HL Deb 22 March 1934 vol 91 cc383-98

Order of the Day for the Second Reading read.


My Lords, this is a short Bill of only three operative clauses, but it is one about which your Lordships will expect me to say something, because it brings into operation the Agreement which has been made between the Cunard Steam Ship Company, the Oceanic Steam Navigation Company and the Treasury, and which was published last month in Command Paper 4502. When work on the mammoth passenger ship No. 534 was stopped, I think the country generally and most members of your Lordships' House felt that a very great blow had been delivered not only to shipbuilding and to the heavy industries by the loss of employment which that stoppage of work entailed, but also to our prestige as a maritime and shipbuilding nation. The blue riband of the Atlantic has been wrested from us after we have held it for very many years; other nations have recently been building not only faster but larger ships, and the cream of the North Atlantic passenger traffic was passing to other nations. Some of your Lordships may have views as regards these mammoth passenger ships, but at any rate there can be no doubt that as regards passengers generally they prefer to travel on these very large fast ships rather than on the smaller ones, and therefore not only do we find ourselves with smaller ships than other nations, but the result is that we lose the passenger traffic which we used to hold.

One of the main objects of the scheme is to lead to the elimination of wasteful competition between the two great British companies which for many years have been engaged in the North Atlantic passenger trade. The fusion of the North Atlantic interests of these two companies will secure very great economies, and the scheme is designed to create a single and powerful unit amply supplied with working resources, which will be well equipped to maintain the traditional preeminence of British shipping upon the North Atlantic. Secondly, the completion of the Cunard liner No. 534 will create a considerable volume of employment in a distressed area, and that at a time when it is badly needed. Moreover, British trade in the North Atlantic will be supplied with the most modern passenger vessel in existence. It is designed to be of such a speed as to be capable of making a weekly passage across the Atlantic, that is to say, a fortnightly service in each direction, and so provide a service which at present cannot be provided by any other vessel.

The Agreement provides for the fusion of the North Atlantic interests of the Cunard and Oceanic companies into a new operating company which is to be called "The Cunard White Star Limited" or some similar title. The Cunard will hand over free of incumbrance its North Atlantic fleet of fifteen vessels, the names of which are given on page 9 of the White Paper, and the Oceanic will hand over its ten vessels, those being the North Atlantic fleets of both companies. Also the Cunard will hand over to the merger company the uncompleted No. 534 and the benefit of its contract with Messrs. John Brown & Co. Limited, the builders. The consideration for the transfer of these ships will be an issue of shares in the merger company credited as fully paid and in the proportion of 62 per cent. to the Cunard and 38 per cent. to the Oceanic.

The Government ask Parliament to agree to a loan not exceeding £3,000,000 for the completion of No. 534. I understand that £1,750,000 has already been spent upon the ship and that when completed she will cost somewhere about £4,500,000 sterling. Further the Government is providing a loan to make advances of working capital to the extent of £1,500,000. It is provided that all these advances shall be made as required, that is to say, that we shall not have to find straight off £4,500,000, but that the Treasury will advance the money as the contract proceeds. Thirdly, it is provided that in the legislation to be promoted—which is now before your Lordships—the Government will take power to advance a sum not exceeding £5,000,000 for the construction of a second ship, or of other ships, for the merger company. When it is seen how the prospects work out, it will be decided whether there shall be a sister ship, so that there will be a weekly service in each direction instead of a fortnightly service. This advance will be made on terms analogous to those on which the advances not exceeding £2,000,000 are to be made to the merger company for the completion of No. 534. The Government are not in any way committed to this last advance for the second or more vessels, and the Agreement specifically provides that the legislation shall give the Treasury power in their discretion to advance this money for any additional ship or ships.

I do not know whether your Lordships desire me to go into the question of the security for the loan. It is a somewhat complicated question, but I may say briefly that £1,000,000 will be advanced to the Cunard Company and will be secured upon Cunard assets, ranking immediately after any charges given to secure the existing first debenture stock of the Cunard. The second and third sums of £1,000,000 each will be advanced to the merger company, the first half of these on the security of first debenture stock in the merger company, that being a first mortgage on No. 534, and the second half—that is to say, the third sum of £1,000,000—being secured by an issue of income debenture stock, Class A, of the merger company. secured by a second mortgage on No. 534. Then the advances for working capital are in one case secured by first debenture stock in the merger company up to £750,000 and with regard to the remaining £750,000, secured by Class B income debenture stock of the company.

The interest will be, in regard to the debenture stock, one-half per cent. below bank rate until January 1, 1940, and then at such rate as the Treasury determines to be the appropriate rate for interest on loans guaranteed by the Government. In regard to the third amount of £1,000,000 on No. 534 which is to be secured by income debenture stock, Class A, the interest will be three per cent, up to December 31, 1939, and five per cent. thereafter; and in regard to the second advance of £750,000 for working capital, the interest upon that will be five per cent. throughout. I do not know whether I need tell your Lordships anything more about this matter at this stage, but I will endeavour to answer any questions which your Lordships may put to me in the course of the debate. I beg to move that this Bill be now read a second time.

Moved, That the Bill be now read 2a(Earl Stanhope.)


My Lords, I am sorry to have to detain your Lordships again on this Bill and to speak a second, or indeed a third, time this afternoon, but it raises such very important principles that my noble friends on this side of the House have asked me to put our point of view. With regard to the main objects of the Bill—to enable this great liner and possibly a second great liner to be built—we are not in disagreement. We would far rather have the men engaged in building these ships and in making the tremendous variety of equipment for them which affects almost every trade in the country, than standing about idle. From that point of view we therefore welcome this rather belated effort. We regret that it was not embarked on about twelve months ago, when the building of the large liner on the Clyde was first stopped. Apart from that, however, we have certain grave objections to raise in detail.

In the first place, we think that the venture itself, apart from being regarded as a means of getting men at work rather than paying unemployment insurance to the same men while they deteriorate and rot in idleness—apart from that aspect of it, we think that the financial basis of this transaction is unsound, and we think it very doubtful that the taxpayers' money will ultimately be recovered, the reason being, as your Lordships are aware, that there is heavy competition in the North Atlantic luxury passenger trade, and it is also a diminishing market. There is no certainty that the revival in the transatlantic passages will be such as to make these great ships pay their way. The emigrant traffic, for example, which was almost the bread and butter of the liners a few years ago, has dwindled away very greatly, for very well understood reasons, and there is the heavily subsidised competition of the great liners built, and already on the water, by the French, Italians, Germans and others.

Your Lordships will have noted in the remarks of the noble Earl introducing this Bill that this money is not secured as a first debenture. At least the first £1,000,000 is not. It is a second charge. We went behind the first class of shareholders. I speak of "we" as the taxpayers of this country. If this money was to be spent on shipbuilding at all it is at least arguable that it might have been better spent in encouraging the rebuilding of a large part of the cargo-carrying fleet of this country, a great deal of which is out of date. The so-called tramp steamers, which, after all, are the backbone of the mercantile marine of this country, are many of them obsolete, and it would be good policy to encourage or help in any way the shipowners in this country to scrap about two-thirds of their existing fleets of cargo steamers and build modern-engined ships of modern construction capable of competing for freights all over the world. That would give a great deal of very badly needed employment and once more put the mercantile marine of this country into a pre-eminent position as merchant carriers for the world. I hope that that is eventually to be part of the present Government's policy, if the present Government remain in office, and that this is the first step to encouraging the rebuilding of a great part of the British mercantile marine, which, apparently, is only going to be rebuilt very slowly owing to the reluctance of investors to invest in shipping enterprises.

The next objection—I think it is a very serious one indeed—is that if the second ship is proceeded with this Cunard-White Star merger will have brought to its assistance £9,500,000 of Government money, a very large investment indeed. The least the Government should have done, my noble friends think, is to have reserved the right to be directly represented on the board of the merger. There are many precedents for this. I will quote to your Lordships a very old one, the case of the Suez Canal Company. Our predominant position as shareholders there is due to the action of a very distinguished member of your Lordships' House. There are Government directors on the board of the Suez Canal Company. A more recent case before the War is that of the Anglo-Persian Oil Company. It was necessary to secure supplies of oil for the Royal Navy. Certain moneys were advanced on loan to the Anglo-Persian Oil Company, and there are Government directors in that company to watch over the interests of the taxpayer and also the interests in this case of the Royal Navy. A third example, and this time a transport undertaking, is Imperial Airways. In Imperial Airways we have Government directors on the board. An even closer analogy is that of the MacBrayne Steamship Company which plies in the Western Islands and Highlands. That company had got into a bad state, its ships were out of date and unsuited for the traffic in the Highlands and the Government came to the rescue. The Postmaster-General has the right to appoint a director on the board of the MacBrayne company because we, as a nation, are shareholders and therefore interested in the undertaking.

If your Lordships will glance at the White Paper you will see that again and again the Treasury has to be consulted at second hand. For instance, the articles of association and memorandum of this merger company cannot be altered without reference to the Treasury; the capital cannot be increased without reference to the Treasury. Article 13 of the White Paper states that advances from time to time for working capital can be made in instalments against the certificate of the chairman and the directors of the merger company. They have to go to the Treasury to say that money is needed and another advance is then made. Therefore there is a good deal of Treasury control. But it is indirect control, and the consideration I would put before your Lordships is that it would be far better and fairer to the taxpayers of the country, and in accordance with precedent, if there had been nominees of the Treasury on the board until such time as this money was repaid. Upon the board of this merger is a very distinguished member of your Lordships' House, the noble Lord, Lord Essendon, who is extremely successful as a shipowner and has the highest reputation. The protest I make in this House is no reflection on the boards of these two great shipping companies at all, but, in private affairs, not one of us in this House could for a moment object in any company to a large block of shareholding, a large financial interest, being directly represented on the board, and, the company having received assistance in exactly the same way, I suggest to your Lordships that the Treasury should be directly represented. In fact, I am not sure that the taxpayers of this country should not have a controling interest on the board until this money is repaid.

The excuse of the noble Earl will be, I suppose: "Well, we don't want the Government engaged in the shipping business." But we are engaging ourselves in the shipping business to the extent of £29,500,00, and we cannot pretend that the British nation does not stand behind this merger as a competing shipowning compary in the North Atlantic trade. Why cannot we in this case do the thing thoroughly and have the Treasury properly represented on the board of directors? I suggest that these are matters of substance. This last point particularly is one of substance, and we should certainly have a much more satisfactory answer to this matter than has yet been given. This Bill has not been certified as a Money Bill and, therefore, we are quite in order at a later stage in attempting to alter it, and I hope your Lordships will be prepared to agree to an Amendment to put this particular matter of representation on the board right. Nor do I think we need be reluctant to do so, because if ever there was a case for this House functioning as an advisory House I submit this is one. The Committee stage of this Bill was taken in another place at a late sitting in the small hours of the morning and, therefore, I suggest we should have no hesitation in amending this Bill as required.


My Lords, I never expected to find myself in agreement with the noble Lord who sits opposite so quickly after be joined this House, but I can only explain that by the fact that, very wisely discarding the arguments given by the official Opposition in another place, he took the better reasons given by certain of my friends who sit on the Government side. I must first of all beg your Lordships' pardon for intruding into the debate, as I have no particular qualification for doing so. My excuse is that the only member of the Government who had a particular qualification to intrude into the debate in another place, the President of the Board of Trade, did not do so. Let me say at once that I welcome this Bill because it does show that the Government have changed their attitude towards the constructive development of capital enterprise. It does show that the Government have realised, as we all hoped they would realise, that it was impossible any longer to pursue a policy of laissez faire towards industry in the present changed economic condition of the world. It does show that they are prepared to face certain cooperation between the State and industry which we cannot fail to welcome. But, if we are going to have this change, it does seem to me that sporadic incursions into industry by the State are of no use whatever. We must pursue a consistent policy, a policy which we lay down in advance and a policy which is going to follow well-defined principles.

It is in an endeavour to elucidate the principles which are to govern the Government's actions in this matter that I venture to ask two questions which, in fact, have already been covered by the noble Lord opposite. First of all, I want to know by what classification the Government are going to decide among various competing interests which are going to ask for subsidies. What are the conditions going to be before a subsidy or Government help is granted to an industry? In particular I want to know why the Cunard line was selected for the first experiment in this way. I ask that because it seems to me that the Cunard line offers as unfavourable an opportunity for Government subsidy as one could well find. It is perfectly true, as the Treasury representative has said, that if we are going to get our money back and interest is to be paid on this subsidy, we must gamble on, or hope for, world recovery in trade. That must apply to any subsidy given at the present moment, but in this particular case we are not merely gambling on a recovery of world trade; we are also gambling on the proposition that a particular type of vessel is going to be able to take full advantage of that recovery when it comes. In fact, two things in regard to this particular subsidy have to happen before we can ever hope to get our money back.

As the noble Earl who will reply for the Government knows perfectly well, there is at least a very wide difference of opinion as to whether this particular type of ship will, in fact, be able to take full advantage of world recovery. I am told that for the amount of money we are going to spend on one liner we can build 100 modern tramps, and also that a modern tramp even now is able to make a profit in the present state of world trade. It is therefore very difficult to understand why the Cunard line was chosen and tramps ignored. It seems to me rather unfortunate that when the Government decided to risk—I will not say gamble with—the taxpayers' money, they should elect to play their game on a board with two zeros instead of one.

The second point on which I would like information has also been mentioned by the noble Lord opposite. What are the subsequent relations—very delicate relations—to be between the Government and the subsidised industries? Is there going to be some form, not of control, but of relationship which will enable the Government to know if at any moment the taxpayers' money is not being used to the best advantage? Why is there to be nobody on the board of the new merger company? I understand that one reason given is that the Government trust the Cunard Company. Naturally, the Government trust the Cunard Company if they are going to subsidise the company. They trusted the Anglo-Persian Oil Company, but the Government are represented on the board of that concern, and no one supposes that that is because they do not trust the company.

The other reason suggested is that the Government will be a mortgagee of the merger company and that it is not the practice of the mortgagee to control the business of a company. Even if that were so I would say that £9,500,000 deserves special treatment, and further I would say that the State is in this matter in a very peculiar position because, although a mortgagee, it is unable really to take up its mortgage. If the company gets into a bad state owing to bad management it will be extremely difficult for the Government to take up its mortgage inasmuch as it would have to take over the line and run it. I do not see how a Government of the complexion of the present Government can possibly take that course. It seems to me that in view of these facts the Government should have insisted on having an everyday observer on the board of this company, able to inform them how things are going, particularly in view of the fact shown by an official of the Treasury that such a very large number of the vessels which are going to be transferred to the company are, in fact, obsolescent and only valuable as scrap. That should give the Government pause and make them want very much to know how things are going. I trust I have not taken up too much time in discussing these matters. I feel that they are so important that we should know exactly how the Government propose to go on with this new development, and I hope I shall receive a helpful answer.


My Lords, both noble Lords who have criticised this Bill have done so not on its main principles, although I fully admit that the points raised are matters of real substance. In regard to the first question asked by the noble Lord opposite, why this was not done twelve months ago, I would say that if he studies the Agreement he will find that the first essential was to get these two big shipping companies to combine. He will realise how difficult an operation that was when he sees what each has to contribute to the merger company and the actual amount which has to be credited to them in fully-paid shares. It was only quite recently, within the past few weeks, that an agreement has been arrived at. Even at this moment the two companies have not got authority to carry through this merger. I read in The Times on Tuesday that the Oceanic Company had held a meeting of debenture holders and with only one dissentient it was agreed to. Regarding the Cunard Company a meeting of debenture holders was convened, but there was not a sufficient quorum and therefore a second meeting has been convened for next Tuesday. They have no doubt that they will get full agreement to the merger because, I understand, the debenture holders in these two companies are satisfied that they will be more secure once they have combined operations than if they continued in competition.

The noble Lord opposite said that the financial basis was unsound. I have no hope of converting him when my noble friend Lord Munster has already failed to do so, but I hope that a short period in this House will make him less pessimistic than he appears to be on arrival here from another place. He maintained that passenger traffic in the North Atlantic is going to be at as low a figure as it is at this moment. That to my mind is an extraordinarily pessimistic view. Moreover, many of us hope that as conditions throughout the Empire improve, so too will the chances of emigration for some of our surplus population become available once more, and we shall be able to send out citizens of the very highest quality to people the waste spaces of the Empire which at present need population. In regard to both of these points quite obviously the chances of increased traffic in the North Atlantic will be considerable. Therefore, when we take the figures at the present moment, I suggest to him that with a little more optimistic outlook he may realise that the picture is very much rosier than he painted it.

He suggested that it would be better to give assistance to tramp steamers rather than to this one big steamer. The whole difficulty in regard to the shipping industry at this moment, as I had to tell your Lordships only a short time ago in this place, is the surplus amount of tonnage. It is not merely a question of ships being out of date, but there is such a vast number of ships of all nationalities all over the world, in tramp shipping particularly, that freights at this moment are impossible even for modern ships. Even modern ships have to travel without sufficient freights, not to mention package cargoes which are more profitable. Therefore, to add a large number of new tramp steamers at this moment would not be a thing that the shipping industry would welcome by any means.

My noble friend Lord Dufferin raised a question. He said that the Government had changed their policy and were ceasing to be laissez faire. This Government ceased to be that some time ago, as I think your Lordships will agree if you will look into what has been done for agriculture and what has been done in regard to trade agreements with other nations. giving opportunities for exports from this country to get a market in other countries as well as giving a chance in our home markets. The noble Marquess asked why the Cunard Company had been selected. That company was selected for several reasons. In the first place, stopping work on this ship was felt to be a very serious blow to the shipbuilding industry and to our prestige as a maritime nation. Your Lordships must also remember that about £1,750,000 had been spent on this work, and here was the ship lying a skeleton on the building slip with many men standing about idle. It looked to the world as if we were no longer capable of building ships of the kind recently built by other nations. That being the case the Government felt—and I think your Lordships will agree wisely felt—that it was essential to go on with this ship if there was a fair chance of her being able to pay her way.

Noble Lords may have their own views as to whether a vast ship of this kind, 73,000 tons, is the right type of ship. I need hardly say that the Government took advice on this matter, and they consulted amongst other people Lord Weir, and naturally the directors of the Cunard Company, who are very experienced people, and Lord Weir and others agreed that a ship of this size and character was such as might win the cream of the passenger traffic of the North Atlantic. Therefore, both from the point of view of business and from the point of view of prestige, it was felt that this was the best way in which we could help the industry at this moment. I am not going to say that that cuts out other help to the industry in other ways—that question does not arise on this Bill—but at any rate from both those points of view we felt we were justified in making this advance.

Both the noble Lord opposite and my noble friend raised the question of Government representation in the management of this merger company, and the noble Lord opposite quoted cases in which the Government had had direct representation on such boards. He quoted the Suez Canal Company, the Anglo Persian Oil Company and others. Really he proved his case in my favour, because he showed in regard to the Anglo-Persian Oil Company—and we know it equally applies to the Suez Canal Company—that there were Imperial interests, quite apart from the business side, to be considered. The Suez Canal Company of course owns a route to vast parts of our Empire which it was essential to maintain in the Imperial interest, and therefore it was necessary that the Government should be directly represented on the board of the company in order that that side should be kept constantly in view. Similarly in regard to the Anglo-Persian Oil Company, in which the Government invested directly in order to get an oil supply for the Navy. This is a different proposition. This is merely a business concern, not affecting the Imperial and the strategic side as these other companies do.

The noble Lord said: "We have of course considerable trust in the Cunard Company." Of course we have, but it is more than that. We feel that a board such as that which has been engaged in that traffic for many years is probably far more likely to make a financial success of the matter—and that is all we are interested in as a Government in this case—than we should be if we increased the board by putting on Government representatives. After all, unless they are experts on shipping matters they are not likely to be of any real value to the board. May I quote to the noble Lord what was said in another place by someone not entirely unknown to him, Mr. Kirkwood? He said this: One would think that the individuals who are running this business were apprentices. They are the most astute business men not only in this country but in the world, those men who are projecting this merger company; none more astute, none more capable. With a board of that kind, is it worth while to add one representative, or possibly two, as directors representing the Government? After all, they could be outvoted when it came to the point, and the Government felt that the control of this company was better maintained, without interfering with the actual running of the company, by having the conditions which the noble Lord quoted from the White Paper—that is to say, they are not entitled to raise any further money; they have to come to the Treasury for any change in the articles of association, and matters of that kind.

Then I think my noble friend raised the point as to how we were to keep in touch with the company. If he will examine the White Paper he will find that every year a balance sheet is to be made up of the amount due to the Government in regard to the second debentures and to the income debentures, and further that every three years there is to be a financial inspection by the Treasury to see what the position actually is.


I asked what day-to-day touch.


If it is day-to-day touch, that entails our going into the management of the company and really taking the part of directors of a shipping company. Now for the reasons I have given, the fact that these directors know far more about it than anybody in the Government service whom we should be able to appoint, we felt that the best method was not to go into the management of the company but to keep control of their financial operations. I think I have met all the questions that the two noble Lords put to me. I do not know whether I have convinced them, but I have hopes at any rate that they will feel that this is a good Bill and one that ought to be supported through all its stages.


My Lords, I only rise for a moment to say that we have listened with great attention to the noble Earl's explanation and replies to the questions put, and, knowing his skill, I was surprised at the end to find how weak his case was in arguing against a representative of the Government on the board. I do not want to go over that ground again, because I think our criticism has been put very ably by my noble friend behind me and endorsed by the noble Marquess opposite. But I do feel it is an important point and one upon which I believe that many of your Lordships would desire to say something, and indeed even to support us. Here is a large sum of Government money going to be invested in an enterprise which the noble Earl regards as certain to be successful. He takes a very rosy view, but it is an enterprise about which others are a little doubtful. The Government have decided to do this. They remind me very much of an obstinate man who refuses to give in, and at last, when he does give in, he gives in on the wrong point. They have refused money for public works, they have refused to invest money on very much more remunerative work that might have been undertaken in various parts of the country; but, being pressed very strongly, they decided that 9½ millions could be invested in this enterprise.

I do not think it is unreasonable on our part to ask that if this is going to be done—and we fully realise the amount of employment that will result—the Government should be represented on the board controlling this enterprise. The noble Earl referred to the Suez Canal and the Anglo-Persian Oil Company, but he did not say anything about the further instance which my noble friend behind me gave, which was that of the MacBrayne Shipping Company, where the Government had a representative. However skilled and necessarily acquainted with a very intricate and difficult business the directors of this board may be, I feel convinced that we have at the Board of Trade people who are perfectly well qualified to sit on the board and to watch the proceedings from the Government point of view. Therefore I am advising my noble friend behind me to raise this question once again by putting down an Amendment on the Committee stage, in which he will suggest that the Government should appoint a representative on the board.


My Lords, I do not wish to oppose the Second Reading of the Bill, but I desire to call attention to the one point that has been discussed considerably to-day, and on which I admit that I do not find that the noble Earl's reply is satisfactory. That is, why we are not to have a representative or representatives on the board of the company. I find that the answer that the noble Earl has given is quite unconvincing. He told us that the Suez Canal Company and the Anglo-Persian Oil Company were companies in which the Government had an interest apart altogether from the mere investment of the money; but that does not meet the point, because in this case there is to be a certain amount of control by the Treasury. I cannot for a moment think it satisfactory for the Treasury to be merely informed by the balance sheet what the position is from one year to another. It would be infinitely better for the Government, as the representatives of the taxpayers, to have representatives on the board who would be familiar with what is happening in the general business of the company. They would then be in a far better position to advise the Treasury as to what should be done.


The noble Marquess will realise that the interests of the Government and of the company in this case are identical—both of them are interested in making a profit; whereas in the other case there was the Imperial or strategic interest, which was not necessarily the same as the business interest.


I am not Sure that that is very convincing, because I have definite, recollections of sailing during the War at least three times, once on the Olympic, arid once on the Aquitania, carrying soldiers from America. I do not use that as an answer in this particular case, but it does show that these ships may become available for use in case we should unfortunately be involved again in war. But the noble Earl's answer in any case does not meet the point that we need to have somebody on the board who would be able to watch the interests of the Government. The noble Earl said that there would be representatives of the Services, but that is exactly what we do not want. They are not in as good a position to judge of the business as those men who give their whole time to it. What is necessary is to select those who have a knowledge of affairs, who are engaged in the business, and who are not officials of the Government, who would sit on the board and keep themselves acquainted with what is happening. I do not want to press this point at the moment, but I would ask the noble Earl to consider it, and I suggest that they should give more attention to the possibility of selecting someone to represent them from among those who are specially familiar with the shipping business and with commercial business. I ask the Government to give further consideration to this matter, so that when we come to the Committee stage it may be dealt with on rather different lines.

On Question, Bill read 2a, and committed to a Committee of the Whole House.

House adjourned during pleasure; and resumed by the Lord Chancellor.