§ 3.13 p.m.
§ THE PARLIAMENTARY UNDERSECRETARY OF STATE, DEPARTMENT OF THE ENVIRONMENT (LORD SANDFORD)
My Lords, I beg to move that this Bill be now read a second time. Its purpose is to provide for loans to be made to port authorities which, though clearly viable, encounter difficulty over the renewal of their capital debt because of unfavourable market conditions. Under Section 11 of the Harbours Act 1964 ports can already borrow from the Government for capital development purposes, and some £83 million has so far been lent for those purposes. But loans cannot be made under the 1964 Act for re-financing capital debt. The need for such loans has arisen because for many years the earnings of some ports have been too low and they have relied on short-term or fixed-interest borrowing which may have to be renewed when market conditions are unfavourable.
The Government are giving the industry freedom and encouragement to tackle its problems. The threat of 209 nationalisation has been removed and the ports have been encouraged to adopt realistic commercial attitudes so that they can, like other businesses, be self-supporting and competative. Last year the Minister for Transport Industries strengthened the National Ports Council so that they could play a major part in formulating with the port authorities a programme for establishing realistic financial policies, strengthening management, controlling costs, developing realistic charging policies and rationalising facilities.
Progress is being made. The Government do not intend to allow further progress to be jeopardised and hindered by temporary re-financing problems of ports which are clearly viable in the long term. So this Bill will enable loans to be made in such cases. But, as the White Paper explained, the loans will be made on a basis which encourages ports to continue to borrow on the market where they can or, where they do borrow from the Government, to return to the market as soon as possible.
Clause 1 allows the Secretary of State to make loans, for the purpose of assisting debt payment or the repayment of other loans, if the financial prospects of the port authority justify it. My right honourable friend the Secretary of State will consult the National Ports Council in all cases. The Council will carry out a detailed analysis of all the authority's forecasts and plans, its proposals for improvements in board and management structures, and its internal procedures. The Council will recommend a loan only if they are satisfied on all these matters and will recommend conditions to be attached to any loan. The loans will normally be on a long-term basis and at interest rates commencing some 2 percentage points above the Government lending rate and rising progressively. So the terms will not be easy ones. The object is to put pressure on the authorities to seek alternative sources of finance where they can. The terms will result in strict financial disciplines and improved profitability, which in turn should strengthen the authorities' ability to return to the money market.
Your Lordships may wish to know that Clause 1 excludes fishery harbours and marine works from assistance under the 210 Bill because they are the responsibility of the Minister of Agriculture, Fisheries and Food and of my right honourable friend the Secretary of State for Scotland. Their exclusion from this Bill is consistent with their exclusion from the Harbours Act 1964. Clause 2 applies for the purposes of the Bill the powers which the National Ports Council already has under the 1964 Act to obtain information to enable it to carry out its functions.
Clause 3 relates to any loans made before the Bill is passed. Such loans were envisaged in the White Paper, and in fact loans have already been made to the tune of just under £5 million to the Clyde Port Authority and about £3½ million to the Forth Ports Authority. They were made by the Secretary of State out of money advanced for the purpose from the Contingencies Fund. Under Clause 3 an equivalent amount will be issued out of the National Loans Fund to the Secretary of State, who will then repay the Contingencies Fund.
Clause 4 sets a limit of £200 million, which can be increased to £300 million with the consent of another place, on the aggregate amount of loans that can be made "after the passing of this Act" for debt repayment purposes under the Bill and for capital development purposes under Section 11 of the Harbours Act 1964. We are thus taking the opportunity of setting a limit which will not only cover the new loans under the Bill but also future loans under the 1964 Act. Clause 4 avoids specifying separate limits for the two types of loan, because estimates of requirements are necessarily broad at this stage.
My Lords, I hope with that explanation I am able to satisfy your Lordships of the purpose of the Bill, and I have no hesitation in commending it to the House. I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Sandford.)
§ 3.18 p.m.
§ THE EARL OF LAUDERDALE
My Lords, I heartily endorse the principle of this Bill as a rescue operation of a strictly limited kind for port finance to enable the ports to re-finance themselves when necessary. Certainly a surprising number, considering the high quality of their management, had taken to borrowing 211 short in order to re-finance long; no doubt they had been forced to do so, as the last report of the National Ports Council suggests, because with little or no profit in prospect under the threat of nationalisation that was in fact all they could do. This borrowing short to refinance long was perhaps the only hope of the ports at that time while awaiting the protective umbrella of State ownership to be added to the State vetting of their investment plans. So with the purpose of this Bill as an immediate short-term enterprise I, for one, am highly content.
But as its Explanatory Memorandum makes clear, the Bill is intended to give effect to the proposals in the White Paper, Financial Policy for Ports, and this is the first time that your Lordships' House has had an opportunity to consider that publication. While the White Paper addresses itself to the immediate short-term problem in a manner which can be considered adequate, it certainly cannot be considered adequate in all other respects. It is perfectly true, as paragraph 3 of the White Paper states, that the problems of the ports will not be solved by subsidies. But neither will they be solved without assistance enabling them to match their European competitors. It is a full two years since the National Ports Council published a study on the subsidisation of port developments in Europe—notably Rotterdam, Hamburg and elsewhere—but there is nothing in the White Paper, nothing in its pert, confident, anti-lame duck tone, to suggest that the message of the National Ports Council's own study on port subsidisation abroad has been taken to heart; least of all, when—if the Government get their way—we shall be within the Common Market inside of a year. So I take this opportunity to ask whether the Government are willing in the longer term to consider matching the heavy subsidisation of port development on the Continent with something at any rate comparable in this country?
If it is said that the problems of the ports cannot be solved by subsidy, neither can they be solved by private enterprise alone—save perhaps in the North or North-East of Scotland where consortia are already busy thinking up ideas for an oil/natural gas terminal and servicing 212 bases for drilling and production rigs in the North Sea. There is not much of a "come hither" look on the Government's part to attract private investment. As matters stand now, private enterprise gets mighty little welcome when it seeks to undertake an overdue development. An example which comes to mind, in which I must declare an interest, is the proposal to develop Bathside Bay at Harwich. In that case, the promoters have been kept waiting as long as six months on a planning inquiry even though the National Ports Council could not have been more helpful.
Since neither private enterprise nor Government aid is, by itself, the sole answer to port development problems, may we know something of the Government's long-term thinking about collaboration between these two sources of investment? Perish the thought that the Government's thinking should still be permeated with the complacency of the White Paper's second paragraph, which stated that our ports "have been substantially modernised"—which is true—"and equipped with facilities which compare favourably" (I stress the word "favourably") "with those in other countries". Where now, or where yet, are the maritime industrial development areas which the National Ports Council has been advocating since 1965—seven long years ago? Now that the Government have refused to entertain a MIDA as well as a deep-water port at Maplin, are they willing to consider one, let alone to encourage one, on the Medway? And what has happened to the admittedly low-level, part-time inter-departmental study into the industrial/commercial demand for MIDA facilities, which the Government set going last spring in the Department of Trade and Industry? It was to report by Christmas we were told. Now we are nearing Easter. When is it coming?
Finally, there was a disagreeably complacent and superficial note about the opening sentence of the White Paper, and it, alas! sets the tone for much that follows. The White Paper told us that the ports:… have been regarded as a service to be made available without adequate regard to costs, profitability or long-term financial health.The single word "adequate" in that paragraph just saves the Government's 213 bacon. The ports are a service, and every bit as much a service as the railways and the roads. Hundreds of millions are being poured into the roads—and thank goodness!—but the return envisaged is calculated not in terms of financial profitability but in terms of cost/benefit. Many millions are going into other elements of the regional infrastructure without regard to profitability—the new towns are an obvious example—but on cost/benefit calculations. Surely in the long term it is national cost/benefit rather than mere financial profitability which we should look for in port development.
As I said at the beginning, I gladly support the short-term interim measure proposed by this Bill. But after reading the White Paper and fruitlessly questioning the Government from time to time, I can only say that I cross my fingers about the apparent lack of any long-term view; least of all about the development of deep-water facilities and adjacent provision for industrial development for the industry of the future which I believe to be so vital to our economic future. The mood of the White Paper reminds one of that helpless prophecy of doom:Sea girt island thou hast been,Ocean's mistress and her queen.Now is come a sadder day,And thou too must be its prey.I should hope that we could be assured, if not to-day then before long, that the Government's maritime philosophy would be better expressed by that seventeenth century poet, Thomas Campbell, who wrote:Ye Mariners of England,That guard our native seas,Whose flag has braved, a thousand years,The battle and the breeze.Your glorious standard launch againTo match another foe.
§ 3.28 p.m.
§ LORD CHAMPION
My Lords, we are grateful to the noble Lord, Lord Sandford, for the way in which he introduced this Bill. He was brief but he certainly covered the essentials of the Bill which, like the Transport (Grants) Bill with which we dealt on Tuesday, is a Money Bill and is narrowly drawn to deal with only one aspect of the finances of harbour undertakings. As such, I do not think it is a Bill which lends itself to a wide-ranging debate over the whole 214 of ports development and of Government policy in relation to such development. So I am not going to embark on a discussion of what is left out of the Bill, although, as we know, one can always do that on a Second Reading.
I am not going to talk about the possible inclusion in such a Bill of provision for massive support of the sort given by certain countries to foreign ports which are in competition with ours. But I must say that I agreed very much with some of the points made by the noble Earl, Lord Lauderdale, who preceded me in this debate. Certainly it seemed to me that what he was aiming for was complete nationalisation of the ports. That is the only way of solving the difficulties they are in at the moment, but, clearly, this is not the occasion for a debate on the nationalisation of the ports. I do not think that this is either the time or the place for the sort of speech which one might have made. But because this is a Money Bill it does not mean that it is not deserving of the attention of the House and of a reasonable examination of its provisions.
As both the noble Lord, Lord Sandford, and the noble Earl, Lord Lauderdale, have said, the Bill is drawn to give effect to the White Paper, Financial Policy for Ports, which dealt with the difficulties of some port authorities when they run up against the problem of renewing their capital, or of paying off an overdraft or any borrowing that has time-expired. The noble Earl, Lord Lauderdale, from his intimate knowledge of this matter, has told us how much money has in fact been borrowed on a short-term basis at very high rates, and of course these repayments will have to be made within, perhaps, a very short time. In paragraph 10 of the White Paper we read that… the loans will normally be long-term ones, for 10 years or more (the periods being subject in all cases to the recommendations of the Council). The Government will, however, be entitled to repayment on demand should the port authority fail to meet the relevant conditions, and the authority will be entitled to repay loans at any time, either from normal market borrowing or from their own accruing internal resources; … the initial rate of interest will be a high one, in the region of 2 percentage points over the Government lending rate and will be increased progressively over the life of the loan".My Lords, there is nothing in the Bill making any provision, either for the 215 period of any loans, or for the progressive increases on the rate of interest, or the limit of such progression. I take it that this is to be left to the responsible Minister, and is, I suppose, the common form in such matters.
But there are some questions that I must put to the noble Lord, Lord Sandford. Can he tell the House whether, if the loan is granted for the ten-year period, there will be the possibility of an extension of that period if the National Ports Council should, during the period, make such a recommendation? Will the noble Lord tell us what is meant by the words in that paragraph of the White Paper:and will be increased progressively over the life of the loan."?There is, my Lords, such a term as arithmetical progression", under which the progression rate is 2, 4, 6, 8, 10 and so on; and there is also a geometrical progression with a rate of 2, 4, 8, 16 and so on. Will it be either of those, or will the Minister have the power to decide and to vary in accordance with a recommendation of the National Ports Council? I should very much like an answer to that question when the noble Lord comes to reply, for certainly the Bill does not tell us. It says only that the Secretary of State may make the Authority a loan.
The White Paper also tells us that:… the initial rate of interest will be a high one, in the region of 2 percentage points over the Government lending rate …My Lords, we have been told that the purpose of the Bill is to help a harbour authority out of the difficulty of repaying its loan capital when it falls due; that is to say, if its circumstances are such that the market has doubts about its liability and the authority is unable to raise the required amount on the market.
My Lords, the first and important requirement of such an authority, when it seeks a Government loan, is to satisfy the National Ports Council that the authority's financial prospects are sound. Having satisfied the Council in that regard, it then gets a Government loan at 2 per cent. over the current Government lending rate and faces the prospect of progressive increases in the interest rate over the life of the loan. Already, it seems to me, such an authority will be only marginally viable, and it also seems 216 to me that what this Bill proposes is designed to tilt the balance against an authority rather than to help it out of its very immediate difficulty. It seems as though, if the authority's head is just above the water of the dock, 2 per cent. plus progressive increases in interest charges will serve only to push it under.
The charge of interest on port revenues is already, in the case of most of them, a very heavy one indeed. I have not been able to check these figures as they were given by an honourable Member in another place, but I understand they come from an official Digest of Port Statistics for 1971. The figures are: in the case of the Mersey Docks and Harbours Board (of unhappy memory), the net interest charge was about one-fifth of its revenue; in the case of the Forth Ports Authority, about one-quarter; and for the Milford Haven Conservancy Board about four-fifths of the revenue had to be devoted to interest charges. I do not know whether any of these authorities will be in the category of those to be dealt with under this Bill, but I imagine that there are very many in this country similarly placed, and to add a further obligatory high interest rate to the charge upon their revenue is, it seems to me, just to pile Pelion on Ossa. It is bound to increase their difficulty. What chance will such authorities have to improve their position to such an extent as to enable them to carry out the purpose of the Bill; namely, to raise money to renew capital on the money market? The Government's lending rate at the moment is 6¼ per cent. Add 2 per cent. to that, and you are about at the peak which we reached when struggling out of our massive balance of payments deficit—and then, on the top of that 8¼ per cent. will be superimposed a progressive increase in interest charges.
I know that the purpose of the Government is to cause a borrowing authority so to conduct its affairs that it will get out as soon as possible from under the intolerable burden of perhaps 9 or 10 per cent. interest to be paid to the Government. But you are not going to give it much of a chance, are you? For what most of such authorities need is sufficient left over from their unavoidable payments out of revenue to enable them to improve chiefly their equipment to such an extent as to convince the market that to lend 217 money to them would be a sound gilt-edged investment. It is all very well to subject such an authority to a stringent financial discipline, but it is certainly a bit thick to subject it to a crippling rate of interest, the only effect of which will be to add further to the number of lame ducks which we have in this country. In this case, the ducks will be lamed by the Government's action under the Bill, and in the long run they might have to be rescued, as Rolls-Royce and the U.C.S. have had to be rescued, by the injection of considerable subsidies from the public purse.
I hope that the mind of the Government is not too firmly fixed on the terms of the loans to be made under the Bill. The exceptionally high rates proposed in the White Paper are not contained in the Bill. The Government have, therefore, some room for manæuvre, a certain degree of flexibility, and they might try a 1 per cent. over the Government lending rate and make the rate of progression, if any, a very low one; and then, in the case that I am now talking about, if the Ports Council sees that the borrowing authority is not really trying to improve its position, steepen the rates in an attempt to bring those responsible to their senses. To do that would be to at least give the authority a chance, and not to discourage it by giving it an impossible task.
My Lords, although, as I have tried to point out, the Bill has some doubtful aspects, it is essential that some such rescue operation be mounted at this time, and it is certainly not my intention to ask this side of the House to oppose this Bill. But I hope that before this Bill receives its Second Reading we shall have an answer to some of the points that I have put in this connection.
§ 3.40 p.m.
§ LORD SANDFORD
My Lords, I am grateful to both noble Lords, and particularly to the noble Lord, Lord Champion, for pressing me on the question of the nature of these loans, because if I had given the impression that there was any lack of flexibility here I think the whole proposal would have been subject to very justifiable criticism. I certainly did not intend to give that impression and I am glad now to confirm that in fact the Bill as drawn, and the proposal as my right honourable friend intends to apply it, point exactly in the opposite 218 direction. There will be full flexibility as to the rate of the loan and the rate of progression in the increase of the interest rates, and there will be flexibility as between one port and another. There is no doubt that to get the figure right in both these respects my right honourable friend the Secretary of State will not act until he has had advice from the National Ports Council, based on the detailed analysis of each port's proposals, plans and so forth, as I set out in my opening speech.
It is necessary to have this flexibility because, on the one hand, this is an operation designed to help the ports over difficulties in re-financing their debts (and these will vary from port to port and from time to time) and to provide them with breathing space in order to increase their earnings and reduce their costs. This will take a different length of time in each particular case, depending upon the existing state of the port's finances and on the development of its future plans. On the other hand, it is our intention—and I am sure that the House will agree with this—to provide an incentive to particular ports to get back into the market for their finance and also at the same time to avoid any adverse market reaction towards the ports generally. In order to balance all these factors this flexibility as to the initial rate, the timing of the programme and so on, is essential. I am grateful to the noble Lord for pressing me on that matter and for giving me the opportunity to make it clear.
I was also grateful to him for not making this an opportunity to embark upon a wide-ranging debate, either about nationalisation in general or the ports industry in general. Both he and my noble friend mentioned European ports. It is the case at the moment that, generally speaking, they do not have the policy we are aiming at: that of producing a viable ports industry. An extensive range of subsidies is available to European ports but there is not at present any general port policy for the European Economic Community. One of the things that we shall have to embark upon if and when we enter Europe is a discussion with our colleagues in that organisation on the formulation of a ports policy. My noble friend mentioned the Bathside Bay scheme in Harwich. I suppose that he 219 was referring to the application by the company of which he is a director. In that particular case I can say that the result of the public inquiry held last August is expected shortly. I am not in a position to say anything else at the moment. My noble friend also mentioned the question of progress with the studies of a MIDA. I do not think he was quite correct in saying that the possibility of a port on the Maplin Sands had been ruled out. We have invited the Port of London Authority to make proposals to us, though not of development on the scale that my noble friend probably had in mind.
§ THE EARL OF LAUDERDALE
My Lords, I am sorry if I did not make myself clear. What I said was that the Government had ruled out a maritime industrial area there for primary industry, and not a port. I wondered whether they would welcome one on the Medway.
§ LORD SANDFORD
My Lords, I am glad to have had that point cleared up. My noble friend also mentioned certain proceedings within the Government. I will not accept any of the epithets he applied to it, but I shall be glad to confirm that it has proceeded according to plan and has now been completed. I hope that I have answered the points raised by noble Lords.
§ On Question, Bill read 2a: Committee negatived.