Royal Ordnance plc

HC Deb 02 April 1987 vol 113 cc1232-9 4.32 pm

The Secretary of State for Defence (Mr. George Younger)

With permission, Mr. Speaker, I wish to make a statement about Royal Ordnance plc.

On 24 July 1986, I told the House of our plan to carry forward the Government's policy of moving Royal Ordnance plc to the private sector. In accordance with these plans we have talked to a number of companies who expressed an interest in acquiring the whole share capital of Royal Ordnance. On 16 March 1987 we were able to announce that firm bids had been received from two companies—British Aerospace and GKN.

The bids received have been carefully scrutinised, compared and assessed with the help of our professional advisers. We have had further discussions with both bidders on points arising from their offers, culminating in a final round of discussions at ministerial level with the chairmen of both companies. For obvious reasons these have been sensitive and delicate negotiations but we have tried to come to our decision with a minimum of delay to avoid prolonging the uncertainty that has inevitably hung over Royal Ordnance during this period. I am pleased to tell the House that I have decided to accept British Aerospace's offer and I have now signed a sale and purchase agreement with that company for a price of £190 million.

The sale is conditional only on there being no reference of the sale to the Monopolies and Mergers Commission. The Office of Fair Trading is already giving consideration to the question and we expect its recommendation to be available next week. Subject to my right hon. Friend the Secretary of State for Trade and Industry's decision in the light of this recommendation I would expect the sale to be completed before the Easter recess. I should like to take this opportunity of thanking GKN, as well as British Aerospace, for the excellent proposals which they made to us, for the obvious hard work that went into producing them and for their co-operation and helpfulness in all the discussions leading to our final decision.

I should emphasise that the sale is a sale of shares. This means that ownership of Royal Ordnance is transferring to British Aerospace but the company remains a separate legal entity. It follows that the terms and conditions of service of employees of Royal Ordnance plc will not be affected by the sale.

In accordance with our general aim of widening share ownership we intend to make available to employees of Royal Ordnance plc free British Aerospace shares paid for by the Government to a similar value to that which was planned last summer at the time of the proposed flotation. Details will be worked out over the next few days.

I believe that this announcement is very good news for Royal Ordnance. It marks the end of a period of uncertainty about ownership of the company but, equally important, it opens up the full range of opportunities for development and growth of business which are only really available in the private sector. The company has made most significant and welcome progress since its formation some two years ago, but as a trading organisation Royal Ordnance needs this new freedom to fulfil its potential.

British Aerospace is a substantial and highly successful British company with a fine track record on exports which, as we have often said, are vital to the future of Royal Ordnance. I am confident that with its backing Royal Ordnance will thrive and secure the best possible future for its work force.

Mr. Denzil Davies (Llanelli)

The right hon. Gentleman claims some credit for ending the uncertainty, but the operation which started with his predecessor and continued under him created the uncertainty for the Royal Ordnance factories. They were trading efficiently and commercially before his Government started to tamper with them. When the tampering started, according to independent valuers in the City, the value of Royal Ordnance factories was said to be between £350 million and £400 million. The valuation today is £190 million, which is substantially lower than the net asset value. That is the measure of damage by the Government to Royal Ordnance factories over the last two or three years.

What will happen if the Monopolies and Mergers Commission looks into the matter and decides that British Aerospace would be the largest defence contractor—even larger than GEC—if the sale went ahead? If the sale is vetoed will the Government continue to operate Royal Ordnance as a public limited company within the Government, or do they have other plans?

Can the Secretary of State confirm that the British Aerospace bid envisages at least 3,500 redundancies in the next few months? Will he comment on rumours in the industry that two factories—one possibly in the midlands and the other possibly in the south of England—will have to close as a consequence of the deal?

The statement mentioned pay and conditions. Can the right hon. Gentleman confirm that pension rights will remain as they are within the plc? Considerable discussion went on in Committee about there being no detriment in respect of pension rights. Will the pension rights be safeguarded or will they be subsumed into British Aerospace pension schemes?

What will be the cost to the Government of providing free shares to employees at Royal Ordnance factories?

Mr. Younger

The right hon. Gentleman is not correct in his opening remarks about uncertainty. It is well known by all those who are interested and within Royal Ordnance itself that for many years, despite the hard work by all those who work in it, its organisation has not given it the best chance to maximise its returns and the business that it could get for its factories. There is no doubt that its status before it was made a plc restricted business most unfairly, and most unfortunately, for the work force.

The Office of Fair Trading is considering the matter and will make its recommendations to my right hon. Friend, the Secretary of State for Trade and Industry. It will then be entirely up to him to decide what action he proposes to take in the light of that recommendation. The sale of shares is dependent upon the recommendation not to refer the sale to the Monopolies and Mergers Commission. If that recommendation is made a new situation will arise and will have to be dealt with. Our view is that the deal should be able to go ahead, but that is entirely up to my right hon. Friend to decide.

There is no truth in the rumours that, as a consequence of the sale, two factories will close or that there will be any particular number of redundancies. Any future redundancies or closures, or, indeed, any expansions, will be entirely a matter for the new owners of the company to decide. They of course, intend to look at this new business that they have bought and make the best of it.

With regard to pension rights, as I said in my statement, conditions for employees will be exactly the same in the future as they have been in the past. The sale of the shareholding will not affect the operation of the Royal Ordnance pension funds and the Government are satisfied that the Crown Service fund is comparable to the principal Civil Service pension scheme and provides a secure basis for the payment of fully index linked pensions.

The right hon. Gentleman also asked a question about the cost of the free shares, which we have arranged as part of this deal. It was done because the employees could have felt that they have been hardly treated, since the original scheme for the flotation of Royal Ordnance involved free shares. The cost ought to be about £1 million and that, of course, will be provided by the Government.

As I made clear, I have no doubt whatsoever that this change to ownership by a highly respected and very successful British company in the defence industry will be very much in the interests of the future of those employed in Royal Ordnance.

Sir Hector Monro (Dumfries)

I congratulate my right hon. Friend very warmly on this most successful sale on behalf of the Government. Will he accept from me that it is thanks to his good offices and those of his colleagues that we were able recently to negotiate a lease of the Powfoot factory in my constituency to ICI by Royal Ordnance? Will British Aerospace now take on this arrangement and, if necessary, and if both parties agree, be able to negotiate the sale in due course?

Mr. Younger

I am most grateful to my hon. Friend for all that he has said. He is perhaps unduly modest in not pointing out that he had a great deal to do with encouragement of the three-year agreement for Powfoot, which I warmly welcome. There is no reason to assume that the new owners would wish to change this arrangement. In any case they will look at all parts of the business, including Powfoot, with the objective of making it run as successfully as possible and giving it as secure a future as possible.

Mr. Jack Ashley (Stoke-on-Trent, South)

Is the Secretary of State aware that a number of my constituents are very worried about precisely the announcement that he has just made and that, far from allaying their anxiety, he has increased it? Can he state specifically that the redundancies mentioned by my right hon. Friend the Member for Llanelli (Mr. Davies) will not take place? Can he give that assurance to the House?

Mr. Younger

I am not sure that the right hon. Gentleman has fully taken my statement on board. I made no reference to redundancies except in response to the right hon. Member for Llanelli (Mr. Davies). The future position is exactly the same for this company as for any other company. No one can give a guarantee that any company, with its future work load ahead of it, will never have any redundancies. Nor can anyone give a guarantee that any company will necessarily expand in the future. It is all dependent upon the management of the company and the performance of its work force. I have no doubt that prospects are much better after this change than they were before it.

Dr. Ian Twinn (Edmonton)

Is my right hon. Friend aware that today's announcement will be of considerable interest to my constituents and to those of my hon. Friend the Member for Enfield, North (Mr. Eggar), who has taken a very close interest in the future of the small arms factory at Enfield? Can he confirm that the success of British Aerospace in the private sector and today's announcement about share distribution will provide considerable reassurance to the work force, as it should? He will not be surprised to know, perhaps, that the work force of the small arms factory will look for early reassurance that production will continue at Enfield.

Mr. Younger

I am grateful to my hon. Friend, and indeed both he and my hon. Friend the Member for Enfield, North (Mr. Eggar) have repeatedly made representations to me on these points. There will be no change as a result of this agreement in the position regarding agreements on orders affecting the factories concerned. A feature of the agreement is an undertaking to enter into discussions on a long-term contract for the supply of explosives, propellants and ammunition. If no satisfactory arrangements can he reached, the arrangement on explosives and propellants will continue on a slightly extended and improved basis.

With regard to the second tranche of the SA80, the existing commitment to Royal Ordnance stands. The contract is still available if British Aerospace confirms the Royal Ordnance tender within two months of the sale. I think that my hon. Friends will find that the reassurance which they seek.

Mr. John McWilliam (Blaydon)

Does the right hon. Gentleman have any contractual agreement with British Aerospace to maintain the terms and conditions of employees in the future? Will he admit that the prosperity of the Royal Ordnance factories lies much more in his future intentions regarding the conventional arms ordering programme than in the management of British Aerospace?

Mr. Younger

The hon. Gentleman is half right and half wrong. The handover of ownership of the shares goes towards preserving the terms and conditions and pension rights of the employees who are now employed by Royal Ordnance plc. They go into the new company with their conditions unchanged. They are thereafter in the position of anyone else who works for any company; it is between them and the company as to what their conditions may be for the future. Their position is no worse and no better than that of anyone else in British industry.

The hon. Gentleman is absolutely correct in what he says about the ordering programme. The future of any industry in the defence sector is dependent on having a Government who are sound and strong on their defence policy. There is no doubt that history has proved many times over that the reductions and cuts and the general running down of defence industries under every Labour Government would be even worse under the next Labour Government should there ever be one.

Mrs. Ann Winterton (Congleton)

Is my right hon. Friend aware that although many of my constituents at Radway Green are opposed to privatisation, all will welcome the announcement today, which will end the uncertainty of the last few years? Many other constituents will welcome the opportunities of the future, especially the chance to have a real stake in that future, given the share option. Moreover, they will consider that the agreement with British Aerospace was the better one in this arranged marriage, bringing as it will a dowry of increased sales and export opportunities.

Mr. Younger

I am most grateful to my hon. Friend and I am certain that she is absolutely right in all that she has said, and particularly in reminding us that, while most of the employees of Royal Ordnance will no doubt welcome the end of the uncertainty, there are some who will just feel that the change is one that they would never have wished to see. I am quite certain, however, that they will find that this change is to their advantage. They would do well to bear in mind that, had Royal Ordnance been left as it was some years ago without any change, the prospects would have been very much worse than they are.

Mr. John Cartwright (Woolwich)

Does the Secretary of State not accept that the uncertainty has been damaging, particularly when highly skilled ROF employees have sought greater security elsewhere? What assurances has he had from British Aerospace about the level of capital investment for the future of the ROFs? Finally, can he assure the House that the very wide-ranging defence procurement capability that will flow from this deal will in no way impair his search for the widest possible area of competition in supplying defence contracts?

Mr. Younger

I appreciate what the hon. Gentleman said, but I do not agree with him about uncertainty. There is one sure way of avoiding uncertainty, and that is to do nothing because then uncertainty is replaced by the certainty of a slow and inevitable decline. I do not think that anyone would want that. I agree with him that we must make sure that competition is still a major feature, and, of course, that is a feature that will be borne in mind by the Office of Fair Trading as it considers this proposal. I have no doubt that British Aerospace has every intention of running these factories in the future efficiently and well. Naturally, like other companies, it gives no guarantees of any particular level of investment, but it will be looking to run this business successfully, and anyone who has watched the progress of British Aerospace in recent years will know that it is a very well managed company indeed.

Mr. Robert Atkins (South Ribble)

As the hon. Member with the largest British Aerospace connection and with part of one of the Royal Ordnance factories at Chorley in my constituency, may 1 express to my right hon. Friend my satisfaction at this agreement and also that, I know, of my hon. Friend the Member for Lancashire, West (Mr. Hind), who is unable to comment because of his position in the Department? Could I particularly thank him for the fact that the delay is now over and that the potential of Royal Ordnance is to be joined to the worldwide success of British Aerospace? I also particularly welcome the employees' share ownership that is going to result from this deal. Does he agree with me that employees of Royal Ordnance, the length and breadth of the country, have very little to fear about their future if they go on making the right products at the right price and selling them worldwide, because therein lies a very good future?

Mr. Younger

My hon. Friend is so right with his last point. It is overwhelmingly clear that if all members of the work force in Royal Ordnance can now look to a future that is at least charted out with a new owner, they will be able to make a contribution which itself will go a long way towards ensuring that their jobs are secure, and one hopes that the business will be developed.

My hon. Friend's other point is also important. There are many workers who, if they were asked to consider what sort of company they wanted to work for if not their current one, would opt for a company like British Aerospace because its story over recent years has been one of great success. I hope that Royal Ordnance will add to that success.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

Will the Minister explain to those of my constituents who work at Radway Green what compensation they will get from the free share offer from the Government, particularly in the light of the fact that at Shifnal the pattern has now been established that people apply for their own jobs and, although they are quoted a gross wage higher than their present one, their net wages will drop by as much as £10 a week? Would he like to reassure them that this is an advance in their standard of living and security for the future?

Mr. Younger

I am not at all sure what the hon. Lady regards as needing to be compensated for. If compensation has to be paid to workers whose company has been transferred to another, very successful, company which is likely to do better for them in the future, I should have thought that it would be what one might describe as "negative" compensation, since the transfer will clearly be of advantage to them.

As for the hon. Lady's detailed point of earnings, if she will raise it with me I will look into it.

Mr. Martin M. Brandon-Bravo (Nottingham, South)

My right hon. Friend's statement will bring to an end the uncertainty that must have clouded the ROF generally in the past few months and Nottingham in particular. I welcome the single legal entity that he has described today and confirmation as to terms and conditions of employment. Can my right hon. Friend say a little more about shares, and clarify whether they will be British Aerospace shares or subsidiary shares in an ROF plc? As the Nottingham factory has a unique national facility, is he hopeful and can he say something encouraging about its future employment prospects?

Mr. Younger

I am grateful to my hon. Friend. I am sure that he is right in his general welcome of this and about the end of the recent uncertainty. On shares, I give him the assurance that he seeks: these shares, which will be available for employees and paid for by the Government, will be fully equal British Aerospace shares, so they will be shares already quoted on the stock exchange and thoroughly marketable in every sense. Thus they will be shares that have a real value, shares that the employees can feel are theirs and are a stake in their business in which they work.

As regards assurances for the future, no company can get an absolute guarantee that everything that it wishes will happen, but I cannot avoid repeating to the House that I am sure that, of all the alternative options facing this company's work force and management, getting it into the private sector and giving it the opportunity to enter the real commercial world and bid for new business is by far the best.

Mr. Jack Straw (Blackburn)

Is the Secretary of State aware of the very great damage done to employment in the Royal Ordnance factories as a result of misguided defence policy which has weakened our conventional forces? Is he also aware that under Labour, employment in the ordnance factories went up by 4,000 and that under the Conservatives it has fallen by 7,000, including 1,000 jobs lost in my constituency and many hundreds of jobs in the adjoining factory at Chorley? Is he, however, aware that there will be relief that British Aerospace rather than GKN has gained control, because it has a good reputation in Lancashire and those of us who come from that area, however much we opposed this denationalisation, will do our best to make sure that this arrangement works in the interests of our constituents and the employees?

What discussions have there been with British Aerospace about so-called rationalisation? There have been many press reports about this. What has British Aerospace said about that and what does it mean for jobs in the Blackburn and Chorley factories?

Mr. Younger

I appreciate and respect the hon. Gentleman's quite proper concern for those he represents and who work in Royal Ordnance factories. He knows that I cannot give him a guarantee for the future and, of course, British Aerospace has not yet had a chance, apart from assessing the value of the bid that it wished to make, to work out precisely how it intends to manage the company. It has made it clear in discussions with us—we would certainly not have agreed to the sale if it had been otherwise—that its intention would be to buy the shares in this business and run it as a whole. With its record, there is no way that they would run it other than to have it as a highly successful part of British Aerospace, a highly successsful company fully owned through its shares by British Aerospace. So to answer the hon. Gentleman's question one must look at the track record of British Aerospace, see that it is paying £190 million for these assets and assume that the company has every reason to develop the business and run it properly.

I do here part company a little with the hon. Gentleman. I must congratulate the Leader of the Opposition on being wise enough not to make the hon. Gentleman defence spokesman because his defence policy seems to be even stranger than that of his party. He started by asserting that the Government's expenditure on defence and defence equipment has been lower than that of its predecessors, when the exact opposite is the case: the defence budget is running at about 28 per cent. higher than in 1979. In addition, the hon. Gentleman's defence policy actually has a different basis and this is why he comes to these conclusions. His idea is not to have a proper defence policy but to try to employ as many people as possible in defence factories. That may be a very good policy for employment in the short term, but it is not a good policy for defence. The hon. Gentleman ought to know that a more efficient defence industry is an essential part of an effective defence policy. He must also know that the party that he supports has always reduced defence spending and is proposing once more to destroy the whole basis on which the defence of this country has been carried out since the war.

Mrs. Anna McCurley (Renfrew, West and Inverclyde)

I would like to add my congratulations to my right hon. Friend on the successful transaction with British Aerospace and tell him that my factory, ROF Bishopton, will rise to the new challenge in the new company. May I suggest that in the future, when it comes to reviewing procurement policy, he always considers British interests first and puts the interests of British companies first?

Mr. Younger

I entirely agree with my hon. Friend. Her representations on many occasions to me about those who work at the Bishopton factory have borne fruit in that today's announcement will give her constituents a more secure future than they have had for some time.

We try to buy British as often as we can, and the vast majority of defence equipment is bought in Britain.

Mr. Richard Ottaway (Nottingham, North)

While I welcome the end of doubt and delay in this matter, is my right hon. Friend aware that the decision will be greeted with doubt and nervousness by the work force at Nottingham, primarily because theirs is one of the factories that is rumoured to be closed? When in reply to the Opposition spokesman my right hon. Friend said that there was no truth in the rumours that there would be closures, was this based on a pledge from British Aerospace?

Mr. Younger

As I said to the House earlier and as I say again to my hon. Friend, no company under any ownership—including this company—can guarantee that there will be no reduction in employment and no factories closed. That is not the real world, and my hon. Friend knows this as well as I do. There are no rumours of closure that have any basis in discussions or decisions taken with British Aerospace. That is the basis of what I have said, which is that rumours of closure are just that. It is now up to the new owners of Royal Ordnance to see how they can best develop the business, and I am quite certain that they will have a better chance of keeping employment up in future under the new arrangements.

Mr. Andrew Faulds (Warley, East)

On a point of order, Mr. Speaker.

Mr. Speaker

I will take it after the business statement, and I have my own statement to make. I will take it in the proper place.