TEXTILE INDUSTRY (STRUCTURE) (Hansard, 25 March 1970)

§ The Paymaster-General (Mr. Harold Lever)
With permission, Mr. Speaker, I will make a statement about the structure of the textile industry.
My right hon. Friend the then President of the Board of Trade told the House on 30th June, 1969, that the Government had decided to call a halt for a period to further mergers between the larger firms in the textile industry. He made it clear that, while the standstill should not be seen as a bar to further major rationalisation at a later date, the Government would have to be satisfied that the benefits to the public interest of the merger outweighed the disadvantages of reduced competition.
On 23rd December, last I.C.I. announced that, subject to the agreement of the Government on the issues of public policy involved, it intended to make a bid for the whole of the share capital of Viyella International Ltd. and to enter into discussions with Carrington & Dewhurst concerning the terms of a merger of that company with Viyella.
My right hon. Friend the Minister of Technology accordingly established a small group under my chairmanship to consider the structure of the textile industry in the light of this initiative by 1433 I.C.I. and to advise on the best policy for it.
I was assisted in this task by my right hon. Friend the Minister of State, Department of Employment and Productivity, as well as by Sir Joseph Lockwood, the Chairman of the Industrial Reorganisation Corporation, and Sir James Steel, the Chairman of the Textile Council. I have discussed the problem very fully with the major interests concerned, including the trade unions.
In the light of this review, the Government have decided that the standstill should continue, subject to the following important modifications:

1. I.C.I.'s proposals will not be referred to the Monopolies Commission and will be allowed to proceed subject to certain undertakings. These are:

(i) I.C.I. should reduce its shareholding in the combined company to not more than 35 per cent. as soon as practicable, and, if this has not been completed within 12 months, it undertakes not to exercise more votes than if it had;

(ii) it should not use its shareholding at any time to influence the two companies in their choice of fibres or other materials;

(iii) the board of the combined company will have an independent chairman of standing: there will be independent non-executive directors and I.C.I. will provide only one director.

2. Proposals by other fibre producers to make acquisitions in the manufacture or distribution of textiles will be considered on the same basis and the Government will look for acceptance of similar terms and conditions. They will in any case have to be satisfied under the monopolies and mergers legislation, having regard to the share of the market or of particular sectors of the market for textiles already held by the acquiring group, that the benefits to the public interest outweigh the disadvantages of reduced competition.

3. A code will be drawn up, in consultation with the fibre producers, designed to prevent unfair trading in fibres. The code will cover such 1434 matters as prices, terms and conditions of sale, the supply of goods, fair trading practices and disclosure of information. To give effect to this statement of policy, the Government will as necessary make use of existing powers to refer proposed mergers or monopoly situations to the Monopolies Commission and of the powers to be taken under forthcoming legislation to make references to the Commission for Industry and Manpower.

During the course of my inquiry it became evident that if the Lancashire sector of the industry was to compete successfully with imports by 1972, when it is intended that the quotas should be replaced by a tariff on Commonwealth imports, a substantial increase in the rate of re-equipment was needed. The Government attach great importance to this and are considering how it may be achieved.
There is one helpful decision in this connection which I can mention now. The House will recall that on 22nd July last year my right hon. Friend the then President of the Board of Trade also said that the Government were prepared to consider an application by the Textile Council for an increase in the depreciation allowances for textile machinery.
I am pleased to say that the Board of Inland Revenue has considered the council's application and has agreed that the annual allowance for textile machinery used in the cotton and allied textiles industries, and worked for three shifts, should be increased to 25 per cent. the maximum permissible under existing legislation.
This new policy will mean that major textile firms will be strengthened while they maintain their freedom of raw material choice, and that the many efficient medium and smaller firms, protected by the code for fibre producers, will be able to take advantage of all opportunities to play their full part in the textile industry's future.
I believe, therefore, that the proposals will be in the best interests of a strong and internationally competitive textile industry.

§ Sir K. Joseph
We welcome the Minister's announcement about depreciation at the end of his statement, but does 1435 he not agree that, although uncharacteristic of his own person, the whole procedure smacks of the Star Chamber approach? Had this proposal by I.C.I. been referred to the Monopolies Commission, the House and the country would have had a voluminous report, with ample evidence. As it is, we have only a relatively long, but, in absolute terms, brief statement on which to assess the reasons for the Government's decision.
Secondly, will the Minister tell the House what legal basis there was for the Dell diktat or for this attempt at Lever legislation? The Dell diktat lasted only six months. What is the legal basis for the freeze imposed by the Government then or now?
Thirdly, but for the non-legal freeze the shareholders of the companies concerned might have expected a bid from other bidders. Is there any legal barrier now, subject to the normal risk of reference to the Monopolies Commission for monopoly reasons, to bids for these companies? I hope that the Minister will take a note of these questions; he made a statement lasting six minutes.
Fourthly, does not all this flow from Courtaulds' vertical operations? Did the Government consider treating I.C.I. and Courtaulds in the same way, that is, limiting their interests in outlets to minority stakes only? When will the code to which the Minister referred be effective? Will the disclosure of trading results under the 1967 Companies Act——

§ Mr. Michael Foot
On a point of order. Is it conducive to the good conduct of the affairs of the House that a whole series of questions should be put from the Opposition Front Bench which, if they were answered in absolute detail, would mean that the time of other hon. Members was taken up? If Opposition spokesmen are to be accorded the facility of being given statements in advance, cannot they use that privilege with some regard for the interests of other hon. Members?

Mr. Speaker
As the right hon. Gentleman pointed out, the statement was a long one which called for a number of questions. I hope the Minister will take note of the hon. Gentleman's hint and not reply in too great detail.

§ Mr. Peyton
On a point of order. Can you say, Mr. Speaker, to what extent you find it valuable to have the constant assistance of the hon. Member for Ebbw Vale (Mr. Michael Foot) to advise you on your duties?

Mr. Speaker
I do not recall that the hon. Gentleman frequently gives me assistance.

§ Sir K. Joseph
Is the Minister aware that I carefully pruned the large number of questions raised by his statement to the minimum relevant?
Will the Minister see to it that under the 1967 Act separate trading results for fibre production, on the one hand, and textile trading, on the other, are published by the companies concerned?
Lastly, what does he expect will be the attitude to his statement of overseas fibre producers who provide investment and employment in this country?

§ Mr. Lever
I am grateful to the right hon. Gentleman for pruning his questions and will try to answer the meagre number remaining.
In the first place, he asked why this matter not sent to the Monopolies Commission instead of being dealt with by the working group. The answer is that what was required was a speedy investigation so as to give a result which could enable I.C.I. and the other parties concerned to make appropriate decisions at the earliest date.
This bid of I.C.I. was made specifically subject to the consent of the Government. It was not a case of the Government imposing a condition. It was I.C.I. itself that required the Government's consent before it was prepared to proceed.
The only legal basis for any statement of Government policy is the appropriate monopolies legislation. Any person may take any action he likes within the law, but it is right that the Government should make clear, so far as they can, the guidelines of their policy likely to be implemented. This is very much to the convenience of the industry.
I would say to the right hon. Gentleman that most people in commerce would regard this sort of inquiry as being far more useful, ignoring its chairman, than a long philosophical investigation 1437 by the Monopolies Commission, which is not suited to every example that has to be considered, although, of course, it has its uses.
The right hon. Gentleman asked whether I have considered limiting Courtaulds in the same way. What he probably means is whether I have considered reducing its shareholding in all the forward companies, similar to that which I.C.I. will have in the Vyella-Carrington and Dewhurst matter. Having considered all the aspects I do not think that it would be in the interests of the textile industry to apply retrospectively to an organisation terms and conditions which suited the present situation, but which would result in unjustifiable disruption and inconvenience if applied retrospectively.
As for the point about separate accounting, I am doing my best to ensure wider and more detailed information than has been the case in the past.
Finally, the right hon. Gentleman would be wrong to suppose that this decision will cause any inconvenience or difficulty to overseas fibre producers who produce in this country.

§ Mr. Barnett
As it is unlikely that I.C.I. will be able to hive off enough shares to get below the 35 per cent. and would, therefore, have virtual control, despite what my right hon. Friend has said about voting, would he not be prepared to let others have the same sorts of rights, that is to say, in regard to the Courtauld bid for English Calico? Does this still apply only to the five major companies in the industry? Are take-over bids allowed by the other bigger companies of foreign competitors?
While I accept what my right hon. Friend said about the need for a speedy decision now, would he not agree that there is a need for a rather more philosophical approach, as he put it, by perhaps putting this matter to the new C.I.M. to get its view on what it considers to be the right grouping in the textile industry in this country as a whole?

§ Mr. Lever
Life must go on even in advance of the C.I.M. I am sure that that body will be useful in giving us guidance when required on specific problems that are referred to it. This problem was rightly referred to a working group, including 1438 the Chairman of the Industrial Reorganisation Corporation, Sir Joseph Lockwood, the Chairman of the Textile Council and my right hon. Friend the Minister of State, Department of Employment and Productivity.
So far as effective control is concerned, far from my being troubled about the matter I feel that there will be considerable advantage in making the necessary contribution that I.C.I. has to make in the matter of international marketing, improvement of the financial side of the company and the like. At the same time I am satisfied with the undertaking I have been given that there will be no interference by I.C.I., irrespective of its percentage shareholding, in the fibre choice of the Vyella-Carrington & Dewhurst Companies.

§ Mr. Richard Wainwright
In announcing the increased depreciation for only a limited section of the textile industry, the right hon. Gentleman admitted that the Board of Inland Revenue was limited in choosing depreciation rates under legislation which dates from a long time ago before obsolescence attained its present importance? In the light of this, will the right hon. Gentleman remind the Chancellor of the Exchequer that this legislation hampers any competition with countries where depreciation is more generous to the efforts of textile industries?
Secondly, in choosing the rather elaborate board structure with an independent chairman and several non-executive independent directors, has the right hon. Gentleman given sufficient attention to the need for a dynamic and continuously responsible board as well as one which will observe due restraints?

§ Mr. Lever
I will certainly bear in mind the hon. Gentleman's remarks about depreciation. The directors on the board will be in addition to the executive directors. I hope that they will all be dynamic, ingenious, helpful and constructive. As a matter of fact, I myself shall not be appointing them, nor will I be running the company.

§ Mr. Oakes
Will my right hon. Friend accept that many of us in Lancashire accept the need for speed in this matter and congratulate him on bringing speed into this matter instead of it going to the Monopolies Commission? What effect will this have on the level of employment 1439 in the industry and what effect will the proposals have on redundancy and did the trade unions which he consulted agree with the proposals that he has put forward?

§ Mr. Lever
I could not submit the proposals in any detail to the trade unions before announcing them to the House, but I am satisfied that they will win the support of the trade unions because they advance the security of employment of their members by bringing the strength of I.C.I. forward to some extent into the textile industry. This will improve job opportunities and will not reduce them.

§ Mr. Fletcher-Cooke
Since the right hon. Gentleman attributes more importance, as indeed I do, to I.C.I. having only a minority control in the new grouping, what prevented him insisting on fair shares in this matter by providing that Courtaulds should only use minority voting in its enormous captive outlets in the textile manufacturing industry since they already have about 31 per cent of the weaving end alone?

§ Mr. Lever
The hon. and learned Gentleman must know that there is all the difference between making a decision about covering future action which will apply to Courtaulds as much as I.C.I. and retrospectively enforcing upon firms which have been allowed to take certain action over a long period of years a new code of behaviour significantly altering their shareholding, voting rights and the like. I do not say that in matters of fundamental importance one would not be justified in doing that, but I think there is no justification for doing what he implies I should have done.

§ Mr. Sheldon
Although I understand that I.C.I. may be forced to divest itself of some of its shareholding, what is important is that in the early stages it will appoint the new board and the senior management. Even if it is successful in divesting itself subsequently of part of that shareholding, the management and the board previously responsible to I.C.I. is unlikely to treat it as just another firm.

§ Mr. Lever
My hon. Friend is wrong in supposing that the management appointments will be a matter for I.C.I.—either the senior or junior appointments. I would have thought that the 1440 management, in the first stage, would be as it now is, and that the new board of directors will make such management changes as will become desirable in time. Since the board will be appointed by I.C.I. it will consist, on the one hand, of the executive directors among those working there at present and new directors, non-executive of a manifestly independent character, who will take over the running of the company.
Quite apart from the obligation of the board not to allow I.C.I. to interfere in the fibre choice of the company, I have a specific pledge from I.C.I. that it will not interfere. I have every confidence that it will be observed. There are remedies should that not be so, though, of course, I am implying no lack of confidence in I.C.I.

§ Mr. Kenneth Baker
Is the right hon. Gentleman aware that his solution is likely to be a bad one because it is so artificial? Is not the real solution to the problems of this industry that which has been adopted in other countries, to have separate fibre, clothing and textile companies, instead of deciding to dance to Lord Kearton's tune?

§ Mr. Lever
The hon. Gentleman alleges that I dance to Lord Kearton's tune. Lord Kearton does not come into it.
This is a matter of I.C.I.'s application. This was not an invention of the Government, but a commercial request impelled and motivated by commercial purposes. The Government's problem was to decide on what basis this commercial motivation should be restricted so as to preserve the public interest and the interests of employment and prospects in the textile industry.
The hon. Gentleman allows himself an off-the-cuff statement about the difficulty of verticalisation in other countries. This would deserve more careful study than his broad generalisations.

§ Mr. Peyton
To what extent does the right hon. Gentleman's statement imply the early demise of the Monopolies Commission? If it does not, can other industrial concerns expect such privileged treatment and expect to be excused from the embarrassment of long philosophical discourses by the Monopolies Commission?

§ Mr. Lever
What would have resulted on the specific application would have been necessarily far broader in character than was required by the situation. I.C.I. was not exempted from anything. The matter was considered just as it would be with any other company. If it was thought desirable in the public interest—it is no good the hon. Gentleman shaking his head. He was not there. I was.
The matter was considered to decide as far as possible whether the public interest required a reference to the Monopolies Commission. We decided that it did not, thanks to the satisfactory undertakings which we have received. Any other firm is open to similar treatment.

§ Mr. Tom Boardman
The right hon. Gentleman justifies his procedure on the ground that speedy investigation was necessary. Surely he recognises that this applies to every proposed merger. Why depart from the procedure in this case? If he does so, will it be the standard that the Government will adopt in all other cases, and will they introduce new legislation to give effect to it?

§ Mr. Lever
I hope that the Government will always consider in any proposed merger what is the right mechanism for dealing with it. Here we are dealing with an application within a period of standstill declared by the Government last June, if my memory serves me right, and my addition works it out somewhat differently from the six months referred to repeatedly by the right hon. Member for Leeds, North-East (Sir K. Joseph). Perhaps he will check his counting.
The Government were faced with an application by I.C.I. in which the company indicated that it did not wish to proceed unless the Government approved the proposals that it had to make. In those circumstances, the procedure for determining the issues involved was very appropriate, useful and reasonably speedy.