§ (1) If it appears from the statements, notes or information prepared under section 22 of this Act or under any regulations made under the said section 22 or by virtue of any directions given to the Corporation under section (Publication by Corporation of information concerning activities of theirs and of publicly-owned companies) that, over a period of five consecutive years any principal activity (other than an iron and steel activity) carried on under the ultimate control of the Corporation has been carried on at a loss or without making a profit in each of such five years, it shall be the duty of the Corporation forthwith to undertake a review of such activity for the purpose of determining whether such activity should continue to be carried on and to report their conclusions to the Minister.
§ Brought up, and read the First time.
§ Mr. Patrick Jenkin
I beg to move, That the Clause be read a Second time.
Among the several themes which have run through our debates on Second Reading, in Committee and on Report so far has been the belief, which has been hammered home again and again from this side, that a public corporation and a private enterprise company are two entirely different things. The very nature of the two animals is different, and for this reason they require different treatment.
A private company derives its capital from the market, and it has to justify 743 the capital which it has by the return which it pays on that capital. If it has any hope of attracting new capital, the return must be sufficiently attractive for that purpose. If the company makes losses, the losses fall on the owners. If the capital is lost, it is written off and it is lost and gone for ever, like Clementine. The private company is subject to all the disciplines of the rigours of the capital market, and the sanctions on the failure of a private company extremely powerful and painful. When one reads in the financial Press of the failure of businesses—one has in mind the failure of some insurance businesses featured in the Press in recent weeks—one realises exactly what is meant by the failure of a private concern and the consequences of it.
A public concern, on the other hand, has its capital provided by the taxpayer through the Treasury. In all but the last resort, the return which that capital earns in no way influences the supply of capital. Only when what are basically artificial tests are introduced, such as a required rate of return, a financial target, or whatever it may be called, is it possible to measure the effectiveness of the capital employed. If the concern makes losses, the losses are borne by the taxpayer. Every year, for as far back as one can remember, the Financial Statements presented to the House have contained provision by the taxpayer for the losses of nationalised concerns. If the capital of a nationalised enterprise is lost, it has disappeared but the obligation to pay interest on it continues, and, instead of this interest being paid by the concern which had the capital employed in its business, it is paid by the taxpayer as part of the National Debt, and this continues in perpetuity.
The two are entirely different animals and, in particular, for the reasons I have just given the public concern is from its very nature, subject to far less stringent disciplines. I was very interested yesterday in what my hon. Friend the Member for St. Ives (Mr. Nott) told the House about the advice of Professor Edwards and others as to the possibility of trying to inject into public enterprises some of the disciplines which, in general, are so effective in ensuring the deficiency of the private sector.
744 The Minister does not accept that this difference in kind exists. He believes that a large public concern can be treated in the same way, or very nearly the same way, as a large private concern. At one point in Committee, he committed himself to a very strange reaction on this question. We were talking about the subject raised by this new Clause, the diversification of activities of the Corporation, and he said:There is only one major difference between the position in the nationalised industry and the same industry in private ownership, and that is that in the nationalised industry they have to get the Minister's consent to acquiring companies outside the iron and steel field. In the private sector, the Minister has no direct powers.—[OFFICIAL REPORT, Standing Committte D, 10th November, 1966; c. 451.]The right hon. Gentleman said that in reply to a debate in which the differences I have just described had been impressed throughout. This is extremely important in diversified activities.
In the last new Clause we dealt with the relations of the Corporation to the private sector. In this Clause we deal with fair competition, as much as anything, between the public sector and private sector in the activities other than iron and steel. As my right hon. Friend the Member for Altrincham and Sale (Mr. Barber) said in his closing speech in our last debate, the Corporation's powers to engage in industry and activities outside iron and steel are stupendous. The Minister has gone some way to recognise that in that under the new Clause debated yesterday he will provide certain figures of turnover, capital employed and profits for each diversified activity of the Corporation. We hope that the information will be available to enable Parliament to probe, and competitors to judge, the effectiveness and efficiency of the operation of those activities.
But will there also be the sanction to make sure that a poor performance or a failure meets with the consequences that it should? The purpose of the Clause is to inject into the Bill, in relation to diversified activities, a substitute for the sanction of the market, which is so effective in the case of private concerns. Our proposals on the non-iron and steel activities are modest. We suggest that if a diversified activity is shown by the 745 statistics which are to be published under the Bill, or as a result of a report which the Corporation will prepare, not to have made a profit or to have had a loss for five consecutive years there will be an obligation on the Corporation to review that activity and prepare a report and present it to the Minister. Then the Minister must pass it on to Parliament with his comments. There is nothing more to it—review, report, and report to Parliament.
In Committee, we moved a rather more stringent and elaborate Clause, at column 2463. We put forward a five-year period, but also sought to import into the Bill the concept of a standard profit which the diversified activity would have to attain. That would have been the average profit for the rest of the trade in private hands. We also provided that if the diversified activity failed to reach that standard there would be an automatic cessation of that activity. The Minister directed harsh criticisms at that proposed Clause.
§ Mr. Jenkin
I shall move straight on. The point I wish to make is that the new Clause we now propose goes the whole way to meet all the right hon. Gentleman's criticisms. First, he said that the standards suggested were inevitably haphazard and generally narrowly based. We have abandoned the concept of a standard and in the Clause we now have only the question of whether or not the activity is making a profit.
The standards involved the valuation of the assets, and the right hon. Gentleman described our suggestion of valuation as obscure. But the statistics involve valuation of the assets, because he must determine the capital employed. However, we are happy to accept the Minister's own proposals in his new Clause which became part of the Bill yesterday for the method of determining the capital employed.
The right hon. Gentleman criticised most strongly the proposals we then put before the Committee for automatic cessation after five years if the activities did not come up to the standard. He kept on asking if there were to be no chance 746 to review and to take account of special circumstances and if there were to be no appeal.
We have abandoned the idea of automatic cessation. The statistics will provide the raw material and commercial judgment may well provide a yardstick to determine whether an activity should go on even though it has made a loss or is not showing a profit. But the point of the Clause is the question which still arises, "What is the sanction?"
There must be a sanction, some pressure, some influence to determine whether or not a loss-making activity should continue. It cannot, of its very nature, be the same as that which applies to the private concern. What then can be the check on management's enthusiasm running away with itself, becoming over-optimistic and always believing, "Although we made a loss last year and the year before, there will be a profit next year. Just round the corner large profits can be earned and, therefore, it is worth while carrying on this activity"? One can go on year after year with losses being made over and over again, and with no effective sanction or pressure to recognise reality and wind up the operation.
There are examples in the coal industry at the moment. The National Coal Board will soon have to face the problem of the Coventry plant making smokeless fuel, which has acquired the soubriquet of "Bronowski's Bullets". It has been pouring millions into corrective engineering on a plant which, I am advised, will never operate successfully as designed. My hon. Friend the Member for Barkston Ash (Mr. Alison) asked at Question Time on Tuesday about the company at Slough, the Draysley Company on which the National Coal Board lost £¼ million because the company produced domestic fuel appliances which turned out to be defective, and ceased to produce that particular model.
There are examples where commendable enthusiasm may take a nationalised industry into activities which it believes may be to its advantage. But it is essential that they should be carefully controlled. In another debate in Committee, on the question of statistics, I described the case of J. H. Sankey and Son, 747 Ltd., a recent acquisition of the National Coal Board, to which reference was made at page 24, Vol. 2, of the Coal Board's accounts for 1965–66. I then said that there were no proper figures in the Coal Board's report to indicate the financial performance of that company, in which the Board has a 60 per cent. interest J. H. Sankey and Son, Ltd. distributes solid fuel appliances.
I incurred the wrath of one or two of my hon. Friends when I suggested that it was perhaps not an improper acquisition for an industry wishing to continue to press the sale of solid fuel. I adhere to that view, but it must be watched and carefully controlled.
I was therefore more than a little disturbed when I came across an article in a publication which rejoices in the name of Sankey News, a news sheet that circulates in the firm. The article was headed, "Just Partners …'", with a sub-heading, "And 'eager to help' says Robens", and was accompanied by a picture of Lord Robens, addressing what we are told is a large number of the staff at one of the premises of Sankey's
The article starts:Commercial links that the National Coal Board make with private firms like Sankey's do not mean that the Board wishes to be a big brother' but an eager-to-help 'partner on the basis of complete equality'".Lord Robens is quoted as saying:We are not out to run people out of business. In pursuing the commercial objects of the Coal Board we…will be able to improve the homes of the people. It is something a great deal more than sheer commercial enterprise.He went on to describe in glowing and enthusiastic terms what the objects of the partnership will be.
I do not wish, in drawing attention to this, in any way to cast any doubts at all on the wisdom or correctness of the National Coal Board in going into that acquisition. It is true that the figures quoted in the National Coal Board's Report show that the Board has invested over £1 million and that in 1965 the total profit of J. H. Sankey and Son Ltd. was £7,257 before tax. But there is exactly the sort of sentence that I am frightened of and to which we must have regard when considering the new Clause: 748Substantially increased profits are, however, expected for 1966 as the company benefits from the developments which have taken place in 1965.I shall read with very great interest the next accounts of the National Coal Board to see what has happened to J. H. Sankey and Son Ltd. and whether the hopes and expectations which the Board had for this enterprise have turned out in the event. But suppose they do not. Suppose the enterprise fails. It should be remembered that the National Steel Corporation has vastly wider powers to go into these diversified activities than the National Coal Board, whose objects clauses are very very circumscribed.
The venture was launched, as was clear from Sankey News and the quotations that I have given from Lord Robens, in a blaze of high enthusiasm. I do not blame the noble Lord for that; he is very good at that sort of thing. But it would be a terrible temptation for the managers of this concern when faced with what might turn out to be losses—I say this purely as a matter of hypothesis and not in any sense as a matter of forecast—to soldier on for some years as the losses mount up. There is no effective sanction on the National Coal Board to bring this sort of thing to an end.
The new Clause is intended to provide what in these circumstances can be the only effective sanction—publicity—to ensure that the matter is brought to the notice of those responsible, that the Minister becomes aware of it, that Parliament becomes aware of it and that Parliament can then use all the means of Parliamentary pressure on the Minister to ensure that proper consideration is given to it.
I do not say that this would necessarily and automatically lead to the closure of a business. Indeed, I felt that there was some force in what the right hon. Gentleman said—all the same, five years is a long time—that there should not be automatic closure. Our new Clause meets every single objection which the Minister advanced to the comparable new Clause that we moved in Committee. We have set no rigid standard. We have no automatic closure. All we want to do is to ensure that the case should be reviewed and that there should be a report on it.
749 The broad financial targets were also relied upon by the Minister. The required rate of return is not enough to take account of the individual, separate diversified activities. That may be right with the financial discipline on the Corporation as a whole, but it does not touch this problem. The only way in which this problem can be dealt with—it is a real problem, one which has worried bodies like the C.B.I. for some years—is by publicity. This is what the new Clause is intended to do. I believe that it would be a useful, salutary and valuable additional safeguard.
§ Mr. Nott
I entirely agree with my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) that in both the private sector and the public sector there is always the constant feeling when a company is going wrong that profits are just round the corner; next year will herald some magnificent rise in profitability which was not seen in the previous years. But the next year comes round and the profits do not meet expectations, and so the years go by. In the case of the private sector, the company in due course goes bankrupt, but in the case of the public sector it goes on being bolstered up by the taxpayer year after year.
I also agree entirely with my hon. Friend that the new Clause is completely innocuous. All that it requires the Ministry to do is to carry out a review of the company after it has been making losses for five years and to lay that review before Parliament. I cannot think of any conceivable reason why it should be rejected. Surely, financial control in the public sector must be something which both parties require and desire, and, after all, information lies at the heart of financial control.
I declare a personal interest. I was very much involved in the Sankey transaction at the time that the National Coal Board took an interest in it. I drafted the Press statement on behalf of the National Coal Board and Sankey to which my hon. Friend referred, and the blaze of publicity to which he referred was as a result of my drafting. So I am very much aware of the details of the Sankey transaction, and I entirely agree with my hon. Friend in what he says about it.
One thing can be said about the Sankey situation however, and that is that its 750 accounts are still filed in the Companies Registry, because the National Coal Board does not own the whole of Sankey. It only has control. Thus the accounts of Sankey can still be seen in the Companies Registry. We can still go along there and get a true idea of how the company is doing.
But what happens is that as soon as a firm like Sankey becomes wholly owned by a nationalised industry and no longer files its accounts in the Companies Registry, it enters into a murky darkness and no one has the slightest idea how much cross-subsidisation there is, how many special rebates there are and precisely what is going on. I am sure that it must be recognised that, although we are told by the electricity boards and the National Coal Board that they produce subsidiaries' accounts at arm's length from one another, in practice there are cross-subsidisation and special rebates as between one company and another.
Therefore, I suggest that the Clause is completely innocuous and that the Minister cannot object to it. It merely seeks information and a review of the activities of loss-making companies which are outside the production of iron and steel, and it requires the Minister to lay the review before Parliament. Surely this meets the objectives which all parties in the House are trying to achieve in the public sector.
§ Mr. Michael Shaw
I wholeheartedly support my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin). On the question of not being able to see the accounts if a company is taken over wholly by the Corporation, I would tell my hon. Friend the Member for St. Ives (Mr. Nott) that this will not apply in this case, because these accounts will still be filed at Company House. There is a difference in that respect.
The interesting point about the new Clause is that it does not necessarily deal with a separate company. It deals with any principal activity. This is important in considering the matter because there is the very real problem of cross-subsidisation with which we have been very much concerned throughout our deliberations in Committee. There remains the very difficult problem of trying to judge whether the company is achieving a fair return on the capital used. To judge that exactly by means of a report to Parliament is very difficult. We thus have to 751 have a fairly rough measure by which to gauge it and, of course, that measure is whether or not there is a profit.
I prefer this new Clause to the Amendment that we moved in Committee. It would mean that a report would be made and a justification sought for the continued losses rather than that the company would cease altogether. That is a preferable course because, as I know from my own experience, many companies or activities are carried on by a group although they do not make a great profit. But this is balanced by their value to the group being very great indeed. For example, they may be getting rid of some waste matter at a better price than the main companies would get. Very often the profitability of a company cannot be judged on its own but only in relation to group profits as a whole.
Of course, there is always an explanation and in such a case the information would come before this House and an explanation be given. But one thing is certain. In private industry, an activity of this nature is watched very closely indeed and is checked with competitors' prices to see whether or not, due to new circumstances, the company ought now to be closed down.
§ Mr. Kenneth Lewis (Rutland and Stamford)
My hon. Friend knows a great deal about these things as an accountant. If a company is selling to the main company and not outside then presumably the main company ought to pay the proper price for the service that it is getting. Although there may not be a profit, there should not be a loss. If that is so, I cannot see why this should not be the case under the N.S.C. A product should not be sold by such a company at a loss which the public has to pay for.
§ Mr. Shaw
We have been trying to ensure that all transactions are arm's length transactions, because otherwise this would put the subsidiary company in an advantageous position as against companies in the private sector also trying to sell to companies within the nationalised group. It is essential to have this type of Clause in the Bill. My hon. Friend asked why should not a company owned by the N.S.C. always sell at a 752 profit. It may well be that one of the group's processes, for example—I am not very conversant with the steel industry and must be rather theoretical but I have had experience elsewhere—gives off a waste which has little market. But by an additional process a market may be found. It may not be a profitable market but, by sale at just above cost, there is no loss on the disposal of waste which would otherwise be an expensive business to get rid of.
The other case that springs to mind is that of using a subsidiary company to carry on a not very profitable activity. It may be able to make special articles that can be dovetailed in with the main products of the group and so give an additional market which the main company would not otherwise have.
There is the ever-present fear in my mind that, as soon as an industry or company is nationalised, its success becomes a political matter and political reputations are at stake. There is always perhaps the great temptation to "duck" the issue of having to admit that a venture has failed. The disciplines must therefore be present in order to force projects that appear to be failing out into the open for full discussion to see exactly what is going on and for a decision to be made as to whether or not the activity should be continued. I have a great liking for this new Clause and wholeheartedly support it.
Mr. Gresham Cooke
This is the most important new Clause we have been discussing today and perhaps attracts me more than any of the others. The most difficult decision that any businessman has to make, and which he hates to make, is to close anything down—for example, a piece of research which has gone on for several years with great hopes. There is always great reluctance to close down a works. Hon. Members should think of the fuss when a branch line is closed down. I can give two examples from the steel industry.
I was secretary of the United Steel Company before the war. It owned the Workington Iron and Steel Company, a very large concern which for a long time made a loss for almost every year up to 1938. The Parliamentary Secretary tells us about hard and greedy capitalists but in my view they are not hard enough.
753 Every year before the war the position was reviewed by the board of directors, who considered whether the Workington Iron and Steel Company should be closed down. But then the chairman and others would say, "What about the 5,000 men employed there and all the collieries and ore mines dependent upon it?" The company was not closed down—probably rightly, because, in the end, the war came and it was useful then. After the war, when the great shell-making plant erected at Distington became empty, that was taken over by United Steel as an engineering plant for coal mining machinery and now it makes steel-making machinery. I do not know the position now but the plant did not make money for the first year or two after the war. That sort of fringe activity must be looked at every few years to see whether it should be carried on in an area a long way from possible markets of other steel companies. We in Parliament should know whether fringe activities like Distington are really profitable.
In the steel industry there are many temptations to take on other companies. I remember that a serious proposition was put up in United Steel when it was said that because the men in the melting shop drank a lot of beer we should take shares in a local brewery so as to have a lien on the supplies of beer. We acquired an outside company which had a little chain of ironmongers shops. It was kept for some time, although I expect that it has been got rid of now. That is the kind of thing which happens in big groups, and these things are acquired almost by accident.
I hope that the Parliamentary Secretary will give us some concession and say that he will tell Parliament about these fringe activities which may or may not be profitable and which may be carried on in areas in which there is no natural market and from which tens of hundreds, if not hundreds of thousands, of pounds can be quickly lost. I regard the new Clause as extremely important and I hope that it will receive the commendation of the House.
§ Mr. Kenneth Lewis
I hope that the Parliamentary Secretary will make a concession and accept the new Clause, or declare his intention to provide a similar 754 provision in another place. If he is in any doubt, he should make the concession as a salute to his old office and his last parting shot on the Bill, as his last contribution to it. I shall think a good deal of him if he does and he will be doing a great public service. He should tell the Minister that he requires this opportunity to make a contribution at this late stage. This is a reasonable and realistic Clause, so reasonable that I do not think that it goes far enough, but I am prepared to accept it, and therefore the Parliamentary Secretary should.
It applies to activities not connected with iron and steel production, subsidiary activities. It is concerned with the Bill's diversification provisions. I do not support that diversification and I am suspicious of it. The Tory Party as a whole is suspicious of it and I think that the country is. If the Parliamentary Secretary and the Minister want to get rid of that suspicion, they can help themselves to do so by accepting the new Clause. If they do not it will be apparent to the country that they want to cloak the losses, that they do not want to tell the House of Commons and to issue reports about losses.
My hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick Jenkin) was extremely generous when he said that subsidiary companies of nationalised industries would often carry a loss, hoping to make a profit. Unhappily, they carry a loss whether they hope to make a profit or not. They are inclined to carry losses willy nilly. My hon. Friend the Member for Scarborough and Whitby (Mr. Michael Shaw) said that political reputations depended on losses in the nationalised industries and that political reputations had been broken because of them. In the last few years, it seems to me, political reputations have been made on losses in nationalised industries.
The public has not been assisted by those losses, for the public has had to pay the bill. The taxpayer, the ordinary man on his "pay-as-you-earn" and the executive who has to pay high Income Tax and who then gets drubbed for Surtax and then a 10 per cent. surcharge on his Surtax, have to pay the losses of the nationalised industries, which are bad enough in all conscience. If to those 755 losses are added the losses from subsidiary activities, the whole exercise will be made a nonsense.
In private enterprise business, when a company is started it is normally expected that a loss will be made in the first and second years, breaking even in the third year, with a profit then starting to be made. We are asking for a report in the fifth year, so we are being generous to the nationalised industries and giving the Corporation an opportunity not normally available to free enterprise, which is expected to make a profit much sooner than five years.
If a company under the Corporation is not making a profit in five years, whether engaged in some activity which may be marginally useful to the Corporation or not, at least it should be put on the market. At least the Minister should take the view that he is justified in directing the Corporation to sell that company to free enterprise, if free enterprise will buy it, because a free enterprise company might be able to make it pay, while the Corporation could not do so, being too busy producing iron and steel.
About five years ago, diversification used to be very popular. Many of our large private enterprise companies diversified all over the place, thinking that that was the way in which to maintain their profits. They are now doing exactly the reverse and many of our big corporations are getting rid of their fringe activities because they cannot run them well, because it has come home to them that the cobbler should stick to his last. The Corporation's job is to produce iron and steel at a profit and not to go into all sorts of outside activities.
I do not like that power being in the Bill at all, but, if it is, let us consider it from time to time to make sure that these losses are not becoming repetitive. There are all sorts of reasons why a nationalised industry would put up with losses when a private enterprise industry could not or would not do so. It might be loth to get rid of certain executives, the managers of the subsidiary companies. After all the Minister and the party opposite must be as aware as we are that when an industry is nationalised, people are inclined to regard it as a Civil Service set-up and to say, "We cannot be sacked; we cannot be thrown 756 out". The people at the top take the view that they ought not to dismiss an employee or group of employees because the industry is a State concern, and they put up with losses, maintaining staffs which are not always justified.
Then there are losses created by a subsidiary company of the Corporation because there is a desire to compete with free enterprise and to create a kind of loss leader situation, for loss leaders are to be found not only in supermarkets. They can be found in nationalised industries which want to cut profits and make it difficult for free enterprise. It may be making it difficult for free enterprise companies which are exporting, and that would not be to the advantage of the Government any more than to the advantage of the iron and steel industry in the long run, because the markets for its main activities would be found to be running down.
There is no question but that the losses of our nationalised industries are a scandal. I do not think that the Government will tackle it, but certainly it is something which we shall have to tackle when we get back to office. I am against the Bill, because I think that it will create another industry loading losses on the public purse. We have to stomach that because we are outnumbered, but at least let the Government give us credit for wishing this industry to review its diversified interests, its activities which are making losses for which the public will have to pay and which, if hived off to free enterprise, might be profitable. I hope that the Minister will accept the new Clause.
§ The Joint Parliamentary Secretary to the Ministry of Technology (Dr. Jeremy Bray)
Neither the Minister nor the Corporation would wish the steel industry, under its management, to continue for one moment any unessential activity which was unprofitable and which could be wound up. This is obvious common sense. It is surely unnecessary to spell out in the Bill the A.B.C. of management to the Corporation. There will be the overall financial objectives. These will he clearly laid down, they will be debatable, they will be monitored and subjected to a degree of scrutiny to which no shareholders' meeting every subjects its board of directors. In addition, there will be a degree of disclosure which will at 757 least match that required by the Companies Bill and, in many respects, go far beyond it.
§ Mr. Nott
Can the Parliamentary Secretary say how the disclosure will go far beyond that contained in the Companies Bill?
§ Dr. Bray
Because the interpretation of the Companies Bill will be a matter for the courts, whereas the interpretation of the terms of this Bill will be subjected to the Minister's instructions and the Minister will be answerable to Parliament. If it is said that this is unrevealing I would like hon. Members opposite to examine the reports of the nationalised industries, to examine reports of Select Committees of this House and to look anywhere in private industry to produce a comparable degree, not only of disclosure of the accounts, but of examination of the technical information and the structure of management, of the whole complex operation of the industry.
§ Mr. Kenneth Lewis
The Parliamentary Secretary is dealing with the situation affecting nationalised industries as we have them. In the Bill, we are dealing with a new situation. It is what all the battle upstairs has been about. There will be a great deal more diversification. The House cannot accept the pattern of the past as the pattern for this. The Parliamentary Secretary must say that he will go a good deal further than the present system affecting nationalised industries if he is to convince us that he is realistic in his approach to this matter.
§ Dr. Bray
I entirely take the hon. Member's point. As the hon. Member for Worcestershire, South (Sir G. Nabarro) said yesterday, we go far beyond the measures in any previous nationalisation Statute in the statutory disclosure required. It is evidence of this to some extent that the Opposition Amendment that we are now debating relies on the degree of disclosure in the Bill for identifying where there is a possibly unprofitable activity which ought to be wound up.
This is not a matter of dispute between the two sides—at least not a fundamental difference. The volume of turnover at which one draws the line is a matter for experience. The principle is agreed between us about the type of degree of disclosure required. If there is disclosure 758 how effective is the response of the ultimate sanction, the instructions of the Minister in the case of the National Steel Corporation or the pressures on the management of a private company? Hon. Gentlemen opposite have today, and at every previous stage in the debate on this Bill, referred to the National Coal Board plants to make "Homefire" and "Roomheat".
This project will not be caught by the terms of this Amendment, because it is a capital project, and there has been no trading account in respect of these projects upon which any loss could have occurred. This is not just a quibble, because it is the questionable investments which need to be examined, either direct purchasing of already existing operations, companies, and so on, or the actual physical building of plant, where the most careful scrutiny needs to be made. It is here that the criteria by which the Minister exercises his responsibilities in relation to the Corporation will be decisive.
If we look at the record of the Coal Board it is now closing down more uneconomic capacity in respect of total volume of its uneconomic operations than any sector of British industry. We have a redevelopment programme in the Coal Board, in the closure of pits, against the most extreme social considerations and political pressures of all kinds, which is if anything, evidence that this kind of programme can be carried out with a degree of economic reality possibly greater than that which many private companies—I except many private steel companies in their exercise of social responsibility—have felt able to carry out. Why? Because it is possible to fit in with other aspects of Government economic policy in relation to regional development, public expenditure in certain areas and so on.
The theory which hon. Members have held in this debate is that private industry is a fundamentally different situation in respect of possible uneconomic activity from that of the nationalised industries, and that there is a kind of pressure on the private firm to review its uneconomic activities, to see whether they should be discontinued. The type of situation to which this Clause refers—a sustained loss for a long period over a particular trading activity—reflects in many instances a 759 degree of cross-subsidisation, where although a certain operation is not profitable, other operations of the group to which the company belongs are profitable.
Consider the degree of cross-subsidisation in the oil industry. For example, why did Distiller's find it desirable to dispose of its chemical interests to British Petroleum? Why has I.C.I., following up its petro-chemical interests, found it desirable to go into oil refining operations? It is very well known that there is a network of integration of industrial activities which does not always rest on the technical economies of the situation, where there is a certain amount of bargaining of strength from commercial positions behind it.
From the national point of view as well as from the point of view of the balance of payments, this is not always undesirable. There is at least one steel company with steel-producing and steel-using companies which exports at an apparent loss in respect of one particular sector of its activities. But it is in the interests of the group to operate in this way and in the interests of the balance of payments.
If this is the situation because it is in private industry, and if it may sometimes be genuinely right that it should do so then a situation can well arise where it would be right that the National Steel Corporation should do so. Hon. Gentlemen opposite accept this. What they are asking is that this situation revealed, by information published as required by the terms of this Bill, should be further probed by a review—let us say over five years in the case of a recurring situation, but certainly not more than five years in the case of a new situation—and that that review should be published. That the review will go on is indubitable.
Hon. Members opposite who have taken part in scrutinising the accounts of the nationalised industries know that when a trading activity shows a loss it is a matter of course that it is examined most carefully by the Department responsible for the nationalised industry concerned. In this case, it would be examined most carefully by the Ministry of Power. It will be examined with a greater degree of toughness, with the Treasury looking 760 over the Ministry of Power's shoulder, than happens in most private companies.
Therefore, the review will go ahead and will penetrate the economics of the situation in terms of the profitability of the Corporation and of the national interest. It will be carried out at a time when there is debate on these activities in the House, in the Press and in industry. If there is a situation which should be brought to an end, surely the pressures of the circumstances are sufficient to do this.
Mr. Gresham Cooke
Has the hon. Gentleman considered this point? The pressures of the Press, Parliament and Select Committees, will be on the iron and steel-making activities. Those are what everyone will be talking about. Has the hon. Gentleman considered whether these fringe activities will be considered at all?
§ Dr. Bray
I do not think that it is the view of anyone who has sat through all the stages of the Bill that attention will be focused simply on the iron and steel activities. A great deal of interest will be focused on other activities, and it is right that this should be so.
I ask myself why the Opposition are pressing this proposal. If it is through concern for the objective management of the affairs of the Corporation by accepted good business criteria, then their point is met by the Bill as drafted. I cannot think that they are pressing their proposal out of any wish to put British industry at a disadvantage in relation to its overseas competitors in any arrangement which might produce an apparent loss in one of the Corporation's activities.
Mr. Kenneth Lewes
I am puzzled about a comment which the hon. Gentleman made just now. Is he suggesting that some excuse will be made of secrecy on losses? This was the impression which he gave. He suggested that we on this side of the House were trying to put these subsidiaries in a worse position vis-à-vis their competitors. The only way in which we could do that would be by pressing that they should open their books and disclose their balance sheets and profit and loss accounts.
§ Dr. Bray
There will be full disclosure to the extent required by the Bill. It is 761 on this disclosure which the new Clause rests. The point about whether there should be a deep special inquiry into a particular operation and that the results of that inquiry should be laid before the House requires a degree of examination of a possible commercial situation which hon. Members opposite, if they were in power, would not always wish inevitably to draw to the attention of overseas competitors.
§ Mr. Nott
I suppose that the hon. Gentleman realises that what he is saying is in almost complete contradiction to the philosophy behind the Companies Bill which his own Government are to bring before the House in the next few weeks. If he says that complete disclosure would give something away to foreign competitors, he is talking in completely contradictory terms to the Companies Bill.
§ Dr. Bray
If the Opposition claim that there is no difference between the review which they want to have carried out and the information which they wish to be published—which will be published anyway—there is no point in the new Clause. Presumably what they mean by "a review" is something which goes into greater detail and which gives deeper consideration to the commercial situation. We accept that an apparent loss may be shown in a particular activity. If hon. Members opposite wish to see the reason for that fully and exhaustively explored in a public inquiry and the results of that inquiry published, then this is the kind of exercise which they would not wish to have carried out when it affected the question of overseas competition.
§ Mr. Kenneth Lewis
I do not know whether the hon. Gentleman has read the new Clause. There is nothing in it about an inquiry. It simply asks that a duty should be imposed on the Corporationforthwith to undertake a review of such activityThe hon. Gentleman is making much more of this than we are. He is trying to suggest we want an inquiry. For myself, I ask: why not? If an activity is making a loss, I cannot see why there should be any objection to an inquiry. But we are not asking for that. We are asking that directions should be given to the Corporation to undertake a review. This is reasonable in all con- 762 science. The hon. Gentleman is simply trying to justify rejection of our proposal by going off at a tangent and suggesting that we are asking for something that is not in the Clause.
§ Dr. Bray
Let us not quarrel about the words. The review is to be carried out. This is to result in a report to the Minister. Under subsection (2) of the new Clause the report is to be laid before each House of Parliament. That is what I meant by an inquiry. This was simply an aside. I concluded that there were situations in which hon. Members opposite would not wish to have carried out the kind of review which might result from the new Clause.
The only remaining reason for hon. Members opposite pressing the new Clause is that they are perhaps seeking to protect a private firm from competition from public enterprise in a way in which they would not protect it from competition from another private enterprise concern. They are basically concerned, not with the efficiency of management of the Corporation, but with the competitive relations between the Corporation and private industry. I accept that the terms on which the Corporation competes with private industry should be the same as the terms on which private industry competes with private industry. We have said that repeatedly. The Minister has said it over and over again throughout our debates on the Bill. The new Clause would go further than that. It would put the Corporation in a different position from private firms in competition with other sectors of industry.
It has been said that, because the Corporation is different from private firms in one way, it must therefore be put in a different competitive position in another way. It is a matter of judgment as to where the balance lies between this grievance and the method of redress. My argument is that the method of redress has not been related to the kind of situation which the hon. Gentleman fears constitutes the main difference between the private and public sectors.
I accept that this is a difference of judgment. Hon. Members opposite have perhaps begun to appreciate that we wish the Corporation to act in a fully competitive way, being thoroughly businesslike in its own management, completely realistic 763 in the appraisal of its activities and governed by commercial criteria in its operations. But we do not want to see the National Steel Corporation subjected to a kind of constraint which would limit it in a way in which private enterprise would not be limited.
If, therefore, the new Clause is pressed, I must advise my hon. Friends to resist it.
§ Mr. Patrick Jenkin
I appreciate that the Joint Parliamentary Secretary has tried to deal with some of the points which were made by my hon. Friends and myself in the debate. I also appreciate that there is some force in one or two of the points which he put, and I will come to them later. But I challenge some of the arguments which he addressed to the House in seeking to resist both this Clause and apparently any other Clause like it.
The hon. Gentleman mentioned the "Homefire" and "Roomheat" project. The fact is that this plant is not yet trading—if a plant can trade; it is not yet producing anything. I find it a strange argument to suggest this plant as a reason for not including the new Clause in the Bill. I find it a strange argument that because one cannot catch the case of the capital investment which is not yet trading, therefore one should make no attempt to catch the case in which the capital investment is trading and making a loss. It may well be that in this respect the Clause requires strengthening, but as an argument for not accepting the Clause—especially taken in conjunction with the hon. Member's other arguments —it was strange.
Nor is his argument about the National Coal Board closures in any way germane. As my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) rightly said, attention will always be directed to the main activities of a nationalised corporation. This has happened in recent years in the National Coal Board. As part of a national energy policy, the economics of the different areas and divisions of the Coal Board have been examined very closely, and there is now in train a substantial programme, which I believe will have to be an accelerated programme, of pit closures in order to achieve what the 764 Minister said he seeks—a viable and profitable coal industry in this country.
I therefore do not accept that argument. The next argument was about cross-subsidisation. This is the kind of case that can arise in these diversified activities where there is crosssubsidisation—where some part of the overhead is being borne in a certain activity, and if that activity were closed down the overhead would have to be borne somewhere else. The argument continues that it is worth carrying on the activity in order to prevent that overhead from being transferred to another part of business. This is often a false argument, but it is an argument used to justify public and private enterprise in carrying on activities which on their merits ought to be closed.
The hon. Member sought to rely on the argument about the Parliamentary pressure which would arise from the disclosures which are being written into the Bill. I question how effective they can be. It has been calculated that an industry comes under the eagle eye of the full Select Committee on Nationalised Industries once every 12 or 14 years. There may be plans to step that up, but with the increase in the nationalised industries, that is the kind of period which is likely.
Similarly, my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) is always complaining of the limited opportunity to put Parliamentary Questions on the day-to-day management of the nationalised industries. We have a debate on the Floor of the House every two or three years on the borrowing powers for each of these industries. This is about what it amounts to, and it certainly cannot be relied on as adequate justification for not examining the profitability of the subsidiary, ancillary activities of a nationalised industry, certainly not an industry which is to have the vast and sweeping powers of diversification which the National Steel Corporation will have under the Bill.
I accept that the statistics here will be much more than have ever been provided for—and that is right—particularly on the question of the profits and capital employed in diversification activities. However, I really cannot accept the argument that it is an adequate substitute 765 for the pressure which exists on private industry to wind up non-profit-making activity.
The Minister said in the Standing Committee:I accept the arguments which have been made in the past, to some extent at any rate, on the lack of information; and if that information is available, those companies should be open to no less pressure than any private company but certainly should not be open to any more pressure."—[OFFICIAL REPORT, Standing Committee D, 15th December, 1966; c. 2488.]"No less pressure than any private company". What the hon. Gentleman has failed to satisfy me, at any rate, about is that there is adequate pressure which replaces the pressure of the market, the pressure on boards of directors to stop loss-making activities, the disciplines of the capital market. That does not exist to the same extent.
However, there is one point which the hon. Gentleman has made which I do concede, and I am sure my hon. Friends would also concede, has some force in it, and that is we do not in this new Clause give any discretion to the Minister to withhold from publication if publication of the report could be of damage to an export business or, indeed, to the competitive position of an industry. The Clause in that respect is uncompromising. Therefore, I do not think it would be right and I hope my hon. Friends will accept this—that we should press this new Clause to a Division.
I am perfectly certain that we shall study very closely what the hon. Gentleman has said, and no doubt my friends in another place will be able to return to this matter and perhaps at the third attempt get a Clause to deal with this undoubtedly very important aspect, for here we are breaking new ground, and write into the Bill something which will ensure, to an extent which would not otherwise be possible, the Minister's objectives of a fully commercial organisation, which he believes the National Steel Corporation will become. As I say, I hope my hon. Friends will accept that it would not be right, in these circumstances, to press this new Clause to a Division, and I beg to ask leave to withdraw the Motion.
§ Motion and Clause, by leave, withdrawn.