HL Deb 24 July 1986 vol 479 cc409-15
The Minister of State for Defence Procurement (Lord Trefgarne)

My Lords, with your Lordships' permission, I should like to repeat a Statement being made in the other place by my right honorable friend the Secretary of State for Defence about Royal Ordnance. The Statement is as follows:

"On 17th June, I announced the Government's decision not to proceed with the planned flotation of Royal Ordnance plc. I also made clear in answer to questions on 18th June that we would review all the various options to decide how best to achieve our aim of privatisation. That review is now completed and I can tell the House that, with the exception of one factory, it remains our firm preference to sell the company as a whole. We would hope to do so by a private sale if this proves practicable. Over the coming weeks, we will be inviting bids on the basis of a selling memorandum and I will report further to the House when we have made some concrete progress.

"The exception is the tank building business at Leeds. Following discussions between the Ministry of Defence and Vickers an offer has been made by Vickers plc to purchase RO Leeds, which the Government and the Board of Royal Ordnance have accepted, subject to detailed discussions now taking place between Royal Ordnance and Vickers to finalise the agreement. The price will be related to an audited net asset value but we expect it to be of the order of £11 million. As part of the agreement, Vickers will build a major new facility at the Leeds site, similar to their factory at Newcastle. This reflects their faith in the business and their determination to win the export orders which are critical to the continuing future of the factory.

"I can also tell the House that in the light of this agreement the way is now clear for a decision to order a 7th regiment of Challenger Tanks, subject to detailed contract terms. Vickers have agreed that the tanks will be manufactured at Leeds and we have negotiated with Vickers prices which represent an improvement on the terms offered by Royal Ordnance. I am satisfied that the competitive pressures which have operated on both companies during our various negotiations have ensured that the Ministry of Defence will receive good value for money for this important order."

My Lords, that concludes the Statement.

Lord Graham of Edmonton

My Lords, may I thank the Minister and say now grateful we are to him for repeating the Statement in this House? But can the House be told why the Statement was obviously first made to a press briefing some time last night? If the noble Lord has done as I have done and seen copies of the press reports this morning, he will know that there is no material fact in respect of this matter which he has given to the House that does not appear in this morning's press. If the Government and the Minister are to treat the House with that kind of contempt, I believe that we are entitled to an explanation. The Minister announced a figure of £11 million, and the report in the Daily Telegraph refers to a figure between £10 million and £12 million for the plant. That is either an inspired guess, or it is a journalist's way of covering up the fact that he knows that the correct figure is £11 million.

What we have heard about today in the Statement is the break-up of the Royal Ordnance factories as we have known them, and as the country has known them, for more than 300 years. Above all else, as the Statement reveals, this is a Government who are pragmatic. This is a Government—and one has only to look at the history of these matters over the last three years—who are capable of twisting and turning and making U-turns in respect of their previously declared intentions. Certainly they are capable of abandoning what they tell this House, as well as the workers and the communities, if it appears that in the short term there is profit to be made for the Government and for others by changing the plans upon which, hitherto, a sale was to be made.

It is more than two years since the Ordnance factories were privatised. Legislation was driven through both Houses which enables the Government to do what they are doing now, and over the last two years we have seen uncertainty, we have seen confusion, we have seen frustration and we have seen the betrayal of a number of good men and women whose future has been in the Royal Ordnance factories.

What are we to make of the words in the Statement, our firm preference to sell the company as a whole"? What are we to make of the words in the next line, We would hope to do so"? What strength can the people whose lives are affected by this decision put in the intentions of the Government, because the firm preference before this week, and before this announcement, was that Leeds would not be sold separately? There was no categorical statement that it would not be sold separately, but the firm intention was that it would not be. What are the workers in the Royal Ordnance factory at Enfield Lock to make of the assurances that they have had that their factory will not be sold separately? There was no categorical statement—I do not want to put words into the Minister's mouth—but it was their belief that it would not be sold separately. With Leeds having been sold off for £11 million, how can they be certain that the Government are not intent on finding bidders who are capable of buying, and are willing to buy. factories of that kind?

Can we be told how the board of Royal Ordnance reacted to the undoubted pressure put on it to agree to the sale of the tank building business at Leeds to Vickers? Is it not a fact that the board of Royal Ordnance has steadfastly refused to countenance separate sales? In my view there is a clear indication that the board has been leaned upon by a government who appoints it and who in this instance of course can disappoint it too.

Reference is made to detailed discussions which are to take place between the board and Vickers. Can we be told whether those discussions will include any restriction on the future of the factory? Will Vickers be free to sell off the factory to someone else, a foreign tank-making capacity, or simply to rationalise Leeds out of existence with Vickers' other interests at Newcastle? Later today we will consider another Government fiasco—the dockyards Bill. Does the Minister recall telling the House then that all would be well and that the unions had TUPE'81 to protect their interests? May I read to the House references that were made in relation to matters that we shall discuss later today in respect of the dockyards where clearly consultation is paramount and is going to take place?

Can the noble Lord tell me what consultations have taken place with the trade unions which are concerned as to the future of Vickers? These are civil servants. Can the House understand that the kind of consultations and the kind of strength that the Government believe is in TUPE'81 in respect of the ordnance factories is what the dockyard workers have to look forward to in respect of the dockyards?

I say to the Minister that he will not get away as lightly in dealing with the trade unions and the communities that are affected by the dockyards as he may think he has got away with this disreputable, shady and shoddy deal which has sold off Leeds to a separate company.

Lord Diamond

My Lords, we on these Benches should also like to express our gratitude to the Minister for repeating this Statement which merely amounts to another sorry episode in the sad tale of the Government's determination to privatise a section of our defence industry, no matter what.

Perhaps I may deal with questions on the Statement in the order in which they arose. First, why have the Government decided that no other options are open? Why have the Government decided, as they say in the Statement that they would hope to sell, by a private sale if this proves practicable"? Why are they neglecting other opportunities, assuming they wish to continue to effect a sale?

Secondly, with regard to keeping the factories together, the Government know that we on these Benches also have pressed the whole time for this to be done. Why have they made this exception? Is it the case that this is a real exception? In other words, are the Government prepared to give an undertaking that no other Royal Ordnance factory will be sold separately? That is what the word "exception" means. Can the Government say a little more about how the Leeds sale came about? All the Statement says is that there have been discussions with Vickers. Have there been discussions with others? Have other bids been sought? Has the matter been put to public tender or has Vickers only been selected for discussions about a possible sale?

In relation to the sale to Vickers, I repeat the question which has already been touched on. How is the shareholding in the purchasing company protected so as to protect our manufacture of weapons which are vital to the defence of this country? What is meant by the words in the Statement, the way is now clear"? The Statement says: I can also tell the House that in the light of this agreement the way is now clear for a decision to order … tanks". Do I gather that that means that here was an order for tanks that were needed which was delayed until the Government could make absolutely sure that the profit and general benefit from this order would enure to private shareholders and not to Royal Ordnance plc?

Has any assessment been made of the damage caused to the whole of the undertaking of Royal Ordnance plc by this continuous delay, uncertainty and damage to morale? For two years now this company has not known what its future is, has not known the extent to which it could rely on its own resources, whether it was about to be taken over or what the case was going to be. The argument by the Minister time and again when we were discussing the privatisation Bill was that there was no time for various precautions to be taken, that we must go ahead fast as otherwise the company would not know what its future was and this would damage the business. That was for delays which might have amounted to weeks or, at the most, three months. Can he now say therefore what the delay of more than two years has amounted to in damage to these businesses?

I have a final question. Will the Government now alter course as they have seen how impossible it is to carry out their first intentions? If it is too late to avoid the Leeds factory going separately, will they at all events alter course with regard to privatising the rest of the Royal Ordnance factories; or do the Government insist on continuing their policy of playing fast and loose with an important element of the country's defences?

Lord Trefgarne

My Lords, perhaps I may deal with as many of the points raised by both noble Lords as I can; and they have raised a good number. The essence of the problem we were facing is that the Ministry of Defence really does not have business to sustain two tank factories. I wish it were otherwise, but that in fact is the case. Therefore there were powerful arguments for the rationalisation of British tank-making capacity, not least to make it more competitive in international and collaborative markets.

That was certainly one of the considerations that led us to believe that the proposal which Vickers put to us was a good one; added to which we were careful to take advice from independent sources to ensure that we were indeed accepting what was a right and proper price for this factory. So there was no question of being motivated by any doctrinaire or dogmatic considerations in this matter. There was the further consideration that we were able to negotiate with Vickers at the same time a very satisfactory arrange- ment for the supply of the various tanks currently on order and to be shortly ordered, as the Statement says.

The noble Lord, Lord Graham, referred to a "betrayal"—I think that was the word he used—of the workforce of the Leeds factory. I would say that quite the reverse is the case. The fact of the matter is that the outlook for the workers at the Leeds factory has been very considerably enhanced by the conclusion of this agreement. I believe that on reflection the people at Leeds will agree with that.

The noble Lord, Lord Diamond, referred to the uncertainty. Yes, I agree that there has been some uncertainty. I should like to see that uncertainty brought to an end at the earliest possible moment. Indeed, just last week I was at the small arms factory at Enfield, which the noble Lord, Lord Graham, knows well. Representatives from the trade unions there came to see me and I hastened to reassure those representatives that, like them, we were anxious to bring this uncertainty to an end.

The noble Lord, Lord Diamond, is quite right. We would have preferred to have sold the entire enterprise in one excerise through a flotation earlier this year. But for reasons we explained at the time that, unfortunately, was not possible. I believe we are now moving very much in the right direction. We have rationalised, or are in the process of rationalising, British tank-making capacity at Leeds and at Newcastle and we are now seeking to find a buyer for the remainder of what is, in fact, the bulk of the Royal Ordnance. I hope that before long we shall be able to give your Lordships more news on that.

Lord Winstanley

My Lords, as one who has worked for many years, albeit in a part-time capacity, in one of Her Majesty's Royal Ordnance factories, may I ask the noble Lord the Minister whether he is aware that there has been grave anxiety among staff—senior staff in particular—with regard to superannuation and other long-term employment rights? Have the Government now reached agreement on these matters with the various parties concerned, or are they still in dispute on benefits of that kind?

Lord Trefgarne

My Lords, I am not sure whether the noble Lord is referring only to the Leeds factory or to Royal Ordnance as a whole. I believe that there are one or two points still to be resolved with Royal Ordnance as a whole, but I have no reason to believe that agreement is not in sight.

Lord Graham of Edmonton

My Lords, I hope that the Minister will deal with the point about consultation with the trade unions at Leeds. Will the noble Lord accept from me that as recently as less than an hour ago representatives of the trade unions at Leeds told me that repeatedly in recent weeks they have written to the Ministry, following press speculation on the future of the factory, seeking urgent discussions so that they could discuss with Ministry officials the future of their members? They tell me that they have had no response. I asked whether they meant literally that there had been no reply and I was told that they had got nowhere in being able to sit down and discuss the matter. Can the Minister confirm that, to his knowledge, attempts by the trade unions in exercising TUPE '81, or merely common justice, have failed or broken down?

The Minister referred to a visit to Enfield last week. We know that the Minister's intention—it is in the Statement—is to try to sell off all the factories as a single unit, but is it possible for the noble Lord to guarantee that the situation at Leeds will not occur at Enfield or any other factory when it is decided by those in Government above him that what they want is not continuity and unity but money in the coffers in order to boost their chances at a general election?

Lord Trefgarne

My Lords, I think the noble Lord is going a little too far, if he will forgive me for saying so. Clearly I cannot give the categoric assurance he seeks, but as the Statement makes clear, it is our undoubted preference to dispose of Royal Ordnance, save the tank factory at Leeds, as a single entity. We are looking for bids to make that possible. However, I cannot give the categoric assurance of the kind he requests.

As regards consultation, we have made clear to the trade unions concerned that we are ready to receive any representations they care to make. Indeed, now that we have clarified the way ahead, particularly for Leeds, we are ready to talk further and I know that my right honourable friend has today written to the trade unions on that very point.

Viscount Trenchard

My Lords, does not my noble friend agree that the tank situation within the Royal Ordnance factories is a very specific one? My noble friend said that he could not see from the Mob point of view the possibility of keeping two major tank factories in operation. Is his advice, as it certainly was to me a few years ago, that there is very little chance of being able to sell enough tanks abroad in the export markets bearing in mind the extraordinarily cheap prices at which, among others, the USSR is prepared to sell tanks? There is very little chance of building up exports in order to maintain two main tank factories. Will my noble friend further agree that the origins of this problem lie in regional policy supporting the establishment of the Newcastle factory a good many years ago, which increased the capacity without apparently any real rational reason for hoping that there would be sufficient markets for the two?

Lord Trefgarne

My Lords, it is unhappily the case that Royal Ordnance, Leeds—that is, the tank-making part of the Royal Ordnance organisation—has not been particularly successful in recent years in securing overseas orders. The fact is that the Vickers tank factory at Newcastle has been rather more successful and also has some exciting prospects currently in hand. The way is now clear for the Leeds organisation to share in the success which has already occurred and, indeed, it bodes well for the future for the Vickers organisation. I believe that the workers there will appreciate that.

Lord Diamond

My Lords, may I repeat two of the questions which I asked the noble Lord? I understand that when he has a number of questions fired at him it is not easy to answer them all. However, there are two questions which I believe to be important.

May I assume from what the noble Lord said about Leeds that no other bids were sought, that the matter was not put out to public tender, and that the Treasury is content about this way of securing the highest possible price for one of the nation's assets? Secondly, may I pursue the question of the guarding of defence secrets? What arrangements have been, or will be, made with regard to the purchasing company at Leeds to protect those secrets?

Lord Trefgarne

My Lords, on the latter point, that is a discussion which I have had with the noble Lord on a number of occasions in parallel circumstances. The fact is that there is a very effective machinery whereby defence contractors are required to maintain the security of their premises, particularly in regard to classified information. As regards Vickers, that will continue to be the case when it becomes the owner of the Leeds enterprise. The arrangements are well-known to Vickers, of course, because it has been a defence contractor in one way or another for a great period of time. I am quite certain that no difficulty will arise.

The noble Lord asked whether we had sought other bids for the Leeds facility. As I said, Vickers was the obvious purchaser of the Leeds facility because of its existing operations at Newcastle. We did not seek other bids, but we took care to ensure that the price we were accepting for the Leeds facility was a proper one.

Lord Mayhew

My Lords, the noble Lord says that Vickers was the obvious buyer, but is it obviously right to create a monopoly in the production of tanks and to make it impossible for the British Government in future to order tanks on a competitive basis?

Lord Trefgarne

My Lords, I have to agree that we would prefer to have two British sources from which we could buy our tanks, but the fact is that we could not sustain two sources. Nor could two sources be sustained by success in foreign markets because, as I have already said, Royal Ordnance, Leeds, did not have conspicuous success in foreign markets. Indeed, the factory had not sold anything of significance abroad in recent years. For that reason the desirable solution—desirable as it is—of having two sources of supply was clearly not practical.