SHIPBUILDING INDUSTRY BILL

HC Deb 09 March 1967 vol 742 cc1773-888

Order for Second Reading read.

4.5 p.m.

The Minister of Technology (Mr. Anthony Wedgwood Benn)

I beg to move, That the Bill be now read a Second time.

As this is the first occasion on which I have spoken in the House as the Minister responsible for the shipbuilding industry, I will begin by saying something about the industry itself.

British shipbuilding, which we are discussing today, has been through a very difficult period. Its difficulties are not over yet. During the last few years it has been the recipient of a great deal of criticism. Much of it, I am sure the industry would now admit, has been justified criticism. Some of it has not been justified.

But today, with the presentation of this Measure, we are making a new start. And in looking to the future, we must not only concern ourselves with the re-organisation of what already exists, important as that is, but we must also begin thinking about ways and means by which this industry can take advantage of the new technologies that now exist. Nothing would be more fatal for this country than to concentrate only on the science-based industries and exclude from consideration the equally, if not more, important question of applying science and technology more rapidly in all industries. That is certainly the spirit in which my Department faces the job which must be done.

I will, first, refer briefly to the background to this debate. In the autumn of 1964 it became clear to the Government that a major reorganisation of the industry was urgent it British shipbuilding was not to decline further in world markets. The Shipbuilding Credit Act, 1964, saved a number of yards from bankruptcy by stimulating British orders with loans at the Exchequer lending rate. This scheme simply provided more work for the out-of-date and fragmented structure of the industry. However, it was in the nature of an emergency blood transfusion and did not of itself contribute to bring about the fundamental changes which it had become obvious would be necessary if the industry was to become competitive.

It was for this reason that the Government decided to set up the Geddes Committee in February, 1965. The Committee was asked to look at the industry and recommend what action it thought should be taken by the employers, unions and Government, and to report in about a year. In fact, it reported 53 weeks later and its report was published on 24th March, 1966.

I am sure that the House would want me to once again express our thanks to Mr. Geddes and his fellow members on the really excellent job of work which they did. It was no mean achievement to complete such a comprehensive inquiry in such a short period and to produce a Report that was so analytical in its diagnosis, clear-cut in its recommendations and capable of winning support from both sides of the industry and from the Government.

This is the first time the House has debated the shipbuilding industry since the Geddes Report. This Report is, therefore, one of the essential documents for today's debate, although I hope that I will not need to repeat the arguments in great detail contained in it.

The Report proposed that the industry should have three months in which to demonstrate its willingness to make the effort suggested in the Report. I think that the House as a whole felt that both sides of the industry had made a promising opening response and welcomed both the action taken in the Finance Act to grant shipbuilders relief from indirect taxes and also the Government's decision, which my right hon. Friend, the President of the Board of Trade, announced on 9th August, to introduce legislation on the lines recommended in the Report.

After that. Sir William Swallow, formerly Chairman of Vauxhall Motors, agreed to become Chairman of the new Shipbuilding Industry Board, and he and his colleagues, Mr. Hepper and Mr. Gormley, were appointed on a non-statutory basis by early November. We are fortunate in having a Board of this quality and I am sure that the whole House will wish its members success in the immensely difficult job which the Government have asked them to undertake.

Immediately after that, following the history through, the responsibility for shipbuilding was transferred from the Board of Trade to the Ministry of Technology. We not only took over the staff concerned from the Board of Trade, so that the links between the people who had worked on it in the Board of Trade and the industry were maintained, but we have done our best, in discussions with the shipbuilders and in the visits which my hon. Friend and I have paid to shipyards, to convince shipbuilders that there is no weakening of our concern with both the day-to-day and long-term industrial problems of shipbuilding as a result of the change.

Since November, developments have been rather less dramatic. Some negotiations between the companies about groupings have been proceeding, although I must say, frankly, rather more slowly than the Government had hoped. Sir William Swallow and his colleagues, having waited for some time for concrete proposals for reorganisation to come forward, have recently been active in stimulating the planning of reorganisation within the industry.

This is not, I believe, just a matter of waning enthusiasm with the passage of time. There have been real difficulties in the way of reorganisation. First, the industry faced increases of labour and other costs in the period before the prices and incomes standstill and much of the work on hand had involved losses. Companies which had escaped the worst losses found the prospect of joining up with those which had made heavy losses an unattractive one. On the other hand companies making severe losses felt that if they did join a group at this juncture they might not be assessed at their full worth. This has been a factor we have had to take into consideration.

This view was exacerbated in two other ways. In view of their losses, some shipbuilders were nervous at taking on new orders at prices which might lead them into further financial difficulties. This reflects the basic problem of the industry's weakness in the face of world competition with which the Geddes Committee was concerned. An additional problem, to which many hon. Members drew attention, was the disparity in the credit terms which a British shipowner could get if he ordered overseas—often 80 per cent. of the contract price for eight years at 5½ per cent.—compared with the much higher rates of interest he had to pay when ordering from a home yard.

As a result of both these problems, and others, the value of orders taken by the British industry has been falling fast: from £93 million in the first half of 1965 to £78 million in the second half; to £47 million in the first half of 1966; and to £26 million in the second half of last year.

If credit had been the only problem it could no doubt have been dealt with by arrangements rather similar to those introduced in the 1964 Act. But this would only have masked the long-term weakness, and would have tended to defer the changes necessary if the industry is to hold its own in the world market. What we have done, although it involved some slight delay of a few weeks in the introduction of the Bill, is to work out a way of helping on the credit problem which would reinforce rather than undermine the reorganisation of the industry as proposed by Geddes. No doubt a lot of this debate, and may be that in Committee, too, will concentrate on this aspect of what we are putting before the House.

I now turn to the substance of the Geddes Report. Its proposals for regroupings are certainly important and, indeed, it is often regarded as a report on shipyard groupings. I would summarise the proposals as follows.

First, there must be a group headquarters capable of using modern technical and management methods, and inspired with a philosophy which the Committee set out in one of its appendices.

Secondly, Geddes visualised that each group might contain four to six yards, each specialising in the type of ship built.

Thirdly, it foresaw a labour force of, perhaps, 8,000–10,000 in total, with about 1,500–2,000 men working in a simple shipyard and up to 3,000 men working in the more labour-intensive yard where more sophisticated ships were built.

Fourthly, it foresaw that the group might include ship repair yards managed separately, but able to take advantage of the services provided by the group.

Fifthly, it advocated that the manufacture of slow-speed diesel and marine turbine engines which had grown up in some composite yards for historical reasons in the past should be hived off and concentrated in a smaller number of establishments that specialised in engine building.

However, groupings on these lines, whether the yards are close together, or, in some cases, geographically dispersed as they are in a number of the Japanese groups, are only the first legal and financial step in the direction we have to go. There is a great deal of talk nowadays about the economies of scale and the benefits of large organisations we debated this recently in the House. Whatever the justification for these views may be in other fields—and I am not sure that size by itself guarantees anything at all—I agree with the Geddes Report that groupings in shipbuilding provide no more than the framework in which the necessary changes are likely to take place best.

If the industry is to regain a position of competitive strength, it is greater efficiency in all fields of management—greater yard productivity, greater throughput and greater specialisation combined with flexibility—that will be the key. This is what the Bill calls the reorganisation of resources—buildings, plant, equipment and manpower.

In my view, no yard in the country, I would almost say no individual in the industry, can duck the need for change. It certainly cannot be escaped by approaching grouping cautiously: the going is likely to be equally difficult, possibly more so, for yards which decide to go it on their own. The Geddes Report said that the individual yard which becomes really strong in a particular sector of the market may succeed, but it will represent an easier course than grouping.

These changes, for which grouping will he the preliminary in many cases, present a tremendous challenge to both sides of industry. I speak, first, of management. Shipbuilding is an ancient industry with much devotion, skill and craftsmanship locked up in it. But I hope that we shall not now accept that there is any mystique in it. It must become competitive. It must have modern management skills in marketing, design, development, purchas- ing, industrial relations, production and financial control. The industry must have these skills whether by recruiting from outside or by training up its own forward-looking men. This is not an optional extra, but an integral part of grouping and reorganisation.

The challenge to the workers and the unions is equally dramatic. These are the men who have invested their life in this industry, and whose future employment depends upon it. They are certainly entitled, as any worker in any industry is entitled, to look forward to a future that provides good employment prospects. They are also entitled to a share in improved amenities and the chance to be trained and retrained so that they can raise the level of their skill. But, at the same time, they must know that all these things depend upon the rapid modernisation of the industry, and that restrictive practices, designed to give security in the past, can—if they are maintained now—destroy that very security by destroying the competitiveness of the yard.

I feel that in this debate hon. Members on both sides will, in what they say, sense and reflect the new spirit in the industry on the side of both management and labour. Both sides have stressed their understanding of what is needed from them, and this will give the industry a chance to make its fresh start. As we move from this early period of general welcome into the far harder job of implementation of the Report, both sides will be tested to the full in the very difficult negotiations and transitional arrangements that will have to be made.

If I had to summarise the Geddes Report in three sentences, I should do it like this. First, the competitive success of the British shipbuilding industry depends on the industry itself, the managements and workers in it Secondly, the Government should help, but all public expenditure should be directed to and conditional upon the reorganisation of the industry. Thirdly, the job is urgent: the industry must not look forward to aid on a continuing basis. This is a job that has now to begin.

I now turn to the scope of the Bill, which deals with the financial help by the Government and its administration. I should, first, explain, although I am sure that all hon. Members know, that the Bill is concerned with all the yards building vessels of 100 gross tons or more, of which there are about 60, as compared with the 26 yards building vessels of 5,000 gross tons or more, on which the Geddes Committee concentrated as a matter of convenience.

Clause 1. The Bill starts by making competitiveness the over-riding objective of the Shipbuilding Industry Board, for whose establishment the Clause provides. Hence it follows that all the assistance which the Board will be giving will be based upon the need to make the industry competitive. The Clause follows the Geddes Report in making the Board an independent body and, similarly, the Report is followed in Clause 9, by which the Board is to expire at the end of 1970 unless its life is extended by Order for not more than an extra year.

Clauses 2 and 3 again follow the Report in providing for two types of grant to be made. Clause 2 provides for up to £150,000 to be spent on consultants' reports in connection with the grouping schemes. These grants will be made by the Board on its own initiative and without consulting the Minister.

Clause 3 provides for grants of up to £5 million to be made in respect of transitional losses as a result of grouping or the reorganisation of resources. This expenditure will require Ministerial approval.

Clauses 4, 5 and 6 deal with the £2½ million worth of reorganisation loans proposed in the Report. However, under the Bill rather greater flexibility is given to the Board by leaving the amount which it wishes to devote to various purposes to the Board's own discretion, instead of tying it down into separate compartments. This is a sensible arrangement, though I can well understand why Geddes made the recommendations that he did.

I should also mention that there is one technical change from Geddes. Instead of providing for a remission of interest due on a reorganisation loan in the first three years, the Bill provides that payments of interest may be financed by way of grants—that is, over and above the £5 million—so that the exact cost of it can be known and identified. There is in fact no practical difference. This is a tidier and more convenient way of doing it.

Clause 6 provides that the Board may, subject to the approval of the Minister, take an equity holding in lieu of giving a loan or accept an equity holding in discharge of a loan. In both cases the equity holding will count against the limit of £32½ million imposed on all these reorganisation loans.

This equity provision has been included in the Bill because it seemed to the Government that where substantial sums of public money were being placed in an industry it ought to be open to the agency that placed it there to take a share in the ensuing profitability of the enterprise which received it. This is an option which the Board will be able to take. I cannot imagine how this provision could be in any way controversial but, if it is, we shall no doubt have an opportunity of debating it in Committee.

There are obviously circumstances in which the company concerned might well prefer an equity holding to the provision of a loan, in order to avoid paying interest at a fixed rate. This is not at all the intention of the Clause. In some cases the Board might see an advantage in an equity investment, but in other cases it might feel that taking a convertible loan would be a better way of investing its money. We are here dealing with the taxpayer's money, and the taxpayer is entitled to be satisfied that where his money is spent he will get the most favourable possible return upon it.

Mr. A. J. Irvine (Liverpool, Edge Hill)

How is it proposed to control the channelling of these public moneys which are being advanced to the industry towards particular types of construction? I am thinking particularly of container cargoes. How is it proposed that the direction of the funds to particular classes of construction will be controlled? This is a matter in which the taxpayer will obviously have the keenest concern.

Mr. Benn

I am coming to the rôle of the Shipbuilding Industry Board later in my speech.

The Board is to be set up as the executive body. The Board, in deciding whether to make a loan or to take an equity holding or take a convertible loan, would examine this in the context of the reorganisation and the redevelopment of the yard or grouping and in this case would come to the Minister for authority. There will be an opportunity to take into account a number of considerations bearing upon what the money is needed for.

Mr. John Farr (Harborough)

Can the Minister confirm that, if a company accepts a loan, it may be required to accept Government participation by way of shareholding in lieu of repayment?

Mr. Benn

No. The position is this. The Board has £32½ million, which was the amount recommended by Geddes, and it has certain options open to it. It has the ability to make a loan. It has the ability to make a grant to cover the first three years' interest on the loan. It has the power to take convertible stock or make an equity investment. In considering what it should do the Board will take account of the circumstances.

This is a perfectly straightforward extension of a range of options to the Board, with the knowledge that in every case the Board will have to come to the Minister for approval of the proposals it makes. I do not know whether that meets the hon. Gentleman's point. I will come on in a moment to other considerations which might be in the Board's mind.

In addition, the Board might well have in mind the desirability of an equity in order to give itself a continuing say in the management of an enterprise at a time when questions of management reorganisation were of crucial importance. This relates back to what I was saying earlier about a mere grouping not being enough, about there being a need to ensure that management is there to take advantage of the possibilities which are opened up by the grouping.

Since the Board is to be a statutory authority and is to have these powers vested in it, I do not want to say much now that would limit the exercise of its choice. In each case, I shall be called upon to approve proposals for the taking of an equity and to approve any sale of any equity thus acquired. I have discussed, and shall no doubt be discussing, with the Board the way in which it might wish to use this power.

I might underline the fact, in case any hon. Member has any doubts about it, that there is no question of compulsory acquisition of shares involved. If the company in question does not wish to make equity available, it is under no obligation to do so. It would then be for the Board to decide whether, in those circumstances, it wished to offer a loan as an alternative. This will probably meet some questions which might otherwise have arisen.

Clause 7 provides for the credit scheme. The ceiling on the Government's liabilities under the proposed guarantees is put at £200 million. In view of the changed circumstances which I have described, this goes much beyond the £30 million credit scheme proposed in the Geddes Report, but the provisions are certainly consistent with the spirit of the Report.

One objective, as I have said, is to prevent British shipowners from being forced to place their orders abroad in order to take advantage of better credit facilities. In working out the detailed arrangements and the terms and conditions, the Government will certainly have regard to this objective.

The second objective is, however, to reinforce and in no way to weaken the reorganisation of the shipbuilding industry. No guarantee can be given unless the Shipbuilding Industry Board advises me that the shipbuilder concerned is currently making all the progress that can reasonably be expected of him at the time and that the order is suitable and necessary for the particular yard's progress. I must make it absolutely clear that unless there is such a provision we shall not only be throwing over the entire Geddes Report, but making it most unlikely that the reorganisation of the shipbuilding industry will proceed at the pace required.

The House will have noted that this puts great power into the hands of the Board. but I know that it intends to exercise this power wisely and sensibly, bearing in mind the overriding need to leave the industry in a stronger position than that in which it found it, because unless the industry can become more competitive, its future will be very uncertain indeed.

Under this Clause—that is, Clause 7— I shall be responsible for giving the guarantee on the basis of which the shipowner will obtain credit through commercial channels. I shall have to consider, with the appropriate expert advice, the security for the guarantee.

The House knows that my right hon. Friend the Chancellor of the Exchequer has arranged for discussions to be held with the London and Scottish clearing banks with a view to their agreeing to apply the same fixed lending rate, at present 5½ per cent., which they apply to medium-term export credits enjoying the benefit of an E.C.G.D. guarantee. A statement on the details of the arrangements will be made as soon as possible.

There are two other provisions I should mention before I pass from the Bill itself.

Mr. Tam Dalyell (West Lothian)

On Clause 7, as my right hon. Friend knows from correspondence which has passed between us, I have a strong constituency interest in the foundry industry, which serves the Clyde shipbuilding industry and, indeed, other shipbuilding industries in Britain. I realise that this is very difficult, but can my right hon. Friend give any hope to the foundry industry that certain advantages can be given to those British shipbuilding yards which make major purchases from the British foundry industry? I do not expect an answer off the cuff.

Mr. Benn

My hon. Friend wrote to me on this subject two or three days ago. I set in hand an immediate study so that I would have an opportunity of saying something, in case my hon. Friend raised it in the course of the debate. I have had letters from other hon. Members on this subject.

This raises a very difficult question. An effort to impose a condition about foreign equipment of any kind in a ship could have the very opposite effect from that which my hon. Friend wants to achieve. I will, when I have had an opportunity of considering the matter more fully, write to my hon. Friend, and it may be that opportunity will arise for me to make a statement on this matter in Committee. I must not as of this moment hold out any hope that the particular objective which he has in mind will be possible to achieve in the way he hopes to achieve it.

May I now turn to two other provisions in the Bill. One is Clause 13, which provides for the Bill to apply to Northern Ireland, which I am sure will be welcomed.

Mr. John Rankin (Glasgow, Govan)

Before my right hon. Friend deals with Clause 13, may I ask him something about Clause 11, which deals with the appointment of the Shipbuilding and Ship Repairing Council?

Mr. Benn

I am coming to that. My hon. Friend has anticipated my speech, which indicates that I have prepared it in the right order.

Clause 11 deals with the Shipbuilding and Ship Repairing Council. This Council was proposed by Geddes with functions similar to those of an economic development committee for an industry. The Council has already met on a non-statutory basis, but in view of the importance which Geddes attaches to this form of consultation, we thought it right that it should be given a statutory basis in the Bill.

The statutory references made in the Bill are deliberately flexible as it would be quite wrong for Parliament to lay down in any great detail how the Council should work. The interests represented on the Council are, of course, the builders of large and small ships, ship repairing, engine manufacture, the trade unions, marine equipment suppliers, and the British Ship Research Association. In this way, I hope that all the main interests concerned are represented, and I think that it will provide a very useful advisory body.

In case my hon. Friend were to point out that not every interest is represented, it is not possible within a Council of this kind, which is expected to do a fairly detailed job, to represent every interest. This is a problem which arises with economic development committees, and although I shall listen in case this is not the point that he is putting forward I warn him that it is not possible to meet every need.

Mr. Rankin

My right hon. Friend anticipates partly what I meant to say. I was cheered by the Press notices which said that the composition of the Council so far is as stated. "So far", I presume, means that there may be further additions to the Council. I was thinking of one which I might venture to suggest if I am fortunate enough to be called to speak.

Mr. Bean

I am glad to have anticipated my hon. Friend's question, just as he anticipated my answer. It is possible for additions to be made, but I do not want to hold out any hope to him that every interest in shipbuilding can be represented, particularly bearing in mind the number of unions as well.

Mr. Stanley R. McMaster (Belfast East)

This is the first mention of ship repairing in the Bill. Does this mean that the grant provisions of the Bill with respect to credit will be available to ship repairers?

Mr. Benn

No. They will not be available for ship repairing. I referred earlier to the rôle of ship repairing in the larger groups. But the loans and grants are not available to ship repairers. On the other hand, on the new Shipbuilding Council it was thought right to bring in the ship-repairing interests because there is a combined managerial interest, but that does not alter the scope of the Bill.

The other provisions contained in the Bill deal with the necessary administrative and financial arrangements, including the publication of reports and the disposition of the assets of the Board after it has completed its work. If there are any detailed questions on the Bill that I have not dealt with, my hon. Friend the Parliamentary Secretary will deal with them in winding up the debate.

When Geddes recommended the establishment of a Board. I have no doubt that he had in mind the great advantages that would come from having a statutory authority capable of exercising executive action during the period of reorganisation. Had he thought that this job could have been done by the Minister responsible for the shipbuilding industry, he would no doubt have recommended accordingly. But he did not think it could he so done. I am absolutely sure that he was right. Although, as Minister, I shall be required to authorise certain expenditures and actions by the Board necessary to preserve ultimate parliamentary control.

I hope that the House will agree with me, that it would not be right to interfere in any detail with the work of the Board. It wants to get on with the job with the minimum of political interference. I do plan to keep in very close informal contact with Sir William Swallow and his colleagues, and I expect that we would often meet to talk about the industry informally. But I believe that we should get into real difficulty if it appeared that I was trying to do his job. For this reason, I am anxious that in the months that lie ahead I shall not be drawn by hon. Members or others into too much comment on the detailed arrangements and negotiations in which the Board will be involved with the individual yards.

I know that Members of Parliament with constituency interests in shipbuilding and others with special knowledge of the industry will be watching anxiously to see how the reorganisation is proceeding, but I would like to feel that the self-denying doctrine of nonintervention which I have described will be acceptable to them and that I will not be pressed at every moment to reveal the exact state of negotiations between the Board and the yards. I believe that this really would be destructive to the purpose that Geddes had in mind. We ought to accord to the Board enough room to operate and give them the sort of commercial privacy for the negotiations which will be necessary to make a real success of this job.

Finally, may I say a word about the prospects for the industry. As the whole House knows, merchant ships are built for an international market, and ships sold to the domestic owners are not sold on a protected home market. Ships are not subject to import duties here, or in most other shipbuilding countries. It is an intensely competitive industry internationally, in a sense which is true of few, if any, other industries. There may be stern internal competition in respect of naval vessels and a few others, but over most of the market, ship orders have to be won in the face of bids from foreign builders.

Behind the competitiveness of the shipbuilding industry, and reinforcing it, is the competitiveness of the shipping industry where British shipowners are competing on an international freight market, where an unjustifiably high price for the ship might have secondary effects upon its trading possibilities. Therefore, the success of this new industry after reorganisation will still depend upon its capacity to meet its rivals in terms of price, delivery, quality and credit.

There are two factors which condition its success. One is, of course, the total world demand, and the other is the success of the British industry in getting a rising share

The Geddes Committee put forward some provisional and tentative figures in tonnage terms in the light of a study made for them by consultants and in response to a request from hon. Gentlemen opposite—and we had many anxious discussions about this—a copy of this study has been put in the Library for the use of any hon. Member who might be interested.

The Government's own studies have confirmed the inevitable uncertainty of any estimates of this kind. The precise effects of technological changes are difficult to forecast, but what will be the effect on the demand for ships, if we can make more use of the ships we have or of the new ships we might build? Similarly, there is the question of large tanker sizes, fuller and more efficient use of ships, or the substitution of fewer, more sophisticated, container ships for a larger number of mixed cargo vessels. These all affect tonnage forecasts.

As the Geddes Report stressed, tonnage statistics are not a good guide to the value of the business. There is an enormous variation in the price per ton of different types of vessel and the shipbuilding business represented by any tonnage figure must depend on the mix of ships within it.

For all these reasons I would ask the House not to press us to hazard a guess at the total world demand for ships during the next few years. What matters is that the British shipbuilding industry is getting a larger share of whatever market there is. Since, in recent years, the British share of the world market has fallen, it is possible to visualise—and, indeed, I do visualise—a substantial increase in the tonnage launched in Britain without necessarily there being a very large increase in the total tonnage built in the world.

The challenge which really faces the industry today is that of grappling to get a larger share of the world's market of ships. For my part, I look for rising sales of British ships, and I hope that out of this debate and out of the progress of the Bill we shall have an end of the pessimism which, in the past, has gripped this industry and handicapped it in its attempts to face the challenge which has confronted it.

I hope that I have said enough to show that the Government are seriously determined to play their full part in the job that lies ahead. This is an industry for which this country is famous. There are skills locked up in it which are still not being fully used, and which once released to work within a reorganised industry, will be capable of far greater achievement than now seems possible.

This is an industry which is due not only for structural reorganisation, but for the injection of a great deal of modern technology. It will require, and I am sure will get, inspired management to carry through the changes which have to take place. Parliament is being asked, in this Bill, to authorise a substantial sum of public money to help the industry to do just that, and it is placing the main responsibility on a Board whose members will have to grapple in detail with the problems which will be thrown up.

It is customary at the launching of a ship to say, "God bless this ship and all who sail in her", and I would like to feel that as the Bill passes through the House the same spirit will animate both sides as we send it on its way.

4.51 p.m.

Mr. David Price (Eastleigh)

I should like to join the Minister in his thanks to Mr. Reay Geddes and his colleagues for the excellence of their Report. We do not have to agree with all their precise recommendations in order to appreciate the thoroughness of both their analysis and their proposed plan for dealing with the problems of the industry, and the House is truly in their debt.

As the Minister said, the Bill has two main objects: first, to implement the Geddes Report, and, secondly, to establish a credit scheme for British shipowners who place orders with British shipbuilders.

Before dealing with the Bill itself, I should like to make some comments on the present state of the industry as I see it, to say why it is necessary for the Government to bring forward a Bill of this nature—although there may not be any great Second Reading controversy across the Floor this is a matter about which we have to give some explanation to the public—and to speculate a little on the future of the industry.

I shall not go into any figures with regard to the present state of the industry, because I think that in this debate we can assume that we have all done our homework on the Geddes Report. My copy is so heavily thumbed and marked that it is almost in pieces.

I should like to draw attention to a number of factors which I believe are relevant to our consideration of what we ought to do to help the industry, and what the industry ought to do to help itself. The first factor which strikes me is the enormous dominance of Japan among the shipbuilding industries of the world. The House will have studied with interest the figures given in Appendix H of the Geddes Report. These show that in 1965 total Japanese launchings were greater than the total launchings of the seven leading European nations. I therefore suggest to the House that we must study, and go on studying in depth, the reasons for Japanese success and learn from them. If we can—and these figures are very difficult to obtain—we must get precise Japanese costings; to get the financial returns not just for the shipbuilding industry, but back to the supporting industries; how far the profit is made in the yards, and how far further back by the equipment manufacturers.

Secondly, I suggest as a fact that shipbuilding is now subsidised in one form or another in all our competitor countries. Hon. Members will I am sure have seen the interesting article in The Times of 21st February entitled, somewhat emotively, "How shipbuilding yards are cosseted in Europe". We know that production is directly subsidised in such advanced industrial countries as the United States of America, France, and Italy, and Japan of course has many devices to assist her shipbuilders. Easy credit schemes for both foreign and home shipowners have undoubtedly played an important part in the remarkable growth of the Japanese industry. Therefore, the question which we must ask ourselves is, can the British industry alone survive without Government help? Frankly, I see no reason to expect it to be able to do so.

Mr. Rankin

Perhaps I might cheer the hon. Gentleman on a little. Is he aware that Japan has put on record the fact that she fears nothing but Fairfields' shipbuilding yard at Govan? This is her real competitor.

Mr. Price

I do not intend to discuss the details of individual yards with the hon. Gentleman, but I fear that although Fairfields were getting orders, they were not making any money on them, and this is the point to which I shall come in a moment.

My third point is that British shipbuilders—and this is the point which the Minister made—have to compete on an international market with no tariff protection and little natural protection for their home market. As the Geddes Report said: The concept of a home market is difficult to apply at all because ships sold to 'home owners' may spend their life competing for international trade, seldom or never touching a home port. I think we can therefore agree that whatever scheme we have to assist shipbuilders, any scheme which compels shipowners to buy British ships will not assist the national purpose. We hope that British shipowners will buy British ships, but they will do so not because we compel them, but because they are the best buy. Therefore, any proposals for assisting British shipbuilders which would add to the cost of British shipowners must be rejected.

Let us remember, too, that British shipping has to compete on the oceans of the world on world terms and not on British terms, and even if we wanted to protect British shipping, physically we could not do it. We could no longer reinstitute the Navigation Acts. It just is not "on", and therefore if that is the difficulty for British shipping, the same argument I suggest applies to British shipbuilders.

Fourthly, British shipbuilding is an assembly industry and I think it is worth reminding ourselves, as the Geddes Report said, that nearly three-quarters of the final cost of most ships represents bought-in materials and components. It is therefore not enough to deal with the problems in the yard unless some impact can be made on the suppliers and the subcontractors.

I do not think that British shipbuilders have used their purchasing powers sufficiently to put pressure on their suppliers as to price, standards, and delivery dates. I think that they have given purchasing too low a position in their managerial priorities. I suggest one can see that by the relatively low position of the purchasing manager in the managerial hierarchy. As an assembly industry it might learn from the motor car industry, where the purchasing director is always a main board director.

Having said that, I recognise that the British shipbuilder may still be at a disadvantage against his foreign competitors in the matter of bought-in supplies and equipment. Unlike the shipbuilder, most of his suppliers enjoy tariff protection, and I wonder whether the Board of Trade would be prepared to make selective tariff cuts on assembly materials for shipbuilding where the case can be made that the British suppliers are uncompetitive. As the House knows, I believe in selective traffic cuts where British suppliers are uncompetitive.

The next aspect is the structure of the industry. The Geddes Report is largely about that. It is worth recording that none of our large yards is in a group launching more than 250,000 tons a year, but that the three largest Japanese companies together launch as much per year as the combined launchings of the entire British and German shipbuilding industries. This consideration was very much in the minds of Mr. Geddes and his colleagues.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

What does my hon. Friend think the optimum size of units is? There is clearly no advantage in just getting bigger and bigger for the sake of getting bigger and bigger. Surely there must be some economic level where the optimum size begins to show benefits?

Mr. Price

I would not attempt to answer that without extremely detailed studies with specialised industrial consultants. However, some things are obvious. If one were concentrating mainly on large ore carriers, the units would be very much larger. But if one were building specialised naval craft, I suspect that the units would be smaller. Much of the work is in the electronics and control equipment of such ships.

I am too much of a professional in management studies to answer my hon. Friend's question now. If he likes to pay my fees and the Minister gives me the facilities for a year, I will try to come up with an answer. This is no doubt what Sir William Swallow will be doing.

Those British yards which invested most did not thereby become the most competitive. The Geddes Report says: Yard modernisation was not of itself any guarantee of commercial efficiency. Therefore the mere provision of more capital is not in itself sufficient. My final point is so obvious that I hesitate to make it. It is the importance of good industrial relations, particularly in an industry which has memories of a severe and savage past which cannot be removed easily. Geddes had a severe judgment to make of industrial relations in the industry when he said: The joint failure of both management and unions to tackle the problems of bad industrial relations resulting in the wasteful use of labour has cost the industry dear in money and reputation. I hope that we can agree with the Report that We shall not achieve anything constructive by attempting to allocate responsibility for this state of affairs. Like the Minister, we want a new start in the industry. It will not be easy because of the vigour and high standards of international competition. We must give the industry every opportunity to compete successfully. There is said to be a new spirit of co-operation in the industry and we must foster and encourage it. Nothing is to be gained by allocating blame even where we may feel sincerely that it is justified. Let us remind everyone in the industry that a house divided against itself cannot stand, and the house of British shipbuilding is a house that we want to see standing. But the test of a new spirit—and I am sure that the right hon. Gentleman will agree—is, in the final analysis, not to be judged in paper agreements but by what happens in the yards.

With that in mind, I turn to the Bill itself. The credit scheme for home shipowners embodied in Clause 7 is, in immediate terms, although not in long terms, the most important feature of the Bill. I believe that it will redress the balance of disadvantage which has made it more expensive for a British shipowner to place an order in a British yard than abroad.

Certainly, the figures that we all have bear this out. If one compares the figures for ships being built for British registration at the end of 1964 with the similar figures for the end of 1966, we find that the total in 1964 was roughly 1.6 million the total in 1964 was roughly 1.67 million tons—very nearly the same. But whereas, in 1964, 1.47 million tons were being placed in British yards, in 1966 the figure was 0.85 million tons. In other words, in 1966 roughly half the orders for British registration were being placed in foreign yards, whereas two years earlier about 75 per cent. were being placed in British yards.

Of course we do not know how far factors such as cost, reliability and delivery dates came into these decisions to place orders abroad, but I suggest that, as long as the British owner got more favourable credit terms abroad, it was not fair to blame our shipbuilders for their apparent failure to satisfy our owners in the face of world competition.

The credit scheme will put matters right, but no more than that. The British shipbuilders will be competing on world terms for orders from British owners. It does not mean that British shipbuilders will be subsidised so as to have an advantage over foreign yards. All I suggest that the British shipbuilder will get is comparable conditions with those of his foreign competitors.

To many of us, subsidised credit schemes are, in general terms, undesirable. Like Geddes, I should prefer to see all subsidised credit schemes for shipbuilding abandoned by international agreement and I ask the Government to go on trying to achieve this. Nevertheless, I do not think that they have much chance of succeeding. The practice is too well entrenched and countries like Japan have done far too well out of such schemes for them to abandon them readily. Therefore, I find myself inevitably supporting the idea of the credit scheme in the Bill and I ask the House to support it because I see no practical alternative.

But I am also sure that the Government are right to go much further than the temporary scheme produced, some what reluctantly, by Geddes. They are right because I do not see foreign Govern ments abandoning their credit schemes, and as long as our competitors have credit schemes we must continue to have them ourselves. If this view is correct, it must be right to introduce a scheme of indefinite operation. It must also be right to raise the Geddes figure of £30 million to something more substantial. The Government's figure of £200 million seems to me to be somewhere near the mark and I do not think we need delve into it further at this stage, although I hope that, in Standing Committee, the right hon. Gentleman will give us a little more of the thought behind it. In my own estimation, I thought that the figure might have to be a little higher.

My only criticism of the Government's proposal for credit is the linking of the scheme to S.I.B. approval. I do not object to conditions being attached to the granting of credit. It is the only sort of scheme that most of us could support. But I question whether the S.I.B. is so infallible that its judgment alone should be the one on which the granting of credit is determined.

I will give examples of the sort of questions which worry me. If a yard decides to stay out of an S.I.B. merger, does that mean that it is ineligible for credit? What happens to firms smaller than those featured in the Geddes proposals? In neither case may such firms necessarily be inefficient but, as I read it, there is doubt as to whether they are eligible or not.

Mr. Benn

My hon. Friend the Joint Parliamentary Secretary will deal with this more fully, but I assure the hon. Gentleman that the credit is not limited to yards which group but is also available to single yards which reorganise their resources.

Mr. Price

I was about to put to the right hon. Gentleman a method by which I think one might he able to achieve the objective—which we all share—of wanting the scheme to assist the rationalisation and efficiency of yards. We might achieve it by including in any contract eligible for credit penalty clauses on delivery dates and performance. I have had this put to me by a rather successful shipowner in my part of the country whose unit is smaller than the Geddes yards. When we come to the remainder of the Bill, the part devoted to the recommendations— —

Mr. E. Shinwell (Easington)

The hon. Gentleman is making a very interesting point. What does he mean by penalty clauses?

Mr. Price

When orders are obtained for naval vessels for foreign Governments it is common to have extremely tight penalty clauses on failure of performance and on delivery dates. Firms which are prepared to accept contracts on those terms say that they sort out one's managerial thinking very definitely, and that if a firm is inefficient and takes such an order it loses a great deal of money on it. That is common practice in certain other kinds of contracting, but I understand that in many parts of shipbuilding it has been the prerogative of the owner half-way through an order to want a lot of alterations, and that gives the builder a complete let out if he is slow on his delivery dates. If the builder is prepared to accept the penalty clauses it is not a bad test that he is reasonably efficient, because one cannot very often repeat accepting such a contract and failing to come up to it.

I was turning briefly to the bulk of the Bill, which is the implementation of the Geddes Report. We entirely agree with the purpose of the Bill, and I was glad that the Minister reminded us that that was to promote the ability of the United Kingdom shipbuilding industry to compete in world markets.

The heart of the Geddes recommendations lies in his merger proposals. I think that we are in general support of the arguments deployed by Mr. Geddes and his colleagues in favour of his broad conclusions but the difficulties arise—and the right hon. Gentleman hinted that he was aware of them—when we come to the details of mergers. For instance, what happens when the financially viable firm is asked to merge with the financially non-viable firm? Could the capital of the non-viable firm be written off under the S.I.B. scheme, which might be helpful?

As the Minister told us, since Geddes reported the situation has deteriorated. The order books of British shipbuilders have dramatically declined. We have had another year's crop of annual reports, which tell of further deterioration in the financial position of many shipbuilding firms. Not surprisingly, that has produced a certain lack of enthusiasm among some parties to the proposed mergers, although one hopes that the loans and grants offered in the Bill will be a pretty sizable dowry to some of the reluctant brides.

We want to be reassured—and I think that we have nearly had that reassurance—that the S.I.B. will not use its powers to compel a merger, but will use its powers and loans to encourage one; in other words, that marriages will be done through the S.I.B. as marriage broker, but that there will not be shot-gun marriages. If they catch the eye of the Chair, some of my hon. Friends will show that they are rather worried on that point.

The right hon. Gentleman commented on the whole question of future demand for British ships, and we agree with him that it depends on the background of world demand. Some of us think that Geddes adopted a rather optimistic figure for world demand in the years 1972 to 1975. He forecast that it would be between 15 million and 19 million tons. At present it is about 14 million tons. I am grateful to the right hon. Gentleman for allowing us to see a copy of the Sigma Report. I was rather disappointed in it. It has an attractive mathematical elegance, but some of the factors on which the right hon. Gentleman touched and on which I want to touch are not properly gone into in the Report, such as the sophistication factor in shipping techniques and handling methods which should enable a larger amount of work to be done in the oceans of the world by a given tonnage of shipping. I do not think that that has been properly estimated.

Some of the forecasts one has seen in responsible journals of the likely impact of an increasing use of containers and container ships in terms of tonnage were almost, though not quite, ignored in the Sigma study. I do not want to compete with Geddes in giving my estimate, but there has been a great deal of responsible comment that the world demand will be less. That means that the task of the British shipbuilding industry to achieve the Geddes target of 2¼ mililon tons after reorganisation will be harder.

If British shipbuilding can reach only, say, a target of 1½ million or 1¾ a million tons rather than the 2¼ million tons upon which Geddes was working, there is the question whether there will be room for four to five groupings of the scale he proposed or whether we shall have to readjust our ideas and think either in terms of only three groupings, which would be a very severe thing to work out, or accept that his target of about five groupings remains right but that they should be of a smaller annual capacity. I hope that the Parliamentary Secretary will comment on that.

Will S.I.B. fulfil the Geddes recommendations about setting up a realisation company to purchase assets which will be surplus to requirements as a result of groupings and to dispose of them? If the Government do not intend to implement that recommendation, do they believe that all existing yards are needed and can be filled? I do not see how they can, on the sort of estimates that we have of what the industry can achieve.

It is interesting to see what has happened abroad. The French have reorganised their shipbuilding industry somewhat along Geddes lines. I understand that as a result only four French yards are still in use for new shipbuilding and that their annual output is slightly less than half ours. That suggests that some of our yards will have to be taken out of use for shipbuilding and, we hope, put to some other use. I should like to know from the Parliamentary Secretary the Government's thinking on that.

There are one or two features of the Bill about which we are not very happy, which will not surprise the right hon. Gentleman. The powers the Minister takes under Clause 1(4) raise certain doubts in our minds. I hope that his reassurance may creep into an Amendment, because we are rather distrustful of promises on Second Reading, remembering our experience of Clause 2(1,b) of the Industrial Reorganisation Corporation Act.

The right hon. Gentleman will not be surprised to know that we do not like Clause 6 and shall seek to alter it. It is not only on general grounds that we do not approve of the Government's taking a further equity interest in British industry. It is rather that from the taxpayers' point of view—I share the right hon. Gentleman's concern about that—such equity holdings are likely to be less secure and pay a lower yield than fixed interest loans. Furthermore, we believe that if the Clause's provisions are freely used they may frustrate the Bill's purposes, because financially viable firms will not be so keen to participate on those terms and only the financially weak firms will accept Government participation, which is clearly preferable to liquidation. My worries are less on doctrinal grounds than a concern lest the Government will commit too much of their money to the less good in the industry. I have a curious preference for supporting success. I fear that in this sort of exercise there is a danger of our finding ourselves as a nation putting too much of our money into the less successful.

With these important reservations, we support the Bill. Like the Minister, we wish Sir William Swallow and his colleagues well in their endeavours. We trust that the Government will allow the mergers to come about voluntarily with the result that larger groups will enable the industry to become fully competitive in world terms, but as the Minister said, much will be required of management and men alike. The industry must not, and I am sure will not, expect the S.I.B. to do it all alone, because even in shipbuilding one Swallow does not make a summer.

5.20 p.m.

Mr. William Small (Glasgow, Scotstoun)

I am glad to learn from the hon. Member for Eastleigh (Mr. David Price) that he supports the Bill. I know that he is a competent expert in managerial affairs and I think his understanding of the Bill was very fair.

On another occasion my right hon. Friend the Minister described this as an ancient industry. That was before he was removed from our midst. Then, fighting tradition, in August, 1963, he came back to this House and now he has the responsibility of seeing this Bill passed through. I must pay some compliment to the previous Minister of State who was appointed by this Government to have charge of shipbuilding. The action by the Labour Government of making a Minister of State exclusively responsible for the shipbuilding industry reinforced the morale of that industry. Under that kind of umbrella we set up the Geddes Committee. Most hon. Members have read it thoroughly, so I shall not go into it.

This is a hard industry in which people do not all talk the sophisticated language that we get in some managerial boardrooms. Hon. Members should go on occasion into mangerial boardrooms to find what goes on. Recently I had some association with the Minister of Power. Mining is a traditional industry which is going through trying times. The private sector of the shipbuilding industry is traditional and these two industries are necessary for the good of the nation. Against that background I look at the international scene and the reasons for this Bill.

The background of the Bill is related to international competition. When I look at the league figures I find no grounds for comfort. The permanent excuse of shipbuilders of this country has been that they have been held back because of restrictive labour conditions. This has been due to the "old boy network". I am not blaming either side and I know that there is need for change, but for five years when the price of steel stood still I never heard complaints from hon. Members opposite about getting steel prices down in order to be more competitive. The Geddes Report is a "must", for we are sailing with the winds of change. Time is not on our side. The Japanese and the Swedes have already leap-frogged over us in new techniques. They have passed beyond the techniques which are applied in Britain.

The trends are for standardisation in size. Whether we like it or not, the big international oil companies make the shipbuilding industry a national concern either in Scandinavia or in Japan. Development is necessary to capture this share of traffic in the world. This is the meaning of today's debate on shipbuilding. We cannot expect to capture this trade by having many shipyards in this country on a "one-off", tailor-made basis. There is not then a base load on which to run the industry. We have to get into the big stuff, the big time, and on a big scale, or we shall not be at the races.

The recent dramatic decisions of certain tanker companies to buy from Japan were vital factors which showed that the industry has to refashion itself to live and the formula is contained in the Geddes Report. If this is not accepted quickly there will be a pretty bleak outlook. In market effectiveness and productivity value, root and branch reorganisation is required. Restrictive labour practices are already beginning to ease. I find this everywhere. I find it in my constituency in the initiative of shop stewards who publicly passed a vote of confidence in their employers. This is the nature of acceptance. The trade unions were first in accepting the Geddes proposals. This was very well done. We are waiting for scientific management to be applied to the needs of the nation. Groups have to operate to the maximum efficiency.

I am not an expert, as a member of the untutored proletariat, but my view is that there should be four or five large groups and one naval yard in each group to sustain the defence of the nation with specialist craftsmen and expertise for naval building. If there is a tendency over the next three or four years for people to uproot themselves and to go elsewhere from the industry, we shall not be able to secure the defence requirements of the nation.

We should have four or five groupings, on Merseyside, Clydeside and so forth. We are engaged in a search for the soul of the shipbuilding industry. The Minister of Defence, concerned with procurement for his Ministry, visited 64 yards during his reign of office. He went to Japan, Sweden, Scandinavia, and Russia and prepared a report. He laid down a six-point programme. I shall not worry the House with the details. It was generally considered a realistic approach to the problem.

The responsibility rests generally on the Minister hiving off to the S.I.B. certain decisions. I have looked at the composition of the S.I.B. and I have looked at Sir William Swallow's record, which is a very competent one. I believe that he will do his job well. I have also looked up Mr. Gormley's record. In my opinion he will bring much which is not generally afforded from mathematicians to the differential between the treatment of labour in mining and in shipbuilding, both of which industries are ancient and traditional. Some of the best welfare schemes for workers, such as pithead baths, were provided in the mining industry, but shipbuilders did not apply such schemes until recently.

I understand that Mr. Hepper is also on the Board. For six years he was with Courtaulds. At the time of the Courtaulds-I.C.I. merger he should have sharpened his knowledge of what mergers mean. Money is available to lubricate the market. When speaking to some of the shipbuilders about acceptance of the Geddes proposals, I found them very sceptical. When the money came in they were to be married. Someone said that there would be some strange marriages, and some queer honeymoons. I added that now that the money was available it was respectable to be married in terms of a "Scottish engagement"—a well known phrase indicating that there is money in the kitty. It helps.

In essence, this is a matter of human relationships, of the meeting of minds and the will to change. I support the Bill as it affects my constituency. The hon. Gentleman the Member for Glasgow, Cathcart Mr. Edward M. Taylor) who, I understand, is to wind up tonight from the other side of the House, is a worried man, because today is the day of the Pollok by-election. Yesterday we heard about the container terminal at Greenock; at 7 p.m. yesterday he saw on the tape news about three Leander frigates for a yard in my constituency, and he saw the reports of 2,000 new jobs at Rootes, Linwood. He has seen the National Opinion Poll, giving a 0.1 per cent. lead for Labour. If he is a little nervous tonight we will appreciate why.

5.31 p.m.

Mr. J. Grimond (Orkney and Shetland)

I was not sure if I liked that last remark about opinion polls at Pollok, but apart from that I am in agreement with a great deal of the speech of the hon. Member for Glasgow, Scotstoun (Mr. Small). I welcome the Bill, but it must be said that one of the troubles in the shipbuilding industry has been of weakness in the freight market. Unless this can be put right, the Bill will not help. Apart from that general consideration, the strong case for the Bill is that our industry has to compete on very unfair terms with those in other countries. The best case I know of is the Japanese owner who receives a loan of up to 100 per cent. of the cost of a ship, at 4½ per cent., repayable over 15 years. Partly as a result of this 70 per cent. of British orders went to foreign yards last year, and in the last quarter of 1966 only 40,000 new tons were ordered in this country.

There has also been a hold up in the future of container ships. The result of all this is that there is considerable urgency in bringing this Bill into effect. That brings me straight to Clause 72,a). The Minister said that guarantees would not be confined to yards which had amalgamated. I am glad. But may I draw his attention, and the attention of the Minister who is to wind up the debate, to the wording of the subsection. It is perfectly clear that this part of the Bill will not come into force until the yard can show that since the coming into force of the Measure a reorganisation of the resources used has been carried out, or that the shipbuilder is making satisfactory progress in the preparation of plans for, or in putting into effect, such a reorganisation. If I read that correctly it seems to mean that there will be some delay between the passing of the Act and the coming into effect of this Clause. As we are agreed that this is the most important Clause in the Bill in many respects, and as we are agreed about the present rather alarming state of the industry, I would hope that this can be amended, and that it can be made clear that this Clause can be brought into effect at once in respect of yards which have already modernised or reorganised themselves, as many yards have done.

It is worth saying that British yards have spent an immense amount of money since the war on all sorts of new equipment and new layouts. I must press strongly on the Minister that yards which have done this should be eligible under this Clause at once. It may be the intention of the Bill, but I hope that he will make this clearer.

Further on in the Clause, in subsection 5) there is reference to a partially constructed ship. This apparently means that the Clause can be applied to the completion of a partially constructed ship. There may be very good reasons for that. I do not follow why it is in the Bill. Does this mean that an owner may have ordered a ship, and it may have been laid down and partially completed, without any assistance under this Bill and then, when this Bill becomes an Act, it can be invoked to provide assistance? Is that aimed at a situation when a yard is actually in process of building ships, so that at that point the Measure can be applied to those ships? If not, what is it aimed at?

The other point about the Clause is that it speaks in one or two places, and particularly in 1,b) about the equipment of that ship". We all know that the industry is an assembly industry, and that the equipment is an extremely important part of the ship. Is this provision there simply to ensure that if assistance under this Clause is granted, the ship must be totally equipped with British equipment? If not, I am not certain why it is in the Clause, because normally the cost of a ship would include not only the hull but all the other equipment.

Is it the case that one cannot ask for assistance under the Clause unless one is building a ship in a British yard and it is being totally equipped with British equipment? I should like to raise one or two points about the £32,500,000 which is available under the previous Clauses. Here again, I wholly agree with the object. I do not say that it ought to be more because, this is a common cry. But how far is it expected to go? As the Minister has rightly said, size of the yard is not everything, nor is the spending of money. Fairfields spent an immense amount of money but that did not save it because it took on a thoroughly unprofitable contract.

There may be a good place in British shipbuilding industry for small specialised yards. I hope that they will not be forced into combines with totally unsuitable colleagues in the industry simply for the sake of getting something big. This can work both ways. Denny's went out of business, possibly because it became too specialised, but Yarrow's is an extremely specialised and profitable line of business.

Is it the intention of the Government and Geddes that we should compete to a greater extent in the building of very large bulk carriers and containers? There are only seven yards in this country which can build a ship of more than 1,000 ft. in length. One has only to look at the situation of a great many British yards to see that it will be difficult to build bigger ships on their present sites. Look at Swan Hunters, or any of the yards on the Clyde. They are jammed up on rather small rivers, with a network of roads and housing estates at the back which makes it very difficult for them, even angling their berths and running across neighbouring yards, to compete with the very big range of ships which may be possible in the next 10 or 15 years.

Mr. W. E. Garrett (Wallsend)

The right hon. Gentleman is extremely misinformed about the River Tyne, particularly on the north side, where there are more than ample berths and where there is more than ample land available for the building of ships of the size that he has in mind.

Mr. Grimond

I am not criticising the Tyne. I know that Swan Hunters consider it rather an advantage in some ways that it is rather cramped for space. But if one goes to Sweden one sees that the Swedes have built an entirely new yard, the Gitawerke yard, on a green field site. I do not say that this is right or wrong, but there might be a case for doing it if you want to hold very large ships. If so it would be immensely expensive and quite outside the range of finance provided by this Bill. My point is that this is an industry of great diversity, and that there may be a place for small specialised yards, but if one is to enter into the building of very big ships, there can be very few yards in the country able to deal with them and to make them competitive for the largest class of the future may be more expensive than the Bill allows for.

May I ask about the provisions for the buying of shares? I do not want to argue this on ideological grounds, though I have some doubt as to whether the Government, or a body set up under them, are suitable for collecting a parcel of equity shares. What I want to ask is whether the Minister is satisfied that these shares, after they are acquired, should be held by the Shipbuilding Industry Board. It will be in a position of being part owners in certain yards, and also deciding about credit and other grants for yards with which it will be in competition. No doubt it will be perfectly fair. But if one looks at the Schedule one sees that stringent rules are written in to the effect that no member of the Board shall have any financial interest in matters which might affect his judgment. Does not the Minister think that the ownership of shares might be thought to affect that Board's judgment? I do not put it higher than that. I think that they will want to make a success of the yards in which they have equities, and as equity shareholders they should. I am wondering whether, if shares are to be held, they should not be held by the Government.

Suppose that the Board do take up a shareholding. Will they appoint directors? I have never felt happy about the situation in British Petroleum. The Government used to say that they took no part in the management of the B.P. business. But that is part of the equity holder's obligation. It would be extremely difficult for the Government, once they became shareholders in a large number of shipyards, to be completely disinterested in the management. I should like to know what the intention is in this respect.

Have the Government considered the possibility of giving help to the equipment industry? As I say, this matter is of enormous importance to shipbuilding. If the equipment industry in this country were to decline and it became necessary to import equipment from Japan, it would be very serious indeed. It has been suggested that a grant might be made to the British Marine Council. I merely put that suggestion to the Government.

I come now to the question of the groupings of yards. Naturally, no one is ever very precise about what will happen to the yards which are isolated. But, again, if the Minister winding up the debate can enlighten us on this matter, it will be welcome. What is expected to happen to the Caledon yard in Dundee, or Hall Russell's, or the Falmouth ship repairing yard? There is great value in some of these small yards. Often they get orders of a specialised sort which no one else goes after. I very much hope that the result of the Bill will not be to deny them the finance available to their competitors simply because they cannot be grouped in a physical sense.

Would the Minister say a further word or two on the Common Market and its relationship to the Bill? I know that the French industry is heavily subsidised. I have been told that in theory that is contrary to the rules of the Common Market. Have the Government any information about whether the Common Market intends to enforce its rules and, if so, whether the Bill will be within them? Is it true that under the Common Market regulations one must add transport charges to the price of steel? If so, what will happen to Harland and Wolff and other yards which are far from the steel-making centres?

My last question relates to diversification. Many yards have now diversified, and I should have thought that it was sensible for them to do so. Is this to be encouraged? I should have thought that it should be encouraged. I think that I am right in saying that this is entirely left out of account in the Bill, and it might well be an important matter in keeping certain yards viable which cannot be viable on shipbuilding alone.

I do not represent a shipbuilding yard area and therefore I have tried to be as brief as possible. I hope, however, that I shall have answers to some of these questions when the Minister winds up the debate.

5.43 p.m.

Mr. Edward Milne (Blyth)

The right hon. Member for Orkney and Shetland (Mr. Grimond) will, I am sure, forgive me if I do not comment too closely on his argument, but I wish to take up two of the points which he mentioned, particularly on Clause 7 and the question of guarantees for loans for shipbuilding. We shall await with interest the Government's reply on this matter at the end of the debate.

The second and, in my view, more valuable point which the right hon. Gentleman made was a plea for the smaller shipyards and the question of how they fit into the context of the shipbuilding industry as envisaged in the Bill. I think that we all welcomed the recommendations of the Geddes Report and the shot in the arm which it gave the shipbuilding industry. The point in the Geddes Report which I wish to recommend to my right hon. Friend is the stress laid on the fact that shipbuilding is a growth industry and that within the framework of the Geddes Report and the Bill we are not merely concerned with the question of concentration or the question of groupings into four or five large groups and leaving the shipbuilding industry on that basis.

One of my hon. Friends mentioned earlier that this industry is supposedly bedevilled by industrial troubles. But the industrial relations in the industry have been a lot better than the industry has been given credit for. In most shipbuilding areas too many people have attributed the difficulties of the industry to bad relations instead of considering the basic problems confronting it.

Another factor which we should point out clearly and loudly is that very little indeed is needed to bring the British shipbuilding industry back into the forefront of shipbuilding nations. We have been so keen on talking about the supposed tremendous superiority of the Japanese, Swedish, German and Norwegian shipbuilders that we have failed to consider ways in which in a reasonably short time our industry can be restored to its former position.

However, time is not on our side, because in the next two or three years the whole pattern of shipbuilding orders and over the next five to ten years the shipbuilding programme will be completed and laid down. Therefore, what we are able to do in the industry in the next 18 months to two years will be vital. It is a tribute to the Government and to the Departments concerned that 12 months from the publication of the Geddes Report we are translating it into legislation.

I wish to make two points on industrial relations. I come from a constituency which has a shipyard, but it is no longer operating. Following the publication of the Geddes Report in March last year and the publication of the labour relations agreement in the Fairfield yard of June, 1966, we were confronted with the closure of a small yard in the August of that year by owners who were based in Hong Kong and who issued notices to the men in that yard while they were on holiday. A tremendously damaging blow was aimed at the industry, because this affected not only the shipyard workers in my constituency but the mood and outlook of shipyard workers from one end of Britain to the other.

This is why I welcome the inherent principle contained in the Geddes Report and which underlies the Bill—that, if the industry is to survive, the working conditions and amenities available to workers in other industries should be within the reach of those in the shipbuilding industry. This is vital and I know that my right hon. and hon. Friends are looking closely at this matter.

Most of the shipyards of Britain are based on development districts, which are attracting new and modern industries. The shipbuilding industry will simply not attract or retain the labour force that it needs to become a growth industry if it does not pay attention to working conditions and other conditions which are inherent in this matter.

I want briefly to refer to the point made by the right hon. Member for Orkney and Shetland concerning small yards. Too often do we write off the small yards. There is a danger, when considering the Geddes Report and the Bill, of looking too closely at the question of bigness and size as the means by which the industry will become the one that we want it to be.

Do not let us forget that the main orders in shipbuilding in the months immediately ahead—our German competitors in particular are well aware of this aspect—will be for the replacement of the liberty ships that were built in the years following the war. There is a tremendous market for those ships based on ten or a dozen different designs.

All of us, according, I suppose, to the shipyard areas from which we come, will have preferences for one type of replacement or another. My view is that the computer-designed "Conqueror" liberty ship is the British answer to what its competitors are able to provide. The same yards, however—and this is where the plea for the small yards comes in—which are capable of building ships in the region of 14,000 or 15,000 tons, can be adapted to build some of the larger-type vessels that will be required in the shipbuilding industry in the months and years ahead.

The building of 500,000 ton deadweight tankers has been suggested. Some of the distant-water trawlers, which are being built elsewhere but which were designed in Britain, could be built here, not necessarily only in large yards, and play an important part not only in the trawling industry or in shipbuilding directly, but in providing the type of processing plant within them that can give to the tropical countries some of the foods that their people so urgently require. Therefore, when dealing with the shipbuilding industry, we are not only dealing with it in isolation but we are dealing with the rôle that it can play in the general economy.

I was intrigued when, in his opening speech, my right hon. Friend the Minister talked about the urgency of the matter and the speed with which the Bill is needed. That is indeed the approach that we require in the industry. I am certain that the people in my area and on the North-East Coast generally not only welcomed enthusiastically the Geddes Report, but look to a quick passage of the Bill on to the Statute Book not only as the means by which we can become a leading shipbuilding nation once, again, but so that we can show the competitors which I have mentioned that we still have a leading rôle to play among the shipbuilding nations of the world.

5.55 p.m.

Miss Harvie Anderson (Renfrew, East)

I do not differ greatly from what the hon. Member for Blyth (Mr. Milne) has said, because it must be obvious to those in the House today that we are all here with a sincere interest in and a desire to help the industry with which we are concerned. If I may refer to the hon. Member's speech, it is to say that while I, too, am in the position of having had two yards in my constituency closed, happily the closures took place in rather better circumstances than those which the hon. Member has described.

I share with other hon. Members the view that the Bill deserves a welcome because its objects of profitability and competitive ability for the industry are laudable, provided that the resulting improvement in the industry is through viable units and not a series of mergers for the sake of merging. Each must have something to contribute.

The main respects in which the Bill differs from the Geddes Report are in the recommendations as set out in Clause 6 of the Bill, in which the Shipbuilding Industry Board is given power to buy shares in the industry. Hon. Members opposite would not expect my right hon. and hon. Friends to welcome that pro- vision without question. Nor would they be surprised that some of us see the Government's own stamp on the alterations which they have written into the Bill as distinct from the recommendations of the Geddes Committee.

The two questions which I want to ask the Minister are, first, at whose behest the shares will be acquired. I know that the Minister has given certain reassurances to those who, like myself, have doubts on the subject and that those assurances go a long way to answering our question. If, however, I read Clause 14) aright, it is the Government who will direct the Board in the buying of shares in the industry. We should, therefore, express our doubts and make it clear that our anxiety is based upon the view that there should be no compulsion upon companies.

I accept the Minister's statement that there will be no compulsion on particular yards, but I would like him to go a little further and assure us that no loan will then be withheld from a yard which did not wish to be compelled to have its shares acquired. Such an assurance would fully meet this question which is in mind.

What will happen after 1970, and what will happen on the dissolution of the Board? This is a real problem about which the industry and all hon. Members would wish to have more information. I emphasise especially that the importance of this seems to lie in what will happen in the case of a non-viable unit. We cannot dismiss the possibility of certain units at that stage falling into this category, much as we hope that they will not do so.

Before leaving that subject, I would like to say a word about the yard, which has already been mentioned, where public money has recently been invested. I have the highest regard for the man who has long fought for such a pilot scheme. He is a lifelong friend of mine and I wish him well. In my view, however, this is the time neither for praising nor for criticising that experiment which is taking place on the Clyde. It is a great enterprise. It is a proving ground scheme which should not be judged until the financial reports on contracts undertaken by the new management are available. That is not now, but that will be the test.

I turn now to mergers. If I do that in Clydeside terms, it is because, like a good many other hon. Members, I am myself Clyde-built. I want to put on record that, during the last few years, about 16 yards on the Clyde have been reduced to eight by voluntary merger or takeover. I am sure that all hon. Members would agree that if an announcement was made in the House that eight yards were to close on one river, there would be a public outcry which few Governments could withstand. Yet that has happened, and, with few exceptions, the men from those yards were quickly and effectively absorbed elsewhere.

In my view, closure in itself is not a disaster, but who knows what is the right number of yards for the future? We may each have an opinion on the point, but who knows which is the right judgment? If Japan is to be taken as a criterion, it may be that we should think in terms of mergers containing fewer than the 27 existing yards.

I add my plea to those who have made the point already that the consideration must not only be size, but that there must be considerations of viability, profitability, modernisation of plant and method in the yards concerned, good labour relations and conditions, and an export record and potential. I was glad to hear the Minister emphasise that. Those features exist in some yards and, as my hon. Friend the Member for Eastleigh (Mr. David Price) said, the key problem is how the profitable yards are to be merged with a larger number of presently unprofitable yards. The weak cannot be strengthened by weakening the strong, and there may be a case for going it alone

I was surprised and not at all displeased that the Minister should have made special reference to that possibility. However, I do not intend to go into the possibility today, because I should have hoped that it would not be necessary. The hon. Member for Glasgow, Scotstoun (Mr. Small) rightly made that point, and I too regard it as the last resort. However, in the context of what I am saying, it is the ultimate possibility which we cannot dismiss.

I want to follow up what the hon. Member for Scotstoun said and take the example of a family firm whose value lies in showing that it can be run profitably as a viable unit. The hon. Gentleman knows that, when the yards in my constituency and elsewhere closed, the people made redundant were absorbed in the yard in his constituency and elsewhere. I should like to join with him in looking for a moment at the record of Yarrows, on the Clyde, which employs 2,500 men. It is a yard which falls foremost within the Geddes definition of those capable of carrying through sophisticated naval orders. Only yesterday, it received a £7 million order for two frigates from the Ministry of Defence, so adding to the three being built already, two of which are for export.

The hon. Gentleman also made reference to the unique event of the shop stewards' meeting in the yard and proclaiming their confidence in the management, as management declared their confidence in the shop stewards. In that connection, I want to quote a passage from the hand-out issued by the management and joint shop stewards committee: In our opinion sufficient steps have not been taken to make public the state of labour relations in the shipyard, the boiler works and the engineering works at Yarrows. We believe there is an essential communications job to be done and both management and labour are co-operating in this. We believe that labour relations at Yarrows are second to none on the Clyde, in Scotland, or anywhere in Britain. I hope that we shall dismiss for all time the old-fashioned idea that labour relations cannot be good.

I go on to point out that the flexibility agreement to which the hon. Member for Blyth made reference is one which is not concerned solely with one yard, but an agreement which was reached in the whole upper reaches of the Clyde. So progress is being made and, while we welcome it, we know that that progress can go further.

We cannot ignore another facet of labour relations, which is the fact that during the two years from April, 1964, to April, 1966, hourly earnings of ship building trades in general increased by more than 25 per cent. I do not want to dwell on that today. It is a fact, and it is behind us, but it illustrates a difficulty within the industry which we cannot afford to have repeated in the circles of the industry as they were at that time, when another yard on the Clyde put back by six months the launching date of the largest ship being built in the country, due to labour shortage. These are difficulties under which no industry can operate successfully, and we must seek to overcome them.

The problem remains of merging the successful without prejudicing their success, and if I have spoken particularly of the firm of Yarrows, it is because I believe that such a firm is a national asset. It has a first-class team, and it shows that profitability and viability in a British yard is possible and practical and exists today.

In wishing the Shipbuilding Industry Board well, as I do, we should remind ourselves and the Board that we must take great care not to destroy the firms which are successful. Let us take them as an example, and let us remember not to merge for the sake of merging. If we look to the requirements for the future, we must include viability, without which neither directors, management, shop stewards, men nor shareholders can have success in the industry in which we seek to offer a future.

If I have spoken with some strength of conviction, it is because for generations my family built ships on the Clyde. My grandfather was broken in fact and in finance by a venture which was beyond his resources. It was far beyond the resources of one man and, from that, I know the need for bigger units, but I also know that the essential requirement is viability.

6.8 p.m.

Mr. W. E. Garrett (Wallsend)

I wish to add my general approval to the broad outline of the Bill, because Government assistance on this occasion is offering probably the strongest challenge that the industry has to reorganise itself and regain some of the worldwide fame which our shipbuilding industry enjoyed.

In my constituency there have been built some of the finest ships to sail the seven seas. I listened with keen interest to the remarks of the hon. Member for Eastleigh (Mr. David Price), and I noticed his plain desire to get away from the past and the troubles which afflicted the industry. I make no apology for bringing the matter to the fore again, because clearly the party opposite must bear some responsibility for its complete indifference to the difficulties which the industry has experienced over the last 15 years.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has a slight interest in one of the largest firms in Wallsend, and I am sure that he would wish to take note of some of the remarks which I intend to make There was an extremely indifferent approach to management—so much so that some of the lower ranks of management became disillusioned and left the industry. One of the curses of the industry has been its inability to recruit the right type of modern management with the right type of thinking, which will enable it to compete with the other nations that have been mentioned.

There has also been a fundamental lack of understanding among shipbuilding employers about the functions of trade unions. This has built up some bitter hostility, which has diminished during the last few months and especially since the advent of the present Government. We must criticise the industry for its failure to develop techniques that it has pioneered. Many of the new techniques and new sources of knowledge which have been pioneered in the research establishments of the shipbuilding industry have been allowed to fall into disuse and to be developed by other countries, especially Japan. All this happened under the last Conservative Government.

I have been dismayed by the way in which shipbuilding management has capitulated to the full blast of competition. I have always been told that the great thing about free enterprise is its ability to face competition, but in the shipbuilding industry—which the Conservative Party looked upon as one of the best examples of free enterprise—there has been a complete failure to accept worldwide competition. The results have been tragic for the industry.

I make no apology for saying that I am worried about certain aspects of the Bill. We have referred to the reorganisation of the industry but no mention has been made of the labour problems which are likely to arise, or which already exist. I know that I shall be forgiven if I point out that in my constituency 900 men have been informed that they are to be made redundant in the next few weeks. Those men are employed in the marine engineering department of one of the largest firms on Tyneside.

It would not be so bad if their skills could be utilised elsewhere, but unfortunately there is a fair degree of unemployment in the region; indeed, the unemployment ratio is higher than the national average. It is tragic that when we talk about reorganisation we are at the same time talking about displacing skilled men. This means that we are wasting one of our vital assets. I am talking not only of craftsmen but of technicians and people in the higher ranks of management. They, too, will be out of work.

I hope that my right hon. Friend will tell his colleagues that in present terms reorganisation implies unemployment, and this emphasises the need to bring industry into regions such as Tyneside. I fear that as a result of reorganisation there will be more and more unemployment in the marine engineering sections of the industry. I forecast that in the North-East in the next few weeks two more firms will announce reductions in the number of people they employ.

I hope that the grants available for reorganisation under Clause 3 will include the making available of sums of money in the form of severance pay for workers who will be displaced. The Redundancy Payments Act, 1965, makes provision for payment in this respect, but I hope that on this occasion employers will be generous and will make additional payments. We must face the challenge. We cannot accept things as they are. It is clear that more and more people will become unemployed, although in the long run the industry will benefit from reorganisation.

The National Coal Board has faced very difficult problems of reorganisation and has overcome them. A similar story could be told of the aircraft industry, and the recent case of the car industry is an example to be borne in mind. I hope that the industry will overcome the labour problems involved in reorganisation. A great deal will depend on managements and trade unions forgetting the bitter days of the past. Each will have to have a better understanding of the feelings and outlook of the other. I hope that good will will prevail during the difficult period of reorganisation.

I cannot understand the provisions of Clause 7. I should like to know how they will affect the marine engineering section of the industry. As I see it the Bill makes ample provision for shipbuilding, but in Committee we shall have to examine in detail the way in which marine engineering will be affected. We have lost many orders throughout the world because other nations now have engines equal if not superior to ours Furthermore, there is now a wide variety of marine engines. It is therefore necessary to give as much emphasis to marine engine builders and turbine builders as we have given to the constructors of ships.

I have objections to some parts of the Bill, but in the main I welcome it. It will go a long way to help the industry. By 1970 this industry, of which the nation is so proud, should have got out of its present difficulties and regained its world markets. We should once again become the principal shipbuilding nation.

6.16 p.m.

Mr. T. G. D. Galbraith (Glasgow, Hillhead)

I hope that I shall not be regarded as striking an unduly discordant note if I say that I am sorry that we are having the debate in this form. It is many months since the Geddes Report was published, and many requests have been made for a debate on it. We have always been fobbed off, and now, instead of having a general debate on shipbuilding, we are discussing the general provisions of a Bill. It is another example of the sort of controversy we had on the subject of decimalisation, and it indicates the Government's refusal to seek the views of back benchers before they, the Government, have made up their mind.

Mr. Rankin

On a point of order. In view of what the hon. Member is saying, may I ask whether we are restricted simply to the terms of the Bill, or whether it is also in order to make references to the Geddes Report, on which the Bill is based?

Mr. Speaker

It will be in order.

Mr. Galbraith

I was saying that I thought it a pity that we were not able to have a general debate on the Geddes Report before debating the Bill. It is a pity from the point of view of the shipbuilding industry, because the Geddes Report recommends that the industry should be propped up, and we should be asking why the industry should be propped up.

Mr. Rankin

Why not ask?

Mr. Galbraith

I wish the hon. Member would not keep interrupting. He did it during his right hon. Friend's speech. I hope that he will not go on doing it during mine.

Nowadays it is too often the custom to prop up industries which are unprofitable, just because they used to be trend setters many years ago. This propping up is obviously popular with the industry, but whether it is a good thing for the country is a different matter. The cost of propping up has to be paid for somehow, and inevitably it adds to the burden of the sector of the industry that happens to be profitable.

The argument in favour of subsidies—which is what the loans amount to—is that they put British shipbuilders on a par with foreign shipbuilders so that they can compete on equal terms. This seems to be perfectly reasonable, but if foreign countries are so stupid or generous as to offer ships at less than their true cost, why do we not accept their bounty gratefully and encourage our shipping firms to buy in the cheapest market thus provided? This would obviously be good for the British shipping industry and the British taxpayer. Of course, if that happened on any scale, it would probably sound the death knell of the British shipbuilding industry, at least on its present scale. Nevertheless, if it were the right thing for the nation, it might have to be faced.

Two arguments have been advanced against allowing this to happen: first, the cost in foreign currency of building abroad; and, second, the need, on defence grounds, to be able to equip our mercantile marine in the event of war. Geddes was not very impressed by either argument and I would agree, but I should like to know the Government's view. Do they discount both these arguments and justify propping up the industry, at considerable cost to the taxpayer, on pure economic grounds, which is what Geddes came round to?

If it is right to prop up the industry, is the Bill the right way to do it? Here, I must begin to question some of the assumptions of the Geddes Report. If saving the industry is what is required, I believe that cheap loan facilities alone would do the trick, but, of course, they would have to be available to every yard, no matter where the ship is built, and not only the most favoured yards, which satisfy the S.I.B. The industry thrived while it had the £75 million loan of my right hon. Friend the Member for Wallasey (Mr. Marples) to subsist on and ran into difficulties only when the loan ran out. I think that the same thing will happen again. All will be well while the loan cover exists and when it ends we may be in the same position again.

The Bill goes further than merely providing cheap loans. It seems to imply that the money will be available only where reorganisation is taking place and there is increased efficiency. We also know that efficiency in the eyes of the Geddes Committee means amalgamation. But since when has size been the criterion of efficiency?

When I was Civil Lord of the Admiralty and occupied much the same position as the right hon. Gentleman in relation to the industry, I visited practically every yard in the United Kingdom, about 86 of them. I should like, however, to illustrate my view with examples from the Clyde. I hope that the House does not tire of this, because it is the river that I know best and my constituency stretches along one of its banks.

On the Clyde, it is certainly not the big yards which are the profitable ones. Fairfields' —which people seem frightened to mention—at one end, though boosted by the publicity men in a way which would make any wanton envious, when it comes to actually unrobing and disclosing its figures is as coy as any maiden. We have not the least idea of what is going on there, financially anyway. John Brown, at the other end of the upper reaches, which is still uncontaminated by the State, frankly admits its losses.

On the Clyde, it is not these mammoth firms, but much smaller ones like Connell and Yarrow, which are weathering the storm best. So do not let us think that size offers a magic cure-all for the industry's difficulties. Sir William Swallow, when he was originally appointed, recognised this, and, in a robust private enterprise way, nailed his flag very sensibly to the mast of economic viability when he said: Groupings alone are not the automatic answer. They would have to be economic and viable. But he said that in August and I want to know: has he changed his mind since then'? Has he come under the centralising spell of the right hon. Gentleman and his party and is it sheer size now which is to be the criterion of efficiency rather than the figures in a company's profit and loss account?

What about these groupings? Are they to be left to the natural inclination of the firms or are they to be "shot-gun marriages"? If so, why? What is the justification for this pressure to amalgamate in the shipbuilding industry, when in every other industry the Government have to act not to encourage amalgamations but to prevent them—or, at least, as in the case of The Times, to have them examined through the Monopolies Commission. There must surely be some strong reason why units in shipbuilding should have stayed separate, contrary to the normal industrial tendency, and this seems to me to be good grounds for viewing with the greatest suspicion attempts to join firms together against their natural inclination, which is what the Bill is all about.

The amalgamation of firms, of course, is not the only proposal in Geddes. If these amalgamations are to be encouraged by the threat of withholding public money, should not the power of the purse be used also to secure the amalgamations of the unions, which Geddes also strongly recommends, and which to me seems at least as important for the industry's future viability as any of the other proposals in the Report?

On the Clyde, for example, I am informed that about a dozen unions are involved. This situation is utterly ridiculous. If the Government and the S.I.B. really mean business, I would strongly urge them not to spend one penny of the public's money on the industry until the union aspect is streamlined and brought into conformity with what Geddes recommended, which was about four unions. Without this, the industry could never successfully compete with foreign firms, which have only about one or two unions.

Competition with foreign firms is very important because we want to build not only for British shipping firms but for export. Some highly modernised, specialist firms, like Yarrow, which have good labour relations and a go-ahead management are succeeding in doing just this, mainly with naval vessels, and they are doing it profitably.

However, the profits of medium-sized firms like this can never support the burden of the great "loss leaders" on the Clyde like Fairfields' and John Brown. Even if they could, their overheads would be bound to reduce profit margins and perhaps make their tendering prices for foreign orders much less attractive than they are now, when the firm is a single unit.

So what I want to know is what effect on the profitable firms' competitive ability do the Government think that amalgamation with the less profitable ones is likely to have? The Government and the S.I.B. must face up to the problem of profitability. It is no good reforming the industry and making it look neat and tidy on paper, if in the process we make it impossible for the few profitable firms to continue competing successfully abroad.

What about the size of the industry as a whole? Geddes talks hopefully of it being a growth industry, as did the hon. Member for Blyth (Mr. Milne), but I am very doubtful about this. During the last century, as countries developed, we found to our cost that they set up textile mills because the technique was fairly simple. Now this process has been carried a stage further, and throughout the world, shipbuilding firms are being set up on a national basis for prestige reasons.

Because of this factor alone—apart from anything else—I see no chance of this country building anything like the 2¼ million tons of shipping suggested in Geddes.

If I am right in this, then the existing yards will be under-utilised. Under-utilised yards can never be efficient and this seems to point to the inevitability of some closures. I know that "closure" is a dirty word, but we should face up to it. If there are to be closures, would it not be better to carry them out before amalgamation, rather than afterwards, or to allow the natural process—which, for example, led to the voluntary liquidation of Denny's—to continue, particularly when there is no loss of employment?

Naturally, the closure of a yard always causes a great deal of hard feeling. So I wonder whether it was to overcome this hard feeling that there is so much official enthusiasm for amalgamation as a sort of public relations exercise or smokescreen to conceal what is really going on? Once a merger has taken place a yard will cease to have a separate identity and then concentration of the group's efforts to get fuller utilisation of its resources, with the disposal of what is not needed, will, presumably, not cause the same outcry that is caused when an individual yard or company is closed. The group will not be closing. It will just be rearranging its activities and carrying on its business in a smaller area, even if more intensively.

Perhaps the Minister will say whether or not I am right in this assumption, what is to be the fate of these surplus yards and how they will be dealt with. There is one of these on the Clyde now, in my constituency. It is Barclay, Curle. The intention seems to be that it should be forcibly amalgamated with the other yards on the Upper Clyde. There is also its other half the Elderslie repair yard, and it is rumoured that that firm's ship-repairing yard is to be allowed to opt out, in spite of the Geddes opinion that repair facilities should be available to strengthen a consortium.

About the only advantage of the conception "one area, one group", as propounded by Geddes, is that it prevents competition for labour and maximises flexibility. If this is to be made to apply to shipbuilding—and that is the thought behind the Bill—should it not also apply to ship repairing?

As hon. Members will have gathered, I am not unduly enthusiastic about the Bill. I take this view on practical grounds, and I stress that. Apart from the dangers of favouritism under Clause 7 and backdoor nationalisation under Clause 6, I would like to have seen more research going on into the sort and size of industry this country needs and not what we would like to have for old times' sake. Having decided that, I would have been willing to have encouraged the yards which wanted to stay on in business to amalgamate, when they wanted to do so, but I would have preferred a much less rigid approach to amalgamation so that the successful yards which do not want to amalgamate are encouraged to go it alone, without suffering the penalty which seems to be implicit in the loan Clauses.

Our hearts, naturally, go out to the weak, but from a business point of view it is the strong, not the weak, which should get our help. There is not anything like enough recognition being given to the fact that the shipbuilding industry is an animate thing in that it cannot be made to thrive however many boards there are advising it. This is a common mistake made by hon. Gentlemen opposite, but the results of the nationalised industries show how right we are to be sceptical of the efforts of officialdom to produce growth and efficiency.

I want to see a viable and go-ahead shipbuilding industry where the strong have an incentive to expand. I do not want to see a subsidised industry in which the weak are featherbedded and the strong held back by compulsory integration and by the Government constantly breathing down their necks. Let there, as a bridging operation, be loans, freely available, and let there as an experiment be encouragement given to firms to group and amalgamate. But do not let that encouragement amount to pressure which forces firms which are successful on their own to join with others which are not successful, and perhaps lose their profitability in the process.

I urge the Government to adopt a flexible approach to the problem—an approach which, while it might help the weak, does nothing to weaken the competitive position of the strong because if we weaken their competitive position, we might as well say "goodbye" to a viable shipbuilding industry, which is the only industry worth Britain's while seeking to preserve.

Mr. Speaker

Hon. Members have made brief speeches so far. If this continues, I shall be able to call every hon. Member who has a right to be called.

6.37 p.m.

Mr. E. Shinwell (Easington)

If the hon. Member for Glasgow, Hillhead (Mr. Galbraith) really believes what he says, he should have had the courage to persuade his hon. and right hon. Friends on the Opposition Front Bench to oppose the Bill. The hon. Gentleman made the most melancholy speech I have heard on the shipbuilding industry since I came to this assembly. He was so obsessed with his observations that he failed to look at the melancholy countenance of his hon. Friend the Member for Glasgow, Cathcart (Mr. Edward M. Taylor). Here is an odd thought: I wonder whether the hon. Member for Hillhead is disturbed because his hon. Friend the Member for Cathcart is seated on the Opposition Front Bench and will wind up the debate? I regret to have to witness this conflict on the benches opposite. I thought that we had a monopoly of it.

I was amazed to hear the hon. Member for Hillhead say, in effect,"There is no use our going on with the British shipbuilding industry. It is cheaper to buy our ships abroad". That could be said of every British industry that is not considered as fully viable.

Mr. Ridley

Has not the right hon. Gentleman's right hon. Friend the Secretary of State for Defence done exactly that by scrapping the British aircraft industry and buying aeroplanes abroad?

Mr. Shinwell

That intervention is totally incompetent, irrelevant and immaterial.

Several hon. Members

rose—

Mr. Shinwell

Like other hon. Members, I wish to be brief. I urge hon. Gentlemen opposite not to interrupt me, because they know that I am easily provoked. The hon. Member for Hillhead was telling British shipowners, "Buy your ships abroad." That was the basis of his argument.

The Geddes Report is one of the best Reports ever produced. It is a milestone in the history of the British shipbuilding industry and is making a future for the industry. I also congratulate the Government on the production of the Bill, although it should have been produced earlier by a Conservative Administration. I recall several debates when the Labour Party was in opposition and when my hon. Friends and I demanded of successive Tory Governments the introduction of an effective and worthwhile credit scheme to help to prop up—to borrow a phrase from the hon. Member for Hillhead—the British shipbuilding industry. But that is history, and I will not go further into the matter.

The Shipbuilding Industry Board will be of little value unless the scheme is fully implemented. That is essential and, by "fully implemented", I have in mind amalgamation of existing shipbuilding yards—I do not know how many; perhaps three or four or four or five. Nor do I know how many divisions there should be. That will be a matter for the Board to decide, in consultation with the firms concerned. We must build up a concentrated and worth-while shipbuilding industry—otherwise, it will be of no value to the nation. We can provide credits, we can even provide mergers, and all that sort of thing, but unless we have effective and worthwhile industrial relations we are wasting our time.

How can we bring that about? The hon. Member for Hillhead asked: why do the Government not try to amalgamate and merge the trade unions? It is a new philosophy on the part of the Tory Opposition to build up powerful trade unions. I thought that they wanted to destroy them—

Mr. Galbraith

The suggestion in Geddes is that there should he only four unions in the shipbuilding industry.

Mr. Shinwell

First, the hon. Gentleman says, in effect, that the Geddes Report is of no value, and now he asks why the Government do not adopt this suggestion of Geddes. I have never before heard Tories demanding that the trade unions should be amalgamated and consolidated so as to become more powerful. The party opposite wants to weaken the power of the trade unions. At the same time, I think that it would be advantageous if there were fewer trade unions in the shipbuilding industry, and I am certain that that will come about.

How are we to bring about more effective industrial relations? Perhaps the only defect in the Bill, is that it does not deal with this aspect, but I doubt whether anything to that end could have been injected into this legislation. It must be left to the various firms associated with the industry. Steps need to be taken to provide security of employment. Lack of that security is one of the shipbuilding industry's troubles.

Shipbuilding is an assembling industry, so there is a great deal of sub-contracting. Men are taken on by sub-contractors for a while and when there is no more work on a particular vessel they are put out of work and the sub-contractors seek to re-assemble them at a convenient time later. In some way we must provide security of employment. Just how it can be done, I do not know, but it was done in the shipbuilding industry.

I remember when, in the shipping industry, men were discharged from a vessel and then had to wait for weeks before obtaining another ship. The good sense of the ship owners, the Maritime Board and the trade unions concerned conceived a scheme which enabled men not only to be employed at sea but to work by the ship instead of being out of employment when off articles. They are now often on articles lasting for a couple of years or so. That is the kind of security that is wanted in the shipbuilding industry.

I have been surprised at some of the speeches from the other side. Some people are never satisfied. We have here a Measure that will do a world of good for the shipbuilding industry—and for the shipping industry as well—yet from some hon. Members we have had only criticism. They have asked: why should the Government buy shares in the shipbuilding industries? I, in turn, ask: why should anyone buy anything in any industry unless he has confidence in it?

It is precisely because the Government have confidence in the future of the British shipbuilding industry that it is suggested—there is no compulsion about it—that shares may be bought in that industry. That is an excellent idea. In any event, I assert as a valid principle that if the Government provide some financial assistance for an industry they have a right, at their discretion, and with the consent of those concerned, to buy an equity in that industry. It is an excellent principle. It is operating in the case of Fairfield's.

I am Chairman of the Parliamentary Labour Party's Shipbuilding and Shipping Committee, and some time ago I was delighted to visit the Clyde, with an all-party committee. We saw some of the big firms, like John Brown's, and some of the small firms, like Connell's. I said then, and I say it now, that if the Fairfields experiment does not succeed it will be disastrous for the future of the shipbuilding industry. We have in Fairfields an example of effective and worth while industrial relations and we want the same thing to apply to other aspects of the industry.

I therefore congratulate my right hon. Friend on bringing forward this Bill and I ask him to ensure the Board's implementing it as quickly as possible and so injecting some real substance into the industry. To that, I would add one last word. I have said that credits are valuable and that mergers are valuable, and so are industrial relations, but they are not enough unless delivery dates are observed. It is sometimes very boring when this House is unanimous, but I hope that on this occasion there will be an all-party support of the Bill and a unanimous demand to secure its implementation as rapidly as possible.

6.45 p.m.

Mr. Stanley R. McMaster (Belfast, East)

I listened with great interest to the right hon. Member for Easington (Mr. Shinwell). I had the pleasure of travelling to the Clyde with him before Christmas and looking at the various yards. I was concerned at Fairfields to see the number of men wearing white helmets and doing time-and-motion studies. I was concerned at the great contrast between that yard and the yards we had visited earlier that morning—small yards run by family firms, such as Connell's. There was efficiency and life at those yards as opposed to what I would describe as the heavier atmosphere at Fairfields, which depressed me a little.

Following that short visit, I have to ask: why should small yards like Connell's which have been making a profit and running efficiently be compelled to join with, say, John Brown or Fair-fields, which are not doing well at the moment? Will that improve shipbuilding?

I have represented a shipbuilding constituency for six or seven years, and I cannot fail to be concerned about what has happened during that period to the shipbuilding industry. Between 1954 and 1966, our production has fallen whilst [MR. MCMASTER.] that of other countries has risen rapidly. We produced about 1½ million tons in 1954 but last year we only produced just over 1 million tons, and I believe that during the current year production has fallen quite a lot further.

During that same period world tonnage under construction has nearly trebled. It has gone from about 5 million tons to 14 million tons. The Japanese share has increased dramatically. It was 413,000 tons in 1954, and it is now 6 million tons. Between 1954 and 1966, the United Kingdom's share of world output has dropped from 27 per cent. to 8 per cent. This is a very serious situation. The Geddes Report—and it is an excellent Report—held shipbuilding to be a growth industry, but the Geddes Committee reported about a year ago. Since then, the industry has dropped away. This is an industry which Geddes said was a growth industry.

Will the Bill do enough for the British shipbuilding industry? Is it sufficient simply to ask the banks to provide £200 million? Much play has been made about the provision of the £200 million, but this money is not coming from the Government. All that the Government are doing is guaranteeing the loan. They are asking the banks to provide the money. Is there any evidence that the banks will be willing to provide as much credit as this at this reduced rate of interest of 5½ per cent.?

I wonder whether the Bill gives enough and gives it quickly enough. The Japanese shipbuilding industry is determined to corner the world market. My hon. Friend the Member for Glasgow, Hillhead (Mr. Galbraith) asked: why not let us buy our ships abroad; why not exploit the situation; if foreign shipyards―the Germans, the Swedes or the Japanese—are prepared to sell their ships at cut prices, why not take them and let our yards close? The answer is obvious. Anyone with any experience of monopolies knows what happens. They will cut the price all right until they get complete control. Then, once our yards are out of existence and it is impossible to reestablish them, we shall have to pay whatever they charge.

This is just what the Japanese are determined to do. They are using every method in their power. They do not allow the Japanese shipowner to buy his boats abroad, as we allow ours. I believe that the Japanese put a 15 per cent. duty on boats which their shipowners order abroad. They also give the Japanese shipowner every encouragement to order his boats in Japan. They do not merely lend money to him at 5½, per cent. They offer him credit at 4½ per cent. for up to 15 years, with repayments not to commence in certain cases until the boat has been sailing for two years and earning money for the owner. The Japanese are out in the first instance to build up their mercantile marine. This is the competition that we have to face. This is the argument for supporting our shipbuilding industry.

I admit that in a perfectly fair world, all other things being equal, it might be wise to buy our boats, as the Government have decided to do with our aircraft, in the cheapest market. But this is not a perfectly fair world. Other countries —France, Italy and the United States—subsidise their shipbuilding. If other countries gave up subsidising their shipbuilding, there would be a very good case for us to do likewise. We must face facts as they are. If we admit that other countries are subsidising their shipyards, we must be prepared to answer the question, "Will we subsidise our shipyards or not?" in the affirmative and subsidise them.

Then the question arises: what degree of subsidy should we pay to our yards and how should we administer it? I remember suggesting in a debate about five years ago, when the Conservative Government were in office, that a scheme very like this should be made available to British shipowners. The then Minister of Transport made available first £30 million, later £60 million, and, finally, £75 million in subsidy. Unfortunately, that money was given out a little too freely. It tended to keep inefficient yards in existence. I welcome this scheme. It is much more selective. It appears that it will encourage yards which are improving and also those which are amalgamating.

I want to speak about the yard in my own constituency—Harland and Wolff. This is one of the biggest yards, not only in the United Kingdom, but in the Western world. It is a yard which when I entered the House in 1959 employed 24,000 men. Reference has been made to Yarrow's, which employs 2,500. My yard employed more than ten times that number.

The management at Harland and Wolff has done its best to modernise and turn it into an efficient yard. It has closed 13 out of the 18 slipways which it had in 1959. The five which remain are very modern. The management has reduced the yard's work force from 24,000 to about 11,000 or 12,000. The yard laid off men very drastically from 1961 to 1965. This is a yard which is trying its very best to remain competitive. The trade unions have co-operated with the management in a totally admirable way. There is now tremendous flexibility between the boilermakers and the other sheet metal working unions, which is the important place for flexibility.

The yard still needs capital. It is still losing money. Its accounts for last year show a loss, in spite of this rationalisation, of £3 million. The yard has lost money over the last three years. Harland and Wolff, the biggest yard in the United Kingdom, cannot afford to go on losing money and to go on taking building contracts at a loss in order to remain in business. It barely survived the depression between the wars. It has no reserves now to enable it to survive. Many of its main contracts are running out this month.

Will the Bill place new work in this yard quickly enough to prevent a further dramatic rundown between the spring and summer of this year? I believe that the Bill is not sufficient. I believe that some control should be exercised over British shipowners to encourage them to build at home. It has been suggested recently by, I believe, Mr. Hunter, that the investment allowance should not be given to British shipowners who order abroad.

The danger is that British shipyards will go to the wall. Many of the main yards might well be forced to close down if they cannot find orders, and find them quickly. As it is not in the interests of the British ship-owning industry as a whole for British shipyards to go to the wall, I suggest that British shipowners, who are among the main customers of British shipyards, should not merely be given further encouragement, as is provided in the Bill, but that some sanctions should be used to persuade them to place orders straight away in British shipyards.

This country has a wealth of experience and expertise in shipbuilding. We have skilled management. We now have more flexible trade unions, although I agree that there are 19 unions—15 main and four or five smaller unions—looking after the interests of the men in each yard in Northern Ireland and in the rest of the United Kingdom. I believe that Geddes is right in saying that this number should be reduced to four or five.

Shipbuilders should be in a position to bring in better management, to bring in young men with university degrees in engineering and in management and they should give them the backing which is necessary to strengthen the management in the industry. We can, if we are given proper support by the Government, modernise ourselves so that we become one of the best shipbuilding countries in the world and build up or recover the position we have lost in the past ten or fifteen years.

The Government should do more to help the yards in the immediate future. It is, after all, the next year which is critical. The trend revealed by the figures I quoted earlier shows that the position in regard to rundown over the next 12 months is serious. Why has no scheme yet been put to the Government, in spite of the fact that the Geddes Report was published just about a year ago, for amalgamations between the existing yards? Do the Government really believe that rationalisation and amalgamations will take place just on the strength of the Bill? Is the Board strong enough to persuade shipbuilders to amalgamate? How will yards which are losing money he persuaded to join each other?

Mr. Small

The hon. Gentleman is giving a fair description. It would seem that the only solution available is Government and trade union money and a Fairfield-type experiment.

Mr. McMaster

No. I regret to say that I do not agree with the hon. Gentleman. I do not agree, as I said at the beginning of my speech, that the Fairfield experiment is the right way to get the industry out of its present problems.

I believe that Government money must be provided, because that is what other countries are doing with their shipyards. I believe that some further scheme should be added to the existing scheme of guaranteeing loans, to persuade British owners to place orders in Britain. It is not sufficient to say to the banks, "You will have to give loans at 5½ per cent. to British shipowners."

We saw at the end of last week what happened. Four large orders were placed in Germany. Why was that? One order was placed with Fairfields. I have been thinking about that order, and I would like to know more about it—

Mr. Rankin

The hon. Gentleman has never done anything—

Mr. Speaker

Order. Interventions, even sedentary, prolong speeches. I am hoping that speeches will be reasonably brief.

Mr. McMaster

In respect of those orders last week, I am not happy to see four orders out of five going to Germany. I feel that more could be done by the Government to help our yards, and that perhaps a more imaginative scheme than the one incorporated in the Bill, providing a direct grant to British shipowners who are prepared to scrap some of their older vessels and build new ones in British yards, might provide the answer.

As a maritime nation, this country is bound to maintain both its shiping and its shipbuilding industry. There is a clear duty, not only on the Government but also on trade unions and management, to look very carefully at the existing set-up. The Government must ask themselves whether they are doing enough, whether they are doing sufficient in this Bill to enable the industry to survive. Management must be certain that it is modern, up to date and efficient. The main onus rests on the management.

Finally, the trade unions must be satisfied that they are sufficiently well organised, flexible and productive to meet the needs of the most competitive industry in the world, because competition, not only in Europe, but also in the Far East, is fiercer than in any other industry.

7.4 p.m.

Mr. John Rankin (Glasgow, Govan)

I am sorry that the hon. Gentleman the Member for Belfast, East (Mr. McMaster) saw fit to pass his scabby remarks about Fairfields, when he was a guest last November in company with a number of us; and when he had the opportunity, after his visit to the yard, to make any comments he chose before a meeting of the Board and those who were with him on that visit.

May I say to the hon. Gentleman that the people in white overalls, to whom he referred, were men drawn from the floor of the shop and trained by the new management, at cost, to be experts in time and motion studies in order to try to promote speedier production and productive methods in Fairfields.

Mr. Kenneth Lewis (Rutland and Stamford)

rose—

Mr. Rankin

I will not give way. The hon. Gentleman has newly entered the debate and should at least keep quiet for a little while.

Mr. Lewis

On a point of order, Mr. Speaker. I was in the Chamber for both of the main speeches. It is true that I have been out since, but I sat through both of them.

Mr. Rankin

To return to the Bill, and to leave my introductory remarks as a happy memory, perhaps I might reinforce to some extent what has already been said, that in the Bill we are provided with grants, loans and guarantees of very considerable amounts. They are there in adequate quantity to be used when the conditions justify them. While I am grateful for these things, they are not sufficient.

The Bill also proposes changes in the shipbuilding industry such as rationalisation and engine grouping. Those of us who are familiar with Clydeside know that both of these changes have long been necessary. Rationalisation has to some extent been taking place on Clyde-side, and is more necessary now than ever. I believe that discussions are in progress to reduce the number of yards presently operating on Clydeside as separate units. This applies also to engine grouping. The day when so many yards on Clyde-side should each have their engine department is no longer necessary. It has been recognised for long that one engine producer on Clydeside could meet the demands of all the shipbuilding yards on Clydeside.

Those two changes are applauded and accepted, but whatever alterations in structure we provide, and however much money we provide, it is only by the spirit which we engender among the men in the yards that the industry will be saved. To ensure this spirit of co-operation between men and management is one of the first essentials of survival in the industry. The first step towards achieving this is by reconstruction at boardroom level. To that end the management of the future must reflect all the interests involved in building ships and engines.

The taxpayer must be represented on the Board through Government. The unions must be represented, and so must finance. Yet that change alone will not promote a thriving shipbuilding industry. The main contributors to that end are the men in the yards. They must first be assured of continuity in their jobs. Redundancy must become minimal, and be replaced as quickly as possible by Government retraining and re-employment facilities.

Open channels of communication between the shop floor and the board room are imperative. This involves regular consultation by the creation of a contact officer between employers and employees. On his shoulders must rest the onus of keeping the negotiating machinery well oiled and always ready to start. He must be independent, with his own private office within the yard, and preferably someone who has served at chief shop steward level.

When we have achieved security of employment, there ought to follow a reduction in the turnover of men. I wonder how many hon. Members on either side of the House have grasped what has been happening and what is still happening in most of our shipyards with regard to the turnover of men. In 1965, the turnover at Fairfields was 85 per cent. Today, as a result of the new management, it is 19 per cent.

Perhaps I might illustrate what I mean about the turnover of men. Let us assume that at the beginning of 1965, 3,200 men were engaged at Fairfields. At the beginning of 1966 there would still have been 3,200 men there, but the 3,000 of 1966 would not have been the 3,000 of 1965. During the year 3,000 men would have left the yard, and 3,000 new men would have come in. There was no con- tinuity of employment, and, therefore, this changeover was taking place all the time.

If the changes which I have suggested materialise, increased production leading to better wages and higher salaries will certainly follow, and productivity will increase. But when we get increased productivity, we must at the same time secure quality and delivery on time. One of the things which got Fairfields into trouble was its inability, for reasons over which the firm had no control at the time, to meet its date of delivery. This is an important aspect of increased productivity.

I can talk with some authority about the new methods to which I have been referring because they have been working successfully at Fairfields, despite all that we have heard tonight from one or two hon. Gentlemen, and as a consequence output has increased. Since the yard came under its new management, four ships have been produced, and two have been launched, representing a total output of 100,000 tons. This has happened since December, 1965 and hon. Members must allow a short time on the firm's side for getting things organised after the change.

There are orders for a further five ships, one of which is the container ship. The order for this was won against world competition at a contract price of £1 million less than that quoted by any other firm in Britain. If this is not a tribute to the new management and to the workers at Fairfields, I would like to know what is.

The Japanese have just put it on record that because of the new scientific management at Fairfields, the only shipyard in Britain which she fears as a competitor is this one. There is, of course, much still to be done, and this is true of all shipbuilding yards.

If I may refer to Fairfields again, the wages situation—and I think that this is true of most shipyards—can best be described as a sort of dog's breakfast. Obviously, one of the big duties which rests on us and on the Shipbuilding and Ship Repairing Council is to get a national wages policy. We have still to determine the relationship between different grades of employment in terms of what is called "job content". This is another matter for consideration not only by us, but by the new Council.

We have to emphasise the importance and the use of value engineering, and this is now being done at Fairfields. Everybody in the shipyard, at whatever level he is employed, must try to ensure that value is being given for money. To put it another way, a definite attempt is being made to make every employee, at every level, cost conscious.

When so much that is new is being tried out at Govan and is succeeding, it seems strange that the Council which is to influence the future of shipbuilding in Britain is not to have among its members someone from Fairfield's. Does this mean that the Council will be tenanted only by individuals who are representative of the older ways of thinking in shipbuilding? I was comforted to hear my right hon. Friend say today that the Council was not complete, and I hope that the new thinking at Fair-fields will be represented within the Council.

It is a long time since Robert Browning said: Tis time new thoughts should animate the world; new light should dawn from new revealings. I do not think that I am using exaggerated language when I say that these new thoughts are animating the Board representing the three sections of the community to which I referred earlier. If this new thinking does not become more evident, the drift across the Alantic will.

I conclude by drawing attention to the drift which is now taking place. There was an article in the Reader's Digest of last February which told us that American industry hired more than 5,000 immigrating engineers and scientists last year… As these facts reveal, the United States is suffering a technological manpower shortage that may be rapidly approaching crisis proportions. The National Science Foundation estimates that, in order to maintain its rate of economic growth, this country"— that is, the United States— will need 1,375,000 engineers by 1970, 718,000 more than were available in 1960. But all of America's universities are not expected to graduate more than 450,000 during the decade "—

Mr. Speaker

Order. That is a little wide of the debate.

Mr. Rankin

and— leaving a deficit of over 250.000". That is a measure of the shortage which we in this country, as well as the United States, will face, and it is essential that we bring our industries up to date technologically so as to attract and keep our best brains at home rather than lose them to meet the need on the other side of the Atlantic.

7.22 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Later in what I have to say I shall follow the hon Member for Glasgow, Govan (Mr. Rankin) in some of his observations about Fairfields.

There is no reason whatever for maintaining a British shipbuilding industry unless it is competitive and viable. My hon. Friend the Member for Glasgow, Hillhead Mr. Galbraith) asked the question which we must ask ourselves, and it clears the air to answer it in that sense. As we have an industry which has become uncompetitive, before we throw too many bouquets about the House or the country, we must be certain that what we intend to do will make it viable and more competitive.

The industry is unfortunate in the sense that it is the only industry in this country which has been exposed to the full flood of international competition since the end of the war when normal commercial conditions returned. It is a measure of our lack of competitiveness and our inefficiency industrially that this one industry which has been exposed to competition has got into such an unhappy condition. There is also the direct disadvantage which has developed that other countries have subsidised or guaranteed credit for their shipowners to an extent which has positively discriminated against British shipowners placing orders in British shipyards. To the extent that the Bill corrects this and removes the anomaly, everyone will welcome it.

I regret the need for dodges of this sort when the world cannot compete, country with country, on fair terms. I hope that the Parliamentary Secretary will tell us a little about his negotiations to try to improve competition for shipbuilding and to put it on a fairer basis. We must recognise, also, that there will be cumulative effects upon our own economy if we are to match credit terms and subsidies throughout the world.

Shipbuilding is inefficient in its prices as well as in regard to credit. As 75 per cent. of the cost of a ship is accounted for by materials bought in, we have very little control over 75 per cent. of the problem. The chapters in the Geddes Report dealing with bulk purchasing, particularly the buying of steel, which accounts very often for 20 to 25 per cent. of the cost of a ship, are singularly unimpressive. I am not at all sure how, when one industry is exposed to full competition, it is supposed to be able somehow to impress the sharp edge of competition upon those who supply it further back down the line. To the extent that this can be done, it is something which we must do, of course, but I am not very hopeful about it.

We can talk about the 25 per cent. of the cost of a ship which is broadly within the control of the shipbuilder. Two suggestions for improvement have been made. One is that there should be shipbuilding groupings. The other is that we should improve labour relations, with which I include better management. We all want better management all the time.

My hon. Friend the Member for Hill-head asked some pertinent questions about groupings. The Geddes Report itself is not very clear on what the point of better groupings is. We read on page 50: …there is less certainty or agreement on what the main objects of grouping should be, the form it should take and how it should be brought about". For that sentiment to be expressed in the Report makes clear that there is, not an obvious advantage, at best.

Why have the shipbuilders themselves not done more grouping if it is to their advantage? I know that there are difficulties, there are family firms, some are making losses, and so on—the Minister quite rightly outlined some of the reasons —but if one asks shipbuilders individually, a great many will say that there does not seem to be any great advantage for them in grouping. I am certain that shot-gun marriages will do much more harm than good. I do not know conditions on the Clyde well enough, but hon. Members who have discussed the situa- tion on the Clyde have pointed out that some yards are viable as they are, some can never be viable, and others are viable in groups on certain conditions.

The point about specialisation is not a very good one. If people want to arrange that one yard will build all tankers, one will build all cargo ships and one will build all warships, they can do that without necessarily merging the finances of the yards. Such arrangements have, in fact, been made. The specialisation argument does not afford a strong reason for forcing groupings. We are left with the argument that we must have large units for reasons of production, that unless three, four or five yards are grouped, one cannot achieve the efficiency of production which is necessary. I should prefer to achieve viable yards by means of letting the inefficient and out-of-date units wither away. If units are merged and then some of them have to be closed down later, the new grouping is landed with the dead capital of the closed units, on which it has to pay interest. It has all the problems of threatened closure and the bad labour relations which that situation brings. In my view, the best thing the Government could do would be to encourage the closure of yards which are clearly getting into difficulty, thereby producing the men and the opportunity for other yards to expand and to make themselves individually viable.

This is the fundamental error lying behind the salvation of Fairfields. Its merits as an experiment I shall come to in a moment, but I have always regarded the decision to save Fairfields as dangerous, for this reason. At a later stage, one has to say in the new grouping that yard A, yard B or yard C must be closed. One might as well have accepted it in the first place when Fairfields appeared as a candidate. But the biggest reason for supporting groupings, although I am not sure that they would do the trick, seems to me to concern labour relations. It may be possible for bigger groupings or yards to offer more permanent employment to shipbuilding workers, which is of the utmost importance if we are to improve labour relations in the industry. It is difficult to exaggerate the evil results of bad labour relations in shipbuilding in the past. I do not want to apportion blame, but I think that we are closing our eyes to the truth if we try to pretend that it is not labour relations but something else which has been wrong.

I am certain that the bad feeling has led to a bad reputation, and that the bad performance has led to a low productivity, which is, more than any other single factor, responsible for the high prices and bad reputation of some British shipyards. The casual employment system has been the main cause of that trouble. Bad communications are a secondary cause, and the dirty, cold nature of much of the work is a third cause, especially when perhaps combined with poor welfare facilities.

On the other hand, the unions' practices have not made matters easy for management. Over-manning and demarcation can cause up to a 20 or even 30 per cent. increase in the price of the labour element. The practice of limiting apprentice entry into a trade is unforgivable in our present situation, with the need for more skilled men. The resistance to accepting dilutees, people who have been retrained for particular skills, is as strong as ever. It is causing many firms in shipbuilding not even to bother to undertake retraining, because they know that the retrainees will not be accepted. The multiplicity of the unions is a severe handicap to avoiding demarcation. The fact that different men must perform different jobs when the same man could easily do them adds to cost.

To those who point out that the strike record in shipbuilding is not too bad my reply is that it is not the strikes which do the damage but their threat, the times when managements have agreed under a strike threat or some other pressure to maintain a practice which is unforgivable.

Whatever may have been the past in the industry, we must do away with the whole of that seamy side of shipbuilding. With the Bill we are accepting a much greater discipline for employers. To me and to some of my hon. Friends the idea of Government intervention to knock firms together, to put them in pawn by lending them money and taking their equity, is one which we slightly dislike in principle. But if we are to accept it—and for the sake of the shipbuilding industry I am prepared to do so—we must ask for something from the other side of the industry in the form of better discipline from it.

Amalgamations of the unions are long overdue. Is the practice of demarcation between the many different unions to be brought to an end? Can we have an end to refusing entry into the shipbuilding trades for those who exceed the quota of apprenticeships? Can we have an end to over-manning and all the restrictive practices which the Geddes Report condemned so well and so truthfully? What agreements has the Minister made, and what consultations and conversations has he carried out? Before we spend this money and make these grants and loans, has he assurances that the things for which I asked will be done? There is no point in injecting a large sum of public money into the industry, even if the employers'side—the groupings and the rest—are absolutely right, if the unions will say, "We have dodged this crisis. We need not bother. We can go on as before."

The crisis in the shipbuilding industry is about bad productivity and bad labour relations. Although one may chide and correct the management side for its failings, of which there are plenty, one does not solve the problem until one gets a bargain that the other side will also corrects its weaknesses. That is the lesson of Fairfields. The men woke up one day and found that the yard was to close because of bankruptcy. It was that shock of closure which persuaded them that it would be in their interests to sign a new deal. The same is true of the Appledore shipyard in Devon.

But in making the bargain, one must make certain that one gets an understanding that really meets the case. The test of Fairfields will not be what orders it has had, what prices, and so on, but what the balance sheet looks like in five or ten years' time. If the result of all the improvement that is alleged to have been made is a profitable shipyard tendering in the open market, winning contracts and making a profit, I shall be the first to applaud the experiment.

I believe that we have a similar situation in the industry as a whole, because both sides are very worried about the future. They can see the empty berths and read the balance sheets. The profit and loss accounts are published, and everybody knows that the industry is threatened with a dire situation. We must take advantage of that shock to get both sides together and make a bargain guaranteeing that for the future they will do their part in making the industry viable.

I now wish to say something about the effects of the Bill upon our national finances. If we are to spend this money and make these loans, we must do so in the full knowledge of the effect on our national finances if we do that sort of thing very often. We are making grants of over £5 million, loans of £32½ million and guaranteeing £200 million in security on loans. Whether or not we nationalise the industry, the interesting thing is the extent to which the taxpayers must find the money. The grants of £5,150,000 come straight on to the taxes and the loans of £32½ million will be a prior charge upon the nation's savings because they will have to be paid for out of taxes. That money will be raised from the taxpayers and lent to the shipyards before any other private industry can start to tap the nation's savings through the capital market. On top of that, there is whatever subsidy and risk are involved in guaranteeing the £200 million loans.

Loans to private industry have suddenly started to rocket, from £1 million all through the 1950s to £13 million in 1962, £20 million in 1964 and £32 million in 1965. Doubtless, by next year they will have reached a figure of about £100 million a year. The nationalised industries this year took £764 million, and when on top of that private industry is, as it were, being propped up, the successful British industries and the earners will he paying an ever-increasing slice of their taxation to Provide that sort of grants, loans and capital. That may be all right, but before we extend the process we must make sure that we are extending it to an industry which will be viable.

The test of whether this is a good Bill or not is whether this is a once-for-all injection of the nation's savings and the taxpayers' money which will allow the industry to stand on its own feet or whether it is just one more round of subsidy which will have to be repeated in five years' time. I would look very much less favourably on another application from this industry. It is important that the Minister should assure us tonight that he has the real co-operation of both sides of the industry to make quite certain that when they implement the Bill they will produce some thing which can grow of itself, which does not need more help from us, which can go forward and get orders and make a profit at the end of the day—an industry in which the men can have their wages put up year after year by dint of high productivity and in which restrictive practices and the bad old days are forgotten things of the past.

Mr. Speaker

Order. I remind the House that hon. Members know what time is left. If everyone shares out the time reasonably I can call all the hon. Members who have sat here all day hoping to take part in the debate.

7.41 p.m.

Mr. A. J. Irvine (Liverpool, Edge Hill)

This seems a useful Bill which the House will wish to welcome. My right hon. Friend gave a very useful and helpful account of its provisions in his opening speech. I am grateful to him for the reply he gave to the intervention I made, which dealt with the point on which I feel most concerned. That is the extent to which it will be possible for the Government to develop, shape, influence and even in certain circumstances control, the type of construction programme which the shipping industry will undergo.

I realise that this may not be practicable and that it might even be injudicious to embark upon it, but I have one regret. It is that we have not had from the Government any outline of their policy for shipbuilding. We have not heard from them what classes of construction they intend to encourage. It is fair to say that an aspect of the whole matter which, relatively to others, has been little investigated is the extent to which the policy of the Shipbuilding Industry Board is to be geared to the kind of construction programming policy that the Government seek to implement.

In the Bill we are providing for grants relative to group schemes for loans, for interest relief, for acquisition of shares, all requiring the approval of the Minister, and for the Minister to guarantee loans for the purchase of ships. It seems that that degree of Ministerial intervention justifies the claim—and it is a claim that should be spelled out in this House—that the money should be expended on vessels which meet the requirements of Government policy and especially of exports.

In principle, if loans are to be guaranteed by the Minister or advanced and are to be authorised by him, it is right that the Government—through the Board, by all means—should have a decisive say in the shape and character of the shipbuilding programme.

The need for the construction programme in this industry to correspond with Government policy is all the greater because of the reduction of the shipbuilding production target with which we are confronted. I understand that the Geddes target of 2½ million tons by 1972 has gone by the board. We now hear of a production target of 1½ million tons. That is a very serious and grave decline of aspiration; there is no doubt about that. It is a sad thing that the forecasts in Geddes are now, in effect, no longer applicable. The fact that this is the trend appears to increase rather than to diminish the underlying need, which I intervene in the debate to emphasise, for the Government to participate actively and at each stage in the shaping of the construction programme and in the decisions on the classes of ship which will be built.

Particularly in the present state of our affairs the Government must come to a decision—for all I know they may already have come to one and, if so, I should be glad to have it spelled out when my hon. Friend winds up the debate —about the through-transport concept and the use of containers. Just how do the Government anticipate that shipbuilding and shipping will comprise container construction and container fleets? What are the Government thinking about this? How far is Government policy relative to money advances to the shipbuilding industry married up with their intentions in that regard?

We are expecting from the shipbuilders costly new ships larger than the conventional cargo liners and quite different from them in character and content. How far is it intended that moneys provided for in the Bill should be earmarked for container construction? If the Government want to encourage this programme, and the House is authorising advances and grants and loans on such a considerable scale, it is not asking too much that some of these funds should be effectively earmarked for the construction of container ships.

The need for Government participation in the use to which this money is put as the phases follow one upon the other is brought home by the fact that whatever is done will involve the most careful liaison with the National Ports Council. If, as I hope is the case, the Government are well disposed to a substantial container construction programme, it is no use building those container ships if the docks are not ready to handle them.

The main object of the container policy is to speed up the turn-round in the ports and to secure that the container ship spends a far higher proportion of its existence at sea than the conventional cargo liner does. But this involves the most careful planning from the centre and very carefully worked out liaison by the National Ports Council, the Shipping Industry Board and the Government.

The Government are the only nexus, or bridge, available between the S.I.B. and the National Ports Council, and great importance will attach to their activities in this respects. The signs are that the deep sea container berths will be concentrated more than is desirable in the area of London and Tilbury. Liverpool, which is Britain's most important port, and which handled, in the last calendar year, more than 4½ million tons, is taking second place. I hope that this will be watched with care by the Government.

The proposed £1 million container berth sanction for Liverpool is, and I would ask the Parliamentary Secretary to agree with me in this, a comparatively small affair and much less than was hoped. I am very glad to read today that Ministerial approval has been given for the first stage of the Gladstone Dock extension scheme, which is to contain a considerable number of container berths. The position is that the Mersey Docks and Harbour Board was in the forefront of planning for container traffic. The seaboard extension was designed for it. I am very glad to hear that this effort has not been thrown away, although I have still to study the modified scheme which has Government approval.

Mr. Arthur Blenkinsop (South Shields)

On a point of order. May I inquire whether this is relevant to the Bill? It may be relevant to the shipping industry Bill which is coming forward, but several of us are anxious to take part in the debate on this Bill, which deals with shipbuilding.

Mr. Irvine

I am obliged to my hon. Friend, whose sense of relevance has always had my admiration.

What I am pressing is, I think, clearly understood. If the money is to be authorised to be granted and expended in this fashion, the House should properly insist that the deployment of the system should be followed through by the Government. It is not good enough to make provisions for loans and grants and payments if in matters of this kind the Government do not ensure that they are aware of the purposes for which the money is being spent.

The Government must further ensure that the whole complex of developments relative to such expenditure of the taxpayers' money should be kept under control, and directed aright. What I suggest is that the character of the ship construction programme is a most important aspect of this matter, that responsibility for it is one which the Government must undertake, and that the Government's direction and advice to the S.I.B. about the construction programme is one which it should sustain, more particularly in view of financial resources being made available in this Bill.

This should be done because in the complex of which I speak, the Government are the nexus between the industry, between the Government's own concept of the export trade and the National Ports Council. The proposition which I put to the House is that all these things have to be considered together and the moment at which we should make it plain that we expect that the Government should control this matter is on the Second Reading of the Bill, when we are dealing with the expenditure of these funds and the making of the grants. That is the aspect which the House should consider with the greatest care.

Although I welcome the Bill, my one regret is that opportunity has not been taken by the Government so far—perhaps we will hear something from my hon. Friend the Parliamentary Secretary—to give the House a clear outline of the kind of construction programme which the Government want to see developed.

If these sums are to be expended they should be expended for a purpose and in conformity with a programme fully acceptable to the House.

7.57 p.m.

Mr. Kenneth Lewis (Rutland and Stamford)

The shipbuilding industry is as far removed from the County of Rutland as is the sea from the centre of England, but the Member of Parliament for Rutland and Stamford is not quite so far removed. This is an industry which I knew in my youth; my father was employed in it and so was I. I say he was employed in it: for part of the time he was unemployed in it, because it was during the bad years when the closing down of a shipyard in the town of Jarrow led to an 85 per cent. unemployment situation.

Later I was employed in the industry as a labour officer, as the term was, and I know something about it, and about the difficulties of dealing with a great many unions. Those were the days when the foreman used to hire and fire in the shipyards, when the riveters used to employ their own heaters, and anyone who says that there have not been changes in the shipbuilding industry since that period before the war, and imagines that the industry has stood still has obviously not made a study of it. It has made a good deal of progress. I suppose that the industry is now in roughly the position that it was in 15 or so years after the 1914-18 war. The crisis came a little earlier then. Since the last war the industry has managed to keep up its production, and get orders, because there has been a need for ships. It is only in recent years that the whole market has become competitive.

This is why the Geddes Report was so timely. The industry needs a new enthusiasm—that is all. It is rather like the railways. I travelled to Manchester in the new service on the railways the other day. It is a splendid service and I was amazed to find that there was a touch of enthusiasm among everyone working upon it which I have not found in the railways for years. If this could be translated to shipbuilding, then the industry would have nothing to worry about. Nevertheless, we have to be concerned about the serious reduction of Britain's share in the world output of shipping. There are very good reasons for this, and provided that we look at these reasons and act to deal with them then the future for the industry will be bright.

The first reason is that overseas Governments have been heavily subsidising their own industries and Governments in this country have ignored this for years. They have known that it has been going on, but no action has been taken. Clearly our shipowners cannot compete against the very heavy hidden subsidies provided by overseas Governments. There has been piracy, not of the seas, but of the slipways throughout the world.

Secondly, British shipowners, particularly in recent years, have been encouraged by cheap prices overseas, so that they have been helped by the subsidies of those Governments abroad. I am sure that it would not be right to give £200 million of very acceptable loan to British shipowners if they are still to place their orders abroad. If shipowners get the advantage of these loans, they at least have a duty to place their orders in this country providing—and here I may go against some of the things which some of my hon. Friends have said there is only a marginal difference in the tender between a foreign shipbuilder and a builder at home. Our shipowners must take into account the fact that the Government are giving this very heavy assistance to them.

The Joint Parliamentary Secretary to the Ministry of Technology Mr. Edmund Dell)

Perhaps I should make it clear that these credit facilities are exclusively for use in British yards.

Mr. Lewis

I accept that. It strengthens my point.

Thirdly, there is no doubt that the industry has not kept as up to date as it might have done. I believe that the shipbuilding industry is technically good. It has some of the best technical people in shipbuilding in the world. But it has not been financially or administratively good in its management.

There are two other factors which have reacted against the British shipbuilding industry and which have not been mentioned today either by the Minister or by any of his hon. Friends. If there is inflation at home, then an industry which is competing with heavy overseas competi- tion is more adversely affected by it than any other industry. As its wages go up, so its prices go up and it finds it difficult to compete. There is, therefore, a duty imposed on the Government when they are considering the economy as a whole to remember that a competitive industry such as shipbuilding needs to work in an economy in which inflation is kept under control.

The other factor which has affected the industry is the cost of its supply services. The putting together of a ship involved a great many ancillary companies. The Geddes Report suggested that four or five groupings should be brought together. I would think that that is too few. The pattern of the industry is such that it can still be made a viable industry without reducing it to so small a grouping. But there is a lot to be said for common purchasing and a common marketing programme overseas. In this respect, the Board might be able to help a good deal.

Much has been said about the prediction in the Geddes Report about world growth. I agree with almost every comment made by the Minister and by my hon. Friend the Member for Eastleigh Mr. David Price). It would be a mistake to hazard a guess at what might be the growth of world shipping and the requirements for production in the shipyards. I think that the Geddes Report has got it too high. I should like to see the British shipbuilding industry of such a size that it can cope when there is not a big demand. The size of the industry must be right so that it can keep people employed, can produce ships at the right price and in quality—because in this industry quality still matters—and do so at a normal level of demand. Allow countries abroad to increase their production to take account of peak situations if they wish. Those countries which increase their production to take account of peak situations will very soon founder when it comes to a normal market situation. This is when the British shipbuilding industry will score because it will not have done this and it will not therefore find itself in a crisis situation.

The right hon. Member for Easington (Mr. Shinwell) said that it was desirable that there should be full employment in the industry. He knows about this matter. He was a Member of Parliament in the days which I well remember when shipyards were closed down and when those which were not closed were running on short time and employing very few people. The industry can be enthusiastic about increasing its productivity only if it has an assurance on this matter. I do not think that there is any need for pessimism in the industry. The seas are wide. There is no suggestion that because we have air travel there will not be an increase in sea travel. Cruising will be a growing and very popular form of holiday. It is only just beginning. The carriage of goods abroad as world trade grows will place an increased demand on shipping just as it will on air travel. Neither do 1 think that navies are yet to be discounted.

I come now to labour relations in the industry. It is often said that bad labour relations are caused by remoteness in management. Labour relations in the shipbuilding industry have been mixed. I would not say that they have been all that bad. Yet we do not have remote management in this industry. The management is constantly involved with the men on the ships. It could well be that what was said by one of my hon. Friends, that the unions have contributed to bad relations more than anything else, is true in this case. The unions have been bedevilled by their own structure. They have not been able to help themselves. In an industry in which there are so many unions there are bound to be demarcation disputes. In addition, in an industry in which there are many unions there is the difficulty of management not knowing with whom it is dealing—whether it is the shop steward, the district office or the head office. The lines of communication between management and unions founder because of the structure which exists. This is what makes the case for reducing the number of unions.

The wage structure in the industry, also caused by the union structure, is much too variable. There are too many grades and too many people in the shipyards earning too little who work alongside others who are, not earning too much, because one would not wish to say that anyone should earn less than he is able to get, but too much in relation to others alongside. There are certain craftsmen in the industry who find themselves unable to get the sort of money which they see their friends getting and which they think they should get.

Management is a little too tightly controlled. I am rather in favour of a two-tier board structure. I think that the shipbuilding industry should consider this. There should, perhaps, be a board at the top which deals with finance, which gets the orders and which lays down the main administration and a second tier executive director board below it. This would be very useful in this industry. It would give the opportunity to young technicians and to the foreman who becomes a shipyard manager or an assistant shipyard manager to come on to the executive board and finally, perhaps, to get on to the main board of the company.

The Industrial Training Act is certainly something of which this industry also needs to take advantage. There is a need for wider training among the various skills within the industry so that one grade knows the skill of another. There is today too much restriction on job exchange. Change here is dependent largely on the amalgamations of unions. The greater use of university research and better training for management are things that the Board should influence the industry to carry out.

The Bill is a vehicle of reform. Of that there is no doubt. I just wonder, if I may be a little political at the end of my speech, whether it is a wolf in sheep's clothing. The Board will finish in 1970, 1971 at the latest. Why this short term? In my view, if we are to set up a Board like this, we must give it time. This is certainly not time enough.

The Bill contains provision for the Board to take equity shareholdings. To do so, however, would weaken the Board, because it would have to discriminate. It would have to take an equity shareholding in one company as against not taking it in another. If it takes an equity shareholding in one company but not in another, presumably it must favour that company because it is part of it.

If the Board takes equity shares, what will happen at the end of the three or four years'? To whom will it hand them over? Will the Treasury take them? Will the Government come back and say "The Board has now taken equity shares in X + 2 or X + 4 companies. We cannot possibly disband the Board. We must, therefore, keep it." We might then get the situation where we were moving towards the nationalisation of the industry.

Looking at the Bill—we must be suspicious about this—one sees that the powers of the Minister are very wide and rather hidden. Clause 14) states that The Minister may with the approval of the Treasury give to the Board directions of a general character. Those directions could be very wide indeed. If the Minister were to give the Board directions, what would he do if the Board ceased to exist at the end of four years? These are matters which we will probably probe in Committee.

It is important for the Minister to recognise that the Board must not be put in a position in which it is subject to the direction of the Minister on the wrong things. The Minister said in opening the debate that the Geddes Committee had asked him not to interfere too much, and the Minister assured the House that he did not intend to interfere too much. I have indicated by my quotation from the Bill that the Minister is taking powers to interfere if he so wishes.

Will the Minister force mergers, for example? If we get the wrong mergers, we will get the wrong structure for the future. If, for example, we get the merger of a profitable company with a marginal loss-making company, that would be a good merger, but if we were to get the merger of two loss-making companies, that would cause an impossible situation. A merger of a marginally profitable company and a loss-making company could turn that marginally profitable company into a loss-makig company. Only the Board, in consultation with the industry, can decide this. If the Minister interferes where he should not, he will get the structure wrong for the future.

Finally, I hope that the Bill is not a means of featherbedding the industry. I have said that the industry wants enthusiasm. It wants encouragement, and the Bill can provide the encouragement which it needs. The one thing which it does not want, however, is encouragement to believe that because we now have the Board, the Bill and the financial assistance that goes with it, everybody can rest on their laurels and all will be fine. If the Board stimulates the industry and if the Minister allows it to do so, I believe that the Ministry can be made viable, therefore, of advantage to the nation and profitable to both the managements and the people who work in it. If, however, the Government do not ensure this then the Bill will have been in vain.

8.17 p.m.

Mr. Albert Booth (Barrow-in-Furness)

Whether Britain's shipbuilding industry succeeds or fails, as an island people we depend on ships. It is, therefore, not surprising that another island people, the Japanese, have taken from us during the last 12 years the rôle of world premier shipbuilder. What is surprising is the extent to which Britain's share of the world shipbuilding market has fallen and the length of time that has been allowed to elapse before any attempt has been made to tackle the fundamental causes of the decline.

In 1952, Great Britain and Northern Ireland built one-half of the shipbuilding tonnage launched in the world. In 1966, United Kingdom yards built one-thirteenth of the world's production. This is the measure of the decline. Over the same period, Japan has increased her production by over 6 million tons a year while United Kingdom production has fallen; and this in a period when the world market has grown beyond the dreams of pre-war shipbuilders.

The major importance of the shipbuilding industry to this country in our present economic situation is that practically the whole of its production is either export-earning or direct exports. Those of its products which are sold at home are export savers and ultimately earners of invisible exports, and those which are sold abroad are a direct contribution towards the solution of our balance of payments problem.

It has been said tonight that the Geddes Report is timely. I am tempted to say that it has come very late. We have to thank a Labour Government for the fact that we have the Report at all in a form in which we can deal with the fundamental problems of this industry. The Conservative Government could have acted on the D.S.I.R. Report of 1960. They could have recognised in that Report, which dealt with research and development requirements of the shipbuilding and marine engineering industries, the very real problems that faced the industry.

To pick out two of those problems which are particularly relevant, the D.S.I.R. Report of 1960 showed that the ratio of qualified engineers and scientists in shipbuilding and marine engineering to other employees was a relation of one in 88. Even this did not give the whole picture. In marine engineering, the position was not quite as bad. The ratio was 1 to 49. However, in the country's shipyards in 1960, the ratio of qualified engineers and scientists to other employees was 1 to 139. Therefore, it was clearly foreseeable in 1960 that we had not the set-up within our yards to meet the problems of the industry.

In paragraph 30 of the same Report it was stated that while the United Kingdom yards were alert to the technical possibilities, they were often slow or failed to reorganise their production methods in order to take advantage of those technical possibilities which then existed. Many yards had employed production engineering consultants to advise them on production layouts, but the implementation of the recommendations of those consultants either was not tried, was tried in such a way as to cause labour upset, or was abandoned altogether. It was also pointed out then that none of the research organisations which served the shipbuilding industry had hitherto included in their programmes any major investigation designed to improve or change production methods.

The basis was there to act upon in a period of Conservative Government. However, the basis was not used. Surely it is clear, even to those who were not working in the industry at the time, that without qualified engineers and scientists it was impossible to introduce the new techniques which were required in the industry.

I can say from my own experience that, in the drawing offices of the marine engineering industry, the industry was losing the very people whom it needed to carry though the changes which could have kept us in the forefront of world shipbuilding. The constant tonic of conversation in a drawing office was who would be leaving next and where he would be going. The turnover of staff in drawing offices in the marine engineering industry at that time was enormous. It was not a question of a man going from one firm in the industry to another. Men were going into the aircraft industry and were going out of the marine industry altogether. The people being recruited to replace them were without the same qualifications and, as a result, the standard of qualification in the industry's drawing and design offices was falling.

At that time, Japan had completed her Geddes Report. It was completed in the early 1950s, and, by 1956, Japan was already building half a million tons more than United Kingdom yards.

The right hon. Member for Wallasey (Mr. Marples), who was then Minister of Transport, introduced a Bill to provide £75 million worth of facilities for the industry. I do not think that I could be accused of misrepresenting the attitude of a considerable number of shipbuilders if I said that they took the view that that money was necessary to get them over a bad patch. The fact that they regarded it as a bad patch showed that they were not facing up to the real problems of the industry.

Even today, the attitude in the industry is still one which reflects what I would call an inbred management structure. It has not attracted into its management the people who could and would have revolutionised production methods by taking advantage of the new techniques which had been made available in many instances by British skill and brains. The values of our very fine research and development organisations, such as B.S.R.A. and Pametrada, has been severely circumscribed by the reluctance or the inability of some managements in the shipbuilding and marine engineering industry to apply much of the knowledge that these research and development organisations have made available.

The new ideas and methods which have been brought to light by Pametrada and B.S.R.A. have been regarded with scepticism and suspicion by the industry. Very often, the attitude in the industry has been "You cannot tell us anything about building ships. We have been doing it for 50 years". At one time, the attitude was that little yellow men from the other side of the world could not tell us anything about building ships, but those same little men today are showing us how it can be done.

As a marine engine draughtsman, I remember clearly reading the report of the discussion which followed a paper delivered to the Marine Engineering Institute on the building of advanced supercharged marine diesel engines. The paper was presented by a Japanese who came to this country. He was questioned on his paper and asked where he got his information, and what was the background and production of the firm in which he was employed. It transpired that the firm had build only 40 marine diesel engines, but that it had a research staff of 120 on the job. They were coming to Britain to give us a lesson in how to advance our own technology in an industry in which we have once led the world.

Amongst the most important factors which together constitute the problem of the industry is undoubtedly the state of labour relations. Unless a proper labour relationship is developed, it will be impossible to reshape the industry to meet the challenge which it now faces.

On the question of labour relations in the industry and the need for manpower planning, it is significant that Fairfields won an order for a 27,000-ton cellular container ship ordered by Overseas Containers Limited. The other five were all obtained by the same German consortium. If we are to discuss objectively the advantages or disadvantages of consortia, it is as well to realise what that German consortium has gained. It is the consortium of Deutsche Werft, of Hamburg, and Blohm and Voss.

That consortium has now got an order worth £5 million to build five 27,000-ton vessels. It will have to produce only one set of drawings, which they can then duplicate. It will require one set of jigs, one set of fixtures and one set of templates. It will be a much cheaper vessel to them than it will be for Fair-fields. Nevertheless, Fairfields has won an order for one of the six.

We can have consortia in this country by virtue of the Bill. In connection with the vessel for which Fairfields has won the order, the Chairman of Overseas Containers Limited, Sir Andrew Crichton. said of the unsuccessful British yards: They were wildly out in price and far too late in delivery times. Much stress has been laid on credit facilities, but they are only part of the problem. We can have all the credit facilities in the world, but if we cannot get delivery dates and basic prices right, we shall not win shipbuilding orders.

Mr. Emrys Hughes (South Ayrshire)

Today, it is announced that the order for two frigates is going to the Clyde. Does this mean that labour that should be going to speed up the delivery of container ships is going into the production of naval ships?

Mr. Booth

I accept that, and I shall speak briefly about its effect on our yards later.

The current lock-out of shipbuilding draughtsmen is indicative of a management attitude which is incompatible with the achievement of the technological revolution required in the industry. This lock-out is in breach of the procedure agreement.

The shipbuilding employers have not stuck to their agreement. If the reverse situation had occurred, and the Draughtsmen's and Allied Technicians' Union had taken out every shipbuilding draughtsman in the country, hon. Members opposite would be howling their heads off tonight. If anybody thinks that the situation is peculiar to D.A.T.A. I invite him to consider the situation which existed in 1965 on the Clyde, when E.T.U. members were locked out as a result of a dispute in John Brown's.

Mr. Edward M. Taylor (Glasgow, Cathcart)

Will the hon. Gentleman explain in what way the procedure agreement was breached by the employers? Was it not a fact that there was a go-slow or a work-to-rule before the lockout?

Mr. Booth

The case of the breach of agreement that I was speaking of was the Draughtsmen's Association lock-out. A procedure agreement provides that there shall be no withdrawal of labour at any yard, and similarly no lockout, until the agreement has been completed in respect of that yard. In the case of a dispute involving the whole industry, after the completion of national negotiations either side has a right to withdraw or exclude labour. In this case the breach of the procedure agreement arises because, on the grounds of a dispute at a single yard, the shipbuilding employers have locked out every shipbuilding draughtsman in the country.

I admit that the situation is slightly different in the case of the Clyde lockout. It is significant that the E.T.U. was seeking to obtain a productivity agreement to enable the better use of the skill of its members. If this industry is to succeed there must be effective manpower planning, so that we can use the critical path analysis method of building vessels.

To achieve this against a background of bad labour relations, we require proper worker participation in the industry at yard level, group level, and national level. We require something similar to the structure we envisaged when we discussed worker participation in the steel industry. The basis exists for a genuine bargain to be struck, since it is not in the interests of employees and employers to have men laid off when yards are slack or excessive overtime and a scramble for labour when they are busy.

I congratulate the Government on the inclusion of main engine manufacturers in the Bill. Since so small a proportion of the cost of a ship remains in the hands of a yard, it is important that the Bill should include main engine manufacturers. I am sure that the combined purchasing power of the main engine and shipbuilding industry could have a major influence on the standardisation of components, which is seriously needed. The need to adopt metric standards, which has now arisen, may provide the ideal opportunity in which to do this, but it is hardly likely that a marine engineering and shipbuilding industry which does not appreciate the value of standards within its own manufacturing range will use its powers to influence the component manufacturers from whom it buys.

The tragic truth is that although Pametrada—probably the most advanced maring steam turbine research station in the world—prepared for the British shipbuilding industry a set of standard turbine drawings which could be used over a whole range of powers and steam conditions—and this was the ideal opportunity to take advantage of standardisation—not one of those turbines has gone into botch production in a British marine engineering works. They have been produced by one-off methods.

Drawing office economies have not been achieved. Turbines have been sold to separate owners who have had modifications carried out to suit themselves. I know the attitude of the British shipowners, and that it is not easy to sell good standard equipment. However, the fact that the Japanese, the Swedes and, in some cases, the Germans can do it shows that these standardised products of the marine and shipbuilding industry can be sold if the price is right.

In Tokyo, the first of the freedom vessels has been launched. These are 13,600-ton deadweight vessels. They have planned their production as far as it is possible to plan the production of any vessel. They have the on-berth time of the vessel down to 25 days and the total building time down to 50 days. I question whether any British yard could build a vessel of this type in much less than six months. This is the sort of challenge which we are facing. It follows, therefore, that we must have this technological revolution in the industry.

There is a special problem over yards which are heavily engaged in naval work. Such a yard is Vickers, in Barrow, in my constituency. There, the whole resources of a yard have been changed to meet a particular military requirement, that of the Polaris submarine. The labour force and the capital structure have been changed. With the ending of that programme, this yard will face a very special problem, and I hope that the Minister will give us a sympathetic ear when we approach him again on the requirements of this yard.

I hope that it will be made clear that the purpose of the grants and loans in Clauses 2, 3 and 4 is to enable the industry to win export orders. The £200 million referred to in Clause 7 is clearly directed at the home market. Failure to win export markets would ultimately result in the loss of the home market. A limited form of public ownership is provided for by Clause 6. At least to the extent to which public money is to be used in this legislation and to the extent that it will raise the value of the industry, that measure of public participation must be obtained. This industry could not raise the money itself on the private market or obtain investors to this level in shipbuilding.

Clause 11 refers to the dissolution of the Shipbuilding and Ship Repairing Industry Board set up by the Bill, and the establishment of consultative machinery. I believe that this aspect of the Bill must be further considered. I believe that we have in this country the talent and inventiveness for a first-class industry, with the first numerically controlled frame bending machine is to be installed in a British yard under the auspices of the B.S.R.A.

But the technological revolution in our yards is not a once-for-all operation which will be over by 1970. It is the start of a new evolutionary process in the yards, in which the processes of the yards and the engine works will be continuously changing. The Government must continue to have a say in this and I hope that we will be able to ensure in Committee that this process of change will be a continuing one, in which Government participation and direction will be provided for in the interests of the nation.

8.38 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

When we in this House discuss the warts and scars on the body politic about which it is easy to argue whether the inheritance of Conservatism or the environment of Socialism is responsible, the House is always full and there is an interested audience. However, when we discuss the jugular vein of the economy, the shipping and shipbuilding industry, on which the survival of the country to some extent depends and in which the major decisions which we make here this evening will have a far more lasting effect on the basic cost of living of our citizens, lo and behold, Mr. Deputy Speaker—the House of Commons.

I must declare my interest. I advise a major liner operator in the shipping industry who has a considerable share in the company known as Overseas Containers Ltd. I have no direct interest in shipbuilding, although, in the course of the work which I did before coming here for the company to which I referred, I visited most of the world's major shipyards, in the United Kingdom, Northern Europe, North America and Japan. In the tour which I made I also visited most of the large marine engineering works, diesel and turbine, throughout the world. I can safely say that I know what we are up against and that I have a fair idea of the resources which we have in this country to meet the present threat and challenge.

I have no false confidence about the balance between these two sets of forces, but I agree with the right hon. Member for Easington (Mr. Shinwell)—who I regret is not now in his place—that we in Great Britain are still the premier ship-owning country of the world, that we still have the largest merchant fleet in the world, but relatively much smaller than it was, and that we must obviously continue to build ships. This is a sine qua non which hon. Members on both sides of the House can accept without difficulty.

I disagreed, regretfully, with my hon. Friend the Member for Belfast, East (Mr. McMaster) when he spoke about sanctions on the British shipowner and suggested that there was no point in making these contributions to the efficiency of the shipbuilding industry, financial or otherwise, if we allowed the ship owner to build where he pleased. I cannot go with him all the way on that because it is essential to the survival and viability of the shipping industry in Britain that the shipowner, given all the environmental conditions which affect his choice, should be able to exercise that choice wherever the essential conditions of his trade decide him to do so.

We must look at the essential order of priorities. The first thing on which we all depend—on which Britain depends—is international trade. That includes international trade in ships. The shipping industry, in its turn, depends on the volume and growth of international trade and the shipbuilding industry, in its turn, depends just as fundamentally on the survival and viability of the shipping industry.

I see no sensible possibility of inverting this pyramid—and what a disastrous precedent it would be if we were to take steps to invert it, either by means of this Bill or any other means. If we were to try to set it the other way round, then that would be accepted as a normal action to be taken by every other major industrial country, which would then build all its own ships for all its shipowners. This, carried to its logical conclusion, would ultimately mean, not only in shipping but in every other respect, the end of international trade.

I will refer briefly to the O.C.L. orders for container ships. It can be safely stated that the Fairfield tender was competitive with that of the German consortium—the three German yards in the consortium—for the five ships. However, the House must accept this qualification: no judgment may yet be made, either about the German yards or about Fairfield, until we know whether these ships have been built and delivered on time at the price stated, with the yards concerned making a profit. If these conditions are not fulfilled, none of the types of judgment which the House of Commons likes to make about enterprises, public or private, can be made. Thus, no judgment about either the Fairfield or German yards should be made at this stage.

The House might be interested to know, considering the container revolution which is taking place at our shipyards, that early in the 1960s I went round a large number of yards in Britain. I was aware at that time, perhaps before many, of what was happening in the container sphere. I said to the managements of many of these yards, "If you want to get your toe into the door of the future you should start designing container ships now, so that when the British shipping industry asks for this type of vessel you will be equipped to build them, with sophisticated plans and developments". This suggestion, by and large, was not accepted.

What type of shipyard do we need to encourage in the United Kingdom? The right hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond) mentioned the Arendal shipyard in Sweden, which I have seen. I have also seen in Japan the Sakai, Negishi and Mitsubishi building-dock yards. It is worth stating that Japan alone now has six major building-dock yards. There is also one at Arendal and the Eriksberg yard in Gothenburg can probably be regarded as the only other major building-dock in Europe.

There is a view that we do not need building-dock yards in this country but that we should build, as our yards are well capable of building, small, complex, "sophisticated" vessels. But recent O.C.L. orders show that we dare not any longer act on the assumption that the so-called "sophisticated" vessels will invariably be small. We must, indeed, draw the opposite conclusion. The large ore-oil tankers have very complex pumping systems, and they are in the 70,000-ton category, and we have very much larger tankers with equally complex arrangements. We have on the horizon what is called the "Lash" type of vessel carrying 2,000-ton barges. Those vessels are large, and are likely to become larger. I have seen what are, perhaps, futuristic reports—though they are based on realistic assumptions—suggesting that by the end of the century container ships will be in the 40,000, 50,000 or even 80,000 ton category.

Will we be able to build this type of ship? If so, what type of yard will we need? I believe that one of the types of yard we still need is the building-dock yard. Sir John Hunter boasted some time ago that a ½-million-ton tanker could be built on the Tyne. That is certainly a technical possibility, but can Swan Hunter's or any British shipyard build a ½million tonner in our present facilities as economically as it can be built in the largest building docks in Europe or Japan? The answer to that question must be, "No"—or, at least, the onus of proving that the answer is not "No" rests very firmly on those asserting the contrary.

In perhaps this one respect the United States are comfortably behind us. The American shipyards are high cost and completely or almost completely dependent on subsidy as is the vast majority of their international liner shipping, but now —and this is a point that the House should consider in its general discussion of the Bill and the purpose of the Bill—the United States Government are using a major contract worth 1,000 million dollars for building logistic supply vessels to induce within the United States the construction of a major building dock shipyard.

I regard this judgment by the United States Government as being of the greatest significance. They have seen this position, and are anxious to re-establish, as we are here with this Bill, the viability —indeed, the supremacy—of the American shipbuilding industry. They have therefore devised a very big carrot in the shape of an order for 30 ships, and they say to the three major companies invited to tender, "A condition of your order is that you shall create this type of facility in the United States." I do not see this imaginative, perhaps dramatic, type of thinking coming out automatically or inexorably from the Bill, and we should carefully consider whether or not the whole focus and emphasis of the aid we are giving and should be giving to the industry should be changed somewhat in that direction.

We can take another point from this United States exercise. Is it not of great and undue significance that the major competitors for the contract are not shipbuilders in the conventional sense, but three of the greatest aero-space firms in the United States—Lockheeds, General Dynamics and Lytton Industries. These are the only three firms which are in the running at all, so I am told.

My question to the Government is this. How are we to achieve similar results, because do not we want to induce into our shipbuilding industry the whole complex of management and technological skills which we recognise as being preeminently applied in the aero-space industry. When are graduates of the highest calibre—technological graduates, management graduates, administrative graduates—from our best universities, from Imperial College, from the Operational Research Department at Birmingham, perhaps from some of those of our students who have been on post-graduate courses to M.I.T., to the Harvard Business School, or to our own business schools—to be recruited on a large scale into the shipbuilding industry? Not until this test is passed, not until we can see in the rush to the universities every May not only the pre-eminent scientific firms of this country hanging on the doorsteps of the universities but also our pre-eminent shipyards competing for their fair share, shall we know success.

Mr. Grimond

I find the hon. Gentleman's speech profoundly interesting. I was in a yard on the Clyde—Connell's—not so long ago. I there asked why the firm had comparatively few graduates compared with Japanese yards. I was told by those to whom I spoke that they tried very hard to get graduates but could not get them. They already go round the universities, but graduates do not come forward. This in some ways bears out what the hon. Gentleman has said. This is an unfashionable industry. It is believed to be of an old-fashioned nature. If we were to build a new yard and set out into a different type of shipbuilding, we might get a greater response from graduates. I do not think that it is the industry's fault. I think that in universities and technical colleges shipbuilding is felt to be an unfashionable way of spending one's life.

Mr. Lloyd

I am much obliged for the right hon. Gentleman's intervention. I accept the point he has made. He has put his finger very accurately on the key to the problem. This is a two-way situation. Not only must industries be actively seeking, but they must have the reputation to attract. This is one of the things which, looking forward, we ought perhaps to hope to achieve as a result of the Bill. The whole technological reputation of the industry must be raised. Only if it is raised will it have the power to attract. It must attract, not only by financial incentives which, as we all know, are an important but by no means the only incentive which a young man of the right type looking to his future career seeks, but by the whole range of greater opportunity which a first-class scientific industry can offer.

A great deal of play has been made of the words "public money". It should be realised that in one sector public money is certainly involved—that is, the money for the consultancy fees and the direct subsidy to the shipyards of £37½million.

There is also the very important sum of £200 million. It is most important for the House to realise that this is not public money. Public money is not directly involved in the £200 million. It may not be involved at all, even if the E.C.G.D. guarantee is given over the whole of this sum, if there is not one single case of default under the guarantee. The money is being supplied by the banking system. It is not clear from the Bill exactly how this will work and what incentives will be given to the banking system to make loans of this kind. A rate of return of 5½ per cent. is not all that attractive to the banks, even with a Government guarantee.

I will mention some figures which are in operation. Current rates for the Treasury bill yield averaged 6 per cent. throughout 1965 and 1966. The latest figure I could get this morning was 6.17 per cent. for January, 1967. Two and a half per cent. Consols throughout the same period averaged well over 6 per cent. This morning it is 6.61 per cent. The local authority rate—another type of gilt-edged borrowing—was well over 7 per cent. throughout 1966 and is at the moment 6.4 per cent. This is the sort of return which money offered under very favourable conditions indeed—Government or municipal-guaranteed—can obtain.

Now the banking system is being asked in some way or another, which is not clear, to make £200 million available at 5½ per cent. This will involve somebody voluntarily going without something. If the banking system were asked to do this pro bono publico the House of Commons should not lose sight of the fact that somebody else will have to pay a higher rate of interest on the whole range of bank lending in order that the banks will not be seriously prejudiced by the financial arrangements. This is a matter of the greatest importance, because it seems that we are moving very rapidly into the stage where at times the argument seems to be that the Government have merely to wave a magic wand and capital for socially approved purposes will simply be forthcoming, and be made to be forthcoming, from the banking system.

I would draw the attention of the House to the question of balance of payments considerations. It seems to me that a much more comprehensive analysis is needed of the balance of payments considerations, where we are deciding whether or not to have shipyards or any other type of industry. The assumption is made far too glibly that because a ship, when exported, produces an obvious net gain on the foreign exchanges, there is really no further argument at all about it. But this can apply to every export industry in the country without exception. Every export industry in the country that ships something across the borders and across foreign exchanges brings in a total amount in foreign exchange and, in this respect, and by this limited criterion, the shipbuilding industry is in no stronger or more favourable position than any other.

The point that I should like to emphasise is that a proper distinction must always be drawn after comparing the total or global balance of payments consequences of investing funds in the shipbuilding industry, with the total or global balance of payments consequences of investing the same amount of money in any other variety of capital investment opportunities which are available to capital in this country. This is a comparison which must be made. I cannot accept the smooth and glib assumption that because we export a ship and get 2 million dollars or francs, or whatever it may be, this is a complete justification of investment in the shipbuilding industry.

Finally, I should like to emphasise one point which I tried to raise in the form of a question earlier in the Session. It is whether—it has been suggested by my right hon. Friend on the Front Bench that we have no option—we must now accept that for ever and ever we live in a world of interest rate subsidies. I do accept this now, but shall we have to accept this for the indefinite future?

This situation existed before G.A.T.T. was set up in 1947, and G.A.T.T. has had a tremendously stabilising and constructive effect on international trade. Within that organisation we have been able to get agreement over a wide variety of international trading variations that this type of thing shall not be done. In this particular sector of shipbuilding, the subsidy, for some reason, does not apply. There is no international agreement. Successive Governments have endeavoured to obtain one but there has been no success. I believe there is a committee sitting in Paris at the moment.

I sugggest that this is a disastrous course to pursue by this country or any other country into the indefinite future. What happens? We stabilise the interest rates and we make the situation comparable. The next country that decides that its shipbuilding industry is in further difficulties with its competitors or subsidised interest rate will reduce it by 1 per cent., and this will lead to an all-round reduction of 1 per cent. The ultimate is that shipbuilding finances will be 0 per cent., because this is the floor below which interest rates cannot fall.

One of my hon. Friends suggests subsidies. This is the next step. We follow from interest rate subsidies to more comprehensive subsidies, and from there to the position where it is almost impossible to determine in any true or real sense the economic viability of the shipbuilding industry. I suggest that it is this fundamental economic viability which the Bill is seeking to promote, and I hope that it will do so.

9.0 p.m.

Mr. Arthur Blenkinsop (South Shields)

I am left with only three or four minutes in which to speak owing to the utter inability of the last two speakers to listen to the appeal made by successive occupants of the Chair.

I shall, therefore, not attempt to make the comments that I had hoped to make, but merely call attention to one matter which is of particular concern to my constituency, and about which there has been a great deal of correspondence and discussion with the Ministry.

Dame Irene Ward (Tynemouth)

Would the hon. Gentleman be kind enough to say that it also affects my constituency?

Mr. Blenkinsop

That will become clear in a moment.

When the Bill was published, many of us looked at Clause 7(5), in particular, with a great deal of interest, as I found from his speech the right hon. Member for Orkney and Shetland (Mr. Grimond) had done. It appeared from a reading of the subsection that when ships were under construction and orders had been given and all the other conditions had been met, special facilities might be available for loan purposes. Unfortunately, it appears that this reading is wrong. Unfortunately, according to a letter which I have had from the Ministry, the subsection is intended merely to cover the situation where a ship is moved from one yard to another, or some other question of this kind arises.

This is most disappointng, because some time ago a shipyard in my constituency—and there may be other examples of this kind of problem—received an order for a cargo vessel from the other side of the River Tyne, in North Shields. It was an important order, but it was suspended temporarily because of the utterly impossible situation which had developed about credit terms and facilities, and even at this moment no decision has been reached on whether the order is to go forward.

Representations were made to the Ministry to try to ensure that this case would be covered by the terms of the Bill when it came to be presented, and when it was presented we had every hope that this type of case would be covered, subject, of course, to all the other conditions being met, which we understand. It is, therefore, very disappointing to hear that this is not so, and I still hope that when my hon. Friend replies to the debate he will be able to say that this matter will be considered to see whether some special consideration can be given to it.

During the last few moments available to me, I would only add that I very much welcome the Bill, all the more because it is not simply propping up the shipbuilding industry, as the hon. Member for Glasgow, Hillhead (Mr. Galbraith) seemed to suggest it was. Here we are getting away from the idea of merely giving out a certain amount of dole. Here we are trying to tie the provision of extra finance and loans to specific schemes for developments and improvements in the yards. Surely everyone in the House regards this as most urgent and necessary.

9.4 p.m.

Mr. Edward M. Taylor (Glasgow, Cathcart)

I have been charged with the task of winding up the Opposition's case on the Bill, and I apologise in advance to the Minister and the House for any inadequacies in this my first effort in this capacity. However, as I earned my living in the shipyards of the Clyde before coming to the House, and as many of my constituents help to build and prepare the great variety of vessels on the stocks and dry docks of the Clyde yards, I can at least claim to have some involvement in the subject we are discussing.

This has been an interesting and, at times, lively debate, enriched by the fact that almost every hon. Member participating has had personal experience in the shipbuilding industry or has a constituency interest. I heard all the speeches except of those of my hon. Friend the Member for Belfast, East (Mr. McMaster) and the hon. Member for Glasgow, Govan (Mr. Rankin), both of which, I am sure, were good. Many of the points and suggestions which have been made will be of real value to the Shipbuilding Industry Board which is about to embark on its major task of reorganising and revitalising the industry.

The happiest speech, I think, came from the hon. Member for Glasgow, Scotstoun (Mr. Small), who was able to announce that a yard in his constituency had secured two major orders. Let us hope that this will be a good omen for the progress of the Bill. Several hon. Members rightly stressed the vital importance of shipbuilding and ship repairing to our island economy. How right my hon. Friend the Member for Glasgow, Hillhead (Mr. Galbraith) was to mention the ship-repairing industry as well. Although about 76,000 people in Britain work in the shipyards, 26,000 are employed in ship repairing, a vital component. But these figures do not tell the whole story. Although only 76,000 people are employed in the yards, about 250,000 families in the United Kingdom depend directly or indirectly on the industry for their livelihood.

The value of the industry cannot be measured in terms of numbers alone. The fact that shipbuilding provides substantial employment in areas such as the Clyde, Tyneside and Northern Ireland, demonstrates its importance for the development districts. We were all impressed to hear the right hon. Member for Orkney and Shetland (Mr. Grimond) talking about the great importance for the East Coast constituencies of Scotland of yards like Caledon and Henry Robb. We were touched to hear the speech of the hon. Member for Blyth (Mr. Milne), when he told us of what had happened in his constituency.

The Bill comes before us at a time when the industry is facing real and urgent problems, if not a crisis. Orders placed at British yards last year, at 482,000 gross tons, were the lowest for years and about one-quarter of the 1965 total. The total order book at the end of the year, at about 2 million gross tons, was not far off a five-year low. Orders are now urgently required if the tempo of activity is to be maintained.

Orders at any price, of course, do not make for a prosperous industry, as several hon. Members have pointed out. The Geddes Report makes clear that the existing return on shipbuilding contracts is not, on average, anything like adequate to finance reinvestment and modernisation. If this view of the Geddes Committee was ever in question, the gloomy trading results coming from some of the largest shipbuilding companies have confirmed the trend. The tragedy is that, while profits have slumped, costs have soared.

Wages costs alone have rocketed in recent years. According to the Ministry of Labour Gazette, average weekly earnings of shipyard employees rose from £17 11s. in April, 1964, to over £22 in April, 1966. The extra burden of high interest rates and tight credit in Britain has put our shipyards in a perilous position, facing not only the full rigours of international competition but also the favourable credit terms and subsidies, which foreign shipyards have available to them.

To deal with this serious and unique situation, the Geddes Committee proposed a series of unique remedies, and the Bill largely implements its proposals. The Bill does not guarantee that the industry will survive and prosper, but it is designed to create the circumstances in which the joint efforts of management and men can make this possible. My hon. Friend the Member for Rutland and Stamford (Mr. Kenneth Lewis) made the good point that this will give a real boost to the industry and, perhaps, give it some of the glamour which will help to attract from other industries and from commerce and the universities the people who are rightly required in shipbuilding and ship repairing. But how right was my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) to say that as a lot of public money will be going into the industry we were entitled to look for progress! I am sure that it will come, and the Bill provides the means for it.

The most welcome provision for the industry will be those in Clause 7 for guaranteed credit up to £200 million to finance the purchase of British-built ships by British shipowners. Several of my hon. Friends have pointed out the intolerable position at present in international shipbuilding credit. British shipowners find loans of more than 50 per cent. very difficult to obtain at home and even if they can get them the interest charges of 8 to 8½ per cent. are prohibitive.

As my hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) said, credit of up to 100 per cent. is available in Japan for long periods at interest rates below 5 per cent., and in a market where the cash customer is becoming relatively extinct no British shipyard, however efficient, can beat that credit barrier. We see the same kind of subsidies, although they vary from place to place, in France, Sweden and elsewhere. The credit scheme envisaged in the Bill, although it involves a large amount of money, will no more than put British shipyards in an equal position in credit provisions.

Although the Bill provides the substantial upper limit for the credit of £200 million, there is a limitation on the period during which the credit facilities will operate. Clause 7 does not lay down a time limit for the completion of a ship's finance under the scheme, and that is a departure from Geddes, with its suggested two-year rule which the Minister may care to explain. But Cluase 9 sets a limit on the operation of the scheme, since it provides that the S.I.B. should go out of existence by the end of 1970, or by 1971 at the latest.

Some hon. Members who have spoken today and many people in the industry fear that the effect of the credit provisions will be simply to plunge the industry into an impossible credit position again in 1970 or 1971, because no matter how successful the reorganisation of the industry, no matter how efficient it becomes if we again have a "credit war" in 1970 or 1971 it will be impossible for the British shipyards to obtain the orders they need.

What is clearly needed is an international agreement to prevent a credit war, which, as my hon. Friend the Member for Hillhead said, is just another form of subsidy war which benefits no one in the long run. I therefore ask the Minister to say whether he intends to take the initiative to discuss with our foreign competitors a code of conduct on credit provisions. I hope that he can give us an assurance on that, as there is otherwise a real danger of our finding ourselves in 1970 or 1971 in exactly the same position as we are in today, even though we hope that the industry will be far more efficient by then.

Another factor which causes us concern was mentioned by the right hon. Member for Orkney and Shetland in his excellent speech. It is that Clause 7(2) gives the Shipbuilding Industry Board a very broad power to refuse the credit in respect of shipyards which are not reorganised since the operation of the Act, or have not made satisfactory progress along those lines. In addition, under Clause 7(2,b) the Board is instructed to refuse credit unless it considers that the order will contribute to increased efficiency in the yard concerned.

I fear that that may lead in practice to the Board's allocating particular categories of orders like tankers, bulk carriers or passenger liners to particular yards and groups, which will possibly affect the flexibility of tendering of particular shipyard managements. It may result in the shipyards feeling obliged to approach the S.I.B. before even tendering for work.

That would be dangerous, because flexibility of operating operation is very valuable for the shipyards. I think, particularly, of a rather remarkable job which was done by Connell's, on the Clyde, only two years ago, when it built a very small craft which could not fit into any pattern of organisation simply to experiment with new prefabrication techniques. If the Government insist on particular groups of vessels going to particular yards that flexibility may be removed. The subsection must lead to a limitation of choice and a curtailment of inter-yard competition, and I think that the shipyards feel that point.

These restrictions on the flexibility of the credit scheme will be probed by hon. Members on this side of the House in Committee, but the Minister may wish to clarify these points at this stage. In particular, he may care to comment on the poition of a yard or grouping which has reorganised its resources before the Act comes into operation. An obvious example is the new Associated Shipbuilders based on Swan Hunter and Smith Docks, because a strict interpretation of Clause 7(2) would appear to exclude such a group from the scheme.

Another point of detail is that the Clause relates to the construction of a ship and appears to omit a major jumboising conversion of ships, a process in which international competition is fierce and by which real contributions to the efficiency and progress of the industry can be made. Can this kind of job be included in the scheme, or is it to apply only to new construction? I hone that there will be a scheme in the Bill to allow major conversions or jumboising jobs such as these to be included.

A second general provision which the Bill makes is that for offering loans and grants to facilitate mergers and reorganisation. The Geddes Committee did a service in emphasising the extent to which rationalisation and modernisation has taken place. My hon. Friend the Member for Renfrew, East (Miss Harvie Anderson) has pointed out forcibly the number of Clyde yards which have closed in recent years. We have seen closures and also mergers. The Geddes Committee was also right to point out the extent to which shipyards have modernised. My hon. Friend the Member for Langstone has spoken about the millions of pounds which have been spent and paragraph 243 of the Geddes Report makes a clear statement that the Committee formed the opinion that in general the British shipbuilding industry is not behind its competitors so far as modern equipment is concerned". Reference is also made to the application of computer technology in the shipyards which has been largely pioneered in Clyde shipyards in co-operation with Glasgow University to shipbuilding design calculations like hydrostatics, tank calibrations and the fairing of lines.

The Bill appears to accept the conclusions in this Report that more reorganisation and mergers are urgently required. While I do not think that anyone would disagree in principle with the conclusions of the: Geddes Report, a few notes of caution are appropriate. The hon. and learned Member for Liverpool, Edge Hill (Mr. A. J. Irvine) pointed out that trading conditions in the industry have deteriorated since the Geddes Report was published a year ago and mergers which might otherwise make sound organisational sense may have been frustrated by the rather difficult financial position in which some would-be participants find themselves.

Some yards will be unable to fit into the new grouping. One Clyde yard may fall into this category. Barclay Curie and others might not be able to fit in. The hon. Member for Barrow-in-Furness (Mr. Booth) pointed out that this could affect employment and undermine job security and, therefore, prejudice co-operation in the proposals. The Minister asked: are we satisfied that increased size will inevitably bring increased efficiency? He voiced his reservations on this and it is a qualification. Assuming, however, that the Geddes premise that generous loans and grants will facilitate reorganisation on scale, we find one major item of conflict in the Bill's provisions.

Clause 6 empowers the Board to acquire an equity stake in the groupings and the general direction in Clause 1 makes clear that the Bill could be used by an unscrupulous Administration to nationalise broad sections of the industry by the back door. The Minister has given assurances about this today, but we have had assurances in respect of other matters. I have in mind the kind of assurances we had on the Industrial Reorganisation Corporation, only a few weeks ago. The Government are under an obligation to explain the reason for this Clause perhaps a little more convincingly and in more detail than we have heard from the Minister.

Here we are in conflict with the Geddes recommendation in paragraph 332. The Report made it clear that quite apart from the broad social and economic conditions, it rejected the proposal of State participation as being inconsistent with the objective of promoting the competitiveness of the industry. We oppose State participation in principle because, in our opinion, it never assists flexibility, progress or the long-term prospects in any industry.

In an industry where harsh and unpopular decisions have to be made, the existence of a few State-owned yards or yards in which there was State participation, in whose survival and success the Government would have political and ideological stake, will not facilitate reorganisation, or make the very difficult task of the Shipbuilding Industry Board any easier.

There is also the question of patronage in shipbuilding, available to the Government in naval contracts. If there were a substantial number of yards with State participation, we wonder about the allocation of naval contracts, which are so valuable and important for the long-term growth of a yard. The Bill deals with the reorganisation of the shipyards, and we cannot be unmindful of the fact that the success of the industry depends more on the 75 per cent. of costs which cannot be directly controlled by the yards, rather than the 25 per cent. of costs which the efforts of management and men can influence.

The most substantial cost is steel—about 20 per cent. of the total cost of the ship. The Minister may wish to report on any developments in achieving the rebate on steel costs called for in the Report. The possibility—and it is one which is causing very real concern in Scotland and elsewhere— is of the National Steel Corporation adopting differential regional prices, which could have a severe effect on major shipbuilding activities in Scotland and elsewhere. We have to remember that the nationalised industries, with one or two exceptions, have adopted the principle of differential pricing. If the steel industry does this, the future of shipbuilding on the North-East Coast and on the Clyde could be affected.

I hope that the Minister will give us an assurance that this question is being discussed with the Minister of Power, and that something will be done. Despite all its provisions on grants and loans and credits, the Bill will not succeed unless a new spirit of co-operation and flexibility enters the industry. It is rather unfortunate that we are discussing the Bill at a time when there is a major dispute in shipbuilding affecting the draughtsmen. I do not want to go into the rights and wrongs of this issue, although I am tempted to do so, but I would like to make one point.

Considerable praise and acclamation has greeted moves towards flexibility and co-operation which have recently taken place. I would like to put to the Minister and the House, in all humility, the suggestion that, whereas in the past outside observers have too readily condemned the turbulent labour relations and demarcation problems in the yards, without having regard to the deep-rooted human causes of this position, now the reverse has happened.

Now we are all too ready to hail uncritically the signs of change and flexibility, agreements and statesmanlike pronouncements before these splendid sentiments have been accepted, applied and practised in the sheds and berths of the shipyards. I could not readily give an estimate about the number of agreements and pacts in which I have participated and signed, providing for maximum co-operation and flexibility in the yards.

I doubt whether the practical success and achievement which occurred was anything like as great as the wonderful promises of those agreements. I do not want to under-estimate what has happened, but there is a real danger of our being mesmerised by some of the flexibility agreements which have been signed. It would be much better if we saw some real signs of progress. We cannot under-estimate the progress that needs to be made. Over-manning is a major problem.

The hon. Gentleman the Member for Barrow-in-Furness referred to the lack of progress in bringing in new methods and techniques. I know for a fact that it is almost impossible to introduce some of these because of the scale of manning demanded. To refer to only one machine, the hon. Gentleman will be aware of the Schichau Monopol burning machine, a German machine which can save a great deal of money. Unfortunately, it was demanded at the time of the introduction of these machines that two skilled men should operate them. This was wasteful, and a much greater saving could have been made if this over-manning had not been insisted on. There are many examples like this.

Demarcation is a major problem which involves a great waste of time. We do not want jacks of all trades in the yards—clearly, that would be nonsense—but the servicing of one person's own job could save time if a plater were allowed to do the incidental burning and tacking associated with his job. Restrictions on the recruitment of apprentices is another problem, and the question of wage differentials is very serious. There is a deep rooted resistance in the yards to new techniques and flexibility which is not difficult to understand, for change and progress have claimed many victims.

There is the obvious case of the riveter which has been referred to today by the hon. Member for Rutland and Stamford. The riveter used to be the kingpin of the yards, concerned with hammering in the rivets which held the plates and sections together. The technique of welding has largely displaced riveting. Apart from some internal work and repairing, welders have taken over the riveter's place at the top of the earnings league. One of the favourite stories in Greenock which the Joint Under-Secretary of State at the Scottish Office will be familiar with is the one about the traveller going through Port Glasgow who passed a church outside which there was a substantial crowd. He asked what the crowd was there for and he was told that it was a case of a welder marrying a commoner. This represents the change which has taken place in the relative value placed on trades.

If we consider what has happened to the riveter, we see the importance of the problem. Some of the riveters have been absorbed, with some difficulty, into other trades. Others have taken on poor jobs at low wages—tack welding and the like—with very little job security. Others have been forced to take on unskilled work. This is despite the fact that riveters are members of the one great steel work union in the shipyards—the Boilermakers' Society—which includes platers, caulkers, welders, burners and now the blacksmiths, shipwrights and drillers. So that one union, or perhaps a small number of unions, is not the answer.

Unless we can introduce some job security and the prospect of interchangeability and more flexibility, we will not overcome the very serious labour problems in the industry. Unless we can offer job security, unless we have the assurance of interchangeability following retraining in the event of redundancy, which could stem from these agreements and this Bill, we certainly cannot hope to get rid of the resistance to change which at present exists.

I therefore ask the Minister, on the basis of the reports which we have had from the shipyards, whether he is satisfied with the progress which has been made on the shop floor in applying these agreements about which we hear so much and what facilities will be available to the Shipbuilding Industry Board to ensure that it is properly advised about this and is not mesmerised by a flood of agreements and declarations which are not in fact carried out.

Bad labour relations and the high incidence of strikes are also a result of the procedure for discussing grievances and avoiding disputes. The existing procedure agreements, made between the wars, are sound in themselves, but they suffer from two main disadvantages: first, because the Boilermakers' Society is not party to them; and, secondly, because the strict timetable for yard, local and central conference is not adhered to in practice. Months can pass without a claim being properly discussed because of the procedure and all too often a strike, official or unofficial, is the only practical way of stimulating negotiating machinery. Until we can get an agreement which works and is applied fairly, then we will have substantial numbers of strikes which would not happen if there were adequate machinery properly applied.

These problems must be attended to within the industry. My only fear is that the sizable and very generous assistance in the Bill might possibly be used to finance further inaction and will not ensure the speedy progress which is urgently required. These and other reservations we shall pursue in Committee, subject only to the desire on this side of the House to assist the speedy passage of the parts of the Bill which will bring much-needed assistance and stimulation to the industry.

As I said at the beginning of my speech, the Bill does not guarantee the survival of the industry, but it creates the circumstances in which survival and prosperity are possible and real objectives. The shipbuilding industry has no divine right to survive, but it is true to say that our island economy will be infinitely poorer if management and men do not grasp the opportunities which are before them in the Bill. For these reasons, and with these reservations, I advise my right hon. and hon. Friends to support the Second Reading of the Bill.

9.30 p.m.

The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Edmund Dell)

I should like first to congratulate the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) on his first appearance at the Box. He and I share a constituency interest in shipbuilding, and I was certainly very interested in his speech. It seemed to me that the hon. Member spoke with all his usual eloquence but with, perhaps, more than his usual moderation. I hope that the mantle of statesmanship is not already falling upon him.

We have had an interesting debate, which has been informed by many hon. Members who have personal experience in the shipbuilding industry. The debate today has formed a useful launching for the Bill. I would like in the time at my disposal to deal with as many as possible of the various questions that have been discussed.

I start by considering a matter which has been raised many times during the debate—that is, the problem presented by the likely future production of the industry. The hon. Member for Eastleigh (Mr. David Price) criticised the Sigma Report, which was placed in the Library of the House, and he said that Sigma had ignored various aspects of the problem. Sigma's methods are still of considerable interest—for example, its study of the evolution of the demand for particular types and sizes of ships, despite the very short time which it had to consider this problem which was presented to it.

There are at least two factors of which Sigma could not take account in making its estimates. One was the alteration in the international load line rules which has taken place since and the other is the speed of change to container ships, which has gathered pace since Sigma reported, although even today we do not know exactly how far the change will go. I should say this in defence of Sigma's very interesting work on the problem which is shown in the document which was placed in the Library.

As to the general problem, I know of no industry in which the figures can be so misleading. To take deadweight tonnage, for example, the value per deadweight ton can, as the Geddes Report showed, vary in the ratio of 1 to 7. Gross tonnage is simply the measure of the air contained in the enclosed spaces of a ship. All we can say, and this we certainly say, is that all the estimates which we have made show that, provided that the industry becomes competitive and takes the opportunity which the Bill presents to it, there is no reason why there should not be a substantial expansion in the production of the industry.

The principal points which have been made in the debate are, first, that the industry itself must do market research to determine the fields on which the industry should principally concentrate and where the industry sees itself getting orders in the years to come. Secondly, the industry must take the opportunity which the Bill gives it of becoming competitive. It must not rely simply on the British shipowner and any preference that he may have for ordering in British yards. It must seek to increase the percentage which it has of world trade in shipbuilding. The percentage is now, unfortunately, so low that quite a small increase in the percentage of world trade in shipbuilding obtained by the British industry would make up for quite a lot of uncertainty about the total amount of shipbuilding which will take place in 1972, 1975 or whatever year one uses as the basis of one's estimates.

Many hon. Gentlemen opposite have criticised Clause 6 of the Bill, which enables the Shipbuilding Industry Board to take equity in shipbuilding yards as an alternative to making a loan or accepting equity in the form of repayment of a loan. I was very glad to hear from the hon. Member for Eastleigh that his objection to it was not really doctrinal. It is an interesting development that a provision of this sort should be objected to other than on doctrinal grounds. I should like to think that he is even prepared to accept the doctrine behind the provision, if there is a doctrine.

He was concerned that, if equity was taken, the taxpayer's interest might not be protected adequately. He seemed to think that the equity option might be used as an easy way of financing the shipyards, whereas a loan with a rate of interest and a time of repayment would be a very much more stiff way of financing the shipyards.

It is not the intention of the Government that the option should be used in that way. I am sure that the Shipbuilding Industry Board will use the equity option in a commercial manner, which is what we want. After all, in so far as there is doctrine behind the Clause, it is that the taxpayer is just as entitled to invest his money in a way which looks like bringing him the best return as any other investor. There is no reason why the taxpayer should be singled out from other investors by being denied this particular form of investment.

The equity provisions will have many uses. If they can be useful to the industry, they can be useful to the Shipbuilding Industry Board. For example, the Board might consider, in the case of a particular yard, that a continuing participation in management might be advisable and might help it to ensure that a particular grouping in which it was investing became competitive.

The hon. Member for Cathcart, suggested that in the Geddes Report it was said that State participation would be inconsistent with efficiency. We should be clear about this, because the Report did not say that. The Committee said that, in its view, State participation was not necessary to increase competitiveness, which is rather a different point. It did not say that it was inconsistent; it said that it was not necessary.

That is a judgment which I respect, but I can see a number of cases in which it could assist the development of efficiency in a particular shipyard group by enabling a continuing management participation. I hope, therefore, that hon. Gentlemen opposite, having rejected the doctrinal argument against it, will consider it simply on the practical grounds.

The hon. Member for Renfrew, East asked for an assurance that, if a company did not wish equity participation by the S.I.B., it would not be forced to receive it. One thing which I should say is that there is no compulsion in the Bill. No one has to accept a loan from the Shipbuilding Industry Board, and no one has to agree to participate in a merger. However, the Government are entitled to indicate the conditions upon which they are prepared to give assistance to the industry through the mechanism of the S.I.B. It would be quite impossible if the Board entered into negotiation with a potential group in which it thought that it ought to have an equity participation knowing that, if that group refused, it would be bound not merely to accept what it said but also to give it a loan on terms which the Board might not itself consider ideal. I am afraid that I can give the hon. Lady no such assurance.

The right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon.

Member for Rutland and Stamford (Mr. Kenneth Lewis) asked certain questions about whether equity participation by the Board might not influence it in its attitude to particular groups in the industry.

The hon. Member for Glasgow, Cathcart even suggested this might influence the Admiralty in the placing of naval orders. That is a little exaggerated. The Board is a temporary board, which will exist at the most only until 1971, and the answer to the question what happens to any shares that the Board takes when it goes out of existence is as laid down in the Bill—they go to the Minister of Technology.

Mr. McMaster

When this money is invested will there be a new issue of shares or will the money be used to buy out existing shareholders?

Mr. Dell

Either is an alternative. The Bill does not lay down which shall take place.

I now leave Clause 6 and turn to another major subject—the problem of mergers. Much was said about the problem of small yards, and what part they might play in this picture. At times there was some confusion between two different sorts of small yard. There is the small yard which was considered by the Geddes Committee, which builds ships of over 5,000 tons and which, for reasons I shall give, could often gain considerably from being included in a grouping. There are also small yards which are not really facing international competition. The right hon. Member for Orkney and Shetland mentioned one example—the small yard which builds coasters and trawlers, which might be in a different category. But there might be cases in which even that sort of yard would gain from being included in a grouping.

What disturbed me a little about certain comments of hon. Members opposite was the very reserved way in which they considered the problem of mergers, illustrated by the suggestion that the Government might be pursuing mergers for the sake of mergers. The hon. Member for Glasgow, Hillhead (Mr. Galbraith) said that size and efficiency do not necessarily go together. No one could but agree with him My right hon. Friend made exactly the same point. The hon. Member for Belfast, East (Mr. McMaster) on the other hand, in whose speech I was interested, made the point that mergers have not been going fast enough. I agree.

What troubled me was that hon. Members opposite seemed to place far too little importance on the central recommendation of the Geddes Committee—the principal specific for making the industry competitive—not that size necessarily leads to efficiency but that there are many areas in the industry in which efficiency will be obtained only if there are mergers. This is the case for a whole series of reasons, into which the Geddes Report went in some detail and which hon. Members have mentioned.

One argument deployed by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley)—who has told me that he was unable to be here this evening to hear my reply—was that the type of economy of scale which the Geddes Committee expected from grouping is very small. I have been going round shipbuilding yards in order to become acquainted with the establishments and their principal personalities and I have come across shipbuilders who have said, "O.K.—there may be some economies of scale. You may get some, for example, from the flexibility that you will achieve in the use of labour. You may get some advantage from the greater security of employees and the resulting better labour relations in the yards." But these, they say, are very little and some of them seem to take the attitude that they are not worth either fighting for or cooperating with the Shipbuilding Industry Board to achieve.

The trouble is that what is being overlooked is that, in addition to the economies of scale which can be achieved—they can be considerable—there are great opportunities arising from merging which have not existed in the industry until now. I will give a few examples of these as they arise out of comments made tonight. Let us consider management in the industry. The hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) pointed out how few graduates there were in the industry, and my hon. Friend the Member for Barrow-in-Furness (Mr. Booth) referred in an interesting speech to the lack of qualified scientists and engineers.

It is true that this may partly be due to a generalised unfavourable image of the industry, but it is even more due, I believe, to the fact that, when there are so many small shipyards—many of them, in recent years, uncompetitive—graduates are simply not willing to commit their lives to such an industry. The only prospect of getting qualified scientists and engineers will arise by having groups of a sufficient size and resources to give such people security and a future.

This is the picture which Geddes painted, and the Committee correctly said that an attempt to increase the strength and improve the calibre of yard management applied piecemeal in over 20 separate yards or more—the Bill deals with 60—would involve excessive costs and recruitment difficulties. I suggest to those hon. Members who are afraid of merging for merging's sake that they will not deal with the management problem unless there are larger groups, to which the right quality of management is willing to go.

The question of marketing is relevant. This industry has depended during its whole existence on the British merchant fleet and British naval construction. It has had too little of the world market and has gone out too little to secure a share in that market. This also can be done only by a sizable industry with the resources to launch a proper marketing effort to make sure that this country gets not just British ships which are to be built but ships of other countries' merchant fleets, where we have in the past got so small a share—

Mr. A. J. Irvine

Time is running short and my hon. Friend is dealing, with great care and punctiliousness, with points raised by hon. Members opposite. Will he spare a moment to deal with points raised on his own side?

Mr. Dell

I am sorry that I have not yet come to the points raised by my hon. and learned Friend the Member for Liverpool, Edge Hill (Mr. A. J. Irvine), but I thought that it was worth making the point that when we are considering the problem of merging, we are considering not merging for its own sake but the practical needs of this industry today, the needs to meet the fundamental requirements if the industry is to become competitive—

Miss Harvie Anderson

Perhaps the hon. Gentleman would accept that part of the problem posed by hon. Members on both sides was how to merge a minority of successful yards with a majority of unsuccessful yards. So far he has not provided the answer to that and I should be grateful if he would.

Mr. Dell

I grant the hon. Lady that I have not yet provided an answer to that. Accepting the warning of my hon. and learned Friend, perhaps I had better go no deeper into that at this stage. Perhaps we should consider these matters further in Committee.

I am glad that the linking of the credit scheme with reorganisation has been widely accepted. The hon. Member for Cathcart claimed that this would limit the choice of British shipowners. I assure him that nobody is more interested in having a competitive British shipbuilding industry than the British shipowner who wants to build in this country.

Certain points of practical detail were raised about the credit scheme and I appreciate the concern of my hon. Friend the Member for South Shields. The right hon. Member for Orkney and Shetland mentioned that the guarantees under the Bill could not be given in advance of the Measure receiving the Royal Assent. This should not hold up orders being received by British shipyards, provided that the co-operation which we have been offered enables the Bill to get on to the Statute Book with reasonable speed.

In any event, time will be required to reach the point of giving formal legal guarantees, and this cannot be ignored. First, the matter will be put to the Shipbuilding Industry Board, which will consider whether an order is appropriate and whether it is linked in the correct way with reorganisation. Secondly, the Ministry of Technology will consider whether the security is adequate. These steps are bound to take time but I believe that, if this process is started now, understanding that a legal formal guarantee can follow only after the Royal Assent, there should be no difficulty.

Mr. Blenkinsop

Does my hon. Friend mean that this matter can be further investigated?

Mr. Dell

I think that my hon. Friend will find that, in practice, there will be no difficulty; and I trust that my remarks are of comfort to him on this score.

The right hon. Member for Orkney and Shetland asked me to explain the meaning of Clause 7(5). I assure him that this provision refers to rare cases in which a vessel has been partially completed, in either a home or foreign yard and must, for unforeseen reasons, be transferred elsewhere under a new contract for completion. It means no more than that. It is certainly not retrospective in effect and it does not cover renegotiated contracts. The right hon. Gentleman also suggested that Clause 7(2,a,i), which refers to the credit scheme being dependent on the coming into force of the Measure, was too restrictive. I do not believe that, in practice, he will find it operates in a restrictive way.

The right hon. Member for Orkney and Shetland also questioned me about yards which were already reorganised. He will appreciate that reorganisation is a continuing process. I do not believe that any yard or shipbuilding group will claim that reorganisation had been completed by the date on which the Measure is passed. That is why I say that, in practice, there will be no restriction on the effectiveness of the Bill.

A number of hon. Members asked whether the guarantees would be limited to wholly British ships. There is no such limitation. It should be remembered—and this relates to the remarks of the hon. Member for Eastleigh, who argued the need for selective tariff cuts for components used in British shipbuilding—that imports of components and materials for British shipbuilding have been duty-free for 30 years.

The hon. Member for Belfast, East suggested the introduction of a scrap-and-build scheme. I do not believe that such a scheme would be of particular use to the industry, because the British fleet has a comparatively low age and it would not, in the long run, lead to more work but simply bring some work forward.

The right hon. Gentleman the Member for Orkney and Shetland asked whether the Bill was consistent with membership of the European Economic Community. As has been pointed out during the debate, Italy and France provide, and have for years provided, heavy direct production subsidies. The Dutch have recently introduced a credit scheme. In those circumstances, I cannot imagine that the Bill would in any way be inconsistent with our membership of the European Economic Community.

My hon. Friend the Member for Wallsend (Mr. Garrett) referred to the closing of the Wallsend Slipway. It is true that Geddes referred—and I feel that it correctly referred—to the need to concentrate engine building in a few units, and this inevitably results in the closing of uneconomic units in the industry. I have consulted the Ministry of Labour on the subject of redundancies which have resulted and it has assured me that it will give all possible help to place redundant employees. It is reasonably confident of the prospects of further employment, especially for skilled men, and this is helped by the fact that in this case the redundancies are being phased over a period.

My hon. Friend also asked about the effect of the credit scheme on marine engineering. I think that when the marine engineering industry is consolidated in the way proposed by Geddes, it can only benefit from the very large amount of credit which is now being made available to the shipbuilding industry under the Bill, as the ships to be built will require main engines to motivate them.

The hon. Member for Hillhead asked me to refer to ship repairing. The Bill does not deal with ship repairing. There is nothing to prevent a ship repairing yard being included in a group, but there is no intention that any of the finance made available under the Bill shall be devoted to ship repairing. The Measure deals with shipbuilding, not ship repairing, except that the Shipbuilding and Ship Repairing Council includes representatives of the ship repairing industry and of the management side of the industry as a whole.

The hon. Member for Eastleigh said, and I quite agree with him, that it will not be easy for the industry to become competitive. It will certainly be a hard struggle in face of the competition of the Japanese and in face of the situation in which so much of world shipbuilding is subsidised. I was asked what was happening about subsidies. The ques- tion of subsidies to shipbuilding is being discussed in a special working group of the O.E.C.D. I hope that the discussions will be successful, but we know the history in this field and must watch how things go.

The object of the Bill is to ensure that the industry becomes competitive—to give it a chance of becoming competitive. I am glad that the House has decided not to divide, because I am sure that in this Bill the industry has an opportunity, that may not be repeated, to make itself efficient and competitive in world markets.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 Committal of Bills).