HC Deb 27 April 1982 vol 22 cc726-33 3.38 pm
The Minister of State, Department of Industry (Mr. Norman Lamont)

With permission, Mr. Speaker, I shall make a statement on future financial support for British Shipbuilders.

The House will be aware that the industry's financial performance has shown some striking gains after the painful adjustments of the last two years. Losses have declined from £110 million in 1979–80 to a target of £25 million in 1981–82 after intervention fund assistance. The cash needs of British Shipbuilders have declined from £236 million in 1979–80 to £150 million in 1981–82. These gains are a tribute to the leadership of Mr. Atkinson and the realistic response of the employees and trade unions.

Under its corporate plan, British Shipbuilders aims to break even in 1983–84 and thereafter to move into profit without intervention fund assistance. But for British Shipbuilders to achieve its target will require continued substantial improvements in performance. Productivity still has to surpass pre-nationalisation levels.

Moreover, the plans of British Shipbuilders assume a sustained increase in real prices for ships. However, in present market conditions it would be wrong to place any great reliance on this happening. This makes it all the more important for British Shipbuilders to control costs tightly and become more competitive. While the volume of Ministry of Defence orders will remain substantial—last year orders were placed to the value of £460 million including associated weapons—British Shipbuilders seems likely to need to make adjustments and will need to regain export markets. British Shipbuilders has already made a start on the adjustment process by diversifying Cammell Laird and Scott Lithgow, and has had a welcome success in securing offshore orders.

Against this background, the Government have considered the question of financial support for 1982–83 only and will review the position later. For 1982–83 an external financing limit has already been announced of £123 million which takes account of the decision of my right hon. and learned Friend the Chancellor on the national insurance surcharge. For the same year we are setting a trading loss limit of £10 million after intervention fund assistance. The present tranche of the intervention fund expires in July this year and British Shipbuilders has sought further intervention fund support. The Commission is currently considering the general question of aids to shipbuilding and how best to ensure that where these are given they foster progress towards viability. I will report later to the House on the progress of consultation with the Commission.

With the agreement of British Shipbuilders and Harland and Wolff, we are going to ask consultants to look into the question of marine engine capacity at British Shipbuilders and Harland and Wolff to see whether the total capacity could be more effectively deployed. We have also been mindful that private sector engine manufacturers have over a long period complained about unfair competition from British Shipbuilders and Harland and Wolff. My right hon. Friend the Secretary of State will shortly announce Government funding for Harland and Wolff for 1982–83. We have also put to Mr. Atkinson the concern of the private sector ship repairers on unfair competition from British Shipbuilders which was highlighted by the recent report of the Select Committee on Industry and Trade. I know that Mr. Atkinson regards the performance of this sector as unsatisfactory and British Shipbuilders is reviewing the situation as a matter of urgency.

On the question of privatisation, it remains the Government's firm intention—time permitting—to take powers to facilitate the introduction of private capital for British Shipbuilders. I recognise the impatience of my hon. Friends for the Government to make progress in this area.

Very substantial support has been given by the Government to British Shipbuilders, but it still faces a task of considerable magnitude in obtaining a firm prospect of viability. The Government are determined that aid to British Shipbuilders will be temporary and diminishing. Government support by itself cannot buy viability or security of employment. The need to improve performance remains urgent. The fuller order books this year represent an opportunity for the industry to prove itself.

Dr. John Cunningham (Whitehaven)

Is the Minister of State aware that we regard this as a particularly inappropriate time for the Government to be making a statement about financial support for British Shipbuilders? We know that the defence White Paper has just been withdrawn. We know that the defence White Paper of a year ago smashed to pieces the proposals in the then British Shipbuilders' corporate plan. Is it not therefore asking an impossible task of the corporation to meet a plan when it knows nothing of the Government's intentions with respect to warship building and orders for the corporation?

Is it not also curious that the statement on financial support should be made at a time when the statement itself admits that no agreement has been reached within the EEC on intervention fund support which is crucial to the survival of some of British Shipbuilders' existing capacity?

I join the Minister in welcoming and paying tribute to the massive commitment that the unions have given to the 15 per cent. improvement in productivity in British Shipbuilders last year. We are opposed to the inferences in the statement to the reduction in financial support for the corporation.

The external financing limit is to be reduced and the loss limit is to be reduced by 60 per cent. Will the Minister of State explain how he expects British Shipbuilders to meet these targets when it has no idea of what is required of it in warship building? In the middle of a national crisis in the Falkland Islands, with heavy dependence on the Navy and support ships, is it not preposterous to reduce support for our shipbuilding industry?

Will the Minister confirm that section 2 of the Aircraft and Shipbuilding Industries Act 1977 lays a statutory duty on the corporation to take cognisance of the defence requirements of the country, and in particular of the Navy? Does not that have implications for what the Minister had to say about the ship repair capacity of the corporation?

What is the Government's response to calls from the unions, from the Opposition Dispatch Box and, most recently, from the Select Committee on Industry and Trade for the creation of a maritime strategy for Britain. As a shipping and shipbuilding nation of major consequence, we have no maritime strategy.

Will the hon. Gentleman make clear his reference to £460 million of defence orders for the corporation last year? Is not the overwhelming proportion of that money for armaments which are not built by the corporation? If so, will he make it clear to the House?

Finally—[Interruption.] This is a most important statement for many people on the Clyde, the Tyne, Merseyside and elsewhere, and I make no apology for asking a number of questions. They are important to Labour Members and to the areas we represent.

Will the Minister say what level of investment cash will be available to the corporation as a result of his statement? Does it not foreshadow further major redundancies in British Shipbuilders?

Mr. Lamont

I have some sympathy with he hon. Member's first point. The statement has been long delayed and, therefore, we felt that it was right that it should be made to the House even though uncertainties surround it.

With regard to the question of uncertainty about the EEC, I have said that we shall come back to the House and make a full statement when it has made its deliberations on the intervention fund and assistance for shipbuilding generally.

On the subject of the defence review, the hon. Gentleman will have noticed that my statement was concerned with the short term. The figures and facts in it deliberately relate to the short term and the next year. Anything that is decided as part of a review of defence policy will be taken into account for the longer term.

The hon. Gentleman asked about reducing limits—loss target and the external financing limit. There is nothing new here. British Shipbuilders is aware that the Government's requirement is that both these limits should decline with time. It has succeeded in achieving that in the past, and I am confident that it will achieve it this year. I see no reason why that should not continue in the future.

The hon. Gentleman also asked about defence requirements. The Ministry of Defence has placed orders worth £460 million. Those orders include weapons systems and eight ships, including a nuclear submarine, two type 23 frigates and five patrol craft for service in Hong Kong.

As to a maritime policy, of course we shall examine and respond to the recommendations of the Select Committee. However, one must bear in mind the fact that shipping is also of interest in Britain and that a large part of British shipping is carried on between third countries. An overprotective maritime policy would not be in the interests of British shipping, and I am sure that British shipowners do not wish to be compelled to place orders in Britain.

The hon. Gentleman also asked about investment. During the past year we have invested about £30 million and next year we expect to invest £50 million, so it is not all retreat. There is some advance and provision for the future.

The hon. Gentleman's final question was about employment. Obviously there are some implications for employment in the decisions that have been taken by my right hon. Friend the Secretary of State for Defence, but British Shipbuilders expects that, by a policy of diversifying into offshore work and by obtaining a larger share of the export market, it can contain redundancies to about 2,000 to 3,000 over four years.

Mr. James Molyneaux (Antrim, South)

Is the Minister of State aware that there has been great difficulty in refuting the allegation that British shipbuilding representatives have improperly sought to influence shipowners in Brazil against placing engine contracts with Harland and Wolff in favour of John G. Kincaid and Co. Ltd? In assessing the future of the Harland and Wolff marine engine works, will the Minister and the Secretary of State for Northern Ireland take into account the fact that there is, and can be, no other outlet for marine engine skills in Northern Ireland?

Mr. Lamont

I shall certainly take the hon. Gentleman's latter point into account. The purpose of the inquiry is simply to see whether there is over-capacity in the engine sector and whether the complaints of the private sector about subsidised competition are justified.

I was not aware of the hon. Gentleman's first point, but I shall consider it.

Mr. Neville Trotter (Tynemouth)

One welcomes the substantial support that the Government have given to the shipbuilding industry in the past three years, the commitment to achieve viability and the substantial reduction in losses as a result of the achievements of the management and work force. What is the time scale of the urgent action promised by the chairman on the loss-making repair yards? It is difficult to understand how one can justify a position whereby the efficient, privately owned yards are being undercut and are in danger of being put out of business by the loss-making State yards. Do the Government aim to deal with the problem during the current year or does "urgent" mean longer?

My hon. Friend, in his long and good account of the future of the industry, omitted to comment upon the export of warships. If we are to receive—regrettably in my view—nadequate orders for warships from our Navy because of high costs, it is more important than ever that there should be exports. We have had no real success in recent years in selling significant numbers of warships overseas. My hon. Friend's Department should carry out an inquiry into the problem. It is such an important issue that we need an independent inquiry into it.

Mr. Lamont

On my hon. Friend's first question, I hope that the matter will be cleared up in the coming year. I share his concern about the loss-making side of ship repairing, because it is no good safeguarding jobs in the public sector merely to make people redundant in the private sector. The Government have no powers to direct British Shipbuilders to cease to operate in any area, although we have expressed our great concern about the matter to the chairman and we have made it clear that if he wishes to dispose of any part of the ship repairing side we shall not be slow to give him consent.

We must do much better in the export of warships. We have not exported a frigate since the early 1970s. The reasons for that are much disputed and varied. It may be that the design is too much tailored for our use, but we are hopeful that the type 23 frigates, the SSK submarine and the "Leeds Castle" class of offshore vessel will bring about a better era. I am not sure that we need an inquiry, but I assure my hon. Friend that we attach great importance to exports. The strategy that has been announced depends upon British Shipbuilders securing a larger share of the export market than it has in the past.

Several Hon. Members


Mr. Speaker

Order. If hon. Members will co-operate and ask brief questions, leading to brief replies, I shall call every hon. Member who has risen.

Mr. John Evans (Newton)

Will the Minister confirm that there is a major dispute about export orders between British Shipbuilders and the Admiralty? British Shipbuilders claims that the Admiralty's orders are much too sophisticated to form the basis of obtaining orders, especially from poorer countries which require simple frigates and destroyers.

Mr. Lamont

This has been a source of controversy in the past. I and my colleagues in the Ministry of Defence meet frequently to discuss this question, because we are mindful of the criticism that has been made in the past. Our defence needs are paramount, but wherever possible we wish to have in mind the export potential for orders. I know that my right hon. Friend the Secretary of State for Defence also takes that view, and the position is now different from that of the past.

Mr. Michael Grylls (Surrey, North-West)

Why has British Shipbuilders, which is still heavily dependent on taxpayers' support and still making a loss, doubled its pay offer to its employees from 3 per cent. to more than 7 per cent.?

Mr. Lamont

The wage settlement is a matter for the management of British Shipbuilders. We have made it extremely clear that British Shipbuilders will be expected to find the money for the settlement within its present allocation. That is a tight limit and the corporation must find offsetting savings in order to finance the settlement. Public sector wages must lead the way down.

Mr. Ian Wrigglesworth (Thornaby)

Is the Minister aware that his statement is most disappointing because it takes us no further ahead in any of the major decisions affecting the future of British Shipbuilders? Will he clarify two points?

First, the hon. Gentleman said that productivity must still surpass pre-nationalisation levels. What is the position on productivity? We are told that it has been increased. Why has it not yet surpassed pre-nationalisation levels? Secondly, what does the Minister mean about the introduction of private capital into British Shipbuilders? Does he not realise that such statements give rise to great uncertainty in the minds of both management and work force and will he clarify exactly what he means?

Mr. Lamont

As I explained to the hon. Member for Whitehaven (Dr. Cunningham), we were anxious to make this statement as soon as possible—it has already been delayed—despite uncertainties, such as the EEC's attitude to the intervention fund. Productivity has been improving sharply and I pay great tribute both to Mr. Atkinson and to the work force for their co-operative attitude. There have been many changes against a difficult background and a large slump in orders. Productivity has been low, although improving, because the throughput of ships has been very low.

As to private capital, I confirm that it has always been our intention, time permitting, to take powers to introduce private capital into British Shipbuilders. We believe that private ownership and enterprise offer the best prospects for secure employment and orders in the future.

Mr. Robin Maxwell-Hyslop (Tiverton)

Does British Shipbuilders continue to give loss-making quotes on ship repairs, contrary to the specific recommendations of the Select Committee and to the undertakings given to the Select Committee by Mr. Atkinson, because Mr. Atkinson does not know what is going on in British Shipbuilders or because he is powerless to control it? Why does my hon. Friend pretend that he is powerless to control it when he can make the availability of public funds contingent on the immediate cessation of this practice which is so damaging to the private sector which cannot draw on public funds?

Mr. Lamont

I am powerless only in that I cannot order British Shipbuilders to cease ship repairing. Nevertheless, my hon. Friend is quite right. Through the EFL and other financial frameworks within which British Shipbuilders operates, we have great influence on it and the activities it undertakes. We have, of course, drawn Mr. Atkinson's attention to the evidence that was given to the Select Committee as well as the recommendations of the Select Committee. I have recently discussed some of the examples of contracts that were taken at a loss. Mr. Atkinson is considering them urgently. It is intolerable that jobs in the private sector should be sacrificed in that way.

Mr. Robert C. Brown (Newcastle upon Tyne, West)

Is the Minister aware that his reference to privatisation will be viewed with dismay by a work force that has increased productivity by no less than 15 per cent. in the past 12 months? Does he realise that yards such as Swan Hunter on the Tyne will have no future if the Government are determined to sell off naval shipbuilding, which is where the profit lies?

Mr. Lamont

I do not agree with that at all. Naval shipyards did extremely well under private ownership in the past and I do not see why they should not do so again.

Mr. Michael Colvin (Bristol, North-West)

Is the Minister aware that the repair activities of British Shipbuilders since it came into being as a result of nationalisation in 1977 has lost £43½ million of taxpayers' money? Further to the question of my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop), is the Minister aware that its activities are contrary to article 92 of the Treaty of Rome and are rapidly driving free enterprise ship repairers, such as Jefferies in my constituency, into bankruptcy? Will he give an undertaking that the study that he is to institute will include the ship repairing side, which needs to be investigated in depth?

Mr. Lamont

The losses on ship repairing are extensive, especially when calculated on a per man basis.

On his question about article 92 of the Treaty of Rome, my hon. Friend will know that the Shipbuilders and Ship-repairers Independent Association has made a complaint to the Commission. We are extremely worried about that and we do not want to see the private sector undermined by loss-making contracts taken by the public sector.

Mr. Don Dixon (Jarrow)

Does the Minister appreciate the importance of the shipbuilding industry in the present crisis? Should he not pay credit to the Labour Government, who saved the industry by nationalisation and by placing the Polish orders? Does he accept the importance of fetching forward a maritime policy that covers shipping and shipbuilding? Does he accept also that only when there is such a policy will there be a scrap-and-build scheme that will give a future to merchant shipbuilding in Britain?

Mr. Lamont

The present Government have done a great deal for British shipbuilding as well. We have given the industry £600 million. That can hardly be called a small allocation. We have backed the industry and there have been some remarkable improvements in the last couple of years.

The hon. Member referred to the Polish shipping order. I am not sure that I regard that as a model for the future. The total cost to the taxpayer is currently estimated at £72½ million, of which £28 million was intervention fund assistance and £39 million was losses incurred during construction. The way forward for British Shipbuilders must be by becoming more competitive, by increasing productivity and by improving the quality of ships. There are signs that those improvements are taking place.

Mr. Michael Morris (Northampton, South)

Is my hon. Friend aware that the pace of privatisation is a major disappointment? If he believes that it is right to have a major maritime manufacturing capacity, will he perhaps give a lead to those who have the ability to succeed and privatise those companies that are successful and leave rationalisation to those that are not?

Mr. Lamont

I sympathise with my hon. Friend. His point is in contrast to the responses of other hon. Members about privatisation. He will realise that we cannot privatise British Shipbuilders without taking legislative powers so to do. There would then be the question whether we could find buyers—whether people would be willing to invest. In the first instance, however, nothing can be done without legislation.

Rev. Martin Smyth (Belfast, South)

Although the Minister recognises the problems facing shipbuilding in the modern world, will he consider broadening the inquiry to cover the relationship between British Shipbuilders and Harland and Wolff to give the latter a greater place in British shipbuilding? Will he bear in mind that some years ago Harland and Wolff was steered up the wrong channel and was put into the construction of super tankers and was, as a result, unable to compete at the right level and use the undoubted talent and equipment available for the prosperity of the United Kingdom at large?

Mr. Lamont

I cannot comment on the hon. Gentleman's question because Harland and Wolff is a matter for my right hon. Friend the Secretary of State for Northern Ireland. My only involvement with Harland and Wolff is with the announcement that I made today about the inquiry into the engine section.

Mr. R. C. Mitchell (Southampton, Itchen)

Is the Minister aware that the best action that the Government could take to help British Shipbuilders now would be to clarify their future naval shipbuilding orders so that. British Shipbuilders can plan properly ahead? He is constantly telling naval shipyards to export. As quite a large proportion of the Argentine navy was built in this country, from which countries should British Shipbuilders seek export orders?

Mr. Lamont

I shall not answer the last part of the hon. Gentleman's question because, as he knows, each case must be considered collectively with my right hon. Friend the Secretary of State for Foreign and Commonwealth Affairs and my right hon. Friend the Secretary of State for Defence.

The hon. Gentleman's first point is extremely important. We are trying to make the future of defence orders clear to British Shipbuilders. The matter must be handled like any other item of public expenditure. It must be rolled forward year by year, with each year becoming more firm the further forward one goes. In that sense, defence spending is treated no differently from any other item of public expenditure. However, we have frequent discussions with the Ministry of Defence and British Shipbuilders to ensure that they are as aware as possible of the Government's forward thinking on defence.

Dr. John Cunningham

Will the Minister now answer the two questions that I put to him and which he has not answered? First, is there not a statutory requirement on British Shipbuilders to take cognisance of the need, especially in connection with defence, to maintain a ship repair capacity? Is that not what the Act says?

Secondly, do not the Minister's comments about British Shipbuilders needing to make "adjustments" imply further reductions in capacity? Does he agree that that will mean a repeat of lost orders, such as the recent P & O liner order that went abroad because apparently we do not have the space to build it? Will that not, in turn, involve further redundancies?

Mr. Lamont

On the hon. Gentleman's first point, British Shipbuilders has a statutory duty to carry on ship repairing. I am not sure that it is related to defence. I shall have to check that. However, it certainly has a statutory duty to carry on ship repairs.

On the hon. Gentleman's second point, I referred in my statement mainly to the adjustments that would be required as a result of defence decisions. British Shipbuilders hopes and intends that by capturing part of the export market and by further diversification into the offshore market the redundancies that might be caused will be limited to the 2,000 to 3,000 over four years that I mentioned. Merchant shipbuilding will obviously depend considerably on the market and on what happens to ship prices.