§ 3.40 p.m.
§ The LORD PRIVY SEAL (Lord Shepherd)
My Lords, with the permission of the House, I should like to repeat a Statement about British Leyland made in another place by my right honourable 1045 friend the Prime Minister. His words were as follows:
"The House will recall that on 18th December 1974 it gave approval for a guarantee to British Leyland's bankers for short-term working capital required over and above the then existing facilities while the Company's longer-term investment requirements were examined.
"In order that they should be comprehensively advised, the Government commissioned an expert overall assessment of British Leyland's present situation and future prospects, covering all major aspects of the Company's organisation and activities, under a team led by the Government's Industrial Adviser whom I appointed last year, Sir Don Ryder, and comprising Mr. R. A. Clark, the Chairman of Hill Samuel and Company, Mr. S. J. Gillen, formerly Chairman and Chief Executive of Ford of Europe Inc., Mr. F. S. Mcwhirter, a senior partner of Peat, Marwick, Mitchell and Company, and Mr. C. H. Urwin, Assistant General Secretary of the Transport and General Workers' Union. Mr. Clark is also Chairman of the Industrial Development Advisory Board and Mr. Mcwhirter and Mr. Urwin are two of its members.
"The team undertook its task with great vigour and submitted its report to the Government on 26th March, 1975. I am sure the House would wish me to express its gratitude to Sir Don Ryder and his colleagues for the speed with which they completed their task and to pay a tribute to the willingness with which the company and its employees have cooperated with them. The House was warned that it would, of course, be necessary to delete those sections of the team's report containing sensitive information, of value to competitors at home and abroad. Copies of the abridged version of the report are available in the Vote Office. "I do not intend to summarise the report in detail but I think the House will wish me to outline its principal recommendations and to give a firm view of the Government's proposals for the future of British Leyland. There will be an opportunity for debate on these and other issues later on when honourable Members have had time to study the report.
1046 "The report recommends that the vehicle production industry ought to remain an essential part of the United Kingdom economic base, and that British Leyland should therefore remain a major vehicle producer. But urgent action would have to be taken to remedy the weaknesses revealed in world markets. In order to bring this about the report proposes that there should be a capital investment programme leading to the introduction of new models and an immediate and massive programme to modernise plant and equipment. The report also says that the present organisational structure has harmful effects on the efficiency of British Leyland's operations and is likely to impede its future development. The report proposes that within the overall corporate structure, British Leyland's activities should be organised in four separate businesses dealing with cars, trucks and buses, special products and international activities. There would be the maximum delegation of authority and responsibility within the new structure from the Chief Executive of the Corporation to the four managing directors of these main units. It recommends various measures to improve the efficiency of British Leyland's operations in, for example, its product range, marketing and its engineering and production facilities. It also recommends changes in British Leyland's top management but—and this is particularly reassuring —commends the quality of British Leyland's second rank management, and with the proposed reconstructing of the company, on whom a crucial responsibility will rest.
"The report stresses that British Leyland's success would depend most of all on the skills, efforts and attitudes of its employees, and that there is an urgent need to improve industrial relations. More productive use must be made both of existing and additional capital investment. There must be more realistic manning levels and more mobility and interchangeability of labour.
"The team propose that the progress of the capital expenditure programme and the injection of new finance by the Government should be staged, and that each stage should depend on 1047 a tangible contribution by the management and workforce to the improvement of industrial relations and productivity. To this end a new structure of joint management and union councils, committees and conferences is suggested in which British Leyland's shop stewards, and particularly their senior shop stewards, will have a major role. As the report itself says: 'means must be found to take advantage of the ideas, enthusiasm and energy of British Leyland workers in planning the future of the business on which their livelihood depends'.
"The report estimates that the investment programme would cost about £1,500 million at constant prices over the next seven years. This is equivalent to £2,800 million on the Ryder team's assumptions about inflation. The team consider that half this money could be generated from within the company, but £1,400 million (also calculated in inflated terms) would have to come from outside sources. £900 million of this would be required up to 1978, of which £200 million should be found by continuation of existing temporary borrowing facilities, £200 million by a new equity subscription and £500 million by long-term loans. An estimated further £500 million in long-term loans would be needed in the period 1978 to 1982. The team conclude that the new equity subscription of £200 million should be by way of a rights issue underwritten by the Government. At the same time they propose that the Government should offer to buy out existing share-holders at l0p per share. In addition, they propose that as part of the financial reconstruction the Government should be prepared to provide the whole of the further £500 million to British Leyland between 1976 and 1978, should no part be available from other sources.
"The Government accept the Ryder report as a basis of future policy towards British Leyland and have already started upon discussions with the Board of British Leyland with the aim of putting these proposals into effect. The Government agree with the proposal that they should offer to buy out existing shareholders and under-write a new rights issue. In this way 1048 the shareholders will be given a fair choice between selling their shares at l0p each or retaining them and, if they wish, taking an additional stake in the company at the same price. The Government also accept that they may be required to provide £500 million of extra capital to British Leyland between 1976–78 if none is available from other sources; the question of funds beyond that date will be a matter for later consideration. In return for this massive investment of public money, the Government intend that they should have a majority shareholding in the reconstructed company.
"Meanwhile, British Leyland will need further working capital and my right honourable friend will shortly be laying before the House a draft Order, seeking authority for an increase of up to £50 million in the guarantees already approved by the House. At the same time he will inform the House about the Government's proposals for providing the longer-term financial support, a substantial part of which will come from the provision already made in the Industry Act 1972 and in the Industry Bill now before the House. The Government will then introduce any legislation necessary to give effect to these proposals.
"I should like to make is clear from the outset that following the initial injection of equity capital in 1975 the release of further stages of Government funding will be determined in the light of the contribution being made to the improvements in the performance of British Leyland by better industrial relations and higher productivity. This is a condition to which the Government attach great importance.
"The Company will therefore be required to put forward annual business plans before further funds are provided covering improvement in industrial relations and productivity and putting forward precise investment and operating programmes for specific Government approval within the new system of planning agreements. The Government-owned majority shareholding in British Leyland will come under the National Enterprise Board once this new body has been set up and arrangements for scrutiny will be worked out with the Board. The aim will be to 1049 satisfy the criteria for the provision of public funds on such a vast scale while at the same time allowing the company to operate on an effective commercial basis without day-to-day Government intervention.
"The improvement in the Company's performance will require the full cooperation of the workforce. The trade unions have already been consulted in the preparation of the report and the Government will expect the management of the Company to discuss with all employees arrangements for setting up the consultative machinery as recommended in the report. It will be the Government's objective to secure the joint effort of everyone involved in making a success of this new departure in the field of public ownership in manufacturing industry as part of their broad industrial strategy.
"The Government have not come lightly to these decisions: vast amounts of public money are involved, representing one of the greatest single investments in manufacturing industry which any British Government has ever contemplated. There are bound to be great risks that in an industry where there is fierce competition and at present over-capacity, even the best-founded forecasts will be proved wrong by events.
"But the House should be in no doubt about the significance of this Company to the national economy and the importance of putting it on to a sound basis. British Leyland is our biggest single exporter: last year its direct exports from this country amounted to almost £500 million. The Company employs nearly 170,000 people directly in this country and the livelihood of several hundred thousand more is dependent on it. A million jobs are at stake.
"The choice before the Government was stark but unavoidable. If we had let events take their course and allowed the Company to slide inevitably into receivership, or if we had permitted savage reductions in its size with its production effectively confined to a specialised range of vehicles, then there would have been a major loss of confidence, at home and abroad, not only in British Leyland but in British industry as a whole.
1050 "There would have been, too, a risk of massive increases in imports and in redundancies on a very large scale, a good number of them in areas of high unemployment.
"The choice facing the Government on receiving the Ryder Report, the choice now facing the House, is this. Is Britain to have a major indigenous automobile industry, or should we have decided that British Leyland could survive profitably on a diminished scale, selling up-market cars together with trucks and buses? Are we, through a lack of courage in responding to a tremendous and costly challenge, to endanger a million jobs, and at the same time to see a shrinkage of exports, and vastly greater imports for the home market, which would be bound to affect our balance of payments disastrously?
"The Government have decided that Britain must remain in the world league so far as a British-owned automobile industry is concerned.
"We are giving British Leyland an opportunity, through this massive investment to overcome the weaknesses of the past and to play its full part as a leader in world markets.
"The Government have made their decision. It is now for Parliament."
§ My Lords, that concludes the Statement.
§ 3.55 p.m.
§ Lord CARRINGTON
My Lords, the House will wish to thank the noble Lord the Leader of the House for repeating that very long Statement. It is not only a very long Statement; it is a very serious Statement with ramifications which go well outside the confines of British Leyland itself. I do not think it would be sensible to comment too closely today without having read the Report, but I would say this. The sums involved are truly enormous. It is a little difficult to judge from the Statement exactly what the Government have committed themselves to. But we are in a time of real financial stringency and I really do not know how this money is going to be found without cutting other expenditure which some of your Lordships may think-quite as vital. Certainly we on this side will have to be satisfied that this solution 1051 proposed by the Ryder Committee and accepted by the Government is the right solution before we go along with it.
Secondly, although this may be in the report—and we have not yet seen it— there is no indication of what went wrong. More importantly, there is, except in geenral terms, very little indication of how it is going to be put right—for example, over-manning and the acknowledged fact of bad industrial relations. A Government take-over or a Government majority share will, unless the Government are very careful, only encourage the comfortable and widely held view that the Treasury has a bottomless purse and that, anyway, the Government cannot let their majority-held concern "go bust". I am at a loss at the moment to see how anybody could suppose that injection of new finance should be staged and each stage should depend on a tangible contribution by the management and workforce; and I do not quite understand how anybody in a majority Government shareholding is going to believe that suddenly the Government owning the majority are going to turn off the tap. The noble Lord also has not told us, although again this may be in the report, when after this enormous injection of capital it is estimated that the company will be in profit. This seems to; me of some considerable importance.
Lastly, I must say to the noble Lord that I think not only just myself but others in your Lordships' House must be rather unhappy at the way this report has been handled and leaked. It seems to me that what has happened has been a little less than fair to the noble Lord, Lord Stokes, and Mr. Barber. I do not know whether they have seen the report or whether they have been asked to comment on it, but I hope at any rate; they will have that opportunity. May I also finally (I am sorry, I have had two "finallies") ask the noble Lord whether he would be prepared to give some Government time for a debate on this issue, because a number of your Lordships are well versed in these industrial matters and would wish to discuss it.
§ Lord BYERS
My Lords, I too should like to thank the noble Lord, Lord Shepherd, for repeating the Statement. One's first reaction is that the amount 1052 of public money being put at risk is really quite frightening. It is almost as though we are starting to print motor-cars. I welcome the worker participation which is proposed, but the setting up of joint councils is not enough, in my view, with sums such as this at stake. Is it the Government's intention to obtain firm assurances from all the unions involved, on sensitive matters such as over-manning, no sectional strikes, full support for cost and quality control and delivery dates being upheld, before the bulk of this money is committed? Working capital must be required to keep it going, but it really is quite frightening to ask for this kind of public commitment of this kind of finance unless there is a firm assurance by the unions that they are going to work this out with management and make the organisation into a profitable one.
§ 4.0 p.m.
§ Lord SHEPHERD
My Lords, I am very grateful for the restrained way in which both the noble Lord. Lord Carrington, and the noble Lord, Lord Byers, have responded to this very serious Statement. I do not think one can disguise the unpalatable nature of the task for the Treasury and the Chancellor of the Exchequer in being required to find this vast sum of new money for an industry which I think most people would regard as essential. If I may say so, one of the factors is not only the consequences to British industry—not only to British Leyland and to the many other companies with which British Leyland is involved—but the very dire consequences that could flow to this country in terms of the balance of payments if we were not producing cars of our own to meet market requirements. Then we should be sucking in only foreign cars; also, we should be losing a very sizable export figure. One of the interesting points in the Ryder Report which does not come out in the Statement is the firm belief of the team that there is great potential for British Leyland in overseas markets if it could only produce the vehicles.
In regard to a debate, certainly I will consult through the usual channels and arrange a day. In regard to a leak, I, too, have seen various reports in the news-papers. In my view, most of them were highly speculative. Occasionally they get close to the truth; but taking all the speculation into account, I have not yet 1053 become concerned about any leak, either official or unofficial.
In regard to the majority shareholding, the present equity value of British Leyland is some £37 million. I do not think anybody could question a Government decision to put in such vast sums of public money and say that it should not take a majority holding in the company. I assure the House that this was not one of the companies that was on our list for nationalisation. Clearly the majority shareholding does not affect the future of the company—at least in terms of its management. We are expecting a great deal from Sir Don Ryder and the National Enterprise Board. We hope that there will be available to Government—which at present is not available —a board made up of men with great commercial experience who can deal with the very difficult commercial and investment problems which are not always matters which Government themselves are best able to deal with. We look to the new management and the new structure.
If the noble Lord, Lord Carrington, will read the report, as I have no doubt he will, he will see that while Sir Don Ryder has laid great stress upon the very bad labour relations and the consequences to the company, he does not in any way lay the full responsibility, or even the major responsibility, for this company's difficulties upon these matters. It is largely a question that very little, if any, money has been invested in new equipment in this company since 1968. To give an indication, since 1968 the profits of this company were £74 million. It distributed in dividends £70 million. This is an indication of one of the problems that this company and the new management will face —the need not only to improve labour relations, to which everyone must attach importance, but also the need for modern tooling and the development of new models for the market. I agree, however, with the noble Lord, Lord Carrington, that this is a matter which is best discussed when the House has had an opportunity to read the report.
At this stage I do not wish to say anything about the noble Lord, Lord Stokes, and Mr. Barber. I believe that both of them are considering their own positions. I should not, however, wish to miss this opportunity to pay tribute to both of 1054 them. Clearly, however, this company is in difficulties. It has been in difficulties during a period when they have been in senior positions. Clearly, therefore, there is a responsibility. However, this is a matter which can be dealt with more adequately in our debate.
I hope that I have dealt with the points. May I conclude by saying to the noble Lord, Lord Byers, and again to the noble Lord, Lord Carrington, that if this company is to be saved, clearly the question is not one solely of investment. The investment gives it a new shot of blood, but whether it can survive must depend upon the co-operation of the new management and upon a new sense of responsibility and urgency among all the persons who are employed by the company.
§ 4.6 p.m.
§ Lord LEE of NEWTON
My Lords, these are great sums indeed. Have the Government made any assessment of the effect of this huge capital investment in certain areas which are not too troubled by levels of unemployment upon the Government's programme of assistance in development areas and other areas where unemployment is a very real threat? The noble Lord, Lord Byers, mentioned labour relations. Is it the case that any commitment has been made by the internal organisation of British Leyland? Those of us who come from the engineering industry and who have striven for most of our industrial life to create good labour relations have never been too happy about the way in which some of these British Leyland factories have, apparently, managed to find reasons for dispute. At times the mind boggles at how they manage to do it. Is it, therefore, the case that, while in many parts of the industry there are threats of unemployment among people who have extremely good labour relations, we can expect that within the British Leyland companies an effort will now be made at least to get periods of peace commensurate with those that obtain in the rest of the engineering industry?
§ Lord SHEPHERD
My Lords, I am entirely with my noble friend. Labour relations can only be improved when one has first the confidence of the work-people in their management and, secondly, the exchange of information and the opportunity to discuss and debate the 1055 problems of the company. Therefore, as the House will see, great attention is paid in the Ryder Report to the need for new works councils, conferences in which the senior shop stewards, in particular, and obviously through them those who work in many cases in very boring jobs, will have a full understanding and a full feeling of being partners in the enterprise.
The first part of my noble friend's question reminds me that I did not deal with a point which was made by the noble Lord, Lord Carrington, and the noble Lord, Lord Byers. We hope that a major part of the early sums which will be required by this company will come out of the moneys which have already been set aside for the National Enterprise Board and also under the Industry Act. Clearly, the sums which are involved will need further sources, but we hope that in the initial instance the immediate sums will come from these two sources. Therefore, there is no direct effect on public expenditure.
§ Lord BYERS
My Lords, I should like to put one further point to the noble Lord: when the equity issue is being considered, would it not be worth while offering to the work force the possibility of taking up a share in this new venture?
§ Lord SHEPHERD
My Lords, I think there is some attraction in that suggestion, although there are some who feel that a man's basic risk today is in his employment and it should not be aggravated by the fear of the loss of capital.
§ Lord SHEPHERD
My Lords, clearly this is a matter that cannot be considered at this stage, because the restructuring of this company will take time; it will need the co-operation of the Board and also of the shareholders, and the consent of the court. It will take some few months, even with the best will. This is clearly a matter which the Board ought to consider and, no doubt, will consider when the time arises.
§ Lord PANNELL
My Lords, is it not a fact that a Committee of this quality —and I do not think anyone ought to doubt that this a Committee of very high 1056 quality indeed—must have looked at the position of Lord Stokes and Mr. Barber, but the present position of two men has to be set against the mighty canvas of the British motor car industry, which some of us think in the past has probably been too big in the context of the nation's economy.
§ Lord SHEPHERD
My Lords, that is a matter which clearly we can consider when we have our debate. I think there could be a case for saying that the company was too big in terms of its structure. But as the Statement indicates and the Report specifically stresses, the organisation should be divided into four, each with its own managing director; there should be an overall board and we should—I think the House will agree— delegate as much responsibility as possible to the immediate management and the line management, because I think it is only through this that one can see the proper relationship between management and workpeople developing.
§ Lord LEATHERLAND
My Lords, I may have missed what my noble friend said, but can he tell us how much the company hopes to raise from the rights issue? Secondly, does he not think that the rights issue is foredoomed to be a flop, inasmuch as three or four years ago Leylands had a rights issue at 45p per share and those shares this morning were only 6¾p?
§ Lord SHEPHERD
My Lords, the question is that the rights issue would be made with the agreement of the Board and the shareholders. The Government have guaranteed the rights issue and, therefore, those shares which are not taken up by existing shareholders of the company naturally would then come into the ownership of the Government. So there is no question of a rights issue failing.