SHIPBUILDING INDUSTRY BILL (Hansard, 25 February 1969)

§ LORD KENNET
My Lords, the Shipbuilding Industry Bill is a short Bill. It has two purposes, one main one and one subsidiary one. The main purpose is to raise the limit on outstanding liabilities under guarantees from the £200 million which stands in the parent Act to £400 million, in order to facilitate financing of orders placed by British shipowners with British shipyards. The subsidiary purpose is to make a change in the arrangements about what happens when a debtor defaults. Under Section 7 of the parent Act payments by the Minister where the debtor defaulted would not count against the limit—it was then £200 million—even though the Minister failed to recover the money from the debtor. Under the section as amended by the Bill now before the House, the amount available for guarantees is limited not only by reference to the actual total of guarantees in force at any given time but also by any amounts paid by the Minister on guarantees, so far as they have not been recovered. In this it is analogous to provisions in the Industrial Expansion Act.
Why is £200 million not enough? I think the answer is contained sufficiently in the following figures. In 1966 the percentage of new orders placed anywhere in the world which came to British shipyards was 2.6; in 1967 it was 4.9; and in 1968 it was 10. So your Lordships will see that the percentage of the world 1020 shipbuilding which is coming to us in the form of orders has been doubling over each of the last two or three years. This really makes clear the reason for the need to keep an increased amount of money in play, and therefore to raise the guarantee ceiling with which the Government covers the financing operations. Guarantees up to a liability of £104 million have already been issued. Since this Bill was debated in the House of Commons it has gone up from £86 million to £104 million under the existing provisions, and other guarantees which will bring the outstanding liability up to £200 million are already offered and documentation is in the hands of lawyers. Thus there is now a need to raise that total of £200 million to £400 million.
Let us look at the question the other way up: is the proposed increase in the ceiling of £200 million going to be enough? It is meant to last only until 1970, when the Government will be reviewing the whole situation in connection with the future of the Shipbuilding Industry Board itself. Lengthening order books will make it more difficult for the Board to give the recommendations they have to give, and they have to satisfy themselves that the recommendation will use resources which otherwise would shortly be unused. Therefore the Government will be reviewing the need for further guarantee arrangements after this in the context which I just outlined.
One might ask: why does not the present success of British yards, which I have just outlined in terms of the share of the world market, make this Bill unnecessary? My Lords, there are two reasons. The amendment, the increase that we are talking about, is designed first to stop British shipowners' orders from going abroad merely because they can get better credit there, and to do that it is essential to be sure that you have a cover on everything that British shipowners may wish to order. Secondly, it is the main help—in fact it is one of the largest weapons in the hands of the Shipbuilding Industry Board—in the Board's efforts to reorganise the industry.
Before a guarantee can be given by the Government, through its agents in the City, the Board must give a recommendation taking into account the shipbuilder's reorganisation of resources and the contribution which they are making 1021 by the proposed order to fuller employment in their part of the world. The Board have refused only one application for a guarantee, but following discussions with the particular shipbuilder they later issued even that recommendation, so that there has been no continued refusal of a guarantee by the Board. It is the belief of the Shipbuilding Industry Board, a belief shared by the Government, that the power to withhold a recommendation for the guarantee continues to serve a useful purpose.
The figure which I gave about the share of the world market refers only to orders; it does not relate to ships built. The output of the British shipbuilding industry continues to be not so high as it might be and not so high as we hope to get it. It is a question of causing the output to live up to the very good order books which are now in existence. My Lords, I beg to move that the Bill be now read a second time.

§ LORD NUGENT OF GUILDFORD
My Lords, I wish to thank the noble Lord, Lord Kennet, for his introduction of this Bill and for explaining its purpose. We shall be happy to support its Second Reading. We welcome the reason for it in the admirable increase of new orders, of which the noble Lord gave us figures, over the last two or three years. This has meant that the original provision of a credit of £200 million is no longer enough and that more is needed. That is good news, and we hope that the rate of these new orders will rapidly be translated into an increasing rate of production in the yards themselves, because that is what we really want.
In passing, I would point out that the money for this credit does not come from the Government but from the central clearing banks, which provide it at the very cheap rate of 5½ per cent. on the Government's guarantee. It is ironical that at this moment, when the banks are extending this new, large, cheap credit-buying at the Government's request, they are, also at the Government's request, cutting down by £150 million the credits to their existing clients, credits which are lent at normal commercial rates. I am sure that Lord Kennet in his reply will pay some tribute to the central clearing 1022 banks for their remarkable co-operation in carrying out Government policy. They are travelling in both directions, even though it is somewhat unattractive to them from the profit point of view.
The noble Lord has explained that the credit line in the 1967 Act is for ships built for British shipowners. In t hat way an anomaly was corrected. Up to that time, except for the short period covered by the £75 million in the 1964 Conservative Act, the British shipowner had the direct incentive of going to foreign yards where cheap credit schemes were provided by foreign Governments, making foreign building more attractive than building in home yards. The objective of the 1967 Act was in every way sensible. The purpose of the 1967 Act, which this legislation continues, goes far beyond providing cheap credit. Cheap credit is one of the major weapons in the hands of the Shipbuilding Industry Board in order to tackle the major task of modernising the British shipbuilding industry.
When this Bill was debated in the other place the Minister apologised for the absence of the Shipbuilding Industry Board's Report, which was not then available. Indeed, a number of Members of Parliament complained that they did not have before them this important document in considering whether another £200 million credit should be made available in the light of the record up to date. We in this House are more fortunate, because since the Second Reading in the other place the Board's Report has been issued. We have the benefit of it in considering the terms of this Bill, which seeks to extend the credit line from £200 million to £400 million.
I feel that I should draw the attention of the House to two paragraphs in the report of the Comptroller and Auditor General. The Comptroller makes a careful and measured survey of the Board (this is its first Report) but finishes up in the last two paragraphs by asking the Board two very important questions. I quote from paragraph 11 of the Comptroller and Auditor General's report: I asked the Board whether it considered that the merger arrangements and the approved financial assistance were likely to enable U.C.S."— that is the Upper Clyde Shipbuilding Group— in due course to compete successfully in world markets. 1023 And, my Lords, that was the whole object of the 1967 Act and the Geddes Report, and, indeed, the object of this Bill. The Board then gave him an answer which in general terms he records. The latter part of the Board's answer was as follows: Although the grouping and reorganisation should considerably improve the chances of competing successfully in world markets, the question of whether this objective was likely to be fully achieved could not be answered with certainty. The Upper Clyde Shipbuilding Group had already had a good deal of success in securing orders, which rendered the prospects of ultimate viability brighter than when the merger took place. On the other hand, negotiations with workpeople had run into difficulty, which might have serious effects if not overcome. Then in paragraph 12 the Comptroller and Auditor General says: I also asked the Board the reason for the inclusion in the merger of uneconomic shipyards, one of which it was planned to close down. The Board informed me that this was necessary to secure the labour …". In other words, they gave him an answer.
Noble Lords will recognise that the Comptroller and Auditor General asked the right questions. It is for noble Lords to judge whether the Board was able to give satisfactory answers. I have not read the paragraphs in full; noble Lords can read the Report for themselves. I personally do not feel entirely reassured. I should have liked to see a more forthright answer than that, since these are the key questions if this Bill is to do what we want it to do. The Geddes Report, which everybody accepted as first-rate, certainly recommended the grouping of the existing yards—some 28 of them at that time—into four or five groups, but the Report went on to recommend many other things as well.
Sir Eric Geddes made quite clear in his Report that the object of the grouping was to make the businesses big enough to sustain such basic features as first-class management, market and design teams, efficient purchasing organisations and so on. He thought that something of the order of 8,000 to 10,000 employees might be the sort of groups in which they would settle down. But, above all, the Geddes Report advised on the need for improvement in industrial relations, and this need was described as, 1024 one of the prime conditions of the survival of shipbuilding as a live industry in this country. In this context, the Geddes Report advised a reduction in the number of unions to five, and also advised that they be encouraged to play an increasingly constructive role in the industry.
The noble Lord, Lord Kennet, and other noble Lords on the Government Front Bench, will, I am sure, accept that in asking Parliament to approve these very large lines of cheap credit Government have an obligation to see that this basic transformation which we all want to see achieved, and which was advised by Geddes and embodied in the 1967 Act, really is being achieved. I am sure noble Lords will not think I am making a facile criticism. I recognise the immensity of the undertaking to modernise our shipbuilding industry. This industry, my Lords, is a classic example of a 19th century world leader which has gone into decline. Even twelve years ago it was making quite a good profit, but to-day it is making a loss. There is no doubt at all that this is a case where a great history is a handicap, and where it would be infinitely easier to start a new industry from scratch. In years of decline (and we have seen this in the other great 19th century industries) both management and men inevitably drift into defensive attitudes, and to achieve the changes that we now want they have somehow to be led out of them. This calls for a tremendous effort of leadership by the Shipbuilding Industry Board, by the leaders who are already in the industry, and perhaps by others who are to come in.
Although the market at present is good for British shipyards, and although we have the very encouraging figures which the noble Lord, Lord Kennet, has given us, the present advantages will not last for ever. The advantages that our industry has are substantial. Devaluation has probably given an edge of something like another net 10 per cent., and the annual subsidies that are going into the industry are reckoned to be something of the order of about £20 million a year, with the benefit of the Regional Employment Premium, the capital grants, cheap loans, et cetera. So this is a very large slice of help that the rest of the economy is giving to this industry, presumably on a relatively short-term basis.
1025 The point I want to make about the world market for shipping is that, although it is growing and will probably continue to grow, there is every sign that, at the same time as the total volume of shipping grows, the total size of ships will grow with it, and the 300,000 ton tanker that we see to-day may even become a 500,000 ton or 750,000 ton tanker. So there may well be a prospect of bigger ships and fewer ships, which will certainly sharpen the competition in world markets even more than it is now. The Japs will see to that. So we want our industry to get, just as fast as it can, into a position where it can face tough competition, stand on its own feet and work on small profit margins.
I hope that the Shipbuilding Industry Board, with the extra £200 million that we are voting for it to-day, will succeed with this great task. I am sure the Board will need all the help that Her Majesty's Government can give it. I hope the noble Lord, Lord Kennet, will take back to his right honourable friend in another place the message that they have a tremendously formidable job but that we shall look forward with keen interest to the next Report from the Shipbuilding Industry Board. I hope that it will arrive a little earlier, so that we can judge more quickly how they are doing, and I also hope that it will be a Report showing really solid progress along the lines on which we want to see the industry moving.
It is all the more necessary that we should see that, following the point made by the noble Lord, Lord Kennet, because next year, 1970, the Government will wish to review the whole structure and to decide what is needed for the future. It looks to me pretty certain that some continuity will be needed, but it will need the most careful thought, and of course conclusions will have to be reached in the light of the progress that has been made under the existing structure. Again, I do not wish to sound in any way facile. This is a tremendously difficult thing to do. The Shipbuilding Industry Board certainly has my best wishes, and I support the Second Reading of the Bill.

§ LORD KENNET
My Lords, I am glad that noble Lords opposite support this Bill in outline and in detail, if I under 1026 stand the position aright. Of course, I listened with understanding and sympathy to what the noble Lord, Lord Nugent of Guildford, had to say about the clearing banks. I hope I did not give the impression, inadvertently, that this is Government credit—it is not, by any means. It is a Government guarantee of a credit line from the clearing banks, as the noble Lord said. The Government are glad indeed about, and rely very much on, the fact that the clearing banks are able to provide this line at 5½ per cent., although I imagine that the presence of the guarantee makes it easier to do that than the absence of the guarantee would.
The noble Lord raised the exchange of courtesies between the Auditor General and the Shipbuilding Industry Board, as shown in the Report of the latter. This matter will be going to the Public Accounts Committee and they will be looking at that exchange. I have no doubt that they will also take account of the noble Lord's remarks in this debate. It would probably be wiser if I did not seek to put any gloss on the remarks of the Shipbuilding Industry Board on this point, and I think I should leave the matter where it constitutionally belongs for the moment, which is with the Public Accounts Committee. Lastly, let me say how much the Government agree with the noble Lord, Lord Nugent, about the importance and the sheer size of the task which lies ahead in completing the modernisation and adaptation to new circumstances of the British shipbuilding industry, and how confident I am that the present signs of a great upturn will turn in due course into the actuality of a great upturn.