Royal Ordnance Factories (Hansard, 18 June 1986)

§ Mr. Denzil Davies (Llanelli)
(by private notice) asked the Secretary of State for Defence if he will make a statement on his decision to halt the sale of the ROFs.

§ The Secretary of State for Defence (Mr. George Younger)
The House was informed last October that, subject to the normal caveats of trading performance and stock market conditions, we hoped that Royal Ordnance plc would move to the private sector in mid-1986. Since then, planning has been in train for a stock market flotation this summer. As I announced to the House in a written answer yesterday, however, although substantial progress has been made in the process of transforming Royal Ordnance into a fully fledged commercial entity, it has not been possible to take this far enough and to have in place all the features necessary to provide the basis for a successful flotation this summer. It remains my intention to privatise Royal Ordnance, and I am giving further consideration to the means of achieving this.

§ Mr. Davies
To the right hon. Gentleman's discredit, and he knows it, he has had to be dragged to the Dispatch Box to give his answer on the Royal Ordnance factories. He had hoped that yesterday at 3.14 pm, during Defence Questions, he could slip the announcement through, but the plan failed. The right hon. Gentleman did not even have the guts to come to the Dispatch Box to make a proper statement about it.
For the three years before the right hon. Gentleman became Secretary of State we argued, both in the Chamber and outside the House, that the Government's plan to sell off the ordnance factories was not only nonsense but extremely damaging to the factories, to the employees and to the national defence interest. The Government did not listen. Inurned in their ideological tomb, they had no time for rational thought or reasoned argument.
While all that was going on and all the money was being spent, the ordnance factories were getting thinner. When the Government started this process the factories were valued at about £400 million, but that figure was rapidly reduced, until a few months ago an optimistic view in the City would have set their value at £150 million. That was one measure, although not the only one, of the damage that the Government have inflicted on the Royal Ordnance factories.
What is to happen? Will the Secretary of State give an undertaking that before the next general election he will not further dismember the ordnance factories but will return them to the status of a trading fund, in which the Government found them? Secondly, what will happen to those employees who lost their jobs as part of what was euphemistically described as preparation for privatisation? Ministers can walk away, as two did during the Committee stage. Merchant bankers, stockbrokers and management consultants can walk to the banks with fat fees paid by the taxpayers, but those who worked in the factories can walk nowhere except to the employment exchange.
Thirdly, how much has the operation cost the taxpayer over the past three years both in fees to private consultants and in time and man hours used in the Civil Service? Finally, will the Government learn from this lesson, drop the damaging plans to privatise the royal dockyards and stop that privatisation before more damage is done?

§ Mr. Younger
I have not heard such a good example of making bricks without straw for a long time. I do not intend to join the right hon. Gentleman in his ideological tomb. It remains the Government's belief that it would be better for the Royal Ordnance factories to be privatised—

§ Mr. Jack Straw (Blackburn)
Why?

§ Mr. Younger
—for the many reasons on which our original plan to do so was based, which are that, to have a successful future— [Interruption.] The hon. Member for Blackburn (Mr. Straw) might find it more helpful to hear what I have to say, even if he disagrees with it.
If the industry is to have a more successful future, it must rely for its future not only on home but on export orders. It has a much better chance of getting better export markets if it is in the private sector and fully competitive. For that reason, privatisation must still be the objective.
On the right hon. Gentleman's other questions, I cannot give him an undertaking that before the next general election the ordnance factories will be restored to the status of a trading fund, because the Government have no intention of going back to that solution. The position of the employees who lost their jobs earlier on, has nothing to do with the present postponment of privatisation, which is all that I have announced today. As to cost, it is too early to say what the cost of advice. And so on, would have been at this stage, but if the right hon. Gentleman wishes to know and tables a question I shall he happy to find that information for him. As to t he dockyards, this is a wholly different situation, with a wholly different solution, and my announcement makes no difference to the intentions for them.

§ Sir Antony Buck (Colchester, North)
Is my right hon. Friend aware that many, if not all, Conservative Members thinks that it is right to pursue a policy of privatisation, as we won the general election on it? When will the revised timetable go ahead? Will he pay tribute to Mr. Bryan Basset for all that he has done in the early work to try to effect that which we hope will come to fruition before long?

§ Mr. Younger
I thank my hon. and learned Friend and echo his view that we are greatly indebted to Mr. Basset and the management of Royal Ordnance for the tremendous efforts that they have been making over recent weeks. As to the principle, the House will understand that when the decision is taken to go for a flotation on the market, it is essential that that should be done only when the company is clearly in the right state to make that flotation successful. In our judgment, the company is not at present in such a state as to make certain a really successful flotation. Again I hope and think that the House and my hon. and learned Friend will agree that if that is the case, it is very much wiser not to go ahead until it is in a proper state for a successful flotation.

§ Mr. James Wallace (Orkney and Shetland)
Is the Secretary of State in a position to confirm to the House that one of the most important factors in this decision was the protest from Vickers about the placing of orders for Challenger tanks with Royal Ordnance and that the Government did not allow any competition for that order? If that is true, does it not blow a great hole in the Government's much vaunted competition policy?

§ Mr. Younger
No decision has yet been taken about the order to which the hon. Gentleman referred. As I have said, the criterion for this decision was whether the company was really ready for a successful flotation. Our judgment is that it is not yet ready and that we must wait until it is.

§ Dr. Keith Hampson (Leeds, North-West)
Is my right hon. Friend not aware that, apart from the problems of the Challenger order, the judgment of the management of the Royal Ordnance factories was that they were ready? Will he say something about the central issue, which is not whether or not the Royal Ordnance factories should be privatised, but in what way, because it is being reported that the Department of Trade and Industry now wants to sell off piecemeal, in a privatised form, the whole operation. This is very important, because it will lower competition and result in the loss of many jobs in a city like Leeds.

§ Mr. Younger
My hon. Friend is quite right to locus on those two points. As to the judgment whether this was the right moment to float the company, I do not say, and I have not said, that it would have been impossible, but think my hon. Friend will agree that, with all sorts of obligations to the House and everywhere else, it would be right to be able to justify this as being the best moment to go for flotation, and we consider that that is not so. As for other options, I said in my answer that we shall now consider a broad range of other options for privatisation., but of course it is too early to say which will prove to be the right one.

§ Mr. Robert Sheldon (Ashton-under-Lyne)
Does not this sorry tale prove that the Public Accounts Committee was right to say that privatisation should not go ahead until the opening balance sheet assessment had been made? Unless we know the economic value of the company, how can we try to sell it? How can we convince the taxpayer that he is getting the proper price for the assets that we are selling? A number of assets have been sold below cost, and it is to the shame of this Government that they are not making sure that this does not happen again.

§ Mr. Younger
I think that the right hon. Gentleman may be missing the point slightly. Of course he is right, and the Public Accounts Committee under his leadership is also right, to say that we cannot impose a flotation without having all the facts. We should have had all those facts if flotation had gone ahead, but the right hon. Gentleman, of all people, will surely agree, with his responsibilities to the Public Accounts Committee and otherwise, that to justify a flotation it is necessary to demonstrate that a proper price is being obtained and that an effective flotation is being carried through. As our judgment was that that could not be done at present, I hope he will feel that we were right not to proceed.

§ Mrs. Anna McCurley (Renfrew, West and Inverclyde)
It took some time for the work force to appreciate and reconcile itself to the principle and effect of privatisation. This was achieved by reason of the fact that it was to be the Royal Ordnance plc, an integrated whole. Will my right hon. Friend give an assurance that when the time comes for privatisation this will still be the case and that the Royal Ordnance factories will not be sold off piecemeal?

§ Mr. Younger
I appreciate my hon. Friend's point about the acclimatisation of the Royal Ordnance employees to privatisation, and I reaffirm that it remains our objective to achieve the privatisation of Royal Ordnance. I cannot give the undertaking that my hon. Friend requests about the way in which it will be done, because, as I have already said, we are still reviewing all the possible options for privatisation from now on.

§ Mr. Straw
Does the Secretary of State not understand that when he refers to a successful future for the Royal Ordnance factories, thousands of ROF employees, including hundreds in my constituency, have paid for the privatisation policy of this Government with their jobs? —[HON. MEMBERS: "That is not true"] Yes, it is true, and Conservative Members know it, and the country knows it. Will the Secretary of State now come clean and have the guts to admit at the Dispatch Box that one of the policies that he is now looking at is selling off the different bits of Royal Ordnance plc piecemeal?

§ Mr. Younger
The hon. Gentleman does not usually talk rubbish, but it is absolute rubbish to say that any member of the staff of Royal Ordnance has paid for any part of this with his job. The number of jobs in Royal Ordnance is determined by the amount of work that the factories have and whether they are competitive enough to obtain orders, wherever they are. As I have said, we are considering what is the best option for the future.

§ Mr. Richard Ottaway (Nottingham, North)
My right hon. Friend will be aware that since it became a plc the Nottingham factory has an expanded order book and an increased work force. Regrettable as the delay is, will my right hon. Friend assure me that if there is to be a reconsideration of the method of selling the ordnance factories, the unprofitable Leeds group, which is grouped with the Nottingham factory, will not hamper full independence for the Nottingham factory?

§ Mr. Younger
I appreciate my hon. Friend's latter point. Such considerations will have to be looked into when we consider all the options for the future. My hon. Friend said that the Nottingham factory's work force has expanded since privatisation, and I am not sure where that leaves the hon. Member for Blackburn, in view of his extraordinary remarks earlier.

§ Mr. Derek Fatchett (Leeds, Central)
Does the Secretary of State recognise that his comments this afternoon will add greatly to the fears that already exist among the labour force in Leeds? The workers have already sacrificed their jobs for privatisation, and they now run the risk of losing more because of the lack of Challenger tank orders and the fact that the Minister seems to prefer to break up the Royal Ordnance factories and sell them in parts? When will the Government look after those workers who have given so much for Britain on so many occasions? Do the Minister and the Government not have some moral responsibility towards them?

§ Mr. Younger
There seems to be a change of tack among Opposition Members who have for some time been at pains to say—incorrectly—that the work force was not in favour of privatisation. If the hon. Gentleman is changing his tack now, he should say so. I have made no decision to break up the Royal Ordnance factories, and I thought that I had made that clear.

§ Sir Hector Monro (Dumfries)
Is my right hon. Friend aware that during the period or preparation for privatisation the Royal Ordnance factories have been negotiating the sale or long lease of some plants, including one in my constituency? Can he assure me that the postponement in no way prejudices the present negotiations, because the work force and myself want an assured future for those at the Powfoot plant?

§ Mr. Younger
I am grateful to my hon. Friend. I can give him that assurance. The postponement makes no material difference to that situation, about which I know he is extremely concerned.

§ Mr. Merlyn Rees (Morley and Leeds, South)
Will the Secretary of State recall a matter that was raised a moment ago? A number of us are interested in Barnbow in Leeds. The matter of Nottingham and the plant there being profitable was mentioned. The work force at Barnbow was told that it would he better off after privatisation, but it is now not to be privatised. Did I get an inkling that because Nottingham is profitable and has been given orders there will be even more redundancies in Leeds as a result?

§ Mr. Younger
The right hon. Gentleman would be wrong to draw any such conclusion, nor have we decided that privatisation is not to go ahead. I have said only that the flotation cannot go ahead in July as planned. The future of any form of organisation will depend on the amount of orders that all the Royal Ordnance factories get and I hope that they will obtain as many orders as they can.

§ Mr. Robert Atkins (South Ribble)
Is my right hon. Friend aware that those who have consistently been in favour of privatisation will not necessarily be displeased at the delay in the flotation of the company on the market, as this will give more time to examine all the issues involved and to get them right when it happens? Would he care to say a word about the problems of Royal Ordnance with the competitive tendering policy of his Department particularly in relation to foreign companies? Finally, is he aware that we do not take kindly to Opposition Members launching an attack on the Government about redundancies in Royal Ordnance factories, when, under their control, as many jobs, if not more, were lost through redundancies?

§ Mr. Straw
That is not true.

§ Mr. Atkins
If the facts are checked, Labour Members will be able to confirm that that is true.

§ Mr. Younger
My hon. Friend is correct to say that there were a large number of redundancies indeed when the Labour party had responsibility for the factories.
My hon. Friend has put his finger on an important point — the weight to be placed on the Opposition's alleged indignation about the matter. If I had announced today that we were going ahead with flotation on a basis that was not altogether clearly advantageous, we can imagine what the Opposition would have said. They would rightly have severely criticised us, and for that reason we can place little credence in their synthetic indignation.

§ Mr. John Cartwright (Woolwich)
Does the Secretary of State accept that the Government's anxiety to sell off the Royal Ordnance factories should not be allowed in any way to hamper the supply of much needed equipment for 1051 the armed forces? Can he assure the House that the Government's efforts to get out of the mess that they are in will in no way delay the placing of much needed orders for the Challenger tank?

§ Mr. Younger
The decision on the Challenger tank will be taken on the basis of the best possible value and delivery and on other such factors. I can assure the hon. Gentleman on that point. He asked about the supply of equipment to the armed forces. There is no reason why the change should make any difference to that, and I agree with him that it is a mater of great importance.

§ Mr. Martin M. Brandon-Bravo (Nottingham, South)
My hon. Friend the Member for Nottingham, North (Mr. Ottaway) spoke about the Nottingham Royal Ordnance factory and the stability of the work force. Is my right hon. Friend aware that at one time the work force at Nottingham declined from about 2,000 to just over 1,000? That happened under the old trading status, and the growth in the labour force at Nottingham has occurred solely during its current plc status.
Can my right hon. Friend say something about the difference between the management structure of the old system and the management structure of the new system? Can he tell us what benefits that gives the present plc management, whether or not the company is privatised, in going out and getting business that was denied to the company under the old system? Will he give some assurances to my work force in Nottingham?

§ Mr. Younger
I appreciate the point made by my hon. Friend. It seems that recent efforts by the Nottingham factory management have been fruitful and productive, and my hon. Friend is quite right to draw attention to that. 1052 In terms of the future of the various Royal Ordnance factories and the jobs in them, I have to tell the House that it is the gaining of orders, especially export orders, that will make the difference to all these factories. I hope that management will go ahead and make the factories as competitive as possible, in order to obtain the best possible level of orders.

§ Mr. Denis Healey (Leeds, East)
I agree with the Minister that it is the state of the order book that determines the date of sale if privatisation is intended. Will the Minister confirm that it was his intention last week to announce that the Challenger tank order would be given to the Leeds factory? The placing of that order is at his disposal. On Saturday he was dissuaded from taking that decision by the intervention of a private firm which is a well-known supporter of the Conservative party. All his plans are now falling to pieces because he is not now able to give the Challenger order to Leeds. The Leeds factory has a long history, going back to the beginning of the last war, of being the best provider of main battle tanks to Britain. Many people believe that it makes the best main battle tanks in the world.

§ Mr. Younger
I share the views of the right hon. Member for Leeds, East (Mr. Healey) about the excellent work carried out at the Leeds factory. He is right to draw attention to that. I am glad of his confirmation of something that has not been agreed by many of his colleagues, namely, that it is the state of the order hook that will determine the future of the factories, wherever they are. There was never any intention to announce any Challenger order next Saturday. As I have said, the decision on that order will be taken on the basis of the best price and the best factory.