HC Deb 07 May 1970 vol 801 cc590-8
The Paymaster-General (Mr. Harold Lever)

With permission, I would like to make a statement about Cammell Laird and Company Ltd.

This company announced last week that, with the knowledge of the Ministry of Technology, discussions were taking place with interested parties with a view to ensuring the viability of its shipyard. The shipbuilding subsidiary, which had made profits in earlier years, found itself faced with heavy losses and the parent company, although possessing valuable assets, was unable to make available the cash required for the normal operation of its shipbuilding business. Consequently, the group faced a liquidity crisis which jeopardised the future of the 20,000 it employs in its various activities.

The Shipbuilding Industry Board's powers to assist the re-equipment and reorganisation of the yard were not appropriate to solve the wider problems of the group. But the Industrial Reorganisation Corporation has agreed to make secured loans available as required within a limit of approximately £6 million to help the group meet the needs of its shipbuilding subsidiary.

The leading shipowner customers of the yard have for their part agreed to cancel certain orders and to assist the yard to complete other ships now on order by them, subject to reasonable refund provisions.

As part of these arrangements, the Government have agreed to provide the finance for a 50 per cent. shareholding in the shipbuilding company at a price to be settled by independent valuation. Legislation and Supplementary Estimates as necessary will be submitted to the House in due course and any funds required immediately in connection with the purchase of shares will be provided from the Civil Contingencies Fund. The group will apply the funds now being mobilised to relieve the shipbuilding company of all its expected losses.

The Government will expect the company to avoid further unprofitable orders. On the management side, there will be an early and extremely thorough management reconstruction.

As a result of these arrangements, riot only will the liquidity crisis threatening the whole group be averted but the shipyard will be able to meet its obligations and get ahead with its shipbuilding business.

Putting it bluntly, we have rescued this company from total collapse, but this does not mean that the future of the company is guaranteed, still less guaranteed by the Government. The future of the company will depend on the efforts of management and workers in making it a viable competitive unit. In order to promote a realisation of this fact, and to give incentive to those most concerned, I am considering whether there are ways in which the shares in the shipyard might be so dealt with by, for example, placing them in a trust on behalf of the employees, or by some other similar means.

I intend to discuss this with the trade unions and others concerned.

Sir K. Joseph

Could the right hon. Gentleman tell the House what contribution to the company's financial crisis probably arose from the Government's transfer to Vickers of the expected nuclear submarine building and maintenance orders for which Cammell Laird had prepared and tooled up? Did the Government consider compensation for this change of expected plan?

Will the right hon. Gentleman tell us whether he accepts that by choosing the share purchasing route he may have adopted an open-ended commitment, or is he prepared to say that this rescue operation is once and for all? Is this the first time that the I.R.C., which is meant to have an independent board, has involved itself in a rescue operation unconnected with a merger? Has the independent board told the Government that it regards this investment as safe and commercial and finally, what, ignoring the I.R.C., is the likely total minimum cost?

Mr. Lever

Unless one takes the view that when the Ministry of Defence places an order it guarantees an indefinite number of follow-up orders there is really nothing which can be said about that, except that there were certain difficulties for the company. These, however, played a negligible role in producing the acute financial crisis which fell upon the company.

The real cause of this serious crisis for the whole group arose from a number of factors—outside the shipbuilding yard, among other things—but inside the yard itself most dramatically by the realisation of the immense losses that would inevitably occur on the fulfilment of fixed-price contracts which the company had undertaken.

I am asked whether the taking of shares represents an open-ended commitment by the Government. Certainly not. The shares were taken because as part of the totality of arrangements required it was desirable that there should be a shareholding in the shipbuilding company. As I made clear in my statement, there is no open-ended commitment by the Government. The future of this yard, as I have emphasised, will depend upon its becoming a competitive, viable unit as a result of the efforts of the people there.

The I.R.C. is not primarily concerned with shipbuilding, but here it has moved in to enable the parent company to mobilise its assets so as to discharge the very proper liability we felt it had to meet the losses of the shipyard company, which it was not in a position to meet in liquid cash without the help of the I.R.C.

The I.R.C., having gone into this operation, will have a quite traditional I.R.C. role to play in relation to the non-shipbuilding part of the group, in assisting what I described as a very thorough reconstruction of the management and improvement of the organisation of the company. I have no doubt that this task can be safely left to the I.R.C.

Since the arrangement amounts to financing in liquid form, but not at cost to the Government—that is, the meeting by the parent company of the shipyard company's losses—if the estimates made by the company of the losses are correct the cost to the Government will be nil.

Mr. Shinwell

If the arrangements that my right hon. Friend has mentioned have the effect of avoiding a collapse by this firm, which would lead to massive unemployment, that is all the better. Has my right hon. Friend not come to the conclusion that a substantial section of the shipbuilding industry is in a very parlous condition? Is he aware that a somewhat similar situation has emerged on the Tyne, where one of the largest of the shipbuilding companies has entered into a period of unprofitability despite a substantial number of orders?

In view of the situation at Cammell Laird, on the Tyne and at U.C.S., is it not obvious that we cannot be too optimistic about the future of the industry and that it requires a complete reappraisal? Ought it not to be the subject of another inquiry to ascertain the cause of the trouble? Is it management, is it wage escalation or is it the fact that shipbuilding firms tender for orders without regard to the financial consequences? Whatever it may be, does it not call for another reappraisal?

Mr. Lever

We are always reappraising the situation. I can assure my right hon. Friend that the questions he has raised are very much in our minds.

Mr. Grimond

May I ask a question about the proposal to hand over the shares to a trust on behalf of the workers? Will they be ordinary shares, equity, and will the trustees have the right to appoint active members to the board, or will the Government do this? Will there be provision, if it turns out to be profitable, for repayment to public funds?

Although I think that this is an interesting proposal, will the right hon. Gentleman bear in mind that the unions are already in danger of losing a shareholding at Fairfield's and that while many of us welcome proposals to involve the unions in capital it is desirable that they should not always be involved in loss-making enterprises?

Mr. Lever

The shares will be equity. It would be premature to exchange thoughts across the Floor of the House on this matter.

On the question of loss-making and the like, I must make clear that I could not make a gift of public funds to any group of citizens however worthy, but the arrangements would take into account, in a satisfactory way, any cost of the shares that has to be met.

This company used to make a profit. I am quite confident that the management and men of the yard—having had the losses already incurred removed by the Cammell Laird parent, very properly, by these arrangements—have it in their power to see that this is not a loss-making situation, but a much more rewarding prospect.

Mr. Fernyhough

Is my right hon. Friend aware that with my hon. Friends I rejoice that he has found a means of saving 20,000 jobs involved in this shipyard, but is he also aware that a week tomorrow 1,100 men in my constituency will be given notice unless we can find a solution for Palmer's ship-repairing yard which will be effective in saving their jobs, as my right hon. Friend has been responsible for doing at Cammell Laird's?

Will my right hon. Friend give an assurance that he will look at every possibility—not excluding public ownership of this dry dock—of saving those 1,100 jobs should that be necessary?

Mr. Lever

I should make clear that I am as gratified as any hon. Member at being a party to arrangements which protect the job opportunities of 20,000 people. I ought also to make plain my view that in certain circumstances the protection of the jobs of people is not necessarily to the economic disadvantage of the country. On the contrary, and it does not follow that hard-heartedness is necessarily evidence of hard-headed business talent.

I take my hon. Friend's point and I shall certainly examine the possibility of preserving the job opportunities which he has mentioned.

Mr. Maudling

Arising out of one of the Paymaster-General's answers, I thought he said that the I.R.C. was carrying out a traditional role in coming in to reorganise the management. I understood its role was concerned with mergers in industry and rationalisation of industry. Is it the policy of the Government that the I.R.C. should come in to assist individual firms in particular difficulties?

Mr. Lever

Certainly. If the right hon. Gentleman will trouble to read the debates that we have had in the House, and look at the legislation, he will see that the I.R.C.'s role here is well within its remit, apart from its very useful role of helping the restructuring of this group, divorced from some of the shipyard activities, and bringing into being a viable shipyard. That seems a useful restructuring operation, but within the non-shipbuilding group there is ample scope for restructuring and management improvement.

Mr. Barnett

Is it not surprising that all we get from the Opposition Front Bench is talk about why we are not compensating an incompetent management, instead of congratulating the Government on saving a vital industry?

Will my right hon. Friend tell us whether the Government intend to use the 50 per cent. control they will have in ensuring that the company is competently managed in the interests both of the whole country and of the workers concerned? My right hon. Friend referred to some of the loss-making contracts being cancelled. Does that mean that future losses we have read about recently will not now be incurred?

Mr. Lever

The Government will have a very real interest in the effective management and success of the shipyard. As to the losses, these arrangements in effect enable the Cammell Laird parent to discharge the duty it was properly anxious to discharge of meeting the losses of its shipbuilding subsidiary. It will meet those losses and the shipyard will have, as it were, a fresh start with the losses provided for.

Mr. Selwyn Lloyd

Is the Paymaster-General aware that all of us who represent Merseyside constituencies wholeheartedly welcome the objective of the right hon. Gentleman to save the employment of these 20,000 men?

As to the cause, no doubt he will agree that it is the escalation of costs which has led to the trouble with fixed-price contracts, but will he consider a little more sympathetically the suggestion made by the right hon. Member for Easington (Mr. Shinwell) about a further inquiry?

Mr. Lever

I am grateful to the right hon. and learned Gentleman for welcoming the consequences. I think that he shares my view that throwing people on the scrap-heap where there is no satisfactory alternative employment is not an appealingly attractive economic suggestion, leaving aside the human considerations which I know weigh with him as they do with me.

It is more a matter of the form of inquiry. We are inquiring very busily and interestedly into it. This is a matter of considerable importance and it calls for a great deal of attention by the Department.

Mr. Philip Noel-Baker

While, of course, I welcome what the Government propose to do, will my right hon. Friend bear in mind that over the last 70 years Cammell Laird has made enormous profits from building warships which it has paid over to its private shareholders? Will he now consider the general question whether shipbuilding firms should not plough back a larger part of their earnings into modernisation and re-equipment?

Mr. Lever

I am very anxious, as my right hon. Friend is, to ensure economic wisdom and social justice in the future, but there is not too much time to make retrospective allocations in that area over the last 70 years.

As to ploughing back, I think that most modern shipbuilders do not in fact over-distribute profits. One could not over-estimate the very real difficulties of the task they have to face bearing in mind their history and the position from which they are seeking to lift themselves and also the very competitive international market, often subsidised, where they have to operate.

Mr. Wingfield Digby

How many of the dozen or so unremunerative Orders are to be cancelled? Does the Pay-master-General regard this as a once-for-all Operation, or will there be further sums forthcoming if efficiency and productivity do not improve?

Mr. Lever

Four of the ships are cancelled altogether and for the rest an estimate has been made of what loss will be involved in completing them. This sum, in aggregate, will be paid by the Cammell Laird parent to the ship-building subsidiary so as to give it a totally fresh start. On that estimate, all that the shipbuilding Company needs to do to break even is to come up to the estimate of the loss involved on ships that have been undertaken. All it has to do to make a profit is to do better than the estimates or to take on other work on a profitable basis. We have a strong interest to ensure that there is no repetition of these dramatically unprofitable contracts.

Mr. Snow

Does my right hon. Friend accept that social accountancy in this matter demands recognition of the fact that making money and making profits are not the same thing? Cash flow is the important factor, and unless we recognise that fact we shall continue to have this trouble in this industry.

Mr. Lever

I must resist my hon. Friend's invitation to enter into an interesting area of analysis. There are striking similarities at some points between making money and making profits.

Mr. Snow

That is a modern concept.

Mr. Lever

I dare say that my hon. Friend is right and that I have these recidivist tendencies, but I take his point that financial management involves having regard to cash flow and all the other interesting algebraic and logarithmic matters taught at business school.

Dame Irene Ward

Is the right hon. Gentleman aware that my feeling is that the Government are not paying quite the attention that they ought to ship-repairing? Will he please give a slightly more emphatic assurance about Palmer's Yard, on Tyneside?

Is the right hon. Gentleman also aware that I agree with the right hon. Member for Easington (Mr. Shinwell)? We want a great deal more knowledge of the way in which the Government's mind operates, quite often to the exclusion of ship-repairing and to the advantage of shipbuilding, though he will be aware that even on the Tyne, which has done magnificently in many directions, the profit is not forthcoming.

Can the right hon. Gentleman tell us what he will do about the steel industry, which puts up prices, which, in turn, has a vital effect on shipbuilding and ship-repairing?

Mr. Lever

I hope that the hon. Lady will not think me discourteous if I defer excursion into the steel industry to a more convenient moment.

I assure the hon. Lady that the problem of the ship-repairing industry is exercising our minds very greatly. It is a separate problem in many ways from shipbuilding, but I assure her that we have very much in mind the difficulties which are coming up in that area, and are anxious to see what we can do to help.

I understand that the hon. Lady wants two inquiries—one into the shipbuilding industry, and one into the way the Government's mind is working. I have already informed the House of my views on the former. As to the latter, I undertook that some considerable time ago.

Several Hon. Membersrose

Mr. Speaker

Order. I must protect the business of the House.