HC Deb 31 July 1980 vol 989 cc1745-53
The Minister of State, Department of Industry (Mr. Adam Butler)

With permission, Mr. Speaker, I wish to make a statement on British Shipbuilders' finances.

Last July I informed the House of the framework of the Government's support behind British Shipbuilders' efforts to achieve viability within the financial limits set. British Shipbuilders' report and accounts, which were published yesterday and which I have laid before the House, show the position for the last financial year. British Shipbuilders has kept within its external financing limit of £250 million but has exceeded slightly the trading loss limit of £100 million, after crediting intervention fund assistance. There are, in addition, extraordinary losses of £42 million relating to restructuring.

For the current financial year, British Shipbuilders has an external financing limit of £120 million. In February the corporation warned me that British Shipbuilders might need to exceed its external financing limit by some £20 million, but, in view of the uncertainties, it was agreed that a further review of the corporation's cash needs should be carried out as soon as the situation had clarified. At the end of May the corporation advised me that its forecast cash requirement for this year had risen to £187 million.

Some part of the increase in its cash needs is due to causes outside the direct control of the corporation, such as the steel strike; but, like the private sector, British Shipbuilders has to be able to react to the unexpected. We are not satisfied that sufficient action and economies have yet been taken by British Shipbuilders to reduce the rate of loss in merchant shipbuilding, ship repair and marine engine building, and generally to curtail expenditure and increase efficiency, and to raise funds through such measures as disposals.

I have asked the new chairman to examine all possible ways of staying within the limit of £120 million and to report to me on the options for reducing British Shipbuilders' cash requirements for both this year and next. I have also stressed the importance of staying within this year's loss limit. Without corrective action there is a risk that its cash requirements for next year would also remain unacceptably high. The chairman has already reported to me that he sees scope for savings in administration.

We are unable to consider British Shipbuilders' financial requirements until the chairman has completed this assessment. Should the Government then decide, after consultation with the commission, to advance additional funds, this would involve a winter Supplementary Estimate, and if needed before then would be provided by a repayable advance from the Contingencies Fund. I shall report to the House again later this year.

The market for both shipbuilding and ship repair remains difficult. The number of merchant ship orders placed with British Shipbuilders over recent months has been welcome; nevertheless, as the new chairman warned on the first day of his appointment, those orders are not sufficient to ensure viability. Nearly every order has been taken at the maximum permissible subsidy level. Whilst there has been notable co-operation between management and unions in meeting the difficulties of the past year—and I should like to pay tribute to that cooperation—there is still a very great deal that needs doing, particularly in improving productivity, if the industry is to achieve the levels of competitiveness essential for a secure future.

Mr. John Silkin

However belatedly the Minister has paid tribute to the cooperation between the management and the work force, I am glad that he has done so. However, his tribute was rather more pallid than that by the chairman, who spoke of the tremendous cooperation that he had received from the trade unions. He pointed out that the average number of days lost through industrial action in the shipbuilding industry was one-seventh of the national average, and the Minister would have been a bit more gracious if he had added his tribute to that achievement. It is vital that there is such co-operation.

When one considers the unrealistic cash limits that were set a year ago—about which we warned the Minister and the Secretary of State—one finds it amazing that British Shipbuilders have done so well. One needs only to consider the high exchange rate, the high interest rates and the fact that inflation has more than doubled since the Government took power to realise that its achievements are nothing short of that.

I wish to ask the Minister three specific questions. Just as the chairman did, the Minister spoke about a lack of orders. During a debate in November last year the Minister promised that he would bring forward public sector ordering. The chairman made a sharp comment. He spoke about the intermittant under-utilisation of capacity. He was very disappointed over public sector ordering. Will the Minister ensure that there is more public sector ordering, not only in terms of defence, but in terms of civil shipping?

Secondly, with regard to the terms of assistance, does the Minister agree with the chairman that there is unfair competition from many other countries, particularly over credit, and that that is part of the trouble? Thirdly, as the management and the trade unions are adamant that there must be no flogging off of the warship yards, and as co-operation between management and unions is essential if a viable British shipbuilding industry is to be preserved, will the Minister undertake to ensure that no such proposal comes before the House?

Mr. Butler

The right hon. Gentleman was a little unfair about the reference that I made to co-operation within the industry. I should like to draw his attention to other points that the chairman made about productivity. He said that despite co-operation and agreement with the unions, productivity had in some cases become worse. If that trend were to continue the industry's future would be in doubt.

The right hon. Gentleman was correct when he said that I had made a statement about cash limits. I did so from this Dispatch Box 12 months ago. In June 1979 the then chairman of British Shipbuilders told me that he thought that the cash requirement would be less than £120 million—that it would be £109 million.

I shall now seek to answer the right hon. Gentleman's three questions. First, the chairman made a lot of play about public sector ordering, but it is important to get the facts right. In the last financial year orders from the Ministry of Defence increased in value by 22 per cent. compared with the previous financial year. It is true that there have been delays in certain cases—I think particularly of Cammell Laird—which have caused serious problems in relation to new orders, but at least an order has been forthcoming in that case.

We have always made it clear that relatively few orders come from the civil sector. Two good orders were placed with British Shipbuilders last year. The right hon. Gentleman spoke about unfair competition. I refer him to an answer that I gave to my hon. Friend the Member for Eastleigh (Sir D. Price) in June 1980. The right hon. Gentleman will see that my reply included a table showing that there was no evidence to suggest that other EEC countries were giving unfair assistance. The vast majority of orders from British owners that are placed outside Great Britain are placed not with Common Market countries, but with Japan and other countries.

The right hon. Gentleman also mentioned warship yards. The statement does not concern the introduction of private sector capital into British shipbuilding, and therefore I can give no such undertaking.

Mr. Silkin

Two points arise from the Minister's reply. First, in view of his reference to orders from British shipowners, will he ensure that an immediate conference is held to see that British shipowners give their orders to British Shipbuilders? Secondly, the Minister says in his statement: Nearly every order has been taken at the maximum permissible subsidy level. As the Minister knows, we regard that as a very low level. How does he see the future of the intervention fund?

Mr. Butler

The factors that will encourage British shipowners to place orders with British Shipbuilders are price, delivery and similar matters. I hope that no Conservative Member is prepared to order British shipowners to place orders with British yards. I shall, of course, encourage shipowners to do so, just as I have encouraged them in the past, because that is in the interests of British Shipbuilders.

However, the shipowners must make the decisions.

The right hon. Gentleman asked about the future of the intervention fund. The fourth directive expires at the end of this year. Negotiations will have to take place on whether intervention should continue and the level of the subsidy. The right hon. Gentleman cannot ask for more and more money for British Shipbuilders. The subsidy level is one-quarter, or 25 per cent., of the contract price. That is apart from any credit that might be offered to our shipowners. That is sufficient, because the British taxpayer cannot go on standing such a bill.

Several Hon. Members rose—

Mr. Speaker

Order. I propose to call the nine hon. Members who have been rising in their places since the beginning of supplementary questions.

Mr. Kenneth Baker

Does my hon. Friend agree that the statement that he has just made which pledges support for British Shipbuilders this year of £100 million or more, refutes the allegation that is sometimes made that the Government are undermining the industrial and manufacturing base of this country? Is it not fair to say that while the Government have shown faith in the future of a British shipbuilding capacity, it is up to the industry to improve its productivity? Without that improvement there can be no competitive future for British shipbuilding.

Mr. Butler

I am grateful to my hon. Friend for putting the matter in perspective. Money has been forthcoming in great quantities for the past year, and the cash limits that are envisaged for this year represent the sort of figures to which he refers. My hon. Friend is right about productivity. Unless productivity improves, British Shipbuilders will not be able to compete.

Mr. Donald Stewart

In view of the not inconsiderable effort made by the industry in a difficult time, and the improvements to which he has referred, will the Minister give an indication that nothing will be done, either in the way of selling off or closures, during the parliamentary recess? Does he accept that this industry is the very lifeline of an island community?

Mr. Butler

The question of yard closures, to which the right hon. Gentleman specifically referred, is not a matter for the Government. It is a matter for British Shipbuilders' management.

Sir David Price

I declare an interest, in that I have an interest in a shipping company which buys mainly from British yards. Is my hon. Friend aware that there is no such thing today as a free market in ship buying, because every country subsidises the industry? Will he take steps to ensure that countries such as Belgium do not over-subsidise, and does he agree that there is a minimum level of shipbuilding capacity that we need for reasons of security and economic independence? If we fall below that level we will find ourselves in dead trouble.

Mr. Butler

On the question of subsidies, the answer to which I have already referred, and which my hon. Friend will have read, shows that in the case of Belgium there is apparently a substantial subsidy to shipowners but no subsidy to shipbuilders. That is why it is important to look at the two together. I stand by what I said previously. I believe that the levels of subsidy available within the rest of the EEC are no greater—and in most cases are less—than those that apply in this country.

Mr. Grylls

Does my hon. Friend agree that if British Shipbuilders needs more cash it might consider doing what any normal company would do, and dispose of some of its assets? That would bring in substantial cash. One of the obvious areas to dispose of would be the warship yards. Will my hon. Friend consider that, and will he consider also the plight of the warship yards, which are being starved of investment because their profits are propping up some of the inefficient merchant shipbuilding yards? That is not a good industrial policy. Does my hon. Friend realise that British Shipbuilders' warship yards have not obtained any significant orders from foreign companies since nationalisation, whereas France, Germany and Italy have orders worth £2,000 million? Does that not indicate that British Shipbuilders should dispose of these yards and concentrate on getting the merchant yards up to scratch?

Mr. Butler

On the second point, it is correct that the warship builders have obtained very few export orders since nationalisation. On the first point, British Shipbuilders is governed by the 1977 Aircraft and Shipbuilding Industries Act, which also governs the introduction of private capital into British Shipbuilders. But if the company is placed in certain commercial straits, certainly it can raise funds through the disposal of assets. The chairman has made it clear that he intends to do that—at least as far as peripheral activities are concerned.

Mr. Heffer

Is the Minister aware that we welcome the many U-turns that are now being made by the Government in relation to industry? I trust that this will have a cumulative effect and that ultimately there will be a major shift in policy. Will the Minister reconsider his reply on British shipowners and ask them to have their ships built and repaired in Britain? Otherwise there is very little future for this industry. That is not because the workers are inefficient or because they have a low productivity rate. The Minister must be aware that if there is no future for them and there are no orders, workers in areas such as Mersey-side are not keen to put themselves out of work, although they have got rid of restrictive practices and they receive low wages. Will the Minister reconsider his answer and urge British shipowners to have their ships built and repaired in British yards?

Mr. Butler

I think that I can come near to agreement with the hon. Member, to the extent that I believe that British shipowners must consider the factors for themselves, and they must look to the future. They should consider whether withholding orders from British yards will mean that there will be no yards to supply in the future.

Mr. Peter Lloyd

Despite the remarks of the right hon. Member for Deptford (Mr. Silkin), is my hon. Friend aware that there is a widespread belief among the management and men in the warship yard in my constituency, and in other warship yards throughout the country, that they would achieve far better results if they had greater autonomy and the benefits of private capital and investment to draw upon?

Mr. Butler

My hon. Friend speaks with close personal knowledge of those who work in the shipbuilding industry in his constituency, and I accept what he says.

Mr. Field

Will the Minister be a little more forthcoming about public sector orders, or the lack of them? Does he maintain that the public sector has brought forward the number of orders that he expected in the 12 months since he last made a statement on the industry's financial position?

Mr. Butler

The main orders that were not brought forward as soon as we would have wished were the two fleet oilers in the Cammell Laird yard in the hon. Member's constituency. One of those has now been brought forward, but the delay certainly cost British Shipbuilders some money.

Mr. Lee

Am I correct in assuming that the rather disappointing overall loss figures mask considerable differences in profitability and productivity in the various yards in British Shipbuilders?

Mr. Butler

Generally the split was between the merchant shipbuilding side and ship repairing on the one hand, where the yards varied in their losses but all made losses, some of a horrific amount, and the warship builders on the other hand, which all made profits.

Mr. Skinner

Now that the Government are wobbling on matters such as these, will the Minister consider whether it is time to take account of the fact that in shipbuilding, steel, coal, manufacturing and engineering, there is an interdependence and interlocking which makes those industries very important, one to the other? Would it not be as well for the Minister and his right hon. Friend—who refused to make this statement today, for some obscure reason—to get down to the task of ensuring that all the interdependent areas help one another? In the same way, over the years, and whichever Government have been in office, the production of food has been born of planning—albiet sometimes bad planning. Is it not high time that the Government turned their attention to this aspect, because if they did they would not have to make loss-making statements such as this one today?

Mr. Butler

It is my hope that we shall not have to make such loss-making statements in the future. The industries to which the hon. Member referred are inefficient, and because of that inefficiency they cost British industry too much in the materials and services that they supply. The Government are attempting to make those industries efficient so that they can compete and keep their prices down, to the benefit of industry, jobs and the economy as a whole.

Mr. Bill Walker

Does my hon. Friend acknowledge the anxiety on Tayside about the future of the Robb Caledon shipyard at Dundee? Is he aware that that anxiety is linked to the fact that the yard has an unfortunate reputation and has suffered from lack of investment? Will British Shipbuilders bear that in mind, along with the recent increased productivity in the yard? If British Shipbuilders finally decides to close the yard, may we be assured that the good factors will be taken into account when considering compensation for redundant workers?

Mr. Butler

I am aware of the position at the Robb Caledon yard at Dundee. I am grateful to my hon. Friend for bringing it to the attention of the House. The future of Robb Caledon is a matter for British Shipbuilders.