HC Deb 11 November 1970 vol 806 cc398-407
The Minister of Aviation Supply (Mr. Frederick Corfield)

Mr. Speaker, with your permission and that of the House, I wish to make a statement about Rolls-Royce.

In 1968, the previous Administration made arrangements to provide launching aid up to £47 million to Rolls-Royce Limited for its RB211-22 engine, which had been ordered for the Lockheed Trijet aircraft. The aid was intended to cover, after certain adjustments, 70 per cent. of the estimated launching cost of £65 million. This figure was later revised to £75 million without any increase in launching aid.

Her Majesty's Government have now been informed that the cost of launching the engine is estimated to have risen to £135 million. Recognising the magnitude and importance of this programme, the Government have decided to join with the company and its bankers in meeting the increased cost. For their part, the Government will make further provision for launching aid at the existing rate of 70 per cent. Subject to a further check of the figures by independent accountants, to satisfactory contractual arrangements, and to limitation for a period of any distribution on the company's ordinary share capital, the additional launching aid will be 70 per cent. of the increase cost over £75 million up to a maximum of £42 million, thus making a total of up to £89 million towards the cost of launching this engine. Rolls-Royce will pay my Department an appropriate levy on all engine sales. The banks for their part will be making a further £18 million available. No further assistance will be provided by the Industrial Reorganisation Corporation beyond the £10 million which was committed by it under the previous Administration.

Rolls-Royce is itself making its half-yearly statement today in which it is announcing changes in the company's management.

The House, I trust, will join me in expressing the hope that this important development programme can now be successfully completed.

Mr. Benn

I am sure the whole House wants Rolls-Royce and its workers to succeed. May I ask the right hon. Gentleman some questions? First, £47 million was put into this engine. Was the I.R.C. involved in the negotiations for the provision of this further aid? What is the total Government commitment to Rolls-Royce? Are the Government guaranteeing in any way the £18 million to be provided by the banks? Were the management changes to be announced today a condition for the launching aid? What limitation on Rolls-Royce dividends are the Government insisting upon? How many engines will have to be sold for the Government to get their money back? Finally, does not the right hon. Gentleman's statement make an absolute nonsense of everything that has been said by his right hon. Friend about the abolition of I.R.C., which was monitoring the work of Rolls-Royce, and also about the lame ducks, since what the Government have done in giving this £42 million today is to brand one of our great companies worldwide as a lame duck in a subsidised soft morass of competition.

Mr. Corfield

The duck was not exactly sound when the right hon. Gentleman left it, but I will try to answer his questions without making a statement as long as the questions. As regards the I.R.C., the full impact of these costs was not available to my Department till August, and as the right hon. Gentleman knows, he invited the I.R.C. to investigate as early as about a year ago. The total under this launching programme, as I said in my statement, is £89 million. The £18 million put forward by the banks is in no way secured. The change of management was, of course, discussed with my Department, but I think it would be going too far to say that it was a condition. The dividend limitation which I have agreed is that there shall be no more than nominal dividends for at least the next following three years, that is, up to the financial year ending March, 1973. The number of engines on which the launching aid is based is 225 aircraft—the right hon. Gentleman will know that one allows an extra 0.6 of an engine per aircraft for spares—plus 100 engines for marine and other purposes.

On the right hon. Gentleman's last remark, I simply remind him that his Administration, and Administrations before his and since, have always recognised the special characteristics of the aerospace industries, and the basis of the policy for launching aid which has nothing whatever to do with the points he made.

Mr. Onslow

Would my right hon. Friend say what effect his statement will have on the development by Rolls-Royce of the RB211-61 engine?

Mr. Corfield

That is an entirely different question. It will be considered in connection with the Government's decision on the airbuses, which is under consideration and about which I can make no statement today.

Mr. Thorpe

Is the right hon. Gentleman aware that many taxpayers and members of the House will want to know why, over a period of two years, the launching costs have risen from £65 million to £75 million, to £135 million? We should like some indication that we are not to have a further statement in a year or 18 months telling us that costs have risen still more. Consequently, since an enormous amount of taxpayers' money is, I understand, being granted to this firm, is there any reason why the taxpayer should not have a stake in it? Is there any reason why, for example, we should not take debenture stock convertible into equities?

Mr. Corfield

In regard to the escalation, I said that the full impact was not apparent to my Department until the end of August, so the right hon. Gentleman can draw his own conclusion as to under which Administration the greater part of it took place. What is abundantly clear is that this arises from a failure to estimate to the full the technological difficulties involved in this advanced engine, and therefore the cost. About 15 per cent. is represented by escalation of wage costs and so on, and the balance by the difficulties of overcoming unforeseen technical problems. Whether or not they should have been foreseen is another matter. As regards the taxpayer's position, we have taken the view that it is much sounder to base our contribution in present circumstances on launching aid rather than on equity capital.

Mr. Wilkinson

Is my right hon. Friend aware how much we on this side welcome his statement for its courage and faith in Britain's advanced technological future; how much we welcome his belief that British exports, such as power plants for the Lockheed 1011, should be encouraged, and how vital it is that imports of extremely expensive aero-engines in the future should be frustrated?

Mr. Corfield

I thank my hon. Friend for those remarks. It is relevant to remember that hitherto Rolls-Royce has had a remarkable record, both nationally and internationally, that Rolls-Royce engines are flying in 208 different airlines and 80 different air forces, and that Rolls-Royce is now engaged in some 10 major collaborative efforts, and it is one of our leading export earners. It would be a grave mistake if we were to allow these difficulties entirely to overshadow the record of the past.

Mr. Palmer

Would the right hon. Gentleman agree that this is a particularly expensive way of helping this lame duck, which might as well now come into full public ownership? Would the right hon. Gentleman tell the House whether any upper limit has been set in discussions with the company for this expenditure?

Mr. Corfield

I have absolutely no doubt that the suggestion put forward by the hon. Gentleman would be by far the most expensive way of overcoming this particular problem. As regards an upper limit I hope that those who understand this industry will appreciate that in embarking upon these advanced projects there can be no absolute guarantee. But these figures have been checked by my Department. They will be checked by an independent accountant, which I believe the magnitude of the figures justifies. We have every reason to believe that the overcoming of the technical difficulties is well within the competence of this company.

Mr. McMaster

My right hon. Friend will be aware of the enormous subsidies and help which our principal foreign competitors both in the United States and in Russia receive through substantial defence and missile programmes, and of the importance for this country of remaining in the forefront of technological developments, in spite of the cold water thrown on the subject by the right hon. Member for Bristol, South-East (Mr. Benn), the former Minister of Technology. Will he take it that the House welcomes the assistance given to Rolls-Royce in these circumstances?

Mr. Corfield

I am grateful to my hon. Friend. It is relevant to remind the House that the rival engine, the General Electric CF6, was a development from a military engine required for the Lockheed C5A, which, of course, makes life a great deal easier.

Mr. J. T. Price

I am sure that no one on this side would wish to see the collapse of this famous British company, but may we know how long this process is to go on under a Conservative Administration of pouring public money into private enterprise without any corresponding degree of public control? Is not this a vital principle for all democratic representatives in this House, not only on this side but on the Conservative benches, too? In arranging the terms of this massive loan to Rolls-Royce Limited, have the Government arranged for any Government-sponsored directors to go on the board to keep oversight on the public interest involved?

Mr. Corfield

I stress that the principal purpose of this arrangement is to ensure the success of the RB211–22 engine, to ensure that Rolls-Royce is in a position to fulfil its contract with Lockheed. As regards the question of a Government director, the hon. Gentleman will recall that the I.R.C. appointed Lord Beeching to represent it on the board. I shall be having discussions with Lord Beeching and the new chairman to discuss his position or an alternative director's position vis-à-vis the Government.

Mr. Biffen

Since British taxpayers now have such an enormous commitment to Rolls-Royce, could my right hon. Friend say what rate of return may be expected upon the money which is being advanced? Second, it will be within his recollection that, fairly recently, Rolls-Royce carried out an admittedly modest act of diversification into computer technology. Are we to understand that an attempt will be made to indicate to Rolls-Royce how this money will be spent or that the management will still be free to diversify in what way it thinks fruitful?

Mr. Corfield

I thought that I had made clear—I am sorry that my hon. Friend has misunderstood me—that this money is entirely tied to the development of the RB211–22 engine. The other liabilities which have affected Rolls-Royce in its development will be met from its own reserves, however they have been earned.

Mr. Barnett

Will the right hon. Gentleman accept that many of us will welcome the Government's recognition of the need to sustain such a vital company, but could he not have insisted upon an investigation of a management which can be so wrong in its estimates—rising from £65 million to £135 million—in such an important field? If he has not insisted upon a thorough investigation of the management, why not, and may we take it from the reply which he gave a moment ago that we just do not know what return the taxpayers are likely to receive, if any, so that this is not, in fact, a commercial transaction? In the circumstances, should we not have a new definition of what is a lame duck?

Mr. Corfield

The hon. Gentleman, I know, is fully aware of the principle of launching aid, which was adopted some years ago and carried on by his own Administration. The return is based on the usual practice under launching aid of a levy based on sales. I have stressed already that I am appointing an independent firm of accountants to look into the matter, and I have made clear that there are to be management changes announced by the company itself this afternoon.

Mr. Rost

My right hon. Friend's statement will be most welcome to many thousands of people in and around Derby whose employment and well-being is very much at stake, but will he agree that what this country and Rolls-Royce need in the long term is a British airframe industry in order to maintain prosperity? Is it not the case that, if the airframe industry had not been run down so much in the past six years under the previous administration, Rolls-Royce would now be installing British engines in British aircraft and would be making a profit?

Mr. Corfield

While I take my hon. Friend's point, I must reply that the airframe industry is another matter.

Mr. Sheldon

It is becoming impossible to comprehend the Government's policy now. At one moment, they demolish the I.R.C. because they do not want to support lame ducks, and at the next the Minister asks the House for the largest sum of money ever given for the support of jet engines. May we have a definition of what his Department is about? Is it just the bailing-out Department, which the Secretary of State for Trade and Industry would not accept for his Ministry?

Mr. Corfield

No, Sir; the hon. Gentleman insults his own comprehension. It is abundantly clear that this is a continuation of the launching aid policy, and it is tied to the particular engine. As regards the I.R.C., the hon. Gentleman knows as well as I do that the I.R.C. has never been involved in launching but has been involved in a totally different form of financial exercise.

Mr. Maxwell-Hyslop

Will my right hon. Friend confirm that it is just because the design and development costs of aero-engines constitute such a high proportion of the final sale price that this represents the most attractive form of export in terms of final price ratio to imported raw material cost of all major exports from this country?

Mr. Corfield

I should accept that as a general proposition, but I am not sure that I should argue from the general to the particular.

Mr. Whitehead

The whole House has made clear its concern for the future of the aerospace industry, but could the Minister tell us the present total of firm orders from airlines for the Trijet, and what proportion they represent of the total which the company envisages it will sell in order to meet the terms of this loan?

Mr. Corfield

I cannot do my arithmetic quite as fast as that, but, as far as I recollect, the total of orders, including some options which are fairly firm, is 175 at the moment. Two hundred and twenty-five aircraft sales are necessary to repay the launching aid, and, as far as I recollect, the marketing assessment is about 800 engines at the moment.

Mr. Tebbit

First, will my right hon. Friend transmit to his right hon. Friend the Minister of Posts and Telecommunications the concern of hon. Members opposite about managerial failures and accountability for public funds? Second, does he expect any further investment from Governments abroad into Rolls-Royce, and, further—[HON. MEMBERS: "Reading."] If the question is good, it does not matter so much.

Mr. Speaker

The hon. Gentleman must not rule whether he is or is not in order.

Mr. Tebbit

I apologise, Mr. Speaker. I have become too accustomed to points of order being raised in the House.

Is my right hon. Friend satisfied that, in the event of any failure of Lockheed in the United States, there will be an airframe on which this splendid engine may be hung?

Mr. Corfield

I entirely agree with my hon. Friend in that admirable question, but I think that it goes a good deal wider than the subject. As regards investment from abroad, this will depend a good deal on the collaborative projects at present under way and any future ones which come about.

Mr. Dalyell

First, may we know who is to be the next chairman? Second, why does the Minister say that there has to be a further check by independent accountants? Why does there have to be that check? Finally, may we hear more about the basis of calculation of the "appropriate levy" to his Department about which the right hon. Gentleman spoke in his opening remarks?

Mr. Corfield

The new chairman, whose name will be announced this afternoon, is Lord Cole, a former chairman of Unilever. On the question of an independent accountant, I took the view, which I sensed to be the view of the whole House, that the magnitude of these figures was such that it was right that they should be checked and it was right that any Government support should be subject to that check. As regards the levy, I am sure that the hon. Gentleman realises that the normal arrangement is for a rising amount per batch of aircraft. I could not give the details in an oral answer now, but I shall be glad to publish the information in the OFFICIAL REPORT.

Mr. Dalyell

On what basis?

Mr. Corfield

I have already explained that it will be on the basis of the sale of 225 aircraft, allowing for 100 engines for other purposes, maritime and so on. This will account for the return of the whole of the Government's money.

Mr. Ginsburg

The Minister will be aware that the Chancellor has just published a White Paper on public expenditure. Was this increase taken into account when the White Paper was published? If not, what precise effect will it have on the right hon. Gentleman's estimates?

Mr. Corfield

I am afraid that it will be necessary to put forward a Supplementary Estimate—[Interruption.]—for the additional expenditure in the current year. But in future years it is estimated that all this expenditure can be contained within the terms of the White Paper.

Mr. Benn

First, will the Minister confirm that the management changes that have now been brought about were recommended by the I.R.C. in its report? Secondly, will the independent accountants' figures go to the Central Capability Unit when it is set up? Thirdly, will the RB-61 engine for the European Airbus or the BAC 3–11 be in addition?

Is the Minister aware that what annoys the House is the hypocrisy of making speeches of the kind that have been made and then coming forward to ask for the enormous sums which everybody recognised might be necessary?

Mr. Corfield

The answer to the first point about the I.R.C. is "No". The accounts will come to me, and when I have examined and discussed them I will decide what to do with them.

I have already explained that any question of the development of the RB-61 is another matter depending on other decisions. I do not think that the right hon. Gentleman, after his record with Beagle, has any right to talk about it in these terms.

Several Hon. Members

rose—

Mr. Speaker

Order. I must protect the business of the day.