HL Deb 14 November 1983 vol 444 cc1060-7

2.52 p.m.

The Chancellor of the Duchy of Lancaster (Lord Cockfield)

My Lords, I beg to move that this Bill be now read a second time. This is a very short Bill—it contains one operative clause only—but it is an important Bill, all the same. Its purpose is to increase British Shipbuilders' statutory borrowing limit to £1,000 million, with provision to increase the limit further to £1,200 million. The limit was originally set at £200 million in the Aircraft and Shipbuilding Industries Act 1977. It has since been raised by two Acts of Parliament and by statutory instrument, with the approval of another place, to £800 million. This Bill makes provision for a new limit of £ 1.000 million and for the limit to be raised further to a maximum of £ 1,200 million, in steps of up to £100 million each, subject to affirmative resolution in another place.

The finance affected by these limits is almost entirely public dividend capital provided by the Government. but finance for the modernisation of the submarine facilities at Vickers yard at Barrow will be partly in the form of loans from the National Loans Fund. Other finance provided to British Shipbuilders in the form of intervention fund support for ship prices is not covered by these limits, nor is expenditure on the shipbuilding redundancy payments scheme.

The Bill reflects the extent of this Government's support for the industry, In the form of the kind of finance covered by this Bill and other elements of direct support—the intervention fund and the shipbuilding redundancy payments scheme—British Shipbuilders has received £851 million since we came into office in 1979. Most of this has gone to merchant shipbuilding. Raising limits indicates our current commitment to the industry, but that commitment is neither unconditional nor open-ended. It must depend on the industry's performance.

British Shipbuilders have had an unfortunate history in recent years. They now have a new chairman, Mr. Graham Day, who took up office on 1st September. One of his most urgent tasks was to produce a new corporate plan. This he has done, and the plan is now being considered by my right honourable friend the Secretary of State for Trade and Industry. We shall need to look at future policy for the industry in the light of that plan. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Cockfield.)

2.56 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having introduced this Bill, to which of course we on this side of the House would like to give our support. The problem of financing the shipbuilding industry is not, as one might sometimes be driven to think, one which is peculiar to the United Kingdom. Just to give an example, during the last three weeks one has observed that the French Government have loaned some £89.2 million to the French shipbuilding yards for a like purpose.

The House will be familiar, but perhaps ought to recall, that the shipbuilding industry not only in this country but in other Western shipbuilding nations has been in the doldrums since the mid-1970s. Indeed, the noble Lord was kind enough to point out that the original powers of lending were given under the Act of 1977, which was a nationalisation as distinct from a privatisation Act that was introduced at that time to secure the future of the shipbuilding industry.

We are common ground—I do not believe the noble Lord would dispute it—that had not those yards been brought into national ownership at that time (I speak completely aside from the warship building side) the British shipbuilding industry would have been in a very parlous position indeed. In fact, as everybody knew at that time and as I am quite sure the noble Lord knows, had the Government had not done so, most of the companies concerned would have had to apply for massive Government aid on an individual company level as distinct from taking a view of the industry as a whole. It is perhaps interesting to note that at this time it is not only the shipbuilding industry which requires further aid. I see that Rolls-Royce, whose nationalisation was carried out under the auspices of the party opposite, has applied this week for a £113 million loan in order to further its activities.

The noble Lord was kind enough to say that the new advance which has been given was not unconditional—that there were certain stipulations attached to it in regard to productivity and a whole series of questions, although he did not mention them specifically, relating to the improvement of efficiency in the industry as a whole and possibly as regards many firms in particular. I do not believe any of your Lordships would dispute the necessity for that. There is no point at this time—nor, do I think, has there been any point at any time—in providing completely open-ended aid without some degree of commitment from both the management and operatives concerned in any particular industry. Therefore. I regard that not—on the face of it, at any rate—as being any kind of threat but as a normal requirement which it is prudent for any Government to make.

However, there can be no doubt, although not particularly in the context of the noble Lord's short speech this afternoon, that the Government really expect the British shipbuilding industry—aside from the warship section to which I shall return—to be competitive at all levels; not merely with Europe but also with the Far East, with Japan, with Korea, and with some of the newly-industrialised countries.

Your Lordships will be aware that I have taken issue with the Government on this point. I indicated that at the time when the shipbuilding contract on behalf of the Central Electricity Generating Board went to a Korean firm, and I now return to it because the industry is not merely entitled to the support of the Government, subject to all prudent safeguards, in order to ensure that we have a continuing shipbuilding interest in this country and continued shipbuilding potential—but also the shipbuilding industry is entitled to all legitimate (and I use the term advisedly) protection against dumping.

This is not only the problem of the United Kingdom. If your Lordships will bear with me, I should like to give some examples. There was a feature article in the Financial Times of 17th October, written by its Asia editor, in which he discussed this problem in regard to Korea. He wrote: Industries, such as shipbuilding, car manufacturing and heavy machinery, which had become inefficient and, in many cases, would have been virtually insolvent without indiscriminate financial support from successive governments whose only objective was growth at any cost". He was referring specifically to the industries of South Korea. Nor was he alone, because the Germans themselves have already made identical complaints in precisely the same direction. For example, Herr Henner Meckel, who is managing director of Bremer Vulcan in West Germany said that other companies involved in the shipbuilding supply and equipment chain would suffer if the industry collapsed. The Koreans were not expanding their shipbuilding activities just for commercial reasons, he said, but for a strategic industrial purpose and also at a depressed time for the industry.

I should just like to observe that the complaints I made at the time about unfair competition—dumping competition—from Korea were also shared in other countries—notably Germany. We find exactly the same situation in respect of the firm of Burmeister and Wain of Copenhagen—a very well known shipbuilder who, as recently as 12th October this year, were reported as saying, in referring to Korean yards that hourly wage costs are at least twice as high in Denmark as they are in Korea: If we are going to be able to sell our ships, we have to be able to show that we have got a better product". So it is not only myself—and not only Britain—who is making this complaint about dumping by Korea.

Since the question of the CEGB order going to Korea was raised—and if I may remind the House, the Prime Minister refused to intervene in that matter—the first question that I have to ask the noble Lord is this: when Her Majesty's Government are talking about competitiveness, do they still mean that the shipbuilding industry of this country is required to compete against dumping of the kind that I have mentioned? The second question I have to ask the Government is: what plans have they for the future of the industry? After all, some 62,000 people are still employed in the industry; most of the sites are located in either development areas or special development areas; and there are managers also who have bound up their lives in the shipbuilding industry in connection with the shipbuilding and ship repairing industry. Those people ought to have some future to which they may look forward, and I would have thought it reasonable for them to be given some perspective.

The noble Lord has said already that he has received the corporate plan of British Shipbuilders and we should like to know from him when he proposes to let us have the Government's views on that corporate plan, as and when they have assimilated it. To what extent is it to be properly financed? What further finance will be required? How much of that finance will be required for investment, and so on? It is very important that we know the answers to these questions so that there can be some kind of perspective in an industry which has been—and will continue to be—so vital to the interests of the country as a whole.

The noble Lord has not touched upon the matter this afternoon; but in another place the Minister there seemed rather to indicate that the future of the shipbuilding industry in this country was all up to the workers. We know perfectly well that over the past 18 months or so there has been considerable unrest in the shipbuilding yards. This has to some extent been due to the quite massive reduction in the labour force that has taken place. It has declined by something like 31 per cent. I believe that nobody would wish to absolve the workers in the industry of a certain degree of responsibility—in fact, a considerable degree of responsibility—for the way in which the industry develops. But it is very often necessary—particularly when disputes arise in this extremely vulnerable industry—to bear in mind that the ship workers, who are by no means overpaid, have had a wages freeze effectively for the past 18 months.

There are very few industries in the United Kingdom, none of the professions, and certainly very few of what one might call the directoral grade of people, where there has been a wages freeze for the past 18 months, even at a time when the rate of inflation has been slightly declining. Therefore, it is up to everyone connected with the industry and to the politicians—including ourselves—who make observations on the general conduct of industry to bear that point in mind. They should take into consideration also that despite the very real fears which the operative has in the shipbuilding industry, there have been very significant advances in the period over the past 18 months to two years in terms of productivity and in terms of breaking down some of the old demarcation lines within the industry which were themselves the product of fear. I do not think that they should be denied that.

One of the most interesting experiments that has been carried out in the shipbuilding industry recently has been the arrangement that Swan Hunter have recently concluded with a Japanese firm to advise them on management. This is the last quotation with which I will weary your Lordships, but I think it is rather salutary to take into account what they have found. It will perhaps make us a little less censorious of some of the workforce in British Shipbuilders, most of whom live in distressed areas and most of whom, even with overtime, earn only a fraction of what many of us are able to earn or to receive by way of our weekly, monthly or annual remuneration. This is what they said—and your Lordships will recall that it was reported in the Sunday Times on 6th November—comparing our practices here with the practices in Japan: But above all the Japanese, who have observed that senior management are rarely visible in the yard, have noticed a lack of communication at all levels. 'There are many tall fences, barriers between departments'.". Then the writer goes on to offer the observation: The roots of Japan's success lie in better management, more efficient use of employees' time and the refining of production systems like heat line bending of steel plates—a technique which Swan Hunter abandoned in the complacent days of full order books in favour of less accurate quicker means of pushing work forward to the next stage". The summation of the opinion is: Poor control, created by inadequate organisation and leadership, reflects the failure of shipyard management, which has recently been reshuffled at Swan Hunter". It is not my purpose to knock management, just as I hope it is not your Lordships' wish, on whatever side of the House, to knock the workers. The problem is both sides. If the loan facilities granted under this Bill are to be used properly, are to be used to aid the shipbuilding industry to what I hope is a recovery of some success, it will be the function of management not to lead by inculcating fear into the operatives, not to try and rule by brandishing the fear of unemployment, but simply to bring the best out in people. This, indeed, of course, is the function of all true leadership, as anyone who has had any experience in manufacturing or service industry knows full well. Those who try to rule by fear and by threats ultimately end up by being the recipients of hate.

The Government have a similar responsibility. I hope that they will take this Bill as a first step in doing exactly the same themselves—trying to lead (and it is a very difficult task) not by fear but by bringing the best out in people. One of the ways in which they can do this is to show the industry, both management and operatives, that when the shipbuilding industry is in need of legitimate protection against dumping then our Government, like the Governments of other countries, will not hesitate to protect them. This need not be a pillow on which they can cushion themselves: but it gives them a feeling of oneness, a feeling that they are not alone in their battle against adversity. They do not need to have, and will resent having, their noses continuously rubbed in it. With these sentiments in mind I commend this Bill to the House, and I hope that at any rate some of the considerations I have ventured to lay before your Lordships will receive at any rate sympathetic consideration.

3.16 p.m.

Lord Lloyd of Kilgerran

My Lords, I should like to thank the noble Lord the Minister on two counts. The first is for allowing me to intervene, albeit very briefly, although my name is not on the list in accordance with the usual practice. Secondly, I should also like to join with the noble Lord, Lord Bruce of Donington, in thanking the Minister for his concise and short speech in introducing this Bill.

I should like to follow the noble Lord, Lord Bruce of Donington, on two points. First of all, would it be appropriate for the Minister at this stage to give the House any indication about the future plans that the department or the Government have in regard to the future of the industry? It is known, of course, that these loans are conditional, and in connection with the word "conditional" the word "efficiency" is introduced—a rather general term. I wondered whether the noble Lord would find it appropriate at this stage to say something about the kind of efficiency that the Government require under these conditions. Would it be that the workforce is to be maintained or increased, and will there be any incentives given to the workforce in regard to innovation?

My second point—and I fully realise that this is a somewhat technical point of which I should have given notice, so may I again apologise to the Minister—is that it has been brought to my notice that one of the difficulties which shipbuilders in this country, and indeed in many countries of the EEC, are experiencing at the present time arises from the competition laws of the EEC under Articles 85 and 86 of the Rome Treaty, in particular. The noble Lord, Lord Bruce of Donington, raised the question of difficulties in regard to competition arising from dumping, but I am referring to another aspect of the effect upon shipbuilders when they enter into contracts which may not conform, or in respect of which, at any rate, it takes a long time to find out whether they conform, with the competition laws of the EEC.

May I also, in conclusion, join with the noble Lord, Lord Bruce of Donington, in saying that I hope this is a first step that the Government are taking in regard to the recovery of the British shipbuilding industry.

3.18 p.m.

Lord Cockfield

My Lords, I an grateful to the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Lloyd of Kilgerran, for their general support of the Bill. The purpose of the Bill is limited, of course, to providing the money necessary (if I may be forgiven for using the phrase) to keep British Shipbuilders afloat. Perhaps the most appropriate time to be discussing the future of the industry and its future shape will be when Mr. Graham Day has completed work on the corporate plan and my right honourable friend the Secretary of State for Trade and Industry has considered it and come to a conclusion as to the future policy to be followed.

There are one or two points raised by both noble Lords that I should like to follow up very briefly. I entirely agree, of course, that the problem is not confined to the United Kingdom, that the whole of the shipbuilding industry throughout the world, and in Europe in particular, is going through a very difficult period indeed. But none of this ought to blind us to what are our own deficiencies. The simple truth is that in many of the yards operated by British Shipbuilders productivity is actually lower than it was before nationalisation, despite the very heavy investment that there has been; and in many other yards it is no better than it was at the time of nationalisation. It also compares unfavourably with productivity in many European yards. That point is important because the tendency is for people to talk in terms of competition from Korea or Japan. Competition from the European yards is just as important and I suggest to the noble Lord, Lord Bruce of Donington, who specifically raised the question of Burmeister and Wain, that he should look at its productivity because despite its complaints about Korea he will find that it is significantly higher than that of British Shipbuilders.

I realise that wage levels in Korea are lower than in the United Kingdom, although they are not as low as most people suggest; but it is relevant to refer your Lordships to what Mr. Day himself said about competition from Korea. He said that if farm boys in Korea can learn the modern techniques of making ships competitively, why cannot our people, with decades of shipbuilding experience behind them? That is the sort of challenge we need to face.

I do not want to go through a long list of unfortunate events which have occurred in British shipbuilding during the past few years because I prefer, as indeed do both noble Lords, to look to the future rather than the past, but we have lost a lot of orders through circumstances which, frankly, were entirely within our own control. It is no good blaming the Koreans if we have strikes in this country or if orders are running very late indeed. The question of the oil rig for Britoil has been raised on a good many occasions. I hope in the end that that contract can he salvaged. It is not a very happy story from the point of view of performance of our own shipbuilding industry. However, I prefer at present to leave it on that basis.

There is, in fact, considerable subsidisation of shipbuilding prices throughout the whole of the European Community. There is an intervention fund which at present provides a subsidy of 15 per cent. on price and we told the Commission that we regard the current rules governing shipbuilding aid as unrealistic in the present market. We accept that there is a need for our industry and that of Europe to restructure, but that the restructuring must be planned and orders must be obtained to keep our best yards going and to provide the breathing space they need to improve their competitiveness. We have, therefore, proposed that the intensity of the intervention fund—that is, the percentage by which we subsidise virtually all merchant shipping orders—should be increased from its present level of 15 per cent. We have argued that the amount of money available must also be increased. It would be wrong to hold out hopes of instant solution and instant agreement in Brussels, but we are pressing very hard on this point.

If your Lordships agree, I will leave matters there and as soon as my right honourable friend has completed his review of the future of the industry we shall clearly be in a position to discuss the situation against a background of knowledge of the specific plans that British Shipbuilders itself and the Government have in mind. Meantime, I am sure that all of us wish Mr. Graham Day every success in his efforts to improve the efficiency and performance of British Shipbuilders.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

Back to