HC Deb 19 July 1976 vol 915 cc1435-63

10.43 p.m.

The Minister of State, Department of Industry (Mr. Alan Williams)

I beg to move, That this House authorises the Secretary of State to pay, or undertake to pay, sums not exceeding £1,900,000 by way of financial assistance, as to million in respect of a loan to Kearney & Trecker Marwin Limited and as to £900,000 in respect of the acquisition of share capital in that Company, under section 8 of the Industry Act 1972, as amended by section 22 of, and Part I of Schedule 4 to, the Industry Act 1975. I think it will be common ground to all who may consider taking part in the debate that we are dealing with an important machine-tool manufacturer. Most of us will hope that this will be the last in a series of moves to return the company to profitability.

It is our intention, after consultations with everyone involved, that the company should be reconstructed financially by means of a Scheme of Arrangement under Section 206 of the Companies Act 1948. The scheme was approved at a series of shareholders' meetings held on 29th June by the overwhelming majority of each class of shareholder, and it is to come for approval before the court next week.

As hon. Members will know, an investor has taken legal action to prevent the scheme going ahead, as he has a perfect right to do. It is utterly appropriate that it should be the court which decides whether the scheme goes ahead and whether it is in the interests of the shareholders. The important thing, which I am sure the House understands, is that there is nothing in the motion—it authorises payment but does not say that it shall take place—which would in any way prejudge the court's decision or prejudice the objector's position. Indeed, I personally investigated the matter thoroughly because, if I had thought that the objector's position had been prejudiced, I would not have felt able to bring the resolution before the House. Because the motion is in a sense the rubber stamp to the Government's commitment to the scheme, technically this motion is necessary before the court can consider the scheme. That consideration is due to begin on 26th July.

I fully appreciate the concern of that one investor, but, since the objector's case is before the court, the House will fully appreciate that I am inhibited in discussing the merits of his case. Therefore, I must treat his case as sub judice, and merely say that the Government will abide by any decision taken by the court in this matter.

The Government thought it right that we should debate this matter before the recess. Hon. Members who have been concerned with the affairs of my Department for far longer than I have will recollect that the crisis arose for this firm during last year's Summer Recess. The Government then had to act without the House having had the opportunity to debate the matter. It seemed to me important, from the point of view of avoiding uncertainty for the company's suppliers and customers, to clear the matter in this House before we go into the next Summer Recess. For that reason I brought the matter forward for debate today, and I look forward to the comments made on this matter in this debate.

The company in its present form results from a merger in 1973 of Kearney and Trecker Limited of Brighton and Marwin Machine Tools Limited of Leicester, both of which had in the past been assisted by the Industrial Reorganisation Corporation. It is no secret that this is a sector of industry that is particularly prone to massive fluctuations in fortunes. The merger was approved by the then Conservative Administration, who provided £1,450,000 in assistance under section 8 of the Industry Act.

It is worth pointing out that by the time the Conservative Government left office they had paid only £6–3 million in assistance under that Act, a point to which the hon. Member for Bridgwater (Mr. King) alluded in a recent debate. Therefore, I am sure that we shall have the Opposition's solid support for these proposals.

The House will recollect that this was a somewhat unfortunate time for such companies. I shall not go into the political background of the economic disruption that subsequently burst on the country and on the industry. Suffice it to say that the cost of inflation took its toll. Contracts had been entered into on a fixed price basis. Although at that time fixed-price contracts were standard practice, cost inflation and the disruption of the three-day week quickly overtook the company, and it was necessary yet again to examine the company's future.

In the early months of 1974 the Industrial Development Advisory Board advised the Government that, since there was a management deficiency in the firm, we should seek the management resources of a powerful industrial group. The idea was that the group should be invited to join in re-establishing the company with a new financial structure. An additional £3.5 million was provided under Section 8 of the Industry Act, to meet current commitments and to enable working capital to be made available through a new holding company of KTM Machine Tools (Holdings) Limited, in which the Department would hold 50 per cent. of the equity. The industrial partner was Vickers Limited—and all credit to it for the work it put in—and an undertaking was accepted by the then Secretary of State that Vickers, in taking this on without any real major financial return, would be given an option, exercisable at the end of April this year, to acquire a controlling interest in the holding company. Had this option been exercised, the Government's share of the equity would have been down to 24 per cent.—even below the blocking percentage.

After Vickers took control it quickly applied a new financial discipline and asked questions which should have been asked previously, or should have been asked with more persistence. It became clear on the data that Vickers derived from its studies that the position of the company was far worse than originally envisaged. The deteriorating cash position necessitated in September 1975 a guarantee under Section 8 of £250,000 to the company's bankers made by the Government, and a similar guarantee of its financial commitment at this stage was made by Vickers.

At this stage, total assistance under the Industry Act was £5.2 million, and as the House was in recess at the time, we were unable to debate the matter, which would have been helpful. The Government had to lay a statement, as provided for in the Industry Act, and this was laid on 13th October last year.

As I intimated earlier, better information planning systems, which were needed in the firm, were established by Vickers. The evaluation of the company's future has now been completed. The story of the firm is far from happy. In the document circulated to shareholders there is a reference by the chairman to a loss of £5 million over the period from 1970. The losses are considerable, and a measure of risk is still involved for anyone who takes on the operations of the firm. There was a loss of £2.1 million for the year ended 30th September 1973, a loss of £1.6 million for the 15 months ended 29th December 1974, and the company showed a small loss of £100,000 in 1975. It has been in a loss position for some years. That has now been stabilised, or is near to breaking even, and the company expects to hold that position this year. However, one wants better results than that. One wants to see viability and a situation in which the company makes a profit and is successful.

It is indicative that Vickers did not exercise its option in April to acquire control, because it thought that much of the existing shareholders' funds represented, in effect, a liability in that much of the assets had been lost in the affairs of the business over the last few years. But because it was a peculiar practice of the firm that in difficulty more funds were raised in the market, those funds were then added on to the queue for a call on profits. By the time the scheme came to be considered the accumulated call on any return the company made amounted to £1.25 million per year before any new capital could hope to receive a significant return.

In the light of the previous losses it can be understood why we and Vickers felt that new capital was not likely to come forward. Therefore, we had to recognise that either the company should gradually run down into receivership or that we should try to wipe the slate clean and put it on a sound operational basis. We therefore discussed this with Vickers, and it indicated that it was prepared to invest in KTM to the extent of a controlling interest, subject to a reconstruction of the capital. The Kearney and Trecker Corporation of Milwaukee, one of the most advanced firms in this sector, has intimated that it would invest in KTM on that basis. That is an important link in giving a chance of survival and viability to the firm in the future.

Therefore, subject to the approval of the House, the motion proposes that a further £1.9 million of assistance should be made available under the Act from the Government in the reconstruction to meet the situation from which we think viability may be attained. The Government will subscribe £900,000 in new nonvoting preference shares and make available an unsecured loan facility of £1 million. This will be matched by Vickers, which will provide an unsecured loan of £500,000 and guarantee £250,000 of the Government's loan. Vickers and Kearney and Trecker between them will contribute £900,000 in new voting preference shares in the company—in the proportion of £773,000 from Vickers and £127,000 from Kearney and Trecker. Under the new provision each party—the Government and the private sector—will be risking £1.65 million of new money. We must deduct from our £1.95 million the £250,000 guarantee of our funds which Vickers is providing. The £250,000 guarantee given last year will now no longer be required and will be withdrawn. We can therefore ignore it as an element in our consideration of the matter.

The Government have concluded that we would be right to support reconstruction. We recognise that the industry inevitably has an area of risk and is subject to wide fluctuations in the placing of orders. There can be no guarantee of the future, but we believe, for reasons I hope to demonstrate, that perhaps now the company is in a better position to prosper than in the past, and that a solid foundation now exists for viability.

In our industrial strategy generally the Government have emphasised the role of manufacturing industry, and hon. Members on both sides of the House will recognise the importance of the machine-tool industry in the health and development of our manufacturing industry generally. This industry is characterised not just by wild fluctuations in demand but by a considerable erosion of its capacity in recent years, and hon. Members are very familiar with debates in previous years on other companies.

It so happens that Kearney and Trecker Marwin occupies an important place in the industry. The company manufactures numerical control machine tools, transfer machines and a range of standard machine tools. In the important area of numerical control, a number of its products are leaders in their particular field.

It is the leading British-owned designer and manufacturer of numerical control machining centres and the largest manufacturer in this country of profiling machines.

In particular, it is our only manufacturer of some of the larger profiling machines used in the aerospace industry, for which it has an internationally noted capability which has an important part to play in the European aircraft industry.

It is one of our few remaining manufacturers of in-line transfer machines for the automotive and other large-volume industries. Nearly half its output, which at present amounts to some £13 million a year, is exported, and a large part of the remainder, because of its unique quality, can be regarded as direct import saving. The adverse effects of failure would not just have a balance of payments effect, but would mean a loss of domestic capacity at the very time when industrial demand for the products of the firm looks likely to revive.

We would lose an indigenous design capacity which is important, and put at risk access to an advanced source of American design and manufacturing technology, through the link with Kearney and Trecker of Milwaukee.

There would also be the loss of 800 jobs. I know that hon. Members on both sides would not willingly see this happen in the present context, particularly as this industry has often found in the past, to its cost, that skilled men lost to it in a downturn are rarely regained when the industry picks up.

The loss of the unique and valuable combination provided by KTM would seriously weaken our industry in one of the main areas in which it will need to concentrate in order that we can move away up-market from the simple and more conventional types of machine that are increasingly being built in the less-industrialised countries.

We are satisfied that the injection of new capital under the scheme of arrangement, coupled with the proven experience of Vickers' management, gives a good prospect for the future.

We recognise that much of the Government's past investment has been lost, along with that of other past shareholders. It is investment for the future that we are considering, and we are trying to judge whether it is a worthwhile proposition or not.

Mr. Ian Gow (Eastbourne)

Could the Minister tell the House what the terms of repayment are, and what rate of interest on this loan of £1 million is to be made?

Mr. Williams

The rate of interest is at 1½ per cent. above base rate. The first repayment is in 1984 and the second in 1986. I cannot say off-hand whether it is loan first or capital first but I seem to recollect that somewhere in the forthcoming paragraphs of inspiration which are awaiting the House there may be that information. Indeed, I am relieved to tell the lion. Gentleman that my memory of what is in the speech is slightly better than my memory of the detail that it contains. The redemption of the shareholding is by 1986 and the repayment of the loan is by 1984. The timing of both these is at the discretion of Vickers, and it can, if it wishes, repay earlier.

We regard the role of the Government here as a temporary one. It is for that reason that we have not taken an equity stake in the company, and, because there is no equity stake and no participation, it has not been appropriate to vest the shareholding in the National Enterprise Board. All shareholdings which have been vested there are in companies which have voting participation.

I reiterate that this is an important company in an important sector of industry. We think that we have an opportunity of attaining profitability in the future. We believe that the scheme provides the three essentials necessary for viability: high quality management, which has not been available in the past; additional finance at the appropriate time; and continuing access via KTC of Milwaukee to technological innovation and the latest technological design.

11.7 p.m.

Mr. Tom King (Bridgwater)

First, I want to thank the Minister for the painstaking way in which he presented a very complicated motion to the House. His efforts in this respect are in stark contrast to those of one or two of his colleagues in the Department, who seem to think that a three-line opening will get through some of the more contentious business.

However, the Minister will understand when I say in a friendly way that his performance tonight was not quite his most impressive one at the Dispatch Box. Although a lot of facts were presented, it was a muddled presentation. I thought that it consisted of few sweeps round pious hopes for the machine-tool industry and the odd delve into rather arcane financial arrangements, and that he did not explain the situation as clearly as we should have liked. Unfortunately, some of his facts were wrong as well, which is always confusing in a complicated situation of this kind.

The Minister referred to the reconstruction as being last year, whereas it was two years ago, although that may have been merely a slip on his part. He referred to the Conservative Government putting in £1.45 million and that strange non sequitur that it represented one-fifth of our industrial strategy, which seemed a totally meaningless comment. But he omitted to mention that that coincided with the repayment by the company of £1.25 million, which was the loan that it received from the IRC, so that that perhaps reduces the one-fifth to about one-fiftieth of our industrial strategy.

The Minister said quite fairly that this was a matter which had come before the House on previous occasions. If I were looking for a title for my brief contribution it would be "The last chance for Kearney and Trecker Marwin", and, as a sub-title, perhaps "The first real chance for it". It is a fact that these very complicated proposals for the reorganisation of the capital structure are the end of a long series of interventions ever since the IRC first got involved in both Kearney & Trecker and Marwin.

Now we have a situation in which this reorganisation proposes the cancellation of eight old classes of shares and subordinated loans and their replacement with five new categories of shares. I am no expert in these matters, but certainly it is the most complicated situation that I have ever seen. It was our hope that it would have been possible to go forward on a more logical and streamlined basis than we seem to be embarking upon at the moment.

Approval of the motion is only one of the hurdles that the re-organisation has to surmount.

What is the position of the objector? In the informal notice of forthcoming business, we were advised that this motion was to be taken two weeks ago and when the Leader of the House did not announce it in the House, I asked why it was not coming forward. The right hon. Gentleman's Department sent me a courteous note explaining that there was an objector and it was considering the propriety of introducing the motion while there was an objection outstanding.

I understand the Minister's point that it may not be possible to object to a scheme unless it is able to proceed, but I should not wish our deliberations to prejudice the right of anyone before the courts. I was pleased to hear what the Minister said about the rights of the individual and other shareholders in this matter. Of course, it will be for the courts to decide, and the individual concerned has the opportunity to make his representations.

Mr. Alan Williams

This issue was dealt with before I joined the Department, so I came new to it. I found it as complex as does the hon. Member. The first matter on which I sought an assurance before giving the go-ahead was that we should not prejudice the position of the petitioner. I repeat the assurance in my speech that if I had thought that we were prejudicing his position I should not have brought forward this debate.

Mr. King

The Minister made that point in his speech, but it is of sufficient importance that I understand his wish to reinforce it. We take no different view.

Our duty is to decide whether Parliament should approve the provision of new Government funds and the writing off of substantial sums of Government money in previous investment.

The Minister went quickly through the basic details. The motion clears £6.8 mil- lion of accumulated losses from the balance sheet, provides for a new injection of £2 million, reduces the interest burden of £800,000—a staggering figure for a company of this size—provides for the Government to put in £900,000 for which they will receive redeemable preference shares and includes a £1 million unsecured loan. Vickers will have 86 per cent. of the voting shares, with the other 14 per cent. held by KTC.

That is the bare bones of the situation, but what has really happened? The Government had effective control of this company and they are surrendering that control, writing off £5 million of Government money and injecting another £2 million on condition that Vickers run it in future.

I notice that the Minister moved pretty smartly over these details. What has happened to the NEB—that great spearhead of the regeneration of British industry? It is not to be seen. This project is not thought suitable for the Board. We welcome the recognition that this is an area in which the NEB, in terms of managerial expertise, does not have a role to play.

There is also no suggestion that the State should have a share in the equity. There used to be a thesis that when public money was involved the Government should have a share of the action. On this side, we took a slightly different view. We felt that it was in the best interests of the country that all companies should be well run, profitable and successful and that this was the best way of achieving the national interest. We felt that decisions should be taken free of dogma, out-dated party manifestos and programmes, clause IV or any other such provision.

Therefore, we welcome the recognition that Government funds can be involved in a rescue or regeneration situation without the terrible old baggage of the Government continually having to hold stakes in companies and the feeling that the NEB has to spread itself in every possible direction. We welcome that the Government are prepared on this occasion to put that aside.

It is interesting how the Government have gone to some lengths to avoid too many of their supporters finding out what is going on. I thought that they had succeeded in managing to shuffle the hon. Member for Bolsover (Mr. Skinner) out of the Chamber, but, for some reason, he has returned. It may be that he has a nasty suspicion about what is going on.

A number of Questions have been put down to the Minister and his colleagues, and a considerable smokescreen has been laid over them. My hon. Friend the Member for Surrey, North-East (Mr. Grylls) asked what amount of public money had been committed to Kearney and Trecker Marwin Ltd. The Answer that he got was that it was in the form of a preference shareholding of £235,000 and a guarantee of £250,000 to the company's bankers. The government hold none of the equity in the company".—[Official Report, 24th June 1976; Vol. 913, c. 628.] That was a clever Answer. My hon. Friend made one mistake. He forgot the word "holdings". Therefore, the Minister was able to conceal the fact that the Government held 50 per cent. of the equity in the holding company, which wholly owned the subsidiary, and that concealed the fact that it was the equity control they were giving away.

Mr. Alan Williams

My only mistake in giving that Answer was in assuming that the hon. Gentleman knew what Question he intended to ask.

Mr. King

The House will draw its own conclusions. I think that more than one Member on the Government side was more than pleased to be able to hide behind a technical smokescreen and avoid the real point of the Question that was asked by my hon. Friend.

The hon. Member for Stoke-on-Trent, Central (Mr. Cant) got a bit worried about the matter and put down a Question to the Government asking why this was done without reference to the National Enterprise Board. Back came an Answer from the Under-Secretary of State which avoided the question about the Government having voting control and an equity stake in the previous company. The reply was: The Department will … accordingly keep a close watch on the company's progress." —[Official Report, 15th June 1976; Vol. 913, c. 119.] That was meant to reassure the hon. Gentleman that nothing was being lost.

I was interested to see the form of the motion and how well phrased it was in case one or two of the Minister's hon. Friends read the Order Paper. It refers to £900,000 in respect of the acquisition of share capital". This was meant to imply that the commanding heights of the economy, the taking of a full share and control of companies, were still being pursued. It did not say that, so far from taking voting shares, those were redeemable preference shares which, if the company has any money, will get repaid in 1986 and give the Government no votes whatsoever in the control of the company.

The Government have gone to considerable lengths to try to conceal that matter. We think that is a much more sensible approach for the Government to take than continually feeling the need to get involved in equity holdings in situations where it is quite inappropriate.

I said at the beginning of my speech that we could define this as the last or the first real chance for Kearney and Trecker Marwin Ltd. I should like to enlarge on that.

An article in the Financial Times asked: why should this particular company be preserved when several other machine tool concerns have gone to the wall in recent years, one of which—Herbert-Ingersoll—was, like KTM, at the 'high technology' end of the business. And if KTM is to be helped through its present crisis, will the Government have to come up with regular cash subsidies should future traumas occur? That is an interesting article, but it was written two years ago, in August 1974. The prophetic question will the Government have to come up with regular cash subsidies should further traumas occur? is one that it is fair to ask.

We look at the situation and ask "Why should this company be preserved?" The article from which I quoted refers to Herbert-Ingersoll, which did not continue. The Minister of State emphasised the importance of KTM in the sector of high technology in numerical control machine tools, where we are not strong, and where undoubtedly the company occupies a significant position. It has a substantial export record, and it is fair to say that its home sales could be translated into import savings, in the snse that if they were not available here it is possible that a considerable proportion of machine tools would have to be imported. There can be an argument that it is important for balance of payments reasons, for employment reasons—which the Minister of State mentioned—and for maintaining a presence in this field of technology that we should stay here.

I have referred also to whether this is the first real chance for TKM. Both Governments come in for some criticism here. It starts with the IRC. Was it ever set up on a basis on which it could operate? Did it initially have the management that could perform? When it got the management, did it have the right capital structure, or was it so burdened with debt and interest payments that it was not able to perform? The Minister referred to the heavy load of debt that it incurred.

There is a case for saying that this is the first real chance for this regrouped company within the higher technology end of machine tools to perform under a better capital structure and with the sort of management and backing that a big group of the size of Vickers can give. Also, one cannot ignore the substance of the comment in the Financial Times article from which I quoted. This business has come back for funds on a number of occasions. It has made a number of applications and received assistance from the Government. There must come a time when, whatever view one holds of the machine-tool industry, one says "Yes, it would be nice to be in here and it is desirable, if possible, but there is a limit" and one wonders whether this is both the first real chance and possibly also the last.

If one says that this is the last real chance, one has to ask whether this is the best scheme. I think that one is bound to say that on this basis it seems that Vickers—and one does not criticise the company for this; it is being punished enough by this Government in other directions—has got quite a good deal out of this. Referring to the reorganisation in 1974 the Financial Times said: said: The view at Vickers is that this presents a fairly inexpensive way of taking a close look at an area of industry in which it is not so far involved but which is allied to some of the things it is already doing. … If Vickers likes what it sees it can take up the option. Vickers has had a two-year look at this company, and it has decided that it is prepared to invest and take 86 per cent. of the share capital but will want further financial assistance from the Government. Although we respect the achievements of Vickers in many fields, one is entitled to say that it is our duty to protect public expenditure and to ask whether it was necessary for the Government to make a further injection of funds. They are accepting a write-off of £5 million of our funds in this respect. Was it necessary to make a further injection, including a £1 million unsecured loan, in this matter?

The question is whether there was any other way in which it might have been done, whether there were any other companies with which it might have been possible for this company to have allied itself. Anyone considering a reconstruction has to consider these questions. As one of the partners previously involved, the Government must make the best arrangements they can. We should like to hear what alternatives were considered before this expensive—for the Government, certainly not for Vickers—reconstruction scheme was put forward.

This is a complicated matter. This company as yet has failed to perform. There are encouraging signs of a return of profitability and market prospects. Our view is that the motion should not be impeded. It still has the hurdle of the courts to get over in any case, and we shall watch that with great interest. It may be the first real chance, but we believe that it must also be the last chance, for this company.

11.25 p.m.

Mr. W. E. Garrett (Wallsend)

The hon. Member for Bridgwater (Mr. King) said that the Minister's speech was not up his usual high standard. I listened to the hon. Member for many months in Committee on the Aircraft and Shipbuilding Industries Bill, when he mastered his brief exceptionally well, but tonight he was singularly unimpressive and not very knowledgeable about the machine-tool industry. I hope that he will take that as favourable criticism in some ways.

We are talking about a technical industry and a firm with a high degree of technology. One of the first inquiries into machine tools took place in 1916 when Lloyd George was Prime Minister. Ever since, the political issue has been the one which divides the House tonight—whether the industry should be completely nationalised, with vast resources pushed into it, or whether it should continue expanding with its rather small capacity.

Not many months ago, some of us took part in a debate about Alfred Herbert. That was a similar situation, except that the deal was much simpler. I wonder how the senior management and shop stewards of this company will understand this complicated deal. I find it difficult to do so; we shall have to look at the matter more closely, I suppose.

We must face certain facts. If the British economy is to have a good industrial base, it must have a wide and efficient machine-tool industry. The figures show that its manpower is declining. Some highly skilled technical people are leaving to go to other industries, and their replacement will present enormous problems. World-wide competition in this field of industrial activity is intense. If we are to enter much more vigorously, as we should do as a nation, into competition with West Germany and America in particular, any Government must get down to the basic reorganisation of the industry.

Last week I was one of a parliamentary group which visited Czechoslovakia, and we saw a machine-tool plant just outside Prague. It is a totalitarian country and we may not like its politics, but we can still learn some things about its industry. We sometimes chuckle about five-year plans in such countries when they go astray, but the five-year plan for the machine-tool industry, starting this year, advocates an 80 per cent. increase in production and a small increase in manpower, with export potential increasing by 10 per cent. to 70 per cent. of output. That indicates how one country is prepared to attack world markets.

It is essential to keep Kearney and Trecker Marwin afloat for the reasons stated by the Minister and the hon. Member for Bridgwater. It is also essential for the Government to examine the machine-tool industry throughout the United Kingdom. The industry, if reorganised, could create job opportunities instead of employing a declining labour force. Young people coming through technical colleges would be excited at the thought of participating in the production of basic machine tools. There are markets for basic machine tools in the developing countries if we are prepared to go out and get the orders.

Kearney and Trecker Marwin has a future. If it is impressed upon senior management and shop stewards that with a concentration on producing and selling a good product the chances of success are good, there is a chance that the British taxpayer will get a return on this money and recoup losses from previous investments. As the world economy gradually improves, there will be an increasing market for this type of machine tool.

I wish the company well. I hope that the people employed in it in the Brighton area are given this opportunity. The Government had little room for manoeuvre, and they and Vickers have done well to get the scheme off the ground. As the hon. Member for Bridgwater said, this is probably the company's last chance, and I am confident it will succeed.

11.32 p.m.

Mr. Richard Wainwright (Colne Valley)

The Minister was correct in saying that the House will want to consider this matter in great depth. It raises some extraordinary issues, and I am sure that the Minister is the last man to wish to shelter from questions behind his comparatively recent membership of the Department. He has all the resources of his Department visible at his command, and I know he will want to answer the questions which must be asked before we can approve the deal.

My information is that about 1,000 jobs are at stake. I was a little disturbed when the Minister, with all his sources of information, mentioned 800. Has he foreknowledge of some immediate redundancies, as in the case of the shipbuilding industry which is celebrating nationalisation by the sacking of many employees? We must have an explanation of the discrepancy between the figure in the recent published accounts of Kearney and Trecker Marwin of 1,089 employees and the figure of 800 which the Minister mentioned.

Mr. Robert Taylor (Croydon, North-West)

The Public Accounts Committee was told recently that the number of employees has already been reduced to the figure mentioned by the Minister.

Mr. Wainwright

I am grateful for that intervention.

There is the intriguing question how this offer by Vickers to come forward at this stage came about. It has profound repercussions on the whole of the Government's National Enterprise Board policy of taking a big share in the technogical re-equipment and modernisation of British industry.

The history of the deal shows that, in spite of the money poured into the company, the Government were incapable of securing management and, therefore, for better or worse, called in Vickers. They then found, not surprisingly, that after a few years Vickers said it wanted the lot. The scheme has been contrived with Vickers holding a pistol at everyone's head.

I quote from the report of the distinguished firm of chartered accountants, Thomson McLintock, which, as is the wont of the profession, protects itself by saying: We have been informed that there are no alternative commercial sources of finance other than a large company such as Vickers and that Vickers' participation is conditional on this scheme going ahead, at least in principle. The scheme is accepted by Thomson McLintock as a compromise which is not to be questioned. At no stage in any of the papers concerning this deal is there any indication that any firm except Vickers was sought to rescue the company.

What happens is that the Government are incapable of finding management for their semi-nationalised concerns, and, therefore, they have to go to private enterprise, which eventually says "We have done this trick for you. We are in command. We know all about the company. We have all the secrets. We have figures on the people, who are mostly Vickers' employees and people in management. Therefore you must submit to our terms." There is no doubt that the taxpayer is being bullied in this matter. It is up to the Government to say whether they regard this as a highly special case, for some reasons which are not clear to me, or whether they admit, as I believe some Members below the Gangway on the Government side suspect—or, at any rate, the one Member there at the moment —that this is the fate of all the Government's plans to have a share in the equity of companies working at the frontiers of technology.

It must also be recognised—I mention this not as a recrimination but as a warning for the future—that this is likely not to be the last time that the House will be asked to bail the company out. Nobody can believe that when the whole history of the attempt to exploit the frontiers of technology in the national interest has been a series of small-minded disasters. Obviously, an enterprise on this scale, intended to reproduce machine tools of hitherto unknown specification, was bound to require enormous capital resources to get off the ground.

What have the Government and their fellow conspirators done over the years to exploit comparatively small companies in the machine-tool industry, except to put in relatively small sums of money on a patchwork basis, so that every year or two—in fact, between 1973 and 1974 there was not 12 months between the two crises—a pathetic tranche of money has to be sought, with an elaborate reconstruction of the company? This must make us the laughing stock of other advanced industrialised countries, who see the pathetic way in which we are trying to exploit the frontiers of technology.

The worst disaster, which has cast a cloud over the whole enterprise and the future of 1,000 people, was the disastrous way in which, with the explicit support of the Department of Industry, the ICFC persuaded Kearney and Trecker to take over Marwin which could not even keep its books. As a result of merging Kearney and Trecker with Marwin, the auditors had to report that in their opinion proper books of account have not been kept in respect of the business acquired from Marwin Machine Tools Limited". They said that goodwill of over £3 million in respect of Marwin could not be vouched for and that due to the inadequacy of the records, the Company has had to make the best estimates possible in the circumstances to arrive at amounts included in the accounts for sales. In view of this unhappy chapter, it must be for the Government to explain in much greater detail than they have done so far why the deal that is being recommended is so much better.

I conclude by asking three questions in view of the very privileged position that Vickers has achieved in this matter, being able to dictate terms, to buy the thing back for an old song, to get a Government loan, on participation, considerably in excess of Vickers' own stake at the moment, and so on.

First, I am sure that I am not the only hon. Member who wants to know what steps were taken to see whether other large concerns were interested as well as Vickers so that, in the proper tradition of British public finance, there could be open tendering and the prize would go to the best bid. There is no indication that the Government have lived up to our best tradition in that matter.

Secondly, if there has been any interest at all by other concerns, either in this country or in the European Economic Community, which concerns have shown such interest and what is their position at the moment?

Thirdly, what steps have the Government taken to stimulate interest? Is the Minister saying that the Government have tamely given way to the very powerful position in which Vickers has managed to install itself?

This is a dangerous and rather unhappy venture with certain clouds about it which have not yet been dispelled. I am certain that the Government's proposition will not solve the problems of this very expensive and high technology industry and that before long we shall be debating another motion for Government assistance to KTM.

11.41 p.m.

Mr. Andrew Bowden (Brighton, Kemptown)

I do not think that anyone would disagree that the last year has been one of the worst in the history of the machine-tool industry. The Minister was not being entirely fair to KTM when he pointed out that it made a loss of £100,000. In 1975 it made a trading profit of £40,000. The only reason why that profit was converted into a loss of £100,000 was the drop in the value of the pound which had to service the dollar loan that the company owed to the Americans. But for that fact there was a £40,000 trading profit. That puts the matter into perspective.

However one looks at it, the last year has seen a remarkable recovery for KTM. In the previous 15 months it was making a loss at the rate of £1,600,000. The difficulties of the last year have been recognised by the company. The chairman, in his annual report for 1975, said: The current recession in the machine tool industry world wide has increased the severity of competition in all spheres of your company's operation and only marginal improvements in trading profits can be expected until the economy recovers. That is a realistic and honest appraisal of the situation.

I was delighted that my hon. Friend the Member for Bridgwater (Mr. King) said that this proposition gives the company a new opportunity and perhaps its first real chance. It could be its last, but the fact that this new opportunity was needed was again emphasised by the chairman when he said in his 1975 annual report: The Capital Restructuring which is outlined in the enclosed circular has been approved by the Company's management and legal and finance advisers as the most appropriate means of obtaining the necessary finance for the Company's development plans to introduce new products and to improve further our position as the major British producer of advanced machine tools. KTM is a high-technology specialist machine-tool company, and there can be no doubt that without the new capital and without restructuring it is very unlikely that it would survive.

But there are possible alternatives. We had expected that they might be suggested by hon. Members' opposite, but they have not been so far. It was the deputy chairman of KTM, Mr. Ken Lane, who pointed out that KTM was the sort of company that needed a "big brother" He said that KTM, in the engineering sense, needed a "big brother" which would understand the problems involved. Mr. Lane thought that the National Enterprise Board did not provide the right kind of "big brother" for KTM since it was largely a merchant bank.

Naturally, I have a local interest in the company. I want briefly to touch on the national role. The company is second only to one American company in the production of numerical control machine tools. It is this country's biggest supplier of special machines. The impact of this company on the motor industry is considerable. About 40 per cent. of the machines used for the production of crankshafts, cylinder block and cylinder heads for the motor industry are produced by KTM. It has played a major rôle in the production of Concorde. Indeed, it would be difficult to replace this firm.

The company has a vital role to play in the future of British Leyland. A great deal of money has been pumped into that company, and as British Leyland starts to use that money the role of KTM will be vital. We have already touched on its exports. If only every British company was exporting nearly 50 per cent. of its turnover a lot of our industrial and overseas problems would disappear.

Mr. Nicholas Winterton (Macclesfield)

At a profit?

Mr. Bowden

At a time of recession it is accepted that the machine-tool industry suffers more than almost any other industry. It has the lowest troughs. Now that it is on an upward turn we have to use that fact and invest, using money effectively. That is why I am supporting the motion.

Mr. Nicholas Winterton

Would my hon. Friend be prepared to comment on the two projects which he has named; namely British Leyland and Concorde? Both of these have cost the taxpayer vast sums of money. It looks as if neither will ever make a return on that investment. My hon. Friend is making a great case for his own company. Perhaps he is forgetting the comments made by the hon. Member for Colne Valley (Mr. Wainwright), that it looks as if this company will never make a return on the investment of taxpayers' money.

Mr. Bowden

I was about to come to the comments of the hon. Member for Colne Valley (Mr. Wainwright). My hon. Friend is taking a narrow view. What would have happened if British Leyland had collapsed? He knows that the effect on this country's economy would have been catastrophic. He knows that British Leyland had to survive. My hon. Friend knows that KTM has played, and will play, an increasingly important part in British Leyland's revival. British Leyland will succeed, not just because public money has been pumped into it but because it has sorted itself out and has got its management right. It is in the process of increasing its production and exports. All the signs are that, as long as we can avoid stupid strikes, the firm has a great future.

As for my hon. Friend's comments about Concorde, I am amazed that he should criticise it. It was my parliamentary colleague, the right hon. Member for Brighton, Pavilion (Mr. Amery), who started it all. [Interruption.] My hon. Friend cannot take this on the narrow basis of a financial return on a specific project. There are all the scientific and technological by-products. When this is thought through we shall see the effect it has on British industry. Concorde still has a great future. I am not one of the faint-hearts. Concorde will make the breakthrough.

I turn to the local role of KTM. I have spoken this very day to a director of KTM, and the number of jobs we are talking about is not 800 but 1,000. If those jobs were to go, their loss would have a serious effect upon Brighton, which suffers from high unemployment in some age groups. Indeed, in some sectors it is above national average. Linked with that is the fact that Brighton has now started to develop a considerable number of light industries. To get the balance right, it is important that that development should continue. There are many retired people in the town, and a significant group that commutes to London and other areas for work. Therefore, we need a thriving local industry. If KTM were not to survive, its demise would have grave effects upon Brighton and the surrounding areas. It is for national and local reasons that I strongly support this measure.

The hon. Member for Colne Valley talked about the future pessimistically. He forecast that it might not be long before the House is again considering financial aid for KTM. If he is right—and the good years are ahead for KTM in the context of a world and national recovery—and if the company is unable to face the lean years, that will surely be because the Government have milked it as they have milked British industry generally by their taxation policy. They have taken far too high a percentage of the profits during the good years and not allowed companies to build up reserves for the lean years.

Mr. Richard Wainwright

Surely the hon. Gentleman is aware that the company has already established £5 million of tax losses, which will have to he extinguished by profits.

Mr. Bowden

The hon. Gentleman is talking about very lean years. At the time of recession the machine-tool industry went down proportionately further than most other industries, but if the Government are sensible and allow companies to keep a higher percentage of profits to build up for the difficult years they can survive in future.

I believe that KTM and its staff will respond to this opportunity. There is a determination among all the employees to make this chance work. Everyone in the company knows that if he does not adopt that approach there will be little future for KTM. In the national interest and in the local interest I urge the House to accept the motion.

11.53 p.m.

Mr. Robert Taylor (Croydon, North-West)

As virtually every hon. Member who has taken part in this debate has conceded, this company has had an extremely chequered history since its first injection of taxpayers' money as long ago as 1970, which was before the merger.

As a layman without any technical knowledge of numerical control machine tools, and in the absence of any evidence to the contrary, I am bound to accept the statements of the Minister and my hon. Friends that the company has a significant part to play in the industry and that it is pre-eminent in this country. But if I accept those statements, in no way do I accept that the taxpayer's money that has already been invested in the company over such a long period has been wisely invested, or that the investments have been wisely arranged in terms of the company's share capital.

I do not regard these proposals as a fair deal for the taxpayer. It has already been said that since the merger the management has been deplorable. It was appallingly weak until the arrival of the management team from Vickers. Before that time there was no sign of any sensible accounting in any way whatever. In my view the Department of Industry stands condemned for not having taken steps much earlier to see that proper management was put in as soon as public money was invested.

Mr. Alan Williams

I am grateful to the hon. Gentleman for bringing out that point clearly and effectively. When the company was in trouble we brought in Vickers. It was the Conservative Government who did nothing to change the management.

Mr. Taylor

I am not seeking to make any party political point, but am looking at the record of the Department of Industry since public money was first invested in this concern. If taxpayers' money was first invested in the company in 1970, surely the matter was under consideration before the Labour Government left office at that time. The fact that this company—a company with a turnover in 1975 of £13 million and before that some £10 million—had seven different categories of preference shares should have suggested to the Department of Industry that all was not well with the financial management of the company.

If these proposals are not approved, Vickers, as the company's affairs stand at present, could resurrect the option that expired in April to acquire, on very favourable terms indeed, 51 per cent. of the shares. It chose in April not to exercise that option, at the same time it has declared its faith in the future of the company. Those seem to me to be contradictory attitudes to take. It is astonishing that if the proposals this evening go through, Vickers, instead of acquiring 51 per cent. of the capital, will end up with 86 per cent. of the important voting shares. In addition, it will have £½ million loan stock for the same figure. On the other hand, the poor taxpayer has already invested £4,950,000 in ordinary shares and £235,000 in preference shares, and has given a £250,000 guarantee to the company's bankers.

In return for all that taxpayers' money which has gone into the company, the taxpayer, if these proposals go through, will receive back the sum of £47,000 for the preference shares and be released from the guarantee. But in its place he will invest a further £900,000 for Class B and D shares and offer a £1 million loan. Therefore, in plain terms the taxpayer is being told tonight by the Government that he must write off a sum of £5,138,000. In addition to that, he must subscribe £1.9 million, and will end up with none of the all-valuable voting A shares.

In my view, that is a very poor deal indeed. The taxpayer is putting up a loan of £1 million and Vickers a loan of £1½ million. Which of those two loans will be called upon first? Will they be called on pro rata for every £2 produced by the Government and £1 by Vickers? It would be interesting to know the order of priority.

This scheme is not good enough for many reasons, but there is a particular reason why it is not a satisfactory deal for the taxpayer. In the documents sent out with these proposals, the chairman referred to the significant improvement in the company's affairs for the year ended 31st December 1975.

We have heard from my hon. Friend the Member for Brighton, Kemptown (Mr. Bowden) that the loss of the previous 15 months of £1.6 million was turned into a profit of £40,000, subject to payment of interest to the American company. But the chairman of the company in this document makes no significant comment on the first six months' trading in the current year. What is the turnover for the first six months of this year? Do the unaudited accounts suggest that he has produced a profit? These figures are known to that board and that board represents Vickers. When Vickers considers these proposals it is privy to information to which this House is not privy. We in this House represent the taxpayers, and we should be privy equally to information which is made available to the board of Vickers.

I believe that Vickers has achieved a very substantial bargain in the terms of this arrangement. I do not blame the company, in fact, I admire it for what it has achieved. It may be a quid pro quo for not opposing nationalisation of some of the company's other assets, but Vickers appears to have found that the Government are a soft touch.

In the support of industry generally there seems to be an unlimited supply of money. The biggest companies are able to put their hands on this money. I put down a Question about cash limits under Section 8 of the Industry Act, and I was told that, other than existing known commitments under Section 8, there were no cash limits. Any additional calls on Section 8 are out of contingency reserves. In other words, there is no cash limit under Section 8 of the Industry Act. If there were, the proposals before the House tonight would be very different, and much more sensible, on the side of the taxpayer.

12.3 a.m.

Mr. Michael Marshall (Arundel)

In the limited time available I wish to make two or three points very briefly.

Once again we are seeing this familiar pattern of the Government bringing forward money matters relating to industry very late in our proceedings. A week ago we had an additional £4,000 million borrowing by the British Steel Corporation, which was made meaningless today by the Secretary of State's announcement. Tonight we have another £1.9 million at stake, with only very limited time available to debate the matter.

I am not entirely happy about a number of aspects of this proposal. The headline in the Sunday Times on 11th July last Why a Can of Worms is Worth So Much summed it up pretty well. However, I differ from my hon. Friends in that I do not believe we should sell short the role of Vickers in this matter, as may have been implied in some of the comments tonight.

If the Government spend money in joining up with private industry, this is a modest step forward in moving away from the doctrinaire approach. In that sense I welcome the role which Vickers has played in the affair so far. We must remember the background of a loss of £5 million—"a measure of the risk involved" was what the Minister called it. The high quality of the Vickers management is the hope for the future. In that sense I think that Vickers is a good bet and worth the sort of money we are talking about. I accept that we cannot be finite about it, but I urge the House to consider the role of Vickers.

On the other hand, if the Government are so convinced about the quality of the Vickers' management in this area, why are they seeking to strip it of its aerospace and shipbuilding interests? In that respect the Government have their priorities totally wrong. However, because I have some faith in what Vickers can do I am willing to go along with the motion. The house, however, should sound a strong note of disapproval of the Government's attitude to private industry generally. I hope that this modest step forward will lead to a more realistic view by the Government of these matters and that we may see some progress.

12.7 a.m.

Mr. Alan Williams

I regret that time has prevented the hon. Member for Eastbourne (Mr. Gow) from making a speech, especially since he has sat through the debate. I must try now, however, to deal with some of the questions put to me.

I am grateful to my hon. Friend the Member for Wallsend (Mr. Garrett) for his support, and I appreciate the significance of the point he made about having the time to consider the future of the industry. Certainly in our period of office in the 1960s the industry was a source of concern to the Government. The same was true for the Conservatives when they were in power. In the case of this company, however, the prospects are now improving.

The hon. Member for Arundel (Mr. Marshall) made a rather dubious point when he referred to the limited time for debate. It was his Government who in their Act specified that the one-and-a-half hour procedure should be used on such occasions. No doubt the hon. Gentleman will take that matter up with his own Front Bench.

The hon. Member for Bridgwater (Mr. King) made great play of saying that I was concealing information from my hon. Friends by giving evasive answers. But he, too, was less than completely frank with the House when he failed to point out that the day after one of his hon. Friends asked about KTM, the hon. Gentleman also asked about KTM Holdings, and I believe that an Answer was given indicating the Government's 50 per cent. stake. That is the information I have been given, and if I am wrong I apologise to the hon. Gentleman.

The employment figures are still below 1,000, but they are scheduled to rise to just over that level by the end of the year, so that in one sense it is jobs in prospect which are imperilled. That, however, is not the central issue that we are discussing.

The hon. Member for Bridgwater said that my speech was somewhat confusing. All I can say it that he should have seen my brief— and by that I intend no criticism of my officials. I saw one of my officials this morning to ask him to unravel the issue for me. He said that when he came to the Department—I think a year ago—he found 14 files waiting for him. Of course, he has made his own contribution to the stock of knowledge in the period since. To try, therefore, to encapsulate all the problems of the company within one short speech is a little difficult.

Was there any other company interested? Originally there was not. What happened in 1974 was that the Department looked around for companies, public and private, that might conceivably have been able to give the assistance required. Informal approaches were then made by the Department to various companies that might possibly have been willing to take the project on.

Of course, I am sure hon. Members will appreciate, from their knowledge of management, that Vickers having had its management immersed in the company for so long, by the time this next arrangement came to be discussed it would have been an extremely difficult managerial process to extricate its management and superimpose new management without causing a major disruption.

Someone said it would be a hiccup. I think it would have been rather a disastrous one at the stage at which this particular company was in.

There have been intimations that other companies might be interested. One Swiss company said it might, but I would not call it a firm interest. It indicated that it would be about six months before it could give any clear indication. I am sure hon. Members will appreciate that in terms of the position of the directors, and the Companies Act, the directors need to know about their financial position well before that if they are to be able to take on large orders and place the necessary orders required to take advantage of the up-turn.

So there appeared to have been no meaningful alternative. Some interest was also shown by a French firm, but even that has been very vague, in the sense that there has been no indication that it would come forward with firm offers. Therefore we have to go ahead

Division No. 257.] AYES [12.15 a.m.
Bates, Alf Hamilton, James (Bothwell) Stoddart, David
Bishop, E. S. Harper, Joseph Stott Roger
Bowden, A. (Brighton, Kemptown) Harrison, Walter (Wakefield) Taylor, Mrs Ann (Bolton W)
Callaghan, Jim (Middleton & P) Jackson, Miss Margaret (Lincoln) Thomas, Ron (Bristol NW)
Cocks, Michael (Bristol S) Lambie, David Tierney, Sydney
Cook, Robin F. (Edin C) Loyden, Eddie Tinn, James
Dalyell, Tam McCartney, Hugh Wainwright, Edwin (Dearne V)
Dempsey, James MacKenzie, Gregor Walker, Harold (Doncaster)
Dormand, J. D. Noble, Mike Watt, Hamish
Ellis, John (Brigg & Scun) Roderick, Caerwyn White, Frank R. (Bury)
Evans, John (Newton) Rodgers, George (Chorley) Williams, Alan (Swansea W)
Flannery, Martin Snape, Peter
Garrett, W. E. (Wallsend) Spearing, Nigel TELLERS FOR THE AYES:
George, Bruce Stallard, A. W. Mr. Ted Graham and
Golding, John Stewart, Rt Hon M. (Fulham) Mr. Donald Coleman.
NOES
Hooson, Emlyn
Skinner, Dennis
Wainwright, Richard (Colne V)
Winterton, Nicholas
TELLERS FOR THE NOES:
Mr. Ian Gow and
Mr. Robert Taylor.

Question accordingly agreed to.

Resolved,

That this House authorises the Secretary of State to pay, or undertake to pay, sums not exceeding £1,900,000 by way of financial assistance, as to £1 million in respect of a loan to Kearney & Trecker Marwin Limited and as to £900,000 in respect of the acquisition of share capital in that Company under section 8 of the Industry Act 1972, as amended by section 22 of, and Part I of Schedule 4 to, the Industry Act 1975.