HL Deb 16 May 1984 vol 451 cc1417-23

3.39 p.m.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead)

My Lords, with the leave of the House, I shall repeat a Statement which is being made in another place by my right honourable friend the Minister of State for Industry about British Aerospace. The Statement is as follows:

"The boards of Thorn-EMI and British Aerospace have announced that they are having talks to explore the possibility of a merger between their two companies.

"Such a merger would fall to be considered by my right honourable friend the Secretary of State under the provisions of the Fair Trading Act, so that he can decide whether investigation by the Monopolies and Mergers Commission is required. No decision on this point can be reached until details of the proposal have been studied and a recommendation received from the Director General of Fair Trading.

"When British Aerospace was privatised, the Government gave an undertaking that the company would not pass outside United Kingdom control. If the proposed merger is to go ahead the Government will require the new company to agree arrangements which would continue to give effect to that undertaking. The precise nature of these arrangements would need to be determined in the light of circumstances.

"The Government will also require an undertaking that British Aerospace's participation in the Airbus programmes will continue.

"Subject to these considerations and to studying the details of any proposal which may emerge from the present exploratory discussions, the Government do not see any reason which would justify using their shareholding in British Aerospace to impede such a merger if it proved acceptable to a majority of the remaining shareholders".

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, the House will be grateful to the Minister for having repeated the Statement made in another place. The concluding paragraph of the Statement says that, the Government do not see any reason which would justify using their shareholding in British Aerospace to impede such a merger if it proved acceptable to a majority of the remaining shareholders". The first question I have to ask is this: by what means is it intended to ascertain whether or not the proposal is acceptable to a majority of the remaining shareholders? Is it proposed that there shall be a special secret ballot on this point in order to establish exactly what the shareholders have in mind?

With regard to the Statement itself, we are grateful that the Government have stipulated that, in the event, they would not tolerate the company passing outside United Kingdom control. We also note that, in the event of the merger going through, the Government will require an undertaking that the participation of British Aerospace in the Airbus programme will continue. That is important because it will be within the recollection of the House that the Government have already advanced, or are in the process of advancing, some £250 million of taxpayers' money towards this particular project and that British Aerospace itself is contributing a further £400 million.

With regard to the merger (and whether the Government regard this as a takeover or a merger is an interesting point), there are some observations which the Government should bear in mind. It should be borne in mind that some 60 per cent. to 70 per cent. of Thorn-EMI's turnover is connected with supplying goods to the ordinary customer. Its interests in defence and matters associated with defence are some 3.46 per cent. of its total turnover. Therefore, it is difficult to see what justification there is for this company either merging with or taking over (whichever it may prove to be) another company so heavily committed in the defence sphere and in the strategic arms sphere as is British Aerospace.

It is a little curious that the Government should take such a neutral attitude towards this development. It rather seems to us on this side of the House that the Government will have to decide either that they will retain what amounts to control of a vitally strategic industry or that they are prepared to see a powerful United Kingdom group completely independent of any kind of governmental intervention. One would have thought it in the interests of the nation as a whole that the Government should retain their essential control, which resides in their 48 per cent. shareholding in British Aerospace. The House would like to have the noble Lord's observations on that point.

The Government are a trustee for the taxpayers; they are a trustee for the nation in regard to its shareholding in British Aerospace. We do not consider that there is any case at this time for a merger or takeover. Does the Minister really think that the whole ethos of British Aerospace in pursuing the very important tasks which it faces will be in any way enhanced by its association with a company that is probably more concerned ultimately with pop stars?

Lord Diamond

My Lords, I, too, am grateful to the Minister for repeating the Statement. I am particularly grateful to the Government for letting us know their thinking at this very early stage in their considerations. So far as the content of the Statement is concerned, we on these Benches welcome the Statement and welcome the Government's action in giving us a chance to share in their early thinking. As to that, there are two major points on which the Statement is silent and which I should like the Minister to consider.

The first point has already been touched on in a way. In the course of the consideration to which the Government have referred in the Statement, will they give the most careful consideration to, and make the most careful examination of, the question of ascertaining whether this is truly a merger or in fact is the establishment of a huge conglomerate? The second of these is perfectly permissible in the City but hardly seems to serve any useful purpose in regard to the Government's interests in defence. As I understand the matter, there are areas of interest which do overlap, but there are wide areas which do not. Very careful consideration will need to be given to this point and I ask the Minister to indicate whether he would favour the proposal more if it were shown to be a true merger rather than just the establishment of a conglomerate.

The Statement is totally silent with regard to the question of employment. Will the Government consider very carefully the likely results of this coming together upon the combined number of the employees of the two companies? There will be a very large number involved and it could well be a matter of great anxiety among those concerned. Will the Government give special consideration to this aspect? If additional unemployment is likely to be caused by this development, will the Government take special steps in an endeavour to see that those who are displaced find new and suitable employment not too far from their places of employment at the various factories concerned?

3.47 p.m.

Lord Belstead

My Lords, I am grateful to both noble Lords for their replies to my right honourable friend's Statement. There was perhaps a warmer welcome from the noble Lord, Lord Diamond, than from the noble Lord, Lord Bruce. Nonetheless, I thank them both. The noble Lord, Lord Bruce, asked me about that part of the Statement which referred to the question of the move being acceptable to shareholders. I ought to make it clear to the House that at the moment we are in a situation where there is no definite proposal. There is certainly no offer to any shareholders. As the press notice put out by Thorn-EMI and the Statement both make clear, we are in a situation where there have been discussions initiated and, so we understand, detailed studies and negotiations will be proceeding between the two companies. When we reach the stage when there is a proposal, if there is one, then the Government will study it very carefully.

It is in that spirit that I would answer the question put to me by the noble Lord, Lord Diamond, as to whether the Government see this as being a merger; this was a question asked also by the noble Lord, Lord Bruce. The noble Lord, Lord Diamond, asked whether in the event that it is a merger the Government will then examine it in a more friendly light than if it were some other form of move. Again, I have to say that we do not know. We shall wait to see what the proposal ultimately is.

As to the question of its being essential that the Government retain their shareholding in British Aerospace—and this was put to me by the noble Lord, Lord Bruce—the Government's point of view is that, provided that the safeguards on United Kingdom control of British Aerospace are maintained, and also the extremely important undertakings which are mentioned in the Statement of continued participation in the Airbus project, the nature of British Aerospace's business does not of itself require there to be a Government shareholding in the undertaking. I remind your Lordships that there are several other companies engaged on important defence contracts in which there is no Government shareholding. Nor was there a Government shareholding before 1977 in the undertaking now known as British Aerospace. Therefore, it is the safeguard given as an absolute undertaking by the Government in 1981 about preventing foreign control and also participation in the Airbus project which is at issue. That safeguard about foreign control, I underline to your Lordships today, remains an absolute commitment of the Government.

Finally, the noble Lord, Lord Diamond, asked whether the Government would be looking for guarantees about employment in this matter. I must go back to my original answer. We have not yet had a proposal and we certainly have not got a definite offer to shareholders. Let us wait to see what now occurs.

Lord Orr-Ewing

My Lords, while thanking my noble friend for the Statement and welcoming the fact that it is put before both Houses before there is a firm action and fact, may I say that I have some reservations. Both these companies are deeply involved in defence. The defence White Paper makes the clear point that it is Government policy to try to encourage competition and thereby lower the price of equipment which they are buying and which plays such a large part in the defence budget. On the face of it. this would seem to reduce competition in the avionics field. Can my noble friend make sure that the five or six very large electronic companies are going to compete on a fair basis if EMI is absorbed by British Aerospace? That is a very big absorption, with probably over £2 billion in market value altogether. On such a big issue and with the reduction of competition probable, would it not be wise to consider referring this matter to the Monopolies and Mergers Commission?

Lord Belstead

My Lords, of course I follow the logic of my noble friend's question; but, as the Statement makes quite clear, if a merger is proposed it would fall to be considered by my right honourable friend the Secretary of State for Trade and Industry under the provisions of the Fair Trading Act. I think it is proper for me to repeat that in answer to my noble friend.

Lord Beswick

My Lords, may I also welcome the fact that the Government appear to be encouraging consultation and discussion. Will the noble Lord do everything possible to ensure that there is thorough discussion on the aircraft side of British Aerospace? In that general discussion, may I suggest that the following points are relevant. First, there is no recent industrial experience which suggests that a bigger industrial complex is necessarily better. Certainly from the point of view of the MoD that would not be borne out. Secondly, is the noble Lord aware that while there may be very great satisfaction to those who sit at the top of a great industrial complex, that satisfaction and, more significantly, the motivation is not necessarily shared by those down the line? I also ask the noble Lord to take into account that in the aircraft industry, before the period of public ownership when it was part of a wider industrial complex, there was a history of contraction. There are many who will think that that history of contraction may set in again. Although there is apparently this undertaking which will be required about Airbus Industrie, there is no certainty that a big industrial complex would not squeeze out aircraft projects in the less profitable sectors.

Lord Belstead

My Lords, of course I recognise the interest of the noble Lord, Lord Beswick, and his record in this field, but for the moment I suggest to your Lordships that this is a matter for the companies concerned. It is right to remind your Lordships that the 48 per cent. shareholding was taken by the Government in 1981 because the Government said that it provided a basis for partnership between the public and the private sectors within British Aerospace. However, in the intervening three years British Aerospace, in its present form, has established itself as an internationally competitive, profitable and successful company. This does not necessarily require the Government to own nearly half the shares. It certainly does not require the Government to meddle in the affairs of two very great companies.

Lord Harmar-Nicholls

My Lords, is my noble friend aware that, although he has been congratulated on many sides for making the Statement, there could be a line of thought which would suggest that the Statement is premature? My noble friend obviously had nothing to say. He had to admit that he does not know what it is all about and that many other things have to be produced before any real judgment can be formed. Is there not just a possibility that to encourage parliamentary comment on something that has not yet reached the stage where anyone knows what it is about is likely to be discouraging to possible participants whose aim is to bring about a more efficient organisation for a very important part of our defence production?

Lord Belstead

My Lords, with respect to my noble friend, with whom I practically always entirely agree, there are important issues in this very brief Statement. One is the national interest, on which noble Lords have put their fingers, in the work of these great companies; namely, the question of British control of British Aerospace, which is, of course, written into the articles of association and is preserved by the Government's shareholding. That undertaking remains exactly the same; although if proposals are put forward we shall have to see how best the Government will continue to fulfil that undertaking, which remains absolute. That was one reason for making the Statement.

Another reason is to make it absolutely clear that our participation in the Airbus project continues. Thirdly, and finally—and perhaps this brings me nearer to my noble friend's point—the Secretary of State for Trade and Industry has a locus in this matter under the Fair Trading Act. I think it was important to lay before both Houses that this is so.

Lord Mulley

My Lords, we are all very much indebted to the noble Lord for making the Statement today because, as he stressed, it is a matter of national importance. That is why I found the contents of the Statement disappointing because it appears as though the Government are viewing it only as a matter of whether or not it is right in terms of the Director-General of Fair Trading. This is a vital industry for the defence of this nation and for our future if we are to stay in the aircraft business. It is that aspect with which we need to concern ourselves. As my noble friends have already explained, this rather odd merger of two concerns which, on the face of it, do not appear to be well aligned, is a source of anxiety. It is not only a question of safeguarding our interest, which in my view is all too small an interest, in the Airbus project, but it is also a vital defence interest. I hope that this is not a follow-up of what we understand is the intention of the Secretary of State for Defence; that is, to put every defence contract out to private tender regardless of security and other matters. It is on that aspect that we need some assurances.

Lord Belstead

My Lords, I do not think that I should follow the noble Lord, Lord Mulley, down all those paths. This is a preliminary Statement by two highly successful and very important firms that they are embarking on exploratory discussions. My right honourable friend the Secretary of State felt that it was right to keep Parliament informed from the point of view of the Government, and that is what we have done today.

Lord Bruce-Gardyne

My Lords, may I seek to reinforce what I detect to be my noble friend's instinct for well-doing in the matter of the Government's shareholding in British Aerospace? In view of the very substantial speculative element in the order book of this company on the civil aviation side, and not least the Airbus project, is there not something to be said for the Government seizing the opportunity, if an offer is made for this company, to unload some of their current shareholding and diminish their risk in the areas of high risk in which British Aerospace is engaged?

Lord Belstead

My Lords, I think I detect a former Treasury Minister behind that question.

Lord Molloy

My Lords, many of us are becoming somewhat perturbed—and this is no reflection whatsoever on the Minister's responsibility—that Statements such as the one he has just read so excellently to this House contain matters of vital importance to our nation and yet we have only 20 minutes of debate. That is a travesty of the principle of parliamentary democracy. In this instance, for example, there should have been a full-scale debate, as the British people themselves are involved. Had this been two private organisations which were being compulsorily amalgamated, rightly there would have been a full-scale debate. Under the same principle, where publicly owned or publicly related organisations are being hived off or joined to some form of private enterprise, should not the voice of the people, whatever that may be, be given the opportunity of being heard, certainly in this Chamber? Although I understand that the noble Lord has no responsibility for this, will he nevertheless be prepared (as I believe his feelings indicate) to take the feeling of this House back to those in authority, which is that in such instances we should have a much fuller and better form of debate than merely the opportunity to ask questions revolving around a Statement?

Lord Belstead

My Lords, before answering that question, may I make it clear that in my reply to my noble friend Lord Bruce-Gardyne I was not seeking to be unfriendly. Indeed, I think there may very well be something of merit in what he said.

With the greatest respect to the noble Lord, Lord Molloy, I do not think that there is very much in what he suggests. I have had the impression over the past few weeks that your Lordships' House becomes irritated with lengthy Statements, and this is a Statement which, under our procedures, requires questions and answers. When we are talking about a Statement on which there is in fact nothing to debate because there are no proposals and no offer to shareholders put forward, I would have thought, if I may say so, that the length of the proceedings we have had would be just about enough.

Lord Bruce of Donington

My Lords, I want to press the noble Lord on one point further. In view of the remarks he made concerning his attitude towards the Government's holding in British Aerospace, will he give the House an undertaking that he will not proceed to unload any further shares in British Aerospace on the market without first making a Statement to this House and a Statement being made in another place?

Lord Belstead

My Lords, this is hypothesis, and with all friendliness to the noble Lord, Lord Bruce, I think I must rest on what the Statement has already said, which is, in essence, that we must see how we go. If we are talking about a merger, that would first of all fall to be considered by my right honourable friend the Secretary of State under the provisions of the Fair Trading Act. We still have quite a long way down the road to go before anything certain is settled.

Earl De La Warr

My Lords, will my noble friend please take on board how grateful most of us are that he has come so quickly to this House to make this Statement, in spite of the obvious fact that he cannot be expected to have any information yet? We are delighted that he has come here so fast.

Lord Belstead

My Lords, I am most grateful to my noble friend.