HC Deb 16 May 1986 vol 97 cc1031-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]

2.35 pm
Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

In 1575 Francis Lee, who was one of the four master gunners in the Tower of London, petitioned the Privy Council for permission to import saltpetre to start the manufacture of gunpowder. In his petition, after some very polite remarks, he began with a quotation from the first book of Samuel, chapter 13, verse 19: There was no Smith found throughout the land of Israel lest the Hebrews should make them swords and spears. He then said: So now no powder made for her Highness in England, but provision made out of foreign part as of late from Barbary, Hamburg and Antwerp which provisions in the time of the Duke D'Alva were cut off. Nothing changes because the royal ordnance factories today are in exactly that position. We have a Government who pretend, at extraordinary length, that they are concerned with the defence of the realm—yet they are prepared, quite cheerfully and without proper thought, to hand over the future of the defence of this country to any manufacturer of arms anywhere in the world.

We all know that the ROFs have gone through an exceedingly difficult time. I am especially concerned about the ROF at Radway Green, which is close to my constituency and where many of my constituents work. The reality is that all the ROFs are dedicated to their work, and have been ever since their creation long before the time of Elizabeth I when the privately-provided gunpowder to the Armada was found not to be effective. The state armories and ordnances have fulfilled their tasks admirably.

This Government, unlike any other of any complexion, regard the ROFs as a suitable asset to be flogged off in the market place. They were first put through the procedure of being made private companies and they are now to be floated in July. It is important that we should understand exactly what is happening. The Ministry of Defence—which, after all, is the main customer of the ROFs—is behaving in the most arbitrary and extraordinary manner. Its own figures reveal that 60 million rounds of ammunition were purchased abroad in 1985 and 1986. The MOD says that it moved from the 1 per cent. that it used to buy abroad to about 24 per cent. by 1985 because it is looking for a much better deal for the taxpayer and good value for money.

Quite frankly, it is extraordinary that the ammunition factory at Radway Green, which is the only factory producing small arms and ammunition, has never stopped the flow of that ammunition because of industrial action. It has provided ammunition which has been used in the Falklands and in Northern Ireland, and which has always ensured that the British Army is properly equipped. Yet recently there was an extraordinary incident of the MOD placing an order with a Belgian firm, only to be met with industrial action so that it could not have delivery of its order.

The MOD is in control of the orders for the ROFs. The percentage of small arms orders placed abroad has risen but, since the beginning of April, 2.7 million more rounds of small arms ammunition have been purchased. There is a good indication that already we may have filled the 10 per cent. of orders we were told would be placed elsewhere. The ROF not only has an empty order book but, at Radway Green, has already laid off workers. It is possible that those skilled workers will be dispersed yet further if orders are not forthcoming.

The royal ordnance factories are the only source of the United Kingdom's small arms ammunition. The Minister talks about getting good value for money, but it is important that he should tell us also what will happen if ROF Radway Green does not get sufficient orders to make it viable in the coming transitional period. It is all very well to say that, when it becomes a private company, it will be able to compete with any company abroad. We know that even the Government and those companies abroad with which the Government have placed orders are almost entirely. with one exception, run, subsidised and controlled by the Governments of those countries. The Government have been buying from the Portuguese, from one private German firm, which is part of the Flick empire—that should give many people pause for thought—from Raufoss in Norway, which is not only an efficient but an expensive company, and from the Greek Powder and Cartridge Company.

I have asked more than once whether we are convinced that the end-user certificate will ensure that the ammunition that is being bought is genuine and that there will be monitoring all down the line, but I have not yet received adequate answers.

It is important to understand that, if the ROF's order books are controlled by the Government, the ROFs need to be given some protection. At the moment, they are getting the worst of all worlds. They no longer have the relationship of a state factory to a Government, and their individual workers are no longer protected by being civil servants—indeed, many are suffering because of that. Nevertheless, the Government seek to dictate the size of the orders and threaten to place their orders abroad, presumably in the sacred name of competition. There is a real danger if this nation is dependent on supplies from overseas or, alternatively, if we have factories which have been run down to such an extent that they are no longer viable.

The royal ordnance factories developed not only rifles but many specific items because the relationship was of civil servants to Government. We now face the frightening situation in which the Government use those detailed statistics and that information to allow foreign companies to tender in opposition to the ROFs for British orders and to use that commercial information to produce the same type of goods for sale in other countries—in effect, using the ROFs' intellectual copyright. Any other Government would be deeply ashamed of that extraordinary development.

There has already been a downward revision of the amounts to be raised from the sale of the ROFs' assets. Not only will there not be an enormous amount of money made available for other purposes, but this important defence asset will be flogged off without any obvious advantage.

The Ministry of Defence has kept the ROFs in considerable suspense, presumably negotiating with them for individual contracts, but giving them little leeway in the move from being a state-owned to a private company. or any indication of the size of the orders that will be placed with them. I would not like to accuse Ministers of behaving like silly boys, but I wonder whether it is true that a question tabled last night is to be answered today, after the debate has taken place, giving some information about an order to be placed at Radway Green, which will be the equivalent of only one year's order, not the three-year package that royal ordnance factories have been seeking. If that is so, it is an abuse of the facilities of the House.

I, in common with my hon. Friends, have been questioning the Minister for about four months about the way in which the company is to be floated, the size of the order books, from where the ammunition is being brought, what facilities will be available, and what will happen to the people in the factories. I have been given the most extraordinarily obtuse and, in some cases, contradictory answers. If, on the eve of my raising this matter on the Floor of the House, the Minister puts a written answer into the Lobby which gives one part of the information but not all of the commitments that are being asked for by royal ordnance factories, then he is behaving disgracefully and many people will find that difficult to accept.

Mr. Lewis Carter-Jones (Eccles)

My hon. Friend is trying to get answers from the Minister from whom I have been trying to get answers for the past 18 months. My hon. Friend has made a strong case for Radway Green, but I want to make a case for all royal ordnance factories. As my hon. Friend has clearly demonstrated, morale is declining. Morale has gone down even further because of the failure of the Government to give answers on pension rights and their failure to respond to my hon. Friend and people like myself who are seeking firm commitments on pensions. The Minister must now come clean, as my hon. Friend is asking.

Mrs. Dunwoody

I am afraid that the point made by my hon. Friend can be repeated over and over again. The people working in the factories no longer have any security of tenure. They no longer have any response from the Government to the commitment that they have shown over many years. Many of them have accepted lower rates of pay in return for the satisfaction of doing a job that they thought was important for the country, a job which, after all, replenished the stores after the Falklands war and made it possible for the Government to exercise political opportunism in the south Atlantic. In many instances they are now thanked by being put out on the stones. That is a clear indication of the Government's attitude.

In replies to me, the Minister always says that he will take account of the national interest. He says that, as to future orders, negotiations are now at an advanced stage and that he expects them to result in further substantial contracts and that he will let me know when that stage has been reached.

It is not good enough. The Conservative Government have made plain, for as long as I have been in politics, their belief in a proper defence for the realm and in properly organised provision for the armed services. They have now behaved in probably the most hypocritical and irresponsible way that it is possible for any Government to behave. They intend to treat these units as if they are some simple asset to be sold off. They have not taken account of the national interest. They will deprive this country of proper conventional arms and, at the time of the next general election, I expect they will tell the electors that they cannot possibly trust anyone else because the Conservative party is the only one to understand the need to defend the British people. The Government must give us a commitment for continuing employment in the royal ordnance factories, and give us some indication that the Government will not simply behave in this arbitrary and unbalanced way. We might then begin to believe that the Government seriously care about the future of the defence of this country. Unless we have those assurances, we shall know, in simple terms, that to this Government any asset, whether a defence asset, the protection of the people or whatever, can be sold off for filthy lucre and, at the end of the day, it will be presented as a great advance when we all know that it is utter hypocrisy.

2.49 pm
The Parliamentary Under-Secretary of State for Defence Procurement (Mr. John Lee)

Despite the tone of some of her comments, I still congratulate the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) on securing the opportunity to raise this important matter in the House. I well understand her genuine concern for her constituents who work at the small arms ammunition factory at Radway Green, and for the future of royal ordnance factories as a whole.

Without wishing to be unduly pedantic, I should like to say, however, that we are no longer involved in the sale of the royal ordnance factories. We have created a new company—Royal Ordnance plc.

I am pleased that this afternoon my hon. Friend the Member for Chorley (Mr. Dover) is with us. He has a deep concern for his constituents who work at the royal ordnance factory at Chorley and others in Lancashire. The hon. Member for Eccles (Mr. Carter-Jones) is also here, and I know of his deep concern, too, for his constituents who work at the royal ordnance factory at Patricroft, which he knows I have visited.

There are many positive arguments in favour of the change of status of Royal Ordnance. The resources available to defence are always limited, and, as this week's White Paper made clear, it is an important task for the Ministry of Defence to get the best value for money. That means that we must look for taut and efficient contractors, and we must look to the pressures of competition to ensure that we get the best defence out of the resources we put in. We believe that it is only by being in the private sector that Royal Ordnance can best respond to those competitive pressures and it is essential for its future development and prosperity that it does respond to those pressures.

It is undeniable that the capacity of Royal Ordnance is greater than is necessary solely to meet the needs of the Ministry of Defence. It has been the case for some years now that the organisation has to sell its products abroad if it hopes to utilise all its available capacity. There have been some notable successes in the past as well as the unfortunate effects of Iran. But Royal Ordnance's future depends critically on its ability to export. That means that it must become increasingly competitive, and that requires the structure, personnel and drive to identify its markets and to export into them successfully.

The Government decided that the best way of securing the future of Royal Ordnance and of exploiting its undoubted potential was to turn it into a fully fledged commercial company. As a result, the Ordnance Factories and Military Services Act was passed in 1984. Under the terms of the Act, the Government made a scheme which took effect on 2 January 1985 and which transferred to Royal Ordnance the assets and liabilities of the trading fund and of research and development facilities at Westcott and Waltham Abbey together with the associated rocket motor production factory at Summerfield. On 22 October last year, my hon. Friend the Minister of State for Defence Procurement made clear our intention to move the whole company into the private sector by means of flotation of the shares subject to prevailing trading and stock market conditions. Although no final decisions have been taken on the flotation, I should like to describe some of the progress we have made since the creation of Royal Ordnance plc.

First, the people. We had earlier appointed a new chairman of the former royal ordnance factories to help supervise their transition into a company. Once vesting day was successfully past and the company was in a new environment, we concluded that it would be right to bring in a different expertise to see the company through the process of a flotation on the stock market. Mr. Bryan Basset was appointed chairman of Royal Ordnance plc in July last year. On 1 April this year, we appointed a new chief executive with wide private sector experience essential to the future development of the organisation, Mr. Roger Pinnington. They join other individuals who have been brought in from the private sector because of their particular expertise in various aspects of business and, of course, they join the wealth of experience which already exists in Royal Ordnance and which will be the foundation of its future success. The head office has been slimmed down and the company is run by a smaller board with four non-executive directors comprising Lord King, Sir Arnold Hall. Air Chief Marshall Sir Douglas Lowe, and Field Marshal Sir John Stanier.

There have also been some important organisational changes. The company is now structured into four divisions—ammunition, small arms, explosives, and weapons and fighting vehicles. The research and development side of the company has started to be expanded. The explosives division already had within it significant R and D resources transferred from the Ministry of Defence, but the newly appointed R and D director has the job of continuing the expansion of the expertise in the other areas of the company's business and ensuring the healthy growth of private venture R and D expenditure.

The second area of particular expansion has been in sales and marketing. In the past, those functions had been carried out within the Ministry of Defence but Royal Ordnance has since April 1983 taken over responsibility for its sales and set in hand the development of a full-scale marketing organisation. As evidence of the success of the new approach within Royal Ordnance, export orders for ammunition won competitively in 1985 amounted to well over £100 million. That represented a major increase in the level of orders achieved in previous years.

The company is presently in the process of putting the finishing touches to the presentation of its 1985 accounts. They will set out in more detail the success achieved, and the prospectus that we are preparing will describe more fully than I can in the short time available to me where the company has got to in its transformation and its prospects.

The hon. Lady raised the whole question of ammunition procurement. As the House will be aware, we have in recent years been adjusting our approach to ammunition procurement to reflect the commercial status of Royal Ordnance. It was appropriate, when the royal ordnance factories formed part of the Ministry of Defence, for the factories to supply, to the limit of their ability and capacity, the armed services' requirements for ammunition as for other commodities in their product range. This was known as the preferred source policy.

However, as I stated earlier, it is now our policy to secure the economies of competitive procurement across the range of defence equipment, and ammunition procurement has been affected by this process. In the latter context, our aim has been to develop competition progressively, and we have consulted Royal Ordnance over our intentions in this respect. In the financial year 1985–86 we put about 10 per cent. of the former preferred source programme to competition and Royal Ordnance succeeded in winning about half of the contracts in question, in addition to the 90 per cent. of the programme which it was awarded non-competitively. We propose to build upon this promising beginning, and in this respect we foresee a continuing requirement for ammunition at or slightly above the present level.

I know that the hon. Lady is particularly concerned about small arms ammunition, which is manufactured at Royal Ordnance plc's factory at Radway Green in Cheshire. She will know that we have in recent weeks been in discussion with the company concerning future requirements for small arms ammunition. As I announced in a written reply today in response to a question from my hon. Friend the Member for Congleton (Mrs. Winterton), I am pleased to confirm that it has now been decided to award several major contracts worth about £35 million to the factory for 5.56 mm and 7.62 mm ammunition, representing the balance of our foreseen requirements until April next year. We remain in discussion with the company concerning our requirements for subsequent years.

The nature of the business of Royal Ordnance and the importance of its products to the defence of the United Kingdom is such that we would not wish to see control of the company passing into foreign hands. During the many debates on the passage of the Bill, the Government made clear their determination to ensure adequate control over foreign ownership, which we intend to exercise by the creation of a special share. We are entirely satisfied that strict vetting of share applications, coupled with the provisions of the Companies Act and Royal Ordnance's articles of association, will apply to protect the Government's position.

There is one aspect of that control on which I should like to tell the House of a revision in the Government's thinking. Our intention had been to amend the articles of association to include limitations on foreign shareholdings and also on disposals of assets over a certain level. On the latter point, we had previously indicated that we thought the right level at which the Government's agreement would be necessary was 15 per cent. of the company 's assets. On further reflection, we have concluded that the level should be 25 per cent. This would bring the position into line with that we have adopted on other privatisations, such as Cable and Wireless, Amersham International, Sealink, and Jaguar, where such control was appropriate. Twenty-five per cent. is also the level at which under stock exchange rules the agreement of the majority of shareholders is required to the disposal of its assets.

As with any other defence contractor, numbers employed at Royal Ordnance have always been dependent on efficiency and the order book. Therefore, I must make it clear that employment levels are now a matter for the company to decide in the light of commercial factors. Sadly, some 1,500 redundancies have occurred this year, 550 of them at Radway Green.

Finally, concern was expressed by the hon. Member for Eccles over the pension rights of Royal Ordnance employees; there are still one or two outstanding issues to be settled. The Royal Ordnance pension arrangements provide a very secure basis for a fully index-linked scheme. We have, however, accepted that the ability of RO to reduce contributions if, for example, the company was doing badly is a change from the terms of the principal Civil Service pension scheme. Our advice is that the risk of this occurring is insubstantial and so remote as to be unquantifiable, but, to honour our commitment that there should be no detriment in the scheme, we have offered to pay a nominal sum of £100 to each RO plc employee who transferred out of the PCSPS on 2 January 1985. The payment would be full and final compensation for the risk of detriment occurring and reflects the advice that a court award, if made at all, would be a notional one only. The trade unions are currently considering this offer.

In conclusion, I acknowledge the substantial changes that have taken place in Royal Ordnance plc and pay tribute to the way in which management and employees at all levels have responded to the challenge. I wish them all good fortune in the future.

Question put and agreed to.

Adjourned accordingly at Three o'clock.