HL Deb 14 May 1980 vol 409 cc267-325

3.3 p.m.

Lord BRUCE of DONINGTON rose to call attention to the appointment by Her Majesty's Government of Mr. Ian MacGregor as chairman of the British Steel Corporation, and to the financial arrangements made with Lazard Frères, of New York, in connection with this appointment; and to move for Papers. The noble Lord said: My Lords, after the series of Questions and Answers we have had this afternoon on other matters, perhaps it would be in order for me to point out to your Lordships not only that this appointment which we are discussing was made without any consultation with Parliament, but it seems possible— and I put it no higher than that— that it was made without prior consultation within the Cabinet, or so it is said in some newspapers. The reason why we are calling attention to this matter is that the step that has been taken by the Secretary of State for Industry and the announcement that was made on 1st May last are of the utmost importance to the whole of British industry and have a very great significance for the economy of the country as a whole. As I see it, it is no small matter, and I think that I have read through most of the documents.

The position is that Mr. Ian MacGregor will be appointed from 1st July next for a period of three years at a salary of £48,500 per annum, and that as part of the deal a sum of £225,000 per annum is to be paid to the firm in which he would retain an interest as a limited partner. I further understand— and the noble Viscount will be able to correct me if I have my figures wrong— that there is to be a further sum of up to £1,150,000 payable to Lazard Frères on certain eventualities, dependent upon the results that are in fact achieved by Mr. MacGregor during his term of office.

This afternoon I do not propose to offer any observations whatever on the payment of £1,150,000, because one does not know— and I suspect that the Secretary of State does not yet know— the criteria which will govern the eventual payment of that sum. I pause here to say that in connection with the engagement of a public servant— because that, of course, is what he ultimately is— this provision is, to say the least, slightly odd. I do not propose to pass any further comment on its merits, and indeed one cannot do so until the committee— composed of a certain number of members of Lazard Frères and certain representatives from the Department of Industry— has reached its conclusion as to what, in fact, the criteria should be.

I shall only say that it would appear at the moment that whatever sum is ultimately paid to Lazard Frères— from £0 to £1,150,000— will in fact be paid in 1984 or 1985. The noble Viscount will correct me if I am wrong on this, but he will, of course, realise that there are certain taxation implications because, of course, after the completion of the assignment in this country, and again on the assumption that Mr. MacGregor is treated as being ordinarily resident in this country during his stay, on returning to the United States he will no longer be liable to any kind of British taxation. It would be useful to know whether that tax position has been explored.

I have already been informed that as the £225,000 per annum paid to Lazard Frères is being paid by way of compensation, in spite of the fact that Mr. MacGregor remains a limited partner in that firm, it is not subject to British income tax— at least, I think there has been what has been described as a "clearance" with the Inland Revenue. I believe that it is also provided that in the event of Mr. MacGregor not completing his three-year term with the British Steel Corporation, a refund will be made to the United Kingdom.

Furthermore, part of the terms of the agreement would be that he should retain directorships in a number of companies of which he is at present a director, which include Amax, Alumex, the Brunswick Corporation— all three United States firms— and the Atlantic Trust of Edinburgh. I should like to ask the noble Viscount whether there are any other companies of which Mr. MacGregor is permitted to retain directorships, because the noble Viscount will appreciate that in the Directory of Directors Mr. MacGregor is listed as having many more directorships than that. I hope therefore that we can have some elucidation as to whether there are any further additions to be made.

At the same time it has been agreed, so I understand, that he should relinquish his directorship with BL. I hope that, with perhaps minor amendments that the noble Lord may care to give, I have put the House in the possession of the facts of the agreement arrived at. I am given to understand also that he is working at the moment as a sort of deputy to Sir Charles Villiers at an annual salary of £15,000 prior to his appointment on 1st July. Those are the terms of the appointment of Mr. MacGregor.

Outside the implications of his title as Executive Chairman, we have not been given any kind of indication as to the terms of reference that have been given to him. Knowing the Secretary of State for industry, I imagine that there have been some. I do not want in any way to pass comment on the qualifications that Mr. Ian MacGregor possesses for this task. It is of course of the utmost importance, whoever is appointed to this position, that his task is not made any more difficult by any attitude that is taken here or in another place. It is, however, important also that in order to ensure that he is fully able to do his duties, we cast a critical eye over his relationship with the Secretary of State for Industry and make some judgment on his fitness to give directions to anybody.

So far as the qualifications of this gentleman are concerned, we understand from Sir Keith that he has spent most of his working life in an outstanding business career. We understand that, although he has had no experience in steel or in any major manufacturing industry, he is a very well-known metalurgist, and has some experience in the mining and supplies side of the mineral industry.

However, a certain degree of euphoria has crept in. Mrs. Thatcher, speaking on television on the Sunday before last, waxed almost ecstatic. She passed this judgment upon him: Everyone recognises that Mr. MacGregor is one of the outstanding industrialists in the world.

Everyone? The Members in another place, when the appointment was announced on 1st May last, with few exceptions, had never heard of him. Although there must be a number of your Lordships who have the privilege of perhaps more than a passing acquaintance with him, I venture to suggest that not everyone in your Lordships' House recognises Mr. MacGregor as one of the "outstanding industrialists in the world".

The Prime Minister continued

Everyone recognises that his record is superb— that he has taken businesses and built them up, he has created employment, he has expanded them. Once again the term "everyone"! Allowing for a certain degree of euphoria that occasionally creeps into the public utterances of the Prime Minister, one cannot help feeling within this context that when she was saying "everyone" she was using the pluralistic in the sense that General de Gaulle used it, and was probably referring to the Secretary of State for Industry and herself. She went further in a fine rallying call at the conclusion of her broadcast and said: Everyone says he is a super guy." With such a testimonial as that I would think that Mr. MacGregor should go far. However, a slightly sour note appeared in the Economist on 10th May, with which I feel it proper that your Lordships should be acquainted if you have not read it already, because the Economist, as is well known, is not particularly sympathetic to the party I have the honour to represent, and almost slavishly follows the line taken by the party opposite, and not least the line taken by Sir Keith Joseph himself. The Economist added a little caution on the matter. It said: Miracle working does not always work miracles; five years after Mr. MacGregor started rescuing Singer in America (where he chairs Singer's executive committee) the company is still writing off losses. This happens in the best of regulated families, and I have known many directors in my time of varying political persuasions whose misfortune it has been to write off losses. But it is necessary that the word of caution should be entered here that this "super guy" is still nevertheless prone to the ordinary managerial frailties which afflict most of managerial society in the United Kingdom. I do not hold that against him. I am however happy to inform the House, because there was some misunderstanding about it at one point, that since Mr. MacGregor had the good fortune to be born in Scotland he is of course a patrial and no work permit will be required for him to work here.

One of the matters which exercised the public and very wide sections of the press, including the Conservative Party house journal, the Daily Telegraph, which expressed itself completely outraged with the whole business, was the steps taken by Sir Keith Joseph in securing ultimately the services of Mr. MacGregor. Sir Keith said that he had been trying for nine or 10 months to find a replacement for Sir Charles Villiers. I can imagine that. Even Sir Keith from time to time has to take time off from his long seances with Professor Friedman in order to deal with the matters of his department, and indeed to pay some attention to the requirements of British industry.

An interview with the political correspondent of the Sunday Times, reported in the Sunday Times of 4th May, went much further into this. It was said: Is it really suggested there is no one in the whole of British industry with the ability to do the job? What sticks in the gullet is this payment to a foreign commercial bank ". This was not uttered by a Member of this side of the House but by none other than Mr. Robert Adley, the Conservative Member of Parliament for Christchurch and Lymington. Sir Keith found himself in reply to Mr. Michael Jones, who is the political correspondent of the Sunday Times, saying as follows: The Department of Industry, using head hunters, had searched British boardrooms systematically and intensively to try and find a replacement to the present chairman, Sir Charles Villiers, but with no success ". Just so. Your Lordships will undoubtedly remember the emphasis I ventured to place at that point on "systematically and intensively". At any rate, in the event on 1st November he hired a firm called Russell Reynolds Inc. They are on the fifth floor of No. 1 Mount Street, London, W.1, and are described as "executive research consultants". This body came up with 31 prospective candidates, of whom seven were considered suitable. Two declined— I will not speculate at this stage on the reasons why they declined— one was considered unsuitable and we have no information about the remaining two. No doubt the Minister will supply some suitable information about that.

Finally it was decided to select Mr. MacGregor, and the question I have to ask about that and to which your Lordships arc entitled to a reply is why the Government employed Russell Reynolds at all. I ask that because Mr. Ian MacGregor joined the board of British Leyland Limited on 3rd October 1975 and became a non-executive deputy chairman on 8th November 1977. So here was this brilliant man in British Leyland all the time, and here was Sir Keith Joseph searching intensively throughout the boardrooms of Britain. How is it that this man of brilliance, not to say of charm, remained unnoticed in spite of the shining light thrown on him by the compliments of the Prime Minister? How is it, if everyone knows he is one of the leading industrialists of the world, that he remained, I gather comparatively undisturbed on BL, and, as I say, became a non-executive chairman on 8th November 1977? Doubtless we shall have some information from the Government on that. They will, however, remember Sir Keith's statement that the engagement of Russell Reynolds came about because he had made this intensive search and was almost at his wits' end to find some body. In the end they found somebody sitting on a board, and he should have known about him all along.

Did the Government or Sir Keith Joseph engage any other firms apart from Russell Reynolds? And what is so special about Russell Reynolds? I have no doubt they are a firm of the utmost repute and integrity and I would not wish anything I say to detract from the glory in which they are basking, but they have competitors. Indeed, in a letter to The Times the other day their London chairman referred to the code of conduct they had to adopt in order to conform to the code adopted by competitors, so they must have had competitors. Did Sir Joseph, in his dire straits and searching, try to find a firm other than Russell Reynolds? If so, with what result? If he did consult other firms, how many prospective candidates were produced by them, what response was given and what action did the Department of Industry take? If he did not consult a firm other than Russell Reynolds, why not? I thought the Minister of Industry believed in free competition and liked to play the market. Why, then, should he confine himself to one firm?

I emphasise that there is no implication in anything I say. I am making a purely factual inquiry that contains no implication in its asking. I want to know whether Russell Reynolds Inc. are connected in any way, directly or indirectly, with Lazard Frères, and I require a specific answer. Is Sir Keith Joseph really telling the country that there was not a suitable British candidate? I have with me a copy of the 1980 edition of the Directory of Directors which is replete with some of the most illustrious names in British industry of all ages, from 25 possibly even unto 72. Is Sir Keith really telling British industrialists, who have a certain degree of pride in their craft, that there was not one who met his particular requirements?

I now wish to deal with the Minister's stance in the events leading up to the appointment. Does he think that the rewards offered to the chairmen of nationalised industries should be governed by any principles at all, other than the operation of the free market? We know the attitude of Lazard Frères because they were reported in the Daily Telegraph on 6th May: the partners in Lazard Frères and in Russell Reynolds are laughing all the way to the bank ". The article later said: Mr. Thomas Wise of Lazard left no doubt it had the British Government in a corner and considered it only right to press for as much cash as possible. ' Do not overlook the fact that the British Government has been on a worldwide recruiting drive. They have been looking everywhere ' "— said Mr. Wise, who also announced on that occasion: 'We do not see joining BSC as public service. This is a company that aims to make money ' ". Do the Government accept, willingly and enthusiastically, that attitude towards public service? I invite them to contrast the position with that of Mr. Atkinson of British Shipbuilders, who takes up the position of executive chairman at approximately the same time as Mr. MacGregor. What has happened there? Mr. MacGregor has taken a salary cut of £7,000 on taking up the appointment, and this is what he said about it: As far as I am concerned, I am and always have been an intensely patriotic person. I have always said, and always will say, I will serve my country wherever and whenever required ". It is for your Lordships, and eventually for the public outside, to determine which is the kind of attitude within the British ethos and way of life they prefer, and I suggest that when the evaluation has been made it will not be difficult for the rest of the country to arrive at some conclusion as to the attitude they prefer.


To correct the record, my Lords, may I ask the noble Lord whether he did not make a mistake when he quoted the name of the author of that resounding sentiment? I think he meant Mr. Atkinson but I think he said Mr. MacGregor.


My Lords, I beg your Lordships' pardon. The gentleman I referred to as being the chairman of British Shipbuilders should of course be Mr. Atkinson; he accepted a £7,000 reduction in salary and expressed the sentiments to which I just referred.

Do the Government think that the chairmen of nationalised industries should account to the boards for directors' fees received by them from companies in which they are allowed to retain directorships? I am given to understand that it is the practice among most of the nationalised industries that those who accept appointments are permitted to retain directorships which they already hold on the basis that they account to their boards for the directors' fees they receive. Perhaps the noble Lord will correct me if I am wrong on that. I should like to draw attention to the fact that Mr. MacGregor is apparently being allowed to keep his directorships, and that, according to the Financial Times of 3rd May, his total income is likely to be in the region of £120,000 to £150,000 by virtue of the addition of his other directors' fees and shares on top of the salary that he is already receiving.

The next question that I have to ask under this head is whether compensation ought to be paid to the nationalised industries in respect of the loss of the services of some of their distinguished directors. Apparently it is considered proper that Lazard Frères should be compensated for the loss of Mr. MacGregor. Is it in order for BL to be compensated for the loss of their most valuable and distinguished servant, who has been transferred to a higher position? Perhaps the noble Viscount would give that some thought.

The consequence of the action that the Government have taken is to plunge the whole executive and management structure of the nationalised industries into a period of uncertainty. Following the expressions of total confidence in Sir Charles Viliiers, as uttered by the Prime Minister as recently as February last, who can be sure that they are not next for the chop? A second consequence is that this action has further embittered industrial relations. Not all workers accept the viewpoint that remunerations of £48,500, or £44,000 in the case of Mr. Atkinson, are appropriate at times when they are called upon to make sacrifices. I repeat, not everybody thinks that these figures are other than too high, let alone the astronomical sum that has been made available to Mr. MacGregor and Lazard Frères.

Moreover, one of the other consequences— and I think that noble Lords here and MPs in another place know it in their hearts— is that Sir Keith Joseph has made an ass of himself over the whole affair, and therefore has brought no very great credit on the Government themselves. He put himself into a position where he thought that he could make a choice. To choose people for positions of this kind is very difficult, and I should not wish to underestimate the anxieties which he must have felt. However, we have it on the authority of the noble Viscount, Lord Trenchard, himself, albeit within a different context, that his department is not really in a position to make choices, or rather is not well placed to make choices. At a meeting of the National Economic Development Council he was asked whether he could select industries in which research should be directed— the volume of research, and so on; I have The Times report before me—


My Lords, I wonder whether I may interrupt the noble Lord. What he mentions relates to the selection of industries, not to the selection of an individual for an important nationalised industry.


Yes, my Lords; I entirely accept that. I appreciate, and I agree, that the noble Viscount's department is not well placed to pick winners; that is what he said. I entirely agree that this point is within the context of selecting individual industries. He may not believe that the choice of an important individual of this kind is of infinitely more importance in some cases than is the selection of an industry to receive research; and I do not think that they are in a position to make a choice.

We have been confronted by the Government with the position that they have demonstrated their full belief in the operation of market forces, and nothing else. The public service counts for very little. It is the market place that really counts. It is the market value that counts. On that basis Lazard Frères and Mr. MacGregor, on a salary remuneration basis, are in a much better position than the entire Cabinet; they are receiving more than the entire Cabinet. That market judgment should form the basis for our own, and I think that we accept it. They probably are better than the entire Cabinet, who are not worth a row of beans.

3.35 p.m.


My Lords, the noble Lord, Lord Bruce of Donington, has very much enjoyed his knockabout turn. On this occasion I do not want to speak from a party point of view, but I think it only right that I should speak against a background of a good deal of experience which I have been fortunate enough to have in international business. I think it a pity that the noble Lord, Lord Bruce, should have denigrated Mr. Ian MacGregor, who is going to have a very difficult task indeed—

Several noble Lords

He never did!


I am very sorry, my Lords, but one could not listen to that speech without realising that it contained a good deal of denigration. But let me develop this theme. I have known, and worked with, Ian MacGregor for over 20 years in the mining and metals field. He is a man of great competence. He has great ability. He is internationally renowned. Of course he is not known by everyone, but some of us, those of us who have worked with him, have come to respect tremendously his judgment and ability.

I think I am right in saying— the Government can correct me if I am wrong; I have not checked this— that Mr. MacGregor was the chairman of the International Chambers of Trade and Commerce only about a couple of years ago. One does not aspire to that position in the world without having something behind one. Therefore I think that we must be sensible about this matter, because there was much in what the noble Lord, Lord Bruce, said with which I agree, but I do not agree with trying to denigrate the ability and competence of the man who has been appointed.

What I take umbrage at is the hamfisted way in which Mr. MacGregor was introduced into the job of chairman of the British Steel Corporation by the Secretary of State for Industry. The manner of his introduction and the confused and misleading announcement about his hiring and remuneration can do nothing to help in grappling with the tricky problems of British Steel. Indeed, the climate for this situation was never good, and I believe that it has been made worse. I agree with the noble Lord, Lord Bruce: the lack of consultation here was absolutely disgraceful, because we know how important is an appointment of this kind, not only to British Steel, but to all the nationalised industries.

I do not criticise the Government for seeking the best man for the job, but my own business experience tells me that once one enters the international market, one has to accept the international conventions if one wants someone badly enough. I must say that the noble Lord, Lord Bruce, amused most of us by suggesting that there should have been two people acting as head hunters— and presumably, paid two lots of fees. I should not have thought that that would have been very sensible at all. But as I say, if one enters the international market, one must abide by its conventions.

Whether one should enter the inter national market is a different matter— a very different matter. I hate to have to say this, but I think that it is a bad reflection on British top management, if it is true, that no one could be found in Britain to accept this challenge. I feel very ashamed about that— very ashamed indeed.

I would not jib at exceptional expenditure if it would result in making British Steel profitable, but the way in which the terms of remuneration were presented to the House was to me quite incomprehensible. The new chairman is to receive the going rate of his predecessor. That in itself is almost certainly too low in times such as this, and I believe that the entire question of the remuneration for chair manships in nationalised industries must be looked at again. The pryamid is wrong at the moment.

Lazard Frères, Mr. MacGregor's present employers, are to receive £225,000 each year for three years. That statement itself offended many people in this country. But what was not made clear was that that sum was justified on two counts. First, it compensates Lazard Frères for the loss of the services of one of their most useful partners, who would have brought much new business to the partnership in that period due to the contacts and the background which he has and which he has built up over a long period.

The second reason— and this was not made clear until I heard it from Mr. MacGregor on the radio or television— is that the sum compensates Mr. MacGregor to some extent for the reduction which might occur in his expectation of income from the partnership of Lazard Frères during the rest of his life. I think one has to remember that many eminent businessmen working in the United States buy themselves into a partnership to ensure that they have adequate income in retirement. This is a perfectly normal United States arrangement, and they cannot be expected to give up that right just at the drop of a hat. This is not the way we work but it is the way they work, and, if you want an American, that is what you have to do.

What I find inexplicable is the formula which provides for a payment to Lazard Frères of up to £1-15 million dependent on an undefined performance achievement which is to be judged by an arbitration panel. I think this is the Mad Hatter's tea-party. I do not believe it can work. What is needed to turn British Steel into a profit-making unit is not just an incentive for Lazard Frères, or even for the new chairman, but a personal incentive at every level of the organisation— an incentive which could be achieved by ensuring that as profits are made they are shared by all those who contribute, right from the top down to the bottom. This could be coupled with option schemes on shares— these are perfectly well known and perfectly well understood in America and Canada— for those who are employed; and the shares would increase in value as British Steel is slimmed down to its optimum size and is brought up to profitability.

As it is, we have a formula, a device, for assessing performance which cannot recognise the many complex factors which can affect the performance of British Steel in the future. Among these factors, the unknown is Government policy. The more the Government cut capital expenditure, the less will be the home demand for steel; the more we spend on the defence budget, the greater will be the demand for steel. These are factors beyond the control of Mr MacGregor; these are Government policies. Government import policy could directly or indirectly affect the whole future of the British Steel Corporation. What happens when the Government provide more capital for the British Steel Corporation, as indeed I am sure they will have to do? What happens if they agree to write off all or part of BSC's debts? Do Lazard Frères get the credit? Do they get the benefit? What a crazy system, if that is what is going to happen!

These are only a few of the unknowns which will affect the result. It would be far better, in my view, to get back to profits in a free market as the real test of success, and to use the prospect of profit-sharing within a reduced labour force as the main incentive to improve productivity and efficiency. Instead of that, we have this peculiar arbitration panel of two from each side with an independent chairman, and what we shall have is an embarrassing horse-trade. I must say, my Lords, that I should not like to be that independent chairman.

3.43 p.m.


My Lords, I listened with interest and enjoyment to the speech of the noble Lord, Lord Bruce of Donington, and would make the same comment as Lord Byers has just made, because he obviously enjoyed himself very much in his "knockabout" and, I think, scored a number of points which were fair enough in the circumstances. But there are other aspects of the matter, and I warmly agree with Lord Byers that certainly at this stage of the game what matters most is that, this man having now been appointed, he should make a success of it, and, therefore, that nothing we say or do here or, I hope, in the other place should make that more difficult for him.

I thought it was immensely helpful to hear that Lord Byers actually knows Mr. MacGregor and can confirm that he is an outstanding businessman. He is a professional metallurgist, and has had a long and highly successful experience in America with AMAX, where in 11 years as chief executive he has achieved the recovery of this great minerals firm and, with a vast new delevopment, has brought it up to being one of the leading firms in the country. So he really is just the sort of man that we want to try to achieve a recovery in the British Steel Corporation, and to bring about a similar redevelopment here.

I do not propose to discuss the terms in detail, because I have no doubt that my noble friend Lord Trenchard will do so. I would only confirm from the little knowledge I have what Lord Byers said, that the sort of terms of remuneration which have been fixed are not out of line for top operators in America, although they seem so enormously high here. I took note of the comments of the noble Lord, Lord Byers, about the especial agreement with Lazard Frères, which relates to the possibility, I hope the probability, of success of Mr. MacGregor's efforts, and this has to be measured, as the noble Lord, Lord Paget, well knows.


My Lords, perhaps the noble Lord would allow me to interrupt him, because I actually had the opportunity to discuss this with the gentleman who was discovered before Mr. MacGregor. He told me that the Government must first make up their mind what they want. Do they want steel or do they want profits? In the organisation of the world today, the two are quite inconsistent. The Government must make up their mind what they want, and until they make up their mind what they want, how on earth can they measure the success of the gentleman?


My Lords, one is always interested to hear the noble Lord's intervention, which was not exactly on the point that I was making. In any event, I think the compensation arrangement of the £225,000 a year to Lazards is not out of line with the international market, and I was glad to have Lord Byers confirm that. I would add just this with regard to the total figures, which (I accept the point made by noble Lord, Lord Bruce) hit the British public as a shock. If Mr. MacGregor is successful in achieving recovery in the British Steel Corporation, my word! he is going to be good value, even at these high figures. This Corporation is today losing some £1 million a day. Over the last four or five years it has lost £1,200 million of taxpayers' money. If he can begin to save even a tiny percentage of this, he is going to earn his money many times over. It is against that perspective, I think, that we must look at the terms that have been agreed.

I wish to discuss in my speech what I regard as the major reason why it is so difficult to appoint a man of top calibre to a position like the chairmanship of the British Steel Corporation. Because in my judgment this is not, as the noble Lord, Lord Byers, said, just a reflection on the leaders of British industry. It is a reflection on the structure and the atmosphere in which nationalised industries have to work, and the responsibility for this lies fairly and squarely on the shoulders of noble Lords opposite. I have served in one of these industries, and I know the problems. The fact is that this continues to be a political football. Nationalisation as an issue goes on one general election after another, and it arouses passions, not just among politicians but among the general public. Most unhappily, noble Lords opposite and their right honourable and honourable friends continually inflame this issue by their propositions to nationalise further and further aspects of industry and commerce. Today, still in the pipeline, as it were, we have banking, insurance, pharmaceutical, construction. You name it and it will go in, either because it is succeeding or because it is failing.

The result is that nationalisation continues to be a hot political issue. There was a short period of interlude some 20 years ago, when I was chairman of the Select Committee on Nationalised Indus tries in the other place, when the issue had calmed down and there were no more propositions for nationalisation. I believe that at that time the nationalised industries of the day were beginning to have a rather better break. They were beginning to be left a little freer to get on with the job of running these vast corporations. Unfortunately, that period rapidly came to an end with the 1964 and 1966 general elections, when the steel industry was once again to be renationalised.

The fact is that each time the issue gets fanned up, Ministers inevitably get more closely associated with the industries again; and, despite what the various Acts of Parliament say about the statutory independence of these industries, the general public regard the Government as responsible for them. The result is that anything that happens of interest, of surprise, of difficulty or of failure— like failure of performance, pricing increases, environmental offences, with drawal of services— immediately is used, inside Parliament and out, as a stick to beat the Minister concerned. Again, the sponsoring Minister with the Treasury is responsible for the capital provision for the industry, for what they require over and above self-financing. The result is that the Minister responsible for a nationalised industry must look to the chairman of that nationalised industry to keep him in close touch with what is happening in his industry— any action, present or future, which may have political implications which are going to cause the Minister trouble. This close supervision is something which the captains of industry do not like.

I turn now to the most difficult aspect of the nationalised industries, that of industrial relations. Special problems are there. No doubt, the founding fathers of the Labour Party, when they were creating these vast national corporations where all the men and women would be working for the national interest, felt that the ideal would be created that the feelings of those working in them would be so inspired by working for the good of the whole community that they would feel that loyalty which would devote them to their service and to the utmost exertion of their powers. This simply has not happened. The past 30 years has shown us that the primary loyalty of the workforce is to their trade unions rather than to the public good, and that the first priority of the trade unions is the interest of the members rather than the interest of the public good. This, unhappily, in recent years has been reinforced by the use of the gigantic industrial muscle which resides in these vast national corporations and is used as the ultimate bargaining weapon in the annual wage negotiations.

Thus, industrial relations management in nationalised industries has become a most difficult and complex problem. It is conducted in the full glare of publicity and any mishap is news immediately. It is far more difficult for the chairman of a nationalised industry to win the loyalty and confidence of his workforce than ever it is for the chairman of a large private industry, however big that may be; because there, at least, in the private business there is a common interest of survival and the management and workforce are bound together in striving to ensure that the business survives. But in the nationalised industries, unfortunately, the belief has grown up over the years that if there is financial difficulty the Government will always pay. This, unfortunately, has always happened— at least, until the last steel strike.

My Lords, I am defining the ultimate perameters of this difficult world. Within the total parameters, there are many millions of men and women who are public-spirited, hard-working, generous and doing the best they can— and not just the workforce but the trade union leaders as well— and are moved by public interest to do the best they can.

I should here confirm that in my own experience the trade union leaders with whom I worked gave me most generous and loyal support and made my task a relatively easy one in the water industry. I was sorry to see that last winter their record slipped a little, and I hope that they will get back on to the straight and narrow path next winter. The fact is that trade union officials' difficulty, even when doing their best in the public interest, is there because of the militants in their ranks who are always pushing from behind and asking them to use the industrial muscle when it is there.

This is the industrial relations scene, or a very short comment on it, for which the chairman of the industry is responsible. In my judgment, his best course is to do it himself. He will have to "carry the can" if it goes wrong; so that if he does not do it himself he must be close to it. But I say to noble Lords opposite that it is not made easier by the intimate personal relationships between all trade union leaders and either the Ministers or shadow-Ministers of the Labour Party who naturally take a close look at what is going on. In addition, the trade union leaders themselves regard the nationalised industries as their very special sphere of interest. For success in the nationalised industries, a chairman must grapple with these formidable difficulties and must win the respect and confidence of his workforce and of the general public if he is going to succeed.

My Lords, against this background, let us consider what qualifications a Secretary of State must look for when he is trying to find a successor chairman for one of these great industries. First, he must have a good technical grasp of the industry either by professional qualifications such as those of an eningeer, an accountant or, in this case, a metallurgist, or perhaps by long experience in the industry. Secondly, he must have a sound financial knowledge and be able to grasp the financial responsibilities of his industry. Thirdly, he must have the qualities of leadership to manage industrial relations and to win the confidence of his workforce and of the public. These are exacting specifications which would reduce a short list to single figures. We all know, any body who has had anything to do with Government knows, how difficult this is; and it is becoming more difficult. But when the extra dimension is added of political sensitivity and understanding, the short list really shrinks to vanishing point, in most cases, to get a person with the calibre that you want.

Very few captains of industry who might have been interested in a great national corporation will accept the relationship of continuous subservience (for that is as it must be) to the Secretary of State; because the relationship between the chairman and the Secretary of State must be one of absolute confidence. The chairman must study the wishes, the responsibilities and the problems of the Secretary of State all the time. That is not the way that industrial leaders work in their own indistries. They work on a basis of taking their own decisions, battling through and being judged by the success or failure of what they do.

I am delighted to hear about Mr. Atkinson— a jolly good chap! But there are very few people who will do it; and certainly not enough when you come to the difficulties of an industry like the British Steel Corporation. Let me add that the terms of the appointment arc not all that attractive: a five-year term, a salary usually well below market rate, a negligible pension and even the traditional "K" does not always turn up. Some nationalised industries are more difficult than others. The great national utilities, without a trading risk, are relatively easy and sometimes, quite often, someone will come up from the staff, ascend to the top and do a satisfactory job. But when we come to an industry like the British Steel Corporation, with a massive trading risk, facing every kind of commercial and industrial difficulty, it is not surprising how enormously difficult it has been to find any man at all with the necessary qualifications who is willing to do it.

I say squarely to noble Lords opposite that this problem is of their own creation. They created the nationalised industries and keep on creating them. It is because this goes on happening that this remains a "hot potato", if I may put it that way, that it remains so difficult for Ministers to dissociate themselves from the industries and to leave the industries more free for the leaders to run the industry themselves. I am sure most noble Lords opposite will agree with me that we have had quite enough nationalisation. It would be best to leave it as it is and try to get stability and not push out further. This would give a chance to the existing nationalised industries to make the best of themselves and give a prospect of getting the kind of men and women that we should like to have, to come in to run these industries.

I would say to noble Lords opposite that they should not be critical of the Government and the Secretary of State for what they are doing in this appointment. After all, the Secretary of State had the option, if he wanted to, to dispose of the assets of the British Steel Corporation. The major lesson that we learned from the strike was how very efficient and profitable and how contented the independent private firms were. They are all right; they can meet the export market and sell their steel in competition with the world. They have a contented workforce which is well paid.

Why not put the whole lot in those hands? Everybody would be better off. The Secretary of State did not do that. He has gone to immense lengths to try to find the man who could achieve the recovery, bring round this great corporation with this enormous investment of taxpayers' money, so that this can be developed for the benefit of the whole economy. Thus it is he has made the appointment of Mr. MacGregor. I say with all sincerity that it is an appointment that, having been made— even if we do not like every aspect of how it was made— We must all wish Mr. MacGregor every good fortune and success in his fearful undertaking.

4.2 p.m.


My Lords, the noble Lord, Lord Nugent of Guildford, must have been far too young to observe British industries in private hands before the war when the railways ran to the Government to get capital and when the Bank of England had to shrink the steel industry which was making constant losses and merger after merger followed. I happened to be in the City in those days, not on this side of the watershed, and I well remember how much British industry was then in private hands subject to the same difficulties as it is now. To say that it is public ownership which has made the difficulties is ludicrously to disregard the history of this country in the past 100 years.

Mrs. Thatcher's and Sir Keith's choice of Mr. MacGregor as chairman needs to be looked at— and my speech will be somewhat different from the preceding speeches— from three different planes. The first and much the most important of these are the terms of appointment and the light they shed on the quality of policy-making, especially policy-making in the public sector. Secondly, we should look at the way the recruitment was carried out and announced and ask whether it is acceptable from the view point of the reorganisation of the steel industry. It should be borne in mind that the corporation has suffered from an extremely acute and costly strike. Anything which exacerbates feelings should be avoided.

Thirdly, and finally, we have to look at the bargain itself. The noble Lords, Lord Byers and Lord Bruce of Donington, have spoken about that part of it. I will only touch upon it shortly. We were left in no doubt that the overriding aim of the Government for the steel industry is the elimination of the losses which are being incurred in whatever way this is possible. This would be a perfectly comprehensible goal for a grocer's shop round the corner; but we do not deal with a corner shop, we deal with a steel industry, the supplier of one of the most important— perhaps the most important— raw materials for the engineering and durable goods industries. The fact that it is nationally owned would seem to permit its utilisation for the management of the economy, helping to correct the balance of payments. This is the more important as its customers are the most vital fields of manufacture in which the recovery of foreign markets and the roll back of import penetration is the essence of any programme for Britain's recovery. Under these circumstances, the method chosen for the restoration of the profitability of the industry is of primordial importance.

We are at the beginning of the gravest depression that the non-Soviet world has experienced since the 1937 slump. The steel industry has been especially hard hit because its greatest customers— ships, railways, motor cars and consumer durables— have suffered more than the average. After a steady expansion there is a vast world excess capacity even in countries like Japan who have successfully built a low-cost industry. Simple profitability is no longer a sufficient indicator of social desirability. Current prices do not and cannot give the right signals. With heavy unemployment and vast idle capacity, the social cost is much below the private cost, if only because the state has to shoulder unemployment insurance and benefits.

The present Government's attitude to the public sector is to sell off the more profitable bits (the BNOC has been an exception but we do not know for how long) and impose rigid cash limits for the rest, not differentiating between investment and current outlays. Consequently, the public sector (but also most of the private one) will cut investment rather than current expenditure, the more as the very depression will discourage extension or modernisation of plant. There is no surer method of making certain that any recovery will find this country unable fully to utilise the main chance. This has been a cause of worry over a long period of time. Britain since the First World War never had sufficient reserve capacity to supply the needs of industry at full employment, and this lack of reserve capacity has caused shortages and led to a violent rise of imports whenever the country neared full employment and thus lost out to competition both on the domestic and on the foreign markets. No doubt a lot of steel capacity is over-age and obsolescent. Its elimination is inevitable. But the wholesale slashing of the overall capacity will land us with the same problems which had been the cause of our industrial decay.

We are confronted here with a nationalised industry which can calculate on the basis of long term requirements and which can and should be used to harmonise long-term needs with immediate financial considerations, which could help in maintaining or rather regaining competitiveness in the most important and most depressed export markets. The Thatcher Government are evidently throwing away one of the most important potential weapons needed for the long-run restoration of British prosperity. They are throwing it away in a field in which most of our competitors have overt and covert subsidies and in which the Japanese have increased their capacity from 0 in 1945 to over 120 million tonnes per annum while we were running down our capacity. So long as we plan for a level of demand which as of today implies massive unemployment and in which the present monetarist policy has resulted in a violent appreciation of the pound in a period in which the Japanese yen depreciated by the same proportion in real terms, our prospects are bleak.

A remarkable article in The Times claims that MacGregor's appointment is a sign of a new expansionary policy. I would welcome that but doubt it. If that is so, Mrs. Thatcher would have performed the most remarkable U-turn in a period in which U-turns have been rather extreme.

On the second aspect of this appointment, its immediate impact on the steel industry, the secrecy in which the deal was negotiated and the brusque manner in which it was announced could not have been more unfortunate. We have been suffering from a deterioration of the relations between classes, the turning of the British virtue of moderation into the British disease of ever-increasing rage and alienation of a large part of the population from the existing order.

I am shocked by the inevitable impact of the announcement of the choice of a chairman and of his remuneration in an industry in which the management claimed that a 2 per cent. increase in wages was the utmost they could afford. For the new chairman to have a remuneration which, being partly tax-free, when grossed up must represent, even at reduced top rates of tax, comfortably several hundred thousand pounds is indefensible. No doubt we shall be told that there is only one chairman— we have been told this already— and there are thousands of wage earners, that his salary could not swell inflationary demands and that if Mr. MacGregor is but partially successful he will have recouped for the state a large manifold of his swag. Nor can I claim that Mr. Sirs would change his bargaining tactics if Mr. MacGregor had been content with less; but Mr. Sirs will be in a very much weaker position to defend a reasonable wage bargain to his members.

In this new Tory world where merit is equated with profit, the chairmen of other successful state industries like gas and oil will be even further unsettled, having been throughout this period willing to serve at a fraction of Mr. MacGregor's take. I fear that therefore this appointment will end in a new round of salary revision, postponing dangerously the ceasefire in the present lethal wage trench warfare.

I come to my final point, which has been touched on already. It is peculiar that so-called "head-hunters" should have been employed on behalf of the Government, whose remuneration depended on the total take of Mr. MacGregor— that is, people who were interested in securing the worst possible conditions for the state. For people who believe in the price mechanism and the market process, this surely is a very odd method. The result is equally remarkable. I never imagined that I would be at one with the Government in condemning the paucity of talent among British managers. A £2 million rebuff to the CBI is shattering. From the fact that the Government have become parties to a plain tax avoidance scheme very much like that which was criticised by Mr. Heath when Prime Minister as the "unacceptable face of capitalism", one can only conclude that the appointment of Mr. MacGregor has become one more unacceptable face of Mrs. Thatcher's regime.

4.14 p.m.

The Earl of ONSLOW

My Lords, it is a privilege to be speaking between the only two members of your Lordships House who witnessed the coronation of the last Hapsburg Emperor. The noble Lord, Lord Bruce, was very right to call for this debate. When I heard the announcement on the wireless recently— I think it was during "Yesterday in Parliament"— of the appointment of Mr. MacGregor, I thought: "Sir Keith is an extraordinarily brave man". Then I thought about it a bit more and I thought: "Perhaps Sir Keith has shown imagination and he has gone outside the normal channels". My Lords, possibly that is something of which we should all approve.

As a small point, I am sure that the noble Lord, Lord Bruce, did not need two architects to build his house; otherwise it would have been half Gothic and half classical— and that surely counteracts the argument that we should have gone for two head-hunters. Surely, if you appoint one person to do a job for you, you ask him to do it and you do not then clutter up his business and make it impossible by appointing somebody else. That leads to lack of authority and lack of proper direction.

The noble Lord, Lord Nugent, has pointed out, totally correctly, the great difficulty that arises as a result of appointing nationalised industry chairmen. I suggest that perhaps it would be right then to pay more for the really difficult posts— which must be steel and shipbuilding. We demand more of the chairmen of nationalised industries in a difficult job. Steel is fiendishly complicated at the moment. There are loss centres, profit centres and ingots. I confess I have no detailed knowledge, or indeed anything but an intelligent layman's vague knowledge of steel; but surely the important thing is that, once we have found Mr. MacGregor, he is given very clear instructions by the Government as to exactly what they want him to do. I am sure that my noble friend Lord Trenchard will tell us what those instructions are. An article in The Times on Saturday posed some interesting questions.

To get back to the method of payment and the finance and how Mr. MacGregor was found, it does seem awfully odd that we are perfectly happy to pay barristers large sums of money to sue somebody for libel; we are perfectly happy for people to win vast sums of money on the football pools— you are regarded with sympathy and gentle affection if you win a million quid on the football pools; we are perfectly happy to pay film stars and pop singers, because otherwise they would not be interested in being film stars or pop singers; and I suppose that even the Roman senators probably complained bitterly that gladiators were paid more than they were. But surely it is an odd reflection on our society to say that we are paying Lazard Frères too much money for a man who we hope— obviously there is a great "if" about this— is going to turn this ghastly muddle which British Steel has become, through several faults of several people, into a success. If that happens then we are privileged to have his services and I hope, as he is patrial, he will get not only a "K" but perhaps an "L" as well.

There was something unfortunate, if I may say so, about part of the attitude and the tone of the speech made by the noble Lord, Lord Bruce. I thought to myself yesterday: "If I use the words 'loud whinge', will I be inaccurate and unfair about what I suspect Lord Bruce's speech is going to be?" Some of your Lordships may not know this expression "whinge", but it is a sort of petulant complaint and it is rather a good, modern, slang word. I was rather hoping that I was not going to have to say that the noble Lord, Lord Bruce, was indulging in a "loud whinge", but I am afraid I think he did. He has not realised that there is a change of attitude about this Government. He has not realised that what this Government are trying to do is to reward success highly and to make people confident of success, which will then produce high profits and a good industrial climate and, following that, the "goodies", the social wage which we all need, the hospitals and so on.

It is this attitude which underlies this appointment which I think the noble Lord has not understood. The noble Lord, Lord Balogh, pointed out that success is possible. As he says, the Japanese have raised production from nil to 120 million tonnes of steel in 35 years. We can do that; it is a question of changing our attitudes and we must therefore back up and give the right instructions to the people like Mr. MacGregor.


My Lords, may I ask the noble Earl? Does he really mean what he has now said twice; that is, that the Government must tell Mr. MacGregor exactly what to do? That is not the right concept of management at all.

The Earl of ONSLOW

My Lords, I beg your Lordships' pardon, I do not mean that they have got to tell him exactly what to do, but presumably he has to have a remit from the Government, "Go forth and run British Steel along certain policy guidelines". That is presumably what every Government give to any nationalised industry chairman. That is what I would presume this Government are going to do there. That is really all I have to say. It is a question of confidence, of wishing this man well and of not attacking him but making sure that he is capable and is helped to get the support he needs in a very difficult job, to produce high productivity in a well-paid, successful steel industry, producing the goods we all need.

4.21 p.m.


My Lords, as a number of speakers have already pointed out, the transaction we are discussing this afternoon can be looked at from a number of different aspects. In my view, there are really two main aspects and I want to speak on each; that of ethics and that of economics. So far the discussion— except for Lord Balogh's speech— has concentrated far more on the ethical aspect and less on the economic, but in the long run, from the national point of view, the economic aspect is far more important.

There can be no question, in my view, that the arrangements which the Government have entered into in connection with this appointment are shocking and scandalous and, so far as I am aware, there is no previous precedent in the light of which they can be judged. I think I can do no better than quote the Washington correspondent of The Times who said, in the issue of 6th May, that one of Lazard Frères' partners, Mr. Disque Dean, once joked about the high compensation he and his partners received and he told Fortune magazine that his bank was "the biggest racket on Wall Street".

Lazards is a respectable name as a merchant bank both in London and in Paris; I think we all ought to be careful to note that the New York firm of Lazard Frères has nothing whatsoever to do with these other firms, and it is in a very different category. Russell Reynolds Employment Agency offer top jobs operating right across America, and they also operate in Europe. They say they generally get a commission of one-third of the first year's compensation which is paid by the employer. It would be interesting to know who pays this compensation and how it is to be calculated. Will it be on the basis of a salary or also of the various other forms of pay?

In any case, there is little doubt in my mind, as the noble Lord, Lord Bruce, has alrady said, that the whole construction was evolved not only as a means of extracting the maximum amount of money from the British Government, but of minimising the amount of money the British Government will receive back in the form of taxation. The United Kingdom will benefit through income tax by Mr. MacGregor's salary of £48,500, but the transfer fee of £675,000 will not be subject to British tax, except perhaps in some part; whereas for reasons explained by Lord Bruce the productivity bonus or performance bonus of up to £1,150,000 may not be taxable in the United Kingdom at all, because it has been so arranged that it will not be paid until he is out of the clutches of the Inland Revenue.

My Lords, that this is not a normal transaction, even in America, is shown by a remark of the correspondent of The Times which has already been quoted, that the American partners and the partners of the employment agency "are laughing all the way to the bank". That means they made an audacious bid which came off. I find it very difficult to believe that the benefit to Mr. MacGregor from these enormous sums other than his salary will be limited to a modest share in the profits of Lazard Frères. Is it known how his share will be calculated for the purpose of this particular transaction? The share of profits of a partner need not be the same under all circumstances. All I know is that Sir Keith Joseph told the other place— and I am quoting from the House of Commons' Hansard — that: This is a hypothetical question which cannot be known by us or predicted". If I interpret this correctly, it means the Government have no idea how much of the money paid to Lazard Frères will sooner or later benefit Mr. MacGregor personally as against the rest of the firm, the other partners of this firm. Still less is it clear how far the bonus to the tune of £1,150,000 will be divided. Anyhow, it seems to me very odd that it should be divided at all. The compensation to Lazard Frères is the transfer fee; a performance bonus or productivity bonus is generally paid, whether it is to an ordinary worker or to the managing director of a firm, to the man who is responsible for it and not to his slave-owners or keepers, meaning Lazard Frères. So I believe there is far more behind this than has so far been disclosed.

It was also mentioned, and I merely repeat, that this is a very bad precedent from the point of view of all other nation alised industry chairmen, indeed from the point of view of all people in leading positions in British industry. It is a very bad precedent from the point of view of nationalised industry chairmen that some- body can be appointed, keep a number of his previous directorships and receive an income from them which is greatly in excess of his income from his main job.

Now Sir Keith Joseph used the analogy of the transfer fee paid to footballers, but in my view this is not an appropriate analogy. It is perfectly habitual among football clubs to pay for successful players and to receive payment for releasing them to others. But, fortunately, it is not part of the ethics of ordinary business to demand compensation for releasing a man who wishes to take another appointment or to pay such compensation to his previous employers. To quote a recent example, when Sir Michael Edwardes was asked to take over the chairmanship of British Leyland, he had to leave the managing directorship of another important firm. That firm received no compensation whatever; it was neither offered any nor demanded any for his release.

Indeed, Lazard Frères, which The Times describes as a secretive, small and highly opportunist bank", specialising in "financial engineering"— all very odd terms— able to fix highly complicated and highly remunerative takeover bids and mergers, obtained the transfer of this extremely valuable Mr. MacGregor only two years earlier from another far more respectable New York Bank, namely, Lehman Brothers; and Lehman Brothers got nothing from Lazards for losing Mr. MacGregor. Lehman Brothers were neither offered anything nor did they demand anything; it was natural to them that if Mr. MacGregor wanted to go to another firm, off he went. They put no obstacles in his way. We do not live in a slave society.

Let us suppose that it had been the other way round, and that a high-ranking civil servant wished to accept an appointment in private business. We all know that there have been a number of conspicuous cases in recent years, in which civil servants in high positions, far from retiring age, resigned from their appointments to take up directorships with private companies. So far as I know, there was no case in which the Government demanded compensation for releasing any of them. If there was such a case, I should be very grateful if the noble Viscount would tell us. If not, why not? What is the difference, from an ethical point of view, between the Government making a payment to a private employer to get a man, and demanding payment in exchange for letting him go? Plainly, there is none. Demanding a payment of this kind is just as scandalous as paying it.

Let me now turn to the economic aspect. What is there about this whizz-kid of 67, who can make such a unique contribution in three years— because his appointment is envisaged for only three years— that no one else in this country can make? I take it from the noble Lord, Lord Byers, who knows far more about him than I, or anybody else, presumably, in this Chamber, that he is indeed a very remark able man, and I do not wish to make any personal criticism of him at all. But the question is: What is he supposed to do? What can he do?

For the answer, we must turn to Sir Keith, both to what he said in the other place the other day and to what he said on many other occasions. The answer, subject to correction, is that he is likely to reduce the losses of the British steel industry— by shutting down plant, by reducing industrial capacity and by sacking people— more speedily and more ruthlessly than anyone else of British nationality could do. At least, in the view of Sir Keith, as a hatchet man he has no equal.

I am afraid that this whole business can be understood only on the assumption that Sir Keith Joseph and his colleagues regard profit-making— which, of course, includes loss avoidance; losses are negative profits— as the be-all and end-all of nationalised industries. Sir Keith's mental horizon does not extend beyond that of a provincial stockbroker. He is evidently quite incapable of distinguishing between social and private costs or social and private benefits. He is not capable of assessing the national interest, as against the particular interests of the owners of a business, whether they are private shareholders or whether it is the Government. Mr. MacGregor may, indeed, be cheap at the price of £2 million, if the only consideration which is relevant is the losses that he will save the Government; if the only consideration that is relevant is that he may succeed in getting rid of more hundreds of millions of "losses" than anybody else would have done.

The Earl of ONSLOW

My Lords, will the noble Lord cast his mind on this possibility, that up till now, since the war and nationalisation, we have placed social duties and social obligations upon nationalised industries which have, in effect, made them less competent? We have not been able to separate the social duties, which are the duties of a Government, and the duties of a corporation, which are to produce coal, steel, electricity, gas or to run railways. We have not been able in our minds to separate those two. Once you separate them, it is much easier, and that is what we should now do.


My Lords, if the noble Lord will allow me I shall develop this theme at some length, and he will see that my use of the word "social" is rather different from what he has in mind. The social effects— I think that the noble Lord, Lord Robbins, will bear me out; he was a student of the works of Professor Pigou, and earlier of Alfred Marshall, who invented this distinction— are those which you obtain if you take into account not only the direct profits but the indirect benefits that accrue to other businesses and to the economy as a whole. That is a different meaning of the word "social". The important consideration is the additional loss which may amount to thousands of millions, and not hundreds of millions, in terms of lost national output, which will follow in the long run from the disappearance of a large part of the steel industry.

As I have said on more than one occasion in previous debates, decisions concerning the steel industry cannot be judged in terms of profits. Steel has a vital role to play, both in peace and in war; it is the most important single measure of the industrial potential or capacity of a country. I think that most economists are agreed on that. During the post-war years, when we increased our steel capacity from 14 million tons in 1946 to 28 million tons in, I think,1973, the Japanese increased their capacity from 5 million tons to 125 million tons. In other words, they did not double it; they increased it by 25-fold.

Yet if you ask Japanese experts how they could do this— and if they could do it, why did we not do it?— they will tell you, as I was told by several people in Japan, that their extraordinary expansion in steel was made possible in the vital first decade after the Second World War only by the complete refusal of British firms to supply their traditional markets in the Far East, at a time when there was tremendous potential demand to be met. The British firms were loaded up with other orders, and they had no opportunity even to accept orders from their old customers in the Far East.

What the Japanese said was: "All we did was to step into your shoes, which we could not have done if you had gone on supplying your own markets." I have no doubt that if we had had the foresight, the drive, and the salesmanship of the Japanese, we could have expanded both our capacity and our exports very much faster; and if we had done that our industrial productivity as a whole, and not just in steel, would have grown much more rapidly.

What the Government are planning to do is a Jarrow or a Beeching all over again, but on a much larger scale; to close down plants and add to unemployment as quickly as possible. While the previous Tory Government under Mr. Heath went in for growthmanship, the present Government are hell bent on the very opposite— shrinkmanship. It is against that background that they have to explain the unique qualities of Mr. MacGregor.

The present huge losses of the steel industry, which the Government desire to eliminate so quickly, arise only partly on account of inefficiency, overmanning and the use of obsolete plant. The more important cause is the present artificially high level of the pound, combined with the fact that, on account of the Common Market, we are barred from protecting our industries against the flood of foreign imports. For the Government to sustain the losses of the steel industry in these circumstances is nothing else but a form of industrial protection, alternative to a tariff, and as such it is in the national interest that it should be kept and not liquidated. The Japanese industry, for example, in the first 20 years of its existence, was mainly supported by direct state subsidies and not by protective import duties.

What a contrast there is with Tory policies in the 1930s when, following the devaluation of the pound and the competitive advantage thereby gained, the National Government imposed a heavy protective duty on steel. This was raised first to 30 per cent., and in 1935 to 50 per cent. As a result of it, steel production increased from 5 million tons in 1932 to 13 million tons in 1937, an increase of 160 per cent. in five years. Without that increase, I hardly think that we could have taken on Germany in 1939. The present Government profess that they are extremely keen on defence, but when it comes to the foundation of defence capacity, namely steel production, their minds are locked in a different watertight compartment.

The Noble Lords may have seen that the previous chairman of BSC, Sir Monty Finniston, described the existing plans for the rundown of steel capacity— and here he was referring evidently to the plans of Sir Charles Villiers and not any new plans that the new chairman may bring about— as "ridiculous". He said that while the United Kingdom plans to reduce that capacity to 14.25 million tons— and I quote, the world produced last year 800 million tonnes which is the largest amount in the history of mankind. The Japanese produce 120 million tonnes a year. Are they cutting back capacity to 80 million tonnes? They export 40 million tonnes against our total planned capacity of 15 million tonnes. That is marketing. We can make steel as well as anyone else, but somewhere we have lost our sense of trading. It is a problem not only of steel but of the whole manufacturing industry ". In these circumstances, to appoint a man merely because he is a master of shrink-manship, more ruthless than others in eliminating losses and cutting capacity, is a form of national madness for which we shall have to pay very dearly in the future.

It is possible that I may be wrong about all this, and that Mr. MacGregor will turn out to be a growthman and not a shrinkman. There were some hints to that effect in an extraordinary and rather obscure article which appeared in The Times of yesterday. If this is so, I shall be only too glad to have the noble Lord's assurance in his winding-up speech tonight that what I said about the future of the British steel industry, or about plans that the Government have for the steel industry, was all wrong.

4.45 p.m.


I followed the noble Lord, Lord Bruce of Donington's speech with lively interest. His speeches always interest me because they disclose how possible it is for a variety of deductions to be made from facts and various interpretations to be placed on statements. He asked a great many questions of my noble friend Lord Trenchard. I lost count at about 20, and so I am looking forward to Lord Trenchard's speech when I have had some tea!

But there are two other questions that I should like to add to Lord Bruce's. One is, to what extent did the Secretary of State beat down Lazard Frères before they went laughing all the way to the bank, as the noble Lord, Lord Kaldor, said? Further, am I not right in saying that when a "short leet", as we call it in Scotland, is selected, when you have to choose somebody, it is necessary to have a number in order to check that the man you want is the right one. However that may be I look forward to Viscount Trenchard's speech.

I am not reluctant to speak here for I have three good reasons. Over 30 years of my active working life were spent in a country where I was an expatriate, a Jock— just as Mr. MacGregor is. Therefore, I have some sympathy with his position and some knowledge of the advantages which being an expatriate can produce in dealing with people of another country. My second reason for wanting to speak is that by a concatenation of circumstances I found myself in the Peer's Gallery on 1st May when the Minister made his statement to the other place. Probably the less I say in this place about the behaviour of the House on hearing that statement the better.

Further than that, I speak because a major part of my working life was spent in different echelons of industry and industrial management from the bottom rung to the top. Therefore, the various attitudes towards the appointment of Mr. MacGregor are of lively interest to me. I worked as hard as I possibly could. Work was work, too, and how I scorn the fairly successful efforts of today's pundits to imply that manual workers are the only workers who count. We had an example of it today when a noble Lord opposite was putting a question to my noble and learned friend the Lord Chancellor: it was implied that the only people who work are the manual workers. That is not the case, and I think the manual workers are the first to realise it, particularly when they are well led.

My own experience has taught me the importance of leadership. This is some thing that you cannot measure by any sort of figures. I was most interested to hear what the noble Lord, Lord Byers, said about his knowledge of Mr. MacGregor. I know of two other noble Lords in this House who know that Lord Byers was quite right, and that Mr. MacGregor is a man in a million. If leadership is the essence of the whole thing, and we can get its value, then it is like a precious pearl. I believe that in Mr. MacGregor we have succeeded in getting a true leader. When I say precious, what do I mean? Precious to whom? I mean precious to the workers, whatever the colour of their collar. This is a very important matter. It is important to the shareholders and in our case it is important to the state. There are various facets to that, but it seems to me that many professional people and some politicians do not grasp what leadership means. It means to whom? It means to the workers. They do not want to have to listen to Fabian pundits; they want a practical policy that works. They do not want a share in the profits if they have also to share in the losses. They want a top-level wage for a fair day's work with up-to-date tools and top-level conditions. I am pretty sure that that is what they are going to get under the new arrangements.

This seems to be an ingenious solution to a terrifying important problem, despite any faults in its presentation. I say that for the reason that I fully agree with the noble Lord, Lord Byers, and with the noble Lord, Lord Nugent of Guildford, when he pointed out that it might have been put quite differently. I was there in the gallery. I confess to being critical of the manner of it. I should have liked the fact that the search for a new chairman for BSC, when Sir Charles Villiers came to the end of his tenure, had lasted for nine or 10 months to have been treated as the opening. This was elucidated in subsequent exchanges.

It is a pity that a central feature of the appointment— the noble Lord, Lord Nugent of Guildford, touched upon it— was not made clear: why did British possibilities refuse to take on this job? The reason, to my mind, is pretty clear. I think that the reason why so many people said no was because of the attitude of the socialist Opposition. The ordinary citizen of this country who is subject to this country's taxation and the like is simply not prepared to face what the chairmen of nationalised industries are having to face now. That fact must be faced. Does it not indicate that there is a serious flaw in the whole system of our nationalised indutries? Is this the culmination of years of frustration of management through parliamentary interference— interference so serious that British nationals of the highest calibre are not prepared to put up with it? But this man is prepared to, and is in a position to do so. That is what I meant when I referred to expatriates. Mr. MacGregor has an amazing career of success behind him, and my information is to the effect that he has a robust confidence which he will exercise in this important task.

Judging by what I heard in an interview by Robin Day on, I think, "The World at One ", it defeats me that the socialists are indulging in these almost hysterical histrionics at a moment when the very foundations of their precious nationalisation are being shaken to the base. The noble Lord, Lord Nugent of Guildford, touched upon this. What is going to happen? Is socialism preparing to disregard the writing on the wall?

Since I have referred to the "World at One", perhaps I could say that I do not think that the BBC are being very bright about the presentation of matters such as this. They seem to begin every item with a statement by a trade union leader— worthy men, no doubt, despite what they are doing today. I do not object to their being placed first provided that it is appreciated that these individuals are "singing for their suppers". We all know that they have got to toe the socialist line— or have they not? Is there a whirlwind of change growing out of the silly dust-devil of today's outrageous carry-on? Socialism has now robbed the till and it is empty. Is it possible that the true Labour Party and the theoretical socialists are going to be blown apart? Where lie the true interests of the workers? I believe that the position is desperate.

Mr. MacGregor's main task will be to rally his workforce round him. It is going to be no easy task and it will be rendered all the more difficult by the attitude of the parliamentary Opposition in the past week. My working life was spent as an expatriate Scot. As such, I welcome Mr. MacGregor's appointment and feel that all of us should give him a rousing welcome and pledge to trust the Government's judgment in this matter.

We look forward to laughing all the way to the bank in three years' time. I hope that is the way it will work out because the position before this happened was so dismal— the final distillation of socialism permeating the world from the Cuban refugees, through the Berlin Wall to Afghanistan and the Boat People. We must realise that this is what may lie ahead if this does not succeed, and it is our business to see that it does succeed.

4.55 p.m.


My Lords, in my time I have appointed and reappointed several chairmen of nationalised industries. However, if we take notice of what both the noble Lord, Lord Ferrier, and the noble Lord, Lord Nugent of Guildford, have said, we are going to have one dickens of a job to get anybody to accept chairmanships of nationalised industries.

The noble Earl, Lord Onslow, was very critical of the speech made by my noble friend Lord Bruce of Donington. I thought he gave a splendid exposition of the problems which arise as a result of this rather stupid appointment, and I am sure that his speech will repay the very closest reading. The country will certainly want to know the answers to some of the questions which he asked. For my part, I am interested only in Mr. MacGregor as he is now to be the chairman of the British Steel Corporation. However, I am far more interested in the future of the British steel industry than I am in the future of Mr. MacGregor. Indeed, at the moment, Mr. MacGregor's future looks far more rosy than that of the British Steel Corporation.

I have other interests. Before coming to Westminster about 35 years ago, I earned my living by cutting up pieces of steel into various shapes and sizes. Indeed, as steel was the source of supply of my principal raw material and as my job depended upon it, I took a great interest in the steel industry. I submit that it is a great mistake to believe that before nationalisation the industry functioned on the basis of competitive private enterprise. I do not know whether the noble Lord, Lord Nugent of Guildford, thinks that it did.

The last element of competitive private enterprise disappeared from the steel industry when Richard Thomas and Baldwin, the great steel firm in South Wales, was forbidden to compete with other sections of the industry when it approached Sir Montagu Norman for a loan from the Bank of England. The condition upon which it got that loan was that there would be no more attempts to introduce competition into the steel industry.

There was then a period during which Government control was exercised by statute. It was a rather negative kind of control— a sort of "thou shalt not" kind of control. But during that period a very great deal of public money was poured into the steel industry. When one looks at some of the great plants that are now in being— for example, Llanwern and parts of Ravenscraig— one has to remember that they would never have been built had it not been for the inoculation of public money into the steel industry. I commend that thought to the noble Lord, Lord Nugent of Guildford. I thought at one time that he was in danger of making this into an anti-nationalisation debate.

The state of affairs which I have described in the steel industry was the state that I found when, in 1965, I produced the White Paper upon which the nationalisation Act of 1967 was founded. In those days, the industry was well behind the bulk steel industries of most of the other steel producing countries. Again may I remind the noble Lord, Lord Nugent of Guildford, that although he talked about the success of the private sector in British steel we deliberately hived it off because it was highly specialised steel which did not result in bulk steel production. It is a very different proposition indeed.

As I was saying, the industry which I discovered when I went to the Ministry of Power was a long, long way behind the modernisation which had taken place in a great many of the steel-producing countries with which we had to compete. The noble Lord will remember that at that time the new departure was the introduction of the oxygen process. There was precious little of it to be found in the British steel industry. We have heard a lot recently about the huge input of capital into the steel industry and that is perfectly true. In the main now it is a very fine, modernised steel industry but I would remind the House that Shotton is now being closed down and they are still using the old open hearth furnaces. So when we hear all the remarks about not being able to compete we should not believe that the modernisation programme in British Steel has gone anyting like as far as it will have to go.

What I wanted to argue was that we cannot really look at the affairs of the British steel industry in isolation. Indeed the steel industry is a vital cog in the whole structure of our manufacturing industries, and the Government must recognise its role as the genesis of a great deal of our manufacturing effort. In this consideration I think we are reaching the stage at which the chaos which the Government's sins of commission and omission have succeeded in achieving within the steel industry is rapidly deteriorating into absurdity and farce.

I have no doubt whatever that Mr. Ian MacGregor is a very capable industrialist, but are we entitled to expect that any man who has spent half a lifetime concerning himself with the issues which are peculiar to the United States of America can suddenly adapt his thinking to the very different problems of the amount of steel capacity and indeed the widely differing types of steel within that capacity which are essential for the requirements of our manufacturing industries? I put it to the House that no matter how capable a man is, it is utterly absurd and quite impossible to believe that he can do it.

My noble friend and others have asked what are the terms of reference. The noble Lord, Lord Kaldor and the noble Lord, Lord Balogh both asked that question, and I should like to know, too. From what I have read in statements made by Mr. MacGregor, he seems to think that his job is to continue to run down the capacity of the steel industry.

It is now down to some 15 million tons. I have suggested that we cannot look at steel in isolation from the rest of manufacturing industry. How does Mr. MacGregor know that his job is to run down the capacity of British Steel? What chance has he had to make any study in depth of the requirements of our manufacturing industries? I should welcome an assurance from the noble Viscount, when he comes to reply, that Mr. MacGregor is a free agent to determine these matters in conjunction with other sectors of management which I know do not consider that the present attitude to capacity is either necessary or in the best interests of the steel industry itself, the wider interests of our manufacturing industries or, indeed, of the British economy. They just do not believe it, and I am speaking of men who have spent a lifetime in managing steel industries.

Even before the present world recession there was a very considerable surplus on a world scale caused largely by the indiscriminate expansion in Japan and the creation of new steel industries in a number of countries which are now trying to establish their own manufacturing industries. Because of this, steel exports have quite frankly been dumped at prices which are either below cost or which have left extremely small margins for those who sell them. Is it the case that this feature, the dumping of steel exports, has been an important factor in the decisions to cut back home production to what I have described as absurd levels? They presuppose either that we are reconciled to an even further large-scale reduction in the steel demands of our own manufacturing industries or that we are going to see a policy of increasing requirements of steel imports. It has got to be one or the other. At the present time, if we run down to the levels which are apparently intended, the supply certainly will not be sufficient for those manufacturing industries of ours, which I know very well. They will need a far greater amount of steel than we shall be able to produce in Britain.

So what are we doing? Is it, as I am suggesting, that because of the absurdly low level of the price of exports to us and to other importing countries we are writing off a huge, highly modernised industry and going to depend in a high degree on a far greater volume of imports than we have done before? The noble Viscount, Lord Trenchard, was telling us a few weeks ago what the balance of payments would be like now if we were to take out the oil revenues. Heaven knows what we shall get to if indeed we are now going to indulge in the cutting down of the home supplies of steel simply because we can import at a very low price indeed. Are we really so negative in our belief in ourselves that we no longer think an upturn in world trade would benefit us by increased exports of steel products?

Again, we seem to be looking at the present world demand against a world which is in recession and which is apparently going further into recession. Do we believe that, when that recession finishes and we can expect a more ebullient demand for steel, we are so uncompetitive, so backward, that we cannot look forward to any share in the increased demand which will arise for steel products? Is that what we are saying? If so, we can shut the shutters because we are finished as a great manufacturing industry.

The question as to why we could not get a British manager to take over was posed, but I do not think some of the questioners would chance their reputations while this Government are in power. Noble Lords opposite were telling us about the damage caused by Socialist nationalisation. One fine day I should like to debate with noble Lords opposite the true successes of the British nationalised sector. It is a bit thick to be told about the dangers of British nationalisation by a Government which has just annexed huge sums from the British gas industry in order to bolster up the public sector borrowing requirements. There would have been no coal industry left if we had not nationalised. Now it is one of the most highly modernised in the world and, what is equally important, the rate of accidents is lower than in most other coal industries throughout the whole world. Does that not matter? I shall not follow the two noble Lords who made these statements, but I saw present in the Chamber a little while ago the noble Lord who was chairman of Rolls-Royce: is that an exception, because the Tories nationalised it? If they had not done so, there would have been no Rolls-Royce left and why does not the noble Lord, Lord Nugent of Guildford, get to his feet and tell us how thrilled he is at the great success achieved by the nationalised Rolls-Royce company? Apparently those little items just do not matter.


My Lords, if the noble Lord wants me to intervene in his speech I will do so. I was refraining from doing so because I was enjoying listening to him. I did not attack the nationalised industries: I attacked the noble Lord and his noble friends over the difficulties which they have created for the operation of the nationalised industries, which is a very different point. That was the point that I was making, but I shall not take up more of his time.


My Lords, I do not want to get too nostalgic but from the days of the Attlee government the Tory Party has gone out of its way to denigrate every kind of nationalised industry that we have produced. They have felt that this was their way not only of denigrating public ownership but of bolstering up private ownership. So far as we are concerned, or a great many of us, we have no objections; my family lives on their own private industry, so I have no objections. But I detest this business of denigrating great public corporations which will determine, in coal, in steel, in gas, in electricity, in a whole host of things, whether or not Britain succeeds. Many noble Lords opposite are extremely interested in agriculture. The only reason why we have now been able to mechanise agriculture is that we nationalised the electricity industry. Would the Manchester corporation or any other municipal corporation have bothered pushing electricity into the rural areas if we had not had a nationalised industry?


My Lords, while agreeing with my noble friend Lord Nugent of Guildford I never said that I was against nationalisation of electricity or of gas or of coal. Steel is quite different.


My Lords, why denigrate nationalised industry? I have said that throughout the world bulk steel producing industries are in recession. The United States of America is no exception to this statement. Indeed, the last time I looked at some of the returns over there— for instance, the great Bethesda organisation— they were hun- dreds of millions of dollars in the red. They are therefore faced with precisely the same problems as we are. Now that the American car industry is in further and further recession it does not look as if there is a great deal the American steel industries are going to be able to do in the matter. But faced with such huge problems in their steel industry in the States, why is it that some genius did not do that which is so obvious to Sir Keith Joseph and hire Mr. MacGregor to come to the rescue. There he was, working in the States, an American citizen, having shown them his brilliance over a period of at least a quarter of a century, and they will not even enter the transfer system in order to try to retain him.

I have said that I do not doubt that Mr. MacGregor will do what he can to be helpful to the BSC. I come back to the issue of how is he to face this at a time when restrictions, financial and otherwise, are being imposed on the British steel industry. Genius is a remarkable asset, but it cannot do things under those conditions. I want the noble Lord to give us a straight answer. Is Mr. MacGregor a free agent? Supposing he has a look at the requirements of the British manufacturing sector, supposing he estimates that we will be out of recession within 12 or 18 months, is he able to put far more capacity into the British steel industry than it now has? It is only a few years ago I was estimating the requirements of steel as 35 million tonnes. I know that a great deal has happened since then and I am not arguing for that. I am saying it is still the basis of any hopes of success we can have in the manufacturing industries of Britain. If we starve the great engineering plants and so on, what chance have we got of getting back to a position where our balance of payments is in surplus? None whatever. I hope the noble Lord will tell us that Mr. MacGregor is not a prisoner, that he can in fact use his own initiative with regard to the size and capacity of the industry. If that is not so, he cannot possibly succeed.

5.15 p.m.


My Lords, I hope the House will bear with me if I try, as I have tried on previous occasions, not just to make the statement that I had more or less clear before I came into the Chamber, but to try to deal with the many important points noble Lords have raised. I hope they will bear with me if that does take a little time, bearing in mind that the noble Lord, Lord Bruce, when he introduced the Motion spoke for over half an hour, and the noble Lord, Lord Lee, has amplified many of his points in a speech of ordinary length.

My Lords, I think we have to divide this question into one fairly small aspect, in terms of its significance for the longer term, and then the problem of the actual substance of the matter of this Motion and the arrangements which concern the future, and I hope the good, of British Steel. The first and smaller aspect is the question of presentation, which the noble Lord, Lord Byers, particularly raised, and which has been criticised in a number of areas. But even before I do that, in terms of priorities, I just want to say that anyone who has met Mr. Ian MacGregor, anyone who has heard him discussing matters with experts who know this area, is immediately impressed not just with his realism but with his positive nature. And if you examine his track record you will find an immense amount of new additions that have been added to the companies over which he has presided. I shall return to the appallingly difficult position which he inherits and the initial need for realism.

In relation to presentation, let me say straight away that of course my right honourable friend consulted Cabinet colleagues and the Prime Minister. But let me say this— and I have not consulted my right honourable friend on these words— that he has characteristically apologised for the way he presented this appointment.


My Lords, was not his apology merely directed to the Conservative Members?


My Lords, I think it is well known, and I think you will find in the opportunity he has tomorrow, that he has characteristically apologised for the way that he presented this appointment. I have learned in the time that I have worked with him that with his very quick mind— and, if I may say so, a much more perceptive mind than some noble Lords have, to my mind, exhibited today in criticising him— he sometimes follows a complicated path with very great clarity, and it sometimes takes time for the rest of us to absorb the process of his actions and his reasoning; so we fail, initially at least, to understand his correct conclusions, and they are very often correct.

In this case our minds were perhaps too encrusted in the framework of Britain, and perhaps in the perennial sickness of some of our nationalised industries. Perhaps we were too unimaginative to grasp the world dimension in which his mind had been working for some time in order to try to solve a very difficult British problem of already far too long a standing. Phrases like" ass of himself" were mentioned today. Of course, one can avoid being an ass if one avoids venturing anything. My right honourable friend is a man of great courage, intense intellect and great ingenuity. I personally believe that it will not be he who will be seen to have made an ass of himself. I shall answer, as best I can, in some of my remarks some of the detailed criticisms which have been made of the complicated arrangements which he has made. But, I would echo at the beginning of this reply that I agree with my noble friend Lord Ferrier that we have a man in a million.

I shall not go into certain remarks by noble Lords— indeed the noble Lord, Lord Byers, commented on some of the remarks of the noble Lord, Lord Bruce of Donington— which I do not believe are designed to give British Steel under Ian MacGregor every chance of recovery. I shall not give them extra publicity by repeating them, and I believe that they are not valid or relevant in the context of the whole situation.

It is significant that the Opposition have chosen this subject on this 14th day of May, on this day of stupidity, when, against the will of perhaps three-quarters of ordinary trade unionists, some of their leaders, encouraged by some Opposition politicians make it impossible for many of them to work as, according to opinion polls, they want to do. I see that estimates have been made suggesting that this day of stupidity could have cost the nation— if many had not come to work— hundreds of millions of pounds, and yet here today we debate the cost of obtaining a man in the range of £675,000 to £1,825,000, over and above his salary, to staunch the flow of losses running at over £1 million a day in British Steel. Yet this haemorrhage threatens the employment of every employee in British Steel. So why do we encourage jealousy for this man whose reputation stands so high and whose unquenchable Scottish spirit of flame still burns so brightly that at his age he is prepared to take up this daunting challenge? If he succeeds no gratitude could be too great, no reward too rich. The employees of the AMAX Corporation know his worth.

He tells me that the MacGregors come up in Parliament about every 200 years— note the words, "about every 200 years" and I hope indeed that, after the debate here today and the debate in the other place tomorrow, we shall not find it necessary to praise with faint damns, damn with faint praise and damn by insinuations a man of this calibre. Let me explain to what he was referring. He tells me that in 1607 King James 1 of England and VI of Scotland outlawed the MacGregor clan as a whole, but in 1775 we found that we could not do without them and Parliament welcomed them back by repealing their proscription.

Let us welcome another famous return of the MacGregors to their homeland. Let me hope that if there were any feud between the MacGregors and the Bruces that the noble Lord, Lord Bruce, will forgive Mr. fan MacGregor's ancestors. Ian MacGregor will not be deterred by this day and this debate— or contributions to this debate— of, in my opinion, stupidity. He will have noted that the men at Port Talbot and most other locations are working— there is no sign of embittered relations there. Let the wiser counsels which have been raised in this House today say to all employees that, if they support him and help him in making some very difficult, and for some of them, painful decisions, there is yet hope for the re-establishment of a proud, efficient and competitive British Steel Corporation— a different BSC, for certain in our age of change, with altered markets, but a secure one for the nation and its employees.

It will not be easy. The corporation has to regain its markets after a three-month strike, in conditions where the United Kingdom demand for steel is depressed and there is excess steel-making capacity in Europe and elsewhere keeping price levels down. The BSC has made large losses over the past five years and these losses must be brought to an end. The corporation has excess steel-making capacity which must be closed, and productivity at the on-going plants must be improved. I shall not in this statement enter into the argument about nationalisation except to say how can anyone contradict my noble friend Lord Nugent of Guildford on the fact that, with scale, with centralisation and with politics, the running of big and complicated industries is very hard. We do not think that it is impossible, which is why we have looked for the man with the greatest qualifications, we believe, who will undertake this job.

Thus, the outlook is not entirely gloomy. There has been a rapid build-up of steel production since the strike ended five weeks ago and the BSC, thanks to a major investment programme over the past 10 years, has modern, efficient steel-making plant. The task of restoring profitability, although difficult, is attainable. Mr. MacGregor tells me that he has seen nothing yet to request any change of general course for BSC and he is giving every support to Sir Charles Villiers and Mr. Scholey to press on with maximum speed with the implementation of their existing plans and agreements.

In order to achieve the objective of establishing BSC on a basis of enduring profitability, the corporation needs a chairman— and in my opinion, as I have explained, has a chairman— of great ability, experience and determination. I do not believe that there can be many people who have knowledge in this area who would disagree with that statement. His full particulars would take me too long to recount and they have been released. But he has very great experience in industry generally and particularly in the raw material field behind the steel industry, in metals generally and in the steel industry itself.

In my experience, on a much smaller scale, it has often been extremely difficult to find great ability and real knowledge of an industry in one person. It is particularly difficult to find someone to take on a recovery job of mammoth proportions who combines these two qualities— knowledge of the industry and real top-level ability. I believe, too, that it is generally accepted that Ian MacGregor has the qualities for the job. His qualifications have been mentioned today. He studied metallurgy at Glasgow University before the war, which he spent in Washington as a British expert dealing with purchases by the Ministry of Supply. He then pursued a highly successful business career, in particular with the US metals and natural resources company AMAX, where he was responsible for major diversification programmes and was chief executive officer from 1966 to 1977. I am afraid that Mr. MacGregor is an example of a kind of person of whom we have too few in Britain— a technologist who has become a really successful industrialist. Currently he has a very wide range of interests, including the post of deputy chairman of BL, which has given him considerable experience of the problems of a publicly-owned United Kingdom company. He is a member of the boards of a number of United States companies, including the LTV Corporation, the parent of Jones and Loughlin who are the third largest United States steel producers; and as the House now well knows, he is a partner in Lazard Frères and Company, the New York-based investment bank.

I can confirm to the noble Lord, Lord Bruce of Donington, that the non-executive directorships that he mentioned are the only ones that Mr. MacGregor retains; that the vast majority of his many non-executive and part-time directorships he gives up. I cannot accept the criticism of the noble Lord, Lord Lee of Newton, that he does not know this country. I have just mentioned his part-time connection with British Leyland. He has also never forgotten that he is a Scotsman, and I find him very well in tune with the affairs of this country. Sometimes perhaps one sees the affairs of another country more clearly from a position abroad.


My Lords, can we assume that because of his connection with British Leyland most of the problems there will shortly be solved?


My Lords, I think that the House will agree that Sir Michael Edwardes, who, of course, is the chairman and chief executive officer, must take the majority of the credit, but enormous progress has been and is being made at British Leyland.

Anyone who has heard Ian MacGregor converse with English experts in this field knows that the fear of the noble Lord, Lord Lee, that he will be out of touch with the situation is not founded. I believe that there is, therefore, general agreement that in Mr. MacGregor we have secured a very well-qualified man to tackle these immense problems. I believe that we must keep this in mind when considering the terms of his appointment. For it is the unusual nature of the arrangements which have been made with Lazard Frères which have been the focus of attention. This is understandable, but we must not overlook the value of improve ment in British Steel if it is achieved.

I suggest that there have been three main concerns expressed in this debate and elsewhere about the terms of the arrangements with Lazard Frères. Perhaps the first is the size of the payment to be made. The second concern is that the payments to Lazards might be a device to make large payments to Mr. MacGregor indirectly. The final concern is that the payments, linked with the performance of BSC under Mr. MacGregor's chairmanship, might give rise to too great an involvement by Lazard Frères— and this has not been mentioned to any great extent today— in the determination of management policies at BSC.

The size of the payments to Lazard Frères, which could approach £1.8 million, are without doubt large by British business standards, but the greater part will not be paid unless results are delivered. However, in the United States of America it is not at all unusual for a chief executive of a major corporation to be valued by his corporation at over one million dollars a year. Therefore, it is not entirely surprising that the loss of a top man should also be valued very highly, particularly in this type of investment bank partnership, where partners of enormous skills earn for the partnership according to their knowledge and skills in many different parts of industrial experience.

My noble friend Lord Ferrier asked me whether I could reveal whether or not the bidding had started at yet bigger figures. I shall not declare what those were, but, yes, bigger figures were requested, and the result is, in our view, very good value for money, with the amount paid being highly dependent on results, which is a great protection for the taxpayers' interests in this country.


My Lords, if the noble Viscount will permit me to interrupt him, it may be usual in America to value an important executive at 1 million dollars or more a year, but what is meant by that is that he is being paid that sum for his own benefit. Can the noble Viscount assure us that Mr. MacGregor's own benefit will be limited to something very much less? If it is so limited, does he regard it as a sensible and reasonable arrangement that Mr. MacGregor should get so little out of it, and that the bulk of the money should be paid to a somewhat disreputable New York bank?— which makes extraordinary lucrative take-over deals, according to the description in The Times.


My Lords, I had hoped that the noble Lord would have understood what I have just said. I said that I was dealing with the situation in three parts, the first of which is the size of the payment to be made. The second is the question whether the payments to Lazards might be a device to make large payments to Mr. MacGregor indirectly. I stated that, and in a moment I shall deal with that second question.

Therefore, the total cost— with which I am still dealing— is not inappropriate by United States standards. Mr. MacGregor has been contributing considerable amounts of profitable business to the Lazard Frères partnership. They will lose his valuable services when he ceases to be a partner on becoming chairman of BSC on 1st July.

At this point I should like to answer certain matters which the noble Lord, Lord Bruce, introduced; phrases about Sir Charles Villiers "receiving the chop" were mentioned.


My Lords, if the noble Viscount will allow me to interrupt him, I think he will find when he reads Hansard tomorrow that I made no mention of Sir Charles Villiers getting the chop. I said that in the light of the very fulsome praises by the Prime Minister in February, when she described Sir Charles Villiers as having her total confidence, and in the light of the treatment that he has subsequently received, many chairmen of nationalised industries would wonder when they were going to get the chop.


My Lords, the House has heard the noble Lord's reiteration of the phrase and the context in which it was used. I want to make it clear that the Government have been looking at many possibilities to replace Sir Charles Villiers, whose contract does not run out until later this year. Naturally, we have looked at the possibilities well in advance of that date. I should like publicly to thank Sir Charles Villiers and Mr. Scholey for their co-operation while we have been searching for a successor to Sir Charles. We have now completed the review of possibilities and have made an arrangement which allows the new chairman to familiarise himself and take up his appointment on 1st July— a date agreed with Sir Charles Villiers— which is, in fact, before the date by which we needed to find a new chairman. The whole implication that we were, if I may use the expression, flogging the hedgerows and in desperation coming at the end of the day to Mr. MacGregor is not only a travesty of the truth and an insult to Mr. McGregor but simply does not accord with the facts and the natural and correct procedure of my right honourable friend the Secretary of State in looking at all possibilities very early.

I should like at this point to deal briefly with the question of headhunters. We do in the Department of Industry use consultants— I hope they will not criticise me for calling them headhunters— for more than one purpose. It is to make sure that you consider not only the people you know about— and we knew about Ian MacGregor, and knew well about him— but also those you may not have known about. You do not use every head hunter on every occasion, and it would be quite impractical to do so. The department uses substantially more than one firm on different occasions.

Could we have secured a suitable British industrialist at a lower cost? My answer to this is quite simply, no. There were a considerable number of British possibilities who were considered for the chairmanship. Some were not free, and felt that their commitments to their existing interests were too great; some were not interested, and the reasons for their not being interested were varied, but they included those that my noble friend Lord Nugent mentioned today. But none appeared to have the combination of real knowledge of the industry and outstanding proven ability or to have better qualifications and be prepared to take on the job— than Ian MacGregor. So we selected from the possibilities the best man for the job in plenty of time for the takeover, and have secured it in fact, with Sir Charles Villiers' co-operation, a bit earlier than the appointed day.

It is no reflection on Britons. There are plenty of Britons serving in big jobs abroad, but we cannot wrap ourselves in a Union Jack and consider that for every job, no matter how hard and no matter what problems it presents, we must always look at home. Consider in a near monopoly position which we have in British Steel, where else one can look. Consider the size of the United States. Consider the size of the industry world wide. No, my Lords, I think that some are guilty of not following yet, though I hope they will, the processes of thought which my right honourable friend the Secretary of State has followed in coming to this conclusion.

Now consider the level of losses, which I have mentioned, with over £1 million a day being lost. That is a daunting task. Mr. MacGregor is prepared to have a real go, and it is, in my opinion, partly the patriotism towards his country of birth that has influenced him in taking this job. The second area of main concern, which the noble Lord, Lord Kaldor, asked me to deal with when I was trying to deal with the first, is the question of whether Mr. MacGregor might be the main beneficiary from the payments to be made to Lazard. As I have already mentioned, Lazard will be losing the services of a very valuable business-getter. At the same time Mr. MacGregor wishes to remain a limited partner of Lazard, for he has, I understand, invested a considerable sum of his capital in the partnership and wishes to be able to return to Lazard as an active general partner when his term of office at BSC is completed.

It is clear that Mr. MacGregor's partners, and indeed Mr. MacGregor— and this is one of the answers to Lord Kaldor's points— have great confidence that he can succeed at British Steel. They back his judgment, and they have been right to do so in the past, and hence their acceptance of a performance-related compensation which also protects the British taxpayer from very high payments if the results are not achieved.

As a limited partner Mr. MacGregor will be entitled only to a small share of the profits of the partnership. This means that if the partnership were to make a loss— and I am not suggesting that this is a usual or likely event— he would be required to contribute to the losses up to the limit of the capital he has invested in the partnership. The only way during the period of his BSC service in which I understand Mr. MacGregor will benefit from the payments by the Government to Lazard is to the extent that such payments contribute to Lazard's profits, in which he has a very small share. My right honourable friend will tomorrow amplify that statement a little, because in fact limited partners of Lazard who have been general partners do of course receive sums according to their share in the partnership, and of course that share is unknown. There are 24 or 25 full-time main partners. I do not know the number of limited partners, who share to only a very small extent in the profits of the partnership.

All these details and all relevant information are known by the Inland Revenue. The consultations by Lazard Frères and Mr. MacGregor with the Revenue authorities have been fully and openly conducted with them. In so far as the payment of the performance-related compensation after his anticipated return to the USA is concerned, it is possible, but only possible, that he could benefit from increased profit share distribution as a full partner, if he should resume his duties as such. The details of this are for him and his partners, and they arise when he returns to New York.

The third main concern is that Lazard may exert too great an influence on the policies to be adopted by Mr. MacGregor as chairman of BSC, in order to secure the maximum compensation to Lazard. This perhaps overlaps with the question of whether Mr. MacGregor himself is— as noble Lords, if I may paraphrase their words, have suggested— a bit of a hatchet man. I have already referred to the fact that he is not a hatchet man by his background. He has built up businesses and built new avenues to business. Anyone who meets him and talks to him finds that he bubbles over with ideas for possible new markets.

However, it is not just a decision, as noble Lords opposite have suggested, between a negative and a positive policy. We have a situation in British Steel, as I have repeated so often in this House, with some first-class equipment and mills available. There has been an accumulated bill over the last four to five years of some £4,000 million to be met by the taxpayer. There is excess capacity and no one has been able to produce rational suggestions as to how demand could be raised in the next few years to utilise the capacity we have.

We have a non-competitive position, for all that noble Lords may say about subsidies for other nations. We have lost our share of world market not only for the reasons that noble Lords have suggested. After taking account of subsidies and coking-coal subsidies, and the like, we are not competitive. Realism, therefore, must come first. It is for this reason that Ian MacGregor has told the current management of British Steel that he sees no reason for any let-up in the momentum of their existing plans as a base for development. I equally have no doubt that if he is as successful here as he has been elsewhere in building a competitive industry— be it smaller, be it different— on that base he, more than any other man I have listened to on this subject, will be suggesting ideas for expansion beyond that.

Noble Lords do an injustice to my right honourable friend in suggesting that he can see only profit now and cut out everything else. The objectives will be discussed with the new chairman of BSC, as they have been with the last chairman, and there will not be intervention or interference. There will be the fixing of profit and cash objectives which it is the duty of the Government to do. The long term and the short term and the resources of the nation will be taken into account in fixing those. It is against the background of those arrangements that the performance of BSC under the chairmanship of Mr. MacGregor will have to be judged.

The general objective is to establish BSC as a strong and healthy entity, and I am quite clear that Mr. MacGregor accepts that. There will be specific criteria against which the improvements will be measured. I will not, in view of the time I have already taken, go into the criteria which will be discussed and against which performance will be measured. I would, however, say that while I accept the puzzlement of noble Lords of experience as to how objectives in a complicated and big industry like this can be set and how criteria can be agreed for performance judging— I understand those doubts and as an industrialist I have looked at the problem myself— and while I do not in any way underestimate the difficulty, I am quite clear that Ian MacGregor's outlook on this kind of situation will make it perfectly possible to arrive at agreed objectives with him as chairman of BSC.

This somewhat complicated system of payments will operate fully only if success is really there. Noble Lords opposite should perhaps not criticise us for intricate and complicated arrangements. They have never in public, and we have not in public, revealed the full details of the arrangements for the INMOS entrepreneurs, and I am in no way criticising noble Lords opposite. Nor shall I experience any jealousy should INMOS be highly successful and very large sums of money be earned by those entrepreneurs. The noble Lord can remind me to congratulate his party if that situation arises.

I am quite certain that, in this immensely complicated and daunting task, we have selected a man who retains immense vigour and stands the best chance of any candidate whom we considered— and we have been through lots of possibilities— of bringing this great British Steel Corporation back to profit ability and back to a secure and lasting base for the employment of its people.


My Lords, before the Minister sits down, may I ask him to remind the House where the United States found the man to build their own steel industry? I have a notion it was Scotland.


Also before the noble Viscount resumes his seat, my Lords, will he allow me to take advantage of the invitation he gave that we should endeavour to follow the processes of thought of the Secretary of State? May I ask him a question related to one process of thought which is connected with industrial relations and psychology? If part of the success of Mr. MacGregor— I repeat, part of the success— is to be measured by the manner in which he manages to close plants and persuade people that it is necessary for them to become redundant, does he think it is a suitable atmosphere for negotiation and persuasion that the closure of plants and redundancy will mean for employees a loss of money whereas for the gentleman concerned, if it is part of the success by which he is measured, it will be a gain of money?


My Lords, I have acquired very great respect for the noble Lord, Lord Mishcon, since I came somewhat new to this House, but I regret that intervention. I do not believe— I have to say this— that the stirring up of jealousy does any good whatever. I also have to say that in my industrial experience I have not found the average British employee to be jealous. Indeed, he thinks something is wrong with the concern if the governor is reduced from his Jaguar to a Mini. I believe he wants more than anything else to feel that the man at the helm is a really good leader and I think he puts that before even painful decisions which affect himself. As evidence of that, I would point out that one could not help but be impressed by the fact that only 15,000 employees of British Leyland, led so ably by Sir Michael Edwardes, voted against a plan which involved the redundancy of 25,000. No good will be done by stirring up envy, and I do not think the average man feels it to anything like the degree some noble Lords have suggested today.

5.58 p.m.


My Lords, this has been a most interesting debate. At one time it seemed from the tenor of the speeches of noble Lords opposite that they were blaming noble Lords on this side for having appointed the gentleman in question, which rather amazed me. I say with the greatest respect that the noble Lord, Lord Byers, seems to have got me entirely wrong in regard to my attitude towards Mr. MacGregor. Indeed, the noble Viscount, Lord Trenchard, has got me wrong also. Under examination today are not the merits of Mr. MacGregor— and weare very grateful indeed for the extra particulars that have been given. We all, from these Benches and from the Benches opposite, wish him well in his task. Under examination and criticism is the Secretary of State. He is the person who is under criticism, and I observe that the noble Viscount has some tentative misgivings at the back of his mind concerning the public actions of his own Secretary of State. He admitted them. He said his process of thought is often a little difficult to disentangle but that he is usually found to be correct in the end.


My Lords, I ask that the House should read in Hansard exactly what I said and the words I used.


I shall be delighted to do so, my Lords, and I sincerely hope that—


My Lords, will the noble Lord also take the trouble to read in Hansard what he said about Mr. Ian MacGregor, which was a total denigration?


My Lords, I think that when noble Lords read Hansard they will be able to judge for themselves. I am quite content. What I am concerned about, and what I think the House is concerned about, is the question of the Secretary of State himself. I observe that the noble Viscount did not answer the very direct question put to him by my noble friend Lord Lee of Newton: is Mr. MacGregor to be a free agent? Will he be able to make his own decisions within the parameters that he sets, as a very experienced businessman, whose qualities have been so thoroughly outlined to us this afternoon? The question is asked for the following reason. So far Sir Keith Joseph has given no indication of any flexibility in regard to relaxation of the cash limits that he has already set. If the cash limits that Sir Keith Joseph has already set are adhered to, and there is no U-turn and no flexibility, then quite clearly Mr. MacGregor, in order to raise the finance that he may at a later stage consider he himself needs, may have to follow a course of action to which Sir Keith Joseph and the party opposite are already committed; that is to say, "flogging" certain of the profitable assets already in the possession of the British Steel Corporation. If the noble Viscount opposite assures me that Mr. MacGregor will have complete flexibility, that he will be able to take the whole grand vista into his vision and make his own decisions, I shall be perfectly happy—


My Lords, I hate to interrupt again. I think that when the noble Lord reads Hansard he will see that I discussed the problems of long term and short term and of objective setting, and that I said that the Secretary of State and the new chairman would have to set the usual objectives together. The State cannot be divorced from the financial objectives of a nationalised industry, but I said that they would be set in the normal way. Does the noble Lord in his opinion of Ian MacGregor really conclude that such a man would accept a job on any other basis?


My Lords, I am not in a position to judge that because we do not know what the terms were, anyway, and we do not know the parameters. How can we judge? The noble Viscount may have his own opinion on that.

I return to the original theme which is the examination of the track record of the Secretary of State himself, who, I am given to understand, is to make an apology— which he delivered to the 1922 Committee— to Parliament itself when he presumes to address it tomorrow. When it comes to the question of the whole trouble with Sir Keith Joseph let us be quite frank. The misgivings are not confined to this side of the House. They are echoed in the corridors of the other place by Members of the noble Viscount's own party. They are widespread in the noble Viscount's own party press. So do not let him for one moment imagine that the misgivings concerning Sir Keith Joseph come from this side of the House only; the noble Viscount's own press would speedily correct that.

What we are bothered about is Sir Keith Joseph's fixation. He has a track record. It might be said to be an epic on the theme "Go West, young man!" because noble Lords will recall that he was responsible for the 1972 health Act, and on that occasion he called in an American firm of consultants, McKinsey. Since that time he has increasingly come under American influence, with Friedman, and now we have Lazard Frères and Russell Reynolds. Sir Keith has a track record. We only hope that in the interests of the future of both Mr. MacGregor and the British steel industry he gets on to a different track altogether, far better than the one that he has followed so far. My Lords, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.