HC Deb 24 October 1984 vol 65 cc752-77

Lords amendment: No. 5, in page 13, line 19 leave out subsection (2).

Mr. Butler

I beg to move, That this House doth agree with the Lords in the said amendment.

Let me explain why the Government introduced the amendment in the Lords. The provision which the amendment removes was originally inserted in line with the convention that is nowadays generally practised. At that time it was supposed that Royal Assent would be obtained to allow vesting day on 1 October. That date has now slipped, and it is important that any obstacles which might cause further delay should be removed if that can properly be done.

Bringing the Act into force immediately—which, of course, the amendment allows — would permit the Secretary of State to make a scheme as soon as possible after Royal Assent so that vesting day for the new Royal Ordnance Factory Company would not be automatically delayed by two months.

We have made it clear that we wish to proceed quickly to the incorporation of the new company. That will help the successful launching of the company and help to avoid uncertainty for the work force and for the Department's future dealings with the company.

We must interest ourselves in whether what is proposed is proper for the Government to undertake. The Opposition in the other place seemed to think it was, because they did not oppose the amendment. Why then was what I referred to as the convention of the two months delay introduced? It was to permit time for those who are likely to be affected to be able to acquaint themselves with the new law. Generally, it is the public who are affected by legislation. In this case the public are not directly affected by the Bill. The work force is affected by the Bill, and it is fully aware of what is involved in vesting. Nevertheless, we shall take certain precautionary and helpful action.

We shall do what is possible to minimise the delay between Royal Assent and the general availability of the printed Act. We shall also be placing advertisements in the press to publicise the passing of the Act and the making of the initial scheme. We shall notify directly those third parties—for instance, the owners of land and others—who have been identified as being affected by the transfer. It is fair to say that no one who may be affected in some specific way by the Act will be unaware by vesting day that he has been affected, and he will know in what way. The legislation provides for recourse to arbitration and possible compensation if a third party is adversely affected by the Act.

The provision deleted by the amendment was included principally for reasons of convention. I have explained why it is necessary to delete it. We are taking positive action to publicise the Act and special steps to ensure that affected persons are aware of the new legislation. For those reasons, I hope that the House will support the amendment.

7.45 pm
Mr. Denzil Davies

The Opposition cannot agree with the amendment, and I shall explain why in a moment. The reason for the amendment is that the Government ran into timetable difficulties with their business and could not obtain Royal Assent on 1 August. Their intention was to obtain Royal Assent on 1 August and vesting day was to be 1 October. As the timetable in the House of Lords went haywire and the Government had their business wrong, we are still debating the Bill.

Even if the Government carry the amendment, it will still take a few days or weeks before the Bill becomes law. If the amendment is accepted, vesting day will take place immediately the Bill becomes law. If the amendment is not accepted, the original provision will apply and vesting day will be two months later.

The Opposition oppose the amendment because we believe that time is needed—I make this point seriously, not for delaying purposes—between the Bill becoming law and vesting day to clear up certain matters about which the trade unions and employees are worried.

Mr. Butler

To become law, the Bill would have to gain Royal Assent before Parliament is prorogued. That does not of itself precipitate vesting day. The Secretary of State then has to make his scheme, and, as we have recognised, there are a number of points which must be considered further and finalised before a scheme can be made. The amendment removes a provision which would otherwise have made it impossible for vesting day to take place before two months had elapsed.

Mr. Davies

If the amendment is carried, vesting day and the passing of the Bill could be almost simultaneous. I am not saying that they will be simultaneous. If the amendment is rejected, the original two months period remains. Whatever the technicalities, time is still needed. I believe the Minister accepted that to some extent in his intervention. By voting against the amendment we are making the point that time is still needed to consider various matters, some of which have arisen as a result of statements made in another place on Monday.

There are certain matters which should be cleared up before vesting day. The first one is perhaps not as important as the second. It concerns what has come to be known as the MOU—the memorandum of understanding. We were told that we should see it before the Bill became law. We have not yet got it. We understand that it governs the relationship between the new plc and the Secretary of State and that it sets out various matters about management and so on. It is extraordinary that we have not yet had sight of it when we are in the last throes of our proceedings on the Bill. I seem to remember that we were promised it. It may be that the Under-Secretary of State, being a cautious fellow, did not go as far as to give an absolute guarantee, but he suggested that he would do all that he could. I am sure that he has, but we still have not got the memorandum of understanding.

One aspect of it gives the Opposition particular concern. We understand that there may be some kind of investment limit put upon the new company and that it is set out in the memorandum of understanding. I do not know what that is. It may be £8 million; it may be less. However, we should be told. The Treasury is very interested in these matters, because the new company is still totally within the public sector borrowing requirement and Government accounting. I have no doubt that the Treasury wants some kind of investment limit. If it is £7.5 million, that seems very low in respect of a company which has probably invested more than that in the past and ploughed back a great deal of its profits.

It may be that I do not know what I am talking about, but I hope that the Under-Secretary of State will say whether there is an investment limit and, if there is, what it is, what is its purpose and whether it will inhibit the development of the business once it becomes a public limited company.

I turn to a more important topic which affects the employees immediately. I refer to our friend TUPE '81. The Minister of State is lucky in that he did not have to go through our long sittings in Committee when we were obliged to discuss this ridiculous TUPE '81, which relates to transfers of undertakings. It is a concept dreamt up for us by the Common Market.

Although we did not accept it, we were told that TUPE '81 was to apply and that it meant that it was not necessary to set out in the Bill specific clauses transferring specific rights that the employees have at present. There is a long list of rights, including pensions, redundancies, trade union recognition, negotiating rights and many others that the employees enjoy at present. Apparently, all of these could be transferred under a blanket provision merely by incorporating or referring to TUPE '81 in the Bill.

The Opposition always had misgivings about it. The Minister told us that there was nothing to worry about. But a problem has arisen partly in relation to a specific case of redundancy, and there is a general point as well.

I deal with the general point first. Ministers have always said that TUPE '81 applied. In a letter written by the Secretary of State to all the employees on 30 January 1984, he made the point clearly. On page 4, he said: For you—the individuals on whom the ultimate success of the new organisation will depend — the change from Civil Service status is a major concern. Many of you have made this clear to Ministers visiting the factories, and to your elected representatives in the House of Commons. Today your terms and conditions of employment—your pay, hours of work, leave entitlement, your pension rights and redundancy benefits, your trade union recognition and negotiating rights—are set out in the enormous collection of rules and regulations covering the Civil Service as a whole. Under this Bill, these will, with the exceptions mentioned below— they are concerned mainly with pensions and indexation— be transferred on vesting day to the new organisation. There will, therefore, be no change for you simply as a result of the transfer. He was saying, in other words, that their rights, apart from indexation and one or two other matters, would be transferred en bloc by TUPE '81 and that it was not necessary to write it all into the Bill, whereas the Opposition tabled amendments saying that we preferred to see it all in the legislation.

When discussing these matters recently with Mr. Reid, the personnel director of the new company, the trade unions gained the impression that he did not regard TUPE '81 with as much reverence as Ministers seemed to regard it in Committee. Mr. Reid imported some kind of concept, that the needs of the new company might be different from those of the Civil Service. I do not know the origin of the word "needs", but that is the way that the company is trying to slide out of its commitment. The suggestion was that the needs were different and therefore that it did not follow that TUPE '81 lifted all the rights of the employees and put them into the new company. He more or less said that that would have to be looked at. When it was pointed out to him that Ministers had given assurances, apparently he replied, "It is a matter for the courts, is it not?"

One can imagine the effect on the employees and the trade unions, with all the upheaval of change and all the problems of indexation, redundancy and their opposition to the scheme, to be told that even the TUPE '81 mechanism, which everyone thought would protect and preserve their rights, might not apply to the new company and that at the end of the day they might have to go to the courts to determine their rights, despite the assurances by Ministers.

On 21 October, in the other place, when dealing with both the specific point of redundancy and the general point, Lord Trefgarne said: I believe, therefore, that I can confirm everything that I said on Report; but, of course, I have to point out that in the end the question of whether TUPE 81 does or does not apply is a matter for the courts. But the Government's view is contained in the words that I have already uttered, which I hope will be of assistance to the noble Lord. That, I think, disposes of the question". — [Official Report, House of Lords, 22 October 1984; Vol. 456, c. 43.] The noble Lord was saying that it might be the Government's view that TUPE '81 applied but that it was the courts that decided these matters.

We were not told that in Committee. We debated TUPE '81 again and again. Even the parliamentary draftsman was called into the Box, and I could see him nodding as the Minister expounded the impregnability of TUPE '81. Now we are told, "We think that it is all right, but you will have to go before a High Court judge if you want to determine your rights."

Once the employees have been shifted into the new company, even though the Secretary of State owns all the shares, presumably it is the management which will decide whether to apply TUPE '81 to all these rights. In Mr. Reid's mind, if the company does not think that it applies, employees will have to go to the courts for a ruling.

This is a matter of considerable concern to the Opposition and to the employees alike. We were told time and again that there was no problem about these rights and that they were protected by TUPE '81. Now we are told that they may be protected but that the courts decide these matters. That does not give a great deal of reassurance to people whose livelihood may be at stake.

I come to the specific matter which has given rise to the general problem of TUPE '81. The problem relates to mobility rights and redundancy arrangements. If redundancies are imminent within the Civil Service—this applies to non-industrial civil servants and there are rules for industrial civil servants—there is almost a right or guarantee to be transferred elsewhere within the Civil Service. If TUPE '81 applies, it seems that those rights apply and that they will be lifted from the Civil Service arrangements into the new company, although the existing rights enable a civil servant to move anywhere within the Civil Service, not merely within the ordnance factories. However, even if TUPE '81 applies, the right of transfer will be no more than company-wide. It will be a right to work for the holding company or for the four subsidiaries.

8 pm

Those who will become the managers of the new company are suggesting that if redundancies occur, the mobility right will not be company-wide. It is being suggested that there will not be a right to move between subsidiaries. It is suggested that the right will be restricted to a move from the part of the factory where the employee has been declared redundant to another part of the same factory. If there is work in another part of the factory, the employee will be able to be moved there if there is room for him. However, he will not have the right to be moved to another factory in another part of the country. It will not be possible for him to be moved from the munitions subsidiary, for example, to the vehicles subsidiary.

This lack of mobility is causing great concern, especially when 1,500 or 1,600 redundancies are imminent. I accept that there cannot be a mobility right into other parts of the Civil Service, for that has been removed from ROF workers, but they should surely have the right of mobility throughout the entire group comprising the holding company and the four subsidiaries. If that is not accepted, there will be considerable concern and irritation among the work force. I hope that the Under-Secretary of State will make it clear beyond doubt that their mobility is not restricted to the factory in which they work, but that they will have the right to be transferred either to the holding company or the subsidiaries.

The pension arrangements are still not satisfactory. The Government have still not provided what they said they would provide when we discussed pensions in Committee. The issue is that the employee should suffer no detriment. He still will not enjoy the indexation that he would have received in the Civil Service. There has been some movement, but there is room for more. The trade unions realise that if there were an economic crisis of a proportion to cause the Civil Service index-linking system to collapse—that could happen if inflation were to reach extremely high levels — they could not expect to have index linking in public companies. The unions are asking for index linking as long as there is index linking within the Civil Service. They are entitled to ask for that, and that is something the Government owe them. Pressure and debate have caused the Government to move to a certain extent, but not as far as the unions have asked. Perhaps the Treasury is the problem. Surely the unions are making a reasonable request.

No detriment, to use the Secretary of State's term, means that there should be index linking as long as the Civil Service has it. Vesting day must not be the day on which the Bill becomes law, because the index-linking issue must be resolved before the ROFs are shunted out of the Civil Service into a public limited company.

The ordnance factories have benefited over the years by being part of the Government and from the preferred source arrangement. The trade unions and most employees do not want the ROFs to be privatised. Indeed, they are almost entirely opposed to privatisation. However, they understand that the Government's competition policy means that they are unlikely to enjoy a continuation of the preferred source policy. That is a shame, but that must follow from the Government's policies. Nevertheless, the trade unions and management are asking for time to adjust. They do not wish to be thrown from a position in which they have a guaranteed income by selling their wares to the Ministry of Defence into a world in which they have to compete in a different environment following a great upheaval.

I know that Conservative Members will say, "If the ROFs cannot compete, they cannot be that good," but it would be unfair to take that view. In the past, a standard of quality has been imposed upon the ROFs. Once they become a public company, they could be undercut in the short term by European competitors because quality costs money. A lower quality product can be made cheaper.

The trade unions and the management are asking for time to adjust. It is not for me to say how long they should be given, but they are asking for a period in which to adjust before they enter a competitive world. In effect, they are saying, "We are efficient and we produce high quality goods, but there is a problem because of our relationship in the past with the Ministry of Defence." I hope that their request for time can be dealt with and met before vesting day.

There is a memorandum of understanding, TUPE '81 generally and especially in terms of redundancies, index linking and preferred source. I hope that there will be a statement from the Under-Secretary that will go at least some way to reassuring employees and management in the ordnance factories on many of the issues that I have raised. The Government owe that to them. They have a duty to resolve these matters before the conveyancing mechanism takes effect and the ROFs are shunted off into a public limited company.

Mrs. Anna McCurley (Renfrew, West and Inverclyde)

I add my good wishes to those which have already been offered to the Minister by my colleagues. I hope that he is always as completely reasonable as he was in his response to the hon. Member for Blackburn (Mr. Straw). It would be invidious to take advantage of my hon. Friend's courtesy and yours, Mr. Deputy Speaker, while speaking to the amendment, which in part I oppose.

The House will appreciate that ROF Bishopton is in my constituency. Any mention of redundancy has to be taken extremely seriously, especially when rumour has it that the losses will amount to 1,600 jobs, with 400 or more redundancies occurring at ROF Bishopton.

ROF Bishopton is something of an institution in Renfrewshire. It is a major employer of labour in my constituency. The Bill has led to considerable debate and anxiety among the work force. The Minister has denied that the Bill and any subsequent preparations —unspecified — to transfer to the private sector have anything to do with the current plans to cut jobs, and it is ironic that the issue which troubled the work force most and took up most of the discussion time was something of a red herring. At least I am temporarily reassured that it was a red herring.

A massive haemorrhage of jobs would damage morale even more within the factory. It would cause considerable despondency in an area which in the past year has suffered the trauma of the Scott Lithgow crisis. It has started to pick itself up again and job vacancies are increasing. Things were looking much better. Government policy was working. Government policies are working in my constituency and travel-to-work area. It is true that this news is a considerable setback to us. ROF Bishopton prepares the gun propellant FH70. Although I fully understand the Government's anxieties and efforts, the trilateral agreements must be upheld. The combination of poor order books, stockpiling and international arrangements provide gloomy news for Bishopton. ROFs have a good, hard-working work force. We must remember whenever their efficiency is talked about that they twice won the Queen's award for industry.

I am puzzled about the reason why there has not been a little more foresight. Surely the Ministry of Defence alerts the ROFs. Surely it could have planned for this time. Why were no steps taken earlier to prevent sudden large losses of jobs? We cannot play ducks and drakes with jobs. We might need that portion of the work force again. Why has there not been a gradual reduction in the work force on the basis of a programme of voluntary redundancies? I understand that in the near future the SP70 programme will commence. Is it not possible to bring it forward now and save us all trouble?

I was grateful to my hon. Friend the Member for South Ribble (Mr. Atkins) for bringing to the attention of the House the question whether the Bill would preserve the ordnance factories, but I was more pleased to hear his plea to the Minister to aim to disconnect in the minds of people the false link between redundancies and the Bill. I was particularly pleased to hear that he was able to elicit assurances on terms of redundancies.

Dr. Norman A. Godman (Greenock and Port Glasgow)

The hon. Lady knows that some of my constituents work in the ROF at Bishopton. Does she agree with me that many of our constituents were deeply worried not only about the implications of the transfer of the production of the FH70 propellant material to the Federal Republic of Germany, but about what they saw as their geographical isolation relative to other ROFs in the organisation? Does not that relative isolation worry those people when considering future decision-making on the disposal of the ROFs? Their immediate fear is about the implications of the FH70 transfer and what they see as their geographical isolation.

Mrs. McCurley

I cannot answer for the Government's position, but I agree that there is anxiety. I believe from past experience that, generally speaking, the anxieties in Bishopton have been misplaced. For the past few years, ROF Bishopton has been working to full capacity.

The last time that I spoke in a debate on the ROFs I said that I would vote for the Government on this issue—more as an act of faith than out of genuine conviction that the Bill was satisfactory or enlightening. To say the least, my faith is a bit shaky, but I shall remain with my stance. I reiterate, however, what I said previously. If the consequences of enacting this Bill ever show signs of aggravating our current position, I and my colleagues would be swift to react.

8.15 pm
Mr. Carter-Jones

I understand the feeling of the hon. Member for Renfrew West and Inverclyde (Mrs. McCurley) that the Government Front Bench owe the workers in the ROFs a fair amount. For 20 years, I have been visiting the royal ordnance factory at Patricroft, which has given sterling service. I have visited that factory with the Under-Secretary of State for Defence Procurement. When we went there, the Minister was pressed about pension rights but we still do not know the answer to that question. The Minister gave a parliamentary answer dated last Monday, about pensions in ROFs, but the issue has still not been settled.

I am begging for some delay because the honourable thing for the Government to do is not to use weasel words and praise the unions, staff associations and management and then leave the issue with a great big question mark hanging over it. The Government owe a debt of honour to those people. The Government cannot praise them and then ignore them. The people have a right to know. The time factor is significant. The trade unions have been houourable in their actions with the Government.

Last week I visited the ROF at Patricroft and noted that the workers were still worried. Two worries remain following two parliamentary replies which were given only last Monday. The Government say — the hon. Member for Renfrew West and Inverclyde would sympathise with them—that the forecast workloads are giving rise to serious worry at the royal omance factory. Those are the Minister's words, not mine. If the Minister is worried about this matter, he has a serious obligation to resolve those anxieties before he makes his final decision. There is no question of blacklegs or anyone else in the ROFs not agreeing. The union members are of one mind. They believe that their leaders represent them. They feel that they have been let down by the Government. The Government have a clear obligation, even though the legislation is now becoming law, to reconsider the matter with speed, integrity and houour and to resolve the problems of redundancy before vesting day.

The Government have a firm obligation with regard to pensions. Since the White Paper was delivered, I have pleaded with the Government to give a lead on pensions. There is a chance, before the legislation receives Royal Assent, to hold firm, positive discussions. If the Government do not come to firm decisions on pensions and redundancies, their words of praise to the work force will have no meaning. Those words will have been polite utterances by Ministers trying to get legislation passed. Let us make those words a reality. The Government should go back to the unions and negotiate firmly. They should negotiate so that the unions have the agreement that they were promised.

In my 20 years in the House I have never known Government Front-Bench spokesmen look so miserable about a Bill. It would have been better if, at the outset, the Strathcona amendment had been accepted and all this silly drivel had been driven away. Having taken this action, the Government should turn their words of praise into something realistic and not make the measure into a sham. I say to the Government, "Before vesting day, go back to your work force, the associations, management and unions and, once and for all, resolve the pension and redundancy problems."

Mr. John McWilliam (Blaydon)

I am pleased to follow the hon. Member for Renfrew West and Inverclyde (Mrs. McCurley) in this debate, because she raised an important point. If there are redundancies at ROF Bishopton, which makes the propellant and explosive, there will unquestionably be redundancies at ROF Birtley, which makes the shells. We are caught with this Bill. I disagree with the hon. Member for South Ribble (Mr. Aitkins) who tried to destroy the credibility of the link between the privatisation of the royal ordnance factories and the redundancies that will occur. I do not believe that he destroyed that credibility.

I believe that there is a direct link—a desire by the Government to quote down the value to make privatisation easier and to hold back orders which will make profitability greater immediately after privatisation. I would welcome a reassurance from the Minister that that is not the case. I believe him to be an honourable man, and I do not believe that he would willingly go along with such a ploy. On the other hand, I do not believe that he is necessarily fully aware of the Government's desires.

The Minister is both the provider and the customer. Ammunition orders this year are 25 per cent. down, and as the customer he can do something about that. United States Department of Defence Appropriations hearings for 1985 state: fire only so many rounds pet hour … This conservation measure is to be employed against an enemy whose tactics rely on mass formation and continuous attacking waves of troops. One artillery commander commenting on his presently authorised basic ammunition load (3 days) said that he fired that amount in less than one day in Vietnam. Instead of lack of demand for ammunition, we have the United States admitting that it is short of ammunition. Yet we are faced with 470 redundancies in the constituency of the hon. Member for Renfrew, West and Inverclyde and with about 600 in mine, where, thanks to the adherence of the Americans to the Chancellor's strategy, we have just lost 1,200 jobs at Catterpillar, because once again the Americans have exported their unemployment to us.

There is the three-country deal on FH70 ammunition. I telephoned the private office of the Minister's predecessor before the recess because I was given to understand that there was a problem. I was reassured when his office told me "Yes, the Germans are entitled to their share of the FH70, but the SP70 ammunition is coming in." Where is it? Neither I nor the workforce can see it. I have received a note from the works convenor at Birtley which says that at present 497 jobs are at risk because of the lack of orders and this three-country deal. What is more, when one looks at the size of the order for FH70, it seems that the Germans are demanding not just their share for this year but for last year, which they could not make or complete, and for the year before, which they could not make at all. If the Minister is giving in to this kind of pressure, I hope that he will have the honesty to tell us that that is what he is doing. I do not believe that that is in the national interest.

There is also the suggestion that although the Germans want a bigger share, the price they are quoting is higher than the price charged by Birtley. If so, why are the Government wasting public money in this way?

The hon. Member for Renfrew, West and Inverclyde may not be aware of it, but I understand that West Renfrew has been told that if it can quote the lowest figure for propellant it will get the order. However, Birtley has not been told that if it quotes the lowest figure for shells it will get that order.

Dr. Godman

My information is that ROF Bishopton supplied a tender and a delivery date and that the German company was asked whether it could match both or undersell ROF Bishopton. It was explained that the ROF tender was cheaper and that delivery dates were spot on, but that the Germans were asked to match or improve on the two.

Mr. McWilliam

I am grateful to my hon. Friend. That shows that we are debating the Bill in ignorance. We spent a hard Committee stage in ignorance. Ministers have not been prepared to tell us what the situation is. My hon. Friend and the hon. Member for Renfrew, West and Inverclyde may well be right, but we need to know.

Why was the problem of redundancies not raised last week? Why was the other place left in absolute ignorance? Why did the only admission of possible redundancies come in a reply to my hon. Friend the Member for Eccles (Mr. Carter-Jones) on Monday? What are the Government trying to do?

Obviously I am opposed to the privatisation of the ROFs on political principle. I make no apology for that. Equally, I accept that on the basis of political principle Conservative Members are in favour of privatising the ROFs. We are talking not about political principle, but about people in my constituency who will never work again. The Minister must be honest with the House. He should tell us what the damage will be. There is no point in hiding behind a possible order to alleviate some of the redundancies. The Minister must tell us what possible orders exist. Why are all these super salesmen whom we employ not camping at the doors of the Pentagon trying to make good the shortage of shells to which the American artillery commander referred?

Dr. Godman

I wish to reiterate what I have already said. My information is that the lowest tender for the FH70 propellant material came from the ROFs and that consequently the Germans were asked whether they could match them in terms of price and delivery date. Not unnaturally they said yes.

The people whom I represent who are employed at ROF Bishopton are understandably deeply concerned about the implications of the collaborative agreement on the transfer of the production of FH70. If the ROFs have lost this important work, will the Minister encourage an acceleration in the switch to other products in the hope of ameliorating some of the attendant problems? It should be remembered that the fears of redundancy have been aroused in an area which is still characterised by dismally high levels of unemployment. Ministers appear most eager to plunge the ROFs headlong into competitive markets.

Contracts which the MOD has historically placed with the ROFs will presumably be put out to competitive tender. If so, is there not a danger that that will result in orders being lost to foreign competition which may produce cheaper but somewhat inferior materials?

I have been led to believe that a number of ROF products are costly compared with those produced in Europe and elsewhere, but we should not lose sight of the fact that traditionally, and to my mind sensibly, the United Kingdom armed forces have set exceedingly high quality control standards. That makes eminent sense.

A is right that the standards demanded by customers should be exceedingly high. But if that is so, it will inevitably be reflected in the product's cost. The price of a material or service should not become the simple yardstick by which tenders are assessed and accepted. I am concerned that that simplistic approach is finding favour with the Ministry of Defence.

8.30 pm
Mr. Piers Merchant (Newcastle upon Tyne, Central)

I have a constituency interest in this issue, as several of my constituents work at the ROF at Birtley, to which the hon. Member for Blaydon (Mr. McWilliam) referred. If it was just a question of competitiveness, there would not be so much concern. However, is the hon. Gentleman aware that the suggestion about the FH70 order is that several future orders will be placed with German factories —particularly for shell case parts—not solely because of competitiveness but because a form of protectionism was built into the 1970 agreement? Consequently, foreign manufacturers have an advantage over the highly competitive British ROF manufacturers. That is distorting the market place and it is certainly not helping British industry.

Dr. Godman

I need hardly reply, as the hon. Gentleman has put the case most succinctly and eloquently. He is right. That protectionism is harming those whom we seek to represent.

If price becomes the major criterion, the armed forces may have to accept inferior military products from some of those foreign producers, sections of our defence industries will be lost to continental competition, with the consequence that our capability to maintain the production of military materials under national control will be put in jeopardy—a major threat—and the loss of orders will lead directly to massive redundancies.

Mr. Ashdown

Is the hon. Gentleman aware that it is not just friendly nations which may pick up some of the orders and upon which we may become dependent, but also nations that might be considered to be on the other side of the fence? For example, the ROF in Bridgwater has had to rely in the not-too-distant past on the supply of Bulgarian TNT. Does not that make the hon. Gentleman's point even more powerfully?

Dr. Godman

I am deeply grateful to the hon. Gentleman for that intervention. Although we have not discussed these very important issues, I am sure that there is wide agreement about what we both define as friendly and unfriendly nations. However, I am not offering any sort of political hostage to the hon. Gentleman and his party.

Of course the hon. Gentleman is right in that national control is being dissipated in the way that I have briefly outlined.

People are worried about redundancies and pension rights. Today we have had some assurances, but those fears and uncertainties cannot be dispelled even by the managements of the ROFs, as they seem to be equally unsure about the short and medium-term prospects. The Government have a responsibility to allay those fears and to respond to the deep concern of the people who, as the Minister has just said, are directly and deeply affected by the Bill. Those involved are decent, ordinary, honourable people and the ambiguity surrounding their livelihoods and workplaces should be cleared up as soon as possible. They deserve nothing less from the Government. Time is needed to enable the ROFs to adapt to the radically different circumstances that are brought about by the Bill.

Mr. Straw


Hon. Members

Hear, hear.

Mr. Straw

An expected pleasure, and I welcome the approbation of my colleagues.

I share the concern of my hon. Friends the Members for Blaydon (Mr. McWilliam) and for Greenock and Port Glasgow (Dr. Godman) and of my right hon. Friend the Member for Llanelli (Mr. Davies) that there should be a delay of two months before the Bill comes into force, not least in order to provide time, while the ROFs remain fully under the control of the Ministry of Defence, for the Ministry to explain exactly what redundancy notices will be issued and what the future job prospects are for the hundreds of employees whose jobs have been placed at risk by recent announcements and rumours. I hope that the Under-Secretary of State will be far more forthcoming in his answers than the Minister of State was when he replied to my intervention earlier.

The Under-Secretary of State may say that it is a mere coincidence that it is rumoured that upwards of 2,000 redundancies are about to be declared in the ordnance factories at a time when the Bill is about to be passed and privatisation is about to become a reality. However, it seems to us to be more than that. I say that, first, for the reason given by my hon. Friend the Member for Blaydon, which is that the Government have a vested interest in ensuring that the companies' future prospects are better than they are at present. Therefore, they have a paradoxical vested interest in delaying orders to those companies so that the companies' future earnings can be puffed up when they come to be sold. We know that the Government have always placed a quick return above the need for introducing greater competitiveness into the market place or the long-term future of those companies.

My second reason for saying that it is no coincidence is that I believe that the whole privatisation exercise has meant that the resources and time of Ministers and senior officials at the Ministry of Defence have been concentrated on this doctrinaire, ideological and wholly unnecessary saga of privatisation instead of on finding and processing orders for the ordnance factories and securing their longterm futures.

Mr. Geoffrey Dickens (Littleborough and Saddleworth)

Is the hon. Gentleman aware that what he said borders on the dishonest? In my former constituency of Huddersfield, West tremendous orders for tanks were cancelled when the Shah of Iran was replaced, and the British Government chased all over the world to find someone to accept them. That does not sound to me like an uncaring Ministry of Defence. Indeed, I was deeply grateful for the work that the Ministry did in keeping jobs going in the ordnance factories in Leeds, and in helping the component manufacturers in Huddersfield, West. I take great exception to the tone of the hon. Gentleman's speech.

Mr. Straw

I regard that as a compliment. I shall send the hon. Gentleman a note when I next plan to speak in the hope that he will turn up to take exception to what I say. The hon. Gentleman has reassured me about any worries that I may have had about my future in Blackburn.

Ministers have dined out on the Shah of Iran alibi for many years in their efforts to explain away job losses in the ordnance factories. That has not done before, and it will not do now.

Morale has been damaged for two reasons. First, between 1974 and 1979, when a Labour Government were in power—and before—ordnance factory employees had secure jobs. They saw the number of jobs increasing, not falling. Jobs in the factories increased from 18,519 in 1974 to 23,119 in 1979. The Labour Government knew how to manage the ordnance factories. That was proved by the increase in the number of jobs. That increase in jobs was reflected in Blackburn where jobs at the ordnance factory increased from 2,213 in 1974 to 2,532 in 1979.

What has happened since then? Year after year, job losses have taken place in the ordnance factories. As the financial memorandum of the Bill makes clear, numbers have dropped from their peak of 23,119 in the last year of the Labour Government to 18,600 — a reduction of 4,600, or 20 per cent.

The second reason why morale has been damaged is that, alongside unprecedented cuts in jobs, there has been enormous uncertainty about the future of the people who have given dedicated service in all the ordnance factories. It is almost four years since we had the first debate, on 18 December 1980, about the future of the ordnance factories. When the right hon. Member for Cambridgeshire, South-East (Mr. Pym) was in office he recognised what an insane and senseless policy privatisation was and he dragged his feet. We commend him for that. He was unceremoniously removed from office, more Thatcherite Ministers were introduced and more privatisation measures were introduced. The policy now has neither manpower nor defence strength about it. It is inspired by ideology, by doctrinaire Thatcherite ideas and by an obsession with reducing Civil Service manpower by playing the numbers game. People are not to be stopped doing jobs, but they are to be removed from the books. Despite the knocks to staff morale, workers have given dedicated service in all the ordnance factories, not least in those in Blackburn and Chorley.

It is unlikely that we shall be able to stop privatisation. I am glad to see in the Chamber my hon. Friend the Member for Burnley (Mr. Pike) who, on behalf of trade unions representing the two Lancashire ordnance factories, has put up a major and significant fight. As a result of that fight, at least some aspects of the privatisation measure have been ameliorated. We have made some progress.

All that progress will be lost if, as the Bill goes through, workers receive redundancy notices. It is a tragic commentary on this Government's priorities that the prospect of between 1,500 and 2,000 redundancies looms large at factories such as Blackburn and Chorley, Birtley and Bishopton. I hope that we shall receive the detailed reassurance which was so sadly lacking when the Minister spoke earlier.

8.45 pm
Mr. Merchant

I remain firm in my support for the staged privatisation of the royal ordnance factories because it is beneficial to the consumer, the factories, the industry as a whole and the work force. I am anxious about the industry's future which will remain dependent on home orders and therefore on procurement policy. I am worried about the future of ROF Birtley which draws on a work force living in my constituency I was approached by trade union representatives from Birtley some months ago to discuss not only Government policy on the ROFs but procurement policy and in particular the future of FH70 155 mm shell parts, the casings for which are manufactured at Birtley.

I hope that the Minister will give us some assurance about the future of that vital order. The hon. Member for Blaydon (Mr. McWilliam) is a convert in terms of recognising the danger. He is a late convert because as recently as 1 August he accused me of unsubstantiated meddling when I said that job losses at Birtley might take place because of doubts over the placing of the FH70 shell casings.

Mr. McWilliam

I accused the hon. Member for Newcastle upon Tyne, Central (Mr. Merchant) of unsubstantiated meddling because I took the trouble to check his story with the Minister's private office and was assured that there was no problem. The hon. Gentleman's remarks sounded then like unsubstantiated meddling, and they still do.

Mr. Merchant

If the hon. Member for Blaydon still accuses me of unsubstantiated meddling how is he able to use the same logic and arguments that I am using in relation to the future of FH70 orders? His speech centred on doubts about the future of that order and the jobs connected with it. If the hon. Gentleman had checked more fully in August, or even if he had contacted me, I might have been able to assist him in verifying the substance of the suggestions that I made at that time.

Birtley and other ROFs have produced high quality products on time and competitively. Orders for shell casings are being given to German industry under German pressure. The signs are that future orders for shell casing parts and other parts of the FH70 package will also go to Germany.

The German industry has had to construct a new production line to manufacture the shell casings when factories in Britain already have a well-tried and tested production line. I understand that the Germans are struggling to meet order deadlines and to produce the products at a sufficiently high quality. ROF Birtley can already produce a high quality product at competitive prices, on time.

There is no question of ROF Birtley not being able to compete competitively. It is not being allowed to compete freely and it is suffering from German protectionism supported by the British Government. I do not understand why Ministers are unable more effectively to resist German demands, even within the 1970 trilateral agreement between Britain, Germany and Italy. If they are not able to resist that pressure and if it is not possible to place large orders with the acceptably good British equivelant to the German producers, surely it would be possible to renegotiate the 1970 agreement to give more recognition to the British producers.

It is difficult to inspire support for the Bill outside of those who already support it—I refer in particular to the work force of the ROFs—if, at the same time, doubt is cast over the future of the industry through what I can only describe as morale-harming procurement policy. Therefore, I ask Ministers, when they look at the future of the ROFs as units, to bear in mind the crucial impact on the future that procurement policy has, and therefore be prepared to give a greater credence to the undoubted success of the past and the undoubted future that the British Royal Ordnance industry has.

Mr. McNamara

This has been a short but important and interesting debate. This amendment, which the Government pushed through in the other place, is a confession of their failure. It is a confession that they cannot handle party timetables and that the Department could not carry out its work load properly, so it is necessary for the Government to come back to the House in late October after the Commitee had been told that vesting day was 1 October. What is more, the Government still cannot give us the information that we asked for when we first debated the matter in the House.

The Minister said that the Government would not be allowing the two months' time lapse before the Bill came into force, although that would give people affected by it time to make representations or continue discussions. As my right hon. Friend the Member for Llanelli (Mr. Davies) pointed out, there are many discussions ahead, for example with the work force, and much information is still needed. Instead, the Minister is going to put his notices in the newspapers, write to people and so on. If he is going to tell everybody what happens in the scheme through that method, will he give an undertaking that the Secretary of State or the Minister will make a precise statement to the House on the day of the publication of the scheme? We are the elected representatives of the people in general and in particular of the people who work in the ROFs.

Mr. Butler

The hon. Gentleman knows perfectly well that I shall not do that. However, as I have already said, we shall not keep to the letter of the law which, if finally the Bill receives the Royal Assent, would require the scheme to be laid before the House within one month of vesting. We have agreed that a copy of the scheme will be put into the Library before vesting day, so the details will be known in advance.

Futhermore, the two month rule is not to allow further negotiations and discussions but purely to allow those likely to be affected by legislation to see, if they so wish, the legislation printed. They can become acquainted with the law before it takes place. I have explained why, in this case, we have felt that that was not necessary.

Mr. McNamara

I am pleased that the scheme will be in the Library before vesting day. However, on vesting day, can we have a statement in the House, when we shall have had the opportunity to read the scheme and will be able to ask questions about it? Hon. Members whose constituents are involved and those who are concerned about national security should be able to ask questions. That is the least that the Government can do after the mess that they have made so far.

My right hon. Friend the Member for Llanelli mentioned the memorandum of understanding. We understand that there are rumours that there will be limits on the amount of capital that can be invested by the holding company before it is privatised, and that it will be limited to not more than £8 million in the course of one year. Can the Under-Secretary confirm that? Where does that put Royal Ordnance plc in relation to its competitors, who will not have that same limit on investment?

I also understand that limitations will be placed on the ability of Royal Ordnance plc to diversify in the hiatus while it is waiting to be privatised. Is that true? If so, that would mean that it will not be able to compete freely and fully on the open market, despite the great anticipations of the hon. Member for Chertsey and Walton (Mr. Pattie), but will be limited on investment and diversification.

My right hon. Friend the Member for Llanelli also referred to TUPE '81 and he showed clearly how the strength and fervour of the Ministers' original statements that the employees had nothing to fear from being transferred because TUPE '81 would protect them in every way mean nothing. We had the final weasel words of the Minister in the other place last week, who said that this would have to be decided in the courts and that he could not guarantee what the Government have been saying that they will give. If we are to believe what we are told, the new management of these factories has been dragging its heels on agreements, waiting for vesting day. They know that after that day, the power of TUPE '81 goes out of the window. Then, the agreements and other arrangements will only operate if they are suitable for the particular factory.

If employees in the ROFs are made redundant before vesting day, will those who still have rights as mobile civil servants retain those rights until vesting day, so that they can seek employment elsewhere in the Civil Service? That is one of the most important aspects of the matter.

My hon. Friend the Member for Eccles (Mr. Carter-Jones) and others have pressed strongly for information on what is to happen about pensions. I understand that the Minister may have been advised that there has been an acceptance of the fact that there will be a notional detriment. Is that true? If so, has that detriment been quantified? What does it mean in money terms?

The issue of redundancies has been a sad and sorry story. It was interesting to hear what the Minister of State said earlier and the response of hon. Members during the debate.

Can the Minister confirm the alarming tales that we have heard from my hon. Friends the Members for Blaydon (Mr. McWilliam) and for Greenock and Port Glasgow (Dr. Godman) and from the hon. Member for Newcastle upon Tyne, Central (Mr. Merchant)? It is suggested that, under the trilateral agreement, the Germans did not take up their option and that they did not produce any of the shell casings and other equipment in 1982. We have been told that in 1983 they could not fulfil their undertakings on quality or quantity and yet that in 1984 they are demanding the lot. Is that true?

9 pm

It is also suggested that the Ministry of Defence said to the Germans, "If you give us the right delivery dates and tender price, we will let you have the order." Is that true? Was the Ministry prepared to lose all these jobs in Britain for a cheaper contract? If 1,600 ROF empolyees are made redundant, they will each cost the Exchequer at least £5,000 a year in unemployment and social security benefits. It would be cheaper to keep them at work.

What can the Minister tell us about the redundancy figures that have been bandied about? It is no good his saying that the Government are doing their best to get new orders. That is precious little comfort for the areas that have been hit.

We have heard a moving account of what is happening in Blaydon which is to lose 600 jobs. Is Germany's unemployment being exported to this country? We are also told that 460 jobs will be lost at Bishopton, 450 at Chorley, 150 at Blackburn and 600 at Birtley. Are those figures accurate? The Minister has an opportunity to come clean about the German contract.

If the factories are to be privatised, it will obviously make them more attractive if the work forces are slimmed down and the order books are subsequently boosted. That would make the factories a much more attractive proposition for privatisation. If jobs are lost in one division in the factories—probably the least profitable division—the other products will be more attractive after the contraction.

Right from the start, we raised the fears of redundancies. Minister after Minister said that there ws no need for such fears and that there was no possibility of anything like that happening. The Under-Secretary seems to be suggesting that he did not say that. Let me put it this way: Ministers did not expect that there would be any redundancies as a result of this venture.

Mr. Lee

Ministers have said repeatedly that the level of employment in particular factories depends on market demand. We have given no guarantees about the levels of employment.

Mr. McNamara

But the Government control the market and make the demands. They buy the shells and their decisions are putting people out of work. The Minister should try to understand what unemployment means, particularly in Newcastle and other areas of the north-east that have been hit time and again under this Government. There is a country north of Watford.

Mr. Lee

My constituency is in the north. I am well aware of the economic situation in the north of England, and in the north-east.

Mr. McNamara

I am pleased to hear that. The Minister should be doing something to improve it, rather than making it worse.

We have had a complete confession of failure by the Government in terms of their own timetable and organising ability. There are problems which the Government have yet to reveal to the House, and we have yet to hear their solutions to matters in the memorandum of understanding. The Government have reneged on TUPE '81 in their statements, and in the recent contract announcement they betrayed the impression that they had given to those working in the ordnance factories that their jobs were safe.

Mr. Lee

Although the debate has moved well away from the amendment, I shall, in fairness, endeavour to answer a number of the detailed points that have been made.

First, there is the question of redundancy and employment levels. During the past 10 years there has been a gradual decline in employment at the ROFs. During that period, the ROFs have been in the public sector. As my hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) rightly said, there were 500 redundancies at Leeds because of the loss of the Iranian order in 1979. In 1981 there were about 1,000 redundancies at Birtley, Blackburn, Radway Green and Nottingham. In the 10 years from 1974 to 1984, about 2,300 jobs have been lost, and during that period the ROFs have been within the public sector.

Mr. Straw

I apologise for intervening so soon, but the Minister should not try to murder the facts. There were no job losses in the ordnance factories between 1974 and 1978.

Mr. Dickens

The hon. Gentleman's Government over-recruited.

Mr. Straw

The Minister says that there was a continuous 10-year period of job losses. In fact, the number of jobs in ordnance factories rose by 5,000 between 1974 and 1979. It is only since the present Government took office that jobs—nearly 5,000 jobs—have been lost. Why does the Minister not have the courage to admit that?

Mr. Lee

I had scarcely started my speech when the hon. Gentleman intervened. I repeat that in the past 10 years 2,300 jobs have been lost while the ROFs have been in the public sector. I accept that job levels were higher before 1974, under the Labour Administration, but there has been a constant drive for greater efficiency in the ROFs —a drive which is even stronger today.

It is understandable that the debate has concentrated on the question of redundancy. My hon. Friends the Members for Renfrew, West and Inverclyde (Mrs. McCurley) and for Newcastle upon Tyne, Central (Mr. Merchant), and the hon. Members for Blaydon (Mr. McWilliam), for Eccles (Mr. Carter-Jones) and for Greenock and Port Glasgow (Dr. Godman) have all mentioned redundancies. Some of the current rumours about jobs in the various ROFs have caused considerable concern.

I should like to speak briefly about the question of international collaboration.

Mr. McWilliam

Will the Minister explain to the House what he means by rumours? I did not refer to rumours in my speech. I referred to facts, and I want the Minister to confirm those facts today.

Mr. Lee

I shall come to that point.

Mr. Robert Kilroy-Silk (Knowsley, North)


Mr. Lee

The hon. Gentleman has not contributed to the debate.

The hon. Gentleman who criticised collaboration cannot have it both ways. One cannot have the cake and the halfpenny as well. The ROFs are involved in a large number of collaborative programmes which give individual ROFs substantial amounts of work. For example, the ROFs have collaborative agreements with Mauser on the mauser gun and on ammunition, with Thompson CSF of France on the Sabre air defence system, and with EuroMetal on the L64 ammunition, with Rhinemetal on the MLRS. In terms of American collaboration there is collaboration with the Hughes Corporation on the chain gun, with Cadillac Gauge on the commando Stingray light tank, and with BMY on the universal 155 mm turret. They are collaborative programmes. The world of defence procurement is increasingly one of collaboration. The hon. Member for Yeovil (Mr. Ashdown) is nodding. He knows of the collaborative agreement with the Italians on the E101. The hon. Member for Burnley (Mr. Pike), who has a substantial Lucas factory in his constituency, knows of the number of collaborative programmes in which that company is heavily involved. But collaboration works both ways — we cannot always expect everything to come from collaboration. We must play fair and honour our international commitments.

The FH70 involves worksharing and the honouring of an agreement made in 1970. My right hon. Friend set out the position in some detail, but as various points have been raised, I shall attempt to answer them. The memorandum of understanding was signed in 1970 between the United Kingdom, the Federal Republic of Germany and Italy for the production of the towed 155 mm howitzer, the FH70 and for its family of ammunition—three sorts of shell and three sorts of cartridge including cartridge 3, which we need to order.

Usually, in collaborative ventures the work share is equivalent to the uptake of the equipment of the guns. On that basis, the United Kingdom should have been entitled to only 20 per cent. of the manufacture. So far, it has secured 36.35 per cent. by value of the work, but has done something over 38 per cent. The ROFs have had the benefit of almost £11 million more work than they should have had. Italy has a surplus of £3.5 million, so Germany—by process of simple calculation—is owed £14 million of work. It is entitled to that and is claiming it. It is not finally agreed, but that is its entitlement and the order is virtually placed.

The hon. Member for Yeovil mentioned Bridgwater. It will still receive the explosives work. However, there is some confusion. The ammunition for the SP70 and the FH70 is exactly the same. However, the SP70 gun is only in the development stage, so we do not need ammunition for it. Vickers, as the prime contractor, has had a substantial amount of work and secured a substantial amount of employment because of that contract.

There are two other reasons why there is worry about the load position in the ammunition division. There have been enhancements in the programme during the past two or three years to build up stocks following the Falklands conflict and generally to improve the war maintenance reserve. The additional workload associated with those enhancements is now coming to an end and our requirements will return to their usual levels. During the next few years, we shall phase out certain weapons such as the 105 mm Abbott self-propelled gun and its associated ammunition. Those requirements will be replaced by new systems and natures of ammunition, for example smart munitions for the LAW 80 and MLRS. Therefore, change is taking place. It is expected that the ROFs will obtain substantial amounts of work under those programmes in the longer term. However, in the short term there is likely to be a problem. I appreciate the uncertainty, but unless new orders can be secured within the next 10 days we will move towards significant redundancies in the four factories that have been mentioned. I should be disappointed if we could not make some announcement within the next fortnight. I cannot be more precise than that. I appreciate that it is worrying for those who are, sadly, likely to lose their jobs, and I understand their distress.

9.15 pm

I resent the suggestion made by the hon. Member for Blackburn (Mr. Straw). I was surprised at him and the hon. Member for Kingston upon Hull, North (Mr. McNamara) for suggesting that the Government were artificially frigging about with contracts for the ROFs to make our privatisation policy more attractive. The fact is that we are unlikely to privatise for between 18 months and two years. No Government who are as conscious of pounds, shillings and pence as this Government are would want to reduce the sum that it could bring to the Treasury on the sale of a substantial proportion of stock in the flotation of the ROFs. There is no logic in that suggestion and it is not worthy of the two gentleman who made it.

Mr. Carter-Jones

What the Minister is telling the House is totally predictable. What is happening in the Ministry of Defence could have been forecast. With hindsight, does not the Minister agree that the Strathcona concept of an enhanced trading fund to give continuity would have been better?

Mr. Lee

There is massive continuity in our overall spending. I remind the hon. Gentleman that we are proud of the fact that about 95 per cent. of our total MOD procurement of £8.5 billion a year is spent in the United Kingdom. We are continually striving for greater efficiency and value for money in that spend, whether orders are placed with the private sector or the ROFs. We are putting pressure on our international and national contractors. We are looking for greater value for money and efficiency in our spend, and I make no apology for that.

That matter links in with the question of the preferred source policy. As we have already announced, the preferred source policy has been ended. It is true, therefore, that the ROFs are subject to greater competition than before, but equally they are able to compete for work and projects previously denied to them. Indeed, they are actively doing that now. Earlier I cited the example of the MCV 80. The ROFs will be competing for the second tranche of that work.

We aim to approach the issue pragmatically. In some product areas we shall need to be flexible in the implementation of our policy of competition. We are aware of the employment consequences, the strategic need and the nation's dependence on the ROFs for ammunition and explosives. Therefore, we shall operate the policy with balance just as we do when we place contracts with the private sector. The competition argument will not operate in every case because of the many substantial monopolies among United Kingdom defence contractors.

We shall publish a document on the arrangement between the Secretary of State and the new company, and the regulation of his relations with it by vesting date. Regarding acquisitions, it is likely that reference will be made in that document to the ROF's need to refer to the Secretary of State before acquisitions can be made. Similarly, there is likely to be a figure, not yet agreed, on the investment limit, above which the approval of the Secretary of State must be obtained.

Mr. McNamara

What about diversification?

Mr. Lee

Diversification and acquisition mean broadly the same thing, and to that extent it also covers diversification.

I shall deal with redundancy procedures and pensions at some length because, although some of the arguments against privatisation put forward by the Opposition lacked any genuine content, I appreciate the genuine concern that is felt about redundancies and entitlement of ROF employees, who have given the nation sterling service for many years. We have made it clear that no redundancies will arise on account of the transfer. Current Civil Service redundancy rules carry the implication that a person could claim redundancy on the grounds that he has been moved out of the Civil Service, but they do not take into account the fact that he may have been transferred with his job and terms and conditions of service intact. Paragraph 3 of schedule 2 is necessary to make it clear to the courts and everyone else that there is no question of technical redundancy arising, and I believe that that is accepted.

Because of the application of TUPE '81 the new company redundancy scheme will have to reflect as closely as possible the terms of the Civil Service scheme, although some changes will be necessary to take account of the proposed company structure. Compensation levels under the new redundancy scheme for transferred employees will be the same as those currently enjoyed by the staff in the Civil Service. As regards the Government standing behind the company in relation to redundancy payments, adequate financial provision will be made when determining the capital structure of the company.

If redundancies are announced before vesting day, the employees affected will at that time be subject to the Ministry of Defence redundancy procedures. I repeat that it is likely, sadly, that a redundancy announcement will be made in the next fortnight — a significant time before vesting day. There is no attempt to wriggle out of our commitments.

It would be our aim to carry through those procedures to the maximum extent possible by vesting day and to redeploy staff in the clearance of redundancy where that can be achieved. However, on vesting day staff employed in the ROFs will become employees of the company and will therefore be subject to the company's redundancy procedures.

The right hon. Member for Llanelli (Mr. Davies) mentioned the area of redundancy and mobility. After vesting day, the area of redundancy will inevitably be narrower than formerly, but the extent to which the position of the various groups of former civil servants will be changed will vary. For non-mobile non-industrials and all industrials the difference will not be great; it will be no more than is consistent with the transfer of their employment from the Civil Service to the company. After vesting day their unit of redundancy will be the factory in which they were working. Most affected by the change will be the former mobile non-industrial civil servants, whose area of redundancy formerly embraced the entire Ministry of Defence. Their transfer to the employment of the new company inevitably entails a considerable narrowing of that entitlement, but the Bill requires that such changes be kept to the minimum necessary in the circumstances.

It follows that although the area of redundancy for mobile, non-industrial employees must inevitably be narrowed to encompass only the company organisation, it need not be narrowed further than to encompass the entire company organisation. To comply with the provisions of the sub-paragraph, therefore, the entire company organisation will constitute the area of redundancy in respect of redundancies declared after vesting day. The company might wish to alter that, but it would entail an alteration in the terms and conditions of the contract of employment of former mobile, non-industrial civil servants as it will apply after vesting day.

Any employer may wish from time to time to change some of the terms and conditions of his work force. A sensible employer will discuss such changes with the employees' representatives, and the object of such discussions will naturally be to reach an agreement on the proposed changes.

Mr. Denzil Davies

The Minister is saying that he hopes that the area of mobility will be the company structure, in the case of mobile employees, not just the place of work. However, I understood him to say that, at the end of the day, it will be a matter for negotiation between the company and the employees, because any change is a change in the terms of the contract of employment. He cannot give a guarantee that after vesting day mobile civil servants will have an area of mobility that covers the entire company. He can hope that that will be so, but is he saying that he cannot guarantee it?

Mr Lee

My understanding of the position is that I cannot give that guarantee, but I should hope that the ROFs, organisation and management would allow company-wide and factory-wide mobility in this context.

Pensions were mentioned earlier by my hon. Friend the Member for South Ribble (Mr. Atkins), the right hon. Member for Llanelli and the hon. Member for Eccles.

The Government have made it clear that the proposed pension arrangements for staff transferring from the Civil Service to the new organisation will provide comparable benefits to those of the principal Civil Service pension scheme, including the continuation of index-linking.

The new company pension fund will have a starting capital arising from the cash payment by the Exchequer representing the value of the potential pensions earned up to the point of transfer of those existing employees who opt to transfer the pension rights they have earned in Crown employment into the new scheme. The fund will thereafter receive further contributions from employees and employer. All three sources of revenue will be invested to generate the required return to maintain index linking.

We have made it clear that it is our view that the proposed scheme will be secure in that it will be governed by a trust deed, the provisions of which would be very difficult to set aside without agreement.

The ceiling on employer contributions that has been proposed of 12 per cent. of the total wage bill bears no relation whatsoever to the annual rate of inflation. We have been at pains to point out that the actuarial assessment is that this ceiling is high enough to cater for all but the most extreme economic circumstances and still preserve full index-linking. In the sort of hypothetical circumstances involved—we have repeated this in Committee — index-linking of civil servants' pensions under the Pensions (Increase) Act 1971 would be most unlikely to continue.

It is, of course, open to the new company to contribute more than 12 per cent. of the total wage bill to the fund each year, but it is not mandatory for it to do so. In this sense only is there a ceiling at 12 per cent., but a ceiling must be set if we are to avoid the possibility that the company could be bankrupted by its contributions to the pension fund.

The trade unions have made several representations to us about guarantees for the proposed pension scheme, and we will be responding to them shortly. The position is still open.

As hon. Members well know, the employees of the ROFs will continue to be able to represent their interests as regards pensions on the board of trustees of the separate company which is being set up to administer the pension fund.

I wish to deal at some length with TUPE '81 — [Interruption.] I can well understand some hon. Members becoming a little bored, but a great many hon. Members who have constituents who are directly interested in this have sat through the debate.

TUPE applies automatically to any case in which a business or commercial undertaking is transferred from one person, firm or company, to another. The employees employed in that undertaking are transferred with it. This is achieved by paragraph 5 of the regulations. That paragraph provides that the contract of employment between the old employer and his individual employees shall not be terminated by reason of the transfer, but shall continue after the transfer as though it had originally been made between the employee and the new employer.

It follows that terms and conditions of employment of those civil servants who transfer to the employment of the new company will remain exactly the same after vesting day as they were before it, because the contract in which such terms and conditions are set out will be exactly the same contract after vesting day as before.

There are two exceptions to this general principle. The first relates to pension schemes. These are expressly excluded from the operation of TUPE and therefore pension benefits do not transfer from the one employer to the other. That is why the new Royal Ordnance plc needs to set up its own pension scheme. The second exception relates to those terms and conditions of the Civil Service employment which are peculiar to employment under the Crown. These will not transfer: but schedule 2, paragraph 2(2), provides that the contract of employment shall take effect after vesting day as nearly as the circumstances permit. In order to apply this provision, the changes in the terms and conditions must be kept to the absolute minimum necessary to give practical effect to the transfer.

The company cannot be prevented from seeking to alter the terms and conditions of the contract of employment after vesting day. It is to be hoped that it would try to do so by negotiation with the unions, but the unions would not be bound to agree to any such proposals: they would be quite entitled to rely on the existing contract as protected by TUPE. If the company altered the terms and conditions unilaterally, the unions would have to consider what to do about it: to acquiesce, to take industrial action, or, in the case of material detriment, to bring an action for unfair dismissal. In other words, after vesting day a normal industrial relationship will prevail between the company and the unions.

I have endeavoured to deal at some length with the detailed points that have been raised. They are of considerable importance to many thousands of employees in the ROFs and to the constitutents of many hon. Members. I apologise for the length of time that I have taken, but I commend the amendment to the House.

Question put, That this House doth agree with the Lords in the said amendment:—

The House divided: Ayes 243, Noes 180.

Division No. 471] [9.30 pm
Aitken, Jonathan Ancram, Michael
Amess, David Ashby, David
Aspinwall, Jack Hamilton, Neil (Tatton)
Atkins, Robert (South Ribble) Hampson, Dr Keith
Baker, Rt Hon K. (Mole Vall'y) Hargreaves, Kenneth
Baker, Nicholas (N Dorset) Harris, David
Banks, Robert (Harrogate) Haselhurst, Alan
Batiste, Spencer Hayward, Robert
Beaumont-Dark, Anthony Heathcoat-Amory, David
Bellingham, Henry Heddle, John
Bendall, Vivian Henderson, Barry
Benyon, William Hicks, Robert
Bevan, David Gilroy Higgins, Rt Hon Terence L.
Biffen, Rt Hon John Hill, James
Biggs-Davison, Sir John Hind, Kenneth
Blackburn, John Hirst, Michael
Blaker, Rt Hon Sir Peter Holland, Sir Philip (Gedling)
Bonsor, Sir Nicholas Hordern, Peter
Boscawen, Hon Robert Howard, Michael
Bottomley, Mrs Virginia Howarth, Gerald (Cannock)
Bowden, Gerald (Dulwich) Howell, Ralph (N Norfolk)
Boyson, Dr Rhodes Hubbard-Miles, Peter
Braine, Sir Bernard Hunt, David (Wirral)
Bright, Graham Hunter, Andrew
Brinton, Tim Jessel, Toby
Brittan, Rt Hon Leon Johnson Smith, Sir Geoffrey
Brown, M. (Brigg & Cl'thpes) Jones, Gwilym (Cardiff N)
Browne, John Jones, Robert (W Herts)
Bruinvels, Peter Kershaw, Sir Anthony
Bryan, Sir Paul King, Roger (B'ham N'field)
Buck, Sir Antony Knight, Mrs Jill (Edgbaston)
Burt, Alistair Knowles, Michael
Butler, Hon Adam Knox, David
Butterfill, John Lawrence, Ivan
Carlisle, John (N Luton) Lawson, Rt Hon Nigel
Carlisle, Kenneth (Lincoln) Lee, John (Pendle)
Carlisle, Rt Hon M. (W'ton S) Leigh, Edward (Gainsbor'gh)
Carttiss, Michael Lennox-Boyd, Hon Mark
Cash, William Lewis, Sir Kenneth (Stamf'd)
Channon, Rt Hon Paul Lightbown, David
Chapman, Sydney Lilley, Peter
Chope, Christopher Lloyd, Ian (Havant)
Clark, Sir W. (Croydon S) Lloyd, Peter, (Fareham)
Clarke, Rt Hon K. (Rushcliffe) Lord, Michael
Colvin, Michael Luce, Richard
Conway, Derek Lyell, Nicholas
Coombs, Simon MacGregor, John
Cope, John MacKay, John (Argyll & Bute)
Cormack, Patrick Maclean, David John
Corrie, John McQuarrie, Albert
Couchman, James Madel, David
Critchley, Julian Major, John
Crouch, David Malins, Humfrey
Currie, Mrs Edwina Malone, Gerald
Dickens, Geoffrey Maples, John
Dorrell, Stephen Marland, Paul
Douglas-Hamilton, Lord J. Marlow, Antony
Dunn, Robert Mather, Carol
Durant, Tony Maude, Hon Francis
Eggar, Tim Mawhinney, Dr Brian
Evennett, David Mayhew, Sir Patrick
Eyre, Sir Reginald Merchant, Piers
Fallon, Michael Meyer, Sir Anthony
Farr, Sir John Miller, Hal (B'grove)
Favell, Anthony Mills, Sir Peter (West Devon)
Forman, Nigel Miscampbell, Norman
Forsyth, Michael (Stirling) Mitchell, David (NW Hants)
Fox, Marcus Moate, Roger
Franks, Cecil Monro, Sir Hector
Fraser, Peter (Angus East) Montgomery, Fergus
Galley, Roy Moore, John
Glyn, Dr Alan Morris, M. (N'hampton, S)
Goodlad, Alastair Morrison, Hon C. (Devizes)
Gower, Sir Raymond Moynihan, Hon C.
Grant, Sir Anthony Needham, Richard
Greenway, Harry Nelson, Anthony
Gregory, Conal Newton, Tony
Griffiths, E. (B'y St Edm'ds) Norris, Steven
Grist, Ian Onslow, Cranley
Grylls, Michael Ottaway, Richard
Gummer, John Selwyn Page, Richard (Herts SW)
Hamilton, Hon A. (Epsom) Parris, Matthew
Patten, Christopher (Bath) Stewart, Andrew (Sherwood)
Patten, John (Oxford) Stokes, John
Pattie, Geoffrey Stradling Thomas, J.
Pawsey, James Sumberg, David
Pollock, Alexander Tapsell, Peter
Porter, Barry Taylor, John (Solihull)
Powell, William (Corby) Taylor, Teddy (S'end E)
Powley, John Temple-Morris, Peter
Prentice, Rt Hon Reg Thomas, Rt Hon Peter
Price, Sir David Thompson, Donald (Calder V)
Proctor, K. Harvey Thompson, Patrick (N'ich N)
Raffan, Keith Thorne, Neil (Ilford S)
Raison, Rt Hon Timothy Thurnham, Peter
Rhodes James, Robert Townsend, Cyril D. (B'heath)
Rhys Williams, Sir Brandon Twinn, Dr Ian
Ridsdale, Sir Julian van Straubenzee, Sir W.
Roberts, Wyn (Conwy) Vaughan, Sir Gerard
Robinson, Mark (N'port W) Waddington, David
Rossi, Sir Hugh Waldegrave, Hon William
Rost, Peter Walker, Bill (T'side N)
Rumbold, Mrs Angela Wall, Sir Patrick
Ryder, Richard Waller, Gary
Sackville, Hon Thomas Ward, John
Sainsbury, Hon Timothy Wardle, C. (Bexhill)
Shaw, Giles (Pudsey) Warren, Kenneth
Shaw, Sir Michael (Scarb') Watson, John
Shelton, William (Streatham) Watts, John
Shepherd, Colin (Hereford) Wells, Bowen (Hertford)
Shepherd, Richard (Aldridge) Wells, Sir John (Maidstone)
Shersby, Michael Wheeler, John
Silvester, Fred Whitfield, John
Sims, Roger Whitney, Raymond
Smith, Sir Dudley (Warwick) Winterton, Nicholas
Smith, Tim (Beaconsfield) Wolfson, Mark
Speller, Tony Wood, Timothy
Spence, John Yeo, Tim
Spencer, Derek Younger, Rt Hon George
Spicer, Jim (W Dorset)
Squire, Robin Tellers for the Ayes:
Stanbrook, Ivor Mr. Michael Neubert and
Stern, Michael Mr. Ian Lang.
Stevens, Lewis (Nuneaton)
Adams, Allen (Paisley N) Cohen, Harry
Alton, David Concannon, Rt Hon J. D.
Anderson, Donald Conlan, Bernard
Archer, Rt Hon Peter Cook, Frank (Stockton North)
Ashdown, Paddy Cook, Robin F. (Livingston)
Ashton, Joe Corbett, Robin
Atkinson, N. (Tottenham) Cowans, Harry
Barron, Kevin Craigen, J. M.
Beith, A. J. Crowther, Stan
Bell, Stuart Dalyell, Tam
Benn, Tony Davies, Rt Hon Denzil (L'lli)
Bennett, A. (Dent'n & Red'sh) Davies, Ronald (Caerphilly)
Bermingham, Gerald Davis, Terry (B'ham, H'ge H'l)
Bidwell, Sydney Deakins, Eric
Blair, Anthony Dewar, Donald
Boothroyd, Miss Betty Dobson, Frank
Boyes, Roland Dormand, Jack
Bray, Dr Jeremy Douglas, Dick
Brown, Gordon (D'f'mline E) Dover, Den
Brown, Hugh D. (Provan) Duffy, A. E. P.
Brown, N. (N'c'tle-u-Tyne E) Dunwoody, Hon Mrs G.
Brown, Ron (E'burgh, Leith) Eadie, Alex
Bruce, Malcolm Edwards, Bob (W'h'mpt'n SE)
Buchan, Norman Ellis, Raymond
Caborn, Richard Evans, John (St. Helens N)
Callaghan, Jim (Heyw'd & M) Ewing, Harry
Campbell, Ian Fatchett, Derek
Campbell-Savours, Dale Faulds, Andrew
Canavan, Dennis Field, Frank (Birkenhead)
Carlile, Alexander (Montg'y) Fields, T. (L'pool Broad Gn)
Carter-Jones, Lewis Fisher, Mark
Clark, Dr David (S Shields) Foot, Rt Hon Michael
Clarke, Thomas Foster, Derek
Clay, Robert Foulkes, George
Clwyd, Mrs Ann George, Bruce
Cocks, Rt Hon M. (Bristol S.) Godman, Dr Norman
Golding, John Orme, Rt Hon Stanley
Gould, Bryan Park, George
Hamilton, James (M'well N) Parry, Robert
Hamilton, W. W. (Central Fife) Patchett, Terry
Hardy, Peter Pavitt, Laurie
Harman, Ms Harriet Pendry, Tom
Haynes, Frank Penhaligon, David
Healey, Rt Hon Denis Pike, Peter
Heffer, Eric S. Powell, Raymond (Ogmore)
Hogg, N. (C'nauld & Kilsyth) Prescott, John
Holland, Stuart (Vauxhall) Radice, Giles
Home Robertson, John Randall, Stuart
Hoyle, Douglas Redmond, M.
Hughes, Robert (Aberdeen N) Richardson, Ms Jo
Hughes, Roy (Newport East) Roberts, Ernest (Hackney N)
Hughes, Sean (Knowsley S) Robertson, George
John, Brynmor Rogers, Allan
Johnston, Russell Rooker, J. W.
Jones, Barry (Alyn & Deeside) Rowlands, Ted
Kaufman, Rt Hon Gerald Sedgemore, Brian
Kennedy, Charles Sheerman, Barry
Kilroy-Silk, Robert Sheldon, Rt Hon R.
Kirkwood, Archy Shore, Rt Hon Peter
Lambie, David Short, Mrs R.(W'hampt'n NE)
Leadbitter, Ted Silkin, Rt Hon J.
Lewis, Ron (Carlisle) Skinner, Dennis
Lewis, Terence (Worsley) Smith, C.(Isl'ton S & F'bury)
Litherland, Robert Smith, Rt Hon J. (M'kl'ds E)
Lofthouse, Geoffrey Snape, Peter
Loyden, Edward Soley, Clive
McCartney, Hugh Steel, Rt Hon David
McDonald, Dr Oonagh Stewart, Rt Hon D. (W Isles)
McGuire, Michael Stott, Roger
McKay, Allen (Penistone) Strang, Gavin
McKelvey, William Straw, Jack
Mackenzie, Rt Hon Gregor Thomas, Dr R. (Carmarthen)
McNamara, Kevin Thompson, J. (Wansbeck)
McTaggart, Robert Thorne, Stan (Preston)
Madden, Max Tinn, James
Marek, Dr John Torney, Tom
Martin, Michael Wallace, James
Mason, Rt Hon Roy Wareing, Robert
Maxton, John Weetch, Ken
Maynard, Miss Joan Welsh, Michael
Meacher, Michael White, James
Meadowcroft, Michael Williams, Rt Hon A.
Michie, William Wilson, Gordon
Mikardo, Ian Winnick, David
Millan, Rt Hon Bruce Winterton, Mrs Ann
Miller, DrM. S. (E Kilbride) Woodall, Alec
Mitchell, Austin (G't Grimsby) Young, David (Bolton SE)
Morris, Rt Hon J. (Aberavon)
Oakes, Rt Hon Gordon Tellers for the Noes:
O'Brien, William Mr. John McWilliam and
O'Neill, Martin Mr. Lawrence Cunliffe.

Question accordingly agreed to.

Committee appointed to draw up a reason to be assigned to the Lords for disagreeing to one of their amendments to the Bill: Mr. Butler, Mr. Denzil Davies, Mr. Lang, Mr. Lee and Mr. McWilliam; Three to be the quorum.—[Mr. Butler.]

To withdraw immediately.