§ 7.14 p.m.
§ Lord Cullen of Ashbourne
My Lords, because few noble Lords intend to take part in this debate I do not propose to deliver the fairly lengthy speech that I had been planning to make. If, however, any noble Lord wishes to raise any matters relevant to the Bill, I shall be happy to respond later. Without further ado, I shall come straight to the provisions of the Bill. The Bill has two purposes. The first is to increase British Shipbuilders' statutory borrowing powers, and the second is to enable the shipbuilding redundancy payments scheme for Great Britain and for Northern Ireland to be prolonged for two years.
Before I deal with these provisions in more detail I would like to stress that neither represents a departure 821 from present Government policy of reducing subsidy and financial support for the industry, and I would like to assure the House that the power to prolong the redundancy payments scheme is not an inauspicious omen. Both provisions allow present policies to continue. The statutory borrowing limit governs the amount which British Shipbuilders and its wholly owned subsidiaries may borrow in the form of loans or receive by way of public dividend capital. Clause 1 of the Bill increases this limit to £700 million with provision for a further increase, by order, to £800 million. These limits may be compared with the original maximum limit, under the legislation which set up British Shipbuilders in 1977, of £300 million; a limit which was then said to be sufficient to last until 1982.
When this Bill was introduced in another place the borrowing limit was £500 million, but as one could not be sure as to when this Bill would be passed an order was also introduced to raise the limit to £600 million—the upper limit under the 1979 legislation. This order came into effect on 1st December last year. British Shipbuilders' borrowing against this limit is expected to be about £500 million at the end of this financial year, in two months time. There is, therefore, unlike the position in 1979, no urgency. This Bill is not a crisis measure. It was, however, decided—and British Shipbuilders agreed—that it would be prudent not to defer legislation to the next Session.
Similarly there is no immediate need for the provision in Clause 2 which enables the shipbuilding redundancy payments schemes to be prolonged. Under existing powers the schemes cover redundancies which may arise in British Shipbuilders and in Harland and Wolff up to the end of June 1983. It was thought convenient to use the opportunity of this Bill to take enabling powers to prolong the schemes by two years to June 1985. The House will have another opportunity to debate prolongation of the schemes as this will require orders needing the approval of the House.
Taking these powers is not a cause for alarm. However, as this House is aware, job opportunities in surface warship building for the defence programme will decline from present levels. The extent, if any, in the decline in the employment levels at the yards currently engaged on this activity will depend on British Shipbuilders' success in gaining alternative work.
British Shipbuilders showed great foresight in seeking to offset the decline in naval orders by diversifying into offshore constructions. Two yards—Cammell Laird and Scott Lithgow—are now heavily occupied on this work. BS is to be congratulated for its success in breaking into this difficult and technologically advanced sector. It has won orders for semi-submersible drilling rigs from BP, Dome Petroleum and more recently from BNOC. Other BS defence yards have enough work to keep them busy for a while, which gives time for adjustment. BS have also been very successful in selling small naval craft such as offshore patrol vessels. Exports from the Warship Division were nearly £100 million in 1980–81. But substantial efforts are needed to get back into the export market for larger warships.
British Shipbuilders receive the full support of the Defence Sales Organisation and our embassies abroad in their attempts to step up their penetration of export markets. In drawing up their specifications for new vessels for the Royal Navy such as the offshore patrol 822 vessel now in service and the Type 23 frigate, and new conventional submarine currently being designed, much thought is being put into how these vessels can also be made more attractive to overseas customers as well as meeting the Navy's requirements which must remain the first priority.
Before concluding, I would make a point which may be of interest to the House—namely, that this Bill contains no provision to facilitate the introduction of private capital. This should not be taken to imply any lack of resolve to implement our manifesto commitment. I can repeat the assurance given by the Minister of State in another place that it is the Government's aim, time permitting, to take the necessary powers during this Parliament. British Shipbuilders has come through a difficult period and, in the process, has undergone considerable, and painful, restructuring. This is now beginning to pay off and the corporation is striving hard for further improvements. The Bill is proof of the Government's willingness to support British Shipbuilders' efforts to attain viability, and I commend it to the House.
§ Moved, That the Bill be now read a second time.—(Lord Cullen of Ashbourne.)
§ 7.21 p.m.
§ Lord Ponsonby of Shulbrede
My Lords, I thank the Minister for introducing the Bill and for finding himself able to cut the long speech which he had prepared. I always thought it was a tradition of this House that when we had a dinner break, those who were involved in the heavy business were let off for an hour. But the noble Lord appears to have landed the task of introducing this measure as well as being heavily committed on the previous matter which was before your Lordships' Committee. It would therefore be churlish of me at this time to speak at great length.
As the Minister said, the primary purpose of the Bill is to raise the borrowing limit for British Shipbuilders to £700 million, with provision for a further increase to £800 million, and to enable the redundancy payments scheme to be extended for a further two years. We on this side are glad that those are the only measures included in the Bill. We had feared, when there was a shipbuilding Bill to be introduced, that it would include a proposal for the privatisation of British Shipbuilders. The noble Lord mentioned that towards the end of his speech and reaffirmed the Government's intention during the course of this Parliament to introduce some element of privatisation for BS. But my feeling is that the Government have learnt a lesson from the time-wasting exercise in which your Lordships were involved last year on the measure to enable the privatisation of British Airways to take place. In view of that, I have a feeling that we shall not see—indeed, it would be far too near the end of the present Parliament—any proposal for the privatisation of British Shipbuilders, and perhaps the Minister in his reply would care to comment on that.
We were glad to hear of the progress that BS have made and about how they have managed to diversify their work—for example, the success they have made in the sphere of offshore construction and selling smaller craft. However, we should be concerned about the total level of investment. While we know that there has been a reduction in the losses of BS over the past three years, 823 the Minister did not mention that there had also been a reduction in the level of investment. The level of investment by BS is still of a different order of magnitude from that of shipyards in Korea and Japan. I particularly refer to Japan, where the level of investment is roughly 30 times as high as that in Britain. That must be bad for the future competitiveness of the industry.
It is indeed worrying to know that British operators are still going to the Far East to place orders for shipping, instead of placing them in British yards. It is worrying to know that the size of the British fleet is continuing to drop, although it is still the fourth largest in the world. In view of that, and in view of the situation, one can say that there is a case for a very much higher borrowing limit than that proposed in the Bill, which, basically, has been geared up to take account of inflation since the limit was originally set: perhaps the Minister would comment on that as well.
One could make a long speech on the different aspects of the British shipbuilding industry today, but, in view of the situation tonight, I shall content myself with what I have already said, although I should be glad to have the Minister's comments on whether a very much higher level of investment for British Shipbuilders would be to the advantage of the industry as a whole.
§ 7.27 p.m.
§ Lord Lucas of Chilworth
My Lords, nearly all that the noble Lord, Lord Ponsonby, said, and indeed much of what my noble friend said in his introductory speech, seemed to relate to shipbuilding, and the Bill is designed to enable British Shipbuilders to borrow more money. I do not disagree that that facility should be put at the disposal of an industry which is struggling hard and quite successfully against the present world recession and fierce world competition. I do not think that we as taxpayers can be wrong in giving support to an industry of this nature. Indeed, all our competitors, in Western Europe and elsewhere, receive support of one kind or another.
My concern, however, is on the ship repairing side. When I read the Official Report of the debate in another place on 17th November, I was struck by a remark made by the honourable Member for Wallsend, who said that the ship repair sector was not doing too badly, although things could be better relative to world conditions. I am not sure whether he was talking in terms of the whole industry or that part of the ship repairing industry in which British Shipbuilders engage, particularly as he is the Member for Wallsend, which houses the Wallsend Dry Dock Company, one of the nine repair companies in that part of the world owned by British Ship Repairers.
Can my noble friend say whether the Government feel that ship repairing is to be considered a profit centre or a loss leader? I wish to quote only one instance of tender prices which have been offered by a number of companies for the repair of one particular ship. Of the five North-West European yards tendering, the highest tender was £1,038,000. The middle line seems to have been around £800,000, whereas British Shiprepairers Tyne Group quoted a figure of £555,000. The tenders of the three Mediterranean yards which I compare in regard to this particular ship were in the bracket of £800,000 to £900,000.
824 Not for a minute am I making any criticism of the fact that British Shipbuilders should offer a keen price. What I wonder is whether the quote was such that more money might not be made. The top figure was £1 million and the middle line out of five was around £800,000. Why were we pricing a quarter of a million pounds behind? I recognise that in any repair industry price is not the only factor; there is the distance, the time, the service, and so on. Nevertheless, we have heard that the British yards are competitive in terms of time, service, and quality. My point is not one of adverse criticism, but rather one of criticism in that, based on the example that I have quoted, it does not appear that the best opportunities are being taken.
My noble friend might well say that pricing and tendering is for the commercial judgment of the board and management rather than for Government. On the other hand, I feel it is quite fair to suggest that since Parliament is underwriting the losses—£341 million in the last few years, underwritten by the £400 million advance made by Government—it is not unreasonable for us to want to satisfy ourselves that the losses are minimised, that profit is earned wherever it can be earned. It would seem to me that there is a case to be made for saying, Yes, have an increased borrowing limit, but asking, just where is the money to be spent? Is there to be a loss leader in the repair side? Where more can be made of the position regarding a tender, that should be done, as I have felt in relation to the example that I have given your Lordships. So while, of course, I give support to the Bill, I would ask my noble friend whether he, or the Department of Industry, is totally satisfied that, notwithstanding the diversifications the most is made of all opportunities.
§ 7.34 p.m.
§ Lord Cullen of Ashbourne
My Lords, I am grateful to the two noble Lords who have spoken for their general welcome for the Bill, and I shall try to answer one or two questions that were put to me. The noble Lord, Lord Ponsonby of Shulbrede, asked about privatisation and how likely it was that it would take place during the lifetime of the present Government. I would draw his attention to the fact that I said that, time permitting, we would wish to take powers during the lifetime of the Government; I did not actually say that we would be privatising it.
The noble Lord asked about the level of investment, and referred to the huge sums being made in Japan. Perhaps I cut a little too much out of my initial speech, and so I think I shall just read it. The Government have paid British Shipbuilders very large sums of public money in the form of intervention fund assistance, public dividend capital, and redundancy benefits. A considerable modernisation was undertaken in the 'seventies with Government assistance. British Shipbuilders' chairman takes the view that shipbuilding is not an industry which requires continuous capital investment and that British Shipbuilders is not suffering because of lack of capital investment. However, I should add that the level of capital expenditure is expected to rise this year.
On the subject of the capital investment which has been taking place in Japan, I should like to point out, in order to put the record straight, that there have 825 been reports of investment exceeding £600 million. I am told that that figure relates to the total investment of the large industrial conglomerates, such as Mitsui, and that only a fraction of that will be spent on their shipbuilding interests. I asked the same question when I was being briefed on the matter, and I was as equally surprised as the noble Lord now appears to be at the reply, but I gather that that is the fact of the matter.
The noble Lord also asked whether the borrowing limit was high enough. In the past the forecasts as to how long the borrowing would work have been fairly inaccurate. The present estimate is that the current borrowing limit as laid down in the Bill should last British Shipbuilders for three years, and they are not asking for further borrowings. In point of fact they are gradually reducing the subsidy which the Government give them in one way or another each year, and there is expected to be a further drop this year in the amount of money which the Government will have to provide. I think that the figure should come down from £150 million to £125 million in way of external finance this year. If I am not quite right about that—I am not sure that I am—I shall write to the noble Lord.
My noble friend Lord Lucas of Chilworth asked about ship repairing and wondered whether the private sector was being disadvantaged by the ship repairing companies in BS. I would say to him that ship repairing is an international market and there is fierce competition for the limited amount of work available. We are aware of the losses that British Shipbuilders are incurring in the majority of their ship repairing subsidiaries, and linked with this is the concern of private sector ship repairers who say that there is unfair price competition.
Our concern has been brought to Mr. Atkinson's notice. The size of the public sector ship repairing industry has been reduced from 8,000 employees to approximately 4,000 since 1978. This indicates BS's concern that it should be viable. We are disappointed that we have not been able to reassure the private sector. Mr. Atkinson has also assured us that it is not his policy to quote uneconomic prices for this work. Despite this, we are concerned that there is still disquiet about the fairness of the competition. If the private sector has any evidence of unfair competition, we shall consider it and discuss it with BS.
I hope that I have adequately answered all the points that have been raised, and I commend the Bill to your Lordships.
§ On Question, Bill read a second time and committed to a Committee of the Whole House.
§ Lord Lyell
My Lords, I beg to move that the House do adjourn during pleasure until eight o'clock, since I understand that this was the time which has been agreed by the usual channels.
§ Moved accordingly, and, on Question, Motion agreed to.
§ [The Sitting was suspended from 7.40 until 8 p.m.]