HC Deb 27 February 1968 vol 759 cc1232-6
The Minister of Technology (Mr. Wedgwood Benn)

In the debate on the Second Reading of the Industrial Expansion Bill, I informed the House of my intention to introduce a separate Clause with its own financial provision—

Mr. Rankin

On a point of order. Mr. Speaker, are not we entitled to hear what the Minister is saying? If we are, could you call for silence?

Mr. Speaker

Order. I thought that the House was listening, until the hon. Member raised his point of order.

Mr. Benn

As I was saying, I informed the House of my intention to introduce a separate Clause with its own financial provision seeking specific authority for Concorde production financing. That Clause has been tabled today.

The amount of money involved is large. Depending on the precise timing and rate of the production programme, the net working capital required by both companies together may be in the order of £ 100 million to £ 125 million spread over the next five years. The companies are arranging for their banks to advance part of this sum—up to £ 25 million, which they have asked to be guaranteed by the Government. A detailed examination of the possibilities has convinced me that it would be unrealistic to look to the private sector to provide on acceptable terms all the working capital required, at least during the early stages of the programme. I therefore propose, subject both to the House granting the necessary powers, and to negotiation, to advance the remainder of the sum required by way of an interest-bearing loan.

The degree of financial risk involved is also inevitably large. The need to invest large sums of money before success is assured is inescapable in any aircraft project. The risks with Concorde are being reduced as much as possible by a comprehensive ground and flight test programme, but they are still there, and are too great for the manufacturers to bear unaided—a fact which they have made clear to me.

The Government have agreed to consider a request from the companies to underwrite these risks and to provide, in effect, an insurance policy for them against such possibilities as the failure of the development programme, which would mean a loss of the money already spent or committed on production. The amount at risk could go beyond the working capital requirement. I think it reasonable to grant an indemnity for the high-risk stages of the Concorde programme, extending to the bank loans as well as to other funds involved.

Similar problems arise on the French side and are being tackled on similar lines by the French Government.

Certain special tools and plant at present estimated to cost about £ 30 million are required for the Concorde production programme. These will be bought by the Government and leased to the companies at a full economic rental.

Negotiations with the companies are continuing, and I will report further to the House in due course. I shall also be tabling a Money Resolution within the next few days to cover the expenditure envisaged in the new Clause, and the Standing Committee will be debating the matter upstairs.

Mr. Corfield

While welcoming that statement as far as it goes, may I ask the right hon. Gentleman whether he can give some indication of the maximum rate of production which he has assumed in working out the maximum figures likely to be required in respect of production? When answering that, will he bear in mind the desirability of a high rate of production, both in cashing in in the advance of Concorde over the American SST, and in spreading the overheads in the most economical manner?

Will the right hon. Gentleman also say what rate of interest he proposes to charge on the loan, and how this compares with any interest charged on money raised by our French partners in the French market? Will he also give some indication of the terms of the indemnity which he has in mind?

Mr. Benn

The current programme is for three Concordes a month. Although I recognise the importance of the point made by the hon. Gentleman, the rate of production does to some extent depend on firm orders. The higher the rate of production, the higher the risk, and these points have to be considered.

The rate of interest will be the normal Government rate for this type of lending. We are in close contact with the French. They have similar problems to contend with. The indemnity details will, of course, be fully explored during the passage of the Clause through the Committee stage.

Mr. Lubbock

Is the right hon. Gentleman aware that we are delighted about his announcement on the financing of the production programme? He has been rather pessimistic in his statement about the possibilities of getting private investors to assist with the financing of this project. If the company made a rights issue, or went to the public, they would find many people who believe in British technology who would be delighted to subscribe.

Mr. Benn

This is one of the subjects, of course, on which we are in consultation with the firms, but I thought it right to bring to the House the Clause and the Money Resolution as early as possible. The negotiations will continue, in consultation with the French.

Mr. Robert Howarth

Is my right hon. Friend aware that the American SST programme has already fallen considerably behind, thereby enhancing Concorde's lead and, therefore, the prospect of obtaining a return on at least a proportion of this money?

Mr. Benn

That is certainly so, according to the reports which have reached me. The American prototype will fly a year later than was thought, but, as the House knows, there has been some slippage in the Concorde programme as well.

Mr. Rankin

May I congratulate my right hon. Friend on taking the House into his confidence by this statement and also hope that, throughout the production of Concorde, he will continue to make these statements when necessary? Is he aware that everybody who has the technological future of Great Britain at heart will fully support his statement?

Mr. Benn

I am grateful to my hon. Friend. There will be other opportunities, of course, for debating this project both in Committee on the Bill and on later reports which I shall make to the House.

Mr. Maude

Will the right hon. Gentleman now please answer the question of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield)—what is the rate of interest in this country and what is the rate in France?

Mr. Benn

I thought that I had explained. [HON. MEMBERS: "No."] If I did not, the House misunderstood me. It will be the appropriate rate of interest—[Interruption.]—yes, at the time that the money is loaned. It is not possible to anticipate what Bank Rate or the rate of interest will be, and presumably the same applies to the French.

Mr. Dalyell

Is my right hon. Friend aware that many of us support his attitude in this statement, but could he say something of the terms of equality of information with the French on the manner of financing? Do we have equality of information?

Mr. Benn

We exchange full information with the French, and, of course, the Concorde Directing Committee has access to all the figures from the firms concerned. My hon. Friend may be thinking in terms of the statement by my right hon. Friend the Chief Secretary yesterday. Rather different considerations apply in this case.

Mr. Marten

As this financing will be done under the Industrial Expansion Bill, will the right hon. Gentleman assure us that there is no intention of taking up equity shares in the British Aircraft Corporation?

Mr. Benn

I think that the hon. Member should await the passage of the Clause—[HON. MEMBERS: "Oh."]—through Committee—[HON. MEMBERS: "Why?"]—because when the Clause, which is tabled today—I promised to make a statement to the House when it was tabled—comes for consideration by the Committee there will be ample opportunity to discuss the terms and conditions under which it might be appropriate to make this money available.

Mr. Cronin

Bearing in mind the frequent reluctance of the aircraft com- panies to risk some of their own money in these large projects, would my right hon. Friend describe the approximate proportion of the risk capital being provided by the British companies compared with the capital available from British resources?

Mr. Benn

It is not easy to make a comparison directly in answer to a question, since one must compare the research and development of Concorde with the amount of money made available for production. It is, of course, true, however. that under the levy scheme which will operate there will be a return on research and development money from aircraft sold. Of course, the production financing will be by means of an interest-bearing loan, so in practice recovery provisions are included in both cases, although inevitably commercial success here will depend on the number of aircraft sold. I should tell the House that the American Government are financing, I believe, 90 per cent. of the development costs of the American 2707 supersonic transport.

Mr. Hirst

Would the right hon. Gentleman be a little more explicit? If the rate of interest is the appropriate one, according to Bank Rate, what is the relationship between the appropriate rate and whatever the Bank Rate may be? What is the difference?

Mr. Benn

I understand that there is no necessarily immediate relationship between the two, but this will be the going rate at the time that the money is advanced.

Mr. Hugh Jenkins

Would my right hon. Friend agree that his proposal is a gross misuse of public funds? Does he further agree that there is no guarantee that this aircraft will ever go into production?

Mr. Benn

On the latter part of that question, I think that my hon. Friend is rightly saying that if one goes in for large projects of this kind there is an element of technical risk, and I do not know that he has added more than that. As to the gross misuse of funds, it depends on whether the project is a success. If it is a great success, it will be a profitable investment.

Several Hon. Members rose—

Mr. Speaker

Order.

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