§ 4.25 p.m.
§ THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)
My Lords, with your Lordships' permission I should like to repeat a Statement which is being made in another place by my right honourable friend the Minister of Aviation Supply, about Rolls Royce.
"In 1968, the previous Administration made arrangements to provide launching aid up to £47 million to Rolls Royce Limited for their RB.211-22 engine, which had been ordered for the Lockheed Trijet aircraft. The aid was intended to cover (after certain adjustments) 70 per cent. of the estimated launching cost of £65 million. This figure was later revised to £75 million without any increase in launching aid.
768 "Her Majesty's Government has now been informed that the cost of launching the engine is estimated to have risen to £135 million.
"Recognising the magnitude and importance of this programme, the Government has decided to join with the company and its bankers in meeting the increased cost. For its part, the Government will make further provision for launching aid at the existing rate of 70 per cent. Subject to a further check of the figures by independent accountants, to satisfactory contractual arrangements, and to limitation for a period of any distribution on the company's ordinary share capital, the additional launching aid will be 70 per cent. of the increased cost over £75 million up to a maximum of £42 million, thus making a total of up to £89 million towards the cost of launching this engine. Rolls Royce will pay my Department an appropriate levy on all engine sales. The banks for their part will be making a further £18 million available. No further assistance will be provided by the Industrial Reorganisation Corporation beyond the £10 million which was committed by them under the previous Administration.
"Rolls Royce are themselves making their half-yearly statement to-day in which they are announcing changes in the company's management.
"The House will join me in expressing the hope that this important development programme can now be successfully completed."
That is the end of the Statement.
§ LORD BROWN
My Lords, we are grateful to the Minister for repeating that Statement, and we are still more grateful, if I may say so, for this immediate break in the political ideology which, as I understand it, was to treat anybody who was not currently making profits as "lame ducks" and allow them to sink. It is a very good augury indeed for a possible change of mind.
I have four quite concrete questions. First, are the Government providing guarantees for the £18 million which the banks, I understand, are lending? Secondly, are the management changes mentioned in the Statement conditional 769 on aid? Perhaps I put that wrongly. Are we insisting, as a consequence of giving this aid from Government sources, that management changes do take place? Thirdly, is one part of the deal an insistence on limitation of dividends by Rolls Royce? Fourthly, was the I.R.C. involved in these negotiations?
May I make a short comment on that? We on this side were very distressed indeed at the Government's decision to abolish the I.R.C., and in the light of the fact that the Government have now found themselves at so early a stage having to deal with a problem of just the sort that the I.R.C. was set up to deal with, would they—and I make this a real plea—seriously consider reversing that decision, reconsidering the matter? I and other Members of this House—and I have the noble Lord, Lord Diamond, behind me—know full well how difficult it is to deal with issues of this sort without being able to do so at arm's length through a body like the I.R.C. The fact is that Government accountants, with all respect to their ability, are not as competent at dealing with these matters as a body like the I.R.C. I do not ask for comment from the noble Lord now, but I make a very serious plea to him to reconsider the decision about the I.R.C. in the light of the experience they have had with Rolls Royce.
§ LORD WADE
My Lords, may I join in thanking the noble Lord for repeating this Statement. While I greatly appreciate the prestige of Rolls Royce products and their value to the United Kingdom, may I ask three short questions? First, what is meant by "satisfactory contractual arrangements"? Secondly, what public accountability will be called for by the Government in return for this continued payment?—and "accountability" means something more than just checking the figures. My third question is, I think, in line with the point made by the noble Lord, Lord Brown: Does this Statement indicate future Government policy on subsidies to the private sector of industry?
§ LORD BALFOUR OF INCHRYE
My Lords, may I ask two brief questions of the Minister? First, will the Government appoint any representatives on the board of Rolls Royce, in view of the 770 heavy financial help they are now giving? Secondly, though the price of development has escalated, have the market prospects as regards price and quantity of sales equally escalated so that eventually we can look to commercial success for this venture?
§ LORD DRUMALBYN
My Lords, I should like to thank noble Lords for the points they have put. I note the point with which the noble Lord, Lord Brown, commenced his observations. I would only observe that lame ducks do not necessarily sink. He asked me, first, whether the Government are providing guarantees on the money which the banks are lending. The answer to that is, not so far as I am aware, although it may be that E.C.G.D. would come into this. But I should like to look into that matter and let the noble Lord know. Secondly, he asked, are we insisting that management changes take place? There have been discussions, but I do not think that in such discussions one could say that there was insistence in a matter of that kind. As the noble Lord may perhaps already have heard, Rolls Royce are themselves to-day announcing a change in chairmanship; but I do not think that I ought necessarily to associate that in any way with the point that the noble Lord was making.
§ LORD BROWN
My Lords, I wonder whether I could ease the situation. What I was really asking is this: have the Government tinder the terms of this loan availed themselves of the power to insist, if they see fit, on changes which they think would be desirable?
§ LORD DRUMALBYN
On subsequent changes? That perhaps leads to another question, the question that was put by the noble Lord, Lord Wade, about contractual arrangements. It may be that this is something that will come into those contractual arrangements. I am afraid that is another point that I have to reserve and let the noble Lord know about. The noble Lord asked about the insistence on the limitation of dividends. I referred to that in my Statement. I said:Subject to … satisfactory contractual arrangements, and to limitation for a period of any distribution on the company's ordinary share capital …That has been agreed.
771 The noble Lord then asked, was the I.R.C. involved in these negotiations? I think he knows the answer to that question. The I.R.C. were brought in towards the end of 1969. They made a recommendation of the appointment of Mr. Ian Morrow to the board, and a convertible loan of £10 million was made by the I.R.C. earlier this year. That convertible loan will remain available to the company. Perhaps I should deal with the more general point about the I.R.C. simply by saying that this is obviously not a matter for me but I shall pass it on to my right honourable friend the Secretary of State for the Department of Trade and Industry.
I think I have dealt with the first point raised by the noble Lord, Lord Wade. He asked me secondly what the public accountability would be. I think the answer to that is that there will be the normal public accountability. No doubt if another place think fit they have their means of looking into these transactions through the Public Accounts Committee. The noble Lord, Lord Wade, also, if I understood him correctly, asked about the contribution to the private sector. This particular operation is intended to further the launching aid to ensure the success of the RB.211-22 engine. This is its purpose. It will naturally help to secure the long-term prospects of the industry, with all that that implies. But I do not think the noble Lord expects me to go further than that in answer to his question.
My noble friend Lord Balfour of Inchrye asked about a Government representative on the board. The answer To that is that the I.R.C. had a representative on the board, in the person of the noble Lord, Lord Beeching, and that the Government will be discussing the future position with Lord Beeching and with the new chairman of the board. Finally, the noble Lord asked whether market pros pects have increased. We are here dealing with the fulfilling of a particular con tract for the Lockheed Trijet. I am afraid I cannot answer the question about the prospects for the Lockheed Trijet—
§ LORD DRUMALBYN
No. I should think that it was bound by the original contract, and this is why Government assistance is needed.
§ LORD BROWN
My Lords, I have one further question arising out of the noble Lord's answers, for which I am grateful. This money is directed to a particular engine. Is consideration now being given by the Government to the total position of Rolls Royce, in view of its long-term future? This will need consideration. Can the noble Lord say anything at all on that score?
§ LORD DIAMOND
My Lords, before the noble Lord answers that question, would he be good enough to answer two further questions? First, is he aware that I am totally vague as to what the precise commitment is that he has announced? Nevertheless, I am grateful to him for undertaking to produce the information, which apparently he finds more convenient to do at a later stage than at the same time as making the Statement. Secondly, may I ask him whether he will be good enough, when he has got the information, to give us a clear reply on the following two aspects of one main question: first, what will be the total legal commitment of the Government; secondly, what do the Government then consider their total moral commitment to be in regard to all their activities in relation to Rolls Royce?
§ LORD DRUMALBYN
My Lords, I do not think that the noble Lord can have been listening very carefully to the original Statement. I thought that Statement was completely clear in itself. I am sorry to have to start in this way in answer to one with whom I have had long exchanges in the past and to whose maiden speech I listened yesterday with such attention and so much enjoyment. The position is quite clear. The aid that the Government are making available is up to a total of £89 million towards the launching of this engine, subject, as I said, to a further check of the figures by independent accountants and to satisfactory contractual arrangements. I think it is going a little far to ask me what those arrangements are going to be, when it is "subject to" them and to a "limitation for a period of any distribution of the company's ordinary share capital." Is that not clear? It seems to 773 me to answer the first of his questions. That is the legal commitment of the Government. He asked me, further, what is the moral commitment of the Government. The moral commitment of the Government is, on behalf of the nation to do their best to see that a very great asset for the nation is maintained. As I said, I hope that the action that has now been taken will ensure that that is done.
§ LORD BEAUMONT OF WHITLEY
My Lords, what has happened to the philosophy of the Government? What has happened to this idea that we should all stand on our own feet, that there should be no interference by Government in industry, and that the free economy should be left to work things out in its own way? I can see that there is a case for helping industry, through organisations like the I.R.C., on a regular basis; I can see that there is a case for leaving industry completely alone and letting them stand on their own feet, if they can; I do not see that there is any case for government by exception. What is now the Government's policy on the relationship between the Government and industry?
§ LORD DRUMALBYN
My Lords, the Government's policy in relation to industry is as is stated, but surely even the Liberal Party will admit that there are exceptions to rules. In this case, of course, civil aircraft and aero-engine industries have always been regarded as a special case, and they are still considered as a special case requiring close co-operation between firms and Government because of the nature of the risk, the long periods of development and recoupment, and the scale of investment necessary.
§ LORD DIAMOND
My Lords, as the Minister was good enough to ask whether I was absolutely clear as to the content of his reply, may I ask him to clarify the matter a little further? May I ask him whether I heard him aright, when he replied to my noble friend Lord Brown, that he was not yet aware whether the Government had entered into any commitment with regard to the bank loan?—that is to say, that the Minister is not yet able to tell us the extent of the Government's legal commitment. May I ask him also, in order to clarify the 774 issue, whether, when he refers to contractual terms, it is contractual terms within a maximum liability, or whether the liability, the commitment which the Government have entered into, is openended?
Thirdly, may I ask a question with regard to the moral commitment, as I did not make myself clear? May I ask the Minister to consider that the Government have engaged their interest, engaged themselves in this company's affairs; they have discussed management with the company; and they have, as I understand it, arranged to have an animal (something I have never fully understood), which I am told is described as a "representative on the Board". I have never understood whom such a director represents, but that is the description which I understand has been given.
I also understand that the Government have restricted the freedom of the company with regard to its dividend distribution policy. Having regard to the extent to which the Government have intervened, or intend to intervene, in the affairs of this non-Government company the question I am asking the Minister to be good enough to consider and to reply to at the same time that he gives the information which my noble friend Lord Brown asked for, is to what extent the Government regard their moral liability in relation to the affairs of this company to have been increased.
§ THE MARQUESS OF SALISBURY
My Lords, are not our rules, and the usual practice about comments on Statements, being stretched rather far? This has developed into a definite debate. Each time the Minister gets up, three more questions are asked. There is a main debate before the House, which has been held up for over an hour. I should like to ask whether, if the noble Lord who has just spoken wants to ask all these questions, it would not be better if he put down a Motion.
§ LORD BESWICK
My Lords, may I put forward an alternative proposal, that when a question is put to the Minister, he answers it?
§ LORD DRUMALBYN
My Lords, I thought, with great respect, that I had answered the questions that were asked. 775 I quite understand the noble Lord's asking for further explanations, which is a different matter. I am sure that the House will take note of what my noble friend has said, and that they will want to get on with the debate. However, I do not want to avoid, or appear to avoid, the questions which the noble Lord has asked.
As to the bank guarantee, I think the answer is clearly, "No". That is what I said, but I said that it was subject to my confirming that there is no Government guarantee to the bank. This is a transaction between the company and the bank. As to the representative on the Board, I thought I had made this quite clear. There is a representative of the I.R.C. who is on the Board, and I said that the Government would consider that situation, and of course it has to be considered with that person. Surely, that is quite clear. Thirdly, there is the question of the dividend distribution policy. When Government money is being advanced—and nobody knows this better than the noble Lord, Lord Diamond—certain points that are in the general public interest are very carefully considered, and this was one of them. Finally, I am bound to say that I thought I had dealt fully with the moral responsibility. We may have different conceptions of where moral responsibility is taken in any particular matter, but we are here dealing with launcher aid in order to enable a contract to be carried out, and this is the purpose of this exercise.
§ LORD REAY
My Lords, I have a part in the main debate of the day, but I should still like to ask two more questions. Have the Government made an assessment of the minimal amount of the levy that they will recover on their engine sales, based on a projection of the amount of engine sales? Secondly, do they consider that Rolls Royce has a future for long as an independent national manufacturer of aeroplane engines?
§ LORD DRUMALBYN
My Lords, the answer to the first question is that that would be pure speculation; it would depend entirely on sales. I am sorry, I have forgotten the second question.
§ LORD DRUMALBYN
My Lords, the whole purpose of this is to ensure that, so far as can possibly be done, it has.