§ Order for Second Reading read.
§ 7.59 p.m.
§ The Paymaster-General (Mr. Harold Lever)
I beg to move, That the Bill be now read a Second time.
The purpose of this short and, I hope, not violently exciting Bill is to ensure that investment grant is not given on ships where to do so would be detrimental to the United Kingdom balance of pay-merits. This purpose is achieved by giving the Treasury power to prevent a grant being given on a particular ship if, in the view of the Treasury, this would operate to the detriment of our balance of payments.
I should perhaps first remind the House of the purpose of investment grants. They were announced in the White Paper 118 "Investment Incentives" on 17th January, 1966. Paragraph 14 explained that the overriding need was… to give priority to those sectors of industry which can make the greatest contribution to strengthening the balance of payments".In this context, our merchant shipping fleet makes a valuable contribution to invisible exports, and for this reason ships were included among the assets eligible for investment grants. As paragraph 29 of the White Paper records, ships already attracted a larger investment allowance than other assets and enjoyed free depreciation as well. Free depreciation is still, of course, available for ships, and this is a further encouragement to owners to modernise their fleets.
To 30th September, 1969, a total of £83 million was paid in investment grants on new ships. A further £202 million will arise over the next few years on ships under construction or known to be on order at 30th September. This represents a considerable fillip to investment by the merchant shipping industry.
It can, I think, be said that this has contributed to the general benefit of the country's economy. In the period of investment grants, invisible income from shipping has doubled, although, of course, only a small part of this can be validly attributed to investment grants.
§ Mr. Lever
At all events, this fluctuating income is considerably greater than before investment grants started, although it would be intellectually dishonest to attribute a great part of this increase to investment grants.
The gross tonnage of ships owned and registered in the United Kingdom grew from 17.8 million tons at the end of 1965 to 19.8 million tons in July this year. The world merchant fleet has been expanding at a faster rate than our own, with the 119 result that our proportion of total tonnage fell from 12.3 per cent. in 1965 to 10.7 per cent. in 1969, so that, although we have increased our total, our percentage has dropped. However, the tonnage now on order for British owners is about 15 per cent. of the tonnage on order throughout the world, which means that the decline in our proportion of the total fleet should be arrested.
Clearly, the international character of shipping operations requires that more stringent tests should be applied before investment grants are made on ships than is the case for the grants on other types of assets. Thus, to get a grant on a ship an applicant must both be resident for tax purposes in Great Britain and either a citizen of the United Kingdom and Colonies or a company incorporated in Great Britain. In either event, the applicant must be carrying on business in Great Britain and must provide and operate the ship for the purposes of that business. The ship must be registered in the United Kingdom.
Furthermore, as my right hon. Friend said in 1966, when introducing the legislation:In the special case of ships, which are apt to move about"—I think that statement can be confidently supported—grants will have to be repaid if a ship is sold or demise-chartered within five years to an ineligible person."—[OFFICIAL REPORT, 16th May, 1966; Vol. 728, c. 954.]Additionally, the payment of grants on ships is invariably made subject to conditions which ensure that, if the ship is chartered out to other operators, we can check and approve the rates charged for any such charters, thus confining the benefit of the grant within the British merchant fleet.
I have already referred to the worldwide operation of ships and the House will readily see that, from the balance of payments point of view, the effect of investing in a ship is not the same as that of investment in some fixed plant—for instance, a chemical works. A manufacturing plant contributes substantially to the economy of the country in which it is situated by the provision of employment and in other ways. A ship does not necessarily do so. It may have been built abroad and be manned with a largely non-resident crew. In these circumstances, 120 the benefit from the ship to the balance of payments of that country may be questionable.
It is also the case that a number of the shipping companies which are eligible for investment grants under the stringent provisions I have described are under the control of non-resident interests, to which, after payment of tax, the profits are remittable.
Many of these are old established members of the British merchant fleet who have long played an important part in our economy, including the tanker subsidiaries of the oil companies. But it is a fact that, where the operation of a ship is such as to bring a doubtful return to the balance of payments, that situation may be worsened if the company which owns it is under the control of persons or interests who are not resident here.
Of course, we must be careful to keep in perspective the operations in this country of the non-resident controlled shipping companies and the amount of investment grant paid to them on ships. For ease of comparison, I will quote the figures including both investment grants already paid on new ships and those outstanding on ships for which contracts have already been placed. The total figure at 30th September, 1969, was £285 million. Of this, the non-resident controlled companies stood to receive £91 million. But when the figure of £91 million is broken down, £30 million relates to ships built in the United Kingdom, leaving £61 million—just over one-fifth of the total figure—paid or to be paid to those companies on ships built elsewhere.
Out of this £61 million, £54 million relates to tankers built or under construction for the oil companies, to whose important position in our economy I have already referred. Again, £12 million out of the £61 million also relates to ships built in other E.F.T.A. countries and the Irish Republic. So it is quite wrong to claim, as has sometimes been done, that investment grants for ships are subject to wholesale abuse by foreign shipping operators whom the grants were not really intended to benefit.
However, we have kept the whole of this investment grant policy in relation to ships under constant and continuous review, and in the light of this review the Government have decided that it would 121 now be right to recast the scrutiny we have been Maintaining via exchange control and other methods and extend it to most transactions involving the purchase or conversion of eligible ships.
Clause 1 of the Bill provides for such extended scrutiny to be applied by the Treasury. With a very important exception to which I shall return in a moment, it will apply to future purchases of eligible ships and to all eligible claimants. It is necessary to apply the new tests generally in this way so as to ensure complete coverage and to enable all cases to be handled on a consistent basis. The new scrutiny, subject to the exception, therefore applies to all transactions involving ships eligible for investment grant and replaces the previous limited scrutiny through exchange control which we have always maintained.
Under Clause 1(2)(b), the scrutiny will apply to any case in which application is made for investment grant on a ship where no capital payment in respect of the provision of that ship was defrayed before 8 th November, 1969. For normal purposes, this means that cases where a binding contract for the provision or conversion of a ship existed before 8th November will not be subject to the scrutiny, provided that a down payment has been made by the prospective owner on signature of a building contract. This down payment is, I understand, the usual practice in the shipping world on the signing of a contract.
The special exception to the new scrutiny is covered by Clause l(2)(a), which provides that the new arrangements will not be applied to ships wholly or mainly constructed or converted in E.F.T.A. countries, which, of course, includes the United Kingdom itself, and in the Irish Republic. This exemption also covers Finland, which is an associate member of E.F.T.A. through the Finland-E.F.T.A agreement. The reason for excluding ships constructed in E.F.T.A. and Irish shipyards from the scope of the Bill is that our obligations under the E.F.T.A. and Irish Free Trade Area Conventions require this.
The general purpose of Clause 1 is to give the Treasury power to veto an investment grant in cases where, in its opinion, to do so would be harmful to the balance of payments. The Clause does not specify the precise nature of the test which the 122 Treasury will apply, and I do not propose at this stage to go in detail into the method by which the Treasury will reach its decisions in particular cases. No doubt my hon. and learned Friend the Financial Secretary to the Treasury, when he winds up the debate, will be ready to do so if the House so wishes; whether the House can resist this interesting revelation of the processes of the Treasury mind we will have to await the conclusion of the debate to know. Hon. Members will also find it useful to read the memorandum which the Treasury has prepared on the subject, copies of which are available in the Vote Office.
We recognise that shipowners will often wish to know well in advance of any decision to place a particular order whether the applications for grant will be successful under the test, and for this reason my Department and the Treasury will be ready to answer any advance inquiries on these points by shipowners, if they, for their part, will provide the necessary information about the location of the building of the ship, its financing, operation, and so on. We will do all we can to help in the most simplified way possible. The answer we give will be valid for the later action unless there is some significant change in circumstances or the estimates originally notified, in which case, of course, the intending shipbuilder can get in touch to see how his latest estimates fare under the test. Should there be a change after some of the grant has already been paid on the ship, further grant payment on that ship will cease unless the situation that then arises after the change complies with the test.
The House will note that Clause 2 empowers the Parliament of Northern Ireland—where the Ministry of Commerce has power to pay investment grants on ships similar to the Minister's power under Section 5 of the Industrial Development Act, 1966—to make laws for the purpose of applying a balance of payments test, and I understand that it is their intention to do so.
I have explained in some detail the arrangements which are being adopted with effect from 8th November, 1969, to supplement the existing provisions of the Industrial Development Act. This is in no sense a reversal of investment grants policy. It does not mean that the Government have suddenly woken up to an 123 anomaly which had existed unnoticed for some time. The position is that now we have had a good deal of experience of operating investment grants this new provision is a logical development from the safeguards already provided in Section 5 of the Industrial Development Act, 1966 and extended by the special scrutiny which we have maintained for some time, with the assistance of exchange control measures.
The House will, I am sure, agree that this is a useful Measure which will ensure that in all cases vessels which are assisted by investment grants will bring a clear benefit to our balance of payments. I therefore hope that the House will regard it as a sensible Bill, and give it a Second Reading.
§ 8.14 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
I must first declare a tenuous interest in this subject, in that I am a director of a civil engineering contracting firm which is owned by a shipyard. Whether or not that qualifies as an interest I do not know, but I do not expect either to benefit or to lose from the Bill.
I must congratulate the right hon. Gentleman the Paymaster-General on a bland and disingenuous speech, but it must be my job now to try to pour a little troubled water under his oil. We are talking here of something that has become almost a scandal. The payment, or promise of payment, of £61 million to foreign-controlled companies to build ships in foreign shipyards, albeit over a period of five years, is something which cannot be lightly brushed aside as a matter of small importance.
Nor is this the first time that the matter has been raised. I myself, from a back bench, raised it on 2nd April, 1968, in an Adjournment debate. I received a curiously self-satisfied answer from the then Minister of State at the Board of Trade. He said that everything was now under control, that there was no need for me to worry and that, in any case, I had grossly exaggerated the whole thing. He assured the House that the abuse of money leaking out from the investment grant scheme to foreign owners building ships abroad had been 124 effectively stopped by using exchange control mechanisms.
He said:We have taken steps to make sure the brass plate company does not operate, and the steps we have taken after consultation with the Treasury were announced by my right hon. Friend the President of the Board of Trade in January of this year."—[OFFICIAL REPORT, 2nd April, 1968; Vol. 762, c. 335.]So he did nothing.
Therefore, the first question I must put to the Government is: why, suddenly, do we need the Bill if the steps taken in January, 1968, put right the abuse? What is the reason for bringing in a Bill a year and three-quarters later when we were told assuredly at that time that the menace had been ended? In fact, from the figures, it can be seen that the menace is still growing. Right up to April, 1968, when I had the Adjournment debate, we had been paying out at a rate of £50,000 a week on these bogus schemes. From then, to date, we have been paying out at a rate of £260,000 a week, which is five times as much.
If we look at the commitment, we find that at that time the commitment ahead was £34 million, a year later it was £37 million, and it is now standing at £40 million. So, again, I must ask the Financial Secretary to tell us what has gone wrong, and why the exchange control mechanisms which were brought into action in January a year ago are not working. Why are they not working, and why has it now been found suddenly necessary to legislate?
Section 5 of the Industrial Development Act states… the Board may make to any person carrying on a business in Great Britain a grant towards approved capital expenditure incurred by that person in providing a new ship …If it is permissive, if the Board may make grants, there is no reason why the Board should not exercise discretion at present, and there is no need for the Bill. If the Board has been exercising the powers it said it was exercising in January, 1968, there is no reason why it should not go on doing so. If it is necessary by this Bill to legalise the position, the Board has been acting illegally for the last 18 months. We therefore require to know why the Bill has suddenly to be brought in.
125 I should like hon. Members opposite to imagine what their reaction would have been if, sitting on this side of the Chamber, they had discovered that under a Tory scheme £61 million had been committed to foreign ship owners to build in foreign yards. I do not believe that there is any other country which does things like this. On top of the £61 million, we have committed another £106 million to British owners to build in foreign yards. It is not my purpose to argue for or against that commitment tonight, but it brings to a total of £167 million the amount which this country is to spend over five or six years on subsidising ships built in foreign yards. I sometimes wonder whether we are absolutely crazy to allow an abuse like this to go on. Although of course we should like to help the British merchant marine, to help other people's merchant marine and other people's shipyards is absolutely mad.
How much will the Bill save? What is it intended to save—that is, how big has been the leak and how much has this been costing us? In his reply, the Financial Secretary could express these figures in terms of the amount of investment grants saved. Alternatively, he could present, as it were, a foreign exchange account. It would be interesting to hear what the Government hope to save.
We have a new argument and I should like to dwell for a little on the basis of the control the Government are seeking to bring in. They suggest that instead of simply using a straight test as to whether a company is foreign-registered or registered at home there should be the test of whether the contemplated transaction will benefit the British balance of payments or not. This is a completely new idea in relation to investment grants.
I entirely understand that it might pay the United Kingdom to subsidise a Greek to build a ship in Japan provided the profits of that operation came to this country and we got foreign exchange therefrom and provided taxation was paid back to the Exchequer to cover the cost of the grants which went out. That is a conceivable proposition and one on which the Government have hung their hat in relation to this Bill, but I find it an entirely new criterion for investment grants.
126 The right hon. Member for Battersea, North (Mr. Jay), then President of the Board of Trade, introducing the Industrial Development Bill on Second Reading, said:we are also reshaping the whole system of Income Tax incentives by way of capital allowances designed to stimulate more rapid industrial investment and technological advance."—[OFFICIAL REPORT, 16th May, 1966; Vol. 728, c. 947.]That was the purpose of investment grants, to stimulate more rapid investment and technological advance, but there was no mention of balance of payments. Later the right hon. Gentleman went on to give the four criteria which would be applied to each investment, and again there was no mention of balance of payments.
Suddenly there has been thrown into the whole investment grant syndrome the new suggestion that investment grants will be paid only where there is a balance of payments advantage. If that were applied right across the board, presumably importers of machinery or foreign cars, and even coastal shipping companies—which do not earn foreign exchange because they ply up and down the coast of Britain—would receive grants. They do not earn foreign exchange but may be the losers of foreign exchange. Is the Board of Trade now to disallow all companies which do not earn foreign exchange?
§ Mr. Harold Lever
The hon. Gentleman was evidently not paying attention when I explained that there is a difference between a ship which is allowed investment grant and a machine tool or other ancillary industrial asset, such as a coastal ship, which contributes to the British economy by its very presence. For a ship the only case that can be made for investment grant is that it contributes to balance of payments.
§ Mr. Ridley
We now have the extraordinary new suggestion that certain types of asset are to qualify for investment grant—
§ Mr. Ridley
Perhaps the right hon. Gentleman will allow me to finish the sentence—because they earn foreign exchange, whereas others are not to qualify because they are fixed investments which benefit the country. I can 127 think of many worth while investments which earn foreign exchange and do not qualify for investment grant although perhaps they should. What about the export of whisky which probably brings in more foreign exchange than anything else? Why could investment grants not be given to distillers of whisky—
§ Mr. Ridley
I thought these grants were related to industrial investment only. I am glad to find that the position is as the right hon. Gentleman has stated. What about Lloyds Insurance, aircraft and City activities concerning working capital? All these are matters of foreign exchange, yet they are excluded from the benefit of investment grants. The Government have got themselves into a curious position. For some investment grants the test is industrial investment, but for others it is whether they earn foreign exchange. I could think of further categories of case.
What about an oil refinery built in this country by foreign owners? That qualifies for investment grant, but it is perfectly possible for that refinery or chemical plant to be a net drain on the balance of payments. First, dividends would go out, and secondly, the imports which come in might be much greater than the exports it makes. Is it still to benefit under the industrial grants system or not? One could go on to a whole series of curious anomalies.
In the test detailed in the memorandum as to whether any particular application will get grant or not, we have the extremely complicated sum set out for the Treasury to discover whether or not a project will benefit balance of payments. First, the capital is to be discounted at a 10 per cent. cash flow, which is a curious figure. The 10 per cent. is the rate which relates to nationalised industry investment but the two kinds of investment are not similar. Ten per cent. approximates to the rate for private industry if allowances are made for investment grants and taxation being different between public and private industry. So we are adopting a public sector rate for a private sector investment which is nonsense.
128 The House would be glad to join in the mirth of the phrase:allowance will be made for inflation at a rate not exceeding 3 per cent. per year.That is a very good joke for the Treasury and I congratulate the Treasury upon it. Suppose the right hon. Gentleman gets all the firms to fill in forms, gets all the figures and then does all the sums, what result does he think is detrimental to the balance of payments and what result is not? Suppose, for instance, £1 million investment grant is paid for a ship which cost £5 million. If that ship on balance of payments will produce a net gain to the economy of £1 a year, is that beneficial or is it not? Perhaps it will be thousands of pounds a year, or millions. The right hon. Gentleman must be more specific. At what rate is it worth us making these investments to earn foreign exchange?
The Government are extremely "bullish" about the balance of payments. They tell us that they have this huge surplus building up. What on earth is the point of the British taxpayer paying investment grants to earn more foreign exchange which is now apparently in full supply? What is the measure that will be used to decide whether an investment is a good one? This whole question has so many difficulties that I do not believe it makes any sense at all.
The underlying basis of the Bill is therefore rubbish. It is out of conformity with the objects of investment grants, which were to increase investment and technological change. It is based on some mythical idea about what is or is not good for the balance of payments, without any explanation or true analysis of what is or is not good for the balance of payments. It is discriminatory. It applies only to companies which the Treasury, in its wisdom, decides to apply it to; there is no possible means of discovering whether one is to be let through the net—the answer comes out from the Treasury when the form has been put in and there is no way of assessing the likelihood of success or failure beforehand.
There is no appeal against being turned down. It opens up the door for the Treasury to use all sorts of arm-twisting techniques to ensure that a shipping company does something that may be in the national interest, to make sure that a 129 shipping company builds a certain proportion of its ships in British yards or carries out certain trades. It gives unlimited power to the Government to manipulate the way in which shipping companies behave, in a way that we on this side of the House do not like at all. Further, it is a bureaucratic Bill, involving a series of form-filling exercises and it makes it worse for all shipowners because at present all United Kingdom registered shipowners are exempt from having to provide this information. Now they will have to do so.
It therefore extends to all shipowners what has hitherto been kept to a small number of foreign-controlled companies. Perhaps, the most unsatisfactory part of the Bill is the curious provision that it does not apply to building in E.F.T.A. countries. The right hon. Gentleman explained that this was because our commitments under the E.F.T.A. Treaty made it impossible for us to control orders there. By formalising the position in law, which this Bill seeks to do, in relation to Japan and Germany and the rest of the world, we make it quite clear that we have no intention of controlling building in E.F.T.A. yards.
It is wide open for all shipowners who wish to do so to go along and claim investment grants for ship orders placed in E.F.TA. countries. All that they will have to do is to switch orders which might have gone to Japan, Germany or Holland to Sweden or Norway and they will be able to claim the 20 per cent. under the same bogus conditions which apparently apply now.
If that is the case it will merely channel the leak out of other countries into ETTA. countries. From the point of view of the British taxpayer it will not do all that much to stop it. This is a curious way of paying back E.F.T.A. Think of all of the insults which this Government have hurled at E.F.T.A.—the import levy when they first came in, then investment grants, and then all the controversy we had with Norway over the aluminium smelters, and then the import deposits scheme, which we were discussing last week. All these "fouls" against the E.F.T.A. Treaty are, I presume, to be compensated by allowing this miserable little Clause to go through, permitting the continuation of a loophole.
130 This is a sorry episode, and is a bad hole in the watertight quality of the investment grants scheme. We warned against investment grants when they were first introduced. The depressing thing is that, despite enormous expenditure, this year estimated to be £475 million, the rate of industrial investment is not growing as fast as it was. In the last five years industrial investment subject to investment grants has grown by 23.6 per cent. whereas in the previous five years it grew by 28.5 per cent. I do not make the point that it is getting very much better or worse but, despite doubling expenditure on subsidies to investment, there appears to have been very little response. At the same time, we have been pouring out money in this way on foreign shipowners building in foreign yards, and £61 million of taxpayers' money has gone down the drain.
The Bill is discriminatory and bureaucratic, and makes confusion worse confounded. It is high time the Government had another look at their whole policy in this field instead of patching, as they are doing in this Bill.
§ 8.35 p.m.
§ Mr. Frederick Willey (Sunderland, North)
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has made a very confusing and disappointing speech. I was prepared to allow him to take the credit for having helped to promote this legislation; but, having done so, I gather that he is going to vote against it. It seems remarkable, but there is no alternative. He cannot allow the House to express its approval of what he has described as rubbish—and miserable rubbish at that.
My approach to this Bill is much more simple. I represent in my constituency the greatest single concentration of shipbuilding in Britain, and I support the Bill because it seems that it will be beneficial to the shipbuilding industry.
I want to make two propositions about shipbuilding which I think cannot be gainsaid. The first is that no Government have done more for the shipbuilding industry than the present Government. The second proposition is that the British shipbuilding industry faces a welcome period of full production and full employment over a period of years These propositions are not so dependent upon one another as one might imagine 131 because there is a third fact, which is that the world shipbuilding industry is enjoying a boom and it is when we consider our own industry in that context of world shipbuilding that we are bound to be less complacent.
It is in the context of British shipbuilding and world shipbuilding that we cannot fail to be disturbed that we have now dropped to fourth place among the world's shipbuilders. We know that the Japanese are building rather more than half of the total world's shipping. We remember that one year after the war we reached rather more than half of the total world shipping. We have now dropped to a share which represents no more than 5 per cent. or 6 per cent. of world shipbuilding. If we look at the success we have gained in world orders we find that the position is no better. Taking the world order books, we again occupy the fourth place.
As the Paymaster-General has said, the same position obtains in shipping, a second major industry. Just as British shipbuilding year after year used always to occupy the first place, so did the British mercantile marine. But no longer is it top of the table. It has now dropped to third place. This fall is just as significant as the position of British shipbuilding. We have been overtaken by the Liberian fleet which has doubled its tonnage in the last five years, and, what is more significant, we have been overtaken by the Japanese.
The remarkable difference between ourselves and the Japanese is that the Japanese have built their enormous mercantile fleet in Japanese yards. In spite of the pressure of export orders on the Japanese yards, they have built in their own shipyards the fleet which has overtaken ours. This must cause us some anxiety.
If we look at the final figures for 1968, we find these two disturbing factors illustrated. The Lloyds figures for 1968 show that the tonnage for domestic account was the lowest peace-time figure since 1934, and that in the same time the tonnage imported—2 million tons—was the highest figure ever recorded. I remember, and the hon. Member for Dorset, West (Mr. Wingfield Digby) will remember, that years ago I first called 132 attention in the House to the danger of importing shipping. Over 2 million tons of new shipping was imported last year. Fortunately, the position is improving this year, but not materially.
As my right hon. Friend the Paymaster-General said, the tonnage ordered by the British mercantile fleet over the next few years will at any rate arrest the decline of the British fleet. The shipbuilding output figures for this year will be better than last year's. But they will be far below the 2¼ million tons set as the target by the Geddes Committee. I welcome the Bill because I believe we still have to do far more for these two basic essential industries.
It is for that reason that I am very disappointed that the Government have not taken the occasion of the Bill to lift the ceiling on credits under Section 7 of the 1967 Act. We are reaching the ceiling, and it would have been a comfort to home owners, and encouraged them to place their orders in British yards, if the Government had said now, as they are bound to do sooner or later, that they would increase the ceiling from £400 million to encourage the home owners to place their orders in British yards.
The trouble with the investment grants has been that the shipping company benefits equally whether the ship is built abroad or at home. I hope that my hon. and learned Friend the Financial Secretary will remain silent. I would rather the provision of the Bill were not closely defined. I am much more hopeful that the words… operate to the detriment of the United Kingdom in the matter of its balance of payments, …will be interpreted more widely than perhaps the Government at present have in mind. I do not think that there was any evidence of wholesale abuse of the investment grant provisions, but there was evidence of their disadvantage to this country, and therefore I hope that the provisions of this legislation will be interpreted liberally.
The problem cannot be dealt with solely by legislation; the problem is the disturbing post-war history of these two essential, basic national industries. What we lack is a sense of national purpose, and that depends on far more than legislation. When we see what the Japanese 133 and West Germans have done in building up their shipbuilding and shipping industries, we should be thoroughly ashamed of ourselves. We had all the advantages. We dominated the world market, both in shipbuilding and shipping. We have lost oar place in both because we have not been able to put national priorities first.
Therefore, whilst I welcome the Bill as at any rate calling attention to the importance of these industries to the balance of payments, and to the importance of home owners building ships in home yards, I believe that the country as a whole must recognise that it is in our national interests to see that we maintain and improve the position of these great industries in world markets. In consequence of adopting the Geddes recommendations, it is our national responsibility to see that sooner rather than later we attain the target of 2¼ million tons for British shipbuilding.
§ 8.45 p.m.
§ Mr. David Howell (Guildford)
I listened with interest to the discourse of the right hon. Member for Sunderland, North (Mr. Willey) on shipping and shipbuilding. I wish, however, to concentrate on the Treasury aspect of the matter, because this is an issue which is of obvious concern to that Department.
Enough was said by the Paymaster-General and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) to indicate that this is, by any standards, a peculiar Bill. The Paymaster-General called it "useful", but it deserves that adjective only in the sense that it attempts, in a bizarre way, to shore up an extremely inefficient system.
It is an inadequate cure for a dangerous disease and, with the best will in the world, I do not believe that the spurious precision which the Treasury has put into its paragraph headed under the medicinal tone of "The test", can hide what Clause 1 says, which is that the Bill hands to the Treasury substantial and rather vague new powers, in effect to say to those who apply for grants in this sector of industry, "I am sorry. You cannot have a grant. We do not like the look of your face". That is the level of precision embodied in the Treasury Memorandum.
However much it may be covered by various criteria, of which we have heard 134 so much in other spheres and legislation in recent years, and however much it is labelled "The test", it will be arbitrary, it will hit unfairly at some people and it will create difficulties. There will be awkwardness ahead. We must be clear about this legislation, whether or not we like the general principle of the Bill.
It seems fair, since we have already discussed the shipping and shipbuilding implications of the Bill, to ask how we are tonight discussing a Measure of this peculiar nature, which gives to the Treasury, when it is of a certain opinion, the power to restrain the Minister of Technology in his enthusiasm to hand out grants in every direction.
My hon. Friend the Member for Cirencester and Tewkesbury said with some justification that the Bill was an inadequate response to a situation which had verged on a scandal. That was, in a sense, too kind of my hon. Friend. The scandal is not the situation solely in the area of shipping but the whole area of investment grants. That is where the scandal lies and I believe that it is a public scandal of enormous proportion, the size of it being measured in hundreds of millions of £s. My hon. Friend reminded us that the scandal and its size had been noted by the Treasury. There can be no doubt that the Treasury's interest is great.
This is a repercussion from a scandalous system, a system which we have criticised time and again in the House—a system into which the President of the Board of Trade promised he would conduct a survey in February of this year to test its effectiveness. We have heard nothing since, except a mumbled word from the Ministry of Technology, which has discovered that it is responsible for that survey. We have been told that it will try to do something and publish the results when they are ready. The Estimates Committee of this House, when studying the Winter Supplementary Estimates last year, called for a survey of the effectiveness of investment grants. There is still no sign of it.
The size of the moneys going in investment grants, quite apart from whether they are going to bona fide recipients or to those whose credentials are less worthy, is not merely climbing but climbing in a way over which the 135 Treasury bench, let alone individual hon. Members, have no control.
In this situation, it is perfectly natural that hon. Members should ask that matters be surveyed in a disciplined and systematic way. Instead of a survey, we are given this Bill. Instead of the undertaking from the Minister to bring forward an effective study being implemented, out of the Ministry of Technology, with the connivance of the Treasury, there comes this strange creature.
I feel it difficult to be constrained by the wisdom of my own Front Bench into not voting against the Bill. It is a most peculiar piece of legislation. I do not think that any hon. Member who has spoken in favour of it will live to be very proud of this odd little creature on our Statute Book though, given the gigantic and inefficient system of investment grants, it does not surprise me that we should be confronted with such a Measure. I fear that we shall see more and more such Bills, all aimed at shoring up an unworkable system.
§ 8.52 p.m.
§ Mr. William Small (Glasgow, Scotstoun)
The arguments of the hon. Member for Guildford (Mr. David Howell) rely on criteria which he would not apply in the general industrial sponsorship of investment grants in most of our industries. For years, our shipbuilding industry was deprived of access to investment grants in the form in which the aircraft industry got them. In view of that, I back this Bill 100 per cent., since it will help to protect the interests of Britain and the shipbuilding community.
Investment grants are about industrial sponsorship, and the fact that the decisions on making grants is to be switched to the Treasury is welcomed.
We have heard a lot about leakages into foreign countries, with owners getting access to borrowings at less than the commercial rate for products that they are building elsewhere.
I remember the oral hypnotism which my right hon. Friend applied to shipping on one occasion in the past. This is the second time in my experience that he has spoken on the subject, the first time being when we were in Opposition and when he entertained us at great length 136 on the history of the coelacanth, and the relative salinities of the Sargasso Sea and the Red Sea. However, it is clear from what he said this evening that he is a Minister with an expansionist mind who is trying to employ a restrictionist argument.
He says that he intends to ensure that there are no leakages. However, the experience of the international oil combines in building ships is such that my right hon. Friend will require a postgraduate course in economics to see where our money is spent. So to that degree, we are subsidising our external competitors.
I welcome the regulatory accountability of the Bill.
I ask that, for the purposes of this scheme, the Government will use the rate of discount which is already in use in the nationalised industries, as explained in Command 3474.
Representing the Upper Clyde Shipbuilding group, it was a peculiar experience that when British Rail wanted to extend the sea route from Stranraer to Larne and applied for a grant, a Dutch company got the grant and built the "Antrim Princess", I hope that the nationalised industries, in terms of availability, can get investment grants on the same terms as private enterprise. This is an extension from land to sea and requires the building of a ship. I hope that on a strict even test on matters of this kind the Treasury will make up its mind to realign the matters on which application for grant is made.
The Bill make economic sense to me. What is meant by "non-resident interest"? Is this, to use a round phrase, an accommodation address which gives access in Britain to the Treasury and to the Minister of Technology for grant? "Non-resident interest" is a nice parliamentary phrase, but I believe that it could be used in these terms.
In support of the Bill, I quote from the Shipbuilding Repairers' National Association's reply to the Chamber of Shipping. I will not read the whole of the reply. The debate was about investment grant. It seemed to the Association a little strange, however, that some companies can obtain these grants at the expense of the British taxpayer for ships built abroad which carry out most of 137 their trading abroad and only part of those earnings may be remitted to this country.
The benefit of the Bill, in balance of payments terms, is that every ship built here brings in goods and services and saves dollars and other outgoings.
1 support the Bill, because it is beneficial to British shipbuilding interests.
§ 8.58 p.m.
§ Mr. Edward M. Taylor (Glasgow, Cathcart)
My hon. Friend the Member for Ci rencester and Tewkesbury (Mr. Ridley), in his penetrating speech, has covered most of the points which could be raised, but I want to raise one or two additional points with which I hope the Minister will deal when he replies.
The hon. Member for Glasgow, Scotstoun (Mr. Small) was right in pointing out how important are the industries that we are discussing, namely, shipbuilding and shipping. We are all aware that shipping makes an enormous contribution to our invisible balance of payments. This is desperately important to this country. Apart from that, the shipbuilding industry is also important not just for the jobs it provides, but also because it provides jobs in areas where traditionally we have a high degree of unemployment.
It is largely because of the importance of these industries that not only has this country built up an absurd system of supporting shipbuilding and shipping full of anomalies and injustices, but this has been applied by most European and other countries concerned with the building of ships. Grants for building ships were primarily brought forward because the British shipbuilding industry, almost unique among our industries, was almost entirely unprotected from foreign competition.
Forei gn countries were giving large subsidies to support the building of prestige liners and ships, and the shipbuilding industry, unlike the textile, engineering and other industries was unprotected against foreign competition. It was because of these discriminatory subsidies that we started on the slippery slope towards providing massive subsidies of one kind and another. My Government started it with the shipbuilding credit scheme, which was a major contribution 138 towards helping the shipbuilding industry at that time. Since then, however, there has been an escalation of subsidies, not only by Britain but by other countries, and many people in the Treasury and elsewhere must fear the day when all countries will be building ships for nothing for anyone in the world.
We are in the absurd position of allowing a lot of money to flow out of the country for the building of ships which bring us no benefit. I am not trying to condemn the Government for the present anomaly. It has arisen, not only because of the investment grant system but because all the countries concerned with the building and buying of ships have been competing in a mad subsidy race which is bringing benefit to the shipowners and to the shipbuilders, but not to the taxpayers of this or any other country.
We know that discussions have been going on in the O.E.C.D. to try to get rid of the extent of subsidisng in which all Governments are engaged, to try to find some way in which there can be proper and fair competition between shipbuilding and shipowning countries. Has any progress been made in the discussions? Can we look forward to the day when we can get rid of not only the anomalies, but all the forms of subsidy which we and other countries use to compete against one another?
The Bill is a limited one, but i am sure that even those who are opposed to it will appreciate the Preamble which says that the Bill is concerned with restricting the power of the Minister of Technology. Bearing in mind the new super-Ministry which has been set up, if the Bill has nothing else, it has that simple fact to commend it.
The Minister is establishing a division whereby some shipowners will get a grant, and others will not. Clearly there will be marginal cases in which people will feel deeply aggrieved. They will think that an injustice has been perpetrated, and that injustice may amount to a considerable sum. When we are talking about a substantial percentage grant, and bearing in mind that we are thinking of ships which cost £8 million, £9 million, or £10 million, the decision whether a grant is given is of great importance, and if the decision is to be taken on the basis of so-called profits, management, crew costs, 139 and capital costs, obviously there will be marginal cases in which shipowners will feel that there has been some injustice.
Does the Minister intend to set up a proper and fair system of appeal? Unless the rules are sufficiently rigid and clear so that they are obvious to every shipowner and everyone knows whether or not they are eligible for a grant there must be a comprehensive and fair system of appeal by which a shipowner can feel that he is getting a fair deal.
I come, now, to the exemption of the E.F.T.A. countries and to the terrible anomalies, referred to by my hon. Friend the Member for Cirencester and Tewkesbury, which are costing the taxpayers of this country a great deal of money, and which are being stopped everywhere except in the E.F.T.A. countries. What is causing concern is whether this exemption will steer shipbuilding orders from this country to the E.F.T.A. countries the capable builders of ships, as the hon. Member for Dunbartonshire, East (Mr. Bence) with his shipbuilding interests, is well aware, and they will be in a position to mop up some of the hot money which is flowing out of the country in this way. Will this result in a substantial diversion of shipbuilding to the E.F.T.A. countries?
The reason for this exemption must lie in the E.F.T.A. Treaty itself. I wonder whether the Minister could tell us what the position will be, in terms of this Bill, in the unlikely event of our getting into the Common Market. Will the exemption automatically be applied to all the countries of the Common Market? When we talk of the E.F.T.A. exemption we are talking of substantial shipbuilders. Even the hon. Member for Dunbartonshire, East will not be very much concerned with Swiss shipbuilders, but we shall all be concerned with Norway and Sweden, which have substantial shipbuilding industries.
Will it be made crystal clear to ship owners, before the placing of an order, whether or not a grant will be given? That is of vital importance to any ship owner, and to our shipbuilding industry. If this cannot be done we shall have no confidence about getting orders. Ship owners will be less inclined to come to this country if they do not know, before the job is placed, the contract 140 signed, or the work starts, whether or not a grant will be made. Nothing could more undermine the security of British shipyards than for ship owners not to be sure, before the order is finalised, whether an investment grant will be made. I hope that the Minister will be able to confirm that the rules and exemptions will be applied in such a way that the situation will be made crystal clear.
This involves certain problems. Apparently applications for grants in respect of new parts of ships will not be accepted under the new arrangement. Will a British-based company—a company with a British brass plate—be able to obtain a grant, irrespective of the circumstances, for the fitting out of a ship in Britain even though the hull was built in a Common Market country, or in Japan, or elsewhere? Will grants be payable in respect of the fitting out, completion, modernisation or conversion of ships in Britain although they have been built elsewhere?
The hon. Member for Central Ayrshire (Mr. Manuel) seems to be objecting to this. He may remember that only a few months ago a ship was constructed in the Greenock Port Glasgow yards but was finished in Norway, because at that moment that was the most efficient and cheapest way of doing the job. This course was also taken because of certain industrial troubles. Has the Minister entirely closed the floodgates, or will it still be legal, on the basis of the exemption mentioned in the Treasury Paper circulated with the Bill—Exemption 4(b)—for a ship to be built in Belgium or Sweden and still receive a grant because it is fitted out in a British yard?
Considering the Bill is almost like considering the old navigation laws. It worries me to hear the hon. Member for Scotstoun saying that this country ought to live by taking in its own washing. That would be bad for our country. We must not become too internally-minded, and think only of ourselves. We must accept the fact that the moment we move from investment allowances to investment grants major anomalies will arise, and we have all seen that in such circumstances there has been a major bonanza for certain foreigners, who have made a pile out of the British taxpayer. That was in some way inevitable on the introduction of investment grants. It was also partly inevitable because 141 various shipbuilding countries have been competing against each other in providing subsidies. It is a good thing that this gap is being filled at long last.
It would be infinitely better for the British taxpayer and British shipowners and shipbuilders to take two further steps—first, to move to investment allowances, which are not nearly so open to abuse as are investment grants and, secondly—and more important—for the Ministry of Technology and comparable Ministries in other countries which build and operate ships to get together and agree to have fair competition—to have fair and equal subsidies or, better still, to do away with them. This scandal—it is a scandal, for which we cannot entirely blame the Government—has arisen largely because the French, the Italians and the Japanese have been trying to pinch shipbuilding orders by offering ridiculous credit terms and subsidies and we have joined in the battle. So long as this happens there will be scandals of this kind and ridiculous situations which result in smart-alecs creaming off millions from the British and other taxpayers. It is good that this has been stopped, but how much better if the shipbuilding countries could get together to find the real answer to the long-term problems.
§ 9.11 p.m.
§ Mr. Albert Booth (Barrow-in-Furness)
This Bill is to be welcomed as a tentative step along the road which we shall travel a long way before this problem is solved. I should be failing in my duty to my constituents who live by building ships if I did not protest against the considerable amount of money paid out by the British Government in investment grants for the building of ships in foreign yards. Protests came to me from trade unionists in my constituency a considerable time ago and the answers which were given in this House to the fears which I and others expressed were far from satisfactory and showed too much complacency.
The Bill draws a clear distinction between E.F.T.A. and non-E.F.T.A. countries. Many of the arguments from my hon. Friend the Paymaster-General in favour of the Bill applied equally to these two categories. I should like to know why this distinction has been drawn. If the answer is that it is due to the terms 142 of our E.F.T.A. contract, I would ask my right hon. Friends to seek from E.F.T.A. countries the provision for British shipowners of investment grants for ships built in other E.F.T.A. countries. If we have to distinguish between one country and another in the light of the position of the world shipbuilding industries, this seems to be a sensible arrangement. The Government seem to have become very pro-E.F.T.A. and anti-Common Market, but this does not line up with certain other current actions.
I question whether the real reason for not restricting the Minister's powers over all foreign shipyards as opposed to non-E.F.T.A. ones only is not a fear that by forcing British owners to buy ships from British yards they will be curtailing competition. I suspect that this is behind this part of the Bill and I suggest that it should be dealt with by a different machinery than by opening up investment grants to E.F.T.A. competition only.
After all, the Bill will limit competition on equal terms with E.F.T.A. countries and therefore exclude others, primarily, in this case, the Japanese yards. Why not deal with this problem of proper competition through the Monopolies Commission or the sort of investigation which I believe the Government will have to carry out consequent upon their decision to place the building of nuclear propelled submarines with Vickers in my constituency to ensure that they are charged a proper price? I welcome this decision, but that does not blind me to the fact that the Government must ensure that this decision does not result in their paying too high a price for these submarines. Similarly, the Government could investigate the price charged by British yards if they restrict investment grants for the building of ships to those built solely in British yards.
§ Mr. Arthur Blenkinsop (South Shields)
Would not my hon. Friend agree that even if a ship is built abroad for a British shipowner, it may in many cases earn valuable foreign exchange in its services across the world?
§ Mr. Booth
I fully appreciate that. I wish, however, to address myself briefly to the question of the test of detriment to our balance of payments which is set out in the Bill.
143 It is true that a ship built for a British owner in a foreign yard may earn a considerable amount in invisible earnings and, therefore, be favourable to our balance of payments. If, however, the overall test is to be one of detriment to the balance of payments, should we not look at the tremendous expenditure of capital involved in the outflow of money from the importation of ships by British owners? Surely it would be a disgraceful situation to arrive at if for any considerable period this country became a net importer of ships. That of itself would be detrimental to our balance of payments, in the short run at least.
As a country which must expand its shipbuilding potential, we have to guard against this situation in applying the balance of payments test. Therefore, it is not a test which can be applied on a single vessel basis. It is a test, if it is a fair one, which has to be applied against the overall economics of being a shipbuilding and a ship owning country. In other words, we should not enhance ship owning companies at the cost of our shipyards by doing something which, in the long term, would be detrimental to our balance of payments position.
I believe that as a shipbuilding nation we cannot defend the situation in which £167 million of British taxpayers' money has been spent to have ships built in foreign yards. It would be wrong at any time but it is particularly wrong when there is unemployment in shipbuilding areas.
We have listened with interest to the speech of my right hon. Friend the Member for Sunderland, North (Mr. Willey), in whose constituency there was 10 per cent, male unemployment, and this in a debate in which we are discussing the money which is being paid out by the Treasury for the building of ships in foreign yards. This is highly significant.
If British investment grants are to result in work being done abroad, I would welcome this if the work were going to underdeveloped countries. In the case of shipbuilding, it is certainly not work that is going to underdeveloped countries. It is going to highly developed and developing countries. I hope that in Committee we will be able to amend the Bill to ensure that British taxpayers' 144 money that is used for the building of ships brings about the building of ships in this country to such an extent that we see the British shipbuilding industry vastly expanded in the coming years.
§ 9.18 p.m.
§ Mr. John Hay (Henley)
My constituency is not very well known for shipbuilding, but at least I can lay claim to the fact that in certain parts of it we build some extremely good boats. As yet, the Government have not extended the provisions of the Industrial Development Act to the building of boats, and I would be wildly out of order if I sought even to introduce that matter further than I have done.
I do not pretend to be an expert in shipbuilding, but it is clearly the case that the Bill is presented for the purpose of protecting the shipbuilding industry rather than the shipping industry. I go along to some extent with the hon. Member for Barrow-in-Furness (Mr. Booth) in saying that we ought to have a little more information than we have had up to now concerning the relative advantages to the balance of payments of the shipbuilding and shipping industries. I apprehend that it is possible for a ship owner to produce a much better effect to the balance of payments through building ships in a foreign yard and putting them into worldwide trade than may accrue to the balance of payments from a small increase in the ships built in this country to be sold to foreign owners.
I did not rise to try to analyse the situation in detail but to draw attention to the context of the Bill. My hon. Friend the Member for Guildford (Mr. David Howell) said that this was a bizarre piece of legislation, and I agree. I cannot understand why the Government have chosen this form of drafting. Section 5 of the 1966 Act gives a permissive power to the Board of Trade to make a grant. Clause 1 of the Bill gives the Treasury power to give a statutory direction to the Minister of Technology, as successor in this case to the Board of Trade. This is the first time I have known one Minister taking power to give a direction to another. If an application is made to one Minister for a grant and the Treasury believes that some detriment to the balance of payments would arise, then the power is contained in Section 5 of the 1966 Act 145 already and the Treasury in the normal consultations between the Ministers, could surely say, "We do not think if in the national interest, having regard to the balance of payments, that you should make this grant". I am puzzled as to what sort of spectacle we shall see inside the Government if and when an application is made to the Minister of Technology upon which the Treasury decides, in its wisdom, to make a direction.
§ Mr. Wingfieid Digby
The Treasury also has a Trojan horse in the Minstry in the shape of the Paymaster-General.
§ Mr. Hay
I was hoping to avoid discussion of the Paymaster-General's antecedents but I accept the point.
1. should like an explanation as to why it has been necessary to choose this form of drafting. This is not a Committee point because it would, I believe, have been simple for the Bill to have been drafted on the basis of amending Section 5 of the 1966 Act, simply saying that a new condition is to be imported into the various matters which the Minister of Technology, as successor to the Board of Trade in this respect, has to take into account before making a grant. An explanation tonight might save some time in Committee.
I come now to the reference in the Bill to a date. I know the problems which Government Departments face when it comes to fixing dates. Someone always falls on the wrong side of the line. But this; Bill was presented to the House on 10th November, which was a Monday, and it applied instantly to any applications made for a grant unless it was received before 8th November. How can business conduct its affairs if, without warning, Government Departments suddenly produce legislation, which we all know will go through, instituting a date from which some particular activity is to be illegal or in respect of which some particular treatment cannot be obtained?
Surely it would have been easy for some kind of statement to have been made, either in the House or outside, to industry generally, saying that a serious problem had emerged, that the Government had decided to legislation and that, from a certain date, such an application would no longer be considered if, in the opinion of the relevant Minister, the 146 granting of that application would act to the detriment of the balance of payments.
Let us imagine that I am a shipowner and have been about to place an order, perhaps with a foreign yard, in anticipation that a grant of this kind would be available. I do so on, shall we say, 8th November. I did not know that the Bill would be presented three days later. I may have committed myself to a contract, and I may then find that the whole economics of the operation to which I have set my hand will be overturned by the fact that the grant is no longer to be available.
The Government owe industry and business something better than that in the way of treatment. There are far too many of these pieces of legislation coming forward, operating from a certain date and making illegal something which was perfectly legal up to that moment, with no notice whatever being given to enable people to prepare themselves for the change.
These are matters of detail, although of substantial detail. I do not want to traverse any of the main arguments for or against the Bill because, frankly, I do not feel qualified to do so, but I ask the Government to reconsider the form of the Bill, and to bear in mind that it will help business enormously if they give adequate notice of their intention.
§ 9.26 p.m.
§ Mr. Cyril Bence (Dunbartonshire, East)
I have in my constituency some of the most important shipbuilding elements on the Clyde, such as John Brown Limited, which is now one of the major components of the Upper Clyde shipbuilding consortium.
I was rather amazed to hear the hon. Member for Henley (Mr. Hay) complaining of Government legislation being brought in in this way. For measures to be brought in as this one has been brought in is not a new phenomenon. As long as we accept, as every country in Western Europe and in America does, the proposition that Government must be a partner of industry, must play a part in industry and indulge in some intervention in it, Government being the legislative authority, there must always be a date from which something starts.
147 The hon. Gentleman knows as well as I do that before Bills are printed and before such matters come before the House there has been discussion outside with appropriate bodies and authorities.
§ Mr. Bence
I did not use the word "disclose". Whatever the Government, there are talks. If there is some form of partnership, some form of intervention-ism with all the industrial organisations concerned, there must be regular consultations. There is no question of disclosure—these discussions go on all the time.
This Bill has been brought in partly for the reason stated by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) which is that there has been a leakage of these grants to shipbuilders and shipping companies all over the world. He said that he had been promised in January, 1968 that the Board of Trade would stop that leak, and he thought that the Bill was a rather belated effort in that direction.
I agree with a good deal of what the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) said. It is unfortunate that in modern industrial economies we seem to be chasing one another, bolstering one another up and using the taxpayers' money to finance all sorts of industries for all sorts of purposes, some of them in competition, others not. When we were in opposition I was always complaining about what I called the "begging bowl". These grants go on—
§ Mr. Bence
—but we must realise that the shipping industry is the most international of all industries. For that reason I have to disagree with my hon. Friend the Member for Barrow-in-Furness (Mr. Booth). Foreign shipbuilders have ships built here: we have ships built in foreign countries. I see no objection to that. I want to see Britain making 148 its fair contribution through our shipyards, our working force and our steel capacity, to the world pool of shipping. If Shell-Mex puts in orders for three ships in a British yard, one in a German yard and one in a Scandinavian yard, that is all right with me.
§ Mr. Bence
That, of course, is worrying all of us, but those running the shipbuilding industry must bear major responsibility for competing in the world market. The hon. Member for Cathcart said that this "rat race" had started, but it was not started in this country. It was started in the United States, in Italy, in Germany and in France, and we do not know how to get out of it. I wish we could get out of it. Although there are shipbuilding interests in my constituency, in the modern technological age I should imagine that there are other things which should concern us—
§ Mr. Speaker
Order. With all his knowledge and skill, the hon. Member must come to this debate, which is about whether we should restrict shipbuilding grants for certain reasons.
§ Mr. Bence
I appreciate that, Mr. Speaker, but I was making a point following other points which, as you rightly say, have nothing to do with what is in this Bill. We are using taxpayers' money and we are to restrain that. We are to restrain what a Minister might do in using that money.
I am surprised that the hon. Member for Henley should complain about consulting the Treasury. One of my hobbyhorses has been that whatever money comes in it should be with the consent of the Treasury. That phrase appears in almost every Bill. I am sure that the hon. Member when he was in a Government introduced many Bills which had the phrase, with the consent of the Treasury?.
§ Mr. Hay
That was not what I was complaining about. It is common form when a Government has power to do something that it is with the consent of 149 the Treasury. That is because the Treasury holds the money bags, but the Treasury might come to an opinion and then have power to give a statutory direction to another Minister. That seems strange.
§ Mr. Bence
The Treasury has to make a decision in giving a grant to some capital construction in the form of a ship at a given date. It has to make an assessment of whether that ship will make a contribution to our balance of payments. We all agree that shipping is a great international industry and is subject to international movements, but the life of a ship may be 20 years. What sort of projection will the Treasury make about the life of that ship? In the last 10 years of its life it may make a tremendous contribution, or it may make a great contribution in the first five years. How can one predict what contribution it will make? I do not like legislation which restricts any action concerning industry. I cannot see how it is possible to express an opinion as to whether a particular vessel, a 20,000 ton bulk carrier, a passenger liner or a tramp, is to be assessed with a life of 25 years and what contribution it will make.
How is it to be said that this ship will never be an asset to Britain, an earner of foreign exchange? I cannot see that. Shipbuilding is international, as is shipping, and I make no complaint if a ship is built in a foreign yard for a British owner. That ship can compete on the high seas, bringing in foreign exchange for Britain. If a foreigner decides that the type of ship he wants can best be built in Barrow or Clydebank and he builds it there and puts the ship into the world pool, I make no complaint about that. It would be a good thing if the shipping interests of the world would get together, as they do with freight agreements and employment of labour, and stop this rat race.
We are introducing a Bill now to stop private enterprise getting through the loopholes and exploiting the British taxpayer. All over the world taxpayers are being exploited to support their shipping industries for prestige reasons, often when their ships make no contribution to the economy. One big American liner is being laid up, although it has been subsidised to the tune of £12 million a year. 150 This is a waste of effort and some control has to be exercised. Under the previous Administration and in the early part of ours, someone has been having a whale of a time. That is private enterprise. This Bill is not the result of a failure of the system of support—it is because of a failure of certain sections of British shipbuilding. It has failed to meet world wide competition. Other nations will subsidise us out of world shipping if we do not follow suit. We have not got an alternative answer.
§ 9.37 p.m.
§ Mr. Simon Wingfield Digby (Dorset, West)
The right hon. Gentleman the Paymaster-General who opened the debate described this as a short and not violently exciting Bill. Whether or not it is violently exciting, we have had an interesting debate. Most of us are probably very sorry not to see the right hon. Member for Easington (Mr. Shinwell) present, as he usually is on these occasions. We hope that he will be recovered very soon. Although this may be a short and limited Bill it opens two very wide general issues. First, there is the question of investment grants, whether the replacement of the investment allowance by investment grants is working. We have heard of leaks today and one wonders what other leaks there are in other areas. Is this the tip of the iceberg? Will we get further Bills of this character dealing with other areas where investment grants are available?
I hope that the Financial Secretary will tell us the exact extent of the leak. We have not heard what the estimated size of the leak is. Secondly, this opens up questions of shipbuilding and shipping. As usual, we have found a conflict of interest between shipping and shipbuilding. The Geddes Report has largely been carried out. Many of us are wondering whether the Shipbuilding Industry Board will be allowed to lapse at the end of next year, as would happen under the Measure, unless it were specially prolonged for one year. We had a warning from the right hon. Member for Sunderland, North (Mr. Willey) that there is a world shipping boom and our own industry still has very many problems.
We have also heard from the hon. Member for Barrow-in-Furness (Mr. Booth) and from my hon. Friend the 151 Member for Glasgow, Cathcart (Mr. Edward M. Taylor) about some of these worries in connection with shipbuilding. Equally with shipping there is intense international competition, and we are anxiously awaiting another Report, the Rochdale Report, which some of us had thought might have been issued by now. Until it does come there is bound to be some uncertainty, but already from that Committee there has been a certain fallout, if I might use the word, in the form of better figures relating to what our shipping is really doing. It has thrown up separate shipping figures for our invisible earnings, and I was glad that the Paymaster-General referred to this. In 1968 the gross earnings were £825 million and the net earnings £260 million. In 1969, shipping is not doing quite so well, but up to the end of September the net earnings to our balance of payments were £157 million.
It is all the more disturbing to note this evening that in other directions the investments grants are causing a leak in our very important balance of payments, and this is something to which we must direct our attention carefully. It is a little surprising that the method by which the Government are seeking to do this involves the use of such a sledgehammer that they have had to take such extremely wide powers.
I must make a complaint. I think it is a great pity that the latest annual report on investment grants is that for 1967–68. I am told that the report for 1968–69 will not be ready for another three weeks. With this debate in the offing, it seems a pity that the Government could not have hurried up a little and given us the figures.
One of the features of investment grants is that they are in the pipeline for a long time, and so the figures that we read in the available report are obviously completely out of date. Although to a certain extent the Paymaster-General has brought us up to date with the figures he gave this afternoon, it is a little difficult to digest them at first sight. They seem rather considerable. If I heard the right hon. Gentleman aright, £61 million, or one-fifth, is due to non-resident companies. This may account for part of the leak. But that is a very much larger 152 figure than that accounted for in the annual report.
In the original Measure, Section 5 of which allowed for these investment allowances, the conditions were fairly stringently drawn, and it is surprising that the Government have experienced such difficulty in preventing leaks. In 1968 the Board of Trade announced several steps designed to stop this gap, by making British companies which were registered after 1963 subject to special provisions. But obviously this has not worked.
There have been repeated warnings on this subject. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) uttered a warning more than a year ago. There was a warning, of which we were reminded in the debate, by the Shipping and Shipbuilding Association recently, and before that Mr. Hogarth reminded us in a letter to the business section of The Times that the President of the N.U.S. last May drew attention to what was happening and said that some of these investment grants were going to those who did not really deserve them.
Now we have a third attempt to check this abuse, and my hon. Friend the Member for Guildford (Mr. David Howell) has described it as peculiar. My hon. Friend the Member for Henley (Mr. Hay) has commented on it, too. Constitutionally, it seems extraordinary that power should be taken to restrain a leading Minister from paying out money. I quite see that certain leading Ministers may on occasion need a certain restraint, but to put in a Statute that the Treasury is to restrain him seems peculiar. I am not sure that I should have started with the right hon. Gentleman the Minister of Technology; I think that we might well have started with one of his right hon. Friends. However, the mere fact that such a clumsy method has been necessary shows the extent of the difficulty.
§ Mr. Harold Lever
It is useful to restrain Ministers sometimes even from interrupting, but the position is this. Responsibility for giving the investment grants lies with the Minister of Technology. Responsibility for deciding whether the matter meets balance of payment requirements is, naturally, for the Treasury. It is not a question of restraining a Minister. The Treasury makes the 153 balance of payments decision. Once that is the criterion, inevitably power has to be given to the Treasury.
§ Mr. Digby
That is an interesting emphasis on the power of the Treasury, and it is a precedent which we shall watch with great interest.
There is a serious leak going on, I am sure, or the Government would not have resorted to this rather extraordinary way of stopping it. I come now to four consequences that appear to me to flow from the leak which is going on. It musthave had some effect in swelling the total of the British merchant fleet by persuading people to build for the British flag. They have to fly it for five years. The right hon. Gentleman the Member for Sunderland, North mentioned something which has been a little disquieting for all of us, namely, that we now have only the third largest merchant fleet in the world, having been surpassed, first, by Liberia and now even by Japan. When we realise that the figure may have been swollen by the so-called leak, it is even more disquieting Second, there is the loss to taxpayers. Third, by paying out this money in the way it is being paid out in certain cases, we are giving a subsidy to our competitors in both shipbuilding and also in shipping. Fourth, we must be giving a sterling credit to non-resident interests which will not entirely play the game by our own balance of payments.
Now, the question why E.F.T.A. is included in these provisions. At first, I was extremely puzzled by this, but I understand that it is necessary under the provisions of the Treasury of Stockholm. One cannot help wondering whether this will lead to further abuse. I take the example of a Norwegian shipowner who wishes 1:0 build a ship in Norway. He can set up his brass plate in London. His difficulty, I suppose, is to show that he is Carrying on a business in Britain, but this seems to be just the provision which, under the pro forma, has failed up to now, and I shall be interested to know how it will be better enforced. If all these people had been genuinely carrying on business in Britain, surely, adequate funds would have been remitted back here and the difficulty would not have arisen.
I want to know whether this will be a case of built-in change, is it acquiring 154 a certain flexibility which might be used by the Treasury in other and more difficult times? In the meantime, it creates a good deal of uncertainty, although I was glad to see in paragraph 11 of the Paper issued with the Bill that trial cases, theoretical cases, can be put out by interests intending to build a ship before they are actually committed so that the Treasury will tell them more or less what their position will be as regards a grant. I am still a little puzzled, however, about how so many have slipped through already. Where has the failure been? How will the new test of the effect on our balance of payments be applied? Will the judgment be made over a period of five years, three years, or even longer than five years? We are entitled to an explanation from the Financial Secretary.
I hope that he will also tell us the extent of the leak, which is impossible to determine from the figures put before us. Some of the newspapers have given a pretty large figure, but, judging from the figures the Paymaster-General gave, it is perhaps not so large as we had imagined.
The Opposition must support a Bill if it will have the effect of safeguarding the taxpayer, but we must hold the Government responsible for the leakage which has occurred in the application of investment grants. They have already tried to stop it and failed, and they are now trying again in this rather unusual way. I hope that it will be a case of third time lucky.
§ 9.51 p.m.
§ The Financial Secretary to the Treasury (Mr. Dick Taverne)
I hope the House will forgive me if I do not deal with all the points raised. Many will come up again in our Committee debates, and my right hon. Friend and I will deal with them there as they arise.
There has been no general disagreement with the purpose of the Bill, though exception has been taken to its form. First the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and now the hon. Member for Dorset, West (Mr. Wingfield Digby) have blamed the Government for not taking action earlier to prevent this drain on the balance of payments. That is not an assessment that the House can accept. I leave aside the fact that formerly, under the 40 per 155 cent. investment allowances and the free depreciation which was available, there could be a greater benefit to shipping companies than under the present system which might very adversely affect our balance of payments. We have kept a careful watch on the position, and we acted first in January, 1968, to prevent the so-called "brass plate companies" especially formed by non-resident interests from taking advantage of the investment grants. Now, in introducing the balance of payments tests, we are extending similar safeguards over a wide field. The objection to this is not entirely clear.
I understood the hon. Member for Cirencester and Tewkesbury to have two main objections. First, he felt that we should not pay investment grants at all. Second, he seemed to feel that we should not apply the balance of payments tests, though the drain on the balance of payments was the scandal about which he protested. I believe that he felt there should be a test of whether or not a company was foreign-owned.
There are two answers to his first objection. The system of investment grants has certainly made a contribution to an improvement in the net earnings of shipping which by all accounts, as is admitted, has been very considerable. Second, the investment grant system is particularly appropriate to shipping. So often shipping companies which make a considerable balance of payments contribution do not, because of depreciation and other factors, make profits which are subject to tax. Therefore, the investment grant is a form of assistance particularly suitable for enabling them to contribute to the balance of payments in the way that they have. I shall come later to the possible alternative test to the balance of payments test which has been suggested but would be in breach of our international obligations.
The hon. Gentleman asked why the discretionary system had been altered. It is true that the Minister of Technology, and previously the Board of Trade, had discretion as to whether or not to make a grant, exercised in accordance with the intention of the Acts under which it is within his competence to make decisions. However, the Treasury is responsible for policy on the balance of payments. There- 156 fore, the Government felt it appropriate to legislate for the Treasury to have the discretion to apply the policy when it comes to investment grants. This is a policy which it is peculiarly apt that the Treasury should apply. They are used to applying balance of payments tests. For example, they apply tests for the balance of payments from the point of view of the effects of flows across the exchanges in overseas investments. Equally, in this type of situation there are similar tests, and I will come to them later. The Treasury is the right body to test whether or not the payment of a grant will redound to the benefit of the balance of payments. In any event, the question of the Minister of Technology's discretion is still under consideration by the courts.
I was then asked about the savings to the balance of payments. I am afraid that I cannot give the House a figure. The statistics depend on a number of factors which cannot at present be forecast. For example, they depend on the future rates of ordering by eligible ship owners and the question of whether ships are ordered in circumstances which would fail the test.
There may be other, less immediate, effects on the balance of payments—there are indirect consequences—which might mean, in certain cases, orders for the building of ships now being placed in the United Kingdom whereas otherwise they might be placed outside E.F.T.A. I do not foresee any reason why there should be a diversion of orders from the United Kingdom to E.F.T.A., remembering that the E.F.T.A. exemption applies to the United Kingdom as well.
The hon. Member for Dorset, West wondered if it would be possible for, say, a Norwegian ship owner seeking to build in Norway to set up a brass plate company in the United Kingdom. That is a fair question, but there are still, apart from the controls which are set out in the new balance of payments test in relation to non-E.F.T.A. ships further methods of control. For example, we still have the exchange control powers which have been used. It would be perfectly possible for the Treasury to use these exchange control powers—I referred to indirect powers—should any loophole lead to the sort of abuse with which we have previously dealt.
157 Since the publication of the Bill, I have received a deputation from the Chamber of Shipping and certain points were made to me by, among others, the hon. Member for Henley (Mr. Hay), and I will deal with some of these later. First, however, it might be helpful if I dealt with the first question which the deputation raised; that of the date. It is quite normal for a change of policy to take effect from the date on which it was announced. My hon. Friend the Member for Dunbartonshire, East (Mr. Bence) pointed this out. The reason for choosing the date of 8th November was that it was on 7th November that notice of the introduction of the Bill was given to the authorities of the House.
The lest which was applied as from 8th November relates to relevant expenditure entered into before that date. This test was chosen because it was considered to be one which could be defined in a manner which would leave no doubt in the minds of ship owners whether or not they would qualify. It was also chosen to make it difficult to use dubious methods to back-date imprecise agreements which might be used to gain exemption in cases where exemptions should not be given.
I assure the House, as I assured the deputation to which I referred, that there is no intention whatever to make the Bill unfairly retrospective. We are looking at the question whether or not other firm contracts which are legally binding, but which have not yet involved the payment of a deposit, can also be exempted if entered into before 8th November.
One must face the need to avoid legal argument We want certainty. This is a matter which we can consider further in Committee, and, with the help of hon. Members generally, we can ensure that a satisfactory arrangement is arrived at which will not lead to any retroactive operation of the Bill.
§ Mr. Ridley
The hon. and learned Gentleman has told us what the Bill will save in terms of foreign exchange. What does he expect it to save in terms of investment grants?
§ Mr. Taverne
I cannot give that information, because the test which will be applied is a balance of payments test, and we shall have to look at the figures which come out to decide on each case 158 whether the balance of payments test is passed. Until one applies that test, one does not know the number of cases in which investment grants will be refused.
§ It is perhaps appropriate—
§ It being Ten o'clock, the debate stood adjourned.
§ Question again proposed, That the Bill be now read a Second time.
§ Mr. Taverne
It is appropriate that I should now come to the test. It is necessary, in order to apply the test, first for an estimate to be made of all the extra payments and receipts involved across the exchanges arising from a transaction and of the timing of such payments and receipts. For that reason, shipowners will be asked to give estimates of profits, information relating to management and crew, which again clearly is relevant and also involves payments across the exchanges, and certainly we shall need figures and, where appropriate, estimates relating to the capital elements in the transaction.
One first looks to see what the payments across the exchanges will be. One then applies the discount rate. Future payments and receipts will be discounted to net present value on the basis which is familiar in investment appraisal and which is extensively used in many parts of industry.
There was a misconception in the minds of my hon. Friend the Member for Glasgow, Scotstoun (Mr. Small) and the hon. Member for Cirencester and Tewkesbury about the purpose of the discount rate. It is a test used to decide the value of payments going out now as compared with the value of payments coming in later. It does not matter what are the profits of the company. They may be higher or lower. The test is what is the value to the country. It is for that purpose that the 10 per cent. discount test is used.
§ Mr. Taverne
It is from individual owners who may seek investment grants.
It has been suggested that this may be putting too much of an onus on the owners. I do not think that that would be the case. If we do not have such a test, the only alternative is to lay down flatly that specific categories of companies having ships built or converted in specific places will receive grants while others will not.
If we simply made the test that of United Kingdom ownership, we should be in breach of G.A.T.T. We do not aim in this Bill to say to a class of company that it will not receive grant or that grant will not be paid on ships built in a certain area. We are saying that companies will not receive grant where a transaction damages the balance of payments.
Obviously if a ship is owned by a nonresident company, it is certain that there will be costs to the balance of payments which would not arise in the case of a wholly resident-controlled company. It follows from that, that a non-resident controlled company is more likely to fail the test than another.
The test should not place undue difficulties on shipowners. In the case of an established British-controlled shipping company, it should be possible in general to establish that it is so established and that it is British-controlled. Secondly, the test which will be applied will be one of commercial judgment made in good faith, and one can look at a longer period ahead to see what the programme of ordering ships is and then apply this commercial test.
§ Mr. Edward M. Taylor
The Minister has suggested that this will not be difficult. How, in the case of a non-resident company building a ship in Britain, is it possible to give detailed information relating to management and crew? How is it possible to say how many of the crew will be United Kingdom residents so that these figures can be credited? How can a non-resident company say what kind of crew it will have when the ship has not even been built?
§ Mr. Taverne
It may be that in some cases certain parts of the information can- 160 not be given as exactly as others, but an indication can be given whether it will be a mainly British crew, and this affects the flow of money across the exchanges. If it is to be a British crew, clearly the expenditure will have a different effect than if it is to be a wholly foreign crew.
I can tell the hon. Gentleman that in the discussions which not only I but Treasury officials have had with representatives from the Chamber of Shipping they have been satisfied that this will be a rapid process, that it will not place undue difficulties in the way of work, and that we will co-operate to every extent in streamlining the procedure so that the minimum difficulties will be caused to those who apply.
On the other important point about whether an indication can be given before the grant, the answer is, yes. The purpose of the information asked for by the Treasury is to give a firm indication whether the grant will be available. If there are later changes, in that information, as indicated in the circular, the indication might be invalidated. But if the information is as stated, the grant will be forthcoming once the indication has been given.
§ Mr. Ridley
Before leaving the test, will the Financial Secretary answer my question about the amount of foreign currency he would expect to come in annually in respect of an investment grant of £1 million, or any other figure he cares to take?
§ Mr. Taverne
This depends on the return across the exchanges. This is where the hon. Gentleman has clearly not grasped the fact that the test discount rate at 10 per cent. would determine whether £1 million worth of investment grant would produce a worth-while return to this country.
§ Mr. Taverne
What is worth while will be determined by the discount rate. If, allowing for the discount rate, the return across the exchanges exceeds the benefit to this country of not paying out £1 million, then the grant will be allowed. If it does not, the grant will be refused. This is clear, because it is a test which is widely used in industry with which the hon. Gentleman would be familiar if he was not making a particular point on the 161 Bill. It is not something on which we can give a particular figure and say that we want a return of £400,000 within the first two years or anything like that. It is a feasible test to apply, and it will be applied, to protect the balance of payments. The Government have provided an eminently reasonable scheme to protect the balance of payments.
§ Mr. Willey
This is of constitutional importance. I have already said that, from the point of view of shipbuilding, I should Like it to be interpreted as liberally as possible. But is it good enough to legislate in this way the opinion of the Treasury? The Financial Secretary's case is that he has made the test absolutely clear. In that case, why cannot we have a schedule to the Bill setting this out?
§ Mr. Willey
I was only putting to my hon. Friend a matter of crucial importance that we must have cleared up before we consider the Bill in Committee.
§ Mr. Taverne
The way that this will be operated by the Treasury is similar to the way that the Treasury operates exchange control when it comes to foreign investment. Very much the same considerations apply. We have the same end in view, namely, whether money going out 162 of this country will redound to the benefit of the balance of payments. The system being the same, and the object being the same, it is not unreasonable that this should be left to the discretion of the Treasury. We think that we should achieve the object in a manner which will be equitable between the interests involved.
As regards the retroactive point, I am sure that here again we can come to an arrangement which will be satisfactory to the parties involved.
I ask the House to give a Second Reading to an eminently reasonable Bill which is designed to do the very thing which the Opposition have asked us to do.
§ Mr. Taverne
If that discretionary power was not given the Ministry of Technology might have to pay the grant.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).