HL Deb 12 December 1988 vol 502 cc765-70

2.58 p.m.

Lord Strathclyde rose to move, That the draft order laid before the House on 24th October be approved [36th Report from the Joint Committee, Session 1987–88].

The noble Lord said: My Lords, the purpose of this order which falls under Section 9 of the Industrial Organisation and Development Act 1947, is to abolish the Iron Casting Industry (Scientific Research Levy) Order 1971. The effect of the order is to abolish a statutory levy which imposes a levy on the iron casting industry, collected by the Department of Trade and Industry, and given in full to BCIRA (fomerly known as the British Cast Iron Research Association).

The activities of BCIRA need to be viewed against the background of the iron casting industry. Most companies would find it difficult to support their own research activities but they are nevertheless of vital importance to British manufacturing industry generally. The research organisation provides the whole of the iron castings industry with a wide range of services which include general scientific research and contract research, as well as consultancy and advisory services. The high standard and practical usefulness of the association's work is very highly regarded and widely recognised.

The Government, however, question the need for a levy. The scientific research levy contributes towards the costs of the general scientific research undertaken by BCIRA. The levy is currently collected from industry under the provisions of Section 9 of the Industrial Organisation and Development Act 1947. The levy was first introduced in 1966 and has been subsequently amended in 1971, 1976, 1979 and 1983 to assure that it provides a fair income to BCIRA from industry. The levy is made up of two components. First, it pays 0.15 per cent. of the emoluments of those employed in the industry. Secondly, it pays an amount per tonne on fettled castings produced in industry. The amount per tonne is linked to fettled castings; this amounted to 29p per tonne in 1988 and has been regarded as an equitable way of raising a research levy.

But the proposal to abolish the statutory collecting of the levy has to be viewed against the Government's policy of disengaging from industry. We believe that this disengagement creates an environment in which industry thrives. Thus BCIRA will be able to prove itself and show industry that it can help industry to face the challenge of the future and, in particular, the challenge of the single market in 1992 and beyond.

Section 9 of the Industrial Organisation and Development Act 1947 requires that major organisations which represent both the industry and the people employed in it be consulted. This has been done. Some consider that the statutory levy should continue to be collected by the department, but no argument has been presented to demonstrate that those who contribute without objection to a statutory levy will not contribute voluntarily to BCIRA. The voluntary system will enable BCIRA co respond to the needs of industry and I believe that it will become fitter and better able to serve the industry. Deregulation is necessary to help industry to thrive and industry should look after its own affairs. Over the years the contribution of the levy in percentage terms towards BCIRA's total income has fallen from 42 per cent. in 1980 to 26 per cent. currently. Thus the levy represents a declining part of BCIRA's income which has been made up by expanding contributions from contract research licence fees, overseas subscriptions, and other miscellaneous income. The pessimists' view is that it might lose some £200,000 of its income if the statutory levy is abolished from a total income of over £2.5 million. But this has not happened in the case of other research associations from which a levy has been removed.

The Iron Castings Industry (Scientific Research Levy) is the only remaining scientific research levy. Statutory levies for the hosiery and knitwear, wool, furniture and cutlery industries have already been abolished and the respective research organisations have all subsequently thrived. It is not apparent why BCIRA is special and why it should be the only research organisation, of which there are around 40, to be supported by a statutory levy. I stress that it is industry that should decide its own research costs and that the Government should not impose such costs upon it.

The costs of collecting the money are small compared to receipts, but the department has been incurring such costs for over 20 years. The way of collecting receipts is a well developed system and my department will help to transfer this, though it must be done within the limits of our legal system. We shall be as helpful as we possibly can. It has also been customary, where other statutory levies have been abolished, to give the appropriate research organisation a reasonable period in which to adapt to the new circumstance. This has been the subject of negotiations with BCIRA and the statutory collection of the levy will, according to the abolition order, end on 30th June 1990. Thus the organisation will have had from the initial announcement of the intention to abolish the levy, almost two years to adjust to the new circumstances. I believe that these are generous terms.

During the consultation process, the argument was presented that the situation of over 20 years ago which led to the introduction of the statutory levy would return, that foundries would become suspicious of each other and would be reluctant to contribute voluntarily to BCIRA. I do not believe that to be so. A statutory instrument is an impediment and I am firmly convinced that companies now recognise that research is essential for progress to be made and that there is more realism in approaching the future. To abolish this levy will lead to a challenge for BCIRA—a challenge I am sure that it is more than able to meet. I am sure that it will be able to prove its worth to the industry and help the industry develop in the coming years. I invite your Lordships to support this measure and I beg to move.

Moved, That the draft order laid before the House on 24th October be approved [36th Report from the Joint Committee, Session 1987–88].—(Lord Strathclyde.)

Lord Peston

My Lords, in responding to the draft order I do not wish to delay the House excessively, but there are a number of questions that I need to raise. First, there is no disagreement between us on the importance of research in an industry of this kind. The fundamental question is not whether research is desirable, but how it is to be financed. The normal economics are that, if we are discussing fundamental research the benefits of which accrue to the whole industry, it is not in the interests of any individual manufacturer to finance that research because the individual bears the cost and receives only a small fraction of the benefit. We have what in economics is known as the free rider problem. It is for that reason that research of this kind in industries of this kind has been seen to be financed by a compulsory levy.

In his statement the Minister is arguing that that analysis is mistaken. One has to ask whether one really can be that confident at a time when we all agree that the future of British industry depends on a research base, when what we need are the most advanced, highly value-added industries, and when we ought not to be taking any risks whatever in the funding of research. The Minister has referred to other research organisations from which the Government have disengaged. I have said that I do not want to delay your Lordships or engage in an enlarged debate on research, but it is not my view in most of the cases that he cites that the research is thriving to the degree that he says.

I agree that the proof of the pudding will be in the eating. We shall see whether appropriate research will take place on a scale that industry requires; by that I do not mean merely maintaining the scale but enlarging the scale that industry requires. In particular I do not know whether research for the industry will take place as opposed to specific items of research for particular firms.

I put these points to the noble Lord to emphasise our differences. He used the word "pessimists". He heard me last week saying that I am always a pessimist on all matters because I believe that that is the role of the economist. But I am extremely pessimistic in an area where quite separate from privatisation or nationalisation, one wants the industry to thrive. I am extremely pessimistc about a move by the Government in what I believe is the wrong direction. I believe that the right direction is to increase the levy and public involvement in fundamental research.

Baroness Seear

My Lords, I do not in the least wish to delay the House but in making his statement the noble Lord said, as is so often said from the Government Front Bench, that he was "confident" and that he "believed". In fact he made assertions. We are always hearing assertions of faith from the Front Bench. It is the noble thing to do, but it does not give us the reasons or the facts to back up the faith. Can he tell us why and what his evidence is that all will be well in the future and not merely that he has faith that all will be well? I fear that our faith wears a little thin.

The Earl of Halsbury

My Lords, I believe that it is worth looking back to try to remember why a limited number of the industrial research associations were placed on a levy basis in the first instance. This was regarded as appropriate where the industry consisted of a rather large number of small firms operating locally—typically a local foundryman. They are not science-based. They are craft industries operating foundrywork on a traditional basis. A limited number of similar industries had their research and development carried out by a very much smaller number of science-based people working with them in parallel who were naturally somewhat jealous of the fact that scientific advances, such as in malleable cast iron, should be put at the disposal of people who were not really in a position to evaluate the real benefits and merits of research and development.

By imposing a levy on everyone, one opens the science-based advances of bigger firms and puts them at the disposal of the smaller firms. The levy now appears to be wound up and I accept the assurance of the noble Lord that this is the last of the Mohicans, as it were, and that the levies have now ended. They were characteristic of only a small number of the 40 industrial research associations. They were appropriate at the time of introduction and I am sorry to see them going.

Lord Strathclyde

My Lords, I should like to thank all noble Lords who have contributed to the debate. I do not wish to detain the House for much longer. However, I should like to point out to the noble Lord, Lord Peston, that we are talking only about a levy. Only 26 per cent. of the income of the BCIRA comes from the levy and it will continue to be financed by the Department of Trade and Industry in the shape of a grant. There is no reason why that should not continue.

The noble Baroness, Lady Seear, expressed concern that everything would not go well in the future for that research organisation. I said that similar organisations have done well and there is no reason why this organisation should not continue to do so—

Baroness Seear

My Lords, I should like to know what is the evidence about them having done well. If the noble Lord were to say that such-and-such a research foundation gave up a levy and since this and this has happened, that would be credible. Merely to be told that they have "done well" does not tell us anything.

Lord Strathclyde

My Lords, I am sorry that I do not appear to have satisfied the noble Baroness but the form of words which I have is that they have "continued to thrive".

The noble Earl, Lord Halsbury, was right in saying that 20 years ago various industries needed such organisations because they were unaware of the work of research and development. However, in recent times, since the work has continually been shown to be valuable, it is more obvious that the industries are keener to carry out their own research and development. For that reason we believe the levy to be no longer necessary.

Lord Peston

My Lords, I do not like to break the rules and interrupt the Minister, but a precise point has been made by the noble Baroness, Lady Seear, and by me. Although everyone says that research is important there is no evidence that British industry is engaging in any more research. That is the nature of the problem. The Government are apprised of the matter and so are we. The problem is that British industry does not appear to be apprised of it.

On Question, Motion agreed to.