§ 11.14 p.m.
§ The Under-Secretary of State for Industry (Mr. Neil Carmichael)
I beg to move,That this House authorises the Secretary of State to pay, or undertake to pay, by way of financial assistance 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, in respect of the construction of an acetic acid plant at Hull by BP Chemicals International Limited sums exceeding £5,000,000 but not exceeding £10,140,000.The House will recall that my right hon. Friend the Chancellor of the Exchequer introduced last year new measures to stimulate investment and improve the balance of payments. The accelerated projects scheme provides special assistance to encourage companies to go ahead with new investment and modernisation projects. The assistance is provided under Section 8 of the Industry Act 1972. The approval of the House is required before assistance of more than £5 million is granted for any one project. I am inviting the House to authorise the Secretary of State for Industry to provide a grant or not more 562 than £10,140,000 to BP Chemicals International Ltd. towards the cost of an acetic acid plant at Hull. BPCI is a wholly-owned subsidiary of British Petroleum.
This is the first time the House has been asked to approve assistance under the accelerated projects scheme. The purpose of the scheme is to generate additional spending on capital equipment during the current recession. We are helping companies to go ahead with sound investment and modernisation projects, using the powers to make grants and loans offered under the Industry Act.
This scheme is proving to be most effective. It adds to the orders for capital goods at a time when there are unused resources because demand is slack. The capital goods industries always suffer most when investment falls during a recession. As a result, capacity is underutilised, output is lost, and men are made redundant. Many firms tend to be reluctant to invest during a recission and, in order to conserve their liquidity, they are particularly cautious in undertaking large and additional financial commitments. With this scheme we are able to reduce some of these concerns by making available grants or loans at reduced rates of interest, and many companies have reconsidered their investment programmes with a view to advancing new projects that would otherwise have been delayed.
All proposals are examined carefully in accordance with the criteria for selective assistance. In particular, to qualify for consideration, projects must be within the companies' planned capital expenditure programme, they must be shown to be projects that would be deferred if no accelerated projects assistance was forthcoming, they must be commercially sound, and make a contribution to improving the balance of payments, and they should cost more than £500,000.
The scheme has been very well received, and there has been a very good response from industry. To date, the Industrial Development Advisory Board has advised that financial assistance of nearly £31 million should be made 563 available towards 21 projects with a total cost of some £190 million. We estimate that these projects should lead to a balance of payments gain of about £170 million per annum in foreign exchange by 1980. They cover a broad range of geographical locations, and will help expand capacity across a wide spectrum of industry—in, for example, the diesel engine, chemical, pharmaceutical, food processing, and electrical and mechanical engineering industries. Many other projects are under consideration at the moment which could involve investment of the order of £500 million and a correspondingly large contribution to the balance of payments.
This proposal from BP for an acetic acid plant at Hull is an excellent example of how the scheme is helping the economy. The capital cost of the project, excluding working capital, is budgeted to cost £50 million, and BP has had to defer it several times already. The BP parent company faces heavy commitments in its activities in the North Sea and in Alaska, and BPCI already faces commitments in other chemical projects costing over £100 million. Like most firms, its operations are generally under pressure in the present difficult financial circumstances. Consequently, the project would be subject to further postponement. But, with the help of the grant now proposed, the Government can help to get it under way this year.
BP already produces acetic acid from its complex at Hull and the new plant will benefit from close contact with the expertise and facilities already in the area. The new facility will increase capacity from 190,000 tonnes to 340,000 tonnes by 1980. Acetic acid is an essential factor in the production of textiles and paints and is also used for the manufacture of industrial solvents, herbicides, adhesives and pharmaceuticals. By 1980 increased exports of acetic acid are expected to be earning some £20–£30 million in foreign exchange. This location of additional capacity in the United Kingdom will also provide greater security of supply for United Kingdom buyers, and bring import savings and further benefits to the balance of payments.
564 This plant will be one of the largest items of capital investment for Humberside in recent years. It will consolidate Humberside's strong position in the petro-chemical and chemical industries.
The Hull site is also ideally situated to use natural gas from BP's West Sole Field as a raw material for the new plant. The gas would be transported through the British Gas Corporation pipeline, and the British Transport Docks Board jetty facilities at Salt End, Hull, would have the capacity to cover the export shipments of the acetic acid produced.
The project will create in due course some 140 permanent direct new jobs in the Hull travel-to-work area. Over the next three years construction of the plant will involve 700 jobs, for most of which the company plans to recruit locally. There will, in addition, be a useful spin-off in local service employment, of both a temporary and a long-term nature. All these benefits would be most welcome to the Hull area. Also, the bulk of the equipment for the project will be purchased from British suppliers, including the British Steel Corporation, and such purchases should provide a useful general stimulus to activity and employment.
This is the second major investment project under this scheme to be located on Humberside. The first, announced a few weeks ago, is the construction of a major new pharmaceutical factory in Hull by Reckitt & Colman. This will lead to many local construction jobs and, as the facilities are established, over 100 new permanent direct jobs. These developments and the new motorway communications now coming in should strengthen the industrial base of Humberside.
In asking the House to approve the assistance proposed for this project, I would, therefore, particularly commend its value to the petro-chemical capability of the country, its significant contribution to the balance of payments, its wide-ranging employment benefits, and its special contribution to the industrial structure of Humberside.
§ 11.23 a.m.
§ Mr. Tom King (Bridgwater)
This is a debate of considerable importance for the 565 House, and it goes rather wider than the motion before us. This is the first opportunity of discussing the accelerated investment scheme to which the Chancellor of the Exchequer has allocated £120 million of public money. It is only because this Order trips the £5 million procedure under the Industry Act 1972 that we are able to consider one of the schemes coming forward under this proposal. I invite the Minister to give us more information about the scheme.
I trust there is no division in the House on the fact that there is an acute need for greater investment in industry and on the importance of that investment to create wealth. We should realise that it is only by the efforts of our industry that we shall solve our acute economic problems. It will certainly not be done by the wasteful expenditure of public money we saw earlier in a measure which will bring no additional benefit to the country and no additional port facilities to Felixstowe. That was a classic example of money being spent for no additional benefit.
This scheme is a different animal. It involves public money and we must scrutinise it carefully, but it has certain features which commend it more to my hon. and right hon. Friends than did any of the Government's earlier measures. I understand that BP will put up between £40 million and £45 million for the project. Although the payment is couched in terms of being not more than £10,140,000, I understand that it will be that amount. It is an interest relief grant and will not be paid before 1978, when the main progress payments become due.
There are several criteria for accelerated investment schemes, one of which is the creation of employment. It is sobering to realise that the expenditure of £10 million of Government money will produce 140 permanent jobs. For my figure of 100 jobs, the cost would be £100,000 per job created. Admittedly, up to 1,000 jobs will be created during the three or four years of construction. That is an extremely high price to pay. It is a measure of the capital-intensivity of the project that the total cost of £35 million will produce 140 jobs. Those who believe that massive investment will solve the unemployment problem will ponder on those figures and realise that it is no solution.
566 Will the Minister confirm that the project is subject to planning approval and to the approval of the main board of BP and has received only interim approval.
What interests us is how the Government arrived at what is in effect a 20 per cent grant. Is it based on the original development grant? How did they arrive at the formula? I understand that £32 million has already been allocated to the accelerated investment scheme covering £200 million worth of investment projects. The Minister quoted Reckitt & Colman. Ransome Hoffman Pollard and Lucas have also taken advantage of the scheme. How genuine are the schemes what tests are applied? I question whether the schemes would have gone ahead anyway. How did the Department, the Treasury and the European Commission satisfy themselves that the project would not otherwise have gone forward without assistance?
The Chancellor of the Exchequer refers to the scheme as his 6:1 multiplier. If he allocates a £120 million grant he looks for over £700 million of accelerated investment. According to a Press report, BP did not go ahead with the project before and did not intend to go ahead with it now because of poor market conditions. Will the Under-Secretary of State confirm that that is incorrect? Is the Department's understanding that the present plant operates profitably and has orders in excess of its capacity and that market conditions look extremely encouraging? It is important that we should not consider this project in any sense as having been pursued for non-commercial reasons, but should know clearly the basis on which it has been pursued.
This is a measure of considerable importance and substance. It looks as though it has identified a product area with considerable potential. There may also be considerable opportunities for exports to Europe. Against that background, it would seem to be one area where investment is well justified.
At the same time, in looking at the time scale of what we are trying to do with accelerated investment—and the fact that the plant will provide very little permanent employment and have very little effect before 1980—I shall be interested to hear whether the other accelerated investment schemes put forward 567 are likely to have rather greater employment results and rather earlier prospects of a real effect on the economy.
§ 11.32 p.m.
§ Mr. James Johnson (Kingston upon Hull, West)
After the pseudo-pantomime of the last hour or so I have no intention of detaining the House for very long. I may even make a parochial speech by comparison with that of the hon. Member for Bridgwater (Mr. King).
Speaking as a burgess of the city of Kingston upon Hull, I greatly welcome the proposal, which will mean a great deal to us in the difficult conditions on North Humberside.
By a happy coincidence, it coincides with a deputation today from the city of Hull, led by Councillors Schultz and Pearlman, to tell Yorkshire Members of Parliament of their difficulties on Humberside. The outlook there is very bleak, particularly in Hull itself, where employment was never good. It is worsening now. Male unemployment is running at 10.6 per cent. I cannot imagine that any area is in a much worse situation. There is a steady decline in fishing and in shipbuilding.
Over the years, each wave of unemployment seems to have made the next wave of unemployment worse. Great concern is felt by our local authorities and our business community. Despite the M62, the Ml8, and the Humber Bridge, which is to come in two years' time, there is still a malaise, and a shot in the arm of the sort proposed will help our people locally to feel that they are not quite forgotten. We want development area status but apparently it is not easy to get at the present time. The action of BP and of the Government may help to dispel some of the malaise.
Selective assistance of this kind is ideal for us. I listened to what was said about capital-intensive industry. We need jobs, because we are losing them right, left and centre. We have lost jobs with Imperial Typewriters and the Humber St. Andrew's Engineering Company. We are being hit in this way all the time. Our people are getting very worried about it.
I am told that the proposed extension will create about 150 permanent jobs. It will significantly enhance the total capacity 568 of the company, which I understand is possibly the largest in Western Europe. The company has provided some stability of both employment and financial input. Despite the waves of unemployment constantly hitting us, BP Chemicals has managed to keep all its work force in full-time employment during all these months and years of difficulty on Humberside.
I do not wish to quote the Minister too much, but I listened carefully to him. He told us that BP Chemicals holds a major position in the European production of acetic acid. I believe he said that the new plant would provide an increased output of 150,000 tonnes per annum, and that the total production would be about 350,000 tonnes. Estimates have to be finalised, and so I cannot speak about them, not being an accountant, but am I correct in saying that investment could be about £50 million? If so, that is not chicken-feed by any standards.
Not a word has been spoken about this, but I am also informed that there are possible objections by the environmental lobby. I am told, however, that there is no significant danger of pollution, or of any hazards to the local community. I understand that the project is to be passed by whoever may be the powers that be—perhaps the Health and Safety Executive—but I hope that the Minister will confirm that there have been no comments in this field.
In the next year or two there will be about 700 additional jobs in the locality, in the building industry. That is not to be sneezed at, because we are not building as many houses as we should. There is no doubt that there is unemployment in that industry. Therefore, this project, with all the spin-offs, is more than welcome to the people of Hull and elsewhere.
When will the new plant be commissioned? Was it 1979? We shall have to wait. I believe that some hon. Members opposite said that it would be 1980. I am not sure of the date, but we are willing to wait when we see something positive on the skyline—something that is not pie in the sky, about which we are told so much.
I know that we have to apply for outline planning permission, but, with all its "ifs" and "buts", we hope that this is on the way, and we welcome it with all our hearts.
§ 11.37 p.m.
§ Mr. David Crouch (Canterbury)
The House will recognise the sincerity with which the hon. Member for Kingston upon Hull, West (Mr. Johnson) spoke—as he always speaks—on behalf of his constituents. I know that his constituents have suffered a great deal of disturbance and distress, and high unemployment, in the fishing industry and other industries. The hon. Member dealt with the facts. It is his duty to represent his constituents. I see that the two other hon. Members for the Hull constituencies are present, being similarly interested in proposals that affect their constituents. But we are all interested in our constituents, and we are interested in the constituents that we represent in totality—the people of the whole of Great Britain.
I speak as one who is much concerned with unemployment and who is involved in the chemical industry. I declare an interest. I remember sitting here in 1972, one Friday afternoon and into the night, supporting the then Government against my colleagues, who at the time were against the passing of the 1972 Act, Section 8 of which was subsequently amended to increase the amount of help that can be given to industry under the 1975 Act.
I was in favour of the House being able to provide help to industry both in development areas and in those areas in which industry needed help—wherever those areas were—to enable it to succeed and to produce more wealth for this country. Having paid my respects to those hon. Members who represent constituencies in Kingston upon Hull, and recognising their particular interest in the matter, I can, however, tell the Minister that to ask for the provision of £10 million or a little more to provide 140 jobs is to ask the House to swallow an awful lot. That applies particularly when we talk about BP—a partly nationalised industry—when we talk of the most successful industry in Britain, bar none, and when we say that we must give an interest-relief grant of 20 per cent. to the company.
Perhaps I am wrong even to suggest opposition to this proposal, but I utter a word of caution, because I am concerned about Government expenditure. What about Government expenditure on education, on health, on roads, and on other matters?
570 Here we are discussing Government expenditure of £10 million for 140 jobs, and late at night when there are few hon. Members here to consider the weight of this sort of decision. A couple of weeks ago, when I was abroad, there was a great debate about Government expenditure which exercised the minds of hon. Members on all sides of the House. Tonight, we are calmly proceeding in the same old way, on behalf of all our constituents, talking about £10 million to provide 140 jobs.
§ Mr. James Johnson
It is not just a matter of simple arithmetic about X jobs for £Y million. We are turning out acetic acid by the million gallons, and that will be exported. Surely there is more to this than just a matter of so much money for so many bodies going to a site.
§ Mr. Crouch
I accept that. We are thinking of the national output of wealth and the production of acetic acid from one of the biggest production plants in the country. I know the plant on the estuary in the hon. Gentleman's constituency. It is very big. But why do we have to vote the taxpayers' money to achieve this? I do not understand it. This is not the industry that I knew. I was in ICI, as the House knows. Is ICI to be the next to come cap in hand to this House saying "We, too, want to invest £50 million, but may we have £10 million from the Government first?"
I cannot understand why BP is doing this. I have great respect for BP, and I know many people in it, including people on the shop floor. But I am surprised that this rich and great industry, which prides itself that it can compete with the world, is coming cap in hand to the Government saying "Give us £10 million".
The answer, of course, is that the company is thinking "We see a way through. The door is swinging. The two Industry Acts allow the door to swing. Let us make use of them". People in industry today are not fools. Certainly the people in the chemical industry are not. They are spotting their opportunity. Perhaps it is up to us to latch the door occasionally and to say that we need that £10 million for overseas aid, for another hospital, for education, for the social services, to help the disabled, for a new mental hospital, 571 or for some of the other great expenditure in that area.
I do not want to overlay the point, but I speak as one who comes from industry and who is concerned that we in this House should be careful not to be railroaded into thinking in terms of more money for industry simply because industry wants more money.
Why cannot the industry channel more money? BP is not an unsuccessful company. I cannot imagine that BP is unable to find £50 million for its investment if it wants to. Last week the Chemical Industry Association announced an investment programme of £2,008 million over the next three years in Britain. That is about £700 million a year for the next three years. That is not a bad prospect for a flourishing industry. Yet, in the midst of it, we have one of our great chemical companies coming to the House because it sees the door swinging. It sees a loophole.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
The hon. Gentleman seems to have misunderstood the intention of the scheme completely. The justification for this investment finance in the scheme is that the investment costs the country at least 20 per cent. less if it is made during a recession than if it is made at the peak of an investment boom. That is why it is a good bargain for the nation.
§ Mr. Crouch
I always listen to the hon. Member on these matters. He has great experience and knowledge. But his observation was too clever by half. He is talking about taxpayers' money, not the money raised by a capitalist company. I should like to see the money coming from the profits of the company. He is saying that it will help the company because we are living in a period of 25 per cent. a year inflation which was generated by this Government, and, therefore, we should extract the money from the taxpayer. It is a false argument and I do not follow it.
I do not take exception but I express my concern that late at night the House is being asked to vote another £10 million, to an industry which is not in terrible distress. I argued in favour of keeping British Leyland going when many of my hon. Friends said that it was 572 a lame duck and should not be propped up.
There is an argument for reinforcing success. Let BP reinforce its own success. I am sure that it does not need this extra £10 million, but it has found a way of getting it out of a benevolent Governement.
§ Mr. Dennis Skinner (Bolsover)
Is the hon. Member for Canterbury (Mr. Crouch) not aware that over the last 20 years successive Governments have found it necessary, as a result of falling profits, to cosset the private sector by handouts and persuade them to invest in difficult areas in order to provide jobs? That is one of the problems with which the private sector will have to grapple to a greater extent than before. The system to which the hon. Gentleman wants to hark back is now no longer one which can be sustained. The answer is to adopt a Socialist approach, but in the meantime we shall continue to do this to prop up the system and provide jobs. The alternative is the one that we have proposed for many years.
§ Mr. Crouch
I knew that the hon. Member for Bolsover (Mr. Skinner), in his sweet and reasonable way, would turn my argument round. I cannot accept what he has said. He may think that he wants to see this happen to a greater extent, but then there would be no door at all. The door is restricted by the two Industry Acts. The Government have to ask the House for permission to give this money because it is excess of the amount laid down.
The Minister has not sufficiently justified the case for asking for £10 million for BP to extend the plant, notwithstanding the need, which I recognise, for the creation of jobs in an area of high unemployment.
The chemical industry is capital intensive, not labour intensive. The argument is to create the size of industry to produce acetic acid on a world scale in competition with any other country. The company says it cannot do that on its own. Let the House be warned. If the door is allowed to swing open too far every company in the country will try to go through the gap to obtain contributions from the taxpayer and the Treasury coffers. If so, there will be no hope of 573 our achieving stability again and increasing our gross domestic product. Instead, there will be an increase in our gross taxation.
§ 11.50 p.m.
§ Mr. Kevin McNamara (Kingston upon Hull, Central)
I listened with interest and some alarm to the hon. Member for Canterbury (Mr. Crouch), who missed the boat on two counts, as also perhaps did his hon. Friend the Member for Bridgwater (Mr. King).
First, it is not as though only 140 jobs will be created by the scheme. The industry is highly capital intensive, and production of the plant will involve many concerns throughout the country. It will mean a considerable amount of work in chemical engineering areas which have been suffering from unemployment.
Secondly, the hon. Gentleman should not talk as though BP were the only company receiving selective assistance. Every major chemical company, including ICI, has already received such assistance for many of its capital projects under the regional planning strategy, and has also had the advantage of the regional employment premium, which Humberside does not have. But I have not heard hon. Members say that companies in the depressed regions, as Humberside now is, should be prevented from having that type of assistance. The hon. Member for Canterbury made a niggling criticism which I had not expected from him.
The plant in question will be situated not in any part of the city of Hull or in the constituencies of Kingston upon Hull, Central, West or East, but in the constituency of Bridlington. It is interesting that there is no Tory Member for the old East Riding present to support this important capital investment on the north bank, investment that the area desperately needs. It will mean 700 jobs in construction alone, a number that will increase as the project gets under way towards the end of the year and the beginning of next year, subject to planning permission. It will make an appreciable hole in male unemployment in the Hull travel-to-work area of over 11,000 and in Humberside generally of over 18,000. That is immediate positive help within our area, quite apart from the spin-off outside the area of which I spoke earlier.
574 I understand that of the 140 permanent fresh jobs at least half will be for craftsmen. It will be work of a high technological character. That is important in an area lacking in skilled opportunities. In anticipation of the programme the company has already taken apprentices into employment. It has also prepared its work and training schedules for the semiskilled operatives who will be involved.
It is regrettable that, the situation in 1974 being such that BP could not then go ahead with its plan, only now is it able to take advantage of this section of the Industry Act. This help is being given under the same provision as help was given to British Leyland, Chrysler and Alfred Herbert. The operation of the Act on a wider scale also shows an important development in regional policy.
If, as I hope it is not, it is the Government's intention to be adamant against the creation of new development or special development areas, this provision of the Act enables them to give assistance to areas of an intermediate nature, or perhaps not even that, where there are very high pockets of unemployment and need in this time of tremendous difficulty for our constituents and their families. It is at least an opportunity for the Government to give some boost to the economy of Humberside. If we are to have a more flexible development of regional policy in this way, it is to be welcomed.
§ Mr. Crouch
Section 8 of the 1972 Act does not apply to regional development. It is concerned with the development of industry with regard to national importance. It does not concern help to a region. I am sure that the hon. Gentleman realises that.
§ Mr. McNamara
I assure the hon. Gentleman that 700 jobs in the construction industry and 140 permanent jobs, as well as the spin-off in other sectors responsible for capital plant, constitute regional assistance, whether general on a national scale for national industry or whether for a local industry. This accelerated project scheme is in an area of Very high unemployment with very little capital-intensive industry and very little skilled technology, and it is to be welcomed.
But this boost, along with the M62 and the Ml8 and the Humber Bridge, when it comes, welcome as they are, is not 575 sufficient for the needs of our region. We need far more positive help from the Government to bring the level of permanent unemployment on Humberside down considerably. We need much more effort by the Government; we need to get development area status; we need to have industry steered and directed to our area if we are to tackle its core of unemployment, which has been worsened by the decline of traditional industries.
This one project must not be seen as an enormous boost to the area. A lot more has to be done; a lot more capital has to be invested in the area if we are to get rid of our core of unemployment on Humberside.
§ 11.59 p.m.
§ Mr. Michael Grylls (Surrey, North-West)
The hon. Member for Kingston upon Hull, Central (Mr. McNamara) has made an excellent speech on behalf of his constituents, and we on the Opposition side fully understand his feelings. A few weeks ago, in a Friday debate on regional policy, Labour Members were complaining about the terrible levels of unemployment in their constituencies. But it is Government policy which has led to rampant inflation, a lack of investment and high unemployment. How can the Government's supporters complain, therefore, about the situation in the regions?
There is an Alice-in-Wonderland situation in our economic and industrial affairs. This measure is a condemnation of the Government's whole policy. We do not intend to vote against the motion because we are as concerned as anyone about the level of unemployment. The proposal is being implemented basically under the 1972 Act, which has been of assistance to companies.
It is an extraordinary situation when BP, until recently 50 per cent. State-owned, and internationally respected as one of the giants of business, should have to ask the Government for a contribution of £10 million to an investment project of £50 million. That never happened with companies the size of BP under the Conservative Government. Other companies will now probably be queueing up for help. I appeal to the Government to get their industrial and economic policy right so that these companies can generate 576 sufficient cash flow and profits to undertake their own investment.
One of the directors of BP, Mr. Bob Fenning, who was responsible for sales and commercial services, was reported in the Financial Times last September as saying that certain investment was under reviewbecause of the effects of inflation and the depressed economic situation.Part of the economic troubles are worldwide, but our rate of inflation is double that of any of our competitors. Talking of BP's cash flow, Mr. Fenning saidWe are suffering from a cash flow crisis bigger than any other crisis. We are not generating enough to build plants to meet the demand in the future.That is why the motion is before us tonight.
It is convenient that we should be discussing this giant of the chemical industry tonight. It is only a few days since the report of the little NEDC on the British chemical industry was published. That report is important and should be discussed in a wider context than simply the investment covered by the motion. The little NEDC is an example of one of our happier innovations. Its report is a study produced by management, unions and Government working together in the common interest of that industry. It highlighted the No. I problem as being inflation. It did not say that it was the failure of the private enterprise system. That comes into difficulties only with a 25 per cent. rate of inflation. Not only can private companies not invest, but they cannot maintain their capital base to continue to exist. That is the problem which Labour Members must appreciate.
Inflation is the main problem which has hit investment in the chemical and other industries. The little NEDC's document clearly stated that the capital investment costs of putting up plants, such as we are discussing in Hull, have more than doubled since 1970. That is one of the reasons why the problem has been created.
The two projects with which BP is concerned relating to North Sea oil in the Forties field have cost an extra £75 million this year because of inflation. It is not getting anything new or extra for that money.
I know that other hon. Members wish to speak, so I shall end where I started. 577 We are not against this investment. We hope that it will create more than 140 jobs. Indeed, we hope that it will do many good things for Hull. Looking at the country as a whole, however, I suggest that the Government must get their framework right so that industry can produce proper cash flows and invest and produce not 140 jobs but 140,000 jobs. That is what we need. But that cannot be done by doling out odd sums of £10 million at midnight in the House of Commons. It can be done only by getting the Government's crazy policies in the economic sphere right. If the Minister takes that lesson home from the debate, it will be more worth while than the proposal we are discussing tonight.
§ 12.7 a.m.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
I support both the accelerated investment scheme and this project in particular and the constituency case which has been so ably put forward by my hon. Friends and which no doubt will be put by my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) shortly.
I should like to deal with the industrial and economic question which has been mentioned by Conservative Members and to which my hon. Friend the Minister addressed himself. I could hardly do other than support this scheme. The Prime Minister, in an interview with James Margach reported in the Sunday Times last week, said:But our biggest reforms undoubtedly have been in consultation with industry and in the whole approach of Government to industry. All moderate comment now—and this isn't confined to a single Party—stresses the need for micro-economic, sectoral intervention and planning, as opposed to the lurches of macro-economic Keynes-type financial policies".Even the jargon is lifted directly from my book "Decision in Government", which the Prime Minister did not see fit to acknowledge in his interview with James Margach and for which he sacked me in 1969. It does not pay to be before one's time. Unfortunately, the Department of Industry does not seem to have read that book. I am not entirely sure that my hon. Friend does not need to refresh his memory of certain passages in it. We need to set such a project in the context of the Government's general industrial policy, the general state of the industry and the general economic background.
578 With that in mind, I should like to take up the question put by the hon. Members for Canterbury (Mr. Crouch) and Surrey, North-West (Mr. Grylls)—namely, could the need for such measures be avoided by general economic policies? I am in favour of an increase in company liquidity and even of some relief of company taxation, possibly going beyond the extension of the stock valuation relief in the Budget. We shall see.
In trying to make the case for this approach to my right hon. and hon. Friends in the Treasury, I asked Jim Ball and Terry Burns, of the London Business School, to run through the effect of a major cut in company taxes in the Budget. To produce this £50 million increase in investment by a cut in taxes on companies would require a £75 million cut in company taxes, whereas the Government have achieved this by Government policies for a mere £10 million. The reason for that enormous disproportion between £75 million in tax cuts and £10 million in grants is that if one makes a tax cut it falls on the just and the unjust, it falls on those who will invest and on those who will not, and some of it has a marginal effect in encouraging investment. But it undoubtedly pays, if one is regulating demand through cycle, to be as highly selective in one's instruments as one can. There are problems in being so.
The first question I should like to ask the Minister is whether this is an outright grant conditional on construction of the plant or a loan repayable in certain circumstances. Neither tie wording of the motion nor Section 8 of the Industry Act, amended by the 1975 Act, makes it clear. It can be in the form of assistance by loan, grant or anything else.
If, when this splendid plant is built, it is found that this additional capacity is employed profitably from the start and that the luck of world markets means that BP, as it then seems, never needed the incentive after all and would have done well if, in its own sole, uninfluenced commercial judgment, it had gone ahead, is it not reasonable that the Government should get some reimbursement of the £10 million?
My second question is this. The grant seems to be up to about 20 per cent. of the cost of the project, which covers at 579 least two years' interest costs, at real interest rates—and, of course, it is real interest rates and not the interest rate which includes a large allowance for inflation which matters in considering the effect of such a grant.
Considering that this project was first mooted a year ago and the size of the grant is sufficient to finance its being advanced for two years, I find it a little difficult to believe that BP needed quite as much money as that to bring the project forward.
The whole chemical industry is poised with many projects in the pipeline. There is a certain amount of stickiness in the approval of projects at the moment. People are holding back for the Budget to see the effect that it will have and how the economy develops in the next few months. But we could have a substantial increase in the chemical industry investment in the next few months. I am referring to approval of projects which will not have an effect for three or four years. This project will not be completed until 1978–79, with the peak in 1978, which could be at the peak of the boom. It seems a little late in the trade cycle to be encouraging long-lead investment of this kind. If there could be shorter lead investment, for example in engineering, this would provide many more jobs in Hull, and I take the importance of that.
What are the criteria for accepting different projects? Why this one? I understand that 50 per cent. of projects proposed are turned down. What were the reasons why some were turned down and others were not? I hope that it is not the formality of their appearing in investment programmes. Many hon. Members have seen projects put in and out of programmes. It is a purely formal process. The judgment that should be made is whether, without encouragement, the company could not be expected to go ahead in the circumstances of the time, taking into account present capacity, competitiveness and demand prospects.
The hon. Member for Bridgwater (Mr. King) was precisely wrong in saying that there should be a cast-iron commercial case. If there were such a case, BP could go ahead. The case for a grant like this must be just slightly dodgy, so that BP would not go ahead on its own commercial 580 judgment. Otherwise the grant would not be necessary.
§ Mr. Tom King
There could be a commercial case, but with one tiny snag: one may not have the money.
§ Dr. Bray
I accept that, but BP can borrow at the moment. When one is trying to find £45 million towards a £50 million project, it is hardly likely that £10 million will make much difference. However, I accept that it helps from the point of view of financing.
The Secretary of State for Industry is statutorily obliged to consult the Industrial Development Advisory Board. That Board should be taken seriously. If it disagrees with the Secretary of State, its advice has to be given to Parliament. I do not see why this should be done only if it disagrees with the Secretary of State. I should have thought that, as a matter of course, the Secretary of State would wish to give the Board's report to Parliament, certainly when Parliament's approval is required for a project. What specific consideration was given to this project by the Board?
Another problem arises over what consideration is given to directly competitive projects from other companies. What if ICI said "We should like one of these too"? ICI currently claims that it smooths out investment throughout the trade cycle. In a speech last year I suggested that it did not, and I promised members of the company that I would correct that false impression.
If ICI is smoothing out investment, however, it cannot make the case for getting a grant like this because it does not meet the conditions for bringing forward a project which otherwise it would not bring forward. But does that imply some sort of Buggins' turn? Does it mean that if BP gets the acetic acid plant ICI will get the next ethrylene plant and Shell Chemicals will get something else? It might be simpler, but it would be wrong if it were done on that basis. The right way to face the difficult problem of choosing which project to go for is to set it in the context of a broader industrial analysis.
What measures does the Department maintain of the pressure or demand in the chemical industry for its products—the pressure of demand among the wide- 581 spread customers for acetic acid, for example, the pressure of demand on its suppliers? Process plant manufacturers have an important interest in the stability of investment in chemicals.
I referred to pressure of demand, not to output. It is the difference between output and the capacity of the industry and its related industries which the Government should be watching. I am sure that they are watching it in a general sort of way. If I might answer for my hon. Friend, I am equally sure that they do not maintain any sort of running analysis of demand on industries which can provide a background for weighing projects like this against one another.
What conditions are attached to the use of United Kingdom contractors and plant suppliers for this project? I am delighted that 1,000 men will be employed during the construction of this plant, but for every 1,000 men employed on site 2,000 more will be employed off-site in engineering factories making the equipment. If they are not employed in this country, they will be employed in Germany, the United States or Italy. I should like some assurance that they will be employed in Britain.
I support the accelerated investment grant scheme generally and this project in particular, but the Minister must answer these industrial and economic questions—if not tonight, on a future occasion. Unless the Department of Industry gets its administration of this scheme sorted out and properly integrated with the making of industrial and economic policy generally, it will get into the most unholy mess and have to abandon the scheme, and we shall not then have many more examples of this imaginative kind.
The Government have taken this necessary first step. I do not blame them in the least for getting on with the job now. It would have been better if they had started the job seven years ago, but at least they are now on the right path.
§ 12.20 a.m.
§ Mr. Anthony Nelson (Chichester)
I shall be brief, as I am aware that another hon. Member with a direct constituency interest wishes to participate in the debate.
The hon. Member for Motherwell and Wishaw (Dr. Bray) made a typically interesting contribution and critical analysis of the motion. It is a sad reflection 582 on this sort of debate that such an important question as whether or not the money concerned is repayable should slip out half-way through the debate. It is absolutely critical to know whether it is a grant or a loan. I am amazed that there is misunderstanding about this, and I should like a clear answer from the Minister.
The Minister said that BP Chemicals International is very hard pressed for investment funds. So indeed are my tax-paying constituents. They too are hard pressed. We have a proper right to question the viability and what right the Government have substantially to increase the amount that they are allowed to pay under Section 8 of the Industry Act for an investment such as this.
I should like to direct to the Minister a few specific questions about the accelerated investment grant scheme and, in particular, to ask whether the hon. Gentleman feels that the money is most usefully used by applying it in such large amounts to major capital projects rather than perhaps to some smaller projects. I was interested to read recently that the threshold level for consideration of such grants may be reduced below the level of £500,000. I personally would regard that as a welcome development. I rather regret that such a large tranche is now to be made available. I would question whether this is the first of many that we shall see and whether they will grow larger and larger.
There is an opportunity-cost element, as my hon. Friend the Member for Canterbury (Mr. Crouch) has mentioned. Many of us cannot understand how even the most ardent Socialist can sanction spending such large sums of money on companies which can well afford, either through reinvested profits or through borrowings, to finance such programmes, when there are industrial projects and companies which would employ many more people and projects in the social field which also have very pressing claims.
Therefore, I seek further clarification from the Minister as to the criteria that he has employed in granting this loan. I also understand that it is a grant that is substantially higher than he would otherwise have considered. There appears to have been some special factors in this case. Just what made him decide to make this money available?
583 Furthermore, I understand that the Monsanto process is to be used by this new chemical plant and that this will be employed under licence from the Monsanto Company. I assume that this will be an expensive licence. Just what are the arrangements with regard to paying Monsanto? How much is involved, and what proportion is that of the total capital cost? Is this included in the cost of some £55 million which has been proposed for the project?
My final comment is that, when questioning the propriety of making available massive amounts of public funds to bring forward the investment plans of industry both to ensure that industry installs capital equipment when the cost is perhaps lower than it would be in a few years' time and to ensure that productive capacity is there in a few years' time, one must question both the viability of the industries into which the money is injected and the opportunity cost. The real problem is that the incentive just does not exist under present conditions for industry to invest that money itself. The real way in which we should be encouraging industry to invest is not by the lavish ladling out of money from Whitehall, which it is now the remit of every corporate financier to seek out, but by instilling an atmosphere of confidence in industry, both by fiscal means, as the hon. Member for Motherwell and Wishaw mentioned, and by retracting some of the most damaging aspects of the present Government's legislation in the industrial field, notably nationalisation. That would give industry confidence to reinvest its own money or to draw down loan capital for investment in capital plant.
I question whether the Government have the ability to invest these funds. Would the Government have made such money available for capital investment in the synthetic fibre industry, a highly cyclical industry? I question whether this plant will make the contribution to our balance of payments in four years' time that the Minister forecast. We must proceed with caution, but our priority must be to encourage an atmosphere of confidence in which industry will invest of its own accord without Government assistance.
§ 12.26 a.m.
§ Mr. John Prescott (Kingston upon Hull, East)
In view of the limited time avail- 584 able to us, I shall deal with only one or two points. My colleagues from Hull have already emphasised the point that the unemployment figures in Hull are far higher than the general average. Our unemployment rate has increased to a far greater extent even than the rate in the development and intermediate areas. The problem is becoming so bad that we are becoming known as the "black hole" of Humberside. However, there is not the time to develop those arguments, and the case has been well made by my colleagues.
I welcome anything that is done to improve the job situation in my area. The fact that this measure will bring 700 building jobs to my area is welcome indeed, because we have a huge pool of unskilled workers in the building and construction industry. The fact that a further 150 long-term jobs will be brought into the area is also very welcome.
Having welcomed certain aspects of the scheme, I have certain doubts about the amounts of money involved. We are talking about a £50 million project and there is talk of 20 per cent. grants and sums of £66,000. If the justification behind the scheme is that it seeks to accelerate investment and to assist industry to do somthing to relieve the job situation, we must ask whether this kind of scheme is the most effective way of going about the matter.
I do not deny that what is being done is welcome, but I should like to give one or two examples of what has happened on Humberside, where, as the House knows, jobs are at a premium. Those of us who represent the area are anxious to bring in as many jobs as we can because we want to halt the decline. Certainly the number of jobs lost has been far greater than the number of jobs created. We see in the area a number of industries in decline and significantly less money available for employment projects. I do not think we have looked carefully enought at the totality of investment and development.
Let me give one or two examples. British Petroleum will bring in chemicals by freightliner, but, because of the lack of investment at the Liverpool end, those chemicals will come not by rail but by road. This will mean a further decline in the railway industry.
585 I also wish to point out that the firm of Imperial Typewriters in my constituency was closed down following a multinational decision. The decision which was reached was to the effect that machines would be imported rather than made in this country. If action had been taken early enough, 2,000 jobs could have been saved.
Furthermore, the shipping and shipbuilding industry has liquidity problems involving a sum of £1½ million, and this very week 1,000 men will lose their jobs. That is happening now. The fishing industry is declining and money needs to be spent on it. In that case some 10,000 jobs are involved. There are many areas in which considerable help could be given to save jobs, and I believe that money could be used to preserve jobs, if that is the purpose of the exercise.
The Department of Industry is attempting to help with jobs and grants, but then the Chancellor of the Exchequer puts VAT on luxury caravans and hits Humberside, which is the biggest producer of such caravans, particularly hard. This action loses us more jobs than can be created by a £50 million investment by the State.
These are the sort of problems which arise when one has constantly to offer more carrots to industry to invest in particular areas. This is a carrot to a huge multinational company, and we must question whether the control of its finances are all they should be when public money is being given to the firm.
I cannot say much more because of the limitation of time, but I have reservations about this measure. The Government's regional policies, which are designed to create more jobs, are becoming increasingly suspect. Far too much money is being spent to create far too few jobs. We need a fundamental change, and I hope that the change in my party's leadership might result in a rethinking.
We are bringing a delegation to see the Minister in the next couple of weeks, and I urge him to consider the question of regional employment premium payments to firms in development areas competing with firms on Humberside which, although only an intermediate area, has an unemployment rate higher than many develop- 586 ment areas. This is particularly affecting our shipyards. I was told by a Government Minister recently that it would cost no more than £20 million to extend REP to intermediate areas with unemployment levels as high as those in development areas. That would be a far better way of bringing help to areas like Hull. We must consider a more effective way of using public money to create jobs.
§ 12.32 a.m.
§ Mr. Tom King
With the leave of the House, I should like to reinforce points which have been made from both sides.
There has been, understandably, almost a desperation in the speeches of hon. Members from the Hull area about unemployment there. Against that background, the hon. Member for Kingston upon Hull, East (Mr. Prescott) showed courage in questioning whether we are using this money in the most effective way. The Government cannot buy their way into investment on the sort of scale—£6,000 million has been mentioned—needed for this country. There is no substitute for industrial confidence and real investment by industry.
Our acceptance of this measure is only because, against the background of the Government's economic policies, it is a matter of urgency that something should be done. This is very much second best to real investment. The question of Buggins' turn will have to be looked into. I understand that the Government went to BP—not the other way round, as suggested by my hon. Friend the Member for Canterbury (Mr. Crouch)—and asked whether the company would undertake this scheme. Whom do the Government choose to approach, and what is their order of priority?
§ 12.34 a.m.
§ Mr. Carmichael
With the leave of the House, I shall try to deal with some of the many questions raised in the debate. There is not much time left to me. I do not complain about that, because this is an important subject which we could, perhaps, debate more fully at another time, although the hon. Member for Canterbury (Mr. Crouch) said that he had sat for many hours in Committee and in the House dealing with the Industry Acts of 1972 and 1975.
587 The hon. Member for Bridgwater (Mr. King) asked for information about Section 8 schemes. This is a capital-intensive project. The scheme has been approved by the Government collectively and cleared with the EEC Commission. I confirm that no environmental pollution will be caused by the project.
My hon. Friend the Member for Motherwell and Wishaw (Dr Bray) referred to his book. We remember the circumstances in which he wrote it. What occurred was largely a matter of etiquette rather than the contents of the book. I shall bring my hon. Friend's remarks to the attention of my right hon. Friend the Prime Minister.
BP has large resources, but it also has large commitments in the North Sea and Alaska. Its net borrowing requirement for 1975–76 is over £600 million. The project has been deferred three times in the past three years. The Industrial Development Advisory Board supports the use of the accelerated investment scheme in this case. Reference was made to "Buggins' turn". There is no Buggins' turn. Each case is viewed strictly on its merits, taking into account the market, the industrial context, commercial prospects and the risks.
I was asked whether the money was repayable. The Department had the choice of making assistance available by loan with concessionary interest or by interest relief grant which compounds the assistance into grant form. A loan would be repayable, but it would cost more immediately than would an industrial grant.
My hon. Friends the Members for Kingston upon Hull, East (Mr. Prescott), Kingston upon Hull, West (Mr. Johnson) and Kingston upon Hull, Central (Mr. McNamara), while accepting the scheme, put forward a strong plea for additional effort to get jobs to the Hull area. My hon. Friends welcomed the construction jobs which would be produced by the project. The scheme involves more than the creation of jobs. It gives a great deal more security to British industry. The multiplier effect on employment in Hull will be considerable. If the House approves the motion and if everything goes well, work will be able to start before the end of September this year.
588 I should like to give some idea of how the accelerated investment scheme is administered, for the information not merely of the House but people outside. It is important that industry should realise that the scheme is available. The detailed criteria have been published and widely disseminated through the CBI, banks and leading accountancy firms. The first criterion is that a project should be for new investment or modernisation, or both, with a capital cost, including working capital, normally, but not invariably, exceeding £0.5 million. To go much lower than that would overload the machine, because the Department makes full investigations into whether the scheme has been deferred. Proof must be provided that the project has been genuinely deferred.
Secondly, the project should be a net addition to the firm's capital investment programme in this country—that is to say, it would not take place or it would be deferred but for the Government's assistance. Thirdly, the project should be commercially sound and lead to an improvement in the United Kingdom balance of payments. Fourthly, the project should be planned to commence before the end of September 1976, and projects which would be completed early should be given priority. Fifthly, modernisation projects must lead to significant improvements in efficiency.
The scheme is administered selectively, with each case examined on its merits. The applicant must produce the information justifying the project against these criteria, and an appraisal is then made of the investment proposed and of the company in accordance with the criteria for selective assistance, details of which have been placed in the Library of the House. Other hon. Members who are not quite as involved in this aspect of our interests may also find it helpful to check there in regard to firms in their own areas.
The most critical areas of this appraisal, apart from commercial viability, are the evidence of deferment, the foreign exchange benefits and the ability of the company to start work by the end of September. There are no standard terms for the assistance, which will vary with the circumstances of each case—the scale of the project, the ability of the company 589 to secure alternative finance, its effect in terms of enhanced efficiency and benefits to industry, and the balance of payments. The actual assistance offered will therefore be a matter of negotiation between the Government and the applicant. We would normally regard it as very exceptional to have a ratio of assistance provided to investment value lower than in the present case, which is particularly attractive in terms of the purposes of this scheme.
The form of the assistance can be either loans at concessionary rates of interest or the equivalent interest relief grants. No equity stake is involved. The House will appreciate that, in view of the close attention being given to public expenditure, in general we concentrate assistance in interest relief grant form, since viable companies should be able to obtain most of the finance from private sector sources.
The scheme is counter-cyclical in purpose, and to stimulate worthwhile new investment quickly it is essential to have arrangements which, while allowing a wide range of our successful companies to apply, will enable cases to be processed without undue time being wasted. The threshold for the minimum size of projects was set at £0.5 million since only companies with a sound record, of significant size and with well-developed systems of project and investment appraisal would be in the position of having deferred investment projects above this level. The viability of projects would be much more easily checked with firms like this, and the Government would be assured that they were genuinely deferred.
The hon. Member for Chichester (Mr. Nelson) asked about Monsanto. BP announced on 6th February that it had signed a licence agreement with Monsanto relating to the process for the manufacture of acetic acid which will be used in the plant. The arrangements between the two firms are a matter of commercial negotiation, and they have been taken into account in estimating the benefits from the project.
§ It being one and a half hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted business).
§ Question agreed to.590
That this House authorises the Secretary of State to pay, or undertake to pay, by way of financial assistance 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, in respect of the construction of an acetic acid plant at Hull by BP Chemicals International Limited sums exceeding £5,000,000 but not exceeding £10,140,000.