HL Deb 17 February 1981 vol 417 cc556-66

2.52 p.m.

The Earl of Gowrie

My Lords, I beg to move that this Bill be now read a second time. I think it is generally agreed that in a very plural and, in the main, successful national economy British manufacturing industry is the weakest link in our national economic chain. We are strong in energy and agriculture and we are very strong in the provision and export of financial services. But we do not make enough things which people can buy or want to buy at prices that they can afford. Our industry is no longer as competitive as it should be and both North Sea oil and counter-inflation policy have dealt even those bits of industry, whose competitive position could be very strong, a difficult hand to play by ensuring the strength of sterling.

Our industrial society, therefore, where manufacturing is concerned, needs in my view two things overwhelmingly. First, it needs a stable financial climate, a low rate of inflation, with which it can proceed to invest and regroup towards a newer kind of industrial era. Secondly, it needs transitional help to ease it over a very difficult time. It also needs long-term investment and hard cash with which to replenish its human and institutional resources as well as our infrastructure, by which I mean capital equipment, such as plant, roads, railways and airports.

But it is also unfortunately true that one of the reasons why we are under-invested in relation to our competitors in manufacturing industry is that pressures on successive Governments to spend money have in fact pre-empted the resources which otherwise might have found their way into industry. That could be expressed in the form of a paradox: high borrowing to help industry creates high interest rates that also squeeze industry. Of course, that is not the whole story. Poor management decisions; restrictive labour practices and labour monopolies; taxation policies which make capital formation difficult for individuals; the lure, perhaps, of London and the South-East; old-fashioned laziness and old-fashioned snobbery; successive Governments' failure to think longer term than four-year electoral cycles—all those factors have had some part to play in the drama of our competitive decline in manufacturing. But, surely, under-investment is a big item—everyone agrees about that—and that is really the context in which I wish to place the Second Reading of the Industry Bill.

My noble friend Lord Thorneycroft in a remarkable speech in your Lordships' House at the beginning of this month said, at column 1228—and I quote him: we"— referring to both the Government and the Conservative Party— believe in a mixed economy … We believe that there is a role for both public and private enterprise in the United Kingdom … we think that at the moment the public sector has become too large and too costly to be easily supported by the private sector and private citizens … in those circumstances our role is not to abandon the public sector. The role of a Conservative is not to destroy things; it is surely to support them. We should provide the public sector with management and money. We should reduce it, and where we can provide it with partners and additional finance … overall we should, by our financial policies, seek to reduce that inflation which is so damaging to public and private enterprise alike". Since my noble friend made those wise remarks there have been several major developments in this strategy, not least of which has been another strong fall in the rate of inflation.

Strong and effective managements in two public industries are to be given further public backing in the drive towards viability and profitability. My right honourable friend Sir Keith Joseph announced that the Government had agreed to fund BL's 1981 corporate plan with £990 million of public capital in 1981–82 and 1982–83. The number of man-hours lost through BL's internal disputes has been seen to have fallen from 13.5 million in 1979 to 3—middot;5 million in 1980. The new Mini Metro was launched last October and alone obtained in the early part of this year 8 per cent. of home market car sales. As the Prime Minister made clear in her "Weekend World" interview on 1st February, the intention is to bring BL in this way closer to profitability so that its parts can be sold.

The revival of BL is of very great concern to very many private firms both large and small. The toll in unemployment that would result from its closure would impose huge costs on the taxpayer, substantially greater than the sums now being provided, in addition to the social costs in many parts of the country besides the West Midlands.

The Government are also prepared to provide public money to allow restructuring and de-manning elsewhere in the nationalised industries—sums which are bound to be much larger as they occur in a fierce recession. For example, the British Steel Corporation and British Shipbuilders have received in 1980–81 £971 million and £185 million respectively. Both those industries have been de-manning swiftly and the British Steel Corporation's labour force has been cut by over 50,000, and another 20,000 will go under the new chairman's plan. British Shipbuilders' merchant shipbuilding labour force was 38,000 on vesting day and it is now 18,000. It can be seen, therefore, that this shedding of labour is essential to the successful future of our manufacturing industry and to employment in those other sectors of our economy which depend on a successful and competitive manufacturing industry for their own support and regeneration.

On 4th February it was also announced that a 50 per cent. stake in British Aerospace was to be offered to the public and I am glad to say that that has been very successfully subscribed to. The Government are modifying the monopoly position of nationalised industries to make them more responsive to the customer. Under the British Telecommunications Bill the telecommunications monopoly, which in future will be exercised by a new corporation, will be modified through the Secretary of State's licensing of products and services which were previously exclusively provided by the Post Office alone. Moreover, under the Competition Act 1980 the Secretary of State for Trade is able to refer nationalised industries and public services to the Monopolies Commission.

All this is the background against which the present Bill can be considered. Manufacturing industry has, of course, been drawn inevitably into our fight against inflation and all firms have had to face the need—and, indeed, the opportunity—for change which these counter-inflationary pressures have exerted on them. This applies to all companies. Rolls-Royce and BL, which form a large part of the present Bill, have not been able to—nor would we expect them to have been able to—isolate themselves from these economic pressures. This has produced changes in their fortunes, as it has in the fortunes of other companies.

Having recognised this fact and having studied the companies' corporate plans, and having satisfied themselves that the companies are themselves responding to the need for change, the Government have agreed to continue supporting these companies, recognising the contribution that they make to the British economy, not just in terms of their own employment but also the employment of those engaged in the associated supplying and sub-contracting industries, the overwhelming majority of which are in the private sector.

I now turn to the detailed provisions of the Bill. Clause 1 sets new financial limits for the National Enterprise Board and for the Secretary of State. Its main purpose is to accommodate the financial needs of BL and Rolls-Royce from both private and public sector sources over the next few years. It also adjusts the limit to reflect the transfer of the public shareholding in BL from the National Enterprise Board to the Secretary of State which the Government intend should take place shortly after this Bill secures Royal Assent. The new figures for BL reflect our decisions on the company's 1981 corporate plan which I announced to your Lordships in my Statement on 26th January. Of the new limit of £4,400 million and ultimately £5,250 million specified in Clause 1 for the Secretary of State, £2,900 million (and ultimately £3,250 million) is intended for BL. These are very substantial sums of money. They account for the £990 million in public funding which the Government have agreed to provide BL, but they also cover the company's external financing from private sources. The sums are also intended to cover BL's total funding for the next five years. Clause 7 of the Bill provides that the new limits shall come into operation on 31st March 1981, which is the date on which we intend that the transfer of the BL shareholding will take place.

The remainder of the Secretary of State's limit is intended for Rolls-Royce; that is, £1,500 million initially which can be increased by order to £2,000 million. The House will recall that the company is now the direct responsibility of my right honourable friend the Secretary of State for Industry since it was transferred from the NEB last August. The new limit for Rolls-Royce has been set in the light of the company's 10-year strategic plan which the Government have had the opportunity to consider. As my right honourable friend explained in another place, the plan sets out the company's technical, commercial and financial objectives over that period. It envisages a strategy based upon the further exploitation of the RB 2–11 family of engines and continuing support of military programmes, and it looks towards the launch of a new, smaller civil engine if this proves to be commercial. Rolls-Royce expect that they will return to profitability in this financial year and that they will require no additional public funding other than for new engine development in 1983 or subsequent years.

The new limit is to cover Rolls-Royce's public funding—other than engine development funding—and borrowing from the private sector. It represents an initial increase of £750 million over the present limit of £750 million which was set in the Financial Limits (National Enterprise Board and Secretary of State) Order 1980. This reflects the expected expansion in the company's business. There is also provision for a further increase of up to £500 million if the company's external financing requirements go beyond £1,500 million.

Finally, Subsection (1) of Clause 1 reduces the NEB's financial limit to £750 million. This simply reflects the transfer of BL to the Secretary of State, and there is no change in the NEB's existing limit, under the Industry Act 1980, for companies other than BL. The board's role and functions also remain as they were under the 1980 Act and under the revised operational guidelines which my right honourable friend issued last August.

I now turn to the other provisions of the Bill. Clause 2 introduces new financial limits for the Scottish and Welsh Development Agencies and the Development Board for Rural Wales. The ceiling for the SDA is increased from £500 million to £700 million, for the WDA from £250 million to £450 million, and for the DBRW from £40 million to £100 million. As in the case of the National Enterprise Board, the new limits do not reflect any changes in the roles which these bodies pursue, as defined in their existing guidelines laid down by the Government. The new limits are expected to prove adequate for the next five years.

Clauses 3 and 4 reduce the public dividend capital of the NEB and the Agencies and the Government loan debt of the Agencies by amounts corresponding to their irrecoverable losses on past investments. We are not taking money away from these bodies or reducing their flexibility in any way. We are simply bringing their capital base into line with their actual assets so as to facilitate the setting of new financial duties for the NEB and the Agencies to reflect their new objectives under the revised guidelines issued to each of them last August following the passage of the 1980 Industry Act. We have given a great deal of thought to the form which this should take. The principles which we intend to follow for the NEB were described by my honourable friend the then Parliamentary Under-Secretary of State for Industry in another place on 11th December last. We shall also be setting new duties for the SDA and WDA, and discussions on these are now at an advanced stage.

The remaining two clauses of the Bill are unrelated to the NEB and the Agencies. Clause 5 gives the Secretary of State power to extend by two years the life of the Shipbuilding Redundancy Payments Schemes for British Shipbuilders and Harland and Wolff which are contained in statutory instruments made under the Shipbuilding (Redundancy Payments) Act 1978. It does not in itself extend the lives of the schemes. This will require orders—which we have every intention of laying—subject to the Affirmative Resolution of both Houses.

Clause 6 enables the Secretary of State to support two distinct activities related to improving the links between industry and education. First, it provides statutory authority for the financial support that this and previous Governments have given to certain industry-education activities, with the aim of improving the mutual understanding between industry and education especially at schools level.

The second purpose of Clause 6 is in connection with the Engineering Council which we propose be set up in response to the recommendations of the Finniston Committee. Following extensive consultations, my right honourable friend the Secretary of State announced on 7th August that the Government had decided to recommend to the Privy Council that Her Majesty the Queen should be advised to grant a Royal Charter to the new body to act as a focal point for the various groups interested in the education and training of engineers.

The publication of the Finniston Committee's report just a year ago stimulated a wide-ranging debate throughout the engineering profession, industry and education system. In particular there has been a great deal of attention paid to the distinction between a statutory and a chartered body approach. I am sure that we shall hear more of this today. I have already mentioned the consultations which the Government undertook in making their proposals, and these have, of course, continued over the last few months. The response has revealed a clear majority view in favour of the Government's proposals and demonstrated that there would indeed be widespread opposition to a statutory body, which would be thought to represent excessive Government involvement in the regulation of the engineering profession.

We have made it clear that we see the need for Government involvement in the chartered body as being limited in scope and time. The majority of interests consulted have supported the Finniston view that the Government should initially nominate the members of the new body to ensure that those concerned are able to act in their own right and not as delegates of specific interests. This is what we propose to do. But we do not see the need for the Government to nominate members after the initial period and we propose accordingly to withdraw after three years. There is a copy of the draft Charter issued on 23rd January in the Library of your Lordships' House and the House can satisfy itself that there is nothing in the draft which gives the Government control other than in nominating the membership.

Our intention is that the body should be self-financing. So far as possible, therefore, we intend to limit the Government's involvement to guaranteeing private sector loans during the initial three-year period when the Government will nominate its membership. Clause 6(4) provides the necessary powers to issue such guarantees. However, as my right honourable friend has made clear we are prepared to stand behind the body financially if this proves absolutely necessary, and Clause 6(1) also provides the power to do so. I am grateful to the House for the opportunity to explain the purposes of this Industry Bill, and hope that the House will give the Bill a Second Reading.

Moved, That the Bill be now read 2a.—(The Earl of Gowrie.)

3.12 p.m.

Lord Ponsonby of Shulbrede

My Lords, may I thank the noble Earl for a thoughtful initial introduction to this Bill to your Lordships this afternoon. As the noble Earl rightly said in introducing the Bill, we as a nation do not produce sufficient manufactures at a sufficiently competitive price, and this has underlined inadequate investment in industry. In speaking from this Dispatch Box this afternoon I should perhaps say that the noble Lord, Lord McCarthy, was to have been present to do so, but he is unable to be with us.

My view of the Bill as a whole is that it is really an inadequate Bill to deal with the crisis which is facing British industry. One of the major parts of the Bill, as the noble Earl underlined, is the implicit proposal to transfer responsibility from British Leyland to the Secretary of State. This is of course embodied in the proposal to reduce the financial limit for the NEB to £750 million from the figure contained in the earlier edition of the Bill of £2,250 million.

We continue to be concerned about the continued diminution in the role to be played in our industrial scene by the National Enterprise Board. I believe that the National Enterprise Board was fulfilling the aspirations which many of us had for it before the Secretary of State started to interfere in its activities. That decline in the role of the National Enterprise Board started with the assumption of responsibility by the Secretary of State for Rolls-Royce and the departure at that time of Sir Leslie Murphy as chairman of the board. I have no doubt that he rightly sensed that this was the beginning of the end of the importance of the National Enterprise Board. Now, three or four chairmen later, British Leyland is also coming under the wing of the Secretary of State.

Having expressed my dissatisfaction on the one hand with the diminution of the role of the National Enterprise Board, I should on the other hand express my satisfaction about the Government's commitment to British Leyland. This commitment was underlined by the noble Earl in introducing the Bill. One can only be thankful that the Government have drawn back from the absolutely ideological policy which they appeared to have, and are prepared to pump sufficient money into Brtish Leyland to enable it to compete in world markets. The noble Earl underlined the successful introduction of the Mini Metro in the past few months.

The implications of a different policy would have been horrific. It has been estimated that if in fact British Leyland had gone under, bearing in mind jobs relying on British Leyland itself and associated companies, it could have meant the loss of between 700,000 and a million jobs. We know that it costs the Government in unemployment and related benefits approximately £6,000 a year for each family who are unemployed. The horrific cost of that happening is, I am sure, one of the reasons why the Government drew back from this particular step. As we all know, one of the reasons why the Government have their financial figures for the current year wrong is that they did not appreciate the full costs of the very high unemployment figures we have now.

Almost as an afterthought, in introducing the Bill the noble Earl underlined that one of the main reasons for the Government's support for British Leyland was that they could sell off bits of it at a time as and when they were profitable. This is something with which I cannot agree. The noble Earl mentioned in passing, and it was fortuitous for him today, that there had just been a successful flotation of British Aerospace. No doubt it can be said in many quarters that the Government have got this particular flotation right because it was over-subscribed and the new shares are undoubtedly standing at a premium at the present time. Equally one could say—and if the noble Lord, Lord Beswick, was here this afternoon I am sure he would say it—that that could show that the Government sold off the shares at too low a price and that they could have obtained for them a higher price than they did. Given all this, given this diminution in the role of the National Enterprise Board, one wonders why in fact the financial limits imposed are as high as £750 million. ICL and Ferranti have been floated off, Alfred Herbert is in liquidation, and I gather that at the end of 1979 the borrowings of subsidiaries were some £268 million, so it would seem that that figure was a rather high figure.

Then we come to the later part of the Bill; the proposal to increase the financial limits for the Scottish and Welsh Development Agencies and the Development Boards for Rural Wales. We welcome the increase in these limits but question whether the increases are sufficient. We also welcome the extension of the shipbuilding redundancy payments scheme for a further two years. However, in some ways Clause 6 seems to be the most controversial clause of the Bill, and we certainly welcome the Government's commitment to try to improve the links between education and industry. In some ways this clause clashes rather oddly with the Government's attitude to the amount of money now being made available to universities.

However, as the noble Earl indicated, there is considerable concern over the nature of the body the Government propose to create, the engineering council. I understand the Government have made available in the normal way the details of the proposed charter of the council, but that is not incorporated in the Bill. There are those who view the proposals of the Government as an inadequate response to the recommendations of the Finniston Report and there are those who question whether the new body should be viewed as a primus inter pares or as a co-equal with the existing professional bodies in this area. Those are the sort of questions which your Lordships are well qualified to debate in Committee. In the normal way we will not be opposing the Second Reading of the Bill, but, as I said at the outset, we are doubtful about how much it does to improve the virility of British industry.

3.22 p.m.

Lord Rochester

My Lords, I join in thanking the noble Earl, Lord Gowrie, for the thoughtful and clear way in which he introduced the Second Reading. It is a mixed bag, as is plain from the diverse nature of the items listed in the arrangement of clauses. It gives us the opportunity to discuss the Government's industrial policy, particularly in relation to the National Enterprise Board and the development agencies. We on these Benches have for years taken the view that there is need for a positive industrial strategy in the long-term, and we consider that the NEB has a major part to play in providing continuity in the execution of that strategy. That is not, however, how the present Government see the role of the NEB, and that accounts not only for the earlier resignation of Sir Leslie Murphy and his board but partly, I suspect, for more recent departures from the reconstituted board to which another chairman has still to be appointed.

I did not find convincing the Secretary of State's claim that the abundance of business talent the Government were able to mobilise for the second set of NEB directors was such that severe losses occurred. A more likely explanation would seem to be that the board has ceased to have any confidence in its long-term future, and, if there is justification for that lack of confidence, would it not be better for the Government frankly to acknowledge it, for at least then we should all know where we stood? However, I shall not pursue that, except in so far as it affects the content of the Bill, and it is to that I now turn.

As the noble Earl made plain, Clause 1 provides for the Secretary of State's financial limits for the purposes of Section 3 of the Industry Act 1980 to be increased to £4,400 million and, by order, to £5,250 million. It is significant in itself that the Secretary of State is taking powers in the Bill to increase financial limits by order, since that was the power he himself removed in the 1980 Act. And again, I have not found convincing his explanation that the introduction of legislation, of which this Bill is an example, gives greater opportunity for debate than there would have been if the power to increase by order had been retained. It seems to me more likely that the Secretary of State's decision last year to divest himself of this power was made to placate critics within his party. However that may be, we must all hope there will not soon have to be more back-tracking in yet another Industry Bill to enable the NEB to re-acquire the 25 per cent. stake in ICL that it was forced to sell in 1979.

Of the total of £4,400 million provided for in Clause 1, as we have been told, £2,900 million is intended for BL and £1,500 million for Rolls-Royce, and we accept with reservations the need for both these provisions. But the two cases are of course very different. There has been much talk lately of BL but not so much of RR. I think I am right in saying that the financial provision made in the Bill for RR was decided on before that company failed to win further orders for the RB 2–11 engine against American competition, and it may be therefore that there is room for further consideration of RR in future following that rather disappointing development.

We welcome the provision in Clause 2 for the financial limits of the Scottish and Welsh Development Agencies to be raised by £200 million in each case. But the current guidelines for the NEB provide that it too should have a regional role. One is bound to contrast the favourable treatment accorded to Scotland and Wales in the Bill with that of the North of England, where I live and where the position in relation to the rundown of manufacturing industry and unemployment is extremely serious—and we heard some indication of that from the noble Lord, Lord Sefton, earlier.

The only other point I would make on that clause is in the form of a question to the Minister: Is it still the case that the payment of regional development grant is being held back for four months? If so, does that not, at a time of such high interest rates, impose an unnecessarily heavy burden on those new small businesses which we are all agreed it is so vital to develop? I have little to say about Clauses 3 and 4. We accept the need for the public dividend capital of the NEB and the Government loan debts of the development agencies to be reduced, but I find it difficult to assess the validity of the new measures against which the NEB's future financial performance is to be judged, and it may be that there will be room for further discussion of this in Committee. I have in mind particularly the proposal that the cumulative return on the board's investments as they are disposed of should be measured against the Financial Times actuary's industrial share index. Surely there are many differences between the companies included in the FT index and those in which the NEB has holdings.

The NEB can be directed by the Secretary of State to carry out certain duties and it has obligations placed on it by its guidelines. Moreover, among its holdings there are many companies which are only just starting up. With all those points in mind, I find it hard to see how the yardstick proposed by the Government can adequately measure the board's performance, and I should be grateful for any further information that the Minister can provide to help us form a considered view on this point. Alternatively, if he feels that this is not really a suitable point for debate on Second Reading, I should be grateful if further information can be given at the Committee stage.

The provision in Clause 5 enabling the Secretary of State to extend the period of operation of schemes under the 1978 Shipbuilding (Redundancy Payments) Act is reasonable, it seems to us, and I have no more to say on that. Instead, I should like to spend the rest of the time that is available to me in dealing with Clause 6 of the Bill. It is not surprising that in the arrangement of the Bill's clauses this clause comes under the heading "Miscellaneous", for, as has been said, it contains the Government's response to the Finniston Report, as well as recognition of the needs to improve the links between industry and education and to encourage young people to take up industrial careers.

I should like to deal with Finniston first. There is general agreement that greater recognition of engineers and the function of engineering is essential if our industrial performance is to be improved. There is also agreement on the need for some new engineering authority to develop best practice in engineering, to ensure the supply and optimum use of engineers, to co-ordinate engineering activities, and to determine appropriate standards for education and training. Differences of opinion relate to the machinery which should be used to achieve those objectives, and they concern in particular the question of whether the Government are right in having decided to set up the proposed new engineering council by means of a Royal Charter under the auspices of the Privy Council, rather than as the statutory body recommended by Finniston.

I can see both sides of the argument. On the one hand, it is felt that, unless the new authority has parliamentary backing, no real progress will be made. On the other hand, it is claimed that whatever is done must enjoy the support of organisations already having a stake in the problem, that employers and the universities favour a Royal Charter and are fearful that a statutory body will result in too much Government interference in the activities of the engineering profession.

Perhaps the noble Earl can confirm whether latest reports are true. They are to the effect that the Department of Industry, the Engineering Employers' Federation, and the four institutions which together represent almost two-thirds of this country's engineers, have reached agreement concerning changes to the draft charter which would give greater recognition to the role of the institutions. That would seem to be a promising development. On this point I shall listen with great interest and attention to what the noble Lord, Lord Hinton of Bankside, has to say, for he will speak on it with unique authority and experience.

For my part, it is almost exactly four years since I had the privilege of introducing in your Lordships' House a debate on a Motion calling attention to the need for agreed action aimed at increasing the esteem in which industry is held in society, in particular among students. In my view, that need applies in particular to engineers and engineering, and it is essential that the action taken to meet it should be agreed, if at all possible. The response to be made to the Finniston Report is not a party political question, and I hope very much that we shall be able to reach some agreement on it in Committee.

Having seen a copy of the draft Royal Charter, I should like to suggest a possible way forward. As the noble Earl will know, there is no provision in it for the engineering council to make an annual report to Parliament; yet Finniston recommended that Parliament should have the opportunity to debate the operations of the new body. Could the draft charter be amended to provide for the progress of the council to be discussed by Parliament annually, at least for the first three years of its existence, during which, as the noble Earl has told us, its members are to be appointed by the Secretary of State and the Government will be empowered to give it financial support? I express the hope that a means can be found at the Committee stage to reach a consensus in some such way as that.

Finally, I should like to refer to subsection (1)(b) and (c) of Clause 6, since in my view these paragraphs contain potentially the most significant words in the whole Bill. It is welcome that specific statutory authority is now to be provided for recurring Government expenditure to finance activities aimed at improving mutual understanding between education and industry, in particular at schools level. Time and again, arising from the evidence heard by your Lordships' Select Committee on unemployment, chaired by my noble friend Lady Seear, our attention has been directed to the vital need to improve the links between industry and education in this country. But I find it astonishing, and depressing, that at the Second Reading of the Bill in another place the Secretary of State said that the Government are reducing both the staff and the expenditure involved in those activities. I very much hope that at some time during the passage of the Bill through this House we shall learn from the noble Earl that the Government have reconsidered the matter and that they are willing to provide resources that are adequate to match the admirable sentiments that are expressed in those paragraphs of Clause 6.

If I end on a somewhat inconclusive note, it is because, as I said at the beginning of my speech, the Bill is a mixed bag and therefore it is hardly surprising that from us on these Benches it has evoked the mixed feelings to which I have endeavoured to give expression.

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