§ 3.45 p.m.
§ Mr. Edmund Dell (Birkenhead)
I beg to move,That this House takes note of the First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth Reports from the Committee of Public Accounts in the last Session of Parliament and of the Treasury Minute and Northern Ireland Memorandum on those Reports (Command Papers Nos. 5451 and 5470).I should like to begin with two personal references, the first of which is to my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), who, as the House is aware, was unable to fulfil the function of Chairman of the Public Accounts Committee in the last Session of Parliament, and has now indicated that he will not continue as a member of the Public Accounts Committee. But we all welcome him back in the House, and I should like to express my pleasure at seeing him continue as a member of the parliamentary committee of the Labour Party. I am sure that my colleagues on the Public Accounts Committee would wish me to express to him our regret that he has felt it necessary to give up his responsibilities within that Committee.
Secondly, I should like to refer to the death during the Summer Recess of Martin Maddan, who was an able, vigorous and deeply respected member of the Public Accounts Committee and played a very active part in its proceedings. I want to say—again, on behalf of all members of the Public Accounts Committee—how deeply shocked we were at his sudden death. I should also like to express my thanks, and, I think, the thanks of the Committee, to the Comptroller and Auditor General and to his staff in the Exchequer and Audit Department—upon whose work that of the Public Accounts Committee is so largely based ; to the Treasury Officer of Accounts, Mr. McKean, who is always present at our meetings to give us his valuable advice ; and, 918 finally, to the Clerk of our Committee, Mr. Rose, who has organised our very heavy proceedings during the last Session of Parliament.
During the last Session the Public Accounts Committee has had a very heavy year ; in fact, I am advised, by those who know more of the history of the Public Accounts Committee than I do, that it has produced more work in the last year than at any time in its history. It is, of course, for the House and for others to judge the quality of that work, and that, no doubt, is what we shall be debating today. I think I can claim that our work during the last Session has included reports of major importance ; for example, those on North Sea oil and gas, on the Concorde aircraft and on defence purchasing.
The reasons why we have had so heavy a year are threefold. The first is that for the first time we have had responsibility for dealing with Northern Ireland affairs, and, indeed, two of the eight reports dealt with Northern Ireland affairs. The second reason was that we had in the previous Session of Parliament called in the question of North Sea oil and gas; we had begun an investigation but the great part of the work, and preparation of the report occurred in the 1972–73 Session. Thirdly, we decided that we should do a particularly thorough invesigation, first, of the Concorde aircraft and. secondly, of defence purchasing.
May I, as acting Chairman of the Committee during the last Session, express my gratitude to the other members of the Committee for their support in this very heavy burden of work which we discharged. I think it will be obvious to the House that the main subjects with which I must deal today are our reports on the Concorde aircraft project and on North Sea oil and gas, but there are one or two preliminary comments on other subjects which I should like first briefly to make.
First, I should like to comment on the subject of university financing, which was dealt with in the Eighth, and final, Report of the Public Accounts Committee last Session. Since 1st January 1968 the Comptroller and Auditor General has had access to the books and records of the universities and the University Grants Committee. At the time when there was discussion on whether the Comptroller 919 and Auditor General should have such access, grave anxieties were expressed about the effects of that access, particularly on academic freedom. However, during the last Session, at the expiry of five years from the date at which he was given that access, the Public Accounts Committee considered what the results had been and we took evidence on that subject.
We were told by the Department of Education and Science, by the University Grants Committee and by the Comptroller and Auditor General that all the arrangements were working well. We were assured by the Department and by the UGC that there had been no interference with academic freedom, and we were told by the Comptroller and Auditor General that he had discovered no serious shortcomings in financial management. I as sure the House will regard that as a welcome outcome to those first five years of access to the books of the universities and the UGC.
However, the Public Accounts Committee, as a result of the inquiries it made, thought that it would be right to bring at any rate this degree of pressure to bear upon the University Grants Committee, and in paragraph 43 of our report we express ourselves thus :We welcome the interest shown by the UGC in the maintenance of a high standard of financial management at unversities and trust that the UGC will encourage universities to seek ways of effecting improvements in their financial management practices.It is known that we are here dealing with a very sensitive area in which considerable alarm is expressed from time to time, particularly on the subject of academic freedom. These remarks of ours, which the House might think were rather mild, evoked some anxiety in certain circles. The Times Higher Educational Supplement referred to it in an editorial, and even described myself as "mercilessly harrying" the accounting officer of the UGC. I am sure the House will realise that I was not acting in so untypical a way. What I was trying to do was to get from the UGC a clear statement of what it thought was its rôle in encouraging better financial management.
I place a very high value on academic freedom. I have been a senior member of two universities in this country. Nevertheless, it appeared to the Public 920 Accounts Committee that it was right to express that view in our report. I note that in the Treasury Minute there is no specific Government reaction to paragraph 43 of our Eighth Report. The Government note what we have said. I should like to ask the Financial Secretary to the Treasury, whom I welcome to the House as a member of the Public Accounts Committee—normally an absent member of the Public Accounts Committee by tradition—whether he can comment on what we said in paragraph 43.
In our Fourth Report we express some surprise that the Department of Trade and Industry never thought it worth while to examine the comparison of costs in building advance factories by the Industrial Estates Corporations with the costs of such construction by the New Towns Development Corporations, by certain Scottish local authorities and by certain private developers. The Department of Trade and Industry, as we said in paragraph 28 of the Fourth Report,had no ready answer to the Comptroller and Auditor General's inquriesabout the reason for this considerable discrepancy in costs. There has now been an inquiry, and we read in the Treasury Minute that the reply indicates the possibility of savings which will not handicap regional development. This, I think, is a small example of the useful work of the Comptroller and Auditor General and the Public Accounts Committee.
Also in our Fourth Report, particularly in paragraph 137, we express concern at the failure of certain Departments, which we had expected to conduct financial reviews of certain of their activities, to do this without considerable delay. I am glad to see that the Treasury Minute accepts this complaint and indicates that the Treasury will draw the attention of all Departments to the need for greater urgency in carrying out such financial reviews which can save taxpayers' money.
During the course of the Session we carried out inquiries into the operations of the Mint and Her Majesty's Stationery Office. These were inquiries in which we looked not so much at what had appeared to be particular defects in administration as at how far—in fact, the inquiry was rather dedicated to discovering 921 this—the administration of the Department was in itself likely to achieve the stated objects of the Department.
As we know, the Government have now adopted the procedure of having within Departments the system of programme analysis and review, in which Departments show how far their administration is likely to achieve the stated objects of the Departments. These programme analyses and reviews are not made public—we might debate on another occasion whether they should be made public—but they are an example of the way in which the Public Accounts Committee's work might develop if the Public Accounts Committee from time to time did not merely take particular examples of administration but said to Departments "What are your objects in this field of activity? Why do you expect that your administration will achieve those objects?" and discussed the matter with the Departments. I myself feel that that would be a valuable development of the Public Accounts Committee's functions. In a sense, what we did with the Mint and the Stationery Office were examples of that process, and what we did on the subject of North Sea oil and gas was certainly an example of it.
In moving the equivalent motion last year, I discussed how the functions of the PAC might be developed in the interests of parliamentary control of the executive. Perhaps in those two small inquiries to which I have just referred we see the activity of the Public Accounts Committee developing in that direction.
I come now to the first of the main subjects with which I must deal today. The Sixth and Seventh Reports of the Public Accounts Committee dealt with the Concorde project. Here, I have to speak with care. There is always a danger of being accused of "knocking" Concorde. I say at once, therefore, that it is no function of the PAC to knock Concorde. In our inquiries, we normally accept as given the stated policy of the Government, and we inquire into the administration of the policy. The Government have said that it is their policy, having reviewed all the facts, to continue with the Concorde project, and it was on that basis that we made our inquiries. Our function was to consider the administration of the project, to get at the facts 922 —to get at the facts even if they cannot be made public, a matter to which I shall refer later—and to say what we thought about those facts.
The first fact which our report brings out is the continuing uncertainty of the current estimates to completion. The latest figure is £1,065 million. The House should not exaggerate the degree of control which the Government, or any Government, can have over a project such as this. I refer hon. Members here to what was said in paragraph 18 of our report :The Department said that once a project like Concorde was started and massive changes were found necessary to meet the specification, as had been the case in 1966 and 1968, the choice was between going on or stopping. Once the engineers of both countries had agreed that a particular modification was essential, then, if the project were to continue, the modification must be introduced. The Department said that it could only consider whether the estimated cost, and any later increase in costs, were reasonable, and that control then became a matter of ensuring that only approved work was paid for.That is a rather low level of Government control over the cost of this project. In effect, what it means is that, when the engineers say that some course of action is necessary to achieve the specification, that course of action has to be adopted if the project is to continue.
The second cause of continuing uncertainty about the final development cost to completion is that the end is always such a long way off. As we say in paragraph 16 of our report, regarding the date of certificate of airworthiness—I hope that the facts here have not changed—The redesign necessary"—that is, the redesign of 1968—not only added greatly to the cost but also put back the expected date for the certificate of airworthiness, which in 1969 was forecast for 1973 but is not now expected until 1975.In 1969 is was four years off. In 1973 it is two years off. As I say, I hope that that date has not now gone back.
The total development cost, as against actual expenditure, always seems to be rather a long way ahead. Thus, in May 1972 the total development cost was estimated at £970 million. The actual expenditure to December 1972, a slightly later date, had been £702 million. So there was £268 million yet to be spent The position in June 1973 was that the 923 estimated development cost had become £1,065 million. The actual expenditure to June 1973 was £730 million. In other words, there was another £335 million to be spent.
The £1,065 million is not the final figure, and it is not claimed to be the final figure. I refer the House here to Question No. 2043, in reply to which, when I was questioning him about the development cost and how reliable it could possibly be, Mr. Thornton said :We are talking about a period stretching to two years after entry into service ; that is, 1977 or 1978. Clearly, it is not possible to give a firm figure for that number of years ahead".It is still not possible, even in the Government's view, to have fixed-price contracts for more than perhaps 50 per cent. of the project because of remaining technical uncertainties. Even the fixed-price contracts about which the Government are thinking are not fixed-price contracts in the ordinary sense of the term, because even in those fields there remain technical uncertainties, and it is inconceivable, apparently, that the manufacturing companies should be prepared to meet them. Certainly, it is difficult to imagine a final development cost to completion when one cannot even have fixed-price contracts for a significant proportion of the work to be done.
Incentives were introduced in the hope that development costs would be kept down. Unfortunately, these have not really worked, because of the impossibility of estimating the cost of particular elements in the project. We discuss this in paragraph 49 of our report, and we point out the defects which the incentives to economy turned out to have in practice.
The Treasury Minute on this subject says, in effect, that these incentive contracts were the best that one could have in the circumstances. On page 12 of its Minute, the Treasury says :The Treasury and the Departments consider that the degree of incentive which was introduced into the contracts in 1968 was the maximum practicable in the circumstances.I do not think that the Committee denies that suggestion by any means. It is just that these incentive contracts were, in the words of the Department, rather mild incentives, and they have, in fact, proved to have little value. Perhaps they were better than nothing, but in practice they 924 had little value. In these circumstances, the House must appreciate that the figure of £1,065 million cannot be, and cannot be hoped to be, the final figure for development costs.
Another element of doubt raised in the course of our proceedings was whether the specification to British Airways and Air France requirements would, in fact, be met. The Department hoped that it would. It thought that there was every reason to think so, but it was not absolutely certain. There were observations on this matter in the answers to Questions Nos. 1943 and 1944. In the first of those answers, it was said thatby the autumn"—that is, the autumn of this year—we shall have a very reliable answer on the performance".
In Question No. 1944, to emphasise the point, I asked :
But by the end of the year the position
that is, the position in respect of performance—
will be pretty well established?"—
§ and the answer was "Yes".
§ Perhaps the Financial Secretary, with the advantage of the presence of his colleague on his right, the Minister for Aerospace and Shipping, will be able to tell us more on the question of the specification, because the date line indicated in the answers to us has already been passed.
I come to the production and pricing situation. This is covered in a number of comments which we make, although most of the information on this subject remains confidential. In paragraph 52 we say :
We note that the risks run by the companies are limited while those run by the Government are unlimited once production has been authorised, and it appears to us that the companies could make a profit while the Government would still be at loss.
In paragraph 59 we indicate that these production losses could be large. We say :
Unless further substantial orders are received for the aircraft we fear that, in addition to the failure to recover development costs, the Government will have to meet production losses, which could be large, on each aircraft produced.
In respect of the recovery of development expenditure we comment, as is well known, in paragraph 57 :
It appears to us that, even on the most favourable forecasts of sales, the amount
recovered would be only a small proportion of development expenditure.
§ In recent months a further element of uncertainty has been introduced. The question arises of when the two Governments will decide on the further production programme. We were told that the decision would be made in the late autumn but it has not, as far as the House knows, been made. In fact, we understand that it has been postponed. When will it be made—next month, or in the early spring? This can only cause further anxiety.
I come now to what has perhaps proved to be, at any rate between the Government and the Committee, the most controversial element in the report. The Committee, having carefully considered the matter, said in paragraph 62 :
Commercial confidentiality must not become an excuse for the concealment of facts material to the determination of the public interest. We therefore strongly urge that the Government should seriously consider whether the confidentiality they have demanded for so much of the information about this project is in fact in the public interest.
§ The Government have replied to that comment in the Treasury Minute. The Committee did not make the comment lightly, and perhaps I might emphasise, if it needs emphasising, that it is a nonpartisan comment in two senses. First, it was a unanimous comment of the Public Accounts Committee, which consists of members of both the main parties in the House. Secondly, the secrecy which we were criticising, or asking the Government to reconsider, has been adopted by successive Governments. Our comment was not directed specifically at the Government, therefore. It was made as the Government will appreciate, in the knowledge of a great deal of the information which the Government thought it necessary to keep confidential.
§ Judging from the relevant paragraph of the Treasury Minute, three arguments appear to be adduced by the Government to support their view that this confidentiality must continue. The PAC has not had time to consider it but I should like to comment on it. The first argument—if it is an argument—is that this confidentiality has always hitherto been accepted by the PAC. I do not deny that, although no previous PAC has been faced with the figures with which we 926 were faced, nor, I believe, has any previous PAC gone so deeply into the facts of the Concorde project.
The second argument, which is perhaps more substantial, is expressed thus by the Government :
the Government's negotiating position with the firms and its control of expenditure could be seriously prejudiced by disclosures of its confidential estimates of the extent to which the firms may achieve targets and profit levels such as were supplied to the Committee in confidence.
§ Of course, the Committee considered that argument before making its comment. However, we have already seen—and I have already indicated—how little actual control the Government have over development costs. We have seen how badly the incentive contracts work. The Government are saying that they are weighing small savings from what inevitably is only a marginally better negotiating position against the advantages of greater public knowledge about a project now estimated to cost six times the original estimate. I do not believe that to be an adequate reply.
§ If the Government could show that as a result of this secrecy or confidentiality significant savings would be made on the project their argument could be taken more seriously. However, that is precisely what the Government cannot show. If the Government do not wish to reveal their own confidential estimates it would be an advance for them to reveal the actual arrangements. This is not, therefore, an argument which I feel disposed to accept.
The third argument which the Government advance relates to the selling price and to the basis of calculating that price. The Government say :
Moreover, prospective purchasers will drive the hardest bargain they can, and disclosure of elements of the selling price such as the R&D levy could well weaken the manufacturers' ability to sell Concorde on terms which would achieve the most favourable financial return for the Government.
§ That is an extraordinary argument. The Government do not appear to have taken that attitude over the disclosure of the Atomic Energy Authority royalties, although the AEA operates in a directly competitive market in which there are other suppliers of nuclear power plant. The airlines cannot get Concorde from anyone else in the West. If it is so 927 desirable a purchase, either because of its own merits or because of the competitive pressure of the aircraft in the hands of British Airways and Air France when it once begins to fly the Atlantic, there is, or will be, a seller's market and no seller need be afraid of the research and development levy being known.
§ The regrettable truth, however, is that there is not a seller's market now, and I suspect that the Government fear that, in spite of the competitive pressure to which I referred, there will not be a seller's market in 1975 when the aircraft is due to come into service. It is difficult to imagine that in the situation faced by Concorde it will make much difference to the selling price whether anyone knows the size of the research and development levy or not, or knows it officially or not. The important things in selling this aircraft are its selling price, its operating costs and its performance—and the Government can hardly expect to keep these secret from the airlines to which it is being sold or to which attempts are being made to sell it.
§ The real question about Concorde is how to calculate the price of the aircraft, bearing in mind that at best there will be only a small return on the development cost and that, because of the uncertain sales level, the production costs could, according to the report of the PAC, exceed the selling price. How is the price calculated? The Committee has given BAC considerable assistance in holding up the selling price in the face of such pressure as the Government fear by what we say about production losses in paragraph 59. I do not see that this argument in favour of continuing to conceal the research and development levy has any force, particularly when compared with the arguments on the other side of the coin.
§ The Government must remember that we face £1,065 million of estimated development costs so far, and more to come, with the possibility of large additional production losses. In those circumstances I do not believe that, to quote the Treasury Minute, ordinary "well-established and strong arguments" can prevail. If there is an argument for confidentiality it must be much stronger than that which the Government have 928 been able to provide in the Treasury Minute.
§ Mr. John Mackie (Enfield, East)
My right hon. Friend intrigued me when he said earlier that it would be a bad way of spending public money to take the engineers' word about alterations and improvements that must be made. If their word is not to be taken, whose is?
§ Mr. Dell
My hon. Friend misunderstood my point. I was saying that the Government try to exercise control over the development costs of Concorde but when the engineers tell them that, in order to achieve the specification, such and such a change is necessary, either the Government have to say "Yes, make that change" or they have to cancel the project. I was saying that this is in practice a low level of control in the hands of the Government over the development costs of Concorde. It is not a point made by the Committee of Public Accounts, but one put to it by witnesses for the Department. It is self-evident.
The First Report from the Committee, on North Sea oil and gas, may have some connection with Concorde. I understand that one of the difficulties with Concorde, which was not investigated, is the consequences for its economy of the higher price of fuel and, indeed, its consequences in the consumption of fuel. The report on North Sea oil and gas is recognised as one of the most important ever made by the Committee. Given the present position, its importance grows greater daily. But the Government's reaction to the report has been slow, despite some impressions to the contrary. I saw the Finance Secretary's face covered with amazement as I made that remark. He may assume that I had in mind the reason for his expression.
The report makes four main points. First, it refers to the need to safeguard tax yield from the North Sea, which was threatened from two chief sources : first, artificial tax losses arising elsewhere in the world, and, second, the possible capital allowances claimed in respect of activities not related to North Sea exploitation.
A few days after the Committee reported, the Chancellor accepted what it said about preventing artificial tax losses arising elsewhere in the world 929 impacting on tax revenue to the Exchequer from North Sea oil. That acceptance is repeated in the Treasury Minute. We all look forward to the Finance Bill next year to see how the right hon. Gentleman proposes to deal with the matter. We understand that he is consulting the oil companies about the practicalities.
But we also say that the situation requires segregation of the North Sea for tax purposes, and on that point the Government have no reply. Indeed, when I read the remarks of Lord Drumalbyn in a debate in another place recently, I was worried when he specifically focussed attention on the subject of artificial tax losses. I began to be concerned that the Government might have abandoned the other recommendation about segregating the North Sea against capital allowances that might arise through other activities. No reply has been given about that. There have been rumours of difficulty in implementing that recommendation.
The second main point was about the need for the Department of Trade and Industry to have access to licensees' costs. It is extraordinary that it should not have that access, that it should be left to make its own estimates. Companies have made selective releases of cost information in order to educate the public in the difficulties that they encounter in the North Sea. The Government should have the full picture available to them. That is what the Committee said. But on that matter we have no reply yet.
The third main point was that the Government should consider imposing a system of quantity taxation, for example a barrelage tax. The Committee, if not the Government, was aware of the possibilities. It was aware on the day the report was published, of the possibility of increases in the price of oil. The profits oil companies would make under the arrangements made by the Government before 1st March 1973 are now only too obvious.
What effect on the profitability of the oil companies will occur from the current oil price increases? Even if the current prices are temporary, perhaps the supply position will ease and the Nigerians will not be able to command the extraordinary prices about which we have read in the Press recently, what will be 930 the price of North Sea oil as landed and consumed in this country? What will be the profits of the oil companies following arrangements between them and the Government? Will something be done to tax those profits, additional to corporation tax?
That was the position of which the Committee was aware when preparing its report. Paragraph 8 on page 56 carries a simple statement of the facts. It says :For every £1.00 a ton increse in the world market price of oil HMG revenue would (where capital allowances have been exhausted)"—that is an important conditional clause—increase by 56p and company profit by 44p.That is the position. It appeared that corporation tax alone was probably not enough. We recommended that the Government should consider it.
It is extraordinary that licensing terms should be negotiated which do not appear to have considered the possibility of such increases. Let the Government take action or give reasons why they should not take action.
Today even the oil companies might more readily accept the need for some system of quantity taxation. But there has been no reaction from the Government.
The fourth point is that there had been major faults in licensing policy and that there should be a review. We referred to the financial terms, the length of time for which the licences had been issued and the lack of any sort of carried interest, in circumstances in which there was so much ignorance of the potentialities of the North Sea that it would have been sensible to have a carried interest so that the Government could intervene to protect the national interest if developments were unexpectedly favourable.
On these matters the Government have said that a review is taking place. The Committee was told that before it reported ; if we had not been told that, we should have regarded it as a matter for criticism. I am glad that it did not fall on me to recommend to my colleagues in the Committee that, in addition to all the other criticisms we had to make of Government policy in that area, we had to criticise them for not even reviewing that policy. We were told that they were, that they had the 931 review in progress. Nine months after the report, the results of that review are still not available. The Treasury has said, repeating what has been said by the Government, thatAs soon as the present review has been completed, the Government's conclusions will be announced to the House.All we know is what was said in the Gracious Speech, that :Measures relating to the extraction of petroleum from the United Kingdom Continental Shelf will be laid before you.No mention of the content of those measures was made in the debate on the Loyal Address. We do not know to what effect those measures will be. I suspect that the Government do not know. If they do not, it is indeed disappointing.
My summary so far is simple. I hope that the Financial Secretary will think that I have justified my first point, that there are large areas of the report which the Government have not yet accepted, rejected or in any meaningful way commented upon.
The Government have not bestirred themselves in the Treasury Minute or elsewhere to defend the errors of judgment revealed by the Committee. The Treasury Minute, speaking of what the Committee evidently considered errors of judgment, makes two points. The first is the incentive point, on which it says that regard must be had tothe balance that must be struck between the interests of revenue and an adequate incentive to the licensee to explore and develop.But the whole argument of the PAC Report is that the incentive was too great for the purpose the Government had in mind, certainly from the time of the discovery of oil in 1969–70. There were incentives enough without the incentive of an exceptional rate of net profit to the oil companies—incentives such as markets close at hand, a stable political situation and the threatened oil shortage. The incentive argument is important. The question is : were not the incentives grossly excessive in the circumstances?
The second argument the Government make in respect of the Committee's view that there were serious errors of judgment is put in one small sentence : 932The proper terms and conditions for the first four licensing rounds can only be a matter of judgment.I agree, but I find it difficult to detect many people whose judgment is with the Government. Since the publication of the report I have met many people active in one aspect of the oil business or another, and again and again I have been told that in the fourth round the terms were too easy. The Department of Trade and Industry does not now deny that in the fourth round the terms should have been harder.
It has been said that the PAC's Report was written simply in the light of hindsight. That is not the case. Before preparing the draft of this very critical report, I satisfied myself that at no point was I depending for the criticisms on knowledge that was only subsequently available. The first essential point was the discovery of oil in 1969–70. The second was the recognised difference between the oil situation and the gas situation, where the gas had to be offered to the British Gas Corporation, thus resulting in at any rate some control over the prices, and the fact that the oil was entirely free, other than that it had to be landed in the United Kingdom.
The third essential point was the effect on the profitability of the oil companies of any rise in the price of oil. The fourth was the knowledge gained from the tender experiment, which was ignored, although the terms of discretionary licensing could still have been hardened. It is extraordinary that when the tenders were opened on 20th August 1971 no action was taken about the terms on offer for the discretionary licensing, which covered overwhelmingly the larger part of the areas allocated under the fourth round.
The fifth fact of which we took account was the lack of liaison at that point even with the Treasury. I shall never understand how it could happen that when on 20th August 1971 the tenders were opened, and the results were shown to Ministers, no action was taken and the Treasury was not even consulted. It must be understood that the tenders showed a total on offer of £135 million. The successful tenders were £37 million, money immediately available for 15 blocks, compared with nearly 300 blocks 933 for totally nominal rents, in any case discountable against the royalties when they accrued.
There was talk by the Department of breach of faith if the terms for discretionary allocation had at that point been hardened. There would have been no breach of faith. As far as I can make out, the oil companies would have considered a hardening of terms at that moment the merest common sense. However, Ministers evidently considered that there was no need for action then.
Serious errors have been made. I hope that the House does not have to wait much longer before hearing how the Government propose to correct them.
I have spoken long enough, but it was a heavy Session's work for the Public Accounts Committee. I hope that it will also prove to have been valuable.
§ 4.38 p.m.
§ Sir Richard Thompson (Croydon, South)
I intend to intervene only briefly, mainly to comment on the Sixth and Seventh Reports from the Committee of Public Accounts, which relate to the problems confronting Concorde and the financial control of that exercise.
Parliamentary control of expenditure as we in the House understood it is at a total loss to grapple with international projects of that kind and on that scale. When Governments embark on joint enterprises of that sort, they give up their power, which this House gives up rather hard, effectively to control the cost of the project. I urge on the Government, because of the likelihood that there will be more such projects as time goes on, that we must make a more serious effort than any made so far to improve our techniques in these matters.
What happened has been well described by the right hon. Member for Birkenhead (Mr. Dell). When something such as Concorde starts no reliable estimates can be made of the eventual outturn Effectively it is not the politicians but the scientists and technologists who then determine the pace and the cost of the project. It is their decision, and not a parliamentary decision following parliamentary scrutiny, which determines how much money will be spent and whether the project is to continue.
934 After a time the argument is put that so much money has been spent that we cannot think of going back. National prestige, the amount already spent, and the importance of retaining the confidence of the research workers and the people devoted to such technology are all arguments which are put forward. The project becomes a gigantic snowball which nobody can control and the ultimate size of which nobody knows.
We shall have further experience of such a situation because of our membership of various international organisations such as the EEC. High technology is so immensely costly that it must be foreseen that there will be many huge enterprises in the pipeline which will have to be undertaken with another Government or Governments. We shall run into the problem again. We must face the fact that international ventures in new technology are not subject to parliamentary control in any sense which we understand in this House.
There is no real competition in the awarding of contracts. With very high technology, the number of specialist firms which can supply the necessary equipment is so small that we must perforce rely on a small and restricted market. The committee was astonished to learn when cross-examining the witnesses that no serious estimate appeared to have been made of the size of the potential market for the aircraft which it was proposed to construct. We all know how the cost has escalated. The committee strove in vain to discover how many aircraft the originators of the scheme expected they could and would have to sell to make the project financially viable.
It can be said, I suppose, that if a thing is worth doing we can leave such considerations out of account. However, for a project which has escalated to £1,065 million at January 1973, it seems astonishing that no calculations seem to have been made as to how many aircraft must be sold before the project can tick.
It is important to remember that the taxpayers' interest does not stop with research and development and construction. Effectively the taxpayer will pay all the fares of the passengers. It is important that that should be understood. Nobody short of Mr. Onassis 935 will ever be able to travel in the Concorde for fun. Nobody will ever travel in Concorde and pay his own fare. All the passengers will be officials and representatives of Governments, or big business. Their fares and expenses will be borne either on the public account or charged against taxation. The taxpayer's interest is, therefore, much bigger than many think.
There is an added relevance to such considerations as we embark on the Channel Tunnel. The tunnel is a project which is international in character. Half of the cost is being borne by the French Government. The similarity between the two projects ends there, because the tunnel is not a project of high technology. Nevertheless, I have no doubt that in a few years the committee will be considering the cost of the tunnel. Unless in the meantime we have devised a more effective system of control of international contracts we shall find ourselves using the same arguments and wringing our hands about the escalation of cost. Unless we have more control we shall still come back to square one and admit that we have no effective means of controlling the cost.
As projects become larger and our resources to develop them on our own become more restrictive because of the size of the projects, it follows that there will be more and more projects for which we shall be unable to put up all the money ourselves but for which we shall want to see some effective curbs built into the financing of the projects.
I want nothing that I have said to be taken as a criticism of the Concorde concept. Despite many errors of judgment, despite many escalations of cost and many things which with hindsight we realise could have been done better, I still believe in the aircraft. I believe firmly that if we do not build it, the Russians will and the Americans will follow. Much of the unreadiness on the part of the Americans to buy it is because they are profoundly jealous of our having gone into the market first. When the British and French airlines begin operating a regular service to New York there will not be many Americans crossing the Atlantic who will travel in any other way. Nor shall we find them ready to see then-own technology being left behind by us.
§ Mr. R. T. Paget (Northampton)
If that be right and if Concorde takes the American market, can the hon. Gentleman see the Americans ending their sound rules and making special provisions to bring to themselves the competition which they did not want to meet?
§ Sir R. Thompson
I do not think so, and I believe that the further technological refinement of Concorde which is now in prospect will probably solve the problem. I agree that that is a difficulty which must be overcome.
The Treasury Minutes on the Sixth and Seventh Reports give us little cause for comfort or satisfaction for thinking that we have effectively grasped the problem of how to retain some national control of expenditure on a project such as Concorde, except at the price of certain get-out clauses which, if inserted, would probably mean that the project would never be started on an international basis. I do not have an answer, but as it is clear that the future lies more and more with high technology projects requiring more than one Government to finance them, I hope that when the Minister replies he will be able to say something more effective than that which appears in the Treasury minutes about how the Government propose to protect the taxpayer in future. It is difficult to convince the British public that it is necessary to spend £350,000 in evolving a prototype seat for one aircraft.
§ Sir R. Thompson
I was projecting the Committee's scepticism about this into a wider area. This is the sort of thing which anyone who followed our discussions in the committee came up against constantly—always the argument, "This is high technology. These people know what they are talking about. We are laymen and cannot interfere". All these arguments were introduced and some of the results were grotesque. That is why I say to my hon. Friend that the capacity of the public to absorb these shocks is not unlimited and that there will come a time when people will say. "We shall probably manage very well by buying someone else's". I hope that they will not come to that conclusion about Concorde, but those concerned must be more 937 convincing about the future control of this type of expenditure if they want our help.
§ 4.51 p.m.
§ Mr. J. Grimond (Orkney and Shetland)
I congratulate the Public Accounts Committee upon this series of reports. I also congratulate the right hon. Member for Birkenhead (Mr. Dell) on his speech. I want to deal principally with the very important report on North Sea oil, but, as Concorde has been dealt with by the hon. Member for Croydon, South (Sir R. Thompson), I may say that I am one of those who think that Concorde was a costly and ghastly mistake from the start.
I say that not only because I think it was wholly wrong that we should embark on this enterprise over which we have no control, but because it is wrong that public money from all the taxpayers should be spent on the development of a type of technology of no use to the poor of this country or, indeed, to the poor of the under-developed countries. The hon. Gentleman pointed out an important fact—that not only will the taxpayers have to support the enormous development costs of the aircraft, but they will have to pay for everyone who travels in it. The hon. Gentleman remains in favour of the project and it is now perhaps a theological matter. Concorde has, in effect, become a god, and one has to worship it or otherwise. I do not worship it.
Secondly, I was glad to see in the committee's reports the favourable remarks about the Open University, because this is one of the most important educational experiments made for a long time. I hope that funds will be made available to develop it further—for example, in areas where BBC 2 is not available and in forms by which it will attract more young students. At present, most of its students are mature, as they are called, but it has a vast part to play, in conjunction with the more orthodox universities, in the attraction of younger, more ordinary students.
In considering the report of the Comptroller and Auditor General on universities, I think it wholly mistaken to suppose that he will restrict academic freedom. On that, I wholly agree with the right hon. Member for Birkenhead. The only slight danger I can see is that the Comptroller and Auditor General can 938 put the universities to some extra expense. It is obvious from his report that, although their system of financial control was effective, they are now increasing the number of controls and therefore the amount of staff and paper work they have to undertake. One of the dangers is that universities will become too immersed in administration and will become frightened of initiative in case they get into trouble. However, these are minor points and my principal subject today is the report on North Sea oil.
It is apparent from the report that not only have we mishandled the licensing system for the general development of the oil up to now, but that we are still not properly set up to deal with the matter. Let us get the perspective right. The latest estimate, given to me by the Government in answer to a Question, is that by 1980 we can expect between 70 million and 100 million tons of oil per annum from the North Sea. This compares with an estimate, made not long ago, of about 50 million tons a year—a considerable increase. One must see this against the estimated demand in Britain of 150 million tons, roughly speaking, by the same date. That is to say, on this latest Government estimate, we shall be getting on for providing two-thirds or so of the oil we are estimated to need.
But in another place, the noble Lord, Lord Balogh has estimated on American figures that production in the North Sea will be about 200 million tons per annum—100 per cent. increase on the Government's estimate. There are two deductions from this—first, the enormous scale, on either estimate, of the discoveries and, secondly, the very wide divergency between what, apparently, the American oil companies estimate as possible and what the British Government estimate.
It has been said also that it is fairly foreseeable that about £100 million may have to be invested soon in Shetland alone to provide certain installations. Again, as has been mentioned already, for every extra £1 on the price of oil—we know how the price is rising—the additional profits to the oil companies run into literally hundreds of millions of pounds. We are, therefore, up against a development of quite supreme importance to the country, leaving alone its effect against the lack of energy, leaving 939 alone the trouble in the Middle East, leaving alone, indeed, the balance of payments.
As I have said, I do not think that even now we are set up to deal with the situation properly. My first question, arising from the report, is, who ought to be in charge? The first duty of the Government clearly was to stand for the public interest. Their duty was to ensure that the nation's resources were used to the best advantage for the nation. They had a duty to hold the balance between the differing interests—to balance our short-term interests against long-term interests.
It has been suggested that it could have been done by nationalisation. Of course the oil beneath the sea is already nationalised, and neither the Labour Government nor the Conservative Government felt that nationalisation could be carried any further. One can see why. To exploit this oil, one has to use the technology available to large international oil companies, and nationalisation perhaps appeared to be somewhat irrelevant to the problems which faced the two Governments. Further, the duty of the Government was to set the proper conditions not themselves to undertake work for which they are not equipped.
But participation in the development of our North Sea oil did not seem so difficult as outright nationalisation. It has been done by the Norwegians. They have reserved rights to take up certain shares in companies after successful development. Therefore, the argument that participation was not possible because it would have been too risky seems to me to be somewhat contradicted by the Norwegian experience.
Further, I feel that the Government had a duty to ensure not only that the companies were subject to the normal taxation of this country but that they actually paid tax. Of course they pay some tax, but it is made clear in the report that the amount they pay is less than one might first of all think, owing to the operation of their internal costings.
Further, I believe that the Government had a duty to ensure that the oil would provide some funds both for the development of the areas off which it was found and also for the purpose of putting 940 them back into decent order once the oil boom was over. The financial arrangements were of the greatest importance.
These matters obviously demanded the highest expertise. It is apparent from these reports that that expertise was lacking in the Government. Are the DTI and the Department of the Environment now too big? Do they attempt to deal with too much? Is there someone in the Government in charge of major oil strategy? The Minister in charge of oil is Lord Polwarth, a comparatively junior Minister. He did not speak in either of the two last House of Lords debates on this subject, so who exactly is answering for the Government on the major strategy?
I come now to the question of protecting the non-commercial interests—the environment and the areas which are likely to be affected, the people of the north of Scotland and their economies and social life. Here, apparently, the responsibility lies upon the Scottish Office, but it has no new powers. Its planning powers are the same as ever. This situation persists—although this is an entirely new situation and out of scale with any other planning the authorities in the north of Scotland have had to do, leaving aside rig building and the construction of oil tank farms and refineries.
There is no datum, no survey has been carried out—neither an ecological survey nor one to establish the most suitable places for landing or handling the oil or building rigs. The Scottish Council (Development and Industry), the local authorities and so on, have commissioned many consultants whose reports vary a great deal in quality. The report done for Shetland County Council by Livesey and Henderson is serious and important, but other reports seem not much above the level that one would expect of a second-year university student. The last report from the Scottish Council was a very thin affair containing many inaccuracies. It did not, of course, deal only with oil.
I do not believe that this matter should be left to a haphazard collection of reports, taking a "snapshot" view of the present situation relating to certain areas only and by people of differing capacities. The essential starting point was an overall look at the situation. More important, 941 a monitoring system should then have been set up.
Even on the fourth allocation, the Government charged too little ; they failed to learn even from the first three allocations. Again and again the same mistakes are being repeated, I am afraid, in the north of Scotland. The detail of the terms has been dealt with well by the right hon. Member for Birkenhead. To a representative from the area most closely concerned with oil, it is incredible that no figures of costs, or even of the investment needed, were produced. One of the constant arguments of the oil companies is that the investment need is so huge that they must have gigantic profits. This is not justified in any of the evidence produced for the Committee.
Turning to the system of licensing, in the last round, the Government knew that they could get £37 million on the nod by tendering, and an offer of £135 million in total. We have again been told that, although we were promised that the taxation system would be altered, there has been no sign of this being done.
The local authorities are being put to great expense. I should have thought that some fund could have been levied upon the oil companies to assist these authorities, but no fund has been established; and no estimates are given, indeed, of how the balance will be struck between what the local authorities may gain out of the rates and what they are likely to have to pay to produce the infrastructure needed by the oil companies.
An immense infrastructure of housing, roads and services of all kinds is needed. If oil, as I am told, is to be flowing in 1975, it will not be ready unless something is done immediately. Already we are repeating many of the mistakes of the 19th century. It is true that, for instance in Shetland, the Government are giving some assistance to the import of houses from Norway and their erection. However, when driving from the north of Shetland the other day to Lerwick in the south, past one of the areas being developed for the service of oil, a man is reported to have said, pointing at the service area, "That does not look too bad, but why did they not take away that old hutted camp?" That camp was the new housing rushed up to deal with the demand. This is not the fault of the local authorities but of a lack 942 of continuous planning as this matter has developed.
Some Shetland roads will need to be entirely reconstructed, but under phase 3, one cannot get roadmen and there is a grave shortage of vital labour. Ports and off-shore installations have to be constructed, yet no extra planning powers exist and the existing ones do not run below low water-mark The amounts now needed are enormous. I can imagine the next reports of the PAC talking of enormous waste in this area associated with the oil. That will be the result of the present lack of preparation of the infrastructure.
These reports are immensely important to the House. I wish that this type of investigation had been done much earlier. The hon. Member for Croydon, South rightly referred to the difficulty of controlling huge enterprises, and this applies to national as well as to international enterprises. Of course, by the time that the PAC gets around to it, it is water over the dam—or oil through the pipeline. Either we must consider whether there could be more and earlier monitoring of this kind of immense expense—
§ Mr. Grimond
I agree, but many of the remedies now rightly suggested will be extremely difficult to implement because contracts have been entered into and so on.
I regard these reports as more important than Questions, but we must find some method of debating them more often and more quickly. The right hon. Member for Birkenhead is right to say that we have been lucky with the oil report, but even so it is eight months since it was made and it is now being debated with a whole lot of other matters, so that, in typical House of Commons fashion, the debate becomes a hodgepodge of all sorts of different matters.
We want to examine the Government with more consistency about what they are doing, or why they are not doing what they should do. If Parliament is to 943 reassert itself as a formidable weapon to criticise and examine the Government, this is the sort of way forward, but the difficulties are very great.
We must be grateful to those hon. Members who sat day after day on this Committee. I do not know how many more such committees we could have or how often they will be prepared to sit. The committee has no staff of its own. Compliments have rightly been paid to the assistance of the regular staff seconded to it, but we should consider whether it should not have staff of its own and whether our procedures may not have to be reorganised to give a more permanent position to this type of work and to allow it to be properly debated.
We are under considerable fire in the country for our failure to carry out our traditional work of controlling Government expenditure and also to demand a more positive part in forming policy. I think that the demand for the latter is possibly more suspect, though I appreciate that reason for it, but in both these regards it is this type of report which enables more pressure to be put on the Government. It is up to the House to give itself the means of making this pressure effective.
§ 5.10 p.m.
§ Mr. Julian Ridsdale (Harwich)
The right hon. Member for Orkney and Shetland (Mr. Grimond) put his finger on some important points. He particularly underlined the importance of these reports being considered much sooner by the House. We should have an opportunity to debate the reports when many of the facts relating to them are still fresh in our minds, following the study which we have made of witnesses, and not, as is the case today, long afterwards when so much oil has flowed, or not flowed, through our ports and the pipelines.
Like the right hon. Gentleman, I question what is the right estimate of oil from the North Sea. I sat through long periods of the Public Accounts Committee hearing witnesses from the Department of Trade and Industry. I became more and more confused about what was the exact figure for the oil which would flow from the North Sea. As more and more reports come out I feel that some of the 944 estimates which were given to us were largely underestimated. I am sure that the figure is much nearer 200 million barrels rather than the 50 million to 70 million which we were given.
Like the right hon. Gentleman, I am becoming increasingly convinced that the Department of Trade and Industry is far too big to deal with North Sea oil. There should be far more urgency by the Government in dealing with the oil problem. We want a Beaverbrook, or some such person, to tackle this serious problem and put some energy into it. This is one of the most important factors affecting the country today, and there should, therefore, be a Minister in the Cabinet to deal with infrastructure, planning powers and other matters to which the right hon. Gentleman has so aptly referred since they affect his constituency.
I underline the importance of debating these matters as soon as possible, rather than putting them off and taking what at present appears to be a complacent attitude towards the most important matter facing the Government today.
I pay tribute to the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) who presided over some of our Public Accounts Committee meetings before he fell gravely ill. I was very disappointed that he then had to leave the Committee. He had a cross-bench attitude to many problems and his departure from the Committee was a great loss. Nevertheless, we have been fortunate to have the services of the right hon. Member for Birkenhead (Mr. Dell). He has worked extremely hard and assiduously in examining many important matters which were before the Committee. I listened with interest to his speech today. I am sorry that I could not be present at the beginning of his speech, but I was dealing with a problem—about oil—affecting my constituency.
I am at a loss to say whether I worship Concorde. I have a cross-bench opinion towards it. Ten years ago I was Under-Secretary of State for Air and I had to deal with the TSR2. Some of the reports which were placed before the Public Accounts Committee about Concorde made me think back 10 years to when I was listening to the same story about the TSR2. At that time I was able to 945 get reports of a more confidential nature, but even with such reports it was difficult to delve into some of the estimates that were being made. It is right to be disturbed about the certificate of airworthiness for Concorde, which we have been told was to be produced between 1969 and 1973 but which has now been delayed to 1975.
Reports and evidence given to the Public Accounts Committee confuse me. The scientists and boffins involved enter into their own world and it is difficult for us as laymen to deduce the facts. We need more technical staff to help examine what the scientists tell us. Some of the figures given to us ran into thousands of millions of pounds and we should ask whether we are getting value for money. The cost of Concorde is now six times the original estimate of £1,065 million and it is still going up. There are doubts about whether it would fly, in the same way as there were doubts about the TSR2. I hope that the Public Accounts Committee will be able to examine the Concorde project again at its next session.
Other hon. Members have referred to joint projects. I am disturbed about the lack of control over joint projects. It is becoming increasingly vital that the Public Accounts Committee should examine these projects as soon as possible instead of being two years behind. I hope that the right hon. Member for Birkenhead as head of the Public Accounts Committee will try to ensure that we will be able to examine the estimates for the Channel Tunnel fairly soon. I have grave doubts about some of these estimates. I also hope that it will be possible for the Committee to examine the Maplin estimates, over which I also have doubts. It is far more important to deal with these current problems than to deal with other problems like the Mint or the universities. They are important, but the big projects involve many thousands of millions of pounds.
How do we know what we are faced with over Concorde? Judging from earlier Treasury replies on Concorde and TSR2, the Public Accounts Committee should demand that the Channel Tunnel, Maplin and the estimates on North Sea oil be considered this Session. Unless these 946 matters are so examined, I shall have grave doubts about whether we are really getting the kind of value for money which we should have.
§ 5.20 p.m.
§ Mr. Gavin Strang (Edinburgh, East)
I agree with the hon. Member for Harwich (Mr. Ridsdale) that the Government are guilty of a fair degree of complacency in their handling of the North Sea oil issue. I am not a member of the Public Accounts Committee, and I think it has done a first-class job. Like most hon. Members I have had occasion to explain to members of the public how Select Committees and Committees such as the Public Accounts Committee function. I am a member of the Select Committee on Science and Technology and I believe that it does a good job. But I have to admit that, whenever I explain to a member of the public what a Select Committee does, I always cite the example of the Public Accounts Committee and bring out the extent to which the international oil companies would be able, if nothing had been done, to use present taxation arrangements to prevent the United Kingdom from getting anything like the right return to assist its balance of payments and its Exchequer income.
The report on North Sea oil is a classic-example of how important the work of this Committee is in terms of scrutinising the actions of the executive. I do not want to concentrate on the main issue outlined in the report, namely, the question of licensing and taxation arrangements. Instead I want to refer particularly to the question of British participation in North Sea oil developments. The Public Accounts Committee's report devotes a number of paragraphs to this. There is no argument about the need to maximise the opportunities for British industry within the context of providing the goods and services required for the exploitation of North Sea oil.
I notice that the Committee was able to ask a few questions of the Department of Trade and Industry following the publication of the IMEG Report. A great deal of time has elapsed since the publication of these documents. I do not want to go over our criticisms of the complete inadequacy of the Government's response to the IMEG report and the fact 947 that they not only failed to set up an oil development board or oil development agency in Scotland, as we wanted, but even rejected the recommendation by the report for a petroleum supply industries development board.
There cannot be any dispute that the Offshore Supplies Office support, in terms of facilities and manpower, is totally inadequate to deal with the problem. It is intolerable that we should have a situation in which there are about four qualified people based in Scotland who fully admit that they are not able to check the extent of British participation. These people are not properly able to check whether the equipment supplied by British registered companies has been produced indigenously or has been imported.
The previous Labour Government and the present Government have been heavily criticised for their handling of North Sea oil, particularly with regard to the licensing arrangements. It is true that during much of the time the significance of North Sea oil had not been properly appreciated. There can be no excuse now for failing to realise the immense economic significance of North Sea oil to our energy supplies and to the balance of payments.
For the people of Scotland the most important aspect of North Sea oil is the opportunity which it provides for a much higher level of new investment and employment. The real test of the Government's handling of this resource is the extent to which there is indigenous participation and the extent to which the expenditure on public infrastructure matches the massive investment of the private companies. The Government will also be judged on the extent to which the oil is removed without damaging our environment.
I still believe that the Government have practically abdicated their responsibilities here. Far too many of the major decisions are being taken by the international oil companies and the big construction companies. We must have greater public participation and control and greater Government intervention to see that these objectives are met for the benefit of the Scottish economy.
948 I wish to illustrate the Government's abdication of responsibility by dealing with the current arguments on the question of building platforms. We are all aware of the basic facts. When we talk about the building of concrete platforms—and I refer here only to concrete platforms—we are talking of a structure costing about £20 million. If we require about 40 or 50 by 1980 we have in mind a figure of about £1,000 million. That is a great deal of money, involving heavy investment and new, indigenous technology.
What has happened? We had an announcement during the summer that the first new platforms were being built abroad. Three are now being built in Norway, two for British waters. The oil companies were not prepared to wait. Perhaps the Government will tell us to what extent they sought to persuade them to wait or whether they were happy about what happened. These decisions were taken before the real energy crisis blew up. Let us look at what is happening at Drumbuie. The case has been presented as if the choice was between building platforms in the deep water at Drumbuie or not building them in Scotland at all. This is not so. That is the case only if we go for the Condeep design, for which Mowlem has a licence and which the oil companies presently favour.
The real issue is to decide what design is in British interests and where it should be built. These two factors are interlocked. My criticism of the Government's handling of this issue is that there is an inquiry going on at Drumbuie yet we have had no real appraisal by the Government to decide what would be the best design and where would be the best place to build. The Scottish Office issued a list of suggested sites in May. That should have been pursued so that we would have had a clearcut British policy, with the Government deciding where the platforms would be built and what type of platforms they would be, in consultation with the oil companies.
It is intolerable that only this afternoon the Minister has announced there is to be some sort of more detailed survey into concrete platform design. I hope that he will provide us with some information. Does he mean that one or two people in the Offshore Supplies Office will be looking at this, or will we get a 949 comprehensive study and a start to the Government taking some major decisions in place of the present absurd situation?
The IMEG report quite rightly attached a great deal of importance 10 Government support for research and development and to the opportunities for developing not simply new jobs but new and indigenous technologies. I was interested to note, in reading the Public Accounts Committee's report, that there was some discussion between my right hon. Friend for Birkenhead (Mr. Dell) and my hon. Friend the Member for East Stirlingshire (Mr. Douglas) on the question of the discrepancy between the Department of Trade and Industry's memorandum estimate of the likely level of British participation and the IMEG estimate. This was because, when IMEG spoke about British firms, it had in mind companies based in Britain and that an international company using a British fabrication yard would be classified as British, but the DTI would not classify it as British.
Perhaps we should encourage firms to come here and provide jobs, but let us not make the mistake of subsidising their technology, just as in the computer industry we do not think of subsidising research and development for IBM. Indigenous technology must be provided by indigenous firms The knowledge which Chicago Bridge or other American companies obtain is knowledge which they will keep.
The Government's reaction to the IMEG report's recommendation's on research and development is an absolute disaster. I understand that in 1973 the Ship and Marine Technology Requirement Board will spend about £4½ million. About £1½ million will go on marine technology and about £1 million of that will be in respect of sea-bed engineering. That is derisory in the context of the great opportunity which exists. We may be appalled by the expenditure of hundreds of millions of pounds on research and development for Concorde and we may challenge whether Concorde is desirable, even if we can sell it. But what cannot be challenged is the immense benefit which will accrue to the British people, and particularly to the Scottish people, from a massive investment in North Sea oil.
950 We talk about building platforms, but it is accepted that sooner or later we shall require new techniques to cope with deeper water. We shall require sub-sea equipment. This is an area in which we should be getting in on the ground floor Here is an opportunity for a massive intervention by the Government. We shall have to explore deeper water for oil and there will be a need for new techniques. There is an opportunity to invest in research and development which will pay off and without taking the sort of gambles which we are taking with Concorde.
The Government might as well face the fact that it is not simply the Opposition who are criticising them for the intolerable way in which they are handling this development, particularly from the point of view of the Scottish people. They had better come to terms with the fact that there is a burning resentment in Scotland about the way in which this asset. North Sea oil, is being developed and about their almost total abdication from grappling with the opportunities afforded to the Scottish people by this resource.
§ 5.33 p.m.
Mr. John Bitten (Oswestry)
The hon. Member for Edinburgh, East (Mr. Strang) has spoken about North Sea oil, which clearly is a subject particularly appropriate to Scottish interests but is of general United Kingdom interest. It features prominently in the reports which we are considering. However, I hope that the hon. Gentleman will excuse me if I do not comment in detail on his remarks because I wish to confine myself essentially to the Fifth and Sixth Reports which refer to the Concorde aircraft.
The thanks of the House are unquestionably due to the right hon. Member for Birkenhead (Mr. Dell) for the reports and for the helpful and wide-ranging speech which he made in introducing them. Hon. Members will join him in the personal tributes which he paid to the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) and to the late Member for Hove, Mr. Martin Maddan. However, it is a great sadness that so excellent a committee as the Public Accounts Committee—the doyen of parliamentary committees—should have such a lethargic reception to its reports as is accorded by the sparse attendance in the Chamber so early in the 951 evening. If ever I wanted reinforcement of my deep and fierce prejudice in favour of the House as opposed to Select Committees as a way whereby the legislature might influence the executive over the course of events, occasions such as this provide it.
§ Mr. William Hamilton (Fife, West)
Does the hon. Gentleman agree that, if we did not have Committees such as the Public Accounts Committee and the Expenditure Committee, we could not possibly obtain from the House information of the sort which continuously emerges from them?
§ Mr. Biffen
I do not deny that there is a valuable information collecting rôle for the House to play which might well be executed in Committees of the sort that the hon. Gentleman has in mind. The difference between us lies in the importance which I accord to the way in which the Committees influence the executive. However, the hon. Gentleman will agree that this is hardly an appropriate occasion on which to conduct a debate which is substantially about the procedures of the House and the way in which the legislature may more effectively control the executive. Perhaps a future occasion will be found when we can trade our respective and different views on this topic.
As I have said, I wish to concentrate on the extremely valuable reports on the continuing saga of the Concorde aircraft. We must set this matter against the hopes of the Treasury Bench which have been authoritatively stated by my right hon. Friend the Prime Minister. Speaking on 14th September in Walsall, he commended a number of projects, including Concorde. Referring to the purpose of the projects, he said :This purpose is nothing to do with national prestige. I have never believed that it is right to spend money on projects just for the sake of having something to wave in the face of other countries. The reason why the Government believes these projects to be right is quite different. We judge them to be necessary in their different ways to maintain through the rest of this century the competitiveness of our economy, and thus the standard of living of the British people.The assistance which the project renders to the competitiveness of the economy is without question a prosaic and businesslike basis on which to commend and endorse the Concorde programme.
952 It is right that we should scrutinise the project from time to time, and no time is more appropriate than a debate on the reports of the Public Accounts Committee, because there is without doubt a long and tangled history to do with Concorde which makes it one of the most frightening examples of a situation in which there is no effective public control over the financing of such schemes. This was referred to by my hon. Friend the Member for Croydon, South (Sir R. Thompson), and it is precisely in those circumstances that it becomes a parody to talk of the aircraft as though it were a major aspect in sharpening the country's competitiveness.
The Public Accounts Committee has authenticated a number of occasions and areas where original calculations have been substantially falsified. I can do no better than quote from paragraph 16 of the Sixth Report which reflects on the previous experience of the Committee :Your Committee were informed that it had become clear during 1968 that Concorde would not meet the required performance of a 20,000 1b. payload from Paris to New York and this called for a major redesign which accounted for most of the £70 million estimated for additional development tasks.The unhappy record of constant upward revisions of the total cost of Concorde has underlined the need for parliamentary vigilance, even though that vigilance has often had to proceed in an atmosphere of frustration. The Public Accounts Committee recognised this in paragraph 21 :We therefore recommend that the Department and the Treasury should further examine the procedures for preparing estimates of development costs in such projects, taking into account the factors leading to escalation of costs, so that better assessments can be made from time to time of the case not only for starting new projects but for continuing current projects.My hon. Friend the Member for Harwich (Mr. Ridsdale) is right to draw attention to the need for far more effective monitoring systems for Maplin and the Channel Tunnel than we have been able to construct for the Concorde project. He, representing the area that he does, knows only too well the tremendous social and economic upheavals that can come about with the development of a Maplin project that is not subject to effectice parliamentary scrutiny or to the kind of control that would at least enable those who are being disadvantaged—as many will be in Essex—to know that this 953 money, if not in their judgment well spent, is being spent under scrutiny. It would enable them to know that the situation has not careered out of control to become part of a gigantic uncontrollable aspect of public spending which brings into discredit not merely that project but the whole institution of government and public decision taking. I do not want to over-dramatise this, but one of the factors that helps to create a growing resentment between the governed and those in authority is that all too often there is no one—certainly not the House of Commons—who can be held to be accountable.
Whereas hitherto we have been largely concerned with the development cost of Concorde, we are now moving to a situation where the commercial production of the aircraft will be under increasing scrutiny. The right hon. Member for Birkenhead said, perfectly fairly, that often when Governments are confronted with technical advice concerning engine construction there is very little they can do except to learn to live with that technical advice. Once the original—and in my view contentious—decision had been taken to use the Olympus 593 design engine for the Concorde, a great deal of what followed since was inevitable, though there might have been incredulity about the £350,000 spent upon the pilot seat.
We are now moving to an area which should be substantially more quantifiable, namely, that of commercial operation of the aircraft. No longer can the high priests of technology hold the rest of us spellbound and merely credulous. Now we are faced with the kind of economic decision with which we are all to some extent reasonably familiar, namely, whether the aircraft can fly with a reasonable hope of paying its way.
We proceed to consider this next stage in the Concorde saga, as my hon. Friend the Member for Croydon, South remarked, against the background that at its inception we had no idea of the potential market size. It is now well over a decade since those hazy and halcyon days and we are in a far better position to assess the likely order situation for the aircraft. It is on these more prosaic points that my hon. Friend the Financial Secretary to the Treasury will be anxious to reassure the House, and the House will 954 be delighted to receive his reassurance. I will ask him a few specific questions.
First, in the light of the evidence that has been placed before us by the Committee of Public Accounts, what in the Government's view is the most economical rate of production and in what locations? One of the difficulties of the scheme that involves two companies and two Governments has been the sharing between the French and the British. Past Committees of Public Accounts have always been anxious about the inherent conflict between cost-effectiveness and work-sharing. Never could that dilemma be more cruelly pointed than in circumstances in which we find a rate of ordering which suggests perhaps a revised rate of production. Therefore, we have to ask whether it is most economical to have two points of production rather than one.
Inevitably and inextricably linked with that is what is the most economical rate of production. We know about the most economical rate of aircraft orders, what I am concerned with is the most economical rate of production.
Secondly, what is the current state of research and development on the engine noise of the aircraft? My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) on 26th November asked the Secretary of State for Trade and Industry :if he will make a statement on the latest report on the future commercial development of the Concorde aircraft sent to him by the British Aircraft Corporation.He might have added, though he did not, "a copy of which is now available to hon. Members, thanks to the courtesy of the Anti-Concorde League". My hon. Friend the Minister for Aerospace and Shipping answered as follows :As I informed the hon. Member for Ashton-under-Lyne (Mr. Sheldon) on 19th November, studies on future possible improvements from the Anglo-French manufacturers have just been received, and are being examined."—[OFFICIAL REPORT, 26th November 1973 ; Vol. 865, c. 2.]I think that two points arise. First, the House would very much like to know what success has attended the work on the bucket and spade modifications to the Olympus 593 engine. What are the reduced landing noises as a result of the adaptation? Secondly, has the work that has been undertaken in any sense altered 955 the latest known development cost total figure of £1,062 million?
The whole question of engine noise is of considerable interest. I do not want to anticipate what may be part of the speech of the hon. and learned Member for Northampton (Mr. Paget), but I dare say that he, like myself, is apprehensive about the commercial prospects of an aircraft which cannot have engine noise which is as quiet as the TriStar generation of subsonic jets. That is the dilemma. it is a question not of what is good enough today but of what will be good enough four or five years hence when strong environmental forces at work in North America and elsewhere will require lower noise levels than those that are currently accepted and acceptable.
My third question concerns the impact of rising fuel costs on the sales prospects for this aircraft. A Question was put to the Department of Trade and Industry about fuel consumption and the expected impact on the sales of Concorde, to which the Under-Secretary of State replied :Concorde's estimated fuel consumption per seat-mile is 0.45 1b. compared with 0.15—0.25 1b. for current subsonic civil jet aircraft. The manufacturers do not consder that the recent fuel price increases will have any material effect on Concorde sales."—[OFFICIAL RFPORT, 14th November 1973; Vol. 864, c. 166.]I regard that as a somewhat optimistic holding reply, for what is reality? The reality is that per passenger seat-mile Concorde consumes between two and three times as much fuel as a subsonic jet, and I cannot believe that this alteration in the balance of operating economics of supersonic aircraft will leave prospects untouched, above all in the light of the prospective increases in fuel oil which are generally assumed by aircraft manufacturers and aircraft operators the world over.
It is therefore essential that we should know what are the considered consequences of this change in fuel supplies and in fuel prices. Indeed, the Treasury Minute has to some extent conditioned us to think in these terms, since doubtless with weary experience over the years, it assumes that the promotion of Concorde is no easy task because it says thatit will nevertheless be competing for the limited capital resources of airlines who, in the context of their overall route network, will be evaluating the comparative costs of supersonic 956 and subsonic aircraft to meet their requirements.Who can doubt that in the latest, most modern evaluation there has emerged the major effect of steeply rising fuel costs and indeed, for some airline operators, a degree of hazard about the availability of such fuel supply?
The observation is made that much more pertinent by virtue of the fact that, although time has elaped since a letter of intent, as it were, was received from Iranian Airlines for its two Concordes, no firm orders have resulted from it.
§ Mr. Biffen
Or, as the hon. and learned Member for Northampton says, from the Chinese. The reason why I view the Iranian situation with such anxiety is that the airline has made a reservation for two Boeing 747 SPs, which will be a long-range wide-bodied subsonic jet, which it is argued will be doing the routes which might otherwise have been considered available for the Concorde. I regard the non-confirmation of the letter of intent by Iranian Airways as a noteworthy matter and one which fully merits some further observation by my hon. Friend.
We then come to the question of the firm orders, all of them to tied purchasers, namely, the flag carriers known to be purchasing Concorde—Air France and British Airways. What routes does my hon. Friend expect will be flown by British Airways with the five Concordes that it has ordered? In particular, can my hon. Friend confirm that British Airways has permission to use Lagos Airport? It is important to know whether there is firm permission to use that airport, because I understand that there may be some operational difficulty for Concorde in the use of a high-altitude airport such as that at Nairobi.
One's anxieties—and they are anxieties—are bound to be expressed upon this venture not merely because of its history but also because of the solid and sombre realities that have been concluded by the PAC itself. Reference has been made to paragraph 59, and I shall repeat it. It says :It appears to Your Committee that the absence of any clear indications of sales prospects and the level of production costs if sales are low leave the project as speculative as it 957 ever was. Unless further substantial orders are received for the aircraft we fear that in addition to the failure to recover development costs, the Government will have to meet production losses, which could be large, on each aircraft produced.All the anxieties that are therein contained must be reinforced when we read that my hon. Friend the Under-Secretary of State said at the Western European Union Assembly :The direction in which aviation will move in the future is by no means as clear as it seemed until recently. For example, without wishing to overdramatise the situation, we have seen a change in the energy situation which could have significant implications for the aerospace sector …. What is clear, however, is that the days when one could confidently rely on ever-rising forecasts of traffic growth and demand for aircraft may be past.That is a sober and timely reminder. It is a reminder to the House and an endorsement of the findings of the Committee that this aircraft is not above question. It will be a sad day when some items of public spending, even if they are on collaborative projects with allies and neighbours, become so sacrosanct that they cannot be questioned and, if found wanting, terminated.
I do not believe that true national pride lies in the production of aircraft for which there is no commercial demand. It is an illusion and a very false sense of technological patriotism. The House has an obligation to inquire whether new environmental and new commercial factors render supersonic air transport as both unlikely and unacceptable. It is easy enough to ask the question. It is much more harsh to live with some of the underlying realities implicit in the answers. But I think that I speak not entirely for myself when I say that for me, at any rate, technical spendour is not enough.
§ 6.1 p.m.
§ Mr. Michael Meacher (Oldham, West)
Although the hon. Member for Oswestry (Mr. Biffen) has raised some highly pertinent and important questions about Concorde I hope that he will forgive me if I do not follow up his remarks. I wish to return to the other central point in this series of reports, namely, North Sea oil and gas.
Although the Government have shown themselves to be highly disturbed by the more extraordinary revelations of the Committee on this subject, on which the 958 Committee and its Chairman and acting Chairman are to be warmly congratulated, we have not yet had anything remotely like a satisfactory response on several points. Perhaps it is less surprising when one considers that the central implication of the first report is not so much the fantastic tax throw-aways which the Committee unearthed—although they are serious enough—but the exposure of the highly ambiguous not to say sinister relationship between the oil industry and the Department. It is this murky link which alone, surely, can explain the series of Government blunders.
The fact that these blunders were deliberate is shown by the obviously misleading cover-ups of the Department. How, otherwise, even on a most generous interpretation, can the Government explain why they imposed no tougher terms in the fourth round of licensing at the end of 1971, after the exploration initially had shown unexpected successes which enormously diminished the risks involved, when it was only the magnitude of the risks in the first place which, in the Department's view, justified the generous incentives to the companies? How else can the Government explain why, after the small experiment with the auction in the fourth round which produced as much as £37 million from the sale of 15 blocks, they still went ahead with the sale of 267 blocks which, as a result of the usual licence fee, brought in only a paltry £3 million? How else can the Government explain why, after it had become clear that there were in this area very rich oilfields which, on the latest estimates, are likely to produce up to £200 million-tons by 1980, at that stage they could issue licences for 46 years, with no provision for variation or for renegotiation of financial terms?
The second area in which the Government owe the taxpayer an explanation is their studied pursuit of their misleading statements about tax loopholes, about which, as the report makes clear, they knew all along. The Department has consistently tried to make out that corporation tax on North Sea profits would put Britain's take on a par with that of other producing countries at about 60 per cent., or more. How could the Government justify maintaining this fiction when they knew perfectly well that the 959 more the OPEC artificially raised the posted price of Middle East oil the more the British taxpayer was held to ransom by the system of double taxation and other reliefs which permit an offset of Middle East losses against tax on North Sea profits? The damage is well known. It has been cited in the debate. It is piling up, with no less than £470 million by the beginning of this year. The oil companies could offset almost all of their profits against tax losses for the foreseeable future.
The Chancellor of the Exchequer said in the Budget that these huge accumulated losses of £1,500 million would be prevented from being offset against North Sea profits, but even here the Government have not blocked the tax loophole at all fully. My right hon. Friend the Member for Birkenhead (Mr. Dell) rightly made the point that there has been no mention of the capital allowances. Yet why should the cost of a tanker in the Gulf be offset against profits in the North Sea?
Secondly, and more importantly, the Chancellor has objected only to that part of the tax offsets which arises from the posted price. He has not objected to that part which arises from the fact that tax rates can be as high as 80 per cent. and under double taxation arrangements any payments over 50 per cent., the United Kingdom corporation tax rate can be offset against United Kingdom profits. So although the Government have been found out once, they still seem implicitly to be trying to play the same kind of game.
The same kind of misleading impression has been given over the question of supplies to and personnel of the oil companies. We know that after the Department originally estimated these, at least the former, at over 50 per cent., the IMEG produced a much more realistic report of 25 per cent. to 30 per cent. It transpires that the Department counted foreign subsidiaries as "British", without disclosing the import content of their services and supplies, which is at a very much higher level than it would be in the case of a truly British firm. As the Committee's report rightly says, it is amazing that a thorough examination of the opportunities for British industry and employment was not undertaken before 960 1972 when the IMEG report was commissioned.
What all this means is that the Department's claims that it is safeguarding the interests of the country and that the North Sea would relieve this country of £500 million worth of imports have been shown, ruthlessly and extremely efficiently, to be entirely empty. Much of the gross savings in visible oil imports will be offset by profits of foreign countries and salaries transferred abroad, as well as by the imported supplies of the oil companies. Indeed, what else can the Minister have expected when the foreign participation in exploration and exploitation is no less than 68 per cent., by area licensed, and when over 70 per cent. of the equipment comes from either foreign countries or foreign companies with a British subsidiary in this country?
Against this background, which needs an explanation without conspiratorial theory being invoked, of missed opportunities, whether involuntary, or in some senses intended, it is surely remarkable that the Government have taken no less than eight months and have still not made up their minds whether to adopt the Committee's recommendation of the excellent Norwegian system of variable royalties and the variable carried interest participation, in the sense of an option to buy into a concession if it turns out to be successful.
The Government should declare their hand, and do so quickly. They have not made clear how far they propose actually to segregate profits made from the Continental Shelf from the results of exploration and exploitation elsewhere. We have had no real answer on that point. Neither have the Government made a decision about the proposal which my right hon. Friend mentioned of a variable barrelage, which is surely the only proper way to skim off excessive profits in some companies without at the same time discouraging the exploration of poorer deposits.
Perhaps the most serious implications in the report are not the economic ones so much as the political and administrative ones. Surely, almost every sentence of the report indicates that the mammoth Departments that we have in Government today cannot be properly controlled by their political heads. The report also argues strongly that the decision to allow 961 policy matters to be settled intradepart-mentally should be reviewed urgently. It has for far too long been regarded as part of the conventional wisdom that the decision to abolish the interdepartmental committee was a wise one. The evidence of the report suggests that actually it was a very unwise one.
The most serious point of all about the report is the evidence it provides of the growing osmosis between industry and Government, surely to the detriment to the rest of the community. Where Ministers leave decision making to sponsoring Departments, the evidence of the report is very strong that the sponsor can easily and quickly become the representative of the sponsored industry and not what it is meant to be—the agency of a particular sector of the economy in the interests of the wider community.
It is clear from the report that consultations take place almost daily between industry and the Department. Perhaps most worryingly of all, the Department is clearly highly dependent upon the industry for information. The report for this reason implicitly raises the question of how far this approach is compatible with the giving of impartial advice to Ministers, and what steps are taken, as one wanders from page after page of the report, to obtain impartial outside advice on these matters, especially when negotiations are about to take place with the industry itself.
I believe, therefore, that the real message of the report, about which, as I have indicated, I do not think that the Government have yet given at all satisfactory answers, is much less the question, though this is serious enough, of how to avoid a substantial further haemorrhage from this country, which is less than it has a right to expect, but the even more important question perhaps, of the need for another report on the rôle of sponsoring Departments in the formulation of fuel policy, and, indeed, the whole question of the machinery for interdepartmental consultation.
I hope that the Government will accept those remarks in a positive sense, because I believe that this is an area that now needs very serious review. I hope that the Minister, when he replies, will be able to give some indication of the Government's intentions to produce 962 changes which stop this extraordinary story from recurring in other areas.
§ 6.14 p.m.
§ Mr. Ian Lloyd (Portsmouth, Langstone)
I had not intended to participate in the debate. I suppose that I should start by declaring not so much an interest as a gross inadequacy, because I should make the confession that I have not read the reports of the Public Accounts Committee. The only reason why I am on my feet this evening is that I have been fascinated by the debate so far. I am on my feet because, clearly, those hon. Members who have read the eight reports of the Public Accounts Committee are evidently not in the Chamber and I am not seeking to take their place or seeking to usurp their knowledge, which must obviously be much greater than mine.
I shall return at a subsequent point to what might be described as a political if not a philosophical reflection on the fact that I happen to have been busy reading, as the hon. Member for Edinburgh, East (Mr. Strang) implied, the manifold reports and papers of the Select Committee on Science and Technology and obviously one Member cannot, unless he has more time than the average and more energy and dilligence, command and master the papers of more than one Select Committee at any one time.
None the less, I believe that some very important points have been raised. I want to start with a subject which was covered by the hon. Member for Oldham, West (Mr. Meacher) ; namely, the relationship between the Government and industry in general and between the Government and the oil industry in particular. There has been in the debate some implied criticism of the situation in which the United Kingdom oil industry will now find itself in relation to the North Sea.
I wish to draw the attention of the House to a very comprehensive survey of the finances and world pattern of operation of the oil industry in the context of 1972, which is about as recent as statistics make possible and which was conducted by the Energy Department of the Chase Manhattan Bank. Had I thought that I should have an opportunity to raise this subject this afternoon, I should have been 963 sufficiently wise as to have brought the report with me. But I recall the principal conclusions, which I think are very interesting.
The Chase Manhattan report surveyed the activities of about 70 per cent. of the world oil industry. The figures, which I recall very clearly, were that in 1972 the gross revenue of the industry was about 106 billion dollars. Of that 106 billion dollars about 3 billion, and 3 billion only, finally went out in the form of dividends to investors in that industry. The clear message throughout the Chase Manhattan Bank survey—it is very relevant to the relationship which Government establish between themselves and the North Sea oil exploration pattern—was that the world oil industry is not being permitted to accumulate and aggregate the necessary investment reserves to develop on the scale which it conceives to be necessary and which, indeed, the energy crisis has made the whole world realise is necessary.
As I recall the analysis in the Chase Manhattan document, one of the principal reasons for this is that about 37 billion dollars of the total take of 106 billion dollars went out in taxation of one form or another. So if the hon. Member for Oldham, West is arguing that the world oil industry is not contributing its fair share to all the ambitious social and economic policies of Governments, I think that he must look at the figures again. Or, if the hon. Gentleman maintains this case, as many others do, he will have to say where the capital reserves are to be found for the exploration which is now to be required if our civilisation is not to run headlong into a very much more serious and major energy crisis than that which appears on the horizon at present due to artificial factors.
§ Mr. Lloyd
The hon. and learned Gentleman has caught me on a most vulnerable point which I admitted earlier. The Chase Manhattan document made a very strong case for allowing the oil industry as a whole on a global scale to derive or to keep a larger proportion of 964 its total reserves. If a return of 3 per cent. is considered by the hon. and learned Member for Northampton (Mr. Paget) to be excessive, I am sure that he will say so immediately.
The hon. Member for Oldham, West went on to talk about the undesirability of what he described in a rather intriguing analysis as the osmosis between industry and Government which he thought would take place to the detriment of the community. I should have thought that this was contrary to an aim and objective which was common to both sides of the House and has been for a very long time. In general, we deplore the gap between industry and Government, and we advocate and support virtually every kind of policy which can increase the communication, the understanding and the general level of confidence which prevails between industry and Government.
I should not have thought that what is happening in the North Sea generally speaking can be criticised on the ground that this osmosis is to the detriment of the community, because clearly the very production of this report and all the involvement both of Government and of the industry in its production suggests that this is continuing.
I should now like to turn very briefly to the subject of Concorde. I am glad to see that the right hon. Member for Orkney and Shetland (Mr. Grimond) is in his place, because it was his comments on this subject which prompted me to intervene in this debate. I accept all that he and my hon. Friend the Member for Oswestry (Mr. Biffen) have said about the great inherent speculation in high technology. I do not think one can really argue that this great inherent speculation in high technology is something which we can ever completely dismiss, however perfect or improved our control systems, whether over the rate or scale of expenditure or over the inherent risk decision which we take when we decide to build a supersonic aircraft, a large scale or more powerful computer, or devices which very few hon. Members of this House understand anything about, except possibly the way a nut goes on a bolt, which is probably the one feature common to all of them.
But it is worth recollecting that, if we were in this House 30 years ago and were being asked—as we were not, because the 965 funds were supplied by private industry and not by the Government at that stage—to approve what was the relatively modest expenditure asked for by Group Captain Whittle to develop the gas turbine, it would have been possible at that stage to argue that the gas turbine had very little to do with the public weal and was unlikely to be of any ascertainable or foreseeable benefit to mankind in any sense whatever. One could have made almost the same criticism when we were asked—as I think we probably were—round about the late 'forties to produce capital for the development of the Comet aircraft. We could probably have said "Here is a highly specialised, exotic form of aircraft which, apparently, will carry only a very few people at speeds so far inconceivable from one point on the earth's surface to another." Yet the interesting speculation which follows from that is that from that aircraft developed the subsonic jets which, as I am sure the right hon. Member for Orkney and Shetland will be the first to agree, has made possible for millions of people something known as the" package tour" holiday, which has had the widest social and economic effects.
§ Mr. Grimond
I am grateful to the hon. Gentleman for giving way, and I am much interested in his argument. Of course, if Concorde is to be used for package tours, that alters the position, but that has not been seriously suggested so far. The curious point about Mr. Whittle's jet engine is that he raised his money in the market. My father-in-law and his former hon. Friend Mr. Williams, who was the Member for Exeter, raised the money in the market. If the money for Concorde were raised in the market, I should be delighted, but I do not think it would be.
§ Mr. Lloyd
I take the right hon. Gentleman's point and I go so far as virtually to agree with him. I should be the first to concede that, if the sponsors of Concorde had sought the money in the form of risk capital from the private sector of the Western capital market, their chances of raising it would be very small indeed. I do not want to enter into a much more profound debate as to whether, with technology making its present scale of demands, this type of appeal to the private sector market is entirely possible or 966 practicable, even if it may be philosophically desirable. This is a very much bigger question, but I agree with what the right hon. Gentleman said.
In conclusion, I should like to turn to the point made by my hon. Friend the Member for Oswestry on the emptiness of the House. I wondered whether the explanation for that lay elsewhere. Is it not possible that our debates have, in a sense, assumed a somewhat academic nature? One would have thought, when the House of Commons was supplied with such a mine of information as it has been supplied with on this occasion, that the benches would have been crowded and that there would have been an intensely interesting and informed debate. It is worth asking why that is not so ; why, when the reports of the Select Committee on Science and Technology are debated, if ever they are to be debated, the situation will probably be the same. The green benches will be empty, there will be a few interested persons here, and that is all.
The conclusion which I have reached, perhaps erroneously, is that Members of Parliament bear, to the decision-making processes and authority and centre of power in this country, much the same relationship as shareholders at the annual general meeting of a large and rather moribund company. We have a great deal in common with them. The meetings are poorly attended, they are generally badly informed, the shareholders are encouraged to have other preoccupations than the activities and interests of the company—and for very good reasons—questions are not generally encouraged by the board, and the annual report is usually a glossy and somewhat meaningless document. Only on the last point would I say that the analogy is not true this evening, because I should like to pay a very generous and genuine tribute to the reports which have been produced.
But if this is the position it raises rather more profound questions. If we are, through media such as the Public Accounts Committee, to return to an effective control of the expenditure of this nation—a point to which I referred the other day—then I come back to this simple point, which I am sure hon. Members will have no difficulty in accepting. If we ask, in contexts other than this, what is the most significant feature of control, 967 I think the reply is "Who signs the cheque?" The answer which we ourselves give, if we are asked who signs the cheque for Concorde, who signs the cheque for Maplin, who signs the cheque for £900 million for British Railways, who signs the cheque for almost any of these mammoth undertakings is "We do not sign the cheque." If we could, not literally but symbolically, reach the situation where on every occasion when the nation was asked to spend a sum in excess of £500 million the cheque had on it the signatures of 20 Members of Parliament, what a vast change there would be in the situation, and in the relationship of this House to those who take the decisions and spend the money!
Of course, I am not suggesting this as a serious solution to our problems ; I am suggesting it in the sense of a symbolic solution. But until the country feels that the situation has been restored to where a symbolic £500 million of the nation's money is not spent without 20 Members of Parliament once again symbolically signing the cheque, then I do not think we shall have reached the point which we want to reach.
§ 6.27 p.m.
§ Mr. Dick Douglas (Clackmannan and East Stirlingshire)
It is not my intention to follow the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) in talking about reports which he admitted he has not read very fully. It is my intention to devote some time to the First Report of the Public Accounts Committee which I have read reasonably fully. We have already had expressions of thanks from these benches to my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) and my right hon. Friend the Member for Birkenhead (Mr. Dell). I join my right hon. Friend the Member for Birkenhead in offering condolences on the death of the then Member for Hove. Martin Maddan was an excellent member of the Committee and he and I were on the Select Committee which dealt with the Maplin Development Bill. He was an excellent colleague and a highly respected Member of this House.
It is my intention to deal with the report on North Sea oil, and I am happy to see the Scottish Under-Secretary of 968 State for Health and Education in his place, because I want the Government to apprise themselves of the sense of unfairness which is felt in Scotland in relation to this issue. First, there is a sense of unfairness in relation to the method of administering the licence terms and the speed of exploration and exploitation ; secondly, there is a sense of unfairness in relation to the ownership of the oil once it has been discovered ; thirdly, there is a sense of unfairness in relation to the processing of the oil ; fourthly, there is a sense of unfairness in relation to the royalties and the tax levies ; and, fifthly, there is a sense of unfairness in relation to the treatment of United Kingdom industry, particularly Scottish industry.
I recognise immediately that these points are intermingled. But first I want to deal with the sense of unfairness relating to the licensing terms. We know that the administration here, up to the fourth round, was discretionary, and after the fourth round it was on a mixed discretionary and auction basis. The royalties were based on a uniform consideration of 12½ per cent., with a fee given for blocks of roughly 100 square miles. Half a block could be surrendered in six years but the other half was available for 46 years without a break.
The view of the Department of Trade and Industry given to the Public Accounts Committee was that there had to be a balance of advantage to induce the companies to move into this area, and, secondly, the Department wanted to produce a situation in which the OPEC countries would not push up the price. We saw the situation of the OPEC countries developing throughout the 1960s, and anyone who thought, when they were administering the third and fourth round—and the fourth round in particular—that we were producing a situation for which the OPEC countries would have any regard must have been living in cloud-cuckoo-land.
We know what price the OPEC countries are demanding for oil which is imported into the United Kingdom. The cost of our imports has risen in a period of 18 months from £900 million to £1,800 million, and this is at a posted price of just about five dollars a barrel. The going price of marginal oil is now in the region of 18 dollars a barrel. This reflects the price that is going to be given for North Sea oil.
969 The Government have evaded the issue. What is going to be the well head price for North Sea oil? How is it going to be administered? Unless we are clear about this, the sense of unfairness about this issue in Scotland will not be diminished. We have to be clear what regime we are going to create in order to determine the administered price for oil. The companies' own assessment, that it is fair to go at a cost of £1,000 per barrel, and therefore, the cost of the Forties field will be about £400 million plus, is reasonably well known, but we ought to be probing—and the Government ought to be more forthcoming than they have been—the price structure of this valuable resource. Are they going to operate a system which gives us a cheap form of energy? Is that compatible with the rules of the European Economic Community? These are questions which people in Scotland in particular want answered.
Without any disrespect to an hon. Lady who has not yet made her maiden speech or to my hon. Friend the Member for Western Isles (Mr. Donald Stewart), may I say that I am surprised to look at the benches and see that they are absent.
§ Mr. George Lawson (Motherwell)
My hon. Friend is referring all the time to Scotland, but, in fact, this is a matter for Great Britain. I hope he will keep that fact very much in mind.
§ Mr. Douglas
I agree that this issue affects the United Kingdom as a whole. Knowing my hon. Friend's desire not to miss out the European Economic Community, I shall refer to that later.
As I have said, the OPEC countries are pushing up the price of oil. Last week at a Press conference Sheikh Yamani, who is a moderate in relation to the OPEC countries, said that from his point of view oil in the ground would be much more valuable than taking currencies and rates of interest in the present international monetary situation. That is a point which we have got to appreciate.
I now wish to consider the question of the ownership of oil as opposed to the cost. The régime which we operate in licence terms is that we demand that the oil must be landed in the United Kingdom. There is nothing in the licence terms to suggest that it should be processed 970 in the United Kingdom. I want to know, on behalf of the House, why we cannot have such a condition in the licence terms. Why is it impossible for us to say to the companies "Not only will you land the oil in the United Kingdom but you will process that oil in the United Kingdom unless good reasons are shown why this cannot be done"?
I note the comments made by my hon. Friend the Member for Oldham, West (Mr. Meacher), but it is rather difficult to overcome the fact that the oil companies possess the expertise unless we duplicate the administrative mechanism of the oil companies. I plead for openness of information. In a situation where the oil companies, rightly or wrongly, are not disclosing their cost structure, this is harmful to the nation. We must not merely ask the oil companies to go through their accounts and invoices every three months ; we want a clear openness of purpose on their part and an openness of information about their profits.
I go along with my hon. Friends who have argued for variable royalties. I also go along, of course, with the Public Accounts Committee's argument for a barrelage tax, variable if possible, in relation to the flows coming from the fields. These are important considerations. While not going all along the line with some of my hon. Friends in relation to public ownership, I argue forcibly for public participation. There ought to be in any new round of licences opportunities for carried interest agreements. It is absurd not to write in terms similar to those which Norway has.
I come now to the position of the United Kingdom industry. I note the comments of my hon. Friend the Member for Edinburgh, East (Mr. Strang) on the concrete production platforms. We cannot afford to lose another order for a production platform, not only because of the importance of getting the order and making a breakthrough in technology but because it becomes much more difficult for the other companies which supply the ancillary equipment for these platforms to obtain these orders if the orders for the platforms are placed elsewhere.
I am aware of the environmental problems. There is a public inquiry going on now in Drumbuie, but the Government ought to be able to get the oil companies 971 together with the construction companies and ask those companies operating in the British sector of the Continental Shelf "What type of production platforms do you think are necessary for the next five to 10 years?" That is a simple thing to ask. Then they should see where these production platforms can best be built. It may be that some of them can only be built in deep water. But there are other production platforms of a composite nature, like the Redpath Dorman Long design or the Brown Root composite design, which could be considered. There may be others which can be built without dislocating the environment. Unless the Government come clean, there may be misgivings.
Quite apart from the view which would develop among hundreds of thousands of people, some of these areas—one thinks of Drambuie in particular—are symbolic. This is what the Government do not seem to understand. The feeling among people in the Highlands goes back to the clearances, to the time when whole areas were destroyed, and they are extremely worried lest other areas should now be destroyed and left derelict, with no restitution and no profit for the community.
As I say, I am not an expert in terms of design. The way I put it is to ask the Government to allay the fears now entertained by giving, so far as is humanly possible, their objective for the type of production platform which can be built in certain areas.
What is more, although we are concerned about the production platforms it must be emphasised—I referred to this earlier today—that there are 57 semi-submersible drilling rigs being built in the world today, and not one is being built in the United Kingdom. If we are critical regarding the production platforms, we should be crying to high heaven about the backwardness of United Kingdom industry in getting into this work.
I realise that there is a problem in relation to the shipbuilding industry, which has relatively full order books today, but there is no excuse for the Government to sit back and say that this is something which the industry itself should solve. I repeat that there 972 are 57 semi-submersible drilling rigs being built in the world and not one in the United Kingdom. I do not comment on the jack-up type of rig which is at present being built by the Marathon yard. There are opportunities also for the United Kingdom to build liquefied natural gas carriers, and we have heard nothing about that.
On this whole question of the industry and its development, we in Scotland demand—we are not asking, and I have in mind the point made by my hon. Friend the Member for Motherwell (Mr. Lawson)—that there be set up in Scotland a centre for drilling technology. This is a "must". We shall consider it a failure on the part of the Conservatives, and an abject failure on the part of the Secretary of State for Scotland, if that centre is not established. It is important for the population of Scotland, and it is important for the United Kingdom, too, that we deepen and broaden our petroleum technology base.
All this is related to the need for an integrated energy policy. However we may evaluate the facts, we must not look upon our North Sea resources in isolation.
§ The Financial Secretary to the Treasury (Mr. Terence Higgins)
I am listening to the hon. Gentleman with interest. I note the various points which he makes, and I understand the strength of his feeling on the subject. I am, however, in some difficulty in relating what he says directly to the report before us.
§ Mr. Douglas
A considerable part of the report deals with the United Kingdom industry, and I am referring in this context to the IMEG Report. In the IMEG Report there is considerable documentation dealing with education, and the report of the Department of Employment dealing with education for offshore technology springs from the IMEG Report. I hope that I have indicated a clear connection between the PAC Report, the IMEG Report and what I have been saying about the need for a centre for drilling technology.
§ Mr. Higgins
I was in no sense being critical of the hon. Gentleman's remarks, as I sought to show in my opening comment. All I sought to do was to ask him 973 to relate his remarks to specific paragraphs so that my task in reply would be a little easier. I now understand what he says with reference to the 1MEG Report. I thought that various paragraphs might be relevant, and I had some problem at first.
§ Mr. Douglas
I take it that I have made the position clear now.
We ought not to exaggerate the facts regarding the overall impact of the North Sea resources. The present proven discoveries will be sufficient for the world for only two years. I hope that there will be many more finds. We must not think of this important resource in isolation. We must not think in Scotland or in the United Kingdom that, because we have made the discoveries, we can adopt a "go it alone" approach.
We must recognise the need for an integrated fuel policy, and this involves reconciling the claims of the miners, recognising that they must have a balanced labour force, and recognising also that this will not be achieved within the confines of stage 3. There should be a Minister of Cabinet rank, with clear duties set forth, who would have a national energy commission, with a relevant sub-commission, and a petroleum supply industries board based, if possible, in Scotland.
All the revenues which stem from these finds should be clearly accounted for. I realise the difficulties in assigning revenues, but the people of the United Kingdom will want to see a clear accounting formula, and, what is more, from my party's point of view we shall want to see the oil revenues used to redress the regional imbalance of the past 100 years or so.
In view of the present difficulties on the international oil scene, we ought to be thinking about using North Sea oil as a lever to obtain a European energy policy, and then a world energy policy, a policy reconciling the competing needs of the producers and the consuming nations. I have here a report sent to me by my good friend Lawrence Daly, who argues the case thatThe mineworkers' free trade unions want to invite the European institutions and the national Governments to increase their efforts towards a common energy policy because it will depend upon this common energy policy whether the national economies of the European Community have sufficient energy available 974 further to develop their economic activities.I not only endorse those remarks for Europe but I endorse them for the world as well.
§ 6.46 p.m.
§ Mr. R. T. Paget (Northampton)
The power and effectiveness of the Public Accounts Committee lies in its nonpartisan nature, and I have no wish to depart from that non-partisan spirit. We are here criticising not merely the present Government but a series of Governments. Having listened to the speech of the hon. Member for Oswestry (Mr. Biffen), at the end of it I was reminded of a former Member of the House who, following Mr. Benjamin Disraeli, leaped to his feet and said "All I can say is ' Ditto, ditto ' to the hon. Gentleman".
Although the Public Accounts Committee is non-partisan, and we are here considering one of its non-partisan reports, we have before us a scarifying indictment of a series of Governments the like of which, I suspect, has seldom, if ever, been presented to the House. In these circumstances it seems extraordinary that the Government benches should be almost empty and that ours should be but poorly attended, for, in substance and effect, the report says that Governments have lost, mislaid or let go astray public funds certainly to the tune of over £1,000 million. It is a formidable challenge.
The subject of North Sea oil has been dealt with in detail by several of my hon. Friends, and I say only this about it. The fact which struck me during the evidence which we heard was the incompetence of public servants in dealing with the oil companies. However honourable, however skilful, however good at organisation within their own field, their incompetence was astonishing when they went to bargaining with the expert dealers of the oil companies. If I may say so, they were about up to the standard of the pre-war Gulf sheikhs ; certainly no better.
Indeed, my suggestion for dealing with this problem was that we should kill two birds with one stone. We should link the North Sea oil problem with the Malta problem. We should give Malta, say, 1 per cent. of our North Sea oil holding which would more than keep up with the demands coming from Malta, on the condition that Mr. Mintoff took over the 975 bargaining on our behalf. I believe that would have been an overwhelmingly beneficial proposition to both our islands. Even if we cannot obtain the inestimable services of Mr. Mintoff we should still have all the oil agreements renegotiated and we should get expert oil men to do the job for us. We are in a position to do that.
We can still correct the effect of these bad bargains by a barrelage tax which would provide the money which the contracts do not. However, a barrelage tax is a blunt, awkward and unfair method. We ought to draw different levels of participation from different fields, depending on the cost of development, production and transport. Separate contracts should be worked out in the light of the events and the technical problems as they develop. The contracts should be worked out by oil men who understand these developments, what the costs are and what we should have and what the companies should have. We have the weapon of a barrelage tax to enforce and impose a renegotiation and we should use it.
I turn now to Concorde. I do not disguise that I have been fundamentally opposed to the project from the start. Since it is an Anglo-French concept perhaps I might say in French that it was au-dessus de notre gare, which means "above our station". I have learned that the governing rule which should guide all directors is never to get involved with a customer or a contract that one cannot afford to lose. Anyone who does that loses his independence and his solvency. We and our aircraft industry are not of a size which permits us to commit resources on this scale to a single development. That is what killed Rolls-Royce. But for astonishing subsidies from the public purse Concorde would do the same to our aircraft industry.
Whenever and at whatever point we have written off this folly, its effect has been to throw our whole aircraft industry hopelessly out of gear. It was a concept which was wrong from the start and it became more obviously wrong as it proceeded. I remember having a long discussion with my right hon. Friend the Member for Birmingham, Stechford, (Mr. Roy Jenkins) when he was Minister of Aviation in which I urged on him the folly of continuing with this contract. 976 He told me that he was advised that his predecessor in office, now the right hon. Member for Brighton, Pavilion (Mr. Amery), had committed us to a contract which made it impossible to reconsider our position in the light of developing events without making ourselves liable to damages in the International Court. I pointed out a certain disagreement with that legal advice to the effect that I found it hard to see how damages for being prevented from going on with a contract which even at that point was plainly and demonstrably unprofitable could be quantified. Further, I argued that, even if I were wrong, any damages my right hon. Friend would have to pay would be trivial compared to the losses he would incur. That is certainly the way it has developed.
Small incidents best illustrate the degree to which costs on this contract got out of control. There was the need to design and provide three seats—one each for the pilot, the co-pilot and the flight engineer. One of those seats required to be able to traverse along a board of dials. They needed, for the comfort of the officers and the engineer, to be electrically adjustable. Seats of this sort are not new. The dental and medical professions have been designing such seats for some time and those for Concorde were not substantially different, although they may have had to be somewhat stronger. They may also have required some special features.
However, the kind of chair on which all the various adjustments can be made—where the back goes up and down and the feet come up and down—cost for surgical and dental purposes, according to my dentist, £600. I would, perhaps, agree that in these special circumstances the figure would go to double that. That would mean £3,600 for the three seats. I could perhaps have stomached that figure being multiplied by 10 to take account of development. That takes it to £36,000, but when I find that the people who were monitoring this contract on our behalf accept £360,000 for the three chairs I begin to realise just what has happened to control at this level.
We now move from development costs which are certainly and inevitably written off. The issue now is what do we do about production? Are we to go on producing these aircraft? I put the same 977 question to Mr. Thornton. It and the answer will be found on page 63 of the Sixth and Seventh Reports of the PAC, and the particular question I posed is No. 2095. I said :I feel that I am putting the assumptions as favourably as I can towards this aircraft. Supposing that you do get the orders in time to go ahead with 25 without a break, what I am saying is that even assuming that everything"—I think this is an error. It should read, "that everything went right", for that is what was meant to be said—"the cost per aeroplane would still be well over £23 million apiece?—I doubt that, but I would not be able to give you a firm answer.The next question was :Certainly each aeroplane that we sell within that kind of limit, 25 or 30, is going to mean a substantial addition to our losses?The answer was : "Yes"—assuming that everything was in our favour and that orders were produced, assuming that we could have a straight run and reach 25 to 30 aeroplanes. Because there is a security problem I am not allowed to say anything about the British Airways price. I know what it is, and it is a great deal less than £23 million. So each plane that is produced will increase the losses. I doubt that this process will increase our aircraft prestige.
Having said that, I turn to the question of whether there is any prospect of orders from beyond the nine at present. The nine aircraft ordered are for captive customers. British Airways is owned by the Government and Air France is owned by the French Government. Have we any chance of selling Concorde to other countries? The prospect is exceedingly doubtful. We can probably take the Iraqi inquiry as being dead. For purely political reasons the Chinese may be a slightly better prospect. If that is so, we may have a chance to give the Chinese a present of perhaps a score of millions of pounds, for that is what would be involved if we delivered the planes to them.
Since the report, the opinion of the manufacturers has by some method fallen into the hands of the Observer. Summarised, that opinion is, first, that the existing model is unsaleable. That is clearly stated by the chairman. Secondly, it is that the modifications which might make some of the aircraft sell are in doubt because there is no agreement with 978 the French, and that those modifications which improved carrying capacity would increase noise level and those which decreased noise would decrease carrying capacity. All would be difficult and expensive. Indeed, the chairman said that there was not much that could be done for the present aircraft.
We are told that the attempt to control noise has been disappointing. I have no doubt that it is. We have had the optimistic talk about Houston ; somebody said Concorde was no noisier than the major subsonic jets. That is true, but American officials have said that they will no longer accept this level of noise for any future generation. Concorde is, of course, a future generation aircraft. It is admitted, and made clear by the statement, that there is not the smallest chance of Concorde complying with the United States regulations.
The only chance of flying the machine to America is if the Americans are prepared to alter or bend their rules for the benefit of Concorde. It was pointed out that the French considered the noise factor insoluble and a political problem. That political problem could not conceivably be solved unless aircraft were made available to the American companies at prices they were prepared to accept, and with the existing model there is no chance of that happening. So the idea that there will be a competitive effect when the nine existing planes take the cream off the American market will never happen. Concorde will not be allowed to land in America for that very reason. The Americans will not bend the rules in order to have the cream skimmed off their aviation market. That is not the American way of doing business. It never was.
Therefore we are faced with the decision that has been so long and so often postponed. At what stage are we to take our courage into our hands and say, "Enough is enough"? We have a new problem in the oil crisis. I have seen it quantified. The package holiday operators impose surcharges at the airports because of the increased cost of oil. That surcharge, transferred to the Concorde, would amount to £1,750 for each transatlantic crossing. But it is not a question only of additional charges. There is the problem of conserving oil. At this point we have passed from a period of 979 glut in our fossil fuels. In Concorde we have an enormously costly instrument filling no obvious want and consuming fuel at a level never previously conceived. When will somebody have the courage to end this folly?
§ 7.8 p.m.
§ Dr. David Owen (Plymouth, Sutton)
The hon. Member for Oswestry (Mr. Biffen) spoke of the sparse attendance and the general lack of interest in the debate as an indictment of the Select Committee procedure. When challenged from the Opposition benches, he qualified that remark by saying that he did not doubt the need for Select Committees, but seemed to stand by his original opinion that their value was to be assessed by what went on in this Chamber.
Although the hon. Gentleman's criticisms are real enough, the fault is in the mechanism that we employ in the Chamber. We have a valuable asset in any Select Committee's report, in that it is usually unanimous, formed across party allegiances, and of a bipartisan nature. The reports can have value only if a Select Committee, using its bipartisan nature, puts a motion before the House when there is a contentious issue, as there is in some reports, and is given the power to call a debate, at the end of which there may be a vote.
There is an issue that the House will have to face. If it does not face it soon, its influences and prestige will evaporate even further. Back-bench Members of Parliament are no longer prepared to be herded in to vote according to the party line, which is what they largely do as at present except on private Members' issues or ethical issues. They will not spend hours and days dealing with the detail of the public scrutiny of Government Departments, often not in controversial areas but nevertheless dealing with large sums of money, if they are to be deprived of the right to force the Government to justify their posture.
The exercise of that right requires our being prepared to vote on bipartisan lines a great deal more often than we have done. We must go right back to the past, in fact. Back-bench Members' influence will start to be judged on the extent to which they are prepared to use the vote again the executive.
980 The party structures will continue on the major issues of the day. No one doubts that that should happen, but until we regain our former power and strength, in addition to our new-found strength, in the scrutiny of Select Committees, and bring the debate to the Floor of the House, we shall never have the control of the executive that the House must rediscover.
An example is the debate on North Sea oil, a matter of major national interest. We have waited months for the Government to reply. It should be within the bounds of possibility for the Public Accounts Committee to put a motion to the House, which the Government would have to answer. If the members of the Committee were not satisfied, and felt they should push the matter to a vote, they would do so.
Having been in Government, I am certain that that would concentrate the minds of Ministers to a degree that we do not see when they wind up a long, rambling debate, in this case covering many different areas. Two issues of major importance are involved here—Concorde and North Sea oil. Very few Ministers remember what it was like when they were in Opposition. Very few say the same in Government as they did in Opposition. An hon. Member may laugh, but many of us have said the same in Government as we did in Opposition, and will continue to do so. We shall continue to argue for Select Committees and be prepared to accept what they say, even though that may make one when in Government slightly uncomfortable.
My hon. Friend the Member for Oldham, West (Mr. Meacher) mentioned the degree of involvement of the Government machine with industry, particularly in the context of the oil decision. One could equally mention the officials dealing with the Concorde project. My hon. Friend expressed reluctance about that degree of intermingling. I think that it is inevitable. The area of highly complex technology, with Government investment, Government support for research and development, and even Government support for production, makes the interface between Government and industry extremely complex. There will be interchanges. That situation is here to stay and will grow.
981 I shall refer to defence, which is causing me some concern. I do not necessarily say that the situation is avoidable. Probably much of that growth of interchange is unavoidable, and at times it may be beneficial. But it puts a responsibility on the House to develop its scrutiny procedures and effective control over the executive even more than before. Every time we fudge that interface and allow the former separation between Government and industry to change more into a close working partnership, there is a growth in the possibility of corruption, of wrong decisions being made which can later prove to be extremely expensive. In particular the almost inevitable difficulty of not making brutal cut-off decisions grows ever more, because the officials who make the initial decisions to commit money to Concorde, the officials who decide the system of leases for the oil exploitation, remain. Often the Ministers remain ; often it is the same Government. The defence mechanism of government is such as at least publicly to defend the decisions. To some extent that, too, is inevitable.
On a bipartisan basis, back benchers will have to challenge the executive. The fusion of the executive and the legislature in the British parliamentary system may have been tolerable 40 years ago, but the extent to which it occurs in the present system is intolerable. If we wish to regain strength and effectiveness as back benchers we shall have to start to separate them, although not to go to the extent, as in the United States, of a total separation of powers. A greater measure of independence of back benchers is one of the essential ingredients of restoring democratic control. It is high time it occurred. The extent to which we are now dominated by bureaucratic and centralised government is intolerable ; it must be balanced by a greater independence within this Chamber.
That is the lesson for the hon. Member for Oswestry. If we are to exert our influence, we must do so by the vote on the Floor of the House, and question the estimates and expenditure on even small items so as to bring Government and Ministers to account.
I believe that that is the central issue of this debate. It is all very well producing reports. Some hon. Members 982 read them, but some who have spoken in the debate admit that they have not. The central issue is how we are to get the Government to account for themselves.
I should like to deal with the defence industry, which the report has touched on in the question of contracts, particularly Ministry of Defence contracts. It is often said that the military-industrial complex in the United States is immensely powerful. It was President Eisenhower, in his last message as President to the American people, who warned of the influence of the military-industrial complex. It is sometimes assumed that in this country no such complex exists, but I believe that is not so. There is growing evidence that the concentration of defence contract awards within the hands of a very small number of contractors is more prevalent even than in the United States.
In the year ending 31st March 1972, 4,400 firms entered into defence contracts with the Government of a value more than £5,000. During this year the Government spent £767 million in the procurement of equipment, including weapons systems, for the military. Of that total, £605 million, or 80 per cent., went to the 14 largest defence contractors. In the following year the record was very similar. Of the 4,500 firms involved in defence contracting, the 14 largest received £708 million of the £964 million spent by the procurement executive on equipment, or 72 per cent. of the total.
The problem is that the percentage of competitive bidding for defence contracts, though higher than in the United States, is only slightly higher. In 1972 in the United States it went down to 10 per cent., a 20-year low. In this country, in 1970 defence contracts awarded on a competitive basis by value came to only 23 per cent. In 1971 the figure was 28 per cent. and in 1972 it was 21 per cent. Defence contracts awarded non-competitively on a price-to-be-agreed basis came to 54 per cent., 50 per cent. and 58 per cent. in each of those years.
In marked contrast, the percentage of all British Government contracts placed on a competitive basis, by value, came to 73 per cent. in 1970, 68 per cent. in 1971 and 77 per cent. in 1972. Government contracts awarded non-competitively overall on a price-to-be-agreed basis for those years came to 3 per cent., 4 per 983 cent. and 1 per cent. respectively. Those figures include defence contracts. Therefore, if defence contracts are excluded, the amount of general contracting going out on a non-competitive basis is seen to be a mere fraction. The Government, however, in contrast are giving practically all their major defence contracts on a noncompetitive basis.
It may be that that is inevitable, but surely it poses severe problems for this House in determining whether contracts are effectively drawn up, whether they are policed effectively, whether there is no corruption and whether the contracts represent value for money. In the old days when a high percentage of contracts were put out for tender, the House of Commons, the Public Accounts Committee and the Expenditure Committee generally had the safeguard of a tendering system. That system has not virtually disappeared.
Another not necessarily alarming tendency but a trend which must be considered is the number of serving officers of senior rank involved with procuring contracts who leave the Ministry of Defence and go straight into industry. Between 1962 and 1972 there were 129 applications from senior military officers to take up appointments in industry that are on record as having been approved. Some of those officers were very senior—for example, major-generals, admirals and air marshals.
Similar figures for civil servants are rather unsatisfactory for we do not know which civil servants have been involved with defence contracts. However, there is a trend for a fairly large number of people leaving the Civil Service, from the Ministry of Defence or the Department of Trade and Industry, and within two years finding themselves working in the very industries to which they were awarding contracts, maybe only a few months ago.
I am not making allegations of corruption. I do not think that any Minister could work within a Government Department without paying tribute to the extraordinarily high standard maintained by the Civil Service when dealing with contracts. However, it is a harsh lesson for the House to know that there is such a trend and to find that in many ways we 984 are prepared to encourage it but not to control it. It seems that we are prepared to encourage the secondment of young civil servants to industry and their return to the Civil Service. We are also prepared to encourage young industrialists to work for a period in the Civil Service and then to return to industry. Such a trend, I believe, is good and should be encouraged, but it poses considerable problems for any form of control. It underlines the need for a strong and independent PAC and a strong and independent Expenditure Committee which are prepared to take their criticism of government to the Floor of the House and ask their colleagues to back their judgment against the Government.
That is what the issue is all about. A Minister, who may be extremely hard pressed, is briefed by his Department, by the very officials whom the PAC and the Expenditure Committee are criticising. His briefing will include all those matters which the Committees are criticising. But they will be put in a different light from the investigation by hon. Members. The Minister who will reply will be dealing often with subjects with which his Department is not involved. He will be given a brief which he knows will contain matters about which he knows nothing. I say that with great respect to the hon. Gentleman the Member for Worthing (Mr. Higgins), because he is a hard-working Minister. However, he knows nothing about the Sea Wolf contracts. Some hon. Members have examined officials for a whole day about the contracts. Hon. Members on the Expenditure Committee have been considering the Sea Wolf from other aspects—namely, its operational requirements. Those requirements have been challenged too. The whole nature of that contract has been the subject of much criticism in this House, and perhaps more criticism than almost any other contract. The criticism of the PAC is of the incentive contract which works out to be a disincentive rather than an incentive. If the Minister looked at that contract I am sure he would not wish to defend the decision which was taken. If he considers the whole Sea Wolf problem I think he will be even more concerned.
On an all-party basis, if it is felt that the criticism which we make must be taken further than just making it in a 985 report, we shall have to put down—perhaps on the Navy Vote—a motion to the effect that the Sea Wolf project shall not be proceeded with. Only then shall we get a deep investigation inside a Government Department. Only then will the Minister look hard at his brief. He will do so only when he knows that he has to defend a certain situation. It may well be that half way through his investigation he will find that the situation is not defensible.
Parliament must achieve such victories on small detail. It does not matter if the Government lose. They need not resign as a result. If a Minister lost his case it might mean that he would have to consider his position seriously. That would be no bad thing. That is the central issue. Parliament should take control of some of these decisions.
How can Parliament make sensible decisions about Concorde until some of the asterisks are removed from the report and we are told how much the planes will cost to build, plus research and development costs, and for how much they will be sold? There is a lot of discussion about cancelling Concorde. As I understand the position, there is no question of cancelling Concorde. We are to build a fairly substantial number of Concordes. The question is whether we should continue building them. Are we building them at a loss? If so, how many millions of pounds or thousands of pounds are we losing? I suspect it may be millions rather than thousands which we shall lose per copy if we decide to continue. Even if we are given the information Parliament might decide to back the Government's judgment and go ahead. Without the information we cannot possibly make a decision. For how much longer are such decisions to be made by Ministers who subsequently plead confidentiality?
We all know that there is a case for confidentiality in some areas. However, we are long past the decisions of secrecy which were taken during the early development stages. It is lunatic to continue to plead confidentiality. It is being used solely to protect the Government's decision-making process. Ministers must realise that confidentiality does not protect that process if in the end the facts come out, as invariably they do. All that happens each time is that not just the 986 Government but any Government are damaged by the immediate revelation, for people begin to wonder whether Parliament and the whole system have any control.
The Concorde project is of great importance. A lot of expenditure cuts on projects such as Maplin or the Channel Tunnel have little impact on the short term, but Concorde as an expenditure item has a major impact on the short term and must be a central consideration in any major decisions on Government expenditure for the next two or three years. I do not believe that it is possible to justify the degree of secrecy the Government have vested in it.
Two other small points emerge from the report. Nevertheless they are extremely important. The first relates to the fraud in naval catering. That was a tragic case. I am extremely pleased that the PAC considered it. At one time it seemed that major misallocation of Government money would go unlooked at by Parliament despite the fact that the Donaldson Committee was set up to consider it. The recommendation of the committee was as follows :We welcome the improvements that have been introduced to reduce the risk of fraud and suggest that the effective working of the victualling and messing system might be improved by a closer interest on the part of officers of the executive branch of the Royal Navy.I hope that we shall see that. That such an extensive fraud could have continued for many years without anyone in the senior branches of the Navy knowing anything about it is a severe indictment of the system of control and reporting which we have been led to believe is sound and efficient.
Another matter of detail relates to the large computer centre at Ensleigh, Bath. The Eighth Report says :These proposals were for a large computer at Ensleigh, Bath, to hold centralised records for provisioning, procurement, stock control … linked to medium-sized computers at the four home dockyards, each of which would process local receipts and issues and maintain store accounts.It is clear that that project has not been designed and carried out with all the skill that we have reason to expect. The Committee asks some penetrating questions. It is a pity that it did not challenge the concept of centralising in Bath so 987 much of the Ministry of Defence. With four major industrial establishments in the four main dockyards, it is becoming increasingly ludicrous to concentrate a central headquarters miles away from the yard where so much of the day-to-day management of the dockyards takes place.
There is growing concern in the dockyards at the large and ever-increasing number of white-collar workers and their ever-increasing proportion to that of blue-collar workers. There is a feeling of remoteness from the central headquarters. The Government have decided to hold up, and maybe postpone indefinitely, a new office block at Bath as part of their recent expenditure survey. I hope that they will take this opportunity to reassess the whole position of Bath in our naval organisation, going beyond the question of the dockyards. Of the need for some headquarters at Bath I have no doubt, but the size, complexity and extent of the Bath naval presence must be seriously questioned and, indeed, has been looked at by many committees at various times.
It is a great sadness that a discussion on two aspects of major policy, oil and Concorde, making severe criticisms, but also, and perhaps more important, forward-looking proposals as to what should be done, should be debated in the way it has been debated today. This really cannot go on. The Government must seriously consider the position. I wonder how much longer reasonably able people will be prepared to come to this place and serve as back benchers, not necessarily with the hope of joining the Government—that should not necessarily be the only reason to come here—unless they feel that their presence here has some effect.
There is far too much pompous humbug and nonsense talked about Members of Parliament. The real need is for greater facilities for looking into the minutiae and detail of Government actions, but even with research assistance, secretaries and so on, this cannot be done effectively by someone pushing off to the City during the day or spending his time in court. These matters have to be the subject of painstaking inquiries by committees sitting in the mornings and the afternoons. It will not be done unless they have some effective power and unless the Government, instead of feeling that they must 988 always defend their Departments and decisions, are prepared to concede that the criticisms made by their colleagues have some value and virtue and that they should think again. The Government should not feel that they must defend Departments to the extent that they now do.
I believe that a greater separation of Members of Parliament from the executive is extremely important if Parliament is to regain some of its former strength, which I fear is all too frequently slipping away from it. As it slips away from us, people outside become more and more impatient with us because they do not believe that their individual Members of Parliament have enough power or are able to influence events sufficiently. The result is that people spend their time bewailing the party system and never see the true value of an independent Member of Parliament.
§ 7.34 p.m.
§ Dr. Alan Glyn (Windsor)
I agree with a great deal of what the hon. Member for Plymouth, Sutton (Dr. David Owen) has said. If anything, the debate has shown how important it is that we should bring up to date our parliamentary procedures to deal with these situations. The whole machinery for discussing the contents of the very detailed work of the Public Accounts Committee and other Select Committees is, to say the least, inadequate and the Government and the whole House should turn their attention to improving it.
I also agree with the hon. and learned Member for Northampton (Mr. Paget), who said that, after all, this was a nonpartisan debate. I think that the most effective words he used were that these reports were an indictment of all Governments. That is no reflection on the present Government, since these matters started before they took office, and it was they who decided that they should be dealt with in this way.
One of the most important facets of the future life in this country is North Sea oil and gas. We all realise that they are possibly our lifeline for the next 10, 15 or 20 years. The findings of the Public Accounts Committee are extraordinary. For example, had it not been for the Committee, the defects in the whole structure of evaluating the proper price to be paid for the right to develop these 989 deposits would never have been discovered, I suggest. The hon. and learned Member for Northampton was right to say—though he perhaps used somewhat flowery language—what he did about how the contracts were originally evaluated. The point at issue is that we must have some machinery other than the existing machinery for looking at this kind of factor before contracts are signed. We have to look carefully at the Committee's findings because here we are dealing with something which, particularly in the light of the recent oil crisis, is of paramount importance. Had it not been for the Committee, this situation might well have gone by unobserved, leading to great loss of revenue to the country.
I want to put two points to my hon. Friend about the question of North Sea oil and gas. First, will the present rules allow an operating company to write off its own losses against the profits from North Sea oil? Has this been provided for in the contracts which have been signed? This is an important point.
Secondly, what is the present estimate of how quickly we can expedite the bringing into use of North Sea oil and gas because of the fundamental change in this country's—and indeed the world's—oil situation? Has my hon. Friend any idea of what proportion of British equipment is to be used in the process? Is the drilling equipment available in this country, or shall we have to turn to other countries, such as the United States, for it?
We have to turn our attention also to the very important question of how we manage to ensure that some of the detailed decisions of the Civil Service are subjected far more to the scrutiny of this House. I add my tribute to the Civil Service, but we have here a classic instance of a fundamental business transaction. I think that we would have done well to have sought the assistance of industry in the negotiations in the first instance. I make no party point on this, but it emerges from the report. We must find a way of challenging what has always gone by without challenge in the past. We must challenge detailed points which are fundamental because the sums of money with which we are dealing are so great that they cannot 990 simply be passed without detailed scrutiny.
Such scrutiny must not only be conducted by Committees upstairs but must be the subject of debate on the Floor of the House. In the end the Government are responsible, but surely it would be very much better for the Government to use such machinery and thereby get the best possible bargain for our country, deciding in the end, and in the light of such scrutiny, which is the right course to adopt. It may not be the cheapest, but in their view it may be right, and they must make that decision.
I do not know whether it is fair to ask a detailed question on Concorde of a Treasury Minister, but, on the basis of the report, it is perfectly in order. How many more changes does the Minister think are necessary before the project is finalised? At what stage are the Government prepared to say "We cannot go on any longer improving ; we must now develop Concorde in its present state, because we have sufficient customers from China and elsewhere."?
I hope that, as a result of this debate, the House will be aware that many facets of individual expenditure can no longer be discussed only in Committee but should be scrutinised on the Floor of the House.
§ 7.41 p.m.
§ Mr. Frank Judd (Portsmouth, West)
I join all those who have congratulated my right hon. Friend the Member for Birkenhead (Mr. Dell) and his colleagues on their excellent and far-reaching reports. I also warmly endorse what my hon. Friend the Member for Plymouth, Sutton (Dr. David Owen) said. If we are to re-establish credibility in the eyes of the electorate, hon. Members must have more opportunity to bring their talents into play in holding the executive to account. In the final analysis, this can be effectively done only in the more intimate, relaxed and yet more penetrating atmosphere of the Select Committee rather than the over simplified confrontational situation that occurs so frequently in the House.
Any serious politician who is concerned about the future of British democracy must appreciate that some of the disillusionment which obviously exists among the electorate, is partly a direct 991 consequence of the over-simplified form of political activity which they see reported and which is constantly revealed in the Chamber. With the complexity of modern government this cannot be overcome in the Chamber, but by emphasising the relevance of the work of Select Committees we have a great opportunity in this direction.
I would also endorse what my hon. Friend the Member for Sutton said about the naval dockyards. I too represent a dockyard constituency. At a time when the Government are constantly moralising to both sides of industry about the rôle they should play in the economy, we should recognise that in the naval dockyards there are large bodies of industrial organisation directly under the influence of the Government—not indirectly, as in some other nationalised industries. It is high time that we tried to make them a model of production and employment rather than, as we do at the moment, letting them drag along decades behind industrial organisation outside the sphere of direct Government responsibility.
If we are to do that, it is absolutely essential that more power for direct management should be delegated as speedily as possible to the individual yards and that we break free of the stifling influence of Bath and, behind Bath, the Civil Service Department, the Ministry of Defence, the Treasury and even No. 10 Downing Street. I therefore applaud what my hon. Friend said and I should like to encourage the Government to do everything possible to streamline and delegate.
I want to concentrate on what is said in one of the reports about the naval catering frauds. Following the Donaldson inquiry considerable steps have been taken to revise the catering system in the Royal Navy, but I am convinced that, precisely because of the distinguished record and reputation of the Royal Navy, we must ensure that a scandal of this order is not swept under the carpet with a cursory nod.
Considerable sums of public money have been involved. The interests of the taxpayer and of the Service men who suffered the consequences of the fraud in terms of deprivation mean that we must be satisfied that everything possible has 992 been done to put right what had evidently gone so seriously wrong. After carefully reading both the gentle—in this context—observations of the Public Accounts Committee and the findings of the Donaldson Report into Service catering, I think that four matters still leave a great deal of room for concern.
First, in the observations of the PAC there is still much uncertainty about the precise sum involved in the fraud. It may be £110,000, £400,000 or even more. Where something has gone so seriously awry directly concerned with public funds in the Services, this degree of uncertainty is unacceptable.
Second, there is the length of time during which those practices had been occurring. If one reads not only the findings of the Committee but also the evidence submitted to it, one sees no convincing answer to this point. The year 1966 appears to be as far back as the inquiries went in terms of retrospective action by the police, because this fitted into the nature of these particular inquiries. But there seems no convincing evidence that things had not gone wrong before 1966, and perhaps long before then.
The third point that still needs to be examined in more depth is the degree to which the practice described as the "drop" had become established in the Service beyond the immediate sphere of catering.
The fourth point concerns the wider dimensions of the whole sad story. The report establishes that 37 ships and 26 shore establishments are known to have been involved. That is a considerable area of naval activity. The nature of the charges and the number of men charged, perhaps inevitably to some extent, were rather arbitrary. We should not, however, underestimate the devastating effect on the careers and personal and family lives of the senior ratings and the middle level officers who were found to have been involved, particularly those who suffered the disgrace of dismissal from the Service, with far-reaching loss of pension rights. The degree of punishment was much more serious than any which was meted out to the civilians involved. I am not arguing against serious punishment for these men. It was appropriate because, where public funds as well as the reputation of a distinguished Service 993 are at stake, there is no room for pussyfooting. We must be firm in treating the situation as we see it.
The report points out that, in a catering branch with a total of less than 200 personnel, 64 were dismissed from the Service. Bearing this in mind, there is reason to believe that the practices which led to this crisis must have been more widely known than within the catering branch. What disturbs me most about the outcome of the trial, the Public Accounts Committee's report and the Donaldson Report is that in a rather uncanny way responsibility seems to have stopped at the level of senior ratings and of middle-level officers. I cannot believe that there is no responsibility in this story at a higher level. The report indicates a degree of complacency which is unacceptable.
It is right that the men who took such severe punishment should have expected such punishment when found guilty. But this serves to drive home more emphatically the extraordinary gap beyond their implication in the whole episode in the apparent absence of more senior responsibility. I am to some extent apologetic for dragging up the story again in the House of Commons, because I am second to none in my admiration for the Royal Navy and its record and reputation, but simply because of the standards of the Royal Navy we cannot sweep things like this under the carpet.
Whatever may have been said in the report of the Public Accounts Committee and in the Donaldson Report, we must hope that the ramifications of those reports have been far more reaching in the Service and have resulted in more people being shaken up in the Service than would appear on the surface to be the case.
§ 7.54 p.m.
§ Mr. Bruce Millan (Glasgow, Craigton)
I wish to deal specifically with the report on North Sea oil, but I first want to support a number of points made by my hon. Friend the Member for Plymouth, Sutton (Dr. David Owen) about the unsatisfactory way in which we deal with reports from the Public Accounts Committee and other Select Committees. These reports are debated on a Monday or a Thursday. There are no Whips on 994 either side and there is no vote. Therefore, there is an extremely sparse attendance, which is completely out of proportion to the importance of the issues being debated.
My hon. Friend's point that these reports to the House should be in the form of a motion is incontrovertible. This must be done if Select Committees are to have the impact which they should have. There is no reason why, for example, in the case of North Sea oil reports, the recommendations of the Committee should not be put in a form suitable to be presented as a substantive motion, to be voted on at the end of the day if there is no satisfactory answer or acceptance from the Government.
That should not damage the bipartisan nature of Select Committee proceedings. It would ensure that the Government take the reports as seriously as they deserve to be taken. I do not suggest that the report of every Select Committee should be dealt with in this way. There would have to be some selection, and the Committees could be allowed to decide which particular reports and motions they wished to put before the House. We must adopt that type of system if we are to get proper value from Select Committee reports.
I can give an illustration by mentioning Concorde. It is well known that the way in which successive Governments have handled the Concorde operation has been criticised by many Select Committees. At the end of the day, however, this has not made any difference to the way in which Governments have continued with the project. Governments may have gone through a limited period of embarrassment when a Select Committee's report has been published and has received attendant publicity. After the embarrassment has died down—and in many cases the reports have not been debated in the House—successive Governments have gone on gaily as before. The reports have not made a whit of difference.
The Sixth Report from the Committee of Public Accounts refers to the Estimates Committee's report of 1963 about Concorde. I served on the Sub-Committee of the Estimates Committee in 1963 which produced that report. It was the first report from the Select Committee about 995 Concorde. In paragraph 19 of the Sixth Report the Committee states :The Estimates Committee in 1963 questioned the wisdom of entering into the Agreement with an imprecise knowledge of the probable cost and with no provision for the possibility of the abandonment of the project by one or other of the signatories. This comment seems to us to go to the root of the matter.I believed that in 1963 and I believe it now.
If the 1963 report had come before the House in the form of a motion, there was then sufficient feeling on both sides of the Committee, and on both sides of the House, to pass a motion criticising the Government for entering into the contract without an escape clause and asking them to renegotiate the agreement, or to do whatever was legally possible about the agreement.
If that had happened, the whole history of Concorde may have been entirely different. The project would have been abandoned many years ago, when abandonment would have been comparatively inexpensive and when the embarrassment which would now be caused by cancellation would have been avoided. But the 1963 report came and went, as other reports have come and gone, and it did not make the slightest difference to what successive Governments did regarding Concorde.
The suggestion of my hon. Friend is an important one and I hope that there will be the necessary change in procedure as a result. Such a change would lead to better government and better control, in particular over major projects like Concorde. It would considerably increase the powers of back benchers against the Government and the executive, and that is an objective well worth achieving.
I come now to the report on North Sea oil. It is an excellent report, one of the most impressive ever produced by the Public Accounts Committee. It is a pity that it has so far had such an inadequate reply from the Government, although it is an exceptional report in that it will make a difference to the situation, unlike most Select Committee reports.
The general criticism I have of the Government in their dealings with North Sea oil—and this criticism is shared by the Committee—is that all along, and particularly since it became clear that there were economic sources of oil to be 996 exploited in the North Sea, the Government have adopted a far too defensive attitude towards the oil companies. It was as if the companies were somehow doing a great favour to the Government and to Britain in getting themselves involved, with all the expenditure, in the North Sea when the real situation was that this was a major natural resource, already nationalised and in the hands of the Government, and therefore any exploitation was in a sense a privilege and only to be granted when it gave the maximum economic benefit to the country.
I am not sure, even now, whether that proposition is wholly accepted by the Government. It is certainly true that up to the time of the Public Accounts Committee's report the Government acted on the entirely different proposition that, unless they approached the oil companies very timidly and with all due respect, the companies might go away leaving the North Sea unexploited and that this would be disastrous for Britain. I do not believe that that was ever a tenable assessment of the situation and it became less tenable as soon as it became clear that there were exploitable resources of oil in the North Sea.
My second criticism is that the Government, and particularly the Department of Trade and Industry, have all along rejected any kind of criticism of their handling of the operation and tended to produce what have in the event been misleading assessments of the situation. In that context I was interested to see the criticism made by the PAC, in paragraph 63, of the Department of Trade and Industry figures about the revenue expected by the Government from taxation and the rest.
The points made by the Committee were made to the Government earlier. I remember that, together with some of my hon. Friends, I met Ministers and made some of the criticisms that were subsequently made by the Committee. I would not pretend that we made them with the same authority or the wealth of substantiating details which is produced in the Committee's report. That is the great virtue of the report. It produces a lot of evidence about areas in which many of us felt that the Government were going seriously wrong but where the precise information to prove it was not available to us.
997 All along, however, when those criticisms were made they were rejected by the Government, who refused to believe that there was any substance in them until the publication of the Committee's report. The most impressive criticism of the Government contained in the report—I admit that some of the criticisms at least apply also to the previous Labour Government—was that concerning licensing policy and particularly the complete failure of the Government to appreciate the total change of circumstances that took place between the third and fourth round of licences, when it became clear to even the most obscurantist civil servant or Minister that there were large quantities of oil in the North Sea and, therefore, the whole negotiating position of the Government ought to have been entirely different.
It is still incomprehensible, and we have not seen any defence of this, that at the time of the fourth round, when it was seen that putting licences out to tender produced substantial bids, the Government were simultaneously allowing other licences to be obtained on woefully inadequate licensing terms. It is incomprehensible that Ministers, who were apparently consulted at the time, should have allowed that to happen.
There is the question of the fifth round of licensing which will have to come sooner or later. It would be useful if the Minister could give us an indication of Government thinking on this, when it is likely to be, the extent of it and what the licensing terms are likely to be. Whatever happens on the fifth or subsequent rounds, it is essential that we do as much as we possibly can to recover something, financially and in other ways, from the disasters of the past. I do not believe that in this kind of situation we can simply say that we will do better in future. The sums of money are so enormous that we must do everything possible to recover the mistakes that have been made. As an essential precondition of that, we need far more information than the Government now have about the costs of existing licensees.
Again it seems incredible that the PAC should have to make this kind of basic criticism of Government policy. One would have thought that it was one of the simplest and most fundamental requirements of the Government that they 998 at least had information about the costs of licensees on which to base their future negotiations. We also require a good deal more information than we have so far had about how the Government propose to tackle the recommendations of the Select Committee on the taxation aspects of North Sea oil. The Public Accounts Committee has done us a service, on the question of the tax losses, by bringing out so starkly the large sums of money involved and the completely indefensible tax position of the oil companies at present.
What happens with the oil companies is only a part of what happens with other multinational concerns. I hope very much, although I am not sure whether this is within the Committee's terms of reference, that in some future investigation it will look at similar problems, and at other domestic problems such as the question of the taxation provisions relating to property development companies, for example.
This is a relevant point in the public expenditure context because there are certain parts of industry in this country and certain multinational concerns paying far less tax than can possibly be justified in terms of their enormous wealth and importance. It is a severe criticism of successive Governments that the situation with the oil companies would never have been brought to light in all the detail we now have if it had not been for the Public Accounts Committee's report. Nothing would have been done.
As regards the segregation of North Sea oil operations from the rest of the oil companies' operations, we have had, as my right hon. Friend the Member for Birkenhead (Mr. Dell) said, no response from the Government. We must know tonight what the Government intend to do. If we cannot know in detail, we must know that they intend to do something and will not allow this situation to continue. Potentially it represents a considerable loss of revenue to the Exchequer and is only part of the general problem of the treatment in group accounts for taxation purposes of losses by one part of a group being set against profits by another part. This is another area in which a look at our taxation provisions could yield substantial revenue improvement. It ought to be done and it is a suggestion which I hand out if it 999 is within the purview of the Committee. It seems that, since the Government have done nothing about this, there is a chance that the Public Accounts Committee might do something.
The other point about increasing revenues raised by the Public Accounts Committee and which, I hope, will be followed up concerns the possibility of introducing a quantity or barrelage tax. If we cannot obtain the revenue which is justified in any other way—if we cannot get it by changing the taxation provisions or by varying existing licences—the most obvious way of obtaining it is by imposing a barrelage tax. Perhaps we should do it in that way whatever happens on the taxation side. I hope that we shall hear from the Government on that proposition.
I go further than the Public Accounts Committee. I realise why the Committee was not able to go into detail on some of the more controversial areas, but its trenchant criticisms of the way in which the Government have handled the situation are justification for public participation in all future licences for North Sea oil. A good deal of the argument for or against nationalisation is beside the point, because the oil is already nationalised, and it is not a practical operation simply to say that no oil will be licensed or exploited in the North Sea in future, much less in the past, unless it is done by a nationalised corporation.
I favour the building up of a nationalised corporation in this area, but it is unrealistic to expect it to take over immediately all the operations in the North Sea. But, through a nationalised corporation, we should provide in all future licences, and as far as possible in past licences, for public participation so that the nation shares directly in the tremendous benefits which inevitably will result from North Sea oil.
§ Mr. Millan
I thought I had read that paragraph, and I had read the conclusions, but I still believe that what I have said goes a little beyond what the Committee said. However, I am very grateful for support from any quarter, particularly if it comes from a member of the Committee. This is not, politically speaking, a tremendously radical proposal. It is what other countries are doing, particularly Norway, but Holland and others have been similarly involved. It is the absolute minimum that we should be doing if we are to ensure for the Government and people of this country the benefits of North Sea oil.
I do not suggest that we should adopt the nationalistic policies of the OPEC countries, particularly the Middle East countries, but the pussy-footing approach of the Government, so far as it has been based on the proposition that if anything more dramatic were attempted the OPEC countries would be offended, has, I hope, been completely exploded by what has happened in the Middle East and elsewhere in recent months. There is a desperate need to bring the maximum amount of public benefit to this country, and Government policy is a very long way from achieving that.
The matter becomes even more important when we consider recent international developments. The political aspect is much more important than the financial aspect, but even from the financial point of view it is clear, as was admitted by the Minister in answering questions today, that even if the taps are turned on again and supplies start coming to this country and to other Western European countries and the United States and Japan as if the crisis had not happened—and I do not believe that that will happen, at least not soon, because I think that we face a sustained period of difficulty—oil will cost us considerably more.
The oil countries generally have demonstrated to themselves and to the world that oil is a resource which we are much more desperate to buy from them than they are anxious to sell to us. That situation will continue for some time and it will have profound political implications. It has considerable financial implications, too. That adds emphasis to my point about obtaining an adequate return from North Sea oil, because there 1001 will be a financial bonanza for the oil companies from North Sea oil exploitation. It would be scandalous if that were allowed to continue.
§ Dr. Glyn
Does the hon. Gentleman agree that, even if the oil taps were turned on again tomorrow, it is not a question of our needs this year or next year but is a fact that we shall be short of energy in five or 10 years without recourse to North Sea oil? It is up to us to make sure that it is developed because it is our lifeline. We shall probably have to supply Europe with it.
§ Mr. Millan
Since the publication of the report, the basis of the argument has been changed in a vital way. I am not sure that that is recognised by the Government, or indeed by others, because some of the political and other implications of what has happened in the last few weeks are so profound that it will be some time before we can adequately assess the consequences. We do not expect the Government to be able to give easy answers to some of these profoundly difficult problems, but we wish to have some sense that they appreciate them and are dealing firmly with them.
It happens more by good luck than by judgment that Government policy—it was also the policy of the Labour Government—in achieving the maximum exploitation of North Sea oil as quickly as possible is plainly the right policy in the present situation. I repudiate the suggestion made in some quarters in Scotland that we should slow down the rate of exploitation of North Sea oil, not in the interests of Britain or of Europe, but simply in the interests of Scotland or perhaps an independent Scotland. Even if Scotland were to become completely independent, that would not be a moral stance for Scotland to take. But just as the Middle East oil crisis has political implications for the world, the exploitation of North Sea oil has immense political implications for Scotland and the rest of the United Kingdom. I do not believe that the Government have fully appreciated that.
I hope that we shall have an opportunity fairly soon to discuss the Kilbran-don Report on the question of devolution. There is no doubt in my mind that the passages in that report dealing with the 1002 question of economic independence for Scotland have been falsified because they do not take sufficient account of the importance, economically and otherwise, of North Sea oil.
I shall not say, because it would be out of order to do so, what follows in political terms and in terms of the Kilbrandon Report from that proposition, but I state as a fact that the way in which developments have occurred in the last few months gives North Sea oil a political importance in Scotland and in the United Kingdom as a whole which it did not have when the Public Accounts Committee's report was published. The sooner we recognise that, however we approach the problems of devolution and so on, the better it will be for all of us. At the very least, without going into the wider political questions, it will become increasingly intolerable to opinion in Scotland and the United Kingdom if some of the incidental advantages of North Sea oil in the supply of equipment, services and employment are not adequately garnered for Scotland and the United Kingdom by Government action.
The way in which the Government have handled the question of concrete construction platforms—which has been referred to by my hon. Friends the Members for East Stirlingshire (Mr. Douglas) and Edinburgh, East (Mr. Strang), gives us no cause for confidence that we shall get those extra economic benefits for Scotland from the development of North Sea oil. It is becoming increasingly urgent for us to pursue the recommendations of the IMEG report and of other bodies that have looked at this question specifically in the Scottish context to ensure that, in addition to the financial benefits, we shall get the considerable economic benefits from the oil which are there to be taken if the Government have sufficient self-confidence and display sufficient toughness in their dealings with the oil companies. As the Public Accounts Committee has brought out, those qualities of self-confidence, competence and toughness have been conspicuously lacking, and the House and the nation owe the Committee a considerable debt of gratitude.
§ 8.21 p.m.
§ Mr. Hugh Jenkins (Putney)
As the cause of the Seventh Report from the Committee of Public Accounts, I should like to say a word about it, and about 1003 the Sixth Report. The Committee was about to print its Sixth Report when the Parliamentary Question to the Secretary of State for Trade and Industry which is printed on page VI of the Seventh Report revealed that the estimates of the total cost of Concorde had risen to more than £1,000 million. The Committee, therefore, decided to add the Seventh Report. The long answer given by the Minister, which showed that the estimate had increased from £970 million, as was stated in the Sixth Report, to £1,065 million, as stated in the Seventh Report, served to underline the criticisms the Committee had so effectively made in its Sixth Report.
Paragraph 59 of the Sixth Report contains one of those criticisms :It appears to Your Committee that the absence of any clear indications of sales prospects and the level of production costs it sales are low leave the project as speculative as it ever was. Unless further substantial orders are received for the aircraft we fear that, in addition to the failure to recover development costs, the Government will have to meet production losses, which could be large, on each aircraft produced.Even those of us who have been critical of Concorde from the beginning never envisaged the development of that fear. When I first came into the House in 1964 I said of Concorde that I thought it would go straight from the drawing board into mothballs. It never occurred to me at that stage that the aircraft would ever be built. It seemed obvious to me that the Labour Government would get out of the contract. My confidence was not entirely misplaced, because the Labour Government decided to go to the French Government and tell them that the project was nonsense and that we must get out of it. But the French did not want to do that. The Labour Government were advised by the then Attorney-General that if they tried to get out they could be sued at international law. I doubt the validity of that piece of legal advice. It is unlikely that the French would have sued us in the International Court with any degree of success. In any case, it would have been worth while to try it.
The decision was taken that the contract, which had no escape clause, could not be changed and that we should go ahead at least with the production of the aircraft, which was estimated at only 1004 £150 million, not £1,000 million. I thought it rash at that time to go ahead on the basis of an estimate of £150 million. The Government can be excused for not then foreseeing a ten-fold increase in cost within 10 years.
There was another point when a break could have been made. It is noteworthy that the Sixth and Seventh Reports endorse what other Committees have said. Every time the Concorde project has been examined by any Committee serious doubts have been expressed about it. There are one or two lessons that can be drawn from what happened. Although pre-production aircraft have actually been built, it is unlikely that they will ever go into service. I exaggerated, perhaps, when I said the aircraft would go straight from the drawing board into mothballs, but it is certainly likely to go straight from production into a museum without any intervening period of operational service—as has happened with the first aircraft. That is regrettable, but if we learn our lessons from it the £1,000 million will not have been entirely wasted.
One lesson we might learn is that we should not get into the situation foreseen by the Committee of an operational subsidy. A subsidy for research and development is one thing—something which Governments must embark upon in these days of high technology. A subsidy for manufacture is much more questionable, but it is a thing which, more and more, Government are doing. But a subsidy for the object of the manufacture to be run so that throughout the whole operation the Government are not only paying for the object to be created but paying for the cost of it to be developed, for the cost of it to be manufactured and, finally, for the cost of its being operated, is too much.
If we are to develop along those lines, public money of such magnitude cannot continue to go into an industry which, theoretically at any rate, continues to be privately owned. If public money is to be spent at such a level the industry into which that money goes ought to be publicly owned, and then we should have at least some degree of control over it.
The difficulty facing successive Governments has been that none of the sanctions has operated. We have created sanctions to keep public enterprises under control. Some sanctions exist for 1005 keeping private companies under control. But if a private company is operating with public money of this nature, then neither the private nor the public sanctions are effective. Examination by Committee, which we have from time to time substituted for control, has been found to be an effective means of exploring the errors that are being made, but not of correcting those errors. That is the problem facing us, and that is why we are pressing the Government upon the issue this evening. Successive Committees have brought this criticism to bear upon Concorde, but at no stage have the Government acted upon those criticisms. That is the flaw which my right hon. Friend the Member for Birkenhead (Mr. Dell), who chaired the Committee which produced this admirable report, indicated in his remarks.
We need to look again at the whole situation in which there is a mixture of public and private enterprise, and Concorde is an example of how not to operate in this sphere. If we ever again conclude an agreement with another country in which there is no escape clause, or if we ever embark on a high level technological enterprise and put most of our eggs into that highly speculative basket, we shall deserve great condemnation.
The real condemnation of Concorde is not so much the project itself, but the fact that much of the great expertise and ability resident in the British aircraft industry has been wrongly diverted into this area for the last 10 years. If that had not been done, the British aircraft industry could by now have produced a silent aircraft which could sweep the world and be highly beneficial to our balance of payments position.
We have been going up a blind alley, and the PAC in its Sixth and Seventh Reports has, in my submission, pointed clearly to the fact that we have been building an aircraft which is a remarkable achievement from a technological point of view but which, from the point of view of making a return to our country in any economic and beneficial way, is as far as it ever was from being realised.
It seems to me that the title of a Penguin special written by Mr. Andrew Wilson entitled "The Concorde Fiasco" 1006 and published today is not very far from the truth. What Mr. Wilson says in his book about the financial disasters of Concorde are underlined in the Sixth and Seventh Reports of the PAC.
§ 8.33 p.m.
§ Mr. William Hamilton (Fife, West)
I have listened off and on to various parts of the debate, and I seek to intervene now because nobody else, apart from the Minister, appears to wish to take part in the debate. The back benches of the Tory Party, the Liberal Party and the Scottish National Party are completely bereft. Thank goodness our proceedings tonight are not being televised, otherwise there would be a blank screen, and yet we are debating matters which involve not hundreds of millions but thousands of millions of pounds of public money.
I do not pretend to have read all the Public Accounts Committee's Reports—I doubt very much whether any Member of the House can lay claim to that—but I have read some of them.
§ Mr. Hamilton
I congratulate my right hon. Friend the Member for Birkenhead (Mr. Dell) if he has read all the reports. He helped to write many of them. I pay tribute to him and to the Committee for the enormous volume of work that has been done. I have long taken the view that it is just as important to influence public opinion as it is to influence the opinion of hon. Members. This is the national forum—although we do not have the makings of a football team in the Chamber at present.
Reading such parts of the reports as I have had time to read, they remind me very much of the stories in the newspapers recently about the young fellow who can bend forks and keys by stroking them. Even without touching them he can make them change their shape. It seems that Ministers can be manipulated in the same kind of way by oil companies or aircraft companies, which do not even have to stroke the Ministers but by remote control can convince Ministers that Maplin is essential, that Concorde is vital, that the Channel Tunnel is absolutely imperative, and even that the Erskine Bridge is necessary as an essential Clyde crossing. It is an 1007 extremely disturbing indictment of the complete lack of control exerted by the House or, indeed, by Ministers over public expenditure, whether the project be small or large.
I shall say very little about North Sea oil. That subject has been dealt with extensively by the experts, by my right hon. Friend who produced the report and by various Scottish Members. We have had a majority of Scottish Labour Members speaking in the debate. Not one Scottish Tory Member has been present, apart from the junior Minister, who has attended more or less as I have.
§ Mr. Hamilton
No doubt the hon. Gentleman will have given advice to the Financial Secretary about the Erskine Bridge fiasco. This is purely a non-party matter, because it was handled by the Labour Government—God forgive them—no less than by Conservative hon. Members. But the story is one of great absurdity. I do not know whether my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) was at the Scottish Office at the relevant time.
§ Mr. Hamilton
My hon. Friend is too able an accountant to have allowed this kind of nonsense to occur. But, having been a Member of the House at the time, I should bear as much back-bench responsibility as I deserve.
The decision to build this white elephant across the Clyde was taken in 1965. It was expected that the bridge would be completed by 1970. However, like all projects of this kind, it fell behind schedule and was not completed until July 1970. There was to be a trunk road, and a toll bridge for 20 years. The scale of tolls was fixed at a sufficiently high level, it was thought, to provide enough cash to reimburse with interest the capital cost, to cover operating costs, maintenance and so on. The estimate of capital costs made in 1965 was about £6 million for the approach roads. The traffic flow estimate was 3 million vehicles per year by 1970, when it was thought that the bridge would be opened. It was 1008 thought that traffic would increase at an annual rate of 7 per cent. compound.
By 1970 it was apparent that gross miscalculations on every possible score had been made. It was clear that the annual rate of traffic growth would not be 7 per cent. but less than half that. Serious errors had been made in the estimates of population growth in the bridge catchment area. Meanwhile, the Department had completely forgotten that there was a Whiteinch tunnel and the Kingston bridge as well, which were free crossings of the Clyde. Any commercial organisation, especially a Scottish one, which sees a free crossing a few miles away from a toll bridge will use the free crossing, whether it is the Whiteinch crossing or the Kingston Bridge.
The result was that when the position was examined in 1970 the experts thought that no toll rate would be enough to pay off the total costs of the bridge. Even with tolls of 15p for a car and 50p for a heavy vehicle the debt would rise from £7.1 million to £19.5 million. The 1973 figures given in the report show that the deficit would be about £35 million to £40 million and that, no matter what happens, the bridge will never be paid for.
So we have a marvellous story of experts, Ministers and civil servants making their calculations—all of them wildly wrong—and saying "What a great job we have done." Now we have a bridge which is a monument to Government and Civil Service comprehensive inefficiency.
The Public Accounts Committee says "We are sorry, but we believe that the bridge was built before the traffic flow justified it and that there should now be an effort to economise. We should do a little more painting, keep it in good nick and hope that better days are ahead."
This story makes the mind boggle. If such a botch can be made of a project costing less than £50 million, how much more likely are we to make a botch of Maplin, Concorde and the Channel Tunnel, which are to cost not hundreds of millions of pounds but perhaps thousands of millions of pounds?
The simple answer is to tell the experts to get out of the way and let a few sensible people like me have a look at the matter and say "If the traffic is 1009 there, let us build a bridge and forget altogether about tolls." I have always been against tolls on trunk roads, whether or not they go over a bridge spanning water and into and out of Fife. Fife is the only Scottish county where one pays to go in and one pays to come out. In fact, it is the only county in Britain where one does that. Fife is worth going into and coming out of, but it is not worth the tolls to do it, so tolls should be abolished. Let us get rid of this nonsense.
I hope that the Government will have another look at this problem. As my hon. Friend the Member for Craigton says, by the time the report was made the fuel crisis had radically changed the situation both as regards North Sea oil and, to a lesser extent, as regards tolls on this bridge. Heavy vehicles which make a six-mile or a 12-mile detour will spend much more on fuel than they would on the tolls. Therefore, it would probably pay the Government to get rid of the tolls and save the lorries from having to make the detour to avoid the toll charges.
I make that point to demonstrate how quickly a report such as this report of the Public Accounts Committee can be outdated by events. We have not yet heard the last word about the escalating cost of fuel. As fuel costs increase, so the abolition of tolls on the Erskine Bridge and other bridges becomes increasingly relevant to the fuel factor.
The Minister has a difficult job on hand but he will have very little barracking. His closing speech will be one of the easiest that he has had to make in this House, and he will have no problems at all. He is playing to an empty House, and he probably deserves that.
§ 8.45 p.m.
§ The Financial Secretary to the Treasury (Mr. Terence Higgins)
Last year I had the privilege of speaking for the first time on this subject, and on that occasion I referred to the absence of the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). We all greatly regret his absence from our current debate, as we did then ; we are very sorry indeed that that absence has continued. Like the right hon. Member for Birkenhead (Mr. Dell), I should like to express our appreciation of the work which was done under the chairmanship of the right hon. 1010 Member for Cheetham in 1971 and 1972. We are indeed glad to see him up and about again, and we hope that his recovery will continue and will be rapid.
Secondly, I should like to join the right hon. Member for Birkenhead in his tribute to Mr. Martin Maddan, the late Member for Hove, whose expertise was greatly appreciated on the Committee. He was very much a House of Commons man, and he served the Public Accounts Committee well. Thirdly, I should like to say a word or two about the right hon. Member for Birkenhead himself, who has acted as chairman in the past year, 1972–73, and to join with many other hon. Members who have congratulated him on the remarkable work which the Committee has done under his chairmanship during the past year.
Perhaps I may also congratulate the right hon. Gentleman on the publication of a book which, I understand, is entitled "Political Responsibility and Industry". Hon. Members will notice that the colour of the cover can best be described as shocking pink, although the colour of the report which the Public Accounts Committee has produced is a suitable Conservative blue, which underlines the nonpartisan aspect of the work which the right hon. Member has done. I understand that his book is concerned with industrial policy, which he says is casework in the public interest. That expression probably applies not only to industrial policy but to the work which the Public Accounts Committee does.
When I spoke for the first time in the debate last year, I did so a few days before my first appearance in the Public Accounts Committee. As the right hon. Member for Birkenhead said, I have been conspicuous by my absence, but, as he has kindly pointed out, that is a traditional conspicuous absence and only in more extreme circumstances would the Committee suggest that I should attend for any prolonged time. In fact, it was difficult to avoid the impression at the only meeting which I attended during the last year that members of the Committee hoped I would depart fairly rapidly. I would not wish to over-stay my welcome on any future occasion.
There has been quite a lot of reference to defending this and defending that, and there is one point which I should like to mention. As regards the work of the 1011 Public Accounts Committee, we all tend to be gamekeepers turned gamekeepers. It is a question of appraising the work in a way which is impartial and which brings out the facts of the case. Certainly, the work which has been done in the last year is massive, as witness the eight reports which have been published. If the Treasury Minute appears sparse by comparison, I want to emphasise that that in no way reflects the care with which the Committee's reports are studied in detail both by the Treasury and by the Departments concerned. It is true that the wording of the Committee's reports is very often subtle. I always look with special interest when the Public Accounts Committee expresses surprise about this or that, because that surprise usually relates to matters to which it wishes to direct the most attention.
Many hon. Members have raised points of substance about the work of the Committee, and it might be appropriate if I said just a word or two about that. Hon. Members have commented on the sparsity of the numbers attending the debate. I think I am right in saying that there are appreciably more in the debate this year than there were last year, because last year the debate took place immediately after an all-night sitting and that somewhat reduced the overall numbers.
I think it would be appropriate for a moment or two to consider the history of the Public Accounts Committee, because it is relevant to the point which was made by the hon. Member for Plymouth, Sutton (Dr. David Owen) about the way in which the work of the Public Accounts Committee should come before the House. In the nineteenth century the Public Accounts Committee was concerned mainly with accounting regularity and ensuring that money was spent for the purpose for which Parliament intended it. As a result, serious failures in this respect are rare nowadays. More recently the Public Accounts Committee's field of interest has extended to the prevention of waste and extravagance, the encouragement of sound practices and, in simple terms, ensuring value for money. This has enabled the Public Accounts Committee to take a constructive rather than a critical rôle, although it is not sparing in its criticism. The way in which the Public Accounts Committee appraises the different cases in order to bring out the 1012 lessons of those cases as a guide to handling matters in the future has in a real sense been the essence of its work. Therefore, it has been concerned with administration rather than with policy.
Expressing a purely personal view to the hon. Member for Sutton and others who have spoken on the lines on which he spoke—the hon. Member for Glasgow, Craigton (Mr. Millan) was another—I think it may well be that on this or that policy issue there is a case for a substantive motion, and this is a matter which the House normally debates, but one would not appraise correctly the full value of the work which the PAC does if one thought that it ought to pursue matters in that sort of way. On any policy there are mechanisms for pursuing such matters. But the work which the PAC does, for the reason that it is greatly studied in the Departments, leads to many improvements on a great range of subjects, some of them very detailed, and many which have not been mentioned at all today but which none the less lead to improvements.
I should like to take up one or two of the points which have been made, because I believe that the system as it is now constituted has very real advantages indeed. I turn, first of all, to the hon. Member for Fife, West (Mr. William Hamilton). I make no comment on his closing remarks. He said that he had been here on and off all day. I think that is so, although I think that for most of the time he has been off, unlike my hon. Friend the Under-Secretary of State for Scotland, not forgetting my hon. Friend the Under-Secretary of State for Northern Ireland, who has been here for a great part of the debate.
On the point raised by the hon. Member for Fife, West, it has been the policy of successive Governments since 1955 to impose tolls on major new estuarial crossings which confer exceptional benefit in terms of time, distance travelled and so on. As a general policy, tolls are fixed at a level which will enable the capital cost of the crossing, with interest, to be recovered over a period of years. In the case of the Erskine bridge, revenue from tolls is not likely to achieve the level which would be required for these purposes within the 20-year period normally specified, partly because interest rates are higher than originally expected, 1013 and for other reasons. There is no case for making the bridge toll free. The net revenue after covering the cost of toll collection is still substantial and will justify a continued levying of tolls.
The hon. Gentleman asked what the Government proposed to do about it. The need to operate the bridge economically is well recognised. To this end, a management committee has been set up within the Scottish Development Department which is keeping a watch on affairs, and, in addition, steps have been taken to update and revise forecasts of future traffic. These arrangements can be reflected in the toll structure, and adjustments can be made if necessary. As the hon. Gentleman intervened in the debate, though rather belatedly, I hope that that reply covers the points which he had in mind. I am not sure that I should have made that detailed study if the House had been full.
§ Mr. Higgins
I come now to the questions raised by the hon. Member for Portsmouth, West (Mr. Judd) and for Sutton regarding the naval catering frauds. This comes much closer to the original function of the Public Accounts Committee to which I referred a few moments ago. Since the frauds took place, we have had the report of the Donaldson Committee, which inquired into the financial control of catering in the Services. As already announced, the Government have welcomed the report, and have accepted the main recommendation that food supplied for the Services should in future normally be obtained from Service or NAAFI sources. This recommendation is being put into effect as soon as possible.
The Donaldson Committee took the view that the Navy Department acted with commendable promptitude when the frauds came to light and that the remedial measures subsequently taken should go far to reduce the possibility of a recurrence. Implementation of the recommendations, coupled with the new audit procedures which have been introduced, should, so far as is practicable, make the messing systems proof against fraud. This also is an example of the work which the Public Accounts Committee does. The points were brought out and the Government 1014 responded to them, without necessarily bringing the matter to the Floor of the House for debate.
The right hon. Member for Birkenhead referred to the grant to universities and colleges, as did the right hon. Member for Orkney and Shetland (Mr. Grimond). The PAC noted that the University Grants Committee had no information about the extent to which universities had accepted and implemented its guidance of February 1970 on the principles for charging for services to external organisations. As a result, the UGC undertook inquiries of universities to obtain the relevant information.
With respect to the right hon. Member for Birkenhead, I do not think that any question of academic freedom or related matters arises in this context. An important point of principle, however, is embodied in the University Grants Committee's notes of guidance ; namely, that the full economic cost of all such work should always be assessed, even though it is up to the university to decide whether to charge less, or even more.
It is evident that virtually all universities with research contracts already follow the practice advocated by the UGC, and the remainder have agreed to bring their procedures into line with it. It is clear, however, from the UGC's inquiries that universities seldom charge a rate which covers overheads—as distinct from direct costs—in full. The UGC has, therefore, decided to explore with the Committee of Vice-Chancellors and Principals the case for encouraging universities to charge the full cost more often, without, however, discouraging the growing and fruitful collaboration between universities and industry.
I should, perhaps, add that the University Grants Committee will be raising with the Vice-Chancellors the question of the extent to which it would be desirable for some universities to adopt more formal procedures for ensuring that university authorities are notified when members of staff acting in a personal capacity require the use of university facilities. This again is a case in which the work of the Public Accounts Committee has brought out a point of concern, it has been pursued by the UGC and by the Government, and 1015 as a result we shall, I believe, find an improved situation.
Hon. Members referred to the question of the comparative costs of construction of advance factories. Here again, we have a traditional function in this context inasmuch as it touches on the question of efficiency, with which, naturally, both the Public Accounts Committee and the House are concerned. The study carried out by the Property Services Agency at the request of the DTI confirmed the indication arising from the Comptroller and Auditor General's own examination, that the cost of advance factories built by industrial estates corporations was substantially higher than those built by other agencies. But, as the Treasury Minute indicates, a principal reason for this difference lies in the greater degree of completion of the corporations' factories, and this enables the prospective purchaser or tenant to gain very early occupation, which has in the past been regarded as an important aspect of the rôle which advanced factories play within the Government's overall regional policies.
So within that context one of the questions now being reviewed is whether a less complete state of readiness is acceptable, in particular as regards the provision of ancillary services and so on. Design factors are being looked at. The Department has not completed its consideration of a revised system of financial relations with the corporations, and, again as recommended by the Committee, consideration is being given to how best to include in these arrangements a system for monitoring comparative costs. This is an area where the work of the Committee has brought a particular matter to the attention of the House and of the Government.
The two main points which have preoccupied the debate are Concorde and North Sea oil. Despite the non-partisan nature of the Committee's work, it is not suprising that right hon. and hon. Members have concentrated on these particular points which are of the greatest political interest in the widest sense. My hon. Friend the Member for Croydon, South (Sir R. Thompson), in a cogent speech, brought out a great number of the difficulties which are likely to arise on projects 1016 like Concorde which involve high technology, and he pointed out that there are likely to be more of these in the future. He referred to a situation where it might be felt that the project could not be stopped or where the question of heavy "sunk" costs, employment factors and so on were involved.
However, this is an area where we are obviously very much concerned as a House of Commons and, as my hon. Friend pointed out in supporting the Concorde project, where there are very real technical problems. These were referred to by my hon. Friend the Member for Oswestry (Mr. Biffen) and the hon. and learned Member for Northampton (Mr. Paget). A number of separate points were raised, and I should like to take them in order and seek to answer as many as possible. I therefore apologise if my reply proves to be lengthy. As one hon. Member pointed out, this is not a debate where hon. Members tend to go in for party platitudes but one where they raise deep questions, and I should like to try to answer the various points raised.
My hon. Friend the Member for Oswestry raised the question of the sharing of work and expenditure on Concorde by the United Kingdom and the French Governments by reference to the place in which particular aspects of the work were being carried out. The original 1962 treaty provides for equal sharing of work, costs and proceeds of sale. It was accepted at the formative stage of the project that the first stage in implementing this provision should be to ensure as far as practicable that work between the four main contractors should be shared on an equal basis between the two participating countries.
This practice has led to a broadly equitable share of the costs. For example, the most recent estimate of the total of what I understand are called extra-mural development costs, given to the House on 22nd June, shows that the total United Kingdom share is £525 million compared with £540 million of French expenditure. With the intra-mural expenditure the practice has been to assign tasks to the Government establishment which can best carry them out, and a direct comparison on the same accounting principles is not possible because of variations. On the information available, however, it appears 1017 that the costs on both sides of the Channel have been similar. Further discussions on arrangements for giving full effect to the principle of equal sharing embodied in the 1962 treaty will be held with the French Government. The Committee's views on the allocation of the cost imbalance, including intra-mural costs, will be taken into account.
I turn to the question of the estimates of development costs, another point raised by my hon. Friend the Member for Croydon, South.
§ Mr. Biffen
Before my hon. Friend leaves the matter of cost sharing, he will recollect that I specifically inquired about the financing of the production of Concorde as opposed to its research and development, and whether that was also to be the subject of manufacturing in broadly equal flows, both in French and in British locations of production. Can my hon. Friend say something about that and whether the treaty to which he referred covered only cost sharing for research and development of the aircraft?
§ Mr. Higgins
I cannot give an immediate answer. My hon. Friend the Member for Oswestry raised several other points, and I shall deal with those first.
I was dealing with the estimates of development costs and development expenditure at each stage. Estimates are based on the best forecast that can be made of the work that is necessary to complete the various tasks. It is in the nature of an advance project. I think that my hon. Friend the Member for Croydon, South appreciated that. It is difficult initially to form a sound assessment of that kind of work. That is the experience in all the major industrial countries.
Throughout the project an attempt has been made to do this assessment by bringing into play all the available experience of similar work, but the amount of work outstanding is obviously increased if unforeseen problems arise. As all hon. Members recognise, it has been a continual source of uncertainty. The more complex and integrated a programme is, the more likely is it that one will run into unforeseen costs.
While recognising the essential difficulty of the Committee, the Government share the view that the estimate should be as accurate and reliable as possible and 1018 that every effort should be made to achieve that.
The right hon. Member for Birkenhead asked about cost control. It is important to distinguish between long-term estimates to the completion of a project presented to the Government and estimates necessary to control work in day-to-day management. The distinction is not always appreciated. In the case of the former, the further one goes ahead, the greater is the degree of uncertainty as the attempt is made to estimate into the future. But, for control purposes, the latter estimates have been tightly drawn to give line management a clear target for conducting work in hand. The Department's monitoring activity is concerned primarily with ensuring that the estimates are realistic and that they are checked against the progressive performance of the manufacturers. I should stress that that does not in any way inhibit estimates being as realistic as possible.
I turn to the question of incentives raised by a number of hon. Members. The Committee has commented that the contractual arrangements for the airframe and engine lacked effective incentives and did not place the contractors at risk. But it acknowledged the difficulties in constructing an effective scheme of incentives where there was firm distinction of work a contractor had to undertake. In those circumstances, it is difficult to make any reliable estimate of costs. That is a fundamental dilemma in a development programme of this kind, and particularly in the case of Concorde.
The situation is one to which there is no easy solution, but the incentives negotiated in 1968 contained the maximum degree of incentive practicable in the circumstances. The inclusion of the basic profit rate followed from the uncertainty in the estimating and cost programme, but by applying the profit rate to the target cost some incentive was introduced compared to a simple cost-plus target.
The right hon. Member for Birkenhead and I have both been involved in this kind of problem in previous incarnations in industry. This is obviously a problem in which one can benefit from an exchange of views such as we have had with the Committee.
§ Mr. Dell
The hon. Gentleman appeared earlier to be making a distinction, relevant to Concorde, between long-term and short-term cost control, saying that in the long term cost control may be very difficult but that in the short term what one was doing was to fix targets for estimates which were realistic for the purposes of short-term cost control. Surely the whole point here is that the short-term figures have proved to be virtually as inaccurate as the long-term figures, and that for that reason the incentives did not work.
§ Mr. Higgins
It is difficult to establish a criterion of accuracy in this matter in the particular sense that the right hon. Gentleman has just expressed—namely, whether the figures are more or less accurate comparing one set of estimates with the other. My point was that there is a distinction, which the right hon. Gentleman fully appreciates, between the short-run figures applicable in monitoring in operational conditions and the different type of problems associated with making a long-term forecast over a period of many years.
All I was seeking to do was to say that the problems were somewhat different in each case, and that therefore technically what is meant by accuracy in one case as against another is difficult to analyse. I gather from the expression on his face that the right hon. Gentleman agrees. I was merely saying that there were obviously two different concepts, which have sometimes become somewhat confused.
The right hon. Gentleman made an important point about commercial confidentiality. We fully appreciate that the Committee did not lightly come to its conclusions. The right hon. Gentleman also said that the Committee had actual figures and had seen much of the information. That is obviously a matter of great seriousness. The Government have recognised the legitimate interests of the House and the public in obtaining the fullest information about Concorde.
However, there are two essential difficulties. First, the Government are in direct contractual relationship with the main manufacturers on both development and production. There are continuing negotiations on amendments or extensions to the targets as the programme evolves. It would seriously impair the 1020 effectiveness of the Government's negotiators to state publicly information which could undermine their position.
Secondly, because the Government are also putting up the finance for production, they have a direct stake in the number of sales and the terms under which they are achieved. I think the right hon. Gentleman said that Concorde is not in a seller's market. Certainly it does not have a monopoly, since it will be considered by potential customers as one of a variety of aircraft that they might buy to satisfy their requirements. The manufacturers, who are responsible for securing sales, are therefore bound to come under pressure to make concessions. The Government must accordingly weigh carefully the natural concern of the House to have the fullest details about such a controversial project against the financial losses which could result from such disclosure.
Without questioning in any way the understandable wish of the House for more information, the Government have come to the view that it would not be in the national interest to undermine the prospects of selling Concorde on the most favourable terms by giving further information. To take up the point raised by my hon. Friend the Member for Oswestry in an intervention a short time ago, I am advised that the costs of production and research are shared on a 50–50 basis.
The right hon. Member for Birkenhead referred to decisions on production, and other hon. Members asked how many aircraft are to be produced beyond the 16 currently under construction. A decision will be taken in the light of the joint review of the project which is currently being undertaken by the British and French Governments on the basis of the proposals from the manufacturers. These are highly technical matters with major potential implications for development and production costs. The review is not likely to be completed until next year. On all these matters the Government will take into account the various points which have been made by the Committee.
§ Mr. Higgins
I have sought to put forward the Government's views. I have 1021 expressed, although the hon. and learned Gentleman appears not to have been listening, the Government's view on production. That is the answer to the hon. and learned Gentleman's question.
§ Mr. Dell
We asked the Department whether the aircraft would meet the specification of British Airways and Air France. The Department said it hoped that it would. The Department said, however, that the matter was not absolutely certain before further trials. It expected to be fairly sure—this was what was said last Session—by this time this year. We are now at this time this year. Is the Department now certain that the aircraft meets the specification?
§ Mr. Higgins
Perhaps I might refer to the device which I employed in answering my hon. Friend the Member for Oswestry. I shall see whether I can give the right hon. Gentleman an answer on that matter.
The right hon. Member for Orkney and Shetland made several points about North Sea oil and gas, including ministerial responsibility. My noble Friend the Minister of State, Scottish Office, takes direct responsibility under my right hon. Friend the Secretary of State for Scotland for all aspects of oil development which fall within the responsibility of the Scottish Office. My noble Friend participates fully in the consideration of policy matters relating to North Sea oil for which my right hon. Friend the Secretary of State for Trade and Industry is responsible. I hope that this answers the point mentioned by the right hon. Gentleman.
§ Mr. Grimond
I do not think that it clears it up. For which aspects of North Sea oil is the Secretary of State for Scotland responsible, and for which of them is the Secretary of State for Trade and 1022 Industry responsible? In any event, where is the noble Lord? As far as I know, he has not made any pronouncement or given any information about oil for many months.
§ Mr. Higgins
I do not think I should be in order to enter into a general discourse on ministerial responsibility. That might be more appropriately pursued on other occasions. The right hon. Gentleman asks where Lord Polworth is. The immediate answer must be that he is in another place. If the right hon. Gentleman wishes to clarify the position, it would be more appropriate for him to do so on another occasion.
I turn now to the report of the Public Accounts Committee on North Sea oil and gas, in particular the points covered in the First Report, in paragraphs 97 and 98, and on page 3 of the Treasury Minute. If I may say so without presumption, I congratulate the Committee on the examinations it carried out of the immensely complex issues involved in the development of our oil and gas resources. Recent events in the Middle East, which have resulted in both increased prices and possible threats to the availability of adequate supplies, have demonstrated to a far wider audience the major importance of these resources in the economic development of the country.
The oil finds in the United Kingdom sector of the Continental Shelf are significant, not only because they give us a secure supply on our own doorstep, so to speak, and should provide us by 1980 with almost two-thirds of our requirements, but also, I can say with some fervour as a Treasury Minister, because of the potential benefits to the balance of payments, which should be £1,000 million or more in 1980, and the benefits to Exchequer revenue and industrial development.
The companies estimate that by the end of this year they will have spent over £1,000 million on exploration and development in the North Sea and that about half the value of their orders is being placed with United Kingdom registered companies. In examining this question, the Committee directed its attention mainly to the financial arrangements for securing to the Exchequer and to the economy a due share from the exploitation of this national asset and considered 1023 whether the policy objective of the Government might have been obtained with greater potential benefit to the Exchequer and to the economy.
The policy of successive Governments since the Continental Shelf Act was passed in 1964 has been the rapid exploration and development of our resources. Of course there were critics, and perhaps there still are, though they may be fewer in number, who for various reasons consider this policy to be wrong, but the debate is not concerned with policy. It is concerned with administration. From time to time it may well be that the borderline between the two aspects becomes blurred. I will give my answer as broadly as I can.
§ The question is whether this objective could have been achieved with tougher licensing terms, particularly in the fourth round of licensing. As the Treasury Minute makes clear, a balance had to be struck between the interests of the revenue on the one hand and an adequate incentive to licensees to explore and develop on the other hand. Prospects at the time were very different from those today, and a misjudgment could have reduced the scale of exploration which has in the event produced such considerable and beneficial results. Ultimately, it is a matter of judgment.
§ The right hon. Member for Birkenhead was anxious to establish that there was no question of hindsight. That was a part of his speech that I did not find particularly convincing. The Government fully share the Committee's concern that the nation as a whole should get a fair return from the depletion of a national resource. The Chancellor has already announced action on artificial losses. In their review of licensing policy, the Government are taking fully into account the main conclusions of the report and the paints made in the public discussion of North Sea policy that it has helped to promote.
§ The fact that the review has not yet been concluded will not slow down the rate of activity. The companies exploring the Continental Shelf still have more than 200 wells to drill from their existing work obligations, so there is no question of a new licensing round before the results of the review are announced.
The other related question is the reaction to the PAC's report. I was some-what
surprised that the right hon. Gentleman should have said that the Government had been slow to react. On 6th March the Chancellor said :
The Public Accounts Committee last week drew attention to the probability that the yield of tax to the British Exchequer from North Sea profits may in the case of many of the companies be seriously impaired by the set-off of artificial losses made by those companies from their trade in oil from other parts of the world, and they recommended that the Government should take action substantially to improve the effective tax yield from operations on the Continental Shelf.
I am sure that the Committee was right, and I accept this recommendation.
§ I should have thought that that was almost certainly—indeed, beyond doubt—a record for the time within which a Government have accepted a recommendation of the PAC.
The question of timing is important, and I should refer to another passage in my right hon. Friend's speech :
The PAC also pointed out that under the present arrangements the Exchequer's share of the ' take ' from oil operations on the Continental Shelf is substantially less than is obtained in other countries. As I have already said, profits from North Sea oil will probably not arise until 1975, but I can assure the House that the Government already had under consideration the other important questions affecting licensing terms and the Government's" take ' from operations on the United Kingdom Continental Shelf to which the PAC has drawn attention."—[OFFICIAL REPORT, 6th March 1973 ; Vol. 852, c. 263, 264–5.]
§ But in this context, it is important to take my right hon. Friend's statement in relation to the date on which oil is likely to flow.
§ Mr. Millan
The hon. Gentleman said that there would not be a fifth round of licensing until the review was completed. I would have been astonished if the situation had been any different. I asked when the review was to be completed so that we would know what the Government intend to do about licensing in the future. They have had a long time to consider it. They still have not given an adequate explanation why the results of the auction and the substantial tenders were not taken into account before the fourth round of licensing was completed. It is not a question of looking at the matter with hindsight. The information was there at the time, but the Government went ahead and ignored it. Why did they ignore it? That has never been explained.
§ Mr. Higgins
I was intending to come shortly to the hon. Gentleman's second point. I have a thick sheaf of papers which I have yet to deal with.
§ Mr. Millan
The hon. Gentleman has always gone past the point, or is coming up to the point, but never seems to be on the point.
§ Mr. Higgins
With great respect to the hon. Gentleman, that is grossly unfair and I do not accept it for one moment. I am seeking to cover all the points. I think I am right in saying that up to now I have covered all the points which have been raised.
§ Mr. Laurance Reed (Bolton, East)
Before completing the review, will the Government bear in mind that one effect of the immediate energy crisis will be to encourage the American and Japanese Governments to provide massive incentives for the oil industry to look for marine oil on the eastern seaboard of the United States and in the South China Seas? Bearing in mind that technical expertise and capital available is limited, unless the Government are careful in drawing up revenue requirements there could be a position in which the overall rate of development around our shores in North-West Europe is slowed down.
§ Mr. Higgins
I would be going far too wide of the motion if I pursued that point. We are concerned with whether we take note of the Public Accounts Committee's report, and I wish to make further progress.
§ Mr. Reed rose—
§ Mr. Higgins
A number of points have been raised and I am anxious to answer them. I turn now to the question of North Sea oil. The House will be aware that measures have been proposed in the Gracious Speech. When details of these are announced by the Secretary of State for Trade and Industry, they will demonstrate the Government's determination that the nation should get the full benefit from the resources of the United Kingdom Continental Shelf. I cannot give my hon. Friend a specific date for the review.
A number of hon. Members have raised the question of access to licensees' costs.
§ Mr. Douglas rose—1026
§ Mr. Higgins
I have not yet come to the point with which the hon. Gentleman is concerned. I am seeking to answer the point raised by a number of hon. Members about access to licensees' costs. It is not helpful if the hon. Gentleman and his hon. Friends ask specific questions which I seek to answer and then interrupt me before I have an opportunity to answer. I was making the simple point that the Government already have a general knowledge of costs through our contacts with the licensees. In the current policy review we are considering the Committee's recommendation that this could be put on a more formal basis. We have studied with great care the points made by hon. Members.
The House will recognise that the position is complex and not one upon which we can give a snap decision. We must go into it thoroughly to get the right answer. Hon. Members also asked about speeding up North Sea production to meet our immediate problems. We are doing everything possible here. We have asked the companies to inform us of any delays which occur in developing their projects and of any matters which hamper them in proceeding as fast as possible with new schemes. We are anxious that there should be the maximum amount of information about this.
The hon. Member for Craigton asked about the four licensing rounds. What he was saying essentially was that tougher terms should have been considered in 1971. He expressed surprise that there was no change between the four rounds. This must be a matter of judgment and, given the way things have gone and the way the international situation has changed, it is easier now to say, with the benefit of hindsight, that the conditions should have been tougher. We recognise that the argument has force but I believe it would have been risky, with the information that we had at the time, to reach a different conclusion.
§ Mr. Higgins
I come now to consider the question raised by the hon. Member for East Stirlingshire (Mr. Douglas) about the supply of goods and services to companies engaged in exploration.
§ Mr. Douglas rose—1027
§ Mr. Higgins
Not at this stage. I am seeking to answer the points the hon. Gentleman made in his speech. If I do not do so, the debate will become somewhat incoherent.
The hon. Member specifically raised the question of the provision of various services and supplies and referred to the IMEG report. Although the first licences were issued in 1964, the possibility of a major market for British industry did not suggest itself until the turn of the decade and the opportunities for development in the southern basin gasfields did not, in the view of British industry at that time, represent a market in terms of long-term investment, although some individual manufacturers did not take this view.
The first oil find was not declared commercial until the end of 1971, and before then there was a risk that lack of adequate data might make it difficult to assess the size and nature of the market. Once the commercial oilfields began to be delineated, the Government lost no time in commissioning, in May 1972, the study by IMEG of the potential benefit to British industry. It is difficult to see how a satisfactory survey could have been carried out before then.
The hon. Member also raised a number of points about the contribution made by British industry to the entire operation. In the IMEG report we were looking at the whole scene, not simply at the British market. The essential thing is that British firms should genuinely have a fair opportunity to compete and that the Government should ensure that the necessary information is available. But the House will agree that it would not be a satisfactory solution if the contribution made by British industry were to take place in a protected market rather than in a market where competition could ensure that industry became efficient.
Similarly, new ideas and designs for offshore exploitation are continually evolving, and the Government cannot act as a substitute for genuine entrepreneurial ability in putting forward proposals in the light of changing technology. Our aim is to foster and encourage such 1028 enterprise, but it is right that we should do so in the sort of environment I have outlined.
§ Mr. Douglas
If the Norwegian industry, in relation to its North Sea enterprise, can operate in a protected market and can receive three orders for concrete production platforms to be built in Norway, two of which will operate in the United Kingdom sector of the Continental Shelf, why cannot that happen to the United Kingdom industry?
§ Mr. Higgins
I cannot go into an analysis of the situation concerning Norway I have sought to set out what seems to be an appropriate environment within which we can consider the position.
The hon. Member for Craigton raised a point about oil company taxation and the balance of payments, and the right hon. Member for Birkenhead referred to the set-off of capital allowances on extraneous activities against North Sea profits. One of the main areas which the Committee considered was the question of the taxation of oil profits, and it drew attention, in particular, to the likelihood that the United Kingdom Exchequer would receive little revenue from profits arising from continental oil production during this decade because of the losses incurred by the oil companies in their trade in oil in other parts of the world and the fact that these can be set off against profits.
I referred earlier to the Budget Statement of my right hon. Friend the Chancellor of the Exchequer shortly after the publication of the Committee's report and to the fact that the Government accepted the Committee's recommendation that we should take action substantially to improve the effective tax yield from operations on the Continental Shelf. I have indicated that consultations are proceeding with industry on the practical problems involved, and it is the Government's intention to introduce the necessary legislation in next year's Finance Bill. But my right hon. Friend the Chancellor has made it clear that deferring the legislation until next year because of the need for consultation will not result in any loss to the Exchequer. That is an important point. A number of hon. Members had not fully taken it into account. Indeed, 1029 I think that one or two hon. Members had not taken it into account at all. Plainly, it is an extremely important point of view of the Government and the Treasury.
Another aspect of the subject of taxation of oil company profits which attracted the Committee's attention and has been raised in the debate concerns the question of capital allowances and group relief. This relief applies to a group of companies all of which are resident in this country for tax purposes. A company in the group which has current capital allowances greater than its taxable profits is entitled to have the excess set against the current taxable profits of other companies in the group.
The Committee was concerned that capital allowances on investments unconnected with the North Sea—let us say, expenditure on a tanker fleet—might be used in this way to reduce the taxable profits arising from the Continental Shelf operations. The Chancellor of the Exchequer gave careful consideration to this question but decided that it would be inappropriate to restrict the group relief provisions for oil companies. There is a real difference here between group relief and artificial losses. In the case of artificial losses the corporation tax yield from North Sea profits was threatened by entirely artificial losses peculiar to the oil industry. We are properly proposing action against those losses to correct the special situation.
In contrast, the system of group relief is part of the general structure of corporation tax and is available to all industries. Certain abuses of the system that had come to light were corrected in this year's Finance Act. Now that has been done, when the problems of artificial losses have been dealt with it will be difficult to deny to the oil companies normal reliefs which are available to groups of companies generally.
I have explained why I think it inappropriate to introduce a discrimination of this sort into the corporation tax provisions, but I assure the House that we recognise the Committee's concern and that we shall be aware of the point in the general review which the Government are carrying out on Continental Shelf operations.
§ Mr. Dell
Have the Government decided against that because it is impracticable 1030 or because the Government object to it in principle? Secondly, have the Government considered the effect of their decision on the tax yield from the North Sea, if it is one of principle, on the relative position of the United Kingdom Chancellor of the Exchequer and other national exchequers which are fortunate enough to gain this sort of tax revenue? Do the Government regard this as an additional reason for introducing a barrelage tax?
§ Mr. Higgins
It would not be appropriate for me to go further than I have gone in my last few paragraphs. As I said, we are looking at the whole situation. I refer the right hon. Gentleman to my last sentence before he intervened ; namely, that we recognise the Committee's concern and we shall be aware of that point in the general review which the Government are taking of the Continental Shelf operations. If I may resort at this early stage to the classic answer, I would not wish to anticipate my right hon. Friend's Budget Statement.
§ Mr. Dell rose—
§ Mr. Higgins
We think it right, given the Committee's concern, to look at this point. I am anxious to answer as fully as possible the many questions which have been raised, but I should be abusing the time of the House if I continued to give way to the triumvirate of hon. and right hon. Gentlemen.
In conclusion I will refer briefly to two technical matters which are close to my heart and have not been mentioned. The first concerns Estimates. We should express our gratitude to the PAC and the Expenditure Committee for the welcome they have given to our proposals for revising the form of Estimates. The work of revision is well in hand, and the new programme classification of Estimates format will be used in the Vote on Account and in the Public Expenditure White Paper.
My right hon. Friend the Chief Secretary told the House on 7th February that the Government see this as the next important step in the process of improving the presentation of their proposals for future public expenditure. Although the rate of parliamentary and public discussion of public expenditure has rightly been transferred to the annual White 1031 Papers, the Supply Estimates remain of considerable importance as the detailed statement to Parliament and the public of the Government's proposals for most of their own expenditure. Because of the procedural basis to the control of that expenditure by this House, and the basis of departmental accounting and control, it is clearly right that it should be revised to take account of the many changes that have taken place over the last decade. The Government are confident that the changes will make the Estimates more acceptable and useful by themselves and make it easier to understand how they relate to the plans for public expenditure as a whole that are set out in the White Papers.
The Public Accounts Committee has referred to two specific instances on the question of trading funds—the Royal Mint and Her Majesty's Stationery Office—and to the preparations for a switch to trading fund finance. As the House knows, the Trading Fund Act was passed at the end of the last Session and we expect that over the next two or three years most, if not all, of the bodies named in that Act will move to this method of financing. The Government hope to lay a draft order for the Royal ordnance factories early in the new year.
This change will affect the scrutiny of those bodies by the PAC. There will no longer be estimates and appropriation accounts. Instead, we shall be moving towards a system which brings them much closer to a quasi-commercial organisation so that the Committee can concentrate on, for example, the question of the rate of return achieved in the target, which is relevant in that context, and move away from the present appropriation accounts of expenditure against Estimates, which is not. That is an innovation and change that should be welcomed, but it will make a difference to the way in which these organisations are dealt with by the PAC and by the House.
I apologise for taking so long to answer the various points that were raised, but this is an occasion which the House values as a means of probing closely the various points on which the Committee has spent an enormous amount of time. I think that it would have been inappropriate if, 1032 in dealing with the various points, I had not sought to deal with them in considerable depth, in the same way as the Committee spares no effort in going into the various points in the greatest depth possible, and the House is grateful for the work that it does.
§ 9.53 p.m.
§ Mr. Laurence Reed (Bolton, East)
A short while ago I intervened and put a question to my hon. Friend which he felt was not germane to the debate in hand and particularly to the report of the PAC. I therefore feel constrained to rise to my feet to impress upon my hon. Friend that my question is germane and, indeed, essential to the central argument.
The Committee's main recommendation was to improve revenues to the State, and the central aim of the Government's strategy for North Sea oil—an aim which I fully support—is to sustain the rate of exploration and development on the Continental Shelf.
My point is that one cannot consider this matter in isolation from what is happening elsewhere in the world. The oil business is a worldwide market, and if other countries offer incentives to explore and exploit marine assets on their Continental Shelves that are a more powerful lure than we can provide to this worldwide industry, the rate of exploration and development of our own Continental Shelf is likely to slow down.
My point, which I hope will be borne in mind in the review, is that in considering at what level we pitch our taxes or our royalties let us be aware of what other countries are doing. The American President has provided great incentives, and I have no doubt that the Japanese Government will do the same, for exploration to take place on the Eastern seaboard of the United States and in the South China seas.
The only other point, which is again germane to the argument, is that as development proceeds in the United Kingdom offshore area we are moving into very much deeper water. This means not stretching existing technology but the evolution of a wholly new technology. Consequently, the risks and the costs will be that much higher. Again, if we wish to maintain momentum, which is the declared objective of the Government, and which I support, these considerations 1033 must be borne in mind. My fear is that if the Government, woe betide them, were literally to take the advice of Lord Balogh, they would defeat their main objective. At present, as the energy crisis matures, the rapid and thorough exploration of what we have in our offshore areas should remain the priority over and above maximising revenues.
§ Question put and agreed to.
That this House takes note of the First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth Reports from the Committee of Public Accounts in the last Session of Parliament and of the Treasury Minute and Northern Ireland Memorandum on those Reports (Command Papers Nos. 5451 and 5470).