HL Deb 22 March 1971 vol 316 cc653-64

3.0 p.m.

LORD DENHAM

My Lords, on behalf of my noble friend the Lord Privy Seal, I beg to move that this Bill be now read a second time. The Bill gives effect to the Government's decision, announced last October, to repeal the Industrial Reorganisation Corporation Act 1966 and to bring to an end the power to make industrial investment schemes under Sections 1 to 7 of the Industrial Expansion Act 1968. Both these measures conferred upon the Government, or Government-sponsored bodies, wide powers to intervene in industry. We have long opposed direct intervention of this sort as being contrary to industry's best interests. The White Papers which described the intentions of the two Acts claimed industrial expansion and improved competitiveness as their objectives. We are not surprised that these claims have been little realised and that on the evidence the contribution made by the measures to the promotion of industrial efficiency has been small. If, for example, the I.R.C.'s activity is assessed in terms of mergers, its contribution amounts to some 20 to 25 mergers per annum since 1966, compared with an average annual total of about 600. The dissolution of the Corporation can scarcely be represented as a body blow to the programme of restructuring and rationalisation of British industry. The indications are that established institutions were already responding adequately and effectively to present-day needs.

The decision to abolish the Corporation was taken only after a careful review of the possibilities open to us. Though it was not our original intention to take this step, it became clear that it was the only practical course. During the four years or so of its existence, the Corporation has spent or committed up to some £130 million. The statutory ceiling on its borrowing powers is £150 million, and to continue at the former rate of investment would obviously have required a sharp increase in this limit. It was the declared intention of the previous Government to make this increase. In the present atmosphere of financial stringency, however, such an increase would be contrary both to our general policy of reducing Govern- ment expenditure and to our industrial policy of encouraging industry to finance its own investment. It would have been quite impracticable to settle for a level of I.R.C. investment within the existing ceiling. For instance, it would not have been possible in these circumstances to retain a high-calibre Board and Executive. The only realistic course was to repeal the Act and abolish the Corporation. I would stress that this decision does not reflect any criticism on either the Board or the Executive of the I.R.C. Their ability in tackling the job they were given, which they did with enthusiasm and great professionalism, is in no way in question. Indeed, I would express the thanks of Her Majesty's Government to Sir Joseph Lockwood and his colleagues and to past members of the I.R.C. for the way they applied themselves to the best interests of the Corporation.

We should not, however, allow the quality of the members of the I.R.C. to divert us from the issues involved. The decision to abolish the I.R.C. has been the subject of some criticism, but much of it has been based on a misconception of what the I.R.C. did or was intended to do. It has been suggested for example, that the I.R.C. had a role as an instrument of regional policy; as an assessor for Government in situations where Government financial support was being sought; as a means of achieving reflation in certain sectors of industry, in changing management, in creating employment, in promoting technological advance and so on. My Lords, these are exaggerations of the I.R.C.'s role. It is important to see the I.R.C. and the effects of this Bill in perspective. To this end I think it would be useful to say what the I.R.C. did and was empowered to do, in contrast to what some may think it did or might have done.

Primarily, the I.R.C. was charged with promoting or assisting in the reorganisation and development of industry in the United Kingdom. As an aside, one may perhaps observe that the money made available to the Corporation to accomplish this task, though measured in million of pounds, was in no way commensurate with the magnitude of the task itself. This credibility gap inevitably suggests that the architects of the scheme were not very clear about the problems they faced.

In carrying out its duties the I.R.C.'s activities fell broadly into two fields. Its first and primary role was to do with mergers; the second with selective investment in various industries. In neither activity were regional considerations of overriding importance; nor was the creation or maintenance of employment opportunities a prime objective. The concept of the I.R.C. as an assessor in situations where Government assistance was sought is superficially attractive but fundamentally it is at variance with the terms of reference of the I.R.C. In its activities it was expected to be independent of Government and commercial in its attitude to industry. Perhaps the most telling comment is that the Corporation was set up to promote mergers, yet within three years the Government which set it up were critical of the merger fever that appeared to have overtaken industry.

I should like to turn now to the second part of this Bill, which is concerned with the repeal of certain sections of the Industrial Expansion Act 1968. Because the Industrial Expansion Act (or those sections of it which we propose to repeal), is merely an enabling measure, the need to dispose of it has been questioned. My answer to that is that we are firmly opposed to what it enables Government to do, and do not intend to use it. In these circumstances we do not propose to leave it on the Statute Book or to leave it for others to use subsequently. The sections of the Act with which we are concerned—namely, Sections 1 to 7—contain provisions for financial support through industrial investment schemes designed, according to the Act, to improve efficiency and profitability in an industry. The provisions have been used to implement the computers merger and the two aluminium smelters schemes, schemes which were already in the final stages of negotiation before the Act was passed. Since they were introduced in 1968, no further schemes have been initiated. In these circumstances it can scarcely be argued that repeal of this part of the Act will be a great loss to industry. Commitments under the three schemes, which amount to £80 million altogether, will of course be met, and provision is made for this in the Bill.

My Lords, having outlined the philosophy behind the Government's decisions, I should like to explain briefly the contents of the Bill itself. Clause 1 provides for the repeal of the Industrial Reorganisation Corporation Act 1966 and the transfer of the Corporation's assets, rights and liabilities to the Government on a day to be appointed by order. After a further period of one month, in which the Corporation will carry out certain duties specified in the Schedule, the Corporation will be dissolved. Its duties during the period relate mainly to the preparation of final reports and accounts. The assets to be transferred will consist mainly of investments in the form of loans, convertible loans and equity shareholdings. All of these, with the exception of the loans made to Rolls-Royce and Joseph Lucas Limited, will be transferred to the Secretary of State for Trade and Industry. These two loans, because of the aviation supply interest, will be transferred to the Minister of Aviation Supply. Certain commitments entered into by the I.R.C. to make further loans will be outstanding at the time of transfer. These commitments will be honoured. It is the Government's intention to realise the investments in accordance with the loan agreements or, in the case of shareholdings, as soon as opportunity offers. In managing and disposing of the investments the Government will take expert financial advice. The Bill includes provisions to safeguard pension arrangements of members and executives, and as a precautionary measure provision has been made for the making of redundancy payments by the Secretary of State.

Clause 2 of the Bill brings to an end the power to make schemes under Sections 1 to 7 of the Industrial Expansion Act. Existing schemes are safeguarded. To date about £50 million of the total of £80 million committed to the three existing schemes has been advanced. We shall meet the commitments outstanding. The provisions of the Bill are not negative. They are positive steps towards a healthier industrial society. Our aim is to reduce the tax burden on industry and return to it the responsibility for investment and investment decisions, which is rightly its own. The Industrial Reorganisation Corporation Act and the Industrial Expansion Act embody a policy which is inconsistent with our philosophy. We are therefore repealing them. Industry left to stand on its own feet will be the better for it. I commend this Bill to your Lordships' House.

Moved, that the Bill be now read 2a.— (Lord Denham.)

3.9 p.m.

LORD SHEPHERD

The noble Lord, Lord Denham, has moved the Second Reading of this Bill with his customary urbanity and reasonableness, and I thought, at the end of his speech, 'with a certain sense of mischief and subtle humour. I am bound to say to the noble Lord that I found his speech even less convincing than the one delivered by his right honourable friend the Secretary of State for Trade and Industry in another place. I can understand the noble Lord's difficulty, confronted, as he was, with a Bill which even he would regard as entirely destructive in nature. It removes two particularly useful instruments from the Statute Book but puts nothing in their place except, as the noble Lord said, his philosophy that industry should stand on its own feet. I am bound to say to the noble Lord that the Bill represents perhaps 19th or 18th century thought, rather than the realities of the 20th century.

From the noble Lord's speech, there is no doubt at all that this Bill was conceived in the Administration's first, heady days of office, when, as we know, the "lame ducks" were to be cast to the jackals and the Government were to disengage from business. But, clearly, events have had some effect. The Government appear to have been blown slightly off course, despite the renowned ability of the amateur helmsman, the Prime Minister. Rolls-Royce, of course, have been nationalised. In view of the delicate negotiations on the RB.211, one needs to be very careful what one says; but there is no doubt that there is considerable disquiet on the handling by Her Majesty's Government of the whole affair, and it will take years to recover the standing of honesty and fair dealing for which we have always been held in high regard in our export markets.

Then there have been the loans to Yarrow's from the Ministry of Defence, despite the doubts that they might throw on the Ministry's own policy of fair dealing in tendering. There is also, of course, the assistance to Harland and Wolff— and here I think the decision taken was right in the light of circumstances in Northern Ireland. We on this side of the House support these last two interventions and are glad that the Government, as another famous sailor once did, closed their one good eye to proclaim policies and did what was right. I have a feeling that the Government will one day very much regret their decision to dissolve this important instrument of policy.

This afternoon I should like to consider some of the achievements of the Industrial Reorganisation Corporation, and to try to show to the House why such an organisation is needed, and why perhaps in future years, with the growth of international companies, such an organisation, perhaps of an international character, will prove vital. At the outset I would pay the highest possible tribute to the past and present Chairmen of the I.R.C. The fact that outstanding industrialists—and I stress "industrialists "—such as the noble Lord, Lord Kearton, and Sir Joseph Lockwood, with other distinguished directors, were prepared to serve and to give so generously of their time and knowledge is sufficient evidence of how important they regarded the role of the I.R.C., not only in the national sense but to industry in particular. I pay tribute to their service and notable achievements, and share with them the regret that this particular instrument is now to be dissolved.

Were economic conditions such that the I.R.C. was no longer necessary, or that a new instrument was being put in its place, there would be no need to dwell on the historical facts of this nation's decline in relation to other industrial countries, or on the present plight of this country in economic affairs. I do not think we need to be reminded of the present situation. Industrial and commercial morale has never been so low as it is now, since perhaps the 1920s. Bankruptcies are at a record level, and the full impact of the Rolls-Royce affair has not yet been felt. Prices everywhere are falling, and wages, as workers seek to improve their standards and to keep pace with inflation, outstrip productivity and correspondingly add to inflation. Investment is falling away. Companies increasingly face great difficulties in their own cash flow, and unemployment to-day is at its highest for some thirty years.

To-day's problems stand out sharply, but they are not new. We have had them before; but their consequences to our social fabric were not so serious then as they may well prove to be now, since people's expectations are indeed higher than ever before. To-day's debate does not provide an opportunity to discuss the general causes of our economic difficulties. Many of those causes, as I have said, and as we said in 1963–64, are deeply embedded in our structure of industry and society and, if we are frank, in our general attitude to the world around us. The highest point of Britain's strength in industry and wealth probably occurred in 1890. Subsequent years have seen a slow but steady erosion of the liquid resources previously accumulated, and a deterioration of relative industrial performance. Throughout that period (perhaps the noble Lord, Lord Denham, would care to be reminded of it) our share of world trade has declined; although the decline was halted, perhaps temporarily, during 1969 and 1970.

For many years the urgent problem facing this country was to restore the international competitiveness of Britain's manufacturing industry; to promote exports; to contain imports, through competitive prices and prompt deliveries, in order to achieve and sustain a favourable balance of payments on the visible trading account. To this end was much of Labour's economic policy directed. Through investment grants, vast sums were provided to encourage and support urgent re-equipment of industry and rehabilitation of the regions. We sought the redeployment of workers with the aid of redundancy payments. These and other measures, coupled with unpalatable and, in many cases, undesirable measures for holding back imports, at least saw exports rising both in value and in volume. Devaluation played an important part. But there was real evidence that industry was proving more competitive and more willing to fight in the export markets. The noble Lord, Lord Denham, may care to be reminded that, apart from the visible trade balance of last year, the previous comparable occasions occurred in 1958 and 1956, and we have to go back to 1822 before such a situation previously arose.

We on this side of the House have long felt that the major reason for our debility was the fragmentation and the largely incoherent structure of British industry. The steel industry was perhaps the most glaring example of lack of logic, and the creation of the British Steel Corporation was the first step, and only the first, towards rationalisation. To-day, the ports cry out for rationalisation and modernisation, but we have no words from the Government about the steps they propose in this connection. Public ownership is not always the proper solution. Shipbuilding remains in private hands, despite large sums of public funds being involved, but rationalisation has been brought about through the Shipbuilding Board. I very much regretted to see in yesterday's newspapers a rumour that this particular Board is to be dissolved.

Fragmentation of the private sector of industry needed a special stimulus to carry out mergers and to hive off those parts of companies which did not provide a proper relationship. The Labour Government in 1966 set up the I.R.C. as the main drive in introducing logic in the private industrial structure. We did not set up the I.R.C. because of some Socialist theory; it was set up because we believed in a mixed economy of private and public organisations, and that the private sector which held the keys to our economic and social development should be assisted in the national interest in their own development. We made it clear—and events have proved this—that it was not nationalisation by the backdoor; it was a recognition that many production units were far too small by comparison with the most successful companies in international trade. It was a recognition that without longer production runs, economies of scale, adequate research and development and the most modern equipment, companies would find it increasingly hard to compete in the international markets.

My Lords, I think, too, there was a recognition that while the State had a responsibility to assist in the private sector, so the private sector had a responsibility to the country. The I.R.C. had no power to enforce any merger or any "hive-off". It could do it only by persuasion and by showing the advantages of change and of bringing change about. But if the need for change was important in 1963–64, it is perhaps more important to-day, and I have no doubt that with the passing of time it will become increasingly important. British and European industry has not yet met the full impact of American international corporations, or the effect of the giant Japanese companies, which I believe is only just being seen.

The I.R.C.—and here I share its view—accept that the major influences upon these objectives are the market forces and the Government's overall economic and industrial policy. But there is no evidence that market forces alone will bring about rationalisation in the key sectors in the time scale required without some external stimulus or expertise. The I.R.C. saw its position as at the micro-level with individual companies and at the interface between the public and the private sector"— an area largely unknown. During the first three years the I.R.C. concentrated on bringing about mergers in the key areas of the private sector. Here I would say to the noble Lord that it is not a question of the numbers that are involved; it is the quality of the mergers that are undertaken. Those mergers have had far-reaching effects in the industries connected with motor vehicles, computers, electrical and electronic goods, scientific instruments and ballbearings.

My Lords, the purpose behind these mergers—and I would ask the noble Lord, Lord Denham, to consider this—was not just to create size for the sake of size but to establish units which could effectively compete in international trade. I accept that size in itself has no particular merit. Sometimes it can be a downright disadvantage if management is inadequate to cope with the problems that arise from increased size. I think the Government are right when they say that mergers take place all the time; but they take place for a variety of reasons. What we are concerned about, and I think the Government should be concerned about, is to encourage those mergers which have a special quality about them; that the real intention should be efficiency and growth, through plant utilisation and economies in research and development that will have a major impact on our balance of payments. We are concerned that they should occur in the key sectors of industry, and it is in this direction that the I.R.C. directed its attention and—I accept—limited resources.

The noble Lord decried the merit of I.R.C. Let us consider the merger between British Leyland and British Motors. This merger was brought about by a loan of £25 million by I.R.C. This, perhaps more than anything, has meant that at least there is one organisation in this country, British owned, producing motor cars. Would the noble Lord have had all the motor car manufacturing industry in foreign hands? Of course he would not. Would this merger have come about if it had not been for the I.R.C.? I doubt it. If we take the question of ballbearings and if the noble Lord will only read the 1970 Report of the I.R.C., he will see that unless steps had been taken to bring about a substantial merger there would have been no British-owned viable ballbearing company in this country. And considerable assistance was given to the fishing industry by the bringing together of Associated Fisheries and the Ross Group.

I am not going to dwell in detail on these mergers, but in the light of what the noble Lord has said I am going to ask the noble Earl to answer a direct question when he winds up. Of those mergers undertaken with the support of I.R.C., will he tell us of any that were contrary to the national interests and that were not in the interests of the companies and the industries concerned? And would be not agree further that there is an overwhelming need in the machine tool industry for rationalisation, and not only rationalisation, indeed, but considerable and urgent new investment? With the disappearance of I.R.C., where will the stimulus come? Above all else, where will be the disinterested expertise which is so often vital when one is seeking to bring two organisations together?

We have spoken of investment. For all too long investment has been inadequate and thinly spread. I suspect that the total amount of finance available for investment for years to come will prove to be insufficient. There is therefore an overwhelming case for us to be far more selective in our investment programmes, and particularly in those industries and companies which again are the key to our economic strength. The I.R.C. view, in its 1970 Report, was that if we were to keep our place in international trade we should have to do what others have done; namely, to review and extend our industrial apparatus selectively but on a scale larger than to-day. I have no doubt at all that there is a real need for a concerted effort by industry, finance and Government to catch up, with quite massive but, in particular, selective investment. The I.R.C. has already shown that, provided it had the resources and had been allowed to continue, it had the expertise for selective investment and for selective rationalisation.

My Lords, I do not intend to deal with the reasons given by the noble Lord today. I do not believe any of those reasons stand up to any form of examination. It is one thing to be angry that a useful instrument should be broken up, but what alarms me is that the Government, dedicated to the entry of the United Kingdom into the E.E.C., seems to be blind to the long-term implications of joining the Common Market. It is the belief of the Government and those who support entry that the wider Europe will see greater wealth and development among the participating countries. This is so for the United Kingdom, provided our companies in the key sector are geared and structured to meet the competition in Europe and in the United Kingdom.

But there is another factor which we should take into account. The potential for growth and the increase in purchasing power of Europe will attract overseas capital from America and, I believe, eventually from Japan. In recent years American capital has poured into Europe, but unlike European capital in the United States of America, their capital is concentrated in particular projects. I believe that if unchecked or unchallenged, Europe could well become a sort of satellite of American or American-Japanese capital through its eventual control of key industries and companies in Europe. We should welcome overseas capital, but it is essential that there should be European companies capable of competing with these American subsidiaries. United States companies based on the huge United States markets and with European subsidiaries can create huge productive runs and employ tremendous research and development resources, and they are able to bring new products into the market very quickly. These companies, therefore, have a great advantage over our own national companies. I have no doubt at all that Europe will need many more large and powerful European corporations to match the American international organisations. I do not believe that this can be brought about by any sudden or rapid expansion of existing companies, but only through mergers of existing large and powerful European companies.

It is vital, if these mergers come about, that the United Kingdom contribution should be large and efficient enough not to be swamped by European contributions. It is natural that countries are fearful of losing control of key companies to foreign investment through merger. There is little knowledge of how international companies operate, and a real fear of how policy decisions could affect investment and overseas sales or agencies. Such fears and lack of knowledge will have to be overcome if we are to create European companies to challenge and match the American and the American-Japanese penetration of our industries. This is a subject worthy of a debate on its own. I have mentioned the subject solely to illustrate the imperative need for quality mergers in the United Kingdom, not only so that the United Kingdom can compete with the best in Europe, but so that when European corporations are formed United Kingdom companies shall play a dominant or a prominent part in their development. If we do not do this, I think our future will indeed be bleak.

But I suppose the question is really this: will market forces provide sufficient stimulus, both in United Kingdom mergers and eventually in European mergers? In the time scale I do not believe they will, unless side by side with them there is a stimulus or a catalyst which precipitates mergers. The experience of the I.R.C. in its four short years has proved its worth. The break-up of the I.R.C. to the United Kingdom will prove to be one of the greatest blunders of our time—a mistake based on outworn dogma and on a failure to understand the developing nature and character of industry and commerce. I regret the presenting of this Bill, but, much as we regret it, certainly we on this side of the House will not oppose it.