink so low as the right hon. Gentleman did this afternoon. If he takes the trouble to analyse his speech he will see that he made an attack on his own Department and on his own civil servants throughout the whole of his half hour's diatribe about this affair. He said, "We really cannot take the best men out of industry, because that is where they have to be," the whole inference being that second-class people were good enough for the Ministry of Aviation.

The way in which he decried his Department was unbelievable. It was an appalling effort by the Minister to shift his responsibility. [HON. MEMBERS: "Listen to what is being said !"] I am grateful to my hon. Friends for asking the Minister to listen to me, but this is the sort of conduct that he has displayed during his whole time as Minister. He has been absolutely contemptuous of the House. If I wanted to be personal to him this afternoon I would tell him that it does not lie in his mouth to use phrases containing the words "Spain", and "sabotage". Let him remember that, because in the heat of a political battle somebody may be tempted to recall certain things. We remember the great honour that the right hon. Gentleman's father brought to the House when he was a Member.

The Minister talked about the risks in development charges. What risk was there? He took the case of the Argosy contract as an analogy to the Ferranti case, but the Argosy case was a rescue operation by the Government. Ferranti's took no risk in regard to the development of the Bloodhound missile. It came out clearly in the evidence given to the Public Accounts Committee that every penny of the development charges was paid for by the Government, and that on top of that Ferranti's collected 5 per cent. Where was the risk?

Even if that were not enough, it has been proved beyond any shadow of doubt that nearly 80 per cent. of the contract was completed before the price was fixed. There was no risk. How can he say that there was? It is not possible to have the two things at the same time. The trouble with the right hon. Gentleman is that he does not know what he is talking about. I wish he did—then he would not have made the sort of silly speech that he made this afternoon. [Interruption.] The hon. Member for Bournemouth, West (Sir J. Eden) is a very courageous politician in his constituency.

There is one serious matter that arises not only from the debate but from the whole proceedings of the Public Accounts Committee. If we are to appoint a Select Committee to go into the accounts of the Government in their private contract expenditure, this case may have done the House a great deal of good. because what seems to have been proved is that we must extend the power of the Public Accounts Committee to get books examined. This was public money, and it was rather a contemptuous act on the part of Ferranti's to refuse to give the Public Accounts Committee the relevant books. Nevertheless, even with that great difficulty in the way of a proper examination, the decisions that we arrived at were very nearly correct. The House must seriously consider extending the powers of the Public Accounts Committee if that Committee is to have any real ability to look after the taxpayers' money.

During the last debate I said, against some protest from hon. Members opposite, that the greatest crime that had been committed was not the filching of this money from the public purse but the way in which it had been done, which had destroyed the confidence that had grown up between the Government and a private contractor. This was the great harm that Ferranti's did. Some hon. Members opposite who are present today objected to what I said then, but the Minister used a somewhat similar phrase this afternoon. If anyone wants confirmation of this I would point out that even the Mr. de Ferranti who is the uncle of the present directors said at the annual meeting of the company that what they had done was to besmirch the proud name of Ferranti. I am told that he owns approximately a quarter of the ordinary shares of the company. He felt that by the company's action they had not only destroyed the trust that had existed between the Government and the contractor but had seriously undermined the standing of the company in the eyes of the people. The House must conclude—backed as it is by the Lang Report—that the company has done something which it will take a long time to eradicate from the minds of the people.

Sir Harry Legge-Bourke (Isle of Ely)

I have no connection whatsoever with Ferranti's, but I ask the hon. Member whether he has looked at Appendix III of the Lang Report. If he has he will know that the company was under no obligation whatsoever to give the details of the cost. It was only if the authority so required. He will see in paragraph (3) that that is specifically stated as being the requirement. Can he find anywhere in the Lang Report an example of an instance where the company refused to give the authority any information that it required?

Mr. Hoy

I do not like saying this about the hon. Gentleman, but in this case, as is so frequently the case, he is off the beam. What I am saying is that the Public Accounts Committee asked for certain papers from the firm, and that the firm refused to supply them. The firm gave them to the Lang Committee, despite the fact that it had refused them to a Select Committee of the House. If he had really been looking after the honour of the House the hon. Gentleman would have been defending the position that I am taking up.

What does this settlement mean? This is what will interest the taxpayers. The Minister claims credit for having got a repayment of £4¼ million. Let us consider what that means in the context of the job that was done. I have no proof that the Minister was the person who leaked information to the Daily Express, but when that newspaper published his photograph with the caption "Victory for the Minister" we regarded that as the pay-off for the tip-off. Whatever else might be said—and we cannot claim to know what it was—the Minister's defence of this incident was weak in the extreme. He said, "After all, Mr. Pincher was £250,000 out. He only guessed £4 million, whereas it was £4¼ million." It was one of the lamest sentences in his speech, equalled, perhaps, only by his statement that the firm would find it a little inconvenient to repay the money.

Let us get back to the principle on which this contract was established. It was based, as was admitted by Mr. Ferranti and Sir Richard Way—in fact, he gave the information—on a 7 per cent. on-cost basis. This was the basis on which the contract was drawn up. We all know what the total figure was. It was millions of £s out of which Ferranti's agreed to pay £4,250,000 to the Government. But do not let us forget that even after that is done the firm still has in its pockets £1,522,964 of the taxpayers' money—not a return of 7 per cent., but a return of 21.6 per cent.—even after it has paid this money back. [Interruption.]

If hon. Members have any doubt about it let them look up the Lang Report and the Report of the Public Accounts Committee, and they will see that it is so. [Interruption.] I can only speak for the taxpayers whom my hon. and right hon. Friends represent, and all I can say is that they resent being exploited by Ferranti or any other form of private enterprise in that way. What the hon. Member's reply will be to his constituents is for him to say. I do not want to be tempted too far, but when one considers it, how the Government can justify this 21.6 per cent. as being equitable and then say that the postmen are putting pressure on them, I do not know.

I want to say one other thing about what has taken place with regard to certain agreements. I resent very much some of the arrangements that have been entered into as a result of this agreement having been reached. During the investigations of the Public Accounts Committee, I asked Sir Richard Way, the Permanent Under-Secretary, if he had asked the firm of Ferranti to make any repayment, and he informed the Committee that he had receved a letter from Ferranti's which said, "Oh yes, we are prepared to consider making a repayment on condition that you agree that this will not be held against us". I think that was a shocking statement—that when a man is found filching money he hopes that it will not be held against him. If that is the morality of a section of hon. Members opposite, then it has fallen even lower than we thought.

Let me say this in defence of the Permanent Under-Secretary. When replying on behalf of his Department, he said: My Department could not enter into negotiations under these conditions. Mr. Ferranti, who proved an extremely bad witness—I would say that in all my years connected with the Committee of Public Accounts he was the worst witness that ever came before us—said, in his letter, I would be grateful if you could assure me that there will be no discrimination against Ferranti Ltd. so far as future contracts are concerned in consequence of what has happened. I am a little surprised that after the statements made by the Permanent Under-Secretary and the Minister of Aviation, the Permanent Under-Secretary in the concluding sentence of his reply stated: I can assure you that there will be no discrimination against Ferranti Ltd. in the allocation of future contracts. I am not seeking to say that there should be discrimination. [Interruption.]

Mr. Stephen Hastings (Mid-Bedfordshire)

rose—

Mr. Hoy

I do not think that the Permanent Under-Secretary had any right to write that letter. Certainly he did it for the Minister, but the Minister will not get behind it. In settling this dispute, what had been proven?—that this firm, had accepted a situation to take £4¼ million from the taxpayers' pockets. Why was this necessary at all? This should have been settled on the merits of the case and when it was proved that it had done this, the company should have had no more agreements of this kind. This is a disgraceful case, matched only by the disgraceful performance of the Minister this afternoon, and one can get some consolation out of it only in the knowledge that very soon the country will put it right.

5.27 p.m.

Sir Ian Orr-Ewing (Hendon, North)

I suppose that as this is the last day of a full House of Commons one must expect a certain amount of fireworks, but I would have expected a more statesmanlike speech from the right hon. Gentleman the Leader of the Opposition—[HON. MEMBERS: "Oh."]—than the very personal attack that he made on my right hon. Friend the Minister.

The technique is this. The speaker says that a Minister is responsible and he accuses his ancestry and his marriage and speaks of nepotism—[Interruption.] It was said that it was only nepotism that put my right hon. Friend there. His performance is denigrated, but in fact most of us on this side of the House know how exceedingly well he has done. Then after all this, after all the mud has been flung, one says that one recognises that he was not there at the time. But the mud has been flung, and, naturally, the Leader of the Opposition hopes that it will stick. I do not think that the country will take that sort of criticism. The right hon. Gentleman must have known perfectly well—he quoted it in his speech—that 90 per cent. of the contract had been delivered a year before my right hon. Friend even came into office, so why this personal attack on his integrity and performance?

I was hoping that we would make a constructive speech and that we would be told by the Leader of the Opposition, who wishes to be taken seriously by the country, just what the Opposition were going to do in the future. After all, if there has been a mistake in Whitehall it is a mistake among many hundreds of thousands of contracts—[Interruption.] We all recognise that there has been a mistake, otherwise the Lang Committee would not have investigated it and made recommendations. My right hon. Friend would not have started amalgamating two departments and taken the many other actions if there had not been something at fault. Under the right hon. Gentleman's policy, much more would be brought under the control of Whitehall. He aims at the nationalisation of steel. He is going to nationalise development land and to set up tribunals. He is going to nationalise road transport, and the machine tool industry is also threatened. If mistakes are made in Whitehall now, how is he to be sure that when so much control is to be centralised the mistakes will not be far more serious and far more numerous?

We are told in "Signposts for the Sixties" that hon. Members opposite intend to take public control over aircraft firms and science-based industries. There can surely be no greater example of science-based industry than the firm of Ferranti. The right hon. Gentleman also said, and we have heard this also on television, that waste in the defence services is apparently unique to this side of the House. Has he forgotten, or does he wish the country to forget, the Brabazon airliner, and the £3 million—more than twice the estimate—spent on the great Filton sheds, and the £14 million spent on the aircraft?

That was a serious mistake. The Opposition hope that we have forgotten that, but what about the Princess flying-boat? It was six years before Labour cancelled this.

Mr. Archie Manuel (Central Ayrshire)

If the hon. Gentleman will consult his hon. Friend the Member for Macclesfield (Sir A. V. Harvey), who is something of an expert on aviation, his hon. Friend could tell him that the money was spent on developing the industry which, without the use of that public money, could never have got to its present position.

Sir Ian Orr-Ewing

I say that serious mistakes were made by the party opposite when it was in power. We remember the Swift fighter, and the 1,000 Venoms ordered for Korea, of which 750 had to be cancelled because they were obsolete. We remember that 800 Canberra bombers were ordered, and that 33 per cent. of them had to be cancelled—tremendous waste. All I say is that in the field of defence no Government can always be right. I have already quoted examples of mistakes on the part of the Opposition, and I can think of many others—

Mr. Paget

rose—

Sir Ian Orr-Ewing

Sorry, but many hon. Members want to speak.

The Leader of the Opposition said that when fixed-price contracts are used large profits are made—I think that he suggested that the profits were generally excessive, but this is not true. Many of the atomic energy consortia have lost very considerable sums of money in tendering for atomic power stations. They hoped that getting into that business would lead them to business both at home and overseas for other atomic power stations. That has not come about, and very substantial losses have been incurred. Again, civil contractors tendering for motorways and bridges have lost much money, and we also had the Argonaut contract, where £6 million was lost.

It is, therefore, not right to say that fixed-price contracts automatically lead to excessive profits; they often lead to excessive losses as well. What must also be remembered is that when a large profit is made half of it goes at once in taxation to the Exchequer, and if the right hon. Gentleman had been fair he would have recognised that fact, as the country does. If great losses are made these are borne by the shareholders and, to some extent, the employees.

I agree that there are alternate forms of contract. I am very attracted towards the incentive type of contract, where there is a fixed profit margin and if the margin is greater than that the difference is shared between the sponsoring Ministry and the firm. I believe that an instance of this type of contract has already been very successfully carried out by Ferranti Ltd. for special equipment for the TSR2. The firm got the contract completed on time, and the extra profit was shared—much the greater part of it, I think, going back to the Ministry. That seems to be a sensible arrangement, particularly where a difficult research and development contract is at stake.

I think that the country as a whole has been very disappointed in the Leader of the Opposition, who has typically concerned himself with the personal and trivial in politics. He has made no effort at all to explain his own policy to the country, or to say where he stands. We heard today that, apparently, little companies are to be set up, and civil servants are to be matched, one for one, with the board of directors, and sit in at monthly board meetings. Does the right hon. Gentleman really think that that will solve the difficulty? It is one of the most absurd suggestions I have ever heard of. We have heard very few constructive suggestions, and that suggestion is typical of the right hon. Gentleman. He picks up the dust of politics and sweeps the policy under the carpet. He asks the country to give him a blank cheque, but I am pretty sure that in October the country will refuse to give it to him.

5.36 p.m.

Mr. George Wigg (Dudley)

Although hon. Members do not know it, they have just listened to a statesmanlike and constructive speech. The hon. Member for Hendon, North (Sir Ian Orr-Ewing) started by complaining of a lack of statesmanship and constructiveness in the speech of my right hon. Friend the Leader of the Opposition and, needless to say, such a great Parliamentarian, so distinguished a Member with such a long and illustrious Ministerial career behind him, would not fall short, I am sure—at least in intention—of the example that he was begging my right hon. Friend to follow.

I never make any complaint about being controversial—indeed, that is what we are here for. I come to this subject, not as a financial expert, but because I am interested in defence. I started by asking this question: how far is this Ferranti case typical? How much more of this sort of thing is going on? I will repeat figures that I have given before, and say that, in the last 12 years, £20,000 million has been spent on defence. About £5,000 million has gone into the aircraft industry, and about £3,500 million have gone on public account, and if this sort of thing is widespread the situation is very serious, indeed.

I am not convinced that it is widespread. I am convinced that, on the whole, it is an isolated instance, and I entirely agree with my hon. Friend the Member for Edinburgh, Leith (Mr. Hoy), who made such a frank and outstanding speech, that one of the evil things that the Ferranti firm has done has been to destroy the confidence between private industry and Government—whatever Government is in power. I should like the Chancellor to tell the House whether it is not true that there have been numbers of examples of firms engaged in this business which, when they have found themselves in the Ferranti position, have told the Government what has happened and have offered to make an adjustment. I believe that the record of this industry and the probity of those engaged in it are outstanding, and in common with the commercial practice throughout our industrial life as a whole.

Equally, I entirely join with my right hon. Friend in saying that when one refers to leaks, one is not making an attack on the Press. As I have said so many times that I ought to apologise for saying it again, I do not believe that we can ever get a sound defence policy within the country's capacity to pay unless we have an informed public opinion. This House is only one instrument for that—the other instruments are the Press, and the other media of communication such as television, radio, and the like.

I therefore pay my tribute to men like Chapman Pincher, the defence correspondent of The Times, the defence correspondent of the Daily Telegraph—and, indeed, to all the newspapers which employ intelligent and public-spirited men to ascertain the facts and put them before the public. I do not think that Mr. Chapman Pincher did anything very dreadful about the frigates. He got hold of a simple fact—he got to know that the negotiations were on. I had a very civilised discussion with the Civil Lord of the Admiralty—to use the old title—on the night of 15th July. Neither of us gave way on principle, but we managed to establish the fact that there had been a leak. One need not go further than the Foreign Secretary who, on 15th June, said that there had been a disclosure. There is nothing wrong about this—more power to Mr. Chapman Pincher's elbow.

A week ago it was perfectly clear that there had been a disclosure of one fact and Mr. Chapman Pincher, like the great journalist he is, had taken one bone and made a meat pie of it. But I have done some homework and it has been a formidable task. I have looked over the major organs of the Press over the last year and I am singularly short of sleep in consequence. If the hon. Member wants 15 examples, why not talk about 1,500? I do not want to mention newspapers, because I do not want to appear to put them in the dock, but I will give the examples to the Prime Minister if he wants them.

On 25th February there was an account in the public Press of the Augusta Bell helicopter which was to be bought up to a total of 150. Immediately there was a controversy. Hon. Members opposite representing Belfast wanted the Hiller helicopter to be bought. The Americans came over here and spoke to hon. Members from both sides of the House. There was great argument as to what should be bought, and five weeks later the Minister announced that 150 Augusta Bells were to be bought.

There was the question of the Defence White Paper. Mr. Chapman Pincher, on the eve of the debate, complained that the secrets of the White Paper had already been leaked. To go back to November last year there were accounts in all the Press of four major projects, the HS681, the Sea Vixen and Hunter replacement and the purchase of the Phantoms. On 20th November, the Minister of Defence gave an account in answer to the House which confirmed the statements which had been circulating.

Whether we call this a leak or guiding the Press, what is perfectly clear and what the right hon. Gentleman has never faced in this serious problem which confronts all hon. Members and will confront them in future is that we cannot have a defence policy in this country if we try to argue: it on this basis. It cannot be done. We cannot get the VC 10 right if the Minister and his Department are giving their aspect of the matter and B.O.A.C. gives another, with Sir George Edwards jumping in for good measure.

Our defence policy has deteriorated to the point where the arguments are being carried out on a selective basis through journals of the Press. The stories which are being presented are those which suit those who are presenting them. This is what is wrong, because what is being done is to pollute public opinion. The Prime Minister is a charming man but he knows nothing about defence. He is at this too. He goes about the country and talks about the nuclear deterrent.

We have had this over and over again and the facts are perfectly simple. My hon. Friend the Member for Edinburgh, Leith (Mr. Hoy) has touched on one aspect and I will deal with another. If hon. Members opposite want to put this problem fairly in front of their constituents or to journalists let them give an account of the atomic weapons which we have now. The answer is none. Let them give an account of the strategic weapons which we have deployed. The answer again is none, but what is the point of arguing? We have to do the best we can.

It is obvious to all of us that it is a prime requirement of this country that we should have an electronic industry which is in the forefront of the world. We cannot compete with the Americans but we should do our best. If a symposium were taken of hon. Members on both sides of the House they would answer that the Bloodhound was made by Ferranti. This is not true. The people who conceived the prime components are the British Aircraft Corporation, not Ferranti who were the boys in a small aspect of the game.

What has happened is that the country, with the connivance of hon. and right hon. Members opposite, has had the worst of all worlds. There is perhaps a case for monopoly in some aspects of this industry which can only be dealt with on a monopoly basis, and one can ask whether that monopoly should be publicly or privately owned. If we are to have it on the basis of private enterprise all the firms engaged in the industry should be allowed to compete, but that is not what happened. What has happened is that a monopoly has been given consistently by the Government, for reasons best known to themselves, to Ferranti and the country has had to pay dearly for it. I could give many examples of this.

One thing which astonishes me today is that the hon. Member for Morecambe and Lonsdale (Mr. de Ferranti) is not present. I ought to have given him notice. I should have thought that at some stage in the operation we should have had a statement from him. I gave him notice on 29th April, but on that occasion he never made a speech and he has never made a statement.

The hon. Member became a junior Minister in the Ministry of Aviation in July, 1962, and in July, 1962 there is not a shadow of doubt that every member of the Ferranti family who was in an executive position knew jolly well that the firm had made a profit of £5,750,000. Yet the hon. Member took office in the Government and was going to sit in judgment on other firms engaged in the electronic industry. He thought that the firm would get away with it but the Comptroller and Auditor-General stopped the game and it did not get away with it.

I am the last person to want to penalise the firm of Ferranti, but it is utterly untrue to say that it is the only firm which could have done this job. Half-a-dozen other firms engaged in the industry could have done the job just as well as Ferranti, and they are firms whose record for probity and technical skill is just as high. We ought not to be committed to this firm.

As Mr. Chapman Pincher says in a new article this firm, without competition, is once again to be given the P1154. If the firm is the best for the job, well and good, but it should be because it is the best and not because it has been forced to pay back £4. million. This should not be a pourboire for the firm because it has been forced to do what it should have done in the first instance. It would be quite intolerable.

Sir H. Legge-Bourke

I have not consulted my hon. Friend the Member for Morecambe and Lonsdale (Mr. de Ferranti) about it, but I have always understood that he had to make up his mind quickly when offered office. He took it and did his best to divest himself of his holding in Ferranti, and having found it impossible to divest himself he resigned his office. That seems to me thoroughly honourable conduct.

Mr. Wigg

The hon. and gallant Member puzzles me. We have yet failed to plumb the depths of stupidity. The hon. Member for Morecambe and Lonsdale, of course, had to divest himself of his financial holding. I am not arguing about that. All I say is that in July, 1962 he as a director of Ferranti must have known that the firm had made £5¾ million and how it had been done, because Sir John Lang has spelled it out. He says that the profit was excessive and that the firm was not as forthcoming as it might have been.

The firm had the opportunity to put in a price for the remaining 20 per cent. of the contract knowing full well that it had put its hands in the public purse and had made a profit which Sir John Lang and his colleagues have described as excessive. The hon. Member for Morecambe and Lonsdale as a member of the Ferranti firm should have come to the House and given an explanation. It may be that there is one, but according to the traditions of the House he should have told us what had happened. I find it extremely difficulty, in these circumstances, to accept the statements of Ferranti Ltd., or of the Minister on behalf of the company. I think that there is a lot more behind this which we have not been told, but I think that it is confined to Ferranti Ltd. and there ought to be a thoroughgoing investigation.

I want to deal with the speech of the hon. Member for Hendon, North on the the question of nationalisation. If it is any comfort to him I will fight the nationalisation of the industry with all the strength that I can command, for the same reason that I would oppose the nationalisation of Rolls Razors. Why we should nationalise it and take over some intolerable burden of compensation for something which, for the most part, is not worth twopence is completely beyond me. What I would do with this industry—and I shall urge the Labour Government to do so—is far worse. I would investigate it, including the firm of the hon. Member for Macclesfield (Sir A. V. Harvey). I would investigate these firms retropectively. I would want to find out where this money has gone, in the interests of the defence needs of this country.

Of course, under any system mistakes will be made, but the idea that the red herring of nationalisation should be drawn across this trail seems to me to miss the point wilfully. I should have thought that the kind of democracy that we have only functions under this simple condition that the things which unite us are wider and deeper than the things which divide us. When we all look at the defence problem, we must regret it. We on this side of the House instinctively do, and so, I believe, do hon. Members opposite. We would all rather see this money spent on schools, hospitals, housing and the like. All spending on defence, particularly in this field, is a waste. Some defence spending keeps one in the forefront of technical knowledge and, therefore, it must be undertaken, but I say—I have said it before and I do not apologise for repeating it—that we ought to try to get defence right above the party battle.

There is a recommendation of a Select Committee which has only just reported. It was under the chairmanship of the Leader of the House. It recommended that in the new Parliament a look should be taken at the way in which our Defence Estimates are presented and investigated. It is through the machinery of investigation set up by the House and answerable to the House that this mistake has been discovered. It is absolutely certain that under any Administration, and whatever form of ownership may be adopted, other mistakes will be made, but we cannot even begin to get this right until we get an informed public opinion because in the long run the issue of whether we have Bloodhound Mark I or Bloodhound Mark II, or Seaslug or Seacat, or Phantom or an aircraft carrier, depends not upon whether our politics are Labour or Tory, not on our emotions, but on an objective examination of the facts.

This House is the bar of public opinion. These matters have reached a point of such complexity and difficulty that they ought to be hammered out where experts can give their evidence and opinions can be expressed to the House. If this mistake has focussed attention on this problem, even though it has cost us £5¾ million, it will not have been wasted.

5.54 p.m.

Mr. Peter Emery (Reading)

Nobody would at any time doubt the honesty of the views of the hon. Member for Dudley (Mr. Wigg) or his interest in defence, but I must say that I was more than a little shocked to hear him suggest, as an incipient threat to all industry, that if power rested on his side of the House he would attempt to bring about an investigation which would make McCarthy look like nothing. This is exactly the sort of "McWiggery" that would do nobody any good.

Mr. Emrys Hughes (South Ayrshire)

No!

Mr. Emery

Indeed, the only thing that it would achieve would be to a much greater extent upset the whole workings of industry, whether it was working for defence or otherwise.

The hon. Member for Edinburgh, Leith (Mr. Hoy), who has now left the Chamber, tried to draw very strong parallels between the amount of profitability of this whole Ferranti contract and the recent wage awards. In all fairness—and at times he attempted to be be fair, though not often—this is spread over a period of at least five and probably six years. If one is attempting to be fair and reasonable, that surely must be taken into account.

I think there was a suggestion from the Leader of the Opposition which needs the most careful investigation. I refer to the suggestion—it was thrown away quietly—that there should be new companies with 50 per cent. Government holding to deal with all development contracts for the defences of this country. I only hope that we on this side may hear a lot more about this in the weeks ahead.

Mr. Cyril Bence (Dunbartonshire, East)

You will.

Mr. Emery

It ill-behoves hon. Members opposite to sit there quietly saying, "We are not interested in nationalisation or in public ownership". When an hon. Member opposite shouted, "Yes, let us nationalise it", there was a ghastly silence from the rest of his colleagues. Their view is, "You must not talk about this before the election. It will be all right to do so afterwards".

Mr. Tam Dalyell (West Lothian)

The hon. Member raised an extremely important point when he talked about the time period. May I turn to paragraph 17 of the Lang Committee's Report—[Interruption.]—I speak as a member of the Public Accounts Committee. That paragraph stated: It is not clear to us why these particular periods were chosen or what influenced the selection of periods of this length. That refers to the 4s. 8d. and the 4s. 3d. It is crucial to the whole argument. Does it not appear that the technical cost officers said to Ferranti, "Look here, what is your figure? We have not got a clue. Give us your advice. Does it not seem rather as if—

Mr. Deputy-Speaker (Sir William Anstruther-Gray)

Order. I am afraid that the hon. Member's intervention is becoming unduly long. Mr. Emery.

Mr. Emery

As usual, that was wide of the point. We are talking about the period of profitability which the hon. Member should have realised, having read the Report so carefully, runs from 1957 to 1962. Three things are very important in this whole consideration. First, there is the financial position during the whole of these negotiations. One must realise that when the contract came for negotiation, half-way through the running of this contract the Government were in possession of all the information of which Ferranti were in possession on the levels of the mistakes in costings.

It seems to me to be asking for more than the superhuman, when a fixed contract is being negotiated, to expect these facts then and there to be thrust down the Government's throat. Anyone who expects that can have no understanding of the negotiation of contracts. Moreover, variables, unknowns or enigmas could still have arisen during the following two years of the contract, there was no certainty at that time that the level of profitability would continue.

The implication of what is said is that contractors and purchasers should all be "buddies together" in a rather unusual relationship of buyer and supplier. If that were to happen, economy would fly out of the window and there would be far more than £4£ million lost. Government Departments must be harsh and keen in their commercial estimates of prices and costs. Heaven help this country if they are not. This probing and critical approach means that tenderers and contractors are on their toes and are spending money in order to obtain greater efficiency and productivity and to reduce costs. If we work the other way round, none of these advantages will obtain.

If Government Departments behave in this way, as I am absolutely certain that they should, it is asking the superhuman to expect a contractor, having placed the cards in the Government's hands, to point out the aces and even, perhaps, tell them how to play the hand so that he loses the trick. This cannot and will not be done in any form of commercial negotiations, whatever hon. and right hon. Members opposite or we might say.

This brings me to the matter of profitability. The Lang criticism is that profit margins here were more than a fair and reasonable profit, but it should be noted that Lang himself has not so far gone on to say what the level of that fair and reasonable profit should be. It would be quite wrong to imagine that there is a figure generally understood, and the idea that, generally, the Government suggest that, on cost-plus contracts, a level of 7 per cent. profitability is considered reasonable or equitable would require the closest examination. If that is their view, we cannot do other than expect industry to pad its overheads and other figures because, in many instances, it is not a working profit. If, for instance, firms have had to borrow money and, perhaps, pay 6 per cent., they would obtain only a 1 per cent. return on their investment.

There is one sentence in the Lang Report, on page 3, which has not been mentioned so far but which merits close consideration, that is, the reference to the fact that Ferranti Ltd. urged that it is not right to consider the profits on a project of this kind in isolation from consequential costs which might arise after its completion and from profits on other work within the company ". It is impossible if one expects to hold to a limit of 7 per cent.; if one does hold to that, one must expect industry to try to find ways of getting a greater profit.

The Government should realise that, at times, their own policies encourage industry to be less than frank. Let us admit this fact during the debate. As regards cost-plus contracts, one should realise also that it is widely understood in industry that there are certain sets of rules which have to be met in order to satisfy the estimators. As long as those rules are met, one can stretch a number of other things which are not mentioned in the rules and so pad the cost estimates.

An outstanding example of this sort of thing reached me only yesterday. A firm with a Government contract was encouraged to make special and highly secret reports to the Government. A small printing plant was put in for this purpose, and the overheads were, therefore included, enlarging the overheads taken into consideration in the estimates. With a view to using this plant profitably, the firm decided to set up another small company to operate it. All the overheads were immediately not acceptable, not even a percentage such as would have represented the same charge as was previously acceptable. Therefore, in order to meet the rules and procedures of the contracts department, the firm decided not to launch the other company. In the result, working according to the present regulations, the whole of the printing overheads, not just a proportion, are now taken into consideration in the costing of this particular defence contract.

One of the problems here arises from the lack of flexibility in negotiations at a level when such flexibility is necessary to produce the right sort of result. I do not in any way wish to be thought critical of the civil servants of the contracts department, but I must say frankly that it does not make sense that the whole of the defence contract work is under the control of a man who is paid only £4,250 a year and who is in the executive branch, not the administrative branch, of the Civil Service. It makes nonsense of this form of negotiation, and the same is true of the arrangements whereby the final recommendations for these contracts with Ferranti were being dealt with by men paid £1,250 to £1,500 a year.

I have made a number of inquiries during the week, and I can tell the House that such salaries in industry are paid to buyers who, on their own initiative, might spend between £200 and £2,000. I was told by one person that, at the very top, a man of that calibre might have authority to spend £5,000. It is no good saying that we have not got men of the right calibre to do this work. We shall not get them unless we pay them properly. That stands out as plain as the nose on my face or the nose on anyone else's face in the Chamber this afternoon.

On the purchasing side, a number of other factors in regard to the contracts department concern me. First, is there any incentive for these men to take the professional examinations of the bodies dealing with buying either in the public supply service or in industry? Is any time given up in order that they may take courses on the industrial side of purchasing? It does not make sense just to promote civil servants up through the ranks and expect them to be able to move, so long as they keep their noses clean, to the top of the contracts department and deal with the vast matters of negotiation which arise when contracts of this sort are being let.

One must realise also that there has, at times, been in the Government's Contracts Department a "Holier than thou" attitude on the part of some of the officials. "There is a lot of difference between buying for the Government and buying for profit—that is, for industry". So runs the argument of many people on the Government contract side. This is nonsense when applied to the difference which may exist between the Civil Service and industry, to just as great a nonsense as applies to the differences which exist between the various departments of the Civil Service Contracts Department.

In any large scale contract in industry the consumer, the purchaser, follows up his order by establishing a close contact with the supplier during the production period. In the Civil Service this form of liaison should be a main aspect of the relationship between consumer and the supplier, since the consumer is the public and is handling public money.

Another factor all too frequently forgotten in the Civil Service is that the head buyer or the head of the contracts department must go to examine what is happening in plants when this sort of large scale contract is being carried out. I should like to know how many senior members of the contracts department visited the shop floor during production over these four years of the Ferranti contracts. These matters cannot be controlled by accountants or estimators. It is necessary during the production period to get on the shop floor and to see what is going on. An inexperienced buyer but otherwise most capable civil servant may lack this specialised training. This is not his fault. It is because he has not been given the opportunity or, indeed, the encouragement to get it.

Realising this fact, one of the professional associations in purchasing, on 2nd August last year, made an offer to the Ministry of Defence to produce a committee of senior industrialists to advise on the structure of the new purchasing departments in the new Ministry of Defence. Here was a golden opportunity when all of the military buying was being combined. I am delighted to say that my right hon. Friend the Minister of Defence accepted this offer with open arms. His memory was jogged about two months later, and a meeting was arranged between a head civil servant and myself to see what assistance could be given. I was able to tell the civil servant the calibre of the committee which could be available to give this advice.

Hon. Members will realise the calibre of the committee when I give its proposed make-up: a director of the Ford Motor Co.; the ex-Director-General of Purchasing and Supply of the National Coal Board; a chief buyer in the electronics industry; the buying manager for a major steel company in South Wales; and the buying manager of a leading firm in the aircraft industry. This Committee epitomises the commercial knowledge available to the Government if they wish to avail themselves of it. I am sorry to have to say this, but since that meeting nothing has happened in the way of co-operation or in bringing about a further meeting. Men of this calibre do not do this for themselves. They do it only in the national interest. Now I should like to ask, therefore, whether my right hon. Friend is willing to accept their advice.

The method of fixing prices and contracts needs a radical overhaul and the Ministry needs to examine closely the methods by which this is done in industry. There is need entirely to revamp the pay structure of the directorates of contracts, and this must be made an administrative rather than an executive grade if the correct men are to be obtained. Let it be realised that a 2 per cent. saving on this year's defence buying would amount to between £18 million and £20 million. Surely economies of this sort would meet any extra pay which would have to be found in reorganising the pay structure of this section of the Civil Service.

We should realise that, in spite of the Opposition's jeers, the country should be grateful to the Minister of Aviation for negotiating the £4£ million return to the Government, and also to Ferranti for making this offer. Whatever criticism there may have been in the past, this is a public-spirited action. There is, I believe, no legal or contractual obligation on Ferranti to make any repayment, and the Government must realise this. In the end, both the Government and Ferranti come reasonably well out of this affair.

Mr. John Diamond (Gloucester)

rose—

Mr. Emery

Perhaps the hon. Gentleman will catch Mr. Speaker's eye so that he will be able to make his own speech.

Strangely enough, this is the epitome of this rather sordid affair, because a good bargain must be equally rewarding to both buyer and seller. It falls down if that is not the case. This must be the essence of a good contract, whether it is made by industry or by the Government.

I have seldom heard such a diatribe in an attack on any Minister who has been doing his very best for an industry. I have been in the House for only five years—and I will be back. I have driven my predecessor to Poplar, where I started. Although the Sunday Times had me out by 2 per cent., I saw the person who wrote the article in question five weeks before the last General Election—I have known Mr. David Butler for many years—and he said to me, in friendship, "Peter, I am sorry, you have not got a chance". He was 4,000 votes out, and he will be more than that out this time.

Some hon. Members opposite should consult a little more closely those in the aviation industry to see what they think of my right hon. Friend, not what the hoi polloi think—and if the cap fits, it may be worn. It is what the aviation industry thinks of my right hon. Friend which matters, and I believe that those in the industry have as high a regard for him as we have on these benches.

6.19 p.m.

Mr. Douglas Houghton (Sowerby)

Unfortunately, this is a short debate, and I apologise to hon. Members on both sides for rising to speak at this moment. It will, however, I think meet the convenience of the House if the debate comes to an end promptly at seven o'clock.

This has been a bad day for the Minister, for Ferranti Ltd and for private enterprise. I do not think that anything that the Chancellor of the Exchequer will say in a few moments can salvage any of the reputation of the Minister of Aviation, or add to his credibility as a Minister of the Crown.

The hon. Member for Hendon, North (Sir Ian Orr-Ewing) spoke as if this was an inquest on a nationalised industry. What mistakes were made in the Ministry of Aviation was the Department's failure to cope with the rather shifty behaviour of a private company.

Having said that, I must remember that I am still Chairman of the Public Accounts Committee. I occupied the Chair throughout the whole of the investigation on this regrettable affair. It was thought by my hon. Friends that I might have something to contribute to the debate, having remained silent through earlier discussions on this matter.

Sir Ian Orr-Ewing

rose—

Mr. Houghton

I have only just begun my speech and I wish to get through my remarks in time for the Chancellor of the Exchequer to rise at a reasonable time.

What I must say is that the damage that Ferranti has done to itself spreads far wider than the boundaries of its own firm or family. I agree with my hon.

Friends who have said that it will take a long time to reshape and improve the image of private industry in its relations with the Government on massive contracts of this kind. That is a most unfortunate consequence of Ferranti's failure to deal candidly and, in my opinion, squarely with the Government.

Tributes have been paid, and rightly, to the Public Accounts Committee and also to the Comptroller and Auditor-General. I wonder, however, whether the House realises the slender and even fortuitous basis upon which the discovery was made by the Comptroller and Auditor-General. All the reforms announced by the Minister today and all the decisions which he has taken since the Report of the Public Accounts Committee stem from the persistence and skill of officers of the Comptroller and Auditor-General's Department.

Perhaps the House does not realise what lack of encouragement the Comptroller and Auditor-General's officers were given when they were pressing their investigations in the Ministry of Aviation. One has only to turn to paragraphs 51 to 53 of the Comptroller and Auditor-General's Report on the Appropriation Accounts to see—I quote from paragraph 51—that when the Comptroller and Auditor-General's men had drawn attention to the disparity between the two sets of figures, which never came together, The Ministry challenged certain assumptions in my officers' calculations and pointed to the absence of information as to the amount of subcontracting which, in their opinion, made the comparison invalid. Some officers might have been fobbed off by that. They may have been discouraged from going further. The fact is that the Ministry did not know the extent of subcontracting. How, therefore, did it know that it would invalidate the comparison? When Sir John Lang went into it, he found that the extent of subcontracting was £123,000 only, amounting at most to £40,000 in direct labour costs. That was negligible in relation to the computation of total direct labour costs. That was proved by Sir John Lang to have been an unnecessary fear put into the minds of the Comptroller and Auditor-General's officers that to pursue these inquiries would be abortive.

Secondly, we see from paragraph 3 of the Comptroller and Auditor General's Report that when he asked the Ministry why these two sets of figures had not been put together, the reply given by the Ministry was that it was a method of cross-checking which was only of value in exceptional circumstances and they had not realised that it could have been used in this case. That was the beginning of the inquiry. One welcome announcement made by the Minister this afternoon was that in future, the accounting department will be brought together with the technical cost officers so that in future these comparisons, when they can be usefully made, will be made. Sir John Lang recommended this in paragraph 45 and the Minister has adopted it.

Therefore, in an episode in which there is, unfortunately, much to criticise of the work of civil servants in the Ministry, the House can be gratified that those who are in the office of the Comptroller and Auditor-General at least discharged their duty with diligence, skill and persistence. Had they not done so, none of this would have come before the House, the Public Accounts Committee or anyone else.

The Permanent Secretary told the Public Accounts Committee in his evidence that he had no inkling of anything of this until 14th August, 1963, and only then when the Comptroller and Auditor-General sent some formal inquiries to the Ministry asking for explanations of what had been discovered. Therefore, this would have been undiscovered had it not been for the persistence of the officers of the Comptroller and Auditor-General.

I come next to the rôle of the Public Accounts Committee. Here, I have the opportunity of saying how much I resented, as Chairman of the Public Accounts Committee, not being informed of the Government's intentions to set up the Lang Committee on 24th January, the day that the Comptroller and Auditor-General reported to us, and without any consultation whatever. The Chancellor of the Exchequer and the Minister made a kind of takeover bid for the Public Accounts Committee. They must have known that this step would, at the very least, be an embarrassment to the Public Accounts Committee. It was a mark of discourtesy, if not actually of disrespect, both to the Public Accounts Committee and to this House.

We have our normal traditional procedures. The Comptroller and Auditor-General makes his Reports to the House of Commons. At the begnning of each Session, the House elects a Public Accounts Committee to receive and investigate the Reports of the Comptroller and Auditor-General. Why, then, did the Chancellor of the Exchequer and the Mnister never give the Public Accounts Committee an opportunity either of expressing a view upon this or of getting on with the job itself? We shall never know what the motives were for this panic measure, taken on the very day of the publication of this damaging Report of the Comptroller and Auditor-General.

One may suspect that it was the Chancellor's intention to shut the stable door with a loud bang and to lock Sir John Lang inside, believing that he would have enough to do to occupy his time until after a June election, if there was one, and probably until after an October election. There can be no complaint that the Public Accounts Committee does not get on with its job properly and expeditiously. We began our examination of this matter on 18th February, only 18 sitting days after the publication of the Report. We made our Report to the House early in April and it was able to debate the matter on 29th April, long before the Lang Committee could possibly have reported. I think that in future Ministers must pay regard to the existence of the Public Accounts Committee, however panic-stricken they feel about disclosures which they think they would prefer to deal with by alternative means.

Now another word about the Report of the Public Accounts Committee. As we knew that the Lang Committee was sitting we had to take special care to sift the facts as far as we could, to be temperate and fair in our comments and judgment, because anything we said in our Report would be subject to this special supplementary audit of the Lang Committee. It would have been damaging to the Public Accounts Committee had our findings been the subject of some disagreement by the Lang Committee. As it turned out, nothing whatever—not a single word—in our Report is invalidated by the Lang Report. On the contrary, if one looks at the Public Accounts Committee's Report now with the underlinings of the findings of the Lang Committee, it looks very much like a three-line Whip.

We said the profit was excessive, and Lang says so, too. The only reason our estimate of profit on cost was so much lower, nearly 20 per cent. lower, than was found to be the case by the Lang Committee was that we reduced our estimate from 72 per cent. profit on cost to 63 per cent. profit on cost because Mr. Ferranti had told the Public Accounts Committee that the company had made a loss of something like £500,000 on materials.

Now, when we go into the Lang Report, Appendix I and Appendix II, we see the company lost nothing like £500,000, not even anything approaching the modified figure which we got later on of £372,000. In fact, unless we add tooling and test gear as part of the cost of materials, which I understand it is not the practice to do, Ferranti finished up on the right side on materials and made no loss at all, and so that made the difference between our estimate of profit on cost and that arrived at earlier of 72 per cent., and now we see finally, in the Lang Report, 82 per cent.

It is true that the survey of the Lang Committee covers 40 contracts and not 18 as we did, but the difference in gross cost between the 40 and the 18 is only just over £1 million, though astonishingly enough the difference in profit on cost is £850,000 more on a difference of only £1 million in total cost. That is an extraordinary figure for which there is no explanation in the Lang Report or elsewhere.

This brings me to the Lang Report. The Lang inquiry reveals a great more than was available to the Public Accounts Committee, and both the Ministry and Ferranti Ltd. has come out worse from the Lang Committee than they came out of the Public Accounts Committee. More light was thrown upon two important matters, which, try as we did, never came to light—first the actual outturn on the Bloodhound contracts which Mr. Ferranti refused to disclose, second, how it came about that the Ministry's technical cost officers overestimated direct labour costs by over 100 per cent.

On the first question, that of profits, I must say that the work of the Public Accounts Committee was impeded by Mr. Ferranti's persistent refusal to put all his cards on the table. He was a most engaging young man, pleasant to have before one hour after hour. But he did not "come clean". When we asked him what profit he made from these contracts he would not tell us. We did not ask for his books. We merely wanted the figure, and it would have been easy enough for him to have given it.

Here, let me say that it was necessary for me to go into many constitutional and procedural matters in connection with the proceedings of the Public Accounts Committee. I think that it will be necessary to clear up very soon what are the real powers of a Select Commit tee to call for persons and papers. We move around in Select Committees feeling we have the power of summons and the power to compel production, but when one goes into the precedents one is by no means so sure that we can; indeed, as I was advised, and went into it, it rather looked as if it might be necessary for the Committee to come to this House, table a Motion, have it debated, get it passed, before we could call for persons and papers.

Anyhow, that is a matter wrapped in considerable procedural complexity and antiquity. I only say, speaking as Chairman of the Public Accounts Committee, that I could not see my way through the problem if we met with unexpected obstruction in the discharge of our duties.

Mr. Ferranti seemed to think, in being asked to disclose the outturn of these contracts, that he would be transgressing some commercial principle or other. Well now, some people who make over-much of principle have not a scruple to their name, and there is no doubt that the Minister of Defence must have employed some very tough tactics indeed with Mr. Ferranti before he could be persuaded to offer to produce his books and open his files. We persistently asked Mr. Ferranti for nothing like that, but only for the profit figure; but he refused to give it.

Now we do have the truth. We were very near to it. We pieced the figures together as best we could. We asked all the questions we could think of which may have given us circumstantial evidence on which to produce a judgment. We did that. We put our figures in the Report and there is nothing much wrong with them even now, though our estimate of profit was an underestimate and not an overestimate.

On the second point of the astonishing mistake made by the Ministry officials on the estimates of direct labour costs, we could well understand the difficulty of Sir Richard Way, the Permanent Secretary, who, as I said earlier, got to hear of this only at the latter end of last year, and he did not really have time to probe into it when he came before us to give evidence in February. That point is gone into fully by the Lang Committee. Further reports will undoubtedly be necessary before it will be possible to be satisfied that the Ministry is equipped for its task.

I think that the central and fundamental condition of these contracts, as has repeatedly been said, is fair and reasonable prices. The contract was signed without a single price in it. The prices were to be fixed much later on in the contract, but they had to be fair and reasonable prices.

There is every evidence to suggest that Ferranti knew how well it was doing out of the contract by the time it came to quote prices and agree the fixed price contract. I think that there is enough evidence in our Report, in the evidence to our Report, in the Minister's own statement of 29th April and in the Lang Committee Report to prove that Ferranti knew that it was asking for a price which conflicted quite radically indeed with the principle of fair and reasonable prices, which was the prime condition of the contract.

Where I think the Government are to be indicted in the whole of this unhappy affair is that they have failed in the primary duty to ensure that Departments are fully equipped to take care of the public interest in their financial and contractual relations with suppliers of goods and services. I am not suggesting that civil servants, whether technical cost officers or inspectors of taxes, should treat people as though they were unreliable, and still less as though they were dishonest, but they should be able to discover and cope with people who are.

That is where the Minister has lamentably failed. It is obvious from the Lang Report that the Ministry was no match for a contractor of the attitude and skill and grasping nature of a firm like Ferranti. Mr. Ferranti kept silent when any other honourable man would have spoken, and the Ministry was not able to compel him to speak, because the silence on his part was on an occasion when the Ministry had no figures to contradict those of Ferranti; and that is a lamentable condition for any negotiators to be in.

So I say that defects of administration are the responsibility of the Minister and the Treasury. If the civil servants are doing their best under whatever conditions are imposed on them, then the responsibility must go higher up. It must go right to the top. I think that the Chancellor of the Exchequer has a good deal to answer for in this connection. He has a special responsibility for the Civil Service. But it is too late now for the Government to find the remedies for the deficiencies which have been there so long and which have come to light so late and which need drastic overhaul in the Ministry to put right.

The Government finish this Parliament the melancholy victims of a grasping contractor. They see their much cherished commercial principles exposed for what they are. If a Government Department had behaved like Ferranti, the business would have denounced it as squalid bureaucracy. If this had happened under a Labour Government, right hon. and hon. Gentlemen opposite would have said that we had been foxed and boxed all round the compass, and the hounds would have been in full cry.

For our part, we approach this unpleasant episode more in sorrow than in anger. It is a sad experience to see the name of a firm dragged through the Press and the "pub", abused and scorned. Indeed, Ferranti got himself into this mess because the Ministry had not the equipment to stop him, any more than it had the equipment to safeguard the public interest or protect the public purse. It had not the means to do it. The Motion deplores the failure of the Ministry in that regard.

Some changes in machinery, staff and expertise will be necessary. The fundamental problem is the relationship between the Government and contractors. If hon. Members want to read some sensible remarks on that subject, they should read what I said in the debate on 11th December last year, which the Minister of Defence did me the honour of quoting and endorsing in the debate on 29th April.

This new relationship, stressed from our side and endorsed from the Minister's side, will have to come, but not in this Parliament. The Government are now to be cashiered for neglect of duty and wilful default, for incompetence, and on the evidence they will be convicted. Sentence will be announced, if not tonight, in October. The punishment will be dismissal from Her Majesty's service, and the country hopes never to see their like again.

6.45 p.m.

The Chancellor of the Exchequer (Mr. Reginald Maudling)

The hon. Member for Sowerby (Mr. Houghton) started by saying that the damage done by this affair stretched beyond Ferranti Limited and family to embrace industry generally. This need not happen and should not happen. It depends entirely on how the matter is treated. In this I very much agree with the hon. Member for Dudley (Mr. Wigg), who said that it was an isolated instance, rather than with the right hon. Gentleman the Leader of the Opposition, who described the electronics industry as shark-infested waters.

As for the allegation made by both speakers from the Opposition Front Bench that the Lang Committee was appointed, as it were, to muzzle the Public Accounts Committee, this is absolute nonsense. As soon as we heard of the Report of the Comptroller and Auditor-General, it was apparent to me and to my right hon. Friend that a close investigation was urgently needed. That investigation did not in any way at all impede the Public Accounts Committee. Indeed, as was said by the hon. Member for Sowerby, the Lang Committee's Report underlined many of the things which his Committee said. I am sorry if the hon. Gentleman thinks that we were discourteous in not informing him before the announcement. I tried personally several times to get in touch with him, but failed. [HON. MEMBERS: "Oh."] I am giving the House the truth.

To come to the real problem involved in the debate, the difficulties facing any Government in making contracts on a satisfactory basis with private industry in conditions where competitive tenders cannot be obtained are great, as the hon. Member pointed out. Any Government would have to deal—I am sure that even the Labour Party would agree with this—with private industry in these matters. Cost plus, as the hon. Gentleman said, is not satisfactory. The Select Committee called attention to this on a number of occasions. We must, if possible, avoid cost plus. Sometimes it is unavoidable, particularly in development and research contracts, but we must avoid it wherever possible for production contracts. We must look for some form of fixed price contract which gives an incentive to efficiency and economy. The best system is to arrive at some fixed price in the contract. This is bound to give rise to the opportunity for big profits and to the opportunity for big losses. My hon. Friends the Members for Hendon, North (Sir Ian Orr-Ewing) and Reading (Mr. Emery) and others rightly pointed out that genuine risks are taken in these matters, and that companies can lose money, and do lose money, on fixed price contracts. Examples have been quoted.

But the difference in this case was—the hon. Member for Edinburgh, Leith (Mr. Hoy) was right in this—that no risk was taken. I quite accept that this was not a case where genuine risk was taken—as the Lang Report says—because of the knowledge in the hands of the company at the time. It was because no risk was involved that I thought it right to insist on the refund to the Government of the £4¼ million. But I would like to make clear the view of the Government that if that were not the case, and if the fixed price were reached on a fair and equal basis by both sides, people would be entitled to the rewards of their efficiency.

There are, of course, problems, and there remains the problem that for genuine reasons, in the complexity of modern industry and production, it is possible to make errors in estimating fixed prices for contracts which can lead to large profits or large losses. This problem we must try to eliminate, because it is not in the interests either of contractors or of taxpayers that we should have a system of fixed price contracts where the margin on either side is too wide. This is a problem to which the right hon. Gentleman referred in his opening speech.

We shall, of course, be helped considerably by the second Report of the Lang Committee on this problem, but in the meantime it seems that there is scope, for example, in examining the extension of the target price system, where a target price is fixed and the actual costs are calculated ex post facto so that the profit or loss, if there is one, is shared between the Government and the contracting firm.

This is a better method of achieving this objective than the right hon. Gentleman's proposal for a form of semi-nationalisation which, frankly, would not, I think, really be effective in practice. I think that it would be a pretty good dog's breakfast if we tried it. It would be a less effective way of achieving what we both have in mind than by having a contract system where the risks are shared, leaving the firm an opportunity of a reasonable return for additional efficiency but sharing the profits and losses, thereby being fair to both sides.

Another thing which emerges is that the early fixing of prices is desirable. On the one hand, if price fixing is left too late in the contract we get the disadvantage that a firm is in the possession of knowledge which is not in the possession of the Ministry's own estimators, and that enables it, if it wants to make changes, to do so on the basis of the new information; and on the other hand, if, as has been suggested, price fixing is left too late and then changed to actual cost, we are getting back to cost-plus with the disadvantages of cost-plus. There, if the management feels that it can make improvements in efficiency the only result at the end is that the Ministry cuts down the price, and the contractor will not get that efficiency which we wish to obtain from the fixed price system.

These appear to be the main points which emerge on the general principle of Government contracting, which, T think, are accepted on both sides of the House. It is extraordinarily difficult to get it right and to get a system which protects the taxpayer and encourages efficiency and economy.

Turning to this particular case and what went wrong, three main things stand out from the Lang Committee Report. In the first place, there was an error of judgment, an error in estimating the direct labour cost. In the second place, there was the danger of error in the estimation of overheads arising from the isolation of the technical services on the one hand and the accountancy services on the other. Finally, there was the failure to use the available check, which was not used until the Comptroller and Auditor-General and the Committee spotted it.

On this point, I agree with the hon. Member for Sowerby that it was a very ingenious and effective piece of work to discover this check, as was done by the Comptroller and Auditor-General. In the electronics industry it is only in the rarest case that we have circumstances where such a check is possible, whereas for aircraft and airframes one can do it. That is not so in the case of the electronics industry, because one cannot isolate the actual labour costs as in the case of airframe and aero-engine contracts. It is a great credit to the Comptroller and Auditor General that he should have spotted this.

What clearly emerges in the conduct of this contract is that there is no suggestion at all of any impropriety. It is very important that that should be emphasised, as I am sure the whole House would wish to agree. It stands out clearly. [HON. MEMBERS: "Oh."] I am talking about the Government service; there was no impropriety on the part of the Government service. There has been severe criticism of the Civil Service, but there is no question of impropriety. The fact is that errors of a serious character were made, but they were made in the normal course of work by officials engaged on that work.

What we must inquire into is not how those mistakes came about but why they came about, whether individuals were given responsibilities greater than they could reasonably be expected to bear, or whether the system itself was to some extent to blame. If the system were to blame I should accept, on behalf of the Treasury, that we would have a responsibility together with the Ministry of Aviation, because we have a responsibility for the general conduct of public business. I should not agree that we should take back the detailed responsibility for individual contracts.

It is interesting that the errors to which attention has been called were errors of lack of practical experience, of lack of drive and of remoteness between the different Departments. These are precisely the sort of criticisms often levelled at large bureaucratic organisations. We know that it is an inherent difficulty of a very large bureaucratic organisation that people tend to be remote and lack a certain amount of thrust and drive, and it is difficulty to recruit people with the practical experience required. This question of recruitment is extraordinarily important because it is difficult in these days when there are so many attractive opportunities in the production industries to get the staff of the quality we desire. Certainly, we shall study closely the need for improving the staff, and, if possible, getting in outside advice in suitable cases.

I turn, finally, to the right hon. Gentleman and his personal attack on my right hon. Friend. He made a personal attack of, I thought, a particularly bitter character on my right hon. Friend. He said last week: for at least the fifteenth time this year,… Ministry of Aviation business, Ministry of Aviation secret reports, Ministry of Aviation proposals to the Cabinet, whether ultimately accepted by the Cabinet or not, have been privately leaked to a single newspaper for reasons I can only surmise."—[OFFICIAL REPORT, 23rd July, 1964; Vol. 699, c. 695.] That was a deliberate accusation of dishonourable conduct on the part of my right hon. Friend. The phrase, for reasons which I can only surmise", was a smear.

The right hon. Gentleman was willing to wound, but afraid to strike. What is more, he produced not a shred of evidence to support it, either to the House or to my right hon. Friend. We have studied with great care all the reports appearing from this particular journalist in the last year and can find no evidence whatever to support the right hon. Gentleman's most serious accusation against my right hon. Friend. [HON. MEMBERS: "Withdraw!"] Nor did his hon. Friend the Member for Dudley do any better. The hon. Member for Dudley referred—[Interruption.]

Mr. Speaker

Order. Everybody, including myself.

Mr. Maudling

The hon. Member for Dudley referred to my hon. Friend the Member for Morecambe and Lonsdale (Mr. de Ferranti). If he intended to accuse him of dishonourable conduct as a Minister, he should have given him notice; if he did not, he should never have made that speech. The right hon. Gentleman, in his speeches, is intelligent

and witty, but—[Interruption.]—he displays a streak of bitterness, meanness and viciousness.—[Interruption.]—which will eventually destroy both him and his party.

Question put, That the words proposed to be left out stand part of the Question:—

The House divided: Ayes 210, Noes 266.

Division No. 146.]	AYES	[7.0 p.m.
Albu, Austen	Hamilton, William (West Fife)	Mitchison, G. R.
Alldritt, W. H.	Hannan, William	Monslow, Walter
Allaun, Frank (Salford, E.)	Harper, Joseph	Moody, A. S.
Allen, Scholefield (Crewe)	Hayman, F. H.	Morris, Charles (Openshaw)
Bacon, Miss Alice	Healey, Denis	Morris, John (Aberavon)
Barnett, Guy	Henderson, Rt. Hn. Arthur (Rwly Regis)	Moyle, Arthur
Bellenger, Rt. Hon. F. J.	Herbison, Miss Margaret	Mulley, Frederick
Bence, Cyril	Hewitson, Capt. M.	Neal, Harold
Benn, Anthony Wedgwood	Hilton, A. V.	O'Malley, B. K.
Bennett, J. (Glasgow, Bridgeton)	Holman, Percy	Owen, Will
Benson, Sir George	Hooson, H. E.	Padley, W. E.
Blackburn, F.	Houghton, Douglas	Paget, R. T.
Blyton, William	Howell, Charles A. (Perry Barr)	Panned, Charles (Leeds, W.)
Boardman, H.	Howell, Denis (Small Heath)	Pargiter, G. A.
Boston, T. G.	Howie, W.	Pavitt, Laurence
Bottomley, Rt. Hon. A. G.	Hoy, James H.	Pearson, Arthur (Pontypridd)
Bowden, Rt. Hn. H. W. (Leics, S. W.)	Hughes, Cledwyn (Anglesey)	Peart, Frederick
Bowen, Roderic (Cardigan)	Hughes, Emrys (S. Ayrshire)	Pentland, Norman
Bowles, Frank	Hughes, Hector (Aberdeen, N.)	Popplewell, Ernest
Boyden, James	Hunter, A. E.	Prentice, R. E.
Braddock, Mrs. E. M.	Hynd, H. (Accrington)	Price, J. T. (Westhoughton)
Bradley, Tom	Hynd, John (Attercliffe)	Probert, Arthur
Bray, Dr. Jeremy	Irvine, A. J. (Edge Hill)	Proctor, W. T.
Brockway, A. Fenner	Irving, Sydney (Dartford)	Pursey, Cmdr. Harry
Broughton, Dr. A. D. D.	Jay, Rt. Hon. Douglas	Randall, Harry
Butler, Herbert (Hackney, C.)	Jeger, George	Rankin, John
Butler, Mrs. Joyce (Wood Green)	Jenkins, Roy (Stechford)	Redhead, E. C.
Callaghan, James	Johnson, Carol (Lewisham, S.)	Reynolds, G. W.
Carmichael, Neil	Jones, Dan (Burnley)	Rhodes, H.
Castle, Mrs. Barbara	Jones, Elwyn (West Ham, S.)	Roberts, Albert (Normanton)
Craddock, George (Bradford, s.)	Jones, J. Idwal (Wrexham)	Robertson, John (Paisley)
Crosland, Anthony	Jones, T. W. (Merioneth)	Robinson, Kenneth (St. Pancras, N.)
Cullen, Mrs. Alice	Kelley, Richard	Rodgers, W. T. (Stockton)
Dalyell, Tam	Kenyon, Clifford	Ross, William
Davies, G. Elfed (Rhondda, E.)	Key, Rt. Hon. C. W.	Royle, Charles (Salford, West)
Davies, Harold (Leek)	Lawson, George	Shinwell, Rt. Hon. E.
Davies, Ifor (Gower)	Lee, Frederick (Newton)	Silkin, John
Deer, George	Lee, Miss Jennie (Cannock)	Silverman, Julius (Aston)
Delargy, Hugh	Lever, Harold (Cheetham)	Skeffington, Arthur
Dempsey, James	Lever, L. M. (Ardwick)	Slater, Mrs. Harriet (Stoke, N.)
Diamond, John	Lewis, Arthur (West Ham, N.)	Slater, Joseph (Sedgefield)
Dodds, Norman	Lipton, Marcus	Small, William
Doig, Peter	Loughlin, Charles	Smith, Ellis (Stoke, S.)
Donnelly, Desmond	Lubbock, Eric	Snow, Julian
Driberg, Tom	Mabon, Dr. J. Dickson	Sorensen, R. W.
Duffy, A. E. P. (Colne Valley)	McBride, N.	Soskice, Rt. Hon. Sir Frank
Ede, Rt. Hon. C.	McCann, J.	Spriggs, Leslie
Edelman, Maurice	MacColl, James	Steele, Thomas
Edwards, Robert (Bilston)	MacDermot, Niall	Stewart, Michael (Fulham)
Evans, Albert	Mclnnes, James	Stonehouse, John
Fernyhough, E.	Mackenzie, Gregor	Stones. William
Finch, Harold	Mackie, John (Enfield, East)	Stross, SirBarnett (Stoke-on-Trent, C.)
Fletcher, Eric	McLeavy, Frank	Swain, Thomas
Foley, Maurice	MacPherson, Malcolm	Symonds, J. B.
Foot, Michael (Ebbw Vale)	Mallalieu, E. L. (Brigg)	Taverne, D.
Fraser, Thomas (Hamilton)	Mallalieu, J. P. W. (Huddersfield, E.)	Taylor, Bernard (Mansfield)
George, LadyMeganLloyd (Crmrthn)	Manuel, Archie	Thomas, George (Cardiff, W.)
Ginsburg, David	Mapp, Charles	Thomas, lorwerth (Rhondda, W.)
Gordon Walker, Rt. Hon. P. C.	Marsh, Richard	Thompson, Dr. Alan (Dunfermline)
Gourlay, Harry	Mason, Roy	Thomson, G. M. (Dundee, E.)
Grey, Charles	Mayhew, Christopher	Thornton, Ernest
Griffiths, Rt. Hon. dames (Lianelly)	Mellish, R. J.	Tomney, Frank
Griffiths, W. (Exchange)	Mendelson, J. J.	Wainwright, Edwin
Grimond, Rt. Hon. J.	Millan, Bruce	Warbey, William
Hale, Leslie (Oldham, W.)	Milne, Edward	Weitzman, David
Wells, William (Walsall, N.)	Williams, W. T. (Warrington)	Wyatt, Woodrow
White, Mrs. Eirene	Willis, E. G. (Edinburgh, E.)	Yates, Victor (Ladywood)
Whitlock, William	Wilson, Rt. Hon. Harold (Huyton)
Wigg, George	Winterbottom, R. E.	TELLERS FOR THE AYES:
Wilkins, W. A.	Woodburn, Rt. Hon. A.	Mr. Short and
Willey, Frederick	Woof, Robert	Mr. G. H. R. Rogers.
NOES
Agnew, Sir Peter	Farey-Jones, F. W.	McMaster, Stanley R.
Allan, Robert (Paddington, S.)	Farr, John	Macmillan, Rt. Hn. Harold (Bromley)
Allason, James	Fell, Anthony	Macmillan, Maurice (Halifax)
Amery, Rt. Hon. Julian	Finlay, Graeme	Maddan, Martin
Anderson, D. C.	Fisher, Nigel	Maginnis, John E.
Arbuthnot, Sir John	Fletcher-Cooke, Charles	Maitland, Sir John
Ashton, Sir Hubert	Foster, Sir John	Markham, Major Sir Frank
Atkins, Humphrey	Fraser, Rt. Hn. Hugh (Stafford & Stone)	Marlowe, Anthony
Awdry, Daniel (Chippenham)	Fraser, Ian (Plymouth, Sutton)	Marten, Neil
Barlow, Sir John	Gammans, Lady	Mathew, Robert (Honiton)
Barter, John	Gardner, Edward	Matthews, Gordon (Meriden)
Batsford, Brian	Gibson-Watt, David	Maude, Angus (Stratford-on-Avon)
Beamish, Col. Sir Tufton	Giles, Rear-Admiral Morgan	Maudling, Rt. Hon. Reginald
Bell, Ronald	Glyn, Dr. Alan (Clapham)	Mawby, Ray
Bennett, Dr. Reginald (Go & Fhm)	Glyn, Sir Richard (Dorset, N.)	Maxwell-Hyslop, R. J.
Berkeley, Humphry	Godber, Rt. Hon. J. B.	Maydon, Lt.-Cmdr, S. L, C.
Bevins, Rt. Hon. Reginald	Goodhart, Philip	Mills, Stratton
Biffen, John	Goodhew, Victor	Miscampbell, Norman
Biggs-Davison, John	Gower, Raymond	More, Jasper (Ludlow)
Bishop, Sir Patrick	Grant-Ferris, R.	Morrison, Charles (Devizes)
Black, Sir Cyril	Green, Alan	Morrison, John (Salisbury)
Bossom, Hon. Clive	Gresham Cooke, R.	Neave, Airey
Bourne-Arton, A.	Griffiths, Eldon (Bury St. Edmunds)	Noble, Rt. Hon. Michael
Box, Donald	Grosvenor, Lord Robert	Nugent, Rt. Hon. Sir Richard
Boyd-Carpenter, Rt. Hon. John	Gurden, Harold	Oakshott, Sir Hendrie
Boyle, Rt. Hon. Sir Edward	Hall, John (Wycombe)	Orr, Capt. L. P. S.
Braine, Bernard	Hamilton, Michael (Wellingborough)	Orr-Ewing, Sir Ian (Hendon, North)
Brewis, John	Harrison, Col. Sir Harwood (Eye)	Osborn, John (Hallam)
Bromley-Davenport, Lt.-Col. Sir Walter	Harvey, Sir Arthur Vere (Macclesf'd)	Page, Graham (Crosby)
Brooke, Rt. Hon. Henry	Harvey, John (Walthamstow, E.)	Page, John (Harrow, West)
Brown, Alan (Tottenham)	Hastings, Stephen	Pannell, Norman (Kirkdale)
Bryan, Paul	Hay, John	Partridge, E.
Buck, Antony	Heald, Rt. Hon. Sir Lionel	Pearson, Frank (Clitheroe)
Bullard, Denys	Heath, Rt. Hon. Edward	Peel, John
Butcher, Sir Herbert	Hendry, Forbes	Percival, Ian
Campbell, Gordon	Hiley, Joseph	Peyton, John
Carr, Compton (Baron's Court)	Hill, Mrs. Eveline (Wythenshawe)	Pickthorn, Sir Kenneth
Carr, Rt. Hon. Robert (Mitcham)	Hobson, Rt. Hon. Sir John	Pike, Miss Mervyn Pitman, Sir James
Cary, Sir Robert	Hocking, Philip N.	Pitt, Dame Edith
Chataway, Christopher	Hogg, Rt. Hon. Quintin	Pounder, Rafton
Clark, Henry (Antrim, North)	Holland, Philip	Powell, Rt. Hon. J. Enoch
Clark, William (Nottingham, s.)	Hollingworth, John	Price, David (Eastleigh)
Clarke, Brig. Terence (Portsmth, W.)	Hornby, R. P.	Price, H. A. (Lewisham, W.)
	Cleaver, Leonard	Hornsby-Smith, Rt. Hon. Dame P.
Cole, Norman	Howard, Hon. G. R. (St. Ives)	Prior, J. M. L.
	Hughes Hallett, Vice-Admiral John	Prior-Palmer, Brig. Sir Otho
Cooper, A. E.	Hughes-Young, Michael	Pym, Francis
Cordeaux, Lt.-Col. J. K.	Hutchison, Michael Clark	Quennell, Miss J. M.
Cordle, John	Irvine, Bryant Godman (Rye)	Ramsden, Rt. Hon. James
Corfield, F. V.	Jackson, John	Rawlinson, Rt. Hon. Sir Peter
Costain, A. P.	Jennings, J. C.	Redmayne, Rt. Hon. Martin
Coulson, Michael	Jones, Arthur (Northants, S.)	Rees, Hugh (Swansea, W.)
Courtney, Cdr. Anthony	Jones, Rt. Hn. Aubrey (Hall Green)	Rees-Davies, W. R. (Isle of Thanet)
Craddock, Sir Beresford (Spelthorne)	Kerans, Cdr. J. S.	Renton, Rt. Hon. David
Critchley, Julian	Kerby, Capt. Henry	Ridley, Hon. Nicholas
Crosthwaite-Eyre, Col. Sir Oliver	Kerr, Sir Hamilton	Ridsdale, Julian
Crowder, F. P.	Kimball, Marcus	Rippon, Rt. Hon. Geoffrey
Cunningham, Sir Knox	Kitson, Timothy	Roots, William
Curran, Charles	Lambton, Viscount	Ropner, Col. Sir Leonard
Currie, G. B. H.	Lancaster, Col. C. G.	Royle, Anthony (Richmond, Surrey)
Dalkeith, Earl of	Leavey, J. A.	Russell, Sir Ronald
Dance, James	Legge-Bourke, Sir Harry	Sandys, Rt. Hon. Duncan
d'Avigdor-Goldsmid, Sir Henry	Lewis, Kenneth (Rutland)	Scott-Hopkins, James
Deedes, Rt. Hon. W. F.	Lindsay, Sir Martin	Seymour, Leslie
Donaldson, Cmndr. C. E. M.	Linstead, Sir Hugh	Sharples, Richard
Doughty, Charles	Litchfield, Capt. John	Shepherd, William
Douglas-Home, Rt. Hon. Sir Alec	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)	Skeet, T. H. H.
Drayson, G. B.	Lloyd, Rt. Hon. Selwyn (Wirral)	Smith, Dudley (Br'ntf'd A Chiswick)
du Cann, Edward	Longbottom, Charles	Smyth, Rt. Hon. Brig. Sir John
Duncan, Sir James	Longden, Gilbert	Soames, Rt. Hon. Christopher
Eden, Sir John	Loveys, Walter H.	Stainton, Keith
Elliot, Capt. Walter (Carshalton)	Lucas, Sir Jocelyn	Stevens, Geoffrey
Elliott, R. W. (Newc'tle-upon-Tyne, N.)	Lucas-Tooth, Sir Hugh	Steward, Harold (Stockport, S.)
Emery, Peter	McAdden, Sir Stephen	Stodart, J. A.
Emmet, Hon. Mrs. Evelyn	MacArthur, Ian	Stoddart-Scott, Col. Sir Malcolm
Errington, Sir Eric	Maclean, SirFitzroy (Bute&N. Ayrs)	Storey, Sir Samuel

Studholme, Sir Henry	Thornton-Kemsley, Sir Colin	Wills, Sir Gerald (Bridgwater)
Summers, Sir Spencer	Tiley, Arthur (Bradford, W.)	Wilson, Geoffrey (Truro)
Talbot, John E.	Touche, Rt. Hon. Sir Gordon	Wise, A. R.
lapsed, Peter	Turner, Colin	Wolrige-Gordon, Patrick
Taylor, Sir Charles (Eastbourne)	Tweedsmuir, Lady	Wood, Rt. Hon. Richard
Taylor, Edwin (Bolton, E.)	van Straubenzee, W. R.	Woodhouse, Hon. Christopher
Taylor, Frank (M'ch'st'r, Moss Side)	Vickers, Miss Joan	Woodnutt, Mark
Teeling, Sir William	Walker-Smith, Rt. Hon. Sir Derek	Woollam, John
Temple, John M.	Wall, Patrick	Worsley, Marcus
Thatcher, Mrs. Margaret	Ward, Dame Irene	Yates, William (The Wrekin)
Thomas, Sir Leslie (Canterbury)	Webster, David
Thomas, Rt. Hon. Peter (Conway)	Wells, John (Maidstone)	TELLERS FOR THE NOES:
Thompson, Sir Kenneth (Walton)	Williams, Sir Rolf Dudley (Exeter)	Mr. J. E. B. Hill and
Thompson, Sir Richard (Croydon, S.)	Williams, Paul (Sunderland, S.)	Mr. McLaren.

Proposed words there added.

Main Question, as amended, put and agreed to.

Resolved, That this House, while recognising the difficulties involved in estimating costs in relation to novel and complex fields of manufacture, and noting the findings of the first report of Sir John Lang's Inquiry, endorses the action already taken to strengthen the contracts organisation of the Ministry of Aviation and the intention to take such further steps as may be necessary in the light of Sir John Lang's further report and approves the acceptance of the offer of Ferranti Limited to refund a total of £4,250,000.