§ 5.13 p.m.
§ LORD MERRIVALE rose to draw attention to the problems of the electrical industry; and to move for Papers. The noble Lord said: My Lords, at the outset I think I should mention that I have no interest to declare with regard to the electrical industry. I say this because in the past I have raised the question of electricity in traction, or the question of electrical forms of traction, several times in your Lordships' House. But to-day I should like to raise a wider issue—that of the industry's position in our national economy, as well as certain of its problems. It is one of our key industries, supplying a diversity of products, ranging from electric switches and electronic controls to a nuclear power station. The British Electrical and Allied Manufacturers Association's export catalogue lists over 1,000 different products.
§ I think the importance of the electrical industry in this country can be assessed in the following figures. The total output value last year of the industry was in excess of £1,600 million. The number of workers employed is nearly 800,000, which is some 9 per cent. of the total employment in this country's manufacturing industries, whilst exports last year reached the figure of £293.4 million—that is, over 10 per cent. of our total exports in manufactured goods. Over the last eight years, more than £2,000 million of British electrical products have been sold overseas. In research, it spent £33 million in 1955, and in 1958 the figure rose to £64 million. Those figures do not include research undertaken by the Central Electricity Generating Board. It is the largest industrial employer of scientists 1119 and technicians. In 1959, 13,380 qualified scientists and engineers were employed, and in 1960 a survey showed that for every scientist or engineer, the industry employed four technicians. The figure of 13,380 scientists and engineers represents 21 per cent. of the total in the manufacturing industry.
Electrical manufacture has a high technological content, and there is still a need for more qualified personnel. Apart from the large sums that have to be spent on research and development there is a need, too, for considerable capital expenditure if we are to maintain our technical lead. To achieve this, in certain highly technical fields the manufacturers are dependent upon experience gained at home in the development and application of new and advanced designs, for instance with regard to power station plant. On the other hand, any pressure on profit margins, which can occur when one is dealing with only one or two large and important concerns, can, or may, hamper the industry's necessary research and capital investment programmes. In turn, the industry's low profit margins may affect its ability to subsidise, in effect, its export prices with a view to remaining competitive in world markets.
With regard to exports, as our nationalised electricity and transport undertakings are the only home customers for certain types of equipment, your Lordships will appreciate the effect their programmes can have on the export prospects of that sector of the electrical industry. Your Lordships are certainly well aware of the reappraisal of the nuclear power programme, and of the uncertainty prevailing with regard to the railway electrification programme. The nuclear power programme was initially set out in the 1955 White Paper, Cmd. 9389, expanded in 1957, Cmnd. 132, and again modified in 1960, Cmnd. 1083. The first Central Electricity Generating Board Report and Accounts, in paragraph 25, rightly says that
changes in the Board's construction programmes are bound to affect the industries concerned and ultimately their organisation if the changes are sufficiently far-reaching.
Their last Report and Accounts goes on to say, in paragraph 33, that
flexibility in the nuclear programme is only available in long-term planning and that to
draw attention to the scope for flexibility in the long run is not to imply that frequent revisions are desirable or indeed possible.
The latter refers to the balance between nuclear and coal-fired plant, but it would apply equally well to the question of the growing size of reactors.
These capital investment programmes of the nationalised industries are also varied from time to time, as your Lordships are well aware, by Her Majesty's Government as a means of regulating the economic system. Another means lies in variations in hire purchase controls. But these variations in Government policy have caused uncertainty in the industry and compelled hasty readjustments of production and planning, which lead to increased production costs and may lead to inefficiency and also to strained labour relations. These variations can also seriously affect our exports, for the manufacturers are dependent on a successful and stable home market. With regard to railway equipment and generating plant, the manufacturers are largely dependent on the activities of the nationalised industries, and higher efficiencies are dependent on technical advances. Last year 36 per cent. (in capacity) of the turbo-generating plant produced in this country was despatched overseas.
Looking to the future with regard to railway electrical equipment, one finds that prospects exist over the next few years for approximately £190 million of overseas business. One further good sign is that there seems to be a growing recognition by manufacturers and the nationalised industries that in present world conditions co-operation between all sectors of the industry is essential for a really effective export drive. I might insist, en passant, that such products are an ideal form of British export endeavour as they are mainly of a technical and highly developed nature. The Government's policy is, as your Lordships are well aware, to promote an economic growth at a pace dictated by the need to maintain a rough balance between supply and demand, and I would recognise the need for economic controls at a period when demand tends to increase at a faster rate than our available resources. But some are very discriminatory, and I am particularly thinking of hire purchase controls, for on overall consumption they act to a very limited extent whilst acting to a very marked degree, and very 1121 quickly, too, on a narrow sector of our economic activity.
I should like to show this by referring to a few figures. In 1959, a boom-year with regard to electrical domestic appliances and so forth, total consumer expenditure was £15,715 million, whilst consumer expenditure on electrical goods and appliances, furniture and cars was only £1,301 million—that is, 8 per cent. only of the total. In April, 1960, the Government reintroduced hire purchase controls, and if one considers the following six months' period, for instance, compared with the same period in 1959, one sees that total consumer expenditure rose by 5 per cent. whilst consumer expenditure on electrical goods and appliances fell 13 per cent. It fell only 13 per cent. because consumers switched their demand from heavier types of electrical appliances to lighter types such as electric irons, kettles and so on, for the consumer demand for vacuum cleaners, for instance, fell by 33 per cent., and for washing machines 37 per cent. I am sorry to weary your Lordships with these details, but I should like to stress this point of how it affects that part of the industry.
I should now like to show the effect that the lack of stability of the hire purchase plan has had, or does have, on exports and imports (in other words, on our balance of payments) so far as electrical appliances are concerned. With regard to refrigerators, in 1959, the boom-year for that kind of expenditure, exports fell to 95,000 from 126,000 in 1958. On the other hand, imports rose from 2,000 in 1958 to 125,000 in 1959. In other words, foreign manufacturers cashed in on the high peak of the market. This high peak followed an artificially created period of depressed demand in 1956–57, so that manufacturers were unable to cope with the peak, which had the effect, too, that some manufacturers tended to divert some of their exports to the home market.
I should like to go back only as far as February, 1955, when hire purchase controls were again reintroduced. There have been since that date many variations in hire purchase controls: in July of the same year, in February, 1956, in September, 1958, and again in October, 1958, when they were once more removed. As I said earlier on, a boom-period followed, and in April, 1960, 1122 controls were reintroduced, with a deposit of 20 per cent. and a two-year repayment period. The repayment period is now three years, but that change from two years to three years has had no effect whatsoever on demand with regard to the domestic appliances sector of the industry. Since 1955, there has been a steady increase in total consumer expenditure.
I must say that I think ray noble friend Lord St. Oswald would be horrified if he could see against that picture the jagged curve of demand during 1955 for the heavier type of electrical domestic appliance. The graph, which is available in the Printed Paper Office, shows high peaks and low troughs. There would seem to be strong ground for a stabilised hire-purchase plan which would be allowed to operate for a reasonable period with minimum variation. Suitable terms for the domestic appliance industry would be an initial deposit of 10 per cent. and a three-year repayment period. With this there would still remain a stabilising influence on demand, but the industry could expand on solid foundations with rational planning and development. I think that this climate of confidence within the industry would assist towards greater efforts for expanding our exports.
§ LORD LATHAM
My Lords, would the noble Lord excuse my interrupting? With regard to the 10 per cent. and the period of three years to which he referred, are they both approved by the industry generally?
§ LORD MERRIVALE
My Lords, they are approved by the domestic appliance industry. I did not ask for a change with regard to the motor-car industry. At the moment I am concerned purely with hire-purchase controls which affect the durable form of consumer goods made by the electrical industry.
§ LORD MERRIVALE
Yes. With a higher deposit than 10 per cent. the demand is artifically depressed to a level which is detrimental to the normal development and expansion of the industry.
It must be remembered that the electrical industry is one of the most important "growth" industries on which 1123 Britain's future prosperity depends. I would therefore humbly suggest that the industry deserves special consideration by Her Majesty's Government, for this country needs an efficient and prosperous electrical industry. It has proved its vitality by a rapid rate of technical advance and also by improved productivity. There is a danger, too, that instability in the fields of electrical power generation, railway electrification and domestic appliances, combined with any tendency to exert pressure on profit margins, may hamper the industry's research and capital investment programme.
In conclusion, I would ask Her Majesty's Government (I am speaking of the home market) to consider effectively stabilising their hire-purchase controls at a level and for a period of time consistent with the normal development and expansion of the industry. I would also ask them to bear very much in mind the effect that pressure on profit margins can have on the industry's research and capital investment programme.
§ LORD LATHAM
My Lords, I am sorry to interrupt the noble Lord again, but would he elaborate somewhat on what he means by "pressure on profit margins"? Pressure from whom, and by what means?
§ LORD MERRIVALE
There can be a certain pressure—I am not saying there is—on profit margins when, with regard to certain sectors of the industry or certain equipment, they are supplying on the home market only one or two large and important customers. Does that answer the noble Lord's point?
§ LORD MERRIVALE
It could do. As I said, it could hamper the capital investment programme, and also it may have the effect of hampering the industry's capacity to subsidise export prices with a view to remaining competitive in world markets. Finally, I would urge Her Majesty's Government to initiate consultation, with a view to setting up an organisation similar to the United Kingdom Railway Advisory Service, which would group the Central Electricity Generating Board, the Board of 1124 Trade and the industry, for the purpose of giving advice to those countries requiring it on matters affecting power stations and generating plant—in other words, power supply installations, including transmission. My Lords, I beg to move for Papers.
§ 5.37 p.m.
§ LORD CITRINE
My Lords, this morning I attended an electrical exhibition at Earl's Court. In some respects that exhibition was unique; no members of the public were admitted. But it constituted what I heard described as the biggest trade show that had ever been held in London, and, if not the biggest, one of the biggest electrical exhibitions that have been held in the world. I was most interested to see the number of overseas buyers who were clearly interested in the many products on view, which covered the whole of the electrical industry and its many ramifications. Some 460 leading manufacturers had exhibits there. It was unique in this sense, too; that it was sponsored by a registered trade union.
I have said that because I wanted to lead up to a characteristic of the electrical industry which is quite highly developed—I mean, the spirit of co-operation which exists among its many different units, including the trade unions. It is the habit in that industry for all the different sections to collaborate together and to face their common problems. Some of your Lordships will be aware that every year there is held what is called the British Electrical Power Convention, which represents some twenty-four associations covering every conceivable type of electrical activity. Again, the trade unions are regularly represented at the Convention, which usually attracts nearly 1,000 delegates. Among the presidents of that Convention have been Members of your Lordships' House. The distinguished guests have included a Prime Minister and several Ministers, including almost every Minister of Power. The themes at the Convention are not technical. There is a certain amount that has to be technical but, in the broad sense, the themes are of general national interest. Far example, in the last four years the themes have been: "Electricity in the national economy"; "Electricity and world 1125 progress—Britain's contribution"; "Electricity: its contribution to the standard of living"; and "Electricity—the new horizon", covering manufacture, supply, export and electricity in the home.
From what I have said, your Lordships will see that this industry, with its close co-operation, is in the habit of trying to fit itself into the national setting and, indeed, the world setting. It is very conscious of its public responsibility. It has taken voluntary steps far beyond any legislative compulsion to ensure the safety and efficiency of its products; and some of your Lordships will remember that the Molony Committee commended the electricity industry generally on the care it had taken to ensure that its products in the domestic sphere in particular, were safe and could be handled without danger. Recently a new body was inaugurated—the British Electrical Approvals Board. That Board has already got to work and is type-testing different kinds of domestic products and, again, trying to show the ordinary householder what products she can safely purchase with some confidence as to their reliability, efficiency and safety.
The noble Lord, Lord Merrivale, has already referred to the importance of the industry in the national economy, and he spoke of the manufacturing industry, with which we are primarily concerned here to-day, as employing 800,000 people. I suppose if we talked of the electricity industry as a whole we should add the 200,000 who are employed in electrical supply in the United Kingdom. That makes one million people who directly have their livelihood in this virile industry. As many of your Lordships know, I am connected, in a part-time capacity, with the supply industry; but that industry and the manufacturing section are so closely interdependent upon one another that it would be unthinkable if we were to regard ourselves on the one side, as the nationalised Boards, as operating one policy, and privately owned companies operating another. We try to subordinate, so far as we can, any differences of view on that point and to collaborate in the general interest of the public.
Last year the manufacturing industry delivered 5,146 megawatts (or 5 million kilowatts, to put it in more common terminology) of electrical plant. That is 1126 nearly double the amount supplied to the Central Electricity Generating Board, but of course there are other public bodies in this country, such as the Scottish Boards and, of course, the Atomic Energy Authority; and much of the smaller plant is still used in private industry to generate electricity. Much of that production went to the Commonwealth—in fact, while I was in Australia and New Zealand some two years ago, I had the pleasure of seeing much of our electrical plant being installed there. I might add that I was somewhat concerned when I saw other instances of plant made on the Continent of Europe, and civil engineering firms from the United States being employed on work which I thought could quite well have been undertaken by our own British firms.
The noble Lord, Lord Merrivale, has talked of the heavy cost of research in the industry and, of course, it is axiomatic that, by and large, the industry that makes considerable expenditure on research is a healthy and vigorous body. It does not always follow that the spending of millions on research automatically produces immediate results, but, broadly speaking, those industries which starve themselves of research are usually not at the highest point of efficiency. I think it probable that the electrical manufacturing industry spends more upon research than any other industry in this country. It is true that aviation spends a larger nominal sum, but it is sponsored research and not research paid for directly out of the proceeds of the industry itself. I should not like to venture a figure as to the cost of research and development in the nuclear field. We have, on the one side, the Atomic Energy Authority, which is largely, but not quite exclusively, a research organisation; and on the other hand we have the large electrical companies who, faced with this new type of generation, have necessarily had to spend their millions in furthering their technique.
I have read that if the nuclear programme proceeds at its present pace and is not enlarged, it may be that by 1965 or 1970 some 30 per cent. of the industry's resources will be spent upon nuclear research. From what I have said, and what has been said by the noble Lord, Lord Merrivale, I feel that we can reasonably claim that the electricity-manufacturing industry, like the supply side, 1127 is a progressive industry. It is dealing with an indispensable agency. In my days as Chairman of the British Electricity Authority, I used to be amused to hear the rather stifling murmurs from time to time from the Treasury about our reaching saturation point, the point where the demand would rapidly fall off because everybody's requirements for electricity would have been met. That is equivalent to saying there is a limit to human demands. Although I do not expect to live to be as old as Methuselah is reputed to have been, I do not believe that that result is likely to occur.
It is an agency which has immensely improved the standard of living of our people in all kinds of directions, as well as in indirect ways. The domestic standard, for example, in the post-war period has been almost revolutionised by the extended use of electricity. It is commonly known that the consumption of electricity doubles itself every ten years. But that is not completely automatic. That result is attained by a great deal of effort on the part of those connected with the industry. It is, of course, a planned industry. I do not know whether I have previously said this, but if I have I hope your Lordships will excuse my repeating it. One of the happiest experiences I had when I became Chairman of the British Electricity Authority was to find that, working behind the scenes, there was a small committee looking ahead to 1970 as to the probable development of the industry, and the means of meeting the anticipated demand.
I know, and it has been shown so many times in discussion, that Her Majesty's Government do not like planning. They have a healthy British dislike of looking too far ahead. Our characteristic is supposed to be our genius for improvisation. I believe that in modern circumstances something more than that is necessary for economic survival. But I realise quite well the limitations of planning. I know that planning may be upset by events which could not be brought into contemplation when the planning was entered upon. And I think it can be said without acerbity that our present Government, to say the least, have done a good deal of upsetting of well-laid plans in the electrical industry as a whole. We have 1128 had the credit squeeze, the changes in the bank rate, and the seven changes in hire-purchase restrictions since 1955, which were referred to by the noble Lord, Lord Merrivale. We have had cuts in capital investment; we have had attempts to impose upon industry, publicly owned industry, an annual programme of capital development, which is an utter impossibility. We have had a slowing down of the nuclear programme, with quite disastrous results to particular companies.
I know perfectly well that some of these things have been inescapable in our economy. Circumstances have arisen in connection with the balance of payments and that sort of thing; a measure of inflation has been going on and I understand quite well the perplexity of a Government dealing with those problems and the tendency to use expedients rather than a well-planned policy. But I am bound to say that in this sphere—railway electrification, for example, comes as the most recent experience—it makes planning impossible. Long-range planning, in the sense of companies expanding their works, and employing additional people, administrative staff, scientists, technicians and all that sort of thing, involves overheads that cannot very quickly be got rid of. It raises all sorts of human problems, too, that I think most decent employers would not wish to encounter.
I think it is possible that there might be scope for some form of closer collaboration in respect of estimating the growth of the electrical supply industry. The supply side has to estimate for a number of years ahead the probable growth in electrical demand. But I am not at this moment quite clear in my mind just how close is the collaboration with the manufacturers in providing the generators and alternators and all the other apparatus to meet that demand. There may be some room for improvement there. The noble Lord, Lord Merrivale, has told us that electrical manufacturing is one of the largest of the exporters. That is perfectly true. There was an £8 million increase on the export credit side in 1960. But he has reminded your Lordships—and I hope that you will not lose sight of the fact—that there was a £14 million increase in electrical imports. I am very sorry to see 1129 that, because, without saying that all apparatus that comes from abroad has the soiled reputation that "Made in Germany" used to have before the war, at the same time I prefer the durability of the British products.
The Association of the manufacturers, which is commonly called B.E.A.M.A.—the British Electrical and Allied Manufacturers' Association—has made strenuous efforts in this field; and I venture to suggest that if these efforts had been made on the same scale and with the same intensity in other industries, this country would be in a very much stronger exporting position than it is to-day. I see that they have run a series of study courses on the Structure of Industry, apparently an elementary thing. But for whom have these courses been designed? They have been designed for British consular officials, our marketing officials attached to the various Embassies abroad, so that they can be thoroughly familiar with just what the problems are and the means of meeting the problem of exports.
I believe that some 250 commercial and consular officials have attended the Head Office of this organisation, B.E.A.M.A., to study that matter. They have made a most intensive study of the Common Market. I have seen that study. It was compiled by an economist of standing, and anyone can see from reading that what a grim struggle there is going to be ahead of us in trying to out-distance the competitors who are members of the Common Market. France and Germany have improved their electrical position very substantially indeed. Germany, in fact, is exporting about 11 per cent. of her products to the British Commonwealth. That is something which I regret to see. I do not know whether it is commonly known that the Secretariat of the Common Market number some 1,600 people: 1,600 people working away all the time, quite properly, to see how they can strengthen this association of the nations that form the Common Market. I will not go any further in that direction, in view of the debate that is to take place to-morrow. I know that we shall then be concentrating upon exports, and I will not push the point beyond that. But I repeat what has been said by the noble Lord, Lord Merrivale: that in order to have an effective, competitive industry able to hold its own in the ex- 1130 port market we must have a wide and expanding home market.
I see that the President of the Board of Trade said, not in another place but outside it, that the home market depends on exports without which there could be no stable home market, and the best way to stabilise the home market was to have the push and go of a good world export trade. That phrase can probably be justified. If we did not import we should not have food, and we should not have raw materials to the extent we need them. That statement is subject to qualification, but everybody knows that we cannot feed ourselves as a country. I can quite see the logic behind that statement. But, really, it is reversing things and putting the cart before the horse. You must cover your overheads in large-scale production on your home market in order to compete effectively in exports. That is such an elementary point that I am sure it will be brought out by some of those who will speak in the debate to-morrow. In view of what has been said I will not extend that point to-day.
I am pleased to say that I think I can discern in a public reference I saw some days ago attributed to the President of the Board of Trade that he has some sympathy with the manufacturers at the absence of stability there has been during these recent years. Naturally he cannot pledge the Government, and I do not expect that anybody here could pledge the Government, as to what is going to happen in regard to our financial and economic policy. That is a matter for decision in a few weeks' time. But I am quite certain that the debate which took place in this House on the Address in reply to the gracious Speech showed that there was a very great disturbance of mind on the part of many taking part about the economic policy which we had been pursuing in this country in recent years. I know that the Government are anxious to help the exporting industries. I am perfectly certain that they are sincere in that purpose, and they are doing quite a lot to try to stimulate the various Government agencies and keep them on their toes. But I only hope that in the weeks that are to come they will do something even more tangible to help the country's industries, and particularly the electrical industry, in the export market.
§ 6.0 p.m.
§ LORD STONHAM
My Lords, we are indebted to the noble Lord, Lord Merrivale, both for introducing this subject and for the factual and fair way he has presented his case, and for the large number of convincing figures that he has given in support of it. It has also given us the opportunity to hear my noble friend Lord Citrine give us a comprehensive and encouraging account of the cooperation between the supply side of the industry, publicly owned, and the electrical equipment side, privately owned. I was very pleased indeed to hear his well-deserved tribute to B.E.A.M.A., quite an extraordinary trade association which this year, I believe, enjoys its Golden Jubilee. I fully agreed with the noble Lord, Lord Merrivale, except for one point. He asked the Government to give special consideration to this industry. I would submit, my Lords, that this industry does not need special consideration: it wants sensible treatment. I am quite sure that the noble Lord, Lord Merrivale, would not regard it as being special for this Government to give any industry sensible treatment—and that is precisely what the electrical industry wants.
To-morrow, as my noble friend has mentioned, Lord Bessborough hopes to persuade the Government to mount a national crusade to make the people of Britain more export-conscious. That is a very worthy objective, but there is no need whatever for a crusade of that kind in the electrical industry. Their biggest problem is to persuade the Government to get out of the way. The report of the industry, to which I have just referred, makes it clear that their biggest job, in fact, is to persuade the Government not senselessly and arbitrarily to halt their development and progress and thus cripple their ability to export. Here, I must entirely agree with my noble friend Lord Citrine that it is impossible to tell an industry of this kind, with the tremendous amount of capital expenditure and planning that is needed, to start with your exports and then come back and look after the home market. They must start with a base here.
This is a most important industry. It is a comparatively new, vital, "growth" industry, with all those 800,000 employees and over one-tenth of our total exports of manufactured goods. As 1132 it seems to me, the Government takes a look at this growth, this prosperity, this enterprise, and says, "This won't do. We'll soon put a stop to that"; and so they make the electrical industry their target, almost their first target, for the application of the "Stop-go-stop" technique which has been developed so disastrously by successive Tory Chancellors of the Exchequer. Now, as my noble friend Lord Citrine made so clear, this industry is not "feather-bedded", and does not need price support or tariff protection.
The noble Lord mentioned the expenditure of £64 million on research, and my noble friend compared that with the cost of research in the aircraft industry. What my noble friend refrained from saying was this: that if the aircraft industry, with its sponsored research, says, "We need £1 million for research into (shall we say?) Sea Slug", and, at the end of the day, it costs £46 million, then we, the taxpayers, pay that; but if the members of B.E.A.M.A. go above their estimate, then it comes out of their pockets, out of the overheads of the industry.
All this industry is asking for is that the Government should create stable conditions. It also asks for the approving of and the adherence to long-term investment programmes—programmes fixed and adhered to for five years ahead. In railway electrification they are still fixed for only one year ahead—indeed, I do not even know that at the moment they are fixed as far ahead as that. They should be fixed in that way so that the factories can be built, the machinery installed and production lines operated on something like their capacity basis. It is only in this way that an industry of this kind, of this size, can compete on fair terms with its overseas competitors. It seems that these are conditions little enough to ask the Government to provide, but it is a request which has never yet been granted. Indeed, it would seem to me at times that if the Government had decided deliberately (and I know they have not) to set themselves to disrupt this industry as much as possible, they could scarcely have done more damage than they have done over the last few years.
It has already been mentioned that there is the closest identity of interests 1133 between the manufacturers of heavy electrical equipment and the nationalised electricity supply and transport undertakings, and I was very happy to hear from my noble friend Lord Citrine of the constant efforts which are being made to improve that co-operation. Over the last few years the Government have approved major capital expansion programmes, and the contracts have been placed. Then Whitehall has changed its mind: and the axe has fallen. Thus, the nuclear programme, effectively, has been halved, and the railway electrification programme has been held up a long time. It is true that the London—Manchester line plan is now going to he carried through, but nobody knows yet what is going to happen about the remainder of railway electrification. There are enormous losses caused by changes of this kind. It is all very well saying, as my noble friend Lord Citrine, in his generosity, has said, that some of these things are unavoidable. In my opinion, they are avoidable if the thing is properly planned and properly thought-out beforehand. In railway electrification alone over the last few years, £5 million has been spent on research—that is, £15 million on research, in that one single department; and there has been a tremendous amount of other expenditure.
My Lords, the losses and the frustration, the stopping and the starting, and all the consequent misfortunes, are not confined to the home market. These losses affect our exports, too; and, in my view, the right honourable gentleman the Minister of Transport has done real damage to our electrical trade overseas through this policy. As has already been said, I think by the noble Lord, Lord Merrivale, there is a potential market in railway electrification goods amounting to some £190 million, and that is a market which we ought to be well placed to capture. In this section, of course—the heavy electrical goods section—the industry is almost entirely dependent on the orders from the nationalised undertakings, because, by the very reason of things, they are the sole buyers. There is no alternative home market, and without a good basic home demand it is virtually useless to think of exports. If, therefore, the Government really want to help this industry to export, they must find some other way of remedying their mistakes 1134 in financial policy; and, once they have approved a capital programme, they should stick to it. They should also give a firm assurance (I do not think this point has been touched on yet) that they will not again place the supply of electricity in jeopardy.
One of the most certain things in this uncertain world, as has been well illustrated by my noble friend, is that the demand for electrical power is increasing and will go on increasing; and the Electricity Board plans to meet that increased demand with their short and long-term plans. But the Government's restrictions, and the changes in the capital programme, have left the margin between supply and peak demand very narrow indeed. If, because of this, there should be any power cuts, there will be some very red faces in Whitehall, and some very angry ones among the manufacturers and domestic consumers if they are denied the supply that they were led to believe they could count on. And, of course, it would be another serious and quite undeserved set-back for the manufacturers of electrical equipment.
The other section which has suffered so bitterly from the Government's policy is, of course, that section of the industry manufacturing domestic capital equipment, the consumer durables, such as refrigerators and washing machines. As we all know, a very high proportion of these are sold on hire purchase, I would say at once that I am very strongly opposed to any form of no-deposit credit trading. I think there should always be, in this kind of trading, an initial deposit. Indeed, experience in the electrical industry has shown that an initial deposit has little effect on the long-term demand for appliances, because there is a steadily rising tide of demand, which obviously accounts for the increase in the demand for electricity, and the rise in the demand for appliances is never seriously checked by normal trade fluctuations.
Unfortunately, all the changes have been sudden, artificial, and damaging, caused by variations in Government policy. Since February, 1955, there have been no fewer than nine changes in the hire purchase deposit terms for electrical goods. Anyone who has actively concerned himself in any industry which sells goods affected by hire purchase has some idea of what that means. You 1135 have planned for a certain level of demand under conditions which are existing, and, so far as you know, are going to continue to exist. Your lines are operating; your workpeople are employed; your markets and your customers are there for those goods, at certain prices; your salesmen are out; your catalogues are printed; your export arrangements are made. Then suddenly, at a quarter to four in the afternoon, you get a telephone call and you find that all these conditions are changed—arbitrarily changed. It is nothing to do with you at all. That has happened nine times since February, 1955, and changes have been made from nothing to 33⅓ per cent. initial deposit. Really, I think it is quite unpardonable. I know it does not apply merely to refrigerators and washing machines; it applies also to furniture, motor cars, and all sorts of things. But I repeat, nine times since the beginning of 1955 has that happened. I would say that the most disastrous change was in 1958 when, in preparation for the 1959 Election, the initial deposit was removed altogether. Yes; that sort of thing enters into it.
§ LORD STONHAM
Indeed, it was a wicked thing, and it has also been done in agriculture and other industries. It was done for political reasons. All hire purchase restrictions were removed, and that, of course, released a flood of demand which, for a time, exceeded home supplies. It also opened the door to a flood of imports. Then, after demand had passed its peak, the Government put back an initial deposit of 20 per cent. What were the results? One result was a drop of 40 per cent. in home demand, with firms manufacturing on a large scale, at that pressure, and with that kind of outlay. We had all the misery of over-production, sackings and short-time working. My noble friend Lord Latham spoke of pressure on profit margins. If you are operating at 90 per cent., 95 per cent., or even 100 per cent. capacity, you work out your prices accordingly. Then, suddenly, you get orders for only six-tenths of your production, and it may well be that in order to keep certain production 1136 lines going you have to accept orders virtually at an uneconomic price. But in addition, we had this flood of imports. The noble Lord, Lord Merrivale, pointed to the extraordinary rise in one year of from 2,000 to 125,000 washing machines.
§ LORD STONHAM
I beg the noble Lord's pardon. That makes it worse, because they are twice the price of a washing machine. It also coincided with a reduction in the import duty on those commodities.
Now, my Lords, am I not justified in saying that if the Government had deliberately designed to do all they possibly could to disrupt and cripple this industry, they could not have done more? The imported appliances still clutter the shops; they cannot sell them. And last year there was an increase in imports of £14 million worth of these goods. For that situation the Government are entirely responsible. It is all very well to say that they had to do this kind of thing to this industry. What a way to run a country, and what a way to hamper an industry—all to no useful purpose! I think it must be accepted by anyone who is fair, reasonably-minded and unbiased that the arbitrary use of hire purchase restrictions on selected industries with a narrow front, as an instrument of fiscal policy, is totally unjustified and must surely be abandoned. Why pick out particular industries simply because they are growth industries? They are the very industries on which we mainly depend to balance our overseas payments account. But when you are in a little trouble, to pick on them as being the readiest ones to get you out of the trouble which false financial policy has created is only making matters worse, and it becomes a vicious circle.
I hope the noble Lord, Lord St. Oswald, will give some indication that these industries will not, in future, he selected in this way. I hope he will submit to his right honourable friend that two things must be done: first, that the initial deposit should be reduced to 10 per cent.; and that the Government will give an assurance that conditions will not be altered for some time ahead—and I would say for some years ahead. Let 1137 us not be mealy-mouthed about it. This industry wants five years in which to plan, if it is going to go progressively on and play its full rôle in our country and its exports. I submit that this reduction to 10 per cent as an initial deposit is necessary to increase basic home demand to a level which will ensure the most efficient production and thus enable us to be fully competitive overseas. Given stability in credit controls, this growth industry can design for high-volume production, with the advantages of forward planning and extensive tooling. Research development can be carried out on a scale which is impossible under low-volume conditions, and new techniques can be developed.
The industry has proved its quality. It has fought back. One proof of this is that West Germany, one of the toughest markets in Europe, is our biggest single export market for washing machines. I do not think you would want any more proof of the quality of this industry. The total exports of domestic appliances last year increased by 27 per cent. That is an extraordinary achievement; but it requires new factories, special tooling, and heavy capital outlay. That is one of the factors in the turnover increase, of which I have no doubt the noble Lord, Lord St. Oswald, will tell us. He will say that, despite all these dreadful things, this industry has managed to increase its total turnover on the year by 7 or 8 per cent. I would say to the noble Lord, Lord St. Oswald, that it ought not to be the case that an industry increases despite the worst that the Government can do. It ought to be the case of an industry increasing to a spectacular extent because of the assistance which the Government have: been able to afford.
I say that this is an efficient, progressive industry, and if the Government will not help these basic industries, they should not hinder. We are only at the beginning—I think my noble friend Lord Citrine will agree with this—of a great electrical development in this country. If this industry can have the certainty of a steadily expanding home market and of wholehearted technical and commercial co-operation with the electricity supply industry, then it will meet and beat world competition and build a large and expanding export trade.
§ 6.20 p.m.
LORD ST. OSWALD
My Lords, I should like to thank my noble friend Lord Merrivale for putting down this debate and all three noble Lords who have spoken, with their great knowledge and experience, on this important subject. I say at once that I agree with a great deal the three noble Lords have said. Anyone who has learned the smallest amount, the amount I have been able to learn rather intensively during the last ten days, about the electrical engineering industry is bound to admire the enterprise and determination which all those engaged in it—directors, engineers, scientists and craftsmen—have demonstrated.
As noble Lords have said, it is among our major industrial assets. That is reflected in the figures for output and exports quoted at the beginning by my noble friend. No industry can achieve those results by standing still. In many respects, the industry has been moving not merely with the times but ahead of the times and leading the rest of the world. Although my noble friend Lord Merrivale painted this same picture with appreciative strokes, he did not, I thought, describe it as the confident industry which I believe it is. I would say that it was confident but not complacent. In an age of global revolution—in this case, technological revolution—no national industry can afford to be complacent, and no national industry can advance, or even survive, without certain difficulties. The industries of other nations are grappling with broadly the same problems. They are having their ups and downs, as we are. Our own electrical industry, which is under discussion to-day, is showing a resilience and enterprise which merits success. What noble Lords have asked is whether Her Majesty's Government are doing enough to hearten and strengthen that enterprise, whether we are doing as much as other Governments are doing for their enterprises in other countries.
What the noble Lord, Lord Stonham, suggested, in his closing words, was that the success that has been achieved was achieved despite the Government's efforts, rather than through them. That is an impression which I hope to dispel before I sit down. The current problems are various, as noble Lords have-described; and they affect different 1139 branches of the industry, sometimes overlapping, sometimes individual to a particular branch. For that reason, I have found it very difficult to answer this debate, either as a series of problems or as a whole, and I can only hope that your Lordships will be able to follow me as I pick my way through the varied problems.
My noble friend Lord Merrivale spoke of the tribulations of the manufacturers of generating plant, due to their dependence on a largely monopoly customer, the C.E.G.B., so far as the home market is concerned. It can be, and has been, argued that the existence of the largest single integrated power system in the world may be a mixed blessing for the manufacturers, but it can hardly be seen as an unrelieved affliction. It has enabled this country to instal very large units of plant, some of the largest in the world, of a highly advanced design and performance, and to embark on the largest nuclear power development scheme in the world. Although, as noble Lords have said, it has had to be cut back in recent years, it is, nevertheless, still the largest in the world. These are superlatives, but they are superlatives that stand up to inspection. The plant manufacturers, of course, have played a part, perhaps an essential part, in this, and noble Lords have implied that they have suffered for it.
How have they suffered for it? It is true that orders for big units of power plant come out at longer intervals than formerly, producing a less even spread of work in the industry and interrupting to some degree the continuity of production. Also, the big units involve less manufacturing per kilowatt than the smaller units provide. In certain cases this, has had the result that in a given order, although the number of kilowatts of generating capacity is greater than in earlier orders, the plant manufacturers are left with spare resources which they cannot easily divert to other purposes. This leaves out of account the fact that the value of the contracts has risen two or three times over the past ten years. It has also been suggested that concentration on these new giant generating plants takes the manufacturers out of the export market, or at least hinders them in that market, since other non-manufacturing countries, potential customers, are unlikely to require such huge plants. I do not think that that argument was 1140 propounded to-day but I have heard it used outside your Lordships' House. I am glad that it was not pressed, because, frankly, it does not in the least convince me. In the first place, when their economic advantages are proved in action, small countries may want these big, plants just as much or more than we do. Already we know that they are saleable overseas.
Eighteen months ago one British firm obtained an order for a 500 megawatt generator for the Tennessee Valley Authority. Other large plants have been ordered in North America. I have been told by those within the industry that they look forward to excellent prospects for these big sets in the export market. The task they have been set by the C.E.G.B. has enabled our firms to become specialists in three fields; the very large generating sets, the super-critical power stations and nuclear power stations, three fields in which there is a minimum of competition. For instance, only two firms in U.S.A. are capable of building the 500 megawatt sets. Moreover, some of the leaders of the industry have spoken to me in most appreciative terms of the C.E.G.B., describing it asan understanding operator—knowing well how much research and development costs, and taking it fully into account".My Lords, that is a direct quote from an interview with a senior member of the industry.
My noble friend Lord Merrivale has spoken of falling margins of profit, and it is true that over the past years profits have fallen from 10 per cent. to 6 per cent.—but there are some other industries who would not complain of 6 per cent., and to give special consideration to the electrical engineering industry on that account alone would I think, be hard to justify. It is right, of course, to point out that it is an adventurous industry, sinking large sums in research and development. In 1958, expenditure on research and development in this industry equalled 9.8 per cent. of the industry's net output, and in the electronics industry the figure was 11.9 per cent. The average for all United Kingdom manufacturing industries was 3.8 percent. Such courageous investment deserves success. But what is most important is that the outlook for the years ahead is good. One firm has at this moment an order book of 4,500 megawatts spread over the next three or four 1141 years; the needs of the country have lately been doubling over a ten-year period, and the indications are that this expansion is likely to go up still faster.
In 1960, the consumption of electricity in England and Wales was over 13 per cent. higher than in the year before, and domestic consumption went up by nearly 16 per cent. That happened in spite of the fact that both ends of the year were part of mild winters, which might have been expected to some extent to counteract consumption. And as an example of how one isolated factor can affect consumption, I am told that on the night of the General Election, October 8, 1959, 8,700 megawatts were being used in England and Wales, compared to 6,600 megawatts at midnight the previous date, due to the television sets being switched on, cups of tea being made and people sitting by their firesides. I mention that only as an indication of how difficult it is sometimes to judge requirements from year to year.
The Board co-operates very closely with the manufacturers, keeping them informed of the size and composition of future programmes and periodic revisions. An annual meeting is held between the members of the Board and the representatives of the plant manufacturers. The great size of the new equipment and the high development costs is leading the companies to pool their resources and adapt themselves to meet changing conditions of the market which have emerged over the past three years, by mergers and other forms of collaboration. In the last two years the number of firms tendering for large boilers has been reduced from eleven to four, and for turbo-alternators from six to four. Joint research plans have been inaugurated by some firms to ensure as far as possible an economic deployment of time, money and effort in the development of new materials and techniques for both conventional and nuclear power generation. It has been suggested that to avoid further waste contracts should be awarded on a rota instead of by tender. The Generating Board has welcomed the steps which the manufacturers have taken to streamline their organisations and improve efficiency, but as a sound business precaution the Board must continue to seek competitive tenders where possible.
1142 Before leaving this particular aspect, I should emphasise that the Central Electricity Generating Board's charter lays upon it the obligation to supply cheap power to the country. Its policy is dictated by that, and it can claim considerable success, and hopes to claim more. The cost of the old 30 megawatt stations was £67 per kilowatt, and it is estimated that the cost per kilowatt of the new giant 500 megawatt stations may fall Ito £40; that is to say, a 40 per cent. drop.
The noble Lords, Lord Merrivale and Lord Stonham, referred to three changes to the nuclear power programme and their effect on the industry. It is very difficult to speak briefly and at the same time adequately on this important issue, and I think I have to settle for the former. For the latest change—that is, the further deferment announced in June of last year—there were two main reasons, both of them persuasive. First, it was clear that the pressure of demand on coal supplies had generally relaxed and oil supply prospects had improved, so that one of the reasons for the acceleration of the programme in 1957 had disappeared. Secondly, although the costs of nuclear power from the stations recently ordered have been falling as expected, the costs of electricity from coal and oil have fallen faster than was expected, due to the technical advances in conventional generation, to some of which I have referred. The net effect is that nuclear power is not expected to become competitive with power from other sources until later than was estimated: nuclear power should become cheaper than conventional power by about 1970. Any Government must observe its duty to the taxpayer, and that duty has demanded adjustments to the programme. All the same, the programme is still to build about 5,000 megawatts of nuclear capacity by 1968, placing one order for a nuclear power station roughly each year.
The noble Lord, Lord Stonham, mentioned railways, and he is concerned over the way they have suffered due to changes in policy. In view of the full way in which this subject was discussed in your Lordships' House on Tuesday of last week, I do not think your Lordships will wish me to refer to it at great length. But I think it should be repeated 1143 that control of this kind is essential when the railways are spending such large sums (£160 million in 1960) on railway modernisation, much of it being provided by the Exchequer, and when revenue deficits of the British Transport Commission, mainly incurred on the railway, are also being met by the Exchequer (to the extent of £105 million in 1960–61).
This control led to some slowing down of work on certain railway projects pending review, but many projects went ahead with little or no delay. It cannot be unreasonable for any Government to look closely at a scheme costing in all some £175 million to make sure that money received from the taxpayers is being spent in the best way. As noble Lords are aware, seven weeks ago my right honourable friend announced that the electrification of the main line from Euston to Crewe, Manchester and Liverpool, should go ahead as quickly as is consistent with the best use of resources. This will represent a total cost of £175 million, including some associated station works, part of which contract will also go to the electrical industry. My right honourable friend further declared that the Government's approval of this, the largest scheme of all, should be taken as evidence of the Government's faith not only in modernisation, but in the British electrical manufacturing industry.
My right honourable friend has already set up in the summer of last year a small study group under his own chairmanship to consider railway modernisation. This is not a formal committee. It is a means of enabling the Minister and his advisers to get round a table with a Commission and to consider the place of the railways in the transport system of the country, taking account of trends in other forms of transport and changing social and industrial needs with a view to meeting all those demands. He has in his hands at the moment the B.T.C.'s proposals for investment in railway modernisation, covering the years 1964 to 1964. These proposals cover the whole field of railway modernisation, and very considerable amounts of money are involved.
I think all noble Lords who have spoken have referred to their concern over hire purchase restrictions and changes of policy. The Government recognise that frequent changes 1144 in the level of control are bound to be a dislocating factor. When announcing a partial relaxation of control on January 19, my right honourable friend the President of the Board of Trade said that he thought we had achieved a reasonable set of rules which we could maintain for some time, and he hoped that his statement would give the industry a reasonable basis for their future plans; and I hope it may bring some comfort to the noble Lord, Lord Stonham, who asked for something like that. My right honourable friend has recently met representatives of the manufacturers and has had from them a description of current conditions in the industry. Their views will be carefully considered, but he has told the industry that he is not convinced that a further relaxation (that is, the reduction of the deposit rate to 10 per cent.) is desirable. By definition, restrictions of this kind hit those whose goods sell on hire purchase; but where sales on credit terms create inflationary pressures, it is the Government's responsibility to check those sales. In the end, all regulation of credit and demand is in the interest of everybody, including the manufacturers immediately affected, since the economy would otherwise be exposed to still more violent fluctuation and to the damaging effects of inflation.
The question of exports has been touched on by all speakers, but at no great length. I am acquainted with some of the criticisms that have been made regarding the assistance given to exporters, but as this whole question will be under discussion to-morrow. I feel that this evening I should speak only very briefly. The range of services provided by the Government for prospective exporters is too wide and too long for me to catalogue to-day and is, I assume, well known to noble Lords who have spoken. I should point out that the major contribution is, of course, in the services of the Export Credits Guarantee Department, and these also have been shown from time to time to be inadequate.
In that context, I should point out two recent extensions of those services. First, the E.C.G.D. has been authorised to ensure credit on longer terms than the normal maximum in cases where this has proved to be necessary—and the operative words are, "where this has proved to be necessary"—in order to enable a 1145 United Kingdom exporter to match the terms offered by a foreign competitor similarly aided by an export credits guarantee institution or equivalent official support. That is rather official language, but in fact what it offers is assistance to match the terms offered by foreign exporters of other countries who also have export credit guarantee facilities at their disposal. Secondly, where a competitor is offering long credit terms which are not backed by an export credits guarantee institution the E.C.G.D. is now authorised for the first time to provide cover for the normal period, leaving the United Kingdom exporter to get the extra cover at his own risk. This was previously not permitted. The Government recognise that there are other genuine problems affecting the supply of credit, and have under consideration both the adequacy of our credit facilities and the terms and conditions of the services provided by E.C.G.D.
Many suggestions have been made as to the aid which the Government might give to exporters. Many of them founder on the principle that it would not be in our interest to start a credit race, a race which would leave no one better off competitively, and would involve everyone laying out his money for longer than was necessary. Financial relief, such as tax concessions, for good exporters is bound to meet broadly with similar objections. My noble friend Lord Merrivale suggested, as I understood it, some kind of advisory body to be formed, comparable to the United Kingdom Railway Advisory Service; and, of course, the industry itself would take the initiative in this. It is not for me to say how my right honourable friend would be ready to help such a body, but I feel certain that I can say he would take an interest in any proposals put forward by the industry.
In my studies of this industry, some of them on the spot during the past ten days, I have been most of all fascinated by aviation electronics and by the electronics industry, which have been barely touched upon in the course of this debate, so that they remain outside its scope. I will save up that collected knowledge, such as it is, and possibly I shall be able to pass it on to your Lordships on another day. In any case, I hope that this is not the last time that I shall be able to express the Govern- 1146 ment's admiration of and the value they set on this unique and virile industry. I feel certain that both the industry and the Government will be grateful for the suggestions which have been made with so much thought and so much feeling by all; and I shall naturally communicate them to my right honourable friend.
§ 6.45 p.m.
§ LORD MERRIVALE
My Lords, I am most grateful to noble Lords opposite who have been kind enough to take part in this debate and also to my noble friend Lord St. Oswald who so kindly took a lot of trouble in collecting information concerning the electrical industry. I think that in all fairness I should say that, with regard to the question of contributions from this side of the House, there were a number of noble Lords who had intended to take part but were unable to do so owing to the fact that the date was not convenient to them because they had to be in other places.
If I may say so, humbly, I think the noble Lords, Lord Citrine, and Lord Stonham, made some very important points, and I was particularly glad to hear the noble Lord, Lord Citrine, refer to the large number of overseas buyers at the Trade Fair at Earl's Court. The noble Lord also referred to strong cooperation between the supply industry and the manufacturing industry, and I am also glad that he mentioned the excellent co-operation with the trade unions. He said that there was a need for better co-operation between the generating plant manufacturing side and the Electricity Generating Board, and I presume that his remarks will be noted by the co-ordinating committee. I am also glad that he mentioned the fact that considerable research is to be undertaken in the future by the Atomic Energy Authority. I am also particularly glad, having had dealings with the British Electrical and Allied Manufacturers Association for several years, that both noble Lords referred to their useful work which started 50 years ago.
Another aspect of importance which was touched upon by the noble Lord, Lord Stonham, was the fact that £15 million had been spent on research in railway electrification. I do not wish to take up too much of your Lordships' time by stressing points which have been made much better than I could hope to 1147 make them, but I hope Her Majesty's Government will pay particular attention to the variety of points which were made by both noble Lords opposite.
May I turn to one or two points made by my noble friend Lord St. Oswald? I think he said that I did not express confidence in the industry. I thought I had implied it when I said that it was an industry with great vitality. By implication, therefore, I meant that it was an industry which had great confidence in the future. I am glad that my noble friend referred to a number of orders for large generating plants for overseas, and also to the fact that, with regard to large generating plants of the order of 500-megawatts, there were only two firms in the United States who could compete with us in providing that type of plant.
I must say that I was rather disappointed by my noble friend's comments on the hire-purchase regulations. As I understood him, he seemed to imply that the President of the Board of Trade was satisfied with the present 20 per cent. deposit. I can assure him that the fact that the President of the Board of Trade does not intend to look at this matter again will give no satisfaction to the industry. Therefore I would ask him to urge his right honourable friend to consider this matter again. I believe it 1148 was only a few days ago, on March 14, that the President of the Board of Trade wrote to the industry saying that he recognised a need for stability, but felt that a 20 per cent. deposit was the right figure. That is why I would urge my noble friend to approach his right honourable friend again and stress the fact that 10 per cent. is the right figure for a satisfactory development of the electrical appliance industry. On the other hand, I must say I was pleased to hear my noble friend say, with regard to the Export Credits Guarantee Department, that there had been two extensions and that exporting firms could expect to receive better terms from the Export Credits Guarantee Department.
Finally, before I withdraw my Motion, I would say how delighted I am that my noble friend said that the President of the Board of Trade would be perfectly willing to consider proposals from the industry with regard to the setting up of an organisation similar to the United Kingdom Railway Advisory Service. With those few words, and again thanking very sincerely noble Lords who took part, I beg leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.
§ House adjourned at nine minutes before seven o'clock.