§ Brought from the Commons on Friday the 12th instant, and printed, pursuant to Standing Order No. 45; read 1a.
§ Then, Standing Order No. 41 having been dispensed with (pursuant to Resolution):
§ 2.41 p.m.
§ THE PARLIAMENTARY UNDER-SECRETARY OF STATE FOR COMMONWEALTH AFFAIRS (LORD BESWICK)
My Lords, I beg to move that this Bill be now read a second time. In 1964 this House debated the Shipbuilding Credit Act under which credits totalling £75 million were provided to finance the purchase of ships by British owners. This Bill, three years later, provides for grants of about £5 million, together with loans of £32½ million and up to £200 million in Government guarantees, for British ship purchases. The 1964 credit scheme was intended to provide a breathing space in which our shipbuilders would be able to strengthen their competitive power. In fact by the end of 1964 it was already clear that these hopes were unlikely to be fulfilled and in February, 1965, the Government set up the Shipbuilding Inquiry Committee under Mr. Reay Geddes, the Managing Director of Dunlops, to recommend steps which both sides of the industry and the Government should take to make the industry competitive in world markets.
The present Bill follows the acceptance by both sides of the industry of the Geddes Report's proposals for restructuring the industry under what the Bill calls "grouping schemes", and for the redeployment of the industry's physical and human assets—what the Bill calls "the reorganisation of resources". It is a plan with a timetable designed to put the industry on to a viable basis by 1970. The assistance provided under the Bill is to be administered by an independent Shipbuilding Industry Board and at each stage it will be the responsibility of the Board to satisfy itself that appropriate progress is being made towards grouping and the reorganisation of resources before assistance is given.
Clause 1 accordingly provides for the establishment of a Shipbuilding Industry 5 Board as an independent statutory body, consisting of not less than three nor more than five members. This Board has already been set up on a non-statutory basis and has begun its preparatory work, and was recommended in the Geddes Report. The Chairman is Sir William Swallow, lately Chairman and Managing Director of Vauxhall Motors, Ltd.; and the other two members are Mr. J. Gormley, of the National Union of Mineworkers and Mr. A. E. Hepper, of Thomas Tilling Group, who is at present seconded to the Department of Economic Affairs for service as one of the Government's industrial advisers.
Under Clause 1 the Shipbuilding Industry Board is not only to concern itself with the administration of financial assistance to individual firms or groups but is empowered to carry on other activities designed to promote the industry's competitive ability. It is, of course, in the individual firms that the main battle to make the industry competitive will have to be won, and it is on this that the Board will have to concentrate its attention. But there are matters which can conveniently be dealt with on a national basis by and for the industry as a whole: for example, standardisation, more adequate statistical information on turnover and productivity, market studies and such subjects as health and safety codes which have a significant hearing on industrial relations. Provided that these other activities are in support of the efforts of individual firms to become more competitive and do not divert attention from them, the Government believe that it will be helpful for the Board to have power to initiate, stimulate and assist action of this kind.
Clause 2 enables the Board to contribute to the cost of consultants on grouping schemes within a maximum figure of £150,000. Some noble Lords may be aware that preliminary steps towards grouping have already been taken. While the Geddes Committee was still at work two yards on the Lower Clyde came together, and shortly after the Committee had reported the Swan Hunter shipbuilding concern joined up with the large ship-repairing organisation, Smiths Dock. In both cases the firms recognised that these were only preparatory moves towards grouping of the type the Committee proposed. In recent weeks five firms on the Upper Clyde have set up a consultant 6 working party by arrangement with the Shipbuilding Industry Board to examine possible grouping arrangements in this area. A similar working party has also been established by five firms on the Wear, and further consultant studies are likely to be undertaken before long. These studies are all being planned or undertaken in the hope that they may qualify for assistance under Clause 2 if this Bill is passed.
Clause 3 concerns the reorganisation of resources, a process which is likely to involve considerable costs, whether by way of actual expenditure or because of the firm's inability to make the best use of its resources during the process of reorganisation. It will be seen that a limit of £5 million has been set for grants of this kind. Most of the assistance under this Bill—and in particular the grants under Clause 3—is not intended to help firms do what they would have to do anyway in their own interest as a condition of survival. It is to be concentrated in support of that extra effort needed to bring about big changes in the general structure of the industry which will make our shipbuilding industry as a whole more competitive. For the Government accept the basic thesis of the Geddes Report; namely, that the future of the industry depends on the leadership of the new groups, the formation of which is the primary objective of this Bill.
I should, however, draw the attention of the House to the fact that the Bill also covers the manufacture of main engines. Much of our capacity for the manufacture of ships' main engines has grown up within the shipbuilding industry, and there are a number of what are known as composite yards comprising both a shipyard and an engine works. In recent years a number of these engine works have produced only one or two a year. The works have been largely engaged in engine installation and all kinds of jobbing engineering work. The manufacture, assembly and testing of main engines have recently represented only a small proportion of the business of a number of these so-called engine works. The Geddes Committee believed that main engines could not be economically and efficiently produced in these circumstances and recommended that the manufacture of main engines 7 be segregated from shipbuilding and concentrated in a very much smaller number of main engine shops—possibly only three or four—each with the kind of output which would make efficient production possible. Although this rationalisation might be achieved through the grouping of the companies, the resulting rationalised production facilities would not be organised like a shipbuilding group, and grouping is not a necessary prerequisite to rationalisation as is the case with shipyard groups. This is why grants in respect of the reorganisation of resources are not limited to groups in the case of engine manufacturing, as they are in shipbuilding.
Clause 4 enables the Board to make loans, not exceeding £32½ million in total, to assist reorganisation. In the case of shipbuilding groups and main engine manufacturing firms the loans may be for any of the undertaking's purposes; that is to say, either for working capital or for specific projects. On the other hand, in the case of shipbuilding firms which have stayed outside any grouping, the loans may be only for the specific purposes set out in the clause. These provisions for grants under Clause 3 and for loans under Clause 4 follow the recommendations in Chapter 26 of the Geddes Report. In both cases the responsibility for considering grant or loan applications has been put on the Shipbuilding Industry Board as the Report recommended, although each grant or loan will require the approval of the Minister of Technology so as to secure proper Parliamentary control of this assistance to the industry.
In Clause 5 the Bill departs from the Geddes Report, but only in a technical respect. The Report envisaged that the loans for which provision is made in Clause 4 might be for periods of up to 15 years, and it recommended that the Board should be entitled to make them interest-free in the first two or three years. The Government accepted this proposal in principle, but considered that it would be better to empower the Board to make grants in relief of interest so that the monetary value of this concession should be brought into the open. Clause 5 provides accordingly.
Clause 6 again involves a departure from the Geddes Report, though no fun 8 damental difference in principle is involved. The Report concluded that nationalisation or State participation in individual firms was not essential, as some had suggested, so far as the competitive success of this industry was concerned. The Government considered, however, that it might be helpful to the Board to be able to provide loans under arrangements which enabled their conversion into an equity holding or to subscribe to a firm's shares instead of providing a loan, and this is what this clause provides. It will be for the Board, subject to the Minister's consent, to decide the terms on which to provide capital assistance.
There are two main advantages, as the Government see this arrangement. Some firms may do very well financially as a result of the reorganisation assisted by these loans, and the Government believe it to be only right that the public purse which provided the assistance should have the opportunity to share in any resulting profits. Secondly, the Board may decide that in a particular instance it needs to play an active role in securing management changes, and that its ability to secure such changes would be improved if it were a shareholder rather than merely the provider of loan capital. Some may say that some firms will welcome this as opening up the possibility of getting capital by way of equity more cheaply than they could by way of loans. But this is certainly not the Government's intention. Their object is to ensure that the Board can make the terms most likely to enable the public to participate in profits resulting from public expenditure, and not to find a way of giving the industry capital at little or no cost to the firm concerned.
I now come to Clause 7, the last important clause in the Bill. It enables the Minister of Technology to give guarantees to facilitate the financing of ships by British owners from British yards, subject to the liability under guarantees not exceeding £200 million at any one time during the four to five years for which the scheme is to run. At first glance this may appear similar to the 1964 credit scheme. It is not so in a technical sense, because in 1964 the loans were made by the Government, whereas under this clause the Minister will give guarantees in much the same way as the Export Credits Guarantee Department gives them in 9 respect of exports. The loans will come from the banks, and the Government are grateful to them for agreeing to make loans available against these guarantees at the same rate as for medium-term loans under E.C.G.D. guarantees—at present 5½ per cent. The essential point of this scheme is that the guarantees can be made available only if the Shipbuilding Industry Board so recommends, having taken into account the considerations in subsection (3) of the clause. In short the guarantee provision is used to reinforce, rather than weaken, the assistance provided under the other clauses of the Bill for the reorganisation of the industry which, as we believe, is essential to its future competitive strength.
I do not wish to detain the House on the remaining clauses. Provision is made for reports to Parliament, for the dissolution of the Board and for the Bill's application to Northern Ireland. I would only draw attention to Clause 11 which provides for the establishment of a Shipbuilding and Ship Repairing Council during the period of reorganisation, as a means of consultation between the Board and the two sides of the industry both on the Board's own work and on any other matter affecting the industry's prospects.
Two general questions which noble Lords may wish to ask are why this industry should be picked out for this assistance, and whether this assistance will succeed in making the industry competitive. Shipbuilding is, of course, one of our traditional industries on which our greatness and prestige was based. It supplies the Royal Navy with the ships required for our defence. Although it is not now a big industry, it also provides business to many supply industries, and its own direct employment is concentrated in those areas which particularly need to maintain and increase employment opportunities, especially the North-East, Scotland and Northern Ireland. But all these are in a sense secondary considerations, for unless the industry increases its competitive power it will be a source of weakness to the country and to the economy of those areas in which the shipyards are situated.
If they thought there were no hope of British shipbuilding becoming competitive, the Government would be proposing quite different measures designed 10 to facilitate the declining years of a once-great industry. But the Government believe that the Geddes Report provides the necessary plan for success and that the assistance provided under this Bill gives the industry the necessary support in reorganising itself to meet world competition. But it is on the will and efforts of those in the industry, management and workers alike, that success will ultimately depend. It is to them that the Bill presents both an opportunity and a challenge: and it is in the belief that the right and proper role of the Government is not to relieve this or any other industry of the need to be competitive but rather to lead and assist the industry to meet the competitive challenge that I ask the House to give this Bill a Second Reading.
§ Moved, That the Bill be now read 2a.—(Lord Beswick.)
§ 2.58 p.m.
§ LORD DRUMALBYN
My Lords, I am sure the whole House is grateful to the noble Lord for his survey and presentation of this Bill. It has been introduced to your Lordships' House in circumstances of rather unusual haste. We fully recognise the need for getting it on to the Statute Book as quickly as possible, but we hope that it will not be treated with indecent haste. In particular, I hope that between now and the next stage an opportunity will be given for those noble Lords who have practical experience, either as suppliers or customers or indeed as producers in the shipbuilding industry, to consider the Bill in more detail on the Committee stage.
It can hardly be disputed that British shipbuilding as an industry is not as healthy as we should like it to be. It is not just that since 1955, while world output has increased nearly 2¾ times its level then, British output has declined by over a quarter, and the British share has dropped from 28 per cent. to 8 per cent. of world output; and that despite the fact that £60 million had been spent by the industry in the ten years following 1955, so that in the opinion of the Geddes Committeein general the British shipbuilding industry is not behind its competitors, so far as modern equipment is concerned";despite the fact also that £75 million was made available to British shipowners to encourage them to buy British-built 11 ships; and despite the fact that export credits were improved to make it easier for the industry to sell abroad. Indeed, in 1965, when the effect of the £75 million credits had started to wear off, 62 per cent. in tonnage terms of the industry's orders came from overseas purchasers.
At the time when the Geddes Committee was appointed, the United Kingdom's share of world output was 10 per cent. Since then, our output has remained almost stationary, while world output has risen by 40 per cent. In terms of orders placed last year, the situation is still more serious. Last year, little more than one-fortieth of world orders, in terms of tonnage, were placed in this country; and the ships that were built here were showing very little profit. A year ago the Geddes Committee said in paragraph 528:… it is at present the level of profitability in the industry which jeopardises its survival and not a shortage of orders ".Now, it seems, from the first quarter's figures, it is both.
Nevertheless, the Geddes Report, together with its acceptance in broad terms by the Government, gave the industry new hope. Both the employers and the trade unions welcomed the Report. A Joint Industry Consultative Committee was set up to promote effective co-operation within the industry last May, and a Shipbuilding and Ship Repairing Council was set up in February in anticipation of the Bill. The Shipbuilding Industry Board, to which this Bill will give a proper statutory basis, a month ago reported some progress, as the noble Lord said, towards the grouping of major shipbuilding firms, which the Report recommended.
Grouping by itself will not necessarily make shipbuilding more profitable. It is by no means always the case that the formation of larger groups of industry results in a decline in costs or in better performance. But with the help of a fresh infusion of capital it could strengthen the industry financially. Most of all, it could give the industry the renewed confidence that can come from the feeling of a fresh start, provided that the industry as a whole, including its British suppliers and its labour force, recognises the problem to be faced; namely, to make British shipbuilding 12 competitive in every way—in cost, design, delivery, and so on—and to restore its profitability.
As to cost, the task is formidable. Paragraph 131 of the Geddes Report says:The reduction in ship costs needed to make Britain competitive is some 15 per cent.…",and then it goes on to look for economies. It is suggested that the cost of steel, which accounts for about one-fifth of the cost of merchant ships, might be reduced by 10 per cent. I hope the noble Lord will tell us what prospect there is of that saving for shipbuilding being effected. There is nothing new in price differentials for heavy plate. As the Report says, in 1931 the differential in favour of shipbuilding was over 20 per cent.
Then there is the cost of marine engines, to which the noble Lord referred. Here the Report recommended that some four groups should be formed concentrating wholly on the production of marine engines and operating separately from the shipbuilding yards. I should like to ask the noble Lord what proportion of the profits of existing marine engine suppliers comes from the production of engines other than marine engines. The Report gives no indication of this. For my part, I regard with some reserve the somewhat theoretical arguments in Chapter II, but that is no reason to object to the inclusion of marine engine manufacturing in Clause 4 as eligible for loans to facilitate grouping, provided—and this is an important proviso—that too great an insistence is not placed on the new groups confining their activities solely to marine engines. But again I would ask what saving the Government estimate can be obtained in this way.
The Report also suggests that savings may result from standardisation of equipment, better buying and stock-keeping which larger groups of shipbuilding firms, if efficiently run, could make possible. The reason why I have dwelt on this aspect is that, as the Report says:Nearly three-quarters of the final cost of most ships represents bought-in materials and components …It is obvious that if a reduction in ship costs of 15 per cent. is to be obtained, the bulk of it must come from that three-quarters rather than from the remaining quarter.
13 The Geddes Committee seem to have been greatly influenced in their findings by the fact that in both Japan and Sweden over 70 per cent. of total launchings in 1964 were accounted for by firms which launched over 250,000 tons, whereas more than 250,000 tons was launched by no firm in Britain—or, for that matter, in Germany, which last year launched more tonnage than we did. In Japan, the larger firms consisted of groups of undertakings—marketing and design, as well as research and development, being usually the responsibility of the headquarters of the group. Accordingly, the Committee based most of their recommendations for Government action on a policy of encouraging groupings. They recommended a Shipbuilding Industry Board, the main purpose of which would be to nurse such new groupings by transitional grants, by loans and other methods to help groups to buy out recalcitrant companies; to provide additional working capital and to assist reorganisation by enabling groups to lay out their building facilities afresh, especially for fitting out; to provide amenities and improved working conditions for the labour force; and also, it necessary—and I hope very much that it is "if necessary"—to provide new headquarters buildings.
The Geddes Committee did not altogether exclude non-conforming companies from access to loans, as they did to grants, but they suggested that they should not be eligible unless they applied by October 1, 1967. The Bill seems to be rather more favourable to such companies remaining outside groups, but no mention is made of a special time limit for application. I should like to ask the noble Lord whether he can confirm that they will be able to apply at any time during the life of the Shipbuilding Industry Board; and, if not, what time limit is to be placed. The Government have accepted the recommendations of the Committee as to the maxima of loans and grants to be made available, but have wisely, I think, left the Shipbuilding Industry Board more flexibility in the matter of loans than the Committee suggested.
There are, however, two main aspects of the Bill in which the Government have departed from the recommendations of the Committee. First, the Committee 14 recommended that, purely as a temporary measure, and in order to provide the optimum flow of work during the transitional period, the Shipbuilding Industry Board should be empowered to give shipbuilders credit facilities of up to £30 million for ships ordered by British shipowners on the same terms as those now available for those ordered by foreign shipowners. Instead, the Bill enables the Minister, on the recommendation of the Shipbuilding Industry Board, to guarantee bank loans, as the noble Lord said, of up to a total of £200 million outstanding at any one time on orders placed after February 15, 1967, by United Kingdom shipowners in United Kingdom yards. There is no reference in the clause to the transitional character of the arrangement, but presumably it will lapse with the expiry of the Act in 1970 or 1971. Is this the intention of the Government?
At present, British shipowners have been discouraged from buying British-built ships because the kind of credit terms which foreigners can get were not available to them for British-built ships, but were available if they ordered foreign-built ships. That does not seem sensible, given the international character of the market for ships. But the Bill places conditions on the availability of such guarantees. That is in subsection (3) of Clause 7. First, as laid down in the Bill, the firm from which the ship is ordered must have put into effect a reorganisation of the resources used by them since the commencement of the Act, or have made satisfactory progress in planning for such reorganisation; and it is also necessary that that reorganisation has led, or is likely to lead, to increased efficiency in the use of those resources. Second, the order must be consistent with, or must contribute to, that increased efficiency.
My Lords, I shall be grateful if the noble Lord will try to justify this discrimination between British shipbuilders in the matter of guarantees. Firms which have already reorganised, or do not need to reorganise, will be at an unfair disadvantage in securing orders from British shipowners—but not, of course, from foreigners—in comparison with firms who only start to reorganise after the commencement of the Act. Surely that is wrong.
15 The second departure from the Committee's recommendations is in Clause 6 which enables the Shipbuilding Industry Board, with the consent of the Minister, to acquire an equity in a shipbuilding group or company instead of, or as well as, making a loan. As the noble Lord has stated, the Committee considered State participation in the form of partial ownership which they said "has some characteristics in common with all nationalisation", and rejected it. In paragraph 333, they said:We have made our recommendations on the basis that there will be a high degree of co-operation on the part of the industry with the Board, and in these circumstances we are not recommending nationalisation or State participation as necessary to the improved competitiveness of the industry.It is possible to argue, as the noble Lord said, that a group might prefer to receive Government money in return for a share in the equity; and well they might, for it would relieve them of a fixed charge. Perhaps also they might feel that if the Shipbuilding Industry Board participated in the ownership it would be more likely to treat them more generously. But it is for that very reason that it seems wrong to give this option. Their competitors would be bound to suspect that the Shipbuilding Industry Board would be more favourably inclined to a firm in which it had an interest, whether or not the suspicion was justified. The Shipbuilding Industry Board should not be exposed to such suspicions.
My Lords, how unsound the proposal is is revealed in Clause 10 (7) which makes it clear that the Minister must pay into the Exchequer out of moneys provided by Parliament—that is, out of his Annual Vote—a sum equal to that paid for the shares. I invite the noble Lord to tell the House how much is provided in the current Vote of the Ministry of Technology for this purpose.
§ LORD BESWICK
My Lords, I am sorry, but I did not quite follow the noble Lord. Would he define the purpose to which he referred?
§ LORD DRUMALBYN
My Lords, if the noble Lord will look at Clause 10(7) he will see that it says:Where under an agreement made by virtue of section 6(1)(a) of this Act indebtedness in respect of any amount is discharged by the 16 issue of shares, the Minister shall out of moneys provided by Parliament pay into the Exchequer a sum equal to that amount, and subsection (6) of this section shall apply to any such sum as it applies to a sum which represents repayment of the principal of a loan made by the Board.If I understand that aright, it means that the Exchequer issues the loan. Then the Shipbuilding Industry Board buys the shares; but the Minister must pay to the Exchequer the equivalent of the sum he has already had advanced from the Exchequer. In other words (if I am right in my reading of the subsection), he must give it in the form of an Annual Vote out of moneys provided by Parliament. I do not know whether it means that; but it certainly looks as if it does. I should be grateful if the Minister could tell me whether or not that is so. Quite apart from this, it surely would be wrong if a group or company eligible for financial assistance under the Bill were to be refused it merely because they refused to concede a share in the equity to the Shipbuilding Industry Board. I do not think that anybody in any part of the House would disagree that that would be wrong.
My last point relates to the requirement that grants and loans must have the approval of the Minister. The whole justification for the outlay of up to £37½ million—not a small sum—is:to promote the ability of the shipbuilding industry to compete in world markets ".It cannot go on competing unless it becomes more profitable; and certainly not on the present scale. Better marketing under group arrangements will be of no avail unless the ships that are built are competitive and profitable. Time and again the Committee emphasised that profits will depend mainly on reducing costs. I have already dealt with some aspects of that.
My Lords, where lies the greatest scope for reducing costs? Surely, in better industrial relations and a better use of human resources. In paragraph 106 of their Report the Committee said:Capacity in fact is determined at any time by the supply of the scarcest factor, and there can be little doubt that this is now manpower.What manpower there is should surely be more efficiently used. As to attracting more, the Committee said, in paragraph 416:The growth of competitiveness is the surest way for the industry to offer attractive regular employment to a substantial labour force, 17 with the possibilities of a career for those who desire it.First, therefore, the chapters on Industrial Relations should be implemented. It is no use pumping public money into an industry unless its greatest weakness is remedied. I therefore ask the noble Lord this direct question: Will the Minister withhold his approval for grants and loans unless progress has been made, and looks as if it will continue to be made, in industrial relations?
The main recommendations of the Committee were that new national negotiating and consultative machinery should be established; that yard agreements and productivity bargains should aim at a reduction in unit costs, and that unions should review their organisation, staffing and relationships, with a view to the reduction of the number of unions, possibly to five. I hope that the noble Lord will be able to tell us what progress has been made here and what is in prospect. We all want to see in these islands a prosperous shipbuilding industry. But it is only by a concerted effort of will, and by co-operation on the part of all concerned, that this will come about. Without it, there is little point in this Bill. The justification for this Bill must be in the hope that it will help to bring about this co-operation. But a heavy responsibility rests on the Government so to use the powers in this Bill as to bring it about—a responsibility which they are sharing with. but not handing over to, the Shipbuilding Industry Board; for they retain powers of direction and consent.
So, my Lords, in giving support to this Bill from these Benches, subject to the reservations which I have expressed, I would draw attention to the strong words of the Geddes Committee, in paragraph 501 of their Report:Therefore we propose that the Government should not commit itself to this temporary assistance unless the industry indicates its own willingness to make the necessary adaptation, and that steady progress by the industry be a condition of the extent of the assistance given within the proposed ceiling figures.And the most important of the adaptations, in my view, lies in industrial relations. While on purely economic grounds there may be no case for retaining a shipbuilding industry in Britain at any particular level, or at all, if national resources could be better em- 18 ployed, I cannot conceive that the greatness and even the independence of this country could endure without a strong shipbuilding industry—strong, competitive and profitable. I hope that this temporary measure will achieve its purpose.
§ 3.19 p.m.
§ LORD BARNBY
My Lords, I should like to welcome the underlying principles of this Bill; indeed, I would congratulate the Government on having decided that something ought to be done about this industry; but my support would be subject to the reservations that my noble friend on the Opposition Front Bench has just expressed. This, I think, is the second industry of its kind which has been tackled by legislation, excluding the nationalised industries. It may well be that in future such projects as these could, with propriety, be applied to some other industries of a fragmented character which may temporarily be experiencing difficulties and unemployment because of the poor results of the operators. Two major attacks have been made on the cotton industry where there is redundancy. but that was achieved not quite in the way intended but more particularly by an accelerated flow of imports.
I would ask the Minister, in respect of the shipbuilding industry, whether he is able to expand somewhat on the reason why it was not possible to incorporate into this intention some part of the operations of the previous shipbuilders' mutual association. That seemed to make good sense as it achieved a substantial reduction in the redundancy which existed at the time. If my memory serves me aright, it was the efforts of Sir James Lithgow, who had the most modern yard in the country and who, before anybody else, was willing to sacrifice his yard, that got the acceptance by the industry of that principle. It seemed to have the effect of persuading all the members of the industry to make some contribution and sacrifice to the general aim.
The other point on which I hope the Minister may expound is in relation to Clause 7. As he explained, provision is made for loans up to a large amount, but the period or the limit of the loan is not specified, so far as I can ascertain from reading the Bill. My purpose is to ask whether the Minister can say something with regard to the Export Credits 19 Guarantee Department. Hitherto in respect of shipbuilding, as is the case in other operations overseas such as civil engineering work, long-term credits—up to ten years, I believe—have been granted. I have never been able to understand how it is that what in substance means sales made abroad under the advantage of these long credits did not have an adverse effect on the balance of payments. It may be that the Minister can explain how it is that in this Bill, instead of being committed to a long term like that, loans are to be made internally, but will yet attract repayment for the ships, when they are delivered, in advance of what would be the case if, as previously, they were subject to the provisions of the Export Credits Guarantee Department on an extended term; because the difference could be substantial.
In my last remarks I would voice what I think all your Lordships hope: that the imposition by the Government on this great industry, or the offering to it, of a definite new modus operandi, will afford a good example to other industries in dealing with what we have been given to understand is one of the handicaps in shipbuilding—namely, controversy over lines of demarcation. If the provisions in this Bill help to achieve progress in resolving those distressing difficulties my gratitude to the Government will be all the greater for their having seen their way to introduce a measure with this underlying principle.
§ 3.25 p.m.
THE MARQUESS OF ABERDEEN AND TEMAIR
My Lords, I had not intended to take part in the debate on this Bill, but I should like to say how, from my long personal experience in shipbuilding, I welcome first the Geddes Report and its application by the Bill. It is hoped that we shall have further discussions on the Bill at a later stage, but the reason I venture to make a few remarks now is that I started my working life as a member of the shipwrights' trade union, and I often claim that I have never been able to find anyone else who actually did the same work of bending iron shrouding to twin-screw ships going to the Far East where at that time iron was thought to be better than steel. 20 One learns to improve upon that sort of thing as the years go by.
A very important point in respect of shipbuilding which I have always before me is that it engages such a number of other industries. It is not merely the question of the main engines. Every part of the ship provides work for other industries—engineering, structural engineering, woodworking and so on. We shall never get back to the times about which I speak when I was a member of the shipwrights' trade union and when the output of ships from the Clyde was equal to the output in the whole of the rest of the world. We have lost that position because other people have started from "scratch" whereas we had to improve on what we started doing, which was building wooden sailing ships. So we have a number of trade unions with their lines of demarcation to-day. I support the Bill and I hope it will receive close attention. One point which has been mentioned is that the Geddes Report avoids any idea of the nationalisation of the industry, though financial help is to be given from public resources by the Government.
§ 3.27 p.m.
§ LORD BESWICK
My Lords, I am grateful to the noble Lord, Lord Drumalbyn, the noble Lord, Lord Barnby, and to the noble Marquess, Lord Aberdeen and Temair, for the welcome they have extended to the Bill. I should like particularly to thank the noble Lord, Lord Drumalbyn, for the constructive way he examined the proposals in it. As I understood him, the noble Lord gave notice that there would be a much more thorough examination of those proposals during the Committee stage. I accept the warning he has given, and if he will allow me to do so I think I can better serve his purpose by regarding some of the questions put to me this afternoon as advance notice of the sort of points he proposes to raise on Committee stage. Perhaps we may have a more useful discussion if I leave some of them until I have had an opportunity to study rather more carefully some of the rather complicated points posed to me this afternoon.
The noble Lord asked about steel and the possibility of a price differentiation for the steel used in shipbuilding. He is, of course, quite right: the Geddes Committee recommended that there should be 21 new price arrangements for shipbuilding steel as an essential preliminary, as the Committee thought, to their programme for the industry. But, as the noble Lord will recall, they recommended that there should be a commercial negotiation between the shipbuilding industry on the one hand and the steel-producing industry on the other. There have been discussions, and there has been some progress towards a new basis for the industry, but the fact is that as yet there has been no conclusion to the discussions about the possibility of a special price for steel for this industry. Therefore, I am not able to give the noble Lord any further information, other than to say that the discussions still continue.
I was also asked about the time limit for guarantees provided in the Bill. The answer to that is that there will be no further guarantees after the life of the Shipbuilding Industry Board though the term of the guarantees will extend beyond that and will be of the order of eight years.
§ LORD BARNBY
My Lords, are we to understand from that that the mechanics of the Export Credits Guarantee Department will no longer be aplicable to shipbuilding?
§ LORD BESWICK
NO, my Lords, the noble Lord should not understand that. This Bill will make no difference at all so far as export credit guarantees are concerned. There will be no new guarantees under the Bill when the Board comes to an end but, of course, there will be a continued existence of the agreements reached during the life of the Board. And, as I have already said, it is expected that the average term for these guarantees will be of the order of eight years.
The noble Lord also asked whether the guarantees under Clause 7 would be dependent upon grouping schemes. The answer is that they will not, but the noble Lord will see that in subsection (3) of the clause specific reference is made to the necessity for the reorganisation of resources. It would be held as essential that there should be more efficient use of the resources at the disposal of any one concern, whether it be a new group or not. I hope that the noble Lord would agree that there is a necessity for shipbuilding concerns in this country to get a better 22 utilisation of the resources at their disposal. The view of the Government is that there is not a single yard in this country at the moment which does not need to carry out some reorganisation to get the maximum utilisation of the resources at their disposal.
§ LORD DRUMALBYN
My Lords, this is an important point. If this is so, it means that a discrimination is drawn between those firms which reorganise and those which do not, perhaps because they do not need to or because they may have already done their reorganisation—a discrimination which does not exist in the supply of ships for export, for which export credits can be obtained whether or not the builders reorganise. If we divide the industry into half for export and half for home, it will mean roughly that half will be on a discriminatory and half on a non-discriminatory basis. I am not sure that that is justifiable.
§ LORD BESWICK
My Lords, the noble Lord may not be sure that it is justifiable, but the Geddes Committee and the Government, having looked into this industry, have come to the conclusion that there is no one part of it that is not capable of improvement. The whole essence of this discrimination is that Government moneys will not be forthcoming unless there is some evidence that the company concerned is prepared to put its own house in order. If it was in the sort of order which the noble Lord has indicated, there would be no purpose in this kind of special financing. I repeat that the loans will be given only on the recommendation of the Board. If the Board came across a company which could show that its yard was in such perfect order that no further reorganisation was required, there is no reason why they should not be forthcoming in the way of a recommendation. But the expectation is that in every case there will have to be some undertaking that the company is prepared to improve the use of the resources at its disposal, even though it is not necessary to have a wider linking with other companies.
The noble Lord, Lord Barnby, asked me about National Shipbuilders' Security Limited. As I recall, that was a body which in the 'thirties, when some of us were just entering politics, was concerned to put yards into "mothballs". 23 Its principal contribution was to close down yards. The Geddes Report says that closures in themselves do not help the basic problems of the industry. We want to be more constructive and give an incentive on a discriminatory basis to yards to improve their efficiency.
§ LORD BARNBY
My Lords, perhaps the noble Lord's memory is better than mine. My recollection was that certain yards were definitely eliminated, and that formed the basis for comparable arrangements with regard to redundancy payments in other industries.
§ LORD BESWICK
My Lords, as we have seen in recent weeks, it may well be that some closures are necessary, but the essence of this Bill is to get efficiency of yards rather than their elimination. Although rationalisation is called for, we hope that the emphasis will not be on "mothballing", as was the case in the 'thirties.
The noble Lord asked about loans for the main engine side of the industry. The way in which he put the question was whether there was any evidence that a reorganisation would produce any improvement of efficiency, and he asked whether I could quantify these results. The noble Lord was inclined to think that the Geddes Report is too theoretical so far as the examination of the main engine firms is concerned. It is possible that the Report is theoretical, but I must say that the Committee's theory was simple and appropriate.
I am not able to give the noble Lord any figures as to the expectation of savings, but if a firm is turning out only two or three engines a year—as I understand was the position before—it seems very unlikely that it is using its facilities to the utmost or on the most efficient basis. In such a case, some element of reorganisation is essential. I have not heard this disputed before. I frankly say that I cannot quantify the results in the shape of any figures of ultimate costs.
The noble Lord also asked about the provision in the Bill for shareholding participation by the Government. I was not surprised to hear that the noble Lord had his fears about this. I thought that one of the fears he expressed was reasonable: the fear that assistance might be withheld unless a firm was prepared to 24 accept assistance on an equity basis. I should like time to consider this point, so that I can let the noble Lord have a more definite answer than I can give to him at the present time. Beyond that, I can only repeat what I have already said: that the intentions of the Government are above board. The object was simply to enable money to be advanced in such a way that if there were expectations of profit the public purse should be able to share in those expectations; and, secondly, that it would enable the Shipbuilding Board to take a more active part in any reorganisation in certain cases.
The noble Lord stressed—and I thought quite rightly—that, ultimately, if we were to get a saving in production costs and the utmost efficiency in the shipbuilding industry, we had to get the maximum use of human resources and the best possible human relations in the industry. I agree with the noble Lord that this is an industry with a long history of unfortunate labour relations, which only recently have shown signs of being put on to a new and better basis. I agree with the noble Lord that this is an essential factor in the whole problem. But I think he will agree with me that there is nothing worse, so far as labour relations are concerned, than the niggling feeling that men are being asked to give of their services and their labour in an industry which is inefficiently organised, and when the basis is unsound. While I agree that we must get an improvement in labour relations, I believe also that we shall not secure the sort of labour relations and the use of human resources that we want unless the structure of the industry is basically efficient. It is because we believe the provisions of this Bill will enable the restructuring to proceed on the right lines that I am asking the House to give it a Second Reading.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.