§ 4.14 p.m.
§ Debate on Second Reading resumed.
§ VISCOUNT WATKINSON
My Lords, perhaps I should say that I have no interest in the aerospace industry, but that I have been somewhat involved in some of the financial problems arising from the problems of the Rolls-Royce company. I support this Bill, but I want to go on to say—and I think that in this the noble Lord, Lord Beswick, will not 386 disagree with me—that if we are to draw the right lessons from this sad affair then we must try to put it in its correct perspective. Here I would seek to follow, if I can, the very high standard set by the two opening speakers, and talk more about the management of this problem, and not very much about its politics.
One thing I should like to say first is that the events of the past few weeks have proved what many in the aerospace industry have felt for a number of years, and what I certainly believed when I was a Minister of Civil Aviation: that it is immensely difficult to have a soundly based aero-engine industry in Britain unless it is supported by an equally soundly based airframe industry. Successive acts of policy in the aerospace industry have steadily cut away the ground from underneath the feet of Rolls-Royce, and it is only fair to say this. I will instance only a few: failure always to keep the maximum pressure on British Overseas Airways Corporation and British European Airways to buy British; failure to establish in world markets the best subsonic aircraft of our generation, the VC 10; the decision to cancel two military products which clearly would have been viable in world markets, the TSR 2 and the 1154, the operational succesor to the present Harrier Jump-Jet, which of course was really developed only as a prototype.
It is only fair to say that this policy resulted in the Rolls-Royce company being placed in a dangerously exposed position. They were faced with a new generation of advanced technology engines from their competitors, and no doubt they felt that to continue to develop they too had to find an engine to carry them over into this advanced technology field and thus make them able to meet the new generation of high capacity subsonic jet aircraft. I think we all agree—I do not think there is any controversy in this—that if Britain had retained a widely based airframe industry, instead of one somewhat emasculated by the kind of decisions that I have instanced, Rolls-Royce could have looked to a British base for primary support to the RB.211 engine. Again, it must be said that this would clearly have been much safer and less exposed than trying to force their way into the American market—the toughest in the world, as most noble Lords know—against fierce competition 387 from American engine manufacturers, who enjoy an American home base of enormous size, subsidised (I think that is the right word) by both the military and the civil fields.
One should say in this House that, despite all that backing. Rolls-Royce are not alone in having trouble with the current run of modern jet engines. We have only to read our newspapers to see what immense trouble Pratt and Whitney and American General Electric are having, too. Do not let us become too depressed and take the view that this is some sort of strange failure that is quite unique. My Lords, it is nothing of the kind. So I felt that, whatever view one takes about the management capacity of the company (and I want to come to this matter in a moment), at least it should be realised, to be fair, that it was presented with what would have been a terrific gamble for a company very much larger in resources than is Rolls-Royce. And no doubt it was encouraged to take this chance by the then Government, and by many others. I am in no doubt. I think I was at the time Chairman of the American Export Committee of the British National Export Council, and I am quite sure that I strongly wished that Rolls-Royce would do it. Again, I think this should be on the record. But one must assume that it was not in any way directed to take the gamble. Surely, if it had been so, the board would quite rightly have cited this in its own defence.
So we have to face the fact, as I understand it, that by its own management decision, and no other, Rolls-Royce chose to take this risk, not only on an advanced technology engine, but on an advanced technology material, and one largely unproved; namely, carbon fibre. I do not want to go into all the details of this, but it is fair to say that the company took—and, I imagine, took with its eyes open—what was an enormous calculated risk. Maybe without the hyfil carbon blade the engine on its three shaft configuration is still technically ahead; I very much hope that it is. But the point I want to make, and that has to be made, is that all these decisions were entirely the responsibility of the management of the company, a company owned by its shareholders and by nobody else—certainly not by the Government.
388 Now just to move on, if I may—and I am speaking of matters about which I had some knowledge at the time—when the company had to come to its creditors and the Government in the autumn of last year for large amounts of extra finance, it had to say then that there was a prospective failure to meet the requirements of this contract. In other words—and the noble Lord, Lord Beswick, and my noble friend the Minister of Defence will know what I mean—the thing was already escalating. This venture into the unknown had already proved to be both more difficult and more expensive than anyone could calculate. Therefore it was not wrong at this stage, I think, that the creditors of the company (and no doubt the Government, but I am not speaking for them) should say, "If a great deal more money has to be found then we really must have a hard look at this total proposition on which the money is to be advanced." I do not see on what other basis this could possibly have been done.
Where I think, if I may say so, the noble Lord, Lord Beswick, went wrong, was that this is all a quite inevitable process. If the company had belonged to the Government, of course it would have been different, but it did not belong to the Government; it was issuing its normal forecasts and proposals to its shareholders and of course it belonged to its shareholders. So when, sadly enough, early this year the new board felt that it had to disclose major management shortfalls in the programme, and indeed an inability to meet contractual obligations entered into by management, I do not see what option there was to the board of Rolls-Royce but to take what is, after all, a quite honourable commercial decision and to admit that it could not go on trading because it would have run its sub-contractors and all the rest even more deeply into debt and might even have got into a position where it literally could not pay the wages of its workpeople on a day-to-day basis. I do not see that any board of honourable men could then have done anything else than what they did.
Perhaps here I might say a personal word about how difficult this decision must have been to Lord Cole and his colleagues, and I think perhaps they might have had a little more sympathy 389 in past weeks than they have had. Perhaps I may add that only in this way could proper commercial and management discipline be restored to a situation that, so far as the outsider could tell from what was said, was completely non-viable.
I hope it will not be felt that in saying this I am trying to attack the technical capabilities of Rolls-Royce. I am not, and I would say again what certainly the two noble Lords who opened this debate know: that this is not the first time that a high technology engine or a high technology problem has initially failed to meet its design requirements. It is almost the common stuff of this business. What is so sad is that Rolls-Royce chose to do it in a situation where they had no recourse at all if they did not go straight from the drawing board into an almost perfect engine.
What Rolls-Royce did was what I had to get involved in as Minister of Aviation when de Havilland built the first Comet. Although I was not then the Minister, I had to try to cope with some of the problems. They took a chance that would have put them far ahead of the world in this field, but they failed and inevitably that brought disaster in its wake. That is what Rolls-Royce did. If they had succeeded they would probably have been a generation ahead in this field, but they failed; and I do not think it is wrong, if they fail, that they should have to take the responsibility of meeting the commitments and responsibilities of failure. One hopes, at least, that they realise how dangerously over-stretched they were by trying to take this contract in the way they did.
I have said all this only because of my own past experience in what I would call almost a terrible industry; it is always full of trauma and disasters of one kind or another, and I do not see what different decision any Government—and I repeat, any Government—could have taken at this stage but to let the board of directors disclose to their shareholders, and indeed to their customers and their suppliers, that they were unable to meet their commitments.
§ LORD BESWICK
My Lords, I should be most interested if the noble Viscount could give us the answer to this question. Speaking with the authority of the 390 past chairman of the Council of Exporters to America, would he have advised the Government to have allowed this to happen in the light of the consequences to our financial and our trading reputation in the United States of America?
§ VISCOUNT WATKINSON
My Lords, I am glad that the noble Lord has asked this question—my mind is quite clear on it. Yes, I would—and I will say why. Confidence, my Lords, is not built on the phoney papering over of phoney situations. It is built on the true knowledge that a company can honour its obligations but that if it does not it will stand up to the racket. I have to face great problems in my company, as we all do, and I do not want somebody else to come and help me out of them. If I am in trouble I must get out of it, and all the people who work with me know that they must get out of it, too. I believe that it would have been unwise to paper over a situation which I have tried to show (and I do not want to be unduly long, because there are many speakers on the list), although to some extent one can say that it was not entirely the fault of Rolls-Royce, it came about because they took a management gamble which failed. They have to pay the price of failure, and I believe that it is better to restore confidence by making them pay that price honestly and fairly and then come in and pick up the bits afterwards.
That is what I want to speak about quite shortly. It was the only way of crystallising the situation, and in my view the Government were entirely right in what they did, in just the same way as they are right in conducting the rescue operations. Here I want to ask the Government certain things. I am delighted to hear that the operation is to be under the guidance of my noble friend, because those of us who know him outside this House know his hard common sense and business ability, and I am sure that he is the right man. But I hope that he will now see what he can do, not only to rescue Rolls-Royce, but to follow the noble Lord, Lord Beswick, and to rescue the British aircraft industry, which is perhaps rather more important than Rolls-Royce. I believe that this Bill is a necessary step to that end, and I strongly support it.
But what comes next? In an ideal world one would like to say, "Let us try 391 to rebuild this into an integrated aircraft industry", which the noble Lord, Lord Beswick, and others know is really the only basis on which there can be a viable aerospace industry. But I must say that, although we have the technological skills, the management ability and the rest, too many projects have been cancelled, too much water has gone under too many bridges, and therefore, if we are to create, as we must, a strong British integrated aircraft industry, I believe it has now to be linked with a European aircraft industry, and I think this is quite irrelevant to the fact of whether or not we go into the Common Market. We have managed to do it with Concorde, and we must go ahead now and try to build on this bigger base which is the only sound base for the kind of development risks the consequences of which we are having to face this afternoon.
I hope, of course, that the Government will seek to rescue the RB.211 engine if—and I would like to say this quite firmly—this can be done on a practical management basis. I do not see why it should be rescued for the sake of Lockheed (I will come back to that in a moment) or for the sake of higher technology as such, or indeed for the sake of Rolls-Royce as such. If it is to be rescued, it must be because it is the right thing to do for the future of the aerospace engine and for Britain, and I hope that it is in that sense that the Government will look at this very difficult problem.
The noble Lord, Lord Beswick, spoke about re-establishing confidence and credibility, and I think there is much in that. We have a chance to do this right away, and therefore I should like formally to ask my noble and learned friend who sits on the Woolsack if he will consider, before he replies, whether he can say fairly firmly that the British Government with its French partners, whatever happens to the RB.211 are not going to lose their nerve over the Concorde. After all, here is the first new joint aerospace project with Europe, and one in which we are seven years ahead of the Americans. I think perhaps it is easier for me to say this than for other noble Lords on either of the Front Benches, but the aerospace industry is a rough game, and it may be that as the arguments about 392 the RB.211 go on there will be a threat from the American airlines that there will be a veto on the purchase of Concorde aircraft. I hope that the Government will brush this aside.
To begin with, I can see no reason why the British Government, as such, should be exceptionally sympathetic to Lockheed. They have long been powerful competitors to the British aircraft industry; they have problems of their own, and there are people who would say that their troubles with the TriStar, without those of Rolls-Royce, are extremely acute. But I should like to say this. It is an elementary principle of purchasing policy that where an item purchased is of fundamental importance it must be purchased, in the purchaser's own interest, at a price that does not force bankruptcy on the supplier. I think it is a great pity that Lockheed's did not take this more seriously into consideration. Perhaps they did; and if so I am wrongly accusing them. Frankly, I do not think it is the business of the Government to get into all this.
My Lords, I want to come back to the future. If the Concorde is attacked in the kind of way that I have mentioned I think the Government should keep their nerve. I believe that the Concorde will prove to be a viable aircraft that delivers its specification, and the Government must see that it is put into service by B.O.A.C. and Air France, and they must see that, if it cannot fly to Idlewild, it flies to Canada for the time being. I saw all this, and so did the noble Lord, when the prop/jet was coming and trying to fight off the pure jet; I remember all the talk about "tummy time" and all the rest. The pure jet killed the prop/jet stone dead on the North Atlantic the moment it came in. I assure noble Lords, if my view is of any value, that the Concorde will kill the subsonic jet stone dead as soon as it comes into viable operation on the North Atlantic, because everyone in a hurry—and everyone is—will travel by it. If American airlines are still protesting that they cannot buy this machine, they cannot stand idly by and see the cream of the traffic taken by B.O.A.C. and Air France.
It is a tough business, and we must keep our nerve. And the best way to rebuild Rolls-Royce, because they are 393 deeply involved, and our own industry, is to make a viable success of this great project, which is seven years ahead of the Americans at the moment. Of course I hope that, as well, the Government will now give very serious consideration as to how best to rebuild this industry on a broader basis. By all means, let us have some more British airframes if we can, but we must get a broad enough base to support a very advanced, highly technological aerospace industry, and I believe that this base can only be Britain plus Europe.
So I support this Bill as an essential first step in solving a problem, which I sincerely believe is a sad blow to us all, and certainly to anyone who like myself has many international business commitments. It will not do us much good at the moment. It would have done us less good if we had tried to hush it all up; we have had it out in an honest way. Now we must seek to rebuild. If we can rebuild with credibility, what we are discussing to-day may yet prove to be a benefit and a lesson to all of us, rather than perhaps the kind of disaster that some of us felt a few days ago. My Lords, I support the Bill.
§ 4.33 p.m.
§ BARONESS GAITSKELL
My Lords, following so soon upon four such distinguished speakers with expert knowledge, sheer intimidation will keep my contribution brief. I wish to take part in this debate because I positively welcome the nationalisation of Rolls-Royce; I support this Purchase Bill, even though nationalisation was not in the Conservative Party's Manifesto. Nor shall I reproach the Government for changing their philosophy and their mind. It is no surprise to find any newly elected Government eating their words and regurgitating some of the political commercials put out during the Election battle. Soon after the Rolls-Royce collapse, the Prime Minister commented upon it in a speech—indeed, it was not so much a speech as a lecture; and not so much a lecture as a sermon. He exhorted us to throw away our illusions. I wonder whether the experience of Rolls-Royce has made a dent in his own personal illusions about the inviolability and infallibility of private enterprise.
394 When it comes to the consideration of nationalisation I am an agnostic; I do not go along with the theologians of the Left, nor with the heretics of the Right. Apart from Nye Bevan's "commanding heights"—that unforgettable phrase—I believe that there may be many reasons for taking an industry into public ownership, ranging from the national interest to the fact that there comes a point when private enterprise can no longer sustain the economic risks. The reasons for nationalisation in each case should be clearly indicated. I believe that a very good case can be made for nationalising Rolls-Royce. And, in case your Lordships think I am biased in this respect, I will take some of the points made in a speech in another place on February 8 by the Chancellor of the Exchequer, Mr. Anthony Barber.
My Lords, he said that the activities of Rolls-Royce were vital for our national defence, for without Rolls-Royce engines many aircraft of the Royal Air Force would be grounded. He added that 200 of the world's airlines depended on Rolls-Royce engines, and that the future of Rolls-Royce was a matter of concern to a number of other countries because of the international collaborative programmes, as the Secretary of State for Defence has also pointed out to-day. The Chancellor of the Exchequer also mentioned his overriding concern with the British taxpayer, and said he was sure that the decision was the right one. From all this, from the size, the prestige and the importance of Rolls-Royce, I believe that nationalisation is long overdue. It is a key industry, and from the Labour Party point of view has been for some time, I should have thought, a candidate for nationalisation. As I say, when private enterprise can no longer control its finances, it is time for the Government to step in.
There have obviously been some errors of judgment by the Rolls-Royce board, but it has been pointed out to me by my noble friend Lord Brown (and I am very sorry that he is not taking part in this debate) that it was because Rolls-Royce had been adventurous in technological development and commercial initiative, that they got into trouble. Their new aero-engine, he told me, is by all accounts a prototype of the engine of the future; 395 and to drop it is to cut off our natural line of technological development. Many of those who have discussed and analysed the collapse of Rolls-Royce agree that if the RB.211 contract does not go ahead Rolls-Royce will have to contract out of the major aircraft business and concentrate on their peripheral activities. How do the Government view this, I wonder. But the most cogent argument stressed by my noble friend Lord Brown is that our future exports increasingly depend on the excellence of our advanced technological products; and that means, ultimately, that our standard of living depends on them. There is little hope of increasing our standard of living by increasing the exports only of our consumer goods.
Since the Conservative Government assumed office there is much talk of the national interest and the interests of the taxpayer. In dealing with the colossal problems of this country in this technological age, to take the short-term interests of the taxpayer is just appeasement. It is the long-term interests of the taxpayer that come under the national interest, and it is in the national interest to keep Rolls-Royce flourishing and in business. Tory doctrine has bedevilled the procedure and the debate on this issue up till now. Our reputation has been somewhat tarnished, and the greatest anxiety has been caused to the workers, here and in the United States.
Here I would like to say a brief word about the Tory attitude to nationalisation. Overall it is less than fair, critical and jealous. When, after great difficulties, the mining industry, the steel industry and the railways are either paying their way, or even, it may be, showing a profit, this Government's policy is to hive off all profitable bits. The steel industry is now fighting for its life against the Government's intention to break it up, just at the time when it is expanding and making great strides. Once again it is the short-term profits to private enterprise and not the long-term interests of the country which motivate the Government. I believe this to be the least reputable aspect of the Tory attitude to nationalisation.
I have one strong reservation about the nationalisation of Rolls-Royce by 396 this Government. Tory comments in the Press and in Parliament (I am glad that the noble Lord, Lord Carrington, did not reiterate them this afternoon) have asked that as soon as possible bits of the company should be sold back to private enterprise—this before the exercise has even begun. We have the Tory hope of a quick return to private enterprise. And even Mr. Corfield, the Minister in another place, I noted, agreed with one intervention on those lines. I should like to know how sincere the Government are about the nationalisation of Rolls-Royce. Let me give the House a simple analogy: are the Government buying the freehold of this key industry, or are they just taking it on a short lease and, as soon as it shows itself to be in good working order, selling it back to private enterprise? This would not be at all a reputable thing to do. Finally, let us for a moment suppose that a Labour Government were introducing this Bill to nationalise Rolls-Royce. How many noble Lords opposite would vote with us on that question? I should like to say, "Hands up!".
§ 4.42 p.m.
§ LORD MCCORQUODALE OF NEWTON
My Lords, we have had up to now an absolutely first-class debate on this serious subject. Perhaps I may be forgiven if I compare it very favourably with the debate in another place last Thursday on the same subject. We are very much indebted to Lord Carrington, to Lord Beswick, Lord Watkinson and Lady Gaitskell. The noble Baroness, Lady Gaitskell, endeavoured to lure me into an argument on nationalisation as opposed to private enterprise, an argument which I would appreciate and enjoy in normal circumstances; but we have here a Bill to consider, and not a general principle, and I am afraid that we shall have to postpone that argument to some future time. My remarks on this sad and damaging affair will therefore be brief, as there are so many others who wish to speak.
For one reason or another bankruptcies in industry will always occur at times when human frailty in judgment is at stake, and always with hardship to employees, to sub-contractors and to shareholders. But because not only in this country but throughout the world the very name "Rolls-Royce" has become a household word for quality and reliability, 397 this collapse not only hurts our pride—it does that very sharply—but also must prove damaging to our export trade, especially in the engineering industry. Nevertheless, I would unhesitatingly say that the Government in this Bill and in the course that they are proposing have taken the only possible method open to them in the national interest for dealing with this crisis. Our first concern in the matter must be the national interest, not the interest of other parties.
I would remind your Lordships of the words of the Rolls-Royce statement when the Company were asking for a receivership. They were:These factors give rise to additional costs and liabilities which are wholly beyond the financial resources available to Rolls-Royce. In the circumstances, it is not feasible for them to proceed with the RB.211 under the present contract.One underlines the words "under the present contract".
Unlike the noble Baroness, Lady Gaitskell, I dislike the nationalisation of any industry; indeed, the whole of my political and business life has been spent in endeavouring to uphold the virtues of private enterprise as against nationalisation. But it is stupid to be doctrinaire over these matters. Upon essential practical problems and from the national security point of view an immediate decision was necessary to save the essential Rolls-Royce production. So far as I can see, that is why we have this Bill. So far as the RB.211 project is concerned, the Press have been full of contradictory evidence about the contract, about the engine, about Lockheed, about the American economy and about all sorts of subjects, until one is a little bewildered. Therefore, I can only say, in accordance with the Rolls-Royce statement, that, irrespective of our views on other subjects, we all hope that this contract can be re-negotiated on terms which would, in the end, make it an economic proposition both for Lockheeds and for ourselves. I hope and believe that that can be done.
When this Bill is passed into law and the new company is set up there will be many problems to face. One that I would specially emphasise is the future of the brilliant research and development staff at present employed by Rolls- 398 Royce. I agree very much with that section of Lord Beswick's speech when he spoke about the future of these skilled people. I was told only to-day, and I have not been able to confirm it yet, that there are nearly 70 different engine products facing Rolls-Royce at the present time, either in manufacture or in projection. I must confess that I think that is far too many, and I have no doubt that one thing which the new board will have to do is to face this problem and select the most important. But it would be a tragedy if this research and development staff were allowed to disperse or to be lost. I believe and trust that a decision on this subject will be one of the first decisions of the new board and of the Government.
Speaking without any expertise or knowledge whatever but as an ordinary citizen and one who patronises air travel from time to time, I hope that in future more attention will be given to vertical take-off proposals. We had an excellent and memorable debate initiated by the noble Lord, Lord Snow, only last week on population problems. It was then generally agreed that by the year 2000, if not before, overcrowding in this Island and all over the world would become a very serious proposition. The more the world becomes overcrowded the more the vertical take-off principle will be required. I hope that this principle will be taken into account in the future.
I feel that this debate is not the time for an inquest on why this calamity has happened. I note especially what the noble Lord, Lord Carrington, said: that a Board of Trade investigation is to take place. Sooner or later, some explanation will be required of the very optimistic statements which were made at the Rolls-Royce annual general meeting last summer. I leave it at that.
If I may say so, the great shipbuilding industry in this country—an industry possibly even more important than Rolls-Royce—very nearly foundered recently. One of the main reasons for this, as your Lordships will remember, was the acceptance of long-term fixed price contracts for the building of ships, with very onerous terms if the contract was not completed on time. In a world in which inflation is general and is growing faster and faster at the present time, such fixed 399 price contracts, with penalties such as the shipowners laid down and the shipbuilders then accepted, very nearly killed the industry. With that example before all our eyes, it surely was a little surprising that a great company like Rolls-Royce, even with all the other arguments on the other side and with the strong support of the Government, should have entered into this enormous fixed price contract, with the terrible penalty clauses attached to it. I believe the figure was given in another place that if the engines were six months late, the penalties might add up to something like £50 million. After this further example of the folly of fixed price contracts in an inflationary world, one can only hope that the lesson will be learned by industry for the future.
I am sure that the whole House has the utmost sympathy, and should send out a message of sympathy, for all those who may become redundant over this sad affair and for the sub-contractors who do not know where they stand. I understand that they have come together and have appointed representatives to act as closely as possible with the Receiver. I have no doubt that the Receiver will tell them at the first possible opportunity whether money is likely to be forthcoming to meet their liabilities. I hope that the banks will heed what has been told them by the Government and the Chancellor, and will be able to make the most generous arrangements possible with the sub-contractors in this difficult time.
I do not think there is anything more that we can do in this respect. We cannot start bailing out sub-contractors for every bankruptcy that occurs in this country, because that would bankrupt the country itself very quickly. All we can do now in this matter is to give our best wishes and express our best hopes to the noble Lord, Lord Cole, whom I am glad to see in his place this afternoon. He has unrivalled experience, and very successful experience, in the management of very large companies, and an expertise which is given to only a few. I am confident that if anybody in the country can pull this matter round, he and his colleagues, Mr. Morrow and Dr. Stanley Hooker, with the Receiver, will manage to do it. If they can turn Rolls-Royce's new company into a viable proposition, successful all over the world in the 1970s, we shall 400 regain the confidence which we may temporarily have lost.
I should just like to finish by echoing what the noble Viscount, Lord Watkinson, said about the Concorde. I had meant to say a few words about that matter myself, but he has put it in much better form than I possibly could. I hope and pray that the Concorde will be flying, to our and French satisfaction and glory, before very long.
§ 4.55 p.m.
§ LORD ARDWICK
My Lords, I shall never forget how the first news of the Government's plans for Rolls-Royce was greeted with sardonic glee by those who share my political beliefs, and by silent dismay by those who do not. This instant reaction was perhaps not very commendable, but it was as least excusable. One side had expected that they would be pleading hopelessly for a solution through nationalisation, and the other side had expected that they would be sternly rejecting this heresy. So the Government's announcement was a veritable coup de théâtre. It was as good as that moment in Man and Superman when Jack Tanner makes out a magnificent case for the right of a woman to bear a child outside wedlock; and then his oratory is punctured by the lady's shocked dissent and her revelation that she is, after all, legally married.
But the immediate response of the two sides must now be seen to be irrelevant. The only question to-day is, what is the best expedient to save Rolls-Royce? I think we should do well, as the noble Lord, Lord McCorquodale, suggested, to cast aside ideology. In the modern industrial State the simple division between private enterprise and public enterprise, made simply on the base of who owns the equity, does not make a great deal of sense. For example, you can have publicly-owned companies which are almost indistinguishable from private enterprise. I doubt, for example, whether one citizen in a thousand, even one traveller in a thousand, has been aware that Thos. Cook & Son is owned by the nation. I doubt whether the American millionaires who stay at Gleneagles and the other great hotels in that chain are aware that these are examples of State socialism. In fact, they are no "people's palaces". Their decor, service, and 401 cuisine are on the highest international level—and so, quite rightly, are their bills.
But when we come to a company like Rolls-Royce, we find something very different. It is a privately owned company, and yet the State is its first customer, its most lavish patron and its most accommodating banker. And for excellent reasons. It is a cornerstone of our defence; it is the flagship of British technology; it is a British institution. A whole city is dependent upon its prosperity, and an army of skilled workers, either directly, or indirectly through the sub-contractors, look to it for their livelihood. In fact, Rolls-Royce did not even have the moral right—whatever their legal rights may have been—to fail without the Government's consent. Running Rolls-Royce has, it seems, been a combined operation between the Government and its board, and all that is happening now is that the Government are taking explicit responsibility for its future, instead of what the world assumed to be an implicit responsibility. The Government are bravely doing this against all their instincts because they believe, rightly or wrongly (and history will judge whether they were naïve and precipitate, or whether they were wise), that this is the only way out.
I was a little startled when I heard that the Government's policy towards nationalised industry was one of disengagement. I thought "disengagement" was rather too grand a word. It is, I suppose, a military term and, as well as I can remember, it came into politics as a description of our withdrawal from India where it was entirely appropriate. But all "disengagement" means, as Mr. John Davies has made explicit, is to abandon the foothills, the peripheral activities of the nationalised industries, while remaining in control of the commanding heights. Later on, he said, some private capital might eventually be attracted into the nationalised industries, but that is a day which is pretty remote. And to be entirely fair to him, Mr. Davies recognised that some industries—and he instanced aircraft production—are going through a period of world-wide disarray and need a supporting hand.
So this Government are not straining their policies nearly so much as has been suggested in putting forward this Bill 402 to-day. I do not think that noble Lords opposite need be too dismayed that the Government are abandoning their cherished principles; nor should we on this side be too gleeful about it. We have all been a little misled by the rhetoric. I think that noble Lords opposite must be feeling very proud that this is the first industry in the history of Conservative Governments that they have ever nationalised. They must be feeling like a man of pensionable age confronting his first-born; and they have done this after only eight months in Government. When I think of this bold act, and the diffidence with which we on this side approached the nationalisation of steel, I suggest that they should be very proud. If at the next Election they care to challenge us with a list of industries that they have nationalised, we shall be very glad to meet that challenge.
But, my Lords, to be more serious, Governments of to-day cannot disengage from the great industries of this country, be they nationalised or nominally private. The nation is too dependent on them for its wealth and for the employment of its citizens. To change the metaphor, it is all very well to refuse to help the little "lame ducks" on their way to market, but you cannot refuse help when an eagle falls exhausted at your feet, as in the case of Rolls-Royce, because it has tried to soar too high. But even though the Government are taking over, the real problems remain. How is this great company to be run successfully?—a company engaged in an international business, subject to fierce international competition from other companies whose real commercial costs are, happily for them, confused in gigantic defence contracts; a company that must live at risk or go out of business; and I see no way of avoiding that risk.
The questions to be asked are: how do we minimise those risks, and how do we spread them; and then, above all, how do we select which risks we are going to take? We cannot afford as a nation to commit our resources to all the high technologies. There are hopeful signs that the RB.211 contract is to be renegotiated, and so it should be. We have an eager and a desperate producer, and a willing and a desperate buyer. But the question remains, whether the engines can be produced at an acceptable time, and 403 at a price which the seller can afford to take and the buyer to pay. But who is to be the judge on our side of whether the technological problems can be conquered at an acceptable cost? I do not believe that the best Civil Service in the world, equipped as it is with a technological arm, is up to this kind of job. And I do not believe that Rolls-Royce themselves, strengthened though they have been in their management and in their technology, with all the hopes that rest upon them and with the failures behind them, can alone take a really confident decision.
So I welcome the news of the noble Lord, the Minister of Defence, that there is to be a panel of independent technological advisers to the Government. But I wonder whether that is enough. Should they not be fortified by an equally distinguished panel of industrialists who are accustomed to judging the views of technologists? This dilemma about Rolls-Royce in which we now find ourselves is a more generalised one. I have never felt that the Civil Service is, or by its nature ever could be, up to the job of examining the huge investment programmes of the old nationalised industries; and the difficulties of Government will increase with the prospect of great technological experiment, particularly in the railways. It seems to me that an impartial advisory body of the highest calibre should stand between public and semi-public industry, on the one side, and Government, on the other, simply to advise on investment. Even then mistakes must be made, for high technology is never completely predictable, particularly in an age of war and inflation and labour troubles. High technology is always going to need a blank cheque.
The other problem is of spreading the risk. The Government, and one or two noble Lords, have looked wistfully to Europe. As a European I am totally with this feeling, but with certain misgivings. If we could have a defence procurement programme for Europe, then I would be all for it. But is there not a danger, if we go to some other European countries, that the prestige considerations will outweigh the costs? Might we not do better, perhaps, to sink our European pride and ally with the Americans, who alone seem to have the 404 skill to run these vast industrial organisations?
§ 5.7 p.m.
§ LORD O'NEILL OF THE MAINE
My Lords, the fall of Rolls-Royce has been a traumatic experience for the British Government and the British people, and in its aftermath I think it is unprofitable to apportion blame. Here may I say that on a very small scale I have been through all this kind of event before? I remember well some four or five years ago, the then chairman of Harland and Wolff coming into my room and saying to me, "I cannot pay the wages next month: what are you going to do about it?" Here was a prospect of the largest single shipyard in the world putting 12,000 men out of work, with the loss of all its very considerable facilities. With the assistance of the British Government of the day, with the very great assistance of the D.E.A., we managed to save it. For that, I shall be eternally grateful to all the people concerned: to Sir William Swallow of the Shipbuilding Industry Board, who came over to see us almost before he had been appointed—certainly before the introduction of the Bill which created his appointment—to Sir John Mallabar and to everybody else who saved that great shipyard. So, as I said, I have been through all this before, and in a tiny way I know what it is to have a chairman coming into my room and saying, "I cannot pay the wages: what are you going to do about it?"
Now we must look to the future. How can we save as much as possible from the crash? If I seem to digress here for a few minutes, it is because I should like to explain why, in my humble opinion, perhaps because of my previous experience, Her Majesty's Government could not have kept out of this. In the good (or bad) old days, it might have been possible for the Government to sit idly by while the firm and its sub-contractors crashed in ruins and thousands—perhaps 100,000 workers—became unemployed; to smile while the expression "perfidious Albion" crossed the Atlantic; and to be unmoved while Europeans expressed genuine anxiety at the death of one of the most important engineering firms in the world. But, my Lords, we are not living in 1921 but in the sombre realities of 1971. In this connection, there may be some people who could have watched 405 with equanimity while B.E.A. was grounded through lack of spares for its Rolls engines; who could have calmly contemplated the possibility of VC 10s no longer flying to New York; who could have sat back while airline after airline throughout the world closed while cursing Rolls in particular and the British in general. This may be a point of view which can be adopted by those who do not realise that we live in a mixed economy to-day. I for one, my Lords, am not among them.
Every effort should be made to save the RB.211 in the interests of our national honour, in recognition of the fact that no other engine of this type exists in Europe and, last but by no means least, because the jobs of thousands of skilled men depend upon this engine, not only in the Midlands but throughout the regions of the United Kingdom. We have a new Rolls factory in my part of the world, and Short Brothers and Harland have a large contract for podding engines. It is vital, I am sure, as it is in many other parts of the United Kingdom. British prestige abroad now rests to some extent upon an Embassy, probably built by Lutyens, and an Ambassadorial Rolls. When I suggest that as much as possible of this great firm should be saved, I include, of course, the car, known and respected all over the world. It must at the very least remain British. So, my Lords, 1971 has opened in a minor key. Doubtless many difficulties lie ahead, but I do not believe that the British people are interested in dogma, whether of the Left or the Right. What they want in time of crisis is a bold pragmatic approach to the problems with which we are presented. I personally, perhaps because I know him well, have faith in the Minister for Trade and Industry, and I am glad that he has gone a long way to correct the apparently unfortunate remarks of the Minister of Aviation Supply.
I would end by saying this. I believe that the British people will support a Minister and a Government—and I give the Minister of Defence my wholehearted support in this debate, and on this Second Reading—who speak for Britain rather than for any sectional interest, and I associate myself with the first letter in Saturday's Financial Times, in which the writer said that he would rather forgo his sixpenny cut in income tax if Rolls, 406 and with it the good name of Britain, could be saved.
§ 5.15 p.m.
§ LORD BURNTWOOD
My Lords, the debate so far has, quite rightly, hinged upon the immediate problems and future of the Rolls-Royce Company, and more particularly the RB.211 engine. But as I listened to the speech of the noble Viscount, Lord Watkinson, I could not help feeling how very old-fashioned is some thinking about the relationship of the State and industry. We were all brought up on a diet of State and the Church. With no disrespect to the Church now, I wonder whether the great reforms of that relationship should not be considered, renovated and brought into some form of new operation so far as the relationship of the State and industry is concerned.
I think that so far the Government have shown a great insensitivity to the plight of the workers concerned. A great rock has been thrown into the water and has produced ripples which go far beyond Derby, far beyond Northern Ireland; into the large number of contracting companies, and into the families of their workers. I suppose that basic to all this is the vulnerability of a firm of great technological prestige, and the ever-decreasing area in which such a firm can compete against either a State organisation like SNECMA or against a wealthy country like the U.S.A., which of course has had its great problems and troubles in this particular industry itself but is more able to bear the burden of the unpredictability of ordering and the unpredictability of scientific development of this sort of engine.
It has been suggested that we might put up a proposition to the French that it would be to our mutual advantage to invest in SNECMA. My Lords, such an offer was made to this country in the early 1960s. It was turned down by Rolls-Royce—not by the Government of the day—through lack of finance. There may have been market considerations, too. Of course, where Rolls-Royce were unable, or did not desire, to enter into a shareholding in SNECMA, Pratt and Whitney went in: to the extent, so I am informed, of something approaching 20 per cent. of the holding. If this is so, it is obvious that Pratt and Whitney 407 straight away have certain great advantages, not least in the realm of licensing. One would hope (though I fear it is a hope that will not be achieved) that this is the last example of an old-fashioned type of company jeopardising the lives and livelihoods of thousands of men, and being apparently quite legally correct in withholding from the public at large the worst of the factors of the situation.
I, for one, cannot understand what role the banks have played in this affair. Listening to the noble Viscount, Lord Watkinson, just now, he made the point, if I assessed his speech correctly, that companies which make a bad deal, a bad contract, which cannot carry out their obligations, must and should go to the wall. What advice was given by the banks? What evidence did the banks have at their disposal? Why did they produce this large amount of finance, or offer it, when the world could see that the findings of the I.R.C. had lit a blinding red light; and when there were misgivings, so much so that by mid-October last Mr. Morrow got a very bad picture of the reputation of the future of the company in the City, and another very distinguished gentleman, at the instance of the Government, got a very dusty answer in the City on the subject of financing Rolls-Royce? So I was very depressed indeed by the effect of the observation by the Minister of Aviation in another place about the future technical viability of the RB.211.
It is easy to take out of context a remark made in the heat of a debate. Of course, the Minister modified his views; but when I asked what could possibly have made him make that remark I was told that this is a ploy in the haggling that is going on in the international market. My Lords, it is a very dangerous game to play. The damage was done by that remark—which one can be sure has been disseminated all over the world to our potential customers by our competitors.
Of course, airframes and aeroplane engines are subject to influences that go far beyond the normal market influences: national prestige plays as much a part as any merit which is concerned. We know that the United Aircraft, Pratt and Whitney engine, has had its great troubles, although much of its subsequent 408 experience has been gained in operational usage of the engine. Rolls-Royce have not had this advantage but—and this point has been made very well—the RB.211 engine should not be regarded as competing with what can be described as relatively conventional current engines, for it is an entirely new concept. When this matter was first raised after a Statement in this House, I had occasion to point out that when Sir David Huddie first announced the development of this new technologically extraordinary engine the Commonwealth airline operators acclaimed it by saying that this was one of the great answers to their requirements; that on the basis of thrust-price and diminution of noise which was forecast they ought to be able to purchase British aircraft where they had been forced to buy American aircraft.
My Lords, our dreams have not come true in that respect. It was depressing to hear any doubt cast on the technological possibilities of the RB.211. I wonder whether the Government have ruled out the possibility of having a Select Committee on this matter. The noble Lord, Lord Carrington, mentioned this afternoon that there is already operating a technical assessment team. He also referred, if I heard him aright, to the procedures going on in Whitehall to investigate the history and current position—
§ LORD BURNTWOOD
My Lords, I take that correction. But does an inquiry go far enough? I should have thought that questions ought to be asked in Parliament based not merely on the current position but on the events which led up to the under-financing in this country, the taking on of a contract which was too great a financial burden for the company to carry. How was it that the procedures were so slow, especially after the I.R.C. report, and that this report did not result in the taking of remedial action?
The question now is: how long will the new company take to get on its feet? What is going to happen to the progress payments made by those who have ordered other engines? Are these funds to be paid into the joint assets of the 409 new company? I should like to know the answer to that question. Is it a fact that certain distinguished engineers, also from Bristol Siddeley, were laid off because they forecast some of these problems; that they were pensioned off prematurely but are now being taken back? Is this a fact? If so, what is the story behind that? I get the feeling that this rumpus in another place the other day over the failure of the Government to make a Statement about the position of the sub-contractors had a simple origin. I think that MINTEC, or its equivalent, suffered from some delayed shock over the ever-increasing area of tragedy which surrounded this problem.
A speech made by the Attorney General did not shed light on the situation, because nobody really knows what the position is about the effect of the central trouble on the large, widespread area of sub-contracting.
§ THE LORD CHANCELLOR
The noble Lord means the speech by the Solicitor General. The Attorney General was unavoidably away, because he was sick.
§ LORD BURNTWOOD
My Lords, I stand corrected: it was the Solicitor General. But it was not a very illuminating speech. I do not blame him particularly. The trouble is that in subcontracting there are sub-contractors of sub-contractors. The area is ever increasing and can permeate our economy. I hope that this will be the only case of this sort of industrial serious accident. I hope so. But we know of other industries in this country where inadequate public knowledge and inadequate Parliamentary questioning could result in similar tragedies. I do not wish to particularise and to create any alarms and despondencies. But we all know of other industries faced with fierce international competition where one product of the work of a Select Committee could possibly prevent this sort of situation arising by adequate knowledge and adequate action. I believe that the day is long past when one can talk about private enterprise companies or State corporations. I am sure that the public rightly want some form of hybrid organisation, if I may use that term, so that at least there can be reasonable, relevant questioning of the fortunes of a company of such national significance.
§ 5.26 p.m.
§ LORD KINGS NORTON
My Lords, I was particularly glad that the noble Lord the Minister of Defence, when he opened the debate on this Bill, emphasised that this was a commercial failure of Rolls-Royce. I should like to emphasie that it is a commercial failure because there seems to be a great deal of misinformed opinion about to the effect that that great technological organisation was itself collapsing. That development organisation, that manufacturing organisation, one of the greatest that we have, has not collapsed. It is very much alive. I believe that it must continue at full bore—streamlined perhaps, but still looking to the future and still doing all the research and development necessary for a future which is full of so many opportunities, including STOL and VTOL. I support what the noble Lord, Lord Beswick, said in that context. Rolls-Royce has made a grave commercial error. Other firms, I suppose, have made equally bad errors of judgment; some have made several. But the difference in this instance is that the consequences of the error are of a new order of magnitude. The organisation concerned is one which is really part of the industrial fabric of the nation. Consequently, rectification of the error requires exceptional measures and the Bill before us is one of them. I think that it is an inevitable one, and I support it.
I suppose that Rolls-Royce in its history has made fewer errors than most firms. At the moment, I cannot think of even one significant error, apart from the massive one which we are discussing. And because of this one error, because of its magnitude, we hear not only criticism of Rolls-Royce's financial control, which on investigation may prove to be justified, but also we hear of the dangers of direction by engineers. My Lords, if Rolls-Royce had not for the last 66 years been directed by engineers it would not be the world's greatest aero-engine company. This is par excellence a company which has gone from strength to strength because of its massive engineering skill, marshalled, understood and directed by engineers of the first order.
Certainly, my Lords, something has gone very wrong, seriously wrong; but in putting it right let us remember not only 411 the recent disastrous error, but also the long history of major successes—a great list of wonderful engines which reads like a technological poem and which I should have been delighted to recite had I not been anticipated by the noble Lord, Lord Beswick. That wonderful series of engines has carried so many aeroplanes, civil, military, naval, all over the world to outstanding performances. Rolls-Royce stands for all that is best in British engineering. It is something so vital to our interests all over the world, to our image, that it must be sustained.
My Lords, I should like to recall that long ago I had a little to do with the inauguration of the Rolls-Royce gas turbine story. Noble Lords need not fear that I shall regale them this afternoon with technological reminiscence, but there is one characteristic of that heroic period of the war years and the decade which followed which I think is relevant to our present debate. Rolls-Royce was led by a great engineer, Ernest Hives, later to become a Member of your Lordships' House. I shall ever remember that in negotiations he was always accompanied by another outstanding man, A. F. Sidgreaves, who was in charge of the company's finances. They always went hand-in-hand, Hives's other hand on the throttle and Sidgreaves's other hand on the money bags.
Whatever changes result from the financial disaster which we are debating, I hope that those concerned will remember that at the head of a great engineering concern must be engineers. There are some engineers who have an innate financial acumen and accounting skill. These are the most suitable people of all to have at the head of a great engineering concern. There are, indeed, accountants with engineering skills, but they are very rare birds. Their value also is tremendous; but if we cannot find for the future control of this great organisation such dual-purpose individuals, we must have the kind of hand-in-hand operation which Hives and Sidgreaves exemplified. I do not think it possible to overemphasise the importance of this in the circumstances which we are discussing.
The debate to-day is on a Bill enabling the Government to purchase certain assets of Rolls-Royce, and our understanding is that the automobile division, 412 from which the whole great company has sprung, and which is profitable, will be sold to suitable outside interests. Similar intentions, we understand, apply to the oil engine division. It is the assets on which the development and production of aircraft power plants rest which, in whole or in part, the Government propose to take over. What is not yet clear, because negotiations and planning are still in progress, is the extent of the Government's purchase and how they intend that those assets shall be operated.
My Lords, I understand that the assets which will be taken over are those required to fulfil defence contracts and also our collaborative arrangements with other countries. I hope that this means all the assets necessary to develop all the Rolls engines at present under development manufacture, although I understand that the case of the RB.211 cannot yet be decided; we have to await the assessment of the three assessors mentioned by the noble Lord, Lord Carrington. But I think we must all be relieved that for the time being, for what is still almost three weeks, the RB.211 will be going on. I hope that the outcome of all the assessment and the planning which is going on will be that tremendous efforts will be made to continue the development and production of this engine.
We have been told, and it is true, that Rolls-Royce is a national institution and to the world outside this country Rolls-Royce is one of the brightest jewels in the British industrial crown. It is not too much to say that it is widely regarded as part of the ethos of the United Kingdom and one of the best parts, too. As was said by the noble Lord, Lord McCorquodale of Newton, Rolls-Royce has become an adjective, meaning high quality and integrity. For Rolls-Royce not to fulfil a commitment is, for many people abroad and here, for Great Britain not to fulfil a commitment. That is the view which has been expressed by a number of noble Lords; and, like them, I feel that our national reputation is indeed to some extent at stake.
My Lords, I know I should be in some difficulty in proceeding from this point if the RB.211 were not a good engine. But it is a good engine; it is a Rolls-Royce engine. Indeed, it represents a remarkable achievement. A lot has been 413 said, and properly so, about the danger of making a fixed price contract. It is also extremely difficult for two companies to set out, as did Lockheed and Rolls-Royce, on a programme of design and development, with no airframe or engine in existence, to achieve a first flight date 33 months after the agreement between them was made. But this was done. I think that the first flight of the first Lockheed TriStar was one day late. To fly a prototype aeroplane 33 months after its inception is no mean feat; to have a flyable engine 33 months after its inception is nearly a miracle.
Of course the engine was not without faults; no engine on its prototype flight ever is. Some engines, my Lords, continue to have faults for quite a long time after that, as we have seen from the initial performance of the Boeing 747, with the JT.9D engine which continued for some months to have faults in airline service. A great deal of the process of airframe and engine development is the correction of error. The R B.211 is not yet right, but everyone closely connected with its design and development believes that it can be put right.
They also know that at the present price it must make a loss for Rolls-Royce of about £330,000 per aircraft set. What we all hope is that those responsible will be able, through the negotiations which are starting, to arrange with Lockheed—and whatever other American organisations are involved—for a delay of some months in delivery; a change in the price and relief from the demand for 100 engines in the first year. That would be to the benefit of all. It would be to the benefit of Lockheed and the airlines who have ordered the TriStar from them, not only because the airlines would be getting what they ordered but also because this engine, I believe, will be ahead of its competitor the JT.9 and the CF6. Its specific weight is better, the fuel consumption is the same and, on such information as I have been able to get, it is quieter.
The reasons for its choice by Lockheed are still valid. When the Lockheed contract was signed it was hailed as a triumph for Rolls and a triumph for Great Britain. Maybe now the RB.211 will never be a triumph, but it can be a great technological success. I hope 414 sincerely that the Government will so arrange their take-over, and so order their trans-Atlantic negotiations and the future control of the company, that it can be the success that I think it deserves to be. As the Chancellor has pointed out, this will require a considerable slice of the taxpayers' money, but we have to ask whether the taxpayers should bear this little in the short term so that they may benefit the more in the long term. I think that if Rolls-Royce is prevented from fulfilling this commitment, the consequences will be disastrous and the taxpayers—and that is all of us—will certainly suffer seriously in the end.
I have already spoken about the nature of the control which will be required in the future: control in which engineering skill and financial acumen must be allied. If we are to assume nationalisation of the Rolls-Royce aero-engine effort, it must be run, I suggest, by a board authorised to act. Nationalisation must not mean that the board's decisions are reviewed in Whitehall. The Government must give the new board its head and if it does not, on periodic review, perform effectively, no one will object if the Government apply the guillotine. But it would be surprising if the chosen board failed to draw the moral from, and the lessons of, the recent crash.
My Lords, when all has been done that can be done, we should see, perhaps by a Select Committee, as has been suggested, whether the lessons we learn from this affair are applicable on a wider front. We do not want another disaster of even one-tenth of this magnitude. We all know what can happen to the best laid schemes of mice and men—and, indeed, Governments—but it would be comforting to know that the schemes for great projects are the best laid ones and that if one of them began to go ogley, a red light would show long before it seems to have done in Derby.
§ 5.42 p.m.
§ LORD ALPORT
My Lords, I am sure that your Lordships are as grateful as I am to the noble Lord, Lord Kings Norton, for having reassured us on what is an extremely important point, one which has played little part in our discussion so far—that is, the merits and qualities of the engine RB.211. As someone who knows little about engineering 415 in general and about aero engines in particular, I have found this aspect of the present controversy the most puzzling, as to whether when Rolls-Royce undertook their initial contract with Lockheed they were backing a technical advance of great importance, which required not only all their scientific skill behind it but also all the resources they could lay hands on to bring it to fruition. I understand from what the noble Lord has just said that the engine which is at issue in our debate, at any rate to some extent, is one which deserves our backing.
But his speech has made me regret even more than I did before that our discussion takes place to-day on the Second Reading of a Bill of a restricted nature, dealing with the nationalisation of part of the Rolls-Royce group, and that we have not been dealing, or should not perhaps be dealing if we are to remain in order, with the general situation which has arisen as a result of the bankruptcy of Rolls-Royce and the implications for public policy, for British industry and for the nation in general which this development produces.
My noble friend the Secretary of State for Defence, when he opened the debate, said that the problem facing the Government—and I think I got him right—was whether or not to bail out a private company. I think that the whole of his speech, masterly as it was, indicated that the problems which the Government were facing, and which we are facing, too, were much wider than simply the problem of the finances, the resources and the future, even of a great company like Rolls-Royce. Issues of defence, the export performance of our heavy industry, technical co-operation between this country and other countries of the world, the employment of our people, the effective use of our tactical resources, confidence in our good faith as an industrial and commercial nation—all these seem to me to be issues which are relevant to the situation in which we find ourselves.
Therefore I feel that it would be right if I were to put some of the problems as they appear to me to arise from the development with regard to Rolls-Royce over the last few weeks. The first issue with which we should concern ourselves is the question of whether we in this 416 country want to have an effective aerospace industry in the future, and, if that industry requires great research resources which are beyond the financial capacity of a single company or of the City of London and the banks, whether public finance must not be made available to assist in the development of that industry. The second issue is what price we are prepared to pay, if we are prepared to pay any price at all, to break into the American aero-engine market, and whether in the long run, from the point of view of British industry, from the point of view of British exports and from the point of view of our technological reputation in the world, the investment of even £300 million in Rolls-Royce at the present time to bring the RB.211 to fruition would not be a worthwhile investment over a period of time ahead.
It seems to me also that another of the issues which have been raised is: what is the Government's philosophy for the future relationship between public finance and technological research and development? A long time ago, before 1951, when we were considering the future policy of the Conservative Party, a number of us were quite clear in our minds that it was one of the duties of the Government to join in partnership with private enterprise in financing technical research which would enable us to maintain our prosperity and our industrial progress in the highly competitive world in which we find ourselves.
Another issue is: what is the Government's view on the future relationship of the public interest and the organisation of the private sector of industry? I get the impression, having listened to my noble friend's opening speech, that there appears to have been, at any rate during the last few months, a lack of continuous liaison between the Government, on the one hand, and the Rolls-Royce board, on the other. I may be doing both an injustice, because I am not properly informed on the matter, but the impression is certainly clear that the development which led to Rolls-Royce's bankruptcy was something which was not clearly anticipated by the Government, or perhaps by the Rolls-Royce board, from the information which was available to them.
Is this another case where a great company has not got management information which it must have if it is to run its 417 affairs properly and effectively? Or is this lack of information passing from a private company to the public authorities in a way which is essential if the Government are to play their part as a partner in the enterprise?—because at that time the Government were a partner; they had been a partner to some extent right from the beginning. They had, I understand, given encouragement to Rolls-Royce to go ahead with what one noble Lord called a gamble—but a gamble which was conceived to be one with reasonable odds and likely to produce great benefits to British industry. In those circumstances, the Government and the company should have been closely in touch with all the developments which were taking place.
It may well be—I do not want to make a point of it—that the demise of the I.R.C., which was the previous Government's instrument in this matter, caused this lack of liaison. If so, I should like to ask Her Majesty's Government what instrument or what method they intend to use to replace that particular organisation in order to enable some organisation to understand the problem of industry and the finance of industrial development perhaps more sympathetically and clearly than a normal Government Department does: whether they have any means in their minds of being able to ensure that continuing liaison between the Government and industry in the future in circumstances such as the Rolls-Royce case.
I take this Bill to indicate that the Government will play a more effective part in the organisation and development of the aero-space industry in the future; and, frankly, I welcome it. I do not believe—here I speak from such limited experience as I have—that the huge resources that are necessary to undertake this type of technological advance are available from private sources within this country. I believe that public funds must be made available. I hope that we shall not involve ourselves in the old sterile argument about nationalisation and private enterprise in the future. I have great sympathy with what the noble Lord, Lord Burntwood, said: that what people are looking for is a hybrid. I do not regard that as perhaps the right description. What people are looking for in industry, and certainly in my 418 experience in the City, is a means of fruitful and wise co-operation between the public authorities, with public funds on the one hand and private enterprise on the other, so that we are able to get the best advantage from the resources which both can provide for dealing with precisely this type of immensely expensive and complicated long-term development, without which I do not believe that our country will be able to maintain its position in the world.
When we were concerned in these last years with the gradual disappearance of our great political and military position, through the changing circumstances of the Commonwealth, our economic position in this country and the greater resources of other countries abroad, we consoled ourselves with the belief that we in this country could hold out own by our brains, our skill, our technical progress and our ability to see through to their conclusion great advances of this sort. My noble friend Lord Watkinson has said—and I quite agree with him—that he hoped that we should see the Concorde through: that it will give us great progress, and advantage over our competitors—seven years, he said. That may require an increasing amount of Government money. I cannot assess, other than on the advice that the House has had this evening from the noble Lord, Lord Kings Norton, whether the same sort of facility should be made available to the RB.211, but if so, then I think it will be a great mistake for us to deny those resources to the company.
I think the mistake that occurred—although I am entirely in favour of this Bill at the present moment—was that an accurate assessment was not made, as I understand it, of the ultimate consequences of bankruptcy before the Government decided that bankruptcy was the only way to deal with the situation so far as Rolls-Royce were concerned. It may be that they were right (and I do not think I or any of your Lordships have sufficient information to judge) but nobody can underestimate the damage, material and psychological, which that event is having upon the industrial system in this country, on employment, on confidence and also upon our reputation overseas. It is something that should have been avoided if it was possible, wise and prudent to do so. I hope that 419 my noble and learned friend the Lord Chancellor will take up this point when he replies, and that he can reassure us on the matter, but I have a feeling that the short-term advantages of bankruptcy, and therefore of saving Government expenditure, were not fully assessed against both the long-term disadvantages of bankruptcy and, at the same time, the great advantages of proceeding to bring the RB.211 to its conclusion.
I do not want to take up more of the time of your Lordships' House except to say one final thing, and it is this. If we are going to have a proper and fruitful partnership between Government and private enterprise in this particular field, then there must be increasing confidence between those who take the responsible positions in the Government, on the one hand, and those who take the responsible positions in private enterprise and, if I may say so, in the nationalised industries, on the other. I believe this can only be done if, so far as possible, the old stale political issues are removed by both the great Parties. I believe this can only be done if it is realised that those who work in and carry out their responsibilities in the public sector, and those who contribute to the private sector, through their leadership of great industries and great companies, both have a role to play in modern Britain, and that without both of them we are not going to be successful in the future.
So, my Lords, if there is a lesson to be drawn from this particular incident, let it be that there should be a better system of relationship between the Government and private enterprise; a more authoritative basis for the use of public finance in the development of our technology, engineering, science and industry, and as a result of that a real creation in this country, not of a divided nation but of the one nation of which the Prime Minister spoke when he first entered office.
§ 5.58 p.m.
§ LORD RAGLAN
My Lords, however sad we all are that Rolls-Royce have failed, all of your Lordships who have spoken so far are pleased that in producing this Bill new-fangled Conservative theology has been overcome by old- 420 fashioned Tory pragmatism. I am pleased, too, because it is in the national interest that we should consider this. I fully support all that the noble Lord, Lord Alport, said at the end of his speech, and what was said by my noble friend Lord Burntwood.
One thing that has been demonstrated is that it is not only the shareholders who suffer when a firm goes broke. I hope that the doctrinaires of free enterprise—and there are some about—will never try to put that one over again. The noble Lord, Lord O'Neill of the Maine, was really on this subject in his speech. There are many thousands now faced with no work, and the Government, in the national interest, as well as in the interests of the most unfortunate people themselves, must take action to look after them.
What has been quite startling to me is the number of people engaged in work on this project. It seems (I stand to be corrected) that upwards of 30,000 have been at work on this project for a considerable time: and there has not yet been a sale. This advanced technology is extremely costly. I hope that the Government, and especially the noble Lord, Lord Carrington, as Minister of Defence, will take due note (I am sure he has already done so) that these things are for ever costing much more than the designers say they will.
The most obvious example is the Concorde. We were told that it was going to cost the British taxpayer £70 million. We now hear that it is going to cost us nearly £500 million; and we have not yet reached the end. The only words I can find to describe the increase are that it is absolutely frantic. Either the firms and Government Departments involved in that project were incredibly naïve, or (and this has crossed my mind, because the estimates have been so wild) there has been some wilful deception; perhaps they thought that if they were to undercost the project in order to get the contract they could expect further subventions later. But, looking at the Rolls-Royce story, it seems that the accountants in design departments are merely incorrigible optimists and simply deceive themselves. The next time a costed advanced technological project 421 arrives in front of the Government I hope most emphatically that, having satisfied themselves as to the accuracy of the costings, they will add "£x"—an unknown sum for eventualities. In other words, in these advanced technological projects no one knows what they are going to cost, and it is simply no use pretending otherwise.
My Lords, partly, I admit, for sentimental reasons I want to make a plea for the car-making section of Rolls-Royce. The noble Lord, Lord Carrington, knows quite a lot about cars. I saw from a magazine the other day that he is a very keen driver—he drives a Jensen. I am sure he knows that whenever any car firm is taken over by another the character of that car changes. I think the noble Earl, Lord Amherst, referred to this. Your Lordships can think of the Riley or Wolseley which, on being taken over by Nuffield, became merely a Nuffield car with a Riley or Wolseley radiator. And there are many others. One outstanding example is the Bentley, which was taken over by Rolls-Royce, and is now only a Rolls-Royce with a Bentley radiator. It has lost its character. If another firm takes over the Rolls-Royce car division I foresee, I regret to say, the demise of the real Rolls-Royce car: it will no longer be a real Rolls-Royce. Various firms have been mentioned as wishing to take over the firm: Aston Martin, Jensen and British Leyland. If that happens it will not be a real Rolls-Royce but will just have a Rolls-Royce radiator. But as Rolls-Royce is a national monument we want a real Rolls-Royce.
My Lords, under this Bill the car division of Rolls-Royce can become the property of the taxpayer. The taxpayer—even Conservative taxpayers—would certainly be proud to own it. We should own it, and we have a certain right to see that it is not sold off to some other firm. Why is it that, on the one hand, the Government express solicitude for the taxpayer and, on the other, they are doing their best to sell off to private interests those companies owned by the taxpayers which are profitable? It seems to me to be a complete contradiction in thought. The Rolls-Royce car division is profitable. The taxpayer has a chance to buy it, and I hope that the Government, acting in the interests of the taxpayer, will 422 buy it for the nation. It is not faultless, but in its way it is as much a work of art as a picture, perhaps by a foreign artist, which the Government are asked to buy for the nation. And to buy the car division will be a change from purchasing run-down railways and coal mines.
My Lords, the Government have been courageous in going against their previously avowed policies in producing this nationalisation-enabling Bill. I hope that they will take their courage in both hands and nationalise the lot. By doing so they will save the character of a car; they will preserve a national institution and, indeed, do the taxpayer a bit of good into the bargain.
§ 6.5 p.m.
§ LORD REAY
My Lords, this Bill is being passed at a moment of considerable uncertainty, even confusion, over some of the possibilities that it has opened up for the Government. I wish to ask only one question of the noble and learned Lord who sits on the Woolsack that might at this stage throw some light on the confusion. The Government claim that the process of appointing a Receiver—and it must be a fiction to pretend that recourse to a Receivership was not dependent on a Government decision—has disengaged the taxpayer from enormous liabilities toward Lockheed. The Opposition accept this as being the Government's motive, but they claim that it was dishonourable. But if I understand it correctly, Lockheed, as a creditor, does not have inferior status to British creditors, sub-contractors and so forth. Accordingly, it will only be possible to reimburse British creditors up to the same percentage of their claims as Lockheed is reimbursed, on the liquidation of Rolls-Royce's assets. If this is correct—and I hope we may hear later whether this is so—whatever the taxpayer is saved, it is saved as much at the expense of British sub-contractors as of Lockheed. This is not the general presentation of the advantage that the Government have given, and if it true it must reduce some of the appeal—
§ THE LORD CHANCELLOR
My Lords, may I correct the noble Lord? There is no question of disengaging the Government from liabilities at all, either in respect of Lockheed or in respect of sub-contractors. The Government never 423 had any liabilities. The contract was between the company and the subcontractors, Lockheeds, and its other creditors. The Government do not need to be disengaged. The question is to what extent it is desirable to engage the Government, and that answer was given by my noble friend the Secretary of State. The whole of the question which the noble Lord is putting to me is based upon a misconception of the basic economic and contractual situation.
§ LORD REAY
My Lords, as I understood it, from what the Minister explained this afternoon, the taxpayer was faced with considerable liabilities if any alternative course of action was adopted. I accept that the Government are not disengaging from the situation, but I understood that the solution was one to protect the taxpayer.
In any case, what then are the main purposes of the Bill? As I see it, it has three main functions. In the first place, it gives the Government a possibility to renegotiate a disastrous contract—but for this the Bill, although perhaps helpful, was probably not necessary. In the second place, it gives the Government the opportunity to rationalise and to stabilise the nature of the relationship between Government and industry. And in the third place it emphatically announces the end of an era in a way which only bankruptcy could have done. It is on those last two points that I wish to make some remarks.
Rolls-Royce had become a British institution. Like all British institutions it had acquired something of the belief—held both by itself and by others about it—that it was nationally indispensable. It had entered into the pattern of our views about ourselves as a nation. We venerated it; we were proud of it; we boasted of it; we were arrogant about it, and we were loyal to it. And Rolls-Royce responded by behaving with an arrogance which we expected of it. There was no problem that it could not solve—and it was its function to show that the British could solve all problems—so there was no opportunity for solving a problem in its industry which it did not accept. It overloaded itself with projects. As Mr. Corfield made plain in another place during the emergency debate on February 8, it was a constant source of anxiety to 424 the French and to the Germans, who were our partners in other projects, that Rolls-Royce's energies were spread too wide.
Rolls-Royce could not tolerate a failure to win the Lockheed contract because our exclusion from that sector of the industry's future was incompatible with its responsibility to apply its intellectual and creative skills to the major problems of the day. Rolls-Royce was there, as it was only too often reminded, to lead the way for Britain. To win the contract it had to ignore the cost. But it had long since been encouraged to ignore the cost. What is the cost when you are simply quite certain that you are the best in the world? Did not the operation of the car division, which produced a saloon car roughly twice as expensive as any other well-known make in the world, and at a price which has roughly doubled in my life-time, prove that a policy of forgetting the cost could be successful? Alas! there are thousands of individuals and institutions in the world who will pay £10,000 as a gesture of their appreciation of excellence, as a symbol of their wishful identification with excellence, but precious few who are in the market to do so with half a million pounds for a single aeroplane engine.
Rolls-Royce was trapped between the country's demand that it should contribute the country's skills to the world markets and the country's inability to provide the power to make any commercial policy that embodied this mandate a successful one. The target market was not the British market of course; it was the American market. We forgot, and we still forget, that the American market—and by this I mean the immediate purchasers of engines, airframes or complete aircraft, or indeed of any other British product in the field of modern technology which is directed at the American market—is subject to the same pressures to "buy American", from the American Government, from American labour, from local American interests and from American nationalism generally. It is subject to the same pressures that any purchaser in this country would be subject to in such a field in the same circumstances.
In such a situation a foreign product is saleable only if it is in advance of any domestically produced alternative—and not theoretically in advance, which is what Rolls-Royce boasted and what we 425 boasted on Rolls-Royce's behalf; not theoretically in advance of other products, but available markedly sooner as a suitable answer to an American market problem. The criterion is simply and solely one of speedier availability of a suitable product. But neither Rolls-Royce nor any other similar British company was, or attempted to be, superior in this sense. Rolls-Royce's interest was to accept any challenge and to aim for perfection. But perfection comes last in the chronology of production. And when you accept such challenges you can simply never say when a solution will be found. It may be after one year or after five years; it may be after £100 million or after £500 million. Rolls-Royce was offering its skills in the wrong market, and in the end it was the arrogance of believing that the world could not dispense with these qualities of adventure and of skill—and the noble Baroness, Lady Gaitskell, was correct to point out that adventure was one of these characteristics—that killed the company.
It is part of my argument that responsibility for this policy should not be vaguely attributed to financial mismanagement on the part of various unnamed past directors of Rolls-Royce, but should be seen as deriving from an ideal, which, though misplaced, was shared by educated and uneducated opinion alike in this country. If noble Lords have some doubts as to whether responsibility can be placed so widely, I should like to recall the atmosphere that prevailed at the time the fatal contract was announced. The Times newspaper, the most famous and perhaps even the most reliable organ for collecting and reflecting popular emotion on national issues, announced in its issue of March 30, 1968, with reference to the contract, the "modest thrill of pride the fact brings to every Briton." In its issue of April 3 of the same year there was this report of the previous day's debate on a Statement in another place:Anyone, except apparently an M.P., would have thought this great achievement by Rolls-Royce, so clearly of vital importance to the nation, would have been greeted with ungrudging and warm-hearted approval by the House of Commons, as it had already been so widely acclaimed by everyone else. Not a bit of it. Mr. Benn's statement was met with a rush of Party political points over whether the Government and which Government should or should not get credit for the order.This was hardly a critical atmosphere in which either to conduct a discussion or to 426 report a major commercial decision. In fact, on that occasion, the occasion of the Statement by Mr. Benn, Mr. Maudling had replied to the Statement by acknowledging the great achievement this was for British industry and finance, and he offered tributes to various quarters of the industry. But this was not enough for Mr. Benn, who replied as follows:I am sure that the whole House would want to convey congratulations given by the right hon. Gentleman, and it might also on reflection want to add that this is an interesting partnership between Government and industry which has made this possible. I think that the right hon. Gentleman is a little less than generous in not making any reference whatsoever to that aspect.In other words, the Minister was demanding congratulations for the Government on the deal; and, indeed, from other quarters of the House later in the rebate profound thanks were expressed to Mr. Benn and his Ministry.
This brings me to my other point. There has been no stability in the relationship between Government and this industry. The Government have "muscled in" or shuffled out of an association with Rolls-Royce and companies like Rolls-Royce according to the political climate and the political present-ability and the timing of such companies' achievements. By 1968 the last Government had done much to stimulate a faith in the salvation offered by technological achievement, without regard to its application, and by export achievement, without regard to its domestic cost. The last Government were also extremely conservative in their approach to all British institutions that could be considered as component parts of the national ideal. I was interested that the noble Lord, Lord Beswick, should have spoken of the Tories' 19th century idea of disengagement by the State from private enterprise, for it was, after all, the last Government's refusal, for equally 19th century reasons, to initiate the process in this field that has given the Government their present opportunity.
It is small wonder that the RB.211 should have been considered by the last Government as a vindication of their own policies. But it is in no one's interests that an industry should be required to serve an illusion, and I have no doubt that it is to the advantage of our trading relationship with other countries that this industry, even at the present cost, should 427 be put on a realistic basis. The Bill offers a possibility, but I would go further and accept it as being an earnest of the Government's intention that a relationship which was opportunist and wasteful and never acted as the support to the industry which the industry requires, should be made more honest, more rational and more stable.
I do not wish to discuss the possible forms such a relationship should take. I wish to make only one observation with regard to the industry's future. The industry of civil aviation is peculiar in that it still attempts to be competitive, where in reality there is no fair or supportable competition. Competition is not fair because of the nationalistic considerations that I have mentioned. Competition is not supportable because of the increasing tendency for only one product to be selected by all buyers out of a diminishing number of alternative products offered. It is, I believe, impossible for this country, or any European country, or even possibly any European consortium including ourselves, to find a future for itself in the American market unless it looks for the gaps in American production or unless it acts as a specialist subcontractor. I do, however, see a possibility for a European company, a single, fully integrated European company, with the expanding market of an expanding Europe ahead of it, able to resist American penetration across the range of civil aircraft production. After all, if America can summon the political energy to protect its own markets for its own suppliers then so can Europe. But such a company would need to be a fully integrated company based on present national companies and deploying its factories and its sub-contractors, with a compromise of commercial and political skill, throughout the countries of Europe. I strongly doubt whether a consortium of existing national companies, each retaining its basically independent structure, would have the flexibility to be efficient in the long term. I do not foresee any great objection on the grounds of defence. Whether or not we join the Common Market, the needs of our own defence must become increasingly integrated with those of Europe.
I am sure that we shall all have an opportunity to discuss the future of the 428 aviation industry on another occasion. I believe that we have accumulated and developed resources in Rolls-Royce which could be of great value to the industry in the future. Rolls-Royce survived by its skills; it was killed by a failure to understand the manner in which those skills should have been applied. As I see it, we now have an opportunity to apply them in a manner far more appropriately than was done in the past to the demands of to-day. Without committing myself to support the manner in which the Government may make use of this Bill, nevertheless I welcome it for its opportunity to create a more realistic future and I applaud what I believe to be a radical act of the Government in introducing it—something more radical than anything we have seen in the last seven years.
§ LORD DAVIES OF LEEK
My Lords, before the noble Lord sits down I should like him to answer one question. He seemed to imply that if Rolls-Royce could have had some kind of consortium with Europe, we should have the "open sesame" to the American market. Is he not aware that one of the outstanding competitors of the RB.211, the United Aircraft Company—the parent company of the American Pratt and Whitney—both this week and last week pointed out in its annual report that the competitive engine supplied for Boeings has exactly the same kind of problems—and, indeed, even greater problems. When it taxied in cross winds it over-heated, its bolts became loose and they had to re-think the whole set-up again. In other words, we are in an esoteric realm of engineering and Rolls-Royce can be very proud of their 30 years' work in this sphere.
§ LORD REAY
Yes, my Lords, I think they can be proud, but in the end they still failed. I also attempted to draw attention to the problems of the industry as a whole. The trouble surely was that it was difficult enough for companies in this competitive situation even if they were American, and it was almost impossible for a company that was British to compete against them in the same situation.
With regard to the first question asked by the noble Lord as to what I thought about the future for an integrated European company in America, I do not think that would be much better than a British company.
§ LORD DAVIES OF LEEK
My Lords, that is what I wanted. I am glad that the noble Lord has made that point.
§ 6.24 p.m.
§ THE EARL OF KINNOULL
My Lords, I think the noble Lord, as a good Liberal, has steered a path down a road which, to his astonishment, he has found to be a cul-de-sac. My Lords, I am the 14th speaker in this serious debate, and as many of the points have been taken up already I hope not to repeat them. We are now nearing the end of the third Parliamentary debate within a week on the tragic collapse of this great company which symbolised to many, including myself, something of British pride. Few will disagree, I am sure, that there is still a great deal more to be written and said on questions such as the terms of the original contract and on the question of re-negotiation, which cannot be answered to-day. I welcome the statement made by my noble friend about the setting up of the Board of Trade inquiry. I should like to associate myself with those who have already wished the Liquidator every success in re-negotiating the contract during the next few weeks.
§ LORD MCCORQUODALE OF NEWTON
My Lords, I wonder whether I may point out that he is a Receiver, not a liquidator, and they are quite different people.
§ THE EARL OF KINNOULL
My Lords, I am grateful to my noble friend for the correction. I wish every success to the Receiver. On his shoulders rests an enormous responsibility. I should like also to associate myself in sympathy with all those whose jobs have been put in jeopardy, either directly or indirectly. The sooner their future is safeguarded the better, and for that reason I welcome this Bill and hope that it will pass through this House to-day. My second thoughts go out to all the former investors in Rolls-Royce, particularly the individual small investors or those who have been associated with the company. With the benefit of hindsight, I find it somewhat surprising that such a company, with a very high-risk investment, was in recent years still categorised as a blue chip investment. It was, after all, only 12 months ago that both Boeing and Lockheed nearly experienced the same fate as Rolls-Royce, and I am sure they 430 will be whispering to-day, "There but for the grace of God go I".
Those who listened to the statesmanlike speech made by the noble Lord, Lord Beswick, before he moved into his more political wind-up I think would agree that the key question to-day is what effect the Rolls-Royce disaster will have on the industry as a whole. As the noble Lord rightly said, the aero industry is a splendid exporter—90 per cent. brain and 10 per cent. tin—and it has a great record behind it; and although the present situation must be a blow to its prestige I believe it will be only a very temporary blow and that the firm action by the Government will restore that prestige and safeguard against any serious loss. The prospects of the industry in the long term I believe are very good. During the past few years the industry has been going through severe teething troubles in regard to problems of collaboration, but before long, I am sure, as in the case of Panavia, European joint industrial companies will be set up which will sweep aside the prejudices and bogies of such problems as design leadership and technical leads.
I was interested to hear to-day the good news of Concorde which was announced by the B.A.C., and the very favourable report by the chief test pilot. I am sure that Concorde will not suffer from any prestige problems, because no airline could take a view which would make them uncompetitive in the long term. Unlike the noble Lord, Lord Beswick, I believe there are lessons which can be drawn from the collapse of Rolls-Royce, but the most pertinent and, in my submission, the most urgent review is needed in the launching aid system given by the Government. I say this in the light of having examined the statements by former Ministers in another place during the last week. One notices immediately that there are certain disquieting omissions.
§ LORD BESWICK
My Lords, I did not say that there were no lessons to be learned; I said I was not disposed to attribute blame.
§ THE EARL OF KINNOULL
My Lords, I listened to the noble Lord's speech most carefully and I thought he used the word "irrelevant".
431 The omissions to which I referred are mainly three. The first is that the launching aid of some £47 million was committed by the previous Administration without ever re-checking the estimates of Rolls-Royce as they had been given on this fixed contract. A reason for this was given, and it was that the Ministry did not have sufficient expertise. The second omission was that the contract was signed in April, 1968, and apparently did not reach the Government until August, some four months later, despite their financial interest. The third one is that one of the former Ministers admitted that he was bound to disagree with his other former colleague that there was an implied undertaking given that the Government would bail out Rolls-Royce, if necessary, under this contract. So far little has been disclosed, of course, about the terms of the old RB.211 contract.
§ LORD DAVIES OF LEEK
My Lords, this is very important. I do not want to interrupt the noble Earl for too long, but I am very interested in this statement, and so are many of us. Has the noble Earl any direct evidence that that statement was made: that they would be bailed out; and, if so, who made it?
§ THE EARL OF KINNOULL
My Lords, I am not sure to which statement the noble Lord is referring. As I say, little has been disclosed so far on the terms of the old RB.211 contract, but one fact has been made known. In this astonishingly tough contract, I believe, a clause was written that Lockheed could alter the specification of the engine if necessary without changing the fixed price. That was done, and it was done at considerable expense to Rolls-Royce. It might be asked why Rolls-Royce did not in some way limit their liability. I think the answer is that they genuinely thought, from the previous Administration's attitude, that they would be bailed out if necessary. I believe the launching aid on this contract was bad for the Government, because they did not know the commitment, and bad for the company because they misled themselves into false security. The company took a considerable commercial risk, and, as we now know, made a considerable commercial error.
As to the future of Rolls-Royce under this Bill, I would ask the noble and 432 learned Lord about two points. First, do the "marine engines" which will come under the new Rolls-Royce set-up include the further development of the hovercraft engines? Secondly, can he assure those airlines who rely on Rolls-Royce for spare parts that the cost will not further escalate? I am told that in the last twelve months these costs have escalated something like 30 per cent. largely, it is considered, due to the old RB.211 contract. As to the negotiations of the Receiver, I hope he will recall that the extra £110,000 per engine represents one-third of a million pounds per aircraft, only 3 per cent. of the total cost. I hope that he will also take into account the state of Lockheed—and the position of some of the American airline customers is widely known—and that some adequate guarantee will be obtained as to Lockheed's own capability to continue with any new contract.
Under this Bill, as the noble Lord, Lord Kings Norton, has said, we are not of course burying Rolls-Royce: we are renewing them. In the past, Rolls-Royce have suffered in competing on unfair terms with their American counterparts, who benefit so largely from military orders. Although Rolls-Royce have failed financially, many who have examined the General Electric contract for the military C.5A engine will have noted that this comparable engine has cost the General Electric Company twice as much in R and D costs to produce, on the same terms as Rolls-Royce with the RB.211. Because of this, I believe that the future of Rolls-Royce under this new set-up looks indeed bright.
§ 6.34 p.m.
§ LORD WYNNE-JONES
My Lords, last Friday afternoon I went to buy an electric lighting switch at the suppliers, and when I picked out the one which seemed to me the best the salesman said, "But that is a very expensive one; that is the Rolls-Royce of switches." Then he suddenly realised what he had said, and said, "Perhaps I shouldn't say that now." As has been pointed out several times by your Lordships this afternoon, this is the reputation that this firm have had, a reputation which they have won and deserved.
I agree very much with all the remarks which the noble Lord, Lord Kings 433 Norton, made earlier. He said many of the things, but with much more authority, that I would have said myself. If I may be permitted to add one or two points to what he said, the RB.211 engine is without any doubt the most advanced aero-engine of its type. The thrust that it develops per pound weight is approximately 20 per cent. higher than that of the corresponding G.E. and other corresponding Pratt and Whitney engines. It is higher than the somewhat similar engine which the Russians have developed. It is without doubt the most advanced engine of its type.
I was interested to learn from the noble Lord, Lord Reay, that modern Liberal philosophy is rather like that which the newspapers have been peddling over the last fortnight, and in which they have been telling us how badly Rolls-Royce were run; how very much more successful it would have been if only the company had been run by accountants instead of by engineers. It probably would—making fruit machines. It would not have been more successful making aero-engines. I think it is important to realise that Rolls-Royce have had a special function. It has not been to make the things which can be sold in the supermarket, useful and important as those things are; it has been to make advanced aero-engines, not out-of-date aero-engines but advanced aero-engines. It is no good imagining that there is a lot to be said nowadays for producing an aero-engine which is twenty years out of date; it is necessary to produce an aero-engine that is up-to-date. If it is modern Liberal philosophy that you should always produce the out-of-date, that is indeed an interesting reflection on the present state of the Liberal Party.
My Lords, I suggest that it is rather important that we should bear in mind what a firm exists for; what is the purpose of a firm's technology. Advanced technology is not an easy thing; it is an extremely difficult thing. It is a hazardous problem—extremely hazardous. Only last Thursday I was listening, as several others of your Lordships were, at the luncheon of the Parliamentary and Scientific Committee, to Dr. Woodroofe, speaking upon the running of industry which involves technology, and he made a very interesting remark. He said, "If I were chairman of a company involved 434 in high technology I would run for cover." And indeed that is the position; that it is not an easy job for anyone to take on.
I have the utmost sympathy for the directors of Rolls-Royce. I think that they are people who have done an extremely good job. At the present time they are being maligned by every Tom, Dick and Harry who does not know anything about advanced technology, and in most cases, probably, like myself, does not know anything about running a company. But I am quite sure that if such people knew more about the details of Rolls-Royce they would not make some of the remarks they have been making. I was looking at some of the remarks that were made by Sir David Huddie in February, 1970, to the Dublin branch of the Royal Aeronautical Society. He said:As long as the regulations in air transport highlight competition via attractiveness of flying equipment to the travelling public, there will be unrelenting pressure to higher standards of speed, safety and regularity and all that that means for the power plant constructor. The significant point is that even if engines to the 1964 technology standard were supplied free of charge and with free parts supplied throughout their life the direct operating costs of the resulting aircraft would be 13 per cent. higher than for the aircraft using the more advanced engine".In other words, there is no point in producing something which is out of date; you have to produce the modern thing. Then it is said that the firm have made a ghastly mistake. It is quite possible that they may have made errors of judgment. But, as the noble Lord, Lord Kings Norton, said, if they have made one here it is the first he can recollect in his lifetime. Surely that is a remarkable record.
When we come to the question of what we are to do now, I find myself very much in sympathy with the remarks of the noble Lord, Lord Alport. I thought that some of his remarks were very pertinent to our present situation. He pointed out that we have to have co-operation between Government and industry. It is no good imagining that for any reason, doctrinaire or any other, firms like Rolls-Royce can be allowed to go down the drain because they are doing something which is very desirable but it costs a lot of money. To-day, this money cannot be found from private sources. I know that many people will say that this is absurd; that industry has always been 435 run with private resources. My Lords, industry has not been run with private resources. If, to-day, you look across the Atlantic you look at America. There, you do not find industry being run with private resources. You find that the aeronautical industry, the aerospace industry of America, is heavily subsidised by Government.
We have been told many times of the remarkable development of American technological industry along the so-called Route 128, around Boston. About a year ago I visited Route 128. I went there to see an excellent small firm doing some splendid technology. They were scared stiff of the future. Knowing that I was to visit Washington and was likely to be seeing some people down there, the president of that firm said to me, "If you can possibly find out what is the future prospect for firms like ours, so far as Government subsidy is concerned, I should be very grateful, because our future depends upon it." After I had been down to Washington I told him that his future was grim. All along Route 128 firms have been closing down. The pride of American industry there has been closing down because they have not been getting the subsidy from the Government which has come mainly through the large contractors who have been working in the aerospace industry. Do not let us imagine that America is the home of capitalist private enterprise; it is not. To-day, America is a country in which there is a close amalgam between Government and industry. In fact I am sometimes inclined to think that it is a country which is approaching communism more rapidly than the U.S.S.R.
When it comes to the future of Rolls-Royce, what are we going to do? We are told that some part of the company is going to be hived off. Is this really sensible? I should like to ask one or two questions about it. First of all, is it really conceivable that the motor car division is viable without the rest of Rolls-Royce? Is it realised how important the other advanced technology inside Rolls-Royce is to the development of their motor car? They do not, of course, use the same engine; but it makes a great deal of difference to have proceeding within the same organisation these different advanced technologies. I should have thought it a very foolish thing to 436 split up the firm. Secondly, if one is splitting it up, what is going to happen to the nuclear engine division, which I believe works at Dounreay? Is that going to be split off as well, or is that included in the part which is to be retained as the Government firm, the nationalised part?
It has been mentioned that in these problems the I.R.C. has been entirely ignored because it has been dissolved by the present Government. Surely this is a tragedy. I think the noble Lord, Lord Alport, made reference to the I.R.C. Surely it would be wise for the Government to consider bringing back something like the I.R.C. in order to be able properly to cope with a situation like this. It seems a tragedy that this situation has developed without any possibility of a Government organisation, specially created for the purpose, being able to step in and help. My Lords, although what has happened is in many ways a tragic thing, nevertheless one can hope that out of it there will develop a stronger Rolls-Royce. But it will come about only if the Government realise that there must be closer contact between Government and industry, and that this is not a case of something being taken over as an orphan in order to be disposed of as soon as possible.
§ 6.46 p.m.
§ LORD MILNE
My Lords, I must first declare an interest—indirectly, because my associated firm in America are the auditors of Lockheed; directly, because in this country we advise several suppliers of Rolls-Royce, the latter naturally greatly concerned over the amount owing to them up to the date of the receivership. With a name such as "Rolls-Royce" at stake, the first essential was to buy time in order to preserve the company from dissolution. This rightly has been achieved. The Receiver is in possession, and the company continues in business under his management.
The next most important step is to preserve the facilities of the essential subcontractors. So far as immediate expenses are concerned, this is being achieved by a guarantee to the Receiver, relieving him of what would otherwise be impossible liabilities. But what of those essential sub-contractors who are already corn-mated to the hilt, and who now face financial difficulties? The Receiver cannot, I think, help them in his own right, nor are their banks likely to oblige. Either 437 we should be told by Her Majesty's Government that support for them is included in the Receiver's powers or in his indemnity, or direct help must be forthcoming now within the rules of bankruptcy.
I commend this Bill as ushering in the next stage. But in my view the plan of Her Majesty's Government will be frustrated if the essential contractors are allowed to go to the wall. As to the Bill itself, noble Lords have already pointed out that it is open-ended and lacks compulsory powers. While the first is inevitable, I am doubtful as to the good sense of omitting the second.
Lastly, in any advanced engineering contract the final cost must always be a matter of expert opinion. In this case, if re-negotiated with a new company, the money already spent so far as cost is concerned is, to some extent, irrelevant. If, as we begin to hear, the experts feel that the engine has something extra both in power and in quality, and could be the progenitor of a new generation of engines, then there is endless scope to review the cost allocation without in any way "cooking the books". Looked at in this way, I feel that it may still be possible to fulfil such a contract, if not profitably then at an acceptable loss; and that this may easily turn out to be the correct procedure, if not in honour then certainly in good commercial sense.
§ 6.50 p.m.
§ LORD CRAWSHAW
My Lords, I hesitate to intervene this evening because this is not really my topic. My main reason for speaking is because I live a stone's throw away from Derby, the home of Rolls-Royce, and this is the place which will be most affected. I have many friends in the local towns and villages who work at all levels in the company, and among the sub-contractors, the shopkeepers and other suppliers. In fact, in other circumstances I might well have worked there myself, and should have been very proud to do so. I think I can claim to know a little of the present anxieties, and I have been asked by several people to come and try to explain them. I also know of the great good there is in Rolls-Royce: in their labour relations; in the employees' pride and interest in their own company and, indeed, in their present calm attitude at 438 this critical time. We all know of the excellence of their finished product. It would be easy to be sentimental about the Merlin engine, which must have done as much to save this country in 1940 as any other single item. It is always reassuring to me, when I am flying in an aeroplane, to be able to look out of the window and see the magical "R.R." on the engines.
Faced with the present tragic position, it seems to be widely believed in the Midlands that the Government have been right to step in, for obvious defence and other reasons. I am no lover of nationalization, because I believe it is so often wasteful, and I worry that a fairly normal sequel of nationalisation—that is, increase in staff, especially in office staff—should further aggravate the present swollen labour force at Rolls-Royce which is, of course, a major contributor to the present position. I hope that this point will be watched very closely by the new company. The cause of the greatest anxiety in Derby is, of course, the future of the RB.211 contract with Lockheed. Whereas the previous Government were over-optimistic about this, I think at present there is a danger that the present Government could be over-influenced by pessimism. I, along with other noble Lords, believe that this contract, or a renegotiated contract, should be honoured in order to uphold the name of all Rolls-Royce engines and all British goods and British commercial practice. I echo very strongly the words of the noble Lord, Lord O'Neill of the Maine, on this point.
I have naturally been talking to a great many people in the area over the past few days. Among those I have consulted was Mr. Kenneth Bhore, the aviation adviser to Rolls-Royce. He confirmed what Dr. Stanley Hooker (the new head of the Rolls-Royce aero-engine technical department) is reported to have said, that the RB.211 can be made to work and meet, if not improve on, the original specification. Also, as we have already heard this afternoon, the engine, rather by chance, has all the promise of producing a really quiet aeroplane. This is significant when research costs into eliminating noise are being considered, and is even possibly an important factor in considering the site of the third London airport, a subject which your Lordships will be discussing next week.
439 Mr. Bhore also put to me at least two ways of reducing the cost of the RB.211 from now on, and the cost is, of course, the worrying aspect. He frankly admitted—and he is an employee of Rolls-Royce—that the labour force is swollen, that there must be slimming and that fairly drastic surgery is needed. Mr. Bhore suggested to me that the Rolls-Royce employees, in the Derby division at any rate, should be told that the salaries of all those earning £2,000 per annum or more should be cut by 20 per cent., and that all other employees would have no increments for at least two years. He believed—and he spoke as an employee—that this would be acceptable at Derby rather than that the RB.211 contract should be lost. He also thought that other employees, at places such as Glasgow and Bristol, could be influenced to do likewise. He estimated that this course at Derby alone would cut £50 million off the cost of the RB.211 in two years' time. If those who were not satisfied wanted to leave, well, so be it; there are plenty more there. He felt it would also demonstrate to customers and taxpayers the right sort of spirit.
The second point he made to me was that a new team of designers could redesign parts of the engine and make it cheaper. All in all, I think it could be shown that there would be no losses over a 10-year period—and we must think ahead 10 years—and that the project would break even after the 400th engine. The TriStar is not the only suitable aeroplane. Indeed, it was suggested that a resurrected version of the VC 10 could also be fitted with this engine.
I said I would be brief because I am not too well qualified to speak on this subject, but I hope I may have mentioned one or two ways which will enable us to meet the Lockheed demands and fulfil a renegotiated contract. I hope the Government can persuade Lockheed's, supported as they will be by the United States Government, also to make concessions which will help to save the contract and lift the gloom that has now settled over Derby and the surrounding country.
§ 6.57 p.m.
§ LORD GRANVILLE OF EYE
My Lords, the noble Lord has given us a 440 first-hand account of the anxiety which is felt in Derby at the present time with regard to the future of this great engine. I hope, with him, that when the final decision is made by the Government ways will be found by which this engine can be continued. Both here and in the United States of America there are many thousands of sub-contractors whose worry and anxiety about the future at the present time is very acute. I am afraid that among many of them there is going to be considerable suffering in the future.
In contradistinction to the debate in another place, I think that this has been more in the nature of a realistic debate, the pattern of which was set by my noble friend Lord Beswick, who, with his considerable experience and knowledge of this industry, in my view set out the problem and the way we can deal with it in the future. I certainly do not think that we are going to hear, as in another place, a demand for an instant return to private enterprise after the new national set-up has dealt with the immediate position. Your Lordships' House realises that we are not going to solve this problem with doctrinaire labels. I echo the very interesting speech of the noble Lord, Lord Alport, to which my noble friend Lord Wynne-Jones referred, and I hope that the Minister of Defence will give very careful consideration to his suggestions and proposals.
As my noble friend Lord Beswick said, Governments play an enormous part in this industry all over the world, and have done so for a long time. Whether it is with regard to airlines, to aircraft production, to aerospace programmes, to engine production, or to development and research, whether here, in the United States, in France, in Italy, or in Germany, Governments are the customers in many cases and are the ultimate bankers behind these great projects. They play a considerable part in launching aid and in providing subsidies in one form or another. This debate has demonstrated more than did the debate in another place, that these projects, whether in this country, in Europe or in the United States, are far too enormous for us to talk any more about private enterprise pure and simple. We might like to talk about State-aided capitalism in the United States of America, but to refer, as was done in an Amendment in another 441 place, to handing it back entirely to "private enterprise" is a complete misnomer.
It is not only in technology that Governments are the ultimate big bankers; it is in selling as well. If you want to sell in the United States of America aircraft which are manufactured in this country, are you a free agent under private enterprise to go and sell at the best price, with the best performance, the best value and the best quality? Not a bit of it, my Lords. You are really selling to a Government, or to Government agencies. Those airlines which would like to buy one of our productions have in turn to go to their Government departments for their currency; they in turn have to deal with the Senate Lobby at Washington which is constantly agitating to buy United States aircraft. If anyone imagines that a great sales director sets forth and lands in America with his designs, his prices and so on and sells entirely to private enterprise, then he is living in Cloud-Cuckoo-land. This project has become so big that if, at the end of the day, the Government disregard the advice which has been given to them from their own side, from this side and very much in the Press, then I do not think that private enterprise could run it without Government aid.
Then, again, in the case of military fighters, bombers, equipment and so on, the liaison between Government Departments and the great firms who design and manufacture them is absolutely confidential and close. It must be so. The Government play a great part here, as do their Ministers—they must indicate what they want for their defence strategy and so on—but you cannot call that private enterprise. During the war liaison was all very simple. There were resident cost accountants, price negotiators and quality controllers, all representing certain Ministries. But if various Government Departments, with their contacts with the great aircraft companies and engine companies in this country, did not know what was happening at Rolls-Royce, if they could not see the red light, if they did not see that Rolls-Royce was overstressing itself, then there must be someething wrong with the contacts between Government Departments and Rolls-Royce.
I suggest to the Secretary of State for Defence that, although in war time it is 442 quite easy to get this liaison and cooperation, I doubt whether we have it at the present time. I suppose that, in the long run, the only accountability is to the Public Accounts Committee. But I suggest, in the light of what the noble Lord, Lord Alport, said, that the time has come for the Government to set up a committee of inquiry into the whole structure of co-operation between the aircraft, aerospace and research industries and the Government, in order to find a way to get the necessary cooperation and to avoid a repetition of what happened at Rolls-Royce.
But I would emphasise that you cannot underestimate the tremendous impact of Rolls-Royce technology on the whole engineering industry of this country. If you lose that great technology, which has provided research and technical development throughout our engineering industry, then you are going to lose a very great deal of this country's productivity. I hope, therefore, that the pleas which have been made will result in the R B.211 being continued, because it must go on. As my noble friend Lord Beswick said, the key to this matter is confidence, and if you throw out the RB.211 and let Rolls-Royce struggle along with what they have, then all over the world you are going to lose something of which this country is proud—our leadership in design and technology.
§ 7.8 p.m.
§ LORD MONTAGU OF BEAULIEU
My Lords, I speak to-night as one whose family has been associated with Rolls-Royce ever since its inception, although not financially, and I make a brief plea that special consideration be given to the future of the car division. I would remind the House that Rolls-Royce was originally formed in 1904, when the Honourable Charles Rolls, the younger son of a Member of your Lordships' House, met and formed a firm with Henry Royce of Manchester. Literally, from the introduction of the Silver Ghost in 1907 motor history was made. Because of its silence and reliability, it soon came to be known as the best car in the world. The chassis, when used in armoured cars, was very significant in the campaign run by Lawrence of Arabia; and, more ironically, it might have swung the balance when the Bolsheviks took over Leningrad in 1917.
443 But it is not necessary to-night to provide further historical facts to illustrate the great series of cars which have been produced by the company over the past 67 years. Indeed, no one would deny that the name Rolls-Royce has stood for British excellence and quality in every part of the world. My special point is that, since 1914, when Henry Royce was forced rather reluctantly, because of the First World War, to go into aero-engine production, however nationally significant or profitable to Rolls-Royce aero-engine manufacture has been, to the ordinary man in the street it has been the car which has carried the prestige. Indeed, only the engineering elite, experienced air travellers and those in charge of defence forces have been really aware that Rolls-Royce made such an immense contribution to aero-engine manufacture. If the recent announcement had been that Rolls-Royce were merely going to withdraw from manufacturing aero-engines, there would hardly have been such a fuss as there is now.
Therefore, whatever happens to the RB.211—and I fully support Her Majesty's Government's actions in this matter—I should like to make a special plea and to support the point made by the noble Lords, Lord O'Neill of the Maine and Lord Raglan, that some special consideration should be given to the car division by perhaps stating categorically to-night that that division will in no circumstances be allowed to go out of British control, and that this will be done by the Government, if necessary, taking up shares, such as they have done in British Petroleum. I believe that this would have an immediate effect on morale and would ensure the continuity of the greatest prestige symbol which we have. Indeed, a modest stake now in what is a profitable concern to ensure its development and future expansion must be an investment which this nation can afford.
Perhaps, indeed, Rolls-Royce should go back to where it started, and should concentrate more on cars and allow the aero-engine side to be developed in co-operation with European or United States partners. The noble Lord, Lord Wynne-Jones, suggested that the car division has received a tremendous amount of technical know-how from the aero division. 444 That may well be, but many feel that the car division has in fact been the Cinderella for many years, and only a few of the directors have been car men. After all, Mercedes, Ford and Citroen have produced excellent cars without an aero division. Perhaps more production capacity could be given to the car division, maybe to produce a smaller Rolls-Royce at a price more acceptable to any but the very rich. Above all, let us keep the Flying Lady, the famous mascot, on the radiators of the cars of the future, because she it is who has carried the prestige of Rolls-Royce, and this country's pride, for over 60 years.
§ 7.12 p.m.
§ LORD DIAMOND
My Lords, before starting what may be perhaps a rather difficult speech to make, I think it wise to concentrate on the large areas of agreement, and the first point I want to refer to, therefore, is the way in which the whole House is agreed on the excellent debate we have so far had, and in particular, if I may say so, on the excellent speech which the noble Lord, Lord Carrington, made in introducing it. It was excellent in my view, in particular because he managed to get into the minimum of time the maximum of information, on which I congratulate him. I also congratulate him on the fact that a good deal of the information was accurate as well.
There is agreement, too, that we are in a very complex situation in which I myself, and I imagine most of your Lordships, would not feel it wise to attempt to apportion either credit or blame. I do not even take the view at the present time that all that we are concerned with is to ascertain blame. I am of the opinion that we have to take a long view of what has been achieved by this company over many years, and of the prestige which it has added to British exports and British manufacturers generally. We have to consider whether we could have achieved all that without some of the risk-taking which in this particular case has perhaps proved excessive. So I feel that your Lordships generally share with me the view that it would not be right to attempt to apportion either credit or blame. Indeed, I take the view that anybody who would claim to know all about 445 the Rolls-Royce situation is simply not informed.
I believe also that we all agree that one of the special complexities within a very complex situation is, I will not say the moral complexity but perhaps the accounting complexity of why it is right for the costs of Concorde to have escalated on a very substantial scale without any damage to the name of this country or to the name of the manufacturers concerned, both aero-frame and aero-engine, and yet it is wrong for the costs of the RB.211 to have escalated to a smaller extent, both absolutely and proportionately, and that we should find ourselves concerned with what is a tragedy. It is not easy to draw a conclusion from that, and that is the one part of the speech of the noble Viscount, Lord Watkinson, which I did not entirely follow.
What is the nature of the tragedy with which we are concerned? I do not think the tragedy is merely that a contract, which is, after all, based on a human estimate, should have been found to be based also on a human inability to foretell the future accurately and should therefore need to be re-negotiated. That is, of course, a great nuisance, but it is not a great tragedy. It has happened before, and it is not unreasonable. In this case I agree with the noble Viscount, Lord Watkinson, that where shareholders are taking a risk and that risk has not succeeded, their position should be adjusted; and it is not unreasonable that where you have to calculate the share of the damage which should be apportioned to those concerned—the airline operator, the air-frame manufacturer, the aero-engine manufacturer, the sub-contractor, the creditors—you should be compelled to do so. That is not a complete tragedy.
Nor is it a tragedy, if I may turn to what my noble friend Lady Gaitskell said in what to me was a most appealing speech, that one of the greatest combinations of human skills and physical assets in the field of complex and sophisticated engineering should now be classed as one of the commanding heights and should accordingly be thought fit for nationalisation. That I certainly would not regard as a tragedy, especially as we recognise that the present jobs of tens of thousands of workers and the 446 future standard of living of your Lordships' children and grandchildren and future generations are also involved That is not a tragedy. Nor is it a tragedy that we should be forced to re-think how we can maintain our leading position in the engineering field in an ever-narrowing and ever-more competitive world, or that we should be forced to the conclusion that national boundaries are becoming more and more irrelevant. None of those is of the essence of tragedy.
I see the real tragedy as the fact that Britain's fair name, prestige and good will in commercial circles abroad has been severely—very severely, though I hope not irretrievably—damaged by a unilateral breach of contract which could have been avoided and would have been avoided but for the Government dogmatic approach. That is my charge, and I shall now seek to justify it. It is a very grave charge indeed.
It is clear—every member of Her Majesty's Government has said it—that this final revelation came as a great shock to them. The Prime Minister said it when addressing the Young Conservatives, and we have heard it time and time again. And because it was a great shock, there clearly could not have been time for them to react carefully to a difficult situation and to consider with care and with time what should have been done. They have panicked, and they have acted most unwisely. Yet your Lordships are aware of the fact, because it was mentioned in your Lordships' House, that certainly since November—and we are considering the period from November to February—the Government could, had they so chosen, have interested themselves closely in the affairs of this company. Indeed, if it had done what the noble Lord, Lord Drumalbyn, indicated by his reply to a Question of mine on that day this would have happened. I particularly asked him, as soon as he made the announcement, to define the legal and moral commitments. After giving his views of the legal commitments of the Government he went on to say: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."—[OFFICIAL REPORT, 11/11/70, col. 773.]Why do a Government who accept that moral responsibility apparently do nothing between November and some period 447 late in January—when it all comes as a great shock—other than that they set out from the beginning of their period of office to regard intervention in private industry as dealing with "lame ducks"? They set out to turn their backs on the problems of private industry. Indeed, the noble Viscount, Lord Watkinson, attempted to justify that in his speech to-day with regard to private enterprise generally, when he said that it was proper, if private industry got into difficulties, that they should, to use his own words, sleep on the beds they made. That is still his general view, irrespective of the size of the firm, irrespective of the jobs involved, irrespective of the social cost—which no accountant puts on his profit and loss account or balance sheet. Irrespective of all these things, the Government have taken the view that they should turn their backs on the growing problems of private industry and let it stew.
§ VISCOUNT WATKINSON
My Lords, may I intervene to say that on the human problems involved I am as worried as anybody. My point was that if a company realises clearly that it has no recourse to Government or to some easy way out, it will try a great deal harder to get those problems solved and to see that it does not get into the impossible position that Rolls-Royce got into.
§ LORD DIAMOND
I would not suggest for one second that the noble Viscount is not just as much concerned as anyone with human problems. I have had the privilege of knowing him and of listening to him on many occasions. But what he has just said does not impress me or persuade me at all. I take a different view. I take the view that the Government have the responsibility to maintain or to improve the standard of living of our citizens. One of the ways of doing this is to concern themselves as much with public industry as with private industry, although there is a proper field for risk taking which is peculiarly appropriate to private enterprise.
§ THE MINISTER WITHOUT PORTFOLIO (LORD DRUMALBYN)
My Lords, perhaps the noble Lord will forgive me for interrupting. Does he really think that by involving themselves with industry, to the extent, in this particular case, of 448 making available £42 million on condition of a full enquiry by a very well-known firm of accountants, the Government are entirely turning their backs on industry?
§ LORD DIAMOND
My Lords, this is what I cannot understand. This is the impression that we all got: that £42 million and £18 million—because the bank advance was associated with this £42 million of the Government—the total of £60 million, we all gathered (at least I did) was to be advanced. There was to be what the noble Lord called an "accountant's check" on the figures—I think I am quoting the exact words, although I am relying on my memory. It seems to me that this was a short, quick check by some accountants to make sure that the arithmetic was right, and nothing more than that; and that the Government were satisfied that they should make this offer. Indeed, how otherwise could they so mislead sub-contractors galore into believing that the company were now on a much more substantial financial basis than they otherwise might have been and that there would be very substantial sums available to meet their claims?
I do not understand why there was this long gap, when nothing was done, after what the noble Lord said was the view of the Government in relation to Rolls-Royce. At least, I understand it only on a basis of philosophy; namely, that noble Lords on the Front Bench opposite share the views of the noble Viscount, Lord Watkinson, who has always spoken of and understood the essential approach of Conservative philosophy and has on many occasions explained it with great skill: that they share his view of the attitude the Government should adopt to private enterprise—and I am saying: no matter what the circumstances or what effect there may be on the country.
§ LORD CARRINGTON
My Lords, may I intervene at this point? I think that the noble Lord has raised an important question. The point is that the Government said in November that they would advance £42 million and the banks another £18 million, provided that a check by a firm of well-known accountants showed that Rolls-Royce finances were all right. The accountants have not reported, but the Government did not say, and have never said until 449 three weeks ago, that they would not give the £42 million. What happened was that before the company asked for the £42 million the company, Rolls-Royce, came to the conclusion that they were insolvent.
§ LORD DIAMOND
My Lords, I now have the Statement (it is in column 768 of the OFFICIAL REPORT for November 11, 1970) in front of me. The Minister without Portfolio is reading the Statement of his right honourable friend in another place and he says: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.…I do not think there is any need for me to read further. I think it was reasonable for the ordinary person, reading that Statement, to understand that the additional aid was to be subject to a further check of the figures by independent accountants; and nothing more than that. I do not want to read anything more or less into the figures than that—certainly not the words used by the noble Lord, Lord Carrington. They are much simpler words.
All I can say is that I am surprised the Government felt it appropriate to make that kind of Statement, including the banks; because it is surely more than a coincidence that the banks are willing to lend £18 million on the same day as the Government are prepared to increase the launching aid and that the bank loan is going to be subject again to the same check by a firm of accountants who, curiously, are acting both for the Government and for the banks. To say the least, there is some get-together between the banks and the Government about advancing this money. Why otherwise is it that the banks have not advanced their £18 million? Clearly, they were limited by the same conditions. It is very extraordinary that that should have happened and I think the Government action has gravely added to the embarrassment of many sub-contractors who were entitled to look to the words of the Government in the way I have indicated.
I can understand the Government's coming forward and making a Statement like that, and then going back and doing nothing at all, only if they took the view 450 (as they clearly do) that the Government should not intervene in private industry. I appeal to them: for heaven's sake! let us drop this silly dogmatic approach. I had the privilege of addressing your Lordships only a week or two ago on an Atomic Energy Bill when, on behalf of all good Socialists on this side of the House, I said: "Do not let us be dogmatic. Let us turn a nationalised industry into a joint industry or a pair of joint industries". All I am doing now is appealing to the Government. We are in this situation, and we want to recover out of this shambles as much of the good name of the firm, and of the country, as we can. From now on, let us look at it objectively and remember that, although Governments start off steeped in their own philosophies—all Governments—they are soon brought face to face with events which are very awkward things to deal with and do not, unfortunately, tie up with previously conceived philosophical approaches, or even with some of the best platform speeches.
I am saying, therefore, that had the Government adopted a different approach and been willing to be continually interested in the affairs of this great company, they would have had time to consider the matter; and I do not doubt that any necessary rearrangement of liabilities as between contractors, creditors, shareholders and others could have been negotiated and formalised—not under this wretched Section 332—about which I shall have a word or two to say, and about which the noble and learned Lord who sits on the Woolsack will give your Lordships helpful guidance—but under the entirely different Section 206, and the following sections of the Companies Act. Under those sections you could, without going into liquidation, without appointing a receiver, without damaging almost irretrievably the name of your company and the good will of it and the fair name of our country in countries abroad—without doing any serious damage, you could have had a reconstruction which could have been arranged and confirmed at a subsequent date.
It certainly could have been arranged during the period between November and February, because, my Lords, I find it difficult to believe that an action on a particular day, on a Tuesday or whatever the day may be, becomes an offence, a 451 criminal offence as well as a civil offence and subject to a civil penalty, and not on the previous day. This is a wonderful section! Under its provisions, as I understand it, you get both; you get put into prison and have to pay a fine; you have to pay all the creditors, if the court so decides. I find it difficult to believe that if that situation can turn out to be the case on Tuesday, it was not the case on the previous day, on the Monday. In short, the point I am making is this. It was a developing situation; and nobody can say with certainty that there could be an action on Monday, with a view to sorting out this difficult matter, without appointing a Receiver or defrauding creditors, but doing the same thing on Tuesday was defrauding creditors. It is a developing situation.
Clearly, the Government took the view in November, when they came to your Lordships' House, that it was perfectly proper, on that score, for the firm to continue trading. There was nothing in the Statement about it being subject to the firm appointing a Receiver, or going into voluntary liquidation or anything like that. The Government clearly took the view that it was perfectly proper, on that day, for the company to continue trading; and the company must also have taken that same view. So clearly it is a situation which developed between those two dates, and I find it difficult to believe that a particular day can determine the difference between innocence and criminal liability.
Therefore I repeat, my Lords, that had the Government been willing to interest themselves continually in the affairs of this company (knowing that a good deal of trouble had already been taken; that there were many things at stake and that difficulties were emerging), they would have found the necessary amount of time to make sensible arrangements which would have resulted in—I will not say no damage, but far less damage, both to the company and also to the good name of our country. That is where I think the Government are to blame. That would have avoided a unilateral breach of contract. There could have been a negotiated settlement. I am told—and if I am wrong perhaps the noble and learned Lord on the Woolsack will put me right—that certainly the company, and also, I believe, the Government, did not even 452 approach Lockheed's before a Receiver was appointed.
My Lords, how on earth are you going to conduct a satisfactory renegotiation of a contract with the other party to the contract, with the main contractor, when you do not give him even a moment's opportunity for consultation, or to express his point of view, or to see whether anything could be done? There lies the essence of the matter; a unilateral breach of contract exacerbated by the absence of even an attempt at negotiation. It was exacerbated, too, as I have already explained, by this promise of £60 million which was not fulfilled; and it was all done in order to protect the taxpayer. I have every sympathy with protecting the taxpayer. I spent many years of very hard labour trying to do that myself, and those of my colleagues who still talk to me will tell you that I did not fail entirely in my endeavours. But what has happened as a result of this attempt to save the taxpayer? We have before us a Bill which, I imagine, is unique in Parliamentary history. It has a Financial Memorandum which merely says, "Please, a blank cheque."
§ LORD DIAMOND
An open-ended commitment, a completely open-ended commitment: estimates will be presented in due course. It merely says: "It is not at present possible to make any reliable estimate of the purchase price", and this is what the Government are coming to both Houses of Parliament about. This cannot be said to be entirely typical of a Government concerned to succeed in saving the taxpayer money.
My Lords, I must not keep you long; I have made my main point. I think there is a large area where we all share the same opinion. There is only one area where we may not. I recognise that the Government are moving very fast under the compulsion of events. I wish them every success in the future negotiations. There were difficulties that I had with the noble Lord a little earlier on, but I do not think that I shall waste the time of your Lordships' House by going into them in more detail. They are difficulties which stem merely from the fact that some members of Her Majesty's Government have not yet been introduced to the members of Her Majesty's 453 Government—and I am always only too glad to assist in this if I can—and what has been authoritatively stated in one House is denied in another House. I now take the view that what is said in this House must be right.
So, my Lords, all I am now doing is saying to the Government that we on this side of the House are most anxious that this Bill should go through. We are most anxious that it should go through on the basis that has already been stated by the Minister of Aviation Supply in another place; namely, that the new nationalised company will be an enterprising company; that it will have to undertake research and development; that it will not merely rely on completing existing contracts but will have to go and search out new contracts in this competitive world and, therefore, will be subject to exactly the same difficulties as Rolls-Royce in having to assess the difficult costs of entering into, and continuing in, this top league of aero-engine manufacture. The directors should be given their head. I support entirely what the noble Lord, Lord Kings Norton, said about not breathing down the necks of directors of nationalised companies. They should be given their head. An assessment should be made from time to time—which means perhaps once a year, but not every day, and not with Questions in either House. On that basis we wish the Government every good fortune in renegotiating these contracts as helpfully as may be; as fairly as may be; and in repairing some of the damage, a great deal of which, I fear, lies at their own door.
§ 7.40 p.m.
§ THE LORD CHANCELLOR
My Lords, at a later stage in my remarks to the House it will be my duty to say—I hope politely; but none the less plainly—to the noble Lord, Lord Diamond, that there are important points about this unhappy transaction both in the commercial facts of life and also, and still more, about the law applicable to it that he has completely failed to understand. But before I reach what must necessarily therefore be a more controversial part of my speech. I should like to thank him for the kind words which he spoke about the speech of my noble friend the Secretary of State for Defence, remarks with which I need hardly say that I myself am wholeheartedly in agreement.
454 Reading, as I did, with considerable care but not with total enlightenment, the debates in another place relating to the same matter, and having heard them from the little perch we have up aloft, to which we are confined nowadays, could not help harbouring the thought for a moment or two that it was perhaps excellent that Parliament had two Houses in order to discuss matters of this kind. Nothing in this debate has diminished my belief that we have our own distinctive contribution to make to this discussion. Not that anything I say should be taken in any way as criticism of the other place. This would be most inappropriate from one speaking from the place from which I do.
Accordingly, I ask myself what our distinctive contribution can be. First of all, I think it must be to speak about this matter (about which all of us I suppose feel deeply, because I think we would be less than human if we did not) as factually and objectively as possible. This is not because we do not feel deeply, but precisely because we do. When we see friends in distress, with their jobs threatened, their pride humiliated, considerable and as yet partly unknown repercussions in other fields causing great anxieties among a great number of people, it is sometimes better if one can keep one's head and speak coolly to them words of advice. I think that is what this House can do. What is more, I think that that is what this House has done this afternoon. And as part of this contribution I think it is important to be able to see the wood as well as the trees.
In another place, where Members represent constituents who are deeply involved in this affair, strong pressure must be brought on Ministers to be as positive as they can be about particular interests, about what I may call the trees in the wood, and nobody would complain that this pressure has been brought. But what I wish to do this evening is to see the situation, so far as I can, in the round and to try to analyse it in the round so that, despite the number of trees and the intricacies of their foliage, we can see what we are trying to do.
I make no apology for returning to the Bill itself, because the first thing which is required of the House—and here 455 again I must thank the Front Bench of the Opposition Party—is to pass this Bill into law at the earliest convenient moment. It is an enabling Bill. It enables us to do what we believe to be necessary in the national interest and which we could not do without this alteration in the law. It is not a Bill for compulsory purchase and in that sense, although perhaps only in that sense, it is not in the ordinary way a nationalisation measure. A nationalisation measure is almost without exception concerned in the compulsory acquisition of the assets of reluctant sellers. This is not a nationalisation measure in that sense. If it were, because it relates to an individual concern, it would have to be a Hybrid Bill and we should not have the Bill before us to-night. We should not have it at all, except after the elaborate procedure which Parliament imposes upon the passage of Hybrid Bills. This is an enabling Bill, to spend public money on the purchase of assets or, more properly, directly upon the formation of a Companies Act company, which will purchase the private assets of the business to be acquired. It is an emergency measure which has to be passed through Parliament.
That, I am afraid, is the best answer that I can give to many of the pressing and legitimate questions put by noble Lords. I could not, for instance, reply to the noble Earl, Lord Amherst, on the Liberal Benches, about the basis upon which negotiations are going on between the Receiver and the Government. It would not be appropriate for me to do so. I could not embark, I think, upon any part of that subject without disclosing the whole of it, and as the Receiver's interest is to get the best price he can for his assets and the Government's interest is to protect the public purse, clearly those negotiations must go forward on a basis of mutual confidence which cannot be disclosed.
I hope that I shall be able to write in detail to the noble Lord, Lord Beswick, about the question of pensions, because I have considerable material that I could give him but it is a somewhat intricate subject. There are 15 different pension funds involved and the situation is not identical with all of them. But we hope—at any rate I think I can say this in 456 the kind of speech which I have sought to deliver in anticipation of any letter I might write to the noble Lord—that, so far as the new company is concerned, which is designed to protect the assets, there will be a reference in the Articles to the pension schemes which relate to this part of the business.
§ LORD BESWICK
My Lords, I am grateful to the noble and learned Lord for saying that he will write to me, but I am not one of those who are suffering from the anxiety and uncertainty. What I was hoping is that he would be able to say something publicly. Can he not give an indication that their anxieties by and large are not well founded?
§ THE LORD CHANCELLOR
My Lords, I think that by and large I could, but as there are 15 different schemes and as I would not wish to say what is not absolutely accurate in such a situation, I would rather put it on paper and see that what I have written is published.
§ LORD BESWICK
My Lords, I think that it would be helpful if a matter of this kind could be made in the form of a statement or otherwise publicly.
§ THE LORD CHANCELLOR
My Lords, if the noble Lord would prefer me to put it in the form of a statement or of an Answer to a Question, I should be happy to do that. I could deliver a statement now, but it is both long and full of small print and I should not like to bear cross-examination about it in the middle of a speech, because I might get some detail of it wrong. It is just as important to be accurate as it is to be reassuring—in fact, in some ways it is more important to be accurate.
I should like to say at the outset that the noble Lord, Lord Diamond, was quite wrong in suggesting that this Bill or the policy that this Bill is designed to put into operation was based on a dogmatic approach of any kind. I think that this emerges from the fact that it is an emergency measure. It is certainly not, nor could it be said to be, anything based on any kind of approach of total disinterestedness in private industry, which is said now, according to the noble Lord, Lord Diamond, to be the philosophy on which my colleagues and I have been working.
§ LORD DIAMOND
My Lords, unfortunately, I said nothing of the sort. I hesitate to get up in these circumstances, but the whole of that part of my speech—and it is for noble Lords on both sides to refer to their recollection—was directed to the fact that the lack of time for consideration was due to the fact that the Government must have turned their back on the problems of this company, owing to their dogmatic approach, as explained by some noble Lords in their speeches.
§ THE LORD CHANCELLOR
When the noble Lord comes to reflect on the words that he will read in Hansard to-morrow he will see that when I took them down they were exactly verbatim of what he said: "The Government have turned their back on the growing problems of private industry and let them stew." If I am wrong, or if it does not accurately represent what the noble Lord said, I am only glad to know that I am misrepresenting him. If he will disavow this view, no one will be happier than I to welcome him into the band of the elect. But that is not and has not been our approach.
There is, however, one important factor upon which I profoundly agree with one of the shop stewards in the union, speaking on Radio Four last week, and one or two noble Lords who have taken part in this debate. It is true that Rolls-Royce is only one company—a very large company; a company of world-wide reputation—but it would, I think, be wholly misleading to think that a Government of any Party could approach a problem of this size, of this national and international importance, without recognising that what they did in this case they would have to do in a number of comparable other cases should they arise—which I hope they would not. To use the words of the shop steward, which seemed to me to be wholly correct although he was advocating a policy which the Government have rejected—that of taking over the entire enterprise and carrying it on—he said that what you have got to do with Rolls-Royce you have got to do with everything from a power station right down to a needle in a sewing machine. He said that it covers the whole range of British industry. What you do in this case has to be capable of 458 rational justification, in the knowledge that what you do here must be justified if the same situation arises elsewhere. If we do it in Derby, it must be done on the Clyde; if it is done in one city, it must be done in another.
I do not believe that we should stop at aero-engines simply because they are in the forefront of technology. We must do it with ships, if need be; we must do it with motor cars, as we have been urged by my noble friend Lord Montagu; we must do it in textiles. There can therefore be no limit to the importance of the precedent that we are setting. It is not dogmatism but the desire for clarity of thought which leads me to say that we must consider very carefully indeed, both in this case and in others, comparable or distinguishable, if any should turn up, what principles of action we are going to adopt in an honourable commercial nation which is none the less struggling for its continued economic survival in the form in which we all desire it to survive.
I have no desire, and the noble Lord, Lord Diamond, disclaimed any desire, to enter into a post-mortem attributing blame to one Party or to another. For that reason I do not wish to mount an attack upon the previous Administration in any respect at all. It may be that my noble friend Lord Watkinson, to whose speech I listened with great admiration, was right in attributing part of the weakness of Rolls-Royce to the successive cancellation of a number of aircraft projects, in relation to both airframes and air engines. I am sympathetic to that viewpoint, but it is not part of my case to pursue it. Nor do I wish to mount an attack upon the previous Administration on the basis that they leant on the management of Rolls-Royce to conclude what has turned out to be a disastrous contract—and for a very good reason: I do not know that they did. I know that it was expressly stated in another place by one of their supporters that they had done so. I realise, of course, that it looked like a band waggon, as one noble Lord on the Benches on my left pointed out during the course of the debate, and Mr. Bonn seemed eager enough to climb on it. And I well remember, because I was present in another place at the time, that it was considered almost unpatriotic not to cheer 459 the contract when it was received. Indeed, it was cheered from both sides of the House.
But all that is for the purpose of this debate quite irrelevant, because Mr. Benn made it clear in his speech in another place and on Radio Four two Sundays ago that, whatever may have been the position between Rolls-Royce and the then Government, the only aid and the only commitment the then Government made to Rolls-Royce was launching aid and not general support, and that they did so deliberately—and he made this abundantly plain in both places—in order to avoid Government liability on the contract as liability on the contract in respect of the Concorde had been incurred. Launching aid was designed to limit Government liability to providing development material for the launching of the project, and not for financing Rolls-Royce, and it was done deliberately, in the most careful way. In this the then Government were making a precedent, and it may be a good precedent; but they were deliberately limiting it precisely so that Lockheed's should be under no illusion as to whom they were contracting with, and under no illusion as to the entity to which they were giving credit.
To my mind, there can be no doubt that Lockheed's contracted with Rolls-Royce and Rolls-Royce only, without any guarantor, just as the airlines concerned contracted with Lockheed, and it seems to me to be wholly intolerable to suggest that when a contract of this kind goes wrong, whether through nobody's fault or anybody's fault, the ordinary citizen of the country in which the contracting firm is situated should discharge the debts of the firm as a matter of moral responsibility. That is not the view which the United States Government take of their own responsibilities when, as not so infrequently happens, there are manufacturers over there who fall into difficulties. It is really naïve to believe that Lockheeds or the airlines, who are well advised by highly paid and highly competent lawyers, were under the slightest illusion as to where liability stops. One has only to ask the question whether the American Government or the airlines or Lockheed's would have bailed out Rolls-Royce if Lockheed had gone bankrupt, as they 460 were at one time said to be in danger of doing, to see how monstrous is the suggestion that is now being made, though not, I am happy to say, by the Front Bench on my left. The credit of the British Government was not involved in the contract, and to suggest now that it ought to be is false to law, false to fact and wholly false to commercial morality as it is understood on either side of the Atlantic.
I now turn to the position of the Rolls-Royce board. Of course the Rolls-Royce board, just like any other traders, are subject to the Companies' Act, just as an ordinary trader trading without limited liability is subject to the bankruptcy law. May I now say a word before I come to this particular provision about the law. I start with the proposition that limited liability, and the bankruptcy law as it applies to individuals (limited liability applying to companies), despite the fact, as we all know, that both are from time to time used as a vehicle for deliberate fraud, have proved one of the most beneficial devices of modern commercial law. They enable the trader who has failed to make a fresh start. The burden of debt which would otherwise sink him and his family for the rest of his natural life is removed from his shoulders after he has surrendered his assets and the goodwill of his business to the receiver in bankruptcy, the receiver of the company, or the liquidator.
This was an enormous, humane measure which is in no small degree one of the secrets why the West (if I may use a vulgar phrase) "took off" somewhere about the end of the eighteenth century. It is one of the main reasons why modern industry has blossomed in the past 150 years. Prior to that date, Mr. Pickwick, if he owed money to Mrs. Bardell, was put into the Fleet; and even when he did not end up there, like Beau Brummell, he had to run and spend the rest of his life in Boulogne. The unfortunate investors in the South Sea Bubble did not merely lose their share capital; they had to submit to the intrusion of the bailiffs selling their furniture.
The fact is that once the assets of the trader, or the company to whom credit is given, and the good will of the business are in the hands of the receiver, the rest of the burden, under modern commercial 461 law, has to be shouldered by the creditors. I do not find this entirely unjust because the only alternative I see to it is a return to the old, inhumane situation which put all the burden on the debtor in such circumstances and crippled him for the rest of his life. But there must be one limitation to this, and it is as well to realise what this limitation is.
It is here that I profoundly part company with the analysis of the law to which the noble Lord, Lord Diamond, committed himself in the latter part of his speech. The trader must trade honestly if he is to take advantage of the bankruptcy law. If the directors of a limited company are to take advantage of limited liability they must trade honourably. It may be distasteful in some circumstances, it must be dishonourable in my mind, for a man to say openly that he cannot comply with his obligations. But it is far more dishonourable—indeed it is criminal—to go on trading, acquiring yet more goods on credit, borrowing yet more money from your banker to pay your weekly wage bill, after you know that the point of no return has arrived. The noble Lord, Lord Diamond, says, "But I cannot believe it can arrive on Tuesday if it has not arrived on Monday." No doubt if it had not arrived on Monday he would have said that it could not have arrived on the previous Saturday. So you get back to an infinite regress.
In all these Old Bailey cases there comes a point of time when the trader, if he is an honest man, has to recognise that his liabilities exceed his assets, and that he cannot go on trading honestly. This is one of the commonest forms of commercial fraud tried at the Old Bailey. It must apply impartially as much to directors of world-wide companies as to the trader operating as a sweet and tobacco shop. In the case of the limited company the principle is enshrined in Section 332 of the Companies Act, 1948, and it is not a technical piece of dry-as-dust lawyers' law; it is simply an obvious principle of commercial morality. But it cannot be too clearly stated that a Government, or a third party, who sought to induce individual traders to disregard the law without being prepared to underwrite the credit of the trader, and therefore to shoulder his obligations, would be morally and, in many cases 462 I would think, legally condoning and inciting breach of the criminal law.
§ LORD BESWICK
My Lords, the noble Lord has now related this case of Rolls-Royce to a sweetshop; and earlier he spoke about the relevance of a needle in a sewing machine. But we are dealing here with a case in which the Government have already promised £42 million—it is of a different order altogether. Would the noble Lord be good enough to answer the question that was put to him; namely, how was it possible for legal advisers to come to the conclusion that the company was not solvent when they did not know the value of their assets? That is what the noble Lord, Lord Carrington, agreed: that the company did not know the total amount of the money which would be forthcoming from the Government because the Government had not yet made up their minds as to the total money they were going to advance; nor did they know the possibilities of renegotiating the contract with a consequent reduction of liabilities.
§ THE LORD CHANCELLOR
My Lords, if the noble Lord will be patient with me, he will even, I think, have that revealed to him. I must emphasise the point I made at the beginning, that although from one point of view there is all the difference in the world between the failure of a small company in White-chapel, or a trader in Whitechapel, and the failure of a world-wide company whose goods are a household word for perfection, and whose reputation is one of the prized assets of the nation, the principles of honesty and morality must apply impartially to both. That was the only point I was seeking to make at the time.
I come next to a point which I think will bear a little more closely on what interests, quite rightly, the noble Lord, Lord Beswick. The board of Rolls-Royce were advised that the moment of no return had come a few days before they made their announcement—I forget exactly how many days. That advice may have been right or wrong. I think he would be a very bold Member of this House who would venture to say that it was wrong, or would venture to say that the board of Rolls-Royce, having received that advice and come to that decision, ought to have gone on trading. They can 463 possibly be criticised for the absence of information which led to their failure last November to know how serious things were. It may be that they ought to have found means to warn their partners earlier of what was in the wind. I am not making any criticisms; I am not qualified to judge. What I am sure is that they cannot be criticised for their announcement on February 4. I must say that I expressly dissociate myself from the rather ungenerous criticism which was made at the time by the noble Lord, Lord George-Brown, in this House.
I now turn—as the noble Lord has a right to ask that I should—to the position of the Government, by which I mean primarily the present Government. It must be remembered that when we were approached the position was that the last Administration had pledged the Government to £47 million launching aid, and had possibly caused the injection of a further £10 million by I.R.C. funds. The figure of £47 million, as I have indicated, represented money earmarked for launching the project. It could not be used honourably for the general business of the company. It was contemplated originally that it would represent 70 per cent. of the total cost of developing and launching the engine. The original estimate had then been increased but, apart from the £10 million, I think I am right in saying that the company absorbed the increase out of its own resources. That was the situation in November when the company came to us with a request for more launching aid.
Pausing there, the noble Lord, Lord Diamond, seemed to think (and possibly the noble Lord, Lord Beswick, also thought) that what they asked for was more money, simpliciter. That is not the case. They asked for more launching aid to be given to them on precisely the same terms as the launching aid which had previously been given by Mr. Benn. It seems to me that when he rereads his speech to-morrow morning, the noble Lord, Lord Diamond, will come to the conclusion that he had not fully appreciated the significance of that. What was asked for was not general aid to be injected in to the company to pay its general debts; still less an obligation to shoulder the open-ended liabilities on 464 the RB.211 contract with Lockheed, from which the last Government had, quite rightly in my opinion, steered absolutely clear. It was for more money on the basis that the cost of launching the project had escalated. Here I find myself at one with the speech of the noble Lord, Lord Raglan.
§ LORD DIAMOND
My Lords, as the noble and learned Lord referred to me, may I say that I entirely disagree with his artificial attempt to distinguish between money which is put into the company's coffer for a certain purpose in this case, and money which is put into the company's coffer, full stop. For the very simple reason that this is a proportion of the development cost, and the rest of of the development cost has to be met out of the company's funds; and to the extent that the Government contribute the promised £42 million exclusively to the development cost, so is the company saved money which it would otherwise have to pay itself. And the £18 million from the bank was not expressed as a contribution to development of the RB.211.
§ THE LORD CHANCELLOR
My Lords, I really would recommend the noble Lord to send for the transcript of what his right honourable friend Mr. Benn said on Radio 4 two Sundays ago, when he carefully explained the view which I have been attempting, however imperfectly, to put to the House as being the view of the then Government, of which the noble Lord, Lord Diamond, was an ornament. The fact is that the money was given for launching aid, and not as a general contribution to the contract. And Mr. Benn, to make matters 100 per cent. certain, used this rather striking phrase:If Concorde had been financed on the same terms as RB.211, Rolls-Royce would have gone bankrupt"—I think he said, two years ago.If the RB.211"—he went on—had been financed as Concorde was financed Rolls-Royce would be in business now.I really must ask the noble Lord, Lord Diamond, who rather twitted my noble friend Lord Carrington for having said something different from one of his colleagues in the House of Commons last 465 week, to make it up with Mr. Benn before he comes and teases me about my ignorance of finance.
I should like to proceed with what I was about to say to the noble Lord, Lord Raglan, because here I wholly agree with him. I find that in almost every project of an advanced nature with which I have been concerned as a member of the Government, or with which I have known Governments of the opposite political conception to be concerned, I have been perplexed at the extent to which costs have (to use the current jargon) escalated. I make full allowance for optimism. I make full allowances for the unknown—and, after all, this project, and many others of the kind I am talking about, have been voyages into the unknown, either in pure science or in technology. And I make full allowance, too, for the inevitable effects of inflation. But, all the same, I find it baffling; and I mention it not because I wish to fault the very admirable professionals who produce these estimates. I have no doubt that they must be doing their best. I throw no kind of imputation against them at all. But I am bound to mention it at this stage in my argument because it is relevant to what I wish to say. It is relevant to the point because some of the figures which I have been working on, whether they are confidential or whether I can give them, have been figures of precisely the same kind. They have been estimates of future cost or future liability; and one can only say that if they have escalated in the past, what guarantee have we that they will not escalate similarly in the future?
At any rate, the company in November estimated its requirements at a further £60 million. It got it. It got £18 million from the City and £42 million from Her Majesty's Government—but not unconditionally, as the noble Lord, Lord Diamond, has reminded us. The situation in November, I am bound to tell the House, was sufficiently disquieting that it was given conditionally—not only in changes in management, which should have been a warning to most people, but on a verification of the situation by independent experts. It is probably, I suppose, the process of the verification—although it has not yet been reported, but probably the process—which brought the true position to light; that is, so far 466 as it could yet be ascertained. One wishes it had been discovered before. But one needs to say that it was discovered when it was discovered, at least in my opinion, as a result of the process which the Government had put into train. But it really cannot be argued, my Lords (at least, this is my humble submission to the House), as the noble Lord, Lord George-Brown, attempted to argue on February 4—and unless I have misunderstood him again it seemed to me that the noble Lord, Lord Diamond, was seeking to argue this evening—that we were wrong to withhold the money, or that the bankers were wrong to withhold the money, until the condition had been fulfilled.
If we had spent it, I can tell the noble Lord now that it would have gone down the drain. The country would have been £60 million the poorer—£42 million of the taxpayer, £18 million of the banks—and no one would have been better off: £60 million would not have saved Rolls-Royce or this project. For consider, my Lords, when the board came to us at the beginning of this month, or at the end of last month, not £60 million was calculated to be what was required but £150 million, I think—at any rate, £110 million; it had escalated since November by that amount. And the noble Lord, Lord Raglan, would be right to ask us how do we know that it would not have escalated some more? All I know is that that is what it had escalated between November and the end of January; and that, of course, was only a calculation. Would it have been all? We cannot know. We cannot know as of now. It is the figure that we were given. And in the meantime the board was nearing the limit of its financial resources.
We may be appalled at the redundancies which may follow the failure of this contract. One hopes they will be fewer if the RB.211 can be saved, and I hope it can, for the reasons given by my noble friend. But the board could not have gone on indefinitely paying its weekly wage bill had the contract with Lockheed's gone on. That is why the board announced that it could not go on with the contract. There would have come a point at which trade creditors would not have been paid, and the point would have been a point of a higher deficiency than it will be at the point at which they 467 made their announcement. The weekly wage bill clearly runs into millions of pounds. The figure for trade creditors has not been, I think, announced, but it must go to tens of millions. Secured creditors, I suppose, is in the neighbourhood of £55 million, secured on assets, but only if a Receiver is appointed.
The penalties to Lockheed were given by my right honourable friend the Chancellor of the Exchequer in another place last week as £50 million for every six months delay. But would it have been only six months? And that is still not a total figure: it is only a possibility. Would the figure have escalated? And every engine that was produced up to a total of nearly 600—I think 540 was the actual figure—was calculated already to involve them in a loss of £110,000. It had been only £60,000 per engine in November; it was £110,000 per engine by the beginning of February. What in fact it would ultimately have risen to I do not know. It had risen by that figure, £50,000 per engine, between November and February.
Obviously the board had powerful grounds upon which they thought it was right to stop trading at that point; and I have not heard anyone in this debate bold enough to say that they were badly advised. It is at this point of time that the policy of the Government must be assessed. There was no dogmatism about it; there was no philosophy which governed our approach. It was a calculation between three, or possibly four, alternative courses of action, and although we have heard the noble Lord, Lord Diamond, use strong words, we have not heard him suggest which of the alternatives he would have taken at that point. I should like to put the position to the House.
The first alternative, if my premises are correct, was to underwrite not merely the contract but all the liabilities of Rolls-Royce, because it was only on those terms that they could have gone on. I cannot say what the cost of that would have been. From the calculations that I have made—and these are in gross terms, but without allowing for any underestimates and accounting for penalties for only six months' delay—it must have been between £200 million and £300 million, even if part of it was secured credit. The 468 amount could have been very much higher. Far worse, however, from the point of view which I am submitting to the House, it must have involved us in a course of conduct which could not possibly have been confined to Rolls-Royce alone. It must have committed us, in a possibly indefinite number of future cases of the same kind.
As a second alternative it would of course have been possible (I am happy to say that the idea has not been mentioned in this debate, and therefore I mention it only to depart from it) to stop the project, pay the damages and go on trading. But that would not have added to our commercial credibility. It would not have saved the RB.211 engine. The repercussions on Lockheed would have been as serious as they are now, and the Government would have been spending money in compensation to Lockheed for which it would have got no kind of return at all.
The third alternative was to allow Rolls-Royce to go into liquidation and to do nthing at all about it; to use the phrase adopted by the noble Lord, Lord Diamond, to "turn their backs and to let it stew". That would indeed have been a course of conduct which I think would have been vulnerable to the kind of criticism the noble Lord, Lord Diamond, is making. I am sorry to have to call it this, but I label it the "Powell solution" because it was the solution, if I correctly understood Mr. Powell's somewhat strange contribution at the time, which he put forward in another place. I am happy to think that no responsible industrialist, on either side of the House, has put forward that solution to us.
If we had let this happen it is of course possible that another bidder for the assets might have appeared, but it is equally possible that another bidder might not have appeared. Could we take the risk? We thought not. If another bidder had not appeared, not only the RB.211 contract would have fallen: all the other contracts—the Harriers, co-operative contracts, the Olympus, Concorde, spares, the design teams, the work force—would have gone overboard. And, indeed, I suppose (and my noble friend the Secretary of State for Defence will know if I am stretching the truth) the Royal Air Force, and perhaps part of the Royal Navy, would have come to a grinding halt sooner or later.
469 If another bidder had come forward in the end, it might have been in time to save the projects. If so, all well and good. But the bidder might have come too late to save the project, or some part of it. The bidder might or might not have been acceptable from the security angle; and one must, after all, remember that some of these defence contracts have an important security implication. It might have been acceptable or it might not have been acceptable from the point of view of the financial management. Could we afford to lake either of those risks? The bidder might or might not be one with a foreigner in financial control. The bid could come in time or it could come too late. It could have come from a bidder designing to transfer the goodwill and the know-how abroad, or it could have come from a bidder designing to keep the goodwill and the know-how at home. Could we afford to take the risk? Apparently it is on this proposition that my right honourable friend Mr. Powell stakes his reputation to be regarded as a responsible statesman and to describe my colleague in the House of Commons as "uttering humbug".
My Lords, of these alternatives that I have mentioned so far we in the Government thought that none was viable. After this debate we still think that none was viable. In particular, we were determined not to see the taxpayer saddled with commitments that he had never incurred and which were, at least so far as one of us—myself—could see, open-ended in principle and, even when not open-ended, liable to the same potential escalation as all the other figures with which we had been presented. If we are going to spend £200 million or £300 million on Rolls-Royce, surely it is better to spend it rationally in our own interests than in discharging debts that we do not owe. My Lords, I frankly thought that no one would embrace the third alternative, and no one has done so in this House. Therefore I will say no more of it.
In the event, we decided to take no step which would interfere with the appointment of a Receiver, but we decided to take over the assets, or to form a limited company to take over the assets, including the defence contracts at home and abroad. We cannot afford to 470 allow these to come to a grinding halt. Our decision was based upon the necessities of the case and not due to a weakening of our principles, or indeed to dogmatism in the opposite direction. The engines of the airlines running on Rolls-Royce engines belong to the same category virtually, in my view, as the defence contract, and I am told that in practice they cannot be separated.
The car section probably at least breaks even, but it is not so profitable as the aero-engine projects. And may I say both to the noble Lord, Lord Raglan, and to other noble Lords—and to other members of the public who have made the suggestion—that I should have seen nothing wrong in a Government who, for adequate reasons of national interest, decided to sell off the profitable parts and keep the unprofitable parts. But that is not what we have done. What we have done is to acquire the profitable assets—so far as I know, they are the most profitable. It is the other parts of the complex which are peripheral, or loss-making, apart from the RB.211 which of course has been a disastrous loss. It is quite the opposite of the truth to represent us as either taking over the unprofitable bits or, as Mr. Powell suggested in another place, taking over the unprofitable bits in order to make them profitable. What we are, on the whole, taking over are the bits of the company which would be profitable and viable on any view, were it not for the RB.211 contract; and I believe that that was right.
§ THE LORD CHANCELLOR
No, my Lords, if does not include the car division; and I am sorry to say that I am not at all sure that the noble Lord has not grossly overestimated the extent to which, taken by itself, it is actually more than a break-even concern. However, I would rather not say anything more about the car division this evening because it does not in fact enter very closely into the main body of our discussion. What we did was certainly not motivated by profit; it was not primarily motivated even by the interests of the workers, though it is in fact very much in the interests of the workers that we should take on these assets and these 471 contracts. It was motivated in the broadest terms by what we regarded as in the national interest. It does not involve a decision to carry on the business permanently or indefinitely, or not to sell all or part of it back. Those decisions must be for the future.
If this were a very much smaller failure and all we had was one privately-owned company failing and being taken over as to part of its business by one of its customers or one of its suppliers, it would in the nature of things take a good deal longer than we have had since February 4 to work out the detail or to give a rational set of figures and to lay them before our respective shareholders. But, as noble Lords have emphasised, this is a matter infinitely larger in scale, infinitely more important in its repercussions, and infinitely more complex in its ramifications. The future must be worked out as we go along.
§ LORD BESWICK
My Lords, the noble and learned Lord has not yet answered one of the questions I posed to him; he has only promised to make a statement later about one. He has differentiated very sharply between those assets which appertain to the RB.211 and those which belong to the rest of the business. May I ask him what action is being taken with regard to the debts owed to those suppliers who were supplying materials in relation to that part of the business which the Receiver and the Government are taking over?
§ THE LORD CHANCELLOR
My Lords, we have not yet taken them over. The Receiver is, of course, paying for current supplies. It is not within his powers, or ours, to differentiate or give preference to any particular class of creditors in the past. But as regards current supplies, they will be paid for.
§ LORD BESWICK
My Lords, the noble and learned Lord is riding off on the point that the Government have no place in all this. But the Government have a place. They have already said that they will indemnify the Receiver for certain action. I am asking whether the Government take any responsibility at all for those companies which have supplied goods and services in relation to the profitable parts of the Rolls-Royce 472 enterprise which the Government are taking over?
§ THE LORD CHANCELLOR
My Lords, I am not seeking to ride off on anything at all. I am seeking to put before the noble Lord the very simple proposition that when a company goes into liquidation or puts in a Receiver there is a cut-off; past debts have to be dealt with in the liquidation. It is not in the power of individuals to prefer one class of creditors to another, nor is it in the power of the Government to prefer one class of creditors to another. It is done under the operation of law. For instance, for certain payments workers are preferred creditors, but trade creditors are ordinary creditors. Certain creditors are in fact secured. As regards the future, then, of course, the situation is wholly different. The Receiver on his side, or the Government, if they indemnify the Receiver, on their side, can, as regards the immediate or more distant future, undertake fresh obligations in respect of fresh supplies, in respect of fresh overdrafts for wages, in respect, if need be, of a new contract for the RB.211. That is in the future.
And when we say we indemnify the Receiver in respect of the four weeks, I think it was, that my noble friend spoke of, we are speaking of the immediate future and not of the past. You cannot go behind the Receivership; you cannot go behind the cut-off date for the purpose of preferring, outside law, particular creditors in respect of their past debts. What we have done—which seems to me to meet a great deal of the point that the noble Lord was putting to me—is to say (and I think my right honourable friend the Chancellor of the Exchequer said it) that no restrictions we have put on bank credit will be allowed to stand in the way of the survival of the subcontractors or of the suppliers who may be put in temporary financial difficulties by what has happened. The failure of a great company must inevitably embarrass creditors of different classes, and what we have said—and I think it is really the only thing we could legitimately be expected to say—was that credit restrictions on the banks which are Government imposed would not be allowed to stand in the way of bridging finance. I do not think I can add further, 473 apart from that, to what was said in another place on that subject.
May I seek to draw my rather, I am afraid, unduly lengthy remarks towards a close? We have been criticised, and indeed in another place actual Amendments were put down, from two equal and opposite directions. In the first place, it was alleged that we ought to have put into the Bill an obligation to sell the assets to what is called private enterprise at the end of a fixed term. In the second place, it was suggested that we should have bought everything, whether we wanted to use it or not. Also, it was actually suggested that we should keep it permanently, with an obligation not to dispose of it. It seems to me that both those criticisms cannot be right. My objective is to indicate that they are both wrong, and both wrong for the same reason.
It seems to me an extraordinary thing that the proponents of the theory of private enterprise should be proposing the very thing which would bring private enterprise into disrepute, and the proponents of the theory of nationalisation should be proposing the very thing which would bring nationalisation into disrepute; because, of course, if a time limit were placed beyond which we would have to sell the assets, it would surely be an incentive to prospective bidders, if any turned up—and what would happen if they did not I am not sure has been fully explained—to push the Government up against the time limit so as to get a better price. If, on the other hand, we were not allowed to dispose of the assets, we should be crippling a Government enterprise with the very kind of rigidity which private enterprise would never accept. In my limited experience as a director of a public company, one of the most important and valuable powers one had was to sell off an unprofitable part of the business to another firm which could carry it on more conveniently in conjunction with its going concern. Why a Government enterprise should be denied that advantage, at the suit of the very people allegedly in favour of public enterprise, is something I do not understand.
But I do impress upon your Lordships to believe, although I have tried not to pursue this matter from a dogmatic standpoint in either direction but only from the necessities of the case, created by an 474 emergency we did not create, that I am as unrepentant a supporter of private enterprise as ever I was. I have always thought that about any form of economic activity there are two separate questions to be answered. The first is: is it economically viable—that is, profitable; and the second is: is it socially or politically desirable? Certain kinds of enterprise, however profitable, we forbid altogether as criminal; others we subject to very strong degrees of licensing. But it seems to me always that it is desirable in the interests of a free society that the two sets of decision should be in the hands of differently constituted bodies of persons. It would be too late to-night, and wholly outside the purview of this Bill, for me to pursue that line of thought at any greater length. But I would ask both those of your Lordships who disagree with me in my support of private enterprise, and those of my noble friends who agree with me, to believe that I remain wholly unrepentant with the full philosophy and outlook of the Conservative Party.
§ LORD BESWICK
My Lords, I apologise for interrupting the noble and learned Lord again, but he appears to be coming to a close. May I put to him another question, of which I gave notice and to which he has made no reference? What is the position of those employees who took, in good faith, what in effect amounts to deferred remuneration in the shape of equity shares? Is any special attempt to be made to safeguard the position of those shareholders?
§ THE LORD CHANCELLOR
My Lords, I cannot at the present time add much to what my right honourable friend said in another place; the question is under consideration and there will be an answer when a decision has been arrived at. But it must be expected that any decision arrived at must take the form, if it takes any form, of scrip in the new company if we can do anything over that. One cannot again favour one group of shareholders in a liquidation rather than another. What we seek to do is to do our best for the workers subject to redundancy, but we cannot go further than what was said in another place, that the matter is under consideration and an announcement will be made when a decision is taken. Unless there is some other point on which I can help your 475 Lordships, this lengthy speech of mine must come to an end. I commend this Bill to your Lordships, and hope that your Lordships will give it a Second Reading.
§ LORD SHEPHERD
My Lords, I certainly would not wish to encourage the noble and learned Lord to speak longer; I think he has been speaking for some 55 minutes. When we started this debate, there was a general understanding that we would have a wide ranging debate and various questions would be asked, and we had hoped we would get an answer on those questions. I think it is fair to say that a large number of questions which have been put in this most interesting, and I think responsible, debate have not been answered this evening. If further stages of this Bill were to come before us we could pursue those questions. I have hesitated whether we should in fact allow the Bill to go through all its stages this evening, if only in order yet again to seek an answer to these many important questions. But, taking into account the interests of Rolls-Royce and the thousands of people who are involved, I am certain that my noble friends on this side of the House would feel that, whatever our feelings in the course of this debate, our first duty is to see that this Bill passes on to the Statute Book as soon as possible. I only hope that the noble and learned Lord when he refers to the debate as a whole tomorrow and sees the questions that have not been answered, will seek ways and means of informing noble Lords of those answers, and in the interests of those who are involved in Rolls-Royce, will see that that information is made public as soon as possible.
§ On Question, Bill read 2a: Committee negatived; Bill read 3a, and passed.