HC Deb 19 March 1981 vol 1 cc435-40
The Secretary of State for Industry (Sir Keith Joseph)

With your permission, Mr. Speaker, I wish to make a statement about International Computers Ltd.

The House will be aware that the Government are users on a substantial scale of ICL computers with equipment to a value of more than £300 million supporting vital operations in some 20 Departments including defence, revenue assessment and collection, agriculture, health and social security. Because of that dependence upon ICL's products we have therefore shared the concern expressed by the company's chairman at the annual general meeting on 3 February about the deterioration in its trading position. In reporting the results for the year to 30 September 1980 he indicated that there had been a sharp drop in profit in the second half of that year, that the company was currently trading at a loss and that adverse trading conditions could continue well into the current year. However, given a revival in markets, the chairman said that ICL expected a significant improvement in the profitability of its operations.

The trading position of the company is, of course, essentially for its management, its shareholders and its bankers, and it is to the banks that ICL looks primarily to maintain its credit facilities on a world-wide basis. However, the Government have a special interest in ICL as a substantial customer for its products. To protect that special interest we have, therefore, given a positive response to a proposal that the Government should provide a limited, temporary measure of support for ICL. That support, in addition to a contribution towards research and development which could be available under existing criteria, should give the company the chance to review its longer term business opportunities. I am glad to be able to say in that context that the company's principal banks are continuing their support for the company in an amount of £70 million.

I therefore intend to seek from the House, at the earliest opportunity, its authority to provide a guarantee for further faciltities to be provided by banks for ICL under section 8 of the Industry Act 1972. The terms I shall be proposing to the House will be for a guarantee of up to £200 million for a period of up to two years. Such a guarantee will not lead to any public expenditure unless it is called. I emphasise that it will be a limited amount and for a limited time.

Mr. John Garrett (Norwich, South)

Is the Secretary of State aware that we welcome the statement as far as it goes? It is always good to see Government intervention in industry, if only as a result of ad hoc pressures and under duress. Does the right hon. Gentleman agree with the chairman of ICL that the root causes of its difficulties are the high value of the pound on a company that exports half its output, the effect of interest rates on high borrowings, and the decline in domestic demand caused by the capital investment slump—all factors caused or worsened by the Government's economic policies? Does he agree that ICL has received less in State support, especially for research and development, than its competitors in other countries? Will he comment on ICL's request for assistance with research and development?

Does the right hon. Gentleman agree that it is now clear that the sale of ICL shares by the NEB on Government instructions was misguided because ICL is now back in the position of being suitable for the NEB to take it over on the Government's criteria for rescues by the NEB? What does he mean by "a limited, temporary measure of support"? Is it true, as reported today, that Sperry Univac is waiting to pounce on ICL and buy it for only £80 million? Does he agree that that would be a disaster for high technology in Britain—an area in which we must have a substantial presence if we are to succeed? How is limited temporary support a substitute for a policy and a plan for information technology such as the French and Japanese have? Why must we lurch from one expedient to another in this as in every other area of industrial policy?

Sir Keith Joseph

ICL, has been subject to the same market and economic conditions as all other companies in Britain. In recent months there has been a sharp downturn in world demand for computers, especially large computers, and ICL has experienced the same downturn as many other computer companies. The record of Government intervention in Britain has not been so happy that the hon. Gentleman should praise it so highly. I do not apologise for the fact that the NEB, under the Government's general policy that it should dispose of its assets, disposed of its shares in ICL at a time when its profits and prospects were, as the market judged, very good. I have no comment to make on the reports in the newspapers to which the hon. Gentleman referred.

Mr. Peter Tapsell (Horncastle)

My right hon. Friend said that the Government would usually expect ICI to look to the banks for support. Is he aware that as a consequence of the 15:1 ratio that the banks have to maintain between their capital and their advances, the effect of the £400 million windfall profits tax on the banks has been to reduce by £6 billion the amount of money that the commercial banks have available to lend to the private sectors of industry, business and agriculture? Is it really sensible to drive private enterprise industry deeper and deeper into the ground and then force it to come to the State for aid rather than to the commercial banking sector?

Sir Keith Joseph

The banks have to make a judgment about the amount of money that they will put into any company. In view of the sharp recession in world demand for large computers, they were entitled to make that judgment. I have no reason to believe that the general background to which my hon. Friend refers has anything to do with this case.

Mr. Richard Wainwright (Colne Valley)

The statement announces a wise move. Will the Secretary of State accept the congratulations from the Liberal Members on discarding rhetoric and coming to terms with business reality, especially in the sense that he has recognised that, while the banks, of their own accord, are supplying £70 million of support, the Government, quite correctly in our view, are offering £200 million of support? That is the proper proportion of support in this case. Does the Secretary of State realise that he has not put this operation into the context of industrial strategy? When will he allow the House to look into the huge pot of gold which the Prime Minister appears to have put at the disposal of his Department?

Sir Keith Joseph

The decision resulted from the dependence of many Government Departments upon the service provided by ICL. It would have been very expensive indeed for the taxpayer had that service come under any doubt whatsoever. That is why in this special case the decision has been made. I remind the House and the hon. Gentleman that what the Government are providing is not equivalent to what the banks are providing. The Government are providing a guarantee that is unlikely to be called.

Mr. Tom Arnold (Hazel Grove)

Does my right hon. Friend recognise that his decision will be widely welcomed throughout Manchester? Will he say whether the £200 million will form part of the public sector borrowing requirement immediately?

Sir Keith Joseph

No, the guarantee does not form part of the public sector borrowing until and unless any part of it is called.

Mr. Ian Wrigglesworth (Thornaby)

Does the Secretary of State agree that this is further evidence that the Government are at last dropping some of the unnecessary ideological baggage that they brought into office? Is not this a typical example of the damage being done to British industry by successive Governments forcing retraction of public investment in industry and having to return a short time later to put back that public investment? Will he tell the House why the National Enterprise Board, as it was successful in bringing ICL round last time, has not been involved? Will he say what steps will be taken by the Government to ensure that ICL will be put back on the right tracks?

Sir Keith Joseph

I do not apologise in any way for believing that the less the Government and taxpayers are involved in the affairs of private business the better. The job of the Government is to create a framework. As we all know, there are nationalised industries and public agencies and, very occasionally, there are suppliers to the Government which the Government, in the interests of taxpayers, want to allow to continue to provide services that they are providing while that remains a sensible decision. I do not see that as an ideological transformation. We stick to our policy about the National Enterprise Board. The proper behaviour for the NEB is to dispose of its existing assets as practicable and to embark on new ones only in partnership with private enterprise.

Mr. Peter Emery (Honiton)

Does my right hon. Friend accept that many Conservative Members believe that he is correct about the necessity to keep major strategic British industries in being? Will he ensure that if at any time other strategic industries come to him he will use the same method, under section 8 of the Industry Act, of using guarantees rather than grants or Government loans to assist them?

Sir Keith Joseph

My hon. Friend seeks to tempt me upon a path that I do not find particularly inviting because there are many different interpretations of the word "strategic". I repeat that the decision was made on the basis that ICL is an important supplier to the Government. The consequences of anything other than a continued service, while that remains sensible, would be damaging to the taxpayers.

Mr. Robert Sheldon (Ashton-under-Lyne)

Is the Secretary of State aware that ICL has recently constructed a major new building in Ashton-under-Lyne? Will he recall the powerful delegation that he saw, together with me, some weeks ago which was concerned about the high level of unemployment in the Ashton-under-Lyne area? Will the two-year period be enough for this important company to be able to continue its plans and to introduce new ones for the years ahead?

Sir Keith Joseph

I well remember the delegation that the right hon. Gentleman brought. Yes, we are advised by the management and the banks that the two-year period will suffice.

Mr. David Crouch (Canterbury)

Am I right in thinking that my right hon. Friend has acted like a good banker by issuing a guarantee in what is termed in banking circles a comfort letter? I am not against that, but does he realise that other comfort is required by industry, especially by ICL, and that is business and markets? Is he satisfied that the buying that he has referred to by Government Departments and nationalised industries is on a substantial enough scale? Will he consider giving direction to those Departments and nationalised industries to buy British from ICL to a greater degree?

Sir Keith Joseph

We have acted as an enlightened purchaser. It is part of the Government's policy that we should be enlightened purchasers, but I repeat that this is an exceptional case. The House will remember that the Government have placed a number of orders recently with ICL including one which much interested hon. Members. Within the past few days the company has obtained three major orders from leading companies in this country, France and Australia against heavy competition.

Dr. Jeremy Bray (Motherwell and Wishaw)

Does the Secretary of State agree that, whatever his doctrinal position, ICL has been a case of successful public intervention and can prove to be so again? Is he aware that the original terms of support for the merger of ICT and English Electric Computers were based on the product design and specification for the 2900 range? It was against a technical and market plan that the original successful support was given. Is the Secretary of State therefore aware of the dangers of waltzing into a position where there are potentially very large investments going well beyond the two years without a national strategy on information technology generally?

Finally, are the £70 million worth of bank loans already available included in the £200 million now covered by the letter of comfort, or are they additional?

Sir Keith Joseph

There might be long debate about the summary and background that the hon. Gentleman has given to the original connection between ICL and the then Government. There is no doubt that ICL contains much talent and great resources. The sum of £70 million is the base on which the guarantee for £200 million is an addition.

Mr. Gwilym Roberts (Cannock)

Does the Secretary of State agree that the narrow point made by the Opposition Front Bench that, however welcome short-term support is, it is no substitution for coherent information technology strategy? Does he agree that most of our industrial competitors are developing such information technology strategy? Will he now follow up the wisdom of the appointment of the Minister for Industry and Information Technology with the development of such a coherent strategy?

Sir Keith Joseph

Inasmuch as the word "strategy" means the identification of obstacles to progress, I accept what the hon. Gentleman says. Inasmuch as "strategy" implies that the Government know better than individual businesses how best to satisfy customers at home and abroad, I hesitate about agreeing with what he said.

Several Hon. Members


Mr. Speaker Order.

I have called two hon. Members in succession from the Opposition Benches. I shall do the same in regard to the Government Benches.

Mr. Michael Grylls (Surrey, North-West)

Will my right hon. Friend accept that, if he is providing nothing more than a temporary safety net while a private sector rescue is mounted, obviously the taxpayer is not involved? However, may I warn my right hon. Friend in the strongest possible terms against going down the path that Labour took with British Leyland, in taking shares in the company, because that path proved to be totally disastrous?

Sir Keith Joseph

I heed what my hon. Friend says. We are not taking up any equity.

Mr. Richard Page (Hertfordshire, South-West)

In view of the possibility of another huge drain on the public purse, may I urge my right hon. Friend to approach the board of ICL and ask its members urgently to undertake talks on possible mergers with other parts of the private sector?

Sir Keith Joseph

This is primarly a matter for the company, but I am sure that what my hon. Friend has said will be noted by it.

Mr. Tom Ellis (Wrexham)

Does the right hon. Gentleman agree that, notwithstanding the difficulties referred to by the spokesman of the official Opposition—and they are serious difficulties—it would be extremely difficult for a generalised telemetrics company such as ICL successfully to prosecute its business on the basis of the market of a nineteenth century European State? Will he, therefore, enter into discussions with ICL and with his colleagues in the Community with a view to establishing an integrated telemetrics industry on a Community basis?

Sir Keith Joseph

I hesitate to encourage that ambitious thought. However, the hon. Gentleman surely realises that ICL has established many good markets abroad, which I am sure its management will try to hold.

Several Hon. Members


Mr. Speaker

Order I shall call four hon. Members from the Government Benches—and that, I think, will be a very good run.

Mr. Nigel Forman (Carshalton)

Is my right hon. Friend aware that his statements of guarantee today on behalf of the Government will be widely welcomed by all those who are concerned for the long-term industrial future of this country? Will he confirm, now or later, that one of the effects of his very welcome statement will be to make more secure than would otherwise have been the case quite a large number of jobs in the more forward-looking parts of British industry?

Sir Keith Joseph

That depends upon market conditions and the performance of the company.

Mr. Ian Lloyd (Havant and Waterloo)

While it is obviously essential that a firm which is recognised as the flag carrier in this area in this country should both survive and thrive, may I ask whether my hon. Friend is aware that there is a widely held view among the cognoscenti in this very difficult sphere that a firm of the size of ICL is unlikely ever to thrive if it attempts to compete right across the board, including the very largest mainframe computers, and that unless a major decision on this subject is made and faced by the Government and ICL, it will probably come back to the House again and again?

Sir Keith Joseph

I am sure that the management will be reflecting upon the options open to it and will be aware of what my hon. Friend says.

Mr. Kenneth Carlisle (Lincoln)

I recognise that it is important for us to retain our own computer industry in Britain if at all possible, but how can we be certain that the guarantee given will be temporary and limited? History has shown us that once we get embroiled in these matters more and more Government and public funds become committed.

Sir Keith Joseph

I think that all of us on the Conservative Benches are very well aware of the dangers. The guarantee lapses after two years.

Mr. John Browne (Winchester)

My right hon. Friend said that the industry is very competitive. I entirely agree with that. However, I hope that he will agree that it is also a booming industry, particularly in home computers and in software, and that the latter subject is particularly a British strength. Does not the fact that ICL has now had to turn to the Government for a guarantee to enable it to borrow from the banks throw a major question mark over the management of ICL? Will my right hon. Friend please comment upon that, and upon whether he proposes to impose one or two directors on the board of ICL, as was very successfully done before the war in relation to British Petroleum?

Sir Keith Joseph

The Government and the banks will naturally keep a close watch on the company's performance throughout the duration of the guarantee. The size of the ICL operation naturally requires a strong board of management.

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