British Shipbuilders (Borrowing Powers)

HC Deb 08 December 1986 vol 107 cc145-53 11.59 pm

The Minister of State, Department of Trade and Industry (Mr. Giles Shaw)

I beg to move,

That the draft British Shipbuilders Borrowing Powers (Increase of Limit) Order 1986, which was laid before this House on 21st November, be approved. The order concerns British Shipbuilders' borrowing limit. This is the statutory ceiling on the funds which the corporation may acquire in the form of public dividend capital from the Government, and loans from the commercial market. The limit presently stands at £1,300 million, as a result of the British Shipbuilders (Borrowing Powers) Act, which received the Royal Assent as recently as June of this year. The terms of the 1986 Act enable the limit to be raised by a further £100 million to £1,400 million, subject to affirmative resolution of this House. I now propose that the borrowing limit should be so raised to £1,400 million. The order, of course, merely gives BS the power to receive the money. It will always be for the House to decide what should actually be made available through the Estimates procedure.

When my hon. Friend the former Minister of State introduced the British Shipbuilders (Borrowing Powers) Bill earlier this year, he spoke at length about the severe difficulties facing the shipbuilding industry from which none of the shipbuilding nations had been immune. We have just gone over that ground. Notwithstanding the problems of the market, when the House debated the borrowing powers Bill no one anticipated that the corporation's finances would deteriorate as rapidly as they have. The most important single event which has put pressure on the corporation's borrowing position is the receivership of International Transport Management (Offshore) Ltd. British Shipbuilders had almost finished building a most sophisticated craneship—the "Challenger"—at Sunderland Shipbuilders, when the company fell into the hands of the receiver. At the time of the receivership, ITM had paid only a small deposit on the vessel, with the result that British Shipbuilders has been obliged to finance construction costs totalling not just millions but tens of millions of pounds. Indeed, almost half the increase in borrowing that the House sanctioned in May has been required to cover, at least temporarily, the costs of this vessel. However, BS advises me that it expects to be able to recover some of these costs in due course to minimise the cost of the receivership.

Another significant source of pressure on the Corporation's cash position results from difficulties in delays it has experienced in securing new orders. Nevertheless, it has had some significant successes and is continuing to make major efforts to improve its efficiency in support of its marketing strategy. This is already beginning to pay off. North-East Shipbuilders on the Wear won an important order for 24 Danish ferries this summer, which will provide work for the yard until the end of 1989. A few days ago as the hon. Member for Sunderland, North (Mr. Clay) will know, it won a further order from the same source worth £4 million for a 25th ferry. The yard won the order because the Danes judged the offer from British Shipbuilders to be a better bargain compared with the alternatives that their own yards could offer. I am sure the hon. Gentleman and the House would agree this is a most encouraging development.

In total so far this year, BS has won around 90,000 compensated gross tonnes of orders—over three times the level won last year. The Danish order predominates, but each of the smaller yards has also won a contract: Appledore has a further dredger, and Ferguson on the Clyde has the Caledonian MacBrayne ferry. BS is also actively pursuing a number of other orders, but for reasons outside its control, each of them is taking longer to secure than had been hoped. This has had an adverse effect on cash flow and thus on borrowing, and it can no longer remain within its external financing limit for reasons outside its control. My right hon. Friend the Chief Secretary and I are, however, determined to ensure that there should be an effective limit on areas that it can control. The EFL will be revised formally once we are clearer about how some of the major uncertainties arising from the corporation's clients, notably ITM, are to be resolved. The amounts involved are peculiarly large for an organisation of that size, and are clearly outside BS's capacity to control. In the meantime, we have introduced a firm limit of £155 million on the financing needs of the continuing businesses within BS.

To help the Corporation's cash position, which has unavoidably deteriorated in recent months, we need to proceed with this measure to raise British Shipbuilders' borrowing limit by £100 million. I commend the Order to the House.

12.4 am

Mr. Nicholas Brown (Newcastle upon Tyne, East)

The Minister may be new to these debates, but I can assure him that I and my hon. Friends on the Opposition Benches are not. In July 1983 I and my hon. Friend the Member for Sunderland, North (Mr. Clay) made our maiden speeches on the British Shipbuilders Borrowing Powers (Increase of Limit) Order 1983. At that time we both condemned the Government's callous indifference to Britain's shipbuilding industry and here we are, several British Shipbuilders Borrowing Powers (Increase of Limit) Orders later—because there has been a succession of these things since I have been in the House—again condemning the Government's callous indifference to Britain's shipbuilding industry.

In my latest contribution to these ongoing debates, I welcome the opportunity to update my list of grievances and the grievances of those who live in shipbuilding communities. All Opposition Members who sought to speak represent shipbuilding constituencies and we have seen privatisation, appeasement of European interests and surrender to unfair far eastern competition, smash and ruin the lives of thousands of our constituents. The increase in borrowing powers that we are discussing is not to keep the industry going, to help the industry keep a share of an admittedly declining world market or to sustain the livelihoods of the people in those communities which rely upon the industry. It is to help the Government make a measured retreat from their commitments to the shipbuilding industry and its communities. In short, it is not to prop up the industry, but to close it down.

The Euro-frauds that we have been discussing give the game away. The preamble to the document says: Whereas, the recovery in demand envisaged in the Fifth Directive has not taken place, I do not think Britain even put up a fight. All hon. Members could list orders that were obtainable for our shipbuilding industry but which were not obtained because our Government would not fight for them. I should like to quote an example from the yard in my constituency, Swan Hunter. I have a letter from the Minister's predecessor. I shall not read it all, but it concludes: I can see no prospect of Intervention Fund being made available either to Swan Hunter or to any other UK yard. That is in the context of the Santa Rosa vessel. The letter goes on: I will certainly ensure that my officials watch very carefully to see where the order is placed. If another Community country is involved I will ensure that the terms of any government assistance are examined very carefully to see that it is playing by the rules. It will please redundant shipyard workers on Tyneside and Wearside to know that, if somebody else has cheated and has gone against the rules to get a ship that we might otherwise have been able to build, our Government will rap that country's European knuckles for not playing cricket "like what we are".

It is not just the Santa Rosa, because the nuclear fuel vessel which was wholly under Government control, because the Government were the majority shareholder among those who placed the order, is being built in Japan. What do our Government say about that? They say, "We think there might have been foul play, and we will sue them in the courts." That is not much good to the people who could have been building that ship in Britain.

In case any hon. Member thinks that these are isolated instances, we had the scandal of the Trinity House vessel. Again, that vessel was wholly in the Government's gift and they had the say about where the order would be placed, but it was not placed in a British yard because it was cheaper to place the order abroad. That is not a commitment to British industry and British shipyards. That is not a recognition of world trading conditions and the need to intervene to protect domestic industry. It is a surrender to the practices of other nations, practices that we are not prepared to go along with. The Government would rather see the industry go down and not be a drain on the public purse than sustain it as an essential part of our industrial infrastructure.

Mr. Jonathan Sayeed (Bristol, East)

Can the hon. Gentleman say how the Trinity House vessel was totally in the Government's gift? I am quite mystified by that statement.

Mr. Brown

The hon. Gentleman should find out who is paying for it because he who pays the piper normally calls the tune. That is why it was in the Government's gift. The Government are indirectly paying for it. I think that is an ample and sufficient answer. All that is left of British Shipbuilders on Tyneside is the headquarters building in my constituency. The last bit of British Shipbuilders to go was Kincaid. I share the engine works with my hon. Friend the Member for Wallsend (Mr. Garrett). The convenor, Mr. Sam Lee, who is my constituent, had written to me to voice his fears and concerns, which are shared by the work force, about recent developments. He put some questions to me which I should like to put to the Minister. He asked:

Why did BS prefer the bidder chosen rather than the management team who also bid? Management appeared to have the interests of the works at heart and would have attempted to re-employ a large number of ex-workers, the management proposals being to keep the works intact and to try and build up business. The preferred bidders appear to offer no direct jobs other than the small number already employed. The only other prospect appears to be an attempt to let off parts of the factory to interested parties. On the facts given up till the present it is inconceivable that British Shipbuilders have preferred this bid rather than the one from management, especially in view of the government's alleged preference for managements in Nationalised Industries to be given the chance to run their own business. The only thing that the preferred bidder offered was more money. Some questions arise:

1. 1. How much was the final bid?
2. 2. What are the details of the proposals in the bid?
3. 3. On what basis was the sale agreed? i.e. was there anything which could be construed as unfair practice, such as a guarantee by BS to buy back certain parts of the Plant such as Machine Tools?"

The questions that my constituent asks reflect the genuine concerns of the work force, and especially the former work force, at Kincaid and show recognition of the fact that the Government are rapidly abandoning any commitment to an independent marine engineering industry in the country. Perhaps most of all, those questions reflect bitterness, and a willingness to doubt the Government's integrity in these matters, which is prevalent in all shipbuilding communities.

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

Clark-Kincaid is to be found in my constituency. It is a first-class marine engine builder which is desperately short of orders. Worries such as have been expressed to my hon. Friend have been expressed to me by members of the work force at Clark-Kincaid—the last marine engine builder on the Clyde.

Mr. Brown

The last engine builder in the country. My hon. Friend the Member for Sunderland, North could tell of the retreat from Sunderland to consolidate on Tyneside, and then the closure on Tyneside to consolidate in Scotland. The history of the industrial sector has been one of contraction, consolidation, reassurances to the work force, further redundancies and closures. I hope that the industry survives, as do all Labour Members, but without commitment and support from the Government, it will not. The precedents are pretty ominous.

The blow to the community on Tyneside has been bitter, and the Government offer no hope. Few people on Tyneside doubt that the Government intend to collapse the shipbuilding industry further. With the privatisation of the warship building yards, curtailment of the naval programme and these proposals, the industry face an impossible future.

Not all yards are to be treated the same. Mainland Britain's merchant yards are to be starved of funds and the warship yards are to be starved of work, but the Northern Ireland Office is to be free to underwrite Harland and Wolff's costs with vast subventions that are provided by the British taxpayer. If Harland and Wolff had been on mainland Britain, it would have been closed by now, but because it is in Northern Ireland it will not be.

The latest report of the Committee of Public Accounts, "Assistance to British Shipbuilders", contains an interesting passage on page 7 paragraph 9. It says:

The NAO found that on 16 contracts with a combined turnover of £209 million, losses of £89 million had been incurred after support of £40 million. DTI accountants had reviewed the original estimates and had expressed reservations in some cases, particularly as to the reasonableness of productivity assumptions. The Department did not consider that they had sufficient expertise to challenge the estimates in depth but reviewed the completed orders and found that the losses were mainly due to overruns on labour costs and associated overheads. That explanation does not sit well with the intention of keeping Harland and Wolff on a tight financial rein on the AOR contract, which was stolen from Swan Hunter in one of the most unfair and deceitful bits of Government chicanery that it has been my misfortune to witness. A cynic might say that the Public Accounts Committee backs up Swan Hunter's fears that the only effective monitoring of the contract will be after the event, when all the costs are in and judgment can be made whether the productivity assumptions were valid. That fits in with what has happened in merchant shipbuilding. After the event the Government have been able to say, "Gosh, we were wrong. Oh dear, some of you chaps have lost your jobs." They have shed crocodile tears and brought forward futher statutory instruments which we debate late at night. The Opposition voice their grievances and the Government say, "It is a difficult time internationally, but we are trying to stabilise the situation and there is some hope on the horizon." We have had that year after year, but the industry has contracted and contracted and is probably below the viability level in some areas. The number of employees is very small. Many of us who take an interest in these matters fear that the order is designed to put the final boot in, rather than to help to sustain and help the fightback of a vital national interest.

On the subject of vital national interests, merchant ships taken up from trade to supplement the Royal Navy's role are an important part of our requirements, yet our capacity to build the ships, to sail them under the British flag and to crew them with British seamen has been fatally undermined by the Government.

I hope that I have adequately reflected our latest list of grievances and that they will be added to all our previous lists of grievances, but I am certain that there is one feeling that I have not conveyed. Given that I am in employment and have a job that I enjoy, I do not think that I could ever properly convey the bitterness and sense of grievance in the community that I represent and in all the shipbuilding communities in the north of England.

12.17 am

Mr. Gordon Brown (Dunfermline, East)

If the Minister thought in the previous debate that we were ungenerous in our support of his efforts in Europe, I assure him that we support the order and will not divide the House.

While we did not anticipate the financial problems that arose from the ITM deal, we predicted in the last borrowing powers debate that Ministers would have to come back to the House at an early stage. We pointed out that the policy of privatising the warship yards, which depended on the more profitable public sector orders, was bound to increase pressure on British Shipbuilders, and that is exactly what happened.

These debates have traditionally been opportunities for wide-ranging discussions on a number of issues. My hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) put a number of points to the Minister. I hope that the hon. Gentleman will be able to answer some tonight, and he may wish to write to my hon. Friend on other matters.

I wish to ask a number of questions about expenditure that has been, and is being, authorised. I hope that the Minister will not fall into the trap, into which other Ministers and Government spokesmen have fallen, of suggesting that the Government have supported the merchant shipbuilding industry to the tune of £1.4 billion. I hope that the Minister will agree that much of the money that has gone into BS has been spent on capital expenditure in the warship yards which are now in private hands, on losses sustained by companies which have been moved into the private sector, on redundancy costs, which, as my hon. Friend the Member for Newcastle upon Tyne, East pointed out, are funds which are being used, not to increase employment in the industry, but to secure a reduction in employment, and on substantial restructuring costs paid out for businesses of BS which are no longer in existence. Therefore, I hope that the Minister will answer this evening, or will write to me, about the genuine level of the Government's commitment to the merchant shipbuilding industry.

Is it not the case that new investment in the merchant shipbuilding yards during the Government's period of office has totalled £69 million, that the losses sustained by the merchant shipbuilding yards have been about £500 million since 1977, and that if we take on top of that the intervention fund support of about £235 million, we find that the maximum provided by the Government is probably less than half the sum that is covered in the order?

I hope that the Minister will accept those figures. If he does not, I hope that he will at least agree to write to me. It is important that the people know the level of support and are not deluded by a figure produced by Ministers, as happened to me in a television interview last weekend, when the Minister responsible for Scottish industry insisted that £1…4 billion had been spent on the merchant yards.

I also hope that the Minister will take on board the concerns expressed by my hon. Friend, which reflect the views of all my colleagues, about the continuing loss of jobs in the shipbuilding communities, the demoralisation resulting from that process and the sense that much of what is happening is avoidable and can be averted by the Government pursuing proper policies.

The shipbuilding industry in the merchant yards is at the point of collapse, and urgent measures are necessary. I hope that the Minister can answer our questions, not only on the St. Helena and Chinese orders, but on the Cuban orders, which the industry is seeking, and that he can give some indication of public sector orders which his and others Departments could advance to the merchant shipbuilding yards.

Dr. Godman

May I give another example of public sector orders which could be advanced? Recently, I suggested to both the Prime Minister and the Minister that if the Government seriously intended to police effectively the Falkland Islands fisheries protection zone they would have to acknowledge that the aging stone trawlers that are being sent to the south Atlantic would prove inadequate, despite the excellence of their crews. What is needed are three custom-built fisheries protection vessels. Naturally, I asked that if such an order was placed, or was even envisaged, it should be placed in my constituency, at Ferguson-Ailsa.

Mr. Brown

I am grateful to my hon. Friend for pointing out an area where public sector orders should be considered and may be advanced. He makes the case for what we have suggested to the Government over several months, which is that a task force with the powers to scour the various Departments, including the Ministry of Agriculture, Fisheries and Food and the Ministry of Defence, should be appointed by the Department of Trade and Industry. That would be one way of averting the crisis in the industry.

The Transport Select Committee is now looking at the future of the merchant shipping industry, and again there are means by which orders can be secured from British shipowners as well as from abroad, which could help to secure the future of the industry.

At the end of this debate, and having heard the previous debate, the Minister should be aware of the concern felt by Opposition Members and, I believe, by hon. Members on both sides of the House, about the state of the merchant shipbuilding industry. He should be aware that the past chairman of British Shipbuilders, Mr. Graham Day, said that there was a real danger that the industry could go the same way as the motor cycle industry and that merchant shipbuilding was fighting a bare knuckle battle for survival. He should also be aware that the previous chairman of British Shipbuilders, Sir Robert Atkinson, said that the industry was being brought to the point of destruction. Perhaps he has also noticed that the retiring directors of Smiths of Middlesborough has said that in his view British Shipbuilders is already too small to survive.

I hope that the Minister will take on board what has been said in this debate and what has been said by some of the employees of British Shipbuilders. We have had the possibility of a new European directive and we will have a new intervention. Tonight we have a new borrowing limit. What the shipbuilding industry needs is new orders, and I hope that the Minister will make it his business to get them for the industry before it is too late.

12.26 am

Mr. Giles Shaw

I shall first comment on the admirable speech by the hon. Member for Newcastle upon Tyne, East (Mr. Brown), who took a wide-ranging review and gripped his opportunity with both hands. I thought that he was just a little bit sceptical about the activities of British Shipbuilders in seeking to promote the sale and construction of merchant ships. That is its task and it has no other.

I will not quote £1.4 billion to the hon. Member for Dunfermline, East (Mr. Brown), but I am prepared to quote £1.575 billion. It has gone up since he spoke about it last. That is the figure that British Shipbuilders has had out of public funds since 1979. It breaks down in many ways, as the hon. Gentleman knows. There is £1.2 billion of public dividend capital there, £191 million of redundancy pay and £186 million in the home credit scheme. All those things are part of the total expenditure of British Shipbuilders. I shall certainly write to the hon. Gentleman to set out the record in relation to how the money is spent and how it goes into the yards and so on. The fact remains that British Shipbuilders is the oganisation which seeks to obtain and place orders within British yards. That was the crucial point to which the hon. Gentleman referred.

In relation to the question posed to the hon. Member for Dunfermline, East rather than to me by the hon. Member for Greenock and Port Glasgow (Dr. Godman), I take note of his view that the fisheries protection zone in the Falkland Islands may require to be protected by vessels built in the United Kingdom. I guarantee that I shall endeavour to find an answer on that point.

The hon. Member for Newcastle upon Tyne, East also raised the question of Clark Kincaid. British Shipbuilders made a careful assessment of the employment and commercial aspects of the bids before it made its decision. It made its decision in favour of the bid to which the hon. Gentleman drew the attention of the House. It gave my right hon. Friend the Secretary of State the opportunity to comment on the assessment but he was not responsible for the assessment it had made. He concurred with British Shipbuilders judgment. The bid has been assessed and agreed by British Shipbuilders in relation to the commercial aspects and the assessment of employment opportunities.

Let me make it clear that, although this is my first debate on shipbuilding, I do understand the extremely severe consequences of the major restructuring that has gone on in past years. In many cases yards in the north and in Scotland have borne the brunt of the consequences. I fully understand the trauma that that brings to communities in that part of the world. The fact remains that British Shipbuilders, should the House approve the borrowing powers extension, will continue to do everything in its power to achieve more orders for the yards in the United Kingdom. Certainly, as I said in the previous debate, a number of orders have been won. In relation to public service orders, I mentioned the vessel for Tuvalu. I expect an announcement on the award of that contract shortly. As the hon. Member for Greenock and Port Glasgow would know, the Caledonian MacBrayne order was one that my right hon. and learned Friend the Secretary of State for Scotland brought forward for Ferguson-Ailsa. A fisheries protection vessel has also been brought forward.

I have to inform the House that the order for Cuba has changed in quantity and in specification. Virtually an entirely new bid would have to be made if British Shipbuilders was to seek to compete for it. That is certainly no longer in the forefront of its mind.

Everything possible is being done in relation to the China order Delegations have been to China two or three times and a Chinese delegation has been to Britain.

Mr. Bob Clay (Sunderland, North)

Before the hon. Gentleman leaves the Cuban order, he should elaborate on it. The people left in the merchant shipbuilding industry in Sunderland have been anxious to learn about the order. They and many journalists have asked questions about it. This is the first time that anyone has been told that, apparently, the requirements have changed. As I understand it, the Minister just said that if British Shipbuilders was still interested it would have to submit a different tender. Will there be a different tender? Is British Shipbuilders still interested?

Not that long ago, the Secretary of State for Trade and Industry and the chairman of British Shipbuilders told deputations from Sunderland and other parts of the north-east that that order was the great hope for the salvation of those yards. From the sound of it, if the Danish order had not come out of the blue, the comments that were being made in the summer that the British Government were not doing enough and the illusions that were being spread would have proved to be accurate. The Minister owes the House, and especially shipbuilding workers on Wearside and those who have been made redundant at Smith's dock, a much better explanation of what is happening with the Cuban order than the one that we have just heard.

Mr. Shaw

The hon. Gentleman should be somewhat gratified that a statement was made about the order at all. Negotiations on these matters are for British Shipbuilders and its potential purchasers and customers. I was asked about the orders for Cuba. It will be some months before they take new shape, because a completely different specification is required. I assure the hon. Gentleman that British Shipbuilders will still he extremely keen to try to obtain the orders, but it is not on the same time scale now as it may have been some months ago.

I assure the House that maximum effort is being applied in relation to the China order. There have been British delegations to China and Chinese delegations to this country. British Shipbuilders will certainly do everything possible to follow up the prospects discussed in the debate.

Mr. Gordon Brown

On the Cuban order, will the hon. Gentleman explain what he means by saying that the specifications have changed? Is it anything to do with the financial packages that could be put on offer? Will he explain at what point British Shipbuilders and the Government became aware that the Cuban order and its specifications had changed?

Mr. Shaw

No, I shall not give the hon. Gentleman any further detail on those matters. That is information which he can obtain from British Shipbuilders in due course, as it will no doubt be able to discuss the matter with him.

We are asking the House to agree to vote an additional £100 million in the borrowing order to enable British Shipbuilders to continue not only to run the enterprises for which it is responsible but to seek to obtain new orders for British yards for the year ahead.

Resolved, That the draft British Shipbuilders Borrowing Powers (Increase of Limit) Order 1986, which was laid before this House on 21st November, be approved.