HL Deb 21 January 1987 vol 483 cc967-75

5.28 p.m

Lord Trefgarne

My Lords, with the leave of the House, I should like to intervene to repeat a Statement which has already been made in another place by my honourable friend the Parliamentary Under-Secretary of State for Defence Procurement.

However, before repeating the Statement, perhaps I may remind your Lordships that the Statement bears heavily on the Starred Question which we had yesterday on this matter. Probably in the normal course of events your Lordships would not have wished me to repeat the Statement. Nonetheless, it has been asked for so I shall repeat it.

The Statement is as follows:

"My right honourable friend the Secretary of State announced yesterday (in following up an answer to a question from my honourable friend the Member for South Ribble) that the Government are now satisfied that there exists the basis for an advantageous contract to be placed for the future operation of Devonport Dockyard with Devonport Management Limited which is a company formed by Brown and Root (UK) Limited, the Weir Group PLC and Barclays De Zoete Wedd Ltd.

"I am sorry that the Official Report has not yet printed my right honourable friend's Answer. However, I did write yesterday to those MPs most concerned.

"All three companies in the consortium are British but Brown & Root are a UK subsidiary of the US Halliburton Company. As the right honourable gentleman the Member for Llanelli will recall from our discussions of the Dockyard Services Bill the upper limit which we set for foreign shareholding in the companies bidding for the contracts was 30 per cent. In determining whether or not a particular shareholding should be considered foreign, account is taken of the parent companies. On that basis, Brown & Root's share in Devonport Management Ltd has been set at 30 per cent.

"The House will recall that in our paper to the trades unions of 4th December we announced our preferred contractor for Rosyth. My right honourable friend is at this moment chairing a meeting with general secretaries of eight unions to hear their views on that paper before he takes a final decision.

"In forwarding the paper on Devonport to the unions yesterday my right honourable friend proposed a meeting with them on 13th February to discuss that paper. No contract has yet been placed, and my right honourable friend has said that he will only do so when the unions have had an opportunity to give him their views."

My Lords, that is the Statement.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister for repeating the text of a reply given in another place to a Private Notice Question by my honourable friend. I agree with him that we pre-empted a substantial amount of the content of the Question being asked in another place today in our exchanges yesterday. Nevertheless, we take advantage of all opportunities that we have in this matter.

Perhaps I may ask the Minister one or two questions arising directly from the Statement. Reference is made to Devonport Management Limited in which there are three companies named. We have the benefit of knowing that Brown and Root, who are the American subsidiary, have 30 per cent. of the shares. Can the noble Lord tell us how the other proportions fall with the other two companies?

Can the noble Lord tell us more about the US Halliburton Company? I profess ignorance, but I am anxious to know whether all possible steps have been taken both to verify their financial standing and also their ability to do the wide range of work that they will have to undertake.

Would the Minister care to tell us his reactions and those of his colleagues to the statement made by the manager at Plymouth, Mr. David Johnson—who, as he will recall, put in a bid for a management group—when he estimated that there would be 1,500 job losses in the first two years of private management through redundancy and early retirement? On redundancy and early retirement, can the noble Lord tell us what kind of pressure, or what kind of understandings or undertakings have been sought from the consortium in respect of that important matter?

Can the noble Lord also tell us whether the Government have yet begun the process with the unions and with the local authorities to consider the enormousness of the consequences of such a change? I am delighted to see, as always, the noble Baroness, Lady Vickers, in her place. She raised this matter directly yesterday, and I am sure she has something more that is pertinent to say on it.

Does the Minister understand that the local community, and indeed the trade unions, are deeply disappointed at the speed with which the Government have moved towards their hitherto published vesting day of April? The Minister makes comments in various documents about listening carefully and taking all things fully into account. If the unions and the local authorities want a longer time in order to consult and assess what the Minister is doing, is he even at this late stage prepared to move the vesting date to a later date?

Lord Diamond

My Lords, we on these Benches should like to thank the noble Lord for what he has said, but regrettably we cannot welcome the Statement. We want to make it clear to the Government that the only Statement on this issue that we would welcome is the kind of statement that BTR has recently made with regard to withdrawing from its proposed purchase or proposed takeover bid.

Perhaps first I may, as a small matter but as a matter of courtesy to the Minister, ask why it is that he takes the posture of repeating a Statement made in another place when he is the Minister of State for Defence Procurement and his honourable friend in another place is, I think, the Parliamentary Under-Secretary of State for Defence Procurement? It is exactly the same department, only not as responsible a task as the noble Lord's. Is this due merely to the timing of the two Statements? This would seem to me hardly a sufficient reason for departing from our normal practice and sustaining the standing of your Lordships' House and the courtesies due to a Minister of State.

May I now go on to deal with the Statement? The first point in the Statement is in regard to foreign share holding. We are very unhappy indeed about this. The foreign shareholding limit has been put by this House at 30 per cent. That is the maximum for safety. The whole of that 30 per cent. is being absorbed in the Brown and Root shareholding, they being a wholly-owned subsidiary of an American company.

There is another shareholder, BZW, who are going to hold 45 per cent., as I understand it, of the shares. They are of course merely a storehouse. They are merchant bankers who will take the shares in the first place and then pass them on for an appropriate consideration. If they resell only one half of their shares, then there will be more than 50 per cent. of the shareholding of this management group held abroad, and we are talking about a company which manages defence procurement for the Royal Navy. We are unhappy about that and should like to hear how the noble Lord reconciles that with our responsibilities for securing British control over defence procurement.

The next thing that the Statement mentions in its last lines is: and my right honourable friend has said that he will only do so"— that is, place the contract— when the unions have had an opportunity to give him their views. That is not the kind of pharaseology that we regard as consistent with the Government's responsibility of full consultation. Full consultation may well result in different views about how the employees' rights can be maintained, but it cannot result in those rights being totally discarded as these words would permit. What we should like to know about here are the pension rights; the employment rights; the redundancy rights of the whole of the, I think, 11,500 workforce; and whether the Government are going to guarantee them.

I do not want any guarantees from any limited companies. We want the same conditions continuing as apply now, which means that the Government must guarantee the full payment of those pensioners, should that arise; the full payment of those redundancy payments on their present levels, should that arise. Can the Minister give me the necessary assurance on that? Can the noble Lord say, in the event (as is contemplated) of some unfortunately possibly substantial redundancies, that the Government are taking special steps to encourage methods of reemployment in that area?

The next matter with which the Statement deals is the paper that has been issued and which is in the Library, available for every one of your Lordships to read, from which we see that this massive business is all in order to provide the kind of competition which very largely rests on cost-plus contracts. There will be a large element of our old friend cost-plus, with all the extra dangers that involves, all the time involved in monitoring and carrying out the contract, the profit margin and all the dangers of impropriety which we are familiar with. If the Government want me to remind them about this I can go back to 1946 and give them chapter and verse, but we do not want to rake over ashes of that kind.

All this is being done to procure savings which are estimated to amount to under £20 million a year and which are disputed and which go over a period up to 1993–94. I do not know whether your Lordships would place enormous credence on estimates covering a period that far ahead. I certainly should not. The argument that there are great savings is highly suspect and it is for this very doubtful benefit that the Government are, in my view, endangering the defence by sea of this country.

5.45 p.m.

Lord Trefgarne

I shall first explain the circumstances about my repeating a Statement made in another place. In fact, it was a Private Notice Question in the other place, which it would have been entirely proper for my honourable friend to answer. Unfortunately the right honourable Member for Llanelli was not in his place when the Private Notice Question was called and my honourable friend therefore, thinking quickly on his feet, changed it into a Statement so that the other place could have the benefit of the Answer he had in front of him. Thus it is I find myself repeating a Statement made by my honourable friend, which might not in all circumstances have been appropriate.

I now turn to the points that have been raised. First, the noble Lord, Lord Graham, asked me about the other shareholdings in the preferred company at Devonport. I indicated earlier that 30 per cent. of those shares will be held by Brown and Root (UK) Limited; 25 per cent. will be held by the Weir Group plc and the remaining 45 per cent. by the merchant bank Barclays De Zoete Wedd.

As the noble Lord, Lord Diamond, rightly apprehended, Barclays De Zoete Wedd have made it clear that they would be willing to dispose of those shares as appropriate, but it is our hope and expectation that that disposal will take place in favour of employees within the dockyard in Devonport, if in due course we decide to award the contract to Devonport Management Limited. I make it clear that we have not yet so decided. We have indicated that Devonport Management Limited is our preferred contractor, but we have also made it clear that we wish to have further consultations with the trade unions on this point. For that purpose they have been invited to attend a further meeting with my right honourable friend the Secretary of State and myself in the middle of next month.

The Statement also refers to a meeting which took place a short time ago. In fact, it was taking place when my honourable friend made the Statement. That meeting is now over. I was present at it. I can tell your Lordships that my right honourable friend has said that consultations about Rosyth are now over. He will take careful account of all the points that were made to him today at the meeting with the trade unions, together with all the points they have made on the numerous other occasions we have met them and in the various exchanges of correspondence. He will be making up his mind shortly about the future for Rosyth.

The noble Lord, Lord Graham, asked me about the vesting date. We do not believe there is any need to reconsider the date at the beginning of April which we propose for the vesting date. We are convinced that the necessary consultation can be completed by then and my right honourable friend again made this clear to the trade unions at the meeting today.

As for the implications for jobs, in the paper which we issued on the government-owned plc option in September last year we said that under that option there were likely to be reductions over a seven-year period of some 5,000 jobs in Devonport and 1,200 jobs in Rosyth. Obviously those calculations were based on assumptions about the possible improvements in efficiency and on forecasts of the amount of unallocated naval and commercial work that the company might secure. It is of significance that the preferred contractors at Devonport and Rosyth believe that, under their management, reductions would be measurably less. I hope that will be of some reassurance to those both in Rosyth and in Devonport who have been concerned on that matter.

Perhaps I may try to help the noble Lord, Lord Diamond, on the question of foreign shareholdings. The 30 per cent. limit which was included in the legislation is the point at which the Secretary of State can take a view upon the desirability of an increase in the proportion of shares owned by foreign shareholders. Of course there are some foreign shareholders who would cause us no difficulty whatever but there are some foreign shareholders who would indeed cause us some difficulty for obvious reasons. However, my right honourable friend the Secretary of State is fully armed with the necessary powers to guard against that difficulty. It is worth noting that quite a number of important suppliers to the Ministry of Defence are foreign owned in any event. What is important is that the security arrangements they put in place to deal with sensitive work are properly effective.

I believe that both in the Statement and yesterday I have dealt at some length with the consultation procedures we have undertaken. They are not yet complete, particularly so far as concerns Devonport, and my right honourable friend will be considering what time is appropriate to set with the trade unions for consultation on the paper which was issued to them yesterday. I hope I have been able to reassure your Lordships.

Lord Denning

My Lords, as I have been much concerned, perhaps I may first thank the Minister and the Government for the steps they have taken so far. The big problem at the beginning was which system should be adopted in future for the dockyards. Was it to be a trading fund, as the unions would have liked? Was it to be a government-owned plc, as some others would have liked, or was it to be a commercial management company? There have been extensive consultations on that and I suggest that the Government have done all that is reasonably necessary and have come down in favour of commercial management.

The next difficult question was who was to be the preferred bidder. Again the Government, it seems to me, have gone through all the proper information and consultations and they have named their preferred bidder. But I should like to suggest that there is still a long way to go before the information and consultation processes are finished.

I take two or three sentences from the paper which was enclosed. Paragraph 3 states: The Department has now taken the contract negotiation … to a point where there exists a firm basis for signature. The contract is based on the draft circulated, to the Trade Unions in April"— that is, in April last year.

I considered that draft closely. I suggested there were flaws in it. I suggested it was like when you are selling a beehive: you do not sell the hive separately from the bees; you have to sell it all at once. So with a licence to run a dockyard for seven years the men, the workers in it and all the plant and equipment should go together. The unions would like to see that objection successfully overcome, because the question of the licence being for seven years is a new matter.

Quite rightly, the Government remain owners of all this important defence plant and equipment, but they are just licensing it for seven years. If that is to be extended, where is the new capital to come from? Those are some of the questions. On foreign control, the terms of the contract seem to have many loopholes. We know what can be done with nominees and the like: it is often difficult to find what the true ownership is.

The last point, which is new, is No. 13: Transitional Arrangements; A separate Services Contract is being negotiated to cover the resources employed between signature of the Term Contract and the Vesting Day. I do not know how long that will be. The vesting date will be the beginning of April. When is the signing of the contract to be?

Then there is this strange sentence: This contract can be extended for a period of up to 56 months if Vesting Day is delayed, after which there will be a mutual right to terminate the Term Contract". That is going to be a strange situation—that after the contract has gone and men have been transferred there is a mutual right to terminate it.

It seems to me that many matters need to be considered further in the course of the negotiations before the contract is signed.

Lord Trefgarne

My Lords, if I may briefly answer the noble and learned Lord, my right honourable friend has indicated his preferred way forward so far as concerns Devonport but he has not reached a final decision. I should like to underline that. He has invited the trade unions to call upon him again towards the middle of next month with their views, and it will certainly not be until after that meeting that he will reach final conclusions on that matter.

Baroness Vickers

My Lords, I should like to add a few words, if I may, and ask the Minister a few questions. I should also like to thank the noble and learned Lord, Lord Denning, for coming down to Devonport and spending a day going round the dockyard with me. I think that was very helpful in many ways in regard to its future.

Paragraph 4 of the paper says that tenderers were affected by difficulties in getting into the yard. I hope that this will be changed in the future. What is meant by "difficulties of access to the Dockyard"? How can tenders be raised if there is going to be difficulty and a lack of detailed information needed to prepare realistic price bids? I should like to know whether this matter has been authoritatively settled.

Then we have paragraph 10, which says: Future employment levels are not built into the contract, since they are dependent on at least five variables". I shall not read out the five variables, but I should like the Minister to let me know whether those are going to be considered in future.

The paragraph also says: The contractor and the Department will discuss the programme of work in the Dockyard on a quarterly basis". Do we get reports on what is going to happen in those discussions? Are we going to be allowed to discuss this matter in future in the defence debate? I see it still comes under the Ministry of Defence. Will we get yearly reports? Perhaps the Minister could let us know exactly how it is going to work in future, because it is going to be a very difficult time for the people who have worked in these yards for years and years. They do not know what their future will be.

Finally, I should like to know what is going to happen about training of young people, which is so essential for the area concerned. This has been going on for many years. I asked this question the other day and I should like to know whether it is possible for me to have an answer.

Lord Trefgarne

My Lords, my noble friend is right to raise the points that she has raised. As she says, she has raised some of them on earlier occasions. On the question of the training of young people, I know I have given her one or two answers previously. I shall be happy to write to my noble friend with some more information if I can do that. In regard to future parliamentary accountability in this matter, of course the size of the naval programme and the work that emanates from it is very much subject to parliamentary scrutiny, and my noble friend will be absolutely entitled to table Questions on that matter as the need arises.

Perhaps I may also deal with one point made earlier by the noble and learned Lord, Lord Denning. I remember that we had a long discussion about the hive and the bees during the passage of the legislation. The noble and learned Lord will be pleased to hear that the contract which he saw earlier has since been amended to take account of those changes which were agreed to the legislation.

The Earl of Onslow

My Lords, what other NATO nation would allow 30 per cent. of one of its naval dockyards to be under the control of a foreign power? Can my noble friend seriously think that 30 per cent. of Norfolk, Virginia, could be owned by ICI, or that the French would allow Lorient or Brest to be controlled by a German firm; or even that the Germans at Kiel and Hamburg would allow the same? I am an internationalist, but it seems to me a pretty rum thing to allow that amount of foreign control over people who are mending and repairing our nuclear submarines.

Lord Trefgarne

My Lords, had my noble friend taken an active part in the legislation that we considered he would have been aware that in fact the ownership of the dockyards is not being changed by this legislation or by the arrangements that we are now discussing. The ownership of the assets remains vested in my right honourable friend the Secretary of State. What we are talking about is the management of the dockyards. It is the case that a number of major defence contractors are a lot more than 30 per cent. owned by overseas interests. What is important is that the security interests of this country be properly sustained. We do that by a very careful system of scrutiny and procedures, and those scrutinies and procedures will apply in this case.

The Earl of Onslow

My Lords, I am fully aware that I made a slip of the tongue when I said "ownership" instead of "management". I should still like the question to be answered. Can the Minister conceive of foreigners having the same percentage of management over either Lorient or Norfolk, Virginia, or Kiel?

Lord Trefgarne

My Lords, I certainly do not see why they should not.

The Earl of Onslow

But do they, my Lords?

Lord Diamond

My Lords, perhaps I may repeat one very important point in addition to what the noble Earl has mentioned. He has referred to only 30 per cent., whereas the arrangement that is proposed permits of a far higher percentage than that. It is with regard to the vesting date. The Minister has been good enough to say that he does not at the moment contemplate the need for postponement, but others fear that the date may have to be postponed. Frankly, can the Minister say what serious damage to defence procurement would arise if it were postponed for a short period? I cannot see that there would be any at all. A postponement could be immensely beneficial to the atmosphere of consultations which take place in the meantime.

Lord Trefgarne

My Lords, this matter has been under discussion and consultation for two or three years at least. I am totally persuaded that continued uncertainty is not in the least desirable, and for that reason I think we should agree to get on with these arrangements just as soon as we can.