§ The Minister for Industrial Development (Mr. Christopher Chataway)
The House will recall that on 3rd July 1972 I affirmed the Government's belief that the capability to develop, manufacture and market computer systems which International Computers (Holdings) Ltd. (ICL) represents should be retained in this country. To further these objectives, I announced Government support of £14.2 million to maintain the momentum of ICL's research and development programme up to September 1973.
The Select Committee on Science and Technology has continued to draw attention to the scale of assistance provided by other Governments to ICL's overseas competitors and has argued for comparable support, mainly in the field of research and development. Under its new management, ICL has made excellent progress. The company faces a period when research and development expenditure in developing its new range of computers will be very large in relation to the total size of the undertaking, and Government support has, therefore, been under consideration for the period to 1976.
530 During this period, apart from the Government assistance towards the cost of research and development which has been proposed, ICL expects to be able to finance its growing business from its own resources. However, should the requirements of the business exceed expectations during this period and additional funds be needed, GEC and Plessey, in their capacity as principal shareholders of the company, have undertaken to procure the raising of additional capital by the shareholders of ICL up to an amount of £15 million, provided they are satisfied it will contribute towards ICL's development as a profitable company.
The Government believe that, against this background, further support of ICL, of the launching aid type, is justified. The Government have agreed to provide a further £25.8 million in support of the company's research and development programme from October this year until September 1976, making a total of £40 million in all. The basis for these arrangements with the company and the principal shareholders is that ICL's forward plans and forecasts indicate that no further financial assistance will be required or sought from the Government after 1976.
These plans and forecasts are based on ICL's stated policy of a high degree of retention of earnings. This implies a minimal distribution by way of dividends; however, should circumstances change and the company decide that its position justifies the recommendation of a higher dividend, the Government will be notified and will have the right to vary the arrangements for further research and development support in the event that such higher dividend is paid.
As is normal with launching aid of this type, arrangements have been agreed with the company for the recovery of this £25.8 million, together with the £14.2 million I announced in July last year. These involve the payment to the Government over a 7-year period commencing in the company year 1977–78—or a lesser period if full recovery as a discounted cash flow rate of return of 10 per cent. proves possible more quickly—of any profits before tax earned in excess of 7½ per cent. of turnover up to a maximum of 25 per cent. of the profit before tax earned in each year.
531 A detailed monitoring system has been agreed with the company, under which arrangements will continue for the regular provision by the company of full information on the progress of the R and D programme and on the company's financial and commercial progress and expectations.
I have ha discussions with my French and German colleagues about the importance of creating a stronger European industry. The company is well aware of the opportunities and is involved in discussions with European companies. The Government will encourage any European association that ICL decides to be in its commercial interests.
§ Mr. Bishop
The House will welcome the Government's statement on the computer industry which demonstrates the rôle of public enterprise in the maintenance of vital industries.
As there has been an apparent delay in the making of the statement, is the Minister satisfied that the difficulties involved have been resolved? In view of the fact that Plessey has about 20 per cent. of the stock, GEC 19 per cent., and the Government only 10.49 per cent., does he think that adequate support is being given by the other shareholders?
Does the Minister think that for a total investment of public money amounting to about £40 million in three years a Government participation in ICL of only 10 per cent. is justified? What Government representation will be on the board? Will Mr. Duckworth continue to be the Government representative?
In considering the return on public investment, on the basis of last year's announcement may we expect that the royalties on the sales or the levy on profits will continue?
Although we welcome European collaboration, is the Minister satisfied that our interest is protected? As the Select Committee on Science and Technology made about 20 recommendations on the computer industry, will the Minister make representation to his right hon. Friend that the House should have a detailed debate on the future of this important industry?
§ Mr. Chataway
I will certainly take note of what the hon. Gentleman said 532 at the end of his remarks. It is true that the level of support which the Government are here proposing is a great deal lower than that recommended by the Select Committee, but the House will note the strength of the company and the progress that has been made in the past year.
It is perhaps wrong to draw analogies with other European companies. Other European companies are receiving greater support than that which is proposed for ICL, but ICL can undoubtedly claim to be the strongest indigenous computer company in Western Europe.
The hon. Gentleman mentioned delays. As he will realise, this support is from September of this year, so the announcement is made in good time, and there are no outstanding difficulties.
The recovery arrangements are more stringent than those that have prevailed on previous occasions. They give the taxpayer the opportunity of a full return on the money expended, and I believe that the strength of the company justifies recovery arrangements of this type.
The Government retain the right to appoint a board member. I agree with the hon. Gentleman that it is right to encourage the company in collaborative association with other European countries if it believes it to be in its commercial interest.
§ Mr. Skeet
Does the Minister accept that the amount which has been made available to ICL is equivalent to that which has been made available to CII and Nixdorf in Germany, or is it less? Why did not the Minister make available the company's interim report so that we could know the profitability basis of the company and whether it would be practicable to raise all the money on the open market?
§ Mr. Chataway
My hon. Friend will know that there is no computer company outside the United States which at the present stage of development is able to raise all its capital from the market. A decision has to be taken by European Governments whether they wish to have an indigenous computer capability.
My hon. Friend is right in suggesting that the level of support given by the German and French Governments is higher than that proposed by the British 533 Government for ICL, but the determining factor here must surely be the needs of the company and its strength.
§ Mr. Golding
Is the Minister aware that this announcement will be welcomed in North Staffordshire where the new range is being tested? Does he agree that Government grants are higher not only in France and Germany but also in Japan and the United States? Against that background, does he believe that Government aid can end by 1976 if the British computer industry is to compete with America and Japan?
§ Mr. Chataway
The arrangements I have announced follow a period of intensive consultation with the company and major shareholders. It is the belief of the major shareholders and of the company on the basis of its latest forecasts that this is the level of aid that will he required to launch the new range and that the company will be profitable—it is already profitable—without further Government support from 1976.
§ Mr. Powell
Will any specific parliamentary proceedings be necessary to authorise these further disbursements?
§ Mr. Chataway
No, Sir. This support will be given under the Science and Technology Act.
§ Mr. Kaufman
Bearing in mind that in Manchester today unemployment is 32 per cent. higher than it was three years ago, is the right hon. Gentleman aware that in my constituency, where ICL West Gorton is situated and where it is a most important part of the employment provision, his statement will be regarded as no more than what is needed? Will he guarantee to my constituents, who regard this matter as extremely important, that the Government will continue to give priority to ICL in the purchase of computers, that all the work force employed at West Gorton will continue to have guaranteed employment and that all further aid required will be forthcoming?
§ Mr. Chataway
Matters of employment are for the company to decide but, clearly, the intention of the Government, as of the company, is that these arrangements should enable the company to prosper and expand. I have spelt out the situation about support and given the limits of that support. I am grateful 534 to the hon. Gentleman for what I took to be somewhat grudging approval.
§ Mr. Biffen
Which would my hon. Friend prefer—support from the hon. Member for Manchester, Ardwick (Mr. Kaufman) or scepticism from myself? May I ask my right hon. Friend—since this is to be done through the Science and Technology Act rather than the Industry Act and therefore, parliamentary approval will not be specifically sought—whether he will none the less make representations to the Leader of the House to ensure that there is an early debate on this subject since many will conclude that public expenditure of this dimension on high technology implies a criterion of economic and social judgment which we shall wish to contest? Can he say whether the new generation of computers for which this money is primarily required is essentially for military and defensive purposes or for commercial use?
§ Mr. Chataway
These computers are for commercial and defence use. My hon. Friend posed me a difficult choice at the outset of his remarks and I am not sure that I can decide between the alternatives. I will ensure that my right hon. Friend the Leader of the House knows of my hon. Friend's remarks about a debate. As to the question of the options which the Government have, the House will want to consider, as the Select Committee did in great detail over some months, whether it would be right to allow total control of the computer industry to be in American hands. There is clearly a choice for Britain and Western Europe; it is whether they wish to have a British or European capabality in computers. The majority of the House might conclude, as did the Select Committee, that it would be reckless for Europe to opt out of this area in which the Americans have had a flying start.
§ Mr. Pardoe
Will the right hon. Gentleman be a little less mealy-mouthed and call a subsidy a subsidy? Will he confirm that the Government are a shareholder and will he say why the Government have not taken equity participation to inject this money into the company? Can he say what the Government will do in the event of the company needing more funds than he has announced and in the event of GEC and Plessey failing to be 535 satisfied with the company's profitable development?
§ Mr. Chataway
The hon. Gentleman might recognise that we have the strongest computer company in Europe and that the kind of questions he asks are not designed to bring out its competitive strength. If he wants to call the launching aid given by virtually every Government to a computer industry at this stage of its development a subsidy he is at liberty to do so. I have told the House the limits of the support which the Government are prepared to make available.
§ Mr. Kilfedder
While I welcome the support which my right hon. Friend has announced for ICL, may I ask whether he would accept that it is a bizarre situation that recently the Government refused to accede to my request that they should force a Belfast shipyard, largely Government-owned and heavily financed from taxpayers' money, to purchase ICL computer equipment in preference to an American system? Is this not wrong?
§ Mr. Chataway
It must be for those purchasing computers to make their own arrangements as to which computer will best serve their needs. In the public sec- 536 tor here, as in the public sector in France and Germany, a measure of home preference is given.
§ Mr. Joel Barnett
While I welcome the decision to maintain a British computer industry, may I ask the right hon. Gentleman whether he would not agree that this is a shocking way to use taxpayers' money—to spend £40 million when there is only a £41 million market capitalisation—rather than taking over the company or at least controlling it?
§ Mr. Chataway
The hon. Gentleman will notice that there is no successful computer company in Western Europe or North America which is nationalised. If nationalisation is his answer to success in a highly competitive area, I am bound to say that it is not the Government's. As for the sum of £40 million over a five-year period, he will note that the Select Committee recommended total support for the European computer industry of £50 million a year.
§ Several Hon. Members rose—
§ Mr. Speaker
Order. We have a short debate ahead and I already know of 25 hon. Members who wish to catch my eye on the railways debate. We must get on.