Ordnance Factories and Military Services Bill

HC Deb 16 January 1984 vol 52 cc26-115

Order for Second Reading read.

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

3.42 pm

The Minister of State for Defence Procurement (Mr. Geoffrey Pattie)

I beg to move, That the Bill be now read a Second time.

The purpose of the Bill is to enable the royal ordnance factories, which are at present an integral part of the Ministry of Defence, to become an independent commercial organisation established under the Companies Acts. The royal ordnance factories are a large, closely integrated engineering and chemical production organisation consisting of 13 factories, each of which is expert in particular aspects of the manufacture and supply of defence equipment and munitions.

The present organisation and its antecedents have served this country well for nearly 400 years, through the Napoleonic wars, the two world wars, the recent Falkland Islands conflict, and now, in times of peace, in the development of the most up-to-date equipment to meet an increasingly sophisticated threat. The present product range of the royal ordnance factories stretches from battle tanks to bombs, mines to missiles, and rifles to respirators. Most of those products are designed to meet a specific requirement of our armed forces, but a significant pan: of the royal ordnance factories' work has been exported, and they are increasingly concerned with products related to the needs of armed forces other than our own. Other countries have taken a keen interest in purchasing the ROFs high-quality products. We wish this record to continue, subject of course to the control which the Government exercise over all arms sales abroad.

Today, as in the past, the ROFs are staffed by a loyal and dedicated work force numbering just under 18,500. Their efforts have made the organisation a success not only in terms of the quality of its products, which are second to none in the world, but in its trading performance. We are considering a successful organisation and the Bill will enable the ROFs to build on that success.

Since the second world war the royal ordnance factories organisation has moved progressively towards more commercial disciplines and accountability. The ROF trading fund was the first such fund to be established under the Government Trading Funds Act 1973. It was set up in 1974 and has operated since then with great success, winning the Queen's Award for Exports in 1976 and 1978. Following the establishment of the trading fund, the ROFs have consistently returned a trading profit. They have done well, but under our proposals they will do even better. They are at present obliged to operate within the inherently uncommercial constraints of the Civil Service, and this inhibits the ability of management to conduct their trading activities in a fully commercial way. The next logical step is to complete the transition begun by the trading fund and to make the organisation a fully fledged commercial one, which will be better able to build on the strengths which already exist.

In the previous Parliament, and again during the general election last June, the Government made clear their intention to change the status of the royal ordnance factories, thereby enabling the subsequent introduction of private capital. We do not believe that manufacturing capabilities should continue to be inside Government. By the privatisation of public sector activities, and by the hiving-off or contracting-out of services where this gives good value for money, it is possible to concentrate the resources of Government on essential functions and render their operations more efficient. As my right hon. Friend the Chancellor of the Exchequer said in moving, as Secretary of State for Energy, the Second Reading of the Oil and Gas (Enterprise) Bill in 1982: The proper business of Government is not the Government of business."—[Official Report, 19 January 1982; Vol. 16, c. 169.] The pursuit of efficiency in the use of resources, including manpower, makes an important contribution to the control of public expenditure.

Two arguments are usually advanced against any privatisation proposal. If the organisation which is the subject of the proposal is making losses, it is said that there is no point in selling it off because no one will want to buy it. If, however, the organisation is profitable we are told not to interfere with a successful operation by selling it off. I am glad to say that the ROFs come into the latter category, in that they are a successful organisation. There is, however, a real commercial need for the change of status proposed in the Bill.

At present about 57 per cent. of the turnover of ROF is for the Ministry of Defence, and in the next few years the Minstry of Defence share of ROF turnover could approach 70 per cent. The rest goes for export. The Government's message, loud and clear, to companies in the defence industrial base has been and continues to be, "concentrate more on your exports because in real terms the Ministry of Defence will be less and less able to provide the proportion of work that you have enjoyed with us in the past." We recognise that we must help industry to improve its export performance by earlier involvement in the planning of our future requirements and also by assisting it to design and produce equipment which is more saleable abroad. We will do this by not insisting on the so-called gold plating of requirements, which adds greatly to costs and also often produces over-elaborate sophistication in the final equipment.

In view of the need to sharpen up exports, it can be clearly seen that an organisation such as the ROFs must have its own sales, marketing, personnel management and, in due course, research and development, so that it can be in full control of its commercial destiny. The new sales and marketing function is already in the process of being established. The trading fund concept would not have sufficed much longer in the face of future commercial realities.

Mr. Dennis Skinner (Bolsover)

Does the Minister agree that the Government would have no control over private capital being invested in this area? Would it not be a strange irony if some of the money that Britain has lent to countries which have no money, such as Argentina, were used to invest in some of those concerns? Because of the relief given by the banks, the net result would be that a country which the Tory party described as an enemy a couple of years ago could invest in this sensitive area, using British taxpayers' money.

Mr. Pattie

The hon. Gentleman's point applies to any company in the defence industrial base where shares are available on the stock market. That means that it is open to any investor to subscribe for the shares if he chooses to do so. No doubt the hon. Gentleman will seek to catch your eye, Mr. Speaker, to make his own contribution to the debate. However, if he wishes continually to hark back to Argentina, he should remember that it was the Labour Government who were the main protagonists in the supply of weapons to Argentina.

It is, in addition, a fundamental objective of the Government's strategy for economic revival to bring about an improvement in the competitiveness and international performance of British industry. The process of competition, which stimulates efficiency and entrepreneurship, has, in our view, a central part to play in achieving this objective.

The Government's proposals for the royal ordnance factories are designed to make a major contribution. We intend that the ROFs shall enjoy with the Ministry of Defence, and with their other customers, a fully commercial relationship. Their business with us will be on the same contractual basis as we apply to other defence contractors, and they will be more free to make commercial arrangements with other companies than is currently possible.

Immediately following their establishment as an independent organisation, the royal ordnance factories will continue to be wholly owned by the Crown. During this period the shares in the new organisation will be held by my right hon. Friend the Secretary of State for Defence. There will be between my right hon. Friend and the board of directors of the new company a memorandum of understanding which will delineate the way in which he will exercise his powers as shareholder, and what he in turn may expect of them. Its objective will be to ensure the maximum efficiency and profitability of the company, and to enable him to meet his responsibilities to Parliament in relation to the ownership of public sector assets.

During the wholly owned period, and subsequently on privatisation, the new company will thus be competing on level terms with other defence contractors. It is interesting to note that of the 12 leading companies with each of which the MOD spends over £100 million, only three, including the ROFs, are publicly owned.

My right hon. Friend the Secretary of State for Defence and I have repeatedly stressed to industry the essential need for competition for defence contracts wherever we can get it. This offers the MOD better value for money and holds out the prospect of improved performance by defence contractors. We are also convinced that the more competitive British companies are the better will they be able to compete in export markets.

By the same token, we cannot exempt the ROFs from the process of competition after incorporation and therefore the preferred source policy will not continue after that date. I must, however, make it clear that what is sauce for the goose is sauce for the gander and after incorporation the ROFs will be able to tender for defence business that is currently denied to them as well as being free to enter consortia and form commercial arrangements with other companies. Above all, they will be free to operate commercially in a tough commercial environment. At present they are having to operate commercially while being overlaid with the highly non-commercial MOD bureaucracy.

Under the proposals, more authority will be delegated to factory level and within each factory both junior managers and supervisors will find that they will have more influence on daily operations. This represents a challenge and an opportunity for the company and all who work in it.

I come now to more specific matters, particularly those affecting the employees of the ROFs. My hon. Friend the Under-Secretary of State for Defence Procurement and I have between us visited eight ROFs and it is intended that the remainder of the factories will be visited this month.

In the course of our visits so far we have met at each factory representatives from management, middle management and non-industrial and industrial trades unions. There is no doubt that there is a good amount of apprehension, caused in part by an understandable human dislike of change, but accentuated by uncertainty about specific provisions relating, for example, to pensions, and terms and conditions.

We need to make more information available, and we need to ensure that such information is clearly expressed in plain English and not couched in the language of Whitehall. Consultative documents on general policy, on superannuation and on the transfer of research and development have already been issued and more will follow. The ROFs management has also made information available to the work force through the factory newspaper Profile.

Mr. Jack Straw (Blackburn)

Does the Minister understand that there is great concern in the factories—it is even greater following the visits that he and his right hon. and hon. Friends have made to them—that the terms and conditions of employment, pension arrangements and redundancy arrangements that will be offered under the new arrangements will be much worse than those available under existing arrangments? Will he take the opportunity now to say that there will be no less favourable arrangements for redundancy and that index-linked penions will be guaranteed in all circumstances following privatisation?

Mr. Skinner

Yes, for every individual.

Mr. Pattie

If the hon. Member for Blackburn (Mr. Straw) will wait until I deal with the matters to which he has referred when I come to them in my speech, I think he will receive all the answers that he requires.

Mr. Skinner

Just say yes.

Mr. Pattie

The answers are in my speech and I shall come to them shortly.

We will intensify our efforts to provide more information, but I must urge trade union representatives to take up the offers of constructive discussion and negotiation which have already been made to them under the Whitley council machinery. They owe it to their members to enter into these discussions and perhaps they will feel more inclined to do so once the House has expressed its view on the Bill this evening.

The most fundamental concern of any ROF employee is about his or her job. The first thing that has to be said is that the fact or the act of incorporation has no significance one way or the other on levels of employment at the time of incorporation. Incorporation per se is about changing the ROFs from a trading fund to a Companies Act company. Levels of employment will continue to relate as they do now to the length of the order book at the factories. It is, of course, the Government's belief that such order books are more likely to be lengthy if the ROB are able to be commercially free.

The question that any ROF employee should ask is: is there likely to be a continuing need for the products from my ROF factory? This question can only be given a resoundingly positive answer. The major political parties may differ over the levels of defence expenditure and the o means to be employed, but no Government yet have said that Britain and Britain's interests should not be properly defended. Given that, it is obvious that our armed forces must have the means to carry out their tasks, and much of the means are supplied by the ROFs. From any standpoint the ROFs have a good future to which to look forward. What no one can guarantee, any more that he can in any commercial undertaking, are specific levels of employment at specific factories. The redundancies declared last month at ROF Nottingham were a sad reminder that the economic facts of life require sales to keep jobs.

We at the MOD have a major vested interest in seeing that the ROFs are both vigorous and successful, because we depend on the ROFs for so many of our programmes.

The provisions regarding employment are contained in schedule 2 to the Bill. Civil servants employed in the royal ordnance factories on vesting day will transfer to the employment of the new organisation. They will do so on broadly the same terms and conditions of employment as they enjoy at present. There will be no change in take home pay, in leave entitlements or in retirement policy as a result of the transfer. The current rights of trade unions to negotiate on behalf of their members will be transferred unchanged. This is secured not by the Bill but by the Transfer of Undertakings (Protection of Employment) Regulations 1981 — often referred to as TUPE 81 — which will apply to this transfer as to other transfers of employees from one employer to another within their scope.

As the House will know, those regulations give effect in this country to the European Communities directive on acquired rights, EC directive 77/187. For this reason the Bill does not contain detailed provisions relating to the terms and conditions of service in the new employment. It does not need to do so. It does, hoever, contain in schedule 2 some incidental provisions necessitated by the particular circumstances of this transfer. Certain terms and conditions of employment of civil servants are directly related to the fact that they are employees of the Crown. There are, for example, restrictions on the political activities of civil servants, and they have a right of recourse to certain civil service appeals boards. Clearly, it would be inappropriate to transfer these to the new employment.

The schedule also provides that the act of transfer of employees to the new organisation shall not give rise to an entitlement to redundancy benefits under the Superannuation Act 1972. Indeed, as employment and terms and conditions are unaffected, it would be indefensible if the position were otherwise. Under TUPE 81 the conditions of employment of the staff transferred will be unchanged apart from minor items specifically related to Crown service. Their security of employment will be no different before or after the transfer.

There is also concern about compensation for redundancy after vesting day. The benefits currently available under the priniciple Civil Service pension scheme are generous and are seen by our employees as an important element in their overall terms and conditions of employment. We shall therefore ensure that similar benefits which take account of past service are provided for transferred employees after vesting day. A consultative document will be issued shortly setting out our proposals.

There is, however, one rather more significant exception to the automatic continuation of terms and conditions of employment on the transfer. This exception concerns pensions, and I must say something about this in detail.

Mr. Kevin McNamara (Kingston upon Hull, North)

rose—

Mr. Pattie

I shall give way later to the hon. Gentleman.

The 1981 regulations do not apply to occupational pension schemes. Employees of the royal ordnance factories are at present members of the principal Civil Service pension scheme. They will cease, on their transfer, to be members of the PCSPS and will become members of a new pension scheme to be set up by the new organisation. They will not, of course, lose the benefits of those pension rights which they have acquired by virtue of their service up to the time of transfer. They will be able to choose either to preserve in the principal Civil Service pension scheme their accrued pension rights in respect of their Civil Service employment and to draw from the PCSPS, on their retirement, a pension in respect of that employment, or to transfer such accrued pension rights to the new pension scheme.

The Government intend that no employee shall suffer detriment as a result of the transfer of employment. The benefits to be provided by the new pension scheme, for all those employees who transfer from the Civil Service, will be calculated on the same basis as under the PCSPS. These benefits will be index linked. They will include widow's and orphan's benefits in the same way as these are currently provided under the PCSPS. Members will contribute by deduction from salary during their employment, and for those male employees who are unmarried at the time of retirement these contributions will be refundable as at present. For those who decide to leave their current entitlement in the PCSPS, their benefits will receive all subsequent adjustments for inflation that are applied to benefits under the PCSPS in general.

It seems likely that many employees will wish to transfer their rights accrued under the PCSPS into the company's pension scheme. In respect of such employees the Government will pay into the new pension fund actuarially assessed transfer values. As mentioned in the explanatory and financial memorandum attached to the Bill, these could possibly amount to up to £250 million, but in practice they are unlikely to do so. The actual figure will depend on the number of employees who opt to transfer to the new scheme, and it will be to the advantage of many, especially older employees, to leave their accrued rights in the PCSPS. It is, of course, the older employees whose benefits would cost most to transfer.

I should like to take this opportunity to clear up some misunderstandings which seem to have arisen since the publication of the Bill. These transfer payments are not new or additional expenditure. They represent the bringing forward of liabilities which would, in any case, have fallen to be met by the Government when the people concerned came to retire.

In exchange for the transfer payments, the new pension scheme will take over the Government's liability to pay those pensions. The amount of the transfer value in each case is assessed, broadly, as the present-day discounting value of the total sum that will be necessary to pay the accrued pension at the time that the employee retires. It has been suggested in some quarters that the sum of £250 million represents the cost to the Government of the whole exercise, but, as I have explained, it is simply a case of bringing forward a liability that already exists.

Mr. McNamara

That is ridiculous.

Mr. Pattie

With respect to the hon. Gentleman, that cost is already provided for in the forward estimates. It is not a new cost.

The Bill is essentially an enabling measure. It enables the Secretary of State to make schemes transferring to a company or companies—

Mr. McNamara

What will be the cost of transferring redundancy entitlements to the new company? Will the redundancy entitlements exist if the company is transferred to a third and fourth company? Will the Government underwrite any transfer of liability for redundancy entitlements?

Are we to understand from what the Minister has said that no employee of the ROFs will in any way find his pension interest damaged, curtailed or limited?

Mr. Pattie

On the last point, it is clear from what I have already said that we intend, and are bound by existing regulations, to ensure that there is no detriment, not only to terms and conditions, but to the pensions that we provide for our employees. As the specific matters referred to by the hon. Gentleman are important, my hon. Friend will answer them when he replies to the debate.

Mr. Lewis Carter-Jones (Eccles)

The assumption is that employees will transfer from their present position to a company under the Companies Acts. As the Minister said, this is an enabling Bill, and the Government hope that the result will be that they can flog off their liabilities to private enterprise. Is the Minister saying that the amount of money being transferred for pension rights will cover inflation-proofed pensions?

Mr. Pattie

In a word, yes. However, I relate that only to those employees who are transferred on the day of incorporation. We are not talking about people subsequently employed. We are concerned with our employees, their rights and how their rights are transferred to the new company on the day of incorporation. I should have thought that that was quite clear.

The Bill is essentially an enabling measure. It enables the Secretary of State to make schemes transferring to a company or companies, set up for this purpose under the Companies Acts, property, rights and liabilities which are at present being used for, or are attributable to, the operation of the ROFs. This is contained in clauses 1 and 2. Land, buildings, machinery, equipment and intangible assets such as patents, copyright, book debts, the benefit of licensing agreements and uncompleted orders, together with any corresponding liabilities, can be specified in detail in schemes and passed to the company or companies concerned. The initial transfers will, of course, be of assets currently vested in the Crown, but subsequent schemes may transfer property between companies or from companies back to the Secretary of State. By this mechanism the appropriate company structure can be established, and assets and liabilities shifted between companies as may be in the best commercial interests of the organisation.

In consideration of the transfer of this property, a company is to issue securities. These securities may be shares or debentures, or any other kind of security which may be appropriate. Such securities will be issued either to the Secretary of State or to another company prescribed in the scheme, so that in this way it will be possible to set up by scheme a holding company and one or more subsidiaries, each subsidiary issuing shares to its holding company. The Secretary of State will receive in return for the assets transferred to the company, or companies, shares and debentures of an equivalent value. The effect will be to alter the nature of the property vested in him, but not to reduce its worth.

Also in clause 1 are provisions relating to the capital structure of companies, for the prescribing of values to particular assets and for the establishment of financial reserves. The way that we intend to apply these provisions is to establish the structure of the organisation at vesting day as a holding company having four subsidiary companies—for ammunition, small arms, rocket motors and weapons and fighting vehicles — which will correspond to divisions of the holding company. This arrangement of agent subsidiaries is common to a number of large groups in the private sector. It will encourage the management of the subsidiaries to make the most of their own commercial opportunities and build up their own sector of the business using the assets under their control.

We believe it to be important that management should remain in close contact with each of the main product areas of the organisation. This makes for responsive and progressive management. This structure will also enable the group of companies to continue to work closely together on projects and systems, and to benefit from certain activities such as marketing and sales which can be better done for the group as a whole under the aegis of the holding company. The holding compay will also be responsible for the principal employment terms across the group and for pensions administration. The structure will thus combine the advantages of having managements in the subsidiary companies able to pursue their commercial initiatives, with the flexibility for the group of companies to work together where this is a requirement of the product or the market.

Mr. Dick Douglas (Dunfermline, West)

Does the Minister intend to refer to the inter-relationship between the holding company and International Military Services Ltd. in overseas sales, to which he referred in his earlier remarks?

Mr. Pattie

I shall refer to IMS in a few minutes.

I have mentioned that one of the four subsidiary companies will be concerned with rocket motors, and it should be said that this represents a new move for the ROFs. The aim is to transfer facilities and staff at the propellants, explosives and rocket motor establishments at Westcott and at South Site, Waltham Abbey, to the ROFs. This will bring together under a single management the United Kingdom capabilities for research and development of cast, composite and extruded double base propellants and for production of those propellants. This will lead to a more effective organisation which will be better able to compete in the international market for rocket motors. About 900 staff will be transferred from the two sites that I have mentioned to the ROFs, and a consultative document on these proposals has been issued to the trades unions.

In the areas of ammunition, warheads, guns and tanks, during the period in which the new company is building up its own research and development capability, the ROFs will receive contracts from the MOD for such work and will subcontract to MOD establishments such as Royal Armoured Research and Development Establishment and Military Vehicles Engineering Establishment as necessary. This arrangement will be run down as the ROF company builds up its own research and development capability.

Clauses 2 and 3 supplement the provisions of clause 1 by defining the ambit of the property, rights and liabilities that may be transferred initially and by laying down some general rules regarding the operation of schemes and the publication of their contents. In this last connection, hon. Members will observe that the Secretary of State is bound to report to Parliament on the contents of a scheme. That is in clause 3(9). Clause 4 brings in schedule 2. which contains provisions relating to the transfer of employment.

Those clauses are the heart of the Bill. Clauses 5 to 13 deal with incidentals—such things as the acquisition of further securities in a company after its initial establishment; the appointment of nominees to act on behalf of the Secretary of State; the extinguishment of liabilities pertaining to the trading fund after transfer of assets out of the trading fund; the conferring of certain exemptions from stamp duty; and the making of provision incidental to the investment of private capital. The House will not expect me at this stage to go into detail on all those provisions.

Clause 14 deals with International Military Services Ltd. This clause has an entirely separate purpose from that of the rest of the Bill. International Military Services Ltd. is already constituted as a private limited company under the Companies Act and has the same legal responsibilities as any private sector company. The purpose of the clause is to provide statutory authority for the contingent financial liability incurred by the Secretary of State for Defence when he assumed ministerial responsibility for the affairs of International Military Services Ltd. and became sole owner of its shares.

The company, originally called Millbank Technical Services Ltd. was set up in 1967 by a Labour Administration. Because its military business became predominant, ministerial responsibility for it was transferred from the Overseas Development Ministry to the Secretary of State for Defence in April 1977, and, with it, the Government's existing contingent liability for any obligations of the company which might thereafter arise. In 1979, in the last few months of the Labour Administration, the shares in the company were transferred to the Secretary of State for Defence. At that time a ministerial undertaking was given that legislation giving authority for the exercise of the continuing functions of the Secretary of State in respect of the company would be introduced as soon as an opportunity occurred. The Bill provides that opportunity.

I must emphasise that this is a contingent liability. There has been no recourse to public funds so far. The recent trading performance of IMS has been impressive, with substantially increased turnover and reserves.

Mr. Merlyn Rees (Morley and Leeds, South)

I have been listening carefully to the hon. Gentleman, and I trust that this is the appropriate moment to intervene. Given the changed nature of the companies to which the Minister referred, and thinking of research and development in particular, will the Official Secrets Act be applied to employees in a different way in the future?

Mr. Pattie

In no way. Many privately owned companies operate in the defence industrial base. Where necessary, their employees have to sign the Official Secrets Act. That requirement will still exist.

The House will expect me to say something about our proposals for privatisation. We are at an early point in the process of turning an integral part of a Government Department into a fully fledged independent commercial company, and the Bill is only a first step. It will enable us to create a legal and organisational framework for the ROFs which will allow for the introduction of private capital into the venture. The next step is to set up the companies and to transfer to them the property and assets which will constitute their trading capital. We aim to achieve this by 1 October this year. That will be vesting day, and thereafter the companies will be trading on a commercial basis. Only then can we realistically look forward to the means by which privatisation is to be carried out.

Several factors will influence our thinking. The eventual structure of the ROF organisation, its immediate trading position and its future prospects for sales and orders will be relevant to our decisions. The revenue to be expected from any sale may depend on when it takes place. The state of the market itself will also be a factor in deciding the best moment for seeking investment. We will wish to consider carefully the effect of a sale of all or part of the organisation on industrial competition. We have no wish to see the opportunities for competition reduced.

We cannot decide now the exact means of privatisation, whether by flotation of shares in the whole organisation, by direct sale of parts or subsidiary companies, or by entering into joint ventures. However we do it, we wish the ROFs to offer an attractive prospect for investment. The necessary reorganisation is going ahead now. By vesting day we shall have an appropriate company structue and a professional management anxious to make the most of its opportunities. The recent history of the ROFs makes us confident that they will rise to the challenge that faces them. We expect the new organisation to be a success, and we see no reason why privatisation should be very long delayed, but we are not going to set a firm date now.

Sir Kenneth Lewis (Stamford and Spalding)

Do the Government intend in due course to sell off a majority stake in the company, or to keep a majority shareholding?

Mr. Pattie

As I have said, many options will have to be considered at the moment of privatisation. However, it will be clear to my hon. Friend that the objective of privatisation, which is the transfer of the ownership of the company, could not be achieved if the Government retained a majority holding. My hon. Friend must draw his own conclusions from that.

Sir Hector Monro (Dumfries)

Can my hon. Friend confirm that the two agency factories, one of which is in my constituency, will not be affected in any way? What will be the relationship of those two agency companies to the new holding company?

Mr. Pattie

The two agency factories will have the same relationsip with the ROF plc as they have with the ROFs at present. They need not have any special anxieties. The amount of work that they have to do. and the level of work force that they will require, will depend entirely on the length of the order book and the health of the ROF enterprise in general.

The House has been offered an extraordinary amendment by the Opposition. First, the amendment is factually wrong, because the new company will still be 100 per cent. owned by the Government and not in private hands. A very little burning of midnight oil might have made that plain.

Secondly, the suggestion in the amendment that future private ownership in some way jeopardises our defence capabilities conveniently ignores the fact that by far the greater proportion of our defence industrial activity is carried out now by privately owned companies. It is also a serious and wholly unwarranted slur on the at least half a million people who work in those companies.

Patriotism does not depend on corporate structure. During the Falklands conflict the nation was superbly served by our entire industry — public and private. Indeed, when it comes to projects of high sensitivity and top secrecy, many privately owned companies do more of that type of work than do the ROFs. The Chevaline project, sustained and kept secret by the then Labour Government, had vital involvement from privately owned companies.

We believe that for the defence industrial base of this country to be really effective we need more competition, not less—more private ownership, not less. The Bill will enable the ROFs to control their own commercial future and, by so doing, put guarantees of future employment into their own hands.

I commend the Bill to the House

4.19 pm

Mr. Denzil Davies (Llanelli)

I beg to move, to leave out from "That" to the end of the Question and to add instead thereof: this House declines to give a Second Reading to a Bill which sells off the nationally owned royal ordnance factories whose workers and products have made a major contribution to the security of the United Kingdom over the years, transfers essential defence assets to firms whose dedication and loyalty cannot be guaranteed and whose efficiency is impaired by the quest for profit in preference to the national interest, and thereby endangers the defence of the United Kingdom. The Minister has seemed to suggest that the amendment in my name and the names of my right hon. and hon. Friends impugns the patriotism of those who work on defence matters in private companies. It does not do so. However, patriotism is not the ultimate concern of private companies. Their objective is to make a private profit. Very often, they will do so even at the expense of patriotism and of the national interest. If the Minister does not understand that, he knows nothing about company law or human nature.

The Minister was wise not to try to defend the Bill. We had the ritual but rather muted incantation at the beginning of the words "commerciality" and "productivity". We had the usual knockabout stuff at the end. He wisely hid himself behind the prose—if it can be called that—of the Government Actuary and his civil servants. The Minister went into great detail—we accept that that was necessary — about the terms and conditions for the employees.

On Second Reading one would expect the Minister to argue the case for the privatisation of these ordnance factories. He did not do so, and he was wise, as he knows, not to. The Bill is yet another in the Government's long but rather muddled and confused quest for privatisation. We believe that it is probably the most irresponsible, damaging and indefensible Bill that the Government have introduced during the past four or five years.

Whatever general arguments there may be for privatisation, and whatever the principles may be—the Opposition believe that they are pretty thin — they cannot be applied to the royal ordnance factories with any validity or conviction. As the Minister knows well, the factories, their employees and management have proved themselves—to use the Government's words—extremely commercial, competitive and productive. They should be left alone, instead of being subject to Tory ideology, to carry on with the job that they have done so well for a long time, of providing ordnance and equipment for the armed forces of the highest quality and standard.

I believe that there is a more fundamental objection to the Bill over and above our objection to privatisation. We believe that it is damaging to Great Britain's defence that factories that produce basic and vital products for the armed forces should end in the hands of private companies. Whatever the Minister may think, under the legislation private companies are there for private profit. At the end of the day, they will sacrifice, because they have to, the national interest for the profit of their shareholders.

Sir Geoffrey Johnson Smith (Wealden)

The right hon. Gentleman understands that he casts a slur on many people in many private companies which make as much equipment for the defence of the realm as the royal ordnance factories.

Mr. Davies

The hon. Gentleman should know—if he does not, he has learnt nothing—that the primary and only duty of a private company is to its shareholders.

Mr. Robert Atkins (Ribble)

Not true.

Mr. Davies

The Tory party does not understand company law. Private companies' primary and only duty is not to their employees, but to their shareholders. They come first and at the end of the day the national interest comes second. We are dealing with—

The Secretary of State for Defence (Mr. Michael Heseltine)

The House would better understand the right hon. Gentleman's argument if he could give some examples of those companies that have failed the national interest.

Mr. Davies

We are glad to see the right hon. Gentleman here. We were not sure whether he would be in a Nimrod aircraft trying to break a speed record or would come to the House.

Mr. Heseltine

rose—

Mr. Davies

I will answer the question. The right hon. Gentleman has operated private companies and he knows that their primary and only duty is to their shareholders.

Mr. Heseltine

rose—

Mr. Speaker

Order. It is clear that the right hon. Gentleman is not giving way.

Mr. Davies

The right hon. Gentleman could have opened the debate. He could have spoken on Second Reading and defended private industry's position.

We are dealing with some of the most basic equipment that the armed forces need and must have. The other day, the Under-Secretary cast a slur upon the ordnance factories when he said off-handedly that they provided only 4 per cent. of the armed forces' equipment. That figure may be right, but he did not say that that equipment was essential and was high technology equipment that is often bought by private industry. The basic equipment includes rifles, ammunition and armoured support vital for the duties of the British soldier. At the moment, the Army — the soldier — has a copper-bottomed guarantee as to the quality, the quantity, and perhaps even more importantly, the continuity of supply of these basic items which are needed in the performance of duty. Once the Bill becomes law and the factories are sold, there is no way in which that guarantee can be maintained or resurrected, because private industry cannot give the Government the kind of guarantees given by their own public sector factories.

Viscount Cranborne (Dorset, South)

Could the right hon. Gentleman explain to me, because I am a little puzzled by the drift of his argument, whether he is implying that all private sector companies that provide essential equipment for the armed services of the Crown will be nationalised in the unlikely event of a future Labour Government coming to power?

Mr. Davies

Not at all. I was making the point that it is preferable that the products that are so vital to the armed forces should, whenever possible, be produced within the public sector for reasons that are plain to anyone except the ideologues of the Tory party.

During an intervention by my hon. Friend the Member for Bolsover (Mr. Skinner), the Minister accepted that there was nothing in the Bill—the Government cannot draft anything—to prevent the factories being owned or closed by foreign companies and their products manufacture solely overseas. The Government can have no guarantee—whatever legal rights they may attach to shares or whatever complex schemes they may draft—of the safeguard.

The Bill is plainly political and ideological. There is very little enthusiasm for it in the Ministry of Defence or the armed forces. Although he did not speak, as far as I can see, the only enthusiast is the Secretary of State [Interruption.] I am glad to hear that confirmed. The Bill performs an important function for the Secretary of State. It enables him to parade his ideological purity to the Tory party and stay close to Nurse at No. 10. It gives him something to do. Since he became Secretary of State, I have noticed that he sometimes needs an escape into that frenetic and furious activity which enables him not always to have to think deeply about defence problems. Whether that escapism is running up and down the Berlin Wall, jumping in and out of helicopters or trying to become the television film critic of the year, the right hon. Gentleman needs it. [Interruption.]

The Secretary of State has plenty to do under the Bill. There are companies to be formed; shares to be issued; debentures to be redeemed; assets to be stripped; factories to be sold; and merchant bankers to be paid large fees. There is plenty of frenetic and useless activity for the Secretary of State. During the next year, he will be able to play Monopoly and soldiers at the same time.

I was surprised that the Minister did not refer to the Mallabar report, which was produced in 1971. I wonder whether he has read it. If he has, he has certainly not digested it. The report makes a devastating analysis and criticism of the Bill. In chapter 6 it says: The main features which prompt general comment are: (1) The degree of identification with the Armed Forces apparent in all the factories. This identification provided a strong motivation towards the manufacture of a high quality, reliable and safe product. … (3) The calibre of the management staff generally; the ability of the more junior managers (foremen and assistant foremen) to express their views and the freedom with which they did so. They were articulate to a degree not often found in industry. The report states further: Those of us who have spent our careers in industry"— there are not many of those on Conservative Benches— and who, between us, have covered all aspects of industrial management, felt that the factories were well managed and controlled. Our view was endorsed by our specialist colleagues". The report comes to conclusions that are important because they destroy the rationale behind the Bill. In chapter 2 it says: We were initially attracted to the idea of hiving the ROFs off from the MOD, on the lines suggested by the Fulton Committee". Those ideas have been around for a long time. There is nothing new in what the Government are proposing. The report continues: but as we came to understand the nature of the ROFs' task and the underlying reasons for the financial and organisational relationships between them and the MOD, we gradually came to accept that hiving off was not feasible for this Organisation. Indeed we were inclined to believe that had we been asked to advise on setting up an organisation, … we would probably have recommended something very like the present arrangement. We can summarise our reasons very briefly as follows: (1) As suppliers of munitions to the Armed Forces, the ROFs cannot refuse an order". That will not happen with private companies. I may have cast a slur on private companies and I may not understand the Companies Act, but I understand one thing. No private company in Britain can be forced, if the economics are not right, to accept an order from the MOD if it is not in its interests to do so. The present in-house trading fund cannot refuse an order and cannot determine the design or quality of a product. As the report says, The ROFs provide the main national reserve of capacity for a substantial range of munitions to meet foreseeable or unforeseen emergencies. There is no way that private industry can make such a provision. If the Government were interested in the arguments, they would not have introduced the Bill. The situation has not changed since the recommendations were made by the Mallabar report.

I shall test the Government's proposals against their own principles for privatisation. One of the Ministers who put his name to the Bill, the Financial Secretary, fancies himself as a mini-guru on privatisation. He made a long speech last November setting out the principles and criteria that the Government apply to their privatisation programme. If we are not allowed to test the Mallabar report, let us test the Bill against the Government's principles set out by as grand a person as the Financial Secretary.

I think that the Secretary of State would like the Financial Secretary's speech. In the Financial Times of 4 November Malcolm Rutherford said that parts of it: would have gone down well at a Tory Party Conference. The Secretary of State is an expert in that sort of speech. No doubt he will understand the content of this one. The Financial Secretary did not start off well. He said: The rationale underlying the privatisation programme is poorly understood. He can say that again. Having read the hon. Gentleman's speech, I find the programme harder to understand. Perhaps the lesson is that ideologues should not try to rationalise political dogma. Perhaps they should leave it alone. The Financial Secretary said that privatisation is justified on economic and business grounds. Apparently, the criteria are profit, efficiency and productivity. He said that the public sector has been disappointing in all those criteria—profit, efficiency and productivity.

We do not accept that as a general principle. It does not apply to the ROFs. On efficiency, productivity, competition and profit, they are doing better than many companies in the private sector. I shall go through their accounts. Profits last year were £68 million. Total profits as a trading fund were £247 million. Dividends to the Treasury—the Financial Secretary will like that—were £82 million. Return on public dividend capital was 29 per cent. That is very good. They have repaid all but £6 million of their commencing debt. Let us talk about productivity. The labour force has been reduced by one fifth and the value added per employee has doubled. If there were private manufacturing companies in Tory Britain with such a record, our economy would not be in such a bad state.

In The Times of 18 October, in an article on the ROFs, Jonathan Davis said: A fundamental objection is that the Government would be hard pressed to argue that selling off the factories to the private sector represented an increase in competition, or even necessarily of efficiency. The Financial Secretary says that the public sector is no good on efficiency and productivity. However, that argument does not apply to the ROFs. Apparently, another important reason for privatisation is the consumer. The Financial Secretary was concerned about him. He said in his speech that the public sector was not very good at satisfying the consumer. He also said that privatisation opens up exciting possibilities for the consumer. The Bill does not do so. The armed forces are the consumers. I do not think that the Chief of General Staff will dance with excitement at the thought that some of the Army's basic products will be made by a multinational conglomerate in the Cayman islands. I think that he would prefer gunpowder for the Army to come from Britain. The generals and the soldiers are the consumers.

The Minister of State referred to monopoly. Another reason for hiving off the ROFs from the public sector is monopoly. The Financial Secretary said in his speech that the public sector is a monopoly supplier and the consumer is a captive consumer. That is part of the rationale for privatisation. It may apply in some cases, but it does not in others. In this case, it is the other way round. The public sector is the monopoly consumer, and the ROFs are the captive producers. If it is bad to have monopoly producers and a captive consumer, according to the logic of the Financial Secretary, it must be a good thing to have a captive producer and a monopoly consumer.

Mr. Richard Ottaway (Nottingham, North)

When I was in the ROF in Nottingham last week I found that the vast majority of weapons produced were for overseas sale in a freely competitive market. That market was not a captive consumer.

Mr. Davies

The Minister of State said that 30 per cent. of the total turnover went overseas, so 70 per cent. goes to the United Kingdom. No doubt there are benefits from export sales, but the object of the British arms industry is to produce equipment for the British armed forces. If we can make something out of exports, that is another matter. We are concerned with Britain and our armed forces.

Mr. Carter-Jones

Does my right hon. Friend realise that Mallabar stated clearly that arms exports by the ROFs must have the approval of the Ministry?

Mr. Davies

I shall deal with that later. As to monopoly, the irony might well be that if the factories are hived off there will be less competition in this sphere rather than more. As hon. Members know, the factories must compete in most areas. If there is no private capacity for a specific product, obviously they cannot compete. However, where private competition exists, the ROFs must meet it. What will probably happen when the Bill is enacted and all the schemes are carried out is that the private manufacturers who are competing with the ROF factories, will bid to buy them. We are well aware that free enterprise abhors competition. The last thing that it wants is competition. Most probably the private firms will buy the ROF factories and thereby eliminate competition and a greater monopoly than at present will exist.

What about the taxpayer? Neither the consumer nor the factories will benefit. How will the taxpayer benefit by privatisation? Not here. The Minister has tried to convince us that £250 million was not going to be spent, or would be spent years ahead, but now it has been brought forward and then it does not matter. Apparently, the Chancellor of the Exchequer will not miss £250 million this year. That is not the case. I have always believed that income tax was an annual tax and that the Budget dealt with one year. Perhaps it is different in the Ministry of Defence. I do not know. I understand that the £250 million will have to be spent this year—[Interruption.] Some may overlap, but we are discussing £250 million, which is the Government's figure. Perhaps the figure will be higher. I do not know whether negotiations with the Government will take place on these matters, but I assume that they will. In one form or another, £250 million will go out of the Treasury as a result of the privatisation.

Furthermore, the Treasury will lose its dividends, which have totalled £82 million in the past 10 years, and future profits. Even if the Government receive £300 million for the factories—who knows what the other figure may be? The Minister does not know what the figure will be. He has not got a clue. Nor does he know which ones he will sell or keep or how he will sell them. At the least the book-keepers in the Treasury know that they will lose £250 million this year, give or take a little. The Minister has nothing to offer the House as to what he will get for the factories.

Furthermore, the taxpayer will not benefit because the ordnance factories are a yardstick for prices in the private sector. We all know how difficult it is to negotiate prices with private manufacturers—although the Government think differently—because their main concern is profit. I challenge the Minister, in winding-up, to deny that the ROFs are frequently not allowed the same profit margin as that allowed to private industry. Perhaps I am wrong, and if so I shall be happy to be told. [Interruption.] I can see that the Minister is not sure. Can we be told whether the trigger limits and the profit margins are different? My hunch is—and I have no way of proving it—that at the end of the day the Ministry of Defence will pay more for its ordnance equipment than at present. The Minister said that matters have changed, the world is different from what it was in 1971 and that we must make the factories more commercial. In 1981 the Government established a study group, to which the Minister did not refer, to examine the status of the factories. The group set out a long list of important changes that should be made concerning exports and competition, to which we had no objection. They will make the ordnance factories more competitive. Let us have them by all means. The changes can be brought about partly by administrative change and partly by minor legislation. There is no need to put into operation any proposal for the ordnance factories to be hived off.

However, the Bill can get rid of 18,500 civil servants which the changes cannot. Having tried to look at the issue as rationally as possible, I believe that that is the only reason for the Bill. The Secretary of State wants to go, at the end of the term, to the headmistress and say, "Look what a good boy I have been. I have liquidated 18,500 civil servants. I have wiped them off the books of the Ministry of Defence and therefore we have, somehow or other, carried out one of our manifesto commitments to get rid of the Civil Service." The Civil Service civil servants are to the Government the great untouchables of the body politic. They must not be seen, but hived off and expunged from the book. That does not change anything. They still have to be paid. Their wages will still come from the Ministry of Defence and the defence budget, but at least there will be 18,500 fewer civil servants.

We wish to raise other matters but they must wait for Committee. The Minister said that this was an enabling Bill, and we condemn it for that reason. He tried to pretend that clause 3(9) was a great Hampden-like constitutional bulwark against the excesses of the Ministry of Defence, but that was not a very good attempt. The scheme comes into force first and then, apparently, the Secretary of State lays a piece of paper in the Library. That is not good enough. We want to know, see and probe the different conditions as to the sales of the factories. Given the symbolic relationship that frequently exists between the Ministry of Defence and the Defence Manufacturers Association, the House should know and probe the deals before they are concluded. Recently, we saw the Secretary of State employing in the Ministry of Defence—which was a foolish act — the managing director of United Scientific Holdings, a company that may well bid for some of the factories. It is only right for the House to probe these issues before the contracts are concluded.

I will not discuss International Military Services Ltd. The rights of the employees were touched on by the Minister.

This is a bad Bill. It cannot be defended on commercial or economic grounds and certainly not on the ground of the national defence of Great Britain. It will be damaging to the factories and to those who work in them and to the armed forces and to those who serve in them. It sacrifices the national interest to a mean and narrow Tory party ideology. For those reasons, I shall vote against the Bill in the Lobby tonight.

4.48 pm

Sir Ian Gilmour (Chesham and Amersham)

I do not think that the right hon. Member for Llanelli (Mr. Davies) furthered his case by his not very telling personal attack on my right hon. Friend the Secretary of State, or by his aspersions on the whole of private industry and on free enterprise.

In general I support the Government's privatisation programme. There is a presumption, I think, that industries are better run in private hands than in public. But that is not a universally known truth for all times and places and for all industries. So in each case we need, first, to know that there is a good argument for the privatisation proposal and, secondly, what form the privatisation will finally take.

One of our difficulties is that we have not been told and we do not know very much about either matter. It seems that the Government are in a similar position. While listening to my hon. Friend the Minister's interesting speech, I thought that at one time he was speaking as though he were buying the royal ordnance factories, rather than selling them. He did not explain how the privatisation should be carried out, or why it was necessary.

That seemed to be the position of the Government at the time of the last election. I am not a believer in manifesto democracy, but as the Under-Secretary of State for the Environment today makes a great point in The Daily Telegraph about the Rates Bill, which I oppose, having been included in the manifesto, we are entitled to ask why this Bill was not included in it. Presumably it was not included because the Government did not quite know what they intended to do about the matter.

It is common ground that the royal ordnance factories have performed well under the present system. They were given a clean bill of health by the Mallabar committee in 1971, when they were operating under a somewhat different system. I was at the Ministry of Defence at the time. We then adopted the committee's recommendation and brought in the Trading Funds Act 1973, and the trading fund was set up by the subsequent Labour Government in 1974. There was, therefore, bipartisan support for the present system, as there had been bipartisan support for the previous system.

The Minister spoke about Mallabar having been a transitional system. That may have been the way it turned out, but that was not the intention. There was nothing transitional intended for it. We accepted the recommendations of the Mallabar committee and the result has proved successful because it is generally conceded that the ROFs have since performed even better than they did before.

The Strathcona report, while saying in 1980 that there were constraints on the present organisation. gave as its verdict that the organisation had demonstrated its management strengths since the introduction of the new arrangements, and that in purely financial terms, the Royal Ordnance Factory organisation had also been very successful. It added: Benefits accrued to both sides from the present relationship between the Royal Ordnance Factories and the rest of the Ministry of Defence. It is possible to argue that the ROFs would have performed even better if they had been hived off—the expression which was then used for privatisation — in the early '70s, though it is worth remembering that the Mallabar committee said that if it had been asked to think of the sort of organisation that was necessary it would have come up with something like the ROFs.

It seems, therefore, that there is nothing in the performance of the factories, or in their organisational structure, that supplies the necessary good reason for privatisation. Indeed, the opposite is true. The performance of the ROFs has been outstanding. Nor do there seem to be strong financial reasons. There is the Civil Service reason—to which the right hon. Member for Llanelli referred in impolite terms—but a change of classification for 18,500 civil servants could not possibly justify an important change in the status of the ROFs, even though the Strathcona report, an otherwise sensible document, made the somewhat fatuous remark that a reduction in the number of civil servants should be one of the criteria for judging whether any change in organisation was beneficial.

I said that the Government did not appear to be clear about the benefits that privatisation might bring. That seems to be demonstrated by the extreme vagueness of the Bill. It would allow the Government to do almost anything. That vagueness would not be necessary if the Government really knew what they intended to do. If they had a privatised organisation clearly in mind — an organisation superior to that which now exists —presumably they would have set that out in the Bill. That they have not done so raises the strong suspicion that they do not have a good reason for privatisation on the facts, but are being guided by ideology. Indeed, the Minister was honest enough to say as much, in quoting the Chancellor of the Exchequer, when he referred to the Government's business not being the Government's business, or some not terribly cogent remark to that effect. The facts are against the Bill and few people who have had anything to do with the ROFs would support it.

Other points tell against the Bill. Up till now the ROFs have had to accept all orders from the Ministry of Defence for our forces. Under a privatised organisation, how would priorities be judged between orders for our forces and orders for an overseas customer? Would the criterion be a national or a commercial one? Up till now some excess capacity has been kept for use in emergencies. Would that extra capacity be maintained under privatisation, or would it be scrapped because it was not economic? That is a vital matter. If the intention were to preserve it. how would that be ensured?

How would security be ensured? How would staff morale be nursed through the transitional period? The Minister rightly described the staff as loyal and dedicated. We must do everything possible to keep it that way. As the right hon. Member for Llanelli asked, would not privatisation give the Government even less knowledge and control over armaments' prices? As the corporate structure of the ROFs is valuable — the Minister described it as being "closely integrated"—I do not see how that structure would not be damaged by privatisation. If the factories were sold to existing arms manufacturers, would that not mean less, rather than more, competition? There are a great many more questions one could ask, but I shall not weary the House with them.

Mr. Douglas

Go on.

Sir Ian Gilmour

All in all, the difficulties and disadvantages of the proposal seem considerable and the rewards of privatisation meagre and speculative. I therefore believe that the Bill is wrongheaded and unjustified, and I am unable to support it.

4.57 pm

Mr. Bernard Conlan (Gateshead, East)

As I listened to the Minister's speech. I thought that he was making out a case against the Bill. It was only when he came to his Civil Service brief that he attempted to justify the provisions of the measure.

The Minister referred to the long traditions of the royal ordnance factories and the part that they had played in the servicing of Her Majesty's forces. He might have added that the ROFs date back to the 16th century. I do not know what part King Henry VIII played in the formulation of the idea of establishing public ordnance, but when I have heard the present Prime Minister referring to rolling back the frontiers of Socialism in relation to privatisation I have wondered what part she considers King Henry VIII played in the nasty, vicious trick of state and public ownership.

The ROFs are an integral part of a valid defence posture. They have played a magnificent role in keeping the forces properly supplied with equipment. The trouble with the ROFs — this is the trouble with most Government Departments—is that they are often beset with inquiries. Reference has been made to the Fulton report, which was lengthy, detailed and precise, and the Mallabar report, which was also an extremely important document, and it has been pointed out that about 12 years have elapsed since Mallabar reported. As has already been said, Mallabar's conclusions are as valid today as they were in 1971.

Since then, two Select Committees of the House have considered the structure of royal ordnance factories and arrangements for defence procurement. I refer to the old Defence and External Affairs Sub-Committee, which reported in 1979, and the Defence Select Committee, which recently reported on defence procurement. Those Select Committees reaffirmed the Wisdom of Mallabar's recommendations. More recently, in 1980, the Government set up a study group.

I should like to make two quotations from the Mallabar report which are salient to the issues that we are discussing. Paragraph 6 said: We found the MOD ROFs were well managed and controlled and there was clear evidence of cost consciousness and systematic cost control. We were impressed by the calibre of the management staff and found them strongly motivated by loyalty to the organisation and the Armed Forces in the achievement of a high quality, reliable and safe product. That is an interesting conclusion, bearing in mind that initially the committee was rather sceptical about royal ordnance factories.

Mallabar's first recommendation was that The constraints inherent in the nature of the ROFs and the nature of their principal customer would not be removed by hiving off. That recommendation is as relevant today as it was in 1971. The House has already heard about the record of royal ordnance factories. The Minister paid fulsome tribute to their work and the effort made by the people in the organisation.

The advantage of earlier inquiries is that they were able to make an independent assessment, or, as in the case of the Select Committees, comprised representatives of different political points of view. The Government have based the Bill on the study group's findings, and we should examine its composition. The Minister was the chairman. Among its members were eight civil servants who could not by any stretch of the imagination be deemed to he impartial or independent. It is the nature of Civil Service work to be loyal and committed to the policies of one's political masters. Therefore, those eight civil servants were effectively committed to privatisation. There were also three so-called outside representatives. One was a banker. Another was an industrialist who has a reputation in the north of England for closing more machine tool factories than he opens. His track record is not good. The third outside representative was an accountant.

The Government have based their policy on the recommendation of the Minister, eight civil servants, a banker, an industrialist and an accountant. No witnesses were invited to give their views. No evidence was taken. Most important of all, no trade union representative was a member of the study group. The 18,000 people who work in royal ordnance fatories were not represented. Their views were not taken into account, although they were sent what has been called a consultative document.

Although the study group's conclusions were somewhat biased, it decided that any change should be broadly acceptable to the work force. They are not. If they were, workers at 13 royal ordnance factories would not have taken today off to lobby against the Bill. It is clear that the study group's recommendations, which have formed the basis of the Bill, are unacceptable to the work force.

The Minister explained in great detail that this is merely enabling legislation and that there will be no immediate sale of assets. I suspect that this is enabling legislation because the Government do not know where they are going. That is why the Bill is so vague and written in ambivalent terms. If, in the not-too-distant future, after the royal ordnance factories have been incorporated under the Companies Acts they are sold off to private ownership, who will buy them? To whom will they be sold? Presumably the only organisations interested in buying them will be existing defence contractors. The big boys of industry, such as the General Electric Company, Vickers, Marconi and Plessey, will be interested, but I cannot think of many others.

The Minister said that the Government intend to increase competition. Will the Bill achieve that? I shall take the example of battle tanks. At the moment they are made by the royal ordnance factory at Leeds and by Vickers at Newcastle. There is a distinct possibility that Vickers might want to acquire the fighting vehicle section of the royal ordnance factory at Leeds. There will then be just one manufacturer. Far from increasing competition, such a sale will decrease it. The Government might maintain that concerns other than existing manufacturers of fighting vehicles will acquire the Leeds factory. Who else? An overseas company? A multinational corporation? Someone from America? I can see no advantage in that either. These proposals are dangerous for defence—

Mr. Spencer Batiste (Elmet)

Has the hon. Gentleman considered flotation and the fact that the company might be taken up by a wide range of shareholders representing pension funds, unit trusts and so on?

Mr. Conlan

I wish that the Bill had spelt out what the Government have in mind. That is the disadvantage that we face. We do not really know where we are going, because the Government do not know where they are going.

Mr. Harry Cowans (Tyne Bridge)

Does my hon. Friend agree that the suggestion of the hon. Member for Elmet (Mr. Batiste) would do no good at all? The point is that from the time of Henry VIII it has been possible for ROFs to be expanded and controlled by the Government in time of war, and the scenario put forward by the hon. Gentlement would not assist that.

Mr. Conlan

Precisely. I entirely agree.

What will be the effect on prices? While 70 per cent. or more of MOD purchases are from private industry, it must be admitted that the existence of the ROFs is a means of controlling prices in the private sector. Let me explain in simple terms. The north of England enjoys low-priced beer. The large breweries in the north do not charge silly, crazy London prices. They cannot do so simply because a co-operative brewery on Tyneside keeps the prices down through competition. Precisely the same can be said of defence. If the public yardstick were removed, prices in the private sector would run riot.

This is a bad Bill. I doubt whether the Minister has his heart in it or whether he believes it it. It is ill-thought-out and is entirely the result of political dogma. The ROFs are efficient and profitable, which is more than can be said of many existing defence contractors in the private sector. The ROFs provide an excellent back-up service for the forces. The Bill should therefore be thrown out. It should be recognised for what it is—just one more instalment which the Government are paying to their Tory paymasters in private industry.

5.16 pm

Mr. Spencer Batiste (Elmet)

I am privileged to represent many employees of ROF Barnbow in Leeds, where the Challenger, our main battle tank, is manufactured.

In the months since I was first elected to the House I have met and corresponded with a number of employees at Barnbow and have visited the factory. The general reaction of most of the employees whom I have met has been apprehension and fear because of uncertainty. Inevitably, when there is the prospect of change, people are apprehensive about what it will mean for them. If, however, there is no change, there will be no progress. It is therefore important for the Government to ensure that the change is in the right direction and that the fears of the employees are allayed as quickly as possible.

Reference has already been made to the strike. This is not a sign of militancy or even of opposition to the concept of privatisation. It is a reflection of the fact that those concerned do not know what the future holds for them; nor will they know until the detailed proposals are put in front of them spelling out precisely what they will mean.

I was delighted to hear my hon. Friend the Minister of State say that he would visit Barnbow this month. When he goes there, he will see one of Britain's great centres of industrial excellence, with a highly skilled and motivated work force.

Mr. Cowans

Why change it?

Mr. Batiste

Because one can always improve, and one of the basic factors inherent in privatisation is the noninvolvement of the Government in manufacturing industry when private sector manufacturing industry can in general do the job better.

The uncertainty of which I have spoken arises in two broad areas. The first is over conditions of employment. The Government's assurance that the new conditions of employment following transfer to the company will as a whole be no worse than those enjoyed at present must be translated into clear, specific undertakings which each individual can understand. The pensions scheme and the details set out in the consultation document will go a long way to clear up doubts in this important area.

Fears of redundancy came over most strongly during my recent visit. People were not concerned about what might happen immediately after the transfer took place or immediately after the company was privatised. Instead, they were concerned about what might happen further into the future. If I understood my hon. Friend the Minister's undertakings, it is clear that those fears can be allayed because the Government stand behind the present redundancy payment levels which these people enjoy.

What will happen to the relatively small number of ROF employees who are mobile within the Civil Service and who have moved from place to place within the Civil Service? The consultation document refers to the setting up of a register for those people and to some opportunity of transfer, subject to places being available. This will be a difficult question of balance, because on the one hand one must maintain the integrity and viability of the ordnance factories in their new corporate structure, and at the same time not many jobs will be available within the MOD and the wider Civil Service.

Perhaps the strongest fears, reflected in the speeches of Labour Members, are about the form that privatisation will take. That also exercises the minds of Conservative Members. If the factories were merely to be split up and asset stripped, as Labour Members have suggested, that would not be a sensible way forward. There is no point in creating a private sector monopoly. However, if the way forward is the same as that set out in the letter of my hon. Friend the Minister of State for Defence Procurement on 15 December, there will be widespread support for it.

My hon. Friend said: As I said in my letter to you of 19 July, we intend that the ROFs should join the private sector of our defence industry as a successful commercial concern. We do not envisage a breakup of the ROF organisation or any piecemeal sale of its constituent parts, although it would be wrong for me at this point to rule out sales of some parts of the ROFs. I can envisage a situation in which some employees and managers at one of the sites might wish to effect a buy-out. That would not be against the public interest, but in the main the right way forward for the ROFs as a whole must be to keep them as a cohesive unit and for the shares to be put on the open market in the same manner as most of the previous successful privatisations.

A strong point is made on the interdependence of the pricing policy of the products of the ordnance factories. It is put to me, for example, that the price of the Challenger tank sold overseas will be far exceeded in the course of its working life by the cost of the spares and ammunition. In such a situation the logic of keeping within one group a wider range of the sources of supply of equipment going into the battle tank is very sensible. Indeed, one of the important benefits of privatisation is that the factories operating on their own without the constraints of public borrowing can expand and take over other business activities. They can make within the group more of the products which they sell than they do now. I was told that at Barnbow, for example. in relation to the tank, a very high proportion of what is ultimately sold is bought in. If the argument for effective pricing in competition in the world markets is valid, as I believe it is, so also is the logic that the ordnance factories must expand and develop their business organisation.

I believe that privatisation is in the best interests of the nation and of the employees. As I have said, I see no reason why the Ministry of Defence should be in the manufacturing business. The Ministry exists to procure in the best way possible in the interests of the nation. The royal ordnance factories should not have to conform with the strictures and restraints of Treasury and Civil Service procedures. Corporate development is an important part of a successful company's operations, particularly when it looks to the wider world, and corporate development is one of those aspects of manufacturing industry that tend to be atrophied under Government ownership.

An Opposition amendment has been moved by the right hon. Member for Llanelli (Mr. Davies) in terms that are a slur upon the countless people who work in the private sector of the defence industry. As a lawyer, before entering the House I acted for many companies in the aerospace industry particularly which provide a valuable service for the country. It is wrong to say that private sector is in any way less patriotic or less responsive to the public need than people who work in the Civil Service. Companies are, after all, composed of people, and it is upon people that we depend for dedication and loyalty. Accusations of the type made should either be supported by examples or be withdrawn unreservedly.

The right hon. Member for Llanelli made a further point in the debate. He said that the lack of power of the Government to enforce the placing of their orders would become a significant factor after privatisation; that the Government could not compel suppliers to make the products they sought. What sort of industrial world has the right hon. Member lived in for the last 10 years? The buying power of the Ministry of Defence on matters of military procurement is the guarantee the Government need that suppliers will be there to sell them the products as they are required. This happens in the private sector not only in defence. It happens across the full range of industry. Major companies which are substantial customers do not have the problem of people saying, "I shall not supply you with what you want." Indeed, they have the problem of choosing between many companies competing for their favours. How effective can the argument of control be when between 70 and 80 per cent. of the goods supplied by the ROFs are bought out already and are not within the control of the Government but depend upon the contractual power of the purchaser? This objection is without foundation.

The fears which the House is debating are real and I believe that it is important to assuage and settle those fears as quickly as possible. The security and future of all employees, whether they he of the ROFs or of any other industrial enterprise, depend upon being able to attract orders on which they can rely and develop in the future. If those orders are not available, their security will not be attainable.

Looking forward, the privatisation of the company, particularly if floated on the stock market, with the freedom to expand and develop its corporate activities into new areas, is the best guarantee for its employees. future. The employees, like the future interests of the nation, will be much better served by giving the Bill its Second Reading and proceeding at all speed to put through the steps necessary to bring this company on to the market as a shining example of the best of British industry.

5.26 pm

Mr. Lewis Carter-Jones (Eccles)

I have to declare two interests at the outset. I have the royal ordnance factory at Patricroft in my constituency, and so far, gather, I am the only consumer who has spoken in the debate.

It is the fellow in the field who decides ultimately on the quality of the armaments. I should like to know from somebody in the House which members of the armed forces have complained about the products of the royal ordnance factories. We are told that under the present Prime Minister we are in a society where the consumer is king. The consumers in this case happen to be the members of Her Majesty's forces. How many complaints have been received about royal ordnance factory products?

Mr. Robert Atkins

As the hon. Gentleman has posed the question, let me say that I am not in any sense one of those who believe that the ordnance factories do anything more than provide high quality goods, but I have been on various visits where complaints have been expressed about the quality of the goods, whether from private industry or the ordnance factories, so the consumers have had problems with ordnance factory material just as much as they have with private industry material.

Mr. Carter-Jones

It is interesting to hear of this wide experience and knowledge. I can say only that I have not had similar experience.

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

For nearly five years I was an Army Minister, and I should have thought that in that time I would have been in a position to hear at first hand any complaints about the quality of the products of the royal ordnance factories. In my time as Army Minister, no member of the Army Board or any senior army officer complained to me about the products of the royal ordnance factories. On the contrary, they were always full of praise. In my view there will be a lot of worried senior Army officers if the Bill goes through.

Mr. Carter-Jones

I am grateful to my hon. Friend for his intervention.

It is significant that two ex-Ministers have come down heavily on the side of the royal ordnance factories, one on the Opposition side of the House and one on the Government side.

The hon. Member for Chesham and Amersham (Sir I. Gilmour) greatly praised the royal ordnance factories. Indeed, he talked in terms of setting up a Mallabar-type inquiry, deliberately designed to find an alternative method. The Mallabar committee of inquiry studied the problem in great depth and came to the conclusion that if it had been asked to start from scratch it would have come up with a royal ordnance factory-type of solution. The Mallabar committee, following an in-depth study, said that one must stick with a royal ordnance factory-type of solution and come up with a trading fund that has proved successful.

Hon. Members on both sides of the House have quoted exclusively from chapter 2 of the Mallabar report, because the committee's recommendations are contained in that section. However, I wish to discuss a matter which has not been dealt with and which is causing me grave concern. It occurs in paragraph 8(3) of that chapter, where it says: The ROFs provide the main national reserve of capacity for a substantial range of munitions to ment foreseeable ore unforseen emergencies. From where will that come now? Who will provide that now?

There is a strange silence in the House. No one seems to want to respond to those questions. If I were a member of the armed forces, I should like to think that there were reserves of production available to produce munitions in the right place at the right time. The consumer has a right to be heard in the House, and the Minister has not yet said from where the main national reserve of capacity for a substantial range of munitions to meet foreseeable or unforeseen emergencies is to come. There is a deathly hush in the House. I am always impressed by deathly hushes. They tend to suggest that there are no answers. There are a few hours remaining in which the Under-Secretary of State can fire arrows from the Dispatch Box and try to obtain some answers. I doubt whether he will succeed.

The Mallabar report, the authoritative study on royal ordnance factories, is quite clear in its findings. But, not content with that, we move to a study group, the chairman of which had the job of the Minister of State. He produced his report and departed. I wonder why. He said: After an introductory section, the report looked into the ROFs' performance under the Trading Fund and found it to be highly successful. The basis upon which we are taking the present action is that the organisation is highly successful but that there are a number of constraints. I have a funny feeling that I should be willing to accept some of the constraints, but I do not need this dog's dinner of a piece of legislation to bring them about.

The first criticism concerned the Lack of ROF control over export sales. In my view there should be control from the centre in such a matter, so that is an irrelevant observation.

Next, we read: Shared responsibility for contracts and purchasing. It was ever thus in the arms industry. The shell manufacturer, the filler and the detonator and fuse manufacturers all tend to be separate. It is the bringing together of the component parts which is effective and efficient arms production. So that is irrelevant.

The third constraint is said to be A separated Design and Development organisation. That could be put right quite easily. Since 1974, ROF Patricroft has forged even closer links with the Royal Armament Research and Development Establishment. It has carried out the action required by that recommendation. Many development contracts are undertaken as Joint Projects for all armed services. This has allowed the experience of the Research Establishments to be coupled with the expertise within development and production facilities of ROF Patricroft and its sister factories. I shall probably be accused of reading some trade union propaganda. However, the Minister of State produced the document that I have just quoted. It was published by the Ministry of Defence procurement executive. In other words, the third objection set out in the study group's report disappears. It can be put right, as the right hon. Gentleman has told us. In fact, he in part is responsible for putting it right, so why do we need this legislation?

The fourth constraint on the ROFs' operations was: Lack of ROF control over the personnel function. That is interesting. It can be put right without legislation. If the selection processes under the Civil Service recruitment scheme are defective, it does not require legislation to put them right.

The Under-Secretary of State and I were in ROF Patricroft last Wednesday, and we heard an argument stood on its head. It was said that it was not possible to recruit quality people because of delays in enrolment. However, we also heard that if any head hunting went on it was done by outside people seeking to pinch the better people from ROF Patricroft and other places. So the quality remains and would-be head hunters have to be bought off. The recruitment argument will not work, either.

The next constraint is: Inability to purchase shares and set up joint companies. That can be overcome without legislation.

Then we have: Lack of access to ECGD facilities. We were told today that we were debating an enabling Bill. I am willing to bet my bottom dollar that if legislation is required to give the ROFs access to ECGD facilities, a one-clause Bill will go through the House on the nod. It will be given a 10-minute Second Reading debate upstairs and will come back to the Floor of the House. So that is no problem.

The final constraint is said to be: Public sector financial constraints and scrutiny. In my view the ROFs should be scrutinised. We are in a somewhat devilish industry. There can be no real objection to scrutiny.

What I cannot discover is who is complaining about the ROFs. The Minister has not complained, and I am sure that the Under-Secretary of State will not complain. A highly respected former Minister spoke from the heart and with knowledge. He described the Bill as humbug and said that he could not support it.

I regret to say that we come back to a frivolous answer. The reason for the Bill is the desire of the Secretary of State to say that he got rid of 18,000 civil servants. I cannot think of any other reason for all the stuff and nonsense that I have heard today. If the Minister wants to have a go at me, I shall be happy. Instead, I stand here making accusations and Ministers are dumb. Those whom I hoped to provoke do not seek to intervene.

I refer to another interesting statement by the Minister: The establishment's wide-ranging engineering capability is enhanced by an enthusiastic management team of executive staff, professional engineers and accountants. If I were running an organisation, I should love to have such a testimonial from my boss. It is the boss who said that. Having praised the ROFs, he now wants to get rid of them for no good reason.

It may be said that all the bright boys, the real developments and skilled work are found in private industry. Again, I quote the Minister's own words or those put out in his name. If there is a civil servant at risk tomorrow, I hope that I shall not be blamed. I merely read the words: ROF Patricroft has been responsible for the project definition and development programme of the Sea Wolf warhead surface-to-air missile. Sea Wolf is the Western world's only specialised operational anti-missile system. It is in operational service with the Royal Navy aboard the first Type-22 frigates. A nationalised industry produced that system from scratch without any outside help. It has been produced, has made a profit and has given our people a good defence system. Nevertheless, the Government seek to get rid of royal ordnance factories.

People will not rush for a contract if the price is not right. If the price is not right in private industry, it means that it is not high enough and that there will not be a profit. Indeed, that has been pointed out already. If profit margins are tight, a company will be unable to invest. If more munitions should prove essential and necessary at some stage, the Minister might have to invoke the Defence of the Realm Act, with all the controls that that involves. After all, he is responsible for procurement for the armed forces. The Bill does nothing to further our protection, and the hon. Gentleman may find that he has a lot to answer for in the event—God forbid—of another crisis blowing up which involves the use of armed forces.

On the subject of pensions, I do not believe that there will be a move from a trading fund situation to a holding company under the Companies Act. Three stages are involved. Without revealing anything under the Official Secrets Act. I can say that I know of a fair number of products that will be seized following privatisation. After all, the aim of the exercise is to flog off parts of the royal ordnance factories that are very attractive from the point of view of defence and technology. ROF Patricroft is a mix, and no one will bid for high technology cold flow forming and ordinary shells. That factory will have a double bidder. One part may remain open while the other is closed. Consequently, we may well find ourselves short of shells.

Since the aim of the exercise is to move towards total privatisation, I do not believe that pensions schemes as good as those now being offered in our royal ordnance factories will be made available. The sum of money offered will not be sufficient to sustain those pensions.

For all the reasons that I have given, I urge the Minister to put pen to paper and to offer his resignation before more damage is done.

5.44 pm

Mr. Martin M. Brandon-Bravo (Nottingham, South)

Since I believe that industry and commerce are better in the hands of industry and commerce than in those of Government or Civil Service, I cannot, for convenience or expediency, stand that belief on its head just because there is a royal ordnance factory in my constituency. Indeed, 1,200 people are employed at that factory and they fear—and I understand that fear, although I fervently believe that it is without foundation—that their future is threatened by this Bill. However, the only thing that threatens their future is an outbreak of peace—a happy event which we would all welcome.

Although the royal ordnance factories generally, and that in Nottingham in particular, have performed well in recent years, their future in the long term will be brighter if management is freed from the constraints of Civil Service style control. The constraint on management under the present structure must stifle initiative in a way that no private sector company would tolerate.

If defence is to be a conventional arm under a nuclear umbrella, and if new technology and sophistication mean that our needs, in physical volume terms, are likely to be fewer, the royal ordnance factories will, as the Minister said, have to look more and more away from home-based needs and orders, and towards those that can be ferreted out from overseas. In that case, managements must have the same freedom of action as those with whom they are expected to compete. No one can dispute that they do compete. The Nottingham factory already exports 70 per cent. of its output.

But despite that performance and proven ability, and even with preferred supplier status, that factory has recently had to announce 91 redundancies. Clearly, state ownership does not offer the protection that the publicity campaign would have us all believe. No company, no management, and no work force, should be faced with making and selling only that which some remote Ministry decrees. Belief in their own future, backed by the knowledge of their own capabilities and skills, should mean a better future in their own hands, with control, and close contact with design, manufacture and sales.

In that respect, I must voice some concern about the uncertainty in this otherwise commercial approach which results from the suggested arrangements in the area of design. I hope that the Minister will pay particular heed to that seed corn aspect of the package, as the wholehearted good will of management requires both hands for the task ahead.

I am used to working in a group of companies under a parent company, and understand creative discontent and competition between profit centres. I see no sinister motive in that company structure. Therefore, I seek the Minister's full assurance that that is all that is intended by such a structure.

However, I must draw his attention to the fears of the staff, particularly in Nottingham, about the role that Vickers, for example, might play, that could conflict with its interests, and perhaps with those of others in the present royal ordnance factory holding group. [Interruption]. The fact that I express some doubts and reservations does not imply that I am not wholeheartedly behind the general principles of the Bill. The royal ordnance factories make defence hardware, but that is not an argument for public control. Those who pursue that line of reasoning ignore the substantial contribution that the private sector already makes. As has been said, the Opposition have made some insulting remarks about the many private sector companies that supply the Ministry of Defence.

We have all received a trade union leaflet that draws our attention to security, but its timing makes it ring a little hollow. Only last year, I believe, there was a breach of security at Ruddington, Nottingham, and hon. Members are well aware of the breach of security that has taken place recently. Change can come about with or without good will. However, it is much more likely to succeed if there is good will. To achieve that good will I trust that we shall in the final form of the Bill be able to give the staff the best that we can. We cannot satisfy those who, Canute-like, want no change, because the world is not like that. I hope that the financial terms and conditions will be fair and will be recognised as such. I am grateful that the Minister made that point when he opened the debate and I hope that it will be underlined in the winding-up speech. Since I stressed that the future was in the hands of the present staff, I further hope that every help will be given to ensure that, like the employees of the National Freight Corporation, the ROF staff will have a personal stake in their future and in the new scene.

I believe that our purpose is to offer a brighter future to the ROFs. Therefore, the sooner we communicate the domestic arrangements to the 18,000 people, who are rightly concerned for their future, the sooner we can energetically turn our backs on the past and tackle the challenging future.

Finally, all hon. Members are blithely talking about the manufacture of weapons of war. At one time the Nottingham ROF, and possibly others, manufactured for the mining trade. British Rail, and so on. I hope that homo sapiens will one day be sapiens enough to give us problems to debate, which are connected with such items.

5.52 pm

Mr. Paddy Ashdown (Yeovil)

The Liberal party has often accused the Government of being so much in the blind grip of their ideology that they are incapable of making the right decisions about Britain's future. There are few clearer examples of that approach to policy-making than the Bill. Liberals and Social Democrats view privatisation—the selling of public assets—not as a political ideology, but as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) viewed it. The question to be weighed on the balance of advantage is, will the nation benefit from the proposal or will it suffer from it? I can do no better in that balance than to follow the right hon. Gentleman and come to the same conclusion that he so eloquently drew.

The point of most concern is that when the Minister proposed the Second Reading of the Bill he dug himself so deep into detail—even though that was necessary, as the right hon. Member for Llanelli (Mr. Davies) agreed it was — that he made no case about the generality of privatisation for this sector of British industry. Perhaps he did even worse than that. He made no attempt, as other hon. Members have pointed out, to explain why the undertakings and recommendations of the crucial Mallabar report have been overturned and largely ignored. Tory Members said that the position had changed since the Mallabar report was written, which may be true, but when the Minister presented the Bill, he did not tell us how things had changed or how and why the crucial detailed studies and conclusions should be overturned. He did not even make much of a point about the Strathcona study group, notwithstanding the fact that the organiser of the group was the Minister's predecessor. That study group did not say that this was the option to follow, but that it was an option that could be followed. The group was lukewarm about the recommendations.

The Minister said that the ROFs are successful and I, as other hon. Members have done, shall review how they are successful. The ROFs are not a drain on the public purse but are an asset to it, both in terms of capital investment and revenue. The share that their employees have created has increased twofold in value added terms during the past three years, which is a significant success. They have trebled sales since 1974 and have made a profit of £270 million.

The hon. Member for Nottingham, South (Mr. Brandon-Bravo) mentioned the insulting comments of the right hon. Member for Llanelli about some private contractors, but the comments of the hon. Gentleman were also deeply insulting. He said at the beginning of his speech that present conditions stultified initiative and successful operations, the inference being that that was how the ROFs had been run until now. He should reflect on the fact that the value added for each employee has doubled during the past three years, that sales have trebled since 1974, and that the organisation has contributed to the Exchequer. How can that show stultified initiative and lack of success in the exploitation of the market, especially in the current difficult economic climate?

The ROFs have never needed public subsidy, but have contributed £128 million to the Exchequer since 1974. They now export about 40 per cent. of their sales, and. as the Minister said, they have won the Queen's Award for Industry. In July last year the Minister described the ROFs in this way: Their overall performance has been very satisfactory, and all their customers"— this Bill is supposed to be for the customers— have been delighted with the service they have received.—[Official Report, 25 July 1983; Vol. 46, c. 311.] That is what the hon. Member for Eccles (Mr. Carter-Jones) referred to when commenting on what I would call the "praise 'em and push 'em" mentality of the Government.

Mr. Robert Atkins

If the ordnance factories are as efficient, profitable and successful as we all agree they are in terms of their products and sales, why should they have anything to fear as a result of this Bill becoming law? Do they not have an even brighter future?

Mr. Ashdown

That remains to be seen. The Minister did not make that case in any detail. My argument for not privatising the ROFs is concerned not so much with whether they will be run more efficiently or whether they can survive in the market whether it is a good thing for Britain.

The hon. Member for South Ribble (Mr. Atkins) is widely respected in the House as an expert on defence procurement, and he will know as well as I do that the ROFs have given a remarkable service to Britain's defence, as was most clearly shown—together with the private defence industries — during the Falklands campaign. The organisation is obliged to meet the requirements of the Ministry of Defence, and Conservative Members should view the breaking of that obligation with considerable concern and caution. Its close liaison with the Ministry of Defence has produced a significant and unique relationship which enables it to provide not only the quality but the quantity of goods that we require.

The hon. Member for Elmet (Mr. Batiste) said that when there is no change, there is no progress. I quote back to him the words of Lord Acton: When it is not necessary to change, it is necessary not to change. There is no evidence that it is necessary to change the ROFs now either because they are inefficient or because they do not serve Britain properly.

We are used to the Government selling off the nation's capital assets for short-term revenue advantages, but this operation will sell off not only capital assets but revenue assets. The ROFs have contributed significantly to the Exchequer during the past few years. The Government will in due course, perhaps, be placing the vital supply of defence equipment in the hands of foreign suppliers.

The Government have said that the Bill will encourage competition. I agree wholeheartedly with those Conservative Members who regard the remarks of the right hon. Member for Llanelli, and a sentence in the amendment, as being deeply offensive and impugning the loyalty of, and the service provided by, private service contractors. I have one such contractor in my constitutency, and I reject utterly the idea that either the work force or the management of Westlands are less loyal to Britain than are those who work in the ROFs. The right hon. Member for Llanelli is right to say that any firm's primary loyalty lies within the Companies Acts, to its shareholders. He is wrong to imply that there is a contradiction between that and serving loyally our defence mechanism and the nation. There is nothing inimical in those two loyalites. It is vital to maintain that mix in our defence procurement system.

The Minister argued that we shall increase competition by taking the steps set out in the Bill. It has been adequately proved by those who have contributed to the debate — it has not been disproved by anyone from either side of the House — that that is not likely to happen, for two or three reasons.

First, the essential yardstick of costing is being removed, and that is a key function of the ROFs. Secondly, the larger defence contractors are liable to move in and buy up—for example, Vickers and the ROF that produces the main battle tank. Thirdly, we shall inevitably be opening out the system. For example, ROF Bridgwater produces explosives. If the Bill is enacted, foreign manufacturers of explosives will be able to move in and begin to take some of that market. It will not be the efficiency of the foreign manufaccturer that will win the day; the day will be won by the level of subsidy that he will receive from his Government. We may be forced to close down a vital source of supply of our own by once again opening up unfair competition.

The Government's proposals are likely to cost the taxpayer about £100 million this year. The Minister made a lovely statement about £250 million not really being £250 million. I am reminded of some of the statements that the Secretary of State for Social Services has made about the Health service. If the Minister has ever held a mortgage, he will realise that the money that is being called in this year will represent a real cost. That cannot be ignored, even with the clever playing with statistics which he conducted.

If the Government achieve this piece of ideology, the taxpayer may have to pay up to the tune of £100 million this year. That is a sum that has been calculated by others and I shall not argue on points of detail. It seems that if the taxpayer is to get anything he will get very little, and that the Government's proposals might involve him in extra cost. In implementing their petty ideologies it seems that the Government are to put under threat the supply of equipment to our defence forces and destroy the network of co-ordinated munitions factories, which have been carefully erected by generation after generation since 1585. The Government are prepared to hand profits to the private speculator that hitherto have gone to the nation. In the process, the taxpayer may be called upon to provide as much as an additional £100 million. Such is the cost of Conservative ideology to Britain, the royal ordnance factories and our defence network.

Apart from being a bad Bill, it is a deeply vague and uncertain measure. It is proposed to establish a pubicly owned company under the Companies Act. That was the first step when the Government privatised the National Freight Corporation and Amersham International. The same step was taken when they introduced the British Shipbuilders Act 1983 and the Iron and Steel Act 1982. I offer no prizes for guessing what the next move will be. Indeed, the Minister has already made it clear what he intends it should be. However, as the right hon. Member for Amersham and Chesham has said, the Minister has not said how it will be done or when it will be done. We on the Liberal Benches regard that as irresponsible.

Mr. Tim Eggar (Enfield, North)

We?

Mr. Ashdown

Even though I am alone on the Liberal Benches, the Liberal party is represented at a higher level in percentage terms than the Conservative party or the Labour party. I know that that is so because I have made the calculation.

The Government are being deeply irresponsible. They are proposing to float off a major national asset without having a clear idea of the direction in which they are proceeding. No clear idea has been advanced by the Minister.

I was somewhat reassured by the Minister's statement on the security of the work force. It remains the case that the work force needs still to be reassured about its future pension rights and redundancy provisions. I hope that he will take every effort to ensure that the concerns of the work force are overcome. I am sure that he will do so.

In the view of my right hon. and hon. Friends, the Bill will be bad for the integrity of Britain's defence. It will threaten a network that has taken Britain over 400 years to build up. It will make it possible to sell off for private gain a major contributor to the public purse and a revenue asset for the public sector borrowing requirement. It could cost the taxpayer about £100 million for the sale alone. In our judgment, it is a squalid piece of Tory ideology, giving short-term advantage to a very few and of long-term benefit to none. We shall vote against its Second Reading.

6.6 pm

Mr. Tim Eggar (Enfield, North)

All hon. Members will have heard of the Lee Enfield rifle, but perhaps not all of them will know that it was designed and manufactured in the royal small arms factory in my constituency. The Lock or small arms, as it is known locally, is a unique factory because it is the only major producer of small arms in Britain and the only royal ordnance factory which has had historically its own research and development capability.

I support the Bill, but I should like to explain why and to make three comments about it while asking for certain reassurances. The need for change was brought home to me clearly on a visit that I paid to the factory only two weeks ago. The management told me that it had considerable difficulty in recruiting management from the private sector. It said that there were two reasons for the difficulty. The management claimed that it was relatively underpaid—I believe that to be true—and, secondly, it said that it had a very structured management system. It was really saying, although it did not express this in terms, that the royal small arms factory was managed by using exactly the same techniques as those that are employed in the Civil Service.

The Civil Service may or may not run an efficient administrative system, but I do not think that anyone has ever argued that it runs a good industrial company. The management systems that are used centrally at the Ministry of Defence or the Department of the Environment cannot be used in an industrial environment.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Is the hon. Gentleman saying that the ROFs are badly managed?

Mr. Eggar

The highly graded system under which the various tiers of management work, from the shop floor to senior management, militates against running a good engineering company, which is certainly what the royal small arms factory should be. I do not believe that the system which has been imposed—largely by the MOD, the Civil Service commission and other entities within the Civil Service—is conducive to good modern management techniques. The message that the non-industrial trade unions and the management at the factory—

Mr. Fisher

It seems, if the hon. Gentleman is trying to answer my question, that he is saying that in his opinion the ROFs are badly managed. Labour Members find that deeply insulting to those working in the ROFs.

Mr. Eggar

I am sure that we all believe that the ROFs produce a good product. We know that there are severe restrictions on defence budgets and that the pressures will probably increase. As we are all interested in Britain's defence, we want a good product to be produced in the most cost-effective way. I do not believe that the present management structure and systems are conducive to that end. That element is the single most important factor behind the Government's decision to introduce the Bill.

At present, technology within the defence procurement industry is advancing extremely quickly. The pressures on the procurement budget can only increase. It is inevitable that there will be more cross-border co-operation and liaison in defence manufacturing. Britain, as a country with small professional armed forces, cannot expect to produce all the necessary weapons in the most effective and cost efficient way, so there must be increased cross-border collaboration. To produce the quantity of arms that makes long-term production of arms possible, we need a good sales organisation linked directly with factory level management. Few companies are run with a head office sales organisation selling for all the subsidiary companies. There is not a sufficiently close liaison. Companies, such as the General Electric Co. plc, have found that they need close liaison between sales teams and the factory producing the goods. The Bill's measures are conducive not only to preserving long-term employment prospects in my constituency but to providing the best weapons for our armed forces.

During the past three years, I have had a number of meetings with management, unions and individual constituents who work at the small arms factory. They have expressed a number of concerns to me, as I am sure they did to my hon. Friend when he visited the factory last week. There is no doubt that the period since 1981 has been one of uncertainty for employees at the royal small arms factory and ROFs generally. Many people — I confess that I am one—believe that the royal small arms factory in particular should pursue a path that is independent of the ROFs in general. I believe that my hon. Friend is considering that possibility. Whatever my view, I hope that he will make a clear announcement at least by the time the Bill comes out of Committee about whether the royal small arms factory will be an integral part of the ROFs or independent. Whatever one feels about the best possible outcome for the royal small arms factory in my constituency and the other factories, one should be fair to the work force and management and end the uncertainty. The management structure and techniques for a factory standing on its own, as the RSAF is, are different from those for a factory which is a subsidiary of a holding company known as the royal ordnance factory.

My first concern has been to end the uncertainty in the industry. My second concern, as has been mentioned by hon. Members, is about the security and terms of employment of the present employees. There is no doubt that, at present, employees attach most value to the security of employment offered by their being civil servants. I recognise that it is impossible for any Government to give cast iron assurances about long-term employment prospects in the private or public sector, but my hon. Friend might be able to help in two particular areas. At the royal small arms factory and ROFs there are a number of mobile, non-industrial civil servants who have a right of transfer into the Civil Service for historical reasons or because they were seconded for a short period into the royal ordnance factory organisation. This factor is especially important in Enfield where many employees could commute into central London to work in Whitehall as easily as they could travel down the road to work locally at the small arms factory. I hope that in Commitee my hon. Friend can give some assurance that those mobile civil servants will have their right of transfer into the Civil Service safeguarded.

There may be employees who do not wish to be transferred and employed by the new Companies Act company. Many, I suspect, have had long service in the ordnance factories, and I hope that my hon. Friend can come forward with a scheme offering early retirement to those who wish to take it up enabling them to receive nearly their full Civil Service pension entitlements. My third concern is the whole question of the future relationship between the ROFs and the Ministry of Defence. At present there is a close working relationship which smooths out the order books of the ROFs and enables the MOD to meet its external financing limits more effectively than it might otherwise do. I presume that, over the years, the MOD has benefited from such an exchange of information, but I understand that from the day of incorporation the ROFs must act on a full competitive tendering basis. Overnight, a change will occur, the old cosy relationship will be pushed aside, and we shall move to an arm's-length contracting basis.

Although I understand the Government's motivation for making that change fairly rapidly, they must recognise that the ROFs will face problems in changing their systems overnight. I suspect that, for instance, many ROFs do not have internal accounting systems in place which give proper, full, competitive tendering as happens in the private sector. That is not surprising because the ROFs are used to dealing with public accounts requirements. They are being asked to change over to private sector tendering requirements. Such technical difficulties must be faced. I hope that my hon. Friend can say, on a case-by-case basis, that there will be a two-year phase-in period when every project does not have to go out for competitive tendering. We have to recognise the difficulties that have built up as a result of the long-term relationship between the MOD and the ROFs.

The ROFs must be given the means to compete. Their balance sheet must be properly capitalised and they must have a reasonable debt to equity ratio. This ratio must be comparable to other engineering or chemical factories. Similarly, in exporting arms, the ROFs must operate under no fewer and no more constraints than private sector companies would do. Of course, there must be constraints, but they must not differ from those in the private sector.

Hon. Members have talked about more than just privatisation. They have talked about improving the cost effectiveness of the way in which defence equipment is produced and security for our country is provided. If I believed that the Bill would reduce our defences or put our armed forces at risk. I could not support it. I do not believe that; I believe that we shall not only preserve employment but, at the end of the day, will produce more cost-effective armaments that will improve our defences.

6.20 pm

Mr. John Mc William (Blaydon)

The hon. Member for Enfield, North (Mr. Eggar) is entitled to believe what he wants about the effect of the Bill on the armed forces and their ability to defend themselves. However, he should not base his beliefs on any of the arguments put forward by the Minister or his colleagues today. We have heard not argument but bold assertions and a great deal of misinformation about what the Bill may or may not achieve. Having read the Bill thoroughly, I find it difficult to find any basis for any certainty about anything to do with the Bill.

The Bill is so vague in its drafting that it gives the Minister almost unfettered powers. I hope that in Committee we will find out what much of the Bill actually means, and then improve upon it. Despite the brave stance of some Conservative Members, I fear that there will not be any great rebellion from flaccid Tories tonight, even though they are faced with the claptrap in the Bill.

The hon. Member for Enfield, North said that cosy relationships existed between the MOD and the ROFs. He must have read, as I have, the numerous reports from the Defence Select Committee and the Public Accounts Committee about the cosy relationships favoured by the MOD, not only with the ROFs, but with other defence contractors. I was a telephone maintenance engineer at Ferranti when that company suddenly discovered that it had overcharged the Government £4 million—

Mr. Eggar

What did the hon. Gentleman do about it?

Mr. McWilliam

I did not do what I should have done. That overcharging might have been an accident, but subsequent investigations discovered that it was not. Conservative Members should not be fainthearted about our allegations that not all private companies have the wellbeing of the state at heart when choosing between that and additional dividends for their shareholders. Conservative Members should realise that what my right hon. Friend the Member for Llanelli (Mr. Davies) said today is true; their duty is to their shareholders, for whom they must make a profit. They also have other duties, such as producing accounts for the state and so on. I do not accept that all private industry is as lily-white as Conservative Members would have us believe. I was a tax commissioner for a number of years, and I know that private industry is far from lily-white. Some of ii thinks that fiddling taxes is a sport rather than a criminal offence.

I represent Birtley, where the ROF employs 1,500 people. I am concerned for their jobs, livelihoods and futures. As other hon. Members have said, there is nothing to stop certain interests — perhaps foreign interests — buying out and closing down our production. Indeed, it would be in their interests to do so. The ROFs export 40 per cent, of their sales and must, therefore, be an attractive competitor to take out of the market, to the benefit of those operating in other countries — perhaps in sheltered markets behind non-tariff barriers such as the Congressional Defence Procurement Committee imposes at regular intervals.

Conservative Members are displaying innocence about these matters. I suggest that if they ever have the opportunity they should go to the United States and visit the Pentagon, the State Department and other Departments concerned with defence procurement and discuss these matters with the civil servants there, and then visit the politicians and find out the pressures that companies put on them and what actually happens in defence procurement. We are talking not about a perfect market but about one in which the largest slice is heavily protected by vested interests which have more than enough money to destroy our ability to produce the armaments that we need to defend Britain and those countries with which we have defence treaties.

Conservative Members have short memories. It is only a matter of weeks since the United States walked into a sovereign Commonwealth country. However much the United States may cover up its actions, it might do that again to a country with which we have an absolute defence treaty. That could easily happen with the current state of affairs in Central America. If we were dependent upon American defence supplies, we could not fulfil our defence commitments.

There is nothing in the Bill to allay my worst fears about the future of the jobs of my constituents in Birtley. The present unemployment rate in that area is 20.7 per cent., and it is about to lose more than 1,000 jobs through the closure of Caterpillar. If it lost the 1,500 jobs at the ROF, that area would become a greater disaster area than Consett. I must protest against the Bill in order to defend employment in the north-east.

When the Minister opened the debate he said that existing employees and their pensions would be protected. I have spoken to the employees at Birtley and I listened carefully to the Minister's remarks. What he said today was no different from that said by his colleague during the passage of the Telecommunications Bill, when we debated the pensions of existing employees of British Telecom. Employees' pensions may be protected while the state has a controlling interest in the ROF, but after that they will not be protected. Because of the way in which the Bill is drafted, the state can never take sufficient control of the company to put pensions back on an even keel. Indeed, the Bill specifically forbids the Government from doing that — no doubt to prevent a future Labour Government doing so without having first to pass legislation. The Minister's assurances are hollow for the future years of service of existing employees. They are especially hollow for the future conditions of service of new employees.

What is more, that will not lead to harmonious industrial relations. When two groups of staff with the same seniority, doing the same job, are paid different amounts and enjoy different conditions, disharmony will result. I have worked in such conditions, as have others. It would not be sensible to introduce such disharmony into an industry as important as defence.

Other staff will also be involved. What will happen to the Ministry of Defence policemen? What will happen to the factories when they are patrolled by Securicor? Will Securicor take on the IRA? Truncheons and gas masks will not be much use against an Armalite, yet the suggestion in the Bill is that security staff will be removed and the ROFs will maintain their security on a private basis.

If there is to be a private armed police force in this country, the House would wish to know about it. That is what is implied here, but it is not spelt out. Will legislation be brought in to make that possible, or will there just be a liberal granting of gun licences?

Mr. Robert Atkins

Would the hon. Gentleman care to comment on the security arrangements of British Aerospace, Marconi, Ferranti and the other manufacturers of defence equipment?

Mr. Mc William

British Aerospace, Ferranti, Marconi and the rest do not make explosives. They do not make material that can be used in guns.

Mr. Eggar

ICI does.

Mr. McWilliam

ICI does, but the others do not. Of course those companies are policed externally by the civilian police and internally by internal police forces, but the point made by the hon. Member for South Ribble (Mr. Atkins) is not realistic. What I have in mind is the theft not of bulky commercial explosives but of the most deadly ammunition available to any army in the world. That ammunition is worth protecting. If the hon. Gentleman is reduced to defending the Bill by such spurious points, he should reconsider his attitude to it and to his party. The Conservative party claims to wish to maintain the defence of the British people, but it is indulging in a piece of political dogma which will ultimately have the opposite effect.

I am concerned about the ability of this country to meet its defence requirements. I am concerned about future employment in my area and in other places where there are royal ordnance factories. I am concerned, above all, about the conditions of service of the few who will continue to work in the industry. The success of the Minister in arguing his case to the experts—to those who work in the ordnance factories — is best illustrated by the fact that, even though he and his colleague have visited all the royal ordnance factories, the workers at all those factories are on strike today in protest against the legislation.

6.34 pm

Mr. Den Dover (Chorley)

The largest royal ordnance factory is situated in my constituency, and more than 20 years in business have convinced me that such organisations would do better in the private sector. I have spent several years in the public sector—indeed, I have been the chief executive of a quango—and I think that the long-term future of the ROFs should be in private enterprise. However, I am most unlikely to support the Bill this evening. Indeed, unless I receive some categorical assurances from the Minister when he replies to the debate, I shall vote against the Government.

My misgivings are caused by the timing. The consultation documents on employment conditions and pensions have been in the hands of the unions concerned for only the past few months or weeks. Such a major measure should not be rushed. After the Minister's opening speech, I wonder whether I can take for granted the contents of a letter that he wrote to me on 14 December 1983, in which he said: In line with the commitment given in the Consultative Document that the transfer shall not result in a worsening of terms and conditions, taken as a whole, which existing ROF employees enjoy … it is our intention that redundancy compensation benefits post-vesting day will, as far as possible, be comparable to those ROF employees currently enjoy in the Civil Service. Is that really a categorical assurance? It contains vague terms such as "taken as a whole" and "as far as possible". It is not an assurance that will encourage 18,000 workers to jump for joy when they hear that their working conditions and business organisation are to pass into private control.

I support privatisation in the long term because there is a need for the introduction of private capital into the industry. That was emphasised in the Queen's Speech. Under the Government, defence expenditure has grown at 3 per cent, a year, and there are enormous export orders to be chased, but there have been constraints on the ROFs and I feel that the injection of private capital could help to remove them.

One major plank in the Government's argument is that the ROFs should become an integrated organisation with its own research and development facility and its own marketing arm. That is a vital development, and I gave it my full backing in the debate of December 1980. However, although the consultation document on research and development was issued only last week, we are expecting some 500 workers at Westcott and 400 at Waltham Forest to accept, on the basis of that document that they are to be transferred to the ROFs and, shortly after vesting day. to lose all their rights and conditions.

I understand that under the terms of the consultation document those employees are to be given a chance to register their objection to the move, but are the 900 men to be transferred or not? Will the Minister argue that we must not burden 18,000 workers with a research and development force of some 900, and that a smaller number would suffice? The Government must state precisely what research and development operations should be contained within the royal ordnance factories organisation.

One of the senior men at Chorley is heading the marketing side, and it has been in operation for several months, but what are several months in terms of the lead and lag times associated with major defence contracts? Research, development and marketing will need to be integrated with production for many years before major changes can be made in the organisation, management, control, financial coverage and expectations of such a large organisation. An operation employng 18,000 workers is not small fry.

We have heard about constraints on personnel and recruitment. I am sure that the Ministers, given good will, could have eased those restrictions, particularly where there is competition for markets. We do not need legislation to enable us to overcome a minor difficulty restricting quick recruitment.

I am delighted to hear that 60 per cent, to 70 per cent, of work goes to the Ministry of Defence. However, that means that 30 per cent, to 40 per cent, of the work load is being obtained in overseas markets and in competition. The Minister should have told us the exact percentages that the various factories and the industry as a whole had obtained in competitive tender, because that is the acid test. We have seen the profit record. I have nothing but congratulations for my own workers and the others throughout the country for the massive benefits to the Exchequer for which they have been responsible over the years.

I maintain that there is no point in changing a successful operation. Are we correct to seek to sell or privatise a successful organisation? If private enterprise thinks about selling part of an operation, it sells the bad eggs—those that are losing money. One could give them away if necessary and thereby reduce the drain on one's resources. A similar operation, perhaps with lower overheads, may be able to make a success of them and build from there. Why are the Government selling profitable organisations? It seems as though we are turning logic on its head. Will the Minister give his attention to that matter?

This evening I hoped to hear the Government say, "Look, vesting day is vesting day." That may be 1 October 1984. "We then need a period of integration, and we will not seek to sell part or whole until there has been a reasonable period."

On 25 July 1983 there was a letter from the Minister in Hansard which stated: It is not intended to introduce private capital until the ROFs have had time to accustom themselves to, and perform successfully in. their new and more commercial environment." —[Official Report, 25 July 1983; Vol, 46, c. 314.] Unless I receive an assurance from the Minister this evening that there will be no introduction of private capital, and no selling of a part or the whole before December 1987, I will be voting against the measure. I feel that the Government are rushing their fences and going ahead with a measure that will have a major impact in my constituency and many others. The Government are not tackling the matter at the correct speed.

6.41 pm

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

I am delighted to speak after the hon. Member for Chorley (Mr. Dover). He has made an admirable and courageous speech. I am delighted that we shall have him in the Division Lobby with us. Would that many more Conservative Members, albeit with marginal majorities, would join us tonight in the Lobby against this tatty little Bill.

I wish to declare an interest as a sponsored member of the General, Municipal, Boilermakers and Allied Trade Union. Many of the ROF workers are organised in my trades union, not least the 1,500 who work in the Birtley royal ordnance factory where many of my constituents have earned a living for years. I am anxious that they should have the opportunity to continue to earn a living there. I am worried about the future employment prospects of the 1,500 people at Birtley and for the 18,500 people employed in the ordnance factory organisation across the country.

I cannot see privatisation doing anything other than put at risk the jobs of many employees and further to reduce the future employment prospects of many of our young people. God knows, there is insufficient employment at present.

I have for the Minister a simple question. Why should this proposal to privatise the ROFs be made? Has the organisation of 11 factories failed the nation? There can be no doubt about the answer. It is no. I pray in aid for that assertion what the Minister said when he opened the debate. He said that the ROFs have served the country well for nearly 400 years. They are staffed by a dedicated work force of 18,500 people, and they have consistently returned a trading profit. There is only one explanation for this proposal; it is political dogma. That is why I am delighted that the hon. Member for Chorley has had the courage of his convictions. It is becoming increasingly apparent in this and many other debates that the Government are completely at odds with their Back Benchers. We hear critical and lukewarm speeches, but at the end of the evening, unfortunately, because of the arm twisting and intimidation from their Whips' office, Conservative Members troop unwillingly into the Lobby to support the Government on measures with which they fundamentally disagree.

I spoke this afternoon to an employee from one of the royal ordnance factories in the Midlands. He said, with a great deal of emotion. "I have been a devoted servant of the Crown and the country for over 42 years. I want to finish my working life serving the Crown." I was moved by the way in which the man put that to me. He said that that was a general feeling that ran through the work force in the factory from which he came. He said that they had great pride in servicing the armed forces, particularly the Army. So long as we need armed forces for the defence of our realm—I cannot see the day ever arising when we shall not — it is right and proper that the nation should employ the means rather than resort to the type of mean-minded political dogma involved in the Bill. Surely there can be no other explanation or reason for the introduction of this tatty Bill.

I was pleased to hear the Minister give some assurances about the pension rights for existing civil servants employed in the factories. The work force is anxious about the future of its pensions and conditions of service. I hope that in Committee the Government will see their way to accept amendments which would write into the Bill safeguards to which present employees are rightly entitled.

The answer to the hon. Member for Chorley when he asks whether he can rely on the letter from the Minister is that he cannot. I am not imputing any unfair motives to the Minister, but he may be gone tomorrow. He may be moved to another Government job or chopped. A future Minister is not necessarily bound by the words that appear in the letter to the hon. Member for Chorley. Let him and other Conservative Members bear that in mind.

The Ministry of Defence has two superb research establishments—RARDE at Fort Halstead and MVEE at Chertsey where Burlington, as it was then known, invented Chobham armour. It is recognised as the best armour in the world. The Minister spoke about new private companies developing a research and development organisation. Several questions arise. Why should the new private companies spend vast sums on research and development when we have RARDE and MVEE? Assuming that the companies develop their own research and development facilities, what will happen to those two superb organisations? Is the MOD to keep them on? Is it to do the research and development, and then give it gratis to the private companies, or are those two superb establishments to go to the wall?

The Army would have done badly without the services of Fort Halstead and the work of the devoted people in that establishment. I think particularly of Northern Ireland. The people at Fort Halstead worked round the clock to find an answer to a newly found terrorist booby trap in Northern Ireland. They have produced equipment such as the "wheelbarrow" and other equipment to which I shall not refer for obvious reasons. Suffice it to say that I am absolutely certain that many more of our service men would have been killed in Northern Ireland but for the skill and devotion of those people. I should like to press this question. What is to happen to Fort Halstead? It would be all but criminal not to have for the Army the facility that we have at Fort Halstead.

At the least, the Bill will cost the British taxpayer £100 million. It is more likely to cost £300 million in the immediate short term. No one, least of all the Minister of State, who made it fairly clear in his speech, has a clue how much the Bill will cost the taxpayer in the foreseeable future.

Organisational failure is firmly embodied in the Bill. The Government have accepted the high efficiency of the ROFs but have failed to think through the maintenance of standards once the factories are in the private sector. The Secretary of State for Defence is considering a holding company with four subsidiaries for small arms, ammunition, guns, fighting vehicles and rocket motors. If that course were followed, it would go a long way to destroying one of the corner-stones of the efficiency of the ROF organisation, which is integration. The integration of the 11 factories has produced the efficiency that we have come to expect from ROFs.

I have visited all but one of the ROFs. They have to be seen to be believed. The manufacture of a bullet or a shell involves an operation in six, seven or eight ROFs. The Government have had to accept that selling off the ROFs on their own will not work. As the Minister of State announced, they now have plans to transfer the propellant, explosive and rocket motor establishment and the rocket motor executive to the ROFs before the sale. That in itself will mean the transfer of about 1,000 staff.

I refer to the security of the realm. Because of the ending of the public stake in the arms industry, Britain will lose a yardstick by which to measure competitors. We shall lose the means of guaranteeing the production of less profitable weaponry. My hon. Friend the Member for Blaydon (Mr. McWilliam) referred to the security of the sites, where the MOD police will have no future role. Two questions arise from that. What will happen to the MOD police — will they be made redundant or will they be transferred to other establishments? Secondly, what sort of security organisation will be in charge of the ROFs? It was easy for the hon. Member for South Ribble (Mr. Atkins) to make cheap interventions in the speech of my hon. Friend the Member for Blaydon. The private sector is producing the weapons, but it is not producing the fuel. That is where the danger of terrorism lies. It would be dreadful if terrorists were to gain access to some of the establishments in the charge of the ROF organisation.

A future Labour Government would reinstate the ROF organisation to the public. I would go further. I hope that we shall take into public ownership the whole of the manufacture of our defence equipment because surely it is completely wrong and immoral that the essential defence of our country and our essential defence equipment should rely on profit margin or the private profit factor.

6.57 pm

Mrs. Ann Winterton (Congleton)

I am delighted to be called to contribute to the debate. I am sure that the hon. Member for Newcastle upon Tyne, North (Mr. Brown) will be pleased to have been sandwiched between dissenters from the Conservative party on the Second Reading of the proposed legislation.

I am interested in this subject not only from the national point of view of our defence capability but because the biggest single employer in my constituency of Congleton is the ROF at Radway Green, which manufactures small calibre ammunition and associated components for other royal ordnance establishments in the group of the 11 integrated royal ordnance factories.

I must register my concern and disapproval at the timing of the legislation. I reflect the comments of my hon. Friend the Member for Chorley (Mr. Dover) about timing. The Government have handled the matter insensitively from the beginning. In the previous Parliament the announcement of the forthcoming privatisation was made at the height of the Falklands campaign, when the ROFs were working flat out to supply our armed forces, which were fighting to regain British territory in the Falklands. After that bad start, the Bill was published in the last full week that the House sat before the Christmas recess. With almost indecent haste, we are now at the Second Reading of the Bill. That tight schedule has given us no time to consult and debate with those who are most concerned and affected by the legislation.

The ROFs have never been private. They have a long and distinguished history of service to the Crown. I repeat the sentiments of the hon. Member for Newcastle upon Tyne, North, who recently spoke to one of his constituents. When I visited Radway Green in the summer recess, that fact was strongly made when I talked to the work force on the factory floor and met union representatives from both the staff and the industrial side.

They are very proud of their record of service to the Crown both in peacetime and in war. They are right to be proud of their service to the country.

The armed services have been at the receiving end of the ROFs' efforts, as they have had a guaranteed supply of weapon systems and ammunition that are proven, tested, and completely reliable. I was most impressed when I visited Radway to see the high standards of quality control at every stage of the manufacturing process, which is complicated and must be seen to be understood. I am proud that the small arms ammunition produced at Radway has become world famous for consistent and accurate shooting, and is used in many major competitions, at Bisley and elsewhere in the United Kingdom.

In supplying the requirements of the armed services for the defence of our country we must not be swayed only by commercial considerations. We must be more pragmatic and decide what is in the best national interests. The ROFs have successfully operated under a trading fund since 1974 and have been competing against private enterprise. They have been winning orders and contracts at home and abroad. I believe that they are efficient, well-managed and profitable. In the previous financial year they contributed £68 million to the Exchequer and they have contributed considerable sums in the past.

Privatisation will not increase competition for the ROFs but may well do exactly the opposite with parts of the existing set-up being sold to the private sector and possibly bought by those competing in the same sphere. How do we know—I share the anxieties of many hon. Members who have expressed concern in the debate—who will buy into the companies or into whose hands they may fall? It will be extremely difficult to control the destination of privately produced bullets, shells and rockets.

I share the anxiety as to security at the relevant establishments. The Ministry of Defence police are the best group to look after the security of the establishments, and a civilian force starting from scratch will be unprepared for the task ahead. They may be a sitting target for a determined terrorist group.

The privatisation of the ROFs should never have been a priority of the Government, especially when one considers that they are efficient and can compete profitably. It is quite understandable that their employees—18,000 in all—both industrial and non-industrial, are worried by the Government's lack of positive proposals as to their future pay and conditions. Nothing in life is worse than uncertainty regarding the future. We are rubbing salt into the wound, as I believe that the legislation is totally unnecessary. We must get our priorities right. The privatisation of the ROFs will make not one iota of difference to the country's economy. We shall be giving up cast-iron guarantees as to supply and reliability of defence products that we now hold in our grasp. I genuinely believe that we have the best of both worlds—the state's interest in the ROFs and competition with the private sector, which also supplies our defence industry. We are giving that up for the sake of mere dogma.

I was elected to the House to represent the best interests not only of the country but also of my constituents. I am afraid that I cannot support the Government on this privatisation issue. The Government have a fixation about privatisation, but in this special case I believe that it is totally unnecessary and that valuable parliamentary time will be used and Committee time clogged by such unnecessary legislation.

7.5 pm

Mr. Bruce George (Walsall, South)

If the Committee stage is to be clogged up, those Conservative Members who have had the courage to speak out against the privatisation proposals are hardly likely to be on the Committee, which undoubtedly will be packed on the Government side by those who either will remain mute or can be found to support the Government. In the debate, it is obvious that Conservative right hon. and hon. Members have hardly been unequivocal in their support for the Bill. Indeed, much opposition to it has emerged on both sides of the House.

As the hon. Member for Congleton (Mrs. Winterton) said, there is a mania for privatisation and for examining proposals on the basis of pure party ideology and not rationally. The Ministry of Defence must face many problems in trying to resolve the seemingly irresolvable issues facing Western countries. One problem is how to obtain better value for defence expenditure at a time when resources for defence are not increasing and the need for greater efficiency is becoming more apparent.

The West, which has one and a half times the population of the Warsaw pact countries and two and a half times their gross national product, is consistently outproduced by the Eastern bloc. That cannot be put down simply to the fact that the Eastern bloc spends a higher percentage of its GNP on defence, or offence, which is a more appropriate word. We must do much more to produce efficiency in defence procurement. As many hon. Members have said, the Bill will in no way resolve the problem of obtaining greater efficiency. Indeed, the reverse will be the case.

The Bill is yet another sad and sordid chapter in the great sale of the century which the Government have been perpetrating in recent years. The motivation is crystal clear. It is a triumph of ideology and dogma over national interests and is deliberately flying in the face of the national interest, experience, history and rationality. Conservative Members have responded to criticism with a mixture of humour and patronisation, as though they are the only people with knowledge and experience in defence matters.

Many Opposition Members who have experience in manufacturing and in the defence industries have come to the conclusion that privatisation of the ordnance factories is not in the public interest. Experience has shown that a need exists for both the private and public manufacture of armaments. It is easy to put forward facile solutions that industries should be privatised totally or that the defence industry must be a monopoly of the state. Historically, the manufacture of armaments has been shared between the public and private sectors. The Government are destroying the balance by kicking out almost totally the state's involvement in the manufacture of armaments, and I believe their action to be wrong-headed.

It may seem ironic that Opposition Members are arguing for the preservation of an organisation which has stood the test of time, which is usually the prerogative of the Conservatives. My argument is for preserving the ordnance factories within the public sector, but not in an unreformed state. There is ample scope to increase efficiency within the ordnance factories, but more or less within the existing framework. My arguments are not based simply on history and tradition. They are important, but they are not the sole, or even the main, arguments.

We are told that the state should leave everything to the private sector, but history has shown that when there has been over-reliance on the private sector, that sector, when war has finally come, has not been capable of expanding in such a way as to meet the needs of the nation. It is clear from the past that it is dangerous to rely solely on the private sector, and when we consider many of the military ventures in which Britain has been involved, that fact is clearly borne out.

If Conservative Members do not believe me, they should read The Official History of the Second World War — it had no connection with Labour Weekly—which pointed out clearly that the public sector, when expanded in times of military crises, proved the most successful. We must not ignore the lessons of history. That official history stated: Paradoxically, although every war in the nineteenth century in which Britain took part brought a significant increase in the resources of the Royal Ordnance Factories, the inquest on every war after 1850 resulted in a policy in favour of extending the private armament industry and limiting to some degree the expansion of government factories. But, as the author, Hornby, pointed out, When the war came, it was largely through the public sector that the expansion had to come. Should the Government be permitted to end the public sector manufacturing of arms? Should that happen, the ability of that section of the industry to respond quickly could not suddenly be resuscitated in the event of a military crisis. There will be need in future to respond swiftly, and at that stage we shall not be able to go through the laborious process—which we had the privilege and time to go through in the first and second world wars— of expanding. The capacity to expand will not be there. If the Government totally privatise this industry, they will do so at their peril and that of the nation, because the state must be involved, as it always has been, in the manufacture of arms.

I do not say that we should exclude the private sector. I do not belong to that brigade of people who argue that there should be no defence and that even to manufacture a peashooter is aggressive. There must be healthy private and public sectors, but the Government are destroying a formula which Governments even more reactionary than the present one have never sought to alter.

It is as foolish to argue that only the private sector is efficient as it is stupid to argue that the ROFs are beyond criticism. If one considers the submissions of the unions and the various reports—including Mallabar and the Strathcona report of 1981—it is clear that the ROFs can be improved. It is equally clear, however, that the base that exists is solid. The journal Military Technology pointed out: To some readers, the concept of Government-owned manufacturing facilities may suggest inefficiency, soaring costs and bungling bureaucracies … but what … was … found was a lean and hungry organisation which regards itself as the equal of any private venture manufacturer, and is prepared to fight for orders in the highly commercialised marketplace—a philosophy which has seen its export earnings virtually quadruple since 1973. The journal The Engineer said this year: Now, the United Kingdom companies … led by the State-owned Royal Ordnance Factories, have pulled together an impressive arsenal of new manufacturing processes and collaborative deals in the fight for survival. Thus, we are not considering an ineffective and inefficient organisation that is a drain on national resources. It is clear from reports and speeches that its profits are impressive by the standards of British manufacturing concerns, with record trading profits last year, a significant export market and greater potential for exports, all showing the capacity of the ROFs to compete abroad. Profits are reinvested and the rate of efficiency per employee has increased considerably. This is an efficient organisation and not a bottomless well draining national resources. The ROFs contribute to the public purse and, since the trading fund was established, a public subsidy has never been sought. There is no drain on the PSBR and the whole organisation is efficient. It is, however, like any organisation, capable of reform.

My right hon. Friend the Member for Llanelli (Mr. Davies) spoke of the dependence of the armed forces on the ROFs. As he said, they respond swiftly to Ministry of Defence initiatives. The Ministry will not be able to compel a private company to meet its requirements. We must remember that we are talking not simply about major aspects of manufacture. Defence relies in just as important a way on the minutiae of munitions as it does on tanks and the most modern and expensive jets. As I say, there is no guarantee that the private sector will wish to respond to certain productive processes which the Ministry of Defence may require.

If all these assets are sold off, some may go to a foreign company. I hardly think that the Master-General of Ordnance is licking his lips at the prospect of the pure commercialism of an industry a sector of which has hitherto been within the scope of the state. The private sector may burn its fingers. Indeed, I hope that those who become involved in this market will burn their fingers. What may have to be contributed in terms of pension funds may prove more expensive than they think.

My fear is that the Ministry of Defence will flog off the more profitable parts — that a fast buck will be made from the more profitable enterprises — and that that which remains will be unsaleable and therefore the interdependence that now exists between one feeder company and another will be destroyed. In other words, the jewels in the crown of the ROFs will be removed and what remains will stagnate and collapse, to the detriment of our national security.

There was some mocking from Conservative Members when it was pointed out that private security may not be able to perform the task currently being performed by the Ministry of Defence. Many of the establishments need to be defended by armed police. After all, my right hon. Friend the then Secretary of State for Energy, Mr. Benn, was responsible for arming the Atomic Energy Authority police. Is the task to be handed to Securicor or Group 4 or one of the smaller companies?

I am not denigrating the honest and hardworking people in those companies, but they are largely untrained and are also unarmed, and rightly so, not even possessing truncheons. Can one bestow on those people the enormous responsibility of guarding armaments which, should they fall into the wrong hands, could create a catastrophe? Could such a responsibility be bestowed on a group of men who are unchecked and untrained? Securicor does not legally have access to criminal records and therefore it is possible—indeed, likely—that insider jobs will be done by people who are dishonest or unpatriotric. It is illogical that the private security industry should be allowed to enter some of the sectors of security about which we are speaking.

I have looked closely at the report that was published by the Ministry of Defence, the Strathcona report of 1981, and I have noted the eulogy expressed by this and other documents. The Strathcona report pointed to the efficiency of the ROFs and to how they had performed successfully since the trading fund was introduced. The organisation had demonstrated its management strength and, in purely financial terms, the ROFs had proved successful, with benefits accruing to both sides, Strathcona stated. Is all that to be destroyed?

The Strathcona committee did not provide the stimulus and support for which the Government set it up, as it recommended several options rather than pursuing the Government's line of thinking, realising that what the Government proposed was not in the interests of national security. It reached no conclusions, but it set out several options for improving efficiency in royal ordnance factories.

Everyone wants an organisation that evolves and provides essential national defence at the lowest possible cost. There is scope for improvement, but within the existing framework. The Government's proposal utterly to privatise and to allow dogma to prevail over reason will be examined closely in Committee. The unions and most of their members oppose what the Government are doing. The Ministry of Defence, which usually comprises people of intelligence, must surely realise that it is wrong. Moreover, the Minister, who is sometimes sensible on matters of defence, must know in his own heart that in toeing the line that has been laid down by his boss he is doing neither the royal ordnance factories nor the defence community a favour. I hope that we can amend the Bill in Committee and that sanity will prevail.

7.22 pm

Mr. Robert Atkins (South Ribble)

I should like to declare an interest. I am in favour of the Bill, unlike some of my right hon. and hon. Friends. Moreover, there are three royal ordnance factories in or around my constituency in which many of my constituents work. I refer to Patricroft, Blackburn and Chorley. Although the Chorley factory lies within the constituency of my hon. Friend the Member for Chorley (Mr. Dover) — its eastern wall forms part of the constituency boundary—a substantial number of its work force are my constituents. The Blackburn and Chorley factories are the two largest in the country. Therefore, my hon. Friend and I have a real interest in the Bill.

I welcome the Bill. Indeed, I have been calling for it for the past four years, especially in three respects. First, I have argued that there should be a separate sales team. That is now substantially achieved, but the need for further expansion of the team remains so that the royal ordnance factories can market their wares abroad more and in more sophisticated ways. Secondly, I have argued for the Companies Acts company status which is provided by the Bill. Finally, I have argued for an injection of private capital into the royal ordnance factories' operations. On the latter point, there will have to be employee shareholding, preferably on terms which are similar to those in British Aerospace — on a one-for-one basis according to length of service—to ensure that the work force have a real share in its company.

As somebody said in a kindly but exaggerated way, I take an interest in the defence industry and procurement. I did so for a long time before the 1979 general election. I believe in the success of British defence industries and greater competition for Ministry of Defence procurement. The British defence industry is doing so well largely because of the efforts of my hon. Friend the Minister of State for Defence Procurement. I know from my experience in industry how highly he is regarded. Perhaps I should not say that he is too highly regarded as that might make negotiations for future contracts more difficult. I am also especially delighted that an old friend is now the Under-Secretary of State for Defence Procurement as he gave much attention to this subject before becoming a Minister.

The greater competition for which I have called for many years will be assisted by the Bill. Nevertheless, I should like to make some constructive criticisms. I was delighted to hear my hon. Friend the Minister talk of the need for clarity with regard to the facts behind the Bill and their presentation to the work force. I find clause 1(3) incomprehensible. I hope that someone will make parts of the Bill a little more clear. I invite my hon. Friend the Minister to cast his eye over clause 1(3). If he can explain what it means, I shall be extremely grateful.

There is no doubt that there have been delay and lack of communication. I take a slight issue with my hon. Friend the Member for Chorley when he says that the chief reason for his opposition to the Bill is timing. He believes that it is being hurried. I believe that it has been delayed far too long. I have asked questions and raised these issues on the Floor of the House for some time. I am glad that they are beginning to bear fruit. There is no doubt that the work force at Chorley and other factories feel strongly about the lack of communication and the lack of information about what is going on.

I recognise that it is extraordinarily difficult to know what stance to take. Presentation of a Bill with the ancillary indices and information, which are effectively inscribed on tablets of stone, is greeted with the criticism that the Government are not prepared to consult or listen to people who care about the issues involved. If, however, the Government present a skeleton and invite the work force to contribute their ideas about the future, as did my hon. Friend the Under-Secretary when he visited Chorley, the Government are accused of not having the facts at their finger tips and of not knowing what is going on.

I appreciate the difficulties experienced by my hon. Friends on the Front Bench when trying to appear to be the reasonable people I know them to be when they are faced by the work force and yet have a fairly clear idea of what they want to do. Nevertheless, employees at all levels believe that they are ill informed. We all know how quickly rumour can take hold and what a deleterious effect it can have on morale. Hon. Members on both sides of the House have mentioned terms and conditions, wages, pensions, redundancies and transfers. Ministers must be much clearer about how they want to proceed and about how they will tell the work force what they should do.

I understood my hon. Friend the Minister to say that no individual will be adversely affected. That is a crucial statement. I shall be able to tell my constituents in Chorley and elsewhere that he has made such a statement. I invite him to circulate it as effectively as possible through the royal ordnance factory system.

Mr. Dover

Does my hon. Friend accept that there might be a difference between conditions of service, employment and pensions before and after vesting day, or does he believe that the Minister's assurance is a categorical statement that there will be no deterioration after vesting day?

Mr. Atkins

I am not a pensions expert. I listened carefully to my hon. Friend the Minister's detailed technical statement. Perhaps he would like to clarify the question asked by my hon. Friend the Member for Chorley.

The Minister's statement about there being no detriment to individuals will smooth transition. My contacts in the factories suggest that communications have been a problem and that, provided that we overcome it, the work force will be much more likely to understand and appreciate that transition.

The hon. Member for Newcastle upon Tyne, North (Mr. Brown) referred to RARDE and MVEE. The exclusion at the last moment appeared a little hasty. Some managers in the industry who support the Bill thought that exclusion rather hasty and ill thought out. It might be worth explaining that in more detail too. In my intervention during the speech of the hon. Member for Newcastle upon Tyne, North I was not trying to make a trite point about the Ministry of Defence police—quite the reverse. I am worried about them. They are an incredibly good bunch of chaps. They are to be made redundant at Chorley and elsewhere because there is no longer to be a Ministry of Defence police presence at royal ordnance factories. I want to ensure that they do not suffer, I hope that the Under-Secretary will give an assurance about the future of the MOD police as individuals at Chorley and other factories.

I am entirely satisfied that the security system that may well operate once the Bill becomes law will be satisfactory. From my experience of the three British Aerospace factories in my constituency at Samlesbury, Warton and Preston, I know that the security system there works well. They may not have explosives, but they have some missiles with hot heads on them and have £14 million Tornados with all the various kit on board. Security there is pretty tough, as can also be said of Marconi, Ferranti and the various other companies involved in the defence industry. We need to make no more of this than is necessary, bearing in mind the caveat about the future employment and protection of the MOD police who do a remarkable job.

Only recently there was an incident at Radway Green when the MOD police were responsible. I do not attribute blame. That would be quite wrong as I am not aware of the facts. However, it is clear that such incidents can affect the MOD police just as much as they can a private or separate security firm.

Some of my constituents who are employed in the ROF at a fairly senior level have told me that there is a certain ring about the title. They are concerned that because of the Bill the ROF title would be lost. Those people are proud of the fact that they work in a "royal" ordnance factory. If it were possible in some way to retain the title and the style to which it appertains, that would reap great dividends in terms of morale.

We must be clear about reserve capacity. It has been suggested that future requirements will be secured by contract and that reserve capacity can similarly be secured.

It is suggested that increased efficiency in the ROFs in a commercial environment will help to ensure that such resources are put to best use. Chorley estimates that it has a 20 per cent, idle capacity. It would be interesting to know whether that is the same in all the ordnance factories. If so, does the MOD intend to retain that capacity in due course?

I have already touched on share sales. I again emphasise that when we come to decide the detail of how to inject private capital, we should give absolute priority to the employees. The House may like to know that 54,000 British Aerospace employees have bought shares in their company. That is what I call public ownership — ownership by the people who work in a company and care about it. They got those shares on preferential terms, depending on their length of service. Therefore, people who have worked for more than 40 years in the ordnance factories would have a chance of buying a large chunk of the preferential shareholding. British Aerospace also encouraged the small shareholder to obtain far more shares than the institutions and pension funds.

I recall that the British Aerospace Bill Committee wrote into that measure a limitation on shareholding by foreign Governments or potential foreign shareholders. I believe that similar powers exist under the Industry Act. Will the same be done in this Bill?

Those questions are important to the future of the Bill. I appreciate that it would have been wrong had the Government now come forward with details. This debate enables them to invite the work force and hon. Members on both sides to contribute their views.

Let me emphasise some of the points that we can discuss. We will now have a continuation of a research and development and sales capability, something for which we have called for some time. We will also have an acquisition capability. The ordnance factories will be able to go into the wide world, and if they identify an area that will be beneficial to their operations they will be able to use funds that are not a burden on the public sector. They will be able to acquire companies as and when they need. They will also have a greater project variety and involvement. For example, how many hon. Members realise that the ROFs were barred from involvement in the MCV 80 — the mobile combat vehicle — one of the largest projects now taking place? That is a great pity. The same is true of many other projects. However, because of the Bill the ROFs will be able to get involved in any project, not only here but throughout the world.

Mention has been made, as though it did not matter, of the fact that the ROFs were unable to have an ECGD capability when involved abroad. The hon. Member for Eccles (Mr. Carter-Jones) said that that was not important and felt that a one-clause Bill could be introduced.

The ramifications are far wider. ECGD is not available to the Secretary of State for Defence because he cannot borrow money from another Secretary of State. If a one-clause Bill allowed the Secretary of State for Defence to do so, the ramifications would be so wide as to encompass the whole activity of Government. I suspect that such a one-clause Bill would be one of the most controversial and long-winded measures ever to go through the House.

I accept that recruiting difficulties are an indictment of the current situation, but I believe that improvements will take place as a result of the Bill.

From my experience of defence industries, I believe that there is a real possibility that ROF employees might be paid more than at present if they moved into a private environment. I appreciate that they are dedicated and committed to their jobs, but many believe that they are not paid as much as they are worth. Other aspects of Civil Service employment may compensate, but I am sure that more pay by virtue of being in a competitive environment would be welcome.

Even now there is no guarantee of jobs. I do not have the figures readily to hand, but in recent years employment in the ROFs has declined for various reasons. Things will not necessarily be worse by moving into a private environment. So long as the ordnance factories make products at the right price which can be sold worldwide, there will be a guarantee of jobs. We cannot give such a guarantee; only they can. Given the capability of ordnance factories, I do not think that the employees have anything to fear.

We cannot ignore some of the problems that the ordnance factories now face with regard to products. Yesterday The Sunday Times reported on the new SA 80 rifle and compared it with the Gil that is being made by German industry. My hon. Friend the Member for Enfield, North (Mr. Eggar) spoke earlier about the excellence of the royal small arms factory at Enfield, but there is a possibility that the rifle it is making will be out of date before it is distributed to our armed services, given the new developments in German industry.

ROF Chorley has a particular problem over the provisioning of the 155-mm shell. At present there is a great argument between Germany and us under the terms of the memorandum of understanding. As a result, Rheinmetall in Germany is producing empties, which it has never done before, when the job could be done at Chorley by an existing work force and an existing line. That is causing considerable problems.

Mr. Paddy Ashdown (Yeovil)

I am grateful to the hon. Gentleman for giving way. I have listened with some care to his useful and measured speech.

On the question of the ROFs producing goods that may be out of date—and I take the SA 80 particularly since I remember that, and I recall firing some test rounds from it when I was in the services more than 10 years ago— does he not accept that that lateness of production has nothing to do with the ROFs? It has to do with acceptance by the services and with the Ministry of Defence, so the changing of the ROFs will in no way alter that. It is the Ministry of Defence acceptance procedures that are taking so much time and causing delay rather than the inefficiency of the ROFs.

Mr. Robert Atkins

The hon. Gentleman is correct in that respect, and I take his point. I was seeking to establish that the market, with the problems surrounding the production of weaponry or ammunition, is by no means more stable by virtue of its being Government-owned than it would be if it were privately owned. I equally take the point about the acceptances of the Ministry of Defence. However, that is another issue that we ought not to pursue now.

It is true to say regarding the rifle that we can lay the blame, if blame there be, at the door of Sir Winston Churchill, who decided some years ago that he was not prepared to have this rifle and was prepared to go for the FN instead. However, that is another point.

There has been some discussion about the security of supply by virtue of the Bill becoming law. A security of supply argument, I believe, is quite fallacious. I see no reason why the Ministry of Defence cannot negotiate a contract that will allow security of supply in whatever time and in whatever quantity required.

I join hon. Gentlemen on both sides of the House in their criticism of the right hon. Member for Llanelli (Mr. Davies), whom I criticised in his absence, for which I apologise. I think he made a big mistake in implying that there is a lesser degree of patriotism in private industry than there is in the ROFs. The commitment of the work force of the ROFs is second to none. Equally, the commitment of British Aerospace and all the other companies involved in the industry is second to none. 1 do not believe for a moment that the commitment of the work forces is any the less one to the other. I believe that the right hon. Gentleman will live to regret that throwaway remark, because I for one will make it clear to my people in private industry that, if that is the view of the official Opposition spokesman on defence, it is a view that should be retrieved.

I resent equally the attack on my hon. Friend the Member for Pendle (Mr. Lee) in the suggestion that the ordnance factories look after only 4 per cent. That is not what was said. I was present at RAF Chorley when the statement was made, as was my hon. Friend, and it was certainly not made in those terms. It was simply a statement of fact, and how a statement of fact can be a slur I do not know. The fact is that the ordnance factories take up only 4 per cent, of the defence procurement budget in the country. That does not mean to say that what is produced in that 4 per cent, is any the less good; it means simply that it is 4 per cent. I hope that my hon. Friend the Minister will emphasise that.

I draw my remarks to a conclusion by saying that I believe the timing is right. As I said earlier, I draw issue with my hon. Friend the Member for Chorley because I believe that the timing is right. I recognise his concerns. He and I share the factory and the work force, and I know that his commitment to listening to their views is as strong as mine. I know—this goes for all hon. Gentlemen on this side of the House, and I hope it goes for Opposition Members also—that we will listen to the work force and hear what they have to say within the levels of management about how this should best be brought to fruition so that what we seek to do in principle becomes right in practice.

I believe that the royal ordnance factories have a great future. They make good products and they have a superb work force. They have good relations with world defence industries and they have a good return on capital. They have nothing whatever to fear from the future, but care and attention must be given to the concerns — the terms, conditions and pensions — and the aspirations of all concerned. I wish the Bill well.

7.45 pm

Mr. Derek Fatchett (Leeds, Central)

It is almost a pleasure to follow the hon. Member for South Ribble (Mr. Atkins) because, with some notable reservations, he is almost the first enthusiastic Back Bench speaker from the Government side. We were told that the Government's embarrassment would come tomorrow in the local government debate. In this debate I suspect that the Government are experiencing a similar embarrassment. Another one and a quarter hours of debate has yet to run and the Government are finding it difficult to acquire Back Benchers who are prepared to make a contribution on their behalf. This is a clear indication of the threadbare nature of the Bill. I suspect that the Government Whips, to the embarrassment of Government Ministers, are taking a threadbare script round the Tea Room to find any threadbare Member who is prepared to speak on behalf of the Bill. That is clearly not a major piece of opportunism that the Government will welcome, given that this is an important part of their legislative and privatisation programme.

Having noted that embarrassment, I should like to comment on the speeches made by the right hon. Member for Chesham and Amersham (Sir I. Gilmour) and the hon. Members for Chorley (Mr. Dover) and for Congleton (Mrs. Winterton). I congratulate the right hon. and hon. Members because what they have done in the debate is to expose the limitations of the Bill as effectively—maybe more effectively, given their position and experience— as any Opposition Member could do. They have also performed a service to the House and to the country, because they have been prepared to put the national interest before party interest and straight political dogma. The House therefore owes a debt to those hon. Members. Maybe, if the rebellion is to be continued tomorrow, we shall owe them a double debt.

References were made earlier in the debate to the royal ordnance factory at Leeds. I join the hon. Member for Elmet (Mr. Batiste) in making my tribute to the record of that factory. Its performance, its products, its industrial relations, its sense of craftsmanship and its latest product in terms of the Challenger tank are, I think, without equal. We share that tribute to the work force at the royal ordnance factory in Leeds. I am proud that many of them live in my constituency.

I come now to talk about the anxieties of people in relation to the Bill. The hon. Member for Elmet, whom I suspect is somewhat more loyal to Government Ministers than was demonstrated by many of the other contributions from the Government Back Benches, said that the anxieties that the work force at the royal ordnance factory in Leeds was expressing were anxieties springing simply from conservatism and the reluctance to accept change. I differ from that point of view as a result of going round the factory last week. The questions coming from the work force were these: what justification is there for this piece of legislation? How can the Government justify it? What arguments can they put forward to show that this legislation is necessary?

Indeed, if the employees of the royal ordnance factory at Leeds had been present to hear the earlier part of the debate, I am sure that they would have agreed entirely with the contribution of the right hon. Member for Chesham and Amersham, because he expressed in a much more eloquent way than I can the anxieties of the work force at the royal ordnance factory at Leeds. I shall come to look at one or two of those later. It is not conservatism but a fear based on reality. It is a reality that looks to experience and to argument, because the work force is saying that every objective study of the ordnance factories suggests that the existing structure, with reservations and with points that can be amended, is an effective and working structure.

Many references have been made to the Mallabar report and to the study group under Lord Strathcona in 1981.

Those reports gave no justification for the measure the Government are now bringing forward. The reality is quite the opposite. Those reports show that the Government are promoting a measure for ideological reasons and not for reasons based on objective argument and evidence.

What justification for the Bill can there be? I have tried to find some justification other than ideology and the obvious resulting reduction in Civil Service manpower. There cannot be any justification on grounds of efficiency or profitability. I invite hon. Members to study the record of ROFs. Leeds is high on the list. Profit has been at a high level, as has the rate of return on capital. Productivity per worker has increased. It cannot be the criticism that the Government sometimes make of public enterprise. There cannot be any criticism of the performance of the ROFs.

In July 1983, discussing the ROFs, the Minister of State told his hon. Friend the Member for Bolton, West (Mr. Sackville): their overall performance has been very satisfactory, and all their customers have been delighted with the service they have received."—[Official Report, 25 July 1983; Vol. 46, c. 311.] They have a record of success which has been praised by the Minister. In part exchange we have a leap in the dark to privatisation, with no promise or guarantee of success. The Government intend to scramble a structure that has worked effectively and to replace it with an organisation that not one Minister has yet been able to justify in terms of finance or the economic performance of the ROFs.

The Government's policy cannot be justified in financial terms. Nor can it be justified in terms of the stewardship of public money. The ROFs are valuable public assets. The Government intend to float off a profitable organisation with, I suspect, a loss of money to the taxpayer. Earlier in the debate the Minister talked about the £250 million contribution to the pension fund as though it was not taxpayers' money or as though it should not be taken into account in the calculations. But that £250 million is an essential ingredient in any calculation. The Government intend to float a valuable public asset and to lose taxpayers' money in the process.

We shall be discussing local government tomorrow. If a local council—let us say, Leeds city council—sold a valuable public asset and lost ratepayers' money in the process, I suspect that Government supporters would make strong criticisms of that council's activities. Tomorrow the Government will bring forward legislation on much more specious grounds to control local government. But here the Government, incredibly, are able to sell a valuable profit-making public asset and to make a loss for the taxpayer. It is a scandal and a waste of taxpayers' money, so it cannot be justified on the grounds of the Government's stewardship of public money.

Nor can the Bill be justified on the grounds of the Government's oft-stated belief in competition. One of the ironies of the legislation is that it will not increase competition but decrease it. Earlier in the debate my hon. Friend the Member for Gateshead, East (Mr. Conlan) talked about the production of tanks, and we have a common interest in that production. My hon. Friend suggested a scenario in which the tank subsidiary of the ROFs was bought by private capital from Vickers. If that happened, the result would be not an increase in competition but the creation of a virtual monopoly in the production of tanks. That is quite the opposite from the Government's intention and philosophy. It would result in a loss of competition and not an increase.

There can be little justification on the grounds of competition. In that loss of competition, there is a real concern amongst the people at ROF Leeds about their future job security. It is not unreasonable to suggest that if that competition is lost there will be one controller of the production of tanks. If. at the same time, there is a surplus of capacity, it is not unreasonable to expect that that controller will reduce the overall capacity and try to get rid of the surplus in that way.

Does that mean that jobs will be lost in Leeds or that they will be lost in the north-east? Either way it would mean a loss of jobs and a reduction in security. The hon. Member for Elmet suggested that the anxieties were based upon conservatism. I hope that he recognises now that they are based on real fears about jobs in Leeds in the future.

Nor do I believe that the Bill can be justified on the grounds of the country's defence. The legislation opens up two avenues which will reduce our defence capability. In the Bill we are experiencing the effective loss of the guaranteed source of supply to the armed forces. Both the hon. Member for South Ribble (Mr. Atkins) and the hon. Member for Elmet said that that was unrealistic and that the Ministry of Defence, with its capacity to purchase, would be able to find a contractor. I put the argument slightly differently. It may be—and we have experience of this—that a contractor can be purchased. But if the Ministry of Defence is in desperate need of supplies, that contractor can be purchased only at a price that may not be reasonable to the taxpayer. If we lose that guaranteed source of supply, we shall lose it at a cost to the taxpayer and with a decrease in the security of the public.

The other aspect of the argument against the Bill on the ground of the country's defence is that the Government will not be able to veto an increase in the foreign ownership of the ROFs. The Government have no power in the legislation to prevent that happening. It is no good saying that we are committed to national defence if the shares in any floated ROF are to be bought by an American or German multinational company or by a front organisation for some foreign Government. It would be a fine tribute to the Minister of State if as a result of this legislation Colonel Gaddafi found himself in control of the ROFs through some front organisation. That is a remote possibility, but it is a technical possibility, and the Government lay themselves open to criticism if they do not control the element of foreign ownership.

As Opposition Members put forward these strong and cogent arguments against privatisation, I notice the silence that reigns on the Government Benches. It is a clear indication to me that Government supporters are unhappy about the legislation. One hon. Member appears contented, but among the rest I suspect that there is no happiness and contentment. It may be that the Government will win a majority in the Lobby, but it will be a whipped majority. It will not be a convinced majority, and I suspect that there is a good reason. When that whipping takes place, those hon. Members who walk through the Aye Lobby in favour of this threadbare piece of legislation will notice the tremendous irony in the Government's position. They were elected after a campaign in which they made defence a major issue, yet they are prepared to run risks with the country's defences. Those Conservative Members who are whipped through the Lobby tonight will recognise that irony and will find great difficulty in justifying it logically.

Opposition Members have gone through the arguments. There is no justification for the proposals in terms of defence, competition, the stewardship of public money or the record of royal ordnance factories. At the royal ordnance factory in Leeds, I was constantly asked what reason there could be for the Bill. The only reason that I could give, and the only reason to come out in the debate, is that the Secretary of State is ideologically committed to privatisation and is accordingly delivering the Prime Minister a privatisation measure. Tonight he will whip a majority of Conservative Members through the Lobby in order to enact this scandalous Bill. I can think of no other reason for the Bill, apart from the spurious and specious argument that it provides the Government with an opportunity of cutting 18,000 employees from the Civil Service payroll. The justification is ideological.

This is a bad and dangerous Bill which runs risks with the country's defences and squanders the taxpayers' money. It does all that simply to satisfy the ideological whim of a section of the Conservative party. The country and the Conservative party will be served tonight by those hon. Members who are prepared to put ideology second and the country first. When Labour Members go into the No Lobby tonight, they will be representing the country's defence and national interests. It will be Conservative Members who vote against them.

8.1 pm

Mr. Tom Sackville (Bolton, West)

I am sorry to disappoint the hon. Member for Leeds, Central (Mr. Fatchett), but I am an enthusiastic supporter of the Bill. I am also sorry to say that I have not been in the Tea Room lately and have not been handed a threadbare script. I wish to consider the general principles behind the Bill, which involve a return of industrial assets to the private sector. The basic principle which I support is that the fewer industrial assets in state ownership, the better.

Despite the excellent record of royal ordnance factories, the public rightly mistrust the whole concept of a nationalised industry and tend to connect it with inefficiency, losses, overmanning and a generally depressing industrial scene. There is no evidence that politicians are particularly well equipped to run industries. I certainly do not feel that I was elected to run armaments factories, or any other factories. If I had wanted to do that, I would no doubt have remained in industry. Countries in which the vast majority of manufacturing industry. is in state ownership serve only to illustrate my point Slate ownership has certain effects on the conduct of industry which can endanger the prospects of those who work within it.

There are those who agree with the broad principles which I have outlined but who seek to make an exception in this case, partly because royal ordnance factories are undoubtedly well managed and profitable. Some Opposition Members have asked who is complaining about them. The answer is that nobody is complaining, but that is not to say that a satisfactory situation cannot be improved. I shall give a few examples. There is no doubt that the added flexibility of management that will stem from private ownership of the royal ordnance factories will be very beneficial to competing in a fast-moving area. In the export markets there is great need for innovation and for a quick response to requests for designs and prototypes. It is difficult to achieve such flexible management when it constantly has to refer to a Ministry.

The transfer from the Civil Service to the private sector will bring its own advantages. Doing away with the rigid structure of Civil Service grades cannot but lead to the possibility of additional incentives for the entire work force. After all, additional profitability can be reflected in additional remuneration.

Another objection to the Bill which can be raised is a red herring. It involves the nature of the product. It has been suggested that, because of the possibility of foreign ownership and lack of direct Government control over the industry, the Government will somehow lose control over ordering the arms production necessary for the armed forces. However, that is as fatuous as the suggestion that control of a few shares by overseas investors in British Telecom may one day lead to some sort of national security crisis.

The vast majority of arms production in Britain is clearly in the hands of private industry. More than 90 per cent. of the British Government's procurement comes from the private sector. I question whether anyone can seriously suggest that to place the royal ordnance factories in private hands will lead to a national security crisis. As has been said, British Aerospace, in my constituency, has missile contracts, some of which alone may be similar in size to the entire turnover of the royal ordnance factories, yet no fears are raised about the implications for national security.

Nevertheless, I have a few minor reservations about the Bill which I should like my right hon. Friend the Secretary of State to consider. Constituents of mine who work in royal ordnance factories near my constituency should not feel that their pension rights are diminished as a result of the Bill. The hon. Member for Eccles (Mr. Carter-Jones) said that he could not believe that a pension scheme would be offered to the work force on a similar basis to that at present. However, I do not believe that there is any foundation for that belief.

My second reservation concerns the security of certain factories after the withdrawal of the Ministry of Defence police. I accept that there are many factories in the private sector that do not have Ministry of Defence police to protect them and that they are perfectly well protected. However, the emotive connection between royal ordnance factories and the production of high explosives could provide a target. My right hon. Friend the Secretary of State should consider how such fears are to be allayed. He should also consider whether additional resources need to be allocated to local police forces to ensure that there is no question of a diminution in security at factory sites.

The Conservative party came to power with a mandate to return sections of industry to private hands. In every case that has been done not for doctrinal reasons but to improve the profits of the industries and those who work in them. That policy has already succeeded in many cases and the ROFs will prove to be no exception.

8.10 pm

Mr. Jack Straw (Blackburn)

The royal ordnance factory in Blackburn is the largest employer in my constituency, and until the general election in 1979 it had provided secure employment for more than 2,000 people from the town and the surrounding area. Since 1979 the factory's employees, who have given fine service for the 40 years since the establishment of the ROF in 1938, have had anxiety heaped upon anxiety. The first anxiety was that created by the first ever set of enforced redundancies in the factory's history. It is interesting to reflect that between 1974 and 1979, when the Labour Government were in power, 319 new jobs were created at the Blackburn factory, while under the Conservative Government 448 jobs were lost there in 1981–82.

Anxieties about redundancies were compounded by continuing anxieties about the future ownership and structure of the ROF. I took part, as did the hon. Member for Chorley (Mr. Dover), in a debate in the House on 17 December 1980 when we first discussed the Government's plans for privatisation. The hon. Gentleman shared my views and worries. We said then that it was wrong of the Government to keep the employees hanging on for a Government decision; that it was important that they should have certainty about their future.

The then Under-Secretary of State for Defence for the Army, who is now the Minister of State, Treasury—the hon. Member for Brentford and Isleworth (Mr. Hayhoe) —spoke in glowing terms of the working party under the chairmanship of Lord Strathcona. He said: The study group is expected to complete its task soon. He went on to say: I believe that the purpose is to try to ensure that the end result…will provide a more certain future for the ordnance factories."—[Official Report, 17 December 1980; Vol. 996, c. 372–73.] Whatever else we may disagree about tonight, we can all agree that the ordnance factories have never faced greater uncertainty than they have in the past three years because of the lack of a clear Government decision about how, when and even whether privatisation in the form proposed will take place. The employees must face further uncertainty in the future.

The position is made worse because no good case has been made out for privatisation. Ministers and those Back-Bench Members who have spoken in support of the Government—they are in a minority because three of the Conservative Members who spoke expressed great reservations about the Government's proposals—have fallen over themselves to say what a good record the ROFs had under nationalisation and the trading fund, and what a successful organisation it is.

I remember during the halcyon days of Harold Macmillan attending a meeting addressed by the present Secretary of State for Education and Science and picking up a recruitment leaflet inviting me and others to join the Conservative party. At that time the slogan on the Conservative party's recruitment leaflets was, "Conserve the good, change the bad". Now the slogan has been inverted to, "Change the good, conserve the bad". If, as the Minister asserted today, the ordnance factories have a record second to none, are a successful organisation, have been profitable in good and bad years and have just as good a record, if not a better one, as the private defence industry, what argument is there for privatising this fine organisation, except ideological spite? That ideological spite, or privatisation mania—as the hon. Member for Congleton (Mrs. Winterton) is reported as saying—lies behind this decision to privatise.

The fact that, even after three years, the Government have not worked out how to privatise the organisation shows how little substance there is in the proposal. One reason why the Government have spent such a long time trying to work out how to privatise the ordnance factories is that there has been widely reported resistance within the Ministry of Defence—from the Master-General of Ordnance and many others—to the privatisation proposal. The service chiefs value the in-house capability to meet a vital part of their supplies. When the Opposition say that the proposals put Britain's defence at risk, it is because we know that service chiefs and those involved closely in the day-to-day running of ordnance factories have opposed the change.

The Opposition know that the proposal puts at risk the cost control of defence spending because, by this change, the Government will lose an in-house capability to check the costs of contracts put out to the private sector. Much of the work of some departments in Blackburn is concerned with tendering for orders which the factory at Blackburn knows it will not obtain. It is using its skill and judgment to provide the Ministry of Defence with a yardstick against which it can measure the tenders made by private sector firms.

If anyone believes that strong control over private defence contractors is unnecessary, he must be suffering from amnesia, because all of us in the Chamber tonight will remember the series of scandals of firms, such as Ferranti, making excessive profits from defence contracts and then going to great lengths to cover up those profits. If we are to secure value for money in defence contracting, we cannot just rely on the retrospective investigations of the Comptroller and Auditor General and the Public Accounts Committee. We need in-house expertise against which the competing tenders of outside contractors can be judged, but we shall undoubtedly lose that this evening.

The only point of substance made by the Minister in favour of privatisation was that it was important to bring the research and development, sales and marketing activities of the Ministry of Defence, so far as they relate to the ROFs, outside the ambit of the ROF organisation. It would be perfectly possible to effect that reorganisation, which makes a great deal of sense, without going down the road of privatisation. It would equally be possible, if this were the Government's sole intention, to establish the ROFs as a separate public corporation, and in so doing to get them off the books of the Civil Service. Neither of the Minister's arguments justifies the privatisation that is proposed.

If privatisation puts defence and cost control at risk, it also puts employees' interests at risk. I regret that nothing or little of what the Minister said today will assuage the real anxieties of employees about their future and about the future of those who will be employed by the organisation in the years ahead.

I listened with great care to what the Minister had to say about pension schemes. The consultative document on pension arrangements makes it clear that in respect of the transferred scheme—that is not the scheme for new employees—the company will in future reserve the right to avoid indexation where that could prejudice the viability of the industry company itself. It adds that adverse economic conditions make it impossible for the Trustees of the Transferred Scheme to maintain full indexation of benefits for a period". Certain safeguards are then provided.

Employees now have a cast-iron guarantee of index-linked pensions, but under the transferred scheme, if economic conditions become adverse, that guarantee will not be worth the paper on which it is printed. If the employees had apprehensions before the debate began—those apprehensions have been fanned by the visits that Ministers have made to ROFs throughout the country—they will have been worsened greatly by what has been said in the House today. The employers face further uncertainty as the Government use the next two years finally to decide what form the organisation should take and how the privatisation should take place. Of all the privatisation measures to be put before the House over the past four years, the Bill is the least justified. The Opposition will oppose it vigorously and I hope that we shall be joined by Conservative Members who have spoken so vigorously against it.

8.22 pm

Mr. Edward Leigh (Gainsborough and Horncastle)

I am sorry that the hon. Member for Leeds, Central (Mr. Fatchett) is no longer in his place. He would have been sorry to hear that I am one of the enthusiastic supporters of the Bill. He might have thought that my script was threadbare after I delivered it, but I can assure him in his absence that it has not been concocted in the Whips' Office. It has been concocted, if that is the right word, by private defence contractors.

I do not have a constituency interest in the ordnance factories and neither do I have any personal financial stake in a private defence contractor. As a member of the voluntary parliamentary and industry trust, I have spent some time with a private defence contractor. Hon. Members are sometimes accused of not listening often enough to industry, and I hope that I shall not weary the House if I deal briefly with the views of the defence industry on the Bill. The industry's good name has been abused by the right hon. Member for Llanelli (Mr. Davies) and latterly by the hon. Member for Blackburn (Mr. Straw).

Of course there is a profit motive. That is not in doubt. If Ferranti made undue profits in the past, is that so much its fault as the fault of the Ministry of Defence, which was the tendering organisation? I am sure that under the able leadership of my hon. Friend the Minister of State. steps are being taken to ensure that, in a competitive atmosphere at arm's length, undue profits will not be enjoyed again by the private sector.

I shall give the view of one private defence contractor. The company concerned was told in the early 1970s that it was surplus to Government requirements in its particular area of activity. It has survived since that date by relying on export orders, on its own skill, on the hard work of its work force and on risking investment in new plant. With the passing of the Bill, the company hopes once again to have a chance to compete with the ordnance factories for orders with the Ministry. This is stated to be, and must be, the intention of Ministers.

Private companies such as the one that I visited would be placed in an intolerable and dangerous position if they put considerable resources into a new area only to find that, by a back door, the royal ordnance factories were to remain the preferred source and to enjoy, in effect, a form of favoured nation status beyond vesting day. If that happened, they would have been led into a fool's paradise and then cast aside. That could prove disastrous to the private defence contractors.

Mr. Dover

Is my hon. Friend able to say whether the private company for which he worked ever competed against the royal ordnance factories for work either in the United Kingdom or, more particularly, overseas, and how that competition went?

Mr. Leigh

I do not work for the company and, therefore, I hope that I can speak with some objectivity. I studied what it had to say. I am not aware that it competed with the royal ordnance factories, but I shall consult it on that. The Government state that their objective is to build on the present success of the Royal Ordnance Factories as a vital part of the British defence industry, a major supplier to the British services and an important exporter by enabling them to operate in a fully commercial environment. The Government have a great responsibility to the companies that are already a vital part of the British defence industry, companies that are already exporters and already operating in a fully commercial environment. They want to know what safeguards will be provided to ensure that any subcontracting of work between the royal ordnance factories, the Royal Armament Research and Development Establishment and the Military Vehicles Engineering Establishment takes place at arm's length until the ROFs have established their own research-and-development capability. I hope that the Minister will comment on that when he replies.

The companies are concerned also that terms are not more favourable for the ROFs than for existing private contractors. As I understand it, the Government's intention is not to transfer to the new ordnance factory structure the staff and facilities of RARDE and the MVEE. Until the royal ordnance factories have expanded their own research and development capability, it is the Government's intention, as I understand it, that they will subcontract research and development work to the research and development establishments as is necessary. The concern of the existing private contractor is that too cosy a relationship might continue for too long, and I believe that fear to be understandable. Private contractors want to he assured that industry and the royal ordnance factories will have precisely equal access to the research being carried on by the continuing Government establishments so that both sides may continue to fulfil their role as exporters and as suppliers to the Ministry.

Private industry would like to be assured that there will be safeguards to ensure that when the royal ordnance factories start to operate as a company on vesting day under the Companies Act they will not have an undue trading advantage and that the ROFs will have to behave as other private sector companies, irrespective of whether their research and development sales capacity is up to scratch on vesting day. There must be no special pleading that they are not ready, because that excuse is not available to the private sector.

The Bill is a long-delayed but valuable measure to increase competitiveness in defence procurement to the benefit of the taxpayer and national security alike. It is not good enough for the ROF unions to shelter behind the spurious profits engendered by the so-called trading fund accounts, which bear little relevance to accounting practices in the commercial sector. The Bill's aim is to create a stand-off policy so that as far as possible the Ministry and the taxpayer are enabled to achieve the best value between competing tenders.

The Government's concern to launch the royal ordnance factory ship safely on the choppy seas of private enterprise is a commendable one. but it must not be done at the expense of creating an unfair research and development environment between the ordnance factories and their private sector competitors.

8.30 pm

Mr. Mark Fisher (Stoke-on-Trent, Central)

This debate cannot be considered a success for the Government. With perhaps the one exception of the hon. Member for South Ribble (Mr. Atkins), the forceful and knowledgeable speeches from Conservative Members have come from those who have spoken against the Government. We heard today an unusually hesitant and unconvincing presentation by the Minister of State for Defence Procurement in opening the debate. The only part of his brief with which he appeared to be at all happy was that praising the efficiency of the royal ordnance factories. It is as though his heart is not really in the Bill even though his briefs force him to be. That is hardly surprising with a Bill that is a second-hand rehash of ideas completely rejected by the Mallabar report in 1971 and the Conservative Government of that time.

In spite of that, the Government via the Bill are determined to sell off Government assets that are net contributors to the Treasury. They are determined to place in private hands the production of defence contracts that are essential to our country's security. The Government are so determined to do so that they are prepared to lose and, in effect, to give away millions of pounds of taxpayers' money to achieve their aim. They are prepared, in pursuit of those aims, to force people who are genuinely proud to be servants of the Crown and who have given up a great deal in their working careers to cease to be civil servants. The Government are thus in one Bill prejudicing the defence integrity of the country, giving away taxpayers' money and, as a first for the Government. in their quest for privatisation, uniting the entire work force of the royal ordnance factories against the Government's proposals. When the Under-Secretary visited ROF Radway Green with me last week, he did not speak to a single member of management, staff or the production force who said a good word for the Government's proposal, and he was sufficiently kind and courteous to admit that afterwards.

The Minister of State attempted to make a case for the Bill. He put what store he could on efficiency, profitability and the areas of so-called opportunity that will be opened up after privatisation, but that will not be so. On the admission of the Minister of State himself, the ROFs are efficient and profitable. They are extremely efficient, whether one looks at management, staff, sales, research, development, quality control or production. It was noticeable that the Minister of State did not use any financial or commercial yardstick to prosecute his case, but whatever the yardstick the ROFs in their present form and with their present ownership are profitable and efficient.

Mention has been made of the two Queen's awards for export achievement in 1976 and 1978. Exports have increased to their present position of 40 per cent. of sales. The accounts for 1982–83 show a £68 million profit, but in fact the real surplus in the accounts is actually £88 million because the accounts show a £19.5 million prior year item using those profits to write off liabilities of previous years.

The hon. Member for Yeovil (Mr. Ashdown) mentioned the value added per employee. Had he had the relevant statistics, the figures would have been more impressive than he said. In 1976, the value added was £5,900 per annum per employee, and last year the accounts showed that it was £13,282 per annum per employee. The Minister of State must concede that that is a record of efficiency of which many people in the private sector would be proud. I do not believe that there is a case for the legislation on efficiency or profitable grounds, and surely the Minister in his heart of hearts concedes that.

The Minister of State made some play about value for money. That is a fine objective in itself, but when it comes to the Ministry of Defence and the reality of value for money, is the Minister saying that we should pursue a cheap weapons policy? Surely, the armed forces and the public demand that quality, not economy, must be put first in defence procurement. The Minister of State made some play also about competition and the possibilities that will be opened up. He should reread the Mallabar report of 1971. It emphasised that the MOD would remain the ROFs' principal customer. Inevitably and correctly, the Ministry of Defence would determine the design, specification, quality control and development of the product. As some hon. Members on both sides have pointed out, privatisation of the ROFs will reduce, not increase, competition as their factories or shares are likely to be bought by private arms manufacturers.

The Minister should look at competition in practice. At Radway Green, where many of my constituents work, the ROF makes all the small arms ammunition that is provided for British forces. If the Minister of State is looking for increased value for money or increased competition, because there is no competitor in this country he must be thinking of going abroad for his small arms ammunition. That is not a happy precedent—

Mr. Nicholas Baker (Dorset, North)

indicated dissent.

Mr. Fisher

The hon. Member disagrees. There is no alternative. He seeks competition. There are no competitors in small arms manufacturing in this country. In the mid-1970s, when the Ministry of Defence bought small arms ammunition abroad from Belgium and India, the results were not happy; it was found that caps were reversed and bullets were lodged in barrels. One can say of Belgian and Indian small arms ammunition that for every two items that go bang, three go pop.

The Minister of State made some play about the idea of a free market. He suggested that a free market for sales would improve matters and provide capital investment. As he said, sales are now a creditable 40 per cent. of turnover. The ROFs are competitive—competitive abroad in finding new markets because of the high quality of present production. The Minister had no case on capital investment, because during the past 10 years capital investment in the ROFs has been far higher than in private manufacturing industry, and the Minister knows that. In recent years, in Radway Green alone, £28 million has been invested in new plant and machinery—that is right—and the benefits are being shown. The Minister of State had no case in saying that the free market will allow greater capital investment. In fact, quite the reverse will be true.

The Minister of State and the Under-Secretary made some play with the idea of the limited significance of the ROFs in total defence procurement. The figure of 4 per cent., which is the percentage of the total ROFs in relation to defence procurement, was mentioned. Hon. Members should be aware that that 4 per cent. amounted to £256 million last year. We are talking not about ordinary MOD purchases—boots, desks, lorries and stores—but about what can be described only as the "nasties"—the 81 mm mortar bombs, 600 lb cluster bombs, 7.62 mm ball and tracer cartridges and electronic time fuses. Those are the ammunition, guns electronic and guided weapons, chemicals and explosives that should never be made for profit but always and only under the strictest control of the state. It is worth remembering that the armed forces in action threaten to fire those weapons. The large expenditure items, such as aircraft, ships and aeroplanes, are vehicles for weapons of destruction but are not in themselves weapons. The weapons are in the main made by the royal ordnance factories. So whether on efficiency, profitability, competition or the free market, the Government's case simply does not stand up—and the Minister knows it.

This enabling Bill is nothing more than a series of holes and unanswered questions. The Minister admitted in his speech that he did not know when he would sell the ROFs, how they would be sold—despite three years thinking about that—what percentage would be sold or to whom they would be sold. Will foreign companies be allowed to buy the shares, and, if so, what percentage? If not, how does the Minister intend to stop them? He does not know the answers to my questions. Indeed, it is amazing how much he does not know about his Bill. He does not know the answer to the most crucial question—what is the value of the assets that he is selling and the intended purchase price?

When Mr. Frederick Clarke, the chairman and chief executive of the royal ordnance factories, suggested an estimated selling price of £300 million, the Minister and the Government quickly distanced themselves from that figure—yet they have never put a figure on it. The 1982–83 accounts show a value for fixed and current assets of £456 million—£241 million for fixed assets and £215 million for current assets. If they are sold for £300 million, there will be a £150 million discount or inducement to buy —£150 million will be given away. When the Minister replies, I hope that he will explain that discrepancy. Do the Government know the value of the assets? Will they give a commitment that they will sell the assets for their full current value? Nothing else will satisfy the House and the country. If we are to be forced to sell such vital and valuable defence assets, we must get the full price for them. The Minister must answer our question.

The Government can sell the assets only after they have made up the pension fund by another £250 million. The Minister appeared confused by that. He confused the obligation of debt with the redeeming of debt. If he studied the whole concept of mortgage, he would realise that if someone settles his mortgage, that has a marginally different effect on his finances than if he had continued to pay the mortgage. I hope that the Minister will accept that simple point. With £250 million required to make up the pension fund, and £150 million mysteriously disappearing during the sale of the assets, if the assets are sold for £300 million the public could end up £100 million out of pocket. That is nonsense, a disgrace and a rip-off.

The Government's case for the Bill is in tatters, even before the Bill reaches Committee, where it will be savaged severely, if not by Conservative Members, certainly by Labour Members. No doubt the Government will pack the Committee with silent Members, as they packed the Committee considering the Telecommunications Bill.

Mallabar told the Government 12 years ago that the ROFs had special features that call for a degree of intervention that would be incompatible with commercial freedom. The sale of the ROFs is incompatible with national security and with common sense. Conservative Members will soon find that their constituents, supporters and even party members all deplore the Bill. The Government will learn that the press will oppose them—a strange experience for them. From the strong lobby today, it should have been clear to the Government that employees of the ROFs, from top management to staff and unions, are unanimous in opposing the Bill.

The Government are clearly incapable of speaking in favour of the idea of public service, even in the defence of this country. But Labour Members will speak for the national interest both in this debate and in Committee, and we shall oppose the Bill.

8.45 pm

Mr. Peter Pike (Burnley)

Although I have been present throughout the whole of the debate, I still do not understand the Government's case for the Bill. It reminds me of a Christmas cracker which, when pulled, does not contain either the hat or the motto. The Government have given no reason for the privatisation of the ROFs. They have not said when they will be privatised on to whom they will be sold or explained the method of sale. So many question marks hang over the Bill that the Government should not press ahead with the Second Reading. Even at this late stage I hope that they will have second thoughts and allow the Bill to fall, so that they can give more thought to the matter before bringing it back to the House.

In putting the Government's case, the Minister in fact put forward a good case against privatisation. He was unable to make a strong case for the Bill. Indeed, only one Conservative Member, the hon. Member for South Ribble (Mr. Atkins), even attempted to make a case for the Bill. But even the points that he made could be reconciled if the ROFs remained in the public sector.

The hon. Member for Enfield, North (Mr. Eggar) said that we needed to save money in the public sector and that there would be an even tighter defence budget in coming years. Yet the ROFs take only 4 per cent. of the defence procurement budget, and there is little scope within that 4 per cent. to make savings. We could argue that but for their policies on cruise and Trident, they would have adequate means to provide a good, conventional defence for Britain.

We have heard time and time again today that productivity in terms of added value is excellent in the ROFs, so the Government cannot find a case there. Their profitability is also excellent. Indeed, many private companies would be glad to have such profitability. The quality of their work has not been questioned, and they have a record of reliability second to none.

Although my constituency does not have an ROF, a number of my constituents work in the Blackburn ROF. During the weekend I received letters from two constituents working there. One has worked at the factory for 38 years and wants to end his working life as a civil servant. The other constituent worked in the private sector in the aerospace industry at Burnley and was made redundant last year. He now works at the Blackburn ROF and fears redundancy again.

The Minister referred to conditions of employment and said that they would be basically the same as current conditions, yet he could not guarantee or explain what those conditions would be. The answer given about pensions can be interpreted in many different ways. Will the pension earned before the date of privatisation be index-linked? Certainly the Government do not seem to have given a commitment that pension contributions made after privatisation will be index-linked. That is an important condition of service, and every employee in the royal ordnance factories has a right to know what the Government intend to do about his pension.

I hope that we shall be given a better answer when the Minister replies than we received in the opening comments on what the Government intend to do about conditions of employment and about what consultations will take place to ensure that jobs are protected.

In his opening comments the Minister of State said that the 11 factories were integrated, yet the Bill does not provide that the factories have to be sold as an entity. They could be split into four groups, or sold as 11 different units. The better factories could be sold, leaving the less attractive ones in the public sector. If the factories are successful as an entity, they should be sold as an entity—if the Government are determined to sell them. I believe that the factories should remain in public hands. We have heard this afternoon that six or seven factories are involved in the production of even a simple shell. There are good reasons why the royal ordnance factories should be left in the public sector.

The Government have not today made a case for privatisation. The Bill is an ill-conceived piece of dogma designed to put money back into the hands of the private profit-makers. It is the most dogmatic piece of legislation with which the Government have presented us. It is designed to put profits into the private sector, and also to reduce the number of civil servants in the same way, and with the same lack of foresight, as unified housing benefit was transferred to local government. I ask the Government to think again, allow the Bill to be defeated on Second Reading and produce some firm proposals.

8.52 pm

Mr. Kevin McNamara (Kingston upon Hull, North)

This is an interesting occasion. A Tory Government, in a defence debate, cannot find anyone to fill in the last 10 minutes before the winding-up speeches. That should silence the Conservative canards about the Labour party's lack of interest in defence.

Last week we were privileged to receive a press release from the Ministry of Defence. It was headed Ministers visit royal ordnance factories". The press release is worth quoting: Mr. Geoffrey Pattie, Minister of State for Defence Procurement, and Mr. John Lee, Under-Secretary of State for Defence Procurement, will in the next two days visit a number of Royal Ordnance Factories as part of a co-ordinated series of Ministerial visits. Tomorrow Mr. Pattie will be hosted by ROF Glascoed and ROF Bridgwater, and Mr. Lee by ROF Patricroft and ROF Radway Green. On Thursday Mr. Pattie will visit ROF Bishopton and RSAF Enfield. Mr. Lee will be at ROF Blackburn and ROF Chorley. The purpose of the visits is to explain to ROF employees the Government's intentions with regard to the future of the Royal Ordnance Factories, and in particular to address the likely effects of the Government's plans on both the ROF organisation and the terms and conditions of service of the ROF work force. In the course of their visits the Ministers will exchange views both with the management at all levels and employee representatives. Clearly, those meetings were a considerable success. The Secretary of State should be congratulated on the fact that, following the visits of his two junior Ministers to the ROF factories, he is the first Minister of the Crown since Tower Place was purchased to provide the headquarters of the Lieutenant General of Ordnance, the Master Gunner of England and the Storekeeper of the Warren to see production stopped at all royal ordnance factories. That says a great deal for the apostolic endeavour and fervour of the junior Ministers. That achievement should be placed in the book of records, together with the Secretary of State's determination to fly from Port Stanley to Scotland direct, stuck in the back of a Nimrod.

Both that flight and the Bill are a waste of public money, but the Conservative Government are not worried about wasting public money so long as they can sell off public assets cheaply to benefit their friends in industry, or for their personal gratification. The Bill satisfies both those objectives. It enables the Minister to sell off the royal ordnance factories to their main industrial competitors at knock-down prices—to sell some of the nation's most precious assets. It also enables the Secretary of State to tell the Prime Minister that, by sleight of hand, he has got rid of 18,000 civil servants and thus helped the Government to honour their manifesto commitment. However, the MOD will still be paying those workers at one remove, and they will be costing the MOD more. Their jobs will still be there and they will be a drain on the PSBR, but they will not be civil servants. It is surprising that the Government have not sent all the civil servants to different agencies, given them a different name and claimed that they are no longer civil servants. Satisfying that aspect of party dogma will prove very expensive.

Even when I sat on the Back Benches under a Labour Government, I rarely heard less all-party support for a Government measure than I have heard today. There has been no all-party support either for the content of the Bill or for the Government's tactics. Not one Conservative Back Bencher who understood the meaning of the Bill gave it full-hearted support.

Mr. Denzil Davies

There was one.

Mr. McNamara

The hon. Member for South Ribble (Mr. Atkins) said that he supported the Bill absolutely, but he added that he did not understand one of the principal clauses and asked for an explanation. That might be faith in party dogma, or it might be unsullied support for the Government, but it can scarcely be called a full understanding of the Bill. No Conservative Member has claimed that this is the greatest piece of wisdom to emerge from the Ministry of Defence since the right hon. Gentleman became Secretary of State.

The right hon. Member for Chesham and Amersham (Sir I. Gilmour) called the Bill "wrong-headed and unjustified." The hon. Member for Chorley (Mr. Dover) felt that the measure was being rushed. He is reported in New Society this week, giving his reasons for being against the measure: Morale among the Chorley workers is, he says, 'a bit rocky'. They don't want any change in their very successful operation. The article continues: Though Dover described himself earlier this week as a 'true, right-wing blue', he thinks the government is pushing the bill for 'ideological reasons', just to get rid of civil servants. That seems to be the case and the issue. The Government are pushing the measure through for ideological reasons, to get rid of civil servants.

The hon. Member for Congleton (Mrs. Winterton) made major criticisms of the Bill. I was unable to take down all her words of wisdom today, and therefore I shall quote from last week's south Cheshire paper. She is reported as saying: I cannot understand why the Government have got this privatisation mania at the moment. They should be sorting out things like law and order, instead of fiddling about with ROFs. I am not in favour of privatisation of ROFs. Privatisation should mean returning to the private sector something that was once private. But the ROFs have never been private. They have always been run by the Crown. … To my mind the Bill is being pushed forward with undue haste. I object to that, and that is one reason why I am not supporting the Government at the second reading. We heard criticism after criticism of the Government from the Conservative Benches. Every hon. Member who spoke either had a major criticism to make or expressed the feelings and anxieties of his constituents. It cannot he a happy task for the Minister of State to put forward the Bill when it goes, if it does, into Committee, because of the problems that will arise. I am assuming that the Government Whips, as is normal, will put everyone on the Committee who spoke on Second Reading. [Interruption.] I am sure that they will. There is suspicion, lack of comprehension and less than wholehearted support among the Government's supporters.

I make no apology for returning to the Mallabar committee report. The House will recall that the Mallabar committee was set up by the Government in 1968. The report sets out the committee's terms of reference, which were: To examine whether the existing organisation and systems of control and accountability of large-scale establishments in the Ministries of Defence and Technology, engaged in production, offer impediments to the achievement of full efficiency and to recommend how such impediments should be removed. Chapter 2 of the report states: We found they"— that is, the ROFs— were operating under some constraints which derived from the financial and staffing systems imposed on them by their place in the MOD and the Civil Service framework and, to a lesser degree, some which are inherent in any multi-unit organisation. We were initially attracted to the idea of hiving the ROFs off from the MOD, on the lines suggested by the Fulton Committee, but as we came to understand the nature of the ROFs' task and the underlying reasons for the financial and organisational relationships between them and the MOD, we gradually came to accept that hiving off was not feasible for this Organisation. Indeed, we were inclined to believe that had we been asked to advise on setting up an organisation 'to satisfy the munitions requirements of the Services and undertake approved work of a defence nature for Commonwealth and other friendly governments' we would probably have recommended something very like the present arrangement. It was a good report but the Government failed to appreciate its importance. The committee gave its reasons for coming to its conclusions, and said: We can summarise our reasons very briefly as follows:

1. (1) As suppliers of munitions to the Armed Forces, the ROFs cannot refuse an order, cannot determine the design of their product and cannot determine its quality.
2. (2) Approval by the Government of overseas orders for ROF products is necessary because of the nature of the product.
3. (3) The ROFs provide the main national reserve of capacity for a substantial range of munitions to meet foreseeable or unforeseen emergencies."

The report went on to say: These are constraints which would remain even for a hived off ROF organisation and they are the main constraints which affect the commercial judgments of the ROFs. In addition, experience indicates that hiving off would do little to remove constraints due to the effect of the Civil Service staffing system. The principal conclusion was: The constraints inherent in the nature of the ROFs and the nature of their principal customer would not be removed by hiving off. Those constraints remain a decade later. They were recognised by the Select Committees and by the Strathcona committee—by everybody except Her Majesty's Government, who were seeking to fulfil and pursue narrow party sectarian dogma at the expense of the nation.

What will be the position with regard to those three constraints? The Government have failed to answer the question. It has been suggested that my right hon. Friend the Member for Llanelli (Mr. Davies) was not fair to private industry when he said that it pursued the profit motive, was governed by the Companies Act, and had to trade profitably, so would not pursue unprofitable contracts. That is a reasonable attitude, taken by most directors of limited liability companies.

Mr. Nicholas Baker

The right hon. Member for Llanelli (Mr. Davies) said that a company owed a duty "only" to its shareholders.

Mr. McNamara

My right hon. Friend may have used the word "only", but those companies exist for the shareholders, and that is what the legislation is about. If one wants to change that and say that the primary object of any British public company is the public interest, we would be the first to agree with it. We would pass such legislation straight away. However, the Government should not suggest that companies should break the law and not fulfil statutory objectives and that the directors should end up in contempt of court because they have deliberately flouted the law.

Mr. Robert Atkins

I recognise that the hon. Gentleman is trying to paper over a crack, even a chasm, on the Opposition Benches. The impression that was given by his right hon. Friend the Member for Llanelli (Mr. Davies) was that somehow those working in private industry would not put patriotism first in the way that the ROFs would. That needs to be cleared up.

Mr. McNamara

I have a good answer for the hon. Gentleman. Martin Walker wrote an article in The Guardian on Friday 19 August 1983 with the headline: Battle Lines drawn for the sale of the century". It was a background piece to what we are debating today. Mr. Walker said: The MoD confirmed yesterday that there was no provision under the privatisation plan for the Government to require the development and production of a certain weapon if the private sector did not think there was a profit in it. So if the British Army on the Rhine wanted a 150mm super-gun to get through the new Soviet tank armour, and the private sector wanted to continue its profitable export line in the standard 105mm calibre, then the MoD has a problem. As my right hon. Friend said, that seems to be perfectly straightforward. Unless the Government are prepared to say that it is not so, it seems that they cannot direct any private company that they establish under the legislation to manufacture any specific item of equipment, be it a vehicle, munitions, a weapon or ancillary equipment, without having powers in addition to the legislation or calling upon the Defence of the Realm Act. That is one other way to achieve that. Another way is for the Government to ask a recalcitrant private company "What price, boys, to do it for us?" The company will do the work and get its profit.

Mr. Nicholas Baker

They can go elsewhere.

Mr. McNamara

If one believes what is said about competition, the Government can get the work done by someone else at less cost, and on that logic it can be done for nothing. That is nonsense. The Government cannot dictate to private industry what will happen.

End user control has been referred to. The ROFs at present have more direct control and say in what happens to their products and where they go than would be the case if they were taken over by private industry. We are all aware of the scandals that have existed over the misuse of end user certificates. Examples of this are not limited to the third world but have happened in this country and at times when we have sought to enforce sanctions as we did against Rhodesia on UDI. There is now concern that arms from this country are finding their way to South Africa despite the United Nations ban. Issues relating to end users and their control will be weakened considerably.

The national reserve capacity is of considerable importance and excited many of my hon. Friends as well as Conservative Members. The Mallabar committee said: The ROFs provide the main national reserve of capacity for a substantial range of munitions to meet foreseeable or unforeseen emergencies. This issue also excited the minds of my hon. Friends the Members for Gateshead, East (Mr. Conlan) and for Leeds, Central (Mr. Fatchett) and that of the hon. Member for South Ribble. My hon. Friend the Member for Gateshead, East said that Chorley is at present under-used by 20 per cent. The Nottingham factory is also experiencing under-capacity. At present, the lack of capacity, expense and overheads are borne by the ROFs and the Ministry of Defence so that an ability exists at a time of stress for immediate production.

Mr. Batiste

Is the hon. Gentleman aware that it takes about 12 months to make a tank? That is hardly a quick response to an emergency.

Mr. McNamara

I am aware that it takes 12 months to make a tank, but listen to my argument about reserve capacity. The hon. Member for South Ribble suggested that the MOD should take out contracts for the maintenance of spare and reserve capacity. Is the MOD prepared to do that? Is the MOD prepared to take out contracts with specific suppliers knowing that empty factory space will be the result? Can the Ministry of Defence say, with its hand on its heart, to anyone who buys Chorley, "You are 20 per cent. under capacity, but as it is of national importance we will pay you to keep that space empty"? It will be amazing if that happens. The Minister nods. That is another saving gone for a burton.

Let us consider the reserve capacity in the tank factories. It is probably true to say at present that, because of demand, Nottingham and Leeds could operate as one unit, possibly in Leeds, because it has some of the better testing facilities.

What then happens if—we come to the suggestion of my hon. Friend the Member for Gateshead, East about reserve capacity—Vickers comes along because it has a fair bit of spare capacity on Tyneside? Vickers buys in. Why? It does not buy in for reserve capacity. Nor does it buy in to maintain its factory in Newcastle. It buys in to get choice contracts for major battle tanks; to get rid of its main—indeed, only real—competitor in this country; and to get the expertise and better facilities at Leeds. What then happens at Newcastle? There, we lose competition and jobs and we are left with a great barn of a building which may be used for other purposes but which will not be used for competition in the tank-building industry. For dogma we go from public service to private monopoly. It cannot and it does not make sense.

The lack of constraint becomes even more marked when we look at the other powers given to the Minister after vesting day. He can do whatever he wishes; he can pursue any scheme of reorganisation and get rid of any assets without reference to any superior authority other than the Chancellor, and we know the great restraints that he imposes on the privatising of industry. We need only look at his career as Secretary of State for Energy to see that.

What we do not know—what the Government are not prepared to tell us because they do not know, yet what the nation is entitled to know and what those who work in the industry should be told—is the sort of organisation the Government envisage after vesting day. We know that we shall have a holding company and four subsidiary divisions. The Minister of State, in his famous letter to the hon. Member for Bolton, West (Mr. Sackville), said: The new company will at first continue to be wholly owned by the Government but it is our intention in due course to introduce private capital into the organisation, either by direct sale to the private sector, or by joint venture, or by flotation of shares and, presumably, possibly by selling off particular items. We should know which one of those the Government intend to do, because they are asking us to give a blank cheque to the Secretary of State to produce a scheme and then, at some time, to explain to the House what he has done, with no control and with nobody having any say over what will happen. The House will not be informed of what is happening until it is too late because the organisations will have been set up and the assets sold off.

The Minister of State, rather disingenuously, tried to argue that it would be all right on the night, that he would return to the House to produce his schemes and that there would be an opportunity for the House to discuss the matter, and he drew our attention to clause 3(9) saying, in effect, "You are safe." Let us consider what that provision says. It tells us: As soon as practicable"— always a good phrase; this year, next year, sometime, never— after the coming into force of a scheme, the Secretary of State shall lay before Parliament a report"— which means it will be a parliamentary paper that we can pick up in the Library or, if we are lucky, obtain via a pink slip— summarising the scheme's contents"— not telling us what is in the scheme, merely summarising what is in it— and the report may contain such detail"— on the other hand, it may not— as he thinks fit and may omit any material the disclosure of which he considers would be contrary to national security'— which is perhaps acceptable— or to the commerial interests of any person. What does that mean? It means that we do not get told what has been sold, to whom, for how much and under what conditions. The Secretary of State has complete discretion about what he will tell the House. There is no parliamentary control by affirmative or negative resolutions, no provision of financial facts which might embarrass the Secretary of State or his City friends, and agreements will be concealed from the House and the nation.

I wonder whether clause 9 will be introduced as the first practical result of the Secretary of State's new adviser. All of that should be set against the background of the royal ordnance factories' record. Last year they made a profit of £66.8 million and they have made a profit of £270 million since 1974. They made £448 million from sales last year, exported 40 per cent. of their produce and have won two Queen's Awards for Industry on the strength of their exports, and the efficiency of employees has doubled in three years. If that is the result of public ownership, perhaps we should nationalise all British industry.

With such achievement Britain would be the richest, most profitable, most leisure-enjoying and advantaged nation in the world. We should then be able to do all of those things that the Prime Minister would love to do but cannot, such as increasing pensions, helping third world countries and showing real care for the Health Service. Of course, if she did that she would be batting for Britain. As far as most of us can see, it would be the first time, because most of the time, with regard to industry, she is scoring ducks.

I have described what we are selling, but what will be the price? We are discussing £300 million-worth of assets. However, £250 million will be paid back to top up the pension fund. If responsibility for redundancy payments lies with the Treasury and the Civil Service, that figure could increase by another £150 million. If we add those figures, we discover that we are paying private industry to take from the Government their most profitable enterprise.

The Minister of State made what appeared to be extremely important comments on terms and conditions of employment at the beginning of the debate. I should like to put some specific questions to him about that so that the House can get the matter right. Can we accept from what he said that, on vesting day, all existing employees will continue to enjoy all of the terms and conditions of employment, the pension rights, the indexing and the redundancy rights that they now enjoy under the new holding company or its subsidiaries?

If any of the subsidiaries or units within a division are sold off, is the Secretary of State guaranteeing that employees of royal ordnance factories who go through holding companies and subsidiaries to third parties will enjoy exactly the same terms and conditions as they enjoy now and that the new employer will accept full responsibility for the same pensions, terms and conditions as exist now? Is the Secretary of State guaranteeing that the new employer will also accept responsibility for exactly the same terms and conditions on redundancy as civil servants now enjoy? Is that what the Minister of State said? If so, I should be extremely pleased to hear him confirm it.

Many hon. Members have mentioned foreign ownership. The Opposition are also worried about it. Can the Minister state categorically that at no time will the majority shareholding of any company or subsidiary, or of any company which obtains an interest in the reorganised subsidiaries of the royal ordnance factories, go to a company that is not wholly owned or maintained in the United Kingdom and does not have a majority of British shareholders? Does that also apply to multinational subsidiaries?

The security of factories raised some controversy. It is true that a considerable number of private firms that carry out important work for the nation do not have the benefit of Ministry of Defence police. However, there are some differences between some of those factories and the ROFs. One is that within the ordnance factories great quantities of arms and ammunition are available for seizure. As the hon. Member for Congleton said, if they fell into the hands of terrorists, it could cause considerable mayhem. Only this week some employees have been charged with stealing arms and ammunition from the factory situated in the hon. Lady's constituency. They were tracked down by Ministry of Defence and civil police; but those police will no longer be there.

Will the Minister give an undertaking that everyone employed by the security firms will be positively vetted, just as the MOD police now are? Will he also undertake to supply copies of the proposed tenders to members of the Standing Committee before these matters are discussed, so that the Government's intentions are made known? Would it not be better if the companies that took over the interests of the ROFs were directly responsible for employing their own security agents rather than having them supplied by a third party over which they may not have direct control but through which it may be easier for undesirables to slip into positions of trust as security personnel?

This is a bad Bill. It is unusual to have had such a lack of support from Conservative Members for such important legislation, which seems to epitomise Tory dogma. It is unusual to have had a debate on our nation's defence in which the Tory party ran out of contributions. Never again will the Conservative party criticise us for failing to supply enough hon. Members to speak because we do not have the same insight into the defence needs of the nation as they do. We happen to think that we should control our own means of defence rather than put them into the hands of third parties.

This has been an embarrassing time for the Secretary of State and his Ministers. Not one Conservative Member gave uncritical, wholehearted consent to the Bill, because all of them know what they stand to lose. They are losing control of the basic means of supplying our Army. They are losing major profits from the public sector to the private sector. They are losing efficiency. Most of all, they are losing jobs for their constituents. A sorry lot will be whipped into the Lobby tonight to support the Government on such a bad measure. We in turn will cheerfully vote for our amendment and against the Bill

9.30 pm

The Under-Secretary of State for Defence Procurement (Mr. John Lee)

Today's debate on the royal ordnance factories Bill has given the opportunity for hon. Members on all sides of the Chamber to pay tribute to the work of the royal ordnance factories over the years, their great contribution to the armed forces of this country both in peace and war, the loyalty and expertise of the work force at all levels and the regard in which the organisation is quite rightly held by the nation. I venture to suggest that the total of words spoken in the debate would probably equal all that has been said about the ROFs in Parliament throughout the 400 years of their history.

The past is common ground. Today's debate is essentially about the future. What is the best way forward for an organisation with sales of over £450 million, 40 per cent. of them overseas, and with a range of collaborative programmes embracing the vast majority of defence contractors in the United Kingdom and many in Europe and North America? It is an organisation that in some form is working on such current projects as Challenger tanks, Swingfire, Rapier, Sea Dart, Sea Skua, Sea Wolf, Sea Eagle, Sidewinder, JP233, SP70, Stingray and Spear Fish torpedoes, all sorts of artillery and small arms ammunition, mortars, mines and fuzes. However, before proceeding I should like to put the size of ROFs in the context of overall MOD spending.

Our annual MOD procurement budget runs at approximately £7 billion, approaching 90 per cent. of which is spent within the United Kingdom. The ROFs, important as they are, represent only approximately 4 per cent. of that spend, although in specific areas such as army procurement and military explosives the percentage is significantly higher. As my hon. Friend the Minister of State said in his opening speech, the ROFs themselves are only one of nine manufacturers who each accounted for over £100 million of purchases by MOD in 1981–82.

The acknowledged developments of the royal ordnance factories have been achieved within the constraints of the public sector, without their own sales organisation, without any opportunity to recruit speedily or having the flexibility of the private sector in terms of remuneration, without the ability to make acquisitions, without the availability of ECGD cover on overseas sales and with only a limited R and D capability. The hon. Member for Eccles (Mr. Carter-Jones) talked about some members of the ROF organisation having. been head-hunted. He was quite right because remuneration is fixed and is limited within the public sector.

I put it to the House that in a world which has seen a massive growth in defence spending, however we may regret this in human terms, would not a strengthened ROF organisation, as envisaged by our proposals, give an even better account of itself in the future? We seek to build on the foundations and regard our whole approach as positive. There is a huge world market for privatised ROFs to go at. A grouping of the existing 13 factories, with additions, into four subsidiaries — ammunition, small arms, fighting vehicles and weapons and rocket motors—under a holding company should facilitate direction and control, and will provide a corporate structure more in keeping with the best modern business practices.

The Bill is designed to take the ROFs away from trading fund control and into a Companies Act company with my right hon. Friend the Secretary of State as 100 per cent.

shareholder, his relationship with the ROFs' board of directors being by way of a memorandum of understanding. The second stage of our approach will move the ROFs towards privatisation, and here there is a range of options open to the Government which I will come to a little later.

Undoubtedly any radical change in a 400-year-old organisation is bound to produce fears and anxiety. Many of these were relayed to me first hand in my visits to four ROF factories last week.

Hon. Members from both sides of the House, many with deep constituency interests—and, indeed, a small number of my own constituents work at ROF Blackburn—have voiced their worries, and I will try to allay the majority of them.

Mr. Ashdown

The items listed by the Minister were considered in detail by the Mallabar committee in 1971. Will the hon. Gentleman explain why the Government have sought to overturn that detailed and objective study? If the position has changed, in what way has it changed, leading the Government to take this action?

Mr. Lee

I shall be coming to the Mallabar report later. I shall deal with those matters then.

I have to say at the outset that the 18,500 existing ROF workers are not helped by some of the blatant exaggerations and political prejudices that we have heard during the course of the debate from some Opposition Members.

Genuine objections and fears fall broadly into two main categories: first, the continuity of the source of supply of munitions for our forces and, secondly, the terms and conditions of service of the work force during and after the changeover.

I deal first with the continuity of supply. The right hon. Member for Llanelli (Mr. Davies) and others spoke about privatisation as though it were some form of euthanasia. There has been far too much unwarranted negativity of this sort in discussion of the future of the ROFs. The right hon. Gentleman suggested that, once privatised, the ROFs could not be relied upon to supply the guns, fighting vehicles and ammunition they have supplied in the past; that in a time of tension or war we in the Ministry of Defence would look to the ROFs to step up production and suddenly find that they were not there. That is patently absurd. The ROFs are not being sent anywhere. There is no reason to suppose that once privatised they will respond any less well to national emergencies than the rest of the private sector, which performed astonishing feats during the Falklands conflict. At such a time, the distinction between the public and private sectors becomes in practical terms an irrelevance. Both have a common national goal.

I thought that some of the remarks of the right hon. Member for Llanelli about the integrity and loyalty of the private sector were a disgrace, and we shall read his precise words in the Official Report. Despite the attempts of the hon. Member for Kingston upon Hull, North (Mr. McNamara) to cover for his right hon. Friend, I am afraid the right hon. Member for Llanelli should be ashamed of himself. He was rightly taken to task not only by many Government supporters but also by the hon. Member for Yeovil (Mr. Ashdown), who spoke especially on behalf of his constituents who work for Westlands.

The related point was also made by the hon. Member for Walsall, South (Mr. George) and others that the "strategic" importance of the ROFs was such that they must remain under direct Government control. This argument usually describes the ROFs as an integral pan of the British Army and objects as though we were trying to privatise the Army itself. But although of course the ROFs work closely with the Army, they remain a supplier. BL is also a supplier, Plessey is a supplier, Westland Helicopters is a supplier; so are dozens of other firms.

The Army keeps in very close touch with all its suppliers. It needs what these firms have to offer. If the power of the £7 billion cheque book is enough to secure for our armed forces the right aircraft, the right ships, the right missile systems and the right communications, why should it not be enough to secure the right guns and explosives also? There will be no less a need for those after vesting day than there is now, and I am sure that the ROFs will continue to supply them.

Mr. Carter-Jones

If a private foreign company made a bid for Sea Wolf, what steps would the hon. Gentleman take to prevent that company having it?

Mr. Lee

Does the hon. Gentleman mean a bid for an actual missile system?

Mr. Carter-Jones

No. I mean for the production of Sea Wolf.

Mr. Lee

The answer is simple. In terms of its overall procurement policy, the Ministry of Defence is out to generate the maximum of competition. It is not in our interests to seek a reduction in competition. We shall obviously have substantial influence in the whole area of any prospective purchaser. We have sufficient powers to deal with purchase by a foreign company under the Industry Act 1975.

Mr. Robert Atkins

Is it not true that in such circumstances the Ministry of Defence procurement executive or the Department of Industry will have final control over who buys part or the whole of any factory involved in such an activity?

Mr. Lee

If this whole area is not completely covered by the Industry Act, it can be covered specifically in the articles of association of the new company. That is the intention.

Mr. Carter-Jones

rose—

Mr. Lee

Almost all my right hon. and hon. Friends who have spoken in the debate — such as my hon. Friends the Members for Nottingham, South (Mr. Brandon-Bravo), for Elmet (Mr. Batiste), for Enfield, North (Mr. Eggar) and for South Ribble (Mr. Atkins), as well as those who have considerable doubts about the Bill, such as my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) and my hon. Friends the Members for Congleton (Mrs. Winterton) and Chorley (Mr. Dover), have dealt extensively with the whole question of conditions of service.

I acknowledge that hard information has been slow in coming forward, and that has added to anxieties. There are several aspects of the future conditions of service that are still not yet finally sorted out. The problems of creating a company out of a part of the Civil Service are new problems. It has never been done before. However, we must put that behind us now. We are debating the Bill today, and a firm timetable is under way. I accept that it is now up to the Government and the Ministry of Defence to press ahead more vigorously in establishing a clear statement of the future terms and conditions of service that each man and woman in the ROFs can interpret to meet their own specific circumstances. Indeed, my right hon. Friend the Secretary of State will, in the very near future, be sending a personal letter to all employees of the ROFs organisation.

Mr. McNamara

rose—

Mr. Lee

I shall come to the point that the hon. Gentleman no doubt has in mind.

We are of course committed to full consultation on these matters at every stage with the trade unions. The present position is that consultative documents have been issued on the general aspects of the change of status, superannuation provisions and transfer of research and development staff. We hope very shortly to issue a further consultative document on redundancy provisions.

We are awaiting the trade union comments on the superannuation document, issued in November last year, and on the transfer of research development staff, issued earlier this month.

The questions of conditions of service, pensions and redundancy cannot be answered precisely tonight. However, I shall outline the basic position. The Government stated their intention in the original consultative document to be as follows: that the transfer shall not result in a worsening of the terms and conditions of service taken as a whole which existing ROF employees enjoy at that time. Many people have tried to put a sinister interpretation on this, but in fact it means exactly what it says. Terms and conditions of service in a separate public sector company cannot be identical with those applying to Crown employment; therefore, changes will have to be made. The net effect for the individual, however, will be to leave him with slightly different but comparable conditions and, in our view, better prospects for a prosperous future.

Mr. McNamara

rose—

Mr. Lee

I shall not give way as I shall deal in depth with further points about the overall conditions. I think that the hon. Gentleman will find that his question is answered.

The terms and conditions of employment of existing ROF employees and defence sales and research and development staff who are transferred into the ROFs before vesting day will be protected on transfer by the Transfer of Undertakings (Protection of Employment) Regulations 1981, commonly known as TUPE 81. These provide for the main conditions of employment to transfer and be binding on the successor organisation. Continuity of employment for both contractual and statutory purposes is preserved.

It will be open to either the new management or the trade unions to put forward proposals after vesting day for any changes in these conditions in the light of the needs of the successor company and of its employees. Pensions are specifically excluded from the scope of these regulations, as are other features which are unique to Crown service or the Crown's constitutional position—for example, access to the Civil Service appeals board and medical appeals board and, conversely, the Crown's right to dismiss at will and place restraints on political activities.

The two aspects of conditions of service which attracted most attention as I toured the factories last week, and which have been raised several times tonight, are pensions and redundancy provisions. Again, it is not possible to give all the answers on these subjects tonight. Both are areas being negotiated with the trade unions and on neither is there yet a final handbook of provisions. The differences of the new arrangements from the current ones are likely, however, to be small.

The issue of redundancy is raised in two contexts. First, it has been suggested that the transfer of staff to the new company in itself justifies redundancy payments. In fact, schedule 2 to the Bill explicitly states that the transfer does not constitute redundancy under the principal Civil Service pension scheme. This is because civil servants affected by the proposal will retain their existing jobs and broadly equivalent terms and conditions. In such circumstances it would be clearly indefensible to make redundancy payments merely because staff will lose their Civil Service status. This does not mean, however, that redundancy rights will be worsened after vesting day. In line with the requirements of TUPE 81, staff will retain their existing reckonable service for redundancy purposes, and although a new scheme will need to be devised to reflect the new company structure, the compensation levels for existing employees will be no worse than those currently enjoyed by staff in the Civil Service.

Mr. Robert C. Brown

I accept that the Minister cannot give all the answers tonight. Will he therefore assure the House that he will either introduce or accept amendments to the Bill which would write into the Act the guarantees which the employees are currently seeking?

Mr. Lee

The Government will consider that point, but tonight I cannot make guarantees or any specific statement from the Dispatch Box.

There has understandably been anxiety about future pensions provisions. The change of status of the ROFs means that existing employees will cease to be members of the PCSPS and will join the new company pension scheme, which will provide benefits comparable to those that they currently enjoy, including the continuation of index-linking. They can choose either to preserve their existing rights in the PCSPS at the date of transfer or to transfer them to either of the two company schemes outlined in the recent consultative document. In the latter case transfer values are paid by the Government to the new company pensions scheme. I must emphasise that the cost of transfer values represents the funding of an existing Government liability by bringing forward expenditure, which would in any case arise at a later date. It is not new or additional expenditure, although obviously it affects cash flow. The £250 million which has been mentioned is a maximum figure, payable only if every member of the current ROF organisation were to choose to transfer his pension rights to the new scheme. This is, of course, highly unlikely.

Mr. Straw

Ministers have implied tonight that the pension rights of existing employees after vesting day will be no different from those rights accrued before vesting day, and that there will be full guaranteed indexation. Why, therefore, are the Government proposing in the consultative document that the new company should have power to suspend indexation of pensions in respect of transferred employees, if the company runs into economic difficulties?

Mr. Lee

Upon privatisation the long-term guarantee from the Government will fall away and the new company will be responsible for the ongoing pension provisions.

I now turn to the options available on privatisation, which have been mentioned on several occasions, which emphasise that at present the Government have a very open mind about the form this may take. For example, it is theoretically possible that one or more of the four subsidiaries could be sold off.

It is theoretically possible for there to be a management or employee "buy-out", as my hon. Friend the Member for Nottingham, South said earlier, on the lines of the National Freight Corporation, but the most likely would be a flotation of the whole on the stock market on the lines of earlier privatisations. Hon. Members will recall that in the past we have always endeavoured to obtain a substantial element of employee participation and involvement in the equity.

In considering the options of dealing separately with individual subsidiaries, we would obviously have regard to the overall thrust of our MOD procurement policy, which is to create the maximum competition for our spend. Thus we would not wish to see a reduction in competition, as my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) said.

The right hon. Member for Llanelli and several other hon. Members mentioned foreign investment in companies, and several Opposition Members suggested that the companies may become foreign-controlled. There is no reason why foreign investment in the new ROF organisation should be prevented simply because it is foreign investment. However, the Government would not countenance foreign control of the organisation. Powers to prevent important manufacturing undertakings from passing into the control of persons not resident in the United Kingdom are contained in the Industry Act 1975. The ROFs would constitute an important manufacturing undertaking within the meaning of that Act, and the Government would exercise those powers if it were judged necessary to do so.

However, the statutory powers are complex. They have never been used, and it might be inadvisable to rely solely upon them. An alternative course would be to include in the articles of association of the company an article conferring on the Secretary of State, who for this purpose would always retain a stated minimum shareholding of the company, certain powers exercisable in the event of an attempted take-over of the company by overseas interests. That would meet the specific points about Sea Wolf and Patricroft. Such powers would include an immediate power to cast the majority of votes in general meetings of the company; power to dismiss the board of directors and to appoint a new one; and power to require the board to refuse to register share transfers or to compel shareholders to dispose of their shareholding above a certain percentage. In that way, an attempt by non-resident interests to acquire shares or to exercise control of the company by means of votes attached to shares that they had acquired could be nullified. We are considering which course would be preferable, and we shall make an announcement at an appropriate time before the parliamentary proceedings on the Bill are concluded.

Several hon. Members, and more recently during my speech the hon. Member for Yeovil, mentioned the Mallabar committee, which reported in 1971. I should emphasise that that was about 12 years ago. The Government accept that what the hon. Gentleman said about that report is accurate, but that was that committee's view. As my hon. Friend the Minister of State said, we have had eight or nine years' experience of the trading fund, which started in 1974. That experience, together with our examination of all the evidence available to us, led us to conclude that the success of the fund owed very much to the partial separation from the rest of MOD that its inception allowed; but the ROF operation could be even more successful if the separation were greater and ultimately total. With a vigorous independent management, the ROFs will now be able fully to respond to the challenges not only of the United Kingdom but of the world market. The right hon. Member for Llanelli asked what had changed since the Mallabar report. The simple answer is the operation of the trading fund and our experience of it. We are building on that experience and on Mallabar, not the reverse.

Several hon. Members, including the hon. Members for Blaydon (Mr. McWilliam) and for Newcastle upon Tyne, North (Mr. Brown), and my right hon. Friend the Member for Chesham and Amersham mentioned the security of the ROF organisation. Ministry of Defence police will be withdrawn from the ROF sites before incorporation. The ROFs are planning new arrangements in close consultation with local police forces, Scotland Yard, MOD Security and MOD police to ensure that the sites concerned are continually and effectively protected. It has been decided that the best solution would be to engage a security company or companies to guard ROF sites. That will be arranged to suit each site and will provide fully satisfactory protection, and the companies will benefit from the larger resources available to the security contractor. The ROF company will, of course, satisfy itself as to the credentials of the security companies selected and their operations. The question of diminished security does not arise. The ROF company must satisfy the police and the Home Office about its arrangements, and in appropriate cases it must satisfy other Government Departments.

As my hon. Friend the Member for South Ribble said in his excellent speech—perhaps the best speech from the Conservative Benches, or at least from the Back Benches—no one suggests that private sector companies such as British Aerospace, Ferranti and Plessey are especially vulnerable.

Several hon. Members have spoken about reserve capacity. The Government owe it to the forces to plan for their future equipment requirements and to make the necessary contingency arrangements. We do that now and we shall do it in future. When we need reserve capacity—perhaps most significantly for ammunition—we shall secure it. We secure it now by special arrangements with the ROFs and we shall secure it in future by specific contract with the ROFs. We have to pay for it now and we shall have to pay for it in future. However, it is in the interests of the ROFs and of the rest of the defence industry, as much as in the interests of the services, to secure continuity of production and to undertake forward planning with that in view.

Overall employment levels in the ordnance factories have been referred to repeatedly. As my hon. Friends the Members for Nottingham, South and South Ribble have emphasised, at the end of the day job security, especially in ROFs or subsidiaries, is dependent on winning contracts and satisfying customers. Being in the public sector is of itself no guarantee of job security. Over recent years we have seen a gradual decline in the numbers employed by royal ordnance factories. Sadly, there have been specific redundancies recently at Nottingham. As my hon. Friends the Members for Enfield, North and Bolton, West (Mr. Sackville) emphasised, we believe that privatisation ultimately is likely to provide greater long-term prosperity.

My hon. Friend the Member for Enfield, North raised a number of other specific matters. He inquired whether it would be feasible for the royal ordnance factories to move to a contractual relationship with the MOD on vesting day. First, many of the orders already placed with the ROFs will spread over and beyond vesting day. The production that they represent will have to continue and will require no renegotiation of terms from scratch. Secondly, a study has been in train for some time that has been directed to studying the Department's contract organisation and the ROFs themselves to determine how, both in general and in particular, the existing arrangements for orders can be transformed into formal contracts. That work is going well and should be completed before October of this year.

My hon. Friend the Member for Enfield, North asked a number of questions about the small arms subsidiary. He wanted to know whether it could go its own way. We have already announced the four divisions that will make up the new company, and the small arms division will be an important part of that structure. The royal small arms factory at Enfield will form the heart of the small arms division. There is no intention to split the division and to take that factory away from the main body of ROFs.

This has been a wide-ranging debate on the future of the ROFs. Our contention is that the Bill and the ROFs' privatised future are in the national interest, in the interest of better and more competitive defence procurement, and will promote a more viable longer-term future for employees.

Most of the speeches from hon. Members reflected genuine points of concern, but there has been ample evidence that the well-known Labour research document "12 Easy Privatisation Exaggerations" has been heavily thumbed through. Anyone would think that privatising a company was equivalent to banishing employees to the Siberian wastelands or to Devil's island. One could be forgiven for forgetting that the majority sector of United Kingdom industry is the private sector. The Government are trying to be as fair as possible to ROF employees in their approach, commensurate with being a responsible steward of the nation's purse. Our proposals are positive and forward-looking—for example, the appointment of a new experienced chairman and other board members, a sales capability, an enhanced research and development capability and, above all, a freedom to operate untrammelled by public sector constraints. The Bill is consistent with our overall philosophy of reducing the public sector and of encouraging competition. I commend it to the House.

Question put, That the amendment be made:—

The House divided: Ayes 188, Noes 355.

Division No. 121]	[10 pm
AYES
Anderson, Donald	Hamilton, W. W. (Central Fife)
Archer, Rt Hon Peter	Harman, Ms Harriet
Ashton, Joe	Harrison, Rt Hon Walter
Atkinson, N. (Tottenham)	Hart, Rt Hon Dame Judith
Bagier, Gordon A. T.	Hattersley, Rt Hon Roy
Banks, Tony (Newham NW)	Healey, Rt Hon Denis
Barnett, Guy	Heffer, Eric S.
Barron, Kevin	Hogg, N. (C'nauld & Kilsyth)
Beckett, Mrs Margaret	Holland, Stuart (Vauxhall)
Bell, Stuart	Home Robertson, John
Bennett, A. (Dent'n & Red'sh)	Howell, Rt Hon D. (S'heath)
Bermingham, Gerald	Hoyle, Douglas
Bidwell, Sydney	Hughes, Mark (Durham)
Blair, Anthony	Hughes, Robert (Aberdeen N)
Boothroyd, Miss Betty	Hughes, Roy (Newport East)
Boyes, Roland	Hughes, Sean (Knowsley S)
Bray, Dr Jeremy	Janner, Hon Greville
Brown, Gordon (D'f'mline E)	John. Brynmor
Brown, Hugh D. (Provan)	Jones, Barry (Alyn & Deeside)
Brown, N. (N'c'tle-u-Tyne E)	Kaufman, Rt Hon Gerald
Brown, R. (N'c'tle-u-Tyne N)	Kilroy-Silk, Robert
Brown, Ron (E'burgh, Leith)	Kinnock, Rt Hon Neil
Buchan, Norman	Lambie, David
Caborn, Richard	Lamond, James
Callaghan, Jim (Heyw'd & M)	Leadbitter, Ted
Campbell, Ian	Leighton, Ronald
Campbell-Savours, Dale	Lewis, Ron (Carlisle)
Carter-Jones, Lewis	Lewis, Terence (Worsley)
Clark, Dr David (S Shields)	Litherland, Robert
Clay, Robert	Lloyd, Tony (Stretford)
Cocks, Rt Hon M. (Bristol S.)	Lofthouse, Geoffrey
Cohen, Harry	Loyden, Edward
Coleman, Donald	McCartney, Hugh
Conlan, Bernard	McDonald, Dr Oonagh
Cook, Frank (Stockton North)	McGuire, Michael
Cook, Robin F. (Livingston)	McKay, Allen (Penistone)
Corbett, Robin	McKelvey, William
Cowans, Harry	Mackenzie, Rt Hon Gregor
Cox, Thomas (Tooting)	McNamara, Kevin
Craigen, J. M.	McTaggart, Robert
Crowther, Stan	Madden, Max
Cunningham, Dr John	Marek, Dr John
Davies, Rt Hon Denzil (L'lli)	Marshall, David (Shettleston)
Davies, Ronald (Caerphilly)	Martin, Michael
Davis, Terry (B'ham, H'ge H'l)	Mason, Rt Hon Roy
Deakins, Eric	Maxton, John
Dewar, Donald	Maynard, Miss Joan
Dixon, Donald	Michie, William
Dobson, Frank	Mikardo, Ian
Dormand, Jack	Millan, Rt Hon Bruce
Douglas, Dick	Miller, Dr M. S. (E Kilbride)
Dover, Denshore	Mitchell, Austin (G't Grimsby)
Dubs, Alfred	Morris, Rt Hon A. (W'shawe)
Dunwoody, Hon Mrs G.	Morris, Rt Hon J. (Aberavon)
Eadie, Alex	Nellist, David
Eastham, Ken	Oakes, Rt Hon Gordon
Edwards, R. (W'hampt'n SE)	O'Brien, William
Evans, loan (Cynon Valley)	O'Neill, Martin
Evans, John (St. Helens N)	Orme, Rt Hon Stanley
Ewing, Harry	Park, George
Fatchett, Derek	Parry, Robert
Faulds, Andrew	Patchett, Terry
Field, Frank (Birkenhead)	Pavitt, Laurie
Fields, T. (L'pool Broad Gn)	Pendry, Tom
Fisher, Mark	Pike, Peter
Flannery, Martin	Powell, Raymond (Ogmore)
Foot, Rt Hon Michael	Prescott, John
Forrester, John	Radice, Giles
Foster, Derek	Randall, Stuart
Foulkes, George	Redmond, M.
Fraser, J. (Norwood)	Rees, Rt Hon M. (Leeds S)
Freeson, Rt Hon Reginald	Richardson, Ms Jo
Garrett, W. E.	Roberts, Allan (Bootle)
George, Bruce	Roberts, Ernest (Hackney N)
Gilbert, Rt Hon Dr John	Robertson, George
Godman, Dr Norman	Robinson, G. (Coventry NW)
Gould, Bryan	Rogers, Allan
Gourlay, Harry	Rooker, J. W.

Ross, Ernest (Dundee W)	Thomas, Dafydd (Merioneth)
Rowlands, Ted	Thomas, Dr R. (Carmarthen)
Ryman, John	Thompson, J. (Wansbeck)
Sedgemore, Brian	Thorne, Stan (Preston)
Sheerman, Barry	Torney, Tom
Sheldon, Rt Hon R.	Wardell, Gareth (Gower)
Shore, Rt Hon Peter	Wareing, Robert
Short, Ms Clare (Ladywood)	Weetch, Ken
Short, Mrs R. (W'hampt'n NE)	White, James
Silkin, Rt Hon J.	Williams, Rt Hon A.
Skinner, Dennis	Winnick, David
Smith, C.(Isl'ton S & F'bury)	Winterton, Mrs Ann
Smith, Rt Hon J. (M'kl'ds E)	Woodall, Alec
Snape, Peter	Young, David (Bolton SE)
Soley, Clive
Stott, Roger	Tellers for the Ayes:
Strang, Gavin	Mr. James Hamilton and
Straw, Jack	Mr. John McWilliam.

NOES
Adley, Robert	Clegg, Sir Walter
Aitken, Jonathan	Cockeram, Eric
Alexander, Richard	Colvin, Michael
Alison, Rt Hon Michael	Conway, Derek
Amess, David	Coombs, Simon
Ancram, Michael	Cope, John
Arnold, Tom	Cormack, Patrick
Ashby, David	Corrie, John
Aspinwall, Jack	Couchman, James
Atkins, Robert (South Ribble)	Cranborne, Viscount
Atkinson, David (B'm'th E)	Critchley, Julian
Baker, Kenneth (Mole Valley)	Crouch, David
Baker, Nicholas (N Dorset)	Currie, Mrs Edwina
Baldry, Anthony	Dickens, Geoffrey
Banks, Robert (Harrogate)	Dicks, T.
Batiste, Spencer	Dorrell, Stephen
Beaumont-Dark, Anthony	Douglas-Hamilton, Lord J.
Bellingham, Henry	du Cann, Rt Hon Edward
Bendall, Vivian	Dunn, Robert
Bennett, Sir Frederic (T'bay)	Durant, Tony
Benyon, William	Dykes, Hugh
Berry, Sir Anthony	Edwards, Rt Hon N. (P'broke)
Best, Keith	Eggar, Tim
Bevan, David Gilroy	Emery, Sir Peter
Biffen, Rt Hon John	Evennett, David
Biggs-Davison, Sir John	Eyre, Sir Reginald
Body, Richard	Fallon, Michael
Bonsor, Sir Nicholas	Farr, John
Bottomley, Peter	Favell, Anthony
Bowden, A. (Brighton K'to'n)	Fenner, Mrs Peggy
Bowden, Gerald (Dulwich)	Finsberg, Sir Geoffrey
Boyson, Dr Rhodes	Fletcher, Alexander
Braine, Sir Bernard	Fookes, Miss Janet
Brandon-Bravo, Martin	Forman, Nigel
Bright, Graham	Forsyth, Michael (Stirling)
Brinton, Tim	Forth, Eric
Brittan, Rt Hon Leon	Franks, Cecil
Brooke, Hon Peter	Fraser, Rt Hon Sir Hugh
Brown, M. (Brigg & Cl'thpes)	Fraser, Peter (Angus East)
Browne, John	Freeman, Roger
Bruinvels, Peter	Fry, Peter
Bryan, Sir Paul	Gale, Roger
Buchanan-Smith, Rt Hon A.	Galley, Roy
Buck, Sir Antony	Gardiner, George (Reigate)
Budgen, Nick	Gardner, Sir Edward (Fylde)
Bulmer, Esmond	Garel-Jones, Tristan
Burt, Alistair	Glyn, Dr Alan
Butcher, John	Goodhart, Sir Philip
Butterfill, John	Goodlad, Alastair
Carlisle, John (N Luton)	Gorst, John
Carlisle, Kenneth (Lincoln)	Gow, Ian
Carttiss, Michael	Gower, Sir Raymond
Chalker, Mrs Lynda	Grant, Sir Anthony
Chapman, Sydney	Greenway, Harry
Chope, Christopher	Gregory, Conal
Churchill, W. S.	Griffiths, E. (B'y St Edm'ds)
Clark, Hon A. (Plym'th S'n)	Griffiths, Peter (Portsm'th N)
Clark, Dr Michael (Rockford)	Grist, Ian
Clark, Sir W. (Croydon S)	Ground, Patrick
Clarke Kenneth (Rushcliffe)	Grylls, Michael

Gummer, John Selwyn	Macmillan, Rt Hon M.
Hamilton, Hon A. (Epsom)	McNair-Wilson, P. (New F'st)
Hamilton, Neil (Tatton)	McQuarrie, Albert
Hampson, Dr Keith	Madel, David
Hanley, Jeremy	Major, John
Hannam, John	Malins, Humfrey
Hargreaves, Kenneth	Malone, Gerald
Harris, David	Maples, John
Harvey, Robert	Marland, Paul
Haselhurst, Alan	Marlow, Antony
Havers, Rt Hon Sir Michael	Marshall, Michael (Arundel)
Hawkins, C. (High Peak)	Mates, Michael
Hawkins, Sir Paul (SW N'folk)	Maude, Francis
Hawksley, Warren	Mawhinney, Dr Brian
Hayes, J.	Maxwell-Hyslop, Robin
Hayhoe, Barney	Mayhew, Sir Patrick
Hayward, Robert	Mellor, David
Heathcoat-Amory, David	Merchant, Piers
Heddle, John	Meyer, Sir Anthony
Henderson, Barry	Miller, Hal (B'grove)
Heseltine, Rt Hon Michael	Mills, Iain (Meriden)
Hickmet, Richard	Mills, Sir Peter (West Devon)
Hicks, Robert	Miscampbell, Norman
Higgins, Rt Hon Terence L.	Mitchell, David (NW Hants)
Hill, James	Moate, Roger
Hind, Kenneth	Molyneaux, Rt Hon James
Hirst, Michael	Monro, Sir Hector
Hogg, Hon Douglas (Gr'th'm)	Montgomery, Fergus
Holland, Sir Philip (Gedling)	Moore, John
Holt, Richard	Morrison, Hon C. (Devizes)
Hooson, Tom	Mudd, David
Hordern, Peter	Murphy, Christopher
Howard, Michael	Neale, Gerrard
Howarth, Alan (Stratf'd-on-A)	Needham, Richard
Howarth, Gerald (Cannock)	Nelson, Anthony
Howell, Ralph (N Norfolk)	Neubert, Michael
Hubbard-Miles, Peter	Nicholls, Patrick
Hunt, David (Wirral)	Normanton, Tom
Hunt, John (Ravensbourne)	Norris, Steven
Hunter, Andrew	Onslow, Cranley
Hurd, Rt Hon Douglas	Oppenheim, Philip
Irving, Charles	Osborn, Sir John
Jackson, Robert	Ottaway, Richard
Jenkin, Rt Hon Patrick	Page, John (Harrow W)
Jessel, Toby	Page, Richard (Herts SW)
Johnson-Smith, Sir Geoffrey	Parkinson, Rt Hon Cecil
Jones, Gwilym (Cardiff N)	Parris, Matthew
Jones, Robert (W Herts)	Patten, John (Oxford)
Jopling, Rt Hon Michael	Pattie, Geoffrey
Kellett-Bowman, Mrs Elaine	Pawsey, James
Key, Robert	Peacock, Mrs Elizabeth
King, Roger (B'ham N'field)	Percival, Rt Hon Sir Ian
King, Rt Hon Tom	Pink, R. Bonner
Knight, Gregory (Derby N)	Pollock, Alexander
Knight, Mrs Jill (Edgbaston)	Porter, Barry
Knowles, Michael	Powell, William (Corby)
Knox, David	Powley, John
Lamont, Norman	Prentice, Rt Hon Reg
Lang, Ian	Price, Sir David
Latham, Michael	Proctor, K. Harvey
Lawler, Geoffrey	Raffan, Keith
Lawrence, Ivan	Raison, Rt Hon Timothy
Lawson, Rt Hon Nigel	Rathbone, Tim
Lee, John (Pendle)	Rees, Rt Hon Peter (Dover)
Leigh, Edward (Gainsbor'gh)	Rhodes James, Robert
Lennox-Boyd, Hon Mark	Rhys Williams, Sir Brandon
Lewis, Sir Kenneth (Stamf'd)	Ridley, Rt Hon Nicholas
Lightbown, David	Rippon, Rt Hon Geoffrey
Lilley, Peter	Robinson, Mark (N'port W)
Lloyd, Ian (Havant)	Roe, Mrs Marion
Lloyd, Peter, (Fareham)	Ross, Wm. (Londonderry)
Lord, Michael	Rossi, Sir Hugh
Luce, Richard	Rost, Peter
Lyell, Nicholas	Rowe, Andrew
McCrindle, Robert	Rumbold, Mrs Angela
McCurley, Mrs Anna	Ryder, Richard
Macfarlane, Neil	Sackville, Hon Thomas
MacGregor, John	Sainsbury, Hon Timothy
MacKay, John (Argyll & Bute)	Sayeed, Jonathan
Maclean, David John.	Scott, Nicholas

Shaw, Giles (Pudsey)	Thompson, Patrick (N'ich N)
Shaw, Sir Michael (Scarb')	Thornton, Malcolm
Shelton, William (Streatham)	Thurnham, Peter
Shepherd, Colin (Hereford)	Townend, John (Bridlington)
Shepherd, Richard (Aldridge)	Townsend, Cyril D. (B'heath)
Shersby, Michael	Tracey, Richard
Silvester, Fred	Trotter, Neville
Sims, Roger	Twinn, Dr Ian
Skeet, T. H. H.	Vaughan, Dr Gerard
Smith, Sir Dudley (Warwick)	Viggers, Peter
Smith, Tim (Beaconsfield)	Waddington, David
Soames, Hon Nicholas	Wakeham, Rt Hon John
Speed, Keith	Waldegrave, Hon William
Speller, Tony	Walden, George
Spence, John	Walker, Bill (T'side N)
Spencer, D.	Walker, Rt Hon P. (W'cester)
Spicer, Jim (W Dorset)	Waller, Gary
Spicer, Michael (S Worcs)	Walters, Dennis
Squire, Robin	Ward, John
Stanbrook, Ivor	Wardle, C. (Bexhill)
Stanley, John	Warren, Kenneth
Steen, Anthony	Watson, John
Stern, Michael	Watts, John
Stevens, Lewis (Nuneaton)	Wells, John (Maidstone)
Stevens, Martin (Fulham)	Wheeler, John
Stewart, Allan (Eastwood)	Whitfield, John
Stewart, Andrew (Sherwood)	Whitney, Raymond
Stewart, Ian (N Hertf'dshire)	Wiggin, Jerry
Stokes, John	Wilkinson, John
Stradling Thomas, J.	Wolfson, Mark
Sumberg, David	Wood, Timothy
Tapsell, Peter	Woodcock, Michael
Taylor, Rt Hon John David	Yeo, Tim
Taylor, John (Solihull)	Young, Sir George (Acton)
Taylor, Teddy (S'end E)	Younger, Rt Hon George
Tebbit, Rt Hon Norman
Temple-Morris, Peter	Tellers for the Noes:
Terlezki, Stefan	Mr. Carol Mather and
Thatcher, Rt Hon Mrs M.	Mr. Robert Boscawen
Thompson, Donald (Calder V)

Question accordingly negatived.

Main Question put forthwith pursuant to Standing Order No. 41 (Amendment on Second or Third Reading):—

The House divided: Ayes 354, Noes 206.

Division No. 122]	[10.15 pm
AYES
Adley, Robert	Boyson, Dr Rhodes
Aitken, Jonathan	Braine, Sir Bernard
Alexander, Richard	Brandon-Bravo, Martin
Alison, Rt Hon Michael	Bright, Graham
Amess, David	Brinton, Tim
Ancram, Michael	Brittan, Rt Hon Leon
Arnold, Tom	Brooke, Hon Peter
Ashby, David	Brown, M. (Brigg & Cl'thpes)
Aspinwall, Jack	Browne, John
Atkins, Robert (South Ribble)	Bruinvels, Peter
Atkinson, David (B'm'th E)	Bryan, Sir Paul
Baker, Kenneth (Mole Valley)	Buchanan-Smith, Rt Hon A.
Baker, Nicholas (N Dorset)	Buck, Sir Antony
Baldry, Anthony	Budgen, Nick
Banks, Robert (Harrogate)	Bulmer, Esmond
Batiste, Spencer	Burt, Alistair
Beaumont-Dark, Anthony	Butcher, John
Bellingham, Henry	Butterfill, John
Bendall, Vivian	Carlisle, John (N Luton)
Bennett, Sir Frederic (T'bay)	Carlisle, Kenneth (Lincoln)
Benyon, William	Carttiss, Michael
Berry, Sir Anthony	Chalker, Mrs Lynda
Best, Keith	Chapman, Sydney
Bevan, David Gilroy	Chope, Christopher
Biffen, Rt Hon John	Churchill, W. S.
Biggs-Davison, Sir John	Clark, Hon A. (Plym'th S'n)
Body, Richard	Clark, Dr Michael (Rochford)
Bonsor, Sir Nicholas	Clark, Sir W. (Croydon S)
Bottomley, Peter	Clarke, Kenneth (Rushcliffe)
Bowden, A. (Brighton K'to'n)	Clegg, Sir Walter
Bowden, Gerald (Dulwich)	Cockeram, Eric

Colvin, Michael	Higgins, Rt Hon Terence L.
Conway, Derek	Hill, James
Coombs, Simon	Hind, Kenneth
Cope, John	Hirst, Michael
Cormack, Patrick	Hogg, Hon Douglas (Gr'th'm)
Corrie, John	Holland, Sir Philip (Gedling)
Couchman, James	Holt, Richard
Cranborne, Viscount	Hooson, Tom
Critchley, Julian	Hordern, Peter
Crouch, David	Howard, Michael
Currie, Mrs Edwina	Howarth, Alan (Stratf'd-on-A)
Dickens, Geoffrey	Howarth, Gerald (Cannock)
Dicks, T.	Howell, Ralph (N Norfolk)
Dorrell, Stephen	Hubbard-Miles, Peter
Douglas-Hamilton, Lord J.	Hunt, David (Wirral)
du Cann, Rt Hon Edward	Hunt, John (Ravensbourne)
Dunn, Robert	Hunter, Andrew
Durant, Tony	Hurd, Rt Hon Douglas
Dykes, Hugh	Irving, Charles
Edwards, Rt Hon N. (P'broke)	Jackson, Robert
Eggar, Tim	Jenkin, Rt Hon Patrick
Emery, Sir Peter	Jessel, Toby
Evennett, David	Johnson-Smith, Sir Geoffrey
Eyre, Reginald	Jones, Gwilym (Cardiff N)
Fallon, Michael	Jones, Robert (W Herts)
Farr, John	Jopling, Rt Hon Michael
Favell, Anthony	Kellett-Bowman, Mrs Elaine
Fenner, Mrs Peggy	Key, Robert
Finsberg, Geoffrey	King, Roger (B'ham N'field)
Fletcher, Alexander	King, Rt Hon Tom
Fookes, Miss Janet	Knight, Gregory (Derby N)
Forman, Nigel	Knight, Mrs Jill (Edgbaston)
Forsyth, Michael (Stirling)	Knowles, Michael
Forth, Eric	Knox, David
Franks, Cecil	Lamont, Norman
Fraser, Rt Hon Sir Hugh	Lang, Ian
Fraser, Peter (Angus East)	Latham, Michael
Freeman, Roger	Lawler, Geoffrey
Fry, Peter	Lawrence, Ivan
Gale, Roger	Lawson, Rt Hon Nigel
Galley, Roy	Lee, John (Pendle)
Gardiner, George (Reigate)	Leigh, Edward (Gainsbor'gh)
Gardner, Sir Edward (Fylde)	Lennox-Boyd, Hon Mark
Garel-Jones, Tristan	Lewis, Sir Kenneth (Stamf'd)
Glyn, Dr Alan	Lightbown, David
Goodhart, Sir Philip	Lilley, Peter
Goodlad, Alastair	Lloyd, Ian (Havant)
Gorst, John	Lloyd, Peter, (Fareham)
Gow, Ian	Lord, Michael
Gower, Sir Raymond	Luce, Richard
Grant, Sir Anthony	Lyell, Nicholas
Greenway, Harry	McCrindle, Robert
Gregory, Conal	McCurley, Mrs Anna
Griffiths, E. (B'y St Edm'ds)	Macfarlane, Neil
Griffiths, Peter (Portsm'th N)	MacGregor, John
Grist, Ian	MacKay, John (Argyll & Bute)
Ground, Patrick	Maclean, David John.
Grylls, Michael	Macmillan, Rt Hon M.
Gummer, John Selwyn	McNair-Wilson, P. (New F'st)
Hamilton, Hon A. (Epsom)	McQuarrie, Albert
Hamilton, Neil (Tatton)	Madel, David
Hampson, Dr Keith	Major, John
Hanley, Jeremy	Malins, Humfrey
Hannam, John	Malone, Gerald
Hargreaves, Kenneth	Maples, John
Harris, David	Marland, Paul
Haselhurst, Alan	Marlow, Antony
Havers, Rt Hon Sir Michael	Marshall, Michael (Arundel)
Hawkins, C. (High Peak)	Mates, Michael
Hawkins, Sir Paul (SW N'folk)	Maude, Francis
Hawksley, Warren	Mawhinney, Dr Brian
Hayes, J.	Maxwell-Hyslop, Robin
Hayhoe, Barney	Mayhew, Sir Patrick
Hayward, Robert	Mellor, David
Heathcoat-Amory, David	Merchant, Piers
Heddle, John	Meyer, Sir Anthony
Henderson, Barry	Miller, Hal (B'grove)
Heseltine, Rt Hon Michael	Mills, Iain (Meriden)
Hickmet, Richard	Mills, Sir Peter (West Devon)
Hicks, Robert	Miscampbell, Norman

Mitchell. David (NW Hants)	Soames, Hon Nicholas
Moate, Roger	Speed, Keith
Molyneaux, Rt Hon James	Speller, Tony
Monro, Sir Hector	Spence, John
Montgomery, Fergus	Spencer, D.
Moore, John	Spicer, Jim (W Dorset)
Morrison, Hon C. (Devizes)	Spicer, Michael (S Worcs)
Mudd, David	Squire, Robin
Murphy, Christopher	Stanbrook, Ivor
Neale, Gerrard	Stanley, John
Needham, Richard	Steen, Anthony
Nelson, Anthony	Stern, Michael
Neubert, Michael	Stevens, Lewis (Nuneaton)
Nicholls, Patrick	Stevens, Martin (Fulham)
Normanton, Tom	Stewart, Allan (Eastwood)
Norris, Steven	Stewart, Andrew (Sherwood)
Onslow, Cranley	Stewart, Ian (N Hertf'dshire)
Oppenheim, Philip	Stokes, John
Osborn, Sir John	Stradling Thomas, J.
Ottaway, Richard	Sumberg, David
Page, John (Harrow W)	Tapsell, Peter
Page, Richard (Herts SW)	Taylor, Rt Hon John David
Parkinson, Rt Hon Cecil	Taylor, John (Solihull)
Parris, Matthew	Taylor, Teddy (S'end E)
Patten, John (Oxford)	Tebbit, Rt Hon Norman
Pattie, Geoffrey	Temple-Morris, Peter
Pawsey, James	Terlezki, Stefan
Peacock, Mrs Elizabeth	Thatcher, Rt Hon Mrs M.
Percival, Rt Hon Sir Ian	Thompson, Donald (Calder V)
Pink, R. Bonner	Thompson, Patrick (N'ich N)
Pollock, Alexander	Thornton, Malcolm
Porter, Barry	Thurnham, Peter
Powell, William (Corby)	Townend, John (Bridlington)
Powley, John	Townsend, Cyril D. (Sheath)
Prentice, Rt Hon Reg	Tracey, Richard
Price, Sir David	Trotter, Neville
Proctor, K. Harvey	Twinn, Dr Ian
Raffan, Keith	Vaughan, Dr Gerard
Raison, Rt Hon Timothy	Viggers, Peter
Rathbone, Tim	Waddington, David
Rees, Rt Hon Peter (Dover)	Wakeham, Rt Hon John
Rhodes James, Robert	Waldegrave, Hon William
Rhys Williams, Sir Brandon	Walden, George
Ridley, Rt Hon Nicholas	Walker, Bill (T'side N)
Rippon, Rt Hon Geoffrey	Walker, Rt Hon P. (W'cester)
Robinson, Mark (N'port W)	Waller, Gary
Roe, Mrs Marion	Walters, Dennis
Ross, Wm. (Londonderry)	Ward, John
Rossi, Sir Hugh	Wardle, C. (Bexhill)
Rost, Peter	Warren, Kenneth
Rowe, Andrew	Watson, John
Rumbold. Mrs Angela	Watts, John
Ryder, Richard	Wells, John (Maidstone)
Sackville, Hon Thomas	Wheeler, John
Sainsbury, Hon Timothy	Whitfield, John
Sayeed, Jonathan	Whitney, Raymond
Scott, Nicholas	Wiggin, Jerry
Shaw, Giles (Pudsey)	Wilkinson, John
Shaw, Sir Michael (Scarb')	Wolfson, Mark
Shelton, William (Streatham)	Wood, Timothy
Shepherd, Cohn (Hereford)	Woodcock, Michael
Shepherd, Richard (Aldridge)	Yeo, Tim
Shersby, Michael	Young, Sir George (Acton)
Silvester, Fred	Younger, Rt Hon George
Sims, Roger
Skeet, T. H. H.	Tellers for the Ayes:
Smith, Sir Dudley (Warwick)	Mr. Carol Mather and
Smith, Tim (Beaconsfield)	Mr. Robert Boscawen.

NOES
Alton, David	Beckett, Mrs Margaret
Anderson, Donald	Beith, A. J.
Archer, Rt Hon Peter	Bell, Stuart
Ashdown, Paddy	Bennett, A. (Dent'n & Red'sh)
Ashton, Joe	Bermingham, Gerald
Atkinson, N. (Tottenham)	Bidwell, Sydney
Bagier, Gordon A. T.	Blair, Anthony
Banks, Tony (Newham NW)	Boothroyd, Miss Betty
Barnett, Guy	Boyes, Roland
Barron, Kevin	Bray, Dr Jeremy

Brown, Gordon (D'f'mline E)	Hughes, Sean (Knowsley S)
Brown, Hugh D. (Provan)	Hughes, Simon (Southwark)
Brown, N. (N'c'tle-u-Tyne E)	Janner, Hon Greville
Brown, R. (N'c'tle-u-Tyne N)	John, Brynmor
Brown, Ron (E'burgh, Leith)	Jones, Barry (Alyn & Deeside)
Buchan, Norman	Kaufman, Rt Hon Gerald
Caborn, Richard	Kennedy, Charles
Callaghan, Jim (Heyw'd & M)	Kilroy-Silk, Robert
Campbell, Ian	Kinnock, Rt Hon Neil
Campbell-Savours, Dale	Kirkwood, Archibald
Carter-Jones, Lewis	Lambie, David
Cartwright, John	Lamond, James
Clark, Dr David (S Shields)	Leadbitter, Ted
Clay, Robert	Leighton, Ronald
Cocks, Rt Hon M. (Bristol S.)	Lewis, Ron (Carlisle)
Cohen, Harry	Lewis, Terence (Worsley)
Coleman, Donald	Litherland, Robert
Conlan, Bernard	Lloyd, Tony (Stretford)
Cook, Frank (Stockton North)	Lofthouse, Geoffrey
Cook, Robin F. (Livingston)	Loyden, Edward
Corbett, Robin	McCartney, Hugh
Corbyn, Jeremy	McDonald, Dr Oonagh
Cowans, Harry	McGuire, Michael
Cox, Thomas (Tooting)	McKelvey, William
Craigen, J. M.	Mackenzie, Rt Hon Gregor
Crowther, Stan	Maclennan, Robert
Cunningham, Dr John	McNamara, Kevin
Davies, Rt Hon Denzil (L'lli)	McTaggart, Robert
Davies, Ronald (Caerphilly)	McWilliam, John
Davis, Terry (B'ham, H'ge H'l)	Madden, Max
Deakins, Eric	Marek, Dr John
Dewar, Donald	Marshall, David (Shettleston)
Dixon, Donald	Martin, Michael
Dobson, Frank	Mason, Rt Hon Roy
Dormand, Jack	Maxton, John
Douglas, Dick	Maynard, Miss Joan
Dover, Denshore	Meacher, Michael
Dubs, Alfred	Meadowcroft, Michael
Dunwoody, Hon Mrs G.	Michie, William
Eadie, Alex	Mikardo, Ian
Eastham, Ken	Millan, Rt Hon Bruce
Edwards, R. (W'hampt'n SE)	Miller, Dr M. S. (E Kilbride)
Evans, loan (Cynon Valley)	Mitchell, Austin (G't Grimsby)
Evans, John (St. Helens N)	Morris, Rt Hon A. (W'shawe)
Ewing, Harry	Morris, Rt Hon J. (Aberavon)
Fatchett, Derek	Nellist, David
Faulds, Andrew	Oakes, Rt Hon Gordon
Field, Frank (Birkenhead)	O'Brien, William
Fields, T. (L'pool Broad Gn)	O'Neill, Martin
Fisher, Mark	Orme, Rt Hon Stanley
Flannery, Martin	Owen, Rt Hon Dr David
Foot, Rt Hon Michael	Park, George
Forrester, John	Parry, Robert
Foster, Derek	Patchett, Terry
Foulkes, George	Pavitt, Laurie
Fraser, J. (Norwood)	Pendry, Tom
Freeson, Rt Hon Reginald	Penhaligon, David
Freud, Clement	Pike, Peter
Garrett, W. E.	Powell, Raymond (Ogmore)
George, Bruce	Prescott, John
Gilbert, Rt Hon Dr John	Radice, Giles
Godman, Dr Norman	Randall, Stuart
Gould, Bryan	Redmond, M.
Gourley, Harry	Rees, Rt Hon M. (Leeds S)
Hamilton, James (M'well N)	Richardson, Ms Jo
Hamilton, W. W. (Central Fife)	Roberts, Allan (Bootle)
Harman, Ms Harriet	Roberts, Ernest (Hackney N)
Harrison, Rt Hon Walter	Robertson, George
Hart, Rt Hon Dame Judith	Robinson, G. (Coventry NW)
Hattersley, Rt Hon Roy	Rogers, Allan
Healey, Rt Hon Denis	Rooker, J. W.
Heffer, Eric S.	Ross, Ernest (Dundee W)
Hogg, N. (C'nauld & Kilsyth)	Rowlands, Ted
Holland, Stuart (Vauxhall)	Ryman, John
Howell, Rt Hon D. (S'heath)	Sedgemore, Brian
Howells, Geraint	Sheerman, Barry
Hoyle, Douglas	Sheldon, Rt Hon R.
Hughes, Mark (Durham)	Shore, Rt Hon Peter
Hughes, Robert (Aberdeen N)	Short, Ms Clare (Ladywood)
Hughes, Roy (Newport East)	Short, Mrs R.(W'hampt'n NE)

Silkin, Rt Hon J.	Wainwright, R.
Skinner, Dennis	Wallace, James
Smith, C.(Isl'ton S & F'bury)	Wardell, Gareth (Gower)
Smith, Rt Hon J. (M'kl'ds E)	Wareing, Robert
Snape, Peter	Weetch, Ken
Soley, Clive	White, James
Steel, Rt Hon David	Williams, Rt Hon A.
Stott, Roger	Winnick, David
Strang, Gavin	Winterton, Mrs Ann
Straw, Jack	Woodall, Alec
Thomas, Dafydd (Merioneth)	Young, David (Bolton SE)
Thomas, Dr R. (Carmarthen)
Thompson, J. (Wansbeck)	Tellers for the Noes:
Thorne, Stan (Preston)	Mr. Allen McKay and
Torney, Tom	Mr. John Home Robertson.

Question accordingly agreed to.

Bill read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).