SHIPBUILDING BILL

HC Deb 01 November 1979 vol 972 cc1481-578

Order for Second Reading read.

4.49 p.m.

The Minister of State, Department of industry (Mr. Adam Butler)

I beg to move, That the Bill be now read a Second time.

This short Bill raises British Shipbuilders' borrowing powers from the present statutory limit of £300 million to £500 million, with provision for a further increase to £600 million. It also provides that the home credit scheme under section 10 of the Industry Act 1972 should be extended to conversions and alterations of ships in United Kingdom yards.

The Bill is urgent for two reasons. First, British Shipbuilders is holding to its forecast that it may reach the present statutory borrowing limit in January. Secondly, our ship repair industry, like the shipbuilding industry, is seriously affected by the recession, and the proposed extension of the home credit scheme will make it more competitive for orders by United Kingdom owners.

The House will wish to consider these measures in the wider context of the shipbuilding industry as a whole, and we must do so within the rules of order. The Government have been glad to make more time available for debate than might have appeared necessary for a short and, I hope, non-contentious Bill.

It may be convenient if I say a little more about the detail of the proposals. There has been some confusion as to whether the proposals involve Government expenditure over and above the substantial support that we are already making available to the industry and that I announced to the House in July. Some of my hon. Friends have rightly expressed concern, and before going on to describe the proposals, I make it clear that both proposals are part of our existing policy. That situation is unchanged and will continue.

We spent the first two or three months in office assessing the position and needs of the industry. In the light of that assessment, we took the decision to enable British Shipbuilders to survive the immediate recession and put the corporation in a competitive position for the future. I believe that the assessment and our decisions were sound.

On the new borrowing limits, at the time when the British Shipbuilders Borrowing Powers (Increase of Limit) Order 1979 was debated in the House on 25 July, I advised the House that £300 million would not be sufficient to last through this financial year. That conclusion followed from the cash limit of £250 million which was set by the previous Administration and which we left unchanged. So far £135 million has been advanced from the National Loans Fund by way of interim finance. In the light of my recent announcement about the permanent funding of British Shipbuilders, that has been replaced by public dividend capital, but that is only a book entry on the account.

British Shipbuilders has also borrowed £33 million in connection with the Polish order and it has a temporary borrowing facility of £30 million. The House will be aware that these external borrowings are with the consent of the Treasury. They fall within the limit imposed by previous legislation and by present legislation in regard to overall borrowing powers.

Mr. Michael Grylls (Surrey, North-West)

My hon. Friend has given us the figures that are central to the debate, but could he give us the total borrowing requirement of British Shipbuilders as of now? That figure would be the National Loans Fund and private borrowing added together.

Mr. Butler

I do not have the exact total. I have explained that the National Loans Fund figure has been replaced by public dividend capital, and with that figure, the outstanding borrowing against the Polish order and the extra £30 million limit, my hon. Friend will more or less be able to calculate the total. The important point is that the forecast still holds good. British Shipbuilders has looked closely at that forecast recently. It expects to exceed the present £300 million in about January. That is why it is necessary to put the Bill before the House now in order to cope with that situation.

During the passage of the Aircraft and Shipbuilding Industries Act. the present limit of £300 million was based on a realistic assessment of the likely requirement of the new corporation during the first five years of its existence. I hope that hon. Members will not press me on how long I believe that the present limits will last.

I should like to make three points that are relevant. First, the increase in the borrowing limits does not mean support additional to that outlined in my July statement. As I indicated a moment ago, British Shipbuilders has assured me that, with the first six months of the financial year behind it, its present estimates are that it will be within its cash and loss limits for this year, albeit reaching the £300 million borrowing limit in January.

Secondly, British Shipbuilders has been asked to make substantial progress towards viability. We firmly believe that if one industry does not in the long run earn a real return on capital employed, support for it will represent a misallocation of resources at the expense of the rest of the economy and employment in other industries. Management and unions are well aware that the future lies primarily in their hands. I would therefore hope that in any event the new limits will last substantially longer than the old.

Thirdly, as I have never hesitated to make clear, the Government remain committed to their policy of inroducing private sector finance to the nationalised shipbuilding industry at the appropriate time. Because of that, it is not possible to estimate the effect that that will have on the borrowing limits.

Mr. Robert Hughes (Aberdeen, North)

Will the hon. Gentleman tell the House what he means by "private sector finance", and state how it is to be taken into the industry?

Mr. Butler

If we were ready to come forward with a policy statement, I should be delighted to do so.

Mr. Robert Hughes

The hon. Gentleman has just made a policy statement.

Mr. Butler

I have made a general policy statement to the House which is an almost word-for-word reiteration of the policy statement of my right hon. Friend the Secretary of State for Industry in July. Because of the fluid state of the industry as we found it when we came into office, we decided that it would not be appropriate to introduce private sector finance at that stage. We remain committed to that general policy. I wish to make that quite clear to the House, as I have to the industry on a number of occasions.

Mrs. Elaine Kellett-Bowman (Lancaster)

Will the introduction of private capital involve returning any particular yards to private ownership?

Mr. Butler

My statement is wide enough to allow for a number of eventualities on the introduction of private finance.

Turning to the second point in the Bill—the extension of the home credit scheme for conversions by United Kingdom owners in United Kingdom yards—I believe that that is welcomed by the shipping and shipbuilding industries and particularly by those companies concentrating on ship repairing. They have been as hard hit as anyone by the recession in merchant shipbuilding activity, and I was pleased to be able to announce that change in legislation in my July statement.

Loans guaranteed under the provisions of the Bill will be normally up to 80 per cent. of contract value over a period of five years from delivery for ships over 5,000 gross registered tons and mobile offshore installations. The interest rate will be the same as for the home credit scheme, which is currently 7½ per cent. These will be the normal terms, but for very large orders which the Government consider to be of special importance credit might be extended up to eight and a half years, the maximum period permissible under our EEC and OECD obligations.

In addition, it may be possible to reduce the qualifying tonnage for ships to 1,000 gross registered tons where there is evidence of officially supported credit overseas. To qualify for the credit the Department will need to be satisfied that radical alterations to the cargo space or hull, or propulsion system, are involved. One action which might be encouraged by this move is the change of engine in a ship for a more modern fuel-saving design overall. I believe that the provision will be of small but significant help to the industry.

In July I detailed to the House a number of measures and ways in which the Government propose to help shipbuilding. I shall review progress in the main areas. The most important area is the progress that we have made with the intervention fund.

Since my statement, we have completed successfully our negotiations with the EEC on our proposals for an intervention fund of £120 million over two years. I remind the House that when we came into office the intervention fund had lapsed for nearly two months. That was a serious obstacle to British Shipbuilders winning the orders that it so desperately needed. The arrangements for an interim intervention fund which I agreed with the EEC unblocked several orders which were in the pipeline.

Moreover, we have achieved an important gain. One of the difficulties has been the time that it has taken to process orders through the Commission. Admittedly, there are complexities with all these orders, but I have shared the industry's frustration at the time that it has taken to put orders through the Commission.

Under our new agreement, orders involving intervention fund assistance below 25 per cent., where EEC competition is not involved, do not have to be submitted to the EEC for approval. I have given that priority within my Department and I have asked that all orders be expedited. That will undoubtedly help to reduce delays in processing orders, which in some instances have put at risk the winning of vital orders. There has been an encouraging and welcome development.

A new intervention fund has been negotiated by the Northern Ireland Office in respect of Harland and Wolff. The same terms apply but with a reduced figure of £25 million.

Since my statement there has been considerable press mention of and interest in the industry. That has been the position since I referred to the possibility of a scrap and build scheme. In principle, the Government have declared their support.

Mr. Bruce Millan (Glasgow, Craigton)

Before the hon. Gentleman leaves the subject of the intervention fund, will he deal with the most serious matter of all, namely, the reduction from 30 per cent. to 25 per cent. of the maximum assistance that may be made available?

Mr. Butler

I am sure that the right hon. Gentleman will be aware that under the fourth directive it was agreed by the member States of the Community that there should be a gradual and progressive reduction in the rate of subsidy available. That is much to be welcomed. Unless there is an agreed reduction we shall tend to get an increase in subsidies offered with no benefit in terms of orders and considerable harm to the taxpayer. In the circumstances, a reduction of the rate within the intervention fund, which will apply to other member States, is to be welcomed in principle.

There is the great advantage of having the fund in the hands of Ministers. As I said in my statement, the Commission will consider extending aid beyond 25 per cent. for exceptional orders.

Mr. Robert Hughes

rose—

Mr. Gordon Wilson (Dundee, East)

Has the Minister managed to negotiate similar reductions in subsidies that may be provided by Brazil, Korea or Japan, for instance, whose yards will be in competition with our yards?

Mr. Butler

First, I have no power to negotiate within the Common Market with those countries. I must try to impress upon the House that no country wishes to indulge in unnecessary subsidies. That is probably the answer to the hon. Gentleman's question.

Mr. David Price (Eastleigh)

My hon. Friend has mentioned intervention, which is a subsidy. Is he aware that it is a total package that can be offered? If I am able to catch the eye of Mr. Speaker, I shall endeavour to put to the House certain figures that I have obtained. Various factors, such as credit terms and moratoriums, produce the total package that British Shipbuilders can or cannot offer to meet competition. Will my hon. Friend carry his discussions further?

Mr. Butler

That is right. My hon. Friend has made an extremely good point. Intervention is only one part of the package, although a major part. It is not easy to establish exactly what different countries are offering. Tables are printed from time to time, but I can assure my hon. Friend that that is not the end of the day. Tax treatment of certain aspects of a company's finances are important. There are a number of constituents that comprise the package, some of which are available to us.

Within the Community we try to ensure that the overall package is fair and as equal as it can be between shipbuilders. If hon. Members have examples of apparent unfairness, I am ready to take them up with the Commission.

Progress on scrap and build has been less rapid than on the intervention fund. We declared our support in principle for a Community scrap and build scheme provided that it was cost-effective and funded according to the benefits received. The Commission has prepared a communication to the Council that sets out the general principles and characteristics of a scrap and build scheme. That has been laid before Parliament with an explanatory memorandum by Ministers. The Commission hopes that from discussion there will emerge a policy on the choice of solutions for implementing such a scheme. However, some member States have expressed doubts, and no one looks to such a scheme as a panacea for our troubles.

It is clear that there is still a considerable way to go before a cost-effective scheme can emerge that commands the support of EEC members. However, I shall continue to press forward.

One of the factors affecting the placing of orders is the cash position of shipowners. That has led to demands for better credit facilities. I repeat the warning that I gave a few moments ago. There are considerable dangers of a credit race taking over from the earlier direct-price subsidy race. As I explained, the intervention fund helped to control that danger. In the circumstances, we have been ready to agree to the new extended OECD limits of credit. However, extended credit is subsidy by another name and it can be costly to the Exchequer.

In July, I spoke of the need for contraction in the industry, in the light of the world-wide recession in shipbuilding. The previous Government recognised that need. Without being rude, it is more relevant to say that it was recognised by those who work in the industry because that recognition brought about the agreement between the management and unions of British Shipbuilders on the proposals for restructuring the industry. I appreciate fully that they were hard and difficult decisions which required a hefty application of good sense. The realistic way in which they were approached and resolved was a real credit to all who were concerned.

There can be little doubt that the restructuring is still essential. It would be wrong and dangerous to be misled by the present small size of recovery in the market. World-wide demand appears to be picking up and orders for the first six months of the year are well ahead on those of last year. However, the position in the United Kingdom is patchy. Demand is still weak and nobody could claim that recovery has extended to the United Kingdom shipbuilding industry as a whole. Many shipyards are still desperately short of work, despite one or two recent and welcome orders. British Shipbuilders will be hard pressed to reach its annual target of about 400,000 tonnes or over.

It is worth examining the figures of the past years, particularly if they are related to the preferred target of British Shipbuilders, bearing in mind the long lead times in British shipbuilding. Let us look at the orders that were placed in the last four years and compare them with the present position. The crisis year for orders was 1975 when the total orders placed in our shipyards reached only 72,000 tonnes. The position improved over the next three years, but the figures are all below 400,000 tonnes. In 1976, there were 393,000 tonnes, in 1977 356,000 tonnes and in 1978 246,000 tonnes. The last figure is the most relevant because it is little better than half the target capacity of British Shipbuilders at this time.

The total orders placed in the first 10 months of this year are already up on those placed in the whole of last year. We have reached a figure of 280,000 tonnes in that 10 months. These are compensated tonnes. If one adds that fact to the general mood of the shipping market, which appears to remain cautious, it can be seen that there is no ground for real optimism.

There is a further risk in the United Kingdom that unless the industry improves its productivity substantially it may catch only the tail of any recovery, provided that the recovery is prolonged enough to take some of the edge off our competitors' appetite for and ability to win orders. That is a reflection on our present general competitive position.

There is little sign of a sustained recovery in the market. My conclusion remains that, on present evidence, British Shipbuilders will continue to find it difficult to sustain its preferred strategy. Action must be taken in the yards. The key essential is the improvement in productivity and the cutting of costs so that further orders can be won. The management and unions of British Shipbuilders are making a joint systematic effort. However, in the end it depends on the individual workers and managers in the local yards. To try to raise productivity in an industry that is chiefly concerned about future orders is an uphill task. Some people say that increases in productivity cannot be achieved unless there are full order books—perhaps it is a case of the chicken and the egg.

If we do not increase productivity, we shall not get the orders. That is where the secret lies. Taking British Shipbuilders as a whole, part of the increase in productivity will come from the restructuring of the industry that has been put in hand by British Shipbuilders and agreed with the unions. Much of the rest of the increase would come if the standard of the industry as a whole were improved to that of the best yards. At the same time, the best yards must improve on their performance.

The first target must be to bring performance up to the world average. I admit that there is a long way to go. The Government have provided a two-year framework of support for the industry, which I announced in July. The purpose of the Bill, which I commend to the House, is the further implementation of that support and not, as I have explained, its increase. The Government share with the management and work force of British Shipbuilders the wish to have a thriving industry that is as good as any in the world and able to compete and make profits. Public money has been put into the industry to help to bring that about. With the public, we now look to those who work in the industry to ensure their own future.

5.17 p.m.

Mr. John Silkin (Deptford)

We are grateful to the Minister for his explanation of the Bill. As he said, it is a self-evident Bill in the sense that it is the necessary financial framework for what we are discussing. He rightly and generously offered what we would undoubtedly have done anyway in our own time—the time to discuss the whole of the shipbuilding industry. That is vital.

First, I should like to ask a question so that the Minister of State can deal with it. Of course, he will have prepared his speech before today's statement by the Chief Secretary. The House should know in what context it will be debating the Bill. Perhaps the hon. Gentleman will tell us whether there is anything new in the Government's thinking as a result of the Chief Secretary's statement that affects what he had to say in July and what he has said now.

Mr. Adam Butler

One of the advantages of having produced a two-year programme for the industry is that it was agreed by the Government. What has been said today in support of the White Paper on expenditure, revealing the Government's plans on that account, does not affect the position as outlined in my statement, as I confirmed again today.

Mr. Silkin

I am grateful to the hon. Gentleman. That is a firm undertaking from the Government, and we can pro-reed on that basis.

Those of us who were interested in this matter at the time of the general election assiduously read the Conservative Party manifesto. The words are worth repeating: We will offer to sell back to private ownership the recently nationalised aerospace and shipbuilding concerns". I do not often find myself in agreement with either the tone or the words of the hon. Member for Lancaster (Mrs. Kellett-Bowman), but on this occasion, without being patronising, I thought that she was extremely shrewd. The hon. Lady asked a very apposite question which got a rather evasive answer. I do not complain about that evasion. I understand it.

What we witnessed last July was a kind of half U-turn. Naturally, I shall not advise my right hon. and hon. Friends to oppose the Bill today. As the late lain Macleod said on a fairly similar occasion "Nobody wants to shoot a one-legged Father Christmas". But what is demonstrated by the July statement and by the Minister's rather thin speech—it perhaps had to be—is that there is a U-turn or the beginnings of a U-turn. My complaint, and the complaint no doubt of some of my hon. Friends, might be that the U-turn is not fully developed. Perhaps I may explain why I believe that to be so.

The Minister very carefully and well went through the points that he made in his July statement as a kind of report to the House on how that statement had developed in the intervening months. I find myself in total agreement with his marshalling of the facts with one slight exception, to which I shall come later. I had done it in exactly the same way in my own notes, so the hon. Gentleman has obviously saved us a great deal of time. He started, as I would have started, with the intervention fund.

The hon. Gentleman seemed to be giving the impression that the result of his negotiations with the Commission on the intervention fund were an example of what I might call the new Europeanism of this Government compared with the rather curmudgeonly approach that some of us—my right hon. Friend the Member for Manchester, Ardwick (Mr. Kaufman) and I in particular—in our respective functions earlier this year adopted with the Commission. The Minister seemed to take the view that the result was a matter of some congratulation to him.

The hon. Gentleman is pleasant and agreeable and it is sad to have to quarrel with him, but I am afraid that I do. I think that this is an illustration of the new Europeanism. We saw an example of it by the Prime Minister earlier today when my right hon. Friend the Leader of the Opposition asked whether November still held good for a total balance of payment and receipt on the budget. He was told "Well, perhaps it did not after all."

The basis of the Government's policy towards the Commission and the Community may be summed up by saying "If at first you cannot concede, try, try, try again." In this instance I have to admit that it was not necessary for the Government to concede. The Government and the Commission were thinking in much the same way. There was no deal to be obtained from the Commission. What was agreed between them as a basic principle was the contraction of the British shipbuilding industry, and that was the basis on which it was done. That is why we had the two-year time limit. Incidentally, the hon. Gentleman and I had better get used to avoiding calling it a two-year time limit. Six months have already gone by. We are talking now of only 18 months. Therefore, when we hear that there has been agreement with the Commission on a target reduction, I repeat, both the Government and the Commission intended to do that, and the two just happened to come together.

Then we come to the really important point—the rate of assistance. When my right hon. Friend the Member for Ardwick was in charge of shipbuilding, he would not have tolerated that for one moment. He knows that in the vast majority of cases—he is nodding his head wisely as he always does on these occasions when I am right, but he sometimes though not always, shakes it when I am wrong—even a 30 per cent. subsidy of assistance on the intervention fund presents great difficulties to British shipbuilders. Now 25 per cent. will reduce the number enormously. It will be interesting to know—we did not hear this from the Minister—the number of cases of intervention assistance at 25 per cent. as against what the level would have been as 30 per cent.

The Minister made much about the concession on what might be termed non-individual vetting. He said that would save a lot of time. If we concede to the Commission in the first place that we will have a limit of 25 per cent., it is hardly surprising that we are not really getting anything at all. I repeat, it would be interesting to know what the Minister and his right hon. and hon. Friends believe will be the effect of that cut. We shall certainly be examining the hon. Gentleman and his colleagues every month to find out the actual effect, and we shall want to know the answers.

Mr. Adam Butler

I do not want to intervene too often in the right hon. Gentleman's speech and therefore I have already let one or two nonsenses go by. I suggest that there is little difference in the rate of ordering. That is already partially evidenced by the tonnage which has been taken in recent weeks when the 25 per cent. has been operating. That is proof of the pudding as far as I am concerned. I think that the Labour Government were all too ready to give away subsidy whenever they could. We are taking a more realistic attitude. I believe that we shall be proved right and will save money for the taxpayer.

Mr. Silkin

That pudding will have to be digested fully for a little while before I can be accused of talking nonsense. It is always better to have the facts before us. With intervention assistance at 30 per cent., we must be able to make better quotes than if it is at 25 per cent. We shall see.

The hon. Member for Eastleigh (Mr. Price) made a very good point in his intervention. He suggested that we should look at the whole thing as a package. That is what I propose to do. By the time I have finished looking at it as a package, perhaps the Minister will see that there is some point in what I am saying.

Mr. Grylls

The right hon. Gentleman, by his words, is encouraging the bidding up of these subsidies, in whatever form they may be—intervention fund or anything else—and that is not in our interest. What is in our interest is a sensible, phased reduction of the kind described by my hon. Friend the Minister of State. That is what we should be after. Surely that is what the national interest is about.

Mr. Silkin

I suggest that the hon. Gentleman—it would be a very agreeable thing for him to do—should perhaps make a world trip at this stage. Indeed, perhaps he might take advantage of the suggestion that he look at what goes on in Brazil and Japan. The fact is that there are no market forces left in shipbuilding any where in the world. Therefore, how we get the orders depends to a great degree on what assistance the Government are prepared to give. That is the basic point that I am making.

Perhaps I may follow again the course taken by the Minister. The Government have now recognised that it is impossible or undesirable to hive off or to sell off part of the shipbuilding industry at this time. Certainly there are very profitable parts of it at any time on anybody's reckoning. But if we sell off the profitable parts, we shall destroy the rest of the industry. The Government know that very well, and that is the reason for the U-turn.

On the other hand, the Secretary of State for Industry has not only himself to consider. There breathing hard over his shoulder is his right hon. Friend the Prime Minister—and a very tough cookie she can be. Therefore, he has to pretend that it is not a total U-turn. That is why we get this rather muddled and dubious explanation of the Government's policies.

The hon. Gentleman mentioned the scrap and build system. I have much sympathy with him. Scrap and build is one of those issues which will be argued about for a long time and I have much sympathy with it. Having spent some time in Brussels negotiations, I know that however much one country may wish to have an issue discussed along the way, it is not always as easy as that. I should like the hon. Gentleman to say which countries, in particular, object to scrap and build. My information is that they are the Federal Republic of Germany and the Netherlands. That may be so or not. From their point of view it would be understandable. The reason for their objection, as I understand it, is that they are slightly more optimistic than the Minister of State.

They believe that there will be a shipbuilding upturn in 1982. Therefore, they ask what is the point of a scrap and build policy when there will be an upturn. They say that the signs of an upturn are apparent now. I do not take that hearsay point of view, but it would be an advantage to the House if it were aware that that was the reason. It might be to the advantage of the House if we knew for sure that those were the two countries concerned.

There is a point which seems to me to relate very much to the scrap and build policy, whether there is an upturn or not or whether there is a prosperous shipbuilding industry throughout the world or not. It is often made by the unions and our shipping owners. It concerns the use of the flag of convenience. The trouble with the flag of convenience is that, while it allows the running of one's own shipping line extremely cheaply, it also allows the use of ships which are not in a seaworthy and navigable state. They are the ships that ought to be scrapped. I hope that at the time that he is considering the scrap and build system—I am not being criticial—the Minister will consider that fact. If we could get agreement on flags of convenience and on improved standards of shipping, it would affect the numbers of orders for new ships.

In July the hon. Gentleman mentioned the question of credits for conversion and he has touched on the issue today. It is dealt with in clause 2 of the Bill. My right hon. Friend was pledged to introduce such credits anyway and I am very glad that the Government have introduced them. Related to the question of credit is the question of improved credit terms. Here I find myself very much at variance with the hon. Gentleman. I quote what he said in July and what, in other words, he said today: Substantial over-capacity exists worldwide".—[Official Report. 23 July 1979; Vol. 971, c. 41.] That is true, but the capacity of the United Kingdom has remained the same over those years. For many years it has neither declined nor increased. There was a great expansion in shipbuilding, largely in Japan and Korea, in the early 1970s. Such expansion did not take place here, though we did get an increase of orders in 1975. What happened in the world generally was that in 1974–75 the bottom dropped out of the shipbuilding market.

There are those who say—and it is a logical and understandable view—that those who made that unnecessary expansion should be the first to contract. It is the good trade union principle of "last in, first out." However, I do not quite see how it could be achieved. I fear that it is impossible. Nevertheless, some things can be done. I was interested in the shrewd and apposite speech made by Mr. John Parker to the Royal Institution of Naval Architects on 17 October. He said: The importance of providing improved credit, particularly to United Kingdom owners, in line with the terms provided by other EEC countries to their domestic ship owners, ordering at home, cannot be underestimated. I agree with that. We give credit terms to United Kingdom owners of up to 70 per cent. of new vessels at an interest rate of 7½ per cent. When we compare that with Belgium, as Mr. Parker did, we find that their credit terms are 90 per cent. over 15 years with 1 per cent. interest on the first 80 per cent. and 6 per cent. on the balance.

If the hon. Gentleman wants to congratulate himself on his dealings with Europe, perhaps he will take those figures into consideration. As a result of my experience in Brussels, I suggest that he goes unilateral on this one. He should increase the amount of credit and lower the interest terms. In that way we will begin to get something of a package. I do not believe that what the hon. Gentleman achieved on the intervention fund was worth very much. Coupled with this, however, one would begin to see some changes and it is ludicrous to pretend that we are living in a market forces world. I do not believe that that is desirable anyway, but it is not true. We are living in a world in which all shipbuilding nations subsidise the building of ships. For goodness sake, let us do it efficiently.

The Minister made a point in his July statement to which he did not refer today. I am surprised that he did not, unless there is nothing to report. I said at the start of this debate, and the Minister agreed with me, that this was a kind of report-back to the House on that July statement. What he mentioned then, and has not discussed at all today, is the question of public sector orders. We still have the fourth largest merchant marine line in the world. That is something worth preserving. So why does not the Minister mention what is happening to public sector orders? On that subject he said, speaking of the Government, they will advance public sector orders where practicable."—[Official Report, 23 July 1979; Vol. 971, c. 42.] Did such orders not turn out to be practicable? What happened?

My hon. Friend the Member for Birkenhead (Mr. Field) asked whether the intervention fund would be used in the case of public sector orders. The Minister replied, fairly and honestly, that the fund would be used where appropriate and practicable. At 25 per cent. it must be appropriate in every single case now. There is not much dispute about that. I put a point to the hon. Gentleman which has some bearing on today's earlier statement and on the reply that he made a moment ago. Where these public sector orders, which he promised would be advanced and of which he gave no details today, take place, the intervention fund will apply. What about the cash limits of the industry concerned? Are they to be cut so that the public sector orders will not be made? The House would like to know the answer.

It is no good the Minister saying that everything was cut and dried after his July statement. Is it so cut and dried? The House was promised in July that public sector orders would be advanced. I hope that we are not to be told that cash limits are to be cut. This is an important matter not only in terms of achieving orders for shipbuilding. It is important that those orders go to British shipyards. There is a curiously proliferating and repercussive effect involved.

On 27 October 1979 a report in the Financial Times stated: The British Rail Board has turned down a request for a new £15 million to £20 million passenger ferry from Sealink UK. The order would probably have gone to Harland and Wolff of Belfast. That is one reason why that article is not particularly appropriate to our debate, but I use it as an illustration. The article continues: But the BR Board has turned down a request for a new ferry because of current fixed investment costings for British Rail. If that is so, the Minister of State and the Secretary of State should exert a little pressure on the Minister of Transport because Sealink clearly regards this as important. It would provide work and help trade, but for some reason British Rail could not comply with the request. Even if the story is not true—and I do not know whether it matters that it is—it serves as an illustration of how one industry can help another and how, between them, they can help the country.

I apologise once again for referring to the correspondence between the Minister of State and my hon. Friend the Member for Birkenhead. I shall not steal all his points. The correspondence also deals with overseas aid. In the past we have supplied ships to countries which needed them and to countries in the Third world. The Minister of State appeared to be taking a passive line. I expected that this new dynamic Minister of State, in this new dynamic Department, would be falling over himself collecting orders and putting British shipbuilding back on its feet. Not a bit of it.

In July, the hon. Gentleman said he was going to act. I hope that he had a good vacation. Evidently it was quiet. I know that he visited a few yards. He might have been better employed visiting a few other countries or persuading the Minister for Overseas Development to do that for him. It is not enough for us to say to a country that if it makes a proposal for overseas aid related to ships we shall consider it favourably. That is not the way to get orders. One must go out and get them. It is important that we do that. Merely sunning oneself in the shipyards of Britain in the summer is not the way to get orders.

When they were in opposition, Tory Members made a song and dance about the Polish order. They said that it was a terrible decision. They laughed, jeered and insulted. However, the first report of the Public Accounts Committee vindicates the Polish order. Perhaps that is because the election is over and the Government see no electional advantage in that issue. To those who make British ships that issue was important. It kept the industry going at a difficult time.

I wish to make some positive and constructive suggestions about public sector orders. I shall resist with difficulty trying to give advice to the Minister of Agriculture, Fisheries and Food about what he should tell the Brussels Eight about the common fisheries policy. Whether or not he surrenders to the common fisheries policy there will be a reconstruction of the British fisheries fleet. There is no doubt about that. Our experience has shown that the possibilities exist.

One of the actions of the Labour Government was to forbid our North Sea waters to Soviet fishing vessels. However, we said that the Russians could bring their ships into our waters and buy the fish caught by our fishermen. That is a useful trade. There is no reason why we should not send our fishing vessels as factory or storage ships to the waters off Iceland and Canada to buy the cod and herring which has been caught by the fishermen of other countries.

We need a new type of fishing fleet which will meet the needs of the middle water rather than the deep water fleet. We need a fleet which is up to date in the sense that it can be used to buy fish and bring it back. These requirements should be considered now.

My positive suggestion is that the Minister should ask the Minister of Agriculture to call a meeting of the fisheries' owners, the unions and the processors to see whether a reconstruction can be set in motion immediately. A reconstruction will occur whether or not the Minister sells out.

Mr. Adam Butler

I am interested in what the right hon. Gentleman says because of the experience that he gained in the important post that he held in the last Administration. If he had been with me yesterday at the Scott Lithgow Kingston yard, standing in the rain, he would have heard me say that I thought that there would be an increased demand for fisheries protection vessels. I am glad to have that view confirmed.

Mr. Silkin

I am glad that the Minister intervened, but he has stolen my next topic—fisheries protection. I do not expect undertakings today, but I hope that the Minister of State will take what I have said on board and see what can be done. It is important.

Other actions can be taken in the public sector. I refer to offshore oil-related work. I am no technician in this regard. My hon. Friend the Member for White-haven (Dr. Cunningham) probably knows more about this subject than I shall ever know. There is room for advancement of orders in that sphere.

There is a demand for British marine engines. There are essential to maintain our capability in slow-speed diesel engines. The industry should be encouraged with every effort that the Government can make. There is a symbiotic relationship between one industry and another. One cannot compartmentalise them and say that because shipbuilding is in the doldrums it should be contracted further, hoping that in two years' time the manifesto difficulties will have been overcome and it can be expanded again. The tragedy is that, if an industry is contracted, it is not easy to expand it again. It is much better for the industry to be kept going. One industry assists another. If both industries help one another, the natural result is that the country benefits.

It does not matter whether the worst of the recession will be over by 1982. It does not matter whether the Minister is optimistic or, as I think is the case, pessimistic, and that the Germans are optimistic. This is not the time to be cutting. Two years, or 18 months, is far too short a period. We are dealing with a traditional and vital British industry. One journalist, commenting on my remarks in July, wrote that it was strange that we should be boasting about traditional industries. I do not apologise. That traditional industry, like our own long and splendid Labour tradition, has a traditional work force. It contains people who know and love their job.

It is all very well for the Minister to talk about low productivity, as though it is all the fault of the work force. If we examine what the work force has done, it can be seen that it has accepted a drastic cut in manpower with greater good will than one could expect. The number of separate wage negotiations has been cut. But the Minister made no reference to that. The workers worked over their holidays. To assume that 12,300 families will accept, with great joy, being told that they are worthless is an approach without any degree of imagination or compassion.

We are seeing an individually disastrous policy. I believe that, nationally, it is counter-reproductive. It does not arise from anything that has occurred in British shipyards or British Shipbuilders. It arises from the policy of the Government. The Tory manifesto said: Too much emphasis has been placed on attempts to preserve existing jobs. We need to concentrate more on the creation of conditions in which new, more modern, more secure, better paid jobs come into existence. This is the best way of helping the unemployed and those threatened with the loss of their jobs in the future. What on earth does one do with shipyard workers? Where do they go? There is nowhere to go. Nearly half of the workers are over 45. Where do they go? One in five is over 55. Where do they go? They are concentrated in regions where male unemployment is, in some cases, double the average figure. In Tyne and Wear, there is 10.5 unemployment. It is the same in Strathclyde. In the shipyard areas, the unemployment rate is higher. Is this really such a sensible policy, even viewed with the balance sheet mentality of Conservative Members?

The cost of keeping a man out of employment in the shipyards is £5,000 a year more than keeping him in employment. We have not seen much sign of great new job creation. In the North-East, the cost of creating alternative jobs is £13,000 per worker. The truth is that the usual, smooth Tory arguments which are always put forward in discussions on industry do not apply. There is no competition from imported materials. There are no new models, no research and development, and not even an enormous capital structure to worry about. I do not believe, after the slimming that has already taken place, that there is over-manning to maintain capacity.

I have remarked that this is a traditional British industry and that we should be proud of that fact. The men who work in the industry are proud. They know perfectly well, as the Government do not know, that a recovery will come. It may not come by 1982. But it will come. Those men are proud to work in the British shipbuilding industry. They are proud to provide ships for what is one of the great merchant shipping fleets of the world. This is no time for the Government to be considering the destruction by half-hearted measures of such an important industry. The Minister has done half a U-turn, although he dare not admit it to the hon. Member for Lancaster and others. I say to him, "Complete the job, and do a full U-turn".

5.56 p.m.

Mr. Michael Grylls (Surrey, North-West)

I am glad to speak after the Opposition spokesman for industry. In his relatively new role, he allowed his excitement to run away with him and hyperbole to feature throughout his speech. I enjoy hyperbole, but it bore no relation to practically anything that my hon. Friend the Minister had said.

I want to mention redundancy. The right hon. Gentleman accused my hon. Friend, with whom I have had the odd disagreement, of a lack of compassion. His speech, in fact, was full of compassion and concern about redundancies and inevitable retractions in the shipbuilding yards. The right hon. Gentleman tended to destroy his speech by making those comments.

Mr. John Silkin

I promise not to intervene again. I was not referring to a lack of compassion. I spoke of lack of imagination or compassion. The Minister is clearly a compassionate man, as I think I said. The inference is, therefore, that he has not much imagination.

Mr. Grylls

I can only say that the right hon. Gentleman's speech conveyed the impression that I have described. Both sides of the House would agree that with one or two exceptions, our shipyards, geographically, are situated in very difficult parts of the country, where unemployment is high. Everyone would agree that the question does not merely consist of handing the work force its redundancy pay to leave shipbuilding and get another job tomorrow, but the House has agreed that when shipbuilding workers and those in the steel industry are made redundant they are given substantial redundancy payments.

That happened under the last Labour Government. It was not opposed by the then Conservative Opposition. In the shipbuilding and steel industries, these payments are added on top of the national scheme. The effect of the workers losing their jobs is cushioned for a time to enable them to find new jobs. I hope that some will start up a small business, such as a shop or an engineering business.

I want to refer to what I call the new sickness. I am not referring to appendicitis or meningitis, or any similar disease. I am speaking of a new disease called nationalised industry-itis. It seems to have become prevalent in Britain in recent years. In considering this Bill, which concerns the newest of the nationalised industries, it might be worth while to see how this disease is caught. First, one finds the industry and then threatens to nationalise it, as happened with the aircraft and shipbuilding industry.

While the House argues in its debates on nationalisation the industry inevitably runs down. It is then nationalised. Then, inevitably, losses build up and the borrowing requirement increases, time after time. People claim, perhaps rightly, that we must have such-and-such an industry—be it steel or shipbuilding—and maintain that, regardless of losses or the problems involved, the taxpayer must foot the Bill. Borrowing limits increase and redundancies occur.

These are some of the symptoms of nationalised industry-itis. They are followed by an increase in the bureaucracy of the industry. We have seen it with the British Steel Corporation and, recently, with British Shipbuilders. There is a plurality of offices—new offices for this, and directors for that. There are offices in different parts of London, Newcastle and Hong Kong. As the losses pile up, the House of Commons becomes more confused. Perhaps the House is thinly attended tonight because hon. Members accept that this disease is so acute that they can do nothing about it and cannot contribute to its cure.

I can give the example of one of the corporation's subsidiaries. Last year Robb Caledon Shipbuilders Limited had a loss of £11.7 million on a turnover of £12.4 million. What sort of Fred Karno's navy is that?

Mr. Ernie Ross (Dundee, West)

Does the hon. Gentleman accept that Robb Caledon can build ships to the very limit of existing technology—a fact that was accepted by the owners of the New Zealand ship that has just been completed? In a public statement they said that the technology involved in that ship clearly demonstrated the skills that existed within the yard. Does the hon. Gentleman also accept that the yard has had no investment whatsoever, yet it can still produce ships to a level of technology that so impressed the owners that they suggested that they would place further orders in that yard?

Mr. Grylls

No doubt that is true, but during the four years of debate on the question whether nationalisation would go ahead no owner would invest in Robb Caledon. However, it is not true to say that Robb Caledon has had no investment. Investment was made in the past, but with the threat of nationalisation for so many years the yard was inevitably starved, because of the doubt and uncertainty. If the hon. Member had been in the House at that time he would have seen that that is what happened. That, in general terms, is part of the disease that takes hold during the build-up towards nationalisation.

Mr. Gordon Wilson

Will the hon. Member accept that the Robb Caledon yard did not make the loss that he has claimed? If he looks at the accounts of British Shipbuilders he will see that a large proportion of the loss made by the Robb Caledon group, which encompasses three different commercial enterprises, was made in connection with an enterprise at Burntisland, which closed down with substantial losses.

Mr. Grylls

I gave those figures as an example. I certainly wish Robb Caledon no ill—I wish it great success. I hope that it will turn that very bad 1978 result into a much better result for 1979–80. However, that is the sort of thing that can happen when industries are paralysed as a result of threats of nationalisation.

My hon. Friend the Minister of State is now the doctor in charge of seeking to cure the disease. If I may mix metaphors, he is confronted with a bed of nails. I congratulate him on getting to grips with the disease. It may have been a little ungracious of the right hon. Member for Deptford (Mr. Silkin) to suggest that my hon. Friend spent the summer sunning himself, because I know that my hon. Friend spent most of his time visiting shipyards and getting to grips with the problems. He faces great difficulty, and his review this afternoon was helpful and right.

I do not think, however, that the House of Commons is in a position to tell any industry how it should run its affairs. My hon. Friend made that clear in his dealings with British shipbuilders. He does not want to breathe down the corporation's neck. What, then, are we to do? Are we to discuss the intricacies of the position on world orders for shipbuilding, what the yards should do, and whether Robb Caledon, for example, should or could diversify into different businesses? That is something in which I am most interested. However, whether or not it happens, I do not believe that it is our role to tell the company what to do.

Our role in this debate, which is concerned with taxpayers' money, should be to ask the Minister why the immense sums specified in the Bill are now necessary. Of course, we accept that there are losses and that they have to be met during the difficult period when we must get British Shipbuilders on to its feet. But the House should be fully aware that it is being asked to sign a cheque of up to £600 million. The Bill is an expensive piece of paper. It was with that in mind that I asked my hon. Friend the Minister of State for the current total borrowing of the corporation. It is important to try to determine the position of British Shipbuilders today and why it needs this large sum of money.

To that end, perhaps I may give a few figures. At 31 March, in the last accounts, drawings by British Shipbuilders on the National Loans Fund totalled £55 million. Its private sector loans at that time brought the total borrowing level to £101 million. In a recent parliamentary answer I was told by my hon. Friend that the National Loans Fund money had risen from £55 million to £135 million since the end of March and that it was to be converted into public dividend capital.

The House should be aware, therefore, that under the change British Shipbuilders, while it paid interest on the National Loans Fund money—I calculate at about £20 million a year—will not pay interest on the public dividend capital until it can afford to do so. That is the strange way in which nationalised industries are operated, and it is an aspect that many of us on the Conservative Benches do not like. Therefore, the corporation, in not paying the interest, will be enjoying a subsidy, paid by the taxpayers, of about £20 million a year.

If the corporation's borrowing requirement is, according to my hon. Friend's calculation, £185 million, is it necessary, bearing in mind the taxpayers' interest in the matter, to increase that amount to £600 million, as proposed in the Bill? My hon. Friend the Minister of State will have no difficulty in getting the Bill through the House. No one will go to the stake about it on the Conservative side, and the Opposition will approve it. We support my hon. Friend in his very difficult job, but we are entitled to ask whether it is necessary to provide for such an enormous increase in one jump.

Perhaps more important, is that a good discipline for British Shipbuilders? I hope that my hon. Friend will have second thoughts on that score.

We are currently restricting and restraining public expenditure—a course of action that I support 100 per cent. However, it seems a little unnecessary to provide for such a huge cushion for British Shipbuilders to have at its disposal while it is trying to get on its feet. If the borrowing limit were to be raised by, say, £300 million, British Shipbuilders would be bumping into the present limit of £300 million by January 1980. Why not raise the borrowing limit by £400 million? We know that the loss in the current year will be around £100 million. That would provide the corporation with a reasonable ceiling. If necessary, I would prefer to have a series of Bills such as this. The Minister could then say that he had raised the limit by £400 million and then say, in June 1980, he would have to tell the House that another £100 million was needed. If he makes a compelling case—and I think that he has made a compelling case—for giving British Shipbuilders the benefit of the doubt and as much support as possible, I do not think that the House will be ungenerous. It will understand that a little more leeway is needed to keep the corporation on its feet. But I believe that to give such a huge blank cheque of taxpayers' money in one fell swoop is a mistake.

Mr. Adam Butler

I am delighted that my hon. Friend has put his finger on the central point of the debate—taxpayers' money. As for his phrase "a blank cheque", I remind the House that of course it is not a blank cheque. British Shipbuilders is now, and will continue to remain, subject to loss limits and cash limits laid down by Ministers.

Mr. Grylls

I understand that, but this is the last that hon. Members will see of the matter. Once we have increased the borrowing power to £600 million, our control goes out of the window. I am merely suggesting to the Minister that he might find it more convenient to have the support of the House in a more modest raising of the borrowing power. I ask him to give careful thought to the matter. I do not expect him to give an answer now, but I ask him to think again about the total amounts during the passage of the Bill through Parliament.

We have talked about the intervention fund of £120 million over two years. I hope that the Minister or another member of the Government can give us some idea of the way in which this sum will be tapered in the future. This amount covers two years, but what will happen in 198182? Is it expected that the sum of £60 million per year will be halved from 1981–82 onwards? In an exchange with the Minister on this subject I pointed out that it must be in Britain's interest to secure a general decrease in these subsidies—whatever their form—throughout the world. It will be difficult. Within the EEC context, my hon. Friend has tried hard to do that. But it is important that we should go outside the EEC and the OECD forum. We should try to get the Third world countries, Japan, and Brazil, to reduce their subsidies. That is much more likely to be a constructive way of dealing with the matter than the way suggested by the Shadow Spokesman—bidding up and paying more and more. That would be a road to ruin.

The House should be concerned with the losses of the industry, because, again, that is part of the support that the taxpayer has to give. During its first year, British Shipbuilders lost £108 million. In its second year, to March 1979, it lost £56 million. During the current year it is expected to lose £100 million. I am sure that the House wants to know what steps are to be taken to reduce this loss. Are we to be talking here in five years' time of another £100 million for British Shipbuilders?

When my right hon. Friend the Secretary of State for Industry came into office he quite rightly told the British Steel Corporation that it had two years in which to get on its feet. It is a very good thing in life to have a target. It concentrates the mind. People know what they have to do. It may be that support has to be given, but I believe that a much tougher target should be put before British Shipbuilders, so that it will come to profitability in a shorter time than has been suggested.

Through Parliament we have provided for a fair cushion for people who are made redundant. There is evidence that when the Haverton Hill yard, on Teesside, was closed down last April and voluntary redundancies were asked for, there was immediately a queue of people wanting to accept redundancies on the terms offered. Clearly, the people on Teesside did not think that it was like being lined up by the Ayatollah and shot at dawn. The prospect of getting a large sum of money was attractive to them. I believe that we should be generous in these matters.

A plan has been put to the unions by British Shipbuilders and the unions have broadly accepted it. After a go-slow during the summer British Shipbuilders said that redundancies would not be enforced and would take place only by negotiation. I do not quibble with that. I suggest to the Minister, however, that the approach of British Shipbuilders seems to be somewhat casual, wishy-washy and nebulous. If this were a private sector company asking a bank for a loan of £600 million, it would be very unlikely to get it. Banks will help people when they are in difficulties if a convincing case is presented and people are prepared to economise and be sensible. I appreciate the Minister's difficulty, but I am not convinced that the plan put forward by British Shipbuilders up to now is sufficiently firm. I believe that this view is shared by many people.

I suppose that the expenses of the British Shipbuilders' headquarters represent only a relatively small amount of the total expenditure, but it is very important to set a good example. If British Shipbuilders is in a very bad position, with a bad market, and so on, and has to tell people that they are to be made redundant, is it not fair to expect that those in the headquarters should also economise, try to manage with fewer offices and staff, and perhaps have fewer Jaguars lined up outside the building in Newcastle? It would be good example to set to the industry as a whole.

Why does British Shipbuilders need such a big bureaucratic layer on top of the yards? We have some marvellous yards. I refer again to Robb Caledon, which has had such a long and distinguished history. Never in the past did it require a bureaucratic layer on top of it in Newcastle, London or Hong Kong. It managed with its offices in Dundee. Other companies also had their offices where their shipyards were. The Minister might well look at that aspect and ask for an example to be set.

Mr. Don Dixon (Jarrow)

The hon. Member has spoken of the intervention fund and of his concern that the basic industries of this country should be protected. We seem to give a blank cheque in support of the common agricultural policy but will he agree that the CAP should be given the same sort of period in which to put its house in order as he is suggesting should be given to the shipbuilding industry?

Mr. Grylls

The hon. Gentleman and I are agreed on that. You would not allow me to speak on agriculture in a shipbuilding debate, Mr. Deputy Speaker, and I do not know much about agriculture, but I know that there are things wrong with the CAP and that the Government are actively trying to get them put right. My right hon. Friends the Prime Minister and the Minister of Agriculture have made robust statements, and I agree that we should take a firm line on the CAP.

There is concern among the remaining private ship repairing companies that the nationalised ship repairing yards are undercutting the private sector by up to 30 per cent. That is damaging to an important part of our industry and it will do no good for the nationalised industry, either. Ship repairing in British Shipbuilders accounts for 6 per cent, of the work force, but for 36 per cent, of the total loss. There is obviously something wrong there. I hope that the Government will be firm in ensuring that there is no excessive price cutting by the nationalised yards.

The Minister of State was involved in a fracas over denationalisation. Here I declare a personal interest, but I do not speak from a personal point of view, because a national interest is involved. It is important that the Government should declare where they stand on denationalisation. Our position was made clear in our manifesto.

Presumably we cannot offer yards back to the original owners until we have paid them for the yards. The yards have been nationalised for two and a half years and only the most minuscule payments have been made to the former owners. That is industrial highway robbery. There is nowhere in the world, except perhaps in Communist countries, where one can take an asset away from someone, hold it for two and a half years and say that it will be paid for when a decision has been made about how much the asset was worth.

When he was the Conservative spokesman on industry my right hon. Friend the Member for Bridgwater (Mr. King) said, about the parent companies: What they must have in order to make good their loss, is what I have just described; namely, the total cost of the physical assets, the stocks and so on, plus the goodwill element, in other words, the asset value of the Company to be nationalised. Lord Carr said, in another place: There is no other way in which the parent company can replace that which is being lost, and to replace what is being lost is, according to Lord Melchett, the purpose of the Bill."—[Official Report, House of Lords, 25 October 1976; Vol. 376, c. 204.] That has not happened. Payments have been limited.

There are strong arguments, in the national interest, for warship yards to be returned to their former owners. As far as I know, those owners want them back. In an interview in British Shipbuilding News, my hon. Friend the Minister of State said, in response to a trade unionist who asked about denationalisation that he felt that the arguments were very much in favour of denationalising the yards and that it was in the interests of the workers concerned that denationalisation should take place.

This is not a doctrinaire question; is an industrial question. The warship yards are being neglected. If a yard is one of only two or three profitable yards in an organisation that is generally unprofitable it will be neglected, because the investment will go not to profitable yards but to keep the whole organisation afloat. The British Shipbuilders' report for last year shows that the amount of investment in new plant and technology was small, because the organisation could not afford any more.

If the yards were returned to their former owners they would not be neglected. They would have the continuing investment that they had before. It is a reasonable rule of industrial policy that one should invest in success, and that is not happening with the warship yards.

Since nationalisation, the warship yards have had no orders of consequence from foreign navies. They get orders from the Royal Navy, which is fine, but it is important that they should also get foreign orders.

I hope that the Government will bear in mind that there is an element of national interest here. Of course there is a business interest for the previous owners, but that is perfectly reasonable. They had an asset and they would like it returned to them. They have nothing for which to apologise.

My right hon. Friend the Secretary of State has said that the Government do not intend to carry out any denationalisation at present. For the reasons that I have given, we must not leave it too late, because the yards may be neglected so much that the former owners may not want them back. The yards will then remain nationalised and will become progressively weaker until we cease to be a world warship builder.

I accept that the shipbuilding industry needs to be supported in the short term, but I believe that we need to set a time scale for a return to profitability. I am not convinced that the Government need to ask for such an enormous sum as £600 million. Despite what my hon. Friend the Minister of State said, the House and the public will regard that sum as a blank cheque.

I hope that the Government will look at that aspect again and will tell British Shipbuilders that sharper discipline, tighter control and more restraint are likely to bring the organisation back into profitability much quicker, which is presumably what we all want to see.

6.28 p.m.

Dr. David Clark (South Shields)

It will come as no surprise to the House when I say that I am able to agree with hardly a single word of the speech of the hon. Member for Surrey, North-West (Mr. Grylls). It is hard to imagine a greater gulf in politics than exists between the point of view of the hon. Gentleman and that of my hon. Friends.

The hon. Gentleman sees the problems in shipbuilding—as he sees so many other problems—in relation to the balance sheet. Throughout his speech he referred to pounds and pence, and profit and loss. My hon. Friends and I accept that those considerations are important, but we believe that there are many more important aspects. I know that my colleagues from other shipbuilding constituencies think of their constituents—men, women and families who have worked in the yards, often for generations. We, as a nation, owe a great deal to the shipbuilders of those shipbuilding areas.

I want to take up a few of the points that were raised by the hon. Member for Surrey, North-West, because at one stage I thought that he was perpetrating a myth. I believe that the phrase he used—I apologise if I am slightly wrong—was "the generous redundancy payments which were provided for redundant shipyard workers." I want to nail that lie.

I served on the Committee, as did the hon. Member for Surrey, North-West, and he will recall that there was much press publicity about redundant shipyard workers receiving £10,000. When we pressed the Government on this matter we discovered that only one worker had ever achieved that sort of sum. That needs to be spelt out, because the popular press is too glib in its use of the cheap adjunct. I disagree fundamentally with the hon. Member about that, and I urge the Minister not to follow his advice.

With respect, I believe that the viewpoint that the hon. Member for Surrey, North-West represents is the reason why this country suffers from the present industrial troubles. From my own experience on what I might call the worker side, management of the ilk of the hon. Member merely exacerbated the problems.

We welcome the Bill. It is basically the type of Bill that we would have had to bring forward had the results been different last May. We welcome the increased borrowing powers, and especially the second clause, which puts right an annually over credit for the ship-repairing industry.

In discussing the Bill we must also look at the Government's overall shipbuilding strategy. If I appear to the Minister to be carping and aggressive, I do not wish to be so. But he must understand that we who represent areas of high unemployment are concerned. I do not know whether the Minister understands that male unemployment in my constituency, as of this month, is 16.2 per cent. We rely heavily on shipbuilding and ship repairing. Therefore, if we seem extremely critical of the Government's actions it is because we are concerned. We shall welcome the Minister's initiatives when they are right, but we shall watch him very closely. If at times we appear to be passive and quiet in our approach, the Minister should not underestimate our resolve and determination on this point.

When I look at the Government's strategy I find that there are certain matters that greatly concern me. The Minister made great play of the fact that he had obtained £120 million. He presented it as a triumph. There are those of us who hope that it is a triumph but who also have grave doubts. We are very conscious that the Labour Government put in a bid for £85 million. What did we get? In 1979–80, with inflation of, say, 17–20 per cent, we will get £65 million, and for the following year, when inflation will be greater because of the cumulative effect, we will get not £65 million but £55 million. Clearly, the level of finance available from the intervention fund in two years' time, when the upturn may come, will be much less than it was in the past year.

However, that is not the key point of the Government's strategy. The key point is the maximum subsidy of 25 per cent. I can see the Minister's argument, and the logic of trying to obtain mutual agreement to bring down the maximum subsidy level. I would go along with it if it were agreed with the GATT or the OECD, and included Japan, Korea and Finland, but it does not. All that it does is tie our hands and, perhaps—I use the word "perhaps" advisedly—the hands of some of our Common Market competitors.

We have not taken up all the leeway that we could have done within the EEC rules to help the British shipbuilding industry. My right hon. Friend the Member for Deptford (Mr. Silkin) mentioned the speech of John Parker on 17 October, in which Mr. Parker published a table of the level of aid given to the shipbuilding industry. The aid given by our country is less in every way than in any other country within the EEC. That is some thing that we must look at very closely.

I understand that the maximum subsidy is not 25 per cent., but 23 per cent., be cause of the 2 per cent, shipbuilders' be lief that has traditionally been allowed—certainly since 1972. Is the Minister aware that there is extreme concern among the shipbuilding unions about the marginal effect of this? We are talking about a marginal effect. One ship a year, as the Minister knows, means earnings for a man for two or three years. I fear that the Minister's triumph will not be a triumph in fact. It is an added difficulty to the Herculean efforts of British Shipbuilders in trying to attract orders. I hope that I am wrong.

The Minister referred to the EEC scrap-and-build programme. I am very happy that that has been agreed. The unions in the shipbuilding industries throughout Europe have pressed for this, and welcome it. Will the Minister, who says that he is in favour of this in principle, answer two categoric questions? He may not be in a position to answer them immediately, but perhaps he will do so at some time in the future.

Will he give me a categoric assurance that he is not only in favour of the scrap-and-build programme in principle but is prepared to put his money where his mouth is? Will he give an absolute commitment that the Government will put up some money if it is agreed within the Community to have a European scrap-and-build programme? I hope the Minister will be able to take that upon himself. Will he also seek the opportunity, either at the next meeting of the Council of Ministers later this month or at the following meeting, to try to ensure that the Commission's proposals for scrap-and-build are on the agenda for discussion by the various Ministers? If we are to sustain and retain the capabilities of the industry over the next few years—which we all agree are criticial—it is absolutely vital that we get that scrap-and-build programme off the stocks as soon as possible.

As the Minister has implied, all our shipbuilding industrial strategy is interlinked with the EEC. On 17 October the EEC announced a special facility of non-quota regional finance for shipbuilding areas covered by the right hon.

Gentleman's own Department. That announcement states that £11 million would go to the improvement of the physical environment, encouragement of small and medium-sized enterprises and industrial innovation in those areas affected particularly by the difficulties of the shipbuilding industry. That is very important for areas such as South Tyneside, in my constituency.

My authority is very poor. We are the smallest metropolitan district anywhere in England. As the Minister knows, we have a very high level of unemployment and a very low rateable value. We are often not able to take advantage of Government schemes because of the additionality factor. As my hon. Friend the Member for Jarrow (Mr. Dixon) knows—he served for many years on the council—we simply cannot meet, pound for pound, the cost of our rate contributions. Will the Minister look into this matter and give us an assurance that the additionality factor will not apply?

I give the Minister just a small example. Early this summer I had a rather tragic experience. I was called to a meeting of parents of young people in my constituency, at a firm called Peter Johnson, which was connected with shipbuilding, outfitting, plumbing, copperwork and that sort of thing. A number of young people had been offered formal apprenticeships with this firm last May. In August the firm wrote to these 12 youngsters, most of whom were very bright and had turned down other apprenticeships, saying "We are sorry. We are not able to take you on." The firm terminated the apprenticeships before they started, only a week before they were due to attend a technical college. I am sure that all hon. Members would deplore that. Worse was to come three weeks later, when the firm announced that it would be closing.

Not only must we try to find jobs for about 300 people; we have a number of potential apprentices for whom we must try to find alternative employment. With commendable speed and spirit, the local council is doing what it can to try to acquire the land upon which that firm was based. It already has a taker for part of the building. That is the sort of scheme, of which I hope the Minister will approve, which would benefit from EEC financial aid. We would very much welcome the Minister's help in that area.

I venture along two more avenues. My right hon. Friend the Member for Deptford has made the point about public service orders. The Minister mentioned this matter in July. I ask him specifically how many orders have been advanced. This matter is absolutely crucial. The Minister has the spirit. Let us see how good the Government have been in advancing the orders.

Secondly, I draw the Minister's attention to the position in the nationalised industries. In the summer I was again disturbed to read that a nationalised industry, British Steel, had chartered a ship that had been built in Scandinavia and had been bought by Ladbroke, the betting firm. When we have a national steel corporation, the National Coal Board and a nationalised shipbuilding industry, there ought to be much greater co-ordination between these bodies. Will the Minister take that matter on board to see whether there is any way of improving the relationships and the conduct of the nationalised industries at top level in this sort of sphere?

Finally, I touch on ship repairing. The Minister has been urged to de-nationalise and to sell back to private enterprise. I remind him that the repair yards in my constituency were under private enterprise. They went bust under private enterprise, and they were nationalised by his Conservative Government in 1972—if my memory serves me aright—because they had failed under private enterprise. Therefore, Labour put them under public enterprise. The men appreciated that and have had a very good agreement with the employers, to which they have kept. There has been a no-strike agreement, which has been adhered to. I think that everyone will pay the unions credit on that point.

I raise another point in relation to that matter. Has the Minister any thoughts about the building of modules? This might be a forward-looking approach. For example, I gather that the Redhead yard, in my constituency, was to be used for this purpose, but it seems to have been on a care and maintenance basis for the past two or three years. We would welcome some information on that point.

In conclusion, we welcome the Bill. It is a step forward. We are suspicious of the Government. The Minister would be surprised were we not suspicious. At times the Government have given notice of good intent, but we want a bit more than that. I return to the point that I made about the scrap-and-build programme. We want more than just a verbal assurance that the Government are in favour of it in principle. We want a categorical statement that they will put some money there.

Shipbuilding is not like an exhausted mine or a worked-out quarry. We shall need the yards again at some time in the future. This country will always need ships. I urge the Minister to stand up for the British shipyards in his dealings with the Community in the same way as the French stand up for their traditional industry of agriculture.

6.45 p.m.

Mr. Neville Trotter (Tynemouth)

I too, welcome the debate today on the broader subject of shipbuilding in general and not just on the terms of the rather short Bill before us.

I pay tribute to the attention given to this subject by my hon. Friend the Minister of State, the Member for Bosworth (Mr. Butler), since he took over office. He is on record as saying in an interview that he has spent half of his total time on this industry. That is an indication not only of his dedication to sorting out its problems but the gravity of the problems that he inherited.

One hardly needs to rehearse before this audience the problems facing our industry. However, it is right that we should give aid to an industry that is in trouble throughout the world. The three factors which now decide the future of the shipbuilding industry are world demand, the efficiency of the industry and the amount of Government aid. The third factor is a new one, which we have seen only in recent years. The other two factors, of course, have existed from the start of the building of ships.

All over the world we see ridiculous prices being quoted by our competitors. It is astonishing that prices of ships in general are no higher now than they were in 1974. Indeed, there are cases of prices having been quoted abroad that are actually less than those for similar ships quoted five years ago.

I was interested in the comments of my hon. Friend the Member for Surrey, North-West (Mr. Grylls) about the amount of aid to the industry. It is certainly massive. I believe that it is necessary. However, as an accountant, I should like to see the cash flow forecast for British Shipbuilders published, so that we would know just exactly what it is and where all the cash will be going. As an accountant, I believe that there are indications that there will be considerable losses on top of the intervention fund payments. However, we must face the situation that all around the world there is massive Government aid to the industry.

What worries me most are the long-term problems facing this industry. Drewrys, the well-known forecasters and commentators on the shipbuilding and shipping scene, recently produced some very worrying figures. They show that in 1974 West Europe produced 40 per cent, of the world's output, but by 1988 they see West Europe producing only 22 per cent. They see Japan holding its own with about 40 per cent., and they see the Third world coming up from the 3 per cent, that it produced in 1974 to 24 per cent, in 1988.

That is a serious prospect not only for our industry but for all Western European shipbuilding industries. We shall have a very hard fight indeed in Western Europe to compete with the Japanese, and with the emerging countries in the Third world, which do not have our safety regulations, our health regulations, our holidays or our standard of living and the wages that go with it.

This is a serious problem which will not go away when the demand for ships returns. I believe that it is a problem that must be met by Europe as a whole. If that is not as practical as one would wish, it must be met at least by the EEC countries acting together. For part of the time that he is giving to the affairs of this industry, I hope that the Minister will be working very closely with the other countries of Western Europe on that long-term problem, because it is not a problem that can be solved by Britain on its own. It requires co-operation with the similarly placed industries in Western Europe.

The main message to British Shipbuilders from this House must be about the need to improve productivity. Productivity is a sore subject. British Shipbuilders says that it lives in a glasshouse and that stones are thrown at it. It says that its competitors do not live in glasshouses, and that whatever may go wrong in foreign yards does not attract the publicity that is given to things that go wrong here.

One of the problems of State ownership is that people are naturally interested in what goes on. After all, the public are ultimately paying the bills. This situation is enhanced by the fact that London, as well as being the centre of the shipping industry, is to a large extent the centre of the world's media because of Britain's historic position, and the use of English around the world. Reporters for papers around the world read the London editions of local papers and send back reports based on what they read in London. That has a result which adversely affects Britain's reputation around the world, because things happening in our country get taken out of perspective compared with what is happening elsewhere.

There is a productivity problem in British Shipbuilders. I believe that it has courageously recognised that. It has produced a blue book on what needs to be done, and I understand that it is being distributed throughout the corporation. There are plans for the message to be brought home right from the top to the bottom in every part of British Shipbuilders that productivity improvements are essential.

The size of the productivity improvements that are called for has been spelt out by Dr. Milne, the managing director of shipbuilding operations, who talks about a 15 per cent, improvement across the industry. He drew attention to an interesting statistic showing that there are enormous variations between one yard and another in the time taken to build the same type of ship. The man hours on steel work range from 312,000 hours in one yard to 765,000 hours on an identical ship in another. That is obviously something that requires a great deal of investigation within British Shipbuilders. If the productivity plans in this blue book are implemented, I trust that we shall see a substantial improvement. It is to the credit of British Shipbuilders that it recognises the need for this, and is giving great attention to it.

I should like to refer to the effect of the changed laws under which British Shipbuilders operate compared with a few years ago. I referred to the advantages possessed by the Third world countries. It is interesting that managements in this country reckon that more than 3 per cent, additional cost has been added in the last few years as a result of the wholly desirable changes in health and safety legislation. Again, another 3 per cent, has arisen as a result of extra holidays in the industry. That has meant an additional 6½ per cent, to our costs when we submit tenders.

From the yards that I visit in the North-East, I know that there are good yards in British Shipbuilders. The Navy has always told me that it is very satisfied with the work at Swan Hunter. I recently had the pleasure of visiting both the yards in Sunderland. Had I visited such yards in a foreign country, I would have come away very impressed. There are some very good British yards that can look any other in the face if the competition is fair. That is not the picture throughout the industry, and we must ensure that British Shipbuilders concentrates its future production in the most efficient yards. The Government are right to say that the problem of running the industry is one for British Shipbuilders and not one for the Minister, with all due respect. He has spent half his time on this industry so far. I hope that that will not be necessary in the future.

I should like to say a few words about the shipping scene. It is easy to say that the problems of the British shipbuilding industry can be solved if only British shipowners would co-operate. That is an attractive argument to those outside who are not involved in the industries concerned, because the British shipping industry is still the largest of the Western European fleets. Unfortunately, the British shipping industry is suffering from serious troubles. Like the German and Scandinavian merchant navies, it has declined substantially in recent years. In 1975 over 50 million tonnes of ships flew the Red Ensign. It is now less than 38 million tonnes, and many of those ships are laid up. This year there has been a further reduction of nearly 100 ships in the size of the British merchant navy.

The reasons for that are perhaps the subject for another debate. However, one of the reasons is that our competitors pay lower wages. In some cases, as in the Soviet Union, competitor industries are run on a non-profit-making basis and are able to undercut us by 30 per cent, as a result. There is also the question of captive markets. Understandably, the Third world is more and more seeking to have cargoes carried in its own bottoms. This summer I was able to make a voyage on one of our cargo boats around some small ports that I had never heard of along the West Coast of South America. It was interesting to see not only the delays that our masters and crews encounter as a result of appalling congestion but the fine fleets of the small countries that we visited. They had built fine, modern ships operated at a lower cost which were often in competition with our vessels. Therefore, it is not easy to envisage the British shipping industry being able to pull British Shipbuilders out of its problems. At present, the results of many of our shipbuilding companies are very poor indeed.

A point that I make strongly to the Minister is that we must help shipowners through changes in the present tax structure. I am sure that that is a point that my hon. Friend has taken on board already. However, with inflation and the present system of taxation it is extremely difficult for shipping companies to be able to find the cash to buy the replacement ship that will cost as much as two or three times more than the one that they are scrapping. I do not believe that the sort of scrap-and-build terms that are being talked about will in themselves be sufficient to overcome that problem.

This is particularly serious in relation to the private companies. It may be that Labour Members do not have much sympathy for the private shipowner, but he is an important institution in this country as he provides employment for a large number of people as well as earnings and currency for the country. The private shipping companies are finding it extremely difficult to replace their tonnage because of the present tax laws. That is perhaps something that the Minister might raise with his colleagues in the Treasury.

On credit terms, I believe my hon. Friend said that he would be interested to hear examples of better terms overseas. I draw his attention to the excellent paper read by Mr. John Parker, one of the directors of British Shipbuilders, on 17 October—

Mr. Dick Douglas (Dunfermline)

Reference has already been made to his paper.

Mr. Trotter

I apologise. I was trying to sell some ships to Chairman Hua at the time. I need not go into the details, but from the paper read by John Parker it is undoubtedly the case that far better terms are being offered by our competitors. I am told that the Export Credits Guarantee Department says that it requires better particulars and evidence. I think that it would like a short statement by the Head of State of the country concerned before regarding the evidence as acceptable. But it is well known that our competitors are giving better terms—

Mr. Douglas

We are playing cricket.

Mr. Trotter

Yes. I believe that that is something we must match.

So far as I can make out from discussions with British Shipbuilders, the intervention fund will be adequate. I am pleased to hear that the delays in obtaining approval have been shortened as a result of the Minister's action. I am told that at one time it took five months to obtain the necessary layers of approval before quite a small dredger could be ordered from one of the yards. That sort of obstacle certainly required action if we were to be left in the race. It was no good our being forced to say that we would have to go back home and obtain consent from various levels of officials when our competitors could field a team prepared to conclude a deal before they left the room.

I am not certain whether clause 2 provides adequate funds for conversion. I think I am right in saying that the money will be required only if a guarantee is called up. That is probably why a figure of only £2 million is inserted as being the possible cost, because it would arise only if the guarantee fell in through some failure on the part of the shipowner. If that is not the case, £2 million does not seem to be very much when we are talking about converting ships by taking out their turbines and installing diesel engines. I believe that a lot of work of this nature can be obtained, which would be valuable for both our diesel manufacturers and for the repair yards as opposed to the building yards. There certainly seems to be a move for the big tankers to have their turbines replaced by much more economical diesel engines. I hope that that is something that British Shipbuilders will follow up energetically.

I am concerned about the lack of success by British Shipbuilders in naval exports. It has not been able to achieve orders for naval ships although Britain was the leading exporter of warships until three or four years ago. The Government should look into what has gone wrong. Have political bars been placed on the sale of ships to certain countries? Bars may have been raised by the previous Government, but I should like to know if they still exist. Perhaps the Government will see whether conditions have changed to permit greater exports.

I visit navies around the world, and I am told in some quarters that Britain is not considered politically reliable as a supplier of warships, although France and Germany are. The Governments of those countries apparently have a different attitude to trade. The designs of our ships are all right, but something has gone wrong on the marketing side.

Perhaps some intervention fund money might be made available for naval export orders. I was in Portugal during the recess, and I know that the Portuguese wish to buy several ships for use as part of the NATO alliance in the Standing Naval Force Atlantic and as part of NATO's navies in the Eastern Atlantic. Portugal is an ally, and it would be a good use of part of the intervention fund to enable Portugal to purchase those ships. That would be a better use of the intervention fund than supplying merchant ships to our enemies, as has been done in the past.

The hon. Member for South Shields (Dr. Clark) made understandable comments about the social consequences of the rundown of the shipbuilding industry. We both come from Tyneside, where unemployment is high. One of the problems of the merchant shipbuilding industry is that it is concentrated in three areas—in the North-East and on the Clyde and Mersey. The rundown of employment in merchant shipbuilding has been going on for a long time. According to the Geddes report, 80,000 people were employed in merchant shipbuilding in 1959, but now there are only about 20,000 so employed. We must be nearing the bottom of the decline, and there should be a minimum figure below which the industry should not fall.

The effects are concentrated in the shipyards, but there is a spin-off effect on the suppliers of marine equipment throughout Britain. I declare an interest, as I advise the British Marine Equipment Council. Many hon. Members may not be fully aware that there are factories far away from the coast that are dependent upon the success of our shipyards, although they also export a great amount.

The Government are taking the right course and are right to support the industry with public money. The ultimate fate of the industry, however, must depend upon those who work in it, and that is recognised by British Shipbuilders. There is pride among people who build ships and a different attitude amongst shipbuilders from that seen so often in British Leyland and some other factories. Perhaps that is because the ship is a more impressive object. We call her "she" by tradition. She is more impressive than a stream of motor cars on an assembly line. With good management, support from the Government and skill and pride in the work force of the yards, there is a future for merchant shipbuilding in this country.

7.5 p.m.

Mr. Dick Douglas (Dunfermline)

The hon. Member for Tynemouth (Mr. Trotter) has great knowledge of the industry. My interest in the industry extends over 30 years and I declare an interest as a member of the board of directors of Scott Lithgow (Offshore) and other companies in that group. I am particularly interested in the offshore oil market.

I hope that the Minister had an interesting time when he visited Scott Lithgow, on the lower Clyde, and I am sure that he saw an excellent team of management and men, dedicated to ensuring the survival of that industry on their part of the Clyde. Apart from the presentation of the Bill, it would have been difficult to have the debate if Mr. John Parker, of British Shipbuilders, had not prepared the excellent paper for the Royal Institute of Naval Architects. I was present at the lecture. There are elements in that paper with which I disagree, which relate to the market going up steeply again in 1981–82. Some of the economic analysis in the paper was undertaken prior to the difficulties in Iran and the downturn in world trade on the oil market. What will be the Government's posture if we cannot bridge the gap between now and 1981–82? What will happen if that gap is wider? The Government say "Let market forces operate and let the market judge the survival of this industry". The Opposition say that the Government have a responsibility to intervene and ensure the survival of an industry that is important strategically and in terms of regional employment. Although the shipyards are mostly located in the North, many of the suppliers are not, as the hon. Member for Tyne-mouth pointed out. Therefore, the Government should indicate what their strategy will be.

Reference has been made to naval building. We could do more to bring forward orders for the Royal Navy. I have a constituency interest, representing Rosyth. Theoretically, a replacement for the Polaris hulls will not be necessary until the 1990s. A decision must be made about the future now, otherwise it will be made by default. If we are to continue naval dockyards, although they will not be building ships, and secure the future of an integrated enterprise, the Government must indicate their strategy. The Government are directly responsible for the loading of the shipyards and dockyards of the Royal Navy. There has been an upturn in orders. We have obtained an order for two tankers, of 109,000 tons, from British Petroleum. Those orders are welcome because we expect them to use slow moving diesel engines. Although we are debating the shipbuilding industry, the inter-relationship of the marine engineering industry is important.

A Lloyd's List article today indicates an upturn in the market for slow-moving diesel engines—albeit of a particular make. As the hon. Member for Tyne-mouth has indicated, there is a degree of fuel economy in using this type of engine. I hope that the Minister will give an indication of his expectations, because there is considerable concentration in the number of suppliers of slow-moving diesels within British Shipbuilders.

The strategy of British Shipbuilders is made out in the corporate plan, which contains a number of elements, one of them being the offshore oil market. The Under-Secretary knows my feelings about this. Recently we lost an order to Finland. I do not know what my Government would have done, but presumably when the new Government came in they would have access to many papers on this issue. Ostensibly the gap between the Finnish price and the price that British Shipbuilders indicated would have been too large for it to bridge at that time, but there is a likelihood that other ships of this nature will be needed. I have worked this out in rough terms and I find that in price terms one such ship is equivalent to about half the Polish order. What is the Government's attitude? I do not believe that the price from the Finnish yards was fair. What steps were taken to examine that price in detail and to assess the reliability of delivery dates from that yard in the past? I have personal knowledge of semi-submersibles, which are not all that different from this type of vessel, and that yard has been late on its delivery times.

It was repellent to the people of Scotland that the Scottish press should send individuals to Finland and that they should come back with stories from the Finnish yards claiming that the Finns were out to shut British yards.

Having visited the Rauma Repola yard, I do not believe that the overheads in that yard are any less than the overheads in the United Kingdom yards, particularly those in Scotland.

We are seeing an upturn in the offshore market and in the demand for jack-up rigs. The day-rate for semi-submersibles is $30,000, and rising, yet in the North Sea at present there is not one British semi-submersible operating. If there is to be a new order here, this is an opportunity for the Government to anticipate that probability and order the vessel in advance of demand for drilling purposes. The demand is fairly firm at the moment not only for rigs but perhaps for a vessel similar to the BP multi-purpose emergency support vessel.

We have heard many comments about the credit situation, and I do not wish to repeat them. John Parker's report indicates that the situation is not one of a free market. In fact, the market is highly competitive, as other nations are fiercely determined to preserve their shipbuilding industries. The Government have a direct responsibility to define their strategy in strategic, employment and trade terms. They cannot avoid doing so. They must look at what other nations are doing and stop "playing cricket." We have wonderful civil servants, but they are not negotiators in terms of combating and competing with the Japanese and others in this regard.

In the Act that nationalised the industry there is a very important reference to a decentralised structure. I am not dealing with the overheads of British Shipbuilders but it should be a cardinal principle that we preserve the maximum degree of flexibility and decentralisation in this industry.

It has been said that the way to get orders is to go out and get them, but that is not easy in the present world market. The more that this Government accede to the strident cries of some of their Back Benchers, who are more interested in balance sheet returns than in preserving the industry, the more difficult this task will be. We are interested in people and in the industry, and we are determined to preserve it.

7.16 p.m.

Mr. Gordon Wilson (Dundee, East)

The House last discussed the shipbuilding industry on 25 July, when it was about to go into recess. At that time certain questions were put to the Minister about the security of employment in the Scottish yards. We did not get much by way of assurance from the Minister, but he gave no indication at that time that British Shipbuilders was due to embark on a policy of butchering part of the Scottish shipbuilding industry.

Many of us who listened to the debate in the early hours of the morning last July had serious misgivings about the Government's policy on certain yards. Those misgivings were realised three weeks later when the news broke that British Shipbuilders was cutting back very substantially in the marine shipbuilding sector. The first announcement was that 70 per cent. of the redundancies, and 80 per cent. of the yard closures, would take place in Scotland.

In Dundee, the Robb Caledon yard was faced with outright closure with no prospect for alternative employment, and no consultation. In fact, the decision of British Shipbuilders was taken with all the zeal and ruthlessness of the Victorian ironmasters. No attempt was made to fulfil any social obligations—obligations that are partly laid down in the Aircraft and Shipbuilding Industries Act. In that Act an obligation was placed on the Government to take account of employment and regional considerations. Whatever may have happened in the meantime between the Government and British Shipbuilders, the fact is that the nationalised corporation set out to close down the Robb Caledon yard and liquidate 1,100 to 1,200 jobs without any consultation or concern about the viabiity of the industrial structure of the city.

The closure of the yard, had it gone ahead, would have dealt a severe blow to the economic vitality of Dundee and the surrounding areas. In retrospect I assume that the Government were not honest enough during the debate last July to set out their real intentions. They announced the decision in a cowardly fashion through British Shipbuilders a fortnight after the debate, when the House had gone into recess. Therefore, there could not be any real questioning of the Government's ultimate policy.

The overheads affecting subsidiaries of British Shipbuilders have been referred to. I took part in the Committee and Report stages of the Aircraft and Shipbuilding Industries Bill. As the hon. Member for Dunfermline (Mr. Douglas) said, a provision for decentralisation was written into the Act. The intention was to give the maximum amount of power and decision making to individual companies. The Government stated bluntly that it was also intended to relieve the companies from the usual nationalised structure which was top-heavy with bureaucracy.

In one of the substantial publications produced by British Shipbuilders there are some lovely pictures of its central marketing division in Knightsbridge, the huge structure, Hereditable House in Dover Street, which is the ship repair marketing office, and best of all, Benton House in Newcastle.

The Robb Caledon yard in Dundee last year had to pay about £170,000 towards overheads. It is expected that for the current year that share of maintaining employment in London and Newcastle will be over £200,000. Those functions were originally carried out by the yards, which demonstrates some degree of bureaucratisation and waste at the headquarters. There is never any slimming of the body corporate at head office when yards are faced with closure and workers with redundancy. I hope that the Government will take that up with British Shipbuilders.

Little concern has been shown for the social and economic consequences of these proposals, and there has been little comment from either Front Bench about the closures and redundancies announced during the Summer Recess. Although in Dundee, East we did not have the full support of the district council, with considerable local support and the support of the trade unions, the hon. Member for Dundee, West (Mr. Ross) and I, through staunch and determined action, with the retention of the "Golden Bay" cement carrier and the prevention of the launch of ship no. 576, succeeded in getting a stay of execution for the Robb Caledon yard, and it has been placed on probation.

At one stage in the discussions, British Shipbuilders flatly refused the Robb Caledon yard an opportunity to tender for orders. It said that there was no future for shipbuilding in that yard, but the yard would have been prepared to go out of its way to seek orders that might have kept it going. The instructions came from the head office of British Shipbuilders. A long time ago when the corporation saw the state of equipment in that yard, it determined to liquidate it at the first possible moment, and it ruthlessly set out to do that.

I congratulate the workers on their strong fight to safeguard the yard's future, although it is still in doubt as the relief is only probationary. I say to the Minister that, if British Shipbuilders or the Government endeavour to close the Dundee shipyard, there will be maximum opposition. The closure would cause grievous economic damage to a city that has seen many of its industries closing in recent years.

There is pessimism about the future of the shipbuilding market. I am interested in oil and have observed what is happening in Norway. I receive a copy of that Government's information handouts. On 11 September 1979 there was a headline: Norwegian shipbuilding orders for over 2,000 million Norwegian kroner. Contracts have been signed covering altogether 1 million tons and several large contracts have been negotiated with foreign yards. If these negotiations are successful, they alone will represent 1,500 million Norwegian kroner. … Ships on order for Norwegian owners will then constitute 30 contracts of altogether 1.5 million tons. … This year's orders, therefore, give rise to a degree of optimism. These facts do not imply that it has become so much more profitable for Norwegian owners to place orders, but improvements in freight market have made Norwegian shipowners consider renewals within the fleet to meet improved conditions. There is a lot of old tonnage in the Norwegian fleet at present, but that could also be said about the British merchant shipping fleets. If the Norwegians, with rising freight rates, are able to order ships from their country and even go abroad for orders, surely the British shipping industry can do likewise? There is something seriously wrong if it cannot.

At the end of the handout it is said: While Norwegian yards are dependent on subsidies, Norwegian owners are equally dependent on financing arrangements. Shipbrokers are hopeful that the authorities will continue their subsidies policy during this transitional period now that signs can be seen of a balance between building capacity and increasing demand. That is interesting. I do not believe that the Norwegians are bound by the EEC policy on shipbuilding incentives and subsidies. However, the Norwegian Government recognise their active role in maintaining the structure of the shipbuilding industry, and in this respect the Bill is insufficient.

I welcome the Bill because without it the present crisis would be even more severe, but the Government are not putting enough pressure on the EEC with regard to the assistance that can be given. I have my doubts whether the arrangement reached with our Community partners will be kept, and we must remember that our main competitors are not just within Europe. We have major competitors seeking orders in Brazil and Asia.

It is a potentially weak proposal to tie our inducements to the situation within the EEC. The Government should consider again how to exert more pressure on our competitors outside the EEC market so that we are in a more competitive position. Without that, we shall lose orders.

To sum up my arguments, first, the drop in intervention from 30 per cent. to 25 per cent. is retrogressive. Secondly, no attempt has been made to ensure that our industry is able to compete with Asia. Thirdly, what arrangements have the Government made to monitor our European competitors, and are those competitors willing and able to keep to the agreement?

If the Government do not give genuine support to the industry in Scotland and, from what the hon. Member for South Shields (Dr. Clark) has said, the rest of the country, there will be industrial genocide. The closure of yards will damage the regional economies, and that is the last thing that these areas can stand at a time of increasing unemployment.

There was a headline in the Daily Mail today which read: Free jobfinding tour—and Scots head south". There is no long-term secure employment in Scotland.

The people losing their jobs in the shipbuilding industry will be skilled workers. Those who are enticed away will be skilled workers, and in Scotland there is already a shortage of such people. The shipbuilding industry creates apprenticeships, retains skills and helps in developing our economy. The Government's failure to take action to assist that industry will have serious consequences.

7.30 p.m.

Mr. Donald Dewar (Glasgow, Garscadden)

No one in the House will quarrel with the assertion that the shipbuilding industry is going through an extremely difficult time and that it will have no easy passage over the next year or two. The dire statistics about overcapacity and lack of orders are very familiar, even for those of us who have not read in great detail Mr. John Parker's much-referred-to papers. They are the ABC of any discussion about shipbuilding in the United Kingdom.

It is worth saying that there are some signs of recovery. Although we cannot talk of a swift recovery, there are some signs that the position is becoming a little better. Freight rates have recovered considerably and the tonnage laid up is of a smaller order than it was six or nine months ago. I hope that we are on the way back to a position in which orders will begin to appear. If the accountant's mind of the Conservative Government, with their stringent financial approach to problems, is unfettered, my fear is that when we are in a position to compete for orders we shall not have the capacity, the skills and, in many areas, the industry to enable us to tender.

When we talk about over-capacity, we in this country have not been the sinners. The United Kingdom industry has remained fairly static for a lengthy period. while other countries have been mushrooming their shipbuilding capacity in a way that is almost irresponsible. Mr. Parker asserts that the Japanese have been increasing their shipbuilding capacity at an annual rate of 16½ per cent. In the mid-1950s Britain held 25 per cent. of the world market. We now hold 3½ per cent. Cutbacks should be left to other countries. We must struggle to the best of our ability to maintain the hard core of our industry, because that is all that is left to us. We must not cut back on the same scale. If we do, we shall be cutting back to almost nothing. That would be an industrial disaster.

I welcome the Bill as far as it goes. In a sense, it is an excuse to ask questions of the Minister. I genuinely welcome the fact that it is a Minister from the Scottish Office who is to answer the debate. I am not always grateful that the Under-Secretary of State for Scotland, the hon. Member for Edinburgh, North (Mr. Fletcher), is in charge of Scottish industry, but it is convenient tonight because I am looking for some reassurance and some hard information that I can take back to my area about what is happening on the Clyde and in my constituency.

I do not need to remind the Minister that shipbuilding is an essential central industry on Clydeside. That is equally true in the Garscadden constituency and surrounding areas. I have two principal shipbuilding interests. One is the Yarrow yard, which I do not need to dwell on this evening. I was depressed by the sentiments that came from the Conservative Back Benches—there have been only two Conservative Back-Bench speakers so far in the debate—especially by those of the hon. Member for Surrey, North-West (Mr. Grylls). The hon. Gentleman made it clear that he would like to see naval yards passing back into private ownership. We now have very few prosperous industries in my part of the world. I am glad to say that Yarrow is a prosperous yard. However, if prosperity depends upon the Carrington formula, that gives it a privileged position in bidding for public sector orders. It is naval orders, and accelerating naval orders, that are the basis of its prosperity. It is nonsense to suggest that it should be returned to private hands. It is crass stupidity to suggest that Yarrow should be sold off.

It is important to take British Shipbuilders as an entity if we are to plan the labour force. Looking realistically at the world, we on the union side reluctantly accept that there will be a considerable rundown in Govan and Scotstoun Marine shipbuilders and on the lower Clyde. The one area where we can realistically hope that there will be an increase in employment is in the naval yard of Yarrow. It becomes nonsense to hive off the Yarrow yard, because once it is in private ownership there can be no realistic plan for the yard to pick up the inevitable slack that will be produced by the corporate plan in the other yards. I get angry when I hear the suggestion that, for all sorts of narrow and ideological reasons, we should sell off a yard such as Yarrow.

I turn to my main worry, and that is the position of the Govan shipyards. As the Minister will know, Govan has two units. It has the main Govan yard, with 4,000 workers, and Scotstoun Marine—which is on the very edge of my constituency—where there are 1,200 workers. The corporate plan proposes that the 4,000 work force at Govan should be boiled down by about 1,200 and that Scotstoun Marine should be put on a care-and-maintenance basis, with its assets passed over to Yarrow. Its 1,200 work force will virtually disappear.

That was a severe blow to an area that could ill afford that sort of job loss. I put it brutally that it was a kick in the stomach, and it was much resented. The work force was realistic and recognised that there were genuine short-term difficulties. The plan was accepted only on certain conditions. One was the Blackpool agreement that there would be no compulsory redundancies. It would be useful if the Minister were to take the opportunity to say that he positively endorses the aim of British Shipbuilders that there should be no compulsory redundancies and give it the backing of the Government's authority and blessing. I shall be listening specifically to his remarks to make sure that we get that assurance.

There was a second and important condition with regard to Govan. When we were sold the package of a reduced work force we were told that if it were accepted there were two orders in the pipeline. These were for the standard Govan product—26,000-ton bulk carriers of the Cardiff class. I can speak personally because I was present on the day that the corporate plan was announced at a meeting between the unions and Mr. Archie Gilchrist, the managing director. It was specifically mentioned in the documentation and discussed at the meeting that the orders were on the way.

Since then there has been no hard news at all of those orders. We do not know who is doing the ordering, the exact specification of the vessels, or when work will start. It is essential that we receive that news soon, because the morale in the Govan shipyards is crumbling fast. The credibility of the corporate plan, so far as it affects the yards, is now seriously in question. We are all genuinely pleased to hear of orders going to Sunderland, Scott Lithgow and Swan Hunter, as has happened in the past few weeks.

The deafening silence on the Govan orders is destroying confidence in the yard. It is impossible to talk in terms of productivity, because morale is so low. The hon. Member for Tynemouth (Mr. Trotter) said that productivity was the key to survival. I do not disagree with that. How can there be productivity in a yard where there are 1,300 men standing around doing nothing? That is the present position at the main Govan yard.

If there is to be a long delay, it will be better to know the current position rather than being left to guess the worst. If it is a problem of bridging a gap between production costs and successful tendered price, or problems about credit packages, I would rather the Minister came clean and told us whether the orders are still a hard fact—merely suffering from some temporary hold-up—or whether they have evaporated. The men in the yards are beginning to say "It is only a myth, a mirage, an illusion or a con trick." I recognise that two 26,000-ton Cardiff class carriers will not keep Govan going. We need six or eight a year to employ even a slimmed-down work force. That order was part of the package. The psychology of Govan shipyards and the Clyde at the moment is all-important.

If we are to keep any credibility for British Shipbuilders and the Government—I may be asked why I should care about the Government, but I do because I want to have a reasonable level of morale in my constituency—we must know exactly what is happening, and we must know quickly. If we were to obtain orders now the steel trades would be put to work—at present they have no work—but the fitting-out trades would have nothing to do. The modest arrival on the stocks of the two orders to which I have referred will in no way solve our problem.

Tomorrow morning I am attending a meeting that has been called by all the shipbuilding and engineering unions on the Clyde to consider the position at the Govan yard, which has been waiting anxiously for this debate. I undertook that I would raise certain specific matters during the debate. I have enough confidence in the Minister to know that he is well aware of the anxiety and the difficulties. It is extremely important that the hon. Gentleman says everything that he can so that we have a progress report to submit to the meeting tomorrow morning.

It will be a disaster if we are given no news today. Good news would be doubly valuable. I hope very much that the Minister will be able to say something. I hasten to say that that is not in any way a threat. However, it is a warning. Patience is near to breaking point.

I turn to redundancies, especially at Scotstoun Marine, but it is a factor that will apply in many yards throughout the country. At Scotstoun Marine about 1,200 men want to know their fate. It has been promised that there will be no compulsory redundancies, but I ask the Government to endorse that pledge from British Shipbuilders. There is little hope in the short term of finding the men other jobs in the industry.

I have already referred to Yarrow and its importance in the local shipbuilding equation. Yarrow now has 5,700 employees. It is my information that by the end of the year it is intended to add another 300. It is hoped, although it is rather speculative, that Yarrow will be able to increase its work force to about 6,500 by the end of next year. There may be a build-up of 700 or 800. However, at Govan alone we shall be losing almost 2,500 men in the same period. If we are to have no compulsory redundancies, I must press the Minister to indicate how the Government will tackle the problem and how they will find their way out of the conundrum.

I recognise that there is always a temptation for Conservative Administrations to do a Pontius Pilate act and say that a problem for British Shipbuilders must be confined to that organisation and that they, the Government, will not dirty their hands with it. However, given employment difficulties on Clydeside, on Clydebank, in Garscadden and on the west side of Glasgow, which is a matter of great concern to all political parties in Scotland, that attitude is not good enough. The hon. Gentleman is wise enough politically to recognise that. I want to know how he will manage the situation and what his thinking is. He cannot say that it is a problem for management and not one in which the Government will involve themselves.

It seems that the only answer is to extend voluntary redundancy for the members of the work force who are in their sixties and to offer the same terms at Yarrow and at other yards throughout the country to try to produce the space to absorb those in the industry with a long-term future. I mention that in passing.

My main question is: what will the Minister do with a ball that is firmly in his court, given the conditions that I have explained and outlined? I recognise the difficulties. I know that it is not an easy inheritance that world conditions have bequeathed to any Government in charge of shipbuilding. I agree with all those who have said that the answer must be in a determined effort to obtain new orders. I do not think that anyone will disagree with that cliche. There has been plentiful reference to the figures that appeared in John Parker's paper. They revealed the credit packages and credit terms that are provided by other countries throughout the industrialised world.

I stress again that the Government must be prepared to compete if the industry is to survive. I recognise that there is always a temptation to be virtuous. However, at the end of the day it does not matter if we are wrong and we fail. It is no good being a sea-green incorruptible and saying "We played the game. We did not bid up the terms. We opted out and watched our industry die in the great cause of a well ordered world society." That will not be much good to my constituents if they lose their jobs. It will not be good to John Parker and his colleagues in British Shipbuilders if they lose their jobs. Top management though they be, they, too, will lose their jobs if they cannot attract the orders and if they cannot tender successfully against organisations in other countries which are engaged in the industry.

The Minister will remember that in August two well known Scottish shipowners—Lyle of the Lyle Shipping Company and the Hogarth Shipping Company—bought four ships from Brazil. They were 26,000-ton deadweight bulk carriers of exactly the sort that are built on the standard line at Govan. What did British Shipbuilders say? It said that it regretted the deal but that there was no way that it could compete against 15-year extended credit given by Brazil. If we are faced with that type of competition, surely we can in all honesty go to the Government and insist that British Shipbuilders must be allowed to compete and be given the wherewithal to do so. If we had obtained the orders that went to Brazil and the ships had been built by the Govan yard, I should not be making this crisis-laden speech about the atmosphere in my area and the future for the men involved in the industry in my part of Glasgow.

If we are not able to obtain the orders that we need, and if we are satisfied that there will be an upturn in the market, we should be brave enough to consider and talk in terms of speculative building in advance of orders. I am talking not about the offshore market, as my hon. Friend the Member for Dunfermline (Mr. Douglas) did, but about general merchant shipbuilding orders. That may sound like heresy, but heresy can sound like good sense if circumstances drive.

As I have said, patience is breaking. The Government, even if it means jumping through ideological barriers for them, must be prepared to take these issues by the scruff of the neck. In my area we cannot wait. It is a fundamental industry. I do not want to go through the whole litany of disaster, but in my area we have seen the Goodyear company close down. We have heard that the Singer company is going. John Brown engineering is laying off 600 workers. There is a question mark over Marathon. We know that 2,500 men are to go from Govan even if things go well from now on, and there is precious little reason for thinking that they will, given the Government's silence.

Everywhere we look there is disaster looming. We have every reason to say that the Government should act to save yards such as Govan, where £30 million has been invested over the past few years to make it not a scrap heap but one of the most modern yards in British Shipbuilders' stable. At Govan productivity and flexibility have attracted a great deal of praise. The work force is consistent. It has made a great effort over the past few years.

On the shipbuilding side of the industry we have seen a contraction from 38,000 men to 28,000. We are coming down to 18,000. We are talking not about a set of industrial Luddites who refuse to change but about an industry that has made enormous sacrifices and efforts. I hope that the Government will give the industry a chance to succeed. Indeed, the industry demands that chance, and it deserves it.

The Bill is a symbol of the Government's good intention, but I want them to deliver. There may be doubts about the Government, but they are the only Government whom we have and we must look to them. If the Government do not act, and if they do not respond to what is a desperate cry from the yards, that will not be forgiven in my part of Glasgow.

7.49 p.m.

Mr. David Price (Eastleigh)

The hon. Member for Glasgow, Garscadden (Mr. Dewar) spoke with great feeling and knowledge. I assure the House that I have not changed my views since last night about 10-minute speeches.

I declare some personal interest in this subject. My constituency surrounds the great port of Southampton. Therefore, a number of my constituents earn their livings from maritime activities, both at sea and on shore. Others of them work in the shipbuilding industry. I have commercial connections with the industry.

The main point that I wish to put before the House has been touched upon by a number of hon. Members. The commercial terms upon which British Shipbuilders is able to do business with its merchant shipping customers is the heart of the problem. I shall not refer to the warship aspect because British Shipbuilders has told us that that side of the business is relatively satisfactory.

In his foreword to the annual report of British Shipbuilders the chairman, Admiral Sir Anthony Griffin, said: Our ability to win orders in the present climate is … dependent on price and financial credit terms since all shipbuilding nations have been forced to sustain their merchant shipbuilding companies by extraordinary measures. I draw the attention of the House to the phrase "sustain … by extraordinary measures". I fear that there is no fair competition here.

The main customer of British Shipbuilders is, of course, British shipping. I need not remind the House that British shipping is part of world shipping and that its fortunes cannot be separated from the fortunes of world shipping. Hon. Members who have spoken in the debate will know that world shipping, like world shipbuilding, has been passing through its most severe depression since the 1930s. It goes without saying that these are not the most promising market circumstances for the bold ordering of new ships. Furthermore, the British merchant fleet is still relatively young. Over 80 per cent. of the tonnage is under 10 years old, and there is no urgent requirement for a massive replacement of existing ships.

Nevertheless, if there is to be a European scrap-and-build policy, British shipping would not wish to be excluded from it, although I do not believe that that measure gets to the heart of the problem. The industry will welcome clause 2, which enables the same form of credit terms to be given to British owners as are available to foreign owners. That corrects the gross inequity which had the ridiculous effect of positively encouraging British owners to buy abroad—although many did not. The majority of the British fleet, I am glad to say, is still British built.

The harsh realities of the world shipping market are the basic cause of the slackness of the order book. I remind the House of the remarks in the 1979 review of the British shipping industry by the General Council of British Shipping: Those who have lower costs than ours, whether in flag of convenience fleets or elsewhere, cannot be compelled by law or industrial action to abandon their advantage. So the British fleet, like any other fleet, must fight the tough battle for competitiveness by its own exertions and largely on its own. It can ask that the Government does nothing to shackle it and does not impose charges or requirements that its competitors do not have to face; and in self-defence it may even have to ask the Government to match special advantages given by other governments to their fleets. Therefore, the main customers, British shipping, face the same handicap of the special advantages that are given by other Governments to their international competitors as do British shipbuilders. That is the point many hon. Members have made about the "special circumstances"—an anodyne phrase. In the long run, we cannot have a healthy shipbuilding industry without having a healthy shipping industry. They go together.

The joint problems of British shipbuilders and British shipping are caused by the depressed and fiercely competitive world market.

I support that general contention by giving details. Like the right hon. Member for Deptford (Mr. Silkin), I should like to quote from the admirable paper by Mr. John Parker, which we have all studied. It has almost been made a White Paper by the extent to which it has been quoted. As everyone knows, Mr. Parker is a main board director of British Shipbuilders. I shall complete the right hon. Gentleman's quotation: Because of the severe financial crisis which shipowners have passed through"— are still passing through— improved credit is a pre-requisite if the UK fleet is to be restored. In the export market too, the UK has adhered to the OECD understanding on export credit for ships but in situations where other countries have not and do not, it is crucial that BS have the opportunity to match such terms. That is the clear message which has emerged from the debate. Let me state clearly that I wish that this was not the case. I like people to play to the rules, as, indeed, does the House generally. However, we must address ourselves to the realities—nobody else plays to the rules. I hesitate to use emotive words like "cheat" and so on. I prefer Mr. Parker's phrase "special advantages".

Unless we do something to match other countries, we shall be in difficulties. It is not a prospect that I relish, but it is preferable in the national interest and not only in the regional interest. Otherwise, our merchant shipbuilding capacity will go under. I am content with the arrangements on the warship building side.

I should like to end on a cautionary note. It is not too difficult to balance the books if one is doing no business: the books balance themselves. I want to see British Shipbuilders doing business.

7.57 p.m.

Mr. Ernie Ross (Dundee, West)

Like other Labour Members, I welcome the Government's statement that the borrowing limit is to be raised for British Shipbuilders. It is a pity that more Conservative Members are not present today. I am sure that such Members have responsibilities to those who, if not directly associated with shipbuilding, are indirectly associated with the manufacturing industry.

The Minister's statement falls short of what we regard as adequate Government intervention to maintain a viable and socially-responsible shipbuilding industry. Hundreds of men in my constituency work at the Robb Caledon yard, in Dundee. By their sheer persistency and refusal to accept that that yard was doomed, they won the admiration of many people in their valiant struggle to maintain shipbuilding on Tayside. I supported them wholeheartedly, as, indeed, did the people of Dundee. I am sure that all Labour Members wished them well.

I hope that in his summing up the Minister will dissociate himself from the statement made by the hon. Member for Surrey, North-West (Mr. Grylls), particularly in his reference to the Robb Caledon shipyard and the compensation to former owners. No doubt the Minister is aware that on vesting day, when the yards were nationalised and taken away from the private owners who had run them down, in at least four of the yards liabilities exceeded assets. Surely, we would not wish to give extra financial reward for running down the assets of those yards.

I do not apologise for reiterating the point that I made in an intervention in the speech of the hon. Member for Surrey North-West. I referred to the owners of the "Golden Bay", recently in Dundee, making a public statement that the ship, which the Robb Caledon yard had built for a New Zealand company, stood at the very edge of technology. That ship was built in a yard that both management and the work force agree has been totally starved of funds to modernise its machinery. It is of note that British Shipbuilders has recently made significant changes in its most senior management at Robb Caledon. That may tell a few tales.

There are several questions that the Government must answer. It is to be hoped that they put the jobs of the men in the industry before the opportunity of scoring feeble debating points for their party.

How do the Government intend to create the orders necessary to maintain output? I associate myself with the remarks made by my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) about Govan. Will the Minister advise the House what subsidy or credit arrangements will be made by the Government to ensure that that yard can conclude a deal that will bring a prospective order for two 26,000ton ships, thereby making a genuine contribution to alleviating the general demise of manufacturing industry in that area?

What steps will the Government take to make British shipowners order ships from British yards? The "captains of industry" now have a Government who are highly sympathetic to their interests. What guarantee have the Government received that they will work in the national interest when their track record over the past three years shows that the value of orders placed overseas by British companies was more than twice the value of the Polish order?

What kind of assistance will be on offer in two years? It is inappropriate for the Government to adopt a "wait and see" policy.

Does the Minister accept the views of the Cambridge Econometric Forecast Group, which, two days ago, said that domestic demand for shipbuilding was expected to fall by 9 per cent, this year and a further 7 per cent, over 1980–81? If so, does he concede that Government support will be necessary for the industry beyond the two-year period that the Minister laid down in his July statement to the House?

The Minister also referred to the EEC document on the scrap-and-build programme. That document stated that: The crisis afflicting the shipbuilding industry appears to be even more serious. … This turn for the worse makes such restructuring even more imperative and much harder. The reorganisation of the sector is a difficult, long-term process which cannot be successfully carried through unless there is a minimum level of orders. … In view of the seriousness of the crisis the action should have a real impact, in as short a time as possible, on the level of demand. The document also recognises the positive social implications of such a policy.

Commissioner Davignon has presented these proposals on scrap-and-build to the Council of Ministers. Will the Government support the scheme? If so, will the Minister explain whether the Government will opt for the Commmunity scheme, financed and managed by the Community, or prefer a harmonised national approach, where the member States are responsible for its application? I am sure that the House would be interested to know which scheme the Government intend to pursue.

Does the Minister agree that that is an essential item for the agenda of the Council of Ministers meeting to be held later this month? Will he assure the House that the Government will place that item on the agenda? Will he also assure us that the Government will adopt a positive attitude to these proposals, to ensure their early implementation?

Many hon. Members have emphasised the need for more positive Government action in all areas. Tonight the Government owe it to the men in the shipbuilding industry to give as detailed a picture as possible of the future of the industry. I hope that the Minister will do that when he winds up the debate.

8.6 p.m.

Mr. Robert Hughes (Aberdeen, North)

I welcome the opportunity to follow in debate my hon. Friend the Member for Dundee, West (Mr. Ross). Both he and I represent East Coast Scottish constituencies with shipbuilding interests. But, in a sense, the contrast ends there because Robb Caledon, in my hon. Friend's constituency, is in serious trouble. I am one of the few Members of Parliament representing shipbuilding interests who can speak with some optimism for his local scene, although I share the great concern of the shipbuilding industry as a whole.

I want to refer to the speech made by the hon. Member for Dundee, East (Mr. Wilson), representing the Scottish National Party. The hon. Gentleman is not present, but I have no doubt that he will read these remarks in Hansard. Of course he is an honourable and sincere man. However, I listened to his speech with an almost growing sense of disbelief. He said that he was party to having the Aircraft and Shipbuilding Industries Bill changed to allow for local management. He expressed concern about British Shipbuilders' social responsibilities and the grievous harm done to his constituency by the shortfall in shipping orders. The hon. Gentleman and his right hon, and hon. Friends should have thought of that earlier this year when they brought down the Labour Government. It is a bit much to have to take lessons from SNP Members about concern for constituents and then to hear them complain about the ravages that the Tory Government are inflicting on the people of Scotland, England and Wales when the SNP brought down the Labour Government with callous disregard for their constituents.

I welcome the Bill. It does not go as far as I should like, but I never look a gift horse in the mouth. I confess that I wish that the Minister of State had shown more commitment and enthusiasm for this subject when he introduced the Bill. If British shipbuilding is to succeed, we need Ministers who are fully committed to the expansion of the industry and have a genuine desire to see it succeed.

I suppose that we should be grateful because in the last six months we have moved on a little regarding Government policy on shipbuilding. A modicum of realism is now beginning to permeate the Government's thinking. We are beyond the heady days immediately before and after the election when there was talk of selling off public assets, including those in the shipbuilding industry.

The Minister, when tackled about the incoming of private sector finance, said that the Government were committed to private sector finance going into the industry, but not yet. The "not yet" qualification means that the Government have no intention of handing back to private owners any section of British Shipbuilders until public money has gone in to make it profitable and viable. When the company is making money, it will go back to the private owners who were responsible for the decline of the industry over two generations or more.

I do not propose to quote from John Parker's paper; I hope that he will forgive me. Most speakers in the debate have quoted from it, so he has had a good run today.

I think that we are entitled to press home a point which we have pressed over many years. Subsidies, credit and tax facilities to help shipbuilders are available in other EEC countries—quite against the Treaty. Britain appears to be the only country running the different aspects of the Common Market as close to the rules as possible. We must go forward and deal with that situation.

The Minister said that the Government might consider extending the credit scheme if there were very large orders. I am not against very large orders being given extended credit, because such credit will go to the big yards which have the most serious problems. But I beg the Government to appreciate that smaller yards with first class records also need assistance.

I mention particularly Hall Russell and Company Limited, in my constituency. I do not suggest that the work force or the management at Hall Russell is perfect. If one applies the hon. Gentleman's criteria of good industrial relations, productivity, delivery on time and first-class design, this yard meets them all.

I have no doubt that management would like to see even greater productivity and I have no doubt that the men would respond. But if we are to create the conditions for getting better productivity, good industrial relations and co-operation from the work force, and if yards which have already achieved that do not get assistance from the Government and orders do not materialise, workers in other yards will ask why they should give up their traditional practices, become more flexible and give their all if such efforts do not pay off. I hope that we will see public sector orders brought forward.

It is perhaps sad that almost every yard in this country is becoming dependent—perhaps over-dependent—on public sector orders. Even so, such orders must be advanced, not just to keep the work force in employment, not just for the sake of continuity, and not just to create confidence in British shipbuilding as a whole but because, in many respects, the jobs for which public sector orders are required are necessary in their own right.

For example, there is a need for offshore patrol vessels in the conservation of our fishing stocks. Whatever fishing regime results from negotiations with the EEC, it will require to be properly policed. It is no use waiting until problems of over-fishing arise. We need these vessels now and I hope that public sector orders will be forthcoming.

I support the policy of scrap and build. The Government support that policy in principle within the framework of the EEC. That is a major step forward. Even the idea that there should be a scrap-and-build policy is long overdue. However, the Government must go further. They must be willing to say how much they will put into the kitty, and they must also press on with negotiations to achieve a Community scheme as quickly as possible. Notwithstanding a Community scheme, the Government should consider a scrap-and-build policy for our merchant shipping fleet. I accept the Minister's view that such a policy is not a panacea for all our problems. The point that we tried to get across during discussions on the nationalisation of the industry, and the point that we are still making, since it is valid and relevant, is that we must have sufficient orders and sufficient capacity to enable our shipyards to keep going when the expected upturn in shipbuilding demand becomes world wide.

The upturn might be in 1981, 1982 or 1983, but we must retain our optimism for the future. There is a shipyard in my locality which has earned its success and deserves success in future. I say to hon. Members from other shipbuilding constituencies that we have gone through the trough of despond and the difficult times when we were desperate for orders and trying to set our yards on their feet. Those problems are not yet solved and we need Government assistance and new orders to keep us going. We can show shipbuilding yards throughout the country where there is confidence and optimism. We look to the Government for the same commitment, the same optimism and the same enthusiasm for the shipbuilding industry. With that, our shipyards will prosper, and when the day comes that orders are going begging we will be at the forefront with a shipbuilding capacity worthy of our predecessors.

8.14 p.m.

Mr. Frank Field (Birkenhead)

I apologise for missing the Minister's opening speech. No discourtesy was intended.

I bring three themes to the debate. The first is to report to the House, and to the Minister, the feelings of people in Birkenhead, which is heavily dependent on two industries—the docks and shipbuilding. I was interested to hear my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) recite the list of firms which had gone out of business there in the past year. The time when Birkenhead had a list of such industries still operating, let alone there to lose, has long since passed. Yet our two main centres of employment are under attack.

If the Shotton steelworks closure goes through, we may lose our docks, and the Minister knows from his visit to Cammell Laird that the berths were largely empty. So we have a second unemployment threat on the horizon in our shipbuilding industry.

Alongside the gut worry about where the next jobs will come from in Birkenhead there is also a feeling that by their present policy towards the shipbuilding industry the Government are trying to find an alibi. I want the Minister to tackle this head on when he replies to the debate.

The fear is that funds are being offered on terms which make it impossible for the shipbuilding industry to be successful. Another 18 months have yet to run under the present commitment on funds. Come the end of that period butchery will begin in a ruthless fashion. I was struck by the contribution of the hon. Member for Surrey, North-West (Mr. Grylls). He appeared to be advocating for the shipbuilding industry the short sharp shock treatment of the Home Secretary. He put the case for more competition.

The worry among workers at Cammell Laird is that the competition is not fair. It is very difficult for British shipyards to win orders if competitors are subsidised and advanced three-quarters to the winning post while we are still at the starting gate. I should like a specific undertaking from the Minister. If we find as the months go by that we are not winning our share of orders, will the Minister look again at the rate at which the intervention fund is used? Hon. Members have already spoken about the reduction in the use of the fund from 30 per cent, to 25 per cent. If we are not winning our share of orders under present policy, will the Minister give an undertaking that that aspect of Government policy will be re-examined quickly?

My second theme has emerged from this debate, though it was beginning to emerge from the debate prior to the Summer Recess. None of us is foolishly putting forward a panacea for the industry. While it is true to say that there is no panacea, there are measures that the Government could take which would improve our chances of protecting shipbuilding jobs. I want to touch on three.

My right hon. Friend the Member for Deptford (Mr. Silkin) referred to correspondence that I had with the Minister during the Summer Recess. The first point that I raise with him now concerns public sector orders. They are not the only answer to our current problems, but they play an important part in safeguarding the remains of the British shipbuilding industry. I am still puzzled, after reading the Minister's reply, why he could not publish, here or elsewhere, the facts about public sector orders prior to his announcement before the Summer Recess. I ask him what public orders are being brought forward as a result of the Government's commitment to the House to speed up the placing of orders from the public sector. I hope that the Minister will answer that question.

I am puzzled about what is happening on the export front to defence orders. Do the Government believe that many of our potential orders are blacklisted because they come from a nationalised industry? Ministers have said that we hope to gain much in defence orders from the new light frigate and the new design for the conventional submarine. Are any orders in prospect from those two initiatives by British shipbuilding?

One of the advantages of speaking at the end of a debate is that one does not have to labour points because they have been argued by other hon. Members. I hope that the Government will consider returning to the scrap-and-build policy. It is not a panacea, but it is part of a total package to save the remains of the British shipbuilding industry. When will the Government make their plans public? When will they explain their attitudes and their commitment of resources to a scrap-and-build policy?

I turn to the question of redundancy payments. Much has been said in the debate about the importance of the unions' policy to accept only voluntary redundancies and the backing given to that by British Shipbuilders. Will the Government commit themselves to such a policy? If they do, four changes are needed in the redundancy payments scheme for the shipbuilding industry.

I do not believe that the redundancy scheme is generous. The four changes which I propose have been requested by the workers at Cammell Laird. They complain that the redundancy payments scheme is unfair compared with other schemes. The payments to men retiring in their sixties are larger in the steel industry than they are in the shipbuilding industry. If one compares the position of men in the two industries who become redundant at 64, one sees that the difference is massive. For shipbuilding workers the sum involved is about £5,000. A steelworker receives about £12,000.

Shipbuilding workers complain about the redundancy payments being paid in lump sums or weekly cash payments. This works unfairly in a number of ways. When one receives a regular weekly payment one is ineligible for supplementary benefit. What the Government give with one hand they take away with the other. Next, those weekly payments become taxable whereas a lump payment is not. And then, because many of the men who become redundant are old or sick some of them die shortly after they stop work. Their widows get nothing. If they were paid a cash sum payment their widows would be protected in some way. The workers want cash on the nail rather than have their redundancy payments spread over a period.

Another complaint is about the tapering which begins at about 62 years of age. This does not apply to steel redundancy payments. They also complain that it is unfair, particularly to those on the staff side who have paid into occupational pensions, for those pensions to be taken into account when working out the rate of redundancy payment.

I look for a number of commitments. If we find that the intervention fund is not being used enough and that the rate at which we are drawing on the fund is too little to protect the jobs that we are trying to save, will the Minister change the rate at which the fund is drawn upon?

Will the Government make more clear their plans for safeguarding jobs by bringing forward orders in the public sector? Finally, how do they intend to amend the redundancy payments scheme? If we are to have a peaceful retraction of the industry, to which the unions and British Shipbuilders have agreed, the Government must be prepared to make major changes to that scheme.

8.26 p.m.

Mr. Don Dixon (Jarrow)

I welcome the Bill, because it gives additional borrowing power to British Shipbuilders and removes the anomaly in relation to the ship repair industry. I urge the Minister to take away the two year threat which hangs over the industry. It has had a tremendous effect upon the morale of workers.

The hon. Member for Tynemouth (Mr. Trotter) referred to shipbuilding workers being different from workers in other industries. He is right. I left school at 14 years of age and began working in a shipyard in my constituency. I worked in that yard all my industrial life. Working in a shipbuilding yard is not just a job, it is a way of life. The whole economy of a shipbuilding community is based on that industry.

British Shipbuilders was born at a time of grave international crisis in the industry. The uncertainty that gripped the industry through the long period of argument when the aircraft and shipbuilding nationalisation measure was going through the House did untold damage to the shipbuilding industry and to its workers.

Hon. Members have referred to the build-up in the industry over the last 25 years and to the overcapacity in world shipbuilding. By far the largest contributor to that overcapacity was Japan. Its shipbuilding industry grew thirty-fold between 1955 and 1975. In the same period the Western European countries increased their capacity by 7½ per cent. By 1976 Japan and Western Europe were building 85 per cent, of the world's ships. In the last five years there has been an increase of 40 per cent, in the shipbuilding capacity of the developing countries.

Almost all countries have increased their shipbuilding capacity, with the exception of the United Kingdom. Our capacity has remained constant. Our share of the world market has fallen from 25 per cent, to 3½ per cent. It is clear that the United Kingdom shipbuilding industry has not contributed to the overcapacity of world shipping.

Since the war, the United Kingdom shipbuilding industry has been subject to report after report. I worked in the industry immediately after the war. The shipyards which were in private hands, had full order books and were making fairly high profits. One yard where I worked was paying a 30 per cent, dividend at a time when platers' helpers were shoving shell plates around the yards on wooden barrows. That was the sort of equipment possessed by shipbuilders just after the war. They were not interested in investment. With fat order books, they were interested only in profits.

In 1962, the Paton report dealt with productivity and made recommendations In 1966, the Geddes report, to which the hon. Member for Tynemouth referred, examined the shipbuilding and marine engineering industries. Its main recommendation was rationalisation. The result was that the number of major shipbuilding companies was reduced from 27 to 11, incidentally, with the co-operation of the trade unions. In 1972, there was the Booz Allen report. If ever there was a case for nationalisation it is to be found in that report. The report recognised that the Geddes report had provided funds for restructuring the shipbuilding industry but only on a short-term basis and that a long-term strategy was required. Finally, in 1977, came the nationalisation of the shipbuilding industry of which I and many workers in the industry had dreamed for many years.

I ask the Minister to remove this two-year threat and to give the industry a chance. We are not competing in a perfect world. Other countries give not only generous but hidden subsidies to their shipbuilding industries. They also have import controls. France, for example, will not import oil unless it is carried in French oil tankers. Korea will export only in ships that fly the Korean flag. If the Government are sincere in wanting to help the industry over the present lean period in world shipping until the predicted upturn in the 1980s, the Minister has to answer some questions. My hon. Friend the Member for South Shields (Dr. Clark) asked how many public sector orders had been brought forward. The Minister referred to this matter in his statement on 23 July. Many questions have been asked about the scrap-and-build scheme. This is not a recent innovation. It has been a practice in the Japanese shipbuilding industry for a considerable time. I would like to know when a scrap-and-build scheme is to be put into effect. What funds will be provided? What encouragement will be given to British shipowners to build ships in British yards?

In his statement, the Minister said: For the most part, the shipbuilding industry is located in special development areas, and we are concentrating our regional industrial assistance on those areas." [Official Report, 23 July 1979; Vol. 971, c. 42.] If the idea is to regenerate British industry through small industries, why on earth does the Government's industrial strategy take away the control of IDCs for factories under 50,000 square feet? I would also like to know how British Shipbuilders can maintain a capacity of 430,000 tons based on an intervention fund of approximately £100 million when the Government have applied for only £120 million over a two-year period.

Today's statement on public expenditure cuts will have severe effects in areas where there is a concentration of shipbuilding, certainly in my constituency, where male unemployment is 15.9 per cent., and where the young and active have to leave to get jobs. This leaves the older population, which has to rely on public services and social services. The Minister must protect the shipbuilding and ship repairing industry. It must be given a reasonable chance and reasonable support until the predicted upturn in the 1980s.

8.34 p.m.

Mr. James Thin (Redcar)

I am glad to follow my hon. Friend the Member for Jarrow (Mr. Dixon). His constituency and the town is a name that is burnt deep in the history of social disaster and economic deprivation. None of us will ever forget the hunger marchers of Jarrow. My hon. Friend has long experience of the industry that we are discussing. It is an industry which, like steel in my constituency, is especially subject to an adverse economic climate.

Whilst the industry is perhaps not experiencing a blizzard equal to that of the 1930s, it is certainly suffering from the chill winds of economic misfortune, and they are not of its own making. Whilst it is the responsibility of the industry—the firms and everyone in it—to try to ensure that the vessels it is selling are best able to weather rough seas, I think that the industry and the people who have committed their lives to it are entitled to call upon the Government to do all that they can to provide the necessary life-saving equipment to assist them to weather the storms.

My hon. Friend the Member for Jarrow and my right hon. Friend the Member for Deptford (Mr. Silkin) spelt out the industry's problems in a worldwide context. These were dramatically illustrated by the figures given by my hon. Friend of the declining share of the world market of British shipping and shipbuilding. That is a feature that no firm or individual could have been expected to foresee. That is a compelling and major reason for justifying Government intervention in support of an industry. For that reason we welcome the Bill, and I welcome this opportunity to discuss the industry's needs.

The industry is prepared and able, as it must be, to face foreign competition. We are certainly not asking for it to be given an unsinkable life raft or some comfortable arrangement to enable it to get by with overmanning and lazy ways. However, we are entitled to defend it—I do not say protect it, and I choose my words carefully—against unfair competition. I can give an example of competition that can by no means be described as fair.

A shipyard in my constituency lost an order, which was almost on the point of signature, because a Japanese yard was able to step in and offer 100 per cent, finance over a 25-year period, when the estimated life of the ship was 15 years, at an estimated 3 per cent, interest. Those must be the economics of bedlam. It is most difficult to see any sense behind them.

It demonstrates clearly the sort of practice that is going on. We cannot talk, justified though it may be in a different international context, of the need to stand on our own feet and of the need for competition and so on in these circumstances. The industry will by all means stand on its own feet and survive through fair competition, but the competition that it is facing is unfair. Let us not fight by the Queensberry rules in a catch-as-catch-can, no-holds-barred contest. Let us play the game the way that it is being played by our competitors.

The yard in my constituency is Smith's Dock. The Minister knows of it because I have written to him about it. He has a warm invitation from the management and unions to visit the yard. He has provisionally accepted, and I hope that he will be able to come. If he does, he will find encouragement. It is a fairly small yard, similar to the one described by my hon. Friend the Member for Aberdeen, North (Mr. Hughes). It gives hope for the future of the industry because the co-operation between management and men is very good. There is consultation and mutual support. This has been reflected in the yard's impressive performance and record of good deliveries.

The yard, unlike most others, has not, however, had the benefit of public money for investment and modernisation. It has achieved its record of productivity and of good delivery dates in the absence of investment and modernisation. The cranes and other equipment are outdated. The management and workers in the yard have put their case to me forcefully. They have told me that what is needed is the relatively small sum of about £7 million. For that sum the productivity of the yard, good as it is, could be transformed. I do not expect the Minister to accept this figure on trust. I urge him, busy as he is, to find time to meet the people on the ground. They will be able to show him the importance of such an investment. Smith's Dock is one that will help the industry to survive. It is ready to play its full part in the future, as it has in the past.

I welcome the Bill. I urge on the Minister the need to enable the industry to fight its competitors on equal terms.

8.43 p.m.

Mr. Bruce Milan (Glasgow, Craigton)

The Minister will no doubt be gratified to have heard the general welcome that the Bill has had today, but that should not in any way delude him. Considerable concern and anxiety about the shipbuilding industry have been expressed by almost every hon. Member today. The one exception was the hon. Member for Surrey, North-West (Mr. Grylls). He is not here at the moment and I do not therefore intend to reply to any of his points, but for someone who has taken an interest in the industry over a considerable period he exhibited very little understanding of its problems. Indeed, I felt that some of his comments were unworthy even of him.

Other hon. Members have spoken with a great deal of knowledge of the industry and a great deal of concern for its future. There have been speeches by several hon. Members from Scottish constituencies, and by hon. Members from shipbuilding areas south of the border. My hon. Friend the Member for Jarrow (Mr. Dixon) is able to speak with tremendous personal experience of the shipbuilding industry, as are other hon. Members, including my hon. Friend the Member for Redcar (Mr. Tinn).

Although I do not wish to encourage the Minister to speak until 10 p.m., he has ample time to reply and I hope that he will deal as adequately as possible with many of the constituency points because they cause considerable anxiety in the areas concerned. I particularly wish the Minister to say something about the Robb Caledon situation in Dundee which was referred to by my hon. Friend the Member for Dundee, West (Mr. Ross). It is a fragile situation. A period of grace has been allowed, but it is not clear what will happen at the end of that period. I should like to see a future for the Dundee yard if that can be achieved. If that is not possible, I hope that alternative employment will be provided in that extremely difficult area.

The problem of the Govan yard is the most serious difficulty facing British Shipbuilders. Not a single ship is on the stocks there. Ships are being fitted out, which is maintaining employment in the fitting out trades, but Govan is one of the core yards of British Shipbuilders and everyone wants it to continue.

There was a promise of two bulk carriers, but there is considerable apprehension that the order will not come to Govan. I hope that the apprehension is unnecessary and I know that if the Minister can say something optimistic about the position at Govan my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) will be pleased to hear it. From a constituency point of view, I shall be happy to hear good news because the Govan constituency is next to my own. My hon. Friend the Member for Glasgow, Govan (Mr. McMahon) would have spoken in the debate but for the fact that he had an unfortunate accident and had to return to Glasgow earlier this week.

Many hon. Members have pointed out that the yards in difficulty are concentrated in areas that already have serious unemployment problems. I was horrified to hear the Chief Secretary to the Treasury admit today that the White Paper on public expenditure was assuming that the level of unemployment in this country would rise by 300,000 in the next year, from 1.35 million to 1.65 million.

We know from experience that such a major increase in unemployment, horrifying as it is for the whole economy, is particularly disastrous for areas that already have a high level of unemployment. In Scotland the prospect must be that we shall more than proportionately share in that rise in unemployment and that must also be true of the North of England and other areas where the shipbuilding industry is located. Today's serious announcement makes it all the more necessary that we should maintain a viable shipbuilding industry in the next few difficult years.

The levels of reduction on the merchant side which have already taken place since nationalisation and are projected for the next year are considerable. By this time next year, there will have been a 50 per cent, reduction in employment in merchant shipbuilding compared with the figure in July 1977. That is a massive reduction.

About 65 per cent, of the cost of a ship is bought in and the shipyard cost represents only about 35 per cent. That has implications when we talk about efficiency in British Shipbuilders because the corporation will be affected by inflation, which is outside its control. It also means that the level of unemployment resulting from the reduction to which I referred earlier will be very much greater than the figures that I have quoted. We can add at least the same number of jobs again and probably more. Therefore, we are talking about very substantial reductions in those areas.

Much of the material that is bought in is manufactured locally. It is an industry with that kind of tradition. We are facing a drastic rundown, even at best. It is a remarkable tribute to the trade unions concerned, and an indication of their confidence in nationalisation, that they have been able, with certain difficulties, still to be ironed out, to accept that kind of reduction. It has been modified, to a certain extent, by increased employment in naval shipbuilding, but it is still a substantial reduction.

If we have that kind of reduction, and if we are to maintain a viable industry and achieve the increased productivity we all want, and British Shipbuilders and the workers want, we must give some confidence to that part of the industry that remains. It is impossible to have a satisfactory industry if, even with that kind of projected reduction, those remaining are not reasonably sure that their jobs will continue. That is the problem with which we are faced. It is not just a problem for British Shipbuilders. It is a problem for the Government.

We must see that we maintain a viable industry and that we help it over what everyone agrees will be a difficult period, until, sooner or later, the time comes when the industry will be able to survive and prosper without vast sums of public money.

I am assuming that there is agreement in the House that we wish to maintain a shipbuilding industry. It would be ludicrous for an island nation such as ours, with a tradition of shipbuilding and the need to maintain naval shipbuilding, to say that we did not wish to have a shipbuilding industry and that we were indifferent about whether the industry prospered or collapsed around our ears. We must maintain the shipbuilding industry, for its own sake and because we cannot afford the continuing de-industrialisation of this country.

We know that there are massive problems in other industries, such as the motor car industry. Many of our industries have problems. We cannot say, when faced with problems, that it does not matter whether the industry collapses. That would lead to complete and utter disaster.

I believe that the kind of industry that British Shipbuilders is talking of maintaining—an industry on the merchant shipbuilding side with an annual capacity of between 400,000 and 450,000 compensated gross tons—is the minimum we should aim for. I wish we could aim for something greater than that. If the circumstances were such that we could, realistically, aim for something more than that, I would argue for it very strongly. But most of us accept that there are difficulties. Equally, we accept that having set that kind of level for the industry we must do everything possible to maintain it.

The level of orders over the next few years is a problem. All the speeches today have been directed at the problem of how to obtain orders over the next few years that will maintain the industry at the kind of level I have mentioned. British Shipbuilders has set a target of 45 ships. I think that that was originally over 12 months. The target it set was for a range of different types of ships totalling between 400,000 and 450,000 tons.

There is a tendency to look at that target in the short term and to forget that if we are to maintain such a capacity for merchant shipbuilding we shall require that level of ordering every year. Indeed, for a healthy industry we require a good deal more in the next two or three years to get a reasonable order book. Therefore, this is not a short-term problem. We should not simply say "We have a problem of orders for 45 ships over the next 12 to 18 months and if we get through that, things will be all right." That is only the start. We must keep getting this every year if the industry is to survive and prosper.

The industry has obtained 10 orders within the last month or so. We must all be extremely grateful for that. These orders range from the quite small to the very large. They have a total value of £168 million. However, we would be deluding ourselves if we looked upon this as a ground for optimism. I have always found that in the shipbuilding industry there is a tendency when things get a little bit better for people to become far too optimistic, and when things get a little worse to become far too pessimistic. The latter quality has, unfortunately, been necessary over the past few years because the downturn has been so deep and prolonged. But, just because things have become a little better over the last two or three months, we must not feel that we have turned the corner and that there are grounds for optimism.

Looking at the world situation—not just at what has happened to the industry in some parts of the world with the general ordering situation but also at the fact that the capacity of the industry has risen and in many cases it has risen in countries which are not subject to the normal rules of supply and demand and cost efficiency for one reason or another—we can see that we are faced with a very difficult problem. We must not allow the small improvement over the last month or two to make us optimistic and to believe that we have not still got a critical problem.

It is against this gloomy background that we must consider the Bill.

Obviously, we welcome the increase in the total financial limit that the Government are providing. However, we all know that that limit by itself, although obviously not meaningless—if we require these sums of money, we must pass the necessary legislation—providing for additional total borrowing powers, will not solve any problems faced now by the industry.

I believe that the Government's mention of a deadline for viability of two years' time is a profound mistake. I know why Governments do this. They think that they must not give people the impression that there will be unlimited sums of money available for an unlimited period I accept that. No one wishes to see that happen. However, it is quite unrealistic, and it actually adds to uncertainty rather than removes it, to lay down a completely artificial timetable.

With the best will in the world, with the most efficient management, with improvements in efficiency, and with great luck as well as good judgment in obtaining orders, I do not believe that it is realistic to talk about a two-year deadline. I hope that the Minister will make clear tonight that this is not an absolute deadline and that, although the Government are looking two years ahead, which they are perfectly entitled to do, that cannot be the end of Government assistance for the industry. We must see the industry through this period.

Mr. Adam Butler

I should like to kill this so-called deadline—dead. We have made it quite clear that we chose two years as being preferable to one year, because there was no question but that one year would not be long enough. We felt that to have a two-year period, at least, would give an opportunity to the industry to see that length of time ahead. However, we have made it absolutely clear that if the Government are to go on putting public money into British shipbuilding, if it is necessary at that time—and one does not know what the state of the market will be—we shall weigh very heavily in our considerations the extent to which the industry has been able to put its own house in order and the success which it has had in getting its productivity right and in establishing its own competitiveness. That is the attitude that we have taken.

Mr. Millan

I am grateful to the Minister for that explanation. It is still slightly equivocal, but I shall take the first sentence of what he has just said as being an important statement—that there is no question of an absolute deadline for the industry.

Mr. Robert Hughes

Perhaps the Minister should ask his right hon. Friend the Prime Minister to be clear in answer to questions about the two-year period. In an answer to me today on British shipbuilding, she said: Our policy is to continue financial support for British Shipbuilders for a period of two years while they take the measures necessary to achieve viability. It is this constant repeating of the two-year period which makes it look like a deadline.

Mr. Millan

My hon. Friend has made the point that I was about to make. I hope that the Minister will take it on board. There has been a widespread belief, to which Government statements have given some currency, that there is a deadline of 18 months, as it is now, to two years. I take what the Minister responsible for the industry has said as being authoritative—that there is no such deadline. It is useful to get that on the record.

I now want to deal with the intervention fund. I am obviously disappointed about the overall level of the fund. I would have preferred it to be higher, but I do not complain too much about that because, although the previous Government made large sums of money available for the intervention fund, they found that it was not used to the maximum extent because the orders were not there even with the large levels of assistance that we made available at the time. That is why I am particularly worried about the reduction in the percentage from 30 per cent, to 25 per cent. Indeed, it is in effect a reduction to 23 per cent, of the contract price because the shipbuilders' relief is now being deducted, and that is equivalent to about 2 per cent. Therefore, we have a reduction from 30 per cent, to 23 per cent.

I was astonished at what the Minister said about this. I know that he is under pressure from the EEC, but he gave the impression that this would not make a substantial difference to the operation of the fund and to the obtaining of orders. That was not our experience in government until May of this year. Indeed, in many instances 30 per cent, was simply not enough, and we found considerable difficulty in getting orders even with 30 per cent. Unless we are able to use to the maximum the "exceptional circumstances" phrase that was used in a parliamentary answer, I do not believe that there is the slightest prospect of getting an adequate level of orders to see us over the next few difficult years. I simply do not believe that 25 per cent, is enough.

Of course, I regret that. Everyone would like to see the level of subsidy everywhere brought down. However, as so many hon. Members have said, including Conservative Members, we must be realistic about this. We are in a competitive situation, and if the level of subsidy that we are able to offer is less than what is offered elsewhere we simply shall not get the orders.

There is some misunderstanding about the way in which the intervention fund operates. There is a feeling that, with a 25 or 30 per cent, level, all that happens is that it is made available for every order. That is not the position. The position is that if the economic price at which British Shipbuilders can tender for a particular ship is not sufficient to get the order—in other words, there is a competing tender which is less—one is able to bridge the gap by the intervention fund. Of course, we can use the intervention fund to bridge the gap only to the extent that it is necessary. There is no question of a standard 25 or 30 per cent, subsidy through the use of the intervention fund Therefore, the intervention fund itself does not drive prices down.

Prices have been driven down in other parts of the world, and if we are to compete we need a higher level of subsidy. That is the most worrying thing that has happened in terms of Government aid to the industry since this Government came to power. I am, of course, referring to the level of the intervention fund being reduced from 30 per cent. to 25 per cent. I hope that the Minister will say something about that.

Every hon. Member who has spoken in the debate has said that we must make our credit facilities competitive with those of other countries. Mr. Parker's paper has been extensively quoted, and I shall not quote further. I re-emphasise the point made by many hon. Members, that however the rules are applied other nations take good care that ships ordered by their shipowners go into their own yards. That happens in France, Germany, Denmark and elsewhere. Our shipping industry is more complicated and it is not possible for every ship ordered by British shipowners to go into British yards. An improvement has taken place in the past two or three years and credit terms are important in this respect.

Our credit terms must be competitive, and if that means bending the rules I am in favour of that. The French have been bending the rules on all sorts of things for years and they are irritated now over the Iamb issue because they have been found out explicitly by the European Court. Bending of the rules takes place on a considerable scale in different areas, including shipbuilding and by different countries. We must be aggressive and look after our own national interests. Other countries do that and we must learn to do it as well.

The Government have said that they are in favour of advancing public sector ordering. I hope that the Minister will give the House details about recent events. It is important to have those details, and to ensure that the question of eligibility for intervention fund assistance—agreed on the public sector side by the previous Labour Government—is cleared up. I hope that the Minister will also speak about the naval side of the shipbuilding industry. We have concentrated today on merchant shipbuilding, but the naval side is important as it gives a cushion to redundancy in some shipbuilding areas.

After today's announcement that the defence budget will increase, we expect some of that money to go into British shipyards. So far I see little sign of that happening. In a recent debate on the hydrographic services the Minister said that the Government were still considering the feasibility studies on three coastal survey ships that had been announced by the previous Labour Government in April. That does not suggest a great sense of urgency. Naval shipbuilding is good business, costs a lot of money and takes a lot of labour. We want a sign that the Government are fulfilling their pledges.

I know that the Government favour scrap and build in principle. I am always worried about EEC or international schemes in a complex area such as that of scrap and build. Not every member of the Community is equally enthusiastic about scrap and build. The scheme is likely to be so complex that if a number of nations are involved it will be difficult to get agreement. I am becoming increasingly depressed by the slow way in which these ideas that have been kicking around for a long time are being pushed forward.

Many hon. Members have said that it is important to get a scrap-and-build scheme in the Community, but that is not absolutely necessary. We can have our own national scheme. Italy has a scrap-and-build scheme which has worked very successfully in the circumstances of the Italian shipbuilding industry. If we can get some agreed rules in the Community to ensure that there is no abuse, which is always possible with an industry which is world-wide and which does not recognise national frontiers, this would be very useful. But we do not have to wait for agreement of an EEC scheme. We can have our own national scrap-and-build scheme. I hope that the Government will say that, unless we reach agreement in the Community very soon, we will introduce our own national scheme. We are perfectly free to do so. If Italy can do it, so can we.

I turn to the question of building for stock. This proposition seems to frighten Governments and even British shipbuilders, to some extent. I firmly believe that we are faced with the need to consider this matter urgently. Govan is an example of this need. It is not a revolutionary or a radical idea, because private shipbuilders built for stock in the years between the wars and if they had not done so the industry would have been in a worse position than it is.

That does not mean that one puts any old ship into any old yard in order to keep it going, regardless of the circumstances. That would be extremely foolish. But there are many yards with standard ships which they have been building successfully for some time, for which there is a world market, and where it makes sense to build ahead with a good deal of confidence that such ships will be sold. If the orders are not immediately available, it makes economic sense to build for stock rather than have a situation in which large numbers of people, who will be wanted in the long run, get paid for standing around and doing very little. That is demoralising and uneconomic. I hope that we shall have an indication of the Government's attitude on this matter.

We also need to look at the new kinds of vessel that are available and for which there is interest throughout the world. My hon. Friend the Member for Dunfermline (Mr. Douglas) mentioned the emergency support vessels in the North Sea. One of these—the BP order—came to Scott Lithgow yards, but we lost the Shell order to Finland. I agree with my hon. Friend that there is no rational explanation for the Finns' tender price, except massive subsidies. In no way could that order have been taken at that price without a massive subsidy.

I am not advocating indiscriminate subsidies at any kind of level, but there is interest in a further ship of this kind for the North Sea and it would be utterly tragic if it did not come to a United Kingdom yard. Similarly, it would be utterly tragic if the new ideas for oil production platforms which Conoco is pursuing did not come to a British yard. Some work has been done on that platform at Scott Lithgow and naturally I should like to see that order come to Scotland. But it is most important that at least it comes to a British yard, whether it is in Scotland or in some other part of the country.

I wish to see the Government adopt an aggressive attitude if necessary, particularly with the oil companies concerned. It must be remembered that they are in the North Sea because the Government allowed them to be there and we should insist that the maximum amount of their ordering for platforms or whatever is done in British yards.

Very little has been mentioned today about ship repairing or marine engines. However, both are important parts of the industry. I hope that the Minister will say something about them because they also face problems which are just as urgent as those of the merchant shipbuilding section.

I conclude with a comment about the Government's responsibility. They have already changed their attitude since the election. The policy outlined in the manifesto was to stand back and allow the industry to cope with its own problems. They have since had to face the reality that it is in the national interest for the Government to see shipbuilding and other industries through the problems that they are facing.

The Government have taken action over the shipbuilding industry, but it is not enough for them to provide a framework, and definitely not the present unsatisfactory framework of the policy on scrap and build and the credit arrangements. The Government must be actively involved with the British shipbuilding industry to solve its problems.

The Minister has spent a considerable amount of time in the past few months on the problems of the shipbuilding industry. However, he did not appear to understand that these problems can be solved only by active co-operation with the industry. The industry's problems will not be solved if the Government stand back and let it get on with it. We demand that the Government act in the interests of the industry and the large number of people whose livelihoods depend on it.

9.17 p.m.

The Under-Secretary of State for Scotland (Mr. Alexander Fletcher)

There is a great deal of common ground between the right hon. Member for Glasgow, Craigton (Mr. Millan) and myself in our concern over employment in Scotland—a concern that must be shared by many hon. Members.

The right hon. Gentleman pointed out that 65 per cent. of the building costs of a ship are for bought-in items, but the majority of that 65 per cent. is bought from other British companies, including such nationalised industries as British Steel. British Steel is in turn dependent on the National Coal Board. However, our industries are not necessarily helping each other, because of overall costs. British Shipbuilders sells its products internationally and its problems are therefore more acute than some of the other nationalised industries which supply it.

Unlike the right hon. Member for Deptford (Mr. Silkin), the right hon. Member for Craigton was realistic in accepting that the British shipbuilding industry must reconsider its capacity, and that is encouraging.

The right hon. Member for Craigton asked about the shipbuilding orders under this Government, but we should not look at it in that way. As my hon. Friend said in opening, the figures this year are just a little more encouraging than last. This year there have been 280,000 tons of orders in 10 months, compared to 246,000 tons for the whole of last year. In this debate it should be sufficient to settle for the fact that four months of the 10 were under a Labour Government and their particular regime—albeit sometimes without any intervention fund—and six months under a Conservative Government.

Mr. Douglas

I am grateful to the Under-Secretary for giving way. Before moving away from discussion on the Finnish order, I must say that one of the reasons for acceptability on the part of the Offshore Supplies Office was the amount of British equipment involved. When considering international competitiveness, how does that square with £40 million in relation to £60 million—plus? The equipment is standardised and specified by the oil company. It has to be catered for by United Kingdom suppliers. There is no earthly reason in accountancy or actuality terms for the difference.

Mr. Fletcher

The hon. Gentleman makes a valid point when he refers to specified items in the ship. I plan to refer later to the order that he mentioned.

This is a small Bill—a rather thin measure—but an important debate, as the contributions from both sides of the House have made clear. The Bill has stimulated a considerable amount of criticism from those who believe that we are not doing enough to protect our shipbuilding industry, not to mention those who believe that we are doing too much. Let me make it clear at the outset that we wish to see a viable and competitive shipbuilding industry in the United Kingdom. Along with other shipbuilding nations we recognise that with the present state of the market such an objective cannot be achieved without a measure of Government support.

As an indication of our determination the Bill gives effect to part of the policy that we announced in response to British Shipbuilders' corporate plan. It advised that an industry of the present size could not be sustained. Unlimited provision of public funds to safeguard the industry could never achieve that, even if we wished it. The previous Administration admitted that contraction was inevitable. They did not face the issue during the time between the election and the presentation to them of British Shipbuilders' corporate plan. They neither accepted nor rejected British Shipbuilders' advice, but said that they would proceed on a step-by-step basis.

We are doing a great deal more by proceeding on a two-year basis. When we came into office we found that the intervention fund had lapsed, which made it difficult for British Shipbuilders to obtain orders. The provision that the previous Labour Government had made for intervention fund assistance before it lapsed had been much under-utilised, as the right hon. Gentleman recognised in his speech.

Mr. Dewar

rose—

Mr. Fletcher

I should like to proceed, if I may. Some hon. Members believe that I should not take all the time that remains, and they are not all on the Government Benches, either.

The unions have been more realistic than the Labour Party in accepting the contraction in British Shipbuilders' preferred strategy. As hon. Members have pointed out, there are signs that the world-wide market is picking up. With world-wide over-capacity we remain of the view that British Shipbuilders would find it difficult to reach its target.

The key is orders, and British Shipbuilders will need to make a determined effort to compete through improved productivity, design and marketing. We all wish to see jobs preserved, but in our view the only way to do that on a sure basis is to be competitive.

Mr. Dewar

I am grateful to the Under-Secretary for giving way. We shall be indulgent if he takes a little longer than usual, as long as he answers all our questions. He referred to the unions' realistic approach to the problems of redundancy in accepting that a certain amount of labour shedding is inevitable. He will be aware that the unions have an understanding with British Shipbuilders that no redundancies will be compulsory. Does he endorse that, and will he do everything in his power to ensure that that is the policy of British Shipbuilders?

Mr. Fletcher

The hon. Gentleman pleads with me to give way so that he may repeat one of the arguments that he advanced before I can get anywhere near referring to or trying to reply to the argument when first introduced. Obviously he wants to say everything twice. That is not a good example following the vote that took place last night.

Mr. Dewar

Answer the question.

Mr. Fletcher

I shall come to it. It is my intention to try to cover most of the issues that have been raised.

First, I turn to the speech of the right hon. Member for Deptford. After the experience of five years of a Labour Government, after sitting on the British Shipbuilders' corporate plan for several months and after witnessing trade union acceptance of British Shipbuilders' restructuring plans, I am surprised that he still cannot bring himself to accept the need for some contraction of the shipbuilding industry. There was nothing in the right hon. Gentleman's remarks that suggested that he is any more realistic about the world of industry today than he was 10, 20 or 30 years ago. That is sad, because the right hon. Gentleman always gives the impression that he is a calm, collected person, who is always willing to listen.

The unions agree that there is over-manning in the industry, but the right hon. Gentleman does not. His advice to the industry is to return to the good old days of the previous Labour Government, to bury its head in the sand and to ignore the economic facts of life. The right hon. Gentleman referred to Government-to-Government competition. He seemed to see no solution to the problem. He appeared to find favour with the fact that there is not a free market in world shipbuilding. I think that that fairly represents the words that he used.

Surely the right hon. Gentleman recognises that we must tackle the problems of totally disproportionate Government intervention. The appropriate forums are the various international bodies, such as the EEC and the OECD. We have made some progress in reducing the level of Governments bidding for orders. It is in the best interests of the industry and employment in the industry in the United Kingdom that we continue to do so.

The right hon. Gentleman also referred to public sector orders. He was concerned about the contents of the White Paper on public expenditure. He will know, if only by listening to the debate, about the tremendous dependence of our industry on public sector orders, not least defence orders. He will have noted from the White Paper that defence expenditure is being increased by 3 per cent. That must be significant for the shipbuilding industry.

Mr. Millan

I asked the hon. Gentleman to give some examples of public sector orders. Are we to get some?

Mr. Fletcher

In recent months MOD orders have brought contracts to Scott Lithgow, Vickers and Appledore of a total value of about £200 million. There has been a carry forward of public sector orders, but new significant orders have been placed.

Mr. Millan

Will the hon. Gentleman give us some examples?

Mr. Fletcher

I began by saying that we should share 10 months—namely, four months to Labour and six months to the Conservatives—to avoid becoming involved in petty niggling about who happened to be in office when orders were placed. There is now niggling about MOD orders, and it is coming from the Opposition Benches.

I return to the remarks of the right hon. Member for Deptford on Government intervention and Government aid. The right hon. Gentleman must know that the previous Administration accepted the EEC's fourth directive, under which aids to shipbuilding must be regressive. Surely we would be behaving like characters from "Alice in Wonderland" to object now, when, in accordance with the directive, the aids are being reduced. If the right hon. Member for Craigton did not know that before he came to tonight's debate, he knows it now.

The right hon. Gentleman asked which countries were opposed to the scrap-and-build policy. So far, the question has not been discussed by the Council of Ministers, although we hope that it will be discussed soon. Therefore, there has been no definitive expression of national attitudes. At this stage, we prefer not to speculate as to what those attitudes might be. Part of the problem is that neither we nor the other countries have, as yet, found proposals upon which to reach a decision. At this stage, we support the idea in principle but we cannot commit ourselves to accepting a scheme the details of which are uncertain. Any scheme must be cost-effective. The rule of thumb should be that he who benefits pays. My hon. Friend the Minister of State made that point, and he has urged the acceleration of a decision on the matter.

My hon. Friend the Member for Surrey, North-West (Mr. Grylls) is not present, but I should like to say that he was right to remind the House of the severe financial climate in which the provision is being made. He was also right to remind the House that hundreds of millions of pounds should not be approved lightly, as has been done too readily by the House in the past.

The hon. Member for South Shields (Dr. Clark) asked about scrap-and-build. I have already covered that point. In particular, he asked if the United Kingdom Government would make a financial contribution to it. Again, I have answered that point. Obviously, we would contribute to the right scheme—a scheme that we believe to be helpful to the industry. He asked for an assurance that the matter will be on the agenda in Brussels. Unless there is a reasonable prospect of a proposition coming forward upon which we can reach agreement, the answer must be "No".

My hon. Friend the Member for Tyne-mouth (Mr. Trotter), with his knowledge in these matters, made an important contribution. He has great experience not just at home but in other countries of the shipbuilding and naval business. He told us that he had come to the House for the debate hot-foot from meeting Chairman Hua. I hope that that meeting will contribute something to the future orders of British Shipbuilders. He was encouraging about the future of the industry. I am glad that someone of his knowledge and experience does not believe that the future of British Shipbuilders is altogether a matter of gloom and doom.

Dr. David Clark

While the Minister is dealing with the EEC, would he care to comment on the development aid to shipbuilding areas which are administered by his Department? What about the additionality factor?

Mr. Fletcher

That proposal is being discussed under the regional development plan. Most of the areas affected are special development areas under the Government's regional policy. Aid has been accentuated to those areas, thus reducing the number throughout the country as a whole. The question of additionality is still under discussion.

The hon. Member for Dunfermline (Mr. Douglas) asked about Government strategy after the two-year period, if the industry remains as depressed and unprofitable as it is today. He would have heard the answer given by my hon. Friend the Minister of State in an intervention during the speech of the right hon. Member for Craigton. What matters is that we have given British Shipbuilders the opportunity to try to put its house in order and to adjust to the world situation. We must see what progress is made in that direction.

The Shell ESV order was a matter of concern to all members of the Government as it was to all members of the Labour Government. We sought assurances from the Finnish Government about any subsidy involved. They assured us that no subsidy was involved. If any subsidy involved were anything like the difference between the British and the Finnish price, it must have been a substantial strain on the economy of a small country to obtain one shipbuilding order. Whatever we may think about the assurance from the Finnish Government, we should bear that point in mind.

Mr. Douglas

I have great admiration for the Under-Secretary, but he cannot expect us to be so naive as to accept that the Finnish company Rauma Rapola was interested only in one order. I have no doubt that the hon. Gentleman read the Scottish newspapers. If so, he would have seen that the Finnish company was determined to keep its place in the market and to prohibit and inhibit anybody else coming into it. It was not a one-off; it was a long-term strategy. If the Government fell for it, God help us.

Mr. Fletcher

We are not talking about a marginal difference between the two prices. Whatever the subsidy may or may not have been, I hope that the hon. Gentleman will agree that the difference was so great that there was no way that the British Government could intervene. Questions about delivery and reliability of the order are for those who placed it, not for the Government.

Mr. Thin

Even if the Under-Secretary accepts the Finnish Government's assurances, will he explain how the Japanese were able to take an order from Morocco, to which I referred in my brief contribution, with 100 per cent. finance at 3 per cent. interest over 25 years, when the estimated life of the vessel was 15 years? It is difficult to see how there is not some element of fiddling or subsidy there.

Mr. Fletcher

I cannot answer for the arrangements that may or may not have been made by the Japanese Government in that instance. The Japanese have a much stronger economy than that of the United Kingdom. When it comes to giving credit terms or anything else, the Japanese are in a stronger position than we are in view of the economic situation that we inherited from the Labour Government.

I turn now to the impatient hon. Member for Glasgow, Garscadden (Mr. Dewar), who assured me that I would share his concern about unemployment on the West Coast of Scotland, which I do.

The hon. Gentleman was concerned about Yarrow (Shipbuilders) Ltd. He imagined that it would be extremely cruel and wicked for Yarrow to be sold back to the private sector. Regarding employment prospects should Yarrow become an independent yard again, the hon. Gentleman will appreciate that over the years that company received many naval orders from foreign Governments. The arrangements under which Yarrow now operates must be of concern to the hon. Gentleman, as it is to us. That is one point.

Mr. Dewar

rose—

Mr. Fletcher

Is the hon. Gentleman going to intervene on every answer that I make to every point, or is this the last one?

Mr. Dewar

I suspect that it is not the last one. I apologise, but I am very tempted. The logic of what the hon. Gentleman seems to be saying is that he suspects that Yarrow in private hands would be more successful in attracting overseas orders than Yarrow in the hands of British Shipbuilders. Is that the inference that we are to draw from his remarks? If so, it is an astonishing vote of no confidence in British Shipbuilders by a Minister.

Mr. Fletcher

It is a matter of the evidence available comparing Yarrow as a private enterprise and as a nationalised yard and the number of orders that have been received. I had hoped that the hon. Gentleman was putting his question because of his interest in, and concern for, employment in that particular yard and that he would not be dogged by dogma—as he might have said himself. An announcement has been made about the Scotstoun yard and the hon. Member put the position correctly, although he knows that Yarrow now has the opportunity of taking on more men. That might ease the Scotstoun redundancies. The point he raised concerned the question of an order for Govan Shipbuilders. Details of orders are essentially a matter for British Shipbuilders and there must be commercial confidentiality whether a yard is nationalised or not if it is to have any prospect of competing in world markets.

As the hon. Gentleman said, British Shipbuilders announced in August in a letter of intent two ships for Govan Shipbuilders. It has not yet become a firm order. I fully appreciate the hon. Gentleman's anxiety and I share it with the work force at Govan. It will be of little comfort to it to know that other yards are also anxious as to whether current negotiations will be successful. The industry faces that situation all the time. It is not unusual for a considerable period to elapse between a letter of intent and a contract. In the meantime, British Shipbuilders is making every effort to secure additional work for Govan. That is the position and there is nothing else I can say about it.

Mr. Dewar

This is an important point, and it is almost the last time I will interrupt the hon. Gentleman. I suppose that the Minister accepts that when the corporate plan was unveiled to the Govan work force letters of intent were said to be in existence. The work force was led to understand—I do not think he can dispute this—that orders were forthcoming subject to mere formalities. He is now saying that these letters of intent have not been translated into firm orders. I fear that if he leaves it like that it will be taken as a very gloomy message indeed. Work forces are becoming thoroughly disillusioned. Can he at least assure us that negotiations are alive and active and that the Government are optimistic that they can be brought to a successful conclusion? If he leaves the situation as it is, it will be seen as anything but a message of hope.

Mr. Fletcher

I can only say that letters of intent take time to mature. A letter can take six months or more before it becomes a firm order. That is not unusual in the industry and it certainly applies in this case. I almost hesitate to answer any of the other points raised by the hon. Gentleman because he seems to find impossible to contain himself.

I come now to the Blackpool agreement. During the talks at Blackpool, British Shipbuilders' officials stated that 6,000 job losses could be met by natural wastage, inter-yard transfers, a sensible ban on recruitment and by voluntary redundancies. The agreement also stated that until all alternative avenues had been exhausted no compulsory redundancies would be declared, and then not without further consultations with the shipbuilding negotiating committee. That was the position then and it is the position now.

My hon. Friend the Member for Eastleigh (Mr. Price) spoke of British ship-owners whose importance is often neglected in debates such as this. I am particularly grateful that he mentioned how the difficult question of Government-to-Government competition affects not only the shipbuilding industry but the ship owners. They, in turn, are competing in world markets.

I am always prepared to listen to an hon. Member for Jarrow in a shipbuilding debate. I am sure that the hon. Member for Jarrow (Mr. Dixon) will find that his questions have been answered when he reads Hansard.

I am tempted not to bother to answer more of the specific issues discussed by the right hon. Member for Craigton in view of his total lack of interest in what I am saying. He asked about Dundee. He will know that British Shipbuilders proposes that the Dundee yard should be placed on a care and maintenance basis at the end of its current order book, which extends some time into next year. Although that was accepted by CSEU the work force took industrial action. Following discussions it was agreed that a drive should be launched to find alternative viable employment for the Dundee yard. A joint working party comprising British Shipbuilders' headquarters staff, representatives of the SNC and the local community has been formed. The possibilities include ship repair and oil-related work. The working party met on Monday and the yard is now working normally.

Mr. Gordon Wilson

The potential of the Dundee yard for shipbuilding work was part of that agreement.

Mr. Fletcher

It is important that there should be flexibility in the employment prospects and in the use of that important industrial area. As I understand the agreement, that flexibility exists. I hope that everybody involved will seek to find viable employment. Those are important words whether they refer to shipbuilding or anything else.

Hon. Members have drawn attention to the contraction of the industry in Scotland which is implicit in British Shipbuilders' plans. It is important to put the facts in perspective. The main brunt of the contraction in recent years has been met in Merseyside and the North-East of England. Since mid-1977 over half of the 8,000 jobs lost in British Shipbuilders were lost in the North-East alone.

The plans of British Shipbuilders involve the loss of nearly 4,000 jobs in Scotland but a substantial and strengthened shipbuilding industry will be left in Scotland. It will continue to make a viable contribution to employment, particularly on the upper and lower Clyde.

Shipbuilders throughout the world are finding it difficult to secure orders. Many British shipyards are desperately short of work. However, there are one or two encouraging signs in Scotland. Scott Lithgow, for example, has recently won an order for a 109,000 tonnes deadweight tanker which will provide about 1,300 man-years of work. That company is developing a reputation for advanced technology with its emergency support vessel for BP and the sea bed operations vessel ordered by the Ministry of Defence.

Scott Lithgow is making strenuous efforts to diversify into offshore work. The Ferguson Brothers Swallow yard has a full order book. Hall Russell, as the hon. Member for Aberdeen, North (Mr. Hughes) will be keen to acknowledge, has a world-wide reputation for small, specialist vessels. Yarrow is fulfilling important defence contracts.

We are aware of the impact that the contraction of the industry will have on the shipyard areas. The Secretary of State for Scotland has established a working party to tackle the problems of industrial decline in the Clydebank area, including Scotstoun. He has asked the Scottish Development Agency to pay particular attention to the shipbuilding areas. The SDA is likely to play a significant part in implementing the working party strategy for the upper Clyde. It has appointed a senior member of staff to work with the local authorities in Dundee.

We shall continue to do everything possible to continue the diversification of the industrial structure of these areas. Recent changes in regional support which have improved the relative position of the special development areas should assist in these efforts. We have taken decisive action to support British Shipbuilders in its strategy. We have negotiated an intervention fund.

British Shipbuilders knows the framework of Government support for the period ahead. We have therefore ended a period of uncertainty for the industry about the support it can expect from the Government. It knows the terms under which it has to meet the challenge of a difficult and competitive industry. The challenge is tough. It is bound to be so, given the continuing excess of world shipbuilding capacity. But it is a challenge that British Shipbuilders and everyone in the industry must do their utmost to meet. The Government will do all they can to help within the framework of the support we have announced.

Mr. Douglas

rose—

Mr. Deputy Speaker (Mr. Bernard Wetherill)

The hon. Gentleman has spoken once in this debate.

Mr. Douglas

I thought that the Minister was giving way.

Question put and agreed to.

Bill accordingly read a second time.

Bill committed to a Committee of the House.—[Mr. Wakeham.]

Committee tomorrow.