HL Deb 01 December 1966 vol 278 cc828-74

4.30 p.m.

Debate resumed.


My Lords, should like to thank the noble Lord, Lord Winterbottom, for the most interesting exposition which he has made of this Bill. I have read through all the proceedings in another place, and, if I may say so, he gave in a comparatively short space of time a much clearer ex position of the Bill than I was able to derive from all those proceedings. My only comment is that if the Industrial Reorganisation Corporation moves as fast as he did in his speech, we shall by the end of next year have completely reorganised the economy. For that reason, it is perhaps a little difficult to follow everything he has said. So I propose to make a rather probing speech, and I hope that some of the points I make will be dealt with.

This Bill has been graded in many different ways. I have seen it described, always in cliché, as a landmark in our economic development; I have seen it described as a milestone to Socialism, and I have seen it described as a spanner in the works. The justification given in the White Paper, to which the noble Lord drew our attention, for setting up the Corporation is that there is a need for more concentration and rationalisation to promote the greater efficiency and competitiveness of British industry. I was not quite certain, when the noble Lord referred to his own "firm", whether he saw room for greater efficiency and greater competitiveness in his own Ministry, but it certainly was an example from his own experience. Secondly, the pace and scale of such change, it is claimed in the White Paper, do not match the needs of the national economy. Thirdly, there is no evidence, according to the White Paper, that we can rely on market prices alone to produce the necessary structural changes at the pace required. From this, the White Paper concludes that such a body as the Industrial Reorganisation Corporation should be set up.

Of course, that seems to beg some questions. For example, what is the pace required? It is recorded that, of the 200 largest firms in the world outside the United States of America in 1964, Britain headed the league with 58, Japan came next with 34, and Germany had 32, despite its wider market in the E.E.C. In medium-sized firms there seems to be a close correlation between ourselves and Germany, if one looks, for example, at the machine-tool industry. Secondly, what evidence is there that market forces will not produce the necessary structural changes? I would only comment that none is offered, and I shall give some reasons for thinking that, given the necessary information, a great deal more can be done as things are. It has to be remembered, of course, that we are here committing ourselves to a maximum of £150 million expenditure.

Thirdly, if there are industries which are in need of rationalisation, and in which rationalisation is not proceeding apace, what are they? I shall revert to these problems. If there is a need for some new initiative to promote mergers, is a body of the type and structure pro posed in this Bill the right organ to promote them? If this is the main need, is it wise to give it other powers and duties such as "establishing industrial enterprises"—that is, new ones—and acquiring and placing at the disposal of others plant, machinery and other equipment? Lastly, is it worth up to £150 million?

At what pace have mergers been taking place? The White Paper says that: the process has been accelerating in recent years and may be expected to continue. Mr. Nicholas Stacey, in Mergers in Modern Business, says that in the ten years to the end of 1963 there were 655 quoted companies and 4,344 private companies that were acquired by take-overs—4,999 in all in those ten years. The rate of take-over of public companies in 1963 was nearly double the rate in 1954, while the number of private companies acquired increased from 233 to 808. These figures do not include the mergers, small in number, between two or more companies, as distinct from acquisitions by one company of another. The Government have also stated that between 1959 and 1963 publicly quoted companies spent an average of £335 million a year on acquisitions involving cash payments of £145 million or so a year. This is quite considerable and is, as the White Paper says, an accelerating activity.

Viewed from the celestial heights of Government, many of these mergers may have appeared haphazard because the Government did not know the motives for them. In the main, they took place because one or other of the parties, or both, had been confronted with some particular problem, whether it was management, succession, procurement, manufacture, marketing, research or finance. Some may have succeeded; others may have proved failures. In some the purchaser may have paid too much; in others he may have paid too little. But one thing is quite certain. The same will continue to apply whoever brings the merger about and whatever the motives for it.

Given this rate of reorganisation, how many more mergers a year do the Government estimate should be promoted, and how many do they estimate this new Corporation, by itself, will promote a year? The Government must have some idea of the size and nature of the gap to be filled. I am quite certain that the noble Lord who is to reply will say that it is not so much the quantity as the quality of mergers that matters. I could not agree more. Mergers must be between compatible companies—unless, of course, the object is to close down the company acquired. As Sir Donald Stokes has said, it is one thing to launch a merger; it is quite another to make it work. But if it is the Government's intention that in certain industries mergers are required and should be encouraged, what are those industries? The Government cannot any longer be coy about telling the public. As the noble Lord said in his speech, the board-designate has already been considering this matter.

In introducing the Bill in another place, the Secretary of State said that there would be two tasks immediately facing the Corporation. The first was to deal with projects that will be ripe for action straight away; and the second was to estimate priorities among a number of different possibilities. What are these projects ripe for immediate action? The nearest the Government have come to any pronouncement was at the Third Reading in another place, when the Minister of State for the Department of Economic Affairs said: The sort of firms to which the Corporation will have to pay attention in the first place—firms which should be making a greater contribution to our export-import balance—will, I think, be found in the engineering industries. He went on: …one of the tasks which the Corporation may well perform will be the creation of consortia for specific export jobs, assisting British firms, for instance, to co-operate against foreign rivals."—[OFFICIAL REPORT, Commons, Vol. 736 (Vol. 101), cols. 1234–5; 22/11/66.] No doubt there is room for such consortia between willing partners in appropriate circumstances. But why is it necessary to set up a £150 million Corporation to achieve this? Is the Corporation itself to form specialist export houses and market the products of consortia abroad, for example? Can the noble Lord give us more information on this point? The White Paper claims that what are called "desirable re-groupings" fail to take place because there is no organisation whose special function it is to promote rationalisation schemes which possesses the know-how and finance to clinch them. The White Paper says that there is a "gap in the institutional frame work" which needs to be filled—a gap both functional and financial.

May we look first at the functional gap? In the last decade or so, in addition to merchant bankers and others skilled in negotiating industrial marriages, there has grown up a new type of expert known as a corporate counsellor, who not only advises on mergers but looks for opportunities of rationalisation and amalgamations. Quite apart from this, the truth is that it is not so much lack of experts as lack of access to information about private companies that has hampered those who would like to bring about more industrial mergers. The obligation laid by the Companies Bill on private companies to submit their balance sheets, profit and loss accounts and directors' reports would remove this obstacle—and remove it just as effectively if it incorporates the Jenkins Committee's recommendation that they should not have to include details of emoluments, turnover and rents as if it does not. The information will then be open to inspection by all interested in promoting fusions. Indeed, without this the Indus- trial Reorganisation Corporation will be at a grave disadvantage vis-à-vis those who already have wide experience and copious files of information.

What we are entitled to ask is that the Industrial Reorganisation Corporation will not enjoy any special privilege in regard to access to information. First, will the noble Lord who is to wind up the debate (I believe it is the noble Lord the Chief Whip) give an assurance that information supplied in confidence to Government Departments will not be passed on to the Industrial Reorganisation Corporation? Secondly, will he confirm that, since the Industrial Reorganisation Corporation is not to have any status, privilege or immunity of the Crown, it will be an offence for a Government Department, or any member of it, to pass on to the Industrial Reorganisation Corporation information obtained under the Statistics of Trade Act?

Thirdly, will the Industrial Reorganisation Corporation enjoy any privilege in obtaining information from the Registrar not available to the public in general, and to other would-be promoters of mergers in particular? Fourthly, will the Indus trial Reorganisation Corporation be in any privileged position in consulting the Board of Trade in advance about pro posed mergers, particularly on the mono poly aspect—the point about which my noble friend behind me asked? I noticed that this was the point which was made in the speech of the Secretary of State in opening the debate in another place, and I was perhaps a little surprised that the noble Lord, Lord Winterbottom, did not refer to it this afternoon.


My Lords, may I say, on the point which the noble Lord made when he spoke about mergers, that presumably he means mergers in which the Industrial Reorganisation Corporation is interested, and not other mergers that may be taking place.


Yes; the mergers in which the Corporation is interested. What I am asking is that the Industrial Reorganisation Corporation should not be in any privileged position in going to the Board of Trade and consulting them about mergers in advance, and getting clearance—a position which would not be equally available to any other merchant bank, to any consultants, or, indeed, to the firms themselves.

My Lords, so much for the alleged functional gap. What of the alleged financial gap? Here, if I may again refer to Mr. Stacey, he says: There is no gainsaying that some desirable company mergers have not and are still not taking place; the simple and justifiable explanation of these instances is that such proposals fall below the criterion of commercial viability". The question follows: is it, then, the intention of the Government that the Industrial Reorganisation Corporation should carry through company mergers that are not commercially viable; and, if so, how is the Corporation to pay its way? The Bill, in Clause 2(2)(d), gives power to the Industrial Reorganisation Corporation to acquire and place at the disposal of others not only premises but plant, machinery and other equipment. This could be interpreted as giving them power to do what the Cotton Reorganisation Commission (or is it "Board"?) did—in effect, to give grants on plant and machinery even if it could not give more direct encouragement to the scrap ping of old plant and machinery.

If it does this, again, how is it going to pay its way? If a fusion is commercially viable, there should be no difficulty in raising any necessary finance, provided the Government ensure the appropriate eoonomic climate. If, on the other hand, the Government continue to squeeze credit and reduce profits by in creased taxation, coupled with an economic policy designed to reduce demand and raise overheads, they can hardly expect the requisite finance for investment, including investment for mergers—and the little contribution that has been made this afternoon will not go very far and certainly will not have much of an immediate impact—to be forthcoming. What I am saying is that if there is a financial gap it is a gap of the Government's making.

I turn now to the proposed structure of the Industrial Reorganisation Corporation. Just by the way, the noble Lord referred to the Industrial "Reconstruction" Corporation, which I thought was a very nice name.


It was a slip of the tongue.


I should just like to pick out these points, because I want to relate what I have to say to them. The Corporation is to enjoy the status and privileges of a statutory corporation, but not any status, immunity or privilege of the Crown. I speak here as a layman, but according to the Bill it is not to be regarded as "enjoying Crown status". I do not know whether the noble Lord can answer this point to-day: perhaps it is more a Committee point, but it seems an important one. We are not concerned merely with what the law would regard; we are concerned with the fact, and in Committee we shall have to examine the subtle distinction between "not enjoying" and "not to be regarded as enjoying" such a status. The same applies—even more so—to the words "not to be regarded as the servant or agent of the Crown". Either the Corporation is or it is not the servant or agent, however it may be regarded. In some respects it plainly is the servant, because under the Bill it must at least comply with directions of a general character as to the exercise and performance of its functions.

Thirdly, as to finance, as the noble Lord said, the Corporation can borrow short-term where it pleases, subject to a limit to be imposed from time to time by its sponsoring Department, the Department of Economic Affairs. Then, it is to derive its long-term finance from, first of all, Exchequer loans, which I think the noble Lord said would be its major source of finance, the interest on which, he said, was to be not less than (he added the words "not less", which I do not think have been used before) that at which the Treasury itself can raise money. Then there is the Exchequer investment capital—that is, the Exchequer is to place the taxpayers' money at risk—subject to a limit of £50 million, "or such greater sum as" the Secretary of State for Economic Affairs "may from time to time by order specify." In other words, within the total of the £150 million Parliament is being asked to enter into an open-ended commitment on this score. Incidentally, the order is to be subject to approval by the Commons House of Parliament alone.

Whether noble Lords agree or disagree with my description of Clause 5, dealing with Exchequer investment, as an open-ended commitment, there can be no dispute that the Bill gives the impression that the Board will have to pay interest on its loan capital and will be expected to aim at a level of dividend to be agreed with the Government, and to pay dividends to the Government. I think it is right to ask: how is it going to do it? How is it going to pay its way? First of all, I take it that the Corporation will need to have an "intelligence unit", which is bound to be costly. It will have to examine a fearful number of balance sheets and do an immense amount of research. Or is all this—and I put this question deliberately—to be done gratis for it by some Government agency or Department? The noble Lord wags his head in denial, so I take it that this is going to be a cost to the Corporation.

Then again, the actual negotiation of mergers is a highly skilled operation, and is generally conducted in return for fees to be paid by the acquiring company, fixed in relation to the work done and not generally—though it is so sometimes—as a percentage of the capital or the assets of the companies merged. In any case, the Corporation could hardly represent both sides simultaneously in negotiations.

The Corporation is also empowered to give guarantees—in particular, to guarantee loans raised by companies elsewhere. The Minister of State said in the Standing Committee of another place: The Corporation will not lash money about. The object is, indeed, not to spend any of its money at all if it can avoid it". It it does that, I am afraid it will not pay its way—and how can it avoid it? How will it be able to meet these commitments and at the same time pay its way? Surely the answers are clear. Will it not exact payment for its services (and I think what the noble Lord said would confirm this) in promoting a merger by taking an equity interest in the new groupings; that is, if the amalagamated undertaking agrees? Some companies may refuse to acquire on such terms. Secondly, will it not seek opportunities for investment in private enterprise? Thirdly, will it not seek opportunities to use its powers under Clause 2(1)(b) to establish or develop, or promote or assist the establishment or development of, any industrial enterprise…"? And will it not try to persuade Departments to request it to do so in order that it may pay its way? We are told that the Corporation will not act as a holding company; that it will be expected to turn over its capital. But in order to meet the finance requirements of the Bill, it will not merely have to nurse the groupings it creates or encourages until they become profitable, but have to hold on to its investments after they have become profitable.

Is it not clear from this Bill that the Government are trying to satisfy too many conflicting aims of too many conflicting people, of too many conflicting supporters? If we need a Government-sponsored industrial matchmaker, in addition to the marriage brokers who already exist, why clutter it up with all these other jobs? The establishing, developing and the running of industrial enterprises is a different sort of job from promoting mergers, as is the purchase and leasing of premises plant and machinery, and acting as an industrial bank, like the I.C.F.C. This is to be matchmaker, midwife, mother and moneylender, all in one.

How far shall we see the Industrial Reorganisation Corporation taking over some of the functions of the Board of Trade Advisory Committee and the Board of Trade—providing equity capital under this Bill instead of making loans and grants to industries setting up in the development areas under the Local Employment Acts? That is a question to which I should like to know the answer. How far is this envisaged? We know that many members of the Party opposite believe that if public funds are made available, the State should have a share in the profits. How many reflect that it may be losses, perhaps of the entire equity capital, and not profits that have to be shared?

The noble Lord invites us to banish emotion from this debate. That does not mean that we can afford to banish sincere differences of opinion. There are Departmental interests which dislike having to come to the representatives of the taxpayers and ask for money when they want to launch a big new enterprise or participate in the launching of one, as the Conservative Government came to Parliament when it was a question of loans to Wiggins Teape at Fort William. How much easier to pass a Bill making up to £50 million available, with the prospect of an almost unlimited amount more without further legislation!

We on this side believe that it is right for the State to encourage industry to go to the less prosperous areas by giving financial assistance in the form of loans or grants, and to give free depreciation allowances to compensate them for the higher cost of setting up and operating in these areas. But we do not believe that it is right, except for defence or in other special circumstances, for public money to be too readily available by way of investment in private enterprise. Still less do we believe in the State having a controlling interest in private enterprise (as it has been suggested the Corporation might have in some instances) because we fear the inherent dangers of unfair competition, unfair preference and the economic distortion involved.

I am quite ready to accept that the noble Lord, Lord Winterbottom, genuinely believes that this Bill is intended to make, and will make, private enterprise and the economy as a whole more efficient and more profitable. But I believe there are very serious dangers that will have to be faced; that as time goes on the purposes to which this Bill is being put will tend to be widened beyond recognition and that in consequence, through growing State intervention, the judgment, the sense of responsibility and the self-confidence of industry will be weakened. We are bound to assume that the Prime Minister and the Secretary of State for Economic Affairs meant what they said about setting up State companies in backward and declining industries and in the new scientific industries, on what was described as a really massive scale, not to mention the machine tool industry, when they ex pressed their belief in the famous Clause Four.

One of the insidious aspects of this Bill is the tacit assumption that something will be in the national interest because the Industrial Reorganisation Corporation thinks it will be. It is the tacit assumption that those who resist the advances of the I.R.C.—those who do not, to use that word which is of such danger to the independence of judgment, "co-operate"—will be acting against the public interest with all the implied undertones of Government favour or disfavour. Parliament can provide money; it cannot provide infallibility.

So far as the match making side of this is concerned, I, for one, think that the Government choice of Sir Frank Kearton, of Courtaulds, and Mr. Ronald Grierson, of Warburgs, is about as good as could be made. Certainly, Sir Frank has plenty of experience of mergers. The Observer stated last January that in the previous eighteen months he had acquired 60 cotton mills; and, of course, he conducted the most celebrated anti-merger operation of our times. So he has the experience and no doubt the sympathy of both sides. The board which the Government have appointed—perhaps to observe the constitutional niceties I should have said, "designated"—contains many men Whose reputations are secure whether the experiment succeeds or fails, pro vided that they discharge their functions, whatever they may be, with fairness and a respect for the independence and judgment of others. For my part, I wish them well, whatever they have to do. But what I want to know, and what we are all entitled to know, is: what are they to do?

The Bill says that they can do any thing whatever for the purpose of promoting industrial efficiency and profitability and assisting the economy of the United Kingdom—anything whatsoever. So far we have not been told anything like as much as we should have been told of the alleged gap to be filled so far as mergers are concerned. Has the chair man-designate been told? If so, why should we not all know? Is the Industrial Reorganisation Corporation to have some kind of privilege or priority in promoting what are called desirable mergers? Or is the plain truth that the Government have not the slightest idea, and that the promotion of mergers is simply a cover for other activities or, at the best, a comparatively minor accompaniment to them?

The noble Lord sighs; but we have not had an answer to this. He must for give us for having some suspicions on this matter when the Bill has gone through all the stages in another place and no answer has come from the Government at all, except for the small one I mentioned before. We want a case to be made out for this official matchmaker. Neither in the White Paper, nor in the debates in another place, nor in the speech of the noble Lord has a case been made out. We shall continue to press for answers to our questions. If we do not get them to-day, then we shall press again for them on the remaining stages of the Bill. Whatever the case for a match maker, there can be no justification for turning the Corporation into a maid-of all-work.

I would say this in conclusion. Let the noble Lord beware! He was emphatic that only persuasion will be used to pro mote mergers. We have seen all too clearly how what starts as voluntary co-operation is apt to end with compulsion. Our anxiety about this Bill—which we shall not vote against—is threefold: first, that the Industrial Reorganisation Corporation will be an obsessive rather than a discriminating matchmaker; secondly, that voluntary co-operation will end with compulsion here, too—although not necessarily under the Board as at present designated; and, thirdly, that the systematic intrusion of the State into the area of private enterprise will grow apace from these small beginnings.

5.0 p.m.


My Lords, the Liberal Party gives this Bill a very much warmer welcome than did the noble Lord, Lord Drumalbyn. I am bound to say I believe that if I had access to the files of the Conservative Party I should find somewhere in them a Bill very like this Bill. I am encouraged to think so when I am reminded by one of the Sunday newspapers—I forget which and when—of what Mr. Harold Macmillan said on industrial reorganisation about thirty years ago. One hesitates to quote some thing which might appear to he out of context, but in a book which Mr. Harold Macmillan wrote, The Middle Way, he devoted a great deal of thought and a very long chapter to industrial reconstruction. What he proposed was an industrial reorganisation Bill. Under the Bill, among other things, he proposed that some authority might not be content to play a passive role, but would itself assist in the drafting of schemes and in efforts to persuade the industry to accept them. Mr. Macmillan does in fact use the word "compulsory". He refers to: Special schemes requiring separate legislation for the compulsory reorganisation of industries and services regarded as being of key importance to general economic prosperity, and where the nature of the reorganisation might involve the interests of more than one industry. Your Lordships may say that that is a very long time ago, that it was written in 1938 about conditions that then appertained. Nevertheless, as I say, it is a for midable suggestion from a very formidable man, and I cannot help thinking that the Conservative Party would bring in a Bill of this nature.

We on these Benches support this Bill. We feel that there is a need for it and that this is the right way to do it. We do not think that this Bill goes too far. The noble Lord, Lord Drumalbyn, although he says he might accept the match-making part, does not like to accept the maid of-all-work side of it. Well, I think we accept both the match-making and the maid-of-all-work. We feel that the Government have made out a good case. Incidentally, I should like to congratulate my very old friend and comrade-in-arms on a really excellent exposition of this Bill. It is vital in many respects to have something like this, if we are to compete with the rest of the world and again, from the point of view of those on the Liberal Benches, when we go into Europe it will be all the more important.

Another aspect for which we like it very much has been mentioned before—the question of trying to cope with the relationship between monopoly and public interest. The noble Lord, Lord Hawke, raised this point and the noble Lord, Lord Drumalbyn, partially answered his question. I think it has been stated in terms that the Corporation will not pro mote mergers without a clearance from the Monopolies Commission. I think this very valuable. After all, we are trying to build up firms and organisations into much bigger units and there is the extraordinarily difficult problem of making corporations and firms bigger and, at the same time, balancing that against the public interest. It seems to me that probably the I.R.C. is better placed to deal with this difficult problem of balance than any other institution.

With regard to the maid-of-all-work side, we on these Benches very much welcome that aspect of the Corporation which is to deal with new ventures. We think that is one of the most important aspects. The noble Lord, Lord Drumalbyn, was worried that there would be a danger of its becoming widened beyond all recognition or of its being cluttered up with other jobs. I do not feel so. I welcome that aspect. Then, from a purely Liberal point of view again, we welcome the aspect of its being able to help with the balance of the economy between the regions. I know this is a very small part of the functions of the Corporation, but nevertheless I think it is a significant part. We on these Benches feel that the work proposed cannot be done either by a market economy or by merchant bankers alone.

Increasingly we do not live in a market economy, and I hope that some of your Lordships have been listening to the Reith Lectures by Professor J. K. Galbraith. I will not attempt to summarise what he said, but in fact he did say this, and I entirely agree. We are living less and less in a market economy and still less and less will a market economy be able to help. The long-termplanning and complexity, and the number of different things involved in a modern industrial undertaking are so long-term and difficult that a Corporation which is designing some new project, plans it not only in relation to every piece of the thing they are making, but from the price onwards. We are geared to the kind of price to which they work; it is not the other way round. In such a world it is doubtful how much can be done by a market economy in promoting the sort of mergers we have in mind.

The same applies to the merchant banks. I liked the word used by the noble Lord, Lord Winterbottom, about this new super merchant bank, as the Corporation is going to be, being purposive. So far as the ordinary merchant bank is concerned, as he said, it has to take orders from its clients and work that way round. Here we are going to work from the point of view of a super-purposive merchant bank using exactly the same methods as a merchant bank with, added to them, that degree of specialisation and indeed long-term thinking which would be outside the scope of a merchant bank.

My Lords, what seems to me interesting is that this new proposal appears to be acceptable to a great many industrialists and also to a great many people in the City, not least, so far as I can make out among those friends I have in the City, among merchant bankers them- selves. So I do not understand why the Conservative Party is against it at the moment. I hope that this is not part and parcel of the business of attacking a Government all the time on all fronts for no very good reason. It surprises me. As I say, my friends in the City and a great many industrialists whom I know seem to accept this idea. Thinkers in the Conservative Party, if I may refer to Mr. Harold Macmillan in these terms, have been talking about this for many years; yet now the Conservative Party attack it right, left and centre on grounds which do not seem to me to add up to very much.

I agree that they may say, in reply to my suggestion that they have just such a Bill in their files, "Well, yes we have, but that Bill would not allow a Government or a corporation to take up the equity." This is a point on which one can, of course, differ. I accept the Labour view that Governments or corporations should be allowed to pick up the equity and this is in fact the right way for Governments to conduct business; and that if the public has in vested money it should have some profit. My own feeling is that this would be a far better way of collecting betterment than that proposed in the idiotic Land Commission Bill. However, to return to the Conservative Party, not only have they in the past been thinking of it but actually on a number of occasions have been moving in the same sort of direction with regard to particular industries. I think they are making much too much of this aspect of market economy and I hope they will pay some attention to what Professor J. K. Galbraith has to say.

On the question of nationalisation, which I think worries the Conservative Party, I feel that in so far as the nationalisation of certain industries under certain conditions is suitable, this seems to be the sensible way of dealing with them. I am speaking very much for myself, be cause I do not know how far that would be acceptable to my noble friends.

There are one or two other small criticisms I should like to make. There is a general feeling that the Government do not quite know where they are going with this and whether it will work at all. I do not accept that. This Corporation is going to work as a super-merchant bank. We know how a merchant bank works, and presumably a super-merchant bank will work in much the same way. But in so far as this is not altogether true, this applies to any new venture. In regard to the feeling which the noble Lord, Lord Drumalbyn, expressed, which boils down to wondering how the actual members of this Corporation are going to interpret their functions, I agree there is enormous scope for them to do so in all sorts of different ways. But the first thing that strikes me is what a remarkably able and imaginative lot of people the Government have chosen. I think that we could well risk it so far as they are concerned.

There is one other point, which strictly is irrelevant to the Bill, but which I throw out as something worth thinking about. I know that the Industrial Re-organisation Corporation has nothing to do with agriculture and land owning. But agriculture is an industry, and one which is in grave need of reorganisation, in grave need of mergers and in grave need of having its structure put right, and, after all, this is what this Bill was meant to do with regard to other industries. In view of the fact that this Corporation can do almost anything, I wonder whether it might be worth thinking about using its activities in the field of agriculture, where we are in such difficulties and seem to have got bogged down, and whether the Corporation could also apply its functions to land-owning where again units have been fragmented until practically all landholdings are much too small. Could not the Corporation operate somewhat like the Forestry Commission or, outside the Government, like the National Trust and build up something, either on the marriage broking or the maid-of-all-work side, which might be significant in the landowning field. That might be a much better way of approaching this problem than through the Land Commission, which, so far from welcome, I think is—well, we have been talking about it all this week and will be next, and I will say no more.

In conclusion, my Lords, may I say that we on these Liberal Benches think that this Corporation is a good idea. The need is expanding and cannot be met by the market economy and merchant banks alone. If the Government had not introduced such a measure, the Conservative Party, if they had been in their position, would have had to do so in their stead. We support it.

5.15 p.m.


My Lords, I must begin, I think, by declaring an interest. I have a business association with a large international wholesale bank and also with an issuing house. Both of these, I suppose, might be considered to be affected and might indeed be affected by these proposals. I shall try not to allow that to prevent my approaching the matter with reasonable objectivity, and I should add that I speak in this matter entirely for myself and not for my associates.

Of course, what is understood by "objectivity" is a matter upon which different people take different views. I remember that in the last economic debate in your Lordships' House I made the rather trite observation that I thought that in these grave times these matters ought to be treated in a non-Party political way and without political recriminations. From the nods I received from the Government Benches, I gathered that that met with approval, but when in the course of my argument I proceeded to develop—and who could avoid it?—some criticisms of Government policy, I realised that noble Lords on the Government Benches regarded objectivity as something which meant being objectionable to the opposite side of the House and not objectionable to them. I shall not allow myself to be discouraged by that and I hope that I shall not be driven from my Cross-Bench approach to this and indeed to other proposals.

I think that a good many Committee points are likely to arise on this rather loosely drawn Bill and, indeed, already some Committee points have very properly been raised. I would prefer, if I may, to confine myself to the real principle behind this measure as it is, I think, understood in the country and particularly perhaps in industry and in the City. The objection to this Bill is that it is thought to be, or at least that it could be, an instrument of State Socialism. There is force in that objection, and I quite understand it. I ought to. After all, twenty years ago I was a Socialist myself, and had been one for over twenty years. But five years of very active experience in Government convinced me that, whatever might be the position from an idealistic point of view, Socialism just did not work in practice. My experience since then in the law, in industry and in business has made me the more sure of it.

So my approach to this Bill is frankly this. I do not think that the Members of your Lordships' House who are not supporters of the present Administration need feel called upon to assist in the passage of any obviously Socialist measures. On the contrary, I think that the time is coming, if it has not already come, when the leaders of private enterprise, in this House and outside it, will have to consider whether, in the light of recent events, they should not more actively assert the advantages of the system in which they believe rather than collaborate in measures which are intended to undermine it. The question I ask myself on this occasion is whether this is such a measure; and I agree with the noble Lord, Lord Drumalbyn, that this is a matter which we ought to approach without any undue emotion.

My Lords, there are already in existence a number of measures by which the Government of the day do, or can, intervene in the activities of private enterprise. Some of them were introduced by Conservative Administrations. Many of them are capable of being used to the disadvantage of the private sector—and, indeed, some are. But while there is no doubt that this proposed Industrial Reorganisation Corporation could be used in a way which would impair the useful and normal functions of the merchant banks and take away equity control from private enterprise, it does not of necessity follow that the machinery would be used for such a purpose. This is a possibility. But the fact that a knife may be used for the purposes of murder does not lead us to reject all uses of knives for other and more legitimate purposes.

I think we must assume in regard to this Bill two things. We must assume, first of all, that the distinguished gentlemen who have been appointed, provisionally, to the board of this proposed Corporation will not abuse the powers they have been given. There may be some who think that the chairman is still under some illusions in regard to the benevolence of the Labour Party towards private industry—I do not know. But I do not think anyone would suspect him, or any other of the members of the proposed board, as being dedicated Socialists.

I would make only one point in regard to the board; it is quite a small matter, and really a Committee point. I believe there is nothing in the Bill as to their tenure of office. I should have thought it ought to be made clear that they cannot be dismissed by the stroke of a pen. One would not suspect for a moment that Her Majesty's present advisers would be guilty of any such chicanery, but it would be unfortunate if the legal position were such that they could all he dismissed and other persons of a very different complexion could be put in their place. But there is another safeguard, and that is the safeguard of Parliament. I think we must assume that Parliament—and if the Government continue on their present courses it may before long be a Parliament of a different political complexion—will be able to ensure that this Corporation will not abuse the powers they have been given by using them for Socialist purposes.

This Bill marks a significant change in Government policy. Only a short time ago "bigness" in industry was regarded as a dirty word. I am certainly not one of those who think that all small firms are bad; of course they are not. There are a great many, particularly, I think, specialist firms, which are highly successful. But there are many which are not. I am familiar with the table which one often hears read out about the 200 biggest firms outside the United States of America. Relative positions in this league table are changing very rapidly. But it is not really in point to compare the firms in the United Kingdom with those on the Continent of Europe, some of them quite new firms, with access to unlimited capital, and very often without the same need that our firms have of competing in the export markets of the world. In any event, the fact that we have 58 of the leaders amongst the 200 big firms is really no reason why we should not have many more.

I believe—I have been saying this for a long time, and, indeed, I said it in the days when I was a member of the then Labour Government—that one of the great weaknesses in this country is that we are conditioned or accustomed to doing things by penny numbers. We talk about modernising Britain, and what do we do? Apart from the "blue chip" firms, we remain content to have a multiplicity of small firms, unable to afford adequate re-equipment; lacking perhaps the courage and perhaps the capital to take a long-term view on the pay-off; too small to take advantage of economies of scale-flow production, multiple shift working, computers, automatic controls and all the rest of it. But these are the essential tools of modern industry if we are to compete successfully in the markets of the world.

Just consider two of our most important industries—namely, engineering and building. In the engineering industry there are believed to be no fewer than 27,000 firms, employing more than five employees each. That really is quite a nonsense. In the building industry the number is so great that nobody has been able to count them: it is something of the order of 90,000 or 100,000 similar firms. I am a great believer in competition, but not competition between penny farthings.


Hear, hear!


The noble Lord says "Hear, hear!", but, after all, it is the noble Lord's Government (I am glad that they are now having second thoughts) which not so long ago encouraged this—if I may change the metaphor—"horse and buggie" philosophy by introducing legislation which imposed a prima facie bar on any mergers involving a joint capital of more than £5 million. Five millions pounds, in these days when it costs more than that to build a single aircraft!

We really must now go for bigness. In industry after industry I believe the only future lies in rationalisation, or in mergers into units sufficiently large to justify the capital investment and permit the techniques of management, control and organisation on which efficiency and success in modern industry depends: and, I would add, which are able to give to the workers in industry that degree of security which they not unreasonably nowadays demand.

Can we be sure that, without some such machinery as that proposed in the Bill, we can accomplish this, as I believe it to be, desirable reorganisation? I am not sure that we can. The merchant bankers, in spite of a great deal of discouragement from the Government, have done a lot. Several wealthy and far-sighted industrialists, in spite of a great deal of public obliquy, have effected some very useful take-overs which have improved the overall efficiency of the industries with which they have been concerned. A great many mergers have taken place—one big merger is under discussion to-day—and British industry as a whole is no doubt better for them. But the merchant banks are not always able to bring about mergers which would in themselves be desirable. In the negotiations they are of necessity, and in the nature of things, acting for one side or the other, and in consequence they do not always command the complete confidence of both sides. They will not always have full information about the whole field of some particular sector of industry which this Corporation, as I anticipate, would be able to study in depth.

It is not quite true to say that the merchant banks can never take initiatives in these matters; very often they do take initiatives. But I have no doubt that this Corporation would be in a better position in many cases to take a completely impartial and authoritative initiative. It is not intended that this Corporation should have compulsory powers. They ought not to intervene at all except, perhaps, by way of suggestion to the merchant banks, where the ordinary market processes are capable of producing the necessary results; they should not put up capital where capital is available in the market on ordinary commercial terms; and they certainly ought not to attempt to compete with the merchant banks in the ordinary functions of the market.

But there remain cases, I believe, in which the merchant banks, useful as they are, cannot be wholly effective: cases where complacent managements will not listen to their advice; cases where a rather longer term view has to be taken of the pay-off than would be possible on a merely commercial basis; and cases where the Corporation, acting impartially and with the high authority that I think this Corporation should possess, will be capable of providing a kind of catalyst. Still more—and this, perhaps, is really the most important point about this piece of legislation—the very existence of this Corporation, the studies it will make of particular sectors of industry, the opportunities it will have and which it will be able to point out, should bring about a complete change of climate from those days of the £5 million limit introduced by the present Government, and will encourage an atmosphere in industry as a whole which is favourable to mergers and to bigness—an atmosphere of which the merchant banks can then take advantage and in which those banks can then themselves help to bring about the mergers which appear so desirable.

I venture to think that the Bill is very much the child of the present Foreign Secretary, and no doubt when he conceived it he had very much in mind the larger markets in which he hoped that Britain would eventually compete, particularly, as the noble Lord, Lord Henley, said, the Common Market into which he is pledged to carry us. It may be some time before our entry into the Common Market is accepted. I wish we could have made a rather more unequivocal declaration of our desire to join now. But the Foreign Secretary is, if I may be permitted without impertinence to say so, a man of great energy, of great enthusiasms and of great sincerity, and I believe this is a legitimate ambition of his which he will do his utmost to fulfil. We must be ready in British industry for that day; ready to meet the big and efficient units, not only those on the Continent of Europe whose structure may not be vastly different from our own, but also those in the United States of America and now in Japan with whom we shall have to compete in Europe and in the markets of the world.

As I have said, this Bill is no doubt loosely drawn, and I daresay many improvements can be made to it in Committee. That is one of the useful functions of your Lordships' House, but in broad principle, and in so far as this Bill will encourage a change in climate and promote bigness and rationalisation in industry, I commend it to your Lordships.

5.33 p.m.


My Lords, I find myself in such almost complete agreement with the noble Lord, Lord Shawcross, that in the last few minutes I have been wondering whether it would be right for me to detain your Lordships further, but as I happen to take a somewhat different view from that of my noble friend Lord Drumalbyn I think it would be right to explain myself.

I suppose that I should start by saying that I might or might not have an interest to declare—I do not think it is possible for anyone connected with industry or with banking to know at this stage that he has—but I hope noble Lords will acquit me of having said things or adopted an attitude to this Bill which is tinged by any of my interests. I do not think I have. I have tried to take a broad general view of the economy, and the value to the economy and the efficiency of industry of an idea like this, and I have come to the conclusion that the idea of an Industrial Reorganisation Corporation definitely has merits. I would add my belief that the purposes behind the creation of this Corporation might perhaps better have been achieved by an extension of one of the private enterprise financial corporations, such as the Finance Corporation of Industry or the Industrial and Commercial Finance Corporation. I think if that had been done it would have avoided the difficulties that arise from using public money, and avoided the fears of back-door nationalisation and of unfairness.

Incidentally, I do not think that the main problem in the majority of cases of desirable mergers is that of finding funds. The main problem lies in some of the other points which my noble friend Lord Shawcross has mentioned, but since the course of using private enterprise corporations has (if it has been examined at all) been rejected, or at any rate has not been adopted by the Government, I certainly do not reject the possibility that a statutory corporation like the one proposed to us to-day—though it has some disadvantages because it is a statutory corporation—may have a valuable role. For it may well be that in cases where the normal machinery has failed to bring about what is needed, the initiative—and I think it is initiative that is important here—that can be taken by a body like this, which is manifestly impartial as between one industrial company and another, may lead to mergers, amalgamations, rationalisations, or whatever they may be called, being achieved sooner than they would have been achieved in other circumstances.

I agree with the noble Lord that speed is important in this matter, particularly as we come towards the Common Market. I think the I.R.C. may be particularly useful in arranging for stronger industrial units in fields of industry where the organisation of business has grown. The noble Lord who very agreeably introduced the Bill used the expression "has grown historically" I would go further and say "has grown higgledy-piggledy", which a great many of our companies have done. For example, a number of our large or medium-sized industrial groups or companies owe their size not so much to one particular activity as to a number of different, though related, activities in some of which greater size would give greater strength and efficiency.

My noble friend suggested that it would be desirable for Parliament to be informed by the Government and by the Corporation, when it is set up, of the spheres in which they propose to operate. I would, with respect, suggest to him that, just as in human affairs the earlier stages of courtship are not normally conducted in public, so in industrial courtships it is also normally desirable not to conduct them in public.


My Lords, may I intervene for a moment? What I was asking was in connection with the broad fields in which these activities are carried out. We have been told many times that it is within certain industries that this kind of amalgamation is required. I certainly was not suggesting that particular amalgamations should be ventilated in this House.


My Lords, I am glad to hear from my noble friend what he had in mind, but I think there is a limit to the amount of information that can be required in advance of any action of this kind. Those of your Lordships who believe, as I do, in the efficacy of market forces may well ask me the pertinent question: why is it that market forces do not produce desirable rationalisations, mergers, and so on, without the intervention of a statutory corporation? As has been said already, we have no absolute proof that they do not, and indeed, as the White Paper which has been quoted, Cmnd. 2889, acknowledges, they usually do.

But I think most of us who have studied the problems of industry have concluded, from our own studies in the spheres in which we work and from reading about other people's problems, that all is not absolutely perfect in this respect. I do not think that we can expect to get absolute, cast-iron evidence of this proposition, but most of us rely upon the feelings or the hunches that have come to us in the course of our experience in these matters in reaching this conclusion. But I think that is only part of the answer to that question about market forces. Incidentally, I was almost horrified to hear the spokesman for the Liberal Party seeming to tell us that he as a representative of the Liberal Party in this House no longer believed in the efficacy of market forces or that we were living in a market economy. Indeed we have moved a long way if that is the modern, up-to-date view of the Liberal Party.

I think the other part of the answer to that question is to attack the premise. The premise is that the I.R.C. will be going contrary to market forces. I do not believe it will do any such thing.


It is not meant to.


As the noble Lord has said—I was hoping he was going to say it—it is not meant to do that. It is on this point that I should like to address a few remarks to your Lordships. While I think that the I.R.C. has merits as an idea, I must confess that the Bill as at present drawn invalidates a great many of those merits. It invalidates them because it is drawn very vaguely, rather sloppily, and is a bit slovenly. I will explain what I mean. It has appeared to commend itself to the noble Lord. Lord Henley, who found it convenient that all sorts of things might be done, but I am bound to say it does not commend itself to me. I do not like the idea of Parliament setting up a new statutory Corporation which has no duty at all. It has functions, it has powers, but it has no duty. Perhaps there I should correct myself when I say it has no duty. The only duty it has under the Bill is in Clause 2(4) under which it has to carry out the general directions of the Secretary of State. The noble Lord shakes his head, but there is a difference between function, which is broad, and duty, and I think it important for reasons I am coming to that a statutory Corporation should have its job clearly defined.

I think it also important that criteria should be laid down by which it should govern itself in carrying out its function. After all, one of the objects of the Corporation is to increase efficiency in industry, and it surely is regrettable, to say the least of it, that Parliament should be contravening all the simplest tenets of commercial and industrial efficiency in failing carefully to outline duties and responsibilities and in failing to insist that the Corporation must itself carry out its activities with the utmost efficiency, the only criterion for which in the long run is profit: of course, not profit at once—no one involving themselves in activities like this can expect that—but at the end of a reasonable period, a profit achieved because its investments and loans are themselves profitable.

There is no great mystery about what the Corporation is intended to do. The former First Secretary of State has outlined it quite clearly in speeches and it is outlined in the White Paper in the two paragraphs which the noble Lord, Lord Winterbottom, in introducing this debate so agreeably—I would congratulate him on that—read to us this afternoon. It is my submission to your Lordships that the Bill would be strengthened, and should be strengthened, by the inclusion of a clause setting out quite clearly what the duty is and doing this by using the words that are used in the White Paper. Just to show noble Lords what I have in mind, a possible clause would read like this: It shall be the duty of the Corporation to identify those industrial activities where reorganisation, by amalgamation or otherwise, of production units is likely to lead to increased efficiency and profitability, and to encourage, and in appropriate cases to participate in, such action as is necessary to achieve that end and in all respects to conduct its own activities in a commercially profitable manner. I do not say that particular form of words is absolutely right, but I commend to your Lordships the desirability of having the duty clearly laid down in the Bill.

I believe that if the duty had been clearly laid down many of the doubts and fears outlined to us this afternoon so clearly and so forcibly by the noble Lord, Lord Drumalbyn, would not have been necessary. It is because of the absence of this duty, the absence of following up, and, as it were, codifying what has been laid down in the White Paper, that many people, I think, with respect, fail to share the view which the noble Lord who preceded me and I myself hold about the merit of the idea of an Industrial Reorganisation Corporation. There are, incidentally, some other points in the White Paper which at the Committee stage I think we might give consideration to embodying in the Bill also.

It may be said, and it has been hinted, that the distinguished and able men who have been recruited for the Corporation, and in particular the chairman and managing director elect, need no such written instructions. That may be so, indeed it is so, but we are not legislating for Sir Frank Kearton and Mr. Ronald Grierson; we are setting up a statutory body which, like other statutory bodies, is subject to Parliamentary control. And, as I reminded your Lordships, we are setting up a body which is concerned with industrial efficiency, and we must see that we ourselves are efficient in creating it.

This leads me to ask the Government I how is it proposed that this new body should be accountable to Parliament for its activities. Is the Secretary of State's account to the Comptroller and Auditor General (I think it is provided for in Clause 8) and the certificate of the Comptroller and Auditor General to be the only channel of accountability? Or is the I.R.C. to be subject, for example, to inquiries of the Select Committee on Nationalised Industries in another place? Mention of that Committee will perhaps indicate to your Lordships why it is, with my experience of seven years, or about that, as chairman of that Committee in another place, that I am stressing some of these points.

If it is to be so subject to inquiry of that kind, is there to be no limit set upon the information which that Committee may require the Corporation to disclose? Such information might, for example, affect the affairs of a number of privately owned companies with whom the I.R.C. was doing business, and might go far beyond the information which had to be disclosed and was normally disclosed under the Companies Act or the new Companies Bill when it becomes law. This might become a serious point, because unless it is quite clear what is involved in Parliamentary accountability we might find that quite inadvertently we have built in deterrents to rationalisation and merger operations, rather than incentives, as we all wish. Incidentally, I followed with full support the questions which the noble Lord, Lord Drumalbyn, asked about confidentiality of information in the hands of the Government. I would say it is just as important that information that gets into the hands of the I.R.C. should be kept confidential to them and should not be available to the Government. I think my noble friend would agree with that point as well.

I leave to the end the question of Government interference. I hope it is agreed on all sides that the Corporation will work best and most effectively in the interests of industrial efficiency and profitability if it is not subject to interference by the Government; and by interference by the Government I do not just mean directions, because that is not the way in which Governments have interfered in the last fifteen years with nationalised industries. It is much more interference by exhortation and persuasion. One would like to be assured, for example, that the general directions which the Secretary of State may give under Clause 2(4) will not relate to any specific proposals that he or his Department may have thought up for amalgamations and mergers, and, in particular, to the participation of Government funds in the resulting merged companies or corporations.

However, it is my belief that we should ensure in this Bill that commercial and industrial considerations are at all times dominant, and that Government requirements which run counter to economic sense, whether advocating subsidised rates of interest or whether they are directions about the way in which investments should be made, cannot be imposed on I.R.C.

I have mentioned the Select Committee on Nationalised Industries, and I think it is true that none of us here can avoid the conclusion that, in a way, this is a nationalisation Bill. For whatever may be the emotive force of that word, this is a nationalised Corporation, though it involves no expropriation of an existing body as most nationalisation Bills have done. It is because this is the first nationalisation Bill that has come before Parliament since I gained my experience as Chairman of the Select Committee on Nationalised Industries in another place that I have been making these points to your Lordships. My opinion—and this was supported by all-Party agreement in our discussion there—was, and still is, that many of the early failings of some of the older post-war nationalised industries were due to mistakes, and to vagueness and ambiguities in the drafting of the early legislation—mistakes which were put right by some of my noble friends in the course of later years.

If we now want to make the I.R.C. work properly we must, I submit, attend much more closely than the present draft of the Bill has attended to the delineation of the duties and the setting down of the governing criteria. For we must know by experience that all public bodies are subject to persuasive influences of Ministers, to the dogma of their political Parties, to public opinion as expressed through newspapers, serious and less serious, and to the influence of Parliamentary questioning and debate. Unless the originating Statute is absolutely clear on what has to be done, and how what has to be done is to be judged, there are great dangers that men, however good and however well-intentioned, who are in charge of the affairs, may drift off course.

I hope, therefore, that the Government, and others of your Lordships, will support me if I try, I hope in company with others, to improve the drafting of the Bill during the Committee stage. But, with that proviso, I should like to give my humble support to the idea behind the Bill.

5.53 p.m.


My Lords, on reading the White Paper I, like many others, got the impression that something really promising was being worked out. Then, when the Bill itself was published, like many others I found a development of the kind of anxieties that the noble Lord, Lord Shawcross, has so clearly put to us, a fear that this meant an extension of nationalisation. Many of us feel exactly as he does, that that is not necessarily going to contribute to efficiency.

We were somewhat relieved when the name of Frank Kearton was published as the chairman: that gave some reassurance. One must have a whimsical reflection on the liberalities of his recent expressions, verbal and written. But again it seems paradoxical that a really constructive thing, such as the merger of the great company of which he is the head with I.C.I., was opposed by him. That seems quite curious, because there were many (and I certainly was one among them) who felt that on grounds of research particularly, and again particularly in the fibre divisions, there was great advantage in the possibility of integration, and particularly because, in the possibilities then thought of, of our entry into the European Community, the size of the merged undertaking would be able to match that of the great Continental companies.

My noble friend Lord Aldington, who has just sat down, voiced many of the anxieties, which are justified; and he went so far as to make definite recommendations of improvement. But this is a Second Reading debate. Generally, on Second Reading of a Bill we discuss the basic principles, and not so much the actual details. It is natural now that anyone with any responsibility who has sat watching for a period of time the evolution of industry should ask, "Well, what other moves of a similar character have been developed in other, let us say, English-speaking countries?" Our minds can go back to our own Trade Facilities Act. We have the individual attack on industries like the cotton and the shipbuilding industries.

The noble Lord, Lord Winterbottom, in moving the Second Reading, referred to the cotton industry. That industry, in particular, from which evolved the Lan- cashire Cotton Corporation, was the result of specific action through legislation, and it achieved some success. Shipbuilding difficulties have been recognised by the present Government in special legislation. Speaking of having responsibility for controlling an industry, I look back to my time, some years ago, in a Government Department which was responsible for the administration of an industry. It is extraordinary how that can develop one's belief that collective activity is much better than activity under private enterprise. But one soon recovers from that noxious influence on the termination of one's appointment.

My noble friend Lord Aldington quite properly referred several times to the I.C.F.C., and I believe to the Commonwealth Finance Corporation and other bodies which exist here, and asked why they could not have been adequately reinforced in relation to anything that this Bill is proposing to do. One can look further afield, to Canada. I think the Canadians have a system of what they call Crown companies. They have achieved a great deal of what this Bill is, I suppose, aimed at. I would look in another direction, one which I think is the most effective, looked at from its speed of results—to the Industrial Development Corporation of South Africa, which has already shown the diversity into which legislation of this kind can go without impinging on the private enterprise principle.

I listened with great interest to the speeches which have been made in this debate to-day; it was a rewarding experience because this is a great proposal for the development of industry. I had intended to probe, so that when the noble Lord, Lord Shepherd, comes to reply he could give me some further information. But my noble friend Lord Drumalbyn put forward a series of inquiries for elucidation which I am sure Lord Shepherd will need to take a long time to answer. So pointed and wide-ranging were Lord Drumalbyn's questions that, they left little for anybody else to add.

Lord Drumalbyn said that he hoped that only persuasion would be used to produce mergers. While echoing that broad hope that any other measures should be avoided, I should like to ask Lord Shepherd how Clause 2 of the Bill, which appears to indicate that there must be direction from the Secretary of State, would apply to a particular sector of an industry where the fragmentation of small firms prevented any movement which would eliminate competition and lead to the survival of the fittest. This looked like happening in the shipbuilding industry, and it may also happen in other industries. I should like to ask the noble Lord how that problem will be tackled. Is the D.E.A. to have the power, responsibility or authority of indicating to the Industrial Reorganisation Corporation that it should move into such an industry? And, if voluntary action does not work, at what point, and in what way, will the power under this Bill be used to achieve progress? One can readily picture situations in industry where that sort of movement not only would be profitable, but would also be desirable in contributing to the health of the economy of the country as a whole.

One is inclined to compare the proposed powers under this Bill and the way in which they will function with other examples which we have had before us. For example, the Port of London Authority can raise money independently of Government funds; and I recall my own experience in the Central Electricity Board (of which I was a member for seventeen years until the noble Lord, Lord Citrine, empowered by a nationalisation Act, took it over and became its head, and great success attended his direction of it) which achieved a great integration of private firms without resort to Government financial assistance. It operated under the statutory powers of civilian management without Government finance, and I believe that it did a pretty good job and provided a good foundation for what the noble Lord, Lord Citrine, took over.

I hope that examples of this sort will be scrutinised by this Corporation so that it can avoid the grave misgivings voiced by the noble Lord, Lord Shawcross, that this Bill might move towards nationalisation on a larger scale than has occurred hitherto. But certainly in regard to fragmented industries, I believe that there is much room for improvement. My Lords, it is in that spirit that I suspend any misgivings, and hope that we shall see a constructive attitude behind this Bill. I therefore give it my support.

6.5 p.m.


My Lords, we have had a most interesting debate this afternoon upon what in another place proved to be a very controversial Bill. The contributions from the noble Lord, Lord Shawcross, and others indicate a fairly substantial measure of support for what is an imaginative and interesting Bill. I had prepared a good deal of material this afternoon on matters which I should have liked to raise, but they have already been covered by earlier speakers. Therefore, as there is another Bill to be discussed to-night, I will be brief; although that does not mean to say that I am not interested in the Bill and would not have said many things about it had they not for the most part been said already.

My first anxiety is how the Corporation can be a profitable Corporation. The noble Lord who introduced the Bill in such an interesting way emphasised that the Corporation was to be profitable over the long-term, not the short-term. But the difficulty which besets the Corporation, as I see it, is that the really profitable, good mergers will take place in any event, assisted, where necessary, by existing institutions. It will always be operating on the margins, on the ones which the existing institutions are not quite prepared to take on and which may or may not be profitable. Or the Corporation may even have to go into an area where mergers are not likely to be profitable but which should be undertaken for some reason other than profit-making.

Much the same problems arose between 1945 and 1951 for two bodies which were set up by the then Labour Government. The first was the Colonial Development Corporation which was faced with exactly the same problem. If there was a profitable development in a Colony, private enterprise took it on. Therefore, the C.D.C. were left with only the doubtful starters, such as the mineral bodies which no mining company thought worth while exploiting, or the hotel project in British Honduras which no hotelier thought worth risking his money on. The result was that the C.D.C. had a very shaky time. The other body was the National Research and Development Corporation—again an imaginative scheme which sounded good at the time—a national body set up to take over the great task of exploiting Britain's many unused inventions which were lying mouldering in the files of the Patent Office. It was going to take over inventions developed in Government Departments and so on. It was a great concept, but they had great difficulty, and I think still do, in using up the money which was granted to them because they, too, operate on a very narrow band. All the good inventions are eagerly taken up by industry, and, apart from the inventions of the cranks, there are only a very few which merit the attention of this Corporation.

I feel that the real difficulty which is likely to face the I.R.C. is that of finding groups of firms suitable for merging which will produce a profit in the long run. Furthermore, of course, there will be the danger that the powerful board, in desperation after two or three years at having got rid of only three or four million pounds of public money, may be tempted to take greater risks than they should normally undertake. They will say, "We have not made much progress. We ought to do more. Perhaps we have been too cautious. Perhaps we should go for this merger proposal which a year ago we thought was not likely to be profitable." If they succumb to that kind of temptation, then before long the Corporation will get a bad name, and in a few years' time we shall be having a debate in your Lordships' House to discuss the appalling losses of the Industrial Reorganisation Corporation. I hope that this will not arise. Indeed, I make the point in my speech so that we can all help the Corporation to guard against this danger.

Now I wish to turn to the matter which was mentioned by the noble Lord in opening, when he said that we should not bring emotion into this discussion. My noble friend Lord Drumalbyn touched on that. I hope that if we have a difference of opinion with the Government it will not be dismissed as being emotional. After all, they have done enough to us in the last two years for us to feel very emotional about the Government as a whole. I think we are quite entitled to express in strong terms what we feel about Government policies, and particularly about whether or not the Industrial Reorganisation Corporation is to be an instrument for nationalisation.

I know it can be a somewhat esoteric argument, but the point I should like to make is that it is always a one-way traffic. The Government are always taking on a bit more in one way or another: they never relinquish anything. They never put back to private enterprise what they once have held, although there are a number of cases where they could perfectly well do so. That is why we must watch very closely indeed any further extension of State intervention into the field of British industry and commerce.

The intentions of the Labour Government were quite clearly expressed in Signpost to the 'Sixties. With your Lordships' permission, I should like to quote one sentence from it: Already we can see public ownership developing in various forms, nationalisation for a whole industry or firm, State participation in industrial companies on a partnership basis, the establishment of State-owned undertakings competing with private firms, municipal enterprise and, finally, co-operative ownership. The Labour Party are perfectly entitled to hold this as their view. I think that the Industrial Reorganisation Corporation slots very neatly into that sentence which I have just read out. Noble Lords opposite nod in assent. This is what we complain about; this continual encroachment into the field of private industry and commerce, under the thin excuse that such intervention is needed in order to create a greater measure of industrial efficiency.

I have looked at much comment in the Press and elsewhere on the Industrial Reorganisation Corporation. I think it should be realised that, although most noble Lords have this afternoon given a favourable wind to this Bill, there are important elements of industrial opinion which are opposed to it, as I am. I should like to quote what the board of Imperial Chemical Industries had to say when the White Paper came out. This was a very unusual statement. It is rarely that one gets a board of a large public company making a united statement on a matter of Government policy. This was not just Sir Paul Chambers speaking as a public figure in his own right; here is the board of Britain's largest public company making a statement as follows: Although the Board of I.C.I. have consistently followed a policy of assisting the Government of the day in any measures which might be in the interests of the country, they feel bound to make known their attitude to the proposed Industrial Reorganisation Corporation. In their view, while further rationalisation of some section of British industry is desirable in order to accelerate the rate at which productivity can be increased, the method proposed by the Government is undesirable and will prove to be ineffective. The general tone of the very brief White Paper on this subject and the reference to Exchequer Dividend Capital confirm the impression that the Government Intends to extend its control over industry, to interfere still more with individual initiative, and to further the policy of the public ownership of the means of production which the Government is committed to implement in one form or another. I will not elaborate on that, but I think your Lordships should know that that is the considered view of the whole board of Britain's largest industrial company.

The noble Lord, Lord Henley, wanted to know why we as a Conservative Party were attacking the Bill so much. Our answer is that it is not because of the way in which the Government say it will be used, but for the way in which it is capable of being used. I was reassured to be told that the Industrial Reorganisation Corporation will use only persuasion. But, of course, persuasion can take many forms. I can quite see the situation arising where there are perhaps five firms which the Corporation wishes to merge, but one chap does not want to be merged. He is doing quite well, he has a good little business exporting its fair share, and giving steady employment to perhaps 200 or 300 work-people. So the Corporation will say to him, "Well, of course, it is going to be very difficult for you if you are the odd man out, because you will be a small man competing against the merged giant. Hadn't you better come along in and join us?" I do not see how the Industrial Reorganisation Corporation can resist that form of coercion, and I think it will be most unfortunate—


My Lords, would not the noble Lord agree that this same state of affairs arises when an ordinary merchant bank produces a scheme of this nature?


My Lords, that is usually only a merger between two. It is very rarely—in fact, I cannot think of a case on the spur of the moment—that a merchant bank has successfully produced a merger of five or six companies simultaneously, or of virtually the whole of a particular branch of industry.


My Lords, would the noble Lord refresh my memory? Did not the Conservative Party assist rationalisation in the aircraft industry by threats or otherwise, with the possible withdrawal of orders unless there were amalgamations within that industry? True, it was for the national interest, but this was the case, was it not?


Yes, my Lords. But there the situation was rather different, because the Government were using their power as the industry's largest customer. There is a very big difference if you are a customer. Undoubtedly, although some mergers take place by what are called "market forces", they are, of course, the combined activities of customers, in buying or withholding their custom from some firms and not from others. It is on quite a different footing from the proposals about the way in which the Industrial Reorganisation Corporation is to act.

I hope very much, therefore, that the Corporation will be scrupulously careful in the way it approaches small firms as well as big ones. The noble Lord. Lord Shawcross, said a great deal about the importance of size, but we must also remember that although there may be many firms in the engineering industry that is because it is a very big industry. There are small firms as well as big ones, and particularly there are those which serve individual localities. I can quite see that for the sake of so-called tidiness, one will get mergers between a number of scattered firms in the country, and the benefit will be that they are bossed by some remote head office of the group. An engineering firm in Gloucester, for example, may be very well placed to supply its customers, and will not stand in any need of being merged with other companies in other parts of the country, even though they are making similar products. So let us not go in too much for tidiness, in the belief that marriage for its own sake is necessarily a good thing.

Before I sit down, I should like to deal with the rather unpleasant remark—the only unpleasant remark which the noble Lord, Lord Winterbottom, made in the course of his speech—about my esteemed friend and colleague, Mr. Enoch Powell. Mr. Powell expresses his opinion forcefully and vigorously, but it is sincerely held. At no time in his recent statements has he indulged in what the noble Lord has called "class warfare". I think it is very important that he should remind the country that there are alternative solutions to those proposed by the Government. This is a growing disease, if I may say so, among members of the Government to complain if we venture to differ from them and to suggest alternatives. The noble Lord, Lord Champion, may not have been in the Chamber when we were told that we must not be emotional because we ventured to disagree with the Bill. We intend to be emotional when required, and give notice that we shall do so as often as we wish if we are sufficiently provoked. Having said that, I would say that we will not oppose the Bill on Second Reading, but we will, of course, return to it on Committee stage and hope to introduce some modest improvements.

6.19 p.m.


My Lords, may I first of all say to the noble Lord, Lord Erroll of Hale, that if he were a salmon he would not survive very long; because, I must say, of all noble Lords in this House, I have never known any noble Lord to be so quick to rise to the fly which is cast upon the waters. But I am quite sure that this is really due to the noble Lord's desire to enjoy the debates of this House.

This has been to me a most interesting debate, although I must confess not an easy one to wind up on Second Reading. Many of the points should perhaps be explored in detail in Committee. May I say, particularly, to the noble Lord, Lord Shawcross, that I enjoyed his speech, and I agreed with a great deal of it. I think it was the noble Lord, Lord Conesford, who the other day accused me of generalising. I thought that the noble Lord, Lord Shawcross, was falling into that trap when speaking so freely and so warmly of the free enterprise system, as though the tree enterprise system is one of all virtue and no vice, and as though we who sit on these Benches, and perhaps loosely describe ourselves as Socialists, have no virtue. I think that we can all fall into the trap of generalising. I wish the free enterprise system had all the virtues which the noble Lord, Lord Shawcross, now believes it to have. In a few days' time we shall be debating the problems of redeployment and the problems of retraining, and I hope the noble Lord, Lord Shawcross, will be here, because this subject provides, perhaps, one of the best examples, of the failure of free enterprise—the failure to nurture and develop what is one of our greatest assets, the use of our manpower. But at this late hour I do not wish to go on debating the virtues of one system or the other characteristics of the other.

May I say to the noble Lord, Lord Shawcross, and to the noble Lord, Lord Aldington, in regard to their criticism about the loose drafting of this Bill, that that has been done for a purpose? We felt that the Corporation should have as wide an authorisation as possible. I well remember how, when we were in Opposition (the noble Lord, Lord Drumalbyn, in particular, will remember this), we moved Amendments to a number of Bills, which the noble Lord, Lord Drumalbyn, had in his charge on behalf of the Conservative Government, so as to try to lay down the duties of certain Boards. He was right—although we did not necessarily agree with him at the time—when he said then that when you try to lay down a duty the problem is how you define it. Do you put it in such a wide way that all the possible requirements are in the Bill? I will read very carefully the suggestion of the noble Lord, Lord Aldington, as to a proposed Amendment. I should be very happy to discuss it with him, as would the Department, because if he wishes to improve the quality of this Bill then I am with him 100 per cent. But I think we must watch very carefully that we do not put constraint upon this Corporation.

In reply to the noble Lord, Lord Shawcross, in regard to tenure of office and his fear that members of this Corporation might be dismissed by the Secretary of State if he disapproved of their actions, I would point out that the specific grounds under which the Minister can dismiss a member of the Corporation are laid down in the Schedule. The noble Lord was quite right in saying that there is no period of office mentioned. I understand that one of the difficulties here is that members of this Corporation may wish to serve for varying periods of time. I have no idea how long the chairman himself wishes to serve as chairman of this Corporation; or, indeed, any of the other distinguished members of it. I understand that the view of the Government at the present moment is that there should be a period of three to five years; but I think one must try to leave it to the discretion of the chairman of the Corporation and the Secretary of State to say what the period should be. Whether we can give the protection the noble Lord has in mind is a matter which I shall certainly consider with my right honourable friend.

I would certainly agree with the noble Lord, Lord Shawcross, about bigness of industry. Bigness is not always a sign of efficiency, nor do small companies necessarily have less to contribute. But, unlike the noble Lord, Lord Shawcross, I came from business into politics, and, as the noble Lord, Lord Barnby, knows—I have spoken to him many times about the industry in which he is particularly concerned—I am quite sure from my own experience of selling overseas that if there had been amalgamations, mergers, between companies in the wool industry their position in many markets would have been infinitely stronger, not merely on the grounds of production but through their ability to carry out research, and even in the designing of materials and colours.

On Lord Aldington's point about the Corporation's accountability to Parliament, may I say that clearly its report could be a subject for debate. It is a report that will have to be published within four months from the end of the accounting period. Moreover, the Minister himself will be responsible to Parliament for any instructions or directions that he may give to the Corporation; and certainly I should have thought that the occasions when the Minister or the Treasury are making funds available to the Corporation would provide opportunities for accountability through the Estimates Committee of the House of Commons. But I will see that the noble Lord has a fuller reply on this point.

I would assure the noble Lord, Lord Aldington, that the Government and the Minister do not intend to interfere with the everyday running of the Corporation. In fact, it must be taken of great significance that although, under Clause 2(1)(b), the Secretary of State may request the Corporation to undertake an enterprise, the Corporation is not obliged to carry out that request. Subsection (1) says the Corporation "may" do it. Furthermore, the words in subsection (4) are, "of a general character". To those who fear that the Secretary of State might instruct the Corporation to nationalise a particular industry, I would say that I do not think that such an instruction would come within the phrase, "of a general character". I am quite sure that the fears of those noble Lords who are afraid that this Corporation will be used for the nationalisation of one company or of a number of companies are entirely unfounded.

I was very grateful to the noble Lord, Lord Henley, for his support, and for his quotation from the comments and views of a very distinguished member of the Conservative Party—and I hope the noble Lord, Lord Drumalbyn, will take note of them. There are times, as the noble Lord, Lord Henley, knows, when the Conservatives do come up with good ideas. One of their greatest failures, I think, is the implementation of such ideas—and this is perhaps one of the matters which we shall be able to discuss when we come to debate retraining and, in particular, the Carr Report, which was issued in 1958 but the legislation on which we did not get until 1963.


Who blocked that?


We shall be able to debate that in a short time.

My Lords, I listened very carefully to the noble Lord, Lord Barnby. He, again, I think, was interested in the power of direction by the Minister and the use of public and private funds. In its promotion of mergers this Corporation will not necessarily be using public funds. As I said in a debate some time ago, when we were discussing the proposal to set up this Corporation it may well be that mergers could be brought about through the initiative of the Corporation, although any capital needed would be provided by the merchant banks, or even by other market institutions. Indeed, in some cases the guarantees which this Corporation will be able to give will ensure that private money becomes available for a proposed merger. There may be occasions when public funds will also be of benefit to companies, but it will be for the Corporation to decide how best to bring about mergers.

I think it was the noble Lord, Lord Drumalbyn, who used the terms "marriage broker" and "mother-in-law", in the sense that the Corporation will arrange the marriage and will then find out how best to make the marriage a success. Clearly, the Corporation's task will be to bring about a merger, but there are various problems involved in mergers, or, perhaps, reasons why a merger needs to take place. One has merely to look at Clause 2(2)(d), in regard to the supply of plant and equipment—and I am thinking here particularly of engineering industries; those industries which prefabricate and carry a considerable quantity of spare parts. Here you would have an amalgamation of two or three companies into quite a large organisation. Clearly, a computer would be of great value for stocktaking, processing, and anticipating sales developments and the like. It might be that in that amalgamation initially there would not be sufficient funds, and the Corporation might help by providing a computer.

There is another point—and I hope the House will not think that this is wrong. It might be that in an amalgamation the I.R.C., by supplying particular equipment, would be able to help other industries that are producing new forms of equipment, such as computers. This could be a two-edged way of assisting industry.


My Lords, I am not clear about this. Could the noble Lord explain what are the advantages of supplying machinery, rather than supplying money to buy the machinery? The only advantage that I can see would be if a stock of materials and plant were held and an entirely new kind of leasing business were entered into.


My Lords, the noble Lord is quite right. It might be advantageous to the merger that money should be provided—and money can be provided. On the other hand, it might be that the firms concerned would prefer to receive equipment, either on loan, on rental or on lease. So the Corporation has this flexibility to assist in a particular merger in whatever is the most suitable way.

May I say to the noble Lord, Lord Drumalbyn, that I thought much of his speech had a familiar ring; it was very much like a speech that was made in another place. I am sorry he was not satisfied with the answers that my right honourable friend gave, and I hope I can go some way to satisfying him. I will not say that I can go all the way, because he put his questions so quickly that I was not able to take a note of them all. But I will see that the noble Lord receives replies, either this evening or by letter. The main fear of the noble Lord was with regard to information. He thought that the Corporation might be in a privileged situation; that it could obtain information from Government Departments. I think he had in mind the Statistics of Trade Act. I would assure the noble Lord that this Corporation will be no more in a privileged position than any other commercial organisation in this country. I think those words will be sufficient to cover all the various questions he asked in regard to information. The Corporation will be in no special privileged position.

The noble Lord went on to ask whether, in the case of bringing about a merger, the Board would have to obtain approval from the Board of Trade in regard to the Monopolies and Mergers Act. This was the point the noble Lord, Lord Hawke, made. The noble Lord will remember that the Monopolies and Mergers Act defines a monopoly situation as that which obtains when a company or a group of companies provides 33⅓ per cent. of the home market.


Or where the merger will result in its doing so.


Yes, my Lords, the noble Lord is correct. It is when the merger will result in that situation. As I understand it, under the Act ordinary companies who wish to undertake a merger may consult with the Board of Trade. It is true that the advice that the Board of Trade may give may not be 100 per cent. binding and that the merger may still be referred to the Monopolies Commission, but, in practice, I think the advice of the Board of Trade would be such that a company could decide whether to go on with the merger or not. As I understand it, the I.R.C. would be very much in a similar position. It is clear, when you look at the requirements of Clause 2(1), that the Board would be in close consultation with the Board of Trade on any possible mergers and that advice would be sought. I do not expect this Corporation to undertake or permit or encourage a merger which is clearly contrary to the public interest.


My Lords, is the noble Lord quite right in what he said about monopolies legislation. Is not the position this: that the noble Lord's own Government introduced legislation making it possible for the Board of Trade to refer to the Monopolies Commission any merger involving a joint capital of over £5 million? There is no question of having two-thirds of the market in that provision. Of course, these matters go to the Monopolies Commission only on reference by the President of the Board of Trade, and presumably there would be discussions before any such mergers were arranged.


My Lords, I am grateful to the noble Lord. He is quite correct in terms of the £5 million capital.


My Lords, is the noble Lord certain that the noble Lord, Lord Shawcross, is correct? Is it not £5 million worth of assets taken over, and not that the joint assets will amount to £5 million?


My Lords, this is one of the occasions when my carrier pigeon has not come to my assistance. I will look into it. I was under the impression that it was 33⅓ per cent. of the market; the noble Lord, Lord Shawcross, thinks it is a joint capital of £5 million. I will look into it and write to the noble Lord.


My Lords, we should all like to know.


My Lords, the matter will be raised in Committee.

In regard to Clause 1(6), the noble Lord wanted to explore the situation of the status of the Corporation. It is clearly not protected by Crown status. Subsection (6) makes it perfectly clear that this Corporation will remain in the same category as any other merchant bank or, to use the phrase used by the noble Lord, Lord Henley, any super-merchant bank.

I should like to take up one point with the noble Lord, Lord Erroll of Hale, in regard to profitability. The Government hope that this Corporation will be profitable, that it will earn, particularly from equity capital, a reasonable and fair return on the money invested; but I do not think we should judge this Corporation only on its profitability in terms of profit on capital. I see it very much as the servant of industry. I think we shall have to judge it in the years to come in relation to the mergers that have taken place and the results of those mergers. I do not take quite the view of the noble Lord, Lord Erroll of Hale, that only broken-down organisations are likely to be affected by this Corporation and that virile companies will go to the private merchant banks. I know, from my own commercial experience, of a number of very good companies that could well be merged but for difficulties in the way of finance. I believe that the noble Lord, Lord Erroll of Hale, was right in one regard: that we must be patient in seeing the operation of this Corporation. I hope we shall be able to judge its success not only on the profit it earns for the community but also, and above all, on the effect it has on the structure of industry.

My Lords, I am quite sure that I have not answered all of the questions of the noble Lord, Lord Drumalbyn; but I will see that he is supplied with answers to them; particularly as I hope the House will agree that we should take the Committee stage of this Bill on Thursday, December 8. That is only about a week from now; but, as my noble friend Lord Winterbottom said, the members of the Corporation though it is not yet formerly established, have been undertaking some work; there have been a number of very important inquiries. I am quite sure that the noble Lord, Lord Aldington, as a merchant banker will agree with me that some mergers, if they are delayed, may well be lost. Therefore, I think there would be considerable advantage, not only to this House but also to industry and to the country, if we could try to have this organisation in existence by the New Year.


My Lords, may I interrupt the noble Lord to ask whether it is absolutely essential that we have the Committee stage on Thursday next? The noble Lord has kindly asked me to have consultations with him, which I propose to do, but the time is short in which to get the consultations over—presumably they will not start until Monday or Tuesday—and then get something on to the paper which we can discuss on Thursday. It seems very quick when we are dealing with a major problem.


My Lords, I have had consultations. I did not realise there was any particular difficulty, but I will certainly have a conversation with the noble Lord, Lord Aldington, to see what can be arranged with regard to business. At the same time, I hope that the noble Lord takes my point about the need to try to ensure that this Bill receives the Royal Assent by Christmas, recognising also that if the noble Lord is successful in amending the Bill there will be need to send it back to another place for approval. But we can look again at the timetable.


They will agree with it automatically.


My Lords, there seems to be rather a vital question at issue here. If I understand him aright, the noble Lord, Lord Shepherd, is saying that there are some possible mergers which might fail unless this legislation is enacted. If no public money is involved there is nothing to prevent those mergers from going on whether or not the Corporation has a legal status. On the other hand, if public money is being pledged now, without any Act of Parliament, is this constitutionally correct?


My Lords, I have not said anything of the sort I said there have been a number of inquiries, which means that there are organisations which are interested and which would like to merge and receive assistance from the Corporation within the terms of this Bill, when it becomes an Act. There is no impropriety here at all. What I said was that if there is delay there is always the possibility that possible mergers may fail. Therefore, I am very anxious to see this Bill on the Statute Book by Christmas. But I certainly will do my best to see that all opportunities for discussion are provided between now and the Committee stage. I will always be available to any noble Lord who wishes to see me or to see the Department concerned. With those rather inadequate remarks, I hope that your Lordships will give this Bill a Second Reading.

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