HC Deb 02 April 1968 vol 762 cc326-36

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

11.22 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I am grateful for this opportunity to raise the question of investment grants for ship-owners, which are paid in respect of ships built abroad. I must at the outset declare a very tenuous interest, in order to make certain that I do not transgress the rules of the House, in that I am a director of a subsidiary of a firm which builds ships; but I can assure the House that the firm of which I am a director has nothing whatsoever to do with shipbuilding.

This subject arises out of the astonishing revelation on 13th March from the right hon. Gentleman the Minister of State, that investment grants for foreign owners with a British registered office building ships in foreign yards were likely to total £36½ million, and investment grants for British owners building in foreign yards were likely to total £29 million, making a total of £65½ million to be spent in investment grants over the next few years, and all of this on ships to be built abroad. The difficulty is that I do not know how long "the next few years" means, but it might cover in all a period of about three years—the past year and two years ahead. So at a rough guess, we are likely to spend about £22 million a year on these projects.

Therefore, out of a total of £166 million, which is what investment grants cost last year, something like one-eighth appears to be going on ships which are to be built in foreign yards. This is a position which is so astounding that I believe it is right to raise it, and to ask the Minister to explain how he intends to curb what I can only describe as an abuse. The fact that this has gone on for some time, and went on under the previous Government, I freely acknowledge; and had I at that time realised the scale of what was happening, and the cost of it, I can assure the right hon. Gentleman that I would have been attacking it at a much earlier stage. I repeat, therefore, that the argument is not one about grants as opposed to the old investment allowances, nor really should it be one whether the investment grant is a good economic weapon at all. I personally am against it, but I do not want to invoke that tonight.

It seems to me that two straightforward questions arise. Firstly, should we spend our money on subsidising ships built in foreign yards at all? Secondly, if we decide to do so, can we distinguish between ships built for United Kingdom owners and ships built for foreign owners in foreign yards at all? Is this distinction between foreign and United Kingdom owners meaningful at all?

I deal with the second question first, because I think it is correct to do so. How can one define a foreign shipowner? Any shipowner can set up an office in this country and pay taxes here and order ships abroad and thereby claim investment grant. Under the law as I understand it, it is impossible for the Government to refuse to pay the grant to him.

The right hon. Gentleman, on 13th March, when this question was discussed at Question Time, said: As the House knows, we have taken steps in that direction through the new shipbuilding industry arrangements, but many of these so-called foreign businesses are in fact businesses, although foreign-controlled, which have been registered in this country, and they pay British tax in this country, and they bring us returns in this country, and they have got as honourable association with the British mercantile marine."—[OFFICIAL REPORT, 13th March, 1968; Vol. 760, c. 1370.] He tries to distinguish, I think, between those who have got a time-honoured association with the British mercantile marine and those foreign ship-owners who are cashing in on the present situation by hurriedly setting up offices in London in order to be eligible.

I question whether this is a real distinction and one which can be maintained in law. It seems to me that a company controlled by persons not resident in the United Kingdom is always a foreign company, whether it has been a subsidiary in this country for a long time or for a short time. I do not think a really meaningful distinction may be made between a foreign company which has a subsidiary here, and has "an honourable association with the British mercantile marine", and one which is merely cashing in on the present situation with regard to the grants. This is, of course, an argument against the grants as a whole, but I feel that it is impossible to distinguish in legislation between a foreign shipowner and a British shipowner when it is possible for them to set up an office in the way I have described.

Therefore, I think one is thrown back on the question whether we are right to subsidise the building of ships in foreign yards at all and whether we should not confine the payment of investment grants to ships which are built in British shipyards. I do not believe that any other distinction is intelligible or fair, and therefore I want to go on to discuss that question itself.

There are three reasons I would advance against doing so. Firstly, it must be extremely galling to United Kingdom shipyards and the workers who work in them to hear that we have spent or will have spent in the next few years £65½ mullion on subsidising the building of ships in those foreign yards. It is such a colossal sum of money, and I think that with all the problems of the development areas, where the shipyards mostly are, and the employment problems and the social problems in those areas, it is a proposition which the Government would find hard to justify—that £65½ million should be spent in a period of three or four years on subsidising those ships built abroad.

Although I am no protectionist, I think one must draw attention to the fact that most of the major shipbuilding countries protect their own shipyards. For instance, the Japanese have an import duty of 15 per cent. on imported ships whereas we apparently have a 25 per cent. subsidy on imported ships. This comparison is too striking to be overlooked. That we should pay 25 per cent. of the cost of imported ships whereas practically every other country has a duty, or is at least neutral in the matter, surely points to our being out of line. I should have thought that at least we could be neutral.

This is a period of extreme balance of payments difficulties when as a country we are running huge payments deficits. Clearly it is in our interests to guard against large expenditure abroad by subsidising our own ship-owners and others who build abroad.

To be fair, there are two counter-arguments which I should consider. It is often alleged that these foreign ship-owners who are eligible for these grants, by means of opening offices in England, bring more work to the United Kingdom by the orders which they place here than the grants cost us. I asked the right hon. Gentleman a Question and in a written reply he said that £27 million was the value of the orders which foreign ship-owners had placed. I cannot tell, nor do I think he knows, how comparable the period of time of that £27 million was with the £36 million taken out in investment grants. I doubt whether this is a quid pro quo. I should think that all ship-owners, whether foreign or British, will continue to order and purchase ships in the yards which offer the best terms in price, delivery, credit terms, invest ment grants and so on, taking all the factors into account.

I do not think that if foreign ship-owners order ships in United Kingdom yards they do so out of altruistic reasons to pay us back for generous grants in former years. I think they do so because at present, following devaluation, they may get a better bargain here than they would abroad. Therefore, I reject that argument.

The argument was advanced on 13th March at Question Time that our ship-owners must have the right to order ships in the cheapest market and in many cases they will not be able to buy in United Kingdom yards, because United Kingdom yards cannot supply what they want. My hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) asked: Is the Minister aware that the choice for many British ship-owners is not at all whether to build in Britain or whether to build abroad, if they are to operate certain types of tonnage at an economic level, because in some circumstances these types of tonnage simply cannot be built in this country?"—[OFFICIAL REPORT, 13th March, 1968; Vol. 760, c. 1371.] That may well be true, but I doubt whether it is a widespread truth. I think there will be isolated ships which they cannot obtain in the United Kingdom, but the vast bulk of requirements of British ship-owners can be met from United Kingdom yards if the ship-owners persevere enough to obtain quotations, to negotiate and bargain. Suppose for the sake of argument that it is true and all ship-owners should have the right to buy abroad if they want to do so. I still do not see why it is necessary for us to subsidise them. I see no reason whatever why a British shipowner who finds that he has to buy abroad for any reason should not do so without the benefit of the 25 per cent. investment grant.

In short, I conclude that it is altogether wrong for us to subsidise the purchase of ships abroad by the payment of the 25 per cent. investment grant. It seems peculiar that we should have taken such strong steps to discourage investment abroad and at the same time encourage people to buy from abroad by the 25 per cent. investment grant scheme.

The effect of banning these grants would be electrifying on the British shipbuilding industry. If the Government were able to take the step of saying that they would no more pay the 25 per cent. grant to foreign ship-owners—and I must, on consideration, include British ship-owners, too—the effect would be a massive return of orders to the books of United Kingdom shipbuilders—something which would completely overwhelm the entire effects of the Shipbuilding Industry Board and the subsidy now current and all the talk that is going on about rationalisation. This in itself would do far more good for British shipbuilding than anything any Government have so far done.

I believe that it is necessary to ban these grants. For a country embattled, as we are, with a balance of payments position, it is an intolerable situation to be faced with a bill of nearly £66 million to pay out to our competitors in an industry which should be one of the prime and most important industries of this country—the traditional industry of shipbuilding. I believe that we can make an economy to the taxpayer, that we can reduce our drain on foreign exchange and, at the same time, help to provide employment and prosperity in the depressed areas by banning grants of this kind. I hope that the right hon. Gentleman will be able to see his way clear to announcing that some measure is contemplated, because I think it is time that this abuse was stopped.

11.37 p.m.

The Minister of State, Board of Trade (Mr. George Darling)

The final suggestion of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) really astonished me. The idea now that we should pay neither investment grants nor investment allowances—I am sure that this would be his argument, too—to ship-owners to help them to modernise their shipping fleets is something to which I am sure neither side of the House would give a moment's thought. I do not want to go into that argument. I think there is far more substance in the arguments that the hon. Gentleman deployed before he reached this astonishing conclusion.

I listened to him with great care to find out how he would substantiate the wording of the subject that stands in his name on the Order Paper. It says that' the hon. Gentleman … proposes to raise the subject of investment grants paid in respect of ships built abroad for foreign ship-owners. If that is the hon. Gentleman's Motion, it is quite misconceived, because the investment grants system—and he came almost close to expressing this—does not allow grants to be paid to foreign ship-owners. I had better clear this issue out of the way before dealing with the rest of the hon. Gentleman's arguments, most of which were based on somewhat similar misunderstandings of the investment grants scheme.

A shipping company which applies for an investment grant for a new ship that is being built must be a company resident in Great Britain, or, if an individual is having a ship built, he must be resident in Great Britain. In other words, the company must be incorporated in Great Britain or an individual must be a United Kingdom citizen carrying on business in Great Britain. These conditions are clearly laid down in the Industrial Development Act and they were fully discussed during the proceedings on the Bill and generally accepted. It is, therefore, impossible for a foreign shipping company that is not incorporated in this country to get investment grants on ships.

What the hon. Gentleman is really concerned about is the situation in which foreign shipping companies may establish subsidiary companies here solely for the purpose of getting investment grants. The ships they build will probably be registered as British ships, even though they are built overseas and not in British yards, but that is beside the point. The point the hon. Gentleman was making was that the investment grant system allows these brass plate companies, as we can call them for simplicity, to be set up to get the benefit of investment grants. As the hon. Gentleman said, if this were to happen it would be a gross misuse of investment grants, and it would mean that we would be paying out British taxpayers' money to companies which had a phoney British registration. If this dodge, this exploitation of the investment grant system were allowed, the hon. Gentleman would say that the Government should do something to stop it. We have taken the necessary steps to make sure that the investment grant system is not misused in this way, and I shall explain that in a moment.

Before I do so, I think I must make clear the purpose of the investment grant system for ships. The hon. Gentleman and I—and I am sure everyone in this House—wish to see more and more ships built in British yards, not only to provide new ships for British shipping companies, but to provide ships for foreign shipping companies, in other words, to export our shipbuilding activities. We can do this only by helping British shipbuilders to become truly competitive, highly efficient, capable of building the best designed ships in the world, at competitive prices, and delivered on time.

It is to achieve those desirable results that we are helping British shipbuilders to modernise their yards, to improve their equipment and methods, and to start a new deal in labour relations in the shipbuilding industry. All this is being done, and the results are already encouraging. But all this is only incidentally associated with the investment grant system for ships. The real purpose of investment grants is to help the shipping companies to have modern, first-class ships, and so ensure that the British merchant service leads the world, and as it were guarantee that in full and fair competition a substantial part of world trade and world passenger movements are carried in British ships.

Our first concern is with the quality of British shipping. We want to ensure that the British shipping companies have the best ships for the services they provide. We do not want a second-rate merchant service. We want the best Ships. This means that we must encourage the shipping companies to have a sensible, commercially profitable programme for the continuous modernisation of their shipping fleets. They have to spend money on building new ships, and the investment grant system is to help them do that.

As the hon. Gentleman said, the previous Government helped them with a very generous special arrangement of investment allowances and free depreciation. When the general rate of investment allowances was 30 per cent., the rate for ships was 40 per cent. That was the wise and right thing to do. But the investment allowances were not entirely satisfactory. The allowances could accrue only when the ships were in service and making profits. It takes time to build a ship, and it takes time for the ship to get fully into service and to make profits. I do not want to go into the argument about the advantages or disadvantages of the investment grant system as opposed to investment allowances, but I think it should be said that if there was a case in which allowances against earned profits had disadvantages, and the provision of grant irrespective of profits on the payment for new equipment had undoubted advantages, it was in respect of ships.

Although the payment of investment grants is only incidental to the building of ships in British yards, it undoubtedly has encouraged ship-owners to order new ships—admittedly, some of them ordered abroad—and improve their services. At the same time, the improved efficiency and the rationalisation of British shipyards has meant, some of us hope—and there are signs for justifying this hope—that an increasing share of the new orders will go to British yards.

The hon. Gentleman wanted to get rid of investment grants altogether; but, if they were to be paid, he wanted them to be paid only for ships built in British yards. Such a rule would be not only in conflict with all our commitments, it would have very serious consequences on our shipping interests, and would result in a consequence to our balance of payments which I am sure he has not thought out.

The hon. Gentleman has quoted the figures I gave him in reply to Questions. He asked me to give him more particulars. The total value of ships built or being built for British companies and the British subsidiaries of foreign companies—the only companies which can get investment grants since the investment grant scheme started—is roughly £478 million. Almost exactly half of that, £276 million, represents orders for ships by British controlled companies, of which half again are being built in British yards.

Whether or not ships ordered by British companies are built here or in foreign yards depends upon the commercial judgment of the shipping companies. They must get the best ships at the best price, delivered on time, with the right credit.

I am convinced that increasing orders will come to British yards, but if we lay down the kind of rules the hon. Member referred to, we will not only break our international obligations and run into trouble with E.F.T.A., G.A.T.T. and so on, but we would not have the up-to-date shipping fleet we ought to have.

We have taken steps to make sure the brass plate company does not operate, and the steps we have taken after consultation with the Treasury were announced by my right hon. Friend the President of the Board of Trade in January this year. Very briefly, this action means that if a company in which non-residents have a controlling interest was formed in 1963 or later and it hoped by this formation to get investment grants for a new ship, then it must be able to show that in the short term the outgoings of foreign exchange in respect of this ship are matched by earnings; in other words, that the balance of payments situation so far as this country is concerned with the building of the ship overseas will not be harmed in any way. With this method the brass plate company, if any have been set up or are likely to be set up, is completely under control.

The investment grants system must be retained. It is a tremendous help to the British ship-owners to get their shipping services up to date, and make sure we have the best ships in the world. We want more and more of them to be built in British yards, and we must never forget the contribution British shipping makes to the balance of payments. To have anything less than a first-class shipping service would be intolerable.

As I have said, we have to take our international obligations into account. But the investment grant system also operates in other spheres of activity. If we tried the discrimination for which the hon. Gentleman asks, the retaliation on our own industrial set-up could be very severe. Even in regard to ships, other nations might retaliate by stopping their national companies placing orders for ships in British yards, and we do not want that to happen. We cannot discriminate without running into great difficulties, and retaliation over a wide range of activities would be quite damaging to our balance of payments and trading interests.

Question put and agreed to.

Adjourned accordingly at ten minutes to Twelve o'clock.