HC Deb 08 December 1986 vol 107 cc123-44
Mr. Speaker

I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition.

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

I beg to move,

That this House takes note of European Community Documents Nos. 9470/86 and 9470/1/86 on aid to shipbuilding, and supports the Government's intention to press for early adoption of the Directive in a form which will provide a fairer and more transparent aid regime in Europe and enhance the ability of European yards to compete in world markets. I am conscious of the fact that this is the first occasion on which I have had the responsibility of addressing the House on shipbuilding matters; and it is only reasonable for me to say with some humility that the position, the problems and the world scene for shipbuilding make the context of this debate a truly traumatic and difficult one.

In 1986, the rate of new ordering for merchant ships has continued to decline. Order intake in 1985 world trade was 10.3 million compensated gross tonnes, but only 4.4 million in the first half of 1986. World building capacity is about 18 million CGT, and too much capacity chasing limited new orders keeps ship prices depressed. There was a flurry of interest in crude oil carriers in the early autumn which produced some orders for South Korea and Yugoslavia, although it seems that some of those orders are by no means secure. Owners are already cancelling as the demand for crude oil is falling again. The Japanese industry now depends heavily on domestic orders, because the appreciation of the yen against the dollar is pricing Japan out of the world market. All the major Japanese yards have announced, and in some cases begun to implement, substantial restructuring with a view to cutting capacity by about 30 per cent. Japan has more than 40 per cent. of the world market, so cuts of that size are substantial.

The Koreans are not cutting capacity. They have about 15 per cent. of the world market. The European Community yards combined are about as significant in the world market as is South Korea, and the United Kingdom alone has less than 1 per cent. of the world market.

The problems were made no easier by the recent fall in the price of oil. There has been some activity, but it has been short-lived. Meanwhile, there remains substantial spare capacity in many sorts of shipping, with second-hand vessels available at low prices. That has had the effect of narrowing the range of available orders to specialised markets. In short, circumstances are no easier, and may even be worse, than when the House previously debated such matters, which was not very long ago.

Before I discuss the directive, may I say how helpful it is to be able to consult the House at this stage when the negotiations on the directive are sufficiently advanced for us to have a strong sense of its final shape but when there is still plenty of scope for improvement. As the House will recall from the memorandum that I circulated on 10 October, the present fifth directive runs out at the end of this year. The new draft directive has been discussed at Industry Councils on 20 October and 18 November, and substantial progress has been made. I very much hope that it will be possible to achieve agreement on the new directive at a further Council, now arranged for 22 December, so that the new arrangements can be in place at the end of the year.

That is especially important because the Commission has made it clear that, in the absence of agreement on a new directive, it will use its existing powers under articles 92 and 93 of the treaty as though the directive was in force, exactly as it had proposed it without any of the advantages which we and others might have hoped to achieve in the current negotiations. As the House will know, help for shipbuilding is a matter essentially for the Governments of each member state in the Community, within a framework set down in the current EC directive on state assistance. The member states provide the money; none of it comes from the EC. Therefore, the aid regime in each member state is notified to and authorised by the Commission within the framework of the Council directive.

The approach in the draft sixth directive is in many ways a considerable improvement on that of the fifth directive and its predecessors. There are two fundamental improvements. First, the fifth directive concentrates on direct production aids and does not adequately bring under control indirect aids to shipowners and ship investors, who also affect decisions to build new ships. I am glad to tell the House that we have successfully persuaded the Commission to change this approach so that all subventions that affect shipbuilding decisions will be brought out into the open and treated together on a common basis under the new system. The House will be pleased to know that, on 18 November, the Industry Council affirmed its commitment to such a regime which, backed by thorough policing, which the Commission has proposed and which we support, will ensure that there is fair competition between Community yards. No member state can bend the rules in its favour.

I see this as a considerable advance over the present position. It will have an important bearing on the ability of our yards to compete.

The second fundamental improvement is that the new approach aims to allow yards to compete in a period when all ship prices are distorted, particularly because of aggressive price leadership from the far east. The Commission has decided to set a common maximum ceiling—I quote the draft directive— with reference to the prevailing difference between the cost structures of the most competitive Community yards and the prices charged by its main international competitors with particular regard to the market segments in which the Community yards remain the most competitive. The advantage of this is not only the setting of a market-related ceiling because, under the fifth directive, subventions in support of production could be given only if the industry was being adapted—in other words, slimming down. Under the sixth directive, restructuring will no longer be required in return for direct contract support. Under the new proposals, the Commission will be interested in restructuring only where investment is being supported, or support is being given to reduce capacity itself.

As for the level of the ceiling, against the background of a consultant's report on comparative costs and prices in the second quarter of this year, the Commission has proposed a support ceiling set at 26 per cent. of what it calls contract value before aid, which is 26 per cent. of cost. This is to be applied both under article 4 in the draft directive to individual orders, and under article 5 to the total amount of operating support made available to shipyards each year in relation to their turnover on a cost-and-sale basis.

Although the Government strongly maintain that that proposed ceiling is too low to satisfy the declared objective on the draft directive, the House will wish to be aware that even a level of 26 per cent. of cost is considerably higher than what is permitted under the existing fifth directive. Though the arithmetic is somewhat bewildering, the present limit on intervention fund and shipbuilders' relief is normally 22.5 per cent. of the subsidised contract price, or 18.4 per cent. of the cost of building a ship attracting the maximum level of aid.

As a result of negotiations we already have a cost limit of 26 per cent. This will surely help our yards—

Mr. Gordon Brown (Dunfermline, East)

Will the Minister tell us how the 26 per cent. proposal is better than the existing system after taking account of losses suffered by British Shipbuilders, under-utilisation, indirect subsidies and everything else? Will he tell us what British Shipbuilders told him would be the effect of imposing a 26 per cent. ceiling?

Mr. Shaw

The hon. Gentleman knows full well that British Shipbuilders is far from happy with the 26 per cent. ceiling, and I am far from happy with it. He will know also that the recent meeting of the European Shipbuilders Association has made it clear that it would prefer to see a higher ceiling. There will be substantial pressure—there is reasonable time between now and 22 December—brought to bear on lifting the ceiling. I pledge to the House that through the United Kingdom's representative we shall do our utmost to ensure that we lift the 26 per cent. ceiling substantially.

On the arithmetic in question, the two comparatives that the hon. Gentleman is seeking turn on the fact that 18.4 per cent. of the cost is under the present regime, whereas it will be 26 per cent. That is a significant lift. That has to be borne in mind as an improvement in relation to the directive.

Mr. Gordon Brown

Will the Minister take into account under-utilisation, the losses suffered by British Shipbuilders and indirect subsidies, and will he help the British case by ceasing to say that the present system is worse than the system that will be imposed by the Commission if it gets its way?

Mr. Shaw

There is no question of a system being imposed by the Commission if it gets its way. I hope sincerely that that will not happen. I trust that a system will be endorsed by the Council on the understanding that it represents member states' interests. The system that is proposed in the directive will be significantly better than the present one, which is 18.4 per cent. on cost. Where the system differs is in relation to what the ceiling contains. There is the question of over-capacity, and there are other conditions as well. Even on that basis, the view is that the proposed regime would be a better one than that which currently prevails. We must negotiate further improvements to the conditions by which the ceiling will operate.

We firmly believe that the limit is too low. Indeed, so does the Committee of European Shipbuilders, on which British Shipbuilders represents the United Kingdom, which saw Commissioner Sutherland last week, as reported in the Financial Times today. The Committee said then that the level that would meet the Commission's objectives was at least 30 per cent., which it based on the same report as the Commission had used in drawing up its own figure.

The Committee had recognised that in types of ships in which European yards might specialise, the consultants had pointed to a gap of some 36 per cent. between European costs and Far East prices last spring, but the shipbuilders also took note of a hardening of ship prices since and of the effect of non-price factors, particularly quality, which in its experience influenced owners towards European yards. Nevertheless, I give the assurance that I gave a moment ago that we shall press hard for a significant rise above the 26 per cent. level currently proposed.

Our position on aid domestically is that the amount of aid given should remain the minimum that is necessary to secure the contract within the rules laid down by the directive. We will need to examine the details of our own aid regime to see whether changes are necessary in the light of the final negotiations, but, at whatever level it is eventually set, the ceiling on subventions in total will be most relevant to the yards competing worldwide. It should not be taken for granted that the maximum level will be available for all yards, especially those concentrating on small ships where competition from the far east is weakest.

There are still, of course, a number of aspects of the draft directive to be agreed by Council other than the level of the common aid ceiling. That said, I am sure that it will be helpful in the final negotiations in Brussels later this month to know that the House will support the efforts to get the Commission to agree to set a higher aid ceiling than the 26 per cent. of cost which it has proposed.

We face a position in which the market for new ships remains very tight. We have the prospect of a new regime which will allow our yards a better opportunity to compete. As we believe it can be agreed at the next Council, the new directive will allow our builders to compete more fairly, and to do so with an overall level of subvention that is significantly greater than present arrangements permit. There is still much work to be done, especially on the ceiling, but good reason to be pleased with what has been achieved so far, and I commend the motion to the House.

10.42 pm
Mr. Gordon Brown (Dunfermline, East)

I beg to move, to leave out from "shipbuilding" to the end of the Question and to add instead thereof, but calls for the Government to increase its efforts in Europe to secure the maximum support possible for the shipbuilding industry in line with the conclusions of the independent report prepared for the European Economic Community.". I welcome the Minister to his first shipbuilding debate, particularly as his appointment to the Department of Trade and Industry appears to break the recent pattern of recruitment to that Department. As I understand it, the hon. Member for Pudsey (Mr. Shaw) is unique because he is one of the few Ministers who is not a millionaire, at least by inheritance, and he has no ambition, unlike the right hon. Member for Chingford (Mr. Tebbit) and the hon. Member for City of Chester (Mr. Morrison), to use his period in that Department as a stepping stone to a position in the Conservative party hierarchy.

I also welcome the Minister because he is not the Parliamentary Under-Secretary, the hon. Member for Coventry, South-West (Mr. Butcher), who began the negotiations in Europe on the intervention fund and the new directive—which must lead to a far better subsidy for Britain—by pronouncing that he wanted to see an end to the nonsense of worldwide subsidies. It is remarkable that a Minister should start negotiations—where only the highest support scheme can stave off further redundancies in the British shipbuilding industry—by objecting in principle to the one European lifeline that is available to the industry. That is typical of some Ministers, who prefer experimenting with monetarist theory to trying to save the shipbuilding industry and the jobs within it.

If there was one central concern missing from the Minister's speech, it was recognition of the scale of the measures that are needed, the urgency of the action that is required, the severity of the crisis facing the industry and the immediacy of the response that Ministers need to make.

Already, British Shipbuilders, which employed more than 80,000 workers in 1977, now employs fewer than 8,000 as we enter 1987. Already, 50,000 jobs have been lost in the shipbuilding and ship repair industries since 1979. Already, about 25,000 jobs have gone or are to go in the merchant shipbuilding industry. Already, as the Minister readily conceded, our share of world orders has fallen substantially from 25 per cent. 30 years ago to just over 1 per cent. today. Already, many famous shipbuilding yards have disappeared for good. Yards such as Smith's of Middlesbrough will go in the next few weeks. By the end of the debate the Minister must give us an unconditional assurance that he will take whatever measures are necessary to protect the jobs, to save the yards and to win orders so that we can stave off the collapse of the merchant shipbuilding industry. I hope that he will be able to tell us before the end of the debate that when we have European intervention fund support and other measures, no other country in the world will be allowed to undercut us in the packages that we can offer to secure the orders that we need.

Govan had a work force of more than 5,000 in 1979, and now has only just over 2,000 workers. It will have only 1,850 workers in April next year, but it has no orders to take it beyond that date, as things stand. We are having to fight also for orders for North-East Shipbuilders, which had more than 7,000 workers in 1979 and today has only 2,800. My colleague the hon. Member for Sunderland, North (Mr. Clay) will speak on that matter. The yard faces the prospect of only 2,000 jobs in April 1987, with only the Danish orders to take it beyond 1987, and even then just until 1989.

The Minister will be aware not only of the report that has been put before the House tonight by the European Commission, but of a later one by the Commission on the prospect for jobs in the shipbuilding industry throughout Europe in 1987 and beyond. He will be aware that that report said that the European industry as a whole, having lost nearly 50,000 jobs in the past seven years, faces the loss of another 35,000 jobs in the next two years. It faces a 30 per cent. cut in capacity in the next two years and an even bigger cut in the work force. Perhaps most frightening of all in the report is the fact that the Commission expects that 30,000 jobs will be at risk in 1987 alone.

I have to tell the Minister that his negotiations in Europe for Britain must not lead to any further rationalisation or reductions by Britain, and that he must repeat to Europe that we must end the situation where this country, with most to lose, has done most in making sacrifices in our industry, while other countries with the least to lose have made the fewest sacrifices over the past seven years. He must remind Europe of the yards that have closed in the past 10 years throughout Europe, almost half in Britain, and say that we cannot tolerate any further closures. He must also remind Europe that almost half the 50,000 jobs that have been lost in the merchant shipbuilding industry in Europe have been lost in Britain, with more jobs to be lost before April 1987.

Other countries may have lost 30, 40, or 50 per cent. of their work force in the past seven years, but we have suffered a 300 per cent. cut in our merchant yards and cannot be expected to make any further sacrifices in any European rationalisation. Denmark has lost about 3,000 jobs in the past seven years, Belgium about 4,000, the Netherlands about 5,000, Germany about 6,000, Italy about 7,000 and France about 8,000, but we alone of the shipbuilding nations of Europe, and we the largest island nation in Europe, have lost more than 20,000 jobs in our merchant shipbuilding yards. We will have lost 26,000 in total by April next year.

In the past few weeks the Germans have taken extraordinary measures, using money from the defence and regional funds to secure the American President line orders with subsidies amounting to 42 per cent. of costs. The Danes, as we have found in the last few weeks, have increased their packages on offer, with the result that they have not only increased their share of world orders but are seeing a rise in orders while the world market is declining. If these countries can take extraordinary measures, and if France can offer three times as much subsidy per worker as Britain does, we must take the necessary measures, with or without the support of the intervention fund.

We find it difficult to understand a number of aspects of the new directive, and we hope that the Minister will push for changes when he is at the meeting on 22 December. We do not accept the fatalism and defeatism that is explicit in the document. While we accept that there is a shortage of world orders, the Minister must bear in mind that if the industry is to benefit from the increase in world orders that is expected at the end of the 1980s and in the early 1990s, our shipbuilding industry must survive.

We do not accept the failure in the document to recognise the strategic importance of the shipbuilding industry to individual countries and to Europe. This country, with the merchant fleet as our fourth arm of defence, has more to gain than most from emphasising the strategic importance of the industry and the necessity to support it. We do not accept the omission from the directive and the document of the recognition of the need for the Government, in cases of emergency, when regional issues and requirements are at stake, to step in to give special support to the industry.

Most of all, we do not accept, as I understand from the Minister that he does not accept, the Commission's proposal that the ceiling of aid should be set at 26 per cent. As the Minister said, an independent report was prepared for the Commission by Appledore, which told us that the gap between European and far eastern prices is 36 per cent. of cost, which is 50 per cent. of price. That is the level of support that is necessary for us to be able to compete fairly with far eastern countries, especially Korea, whose prices are being set at 20 per cent. below the prices of raw materials.

The Commission suggests that the cost margin for tankers is up to 41 per cent., for bulk carriers, 38 per cent., and for container ships as high as 46 per cent. Even in those sectors where we might expect to do best, in the higher technology and specialised vessels, the report's conclusions are that the gap is about 35 to 36 per cent. The report has the support of British Shipbuilders, and has been endorsed as a method of proceeding by the European shipbuilding companies. It has the enthusiastic support of at least one other European shipbuilding nation, but for reasons which the Labour party does not properly understand, the Commission has started its negotiations by proposing a support system, not at the required level of 36 per cent., recommended by the report that it commissioned, but at 26 per cent. Even Britain, which has most to gain from the new system, and most to lose if it is not enforced, does not appear to be fighting for the full 36 per cent.

What will be the effect on our industry if only 26 per cent. is achieved? I understand from comments in the press over the past few weeks that British Shipbuilders has told the Minister that Govan, under a regime of 26 per cent., would not be able to find orders and would be closed, that North-East Shipbuilders could not be expected to survive under a 26 per cent. regime, and that all the large shipbuilding yards in British Shipbuilders would be forced to close. The best hope that British Shipbuilders would be able to offer the Government under a 26 per cent. regime is that it might be able to retain in being Ferguson and Appledore, the two small yards, at work force levels of around 500. Did British Shipbuilders tell the Minister that the work force would be cut from 8,000 to about 800 if these proposals went ahead in their present form, or that our merchant shipbuilding industry would collapse if the Commission's proposals went ahead?

The Secretary of State kindly wrote to me a few days ago about negotiations taking place in Europe. He went a long way towards accepting my suggestion that a 26 per cent. regime would be wholly unsatisfactory, but he said, and the Minister has repeated it tonight, that the 26 per cent. of cost of building a ship is already a considerable improvement on the present position.

The present regime is cumulatively about 22.5 per cent. of price—about 17 per cent. of cost. Loss financing was about £40 million last year for British Shipbuilders, and under-utilisation was costed at about £40 million. When these factors are taken into account—they form about 12 to 13 per cent. of price—and when we take into account British credit terms, OECD credit terms and all the other indirect supports available to the shipbuilding industry, we find that the present level of support must, by definition, be higher than the level of support proposed by the Commission. I shall be happy to give way to the Minister if he is able to clarify that matter. We understand from the information available to us that the present regime is superior to the regime put forward by the Commission. This is an additional reason why the Minister should be able to say in Brussels to the Commission that its proposals are wholly unacceptable.

If, of course, the Government's objective is simply to save money, the Minister will make the ceiling as low as possible and will know that no money need be paid out because no orders will be won and nobody will need to draw upon the intervention fund. If the Government want to save the industry, they must go for the highest possible ceiling in the intervention fund. I should like an assurance from the Minister that he will fight for the 36 per cent. and will try his best to achieve it. Certainly at the end of the day no other country should be allowed to beat Britain in the fight for orders on the world market.

We are the biggest island trading nation in Europe. We live by our seagoing trade, and 90 per cent. of our imports and exports arrive and depart by sea. As I have said, our merchant fleet is the fourth arm of our defences. We have made more sacrifices in our shipbuilding capacity than any other European country, yet we have most to gain from a strong shipbuilding industry and a strong regime of support. Shipbuilding in Britain is a traditional inudstry, but it is now also a high technology industry. It is an old industry, but it is no longer old-fashioned. The work force has made every sarifice demanded of it by the Government and in the last few weeks has concluded an agreement which guarantees that our shipbuilding industry can survive if only the Government will take the measures that will enable it to do so.

To fail to fight for the industry, to betray the communities in the shipbuilding areas, or to abuse the efforts made by the work force would be quite incomprehensible. The Government must fight, not only for the new regime for which they say they are fighting, but for the highest possible level of support. They must build on that, not only by enabling us to have the best packages on offer in the world to save the industry, but by taking the measures which the Opposition have been suggesting for months. They must form a task force within the Department of Trade and Industry and advance public sector orders so that our yards can stay at work. They must persuade British ship owners and ensure that they buy British. These measures will save the industry. We support the industry, and I hope the Government will say that they will support it to the hilt.

10.59 pm
Mr. Hugh Dykes (Harrow, East)

So difficult is the situation in the industry that one is bound to have some sympathy with the Opposition spokesman and the rather dramatised way in which he set out the Opposition's demands and described the continuing parlous state of the industry. I shall be brief because, as a Member of Parliament from a southern constituency, I run the risk of annoying hon. Members on both sides of the House if I go on too long, especially as there are several experts present.

I should like to say something about the directive and to exhort my hon. Friend the Minister to press for a sensible outcome to the Council of Ministers meeting on 22 December. It was disappointing to hear the hon. Member for Dunfermline, East (Mr. Brown) when he referred to a European Community-wide problem which needs Community-wide solutions. He described a built-in them and us conflict and spoke of Britain and Europe. We are part of Europe and the European Community. The only solution must be one based on a Community-wide approach.

The smaller EC nations have made greater sacrifices in percentage terms than Britain. We must remember that all states have made considerable sacrifices. Our industry was larger than others, so the decline has been that much more painful, but we are in this together. One can imagine what would have happened if member states had tried to undercut each other rather than make a concerted effort. Italy, France and Germany are shipbuilders of size.

The malaise in Europe is special. As the memorandum to the directive says, this is not just a prolonged cyclical weakness, which has gone on much longer than we expected, but a major structural problem, combined with manifestly unfair competition from the far east. Only by acting in concert can the EC compete. Even then it will find life difficult. Only as one body, negotiating correct conditions in the general agreement on tariffs and trade, can the EC compete against the unfair hidden subsidies which are to be found in Korea and elsewhere. Doing that on our own would be constitutionally impossible as the Commission is responsible for such matters. It would also render us vulnerable.

I welcome the directive, which is a substantial improvement on the previous one. I welcome the recognition of reality, which is that the European approach, and therefore the British one, must be to continue the trend to build specialised high-tech vessels on a bespoke basis rather than production line type ships. We cannot hope to compete with the far east in the latter category, but we can offer the much more sophisticated ships of the future. They may be smaller in number, but they will be significant in terms of tonnage. There is at least a glimmer of hope that, by the end of the decade, as the figures in the consultancy report suggest, matters will be much better. The outlook could be better still if the world economy enjoys a stronger upturn than is expected by most economic commentators.

It is ridiculous of the Opposition to ask for an absolute guarantee against all undercutting on whatever orders might be presented to British yards. No Government can give such an undertaking. Nevertheless, if the ceiling of support can be increased on 22 December, there will be much support for that. It may be too late, but if such agreement can be reached, the Commission might be prepared to reconsider. I wholeheartedly support this improved directive.

11.4 pm

Mr. Bruce Milian (Glasgow, Govan)

The hon. Member for Harrow, East (Mr. Dykes) mentioned the dramatic way in which my hon. Friend the Member for Dunfermiline, East (Mr. Brown) opened the debate for the Opposition. Unfortunately, it is impossible to overdramatise the condition of our shipbuilding industry because we are in danger of witnessing the extinction of the merchant industry as we have known it. We face a critical situation.

My hon. Friend the Member for Dunfermline, East dealt comprehensively with various matters and I do not intend to repeat what he said. He asked a number of pertinent questions which I hope that the Minister will answer. I was particularly interested in what he said about the comparison between the 18.4 per cent. of costs which the Minister said was the present level of subsidy and the 26 per cent. that is under discussion in the Community. My hon. Friend suggested that that was not a direct comparison and that the present level of subsidy is higher, for one reason or another, so that 26 per cent. would be a reduction.

The industry has been bedevilled for years by the fact that intervention fund money has ostensibly been made available, but the support has not enabled British shipbuilders to obtain the orders that were available. We have had the worst of all worlds; money has apparently been available, but it has not been enough to allow orders to be obtained. It is no use having support available, at whatever level, unless orders can be obtained at that level. I am glad to hear that the Government share our doubts about whether the 26 per cent. would produce any significant orders for us or other countries in the Community facing similar critical problems.

The Minister said that the 26 per cent. was not enough, but he did not say what he thought that the level should be. My hon. Friend the Member for Dunfermline, East mentioned the study commissioned by the Community and conducted by Appledore and Deloittes. That suggests that the subsidy ought to be considerably higher than 26 per cent. I hope that the Minister will tell us what is in the Government's mind. The next ministerial discussions take place a fortnight today and there must be agreement then or there will be no new regime in force on 1 January 1987. There is no reason, in terms of the Government's negotiating position, for the Minister to be coy about telling us what is in the Government's mind. Unless the subsidy is substantially higher than 26 per cent. we shall not get a new directive that will be of benefit to British shipbuilding.

The Minister said that the Government were thinking about having more than one ceiling or common maximum. He said that in certain circumstances the common maximum would not apply. As the directive is drafted that is certainly true, because it is a common maximum. We are not talking about 26 per cent. which will apply across the board. That is the maximum that would apply. I hope that the Government are not thinking of having a second ceiling which would be less than 26 per cent. because that would be even worse than the Commission's proposals.

We know from recent ministerial answers that certain member states want more than one ceiling, and at least two ceilings, to be applicable. We are entitled to know what the Government think about that. That passage in the Minister's speech was obscure and I am not clear what the Government have in mind for the further negotiations.

Apart from the directive and the possible level of subsidy, we need to approach the problems of merchant shipbuilding in the United Kingdom with a much wider perspective. For example we need to get British shipowners to place orders in British yards. That does not happen here as it does in Japan and elsewhere. It is rather ironic that in the directive there are special derogations for Spain and Portugal when the latest figures I have seen show that Spain has a larger shipbuilding industry than the United Kingdom. It certainly employs far more people and has a much healthier order book.

There may be reasons for making that derogation in favour of Spain, but Spain has built up its shipbuilding industry in recent years. For a long time we have seen, not merely a gradual, but a catastrophic decline in our merchant shipbuilding industry. Therefore, we need a wider approach and provisions which will ensure that British shipowners place orders with British yards and we need to reconsider fiscal incentives for a scrap and build programme. In particular, we should like to see the orders in the direct gift of the Government being brought forward as soon as possible.

Govan Shipbuilders is acknowledged to be one of the best yards in the United Kingdom. It is technically efficient and builds advanced technological ships. Indeed, at present it is building a P and O ferry. But that is all it is building. The ship has been launched and is due for delivery in the spring and there is nothing to follow.

At present Govan Shipbuilders is attempting to obtain a further order from Brittany Ferries and is actively involved in trying to obtain orders from China for container ships. Negotiations are continuing and the orders are difficult to achieve in the present circumstances, but I am confident that if Govan obtains the orders, it will do as excellent a job, as it has done on all the recent ships built there.

The order for the replacement of the ferry to St. Helena would be particularly helpful. The Minister for Overseas Development announced that on 21 May 1986, but the details of the order have not yet been put out to prospective tenderers. They may come from the private sector as well as British Shipbuilders. It is now six months since the decision was made to place that order. It is a substantial ship and it would be of considerable advantage, if the order came to Govan, as I am confident it will because Govan can put in the best tender for it.

I wrote to the Minister for Overseas Development in October about this and on 22 October I received a letter in which he acknowledged that the Government hope to be in a position to make a decision shortly. I know that the Minister acknowledged at that time that it was important that the decision should be reached as quickly as possible and the order should be placed as quickly as possible. I repeat that this has gone on from May to December and nothing has happened so far.

If there is a critical situation in the industry, which there is, one would have though that the first thing any caring Government would have done would have been to place the orders, which do not depend on what happens in other parts of the world such as Japan, South Korea and so on. I am talking about orders that can be placed directly by the Government.

The Minister for Overseas Development was present earlier in the debate. I thought, optimistically, that his presence might have meant that the Minister of State was going to announce that the order was to be placed very soon. However, the Minister for Overseas Development has since disappeared and the Minister of State did not mention the order in his opening speech. I ask the Minister to deal with that question in his closing remarks. The order is very important. It can be placed soon. It is in the direct gift of the Government. That sort of action would demonstrate some, commitment on the part of the Government towards this important industry. That is a commitment which, unfortunately, has been all too lacking in many circumstances over the past seven years.

11.16 pm
Mr. Jonathan Sayeed (Bristol, East)

No one who believes that there is a strategic need to keep shipyards operating in this country, both merchant and warship yards, could have anything but considerable sympathy for the speeches made by the right hon. Member for Glasgow, Govan (Mr. Milan) and the hon. Member for Dunfermline, East (Mr. Brown). However, I was rather disappointed that, although both of them complained about the level of the intervention fund, neither of them seemed to discuss the scale of the problem. The problem is fairly obvious. In most classes and types of merchant ship there are nearly twice as many modern ships as one needs to carry the current amount of goods around the world.

Mr. Michael Hancock (Portsmouth, South)

A substantial proportion of that number are falling apart at the seams and need to be replaced.

Mr. Sayeed

The hon. Gentleman is wrong. He will see that if he looks at the books of reference. I was talking about the types of modern ships. In most classes and types of merchant ship there are twice as many as are necessary.

The other problem is that, sometimes assisted by this country, Korea has managed to dump ships on the market at costs that are far less than even the steel cost. I find it extraordinary that the European Community is unable to effect an anti-dumping policy for ships. The European Community and its members are having to pay out of their own coffers to subsidise a shipbuilding industry that is competing unfairly with far eastern yards. The European Community seems incapable of stopping far eastern ships from coming to European ports and being operated by owners whose ship cost is far less than that of any ship owner who builds his ships in this country or elsewhere in Europe. I regret that we in Europe have done nothing about that.

Having said that, I am particularly delighted that there will be much greater transparency in the types of subsidy being given. Like other hon. Members, I regret the fact that the upper limit that has been agreed so far is only 26 per cent. It should certainly be closer to 35 or 36 per cent., in order to win orders. We would all like to have a perfectly fair industry worldwide which meant that there was no need for subsidy. However, subsidy is essential if we are to keep our yards open, and we certainly need a higher subsidy than 26 per cent.

I should like the Minister to let me know one thing that has been worrying me, having read the papers. Will the directive stop all speculative building? [Interruption.] I am thinking about the speculative building of warships in this country. If hon. Members will wait, they will understand what I am saying. There is still the possibility of merchant shipbuilding yards being able to build simple warships for sale abroad. I wonder whether the directive will stop those yards from being able to put forward plans for the building of simple offshore patrol vessels, including, in certain cases, an enlarged OPV, which would be almost frigate size, which could be of interest to other countries. Those ships could be leased to the Royal Navy on a purely cost basis. The Navy would operate and demonstrate them around the world.

Those simple ships can be built not just by warship yards but by merchant shipyards. Because Britain's warship yard building industry is far too sophisticated for most countries' requirements, there may be an opportunity for merchant and warship yards in Britain to build hulls and machinery which other countries may be interested in purchasing. Will that be permitted under this directive?

The Government's proposal is a step in the right direction. I regret the fact that the Opposition have not at times recognised the scale of the problem. They have not stated that the level of subsidy per employee is one of the highest in the industry. I am delighted that we have had this opportunity to remind my hon. Friend the Minister—he has accepted this—that the level of subsidy necessary to keep the shipyards open in this country is higher than the 26 per cent. proposed.

11.21 pm
Mr. Michael Hancock (Portsmouth, South)

This afternoon, I came from a meeting in Portsmouth where I was party to a decision to deal with what happens when a shipyard closes. The shipyard in my constituency at Vosper Thornycroft closed some six months ago and I was party to the decision on what would replace it. Every day what I see in my constituency bears witness to the fact that there is a major decline in the shipbuilding industry. I fully understand the size of the problem. Every week, people who have worked all their lives in the shipyards in my area come to see me. They know only too well the price that they have had to pay and the size of the problem.

We have to welcome at least the Minister's statement that the level of subsidy is hopelessly inadequate. Several hon. Members from both sides of the House have expressed concern about the future limit of subsidy. I feel that there is a common belief in the House that a subsidy of less than 30 per cent. is ludicrous and that a more realistic figure of about 36 per cent. would give hope that the problems that our shipyards face not only in Europe but elsewhere will be redressed. The announcement is a major step forward. At long last, there is general recognition of the problem.

The hon. Member for Dunfermline, East (Mr. Brown) talked about the number of people who have been put on the scrap heap. In the past 10 years, 61 yards in Europe have closed, 25 of them in the United Kingdom, including two in my area. Already shipbuilders are trying to find ways around the problem—not by the speculative building about which the hon. Member for Bristol, East (Mr. Sayeed) talked but by putting deals together. They are paying interest over a long period so that the customer picks up the final tab rather than the initial costs. Companies in my area are pushing that idea.

The directive recognises that we must increase subsidies even to the efficient yards in the EEC if they are ever to compete with the far east. I hope that, at long last, the Commission has recognised that, if Europe is to have a future as a shipbuilding entity, there must be a greater subsidy and the industry must be made more productive and made more effective at selling.

The Government must take a decision about what kind of future they want for the shipbuilding industry. Do they want to follow the example set in Sweden where, of all nations, Sweden has been forced to the conclusion that there is no foreseeable return to viability for the Swedish merchant yards and it has allowed those yards to shut down without any assistance from national resources? Alternatively, will the Government adopt the line taken by Italy and Germany who have decided to go against market logic and, through direct and indirect incentives and by transparent and other means, have managed to keep a substantial industry on its feet?

We have already heard about the achievements made by Denmark over the past two years. Denmark has turned its industry around and is, for the first time in a decade, witnessing growth in the industry. The United Kingdom and the Government are, I fear, following a similar track to that taken by Sweden. The Government have fought shy of a policy that would force the industry to extinction. They have adopted a far worse policy. They are keeping the industry hanging on and are dangling it over an abyss without taking the decision as to whether they want a viable shipbuilding industry or whether they should let it decline in the way it has declined in Sweden.

The Government must make a decision and come clean. They owe that much to the many people whose livelihoods depend on the industry. They must decide whether they want the long term survival of the shipbuilding industry in this country or whether they would be happy to see the decline increase.

We must recognise what is happening elsewhere. Anyone who would try to deny what is happening in the far east would be a fool. We know that ships are being built in Korea below the cost of the raw materials. That is a ludicrous position for us to compete with. It is also nonsense that we and the rest of Europe do not encourage each other by buying from each other and so try to maintain the stability of the industry in one area.

I would like to speak for a few minutes about—

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

For a few minutes.

Mr. Hancock

I am aware that other hon. Members wish to speak and I will bear that in mind. However, I have a distinct constituency interest in the matter—

Dr. Godman

So have I.

Mr. Hancock

More than 2,000 jobs in my constituency depend directly on shipbuilding, but there will be only 1,000 if the Government do not come off the fence over a specific deal that involves Vosper Thornycroft. Vospers has put a proposition to the Government over the building of a single purpose mine hunter. In doing so, it has calculated that if it has to remove 1,000 people from its work force, that will cost the company about £2 million in redundancy payments. The company is prepared to pay the interest on that ship for the Royal Navy, is prepared to build it in the coming 12 months, and accept payment in 1989 if necessary. All that the company needs to keep 1,000 people in work over the next 18 months is an order from the Government. Once again the carrot has been dangled before the company and that has been pulled away so often during the past 12 months that the company is in grave danger now of having to start laying people off early in the new year. That would be an absolute disgrace. If the company does not receive the order, undoubtedly by this time next year, there will be another 1,000 workers in south Hampshire signing on for unemployment benefit.

There is a need for the Government to recognise the specific crisis faced in certain yards. As we have heard in relation to the replacement ship for St. Helena, the Government have the power to save some of the yards from going further and further adrift. Europe must join forces with the United States in forcing cuts on far eastern yards as has been suggested by hon. Members this evening and as is suggested in the documents. We should find a way of funding shipowners to get rid of old ships. The hon. Member for Bristol, East (Mr. Sayeed) said that I did not recognise the need. I saw ships in the harbour in Portsmouth today which had brought fruit from the middle east and which were literally falling apart at the seams. Those ships need replacing. Many of them fly the flags of European countries and they should be replaced urgently.

Many of the coasters that ply around our shores need urgent replacement; they literally stagger from port to port. They undergo major repairs and maintenance after dropping off their cargoes especially at the south coast ports. They can be replaced only if there is a greater will to give subsidies to the yards, and we must do that.

The Government must be more vigorous in selling our ships, our shipbuilding capacity, our technology and our skills abroad. We must not fall into the trap, as we have in the past, of losing ships. There is only one way to save the shipbuilding industry—to build ships. It needs new orders and we must find ways to provide them. I regret that that will not happen.

It is ironic that we are in danger of losing that expertise. One hon. Member mentioned a new ferry for Brittany Ferries. In my harbour are ferries that ply back and forth to Ryde on the Isle of Wight, a distance of four miles. Where were the two replacement ferries for Sealink bought? It was not at Vosper Thornycroft, not at a British yard, not at a European yard. They were not built in Korea or Japan—they were built in Australia. It was cheaper for Sealink to sail those ships from Australia, taking almost two months, so that they could then ply a four-mile strip of water. We could not obtain the orders. It is a disgrace that more was not done to encourage British companies to buy British ships. We must recognise that the British shipbuilding industry is on its last legs.

I shall support the Opposition amendment because it undoubtedly recognises that more has to be done. Words are no longer enough. Nice things said in this House about what we have done and what we might be able to do, do not offer hope to those whom I represent. They want orders and a vigorous, robust attack by the Government on the world shipbuilding industry, and the British shipbuilding industry will undoubtedly respond.

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

The proposed directive is an improvement on the current directive, but it should be altered in one important respect. My hon. Friends have referred to the 26 per cent. regime, which is far too low and must be set at a higher level. If the Government are genuinely concerned about retaining a shipbuilding capability, that is the argument that the Minister must put forward in Brussels.

As the Minister knows, Scott Lithgow in my constituency just a few days ago announced 1,500 redundancies. The male unemployment rate in my constituency already stands at 25 per cent. These redundancies will take it above 30 per cent. I suspect that there are few Tory Members who have that sort of social and economic problem in their constituencies.

I am pleased to note that conversion work is to be treated in the same way as shipbuilding. I would have thought that the recent contract signed by Scott Lithgow with ACL falls directly within the definition of ship conversion work in article 1 of the proposed directive. Where does Scott Lithgow stand? Will the Minister abide by a designation made several years ago when that yard was still owned by British Shipbuilders? Or is it the case that yards privatised by this Government are to be denied EEC support? That, to say the least, would be a savage irony. Or will a shipyard—either privatised or still part of British Shipbuilders—be considered eligible if the criteria outlined in article 1 are met?

Perhaps the Minister will also tell us why there is no mention of marine engine builders in the document. Clark Kincaid, for example, is well able to work positively and closely with, say, Govan and yards in the north-east of England. Why is marine engineering not included?

Finally, I sincerely hope that assistance to shipbuilding communities such as mine will emerge under the provisions regarding aid for closures. Article 7 refers to payment to workers for vocational retraining and to

expenditure incurred for the redevelopment of the yard, its buildings, installations and infrastructure for industrial use other than that specified in article 1 In my constituency there is a belief that highly skilled welders and other shipyard workers will end up as rope catchers for yachtsmen coming into marinas on the Clyde.

I should like to know how the Government intend to define yards eligible for assistance and specifically whether Scott Lithgow and other privatised yards will be encouraged to seek that kind of support from the directive.

11.36 pm
Mr. Bob Clay (Sunderland, North)

I was disturbed at the Minister's complacent introduction. He seemed not to appreciate the effect of a 26 per cent. limit under the sixth directive, which includes various things not covered by the present limit and the fifth directive. There seems to be some muddle on the Government's part. In the past when we argued that more should be done than straight intervention the Government claimed that that was not possible because of the fifth directive. We are now told that those things were not excluded by the fifth directive but that they may be excluded by the sixth directive.

It has already been made clear that what is left of British merchant shipbuilding will simply disappear unless the Minister makes it plain that we cannot accept the kind of limit envisaged. Authoritative sources in British Shipbuilders have suggested that the present level of subsidy, with all the things that may now be costed into the proposed new regime, is around 42 per cent. and that is hardly enough to keep us afloat. It is vital, therefore, that the Minister should be far more dynamic in making it clear that we cannot accept the limit proposed.

Like my right hon. Friend the Member for Glasgow, Govan (Mr. Millan),. I was also disturbed at the Minister's reference to a possible differential with lower limits for small ships. How would he define that? The Danish ferry order on which North-East Shipbuilders Ltd., in my constituency is working is a large order, but it is for a large number of small ships. Had there been a differential and an even lower level of assistance than is now proposed, would that have affected an order which saved shipyards in my constituency from extinction but attracted only the basic intervention money with no other Government help whatever?

With one exception, to which I shall return, the points made by the Minister were sadly familiar. We heard all about the depressing state of affairs throughout the world and the crisis in the shipbuilding industry without any recognition that the decline in capacity and in the merchant fleet has been twice as had here as it has been even for European neighbours such as Italy and West Germany. There was no recognition of the fact that that has happened because other countries, even in this recession, have taken measures which the Government were not prepared to take.

All that we need do is to consider the point made by my right hon. Friend the Member for Govan about the order for St. Helena. We could argue about all the other things that the Government could do, but that ship is in their gift. We have been talking about the order for St. Helena for about two years. I recall the Secretary of State being reported as saying in May that an order would be placed by the end of the year. The order could have been announced tonight. It would have brought some relief to some hon. Members. Yet the Government have nothing to say about it. The distinctive feature of the Minister's speech tonight, as compared with previous ones, is that there was no discussion of any chance of orders. Usually, there would be a quick rundown of orders. Earlier this year, we were told that orders for China and Cuba might be in place by June or September, but nothing definite has happened.

I am highly suspicious that, if the Government have not given up altogether on merchant shipbuilding, they seem to be deliberately encouraging or allowing British Shipbuilders to run down the work force and to continue the programme of redundancies until it reaches the point where most people in British Shipbuilders, and most people who understand the industry will believe that it can no longer be viable. It is disgraceful that, in my constituency, we have what is effectively a lock-out. At Austin and Pickersgill, the management claim that there is a labour surplus of 450. So there is a shortfall on the 925 redundancies that British Shipbuilders wants. Nevertheless, 50 men were taken off the clock for refusing to work overtime, at a time when 450 men are facing compulsory redundancy and when management is bringing sub-contractors into the yard and putting them into departments in which they claim they have a labour surplus. They have taken people off pay, thereby provoking an all-out strike, in blatant breach of all agreements with the trade unions. That looks like deliberate pre-Christmas provocation to try to sicken even more people and force more into redundancy. Presumably, the company will then blame the work force, if it dares, for the fact that no more orders are on the horizon.

I hope that the Minister will take note of my remarks and will tell British Shipbuilders that this behaviour is disgraceful. The company should be making more effort to obtain the few orders that are around. It should be asking itself why there should be the order for the American President line, when earlier in the year we were told that there were no orders to be had anywhere in the world. By 1990, Bangladesh will have ordered 30 ships, and it has already placed a contract in China for a substantial multi-purpose carrier.

There are other examples of orders this year. After all, last year, Japan managed to get 2.8 million gross tonnes of orders from foreign owners. Why could not British Shipbuilders attempt to obtain at least one tenth of that? With the number of orders that Japan obtains from overseas in one month, British Shipbuilders could not only withdraw the redundancy notices but could begin to take back people with skills. My constituency has 27 per cent. unemployment, according to the Unemployment Unit and based on the non-fiddled figures. That will increase to more than 30 per cent. if the redundancy programme continues. My hon. Friend the Member for Greenock and Port Glasgow (Dr. Godman) made that point about his constituency. Goodness knows what level it will be if the yards close completely.

It is time for the Minister to say that he will fight for a better deal than is suggested in the sixth directive. He should make it clear that, whatever the other members of the EEC say, we shall not allow our membership of the EEC to sound the final death knell of British shipbuilding and that we will subsidise the industry to the level that is required to save it, whether the EEC likes it or not. With that sort of fighting talk, he might get some sense out of the other members.

11.44 pm
Mr. Don Dixon (Jarrow)

I agree with my hon. Friend the Member for Sunderland, North (Mr. Clay). Unfortunately, the management at Austin Pickersgill is typical of the management in the shipbuilding industry. After years of co-operation from the work force, management is definitely provoking the men.

The Minister said that the new regime would be an improvement on the present one. That would not be difficult, because the fifth directive was a disaster for British shipbuilding. Indeed, until now, the Government have never fought the corner of British shipbuilding. Instead of giving support during a period of decline in world shipbuilding, the Government have merely used their energy on privatisation. My right hon. Friend the Member for Glasgow, Govan (Mr. Millan) mentioned scrap and build, but there is nothing in this document about that.

Everyone knows—the hon. Member for Bristol, East (Mr. Sayeed) has mentioned this on several occasions—that our merchant fleet is fast disappearing. Not only has there been a decline in the size and tonnage of the British merchant fleet, but it has also aged. In fact, 42.7 per cent. of the fleet is more than 10 years old, 13.7 per cent. is more than 15 years old and 5.1 per cent. is more than 20 years old.

That point was made in a letter by Jim McFaull, chairman of the shipbuilding negotiating committee, to the Secretary of State on 4 December, in which he said:

Fiscal incentives must be given to shipowners to scrap old ships and replace them with new ships. This will not add to overcapacity in shipping, but will upgrade the fleet. That is urgently needed. What has happened to merchant shipbuilding in the years since nationalisation is well illustrated by British Shipbuilders' own corporate plan, which states: In July 1977, British Shipbuilders had 38,700 employees engaged in merchant shipbuilding. By mid-1985 this had been reduced to 8,349, a reduction of 79 per cent., and more redundancies are to come, as has been pointed out by my hon. Friend the Member for Dunfermline, East (Mr. Brown). It is almost as though prizes were being given to those who could run the British shipbuilding industry down faster than any other industry. That may be so, because the salary of the chairman of the corporation increased from £36,447 in 1981 to £101,298 in 1985—the smaller the industry became, the higher the salary of the chairman.

The north-east has been devastated by redundancies and yard closures. In 1977 British Shipbuilders' subsidiaries employed more than 30,000 men in the north-east. That is now well below 10,000. For the first time in living memory no ships are being built on the south side of the River Tyne. Indeed, one of the most modern fabrication sheds, Palmers Hebburn, will be used for the storage of surplus EEC grain. Instead of building ships to take that grain to the starving millions of Africa, this Government are now storing it in modern fabrication sheds which were originally meant to build ships.

What happens to the money designated by the EEC. Article 7 refers to payment to workers for vocational retraining … expenditure incurred for the redevelopment of the yard, its buildings, installations and infrastructure for industrial use other than that specified in article 1 (a)". I wrote to the Secretary of State on 17 November and said: I was alarmed to read that the EC Commissioners acting on a report of the Court of Auditors 'Official Journal C262 20 October 1986' had stopped the part of the Non Quota Section of the European Development Fund which was designated for Shipbuilding Areas because the United Kingdom Government had not spent the money allocated in the correct manner". Not only have areas such as ours been run down and devastated by shipyard closures, but money that has been allocated under the EEC non-quota section has been misappropriated by the Government. Instead of going to the areas to which it was designated, it has been used elswhere for other purposes.

I hope that the Minister will respond to the issues which have been raised by my hon. Friends, those which were set out in a letter to him from the chairman of the SNC about the intervention fund, or subsidy, and a co-ordinated policy to bring forward orders for public sector corporations. Trade and aid provisions should be orchestrated to allow Third world countries to acquire much needed ferries and barges for their inland waterway transport systems. The trade unions have referred a number of matters to the Secretary of State, and I hope that they will be taken on board.

11.50 pm
Mr. Giles Shaw

With the leave of the House, Mr. Deputy Speaker, I shall reply.

First, in response to the hon. Member for Jarrow (Mr. Dixon), I have received Mr. McFaull's letter, and there will be a full response. I shall examine his constituency interest about a stoppage of the intervention fund and write to him.

I shall refer briefly to some of the major issues which have been raised, while recognising that time may not permit a full response. The hon. Member for Dunfermline, East (Mr. Brown), who spoke from the Opposition Front Bench, talked about the benefits of the 26 per cent. regime that is proposed by the Commission as against those of the existing regime. There is much difficulty in relating the two regimes, because they measure different things. On the plus side, all aids come within an aid ceiling now. That was not the position hitherto. The House will recall that British Shipbuilders and others have long complained that aids go to other European shipyards that are not available to them and that they are declaring more for the benefit of the intervention fund while other European yards are declaring less. That anomaly has been removed under the new proposals and the benefit will be unquantifiable.

There are problems about loss financing. It is a mistake to believe that we enjoy a free ride with the loss financing of British Shipbuilders. Under the fifth directive that was related to restructuring. The sixth directive is not so related. That is a major benefit that is presently unquantifiable.

I omitted to stress previously that the new regime under the sixth directive is not the same as that of the fifth, which is that intervention funds are available only where restructuring has taken place. Hon. Members have rightly said that the British yards have suffered more than their fair share of construction, and that is a view that I fully accept. With the prospect of being able to win more orders, with the benefits that we hope will accrue by the end of the negotiations, we hope that we shall not be in the same position as that in which other countries may find themselves—engaging in substantial restructuring in the light of the proposed directive.

The right hon. Member for Glasgow, Govan (Mr. Millan) spoke about the shipyard in his constituency and the problems that it faces. I shall respond to him in proper manner. The Government have decided what type of ship to recommend to the Government of St. Helena. As soon as that Government's agreement has been received, the ODA will set in motion the competitive tendering arrangements for design and construction of the new vessel in a United Kingdom yard. That is what the right hon. Gentleman wants to see done, and I am happy to make this announcement in response to his speech this evening.

Opposition Members have spoken about ordering, and it is right that there are some prospective orders. So far this year British Shipbuilders has secured orders for 27 ships. The large majority comprises ferries that will be built in the north-east. There are 25 ferries to be built there. There are also the ferry for Caledonian MacBrayne at Ferguson and the dredging vessel that is being built at Appledore. There are prospective orders, and the container ship for China is one of them. The hon. Member for Greenock and Port Glasgow (Dr. Godman) will know that a Chinese delegation visited the United Kingdom recently and that I saw it before it travelled to Scotland. The Government are making a major effort through British Shipbuilders to try to secure that order. There are some important orders available and some important prospects, but the general climate is one in which there is infinitely more capacity than demand for new ships.

I heard the point made by the hon. Member for Portsmouth, South (Mr. Hancock) about Vosper Thornycroft. That is essentially a matter for the Ministry of Defence, and not for me, but I shall draw the attention of my right hon. Friend the Secretary of State to it.

The hon. Member for Greenock and Port Glasgow asked me specifically about the intervention fund being made available to help Scott Lithgow. I explained to him the other day that the intervention fund was not available to Scott Lithgow because that yard was designated as an oil rig builder, and only merchant ships benefit from the intervention fund arrangements. I made it clear to him that the home credit scheme was still available and loan guarantees would be available to that yard.

Dr. Godman

I do not deny that that designation took place, but Scott Lithgow at this very moment has an order for a ship conversion, to the Atlantic Conveyor, which means that it is not specifically an offshore oil structure building yard. It is, in every sense of the word, a shipyard.

Mr. Shaw

But, as I explained to the hon. Gentleman the other day, the yard was so designated when it was privatised as part of the restructuring of British Shipbuilders. That designation remains in relation to the position of the yard under the intervention fund. Conversion costs relate to the sixth directive, which is not in force. So the position is not as easy as the hon. Gentleman wishes. I agreed with him that I would examine what else can be done within the area in which it is located, to see whether assistance can be brought.

The hon. Member for Sunderland, North (Mr. Clay) rightly was concerned about the Danish ferries. It is suggested that there might be a difficulty with small ships primarily because of the 26 per cent. ceiling. I trust that a higher ceiling will be negotiated. I am not prepared to disclose what the objective might be, but I take note of the fact that the shipbuilders in Europe are committed to a requirement of 30 per cent. or more. At least that is a firm statement. Now 35 per cent. appears to have dropped out of the shipbuilders' view as a desirable objective.

With regard to small ships versus large, the real comparison to be made is with the larger ships in the international market, which is why the ceiling has been placed at at least 25 per cent., and we hope that it will be higher. The possibility of that applying to all ships at all stages and all sizes still has to be debated in the Council. There have been some discussions—the right hon. Member for Govan might know of them—of a twin ceiling arrangement. Certain member states would prefer it that way. I would prefer to see a single ceiling at a level that would be conducive to the future development of British Shipbuilders. I am sure that that is the right thing to propose.

Those are the views that I take from the House. I am grateful for the comments that hon. Members have made, and I trust that they will approve the motion—

Mr. Gordon Brown

Does the Minister accept that the Committee of European Shipbuilders said that the support should be at least 30 per cent.? It did not set the limit at 30 per cent. in the discussions this weekend. Will the hon. Gentleman answer the central point of the debate? If the independent report recommended 36 per cent. of cost support and Britain has most to gain from that, why are we not pushing 36 per cent. in Europe?

Mr. Shaw

On the latter question, the hon. Gentleman will see that the report uses a selective method of comparing certain types of vessel with certain prices and costs. He will know that the market for ships in the United Kingdom is orientated much more towards the high quality sophisticated merchant vessel. So it is not entirely fair to say that the figure in the report is relevant for the United Kingdom. What is relevant is that we should obtain a ceiling for the sixth directive that will allow us to compete effectively internationally as well as within Europe. We mean to achieve that because the new directive is much more precise as to what aids must be included in the aid ceiling, and it will be monitored to ensure that that takes place. That gives advantage to our yards and more confidence to British Shipbuilders in its competitive tendering overseas. I accept the view expressed by Opposition Members, and indeed, by my hon. Friends, that we must do our utmost to see that we lift that 26 per cent. ceiling significantly in the negotiations on 22 December. I intend to do just that.

Amendment negatived.

Resolved, That this House takes note of European Community Documents Nos. 9470/86 and 9470/1/86 on aid to shipbuilding, and supports the Government's intention to press for early adoption of the Directive in a form which will provide a fairer and more transparent aid regime in Europe and enhance the ability of European yards to compete in world markets.