HC Deb 27 July 1989 vol 157 cc1275-95

10.7 pm

Mr. Bob Clay (Sunderland, North)

I am thankful for the opportunity to raise with the House what I and many of my hon. Friends regard as a major national scandal. It is not some regional, parochial matter or one that concerns simply an important national industry: it is a matter that in many ways exposes the most appalling incompetence, and concerns issues of great constitutional importance to the relationship between the Government and the European Commission.

I shall start simply by stating what are by now irrefutable facts about the reality of what has happened. On the River Wear are the shipyards of North East Shipbuilclers Limited, regarded as technologically the most advanced in Europe. Many other shipbuilding nations consider them to be the most enviably advanced merchant shipbuilding yards. We have a highly skilled, superb work force, mainly either languishing on the dole or working on short-term contracts away from the town, their home and their families.

Two organisations are willing, here and now, to purchase those shipyards. Both had clear signals earlier this year that the Government and British Shipbuilders were open to offers. Both have made it plain that they do not require any intervention fund subsidy on future contracts should they acquire the shipyards. Both have orders ready to place immediately in the yards. These are orders on their own account, as both are shipowners. We are not talking about orders from a third party. The ship-owners are prepared to place orders in the yards, if they secure the purchase of them, and it is now an undeniable fact, contrary to the Government's expectations last year, that the market for merchant shipbuilding is rapidly increasing throughout the world. The market for the categories and sizes of ship that the Wearside yards build is increasing even more speedily.

It is ironic that we are hearing literally daily from ship-owners and ship brokers in Europe and other parts of the world of the increasing difficulties that they are having in placing contracts in any yards. The cutting continued for so long that Europe and many other parts of the world are moving towards serious under-capacity.

We have superb yards, willing buyers, no requirement for public subsidy, a privatisation process that started at the instigation of the Government, two owners with massive financial resources and no one querying their ability financially to sustain the yards in any opening or teething period. How can it be that the yards remain closed and that the Government refuse to allow them to reopen?

As the pathetic saga has unravelled, the Government have been forced to say that they got it wrong. They have done so in a mealy-mouthed way. They can no longer dispute, despite their persistent refusal to accept this earlier, that there is clear, statistically undeniable evidence of an upturn in orders. That vindicates the position that Opposition Members took last year, when we argued that, although we were opposed to privatisation in principle, if the Government wanted to persist with privatisation they should at least get the timing right. We argued throughout that an upturn in the market was coming and that it would be logical to privatise a yard that had orders and could take more orders rather than a yard that was facing difficulty with an existing order and had nothing else on the order book. How right we have been proved about that.

There is plenty of evidence that the Government got it wrong last year about possible new ownership. Early last year the directors of North East Shipbuilders Limited drew up their own plans to rationalise the yard—it would have been a painful process—and to retract to an efficient one-site operation with one outfitting facility and one shipbuilding yard. The board of British Shipbuilders rejected the plan on the ground that it was too late to commence it because the Government had already begun the privatisation process. I ask the Minister to tell us whether the decision of British Shipbuilders to reject the proposal of NESL's directors was the result of Government instructions or advice.

As last year unfolded, it became clear that another bizarre matter had been misunderstood and that the Government had got it wrong. A document was deposited in the Library by the right hon. Member for Braintree (Mr. Newton), who is now the Secretary of State for Social Security, which sets out the Government's record on some of the unfortunate matters to which I have referred. The document sets out the Government's account of how it all happened.

At the end of the second page, and as part of the explanation of why the Government were in such a rush to privatise NESL, there appears the following sentence: This applied especially to any bidder interested in the possible series of orders from the Cuban shipping company Mambisa. What was meant by "this applied"? Intervention fund support was likely to be reduced after 31 December 1988. It was therefore important, we are now told, in the Government's view to have a prospective purchaser in place by that date so as not to lose a little intervention fund support on the Cuban order. It is extraordinary for the Government now to say that the urgency of securing that Cuban order was a critical factor in the timing of privatisation—particularly since, only months before, the right hon. and learned Member for Rushcliffe (Mr. Clarke) told the House repeatedly that the Cuban order did not exist. That is something else that the Government got wrong.

The Government also said that there were no serious bidders for NESL last year, yet they now say that one should not be suspicious about the way in which the West German bidder, Egon Oldendorff, came into the picture this year, when it was around as a serious bidder all last year. How can the Government say, on the one hand, that last year there were no serious bidders, and, on the other, that a bidder now regarded as fairly serious was around last year too?

The document placed in the Library by the right hon. Member for Braintree (Mr. Newton), to which I referred earlier, makes mention of the Government's belief, in respect of bids made this year, that Against the experience of the previous autumn, shipbuilding proposals seemed unlikely. In other words, the Government restated their view that after last year's experience, it seemed unlikely that shipbuilding proposals would emerge during the stay of execution in the first six months of this year. The Government were wrong again. There were two substantial bids. That might explain why, when the Government were confronted by not one but two serious bids, they found themselves in a state of shock and did nothing for a considerable length of time.

It is extraordinary that the Government should state in a document deposited in the Library that they did not expect any serious shipbuilding proposals this year, when the chairman of British Shipbuilders, Mr. John Lister, repeatedly expressed the view last year that a probable outcome of the whole sorry scenario would be that serious bidders would wait until the yards' closure was announced before moving in to buy—in the mistaken belief that they would be able to obtain their assets more cheaply and easily. How wrong the Government were. Nevertheless, that view was persistently, if not publicly, expressed. The Government must have been well aware of that view of the chairman of British Shipbuilders, so it is extraordinary that they should now plead that they never expected any such thing to happen.

The Government's most serious error was their understanding of the European Commission's attitude in the event of a renotification by the Government of the reopening of one yard, or both yards, in the light of a serious bidder coming forward. How did the Government get all that wrong? I shall briefly run through some of the key dates this year. Bids were not made suddenly in June or July this year. At the end of January, the Anglo-Greek bidders wrote to British Shipbuilders expressing interest in shipbuilding in Sunderland and asking to visit the yards immediately. On 22 February, the Anglo-Greek bidders met British Shipbuilders and announced that they wanted to buy the yards. On 9 March, they wrote again, referring to the meeting of 22 February. On 6 April, after wondering what else they had to do, the Anglo-Greek bidders made a formal offer, subject to contract.

According to a written answer I received from the Minister today, on 13 April the West German bidder expressed interest too. Finally, on 10 April a senior civil servant spoke to a senior official of the European Commission. The document in the Library states clearly that the difficulties that have now arisen over British Shipbuilders' commercial borrowing were not mentioned in the 10 April discussion. The document also reveals that, on 11 April, bidders were informed of difficulties that might arise with the European Commission.

There are two different versions of that development. Certainly bidders were informed that, if they wanted to continue receiving intervention fund subsidy, there would be problems with the European Commission. But at least one of the bidders believes that it was informed that if it did not want intervention fund subsidy there should not be a major difficulty. It is not just one of the bidders who believes that to be the case, but British Shipbuilders, which was selling the yards. It also takes the view that it was only much later in late June that it was made clear that even a non-intervention funded bid could produce considerable difficulties.

It is interesting that, after the first formal discussion between the Government and the Commission, a discussion that should have taken place much earlier, advice to bidders about difficulties that could arise with the European Commission was never even put in writing. A written answer that I received today confirms that that advice was only given orally. What an extraordinary way for the Department of Trade and Industry to behave. But how convenient that it was only given orally, because now we can only take one or the other side's word for it and we shall never know precisely what advice was given, as there is no written documentary proof of it.

On 17 April, the Anglo-Greek bidders, in response to whatever advice they were given, put in a further offer making it clear that they did not want any subsidy. On 3 May the West German bidder did the same. Even on 7 June, when the right hon. Member for Braintree gave evidence to the Select Committee on Trade and Industry, there were only the slightest hints, if one really read between the lines, that a serious difficulty would arise with the Commission from a non-intervention funded bid.

Finally, on 27 June, the right hon. Member for Braintree met Sir Leon Brittan, the Commissioner responsible for competition, and discovered that it was alleged that the Commission would reopen the whole question of what happened last December and would, if the British Government renotified it of a reopening of the yard, place in the way serious obstacles that would effectively make it commercially impossible for anyone to take on the yards.

We are not talking about an act of God. This was not due to the weather. I am not particularly interested in whether responsibility lies 100 per cent. with the EC, 100 per cent. with the British Government, 50:50 between the two or any proportion that anyone likes to devise. It lies 100 per cent. in some proportion between the two—no one else.

It is extraordinary that people were told that the Government were open to offers, that they received offers and that weeks and months went by. This is a serious case of commercial misrepresentation. If people are told that it is possible for them to buy something and if they then come forward and meet all the commercial requirements only to be told that a sale was not possible in the first place, that is commercial misrepresentation. It is about time that we stopped the pathetic business of the European Commission saying that the Government should have known all along and the Government saying that the European Commission never told them and that they did not know what to ask anyway. One or both of them should own up. If the Commission is right now, the Government must have been wrong then, or vice versa.

The crucial matter is that of unsubsidised bids. On 8 February the hon. Member for Braintree wrote to me. His words are clear and they have been quoted before. He talked about the difficulties that would arise if bidders wanted intervention funding, and he said: My comments are of course related to the issue of subsidised shipbuilding. Should anyone wish to purchase some or all of the Sunderland facilities for shipbuilding without any form of assistance, that would entail only the negotiation with BS of acceptable terms for acquiring the facilities in question. We now have the pathetic spectacle of Ministers and civil servants scurrying around trying to work out how to explain that. We are being told that subsidy in that case did not necessarily just mean the intervention fund; it meant the strange mechanism whereby, if the yard reopened, British Shipbuilders' past losses, accepted by the Commission last December, could be regarded as triggering off commercial debts that would be imposed on a new owner of the yard. If that is the case, it would have been impossible to sell the yards in the first place. If the Government are saying that what they meant by "subsidy" in February was that a new buyer would inherit £90 million worth of commercial risk with the yard, the yards were unsaleable, and bidders should have been told that. In that case, the letter should have been rewritten as follows: "My comments are, of course, related to impossible shipbuilding. Should anyone wish to purchase some or all of the Sunderland facilities by invoking a miracle, that would entail only the negotiation with British Shipbuilders of acceptable terms for acquiring the facilities in question." It is nonsense.

The commercial misrepresentation went back long before this year. In a sense, if what the Commission is now saying is correct, it was never possible to sell the yards. We are told that British Shipbuilders' losses were so great that its accounts and the subsidy that had already gone in until the end of last year were so far in breach of the sixth directive that something had to close. Let us put it this way. If the Government had gone to the Commission in December and said, "We have a buyer for the Appledore yard in Devon, we have a buyer for the Ferguson yard on the Clyde, a buyer for the Clark Kincaid engine works and also a buyer for Sunderland"—much bigger than the rest of the operations put together—what would the Commission have said? Would it have said, "That's okay; fine; get on with it," in which case the logic must be that the Commission cannot object to Sunderland reopening now? The Commission's objection to Sunderland reopening now must surely mean that it was going to insist on a pretty substantial closure of some kind last December.

The Government must have known that all along. They could have done the correct thing and refused to accept that the Commission had a right to close British shipyards. If they did not want to do that, they could at least have done the honest thing politically and said, "We accept the Commission's rights to impose closures on us. We shall now choose which yards to close and which of the remainder to put up for sale." Instead, they put the whole lot up for sale, knowing that they could not sell all the yards. That was commercial misrepresentation as well.

The Government nearly got away with it. What went wrong was this: the hidden agenda last year was to close Sunderland because it had no orders. Then something very embarrassing happens. One of the world's biggest shipping lines, Mambisa of Cuba, wanted to place what would then have been the biggest merchant order in the world with Sunderland, because it thought that Sunderland was a very good shipyard from which it had had many good ships in the past. The then Chancellor of the Duchy of Lancaster pretended that the Cubans were not there; he pretended that they wanted unreasonable terms; he pretended this and pretended that, but the Cubans just would not go away. It was extremely embarrassing and it prolonged the whole business.

Let me get back to what is happening now. The Government's failure to allow the reopening of the yard revolves around the attitude of the European Commission—that, at least, is the excuse that they are using. But in addition to the European Commission, we have a European Parliament made up of elected representatives. A deputation from Sunderland, which included me, went over to Strasbourg a couple of days ago, and there is now a resolution before the European Parliament, which was laid by Alan Donnelly, MEP for Tyne and Wear. It Calls on the Commission to withdraw any contemplated actions that deter the Government of the United Kingdom from proceeding with a sale of Sunderland shipyards to buyers who wish to utilise these facilities for shipbuilding purposes and who do not require Intervention Fund support on future contracts. That resolution has been presented to Henrique Baron Crespo, the new President of the European Parliament, who has said to me and to others in the deputation that he hopes that the resolution will receive sympathetic and serious attention from the Parliament. I am sure that it will, and, moreover, it is a Parliament which is looking to assert more authority vis-à-vis the unelected Commission.

Perhaps the British Government will say that the European Parliament is a meaningless and irrelevant institution and a waste of time and money. Unless they say that, they must accept in logic that if the European Parliament passes the resolution after due process, the European Commission may take some note of it. If the European Commission takes notice, the obstacle which, according to the Government is the only thing standing in the way of the reopening of the yards, has been removed. I hope that the Government can give us an assurance tonight that, as long as the European Parliament is considering the matter, they will do nothing to break up the assets or even sell the assets of the yards to anyone other than a shipbuilder until the European Parliament has had the opportunity to express its view to the Commission.

Furthermore, when I refer to the Commission, it is clear that the Commission is not embodied solely in Sir Leon Brittan. We were told over the past two days that at least one other Commissioner seriously questions Sir Leon Brittan's judgment in relating the Sunderland enterprise zone to a renotification of reopening the shipyards.

Whatever Sir Leon Brittan may propose to the rest of the Commission, he will need nine votes to get his proposal through—if it goes to a vote. The Government should bear that in mind, because they have been far too ready to accept that as one Commissioner, who may be the lead Commissioner in the matter, is apparently presenting obstacles that is a good enough excuse for them to throw up their hands and say, "We can do nothing more about this."

The Government have got away with this extraordinary situation because it revolves around historic incidents and very technical European directives about an industry which, although it is important, is sadly regarded as rather regional. It is not a clapped-out sunset industry, it is a high-technology sunrise industry and the country will rue the day that it loses the industry. Nevertheless, the issues are historical, technical and complicated. They are woven with incompetence and deceit. Sadly, the national media in this country have for some reason not grasped what is happening.

Therefore, I must provide a metaphor to explain the sheer scale of the scandal and lunacy: a patient lies in a bed. He does not have an incurable illness or disease. However, he is profoundly sick and on a life-support machine. Misdiagnosing hunger as a duodenal ulcer, the surgeon operates and cuts out the appendix by mistake. One inappropriate drug regime after another has produced more and more catastrophic side effects.

It transpires that the doctors have been reading the wrong text books which, in any case, were in a foreign language that they did not really understand. So obsessed are they with their absurd remedial measures that they will sacrifice the patient to test the cure.

The chief nurse is frequently drunk. Most of the competent medical staff have fled the asylum for early retirement or other jobs. The hospital manager—or the manager up until a few days ago—is a decent well-meaning soul who has developed quite an attachment to the patient. From time to time, he intervenes to stop the final fatality occurring. Unfortunately, he has little idea of the reality of the hospital's extraordinary environment beyond his own office door, other than an occasional embarrassed visit to the sick room. Even when he begins to suspect that something has gone profoundly wrong, he cannot face the consequences, let along decide how to put matters right.

The hospital manager's secretary really runs the show. He is an extremely clever man, but is showing some signs of schizophrenia. So carried away has he become with demonstrating his administrative genius that he often forgets that the purpose of it all is to return patients to health.

The hospital room has become a nightmare. The patient's family sends for a second opinion. Having overcome the hospital's misdirections about its location, and after, on several occasions, being asked to come back next week, the new doctor eventually examines the patient. "Basically," the doctor says, "the patient should be fed rather than starved. Stop the drugs and try some exercise. I will take the patient away and I am pretty sure that I can effect a cure. I will nurture the patient and give him a new life. I will charge no fee for this responsibility and I will ask for no support in future. Indeed, I will pay you generously if you will allow me to take your patient away and care for him." "Sorry," says the hospital, "It is against our rules unless we switch off the life support machine."

Towards the end of the sorry saga, the patient's constituency Member of Parliament is increasingly asked why he does not just let the poor old thing die in peace. Few seem to understand his outrage at such a question.

To end the medical metaphor, if, in medical terms, this crazed and macabre farce finally leads to the murderous outcome that I have described, eventually all those responsible will go to trial. Some might get away with more than others, but they will all be barred from medical parctice for life—they will be struck off. Eventually, the political equivalent will catch up with those responsible for the wanton and unnecessary destruction of jobs in Sunderland and 600 years of proud shipbuilding history.

Even tonight it is not too late. There is a new Secretary of State and a new Minister dealing with shipbuilding. They should take a deep breath and think again. If they must continue their obsession with the European Commission's interpretation and their interpretation of the rules, they should go back to the European Commission and say, "It is nonsense that a directive which, rightly or wrongly, was designed to reduce subsidy in European shipbuilding is now being used to eliminate the one yard that is going to have a go at shipbuilding without subsidy—a contradiction in terms."

They should say, "We are renotifying you that we have accepted one of these bidders. We are going ahead and we are prepared to negotiate the consequences, but we are not prepared to have the absurd situation in which one of the best shipyards in the world, with a willing and skilled work force looking for jobs, and with ships waiting to be built when the world is booming with orders, is allowed finally to close." The Government really must think again.

10.36 pm
Mr. Chris Mullin (Sunderland, South)

My hon. Friend the Member for Sunderland, North (Mr. Clay) has made an impressive, detailed and damning case. I hope that the Minister will address the serious charges that he made. I look forward to the day when the Select Committee gets its teeth into this matter, because it will not go away. The Minister has been in his present office only a few days, but the matter will be in his in-tray and those of his masters for some time yet.

I regret that the recent reshuffle means that the Ministers who presided over the closure of NESL and the disastrous events of the past 12 months are not here to account for their stewardship. All that we can hope for tonight—it is no criticism of the Minister—is a mechanical recital of a brief and as much bluster and synthetic indignation as the Minister can muster—having seen the Minister on previous occasions in his Home Office days, we know that that is quite a lot.

One of the problems in engaging in a rational dialogue on the fate of our shipbuilding industry is the frequency with which those responsible for the shipbuilding industry change. My hon. Friend the Member for Sunderland, North will have a better idea than I of the exact count, but there have been more Ministers responsible for shipbuilding than coups in Bolivia.

Many people in Sunderland feel betrayed by what has happened in the past 12 months or so. My hon. Friend has documented what has happened. My role tonight is merely to underline some of the points that he made and to draw attention to one or two other aspects.

One of the consistent themes in what has happened to our shipyards in Sunderland is the constant moving of the goalposts. When privatising industries, it is customary to fatten them up first to make them attractive to potential investors. It is unusual for an enterprise to be put on the market when its fortunes are lowest and when it is liable to be least attractive to potential investors. Yet that was the moment when the Department of Trade and Industry chose to privatise NESL. Just at the moment—it seemed to be disastrous at the time—when the Danish ferries order fell through, the Department saw the opportunity to close NESL once and for all.

It reckoned without a number of factors. First of all, it saw no orders. People in Sunderland are not daft; they are quite realistic—if there are no ships to be built, there cannot be shipyards. However, as my hon. Friend the Member for Sunderland, North said, there was a potential Cuban order worth £110 million. The Department of Trade and Industry declined to take that order seriously, I was present, along with my hon. Friend and others, at a meeting at the DTI when the then Secretary of State—which is two Secretaries of State ago—the right hon. and learned Member for Rushcliffe (Mr. Clarke), admitted that he had not taken the Cuban order seriously, although he now did. That was one rare piece of frankness in this sorry saga. In about June of last year—some time before my hon. Friend had raised the matter—the Cuban order was at last being taken seriously.

A new problem then arose—there were no buyers for the yard. We had a yard and an order, but we did not have any buyers. Many of us took the view, which was shared by Lloyd's List, that the decent thing to do would be to go for the order, and any other orders that were available, and worry about finding a buyer afterwards. However, that was not what happened.

In December last year, we were told by the newest Minister responsible, the right hon. Member for Braintree (Mr. Newton), that there were no suitable buyers, so the yard would have to close. The right hon. Gentleman was, however, decent enough to say that he would do his best to keep the assets intact, in the hope that some use could be made of them in the near future. What I suspect he did not expect was that not one but two potential buyers would shortly emerge. As my hon.Friend the Member for Sunderland, North has said, it was a situation that the Department failed entirely to predict and, even when it was staring it in the face, it took some time to wake up to it.

My hon. Friend the Member for Sunderland, North quoted the letter to him of 8 February, in which we were told that, while there would be a problem, because of the closure in December, with anyone wishing to undertake subsidised shipbuilding—God knows there is no shipyard in the western world, even now, that does not enjoy some degree of subsidy——

Mr. Jeremy Corbyn (Islington, North)

Anywhere in the whole world.

Mr. Mullin

Yes, anywhere in the whole world, as my hon. Friend said.

We were told, however, that there would be no problem should buyers come forward who were prepared to buy the yard without subsidy. My hon. Friend the Member for Sunderland, North, quoted the precise passage from a letter, which I think bears quoting again. I hope that the Minister will deal with it, because no one from the Government has dealt with it so far. It said: Should anyone wish to purchase some or all of the Sunderland facilities for shipbuilding without any form of assistance, that would entail only the negotiation with British Shipbuilders of acceptable terms for acquiring the facilities in question. We cannot have it clearer than that.

According to the document deposited in the Library, on 17 April the first of the two potential buyers, the Anglo-Greek interest, told the Ministry that it would require no subsidy. So from 17 April, the DTI had one buyer, who was not after any subsidy. By 3 May it had two—the Olendorf company had also come forward as a buyer and it, too, did not require a subsidy. There was no greater evidence of the shipyard's viability, because those were commercial interests—they were not charities. They were not doing it for their love for North East Shipbuilders or necessarily the people of Sunderland. They would be the first to admit that they were doing it for commercial interests.

Therefore, by 17 April and 3 May, those hard-headed commercial interests thought that it was possible to build unsubsidised ships in North East Shipbuilders. Such had been the strengthening of the market and the rise in shipbuilding prices around the world, that it was rightly predicted by my hon. Friend the Member for Sunderland, North, and others with an interest in these matters, that unsubsidised shipbuilding would be possible.

At that time, the goalposts were moved again. There was talk of a threat to the enterprise zone that the Minister had announced in December and of the new owners inheriting British Shipbuilders' debts of £90 million. It is hard to believe that those threats were serious, because no one purchasing a new enterprise for between £7 million or £9 million would contemplate taking on debts of £90 million. They would have said, a long time before that, "We are not interested, good night." The potential purchasers did not say that, the goalposts were moved again and everything was done to discourage them, no doubt in the hope that they would go away. However, they persisted, which was a tribute to the strength of the market and to the changes that had occurred in it over the previous six or 12 months.

We were told, finally, that the European Commission would not accept the deal. We were further told that the Minister was not aware of that possibility until he visited Sir Leon Brittan on 27 June, but I do not accept that. A copy of Sir Leon's letter dated 12 July has now been placed in the Library. Presumably, it is the most authoritative statement of the Commission's view, although, as my hon. Friend the Member for Sunderland, North said, he is only one Commissioner and if there were a vote there is a possibility that he would be out-voted.

Although Sir Leon's letter is not very helpful, it does not mention an outright objection to the sale of the yards, nor does it say that the enterprise zone would have to go. It merely talks of a "reappraisal", and not of cutting off aid altogether but of reducing it.

There is good reason to believe that the use of the Commission as an alibi was exaggerated and that if there had been the political will there would have been no difficulty in finding a way to reopen the yards as commercial enterprises.

If Ministers set out to sink what remained of our merchant shipbuilding capacity, they could not have done better. Who needs foreign competition when we have the Department of Trade and Industry?

The Department of Trade and Industry grossly under-estimated the revival of the market. A cynical interpretation of the letter dated 8 February, which was mentioned by my hon. Friend the Member for Sunderland, North, would be that it never dawned on Ministers when they undertook to keep assets intact until 30 June that there would be any takers. If that interpretation is correct, it suggests that they were woefully misinformed and ill-advised.

The Department of Trade and Industry and all concerned grossly under-estimated the strength of feeling in Sunderland. The industry did not begin 30 or 40 years ago; it has deep roots in the culture of Sunderland. For 600 years, ships had been built on the Wear, and people not much older than me can recall when one could not walk in the main streets of Sunderland without hearing the sound of hammers on rivets coming from the shipyards that lined its banks. Generations of people in Sunderland owe their livelihoods to the shipyards. They are deeply proud of the yards, and for good reason. There was a time, within the living memory of most people, when the yards accounted for more than half the world's merchant shipping output.

Not least of the Department's mistakes was to under-estimate the strength of feeling in Sunderland. The whole town has been united in our campaign to save the yards. All political parties on the borough council have lent their voices to this, as has the chamber of commerce, and the local newspaper, which gives donations to the Conservative party, has been unstinting in its support. Above all, the work force has united under shop stewards who command greater respect than any I have come across. I pay tribute to all those who have played a part in the magnificent campaign, which is far from over, to save our shipyards.

For some time, the Department has been perpetrating a cruel hoax not only on the people of Sunderland and the workers in the shipyards but on the commercial interests that seek to buy them. It pretended to solicit bids, when in reality it discouraged bids. I can conclude from his letter of 8 February only that the Minister was unaware of the sixth directive and did not become aware of it until the end of June when he visited Sir Leon Brittan. I do not want to be too hard on the previous Minister of Trade and Industry. All of us acknowledge that he is on the merciful wing of his party and inherited decisions made by others. I recognise his genuine concern for the fate of Sunderland. Perhaps that was what led him to preside over the present mess.

The circumstances of North-East Shipbuilders Limited has implications for the country. As an island nation, we depend on shipping, yet we lack the capacity to build our merchant ships. Once we had the biggest fleet in the world, but now our erstwhile shipping capacity is under foreign flags and crewed from the poorest nations. It has implications for the defence of our country. Only the other day, the Select Committee on Defence drew attention to the shortage of merchant shipping available in time of war.

Above all, it has implications for all those interested in the malign effect of the EC on the British economy. It may come as news to many that the EC cannot merely veto subsidies, but can veto a commercial arrangement that requires no subsidy. This saga illustrates our enormous loss of sovereignty to the EC over the past few years. Many wonder whether Germany or France would tolerate such interference and suspect that, if the market revived soon to allow a German yard to reopen, we would hear no more about the sixth directive.

Mr. Clay

Is my hon. Friend aware that Sir Robert Atkinson wrote to me and said that the French act first and argue afterwards? Does he agree that that is interesting, coming from somebody with direct experience as a former chairman of British Shipbuilders?

Mr. Mullin

We could learn a great deal from the French and Germans. At the end of the day, our problem is not in Europe but in a lack of political will in Whitehall and Westminster.

There is one other aspect of EC policy I should like to draw to the Minister's attention. Renaval is the programme of aid that the EC operates for various regions that have been badly hit by closures of merchant shipbuilding yards. I understand that no application for such aid has been made on behalf of Sunderland, although the Government have applied for aid for Plymouth, Strathclyde and, unbelievably, Gibraltar, which are much less hard hit than Sunderland.

Last week, I and others had a meeting with the Commissioner responsible for regional development, who confirmed that no application had been made and expressed surprise at that. He was confident that if one were made, it would be favourably considered. On 10 July, the leader of Sunderland borough council, Councillor Charles Slater, wrote to the then Chancellor saying: I would be furious if my officers had neglected such obvious issues as those now confronting you in any negotiations undertaken on the Council's behalf. He was referring to Renaval. The letter continued: I assume that you are equally displeased with your officials and that they have been instructed to resolve matters as quickly as possible, and to Sunderland's advantage. I checked yesterday with the office of the leader of the borough council and, as of yesterday, he had not received a reply to that letter. I hope the Minister will tonight assure the House that an application is under way.

Mr. Clay

The Government have been telling us for months that nobody wants to risk the aid that is going to Sunderland for remedial measures by reopening the shipyards. In other words, Sunderland needs the aid so much that we should be prepared to keep the shipyards closed, rather than risk losing the aid package. At the same time, it seems that the Government are refusing to apply for another aid package, the Renaval aid, which would do just as well as the aid being given for closing the shipyards. That shows the hypocrisy of it all.

Mr. Mullin

I agree with my hon. Friend. The Government cannot have it both ways. Given that there has been a massive loss of jobs in Sunderland, it is clear that, if part of the shipbuilding industry there were to be revived, it would not be incompatible to obtain Renaval aid for areas which are not revived. It is time that those responsible got their skates on.

My hon. Friend the Member for Sunderland, North began by saying that we in Sunderland have one of the most modern yards in Europe and that millions of pounds of taxpayers' money had been invested in it. We have a skilled work force, there is a rising world market and the sixth directive—the alibi given for the closure of the yard—is due to be renegotiated in 18 months' time, no doubt taking into account changes in the world market. There is, in addition, a strong possibility—as my hon. Friend discovered on his recent trip to Strasbourg—that the EC is prepared to reconsider the issue.

It would be an act of gross vandalism to destroy those yards now. We want an assurance from the Minister that while any possibility remains—and it seems that a large one remains—of a future for those yards building ships, which is what they were built for, they will be kept intact. At least until the European Parliament has had an opportunity to see if it stands by the claims that have been made for its position on this matter. We in Sunderland do not want to see those yards destroyed if there is any hope of them being retained, and we believe there are considerable grounds for hope in view of the dramatic revival in the world market. We seek an assurance from the Minister to that effect.

A friend of mine who has worked in the yards in Sunderland all his working life told me recently that he had been offered a job in a shipyard in north Germany. He said, "Shipbuilding in Sunderland is not dead. Sunderland workers will still be building ships, but they will be building them in German yards." I cannot think of a sadder epitaph for the Government's policy or for merchant shipbuilding in this country than that they have turned the proud shipyard workers of Sunderland into a race of guest workers in the yards of our competitors. That is a sad state of affairs.

10.58 pm
Mr. Doug Henderson (Newcastle upon Tyne, North)

I congratulate my hon. Friend the Member for Sunderland, North (Mr. Clay) on initiating this debate, on his excellent contribution and on the role that he has played, in company with my hon. Friend the Member for Sunderland, South (Mr. Mullin), in campaigning to retain shipbuilding in the north-east and to retain a merchant shipbuilding capacity in Sunderland. If my hon. Friend the Member for Sunderland, North has shown nothing else today he has shown that when he eventually retires after a long period of service in the House he would make an excellent ombudsman for the National Health Service. No doubt a future Labour Government will bear that in mind.

I congratulate the hon. Member for Grantham (Mr. Hogg) on his appointment as Minister of State. I hope that he is given a little more leeway by his boss than was given to his predecessor. The fact that he represents a particular town in the midlands may give him the influence that some of his hon. Friends enjoy. He will probably say that it does not, because he has not exactly been bequeathed the most enviable of tasks by his predecessors at the Department of Trade and Industry.

As for the relationship between the Government and the European Commission on trade and industry matters, I am not sure whether we can expect to see the pattern that was established in the past recurring in the future. We have been told this week that there will be no change of policy. I am not sure whether that was the Prime Minister or Bernard Ingham speaking. I am sure that we all look forward to hearing the Cabinet's view of the relationship between the interests of this country and the way in which those interests are dealt with in Europe. The history of the DTI and of British Shipbuilders' involvement in this whole business is one of complacent incompetence.

My hon. Friends have raised several questions and in the short time available to me I shall summarise three or four of their main questions. First, why were the terms of any sale not clarified by the Department after it announced that offers could be considered on 17 January? I have a little experience of negotiations and it has always struck me that the first thing to do when entering a negotiation is to examine the ground rules, consider how they might change and decide what options might be available later. From the evidence that we have heard in the debate about this whole saga, it does not seem as though anything of that nature was undertaken by the Department. Indeed, in the letter sent by the previous Chancellor of the Duchy of Lancaster to my hon. Friend the Member for Sunderland, North on 23 January this year, there was absolutely no acknowledgement or identification of the problems that could arise in the future.

Secondly, after the Commission said that intervention fund money would not be available in response to the issues raised by the Department in April after a bid was received on, I believe, 6 April, why did the Department not then seek to clarify whether any other conditions would apply? We are told that the Department was told that the rules of the game had changed and that intervention fund money would be available, but surely it is a basic tenet of negotiating that one should then seek to clarify whether any other matters would be laid down as the conditions in which aid might apply.

Thirdly, after the previous Chancellor of the Duchy of Lancaster was told by Sir Leon Brittan on 27 June about the problems which existed in relation to any bid, did any further negotiations take place with the Commission between that date and 13 July, when a further statement was made to the House? If negotiations took place, what was their nature and what conditions were suggested by the Government in response to the talks on 27 June?

I do not want to elaborate too much, but the fourth question that must be answered is why British Shipbuilders did not seek to give the Government advice on the difficulties of interpretation which might arise in regard to the sixth directive. British Shipbuilders has someone permanently based in Brussels who is supposed to keep the industry briefed on a day-to-day basis about the things that happen there. British Shipbuilders must surely have been aware of some of the difficulties which might lie ahead—or if not, why not?

Only two interpretations are possible at this late date. Either the Government welcomed the Commission's veto or they have been given the runaround for the past year and have accepted in a docile fashion an edict by officials in Brussels which would never have been acceptable to the Italians, the Germans or the French. Can anyone imagine an Italian or German shipyard, which had been closed but was given the possibility of reopening, being treated in this manner? Can anyone imagine the German, French or Italian Government giving in to the Commission as the British Government seem to have given in on this issue? Can anyone imagine the Germans or French not clearing the ground early so that they knew the conditions which might apply and could therefore give the issues the widest consideration?

The Minister has a difficult task today. He inherits a grave situation. I ask him to forget the past, to start again, to look to the future and, even at this late stage, to reopen negotiations with Brussels to seek a new package. If he does not do that, he will face another question—what happens to the yards?

If there is no attempt to reopen negotiations, and no satisfactory conclusions to such negotiations, the only conclusion that I and the people of Sunderland can draw is that their yards, their inheritance, their history, their traditions, their skills and their expertise are being thrown to rust and decay in the cold north-east winter winds. I assure the Minister that although I represent a Newcastle constituency, I occasionally visit Roker park. The winds there bite the football ground and they bite the shipyards that are left to decay. Surely it would be better to reopen negotiations and, while they are going on, keep the yards intact in the hope that, with the widely acknowledged upturn in world shipping, there will some day be another option for the people of Sunderland which will allow shipbuilding to take place.

I have this evening asked the Chairman of the Public Accounts Committee to examine the circumstances in which the Government failed to take the opportunity to dispose of a public asset in a way that would have given hope to a great industrial town and raised public funds. I have also written to the Chairman of the Select Committee on Trade and Industry asking whether he can examine the implications of the closure of North East Shipbuilders Limited for the maintenace of a merchant shipbuilding industry in Britain. That Committee has twice discussed shipbuilding and NESL. Twice it has received submissions from Ministers and twice, I believe, it has not been told the whole truth. I hope that the Minister will join me and willingly make himself available, with his civil servants, so that the Select Committee can get to the bottom of the matter.

Rather than damning reports from those Committees, which I think very likely, I should much prefer the Minister to re-establish a proper and effective working relationship with his old friend, Sir Leon Brittan, with whom he had a close relationship, and to reopen negotiations in Brussels on this sorry affair.

11.8 pm

The Minister of State, Department of Trade and Industry (Mr. Douglas Hogg)

The future of Sunderland, particularly of North East Shipbuilders, is serious and important.

I am grateful to the hon. Members for Sunderland, North (Mr. Clay) and for Sunderland, South (Mr. Mullin) for raising this matter, as it gives me an opportunity to explore some of the relevant considerations. I am also grateful to the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) for his kind welcome. This is the first time that we have had the great pleasure of debating one against the other.

This is my first venture in the House as Minister with responsibility for industry and enterprise, and I am glad that it should coincide with a debate on the future of industry and enterprise in a town with strong manufacturing traditions and traditions which are deeply rooted in engineering.

I hope that the hon. Member for Sunderland, North will forgive me if I say that I do not accept his criticisms of my right hon. Friend the former Chancellor of the Duchy of Lancaster. No one was more anxious than he to bring prosperity to Sunderland, and his commitment to that task was well known. On his behalf, I am grateful to the hon. Member for Sunderland, South for being good enough to pay tribute to him.

At the end of last year, my right hon. Friend had to focus on the future of the shipbuilding yards. His predecessor, the present Secretary of State for Health, had promised that if there was no successful bid for NESL a suitable package of measures would be introduced to allow the town a new future. Bids had been invited by the end of September, and I know that—having examined the advice from British Shipbuilders on those bids—my right hon. Friend was impressed by the advantages of retaining shipbuilding, if that were possible.

A number of factors had to be taken into account, and my right hon. Friend took them into account. Sunderland, as I have said, had a strong tradition in the industry, and there was much inherent skill in the town. However, my right hon. Friend had to be conscious that only bids that were capable of providing a viable future for the industry should be seriously considered. He had also to be conscious—as indeed he was—that, even had such a viable bid been made, there would in all probability have been a substantial fall in employment.

My right hon. Friend also had to consider the positive advantages of creating enterprise zones. He was very conscious of what had been achieved at Consett, Corby, Scunthorpe and elsewhere. That argument was fortified by points made by, for example, my hon. Friends the Members for Pembroke (Mr. Bennett) and for Langbaurgh (Mr. Holt) on the occasion of his statement on 13 July.

I think that the House will acknowledge that my right hon. Friend took immense trouble to find a shipbuilding solution for NESL, and that it was only with the greatest regret and after examining all the relevant factors that he announced, on 7 December, the decision to close the yards. He announced that decision in conjunction with a range of positive measures designed to ameliorate the position that he knew would ensue. Prominent among those measures was the creation of an enterprise zone of some 150 acres for Sunderland.

My right hon. Friend announced a variety of other measures: for example, £10.5 million was to be provided through British Shiphuilders, of which £5 million was designed specifically to help the work force with, for instance, retraining and job replacement, while another £5 million was intended to promote enterprise within the borough of Sunderland. Another element in the package was the provision of advanced factories worth some £7 million through the agency of the English Industrial Estates Corporation.

Both Sunderland Members will acknowledge that the position has improved, contrary to their fears when the closure decision was announced. I understand that, although about 2,000 men were made redundant as a consequence of that decision, 1,100 or so have now found some form of permanent employment. Opposition Members shake their heads. I can only act on advice and no doubt the matter will be further examined. I have given my understanding of the present position.

I should now like to speak about developments between last December and today. The hon. Members for Sunderland, North and for Sunderland, South have understandably focused on these matters. I cannot give a complete account of what occurred, but shall touch on only one or two matters that seem of special interest. In that respect the two hon. Members who represent Sunderland adopted a similar approach. In a debate on 14 December 1988, my right hon. Friend the Chancellor of the Duchy made it clear to the House that it was possible in principle to renotify the Commission with proposals about shipbuilding at NESL.

My right hon. Friend made it crystal clear that he was not willing to put at risk the remedial arrangement that he had already announced for Sunderland, nor was he prepared to put at risk the disposal of the smaller British Shiphuilders facilities. The European Commission decided on 21 December not to raise objection to a package notification for British Shipbuilders which included details of the terms of disposal of some of its smaller facilities together with the corporation's forecasts for 1988 and 1989, proposals for the closure of North East Shipbuilders and the £10.5 million element in the remedial package that I have outlined.

On 22 December the Government notified their intention to introduce the enterprise zone in Sunderland. On 17 January, at a meeting in Sunderland with the "Save our Shipyards" campaign, at which I suspect one or other or both hon. Members for Sunderland were present, the former Chancellor of the Duchy made it clear that he was prepared for the NESL yards to remain in being at least until 30 June to allow for any new interest that could use the existing investment to make proposals to British Shipbuilders.

Against the experience of the previous autumn, shipbuilding proposals seemed unlikely. More likely were proposals for repair and conversion.

The next significant event was that the Commission formally cleared the enterprise zone for Sunderland. I understand that that occurred on 2 March.

Mr. Mullin

In his rundown the Minister seems to have passed 8 February, the date of the letter to which my hon. Friend the Member for Sunderland, North and I referred. Perhaps the Minister will come to that in a moment, but there must be some explanation of the remarkable statement in that letter.

Mr. Hogg

The hon. Member for Sunderland, South seems to have forgotten the explanation that has been given. He will recall that precisely that question was put to my right hon. Friend the Chancellor of the Duchy during his statement on 13 July. If the hon. Gentleman cares to look at column 1151 of Hansard of that date he will see my right hon. Friend's reply. I could not do better than repeat that answer, but as it is already in the Official Report I do not propose to trouble the House further about it.

A first offer was received on 6 April and this was later amended on 17 April to exclude the requirement for intervention fund support. This followed a meeting between Department of Trade and Industry officials and Commission officials about the difficulties likely to be encountered in any renotification of shipbuilding proposals for NESL.

Both the shipbuilding interests which sustained their bids were advised that an offer requiring intervention fund assistance or the equivalent was bound to result in the Commission consulting other member states in a "procedure". They were also warned of potentially serious difficulties even if funding was not required, but prospects could be improved only if bids were without such assistance and there was some lasting reduction in capacity in the yards.

On 3 May, British Shipbuilders received a second serious offer from a shipbuilding interest, which was also confirmed as being without intervention fund support. Both these bids required further clarification and proof. In addition, two non-shipbuilding bids were confirmed on 26 May and 6 June respectively. In these circumstances, and recognising that the Commission could be expected to give a clear opinion only on the basis of a full appreciation of the plans of the two shipbuilding interests, the Government thought it right to take stock of the position as a whole, and to define the framework within which decisions could be taken.

The House will also recall that my right hon. Friend gave a written answer on 7 June this year setting out how the Government intended to proceed. He said that he had asked British Shipbuilders to give advice about each of the bids by 30 June and that the Government would 'take decisions in the light of a number of factors. Among these, the position under the sixth directive was only one. Meanwhile, preparations for the enterprise zone and other remedial measures in Sunderland were put on ice.

Following final clarification meetings between British Shipbuilders and the bidders, which gave him a full picture of what was likely to be proposed, my right hon. Friend visited the responsible Commissioner in Brussels on 27 June. The responsible Commissioner was Sir Leon Brittan, whom I had the privilege to serve as parliamentary private secretary. He made it plain that if shipbuilding were to be continued at NESL the Commission would feel it necessary to open a procedure under article 93(2) because, in his view, the commitment implied by the Commission's acceptance of the notification of the closure of the yards was a commitment to keep them physically closed for at least five years, and that that commitment would have been called into question. Accordingly, the Commission would need to reopen the package notified last December.

Moreover, aids accepted as restructuring would have to be redefined and any excess repaid. In practice, that would mean an increase in British Shipbuilders' market borrowing, a sum of £90 million the previous December, because otherwise the corporation would have been in breach of the sixth directive.

Secondly, the Commissioner made it plain that in any circumstances he would be bound to recommend a procedure, which would take some six months. Thirdly, the Commissioner also made it plain that, since he regarded the Commission's clearance of the enteprise zone as dependent upon the closure of NESL, the Commission's continued approval of the zone could not be assumed.

Mr. Clay

We understand why the Minister is reading from the statement in the Library. However, he has reached the crux of the matter. We have just heard the two crucial points. What the Minister has read out about the problems of British Shipbuilders' commercial borrowing, he has read out as being the Commission view. According to that, by definition, it would not have been possible to sell off the yards. In other words, the bidders were wasting their time if the Government accepted the Commission's view, because no one could buy the yards.

The second crucial consideration for the Government is the enterprise zone, because they do not want to risk that. Is it not extraordinary that another Commissioner is querying Sir Leon Brittan's judgment, and querying whether the competition Commissioner can link the two matters? Despite that query, the British Government have accepted Sir Leon Brittan's judgment and caved in.

Mr. Hogg

As the hon. Member for Sunderland, North has already made plain, in this regard Sir Leon is the lead Commissioner. We have to form a view as to what is the likely effect of the advice that the lead Commissioner is bound to give to his colleagues. Having regard to the advice that he set out in his letter of 13 July, it is inevitable that if the lead Commissioner gave the advice there set out, it would have the consequences there itemised. Even if that is not a certain consequence to, on any view of the matter it is a highly probable one. That assessment has to be judged against the other benefits that will flow to Sunderland from the establishment of the enterprise zone.

The other issue raised by the hon. Member for Sunderland, North touches on the effect of the borrowing. It is clear that a substantial debt transferred to an acquiring bidder creates a problem for that bidder. I suspect that it would put the problem too high to say that the transaction thereby became impossible. Clearly, however, such a debt would increase the problem. Were the Government to renotify the shipbuilding proposals for the yard, the future of the Sunderland measures could be called into question. In any event—perhaps the hon. Gentleman would care to reflect upon this—progress would be delayed for at least six months.

Mr. Andrew Rowe (Mid-Kent)

I realise that conditions vary in different parts of the country, but it may be of some consolation to the hon. Members for Sunderland, North (Mr. Clay) and for Sunderland, South (Mr. Mullins) if I recall the fact that after the Chatham dockyard closed, with cataclysmic results for the morale of those living in Chatham, two enterprise zones were declared. Chatham now has remarkably low unemployment and a thriving economy with a large number of businesses. I hope that that may be of some consolation to the hon. Gentlemen.

Mr. Hogg

That echoes the point that I have made already. My hon. Friend's experience coincides with experience at Consett, Corby and Scunthorpe, where the establishment of enterprise zones has led to a substantial increase in prosperity and employment. I hope that the hon. Members for Sunderland, North and for Sunderland, South will take that message back to their constituents.

When considering the future of Sunderland, the Government must take account of the relatively certain promise of the enterprise zone and the other measures that were announced in December 1988. The current estimate is that at least 3,000 to 4,000 jobs would result from those initiatives. That is one relatively certain proposition on which we must reflect. We must also consider the shipbuilding proposals, which as a result of the attitude adopted by the European Commission are likely to involve delay for at least six months. They would call into question the enterprise zone, and they are likely to result in financial obligations that would make the transaction extremely unattractive.

Mr. Clay

The Minister has still not responded to the central question. If what he has said is true and that is the Government's judgment, that must have been true in January. The enterprise zone would have been in danger then. Against that background, why did the Government allow people to waste their time and money bidding for the shipyards? If the Commission has changed its mind and hardened its attitude, why do not the Government say to it, "We are sorry but you should have told us this before; we have bidders now, so we shall get on with it."?

Mr. Hogg

I understand that intervention to be a reference to the acquisition by the acquiring bidder of the capital debt.

Mr. Clay

And the difficulty of the enterprise zone.

Mr. Hogg

Indeed. Officials had estimated that any redefinition of cost by the Commission within the rules of the directive would be capable of being covered by British Shipbuilders' expected net income over the years to come, provided that there was no intervention fund support and that the Pallion yard remained closed. In other words, they did not accept in their assumptions that there would inevitably be an odd capital obligation of the sort set out in the Commissioner's letter of 13 July. Officials considered the problem of the co-existence of the enterprise zone with some renewed shipbuilding activity, but felt that action of the kind ultimately taken was proper. The criticism of those officials by the hon. Members for Sunderland, North and for Sunderland, South is not warranted.

The Government concluded that in all the circumstances, the enterprise zone and the other measures described were in Sunderland's best long-term interests. My right hon. Friend accordingly invited British Shipbuilders, in consultation with the Tyne and Wear development corporation, to undertake further work with the existing bidders in examining the use of the yard's assets for purposes other than shipbuilding, with a view to making final recommendations in due course.

The establishment of the enterprise zone and all the other elements of the package of measures to promote enterprise and new jobs in Sunderland will press ahead with all possible vigour. My right hon. Friend the Member for Braintree (Mr. Newton), the former Chancellor of the Duchy, devoted considerable energy and personal commitment to finding the best way forward for Sunderland. After careful examination of all the facts, he concluded that the enterprise zone solution was the best. From all the material that I have examined, I see no reason to differ from that view. Advantage must be taken of the measures that the Government have made available.

Sunderland's shipbuilding traditions have been strong, but as well as bringing periods of prosperity, they brought periods of great uncertainty. The means are now available to the Tyne area, through the enterprise zone and other measures, to grow in terms of prosperity and employment. I hope and believe that the energy, skill and determination of the people whom the two hon. Gentlemen represent in their respective constituencies will achieve that highly desirable result.

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