FINANCIAL OBJECTIVES OF AGENCY'S INDUSTRIAL UNDERTAKINGS (Hansard, 23 October 1975)

§ Mr. Nicholas Edwards (Pembroke)
I beg to move, That the clause be read a Second time.
The clause is fairly closely related to Amendment No. 41—in that it seeks to tighten financial disciplines on the Agency. The clause seeks to ensure that the managements of companies set up by the Agency recognise that they have the duty to achieve commercial and not simply social targets.
In the Scottish debate on Tuesday the Minister said that the Scottish Development Agency would be expected to pay its way in its industrial functions, but during the Committee stage on this Bill Ministers made clear that they expect the Agency to establish businesses in places where private enterprise would not venture and that they intend the Agency to do things which private enterprise would not consider profitable. In Committee the Under-Secretary, as reported in column 67 of the Official Report, referred to Blaenau Ffestiniog and said that without these powers people saw no hope for the development of the area.
The Government clearly intend to indulge in direct job subsidy and to create jobs, not only because they will produce goods which can be sold on an economic basis in competition with goods produced elsewhere but because they hold, rightly or wrongly, that the creation or maintenance of jobs in a particular area is of itself good. They are saying that there is a duty on the Government to maintain jobs in a particular place, and for an unlimited period, although there may be no economic justification for private concerns doing so.
I do not propose to become involved in the merits or otherwise of that argument. I simply say that I would prefer a system in which the Government create conditions where business can prosper and that Governments have a duty to consider the social impact of too violent a change. Whatever one's views on these two different approaches, it cannot be denied that the first approach—the creation of jobs for social reasons—can produce interesting contradictions. To take the example of Anglesey, where unemployment is of the order of 14 per cent.—I see the right hon. Member for Anglesey 731 (Mr. Hughes) in his place—clearly, if this argument is right, the Government have a case for establishing factories which are not profitable commercially, but British Rail is facing the dilemma that due to a reduction of demand on its Irish Sea service and because of increased costs, including the cost of labour, it is having to consider the rationalisation of its enterprise and possibly some reduction in the jobs provided.
This is the kind of dilemma which clearly will arise if we have a State organisation on the one hand creating jobs for social reasons and on the other hand accepting economic disciplines such as are imposed on the shipping sector of British Rail because there is no subsidy there.
It must also be accepted, although, no doubt, there are Labour hon. Members who will not agree, that excessive unproductive Government expenditure creates inflation and, therefore, creates the conditions in which jobs are destroyed. There is a real danger that the managers of a company established in, for example, Blaenau Ffestiniog to produce goods which could be produced more cheaply in Birmingham would feel that they were subject to no financial discipline, that their sole justification imposed on them by the Agency was job creation and that the normal standards of efficiency did not apply, and they would feel under no obligation to produce a profit. In that case we are on the road to disaster, and we must somehow attempt to prevent it.
We seek to do that by laying down clear objectives which are known to management and which will in due course be known to Parliament and to the public. It is not very satisfactory, but, given the powers in the Bill, it is the best we can achieve. It is on that basis that I ask the House to give the clause a Second Reading.

§ Sir Raymond Gower (Barry)
I wish to emphasise to the Minister that this proposed clause is in very moderate terms. Even if his first reaction might be to take a hostile look at it, I beg him to consider it in the following way.
The clause merely lays down that the Agency shall have regard to the desirability in its commercial activities of 732 obtaining a reasonable return on capital employed. This does not mean that it is mandatory on the Agency always to obtain a reasonable return. There may be special reasons why, in a certain case, it should not do so. The clause, however, provides for a fairly loose discipline—my hon. Friend the Member for Pembroke (Mr. Edwards) used the word "discipline"—to be imposed on the Agency to ensure that it shall devote its attention to objectives which seem likely to succeed and to produce a return rather than to an objective which will not do so. In that sense, I hope that the Minister will find it possible to accept the principle of this modest and moderate clause.

§ Mr. Barry Jones
The hon. Members for Pembroke (Mr. Edwards) and Barry (Sir R. Gower) are at least being consistent in their attitude, but I ask the House to reject the new clause even though, as the hon. Member for Barry said, it is put forward in a moderate manner. I hope that I can reassure Conservative Members, but may I first say that my right hon. Friend the Member for Anglesey (Mr. Hughes) is doing a magnificent job in looking after his constituency, so I shall not be drawn by the examples which the hon. Member for Pembroke put before the House in relation to Blaenau Ffestiniog or Anglesey. I think that the hon. Gentleman is being unduly pessimistic and I want to try to reassure him and his hon. Friend the Member for Barry.
In exercising its functions under Clause 1, the Agency will be obliged by the Secretary of State to obtain a reasonable return on capital employed. This has been made clear right from the start of the Bill's passage through Parliament, and I take this opportunity to re-emphasise that. In this respect it will follow the National Enterprise Board, which is subject to a similar obligation.
This will mean that the Agency will not be in a position to give carte blanche to companies which it sets up under Clause 1. Any leeway that they are given to obtain a less than reasonable return on capital invested will have to be made up by other Agency companies or by particularly profitable investments under Clause. I cannot but think that the Agency will, as a matter of good management, give the directors of its companies the kind of guidance envisaged 733 here. I hope that I have said enough to reassure the Opposition.

§ Mr. Wigley
I am not sure whether the Minister was responding to one of the main features of the new clause—namely, the Agency's directives in each and every instance—or dealing with the generality of things. There will be general financial objectives for the Agency, but is the Minister saying that there will be specific objectives, as the Government see it, but without writing in these words? Will there be specific objectives both where concerns are expected to pay their way and in places such as Blaenau Ffestiniog and Llanberis where developments are needed that will not provide a commercial rate of return but where there is a good social reason for having them? Will the Agency tell a concern that it is not expected to get a commercial rate of return, or allow it even to have a negative return or a loss? Is that what the Minister has in mind?

§ Mr. Barry Jones
Overall, the Agency will seek, by good management, to get a reasonable return on capital. The hon. Gentleman comes from North-West Wales and he knows how to bowl a good googly of a question, but he will have to wait for the guidelines and further developments.

§ Mr. Nicholas Edwards
On the whole the Minister has replied helpfully, and I am grateful for that. I note his assurance that the Agency will be required to obtain a reasonable return on capital employed.
I noted the Minister's reply to the googly bowled at him by the hon. Member for Caernarvon (Mr. Wigley). I hope that if there is a case where that requirement is not made, particular attention will be paid to the possible consequences on other businesses doing the same kind of thing elsewhere. We debated this matter in Committee, and I do not think that I need say any more about it now.
Amendment No. 41, to which we shall come in due course, seeks to lay down a rather different way of imposing the general discipline that I seek. Bearing that in mind, and in view of the assurance that we have had from the Minister, I shall return to this matter in due course when we may press that amendment to a Division. I beg to ask leave to withdraw the new motion.