§ 12.25 p.m.
§ The Minister of Technology (Mr. Anthony Wedgwood Benn)
I beg to move,That the Computers Merger Scheme, 1968, a draft of which was laid before this House on 11th June, be approved.This is the first industrial investment scheme made under Sections 1 and 2 of the Industrial Expansion Act, which received the Royal Assent on 30th May.
The merger which the House is being invited to authorise between International Computers & Tabulators Ltd. and English Electric Computers Ltd. represents for us the culmination of a policy for the computer industry which my Ministry has been pursuing for three and a half years.
When the Ministry of Technology was set up in October, 1964, computers was one of the industries for which it was given responsibility, and since then a major element in our policy has been to work towards a strong British-owned independent Business and Scientific Computer Company able to compete effectively with the American companies and their European subsidiaries, able to provide the management and organisation required and to attract staff and capital in order to expand rapidly and meet the very great growth in the United Kingdom and overseas markets, and, if this seemed desirable—and this may be of importance later—in wider international groupings.
I have one word to say about the reasons for our policy which has culminated in the presentation of the Order. It is a fact that there is rapid expansion in the use of computers in this country and everywhere else in the world. In a sense we began our work, as we do in every area in which we are engaged, by identifying the need and seeing how it could be met. In the last 10 years the market growth of computers has exceeded 25 per cent, a year in value, and this rate of expansion is likely to continue for many years.
The plain fact is that if a substantial part of the increase is not supplied from British factories, the balance of payments will suffer very heavily. There is a great 1496 deal of anxiety about the flood of imports into this country, and there is no doubt that our capacity to meet our own needs in the products of advanced technology will play a considerable part in our future success or failure in balance of payments problems.
As is well known—we announced it in the House—one of the aims of our policies has been to ensure that there is a purchase of computers made in Britain, whether by British firms or British subsidiaries of foreign firms, wherever this is possible. Every case is considered on its merits. There is an attempt to make an objective assessment of all suitable equipment, price being only one of the factors taken into account. But I must make clear that the use of computers and, I must say, of computer technology is so fundamental to our future industrial structure and competitive power that we cannot as a nation afford to depend wholly on foreign or foreign-controlled manufacturers.
At the very beginning of the establishment of my Department the individual units of the British owned industry were not strong enough to face the intense competition from their larger rivals. There is no doubt that in the computer business as in some other businesses, though not all, the importance of scale is paramount. The companies in the industry are characterised, at the moment, like many other technological industries, by their high costs of research and development, and in this very rapidly changing technology no company can stay long in the business unless it is able to offer the very latest equipment.
Moreover, the computer companies must provide, at considerable cost, engineers and the softwear experts and maintenance staff to back up their sales, however small those sales may be in the company's beginning in any particular market, and the more work we have done on computer problems in my Department the more the whole approach and work on applications of computers is seen to be important.
If one goes back again to 1964–65, one sees that the three major British-owned computer manufacturers found themselves in competition with American companies which had had the enormous advantage of basing their activities on a 1497 very large American market, including great expenditure on defence and space. I made; reference to this fact when we debated the Industrial Expansion Bill as it went through the House. There is no doubt that this expenditure in a large American market backed by defence and space spending has enabled the American computer manufacturers, with the associated micro-electronic and component manufacturers, to spread the very high cost of research and development over their world wide sales.
It became quite clear to us that if the British computer industry was to continue to exist and compete technically, it required not only to sell more computers at home and abroad but also to rationalise its activities. My right hon. Friend and predecessor, Frank Cousins, made a policy statement in the House in 1965, in which he recognised the special problems facing the computer industry. He announced an expansion of the existing programme of Government supported advanced research in the industry, and this is now running at an annual cost to the Government of over £1 million a year. He also announced that the N.R.D.C. would be making up to £5 million available to l.C.T. to assist in the introduction of its new computer range: £4 million of his sum has been taken up.
I should like to pay tribute to Frank Cousins and the decision he then took, because it is widely recognised, and generously recognised, in the industry that without that decision by Frank Cousins the British computer industry might well not have been able to get the start necessary to bring us to the point we have reached today.
In addition to this, my Department has also made a substantial contribution towards ways and means of stimulating an increased use of computers. The reason is twofold. First, it is essential to have a wider use of computers if we are to modernise British industry. By that, I do not just mean the replacement of clerical slave labour but the use of computers in management. Second, we recognise that by this means British industry will be made more competitive in world markets.
If one looks at the range of services we have developed we find that it is quite formidable. There is the National Com- 1498 puting Centre and the advanced computer techniques programmes, with the contacts that go with them. There has been the support of the Flowers recommendations for the acquisition of computers for universities, which is of great importance. There is the Aldermaston project for the application of computers to engineering techniques which has considerable relevance to engineering. If we extend the use of computers into the machine tools industry, there has been the numerically controlled advisory and administration services, and there is the National Data Processing Service as well, with which I was associated when I had my previous job as Postmaster-General.
All these programmes have been developed with a view to stimulating the use of computers and of encouraging the industry itself. Now, partly as a result of this and partly because of the increased rate of growth, the sales of British computers have very rapidly increased in the past three years, but the need still remains to bring about a measure of rationalisation so as to avoid duplication of research and development effort, in the sales and service organisations as well as for the purpose of stimulating the efficient use of computers.
The merger last autumn of Elliott Automation with English Electric, which the I.R.C. supported, was a very valuable step in this direction, but we always regarded the main approach here—and when I say " we " I think of industrial interests as well as the Government, because there has been a general consensus of view on this for some time— as being a further merger. The idea that l.C.T. and English Electric should merge their computer interests came up at an early date, but looking back over the last two years during which I have been responsible in an overall sense for this work, one can recall very formidable commercial and financial difficulties.
But, making this much worse, was the fact that the two companies were operating systems which were markedly different the one from the other. The difficulty about trying to approach this as a financial or management merger was that one could not by that alone have solved this basic technical difficulty. We were determined that in bringing about this agreeable objective we should not leave the customers of one or other group 1499 unsupported in the future, but that the new company would have to continue to manufacture and service both ranges of equipment and, at the same time, provide compatibility for the future.
This deadlock was broken last year, when it was agreed that a group of technical experts—the wise men—from the two companies should consider the technical issues and see what could be the basis for their merging. It was concluded, really quite rapidly and very satisfying for all of us, that it would be possible to design the next generation of computers in such a way that not only would it be highly competitive, as it will be, both technically and commercially, but would be capable of accepting the transfer of work of both the present English Electric System 4 and the I.C.T. 1900 ranges without difficulty.
This was the stage which we had reached by about this time last year. At that time, we had a new element in the situation of great importance, and that was the decision of the Plessey Company, a major manufacturer of telecommunications equipment, to seek to participate in this operation upon which we were engaged. The motivation of Plessey is not hard for anyone who follows these things to understand. It recognised, as I think everyone does, that computer and telecommunication developments were going in parallel and that in order to get the maximum advantage of both one needed to have some link between them. This also allowed Plessey to make some financial contribution to the capital necessary, and a significant technical contribution to the study of this convergence between the two technologies of telecommunications and data processing. It was really as a result of the discussions with Plessey, and based upon the earlier talks we had held with the two main companies, that we were able to arrive earlier this year at the scheme which I announced in the House on 21st March.
I should like, not in a formal way but in a very direct and personal way, to pay tribute to the three leading figures concerned—Colonel Maxwell, Lord Nelson and Field Marshall Lord Harding, who throughout long months of difficult nego- 1500 tiations made it as easy as it was possible to make it for us to find a solution of these problems. It is not customary, I am advised, to pay tribute or to refer to one's own officials, but I must say that in this work we had the most enjoyable relationships and the warmest possible co-operation with both sides. This enabled me to come forward with the merger project as I announced it in the House in March.
The House will know the details of the merger, and they are described very fully in the documents. The merger is to take place through a holding company —International Computers (Holdings) Limited—which now exists, and which will, when the scheme comes to fruition, have an issued shared capital of £33 million. This holding company will acquire all the shares in I.C.T. —which will change its name to International Computers Limited—I.C.L.—and all the shares in English Electric, in exchange for fully paid ordinary shares in International Computers (Holdings) Limited. The Plessey Company will subscribe for 6 million shares in International Computers (Holding) at 60s. and—and this is where we come in—I propose, with the assent of the House today, to subscribe for 3½ million at par. In addition to that, the Government, the Minister of Technology, will also be providing up to £13,500,000 by way of grants and general support for the research and development expenditure of the new company over a period of four years up to 1971, subject to certain conditions, which are described.
In addition to this arrangement, which is the basic plan, a joint Plessey-I.C.L. development company will study and develop the convergence between computers and telecommunications. This is the basis of the complex arrangements which are being brought to the House today. I should add that, in addition to the authorisation which I am seeking today through the Order, there will be provision for the first instalment of share purchase and the first payment towards research and development grants, which will be done by means of a supplementary estimate shortly to come before the House. So there will be this double opportunity to consider the matter in the House of Commons.
1501 As I. said when we debated the Industrial Expansion Bill in Standing Committee, it was my intention and determination that the House should hvae the fullest possible information about the Government's participation in any draft scheme brought forward under that Bill. I hope that hon. Members will agree that in this instance the promise has been amply and over-fulfilled. The Instrument is in common form, but it includes the text of the agreement which I have made with the companies. The House will have noted that the agreement is subject to the approval of the draft Instrument, so that by this process I have not pre-empted the authority of the House of Commons. In addition, I have published a White Paper, Cmnd. 3660 which provides substantially more information about the project and the background to it. Finally, as hon. Members know, I have made available in the Vote Office and in the Library copies of other relevant documents.
In view of the bundle of information available to the House, I think that hon. Members will agree that the House of Commons has never in the whole of its history been given so much information to enable it to reach a judgment before a decision was made by the Government. Compared with the amounts of money spent in other areas of technology, launching aid for aircraft and so on, the House has never had anything like as much information. I hope that in view of that hon. Members will recognise that what I said about the Industrial Expansion Bill being a genuine attempt to bring Parliament into the business of Government relations with industry was not mere talk in this case, and, as a Parliamentarian, I am very pleased about that.
There are certain things which I have not been able to tell the House, and I want to say why. I cannot present full information of the projected turnover, research and development expenditure and the profits of the new company, as this is commercially secret information and, as it would be of value to competitors of I.C.L., it would be wrong to disclose it. Nevertheless, I have seen these figures myself and I have engaged commercial advisers, Cooper Brothers, who have examined them in great detail, and I am satisfied that they are realistic.
1502 The new company's prospects in general terms are roughly these. It must be able to establish in the long run a position of financial strength and profitability to enable it to carry conviction with potential customers, to support an adequate research and development effort, and to raise money for itself, both out of retained profits and on the market. The new company will go through a period of very heavy expenditure, arising mainly from the need to increase its research and development expenditure for the next generation of computers. This increase cannot be met out of current income if the company is to remain commercially viable, and that is why it has been necessary to increase public support for research and development above that previously made available.
Of course, as compared with the Americans, we are doing it in a much more cost-effective way. It is not a byproduct of other expenditure on projects which might not justify themselves. We are going directly to the heart of this matter, which is money for computers and making it available in the way which I propose.
This is very much in line with the Government's general policy to give assistance which is required to maintain and develop significant technological advance in British industry. The Government have to look at various ways of providing support according to circumstances. In some individual cases—and this applies to aircraft projects—it has been done by a levy on sales, and it is appropriate to have a levy on sales of other equipment which has received some form of Government help.
But the finance for research and development for the new computer company which we are making available is concerned with the entire product range of the company, and it therefore seems appropriate in this case to seek to get a consideration in return dependent on the progress of the company as a whole. We are now talking specifics and not ideological and theoretical considerations, and that seems to be a strong case for the Government holding.
What we are doing is to acquire a 10.5 per cent, shareholding at par, paid as to 2s. a share now, with the remaining 18s. in 1972. The current market value 1503 of these shares already substantially exceeds the amount to be subscribed for them and, if the company is successful, and we think that it will be, the value of these shares will rise still further, with very considerable benefit to us as shareholders after 1972. In case anyone raises this issue, I should add that the Government's participation in the company has been genuinely welcomed by the other three parties concerned. I am not exaggerating in any sense when I say that they regarded it as essential to the success of what we are trying to achieve.
It is not my intention that the Government shareholding should be used as such to intervene in the day-to-day management of the new company. In common with other major shareholders, I have the right to nominate a director to the board, and this is understood. But the relationship between the Government and the company, which is the subject of the agreement, the text of which is in the Schedule to the draft Instrument, ought to provide for our interests being fairly clearly laid down. We are particularly concerned with the research and the development policy of the company. The payment in full of the Government grants will be dependent on a minimum increase in the company's research and development expenditure. I shall receive regular reports on this R. and D. programme, which will be the subject of discussion between the company and officials of my Ministry.
The reason for this, of course, is that we are a major computer user and, as a user if for no other reason, we want to have an opportunity to influence, as far as we can consistent with commercial considerations, the direction of the R. and D. programme. It will also help to secure co-ordination with the many computer R. and D. activities taking place in Government research establishments and those taking place elsewhere in that industry. We regard our own research and development effort inside our own establishments as being a part of our general support policy for the industry as a whole. It is the intention that the company's development programme should include not only the development of a new range of computers for the 1970s, but also, as I have described, that it should be fully compatible with the exist- 1504 ing system and also the development of a large computer system to meet the needs of Government Departments, universities and other expected customers at home and overseas.
The result of all these arrangements will be that International Computers (Holdings) will be the largest company outside the United States specialising in commercial and scientific computers. Unlike other countries which are now trying to develop their own indigenous industries, we in Britain have a substantial computer capability, and this is thanks to the enterprise and farsightedness of the men in the industry, and I should like to thank them, too, for their help in what we have been able to do.
The reason for these measures is that we want this desirable state of affairs to continue on an expanding and competitive basis. I am sure that it will bring many advantages to this country. This key industry, with its advanced technology, can make a major contribution to the efficiency of our economy and to the development of related technologies.
It will also make a notable contribution to our balance of payments prom-lem, both by reducing our reliance on imported equipment and by exporting equipment. To give an example it is expected that I.C.L. this year will sell £26 million worth of computers overseas. This represents about one quarter of the total operations, of the company, or about one third of I.C.T.'s turnover alone. This is a sizeable sum, considering the country's current balance of payment difficulties. The company has a very praiseworthy export record, and there is no reason why we should not develop exports further and compete successfully in world markets. One of the reasons why the technological agreements with Eastern Europe and the Soviet Union are so important is that we have hopes in this direction as well.
The I.C.L. although it is a big merger, does not have a monopoly in the United Kingdom. It is worth saying this, because some people have spoken about it as a new giant. It will face very strong competition from American-owned firms manufacturing in this country, and from firms marketing imported equipment. I assure the House that there is no intention of pursuing a policy of cybernetic 1505 autarchy. We do not want to cut Britain off from the many benefits we obtain, from access to foreign technology.
We do not intend to pursue a narrow notionalistic policy, and the company has made it clear that it is willing and anxious to collaborate in joint projects with firms in other countries for the mutual benefit of both parties, and this may have some effect on the development of European policy. It also relates to what I said earlier about wider international groupings.
§ Mr. Eric Lubbock (Orpington)
I do not sympathise with this attitude, but it has been represented to me that the merger in this country will make it more difficult for us to co-operate with European firms. Would the right hon. Gentleman like to say a word or two about that?
§ Mr. Benn
I would be glad to, because when we were considering our computer policy, we had to ask ourselves whether it would be right to go for the international linkage, based on two British companies or to go for the British companies as the first stage in our thinking about international groupings. We concluded that to leave two British companies pursuing different technologies, separate from one another, and by themselves very small firms by American standards, would have been a great mistake. The question the hon. Gentleman asked was one of the first that we asked before we began our consideration of this matter. When one is faced with the sort of scale of operation of some of the major world competitors I do not think that he needs to be too anxious on that score.
It seems that the proposals before the House represent a new and useful approach to collaboration between government and industry. We are dealing with an industry in the advanced technological sphere, beset by unique problems of a commercial and technical nature, in a situation where no other country in the world has succeeded in establishing and maintaining a computer industry without substantial Government support, direct or indirect.
This is why we brought forward this scheme which is, in the opinion of the industry and the Ministry of Technology, most likely to meet the industry's essen- 1506 tial requirements, without excessive Government expenditure or Government control by interference. This is a public enterprise. It is not a nationalisation; it is not our intention to take over control. We are not subsidising unprofitable operations, which is always one of the great fears of Government intervening in industry. We had a lot of it in our discussions about lame ducks and white elephants.
What we are doing, if I can take a phrase from Lord Butler, is investing in success. We are identifying success and trying to help it along. The Government's contribution is directly limited, and is based upon, a realistic assessment of the commercial situation. We believe that by means of this measure, I.C.L. will expand, be profitable and consequently, the Government's stake in the company, will reflect the profitability which we hope to bring about.
This has been carried out with the full co-operation of the firms, which have encouraged Government participation. By this means we shall be achieving the objective set ourselves nearly three and a half years ago. It has taken a long time to bring this to fruition, but it will mean that the British computer industry has a secure base. I would like to try to draw from this story some lessons about the work of the Department in this area. I have been there just two years, the Department has existed nearly twice as long. The more one thinks about the problem the less one is concerned with research, or the management of the assets that came to the Ministry at the time of the merger, and the more one finds that the new focus of our effort is really this business of making a contribution, through the advance and modernisation of British industry, to the solution of our balance of payments problem.
The Ministry of Technology really exists to help to make money for Britain and everything else we do, whether in industrial policy or R. & D. in our own establishments, has to be harnessed to this purpose. It is now, in a sense, a major economic Department, directing its efforts to the central problem of the balance of payments situation. We are trying to do this in an entrepreneurial spirit and since the House, through this 1507 new procedure, is able to join in this operation, I hope that a Parliamentary entrepreneurial spirit will lead it to pass this Order.
§ 12.56 p.m.
§ Mr. David Price (Eastleigh)
First, for the record I must declare two personal interests. I am a very small shareholder in two of the companies involved in this merger. 1 emphasise " very small".
§ Mr. Price
Secondly, and by contrast, I have a constituency interest in the fortunes of I.B.M. as the majority of the staff at the I.B.M. United Kingdom laboratory are constituents of mine. The conflict between these two interests ensures that my approach to this Order is entirely objective. I should also like to thank the Minister for making available to the House the details of the financial arrangements involved in the formation of this new British computer company.
The Minister will recognise that we do not have all the necessary commercial, technical and managerial information upon which to make a mature judgment as to the merits and prospects of this project. I appreciate that much of the information which we should like to have inevitably falls into the area of commercial confidence. For instance, sales forecasts of the new company, its profit forecasts, the annual target for return on capital, the R. and D. programme, indeed the whole forward strategy, must fall into this category.
I would not press the Government to give us more information than is commercially prudent, to make public the sort of information which would prejudice the chances of commercial success of I.C.L. On the other hand, it puts the House in a somewhat difficult position, as we are being asked to approve arrangements without the full technical and commercial information, which as businessmen we would normally expect before making a judgment as to the viability of the scheme. We have to take this on the trust of the Government and the three participating companies. Hon. Members can take their choice as to which trust they most prefer.
§ Mr. R. F. H. Dobson (Bristol, North-East)
Will the hon. Gentleman agree that there is another alternative, that we can take the judgment of all four parties?
§ Mr. Price
Yes, I would accept that. The external information suggests that there is a respectable general case in favour of the amalgamation of the two major commercial and scientific computer businesses in Britain. This is certainly not a wild proposition. On the contrary, in my view a sound general case can be, and has been made out in broad support of such an amalgamation. It is a difficult step for me to move from a general appreciation and support of the case to enthusiastic support for the precise project embodied in this scheme. No doubt if I had the full information which is available to the right hon. Gentleman, I might be as enthusiastic as he is, but as I have not he will forgive me if 1 do not join completely with him in his enthusiasm for this project.
I intend to ask a number of detailed questions, but these are minor matters compared with the broad concept of this merger. I assure the right hon. Gentleman that I am as enthusiastic as he is as to the potential for Britain of a strong indigenous computer industry, provided always that it makes economic sense. I am sure the Government will agree that the first priority in the matter of computers is for Britain to use them properly and enthusiastically to raise the general level of productivity.
The second priority is for a strong indigenous computer manufacturing industry, but this is the second one and should never override the first. I agree that it is right to buy British and to support British in this field but the critical question is, at what price? We should all agree that when other factors are equal we naturally should buy British. Most of us would go a great deal further and 1509 accept a degree of cost disadvantage in buying British, but the question is, how much of a disadvantage? I am doubtful whether such a question is amenable to a fixed and predetermined answer. I am inclined to think that each case has to be considered in the particular and that a general view is dangerous.
§ Mr. Eric Lubbock (Orpington)
If we manage to sell as much as £26 million worth of computers in overseas markets in the current year there cannot be any disadvantage in purchasing British computers which are attractive to third parties. I think this is obvious.
§ Mr. Price
I shall develop this thought further. It has arisen particularly over large machines. We need not go back over the: history. I am not anxious to prejudice the reputation of the British computer industry, but the Minister knows that there has been cases of this in the past. It would be a mistake for the fight hon. Gentleman to introduce the equivalent of the Buy American Act and put forward a precise formula as to the conditions under which a British machine will be bought as against a foreign machine.
It is right for the Government to support the indigenous British computer manufacturer through its use of public purchasing, but it would be wrong to insist that the whole public sector should buy British irrespective of price and performance. This dilemma could be increased by the merger which we are discussing. I do not know whether the Minister saw Mr. Rex Malik's article in this month's Data Systems. I am in no position to evaluate Mr. Malik's evidence, but I have previously come across this sort of criticism, although perhaps not so forcibly expressed as in Mr. Malik's article. I invite the Parliamentary Secretary when he replies to the debate to answer this criticism because it should be answered.
Mr. Malik said:
From this summer we have only one major, officially approved British computer 1510 manufacturer, one in which the Government have a £17 million stake. In this situation I should have thought that placing the burden of making objective technical recommendations and then having to recommend Buy British is likely, to put it at its mildest, to place civil servants in an invidious position?I should be grateful if the Parliamentary Secretary would reply to that criticism.
There is the further problem of how the Government define a British-built computer. Is it determined on the nationality of the ultimate ownership of the company concerned? Is it upon the company's contribution to exports and the balance of payments or is it, upon the British content of the final computer assembly? Or is it upon the national origin of the design of the system? These are not easy questions to answer, but the House would like to have the benefit of some comment upon them from the Parliamentary Secretary.
This leads me to the key question, which is central to the relevancy of the Order. Should Britain attempt to maintain an indigenous computer industry and, if so, how far should taxpayers' money be used to ensure its survival? What are the cost benefits to the nation which justify such public support? I realise that these are not popular questions to put to British computer enthusiasts, but nevertheless they have to be asked and answered. The- argument in favour of an indigenous industry runs as follows. Computer manufacture is one of those high added value industries of which Lord Plowden and his colleagues spoke in the context of aircraft manufacture, and upon which the future health of our economy must increasingly depend, but it also raises many of the same problems as those encountered in the aircraft industry.
It is true that computer sales are not nearly so dependent on the military market as are aircraft sales. Nor is computer development in the United States of America so closely linked to military needs as aircraft. Nevertheless we can see in the British computer industry some of the perplexing features of the British aircraft industry. The dilemma posed by the Plowden Committee in relation to aircraft can be translated directly into the context of computers. In coming to a decision on the Order, the House must face this dilemma.
1511 The Plowden Committee's Report said, in paragraph 206:The aircraft industry embodies a basic dilemma.I would say the computer industry also—In terms of production it is exactly the sort of industry on which Britain should concentrate. It has a high proportion of value-added, or a high conversion ratio; that is to say its products contain relatively little imported material and most of the value of the finished article derives from work carried out in British factories. It tends to use large numbers of work people in relation to capital employed, but much of the labour is highly trained and skilled … On the other hand, aircraft overheads, ….In this context I read "computer overheads"—in the form of development and initial production costs, are high and rising in relation to variable production costs. Hence unit costs are crucially dependent on the size of the market. The relatively large American domestic markets, both military and civil, put Britain at a serious disadvantage in relation to the United States.That analysis applies equally to our computer industry. I trust that the House has spotted the significance of the penultimate sentence:Hence unit costs are crucially dependent on the size of the market.I therefore ask whether Britain is a large enough market to support a viable computer company which attempts to market as wide a range of computers as I.C.L. will be offering. Statisticians tell us that by the end of last year 1,400 computers have been installed in Britain, 2,000 may have been installed by the end of this year and 2,800 by the end of next year. By contrast they tell us that 50,000 computers are installed within the Western world, of which 35,000 are in the United States of America. Within the home market I understand I.C.L. has something of the order of half—it may be more—of the current orders. This is a growth market, but even a growth market in Britain with as high a rate as 20 per cent,—the Economist forecast—does not provide a sufficiently large market to sustain a viable computer company of I.C.L's range.
I believe that the minimum scale of market is Europe and I am sustained in that view by the practices of the market leader, I.B.M., who do not manufacture and market in Britain alone or 1512 in Germany alone or in France alone. They manufacture and market on a European basis. I am also sustained in my opinion by the views of the right hon. Gentleman. In his statement to the House on 23rd April, the right hon. Gentleman said:European scale industries are essential if we are to generate the vast sums required for research, development and marketing to allow Europe to compete industrially on more or less equal terms with the advanced technological industries of the United States. This need is urgent and critical to the very existence of certain industries with a great growth potential, such as computers, electronics, airframes and nuclear energy ".—[OFFICIAL REPORT, 23rd April 1968; Vol. 763, c. 42.]I agree entirely with that view.
But the logic of it is that the two leading British computer firms should have been encouraged to find European partners. Possibly they tried and failed. I am not in a position to judge whether the right hon. Gentleman was right in what I gather is his view that it was better for English Electric and I.C.T. to come together first before seeking European partners. But I hope that the new I.C.L. will press ahead to seek a European partner—and I say "partner" rather than ad hoc arrangements. I believe that to get the industry to the minimum critical mass which will be necessary to take on the market leaders of the world and to sustain that effort, we need to have these European connections. I hope that the arrangements proposed in the Order are not the end of the story.
Having said that, I turn to the details of the proposal before us. It may well be that the formation of I.C.L. was the best that could be achieved. Certainly in terms of viability it begins to make sense. No doubt there will be problems in the immediate future for I.C.L. in attempting to sustain on the market the 1900 series, system 4, and the Elliott 4100 range within a unified company effort. The true test of the validity of the merger will lie in their commercial performance in the 1970s, and I shall later say a word about that. In the meantime, the company and their staff would do well to follow the advice of John Henry Newman,a thousand difficulties do not make a doubtI hope that the Parliamentary Secretary will tell us why it has proved necessary to have four classes of ordinary 1513 shares. I have read the supporting documents but I do not quite follow the rationale behind the decision. There are to be ordinary shares, A ordinary, B ordinary and C ordinary. In view of the very high reputation of the financial advisers to the companies concerned, there is no doubt very good reason for that. But to the outsider who is not quite so learned in the ways of the City as are some hon. Members, it is a little perplexing. Will the Parliamentary Secretary also tell us why English Electric told their shareholders that the transfer of English Electric computer assets to the new company dates from 31st December, 1967, when the Minister did not make his statement until 21st March, 1968 and the relevant Order comes into operation on 8th July? Is not that jumping the gun or was there some good reason for it?
Next, there is the question of the N.R.D.C.'s interest in I.C.T. In his statement of 21st March, the Minister told the House:There will be a revision of the existing arrangements between the N.R.D.C. and I.C.T. which will bring forward the repayment of the money advanced by the N.R.D.C."—[OFFICIAL REPORT, 21st March 1968; Vol. 760, c. 609–10.]The Order tells us nothing about the arrangements, but, clearly, they are relevant both to the capital structure and, even more particularly, to the cash flow of I.C.L. I hope that the Parliamentary Secretary will say something about that.
There are two points embodied in the arrangements for the formation of I.C.L. which I should like to commend, in particular, to the House. The first is the decision of the Board of Trade not to refer the proposed merger to the Monopolies Commission. I am sure that that is the right decision. It cannot be said too often that I.C.L. will not have a monopoly in the United Kingdom market. I believe that in this industry to talk about the United Kingdom as the relevant market is completely out of date. We are talking about the Western world being the relevant market.
§ Mr. Price
It is very difficult for the Monopolies Commission to take into 1514 account competition from behind the Iron Curtain, although we all pay tribute to I.C.T.'s and English Electric's success in Eastern Europe.
I also commend to the House the undertaking that neither English Electric nor Plessey will enjoy a preferential position in the supply of components to I.C.L. and that I.C.L. will be free to seek their supplies from the most competitive sources. That is right. As a shareholder in both companies, I hope that I can ask the Minister to take it from me that in this respect I support what is in the best interests of the economy as a whole.
I turn to Government participation in the venture, which takes two forms— grants up to £13½ million and equity participation up to £3½ million. What of Government grants? On the information available to me, I am in no position to assess the appropriateness of that figure to the future needs of I.C.L. I will return to that when I refer to future development.
Suffice it to say that I regard these grants as a proper form of public support in the special circumstances facing the British computer industry. In particular, I have in mind the scale of I.B.M.'s research and development effort. I know that we can become a little too obsessed with I.B.M., but they are the world market leaders and we have to judge ourselves against them in terms of scale. It does not mean that we must be on quite such a large scale but it is relevant to the threshold level at which research and development activities have a reasonable prospect of coming to commercial fulfilment.
I have received representations, and there were letters in the Press, to the effect that these grants are not as generous as they appear because ultimately the profits made as a result of their effective use will be subject to 42½ per cent, Corporation Tax. That is true, but I do not think that it is a valid criticism. I think that the whole of the £13½ million will be needed as launching aid for the development of the next generation of I.C.L. computers in the 1970s. It is a very important contribution to I.C.L.'s research and development costs. If the next generation of I.C.L. computers are a resounding success, as we all hope they will be, it seems 1515 to me fair enough that the taxpayer should recover 42½ per cent, of his grant. If they are not a success, it will be a question of "loser takes all". In my view, therefore, these criticisms have no validity, but I felt that I ought to mention them because there has been a certain amount of correspondence about them and I understand that these views have also been raised at one or two company annual general meetings.
Next, I must say a little about the Government participation in the company's equity. I cannot put my doubts better or more succinctly than they were put in a leading article in The Times on 22nd March, which read as follows:What purpose, then can a shareholding serve? A large shareholding confers control, and the duty to manage. The 10 per cent, in I.C.L. cannot do this nor is the Government in a position to provide management expertise if it wanted to. It has difficulty enough in ensuring that its own nationalised industries have a high standard of management. A less-than-controlling shareholding has strategic value: it can block hostile takeovers or simply demonstrate confidence. Neither of these is relevant.We are left with the profit-making value of the share. The Government maintains, and there is no reason to doubt it, that this will be a profitable investment. But the profits cannot be other than peanuts. They cannot seriously provide a reason for taking a stake in the company.What is left is the political value of the holding, a demonstration to potential critics that the Government has no intention of allowing private industry to gain all the benefits from its efforts. (Instead, it will gain 90 per cent, of the profits.) On the same argument, the Ministry of Defence should have its stake in every major engineering company in the country; the Ministry of Public Building and Works in the construction, and so on ad absurdum. It cannot be worth the trouble—nor can it be worth tying up the cash.That seems to put all the main arguments against the Government equity stake.
Even if it is right for the Government to take a modest equity holding in I.C.L. why do they get their £1 at par, whereas Plesseys have to pay £3 a share? I dare say there is a good reason for this, but it is not apparent to a simple soul like myself or to the correspondents of some newspapers. No doubt the Parliamentary Secretary will be able to give us an explanation.
There is one question about the character of the merger. I should like some reassurance—although I may have had it 1516 from the right hon. Gentleman—that this has not been a shotgun marriage. I gather that it has been, at the least, a willing and decent marriage of convenience, but I hope that the Parliamentary Secretary will confirm that.
Looking to the future, an important consideration which was in the minds of the three companies and the Minister when I.C.L. was formed was the development of the next generation British computer system. This is clearly identified in the White Paper which preceded the Order which says:it is intended to develop for the 1970s a new range of computer systems to be competitive, both technically and commercially, on an international basis.I commend with approval the last words —"on an international basis". This is clearly the right target, but it will not be easy. Apart from the managerial problems of welding the I.C.T. research and development team with the Electric R. & D. team there is the problem of harmonising for the future the different technical experience of the two systems.
This it not an impossible task, but to the extent that the next generation is based on the experience of the current generation and an extrapolation of that expericence, I can see problems facing for I.C.L.'s management. In view of the enormous strides that have been made in the technological improvement of computers in the last ten years it is probable that the major effort will lie in the development of input-output equipment and the development of all the peripherals rather than in major developments in the central processor.
Furthermore, the data links are likely to prove of increasing importance. That is why we welcome so heartily the participation of Plessey's. Nevertheless, from the commercial point of view the development of software will be every bit as important as improvements in the technical performance of the hardware. This is where I.C.T. has been especially conscientious in its handling of the 1900 series. I cannot speak of System 4 because I have no experience of it. My experience has been entirely with the 1900.
It is essential to keep the development of software in phase with the improvements in the technical performance of the hardware. That raises the question 1517 of the £13½ million grant which is proposed. Am I to assume that this will be directed mainly to the improvement of the new system for the 1970s? Are the Government satisfied that this will be sufficient to see I.C.L. through into the next generation? Also, how does this sort of sum compare with the generality of Federal support in the United States to American computer companies?
I have seen no figures from America that stand up to examination and I wonder whether the Government have any. It would be of assistance to the House in considering this Order. Furthermore, do the Government regard this grant of £13½ million as the limit of their proper support for the next generation of British designed computers? Would they be prepared to give grants of a similar kind, though a lower order, to Computer Technology Ltd., whose small modular computer is not without its attractions.
Furthermore, is the £13½ million grant to be used exclusively for the next generation of commercial computers, or is to be shared in respect of the development of the large machines referred to in the White Paper, which says:It is also intended to go ahead with the development of a large computer system of such reasonable specification and cost as may be appropriate to meet the orders that Her Majesty's Government intends to place for such a system and other expected demands at home and overseas.We should like to know a little more about this intention. Presumably, "a large computer system" refers to what are popularly called "super-computers" as the centre of large real-time systems, probably linked to a computer grid. There is undoubtedly a place for such systems in the future. I have seen varying estimates of the probable scale of this market but I have seen no official estimate.
Let me tempt the Government to make one by quoting the best figures that I have been able to obtain, which are, 50 such systems in Britain by the early to mid-1970s and 500 in the whole of Western Europe. Many of these will involve some sort of data communications link. Again, this is the value of Plessey's in this partnership. But it will also involve close co-operation with the Post Office, because of the Post Office's ex- 1518 perience and because it has a monopoly of land lines and micro-wave bands.
I should like to hear from the Government about their hopes and intentions in respect to super-computers. I am concerned about the effect which the work could have on the impetus within I.C.L. of developing its general system of computers for the early 1970s. This may be a quite unjustified fear, and I should like some reassurance from the Parliamentary Secretary about it because, on the record to date, the development of super computers is notoriously speculative. It requires vast quantities of development money, and the market could turn out not to be as large as enthusiasts imagine, or it may develop rather later in the time cycle.
Apart from the considerable technical problems in the hardware field, the software problems are formidable. I.C.L. has a major task in developing its new range of computers and it will need all the money that we are approving in this Order to fulfil that task successfully. In my view, this must be I.C.L.'s major task. It is an open question whether it will have sufficient finance under the Order to develop these super-computers as well, without coming back for more money.
I should feel happier about the intention in respect of super-computers if a separate subsidiary company were formed for the development of the large systems, because such a separate subsidiary within the I.C.L. complex would have separate accounts; it would not have to be carried by the current activities of I.C.L., and it could receive Government grants and loans directly. Another advantage would be that the House could distinguish between public funds going towards the development of the new generation of conventional-sized computers and public money going to the development of super-computer systems.
I see a considerable future for smaller grid systems on a real-time basis, which will not involve very large installations, and they should be within the purview of the next generation of what is now treated as conventional-sized computers.
Will the Minister explain in more detail what the Government have in mind in referring to:a large computer system of such reasonable specification and cost as may be appropriate 1519 to meet the orders that Her Majesty's Government intend to place"?What orders do they intend to place? We have not been told.
I am conscious that I have made a rather long intervention in the debate but I hope that it has been a not entirely irrelevant one. I have asked many questions about the background of the Order and the arrangements embodied in it. Some have not been my questions but questions I felt should be asked, because they have been asked in the Press, and in industry, so it would be useful for the record if the Parliamentary Secretary could answer them. I.C.L. is now the only large British computer manufacturer—let us not forget Computer Technology Ltd. in the smaller field— so I wish them every success. Their prosperity in the long run will depend upon their ability to fulfil Emerson's simple injunction:Let a man build a better mouse-trap than his neighbour and the world will beat a path to his door.I look forward to the world beating a path to I.C.L.'s door.
§ 1.30 p.m.
§ Mr. Norman Atkinson (Tottenham)
I am very grateful to the hon. Member for Eastleigh (Mr. David Price) for declaring an interest in the traditional way; I notice that he did so as a shareholder, which made even more fascinating some of his later comments. The important thing is that he was speaking on behalf of the Conservative Party, and that is the part of his speech in which I am more interested, although the other facets of the hon. Gentleman's remarks are fascinating.
I, too, have an interest, which I willingly declare, that some of my fellow-workers are employed with the three firms concerned, and I also declare an interest as a Socialist. It is necessary on this occasion to make some comments from a Socialist point of view, and I will do so very briefly.
Returning to the remarks made by the hon. Gentleman, are we to take it that he was speaking officially on behalf of the Conservative Party, and that they, as a political movement in the country, are saying that they have no enthusiasm for the step that has been taken, nor 1520 have they any enthusiasm for opposing it? Are we to say that the Conservative Party is neutral in terms of Government intervention? Can we take that from the comments of the hon. Gentleman, if in fact his speech is an official statement of the policy of the party opposite? It will be interesting to listen to the views of the hon. Member for Orpington (Mr. Lubbock) on the Liberal Party's attitude towards Government participation.
The attitude of Socialists ought to be put on record. Political philosophy has been changing rapidly for some years. From what we have just heard, it is obvious that it is also changing among hon. Members opposite, and that is all to the good. The ideas of the Labour Party on theory and practice are also undergoing a change, and for the majority of the post-war years, many members of the Labour movement, particularly that section which is often described as its Socialist element, have consistently opposed the idea of Government investment in private structure. The interesting thing about the Labour movement and the trade unions is that this idea is now changing rapidly. The majority of Socialist thinkers in the Labour movement overwhelmingly welcome the move that has been announced this morning. We see it is a constructive and progressive way for us to take an increasing part in industry, to extend the influence of the public in the management and direction of British industry and to use public funds for making sure that new technological development brings the maximum benefit for our people. Although this is 10 per cent, democracy, we say that 10 per cent, democracy is better than no democracy at all in the sense of its technological influence. On behalf of the few Socialists whom I know, and many thousands more, I welcome this Measure as a tremendous step forward in the development of Labour Party ideas. We look forward in the future to an extension of the practice of public money being involved directly in developing companies of this sort.
I join the hon. Gentleman in his one enthusiasm, that I.C.L. should look for a European partner. This is tied in with our attitudes on this side to a future concept of British industry linked closely 1521 with European development. We should, now that we have started in this way, go on to look for a partner in Europe, which is the obvious political development. I also like to think that we can go further still and get co-operation from Eastern European countries.
As far back as the 1920 Congress Mr. Krushchev spoke about active participation maybe in mixed economies elsewhere in the world. I think he was referring to the day, perhaps many years ahead, when co-operation will become possible and an Eastern European State and State-organised companies will be able to participate within a structure which contains those elements represented by the hon. Gentleman. I look forward to that day. Whilst our brilliant engineers, scientists, metallurgists and others who have contributed towards our progress have gone ahead, unfortunately our politicians and our commercial structure have dragged their feet lamentably, with the result that our production people have been denied the opportunity of putting into practice the ideas that so often have been born in this country. If this is a way in which we can use commercial resources and public enterprise in order to release the creative ability of our people, then it is something that we should welcome wholeheartedly.
I am rather dismayed to hear that, even though we have a 10 per cent, share in this business, we are not to have any direct representation on the Board.
§ Mr. Benn
No, my hon. Friend is wrong. We are appointing a director on the Board and the name, I think, has been published, but it seemed right to me, in dealing with the company, that I should deal with the chairman of the company and not deal with the company through the Government director. There is a Government director who will have the same right as other shareholders.
§ Mr. Atkinson
I am very grateful for the Minister's assurance on that point. There has been some doubt, particularly when he was speaking about the Government's interest in R. & D.
That sums up the political attitude. I hope that developments of this kind will take place in other spheres of industry, development of a "biopolistic" nature— 1522 I hope that our HANSARD reporters can understand this word, which has been used many times and spelt in many different ways. The idea of biopoly is closely related to this matter. The Minister has already referred to the consumer equipment that will be manufactured by the company. If there is a monopoly consumer, the theory of biopoly which is emerging in the Labour movement, as a parallel to the concept of public enterprise and extension in the public sector, ought to be developed.
Socialists will welcome the move, we are interested in this development and sincerely hope there will be many more of the same kind.
§ 1.39 p.m.
§ Mr. Eric Lubbock (Orpington)
The attempt of the hon. Member for Tottenham (Mr. Atkinson) to make this a political debate was predictable, because we have heard him make before the kind of speech which he has just made. I personally regret it. There is nothing ideological about this scheme.
To answer straightway the question which he posed, may I say I have no objection to public participation in the new company. I should have thought that the hon. Gentleman would have said that the Minister had not gone nearly far enough and that he would like to see the whole of the computer industry nationalised. That, I understand, in the traditional view of a thorough-going Socialist: he wants complete public ownership of all the means of production, distribution and exchange. For the hon. Gentleman to say that he is satisfied with 10.5 per cent, betokens a very healthy alteration in the historic attitude of Socialists.
§ Mr. Atkinson
It is important that we should get this matter right. I did not say that 10.5 per cent, was adequate or satisfactory; it is not by a long chalk. I said that 10 per cent, democracy was better than none.
§ Mr. Lubbock
The hon. Gentleman has given a general welcome to the scheme and says that he thinks it will be acceptable to Socialists. I am pointing out that the demands of Socialists seem to have been scaled down a little during the last few years. The hon. Gentleman sometimes speaks in rather extreme terms, and I am delighted to 1523 hear that he has come round to the idea of a mixed economy, which most of us think is a sensible approach to these problems. I have no objection to the Minister having a shareholding in the new company. There are very good arguments in favour of it. There is nothing doctrinal in the solution which the Minister has presented.
May I say how grateful we should be, and how grateful I am, to the Minister for making available this vast mass of documentation—articles of association, briefs, and all the literature which has been sent out by the companies to their shareholders. There was almost too much of it to get through in the short time that we had to prepare for the debate. The right hon. Gentleman has set an excellent precedent. I would encourage him to continue it and, whenever an important scheme of this kind comes before the House, to do as he has done and to present every possible piece of information, bearing in mind the limitations which he mentioned on commercial secrecy and not wishing to give the competitors of this enterprise or any other which might be organised on a similar basis information which might be damaging to our prospects.
I certainly wish, as the hon. Member for Eastleigh (Mr. David Price) said, that we had more information of a non-financial character. I am rather at sea when it comes to A, B and C ordinary shares, although I can understand the reason for the C shares, which are those held by the Government, and why different articles of association should apply to them. If one could be bothered to plough through this vast mass of documentation, one would see logical reasons for having different classes of shareholders. However, I do not wish to go into that matter, because it is not the crux of the debate.
I wish to say in passing—I do not feel very strongly about this point—that it would not have been a bad idea if the public had been able to subscribe directly to shares in the new company instead of merely through the partners in which they might have held some shares prior to the merger. Perhaps it would have caught the imagination of the investing public if they had been able to subscribe directly to the ordinary capital of the new com- 1524 pany. It may have been a very long-range investment, but we do not expect a pay-off in the immediate future. I believe that many people would have liked a small stake in this very exciting technology, not through Plessey or I.C.T., but directly in I.C. (Holdings) Limited. With my small amount of money to invest, I should have liked to be able to do that just as an earnest of my support for this developing technology, and not particularly because of any profits which I should hope to make, although, when we develop this new range of computers, very substantial rewards could result in the 1970s.
§ Mr. J. H. Osborn
Does the hon. Gentleman see any objection to I.C. Holdings putting out a further equity issue in future so that the public can subscribe? I see no reason why that should not happen. I do not know whether that is the hon. Gentleman's view.
§ Mr. Lubbock
I think that it might well happen. As the hon. Member for Eastleigh said, when it comes to the development of this very large computer, even more money than the resources of the company may be needed, with the participation of the three partners and the £13½ million subscribed by the Government. Therefore, if in a few years they require more money, I hope that the directors will consider my suggestion and that the Minister will give his personal encouragement to it as a means of enabling the ordinary shareholding public to take a direct interest in the new venture.
That is all that I want to say about the financial arrangements. I do not think that that is the really important point. What we should be considering is the future of the computer industry from many of the points of view with which the hon. Member for Eastleigh dealt. For example, do we wish to sustain artificially a British computer industry, whatever it may mean, compared with our United States competitors, because they are the only important ones? It must be underlined again that this is not by any means a monopoly. Not only I.B.M. but Honeywell is very active in the United Kingdom.
§ Mr. Lubbock
Yes. A number of the United States computer giants are doing extremely well in the United Kingdom. There is no question under this scheme of enabling the sole British computer company to run away with all the orders.
Sometimes I have wondered whether the Government should adopt a slightly more favourable policy towards British computers. I do not say that they should introduce American or similar legislation which requires foreign suppliers to beat the British price by a certain percentage, but by their purchasing power, through the nationalised industries particularly, they should place large orders for certain types of computer and try to persuade the users, such as the gas boards and electricity boards, to develop common programmes which will enable them to place bulk orders.
Some time ago, I think last summer, one of the colleagues of the hon. Member for Eastleigh tabled a Question about the number of computers and their types and the jobs which they were to be given in the nationalised industries in Government Departments. The variety was quite frightening, because it indicated that there had been no harmonisation of the requirements between the various nationalised industries in Government Departments. For example, in the gas boards, where the job must be fundamentally the same as it involves invoicing, stock control, and so on, which I should not have thought varied very greatly from one area of the country to another, about a dozen different types of computer had been introduced. No doubt this meant in every case separate expenditure on the "software" which could have been avoided if, by central machinery, the Government could have ensured that, in so far as these organisations were performing the same functions, bulk orders were placed for the same type of computer.
This is a means whereby the Government's purchasing power can be used very greatly to the benefit of our home industry. I am not saying that we should never seek quotations from American firms operating in this country in full and fair competition. However, by enabling orders to be placed in bulk, we might have assisted these companies to obtain a fair share of the market, which 1526 is essential if they are to sustain the growing research and development expenditure.
I agreed very much with what the hon. Member for Eastleigh said about the size of the market being of the greatest importance. He pointed out that unit costs were critically dependent on the size of the market, although I am not sure that I would agree with his comparison with the aircraft industry. In the one case in the Plowden Report from which the hon. Gentleman quoted, it was clear that we could not develop very large military projects on our own and that in future we should have to work through co-operation with our allies concerning the very large sums of money involved in developing new military projects. It is not clear to me that that should be so in the case of computers. This is still within the bounds of our resources, and, although European groupings are desirable, they are not a sine qua non for the maintenance of the British computer industry.
I am grateful to the Minister for what he said in reply to my intervention. I only wanted to get this on the record, because people have written to me saying that this merger might jeopardise the chances of a wider European grouping. I have said that I myself do not believe this but it is a strongly held opinion which needs to be refuted. European companies would much rather co-operate with a really strong British organisation which is capable of standing up to the American giants than they would with a fragmented industry in Britain. If there had not been this merger, the tendency would have been for more and more European companies to enter into arrangements with the United States. We have already seen what has happened in France, and the process would have been extended still further.
I agree with the hon. Member for Tottenham that we should not confine our thinking to Western Europe. The Eastern European markets for our computers are very important. English Electric and I.C.T. are to be heartily congratulated on the work they have already put in in those markets. If we continue as we have been, we could obtain such a hold in the Eastern European markets that it would be very difficult for the Americans to break in and 1527 compete with us, just as we find it very difficult to compete with them in the markets where they have been in sole possession for so long.
This might well entail some kind of joint arrangement between the new computer company and its opposite numbers in Eastern Europe. This will obviously present great difficulties, because of the differences in our company law, methods of taxation, and so on. However, it is not too early to begin considering such a thing in conjunction with the countries where such a substantial number of British computers have already been sold. I would certainly welcome any thinking that the Minister can do on this subject.
I welcome this merger. I very much hope that it will lead to a marvellous future for those working in the combined operations. If I was starting my career again in engineering, I think that I would go into the computer industry, because I think that the possibilities there are more immense and more exciting than they are in practically any other field of advancing technology. Therefore, I wish the workers and the participants in all three companies the very best of success in the future, expanding markets all over the world, and the best of luck in competing with their American rivals.
§ 1.52 p.m.
§ Mr. John H. Osborn (Sheffield, Hallam)
The Minister referred to increasing collaboration between Government and industry. I have spoken on this subject many times. In what has happened now, the marriage laws, as it were, have changed: we have new marriage laws. Perhaps this is the first practical example of marriage between Socialism and capitalism under the new laws which Parliament has created. I might call it a shotgun marriage, but I should be conflicting with my hon. Friend the Member for Eastleigh (Mr. David Price) if I did. I would qualify this remark by saying that the partners have been very willing. I hope that this will be a happy marriage.
The hon. Member for Tottenham (Mr. Atkinson) brought in a political issue— I think fairly and rightly so, but we have to determine which partner is to wear the trousers. Our history will reveal this. This is the first example of Government 1528 participation under the Industrial Expansion Act.
§ Mr. Osborn
That creates another problem. I am at a slight disadvantage in that I did not take part in the proceedings in Committee on the Industrial Expansion Bill. I have listened to this debate, particularly to the Minister's explanation, with interest. As I listened I felt, as I have said in previous debates, that I as a back bencher am fulfilling therôleof trustee for the taxpayer. I have even doubted of my competence to comment on this very complex Measure. But I would claim that my qualification for making comment are greater than these of many hon. Members.
The Minister presented his case very well in the form of what was almost a Second Reading speech. The country will be grateful to him for explaining to the House his case and the history of events which have led up to the White Paper and the Order. I wonder whether it will be right, if we have such orders in future, for a Minister to involve himself in so much detail, but the fact remains that the Minister has made the House and the country aware of the detail and the background information. For this we are grateful.
§ Mr. R. F. H. Dobson (Bristol, North-East)
Surely the hon. Gentleman is not suggesting that my right hon. Friend should not give the fullest possible details, as he has done in this case, to Members of the House?
§ Mr. Osborn
Perhaps the hon. Gentleman will allow me to continue my argument. If I do not elaborate on this, I hope that he will interrupt me again. My reactions have been mixed throughout. I opposed the Industrial Expansion Bill. The Minister knows that I would continue to oppose excessive, unwarranted interventionism by Government in this field.
The conditions are changing as a result of a series of decisions taken by the Government. I would be the first to admit that rationalisation is essential, not only in this field, but in many others. This is very important for those involved in the industry. This concept is embodied in the Order. It is a complex Statutory Instrument. I took the liberty 1529 of discussing this with one or two people in banking who are used to bringing industrial organisations together. By and large there has been no criticism, and some measure of support for this Order from all the conventional circles which I have approached. It is an important rationalisation exercise. An industry— certainly not the computer industry— cannot be allowed to be broken up into small components.
If the Order has been presented to us in an orthodox manner. My main reservation is concerned with the extent to which the Government should go on intervening. I have had the opportunity in the last few weeks of witnessing the extremes in the Soviet Union. If the Government are to have the opportunity of intervening by means of a number of agencies—the Industrial Reorganisation Corporation; the powers of the Minister under the Industrial Expansion Act, for example—Parliament must ask for a full explanation of that intervention. I do not say that I am criticising the Minister for coming here. I am not. I welcome the fact. There must be a continuing accountability for intervention of this type.
This amalgamation is complex by all standards. I sometimes wonder whether Parliament is the right institution for answering the accuracy of the judgments which have been taken. Should Parliament be brought into this? The Minister has consistently wanted to involve Parliament in a relationship between Government and industry. This is now involving Parliament in more and more work in which it is not competent to operate.
This is the major reservation that I have had, because a study of this type requires deliberations by many people, and in the past this sort of work has been devolved from Parliament and not placed on Parliament. I therefore regard this increasing involvement as likely to prove to be a retrograde step, because it involves Parliament in more and more complex issues on which it is hard to give a judgment.
I turn to some of the details. We have the White Paper. In 1972–74 £8 million worth of English Electric Loan Stock at 7 per cent, will be converted into ordinary shares at the rate of one ordinary share for £4 of loan stock.
1530 I just raise my eyebrows at that. Perhaps the Parliamentary Secretary will give a fuller explanation of the accounting.
The Ministry of Technology is to pay £3,500,000 for C shares, 2s. in the near future and 18s. in September, 1972. This seems a rather unusual arrangement and, no doubt, it is closely tied up with the grant. Perhaps the hon. Gentleman would elaborate on the reasoning behind it. My hon. Friend the Member for Eastleigh has already raised the point that Plessey will be paying 60s. for its £1 shares, 6 million of them. Again, this is anomaly on which one would like further explanation.
I welcome some of the assurances in the White Paper. In paragraph 5 we are told that,The Minister will not use his shareholding to intervene in any way in day-to-day management, and neither English Electric nor Plessey will enjoy a preferential position in the supply of components".That is a welcome assurance, and I know that it will be welcomed outside. We have already touched on the future development programme and the need for another generation of large computers. This also is dealt with on page 2, and I welcome the trend referred to there.
My own conclusion is that, if the parties to this agreement are satisfied with it, as they plainly are, it is difficult for Parliament or others outside the negotiations to comment adversely in an informed manner. In spite of the information which the Minister has made available, we have not taken part in the detailed negotiations, and as I know from my own experience in other fields that it is impossible for outside observers to offer a reasoned opinion on the matter.
My next question—this may not be the place to have an answer—is to ask to what extent the Government have become involved in the computer industry. The Minister outlined what had been done regarding the N.R.D.C., the £5 million loan of which £4 million has been taken up. I was astounded to read the comment of the Comptroller and Auditor-General on page 68 of the Report and Accounts of the N.R.D.C. for 1966–67. This may well not have escaped the Minister's notice. The 1531 Comptroller and Auditor-General, referring to this agreement, said that itappeared to me unusual in a number of respects: first, as representing much the largest and most important operation which the Corporation have so far undertaken; second, as providing financial support not for the development and exploitation of specific inventions but for a general programme of research and development falling within the normal course of business … third, as providing for a large proportion of the Corporation's financial support (£1 million out of £5 million) to be given in respect of work already carried out … ".He refers to the return of the Corporation in paragraph 12:… the Corporation will receive a specified share of the trading surpluses earned by the company and its subsidiaries.There is a new relationship here between the N.R.D.C. and I.C.L. I presume that this position has been assured. The Parliamentary Secretary may say that, if I look at one of the documents, I shall find it fully covered, but I raise the question now.
Next, what about therôleof the Industrial Reorganisation Corporation? In his full explanation, the Minister hardly referred to the Industrial Reorganisation Corporation at all, but I take it from certain Press comment that it was a major catalyst during the early stages of this venture.
§ Mr. Benn
There were discussions with the I.R.C. at different times, but, as I tried to explain in my speech, the more we thought about it the less it became a financial merger and the more it became a technical merger and one for which the I.R.C. was not in a position to provide research and development grants of the kind which became central to the scheme. Thus, although always ready and available, the I.R.C. was not involved in the final arrangements for the meger. However, I made a special reference to therôleof the I.R.C. in relation to English Electric and Elliott. That was an I.R.C. operation and we knew about it as it went through.
§ Mr. Osborn
I thank the Minister for that intervention. We shall have to see how he uses his powers under the Industrial Expansion Act in relation to the I.R.C.
The right hon. Gentleman mentioned the English Electric-Elliott Automation 1532 arrangement and the £15 million. This is referred to in the Annual Report of the I.R.C. It would be useful to have a fuller explanation of how English Electric has spread itself out into data processing and, shall we say, automation and navigation control instruments. This is a double split affecting English Electric, and it is an interesting development. Plainly, a wide range of computer activities remain outside International Computers (Holdings) Ltd.
Coming back to the fundamentals, how are we to judge whether the Government and those representing the industry have made the right decision? We have talked about internationalism in the computer market, and we have talked about European technology, but to put it at its extreme—I do not think that the Minister implied this—we do not want a national inward-looking computer industry. This would be fatal, and the Minister ought never to find himself in the position of defending it.
The computer industry is very much an industry which demands large-scale operation. I have had it said to me, and I think it is about right, that I.B.M. is spending on research and development alone roughly the turnover of I.C.L. So by international standards I.C.L. is still by no means a giant. Scale is essential.
I echo the hope already expressed that the present step will provide a base for international operations. The Minister himself spoke of £25 million exports by the new combination. Only large-scale international operation will justify the Government's shareholding at the end of the day.
There is, however, a new situation here in that the Government are providing through agencies more generous and better terms than the market. This financing would have been impossible without Government backing. It creates a precedent, and we shall have to take other opportunities to discuss it. Money on preferential terms is being made available not only through the Industrial Reorganisation Corporation but under the Minister's powers under the Industrial Expansion Act, and industrialists will be queuing up, as it were, for these special terms. I hope that there will not be a scramble, because that would create a complex situation for Parliament. However, there will be other occasions to 1533 pursue this question, as it will create an undesirable situation.
I share the Minister's view that the computer industry needs priority. It is essential that we encourage would-be users, and especially our own industries, to use computers. But technological development calls for risk-taking. The Minister must admit that he has on behalf of the taxpayer taken a risk here. Someone must take the risk, and he has done so. This step, therefore, is a new departure. Now that he has taken it, I welcome what the right hon. Gentleman has done and wish the project well.
But for some of the comments of the hon. Member for Tottenham, I should have ended my speech there. The hon. Gentleman elaborated on the merits and demerits of Government participation in activities of this kind. We have been committed to a mixed economy for some time, and the result of the present merger will be to make the economy still more mixed. The hon. Gentleman spoke of industry dragging its feet in computers and in other fields. What happens if, in five, 10 or even 15 years, the Minister finds that the new company is dragging its feet? How does the Minister visualise that he or his successors will be able to do something about it? Will he try to take out the State's money, in which case the industry will almost certainly sink? Will he sell it off?
I should like to contemplate this type of intervenion being but temporary—to put an old industry on its feet again, in other instances, or, in this example, giving a push to a new industry—and then withdrawing the funds and using them again. This has essentially been one of the many functions of a merchant bank over the years. I hope that this will not lead to growing participation in management. It is something that in the White Paper the Minister assured us would not happen.
But at this point of time to be specific I wish to project every success and thank the Minister for making such details available to the House and the country.
§ 2.11 p.m.
§ The Joint Parliamentary Secretary to the Ministry of Technology (Dr. Jeremy Bray)
Few new Acts, and few new first 1534 Orders under Acts, can have had a more general welcome in their application than the Order has had from both sides of the House, from people representing a very wide spectrum of political views and experience of industry.
I am very grateful for the recognition of my right hon. Friend's action in making information available to the House. He constantly stressed during the passage of the Industrial Expansion Act that this would be done, and we mean to carry on in the same way in future.
A number of detailed questions have been asked which I shall answer as fully as I can. I rather suspect that the House will take a continuing interest in this matter over the years and that many questions will be asked as experience is gained as we go along.
The hon. Member for Eastleigh (Mr. David Price) asked how Government policy on procurement will be affected by the merger. He pointed out that the merger will not constitute a monopoly. The policy of the Government towards the purchase of computers will continue as before. We shall try to purchase computers made in Britain, whether by British firms or the British subsidiaries of foreign firms.
The hon. Gentleman said that this is not a simple matter, and I could not agree more. He added that he thinks that a precise formula is not appropriate, and here too I agree with him. First, there is the problem of the criterion of merit in relation to proposals made to meet a particular application. There are the questions of price, which is very important, performance, delivery date, success in achieving prompt delivery, efficient performance on previous orders, the character of existing equipment installed, and so on.
On the definition of what is a British computer, there is the criterion of the ownership of the company, which is certainly relevant, and the questions of where the design was carried out and the proportion of components of the total system, of the value added of the actual hardware, which represents work in this country.
I read with interest Rex Malik's article to which the hon. Gentleman referred. Mr. Malik is, as he should be, 1535 a robust journalist. He made a number of observations in the article about the practice of computer companies and their customers as well as of the Government. I slightly dissent from his suggestion that there is any very obvious alternative method of proceeding to that which the Government have now adopted. Mr. Malik suggested opening the tenders in the presence of all who have submitted them, but I do not think that even he felt that this really dealt with the complexity of the problem. A very important part of handling the problem is for the Government to keep in close touch not only with the I.C.L. but other computer companies selling and operating in this country.
I do not agree that more ill-feeling is generated in public procurement of computers than procurement elsewhere. Computers form a very emotional subject, and many senior executives in many organisations get very worked up about them. The companies make very robust remarks about each other's behaviour, and the attitude of executives in particular customer companies. It is said by some companies that senior men in certain companies owe their position to other computer companies, and that this is a factor influencing the choice of computers.
There has been a great deal of friction in some major computer users in the private sector on the question of standardisation of the use of computers by that particular private organisation. The advantages of standardisation on the use of a particular make of computer in a particular organisation cannot be achieved without a certain amount of friction within the organisation. This is no doubt as true of the public sector as it is of the private sector. In certain private organisations there have been staff resignations on a large scale, which I do not think have occurred anywhere in the public sector.
We keep in close touch with the overseas computer companies operating in Britain. We have been giving encouragement to their expansion, particularly of new manufacturing establishments in this country, and we shall continue to do so.
I was asked why there were four classes of share in the merger. Different rights attach to the shares which 1536 will initially be assigned to the different shareholders, particularly in relation to the deferment of dividends in the initial period. The sensible way to deal with this is by different classes of shares.
The hon. Gentleman quoted The Times leader of 22nd March, which suggested that the profits which might accrue to the Government were peanuts and therefore of no conceivable relevance to whether or not the Government held shares. I find that argument quite extraordinary. The advice and agreement of the financial advisers is that the Government, recognising the character of their interest, are getting a fair return on the contribution they are making to the merger. If the profits are peanuts it should rather be a commendation that the Government are achieving so much with such a relatively slight commitment of resources, as some people may feel it to be. I do not think that the criticism that the size of the profits discredits the relevance of profits for taking a shareholding stands up to examination.
The hon. Gentleman asked why English Electric shareholders should be given 31st December, 1967, as the transfer date. That was the date of the valuation of the English Electric assets which was used for the purposes of negotiations.
Both the hon. Gentleman and the hon. Member for Sheffield Hallam (Mr. J. H. Osborn) asked how the N.R.D.C. interest in I.C.T. will be unscrambled. Certainly, the effect on the cash flow is very much in mind in the negotiations which are proceeding on this between the N.R.D.C. and the I.C.L. at present. We have no reason to believe that there will be any difficulty in finding a satisfactory solution. The hope is that the N.R.D.C. investment will be repaid rather more rapidly than had previously been supposed.
§ Mr. J. H. Osborn
I referred to the fact that the Comptroller and Auditor-General had made some comments on the position in the N.R.D.C. Is that satisfactorily resolved now?
§ Dr. Bray
I should like to look at the details of the hon. Gentleman's point. As far as I am aware, there are no difficulties about this in the current negotiations between the N.R.D.C. and I.C.L., but I shall write to the hon. Gentleman.
1537 On the question of why Plessey should have to pay 60s. for the shares whereas the Government seem to get them for 2s. until 1972, when they have to pay the further 18s., this is part of the total package One has to look at the inflow and outflow of money, evaluate it in the event of private successes on the part of the company, and then overall assess the contribution that different people are making. This was a complex quad-rupartite negotiation, and the fact that it led to general agreement is a great tribute to the skill of the financial advisers of the companies and the officials who conducted the negotiations. The price of the shares to the Government is, of course, a recognition of the research and development grants which the Government are making.
The hon. Member asked for a denial that it was a shotgun marriage. This is an important question. It was neither a shotgun marriage in relation to the views of the boards, nor a shotgun marriage in relation to the staff of the companies. Of necessity from the nature of the relations between Mintech and the companies, we have contacts with a wide range of different levels of staff in the companies as well as in their customers. There are few industrial questions on which we have found wider agreement than the merits of the proposed merger which has now been completed.
I attach the greatest weight to the opinion of those individuals who do not stand to gain personally from the merger, who have played a very distinguished part in the history of the computer industry and who, despite any prejudice to their future careers, will now say firmly that this is the right solution.
The hon. Member asked whether the money will be sufficient to cover software development as well as hardware development. This was certainly taken into consideration in fixing the size of the research and development grant.
The hon. Gentleman also asked for a comparison between the size of the United Sta:es support and that of British Government support for the computer industry. He will recognise the great difficulty of getting any kind of comparable figures. I cannot venture any estimate of the size of U.S. Government support. However, I have got the figure 1538 for the total of Government expenditure in support of the computer industry since the year dot for this country. I think hon. Members will be surprised to learn that this has been only £11.6 million— since the earliest days of computers, the late 1940s.
§ Dr. Bray
Yes, before this Order. This is up to the present.
It is in one sense a sign perhaps of lack of appreciation of the importance of computers on the part of previous British Governments. On the other hand, it is a real tribute to the effectiveness of public investment and to the achievements of the pioneers of the computer industry in making such good use of that support in building up what is now a strong, growing and potentially very powerful industry.
The hon. Member was right to point out that the scale of support now needs to shift on to a different level. That has been the policy of the present Government over the past three and a half years. It is now moving on to the next stage in execution.
I was also asked about support for other firms. The advanced computer technology project continues, and there will indeed be activities in the computer field which will warrant public support, and also in the computer applications field.
Various hon. Members asked about large machine plans. Undoubtedly there is a Government requirement for a number of large computers for use in administrative data processing, and there is also a requirement for large computers in research and the activities financed by the board of the computer company. This is a requirement which has been under consideration by the computer companies for some time, and I.C.L. is giving it its most urgent attention to ascertain how the requirement can best be met. The suggestion that large computers might be hived off and made the subject of development by a separate company is an interesting one, but I am sure that the hon. Member who made it will not expect a reply today of the cuff.
On the importance of communications in the development of large and not-so-large computers, the contribution that 1539 Plessey can make to this has been recognised by everyone who has spoken. I am glad that the hon. Member for Eastleigh referred to the contribution that the Post Office can make. It is perhaps of interest that the head of the long-range planning group in the Post Office is the man who used to look after computers for the Treasury, and that the director of the National Data Processing Service is the former head of the computer division in the Ministry of Technology. So there will be close and continuing contacts with the communications industry about the development of computers in future.
There was just one reservation in the speech by the hon. Member for Eastleigh in his judgment of the merits of the case. He properly made the reservation that he did not have the full information which as a business man participant in the deal he would get. But he also made a slight reservation about the general pattern of the merger, as to whether it should have been first with European companies before bringing the British industry together. I think that the information is available to him to enable him to arrive at a judgment on this question. If he reflects on it, to have formed a merger between separate British companies and separate European companies would, in effect, have made the United Kingdom the cockpit in which the major computer companies of the world would have fought it out. This no doubt would have been enormous fun for the computer companies, but it would have been sheer hell for the computer users, who would have been faced with incompatible systems, divergent courses of development and the greatest uncertainty in the planning of their future development over the years.
The convenience of the users and the sheer logic of the market was the overwhelming consideration not only in the mind of the Government in seeking this merger but also in the decision of the separate computer companies themselves to seek the merger, for they felt that it was the logic of the market that drove them together, and this was clearly the motive which led their technical experts to seek hard and successfully the techni- 1540 cal solution to their future development plans.
§ Mr. J. H. Osborn
Is it not true that I.C.L. will be far from having a monopoly? The hon. Gentleman said that there will be outside systems and computers which will be welcome in the British markets. I do not see the logic of his argument.
§ Dr. Bray
If the hon. Member tots up the shares in the United Kingdom computer market which would have been held by different computer systems if there had been two British major computer companies and compares them with what will now take place, he will see that there will now be much more commonalty in use between customers than would otherwise have been the case.
I think that we are all completely agreed that the future market does not lie solely in this country; and that if we are to market more widely we must also form wider associations of some kind between manufacturers. We have made this view prefectly clear to the computer companies—who, indeed, needed no encouragement at all in that direction—and I think that we can certainly look forward to I.C.L. pursuing a throughly open attitude and policy towards forming links of whatever may be the appropriate kind—and one would obviously not wish to prejudice that at this stage—with manufacturers in Europe and in the United States, too. We do not wish to cut ourselves off from United States technology nor from the applicants' know-how which will be important in the United States and in Europe and in Eastern Europe as well.
I think that I have dealt with most of the points that have been raised but, as hon. Members recognise full well, this is a matter of continuing Parliamentary interest and we shall be very happy to notify the House of progress in the years ahead in the success of this company which is now formed. It is therefore with some confidence that I ask the House to approve the scheme now before us.
§ Question put and agreed to.
That the Computers Merger Scheme 1968, a draft of which was laid before this House on 11th June, be approved.