HC Deb 25 June 1981 vol 7 cc480-8

Motion made, and Question proposed,That this House do now adjourn.—[Lord James Douglas-Hamilton,]

11.3 pm

Mr. David Mellor (Putney)

I am glad to have the opportunity to raise the future of International Computers Ltd. I do so because I have the honour to have the headquarters of this fine company in my constituency. I am also glad to be supported tonight by my hon. Friends who also have ICL plants in their constituencies.

The subject of the Adjournment debate is: the future of International Computers Ltd. I want to make it clear at the outset that I strongly believe that ICL has a future. This debate is about confidence. It gives us the opportunity to express our confidence in the new management of the company and it also gives my hon. Friend the Minister for Industry and Information Technology the opportunity to express the confidence that I know he feels in that new management.

It is crucial that that confidence should be based not on empty optimism but on realism. In order to arrive at a sense of optimism about the company's future it is necessary, therefore, to traverse some not so pleasant ground and to consider why the company has found itself in difficulties in the last few months, for unless the lessons are learnt from what has been a catastrophic decline in the company's fortunes, the future of the company will plainly be very questionable.

For most of its existence ICL has been a very successful company. Formed in late 1968, it has from that date been Britain's one major computer manufacturer. The 10 years or more that followed its creation in 1968—with the exception of one brief hiccup in 1972— were years of success and schievement. The company was expanding by about 20 per cent. per annum—a fine figure, even in advance of the extraordinary development of the rest of the computer industry and the growth rate of all computer companies during those years.

It is idle to pretend that something very serious has not gone wrong with ICL over the last few months. It is difficult to know why a company that as recently as 12 months ago was still quite a favourite on the stock market—and was still a favoured tip for a number of those in the City who know about these things—should suddenly have gone into a downward spiral that has caused such distress to its many admirers, both in this place and outside, and placed in jeopardy the livelihoods of a significant proportion of its work force, some of them my constituents.

It is extraordinary that there should have been this collapse at a time when, although all computer companies have experienced some difficulties, it is generally and rightly thought that the information technology industry is on the verge of yet another great expansion. The reason, one suspects, can only be that the management of ICL was slow in coming to terms with the impact of the international recession. I stress "the international recession", for while it is true that ICL has been dependent upon a substantial share of the British market for its output, it has depended just as much on exports. Indeed, over 50 per cent. of its present output is in terms of exports, and the problems with the European market—the international aspect of the recession—have been as much to blame as anything that has happened here. That is crucial.

There are a few people who are unable to resist the temptation to try to turn to political advantage the misfortunes of other people and who have chosen to say that the problems of ICL are yet another manifestation of the failure of the Government's economic policy, but the truth is that the international recession has brought it about.

The question that should detain us is whether the international recession should have caught ICL so unaware. I do not believe that it should. The reason why these problems have arisen is still a matter for debate, but I believe that it can be said that for too long the former management of the company concentrated on volume rather than profit. When the crunch came the management structure that had been developed was sluggish in responding to the dramatic need to change course that was forced upon the management. That is what brought ICL to the difficult pass at which it arrived some four months ago, when my hon. Friend the Minister was faced with a difficult decision.

I am not gloating over the misfortunes of the company. I feel a great deal of pride in its association with my constituency. It is crucial to realise that ICL cannot be called the victim merely of international or domestic circumstances.

It is the prevailing view amongst those in the media who study these matters, amongst a large proportion of the work force, certainly those to whom I have spoken, and amongst competitors that the ICL management must bear a considerable share of the blame. It was perfectly right that my hon. Friend the Minister should have indicated to the company, as I believe he must have done, that changes needed to be made at the very top.

Changes have been made, and I welcome three distinguished British business men who have joined the board of the company, especially the managing director, Mr. Wilmot, who already, in a few weeks, has made a profound impression on those in the company and outside in terms of the positive ideas that he has for reviving its fortunes.

The question has to be posed and cannot be shirked: have the management changes gone far enough? There are others at the top of the company who bear as large a share of the blame for what went wrong with the company as did the chairman and managing director, who have already tendered their resignation. It is seriously in question whether ICL will be able to revive, even under the inspired leadership of Mr. Wilmot, if further changes are not made.

There is bound to be the suspicion that there are those occupying very senior posts within the company who still have a vested interest in trying to justify what happened in the immediate past. If there is any justification for people at the top of great companies deriving substantially more pecuniary benefit from their work than those further down—and I believe that there is—it has to be that that benefit is derived because they take the risk. They excercise their management skills and if they are successful they derive the benefit.

The alternative must apply. I do not think that it is proper for senior managers—I do not propose to specify whom I mean, but I think it will be clear to anyone who knows the company—to remain in the company and expect others lower down to be made redundant when the problems have arisen as the result of a substantial degree of management error in running the company.

I come to the redundancies. Plainly, they have worried me, as they have worried many hon. Members whose constituents are affected. It is easy for a constituency Member of Parliament to object on principle to redundancies, but, having spent a good deal of time with the company over the last few days, I am convinced that the case for the redundancies, painful though they are, is made out.

There is one statistic that speaks volumes. The proportion of revenue devoted to the payroll of ICL is 51 per cent. From the figures of ICL's rivals a different picture emerges: NCR 44 per cent, Digital Equipment 42 per cent., Control Data 43 per cent., and Univac 44 per cent., making the non-ICL average 43 per cent., as against ICL's 51 per cent. That is clear evidence of overmanning—overmanning that goes back over a number of years, far further than does the present recession.

It may be of interest to know that the ICL payroll average from 1973 to 1977 was 44 per cent. of revenue. It is, as some people have suspected, during the time since the unfortunate retirement of Mr. Cross as managing director of ICL that these problems have arisen. I think that we shall find people in the company now more than prepared to accept that it has been overmanned, and that overmanning has led it into difficulties, so that when the cold winds of the recession have blown the company has been less able to cope than have so many of its rivals that do not find themselves in this position.

Mr. Bowen Wells (Hertford and Stevenage)

I am grateful to my hon. Friend for giving way. A major part of the ICL plant is situated on my constituency. I find that since the retirement of Mr. Cross there have been no quarterly meetings, as there were in his time. Mr. Cross used to conduct quarterly meetings between employees and management, and explain what was happening in ICL.

I should be grateful if my hon. Friend would comment on the difficult situation in which employees below management level find themselves. The trade unions concerned came to see my hon. Friend and I the other day to explain the situation. They might accept redundancies in order to save ICL. They are loyal to the company, and have a constructive approach. However, even under the new management, the situation has not been explained to the employees. Unless the employees and the management work together—and management must play its part in getting them together—we shall not see the revival of ICL that the country, my constituency and ICL's employees earnestly desire.

Mr. Mellor

I am sure that my hon. Friend is right. I share his concern, and I am sure that Mr. Wilmot is equally aware of the problem. Having been privy to some of his thoughts, in discussions with ICL management, I can say that he is making it plain to all the work force that the company will pull through only if everyone pulls his weight.

Plainly, my hon. Friend the Minister has done all that could reasonably be expected of him. Within the company there is no criticism of the Government. It is recognised that they have done everything possible. The Government must take a great share of the credit for the fact that ICL has been able to attract its three distinguished managers. It is equally right that my hon. Friend should not give ICL a blank cheque. There must be a limit to Government assistance in terms of time. It is crucial that everyone at this stage should recognise that ICL is drinking in "Last Chance Saloon".

Painful though redundancies are, such decisions should have been taken some time ago. ICL must slim down. Although we are concerned about the 17 per cent. who will lose their jobs, we are also concerned about the 83 per cent. who will remain. To delay the redundancies is perhaps to be no more sensible than the surgeon who delays cutting off a gangrenous limb and by doing so puts the rest of the body in jeopardy.

I end on a positive note. Even in the midst of its troubles, ICL is attracting great orders. Only in the last two weeks the National Girobank placed an order for £1.7 million-worth of computers. Colonial Life, one of Australia's largest insurance companies, has placed an order for £3 million-worth of computers. Marks and Spencer's has announced that ICL is to be part of its five-year computerisation plan. It has just placed an order for £1 million-worth of computers. Viva Drugstores has bought equipment to the value of £¼ million. That has taken place in the last week.

Under the new management, I am sure that ICL will be able to revive. I look to my hon. Friend to give such further aid, assistance and advice as is necessary, and I am sure that he will give it. There is no hon. Member with a better understanding of the information/technology industry than he. It gives us hope that at such a difficult time for the company there is a very well-informed Minister in charge of its destiny.

11.17 pm
Mr. Martin Stevens (Fulham)

I shall add only a few remarks to those so ably uttered by my hon. Friend the Member for Putney (Mr. Mellor). I add my congratulations to my hon. Friend the Minister on the tough decision that he took about ICL. ICL is a strategic industry and must be regarded as one of the nation's prime assets. I hope that this brief debate will result in a clear and public Government statement which those who work for and with ICL will recognise as a clear and, as my hon. Friend said, realistic presentation of the facts. As has been said, ICL has worked up splendid overseas markets. It has admirable products. One could argue about whether the company has moved as quickly as it could have done in response to market needs, but it nevertheless has an admirable base for an excellent international business. In addition, it is highly regarded in its field.

As a former marketing man, I tend to feel that the most drastic review of leadership and of approach is needed on the marketing side. The company may have been unduly product-oriented instead of marketing-oriented. I hope that an improvement in that direction will follow the Minister's lead.

This Adjournment debate gives us the chance of spelling out the future for ICL. Like my hon. Friend the Member for Putney—I have half the headquarters at the other end of Putney bridge in my Fulham constituency—I offer my warmest congratulations and good wishes to the company and to the senior managers who have joined the board. I look forward to a return to prosperity for ICL and I applaud my hon. Friend the Minister for having made this possible and having enabled ICL to remain as a British company rather than be merged with or taken over by a company from overseas.

11.20 pm
The Minister for Industry and Information Technology (Mr. Kenneth Baker)

I am grateful to my hon. Friend the Member for Putney (Mr. Mellor) for the positive terms in which he has raised the future of International Computers Ltd. He started his speech by talking of the future. That is the importance of this short debate.

The Government's loan guarantee support for ICL, in an amount of up to £200 million for up to two years, is, in my view, the constructive and sensible way to help the company in its present difficulties. I assure my hon. Friend that it is no blank cheque, to use his words. It provides a vital breathing space in which ICL can conduct a thorough review of its business activities and take the actions necessary to bring recovery in the interests of its customers, shareholders and employees.

Since the Government's loan guarantee began, there have been important top management changes at ICL. I have noted what my two hon. Friends have to say about the new management team. No doubt the comments of my hon. Friend the Member for Putney will be considered carefully by the company.

The Government fully supported these changes. They also welcomed the stated objectives of the new management to re-establish ICL on a basis of strength so that it can continue to compete successfully at home and abroad. I am sure that the changes being introduced will involve the sort of consultation and co-operation that my hon. Friend the Member for Hertford and Stevenage (Mr. Wells) recalled used to operate in the plant in his constituency.

The crucial first task that the new management has set is a restoration of profitability. Earlier this month the company reported its half-year results for the period to March 1981, showing a pre-tax loss of £33.9 million, which included a pre-tax loss for the first quarter of £24.4 million. Restoration of profitability will be achieved only by the efforts of the company itself. The determined steps that are now being taken deserve the strongest support of all those who have at heart the long-term interests of ICL, particularly the interests of its employees, as both my hon. Friends who intervened made clear.

In this last respect, my hon. Friend the Member for Putney mentioned the company's proposed manpower reduction programme. Redundancies are always unfortunate, as are any hard measures which cause distress to those affected. But job losses are often an inescapable price of restoring financial health in the interests of preserving jobs for the great majority. My hon. Friend mentioned the 83 per cent. staying in employment.

If ICL is to remain competitive, it recognises that it has no alternative except to match its costs, including labour costs, to the projected scale of its business. The use of new technology, which has increasingly to be employed in the computer industry—as well as in many other industries—to achieve competitiveness, has also been reducing the labour content of ICL's products and services. I very much hope that the work force will decide not to take industrial action over the redundancies.

In the light of these points, the company acknowledges that it is overmanned. This is a fact to be remembered by any hon. Members on the Opposition side who, if they were in power, would look to the Government's purse as a way for ICL to avoid the redundancies. Such action could be only a short-term and dangerous palliative. By putting at risk the management's efforts to chart a return to genuine—not cosmetic—profitability, it would do nothing to help ICL's position for the longer term and would offer no genuine reassurance to the company's employees. It would no nothing for important customers' confidence in the company.

I stress that the Government, of course, want to see ICL succeed. The Government have their own important user interest. That is why we have afforded to ICL our temporary loan guarantee support. But the task now for the Government, and for everyone concerned for ICL's future, is to throw wholehearted support behind the company's own remedies for restoring its competitive position.

Restoration of genuine profitability is also the responsible way to safeguard the considerable customer investment in ICL products. From the strengthened position that return to profitability will bring, the company's strategy will be further to improve its product range by the pursuit of collaborative ventures with other companies.

The House will know from the considerable press publicity that ICL recently examined with certain overseas manufacturers the possibility of partnership. No formal proposal for partnership was received by the company, but it became apparent from its talks that an acceptable arrangement for ICL's shareholders, customers and employees was not readily available. That was particularly true in relation to the retention of significant research and development and manufacturing facilities in the United Kingdom and to the safeguarding of past and future customer investment in ICL products. The new management team appointed in early May therefore terminated the discussions, a decision which was accepted by the Government.

The collaborative ventures which do, however, remain part of the new management's strategy to pursue over time will have as their object a further cementing of ICL's commercial position—for example, by opening up new and profitable markets at less cost and risk than going into them alone—and by better spreading the heavy research and development costs which are a feature of the computer industry. In particular, ICL will be looking for associations that complement its present product range and markets. It will no doubt wish to conduct a wide canvass of the opportunities available within the industry world-wide before entering into any commitments, and I am not, therefore, able to help the House with any firm indication of the outcome of this part of the company's strategy. But ICL has emphasised that any associations that it seeks will be based on safeguarding customer investment, both current and future, in the company's products.

The company's customer base is, of course, impressive. It has a value of over £2,000 million in more than 80 countries. The company is able to build on that with its most comprehensive and competitive range of products ever. The success of the range is demonstrated by the taking of more than 1,000 orders, in just over a year, for ICL's medium-range ME29 computer. There are many first-class products in the pipeline.

The Government are contributing important R and D support to those emerging products. Successive Governments have done so, but we are considering a range of R and D proposals from ICL which could lead to an increase in future levels of R and D support, certainly to higher levels than were managed by the previous Government when they had responsibility for the company.

Successive Governments have supported the company through purchase of its equipment. We will continue to do that, in appropriate cases, in respect of the Government's own computer installations. I remind the House of the significant confidence that the Government demonstrated in the company's abilities when we decided to place with ICL the contract for the computerisation of the PAYE system—one of the largest computer projects ever undertaken.

During the period of the loan guarantee, the Government will keep a close eye on the company's development and I shall be meeting the management at regular intervals to discuss plans and prospects. But, even before the period of the loan guarantee, there was, of course, a close and continuing relationship between ICL and the Government.

As Minister for Industry and Information Technology, I frequently meet many major companies in the industry. I therefore find quite fallacious the claim that the sale of the NEB shareholding contributed to ICL's difficulties by weakening the contact between the Government and the company, and even more so that there could be any useful role for the NEB.

During the period of its shareholding, the NEB took no active role in ICL's management or in the development of its policy, and it contributed no funds to the company. The sale of the shareholding in no sense diminished ICL's standing or the funds available to it. I wish to re-emphasise that point, because several people have been saying that this was the cause of the company's troubles. In no possible way can that claim be made. In his speech my hon. Friend the Member for Putney explored the reason why ICL had got into trouble.

To conclude, therefore, I am again grateful to my hon. Friend and also to my hon. Friend the Member for Fulham (Mr. Stevens) for the positive and forward-looking terms in which they raised the future in ICL tonight.

Mr. Bowen Wells

Will my hon. Friend make certain that the plans of the management are made known to all the employees, so that they can participate in the reconstruction that he proposes?

Mr. Baker

My hon. Friend makes a most sensible suggestion. He indicates exactly the way in which all good managers work and should work. I shall draw this debate, and especially the point that my hon. Friend has just made, to the attention of the management.

I wish to emphasise that we on the Government Benches recognise that ICL's future cannot be based on the easy panacea of a return to the NEB, but only on a sure foundation of profitability and competitiveness in the market. The excellence of ICL's products already provides the latter.

The most important vote of confidence in ICL must be a vote by its customers. That is why I was so pleased to see two recent orders from Australia, and orders at home from important users such as Marks and Spencer's and the National Girobank. In the last few weeks, several of ICL's principal customers, whom I have met in visiting industry, totally unsolicited from me have made clear to me their faith in the future of the company.

The Government's loan guarantee support provides the means by which ICL can exploit its product range and get back on to a course of profitability. The Government have played their part. This a responsible way in which the Government can help ICL over what we all hope will be a period of temporary difficulty, it recognises that ICLs best long-term interests lie in itself taking the determined measures to get back on to the course of success that it pursued so well and for so long.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes to Twelve o'clock.