§ 7.30 p.m.
§ Lord Lucas of ChilworthMy Lords, I beg to move that this Bill now be read a second time.
This is a very short, technical Bill containing only one operative clause. It is nevertheless very important because it allows British Shipbuilders to increase borrowing limits. British Shipbuilders has a present borrowing limit of £1,200 million, against which it has already borrowed some £1,170 million. The purpose of the Bill is to raise the borrowing limit to £1,300 million with provision to increase the limit further to £1,400 million, subject to affirmative resolution in another place.
The increase in the borrowing limit is needed now because British Shipbuilders' borrowing will approach the £1,200 million limit in the summer. British Shipbuilders can borrow from the Government in the form of public dividend capital and loans and it can also borrow from the market. Borrowing to date is almost entirely in the form of public dividend capital—£1,122 million in that form has been paid to date. Finance is also provided to British Shipbuilders in the form of grants from the intervention fund in 76 support of ship prices. I should make it clear, however, that the borrowing limit does not apply to intervention fund grants or to the shipbuilders' redundancy payments scheme.
I think that it may be helpful in commending the Bill to your Lordships if I say something about the current position. The Bill comes at a time when orders for ships are few and world capacity greatly exceeds the level of demand. All the British Shipbuilders yards currently have work in progress. This includes a P & O ferry at Govan, four container ships for Cuba at Smith's Dock, Middlesbrough, and two advanced bulk carriers for a German owner at Austin and Pickersgill. On 25th April the "Stena Seawell", a diving support vessel, was named by my right honourable friend the Prime Minister at Sunderland. This yard has a second diving support vessel, as well as a crane barge for ITM. In the smaller yards, Ferguson Ailsa and Appledore, there are a number of small ships under construction or on order.
All this work is due to be completed by the end of the financial year. Against a target in 1985–86 of 200,000 compensated gross tonnes of new orders, British Shipbuilders secured only 23,000 compensated gross tonnes because the orders simply did not materialise. The world market at the end of 1985 amounted to a total of just over 25 million gross tonnes, the lowest level for three years, and this world situation is not forecast to improve for some years yet. To put the decline of the industry in perspective, it is worth remembering that the peak order book of recent times, that of March 1974, stood at 133 million gross tonnes, which is more than five times the present level.
When this Bill was debated in another place, the Members on the Opposition Benches raised points about this country's public purchasing programme both on the defence and on the civil sides. It may help if I repeat some of the comments that my honourable friend made on that occasion. Other things being equal, an influx of early home orders would be a good thing and could alleviate British Shipbuilders' present difficulties. But other things are very definitely not equal.
To take defence requirements first, British Shipbuilders has worked up a commendable marketing initiative on the FSK 20/20. The corporation's proposals have been studied with interest by the Ministry of Defence. However, there can be no presumption that, when a concept such as the FSK 20/20 is actually offered to the MoD, it is necessarily right in specification and timing for the MoD's needs. My honourable friend the Minister of State for Defence Procurement has clearly stated that the Royal Navy has no requirements at present for the vessel. British Shipbuilders is nevertheless actively seeking overseas possibilities. Your Lordships can be assured that the Government will give it every support in its efforts.
British Shipbuilders is facing a lean future. Orders are scarce but not non-existent, and it will have to fight extremely hard for any that it has a chance of securing. This means cutting costs as far as they will go, and that is why British Shipbuilders last week announced very sweeping rationalisation measures.
77 I should say something in this context about the government response to the efforts of British Shipbuilders. The Government will be funding the new British Shipbuilders Enterprise Ltd. to an amount of £5 million; £1.5 million of this will be from the Department of Trade and Industry. This was announced by my right honourable friend the Secretary of State for Trade and Industry last week in another place and by my noble friend Lord Young in your Lordships' House.
My right honourable friend and my noble friend here outlined further measures to alleviate the social and regional problem of the North-East, amounting in total to £9 million. These are benefits to aid redundant shipyard workers.
I now want to go on to the support we give to the industry itself. Credit terms for UK shipowners are intended to provide an incentive for those owners to order in this country. The credit terms match those generally available overseas. The question of whether length of credit terms should be increased was covered in the Report of the European Communities Committee on European Maritime Transport Policy. This report was debated in this House on 2nd May. But I should remind your Lordships that the commission does not look at credit terms in isolation; it looks at credit terms and direct supports together. A change in one would almost certainly lead to a counterbalancing change in the other.
As it is, our direct support mechanism—the intervention fund—stands international comparison as one of the most generous world-wide schemes in the context of direct cost subsidy. All British Shipbuilders' orders facing competition from outside the EC are eligible for this support. The rate is 20.5 per cent. of contract price; in effect, 22.5 per cent., taking account of Shipbuilders' relief. These rates can be increased in exceptional circumstances.
The Government are about to begin discussions on the regime of assistance to follow the EC 5th directive. I assure all noble Lords that we shall be working hard in those discussions to obtain the most helpful arrangements possible for the United Kingdom.
For export orders which contribute to development for the country concerned, the Government are prepared to consider the use of the aid and trade provisions. We are now ready to use that form of assistance for a particular order for China which I hope will be thereby secured.
I shall sum up by saying that the Government intend to continue shipbuilding industry support. Since 1979, British Shipbuilders has received £1,481 million indirect support, including £236 million from the Intervention Fund and £178 million in support under the shipbuilders' redundancy payments scheme. I cannot emphasise sufficiently that it is because of our intention to continue supporting the industry that the Bill has been introduced. I commend the Bill to the House.
§ Moved, That the Bill be now read a second time.—(Lord Lucas of Chilworth.)
78§ 7.41 p.m.
§ Lord McIntosh of HaringeyMy Lords, it is commonplace in politics that the old saying:
Those whom the Gods wish to destroy they first make madapplies more strongly to governments at the end of their credibility than to almost any other public institution. The Government are at the end of their credibility and in their dealings with the shipbuilding industry over recent years, and particularly over the past few weeks, they have gone beyond the edge of credibility.It is incredible that a Government can announce British Shipbuilders' decisions in one week which virtually destroy the shipbuilding industry and then, a week later, introduce in this House a Bill designed slightly to extend credit for the corpse.
The noble Lord has referred to the excellent terms which the Government make available to shipbuilding. I noted his words carefully. He said that the credit terms matched those generally available overseas and that they provided one of the most generous worldwide schemes. I note that that attitude towards support for British shipbuilding is not shared by all his honourable friends. Mr. John Butcher has expressed considerable disturbance at the general levels of public support of all Western countries for their shipbuilding industries. He described it as a corrosion. It will be interesting to know where, in what is inevitably a difference of view between the noble Lord and his noble friend, the official government position will land.
If it is true that we provide adequate support for British shipbuilding, why should this country, which has virtually the highest level of defence expenditure as a percentage of gross national produce in the Western world, have such a small shipbuilding industry? Why should a country, with the huge maritime business that we still have, be buying so small a proportion of its ships from its domestic shipbuilding and repair market? I understand that the percentages for Germany, Belgium, France and other Western countries are about 90 per cent. to 95 per cent. of home-registered shipping bought from their own shipbuilding industries whereas in this country the figure is more like 40 per cent.
The noble Lord referred to the fact that British shipbuilding now accounts for perhaps 1 per cent. of the world market whereas in the 1950s the figure was more like 20 per cent. He has referred to the fact that orders in the current financial year of 23,000 compensated gross tonnes are barely over 10 per cent. of the targets set by British Shipbuilders. If Government support is so generous and is comparable with that of other countries, why is our shipbuilding industry in the state that it is, and why is it that a virtual shut-down of the British shipbuilding industry has now been announced?
If any noble Lord should think that I am speaking for myself in this matter, exactly the same sentiment has been expressed recently by Sir Robert Atkinson, the former chairman of British Shipbuilders, who described the Government's policy as being hell bent on closing the whole industry.
79 The cost to this country of abandoning the British shipbuilding industry is immense. It is far more than the jobs directly involved. It can be calculated that indirectly we shall lose three additional jobs in the supply industries and the communities involved for every job that is lost in shipbuilding. The shipbuilding communities have been particularly hard hit by the Government's policies and the decline of manufacturing output in this Government's lifetime.
It is not just a matter of neglect; it is a matter of positive vindictiveness in the Government's policy for our shipbuilding industry. After all, it was this Government who, by privatising the naval yards, removed the possibility of cross-subsidy from profitable Navy contracts, and the staggering of work for all our shipbuilding industry by the timing of naval orders.
Some of those possibilities have gone; some remain. It would still be possible for the Government, by advancing orders for vessels such as fishery protection, ancillary defence or ferries, to make some move towards the replenishment of British order books which is desperately needed before the end of this financial year. In those circumstances, the phrase, "fiddling while Rome burns" is too generous to the Government. The idea that it is an adequate response to the British shipbuilding industry's problems to propose the increase in borrowing powers that have been proposed by the noble Lord in moving the Bill is grotesque. It is cynical to suggest that the Government's economic policies are in any way adequate for the needs of British shipbuilding. Although of course we shall not oppose the Bill, I assure the noble Lord that the defence of the British shipbuilding industry is a major concern for the Opposition. A Labour Government will see to it that the vandalism of the previous years is corrected.
§ Viscount HanworthMy Lords, it should be said that at least a part of the condition of the shipbuilding industry is due to the unions, demarcation disputes and inefficient methods of working. The same happened in our docks on the Thames. That should never be repeated in another industry. I hope that the lesson has been learnt, but it never seems to be.
§ 7.48 p.m.
§ Lord Lucas of ChilworthMy Lords, I was glad to hear from the noble Lord, Lord McIntosh of Haringey, that he does not intend to oppose the Bill. Indeed, that would show a vindictiveness which I do not believe that he personally feels towards this Government, nor do I believe that he can possibly sustain the accusation that the Government are vindictive towards the shipbuilding industry.
I am tempted to ask him, when he suggests that the Labour Government will reverse the position: are they going to conjure orders from the air? He will know equally as well as I that there is a surplus capacity of tonnage in the world today which is over twice the amount of world shipbuilding capacity. The general position which he and I have outlined is no different for this country than it is for any other.
80 I appreciate that the noble Lord was abroad when my noble friend Lord Young made the Statement in this House. He will no doubt have read Hansard and taken on board the fact that the Swedish shipbuilding industry, for example, is almost non-existent, and that France, Germany and now Japan are in some decline; and even in Korea our understanding is that there is no further new investment going in.
The noble Lord asked why we received only 23,000 compensated gross tonnes against a target of 200,000. The answer is that in the middle of 1985 the world market collapsed. The total world market was reduced. As a result, we received a consequentially lower share. The Government are not hell bent on abandonment. That is absolutely not so; otherwise, we would not have been in the position of agreeing to the suggestions that British Shipbuilders made to us when they reviewed the position. That the scenarios put before the Government by British Shipbuilders were unpalatable, there is no doubt. Their recommendation, and our acceptance of it, was the least that we could do. To support our concern, we introduced the measures that I have outlined.
The noble Lord opposite asked specifically about the fishery protection vessel for the Scottish Office, and two Scottish ferries. I can tell him that we anticipate a response next month. That is about as far as we could go in bringing forward orders. It is no good suggesting to my honourable friend the Minister of State for Defence Procurement that he brings forward the ordering of vessels for which he has no need. The person who pays at the end of the day is, of course, the taxpayer.
As to the remarks of the noble Viscount, Lord Hanworth, yes, one might perhaps have agreed in part with his comments some years ago. I do not believe for one minute that the position obtains today. There has been a remarkable change in all the shipyards; in fact, across the whole range of industrial affairs. I am going to suggest here and now that it is as a result of measures that this Government have brought in that much of that change has occurred. I do not believe that there is anyone working in a shipyard who still continues demarcation disputes or who does not want to achieve the highest possible quality in the shortest possible time for any vessel ordered from his yard.
The Government wish to see a merchant shipbuilding capacity maintained in this country. But orders have to be won in a fierce international market. I give your Lordships the assurance that where those orders are to be won support will be available from Her Majesty's Government. Part of that support is contained in the Bill. I beg to move.
On Question, Bill read a second time, and committed to a Committee of the Whole House.