British Shipbuilders (Hansard, 28 July 1983)

§ The Minister of State, Department of Trade and Industry (Mr. Norman Lamont)
Mr. Speaker, with permission, I will make a statement about British Shipbuilders.
As the House knows, British Shipbuilders has requested special help from the Government, to get orders in the current recession. We have had a number of discussions on this request with British Shipbuilders. As I told the House on 18 July, we need to have a clear strategic view of the position of British Shipbuilders. Too often in the past we have rushed into short-term measures. The chairman-designate, Mr. Graham Day, has been asked to formulate a plan for the long-term future of the business. I have told the present chairman that, while plans for the future of BS are being formulated, we are prepared to give consideration to specific requests for assistance on a case-by-case basis within international rules. The Government have applied to the European Commission for approval to an interim extension for intervention fund support until 31 October. Present intervention fund arrangements expire during July.
It is, however, also apparent that, in the current circumstances of the market, the present rate of intervention fund support is not sufficient to secure orders for BS. The Government have therefore decided, as an additional measure, to have urgent talks with the European Commission, with a view to securing approval for making an increased rate of intervention fund support available for a temporary period. These measures are justified by the very depressed state of the market. In 1982, world new orders fell by 20 per cent., and BS took the lowest level of new orders that it has ever recorded.
None the less, the very poor results that BS announced yesterday reflect not the current lack of orders, but losses incurred on orders in earlier years. Of the £117 million trading loss announced yesterday, a substantial amount—£94 million—is attributable to losses on four large contracts. This is a very disappointing set of results. The four individual contracts on which particularly large losses have been made during 1982–83 reflect very poor performance at some of the corporation's major yards.
As I have already made clear, however, some parts of BS are profitable. The Government remain firmly committed to privatising those activities as soon as possible.
The support that BS has had from the Government comes to it at the expense of other industries. British Shipbuilders must understand that it is operating in a fiercely competitive market, and that it cannot be insulated from that. The performance of BS, as revealed by its very poor results for 1982–83, must improve if the corporation is to survive.

§ Mr. Stanley Orme (Salford, East)
I agree with the Minister of State that British Shipbuilders is facing a serious plight—in fact, a crisis. Does he agree that this is the worst shipbuilding recession on record, not only in Britain but throughout the world, and that there has been a world collapse of the industry? The workers in British shipyards are not to blame for that. To save British shipbuilding and for Britain to survive as a major maritime nation, direct Government intervention is needed. The 1356 further measures connected with the European Commission intervention fund that he intends to discuss with the EC are unsuitable and inflexible, and will not do the job that needs to be done.
What action will the Government take to assist British Shipbuilders over the next crucial two years? What action will the Secretary of State take to ensure that British orders are placed in British yards, in both the merchant and warship divisions? Will he intervene directly with British Gas, the CEGB and other similar industries to place forward orders now? I draw attention to written question No. 168, in the name of the hon. Member for Tynemouth (Mr. Trotter) today: To ask the Secretary of State for Trade and Industry what are his plans for the privatisation of British Shipbuilders in the light of its 1982–83 losses. I hope that no action will be taken during the recess in the direction in which the Minister and the Government obviously want to move, because we are completely opposed to that.
Finally, will the Government give the highest priority to the maintenance of our shipping capacity? Britain has been a maritime nation throughout its history, and in our opinion must remain so.

§ Mr. Lamont
There is a serious recession in shipbuilding, as the right hon. Gentleman said—not the worst ever, but the worst since 1978 — and British Shipbuilders has received the lowest number of orders that it has received since it was created.
The right hon. Gentleman said that the workers were not to blame. I did not say that they were. Nevertheless, this Government have given massive support to British Shipbuilders. Since 1979, the Government have given it nearly £780 million worth of support. By no stretch of the imagination can that be considered as other than substantial support, which has to come from the taxpayer and from other industries.
The right hon. Gentleman said that he did not think that the intervention fund was the most suitable way to help British Shipbuilders. We have looked at other methods, including improved credit, and we believe that this is the best way to help the corporation to bridge what the right hon. Gentleman is always drawing to our attention—the difference between prices and costs in ships in this and other countries.
The right hon. Gentleman made little mention of the appalling losses on contracts that were taken three or four years ago. They have nothing to do with the current recession in shipbuilding. Over £90 million worth of losses have occurred in contracts that were taken several years ago. We as a Government cannot afford to go on funding losses at that rate. The right hon. Gentleman says that we are a maritime nation and that we have always had a shipbuilding industry. We cannot afford to go on subsidising shipbuilding with these losses.
The right hon. Gentleman asked about public sector orders. He knows, particularly in the light of certain controversial cases, that we are anxious to see that every opportunity is given to British Shipbuilders to tender for public sector orders.
The right hon. Gentleman referred to our plans for privatisation. I deliberately included that in my statement because I did not wish the right hon. Gentleman to be unaware of the answer to the question from my hon. Friend the Member for Tynemouth (Mr. Trotter) which is along 1357 the same lines as my statement. We intend to press ahead with the privatisation of those parts of British Shipbuilders that can be privatised and that are profitable.

§ Sir David Price (Eastleigh)
Does my hon. Friend agree with the statement made by the chairman of British Shipbuilders in his annual report that Far Eastern selling prices are admitted to be 15–20 per cent. below their costs."? Does he and his Department accept that as a statement of the market position? If so, should more be done within the Council of Ministers in the EC? There are those who, under the old definition, would regard that as straight dumping.

§ Mr. Lamont
I cannot be exactly sure of the costs of far eastern producers, but we would be deluding ourselves if we thought that British Shipbuilders was not securing orders simply because other Governments were supporting their shipbuilding industries more than Britain. That is not so. Many countries do not have direct production subsidies as we do. We have both production subsidies and special credit arrangements to help British Shipbuilders. If we can obtain an increase in the intervention fund from the Commission, that would be the most suitable way to enable British Shipbuilders to obtain more orders, but the House should be under no illusion. There are few orders around and, whatever instrument is used, it will be difficult to get them.

§ Mr. Roy Beggs (Antrim, East)
Will the Minister assure me that the application to the Commission for approval for an interim extension in intervention fund support for British Shipbuilders will cover continued assistance to Harland and Wolff?

§ Mr. Lamont
Harland and Wolff will be associated with that application.

§ Mr. Albert McQuarrie (Banff and Buchan)
My hon. Friend has made a statement about British Shipbuilders' considerable losses over three or four years. Did those losses occur in Scottish shipyards, and what is the position of Scott Lithgow in the constituency of the hon. Member for Greenock and Port Glasgow (Dr. Godman), who, I regret, is not in his place at the moment? There have been serious problems in that shipyard for many years and it even went to the length of trying to build rigs. It has had difficulty not only with strikes but with bad man management. My hon. Friend will be aware that there is now new management in that yard. Does he hold out any hope that that yard will become successful in future?

§ Mr. Lamont
My hon. Friend is right. There have been management changes at Scott Lithgow. There will have to be a remarkable improvement in that yard's performance if it is to have hope of surviving. Out of the £94 million to which I referred, £73 million related to three contracts at Scott Lithgow—a BP tanker and two oil rigs, one for BP and one for Britoil.

§ Mr. Donald Dewar (Glasgow, Garscadden)
Does the Minister accept that privatisation is no solution to British Shipbuilders' problems? It will lead to a period of real instability and, inevitably, to heavy job losses in what remains of British Shipbuilders if the naval yards in particular are sold off. Will the hon. Gentleman give some assurance that he will think again about that? If Yarrows 1358 is on his shopping list, I must warn him that that will be deeply resented on the Clyde and will be fiercely resisted by interests over a broad range of opinion.

§ Mr. Lamont
The hon. Gentleman says that privatisation is no solution. There was a time when Britain used to get a large number of export orders for warships. We have done better in the past than we are doing now and we believe that privatisation offers the best route for the future of our warship building. I do not see why it should do any harm to merchant shipbuilding. I do not believe that that should be supported on the back of warship building.

§ Mr. Frank Field (Birkenhead)
May I take the Minister back to his statement about the future of the warship yards which last year made handsome profits on the basis of Government orders paid for by the taxpayer? Does he agree that most taxpayers would prefer to see those profits go in conserving as much of the industry as possible rather than into the pockets of private investors? Will he assure the House that there will be no moves to privatise any of the industry until we begin to pull out of this horrendous recession?

§ Mr. Lamont
The hon. Gentleman knows that I do not agree with that. We believe that private ownership is the best way to secure jobs and achieve maximum efficiency.

§ Mr. Gordon Wilson (Dundee, East)
The Minister has referred to the Government's intention to privatise the warship sector and other profitable parts of British Shipbuilders. Will he elaborate on what will happen to the remaining parts of the shipbuilding industry during this considerable depression? When he comes to take those decisions in conjunction with British Shipbuilders, will he bear in mind the social and economic burden that would be placed on depressed areas if yards were to be closed or jobs lost? Will he also bear in mind the long succession of his hon. Friends who congratulated the Secretary of State for Defence today on the awarding of lucrative defence contracts to the south of England?

§ Mr. Lamont
Of course, we shall take into account the social and employment consequences, as we always have done. That is why we have put £780 million into British Shipbuilders.

§ Mr. David Alton (Liverpool, Mossley Hill)
Will the Minister tell the House what sense it makes to announce a proposal today to have a long-term plan—which I welcome—if he has already prejudged the situation by deciding to privatise sections of the industry before the results of that plan are announced? How many jobs will be lost as a result of the hon. Gentleman's statement today?

§ Mr. Lamont
I have said nothing new about privatisation and I do not see why the hon. Gentleman is getting so excited about it. What I have said about privatisation applies purely to warship building and those parts of it that could conceivably be sold. British Shipbuilders' main problem is in merchant shipbuilding and we are going to Brussels about that. It is for that that we want the increased intervention fund. We have asked Mr. Day to look at the structure of merchant shipbuilding simply because we cannot afford to have losses on this scale indefinitely.

§ Mr. Ernie Ross (Dundee, West)
Does the Minister accept the point that the chairman highlights on page 10 1359 of the annual report to which the hon. Member for Eastleigh (Sir D. Price) has drawn our attention? The chairman of British Shipbuilders identifies far eastern selling prices as being 15 to 20 per cent. below their costs. That will be a difficult problem for British Shipbuilders unless the hon. Gentleman takes a firm line with our partners in the EC, rather than asking for an increase in the intervention fund which will not mean very much to merchant shipbuilding.

§ Mr. Lamont
Labour Members keep returning to far eastern producers selling at 15 to 20 per cent. below cost. The hon. Gentleman seems to be conveniently ignoring the fact that every case to which the intervention fund has been applied means that there has been a direct subsidy of 17 per cent. to British shipbuilding. The intervention fund has had the effect of lowering our selling prices by 17 per cent. to make them competitive but we still have not been able to obtain orders. There is a difficult market but that is not the reason. I challenge any hon. Member to say that that is why we have had such appalling losses both at Scott Lithgow and Swan Hunter on one tanker order. A large part of our problem is our failure to build ships on time and to cost.

§ Mr. Orme
The Minister keeps using the figure of £780 million. Will he break that figure down and give us the details of how that money is spread out? He talks about losses at two of the major shipyards but does he agree that if the workers in those yards had worked last year for no wages at all the losses would still have been horrendous against the figures that he has given us? Is there not a major management failure in some of the shipbuilding areas? Does he not agree with some of my hon. Friends that there is no country that does not in some way or other subsidise its shipbuilding? It is no use the Minister using the argument that warship building is profitable and merchant shipbuilding is not. Every penny of warship development is paid for by the British taxpayer. That is why there are no losses. Merchant shipping is in a completely different position. We are talking here not just about warship development but about merchant shipping.

§ Mr. Lamont
The right hon. Gentleman mentioned the £780 million. The shipbuilding redundancy payment scheme accounts for £75 million; the intervention fund for £170 million; and the public dividend capital and the national loans fund for £534 million.
The right hon. Gentleman suggested that there were major management failures and spoke about the workers working for nothing. It is not for me to attribute the blame, but clearly there have been major failures. Of course, it has been difficult for British Shipbuilders to move into the offshore market and to try to grapple with a new type of technology and with products that it has not produced before. Nevertheless, the results have been most unfortunate.
The right hon. Gentleman also said that there was no shipbuilding industry in the world that was not subsidised. That is true. No member of the Government is trying to deny that. Taking our production subsidies and favourable credit terms together, we believe that our shipbuilding industry is as subsidised as any in the world and that if it becomes more efficient it will be well placed to obtain orders.
Finally, the right hon. Gentleman said that the warship building side was profitable only because it was obtaining orders from the Ministry of Defence. Of course, it has the advantage that it is immune from the international competition that faces the merchant shipbuilding side. However, just as we believe that British Aerospace will have a better future and will become more efficient in the private sector, so we think that that solution is also appropriate for warship building.

§ Mr. Michael Howard (Folkestone and Hythe)
Will my hon. Friend make it clear to Mr. Day that the time cannot be long distant when the Government finally have to call a halt to pouring taxpayers' money into an industry which is making the losses that my hon. Friend has outlined, and which, regrettably, has little prospect of becoming profitable?

§ Mr. Lamont
The thrust of my hon. Friend's argument is correct. Mr. Day is well aware of the great need to reduce the cost of the shipbuilding industry. The industry is going beyond the Government's funding ability.