HL Deb 26 March 1979 vol 399 cc1419-49

3.5 p.m.


My Lords, I beg to move that the Industry Bill 1979 be now read a second time. The principal purpose of the Bill is to increase the financial limits of the National Enterprise Board and the Scottish and Welsh Development Agencies. There is, however, a secondary purpose; that is, to amend the law so that all money borrowed by all subsidiaries should count against the financial limit of the parent, the parent being the National Enterprise Board in England, in Wales the Welsh Development Board, and in Scotland the Scottish Development Board.

At the present time all monies borrowed by wholly-owned subsidiaries count against the financial limit. In the case of other subsidiaries—that is, those not wholly owned—only loans made or guaranteed by the parent count against the financial limit; that is to say, if commercial loans which are made to subsidiaries which are not fully owned are not guaranteed by the parent body, then they do not count against the financial limit. We feel that these loans are so important that they should count against the financial limit. The necessary technical changes in the law are embodied in the Bill.

The change will not enhance the commercial standing of the subsidiary, nor will it enhance the security enjoyed by the creditors of the subsidiary, but it will mean that all loans made to subsidiaries will count against the financial limits and that the picture will be all the clearer. Linked with this Bill is the intention of the Government to bring forward an order in council to increase the financial limit of the Northern Ireland Development Agency. If and when this Bill reaches the Statute Book, that will be done.

At the present time under Section 8 of the Industry Act 1975 the financial limit of the National Enterprise Board is £1,000 million. At the end of February £830 million of this was either charged or committed, leaving a balance of only £170 million. This is known to be less than the requirements of BL and Rolls-Royce in the near future. Consequently, that limit will be reached shortly after this Bill reaches the Statute Book. When fixing the financial limits of public corporations, it is usual to look ahead five years, and that is what is done in this Bill.

The Bill proposes to increase the financial limit for the National Enterprise Board from £1,000 million to £4,500 million. That is an increase of £3,500 million, which is made up as follows: first, the technical change which I have explained; that is, that all borrowings of all subsidiaries shall count against the financial limit, which will account for £1,500 million. Of the increase of £3,500 million that leaves £2,000 million. The current public expenditure provision is £275 million, so that for five years that would be £1,375 million which, when deducted from the £2,000 million, gives a balance of £625 million. Against that £625 million there is expected to be about £50 million for loans which would be guaranteed by the parent body. That leaves a contingency balance of £575 million. That looks a huge sum as a contingency balance, but it is, in fact, only 3 per cent. of the consolidated turnover of the subsidiaries concerned in the next five years. The increase from £1,000 million to £4,500 million will be staggered. The immediate increase authorised by the Bill is from £1,000 million to £3,000 million. The Bill then goes on to propose that by an Affirmative Order confirmed by a Resolution of the House of Commons the limit of £3,000 million could, if need be, be increased to £4,500 million.

Before leaving the National Enterprise Board I should deal with some of its aspects. It is of course a State holding company with no compulsory powers whatever. Its duties are to promote efficiency, international competitiveness and to provide and maintain productive employment. It is a source of risk capital for new investment; 95 per cent. of the consolidated capital now employed by the NEB is in companies which were transferred to it at its birth by the Department of Industry. These companies are British Leyland, Rolls-Royce, Ferranti, ICL and Herberts. They use 95 per cent. of the consolidated capital of the NEB.

Other than British Leyland and Rolls-Royce, the NEB has a target of 15 to 20 per cent, profit by 1981. In 1977 its profit as a percentage of capital employed was 11.7 and it is expected to be approximately the same for 1978. I will deal separately with British Leyland and Rolls-Royce. British Leyland is of course the largest of NEB's subsidiaries; its sales exceed £3,000 million, and £910 million of that is exports. In consequence, British Leyland is our largest net earner of foreign currency in manufacturing industry. Despite the reduction in workforce which has taken place as a result of rationalisation, it still employs 160,000 people and at least as many again in other firms which are dependent on British Leyland. It is therefore of very great significance to our economy.

Last year, the trading profit before the charge of interest was £71 million. That compared with £56 million in the preceding year. After charging interest, the profit was £15 million compared with £3 million in the preceding year. However, during the year there have been exceptional costs, first in unusual staff reductions—12,000—and in the closure of plants due to the reconstruction. In consequence, there were costs of £38 million because of those extraordinary circumstances with the result that after all costs and taxes, there was a loss at British Leyland of £37 million, but that was substantially less than the loss of the preceding year, which was £51 million. The House will be pleased to learn that there were also fewer industrial disputes; man hours lost as a percentage of the total man hours available were 3.5 per cent. compared with 6 per cent. in the preceding year.

So far as future commitments are concerned, the Government are in principle committed to provide the remainder of the funding required by the Ryder Plan, provided performance and prospects show that to be justified. The amount outstanding on the Ryder Plan is £400 million, so that to that extent the Government are committed to a further funding of £400 million, provided performance and prospects justify it. The Government are considering the National Enterprise Board's report on BL's 1979 corporate plan and my right honourable friend hopes to make an announcement on future funding before Easter—in spite of Wednesday.

I come to Rolls-Royce, which has had a very significant year. Its RB.211 engine was chosen, despite very severe competition, to power the Lockheed TriStar for PAN-AM, and that was a great breakthrough. Furthermore, the RB.211/535 was used as the launch engine for Boeing's new 757, which has been ordered by British Airways and Eastern Airlines. The Government appreciate that the development of the 535 engine and the further improvements in the RB.211 will involve substantial expenditure in the next few years; funding arrangements for that are under consideration at the present time.

As for results, the 1978 results are not available but I will give a comparison of 1977 with 1976. The trading profit before interest in 1977 was £31 million and in 1976 there was a trading loss of £15 million. The trading profit after interest in 1977 was £20 million compared with a trading loss after interest of £25 million in 1976. So there was substantial improvement in 1977 over 1976, and in the final analysis in 1977 there was a profit retained of £14–6 million. Although the 1978 figures are not yet availble, I understand it is expected that Rolls-Royce will just about break even. The NEB has of course found it advisable to sell some of its investments, usually very small ones, and on some of these there have been losses which have received rather unusual publicity. I can say that of the small investments sold, the losses exceeded the profits, so there was in fact a net profit.

Several noble Lords



Did I say something wrong, my Lords?


My Lords, I think the noble Lord got it the wrong way round.


To avoid confusion I will repeat that sentence. On the sale of some of the smaller investments there were losses in some cases and profits in others. I can assure the House that in total there was a net profit; profits exceeded losses. I apologise if I reversed it. It is interesting to note that some of the shares held by the NEB are worth substantially more than the cost; for example, the Ferranti shares are now worth five times the original cost, and the ICL shares are worth more than three times the original cost; so there is accumulating a capital profit.

I come now to the agencies. In Scotland and Wales the agencies have powers as a source of finance very similar to what the National Enterprise Board has in England, but in addition the agencies have duties to undertake environmental improvement schemes, to clear derelict land, build factories, engage in industrial promotion, provide loans and give advisory services to small firms. The Scottish Development Agency has equity invested in 35 companies throughout Scottish industry. It has made a large number of loans and has given special help to small firms. It has built or converted 1½ million square feet of factory space. It is estimated that 35 jobs depend directly or indirectly on the work of the agency. The financial limit of the Scottish Agency is £200 million. It has spent or committed £170 million. Looking ahead five years, the Bill provides for the limit to be increased to £500 million immediately and, if need be, to £800 million by an affirmative order.

Finally, I turn to the Welsh Agency, which is somewhat similar to the Scottish Agency. It is co-ordinating and financing a substantial programme of land reclamation in a part of the United Kingdom where it is most essential. It is forming a land bank of industrial development sites in strategic locations throughout the Principality. It has a successful programme of factory building. Its small business unit is providing loans and giving advisory services to the many small firms within the Principality. Its financial limit is £150 million. Looking ahead five years, the Bill proposes to increase this financial limit to £250 million immediately, and to £400 million, if need be, by affirmative order. With that story to tell, my Lords, I have pleasure in commending the Bill to the House. I beg to move.

Moved, That the Bill be now read 2*.—(Lord Jacques.)

3.22 p.m.


My Lords, we are grateful to the noble Lord, Lord Jacques, for explaining the purpose of the Bill and for giving us an account of the activities of the three bodies to which it relates. It has been certified as a Money Bill, and therefore we can undertake no detailed examination of it with a view to amending it. However, there is today the opportunity to inquire about the three bodies: The National Enterprise Board, and the Scottish and Welsh Development Agencies. We can also make some general remarks on their place in the present industrial scene.

As the noble Lord reminded us, the Bill raises the financial limits for all three bodies. However, I must point out that within the Government's own programme of published expenditure it is most unlikely that those levels can be reached within the foreseeable future. Indeed, it is inadvisable that the level should be reached where the National Enterprise Board is concerned. The National Enterprise Board is carrying out three tasks which some agency, I suggest, would probably be doing anyway, as they are useful activities. First, it is acting as a State holding company for major investments acquired for national reasons, such as Rolls-Royce, but with a return to the private sector as an objective. Secondly, it assists companies in temporary financial difficulties; and, thirdly, it initiates rationalisation in sectors where it is requested.

As regards the NEB's other, wider powers, it cannot be a substitute for promoting a healthy climate in industry. This requires reform of the taxation system by restoring incentives for business enterprise and invididual effort throughout the economy. It requires also monetary stability and improved systems of pay bargaining. The NEB can be no substitute for those. If I may refer to what might happen on Wednesday evening in relation to the Motion of no confidence to be debated in another place, I would say that the prospect draws nearer of achieving a new climate of that kind.

I should like to put two questions to the noble Lord in the hope that he can deal with them when he winds up. The first relates to the NEB's activities in industrial areas of England where there is high unemployment and where industrial revival is needed. The NEB has offices in Newcastle and Liverpool. However, from studying its records it appears that only a small part of its investment has gone into those areas. Can the noble Lord explain this or tell us more about it?

In this context there have been suggestions—though not from these Benches—that there should be an English Development Agency to match the Scottish and Welsh Agencies which we are discussing today. What is the Government's reaction to that? Do they regard the NEB as already fulfilling the functions that such an agency would carry out, particularly in the areas I have mentioned where unemployment is high? My second question is on the relationship between the NEB and the Scottish and Welsh Agencies. How much has the NEB done in Scotland and Wales itself, outside of course its function as a holding company for the concerns which it owns and helps which are of a major national interest, such as Rolls-Royce and British Leyland? Are the two agencies acting in Scotland and Wales—as was originally intended when the Bills went through your Lordships' House—as agents for the NEB, or does the NEB carry out its own activities north of the Border and in Wales?

Our main criticism from these Benches of the NEB as it is now established is its power to acquire innocent private companies, which are healthy and successful, large or small, without warning, provocation, or need. I hope that the board will exercise restraint. It should not set forth on pillaging forays through the sector of profitable private enterprise. This is unsettling for British industry. Successful firms are likely to do less well after such takeovers than they would have been doing before. Consequently, this is bad for the United Kingdom's economy, and it is a blow to confidence.

The role of the NEB should be limited. It should be made clear that it is not hostile or voracious in its appetite for devouring neighbours and rivals in industry. However, under the present arrangements the NEB is being asked by the Government to provide a certain return on capital, and this means that it may have to own a proportion of profitable companies in order to balance the loss makers taken over for remedial action. It is a worthy exercise that a target should be set for a return, but clearly this whole situation should be thought out again with a view to the NEB not taking over for no purpose private industry which is already successful and is doing well. What is needed by British industry, and can now be perceived on the horizon with a General Election coming this year, is a new propitious climate in which British industry can flourish and prosper by its own efforts.

3.29 p.m.


My Lords, we on these Benches wish to join in the thanks extended to the noble Lord, Lord Jacques, for the clear way in which he has explained the content of the Bill. As the noble Lord, Lord Campbell of Croy, said, the Bill is a Money Bill, and therefore it is not within our power to do more than say what we think about it; but as the noble Lord also said, the debate gives us the opportunity generally to review the operations of the National Enterprise Board and the Scottish and Welsh Development Agencies, to consider the extent to which they should continue to receive money from taxpayers, and so on.

I should like to begin, if I may, by making it plain that we start with a feeling of sympathy for the chairman and members of the NEB, and for what they are trying to do, as regards the major interests of the board in both British Leyland and Rolls-Royce, provided that realistic targets relating to return on capital and productivity are met, and also as to other activities of a more entrepreneurial kind. We sympathise, too, with interventions such as those mentioned by the noble Lord, Lord Jacques, in firms such as Ferranti and ICI. Indeed, our only criticism—and it is a major one—concerning the board's holdings in those two companies is that apparently there is no prospect of those holdings eventually becoming available in a liquid form for the continuing work of the NEB. Our main desire is that the board should be able to do its work in such a way that its operations can be maintained stable and on a broadly agreed basis, irrespective of the political complexion of the particular Government in power at any time. I know that at present that may seem a rather forlorn hope, given that the Left-wing of the Labour Party would like to see the activities of the board greatly extended and the Right-Wing of the Conservative Party might like to see those activities altogether abolished.

In this connection, I think I should say that I was sorry to read what it was that the main Conservative Opposition speaker had to say in another place at the Report stage of this Bill: that he felt the board would probably prove extremely harmful. That contrasted with what I thought was the more moderate approach of the noble Lord, Lord Campbell of Croy, this afternoon, and it is certainly in marked contrast to the more positive and balanced view expressed by Sir John Methven the other day, when he said that the CBI did not want things pulled down and set up simply for reasons of political dogma, and that they saw a continuing need for the NEB—and, for that matter, also for the Pay Comparabilities Commission, albeit with some modifications in each case. It must be most demoralising for people employed by the NEB to feel that, if there is a change of Government, their employment might be in jeopardy. We on these Benches have often deplored the way in which first the Prices and Incomes Board and then the Relativities Board were set up by Labour and Conservative Governments in turn, and then demolished by their successors; and we very much hope that the same thing will not overtake the NEB should there soon be a Conservative Government. What I believe industry badly needs from Parliament now—and I speak with some practical experience—is continuity and stability of policy.

That brings me to the content of the Bill before us. It is precisely because, in our view, it is so framed as to be a destabilising influence that in certain respects we are unhappy about it. There are a number of reasons for our misgivings, and perhaps I may briefly spell them out. First, we do not think that the Government have given enough information to Parliament to enable it to form an adequate judgment as to whether these enormous increases in statutory financial limits which are now asked for should be granted. I can see that there are problems regarding the extent to which such information should be published in the case of, for example, a company like Rolls-Royce, which is subject to very severe international competition. I acknowledge, too, that it would be quite inappropriate for Parliament to seek to interfere with the day-to-day commercial decisions of companies in which the NEB has a stake. But surely, when financial provision of the magnitude provided for in this Bill is sought for the NEB, it is quite wrong, assuming that the audited report and accounts of the board for 1978 will be published at approximately the same time as they were last year, that we should be having this debate now, only a few days, it may be, before that publication, before, as the noble Lord, Lord Jacques, has just reminded us, our corporate plan for 1979 has been approved, and also before the announcement to which he referred, relating to future funding, has been made. Anyway, in the absence, as we see it, of adequate information from the Government, all that Parliament can now do is to make the best estimate it can of the likely future requirements of the board.

That brings me to the second point I want briefly to mention, relating to the amounts of the increased statutory financial limits contained in this Bill. This is the position, as I understand it—and I have read carefully, as no doubt have other noble Lords who are taking part in this debate, what was said in another place as the Bill went through all its stages there, and I have also listened carefully to what the noble Lord, Lord Jacques, has said to us this afternoon. Taking the NEB's own figures, they will not need all the money now sought for at least 3½ to 4 years. On the Government's showing of the total amounts in the Bill, £575 million, no less, is now required for contingencies alone, at a rate of £115 million per annum over a period as long as five years. At a time when inflation is again beginning to rise, and when money set aside for the purposes of this Bill is clearly not going to be available for the hard-pressed private sector of industry or to effect the reductions which are so badly needed in the present high levels of personal taxation, our feeling, I must say, is that those amounts are far too high. Indeed, when the noble Lord, Lord Jacques, comes to reply (and I am extremely sorry that I have failed to give him notice of this, so I shall quite understand if he can respond only at a later stage) I would be grateful if he could give some indication of the extent to which the amounts now asked for exceed the recommendations of the National Enterprise Board itself in this regard.

The third and last point I want to make really follows from the first two. If Parliament is to be asked, on the basis of information which in our view is both inadequate and out of date, to authorise this enormous additional expenditure—which will be used, incidentally, as the noble Lord, Lord Jacques, has himself said, for different purposes as between the NEB and the Development Agency—then, in our view, this should be done only on a basis which necessitates periodic debate and legislation at intervals of not longer than, say, a year at a time, so that a more thorough parliamentary scrutiny can be exercised than occurs under the Affirmative Resolution procedure, to which he has referred. I am sorry, therefore, to have to say that, in bringing forward this Bill in the way that they have, the Government have in our view acted against the future interests of the National Enterprise Board itself, not to mention those of the economy as a whole, and in these circumstances we on these Benches are not able to give it our support.

3.40 p.m.


My Lords, the fact that, as has been mentioned by the two noble Lords who immediately preceded me, this is a Money Bill does not of course deprive this House of the duty, when confronted with proposals for the allocation of such very large sums of public money, to debate and analyse those proposals. Indeed, the powers of this House theoretically go even a little further than that. As I understand the constitutional position—and I am subject to the noble Lord's correction if I am wrong—under the various Parliament Acts this House does in fact have the power (of no great significance in normal times) to delay a Money Bill for the period of one month. As Sir Harold Wilson once observed, "A week is a long time in politics". Today, a month is quite a period.

I am surprised, as was the noble Lord, Lord Rochester, at the timing of the introduction of this measure, with its provision for a very large sum of public money to be allocated for purposes of which we have insufficient details and—and I shall come to this at the end of my speech—spent subject to quite inadequate Parliamentary supervision. It seems a little extraordinary that in, what are undoubtedly—whatever view one takes of the events of this week—the last months of a dying Parliament, a provision should be introduced to make very large financial allocations (which, according to the noble Lord, Lord Jacques, are adequate to last for nearly five years) to a highly controversial body. If the noble Lord had come forward and said, "We desire to preserve the status quo for a little and are therefore proposing a modest increase to deal with immediate demands", that would have been understandable. But to come forward with a proposal to provide up to £4,500 million of public money for this not uncontroversial body at this stage of a Parliament is a very extraordinary proceeding.

Equally extraordinary is the nomenclature. This is called the Industry Bill. That is a complete misnomer. It is not designed to help the profitable industry on which this country lives. Profitable industry in this country—and there is still a bit of it—can get on perfectly well without the National Enterprise Board. This is designed simply to provide funds for this creature of the Government—and I use that phrase deliberately.

Your Lordships may recall that the Secretary of State for Industry in another place drew attention to the fact that the setting up of this body was an essential feature of industrial policies put forward by the Labour Party Manifesto in 1974. When it was introduced, as the Labour Party had won that Election, that was a perfectly proper proceeding, but to make this massive endowment for the future of this Labour Party creature at a time when the whole political outlook is uncertain seems to be lacking in a measure of elementary decency. It is curious, this nomenclature: the Industry Bill, the National Enterprise Board—the Government almost seem to be adopting the technique of the Government forecast by George Orwell in 1984 when all the Departments were given agreeable names which contrasted markedly with their functions. For example, the Government Department responsible for the suppression of resistance to the Government was called "The Ministry of Love". It is using rather the same technique to refer in this context to the National Enterprise Board.

What is its function? What is the philosophy behind it? I think that the Government are facing in this a dilemma on which I should be interested to hear the noble Lord speak when he comes to reply. Either these large sums of money are to be made available to the NEB to acquire profitable concerns—something to which my noble friend on the Front Bench referred—and what is the purpose of that, other than to extend the Socialist theory of nationalisation? What other practical advantage has it? Alternatively, it is to acquire and prop up unprofitable concerns. It is certainly the fact that in the NEB's present portfolio there are a considerable number of these. Do not blame the NFB for that! It acquired them from the Government which took the step of acquiring them.

In this respect, it is now an instrument for carrying out what I think is the false economic philosophy of the Government: the policy of propping up unprofitable concerns. I do not want to get into an extreme dogmatic position. There can be cases in which temporary help is needed for an industry of significant importance—perhaps, as in the case of Rolls-Royce, from the point of view of defence—where it is right for the Government to come to the rescue. But, as a general policy, to provide financial support for companies that get into trouble seems to me an extremely dangerous and harmful process. If a company is unprofitable for a while but is soundly managed and has sound prospects, it can go to the market. The Wilson Committee has not so far suggested that the financial facilities of the City of London are inadequate for that purpose. If the company has not good prospects and is unprofitable, then, on any ordinary analysis, it is producing something for which the consumer is not prepared to pay the cost of production; and the resources and labour in it ought to be redeployed elsewhere.

I do not ask the House—and still less the Minister—to accept that approach from me. I ask them to accept that approach from their own principal economic adviser. Your Lordships will be aware of the leak which on 23rd February, took place in, of all respectable organs of opinion, the Guardian, when there was quoted a letter from Sir Douglas Wass, Permanent Secretary to the Treasury, to Sir Peter Carey, his opposite number at the Department of Industry, forwarding a report of the Public Sector Incomes Group. The covering letter from Sir Douglas to Sir Peter contained the words: The startling and disturbing conclusion is that we have been accumulating prospective losses of real resources at a rate faster than the growth of the national income". Those are words from the head of the Treasury. I have served in the Treasury and I know that they are not given to overstatement. Those are words which, now that we know them, all thinking people, whatever their political views, ought to take with desperate seriousness. Yet we do not have a word of reassurance from the noble Lord on the Government Front Bench when he is asking this House to consider proposals for the use of a very large amount of public money, inter alia, for just the purposes that Sir Douglas Wass condemned.

If I may go back 2,000 years before Sir Douglas Wass, some noble Lords may remember the Roman poet who wrote: "Victoria causa deis placuit; sed victa Catoni"—which, were I in the House of Commons, I should feel it necessary to translate and which, were I in the House of Commons, I should simply translate as "Cato backed losers". But the policy of backing losers, condemned so devastatingly by the Government's own principal adviser in these matters, must be a singularly dangerous one for this country. The money and the resources for this purpose are obtained by borrowings, with the aid of Government credit, on the London market—very large sums indeed which will be borrowed, if this Bill becomes law, with the aid of that credit. That money will therefore cease to be available for borrowings by profitable private industry on its own credit. The sum total of capital available for borrowing will be reduced. This, apparently, is to be the effect of a so-called Industry Bill. This cannot be right. Indeed, there are many people who feel that the whole policy of backing losers, of propping up the unprofitable, is one of the reasons why the standard of life of the worker in this country has fallen to a quite dramatic degree compared with that of his opposite number on the continent of Europe, where other philosophies exist. This Bill is an instrument for the continuance of that purpose, which, despite the warning from their own principal financial adviser, the Government have not yet repudiated.

Let me take another point: the noble Lord the Minister said that some of the investments which the NEB had made had been profitable and some had not. Why is not the money that it invests in companies that are successful recycled? Why are not the profitable investments sold and the capital then used for whatever purposes that this Bill may require? Why is it necessary to add so substantially to the borrowing powers? What is the purpose of retaining shares and holdings in companies that do not require help, other than the Government's doctrinal desire to have industry in public hands? Therefore, one of the objections that I put to the House to providing this large additional sum of money is that such good work as the NEB may think they are able to do can perfectly well be financed by the sale of investments that they already hold. Will not the release of additional capital which the board will otherwise have to borrow be in the general interest of the national economy?

It is curious—and I am going to say only a word about them—that the development agencies should be included in this Bill, because their purposes are very largely different. Indeed, much of the work that they do is of an environmental character like that which the Scottish Development Agency is seeking to do in the reconstruction of the terrible housing in East Glasgow. Why has it been necessary to lump together these different bodies which, though they give some support to industry, are not entirely industry-orientated, with the massive provision for the NEB? The purpose is so different that the linking of them in the same Bill is difficult to understand unless it be thought for reasons almost too indelicate for me to mention particularly desirable at this moment to show generosity to agencies which spend money in Scotland and Wales.

I have one final point—I referred to this at the beginning of my remarks—regarding the lack of Parliamentary control and supervision over the spending of these large sums of money. As the noble Lord and the House know the Public Accounts Committee in another place recommended that the Comptroller and Auditor General should be able to audit the books of the NEB, and that the NEB's doings should be available for investigation by the Public Accounts Committee. When I raised this question in this House a little time ago, another Minister—I think it was the noble Baroness, Lady Birk—dismissed the Public Accounts Committee's suggestion on the ground that it would inhibit the commercial enterprise of the NEB. If I were in another place, I should say that that was a pack of codswallop. I have had some experience of being within the ambit of the Public Accounts Committee, since the Civil Aviation Authority, of which I was chairman, had its accounts examined by that Committee. I can assure your Lordships that we were not inhibited to any degree whatever in our commercial enterprise by the knowledge that that was so. On the contrary, we found the report of the Comptroller and Auditor General helpful to us in our work.

These are large sums of public money. I am made the more nervous of their being excluded from the ambit of the PAC by the observation which was made by the present chairman of the NEB, Sir Leslie Murphy, when he was examined on this point by the PAC. He sought to argue before that committee—I do not think successfully—that because he was accountable to the Secretary of State, that was the same as being accountable to Parliament. If that is the doctrine of the man responsible for the administration of these large sums of public money, I frankly find it alarming. If Parliament is to be asked to authorise public money to be used in ways which, as we have seen in other organisations, can give rise to troubles of one sort and another, I should have thought that the minimum safeguard we could ask for is that the spending of it should be thoroughly investigated by the Public Accounts Committee.

I know that the Minister said in another place that the role of the Comptroller and Auditor General would be reviewed. The possibility was trotted out that he might be let in on this. It is not good enough to ask for the money now and say that one will consider the supervision later, just as it is very odd, as the noble Lord, Lord Rochester, said, to ask for this money within a matter of a few days of the accounts of the NEB itself, with whatever defects they may have, becoming available.

I am extremely unhappy about this proposal, not only because it involves a large sum of money but also because it indicates an extraordinary unwillingness on the part of the Government to realise the dangers to our whole economy and standard of life of the continuance of the policy which this Bill will support—a policy which in the past four years has brought nothing but disaster upon the British people.

3.58 p.m.


My Lords, I apologise to the House for making a brief comment. I rise because reference was made to the firm of Ferranti. The noble Lord did not go into much detail but it might be desirable at this time to say something about it. The firm of Ferranti was known and recognised as a pioneer of good employment under the original Mr. de Ferranti. They were outstanding in those early days for providing services which were offered in very few companies throughout the land. They were not only successful but also succeeded in developing new processes and making highly-skilled products for which few other companies could contract. They came in for a very heavy liquidity crisis at a time when liquidity crisis was becoming a rapidly-spreading industrial disease, and the National Enterprise Board stepped in and thought it suitable for investment. There is one thing about Ferranti: the workers responded and with a loyalty that was particularly characteristic of the Oldham area, where of course the firm was founded and where it still has three or four works. Of course, it has now spread to other parts of England and Scotland. The recovery was an extraordinarily rapid one in the circumstances. The freedom from strife in the Oldham area is very remarkable and I believe it still continues.

The time came when I found it possible to attend union meetings if I wanted to, and the workers would come to me and say, "This is a problem we share with the bosses and we have arranged for you to have lunch with the directors while you are there." That was something which is worth studying because, so far as I know, under two excellent Members of Parliament, that freedom from industrial strife has continued. In my 25 years it was a particularly good thing and, as a non-classical scholar dabbling in Latin, I would say: "Quortum pars parva fui". I am quite sure none of your Lordships needs to translate that; it means, "of which I was just a little bit".

The noble Lord said that the Government were retaining, I think, 49 per cent. of the shares and he stated their worth on the open market—because Ferranti have become public to a certain extent, although I do not know completely about that, and although my relations with the two brothers were always extremely friendly I have not had any connection with them since 1968 when I retired, and I rather regret that I did not take the opportunity that they did offer. Could the noble Lord say whether it is the intention of the board to retain those shares?—because I had understood from a possibly wholly unreliable source that some arrangement had been made which would represent a happy termination of this. Perhaps if we are to get freedom from industrial strife we might consider what is done by good employment in the days when this had an effect in maintaining our freedom in some areas from threats which are now becoming very grave and very serious.

4.3 p.m.


My Lords, I rise, first, to thank the noble Lord who has just spoken for what he has said. I was completely surprised—indeed astonished—over what happened to Ferranti, who were well known not only in their own area but throughout the world as one of the most go-ahead firms in the advancement of electrical use, and also of labour relations; they were absolutely in the forefront of everything and they were people to be encouraged rather than to have their complete freedom taken away from them. Apart from that, I was fascinated by the ease with which the noble Lord opened the debate, when these figures in hundreds and indeed thousands of millions rolled off his tongue. As a Scotsman, it terrified me! I was brought up to value a bawbee, and now we are dealing with thousands of millions just as though they were nothing at all. God knows when we are going to get them back!

I should like to ask the noble Lord if he can possibly give me one figure which I may have missed while he was speaking: what return are we getting from the money we have paid out on these firms at the present time? What return are we getting in percentage terms, and what do we expect to get out of the other £4,000 million or so that seemingly we are going to spend on them? There is one other matter I should like to refer to before I sit down, and I am sure it is something for which your Lordships are all very grateful; that is, the extraordinary speech we have just listened to from my noble friend Lord Boyd-Carpenter. He went right to the heart of the whole business. We are making idiots of ourselves in this country. I do not know whether we have gone daft, deaf, dumb or what, but we still put our faith on one side of this House in nationalisation, which has been nothing but a dreadful blow to the whole economy of Great Britain.


My Lords, like the noble Lord who has just spoken, I must beg your indulgence for intervening in this debate without first having put down my name. However, I have given notice to the noble Lord opposite, and I wish to ask for two points of clarification arising out of his remarks. The first is that he stressed, if I recall correctly, "lost hours" at British Leyland as a percentage of the hours available. I wonder whether he would be good enough to let me know the basis of the calculation of the hours available. My other point which needs clarification is this. In his attempt to justify the increase in the financial limits available to the National Enterprise Board, the Minister expressed the increase as a percentage ratio to five years' estimated future turnover. Would the noble Lord be good enough to say what is the relevance, and indeed the meaning, of this ratio? I could understand it if he were to measure the increase against increase in profitability since the inception of the funding scheme, but I cannot see the relevance of expressing it as a ratio to super-turnover for five years hence.

4.7 p.m.


My Lords, I thank the noble Lords who have taken part. They have not all stated the point of view I should have liked them to state, but that is the way debates go, and that is where we land. It is true that a small part of the activities of the NEB are in the North, but I can assure the noble Lord, Lord Campbell, that the regional boards are doing their best to encourage the expansion of locally-based companies with sound projects which can make a worthwhile contribution to prosperity in those regions. So far as the NEB is concerned, there is no limit within any of these total budgets to the funds available for good regional development.

My theory is that such excellent grants are available in those areas that the NEB is not required. The developments that do take place are of two kinds. There is the smal firm, which gets so much assistance from the State, quite apart from the NEB, that it has no great difficulty in raising a commercial loan with the bank. The second is that much of the development is by branches or subsidiaries of existing firms which are profitably engaged elsewhere. They are enticed to have their subsidiary or branch in the development area because of the grants that are available. That is the kind of company which does not usually need the NEB. The National Enterprise Board, I think, is required in two cases. The first is where a company of great importance is failing; and the preceding Government found it necessary to take action in regard to Rolls-Royce. The money we are asking for today is not for some creature of the Government: it is for such things as that. A substantial part of it will finance Rolls-Royce, which was taken over by the last Administration.


My Lords, will the noble Lord allow me to intervene? The money is being asked for for a creature of the Government—to wit, the NEB. The fact that the NEB uses some part of that Government money for the support of Rolls-Royce, which I went out of my way in my speech to say was an exception to the general rule and which I personally would accept, is no justification whatever for using the NEB. It could be done as the last Government did it, direct from the Government.


My Lords, I submit that the way in which it has now been done is a proper and sensible way to do it. Originally, there was merely Rolls-Royce, but now there are others, and I suggest that if the problems at British Leyland had come along during the time of the Conservative Government, they would have been forced to do very much what this Government have done. The example of Rolls-Royce shows that that is what would have happened, so it is no good the noble Lord shaking his head. Let us be absolutely frank. Let us have all the cards on the table. I suggest that Rolls-Royce and British Leyland would have been taken over publicly, no matter what Government had been in office at that point of time, and the evidence is in my favour.


My Lords, as the noble Lord referred to my head, perhaps he would be good enough to resume his seat for a second. I made the case of Rolls-Royce, where there are obvious and overwhelming defence considerations. Whether and in what way, had we had the good fortune to have a Conservative Government, the real problems of British Leyland would have been handled, I do not know. But I do know this. They could not have been handled as badly as they have been.


My Lords, I do not think that the facts support the remark which the noble Lord has made. I again point out that the action which was taken by the last Administration, in the case of Rolls-Royce, indicates that if they had had the problems of this Administration, particularly those connected with BL, they would have done very much the same thing and I stand by that. Furthermore, I say that if I had anything to do with the NEB there would be no question of selling the profit-making organisations—not the slightest question. Then we should have had only the loss-making organisations. Then we should have had to come to both Houses and ask for money to cover these losses. Not at all. When we have made something profitable for the public sector, let us keep it in the public sector so that we have profits available to set off against the losses. That would certainly be my policy and I should have no hesitation about it.

On the question of whether the NEB is fulfilling the functions of the agencies, with two minor exceptions all the NEB investments on its own account have been in England. The major NEB companies with plants in Scotland and Wales, such as BL, Rolls-Royce and Ferranti, are the NEB's principal contributions to the Scottish and Welsh economies. The National Enterprise Board is working in very close co-operation with the Scottish and Welsh Agencies. They are not, in any case, overlapping, nor is one acting as the agency of the other. They are acting with a close understanding and we are quite happy with the way things are going. There is no overlapping and that suits us.

The Government have no intention of the NEB becoming merely an English body, with wider powers matching those of the agencies. They are content that in England the other powers, which in Scotland rest with the agency, should, as they do at present, rest with the local authorities and the English Industrial Estates Corporation, which deals with some of the problems handled by the agencies in Scotland and Wales. So that we have no plans for making the kind of change which the noble Lord queried.

I have some sympathy with the timing difficulties, which were raised by the noble Lord, Lord Rochester. Timing is very difficult, but this Bill had to come forward at the present time because it was required. It could not wait until the annual accounts were available, and the annual accounts could not be done properly in the time which had been available. So that, regrettably, the lack of time was unavoidable.

I was asked whether the amounts were recommended by the NEB. There is no question of a recommendation. The amounts in the Bill are the amounts recommended by the Government after consultation with the NEB, but there is no question of a recommendation being either accepted or rejected. So far as Ferranti is concerned, I can say that the 50 per cent. shareholding which the NEB has will be retained. I was asked what was the amount of return that we were getting on "these enormous amounts of capital". I think we ought to be clear what we mean by "these enormous amounts of capital". It seems to be readily assumed by the House that, when we speak of £4,500 million, it means that £4,500 million of public funds paid by the taxpayer is to be made available. That is not so. As I explained earlier, at the present time the financial limits include all the money borrowed by fully-owned subsidiaries of the NEB, or the agencies. So that if British Leyland had been a fully-owned subsidiary and had borrowed from the bank, as it has done, then that would have counted against the financial limits, although it was not money provided by the taxpayer; it was money owned by the bank and lent to British Leyland. British Leyland, however, is not a wholly-owned subsidiary and its commercial loans, not guaranteed by the NEB, would not have been counted against the financial limits. But in the future, because of this Bill, they will be counted against the financial limits. So, if British Leyland goes to the bank and gets a loan of a substantial amount—perhaps, some millions of pounds—which is eventually repaid to the bank, until it repays the bank that money will count against the financial limits. But it is no charge against the State, and no charge against the taxpayer. So do not let us think that these amounts are monies provided by the Exchequer for the subsidiaries of the NEB, because that is not so.


My Lords, but surely the noble Lord has told us that money is advanced by someone to the NEB. That being so, I should like to know what is the return being received for that money.


My Lords, as regards the money which is advanced by the NEB, which will be only part of the cash limit, I gave the figures in my opening speech and they are as follows. Other than Rolls-Royce and BL, the NEB is expected to get a return of 15 to 20 per cent. on capital employed, as from 1981. In the last complete year for which we have accounts, it made 11.4 per cent. on capital and it is expected that in the year which has just passed, for which the accounts are not yet available, the return will be the same—about 11.4 per cent. So, excluding Rolls-Royce and BL, it is 11.4 per cent. So far as Rolls-Royce and BL are concerned, I gave the latest figures. I think I also mentioned that the NEB is expecting from both of those concerns a return equal to 10 per cent. on capital, as from 1981. So far as British Leyland and hours available are concerned, I did not prepare the statistics; I picked them up from information released by British Leyland when they published their accounts. All I can say is that it was explained as the hours lost as a ratio of the hours that were available, and I should imagine that the hours available would be taken at the rate of the ordinary shift.

Noble Lords asked why I took the contingency reserve as a percentage of turnover. If I have to show a relationship in order to demonstrate that this is not exceptional, I have to take it against something. Investments in a company are often financed from the profits and I thought that one of the best ways would be to take investments in relation to turnover, in the same way as profits are taken in relation to turnover. If I showed that this reserve was only something like 3 per cent. of turnover, it would show that it was not as big as it seemed to be. That was the thinking behind it.

I think that I have answered most of the specific questions which were put to me. There is a difference of philosophy on the two sides of the House, and I am quite pleased that there is. There is no reason why there should not be. I am very glad to have the National Enterprise Board. I would rather have the National Enterprise Board and its flexibility than something which was kept separate and nationalised. As I said earlier, the National Enterprise Board has sold some of its investments at a net profit. Therefore it has not held all its investments. I should prefer to have the National Enterprise Board rather than nationalisation. To those who are on the Right Wing of the Conservative Party I would say that they should not be against all public control, for that is the way to drive people to Communism. They must have a little tolerance. I hope that we have a little tolerance; I believe that we do. Therefore, I ask noble Lords opposite to show the same kind of tolerance.


My Lords, before the noble Lord sits down, may I reiterate a question which was asked by my noble friend Lord Boyd-Carpenter about public accountability. When there is the power to spend these very large sums of money it seems to me to be enormously important that accountability therefor should be made available to the Public Accounts Committee. I do not think that the noble Lord covered that important point in his reply.


My Lords, I am afraid that I did not reply to this question, which is very fair, and I apologise to the noble Lord for not having answered it. The Public Accounts Committee has access to the National Enterprise Board papers, and the Chairman of the NEB has given evidence on six occasions. The Government do not believe it to be desirable that the Exchequer and Audit Department should inquire in detail into the books because of the effect that this would have upon the entrepreneurial initiative of the National Enterprise Board. Once we create a public concern it has to have a little freedom, and it should be judged upon results in the same way as private enterprise is judged upon results.


My Lords, may I ask the noble Lord a question which is not based, I think, upon conflicting philosophies. What rate of inflation in the next few years is assumed in compiling these colossal sums that we are asked to comment on this afternoon?


My Lords, I am unable to give precise figures. However, if this Government survive they will certainly insist upon inflation in single figures, both for this purpose and for any other purpose.


My Lords, I apologise for intervening in the debate at this stage, but perhaps I may be permitted—


My Lords, I am sorry to interrupt my noble friend, but it is most unusual for a noble Lord to intervene and make a speech after the Government spokesman has replied and before my noble and learned friend has put the Question.


My Lords, I thought that there were no rules of order in this House.


My Lords, there are.


My Lords, there may be conventions—

Several noble Lords

Order, order!


My Lords, may I point out to the noble Lord that there is a misunderstanding. If the noble Lord did not put down his name, although he wished to speak, by the custom of this House he ought to have spoken before I replied. He ought to have given notice that he wished to speak in what is known as "the gap". Unfortunately, on this occasion the noble Lord is too late, but on another occasion I hope that he will be in time.


My Lords, with great respect, the custom of this House cannot be used to suppress the right of free speech in your Lordships' House. Am I out of order?

Several noble Lords



My Lords, who says so?


My Lords, the House says so.


My Lords, then the House is suppressing my right to express myself, is it?


Yes, my Lords, because the noble Lord is out of order.


My Lords, I wish to add a short postscript to this debate.


My Lords, this is a matter which was discussed and recommended by the Procedure Committee, a recommendation which was passed by this House. It is therefore a Rule of the House, and my noble friend is out of order.


My Lords, all I can say, then, is that it is time that the customs of this House were changed to permit noble Lords to express a point of view, if they have one.


My Lords, the customs of this House have not been changed. I have been in this House for 20 or more years, and I should like to protest. This matter has come up before, and those who are fairly new to this House have always taken the advice of the Leader of the House or of the Front Bench about what is the custom of the House. There is no reason why somebody who has come here recently should try to alter the customs of the House.


My Lords, all right, then I will—

Several noble Lords

Order, order!

Bill read 2a: Committee negatived.



ORDER 1979



ORDER 1979










4.28 p.m.

Baroness DAVID rose to move, That the draft orders laid before the House on 6th March, be approved. The noble Baroness said: My Lords, I beg to move the nine Water Authority Constitution Orders en bloc. These nine orders concerning membership of water authorities seem, on the face of it, fairly complicated, but I think this is one case where the form of subordinate legislation is more daunting than its substance. I hope to persuade the House that these are proposals which are not only rational, but will go some way to improving democratic accountability at local level in the water industry and, moreover, command a wide measure of support.

Noble Lords will recall that, under the reorganisation carried out by the Water Act 1973, water authorities have a constitution rather different from that of other bodies in the public sector. A majority of the members are appointed by local authorities in the area; the rest are appointed by Ministers. This may sound like a recipe for divided loyalties and general confusion; but in fact the evidence is that it has worked well and has helped to provide continuity from the pre-1973 days when water was largely a local authority function.

The members appointed by local authorities are, as I have said, in the majority, but at the moment it is only a majority of one in most cases. And, despite the fact that water authorities have relatively large numbers of members compared with some other public bodies, the members nominated by local authorities are spread fairly thin. So, for example, on the Anglian Water Authority, Essex (with 14 districts and a population of nearly 1½ million) has only two local authority representatives: one nominated by the county council and one by all the district councils together The existing local authority members do an important job on water authorities. They know something of the particular needs of the areas so far as water services are concerned. And they will always be conscious of the effect on consumers of decisions taken by the water authority—particularly so far as the level of charges is concerned.

Having looked at the level and balance of water authority membership as part of the review of the water industry, the Government decided that the level of local authority membership of water authorities in England should be increased. We announced our proposals in the White Paper (Cmnd. 6876) published in July 1977. In deciding how the additional seats should be allocated, we took careful account of the views of the local authority associations and the water authorities. The package which is before the House for approval has their agreement.

We decided on two criteria. It seemed right that large cities, including several like Manchester and Birmingham which had previously had responsibility for their own water supply undertakings, should be guaranteed a member on the appropriate water authority And we also decided that it would be fair to give an additional seat where there were a large number of districts in one county, as in the case of Essex which I have already mentioned. The increases which the draft orders will bring about reflect these criteria. My Lords, nine separate orders have been drafted so that if there are objections to one, it can be held back without delaying the others. But I hope that will not need to happen. The local authority associations, as I have said, are anxious to see the orders made. The extra seats will become available on 1st June. The associations feel, as I do, that this increase is amply justified, and I hope the House will agree. I beg to move.

Moved, That the draft orders laid before the House on 6th March, be approved.—(Baroness David.)

4.33 p.m.

The Earl of AVON

My Lords, we on this side of the House welcome these nine draft orders in the general sense. The noble Baroness has given us an excellent résumé of the reasons for these orders and we fully understand them. The only point which makes me hold back a little from wholehearted support is that I am always nervous of committees of any nature increasing in size. I have an anathema to this, just as others have an anathema about school classes growing in numbers. The reasons are similar: the smaller the committee, the more effective and positive its actions.

Having said that, we recognise that the wide geographical spread of the authorities means that regional representation, particularly from the point of view of the district councils, is very meagre. For that particular reason of the wider representation, we welcome these orders. On this point I understand that the county council, too, would have preferred their own representation to be increased. It is generous of them to give way to the district councils. Here perhaps we should utter a word of warning. While these orders are acceptable and justified, we hope that this is not a "foot in the door" and that there will not be a rush of applications for increased representation.

The noble Baroness has made the position clear but I should like to ask her to comment on one or two general points. Do the Government consider that the authorities are effective in management and that they are in touch with the public? In particular I have the feeling that there could be a closer relationship with the consumer. The noble Baroness mentioned accountability; is she happy with the accountability upwards of these authorities? My Lords, having said that, we are pleased to support these orders.


My Lords, the noble Earl, Lord Avon, has explained that broadly speaking he is entirely in favour of these orders and he has given his reasons, with one caveat. I personally am entirely opposed to them and think that they are wholly unnecessary. Going back to the bad old days where local authorities appointed members to water bodies, such as catchment and river authorities, the person chosen was someone who could be relied upon to keep down the rates, and for no other reason. I am glad to say that those days are past and that today both the appointed members and the district council members work extremely well together. I am not convinced that the proportion is wrong. On the contrary, I think that the present proportion is a fair one. I do not wish to make a pun, but the result of these orders will be to water down the expertise on these bodies.

The Secretary of State appoints members with special knowledge. The Minister of Agriculture, Fisheries and Food does the same. They are not elected and subject to change; they learn their job and they are valuable from the technical point of view, if from no other. Therefore, since it has worked so satisfactorily I think it is a case where change is not necessary. Indeed, it is necessary not to change and I must entirely oppose this alteration which amounts to a watering down of the expertise.

Baroness DAVID

My Lords, I agree with the noble Earl, Lord Avon, that committees can easily be too big, but I think these are very modest increases. In almost every case, except for the Thames Water Authority, it is only one member, so I do not think it will make a very great difference. Perhaps I may reply at the same time to the noble Lord, Lord De Ramsey: the expertise will remain the same. The ministerial appointments will not be cut down; they will remain exactly as they are and I think that one on a body of between 30 and 40 will not really take away from the expert advice which will be available.

A point was raised about the consumers. On four authorities already members have been appointed specifically to represent the consumer, and as vacancies become available on the other authorities a definite consumer representative will be put on the boards. The noble Earl also asked about accountability. The bodies themselves, with their local authority representation, are accountable to the public through those members, and will be more so, of course, when we have the consumer member in every case. With regard to upward accountability, the chairman of each board is on the National Water Council, so that the accountability moves in that direction as well. I hope I have answered the main questions which have been raised.

On Question, Motion agreed to.