HL Deb 25 July 1984 vol 455 cc308-14

4.34 p.m.

Lord Lucas of Chilworth

My Lords, it may be for the convenience of the House if, with the leave of the House, I now repeat a Statement being made in another place on British Shipbuilders. The Statement is as follows:

"The corporation today published its annual report and accounts for 1983–84. Copies have been laid before the House. The corporation made a trading loss of £161 million of which £75 million was contributed by Scott Lithgow, which is now in the private sector following the successful rescue operation in March.

"The chairman has stated, and I agree, that the corporation cannot accept a continuation of the last two years' performance. I welcome his assurance that policies have now been established to ensure that the principal losses should not be repeated. I also welcome the steps that the corporation has begun to take on the rationalisation and restructuring of its activities.

"On 4th June I received the corporation's proposed corporate plan for the period 1984–85 to 1987–88, and I am placing in the Library a version with commercially confidential information deleted. The Government endorse the corporation's primary aim of concentrating resources on a stable, cost-effective mainstream merchant shipbuilding business. The corporation is well aware that the key to its future depends on improving the efficiency of production of merchant ships. It sees the primary need as being the concentration and integration of its production, service and administrative facilities to increase efficiency, flexibility and productivity.

"In all this a further key element will be the implementation of the flexible working practices agreed with the workforce earlier this year. The history of such attempts to save, let alone revitalise, merchant shipbuilding is not encouraging. The new programme is ambitious in its scope, but it is essential, and it is supported by the Government.

"The corporation plans to be able to accept orders at a rate of up to 180,000 to 210,000 compensated gross registered tonnes a year. This contrasts with the 117,000 compensated gross registered tonnes of orders won in 1983–84. The House will appreciate that the corporation's ability to win orders at such a rate will depend on a number of factors. These include the state of the world market; the agreement of the European Commission to an enhanced rate of subsidy through the intervention fund; the size of that fund; the degree to which productivity is improved; and the extent to which competitiveness is increased.

"The Government will take decisions on funding levels in the autumn in the light of the negotiations in Brussels. I have already warned the corporation that a tight financial regime will have to apply, and that funding levels will depend on the overall public expenditure position at the time.

"In the light of our manifesto commitment to privatise a substantial part of British Shipbuilders, the Government have decided that British Shipbuilders should sell its warship building interests, making substantial progress towards privatisation by 31st March 1985 and completing it by 31st March 1986. The corporation will also continue to dispose of other saleable assets. Accordingly, I have today asked the corporation to set in hand action to dispose of those parts of the corporation engaged mainly or wholly in warship building.

"To secure the maximum practical extent of fair competition, we would prefer to see the yards sold separately or in small groups. I have, however, also asked the corporation to set in hand contingency preparations for a flotation on the Stock Exchange of all or some of the companies in case individual sales may not be achieved. I believe that this will enable the corporation to pursue single mindedly its aims for its merchant shipbuilding business and to take the steps to improve efficiency on which its long-term future depends, while providing an assured competitive warship building capability".

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, we on this side of the House are grateful to the noble Lord for having repeated the Statement. It is, of course, a little early for us to pass comment on the accounts, which arrived in our hands this morning, but it can be said that they enlarge a little on the information contained in the Statement. In the Statement it is said that the corporation made a trading loss of £161 million, of which £75 million was contributed by Scott Lithgow, but the chairman's report puts it in the following terms: The trading loss for the year, £161 million is the worst result for the Corporation since nationalisation. To put that loss into perspective, almost £100 million is attributable to four offshore contracts and a further £38 million is accounted for by a special depreciation charge", explained later in the accounts.

We note that the Secretary of State welcomes these steps which the corporation has begun to take on the rationalisation and restructuring of its activities. This brings to mind another question. To what extent does a reference to rationalisation and restructuring cover a most remarkable event that occurred on 22nd May last when a Mr. Greg Mott, who is the man who heads Britain's Trident submarine building programme, was dismissed at some three days' notice? Apparently he was given the reason that, at 59, he was too old—a point which perhaps Mr. MacGregor might care to note at some time or other, since he, like myself, is in his early seventies.

Another reason he was given was that British Steel wished to rearrange the board of Vickers Shipbuilding and Engineering in preparation for negotiations on privatisation. He was told also that a Mr. Fuller, who notified him, wished to become executive chairman, resident in Barrow, and that in due course a younger managing director from outside the company would be appointed. There was no criticism of Mr. Mott's performance. It ought to be said that this gentleman was in the middle of negotiating a —600 million deal with Australia. It seems a most remarkable time, in anticipation of privatisation and reconstruction and restructuring, to dispense with one chief executive who apparently was playing quite an important part in the future of the warship business. I should like the noble Lord, if he will, to make inquiries about this, because it may become a matter of importance for further public airing.

The Statement has indicated that the Government intend to pursue their privatisation programme. Of course, this is immediately ascertainable from the accounts, if one looks at page 26. There it is shown that the warship building and the ship repair side are the only parts that have made a profit. It always is the practice of the Government that, after public money has been put into the reconstruction of a business and it is once again making a profit, the taxpayer is denied the benefit of it. It is immediately hived off to private enterprise and the rentier can then draw an income from it in place of the taxpayer. This, therefore, is anticipated; it is only what we expect.

We note that the Government are going to make a decision on funding, after consultation with the EEC. In view of the announcement today by the EEC Commission that it intends to go on overspending, possibly to the tune of 1,200 million ECUs, whether the Council of Ministers likes it or not, perhaps the noble Lord can tell me how the negotiations are to proceed. Will that proposed action by the Commission have any bearing on the discussions that take place in regard to the future of the British shipbuilding industry, and will the noble Lord give the House an assurance that if, on this matter, there is any impertinence from the Commission, it will be put firmly in its place?

We note also that the Government have confidence that they will be able to pursue single-mindedly the objectives of the remainder of the industry. The figures given behind the accounts show that there are some 80,000 crgt still laid up in shipping, mainly as a result of the consequence of what is euphemistically described as the world recession. Does the noble Lord think that the demand in the shipbuilding industry will improve in any way in the current year, and, if so, what measures are Her Majesty's Government going to take to ensure that they lead the West out of the recession in the same way that they led it into one?

4.45 p.m.

Lord Taylor of Gryfe

My Lords, we on these Benches should like to thank the noble Lord for his informative Statement this afternoon. Before we welcome the Statement, we should be happy to have assurance on a number of points. The first of these relates to the rather optimistic prospects for the company which survives after the sale of the warship building capacity. The trading loss for the year is £161 million. Scott Lithgow has been eliminated to the extent of a £75 million contribution to the loss, and presumably the £32 million profit which is contributed by the warship building facilities is also to be taken into account. It means that the immediate loss of this company is very substantial. If one sells off the only profitable part of one's business, and one already has a loss of £85 million, what is left is going to be a considerable burden on the taxpayer, despite all the rationalisation which is promised.

I gather from the accounts that the total turnover of the warship building facility is £400 million, which is about one-half the total turnover of this business. I am wondering what the economic effect of this is going to be on the future of the business; but, even more important, the effect on the morale of the company of selling off one's profitable company and leaving oneself with a rump which has little immediate prospect of profitability.

There are in the Statement a number of references to rationalisation, and it would be of some interest to us if the Minister could spell out—I know that a copy of the corporate plan will be in the Library—what rationalisation means in terms of closures of yards. This is what is important on the Clydeside, Tyneside and elsewhere. Perhaps the Minister would be a little more forthcoming about rationalisation in relation to closures.

I should like to take up the point made in the Statement that the Government's experience on the question of flexibility and working arrangements is not encouraging. May I say that that is hardly justified in the experience of Govan shipyards and in other parts of the Clydeside with which I am familiar. I hope that the new company will take some guidance from the noble Lord, Lord King, who spoke this afternoon and made what, if I may say so, was a distinguished maiden speech. In Babcocks, on the Clydeside, they took the workers along with them at every stage by patient explanation of what the business was about. That concern for good communication contributed to the welfare of the business. It is not entirely true to say in the Statement that experience in regard to flexibility is not encouraging.

The agreement with the EEC is important. I assume that what will happen is that the corporate plan, which is available to us, will be taken to the EEC for approval, in the same way as the corporate plan for steel was taken; although I gather that in shipbuilding the regime for support is not quite as rigid as that in relation to steel. Nevertheless, I assume that British Shipbuilders' corporate plan, in order to secure more or less uniformity of subsidy, will be taken to the EEC for approval. I hope the Minister will confirm this, or otherwise.

It is easy to say that the warship building facility will be sold off; but in many of these yards there is a mixed capability. For example, Swan Hunters is not only a warship building company but also builds merchant shipping. It would be rather interesting to see the impact on the total capacity of the business of this clear-cut division in selling off part of Swan Hunter and several other yards. I very much welcome the statement by the Minister that in the disposal, small groups will be welcomed. I hope this will lead to a greater decentralisation of management and more competition in the bids for warship contracts. I remember a Clydeside shipbuilder telling me that in the first year of nationalisation he received a bill for £900,000 for central charges which he had not had to face before nationalisation. One of the worst mistakes of nationalisation was the great degree of centralisation that took place in this business but which has now been corrected.

What will be the method of selling? That is a matter in which I have some interest. The Minister is saying that the Government will sell part of this business to bidders, presumably by the same method used with the Sealink exercise. But if there are no satisfactory bidders, the Government will then seek a quotation on the Stock Exchange. A quotation on the Stock Exchange which has already been rejected by people in the business is not likely to appeal to a great number of investors in these circumstances. Perhaps the Minister would tell us a little about how a rejected sale can appear suddenly on the Stock Exchange and attract investors. I should like some more clarification on the method of the flotation of the warship building section.

4.52 p.m.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lords, Lord Bruce of Donington, and Lord Taylor of Gryfe, for their research into the Statement that I have just repeated. Perhaps I could answer quite quickly the main points which have been raised by the two noble Lords; but before doing so, I should like to endorse the remarks of the noble Lord, Lord Taylor, to my noble friend Lord King, and echo those remarks.

The noble Lord, Lord Bruce of Donington, asked me about Vickers and in particular Mr. Mott. British Shipbuilders has had to declare a large number of redundancies. Most of them have been among workers, but there is no reason why management should be exempt. One has to have a good deal of faith —the Government do have faith—in Mr. Graham Day's judgment to take appropriate management decisions. I accept the invitation that the noble Lord gave me to make further inquiries. I shall do so and let him know the result of those inquiries. I must repeat that we have faith in Mr. Day's judgment and it was this management judgment that gave rise to that decision.

The noble Lord asked me whether I could see in the foreseeable future an improvement in shipbuilding. I have to say yes, I can. Although the world market is fairly low, nevertheless we have not obtained our fair share of it because of the working practices and the restrictive practices that have obtained. Our yards have not been competitive, nor have they been efficient. I am glad to note that all but one of the yards have accepted the new working agreements. Only one, in the South of England, has not. This will undoubtedly lead to greater productivity and efficiency and therefore to greater competitiveness in securing what very few orders there are around the world. On that line, perhaps I should pre-empt a question. British ship owners are of course free—they are a very large industry—to buy where they can. It behoves our home-based industry to be attractive to our home-based buyers.

The noble Lord, Lord Bruce, asked about privatisation. He will recall that this was a manifesto commitment and we have decided that, since British Shipbuilders' main occupation is in the merchant shipbuilding area, warship building should be returned to the private sector. It is part of the search for efficiency. We are setting managers free to use their skills and to compete more favourably in an open market.

The noble Lord also asked me about the negotiations in Brussels with regard to the intervention fund, and he asked me whether today's reports of the Commission's decisions with regard to money would make any difference. We will have to see whether it makes a difference. This is what is reported today. I can say that we have been considering with the Commission the possibility of increased support for our shipbuilding orders. We have sought the Commission's consent for a substantial rise in the intervention fund, and the Commission has been supplied with the additional information it has called for under Article 93. Pending the conclusion of negotiations with the Commission, whichever way they might go, we have certainly told British Shipbuilders that we are prepared to consider on a case-b -case basis specific requests for assistance within the international rules.

The noble Lord, Lord Taylor of Gryfe, commented on the profitability or non-profitability of British Shipbuilders and the general support which government had given. I have to remind the noble Lord that since 1979 the Government have provided some £1,117 million in support. This is really very generous. We hope of course that the action that the chairman is taking, which is outlined in the report—I referred briefly to it when I repeated the Statement—will mean that rather less support will be required in the future.

The noble Lord, Lord Taylor, asked me whether I could be a little more detailed about the rationalisation. Perhaps I may refer to pages 54 and 55 of the report and say that the yards which will be offered for sale—I shall return to the method if I may—include Hall Russell, Brooke Marine, Vickers Shipbuilding, Vosper Thornycroft, Yarrow, and also Falmouth Ship Repair, Vosper Shiprepairers; and, in terms of rationalisation, the two composite yards, Cammell Laird and Swan Hunter. Another part of rationalisation will be in the engine building sector where Clark Hawthorn and John Kincaid Limited will take over responsibility for all the engine building sectors. Further rationalisation will be the disposal by British Shipbuilders of those assets, buildings, land and some peripheral companies which have no direct bearing on their activities and are surplus to their needs.

The noble Lord asked me in particular about yard closures. The corporate plan contains no specific plans to close yards; but the future of any yard in the United Kingdom depends on its ability to obtain new orders and to build ships both to cost limits and to time limits. The Government cannot and will not guarantee the future of any yard which fails to earn its own living in the market place. The noble Lord said that selling the warship yards would leave an unprofitable merchant shipping rump. The two operations—warships and merchant ships—are largely separate. Merchant yards are currently unprofitable for the reasons which I have already stated. Warship profits merely disguise the extent of losses on merchant shipbuilding.

The noble Lord asked me particularly about flotations and the method of sale. Perhaps I should say that I ought to go to him for advice because he has far more knowledge of these matters than I have, or am every likely to have. But one thinks of the very unprofitable and unhappy state of Scott Lithgow, which was sold. Admittedly, the balance sheet had to be readjusted, which cost some £70 million to £80 million; but nevertheless having put that company into saleable shape, there was a buyer, and I have little doubt that the same will follow for other yards. I do not think that there is any point that I have left unanswered. If I have, I shall write to noble Lords. In the meantime, I thank them for their acceptance.