HL Deb 26 January 1981 vol 416 cc575-82

3.44 p.m.

The Earl of Gowrie

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Industry on the British Leyland 1981 Corporate Plan. I am also making available in the Library of your Lordships' House, and in the Printed Paper Office, a report by BL on its recent performance and details of the Corporate Plan.

My right honourable friend's Statement is as follows:

"The plan contains BL's strategy for returning the company's businesses to viability in the medium term. It foresees a need for some £620 million of additional Government equity in 1981/82, £370 million in 1982/83, and £150 million over the two following years, in order to assist the continuing programme of restructuring and investment in new projects, including the new LC10 medium car family. The plan was submitted in four business sections. The policy of the BL board has been (and will continue to be) to decentralise decision-making to the operating units. The intention of the board as stated in the plan is to draw these operating units into four distinct businesses to enable management to concentrate on well-defined product groupings. These businesses are BL Cars, Land Rover, Unipart and the Leyland Group. As the structure evolves, so the progress of each business will be separately monitored.

"The board is meanwhile exploring a variety of possible forms of collaboration, and has written to the Government in the following terms:

'The board sees collaboration with other manufacturers as an important part of its strategy for recovery and for reducing and eventually removing dependence on Government support. This might take the form of collaborations on components or on particular parts of the business; but the board would also welcome, and actively seeks, a relationship of a more comprehensive kind which might grow out of such collaboration.'

"The Government supports BL's intention of creating viable businesses and of attracting private capital into them. It has approved the plan and has agreed to fund the first two years of the plan (including the first phase of the LC10 programme)—that is £620 million in 1981/82 and £370 million in 1982/83—subject to regular monitoring by the BL board of progress in achieving the plan. The Government as shareholder will also be watching closely the financial performance of the company.

"The chairman's letter to me of 26th January, which I am publishing in full today in the Official Report and placing in the Vote Office, also makes it clear how the board will respond if the chances of achieving the plan's major objectives are appreciably reduced.

"He says that:

'Circumstances may arise in which, through a substantial deviation in performance or an appreciable departure from the assumptions underlying it, the corporate plan is clearly not being achieved and it appears impossible to bring about recovery within the timescale envisaged. This could arise for external or internal reasons; an example would be a major strike which damaged or appeared certain to damage any substantial sector of the business. In such circumstances the board would, in accordance with section 1 of the plan, very quickly initiate a review (in consultation with the Government) of the plan of the relevant business group, with consequent implications for continued Government funding.'

"The board and management have assured me that they will not hesitate to take whatever difficult and fundamental decisions about the future of the company are necessary if circumstances, inside or outside BL, require it.

"As I have already told the House, there will be an opportunity for full debate in the context of the amendment to the NEB's financial limit in respect of BL in the Industry Bill which I shall table for consideration at Report Stage. Clearance from the European Commission will be needed for the Government's funding.

"Finally, it is the Government's intention that the shareholding in BL should be transferred from the National Enterprise Board to the Secretary of State. This transfer will not, however, take place until the Industry Bill now before Parliament receives Royal Assent. Meanwhile, the Government will discuss with BL matters arising from the change of ownership, in order to ensure continuity of BL's financial arrangements.

"The Government wish the BL board and the company's employees well in their task."

My Lords, that concludes my right honourable friend's Statement.

Following is the letter referred to in the Statement:

26th January 1981

The Rt. Hon. Sir Keith Joseph, Bt, MP,

Secretary of State for Industry.

Dear Secretary of State,

The Board believes that BL's 1981 Corporate Plan offers—subject to the risks and qualifications which are made clear in the Plan—the best feasible prospect of bringing about the recovery of the business.

As you know, recovery will take time, and during this period the risks to the survival of whole sections of the business will remain considerable. While it should be possible for the business to accommodate the normal trading fluctuations within the framework of the Plan, the achievement of competitive cost levels is essential to ensure our survival. As we have made clear in recent weeks, even the success of a particular new model such as Metro cannot allow us to relax the strict discipline which has to be exercised on all aspects of our cost structure.

Government approval of our Plan and funding request would not change this situation, because it is our own performance in the external competitive environment which fundamentally determines whether or not the business can survive. Dealers and customers would simply walk away from the company if there were a major strike. Moreover, they would desert us more gradually, but no less surely, if we allowed our costs to rise to uncompetitive levels—or indeed if it seemed to them that the necessary funds would not be sought from Government.

Circumstances may arise in which, though a substantial deviation in performance or an appreciable departure from the assumptions underlying it, the Corporate Plan is clearly not being achieved and it appears impossible to bring about recovery within the timescale envisaged. This could arise for external or internal reasons; an example would be a major strike which damaged or appeared certain to damage any substantial sector of the business. In such circumstances the Board would, in accordance with section 1 of the Plan, very quickly initiate a review (in consultation with the Government) of the Plan of the relevant business group, with consequent implications for continued Government funding.

The Board will, of course, be monitoring progress under the Plan regularly in the normal course of its business and in the context of the annual updating of the Plan towards the end of 1981.

In our recent discussions on the Corporate Plan, you also asked me to confirm to you the views of the BL Board on the importance of collaboration in our recovery strategy for each of our main business groups.

The Board sees collaboration with other manufacturers as an important part of its strategy for recovery and for reducing and eventually removing dependence on Government support. This might take the form of collaborations on major components or on particular parts of the business; but the Board would also welcome, and actively seeks, a relationship of a more comprehensive kind which might well grow out of such collaboration.

Yours sincerely,

(signed) Michael Edwardes."

3.50 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Earl, Lord Gowrie, for repeating that Statement. I am sure he will understand that before taking a completely definitiveand detailed attitude towards the Statement, we shall have to have time to examine quite closely the 1981 Corporate Plan, to which the Statement refers, and the appropriate documents. At the risk of embarrassing the noble Earl, may I at once say that we on this side of the House entirely applaud the decision that the Government have taken in this matter. It represents the first of a series of U-turns, which will progressively increase as soon as the industrial deserts which the Government's policies are creating throughout the country proceed to yield their results. It would nevertheless be most churlish if we refrained from congratulating the Government on that account alone.

The Statement refers to four business sections. We should like to examine those a little more closely when the details become available, but we should like to know the extent to which the individual managements of these four sections will be independent of the BL main board. In other words, what will be the role, apart from monitoring, of the BL board as a whole? The Statement mentions collaboration with other manufacturers. This seems to us to be an entirely acceptable idea, although we should like some further particulars in due course, probably in debate, of a relationship of a more comprehensive kind which might grow out of such collaboration. We shall require to have a little more detail as to the implications of that. We would note that the Government, as shareholders, will be watching closely the financial performance of each of the four divisions.

The Statement enters a caveat about the future performance of each of the four groups, and in itself sets out conditions under which the Government and the board might have to review the situation in the event of the plan not working out in the manner that is now envisaged. It gives as an example if there were, a major strike which damaged or appeared certain to damage any substantial sector of the business". Yes, my Lords; and we trust that the Government will give us some indication of the degree to which they have impressed it upon BL management that cooperation is in fact a two-way affair which involves not only the workers and the trade unions but also, of course, the management itself. There are, of course, other reasons why the plan should not work out in the way that is now envisaged—external factors; for example, the external rate of exchange. What would be the attitude of the Government if BL found itself considerably cripped by the maintenance of an altogether artificially high rate of exchange, and are they going to take into account the extremely high interest rates that now obtain?

We note finally that it is the Government's intention that the shareholding of BL should be transferred from the National Enterprise Board to the Secretary of State. We on this side would like to know why. We always understood it to be the philosophy of the party opposite that the less the Government or the state interfered in individual businesses the better it would be. One shudders to think, for example, what would happen to BL if we had intervention in its affairs on the lines on which the Government so disastrously interfered with the steel industry in 1979; and we ourselves would not think that the Secretary of State for Industry was the best possible person to give directions to the industry on a detailed basis.

Having said that, let nothing take away our support for the action that the Government have taken. We shall review it, and we hope that there will be full opportunity for debate so that all these outstanding matters and affairs of some detail may perhaps be dealt with at a rather greater length.

Baroness Seear

My Lords, we on these Benches would also like to thank the Minister for repeating this Statement this afternoon. As a policy, we are opposed to pouring money into industries for which there is no likely successful future—and this is a very great deal of money, £1,140 million over a period of four years, or something of the order of £20 for every man, woman and child in the United Kingdom over that period. Therefore, we need to be satisfied that this money is going to be used to good purpose. We recognise, of course, that the future of BL is not concerned only with BL itself but will have a great effect on employment in the very large number of suppliers where jobs would be lost on a very large scale if BL were unable to continue in business. Therefore, while having reservations about the wisdom of investment of this kind unless there is true security, we recognise that it is not unreasonable that the Government should attempt to keep the more viable parts of BL alive and to see them flourish.

We therefore welcome the fact that there is concentration in BL on what seem likely to be, in the judgment of the management, the most profitable areas of business in which they are engaged; and the decentralisation which is promised in the plan is also something which we welcome. However, our fear arises that once this business begins to be profitable there will be a return to the disastrous industrial relations which have bedevilled BL over the years. In very recent months there have of course been signs of true improvement—true improvement which has perhaps come about because of the very bleak future of BL, and the realisation among an increasing number of people employed in that company that their future is dependent on the survival of the organisation.

But if there is a return to some degree of prosperity—and this must be the hope, otherwise it would be quite improper for the Government to pour so much money into this organisation—what undertaking is there, what have the Government done to find out from both the management and the trade unions, that there will not be a return to industrial relations of the kind that we have seen in the past? It really does require a new mood, a new age of industrial relations, in BL if this money is not to be yet another example of public money being thrown away. It could be that some development of an industrial democracy inside BL, some promise of a share in such profits as may be made among the employees of BL, might be a move in the direction of bringing in a new development in industrial relations; but, without that, our fears that this money will once again be wasted will be likely to prove all too well founded.

We also wonder why the Government have seen fit to remove the supervision of this investment from the National Enterprise Board to the Secretary of State. We surely must believe that the National Enterprise Board, set up under people with real experience of industry and with the time and expertise to concentrate on the problems of industry, is a better organisation for the monitoring of the use of this money and of the development of BL than is possible in the Department of Industry. We very much regret that the Government have seen fit to make this move, which seems contrary to their appreciation of what is needed for the professional development of industry, which is what is so deeply required.

As the noble Lord, Lord Bruce, has said, there is much in this Statement which requires further consideration. We note that a debate has been promised in another place. Is it too much to ask that the Government will arrange for a debate in this House on the future of BL?

3.59 p.m.

The Earl of Gowrie

My Lords, I am grateful for the general welcome which both the noble Lord, Lord Bruce of Donington, and the noble Baroness have given to this Statement. If I may take the points in reverse order, obviously I see no reason (though it is a matter for the usual channels) why we should not debate this very important issue. On the issue which both Opposition Front Bench spokesmen raised about the transfer to the Secretary of State from the National Enterprise Board, I think both the noble Lord and the noble Baroness will probably be aware, as the House will be, that the National Enterprise Board has made public—I might say very public—its desire not to look after British Leyland. The Government are accepting this; and I think many of my noble friends would agree that an investment of this scale, involving such responsibilities and such decisions, would be more appropriately taken directly by the Government, since the Government are perforce involved. I would also say to the noble Baroness that it would seem to me to be adding even more grievously to the burden on public spending, and therefore to the resources available to industry, if we had to have the enormous duplication of effort of different public bodies monitoring the activities of what we hope will in due course be a vigorous private trading sector industry. I am not sure whether that would be the most efficient way to proceed.

The noble Lord, Lord Bruce of Donington, as we would expect of him, made his teasing remark about U-turns. I do not think that either British Leyland's position or the seven economic ages of man were created by this Government. We have to deal with the position that we find, and the erosion of the competitiveness of the British motor industry is a position that we find. On the question of whether British Leyland would be affected by a strong pound, that is one of the external reasons which Sir Michael Edwardes made clear would have to be taken into account during the operation of his corporate plan, and about which he would have to be in close touch with the Government.

On the issue of the internal reasons and the desire which I am sure we heartily share for continued—and I stress "continued"—improved industrial relations and productivity at BL, again Sir Michael has been most careful—and my right honourable friend's Statement repeated his letter—that if there were to be internal disruption then, to put it very bluntly and not to mince words, this whole large public investment might be in jeopardy. That would have to be taken into account, and that is why that letter has been quoted in the Statement.

Lastly on these points, the noble Lord, Lord Bruce of Donington, mentioned the burden to British Leyland of high interest rates. I must point out two matters to the noble Lord. One of the reasons why interest rates, which are a great burden on industry, are high is exactly that the Government have to help and support difficult and ailing large-scale industries at a time of recession. Secondly, it must be recognised that when he welcomes the support—and I am grateful to him for the welcome—Government aid in this direction inevitably will have to be financed, and that will be reflected in interest rates and it may deny other people equally needed resources.

Lord Harmar-Nicholls

My Lords, bearing in mind that £1,100 million is earmarked and it is envisaged that four separate managements will operate as distinct from the one that exists at the moment, has any thought been given to what proportion of the £1,100 million will be allocated to each of the four and the reasons for the size of the allocation? Bearing in mind the damage that could be done if the whole group was put in jeopardy by one section creating the troubles that we have seen in the past, could we have an assurance that the monitoring will look upon the four separate managements individually? If one falls down because co-operation is not forthcoming, then will they only lose the help that is now being offered to them, and not the remainder? On the other hand, if one section falls to the ground, for the reasons that I have just mentioned—and various sections in BL in the past have shown themselves to be better or worse than others at various times—then it will not be a matter of what is removed from the one section not going automatically to the other. Has any thought been given to how that will work out, or does that need further thought in the future?

The Earl of Gowrie

My Lords, the relation of the main BL board to these four product companies is that of a holding company to subsidiary companies. If I may use this analogy, the holding company is not in this instance a finance group, as it were; that is the position in which my right honourable friend and ourselves are in. The role of the holding company is managerial and directional in this case. It is because we are confident in the present British Leyland management and in the internal structural coherence of its plan that we find ourselves able to support it. I hope that my noble friend's point will be met on that.

Lord Beswick

My Lords, I welcome particularly the reference in the Statement to the structure evolving as against the requirement that it should conform to some predetermined governmental structure. May I ask the noble Lord whether he can give an assurance that evolution of this structure will be a question of management decision and not governmental pressure? While I welcome the fact that at the end of the Statement the Government were able, as a postscript, to wish well the men and management of BL, may I ask the noble Earl whether, if they are successful and do well, that will be a precursor to a change of ownership to outside interests?

The Earl of Gowrie

My Lords, the noble Lord, Lord Beswick, has a great experience of the public trading centre sector in his own right. There seem to be two slightly inconsistent points of view expressed in both his questions. Obviously, the Government would prefer to be disengaged so far as possible from this kind of financing. It will not have escaped your Lordships that there is an irony in the fact that the Government, with all the social and other claims upon the taxpayer's limited resources, are, among other things, engaged in funding the production of luxury cars. This is something that should not be forgotten. Therefore, whereever possible we should like not to be involved in the trading sector. If BL is successful, Sir Michael and the management have made it clear that they will continue to seek private capital coming into the company. Obviously, the more private capital that comes into a successful company, the less charge there will be on Government funding. That, I should have thought, would be broadly welcome to all of us.