HC Deb 04 November 1965 vol 718 cc1234-9
The Chancellor of the Exchequer (Mr. James Callaghan)

With your permission, Mr. Speaker, and that of the House, I should like to make a statement about the Fairfield Shipbuilding and Engineering Company Limited.

The House will know that on 15th October a Receiver and Manager was appointed by the Bank of Scotland for the Fairfield Shipbuilding and Engineering Company Limited, under a floating charge granted by the Company to the Bank, because of the acute financial difficulties of the Company. Fairfields owns an important shipyard on the Clyde, which has been considerably modernised, and, together with its subsidiary, Fairfield Rowan Limited employs some 5,000 workers—including 350 at Chepstow Monmouth.

Last Friday, 29th October, the Receiver and Manager, together with the Treasurer of the Bank of Scotland, came to see me. The Receiver informed me that his sources of finance were exhausted and that it would be necessary to close the shipyard almost at once. This could be avoided only if immediate financial assistance was forthcoming to give time for an assessment to be made of the prospects for long-term viability of the undertaking.

As the House knows, a Committee under the chairmanship of Mr. Reay Geddes is at present examining what changes are necessary in organisation, in methods of production and in other factors affecting cost, to make the shipbuilding industry competitive in world markets and to reduce the costs of manufacture of large main engines of ships. I understand that the Committee is likely to report about next February. The Government have therefore had to consider whether, in advance of receiving this Report, they should allow normal commercial practice to be followed, work to cease, and the yard to be closed.

I have had urgent discussions with the Receiver and Manager, with the Treasurer of the Bank of Scotland and with the Governor of the Bank of England. It is not possible to say here and now what part this important shipyard may have to play in a reorganised shipbuilding industry. But my colleagues and I have concluded that it is in the national interest that the future of this yard should be held open until we have received and considered the Geddes Report. The Government are therefore ready to offer some financial help.

It has been arranged, at the request of the Government, that the Bank of England should for this purpose advance sums not exceeding £1 million, as may be necessary to enable the shipyard and its subsidiary to continue in operation until the early spring. This is the Receiver's estimate of the minimum sum necessary for that purpose.

The Bank of England will be guaranteed against loss in respect of this loan under the power given by Parliament to the Treasury in Section 2 of the Borrowing (Control and Guarantees) Act, 1946, to guarantee loans for the purpose of facilitating the reconstruction or development of an industry or part of an industry in Great Britain. I am satisfied that this is an appropriate occasion for its use.

I must repeat that this action is designed solely to keep the position open until my right hon. Friend the President of the Board of Trade and I have had an opportunity of exploring possible solutions to make the undertaking viable and of considering the findings of the Geddes Committee. Mr. Geddes has confirmed that his Committee will take account of this new development in their investigation. The future of the yard can now be considered against the background of the Clyde shipbuilding industry as a whole, and I hope that all those concerned with the affairs of the company and its subsidiary, Fairfield Rowan Ltd., will co-operate with us in our objective.

Mr. Noble

Is the Chancellor of the Exchequer aware that his statement will be received with a great deal of pleasure on the Clyde and, perhaps, far beyond it because, as many hon. Members will know, the Fairfield yard has, as the right hon. Gentleman put it, been considerably modernised and has done a great deal to try to improve its position and make itself more competitive. The Chancellor has stressed that this is a temporary measure, a holding measure, awaiting the Report of the Geddes Committee and, as I think the right hon. Gentleman put it, seeing what part this yard should take in the future development of the Clyde as a whole.

The Chancellor will be aware that a great deal of thought is being given at the moment to the development of the Clyde, and he will also be aware of the importance this has to the whole of the west of Scotland. Will he tell the House whether he and his right hon. Friends, in thinking about the future, are also aware of considerable changes for the good that have been taking place both in union policy and management policy on the Clyde, and will his long-term policies do everything possible to improve those two aspects of the shipbuilding industry?

Will he also bear in mind that this is a yard on the Clyde, but that there are other yards in many other parts of Britain where the same sort of difficulties are being experienced, and will he consider them on their merits if a similar problem arises in the next few months?

Mr. Callaghan

This is a very exceptional measure taken in exceptional circumstances, and I do not think it would be right to encourage other commercial firms which get into difficulties of this sort to believe that there is any easy way out. As far as I know, other shipbuilding firms which may be in this position are much more liquid than the Fairfield Company is; and it is the lack of liquidity that has led us to take our decision. I agree with the right hon. Gentleman that there is continuing improvement in the shipbuilding industry. This country needs a healthy shipbuilding industry, but we need a great many more changes if the industry is to play its full part in the national economy.

Mr. Grimond

May I ask whether this loan ranks as a first charge in front of other creditors? What interest will be paid, and will any guarantee be given in respect of any orders that cannot be completed by next spring?

Mr. Callaghan

It does not rank as a first charge. The first charge is held by the Bank of Scotland, and it will rank after that. I would prefer not to go into the exact position, because this is a legal matter which has to be worked out. The rate of interest will be Bank Rate—that is, at present, 6 per cent. We must leave the future technical arrangements to be settled. The Government have had to reach a very quick decision; and I hope that the House will be able to support us, because we have not been able to examine all the technical considerations. Although we are going in with our eyes open, I am not sure how far we may be called upon to fulfil our guarantee.

Mr. Grimond

What about the orders?

Mr. Callaghan

I think that that matter must be left to the Receiver for the time being, in conjunction with the other discussions that are going on.

Mr. Dalyell

Have the powers under the Borrowing (Control and Guarantees) Act, 1946, been used before, and, if so, when?

Mr. Callaghan

This power has been used only once in 20 years, in connection with the National Film Finance Company Limited, but I am satisfied that this is a proper occasion on which to use it.

Sir H. Harrison

Will the Chancellor tell us whether this money will be used purely as working capital and not used for building developments? Further, will he get a monthly report from the Receiver on how this money is being used up?

Mr. Callaghan

The money will be paid over as and when it is required. It is not designed, and we do not intend, that the Bank of England should put a cheque at the disposal of the company. Therefore, it will follow that the company will have to show the need for this money before it is paid over.

Mr. Rankin

As Member of Parliament for Govan, where the Fairfield Yard is situated, I thank my right hon. Friend and the Government for the speed and competence with which they have dealt with this issue. May I thank him also for placing Fairfield now, in the light of the Geddes Report, in exactly the same position as other yards for consideration in the future when the Report comes to be dealt with? May I also appeal to the board of management of Fairfields and all the workers in Fairfield to go ahead now and work together to ensure the future continuance of this great Yard?

Mr. Callaghan

I am obliged to my hon. Friend. I hope that his last appeal will be heard by all those concerned. The yard plays an important part in Govan, my hon. Friend's constituency, and is responsible for a great deal of employment there. It is right that we should have time to consider a rational reorganisation of shipbuilding on the Clyde rather than have a sudden amputation when the wrong decision might be taken.

Mr. Barber

Does not the Chancellor agree that what has happened at the Fairfield Yard is but a more serious instance of the sort of difficulties which are being faced by many sections of the shipbuilding industry? Is he aware that the European Economic Commission has concluded that the support given by the Japanese Government to their shipbuilding yards is equivalent to a subsidy of 10 per cent. and that the European Economic Community is considering matching that type of subsidy? In these circumstances, will the right hon. Gentleman make the strongest representations to ensure that international competition in shipbuilding is fair?

Mr. Callaghan

It would be wrong for me to enter into that kind of debate at the time when we are waiting for the Geddes Report. We have set up this Committee of industrialists of high repute and they are examining these problems, including some of the allegations that have been made. We had better wait until February to see what the Committee's conclusions are.

I understand that the trouble was that Fairfields accepted fixed-price contracts on terms which originally allowed only a very small margin of profit and that since then labour and other costs in the industry have risen sharply, with the result that heavy losses have been sustained on contracts which have been completed. That is the root cause of the trouble.

Mr. Barber

Do I take it that the Geddes Committee will be inquiring into subsidies paid by foreign Governments? I thought that this was not in the terms of reference.

Mr. Callaghan

The right hon. Gentleman had better ask that question of my right hon. Friend the President of the Board of Trade, who set up the Committee. The Committee is to consider the future rational reorganisation of the shipbuilding industry in this country. No doubt it will take all relevant considerations into account.

Several Hon. Member

rose—

Mr. Speaker

Order. I must keep friends with the Welsh Members, who have their debate today.