HC Deb 07 March 1984 vol 55 cc962-70

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Garel-Jones.]

11.55 pm
Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

The Stonefield issue, about which I am privileged to have the Adjournment debate this evening, is a long, sorry and occasionally somewhat suspicious saga which, as my hon. Friends know, has caused me concern for about five years. The House may well wonder why I want to return to it today. There are a number of reasons.

First, it paints a picture of how Government dogma can set an otherwise successful company on the road to ruin. Secondly, it reveals a web of interconnecting strands involving asset-stripping, Jersey-based companies, the Secretary of State for Scotland and the Prime Minister. Thirdly, it shows up some of the inadequacies of the Scottish Development Agency, which, although it has improved recently, from my experience still has a long way to go before it properly serves the needs of Scottish industry. Fourthly, it shows the hon. Member for Edinburgh, Central (Mr. Fletcher), currently under censure for his part in the sale of Hamilton college at a knock-down price, in an equally bad light. Finally, it shows how Gomba has effectively asset-stripped Stonefield and taken from Scotland a unique. world-beating product by an apparent subterfuge, leaving debts, unemployment and disillusion.

On 6 February 1978 Stonefield Vehicles was taken over by the SDA, following the death of the entrepreneur who set it up. The vehicle that it produced was quickly recognised as a world-beating, cross-country truck, and it passed with flying colours the most rigorous military testing over an 18-month period. Its reputation was developing rapidly and the SDA's confidence in it was so great that a new factory extension was built, with a huge phosphating plant, capable of producing over 2,000 vehicles per year. In retrospect, this is certainly seen as an unwise and over-optimistic expansion when one of its main competitors—Unimog of West Germany—which has been established for some time, was producing 9,500 vehicles with the Mercedes name and a world-wide sales and service network behind it.

However, the general election pulled the plug out for Stonefield Vehicles. The return of a Tory Government in May 1979 saw the Scottish Development Agency being given new criteria. It was forced against its will to find a private buyer for Stonefield.

Because of that ultimatum, there was uncertainty among the work force and potential purchasers were not inspired with confidence. Thus, in spite of the growing success of the vehicle it became difficult to find a buyer. Yet I now know from the former sales director of Stonefield that there were then four major orders in the pipeline. The Malaysian order was subsequently won by Gomba-Stonefield, the Kenyan and New Zealand orders went to Unimog, and Oman bought from a variety of sources, no doubt with advice from consultants of one kind or another.

Because of the Government's bungling, all potential interest in Stonefield evaporated, and it collapsed on 31 July 1980. Ironically, on the very day it was closed, one of the vehicles, converted for fire-fighting, returned from the RAF with a glowing report.

The Public Accounts Committee was very unhappy about this whole episode—as it has been recently about Hamilton college as well. In September 1980 it criticised the Government for bringing about the collapse of Stonefield by their insistence on the injection of private capital. All that was bad enough in an area of already high unemployment and for a dedicated work force, but much worse was to follow.

There was a long campaign to save Stonefield, with the Cumnock work force playing the leading part. After eight months' campaigning, which took members of the work force to Westminster and all over Britain, the Stonefield name became widely known and substantial interest was shown by a number of potential buyers. I had contact with some of them, and I know that there were at least two buyers other than Gomba lining up. Indeed, my information is that an offer of £300,000 was made to the receiver, but that that was turned down on the advice of the SDA and the Scottish Office.

Then suddenly, out of the blue, at a press conference in Glasgow to which no local people were invited, the new owner was produced—like a rabbit out of a hat—by the Secretary of State himself. The right hon. Gentleman had a personal commitment and involvement in what happened on that day. No mention was made then of Mr. Abdul Shamji's connections with the Tory party, his friendship with the Prime Minister and the fact that he was being advised by a former Tory party official, who since 1983 has been the hon. Member for Mid-Kent (Mr. Rowe). No mention was made of the background of Gomba Holdings, of its other activities or of its registration on the offshore haven of Jersey. No details were given of how much it paid for Stonefield, or the arrangements for continued production and for dealing with the creditors of the former Stonefield Vehicles. All my parliamentary questions received negative responses because of so-called commercial confidentiality.

Although Mr. Shamji said that he had accountants, engineers and market researchers, it is clear, looking at the company since November 1980, that the takeover by Gomba had the hallmarks of a rush deal. It was suspicious at the time and it has become more so in retrospect.

I have obtained evidence from Gomba which confirms this. I have a draft submission, which Gomba prepared for the ombudsman, which is a complaint of maladministration against the SDA. I supplied the Minister with a copy of the document before today's debate. It reveals that there was no written agreement about the continuity of supply of vital components, the transposing boxes from Borg Warner and the axles from Salisbury Transmission, which were vital to the unique design of the truck. It appeared that there was only a verbal assurance of continuity of supplies. Subsequently, that was the basis of a huge and bitter dispute between Gomba and the SDA, which was later used as the excuse for Gomba transferring production from Cumnock to Strood, near Rochester in Kent—incidentally, in one of the new enterprise zones.

The Gomba document points the finger also at the hon. Member for Edinburgh, Central, who was a Minister at the Scottish Office. The Minister met Mr. Shamji on 31 March 1981. The document states: On 31 March, Mr. Fletcher, MP, a Minister at the Scottish Office, held a meeting at which were represented SEPD, SDA and Gomba Stonefield, Mr. Michael Grylls MP was also present. I wonder why "Mr. Michael Grylls M.P." was "also present".

The Under-Secretary of State for Scotland (Mr. Allan Stewart)

A constituency interest.

Mr. Foulkes

The Minister says that the hon. Member for Surrey, North-West (Mr. Grylls) was present because of a constituency interest. If so, why was I not present on that occasion, having a much greater constituency interest? Perhaps the Minister will confirm that that is so when he replies, in view of his trite intervention.

The document continues: At the meeting the Minister stated that GKN and Borg Warner would have to confirm in writing the exact position over tools, drawings, supply and price. Gomba Stonefield would supply a full list of all the items which they sought from a settlement. Since both these requirements clearly would precede any settlement, Gomba Stonefield left the meeting confident of being called to a future meeting within a few days. At that stage both sides would have submitted the information. But that night the SDA unilaterally sent cheques to GKN and Borg Warner in settlement of their claim on terms which gave Gomba Stonefield nothing that it sought. That implies that the Minister had authorised the payment of the cheques to creditors without ensuring the continuation of vital supplies to Gomba Stonefield.

Such action does not surprise me. The Minister always refused to go to the factory. He never accepted an invitation to attend the factory and he insisted that the vehicle had no future. No doubt his motivation for it to succeed would not be very high. The prejudicing of the operation by the prejudgment and misconceptions of the Under Secretary of State throw further doubts on his ability to continue as a member of the Government.

I shall repeat for the Under-Secretary of State the four accusations against the SDA in the Gomba document.

First, the SDA gave Mr. Shamji verbal assurances about continuity of supply which it had no right to give.

Secondly, the SDA was inexcusably dilatory to wait over 12 months to settle debts which centrally affected the operation of Gomba-Stonefield. Indeed, it prevented the company progressing at all for that period.

Thirdly, the SDA paid out large sums of taxpayers' money to secure no benefit for anyone except the creditors. Since the debts were hypothecated on specified toolings and stocks, Gomba-Stonefield did not understand why those toolings and stocks had not passed to it.

Fourthly, the SDA changed its ground over several months until it ended up in a position which gave no help to the successor company. In doing so, it damaged the trading position of Gomba-Stonefield almost irreparably. I hope that the Under-Secretary of State can give satisfactory answers to those four serious accusations, if not tonight, then certainly in writing as soon as possible.

Although Gomba appears to have a genuine complaint against the SDA, it does not justify its subsequent behaviour, which now appears to have been to keep the Cumnock factory going only until it had alternative suppliers for axles and transposing boxes and an alternative factory.

Gomba was not popular with traders in Cumnock because of its delays in settling accounts and the confusion and mystery surrounding the operation. It was not a surprise to me when, in spite of repeated assurances of its intention to stay in Cumnock, Gomba did the industrial equivalent of a moonlight flit to Kent. It was typical also that it simultaneously put in a so-called offer to buy the factory, which has still not been concluded after many months, but which proved very effective in blunting criticism of the move south because of the apparent vain hope that Gomba had alternative plans. Has anything come of the supposed offer to buy the premises? What is the position on ownership or lease of the Cumnock premises?

The whole episode has left a sour taste with the people of Cumnock who supported Stonefield-Gomba through the fight, the workers who fought for it, the local district council which backed Stonefield-Gomba, and many others all over Scotland, including some of my hon. Friends who turned out to support it and were proud that Scotland could produce a world beater.

The reckoning is due, and the Under-Secretary of State needs to answer other questions. I have posed those questions about the SDA, but there are even more important ones. Will the Under-Secretary of State give us details of what Gomba paid for Stonefield? After all, we are interested in public money and the public interest. When I was recently in Jersey, I found accidentally that the receiver was suing Gomba-Stonefield for £100,000 still outstanding. Previously, I was told that only half the money had been paid. That would seem to mean a figure of £200,000 for the purchase. Is that correct? If so, why was the higher offer of £300,000 refused in favour of Gomba? Why did Gomba get Stonefield for a figure not much more than the value of the engines, axles and other components in the factory.

Why was there no written agreement between Gomba and the receiver and the SDA about the takeover? It would seem to be sensible business practice to have that important agreement in writing. Does the Under-Secretary of State accept that the lack of a written agreement resulted from a hasty deal because of Tory party pressure involving the Prime Minister, ultimately resulting in the damaging dispute between the SDA and Gomba, which was used by Gomba as the excuse for moving from Cumnock to Rochester?

What investigations did the Scottish Office or the SDA carry out into Gomba, its other activities and its registration in the offshore tax haven of Jersey before agreeing to approve acceptance of its offer? Was the fact that Mr. Shamji was a friend of the Prime Minister OK for the SDA and the Scottish Office? There is a strong case for some kind of inquiry into what happened at the time of the take over to see whether it was done properly.

Let us consider what contact the Industry Department for Scotland, for which the Minister is responsible, had with the Department of Trade and Industry to follow up Gomba to ensure that a company that still owes the receiver £100,000 and whose remaining assets at Cumnock have been attached by the SDA as security for outstanding rents, is not receiving more financial assistance from another Department. What has the Scottish Office done to alert the Department of Trade and Industry about this company and what guarantees have been obtained about continued production in Britain?

It is strongly felt, not just by me but by others, that Rochester is merely a staging post before production is transferred overseas.

Above all, what is the Minister doing to ensure that the SDA is more adept in its dealings with companies like Gomba and to ensure that the fiasco of the Stonefield saga is not repeated? Does not the whole episode confirm that the Government's original decision to seek private capital for Stonefield was unwise and responsible ultimately for the destruction of Stonefield and the loss of jobs. in Scotland and show that a successful public company can with the Government's connivance be effectively carved up by the private sector sharks to whom the Government are crazily and catastrophically committed, whatever the cost to the country?

Let us hope that the Minister and the Government are doing something to ensure that the Stonefield fiasco is not repeated in other parts of the country.

12.17 am
The Under-Secretary of State for Scotland (Mr. Allan Stewart)

I have no doubt that the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) is honest in his anxiety about the project, and I appreciate that. Unfortunately, he completely destroyed his case with the absurd and ludicrous conspiracy theories with which he has just regaled the House, starting with my right hon. Friend the Prime Minister. Those absurd allegations are without foundation and completely undermine the credibility of his case. May I make two introductory points? The first is that some of the allegations made by the hon. Gentleman are the subject of legal action by Gomba-Stonefield against the SDA. I am sure the hon. Gentleman will therefore recognise that I cannot respond in detail to some of those points. Secondly, I understand that the hon. Gentleman has made allegations about the SDA in a newspaper article published in Glasgow tonight. I have not seen it, and I am informed that the chairman and the chief executive of the SDA are considering the most appropriate response.

In 1977 the SDA invested £1 million in the company called Stonefield Developments Ltd. That gave the agency a 49 per cent. holding in the equity. As the hon. Gentleman said, unfortunately the chairman, first managing director and founder, Mr. James McKelvie, died in August 1977. Following that, the agency became effectively responsible for the company's management. Following an independent report from Mr. John Barbour, the SDA took a controlling interest and the company was then renamed Stonefield Vehicles Ltd. The company continued to experience difficulties. During 1978 it experienced serious financial pressure and the agency, as an interim measure, guaranteed a further £300,000 of additional overdraft facilities. So, by May 1979 the SDA had already invested a total of £3.3 million in the project.

The company continued to face such serious difficulties that the agency's bank overdraft guarantee had to be increased by £700,000. In September 1979 the SDA requested approval to make a further investment of £2 million. As the hon. Member knows from his previous Adjournment debate on the subject, the Government then concluded that that would not be sufficient to provide the self-supporting network of marketing and back-up facilities that was envisaged and that the likely volume of sales would not in any event be adequate to support the large-scale expense involved in providing such a network.

The Government considered that the best prospect was for Stonefield Vehicles to ally itself with a commercial organisation which could supply the sales and marketing expertise, and preferably the sales network, which were needed. The Government extended further funding of £700,000 so that the agency could continue the search for a private partner which it had started as early as 1978.

The Government also approved the provision of a further guaranteed £120,000 by the agency to match a purchase option taken out by Tozer, Kemsley and Millbourn while that company assessed the market possibilities for the vehicle. Eventually it concluded that the sales prospects were not sufficiently promising to justify exercising its option to purchase. That is a key theme. No one doubts the technical excellence of the vehicle. The problem from the beginning has always been sales.

Mr. Foulkes


Mr. Stewart

I cannot give way, because the hon. Gentleman took well over his 15 minutes.

The Select Committee on Public Accounts, in its report, recognised the advantages of private participation in projects of this kind, both for the relief of calls on public spending and for the injection of commercial know-how. It expressed the need for private participation to be sought in good time, and that was accepted.

The agency decision in July 1980 to appoint a receiver rather than put the company into liquidation provided another breathing space in which to attract a suitable partner. My hon. Friend the Member for Edinburgh, Central (Mr. Fletcher), who is now the Under-Secretary of State for Trade and Industry, then made it clear and the Government were delighted to consider and support any viable proposition from a private buyer to continue production in Scotland. The most strenuous efforts were made by Scottish Office Ministers, officials, the SDA, the receiver himself and private sector interests in Scotland to identify all possible interested parties and to follow up any prospect that would give the project a starting order book.

Two of the interested companies made direct inquiries in Malaysia to follow up the much-rumoured order from that source, but without result. My Department followed up with the Government's trade consul in Saudi Arabia news of a possible order from that country. A private approach was made to American Motors, manufacturers of the jeep. Discussions were also held with Land Rover, which showed an interest in the vehicle. Unfortunately, at the end of the day Land Rover felt unable to back the project.

That is what was done, and that shows the efforts that were made. Eventually, in March 1981, an offer to continue production of the Stonefield vehicle at its original base in Cumnock was received from Gomba UK, which proposed to provide further substantial capital investment at Cumnock. That offered a chance for success.

Mr. Foulkes

What about the other one?

Mr. Stewart

I am coming to the other one. If the hon. Member is referring to the other offer that was turned down because it involved transferring production to England——

Mr. Foulkes

Not that one.

Mr. Stewart

—had that been accepted, he would, I am sure, have been the first to criticise.

Mr. Foulkes

May I clarify that matter?

Mr. Stewart

The hon. Gentleman spent 18 minutes on his speech and asked me many questions, which I am trying to answer. I have only five minutes left.

I confirm that Gomba-Stonefield received an offer of regional development grant assistance, selective financial assistance, and a two-year rent-free period for the three factories at Cumnock.

The hon. Gentleman made several allegations. It is not true that my hon. Friend was not committed to the Stonefield project, and I wish to put that on the record ——

Mr. Foulkes

He told me that.

Mr. Stewart

It is because my hon. Friend wished the project to succeed that he insisted that the agency should bring in the private participation and expertise which alone could make the project a success. The chairman and chief executive of the SDA will confirm, if the hon. Gentleman wishes to ask them, that my predecessor was in no way opposed to Stonefield Vehicles as a project.

It is also completely untrue to say that my hon. Friend went back on verbal agreements with the company, or that he authorised the agency to do so. The agency's action in paying cheques to creditors of the former Stonefield Vehicles Company was done with the aim of securing normal trading relationships between those suppliers and Gomba-Stonefield. The payments which the agency made secured the assurances from suppliers which my hon. Friend promised to endeavour to secure, and I assure the hon. Gentleman that I shall write in further explanation of that point if he wishes me to do so. However, I give him that absolute assurance tonight.

The hon. Gentleman said one thing with which I agreed — that the SDA had improved. It has, of course, improved considerably since the Government took office and gave it a much better and more successful role. But the SDA has an excellent record in Scotland, a record which is widely accepted by people of all politicial persuasions, including many Opposition Members.

The company's claims against the SDA are the subject of legal action. The company took action against the agency in the High Court in London. That action was recently dismissed as being more appropriate for a Scottish court. The agency has been told that the company intends to pursue its action in the Scottish courts. The company has still to state in detail the claims which are the basis of its action. In the circumstances, the hon. Gentleman will understand that it is impossible for me to comment in any detail on the various points that he raised which relate to the legal action.

However, I assure the House that the hon. Gentleman cannot accuse either the Scottish Office or the agency of being indifferent to the company's difficulties. During the latter part of 1981 and in 1982, there were several meetings at which attempts were made to ensure that those misunderstandings did not prevent the company from obtaining necessary supplies. We all regret that the difference of view between the company and the SDA resulted in legal action, but the record is one of continuing efforts by successive Governments to ensure a future for a project that was always a high risk. I regret, as will the House and the hon. Gentleman, that those efforts were unsuccessful. I do not hold out any hope of there being success on that basis in the near future. Nevertheless, substantial efforts were made by many people over a long period

Question put and agreed to.

Adjourned accordingly at twenty-four minutes past Twelve o'clock.