HL Deb 31 January 1994 vol 551 cc1129-39

3.58 p.m.

The Minister of State, Department of Trade and Industry (Lord Strathclyde)

My Lords, it may be a convenient moment for me to repeat a Statement made in another place by my right honourable friend the Minister for Industry. The Statement is as follows:

"With permission, Madam Speaker, I should like to make a Statement about BMW's acquisition of Rover.

"This morning, British Aerospace announced its decision to accept an offer from BMW to acquire its wholly-owned subsidiary Rover Group Holdings Ltd.

"BAe bought the Government's shareholding in Rover Group in July 1988. In accordance with assurances given at the time of the sale, BAe has helped transform Rover into one of Europe's most efficient vehicle manufacturers. Many factors have contributed to this, notably the management of Sir Graham Day, Mr. George Simpson and Mr. John Towers; the receptiveness of the Rover workforce and of Rover's suppliers to changing demands; and the close involvement and valued support of Honda. BAe has played a major part, and put in very substantial capital investment which has averaged £200 million a year.

"BAe wants to concentrate on its role as a world player in the defence and aerospace sector, and has been giving consideration to the future of its shareholding in Rover.

"Late on 26th January, BAe received a formal bid from BMW to acquire Rover Group Holdings Ltd. It was for BAe to take the commercial decision about how to respond to that bid. In particular it has to have regard to the interests of its shareholders, whose approval at an extraordinary general meeting is still a condition to the deal. But BAe immediately informed us of the bid and, in the absence of the President of the Board of Trade on an overseas visit, I met the chief executives of both BAe and BMW to discuss their plans.

"But the reality is that BAe owns two cash-hungry businesses: Rover and its defence and aerospace activities. BAe could not invest as much as it wanted in both businesses. The sale to BMW will therefore allow BAe to pursue plans for the turboprop and regional jet businesses in Prestwick and Manchester. This is good news for the UK's aerospace industry.

"For Rover, the new relationship with BMW offers some significant opportunities. BMW have stated that they will: maintain Rover as a separate enterprise with its own manufacturing plants and its own design and development capabilities; be able to offer better access to the very substantial funds needed for investment in new models; encourage Rover to build on the progress it has made in developing long term relationships with its suppliers; and be able to offer Rover additional export opportunities which should increase volumes.

"BMW have also stated that they hope that Rover will be able to maintain and to build on the existing links with Honda. These intentions are set out in more detail in a letter which BMW have sent to my right honourable friend the President of the Board of Trade. I am today sending a copy of that letter together with a letter from BAe confirming their strategy to all Members of the House. And I am placing copies in the Library.

"BMW is one of the most highly regarded car and engine manufacturers in the world. The fact that BMW is making this very substantial investment in Britain is evidence of the dramatic improvements in competitiveness that have been achieved by the British vehicle industry. BAe and BMW believe that this deal can significantly strengthen Rover, and consequently the UK vehicle industry as a whole. This should be welcomed by our vehicle industry and all those who work in it."

My Lords, that concludes the Statement.

4.1 p.m.

Lord Peston

My Lords, I thank the Minister for repeating the Statement made in the other place. The first question to ask—and perhaps it ought to be asked by Peers who sit on the Conservative Benches—is why a Statement on this subject is being made at all. I hasten to say that I did not believe in the Conservative economic policies of the 1980s; but anyone who believed in them might ask is this not simply a private transaction between two businesses? Where do the Government get to poke their nose in? Perhaps the Minister will tell us. He quoted his right honourable friend the Minister for Industry as saying: I met the chief executives of both BAe and BMW". Can the noble Lord tell us why his right honourable friend met the chief executives of those two companies? What was his purpose? What could he have done? What was involved?

It is interesting that we understand that the formal bid came on 26th January. Can the noble Lord tell us whether that was the first time his department had heard anything about the matter? Was the bid made and then his department told but it knew nothing about it earlier?

I ask those questions because this is in a sense a considerable test of whether the Government believe in their own economic policies. As I have pointed out on many occasions, they never appear to. This is a startling example of what we are asked to respond to. In particular, I should like to know what was and is the locus of the Minister's department and his right honourable friend the Minister of State for Industry in all this.

We have not had the Statement for more than a few minutes but I am genuinely puzzled about what it tells us. I look at it and can see nothing in it at all. When the Minister replies, perhaps he may tell me what he thinks the Statement tells us that we could not have picked up by looking at Teletext at approximately this time. Is there anything in the Statement? Is there what professors of English literature call "a hidden message" which needs re-interpreting so that eventually we understand what is going on?

The Statement is right to talk about the excellent performance of Rover. I would put it the other way round: I believe that there has been a brilliant achievement by Rover's workforce, assisted to some extent by the management. Whichever way one cares to put it, the outcome is the same. Since there is still a trade union element at Rover—I do not know whether there is one at BMW—I should like to know whether the workers were consulted or is there any suggestion that they will be'? I see that quite rightly the shareholders will be consulted; but I wish to know what has happened about consulting the workers.

The Statement says: BMW have stated that they will", do four things, and they state them. Then we are told that there is a letter which we can read subsequently in the Library which spells it out in more detail. Will the Minister confirm that "stated that they will" is simply a statement of intention: "if we can, we will do these things"? In no sense is the statement a guarantee; it is simply that: "if we maintain Rover as a separate enterprise" means: "we will try to maintain Rover as a separate enterprise if we can"; "we will offer better access to funds if we can"; "we will encourage Rover to build if we can and we will offer Rover additional export opportunities if we can". In other words, if BMW do none of those things, they do not do them; it is simply in the commercial interests of the company not to do them. Can the noble Lord tell us what is the point of "the best intentions" statement?

A minor matter is that some of the Rover success is connected with Honda. There is no Honda statement. Can the noble Lord tell us whether there is any danger that the Honda connection will be damaged by this? I take it—and I certainly hope—that there is none. I am not the kind of person who would dream of driving a BMW. It is the kind of car that always cuts in on one from the inside. But I recognise that BMW is quite a good car manufacturer. I hope that I do not have to make that point, having already said how excellent the Rover achievement is. I do not wish to denigrate BMW at all.

However, I am led to the point that British Aerospace has taken a commercial decision and that is what the Statement is meant to tell us. On elementary arithmetic, considering what BAe paid for the company originally and what it will receive for it now, it looks as though it will have quite a good return. At the time of the sale I believe that the noble Lord was here, as I was, and will recall that some noble Lords—and certainly my noble friend Lord Williams of Elvel—pointed out that, given the sweeteners, BAe obtained an extraordinarily good bargain.

Do the Government now regret that they sold off Rover at quite such a low price? And, more to the point, that they sold it off without any contingent element such as "If you sell it on for a considerable profit, the taxpayer will be able to recoup some of that money"? Have the Government any regrets regarding that?

One last, slightly technical question. One of Me better points or reasons for the Rover success, I hope the noble Lord will agree, is that it put much effort, both before this privatisation and subsequently, into improving the education and training of the workforce. I think the noble Lord will agree that that is the key to success anyway. What was called "the Rover learning board" put in a tremendous effort from top to bottom, it took the matter of training and retraining very seriously. Has there been any talk with BMW that such excellent work will continue in the new Rover/BMW?

I do not wish anything I say to undermine the fact that we all wish success to the new enterprise. It is not my intention, in asking questions today, in any way to suggest that a disaster would please me. I go further to say that although at the moment I believe that. British Aerospace is a loss-making business and that it will be glad to obtain the money, we would like to see. British Aerospace starting to make money again. That is not the problem. In a way, the real problem is that the mistake took place some years ago and today we have to let bygones be bygones. I repeat my point that one of the bygones is that these are not public enterprises anyway.

Lord Ezra

My Lords, I should like to say that I am very pleased we have been given the opportunity to comment on this important industrial development. Whether or not it demonstrates, as the noble Lord, Lord Peston, pointed out, that the Government are pursuing their industrial policies, we should welcome this opportunity. On the face of it, this arrangement seems to have many attractions and we join in congratulating Rover on its great achievements in recent years—indeed to the point at which I, for one, have decided that when the time comes for me to buy another car it will probably be a Rover, though perhaps I should see what happens to the company in its marriage to BMW before finally deciding.

The important aspects in this arrangement are the assurances and the statements that we are told BMW has made. It is of vital importance to this country that Rover remains here and develops here. As I understand it, that is one assurance which has been received and I think we need to have that fully confirmed by the Minister. On top of that, we need to make sure that the company's research and development capability will be encouraged and expanded here.

We need to be sure that within these various assurances suitable safeguards will be provided to those employed in the company. I take it that their contracts of employment and the assurances given to them will be continued, but we would like to know that that is so.

I believe that this linkage between this very successful enterprise in Britain's motor industry and the very successful German enterprise, BMW, can be of very considerable European significance. I am pleased that if a new relationship had to be made between Rover and another motor company it should be a European one, because it is, of course, mainly the European market that we have to develop. I welcome the arrangement on those grounds.

I conclude by saying that I hope this arrangement, which is of course an acquisition, will nevertheless work much more on the basis of a partnership between two very successful companies in the motor industry.

Lord Strathclyde

My Lords, I believe it is customary for me to reply directly to the noble Lords who have just spoken. The noble Lord, Lord Peston, started by wondering why a Statement should be made. He made an extremely good point. This is a deal between two private companies and therefore Parliament should not be involved. But of course that is to forget the history of Rover, British Leyland and the enormous commitment that the taxpayer has made to these companies in the past and also the very real interest that people have in these affairs. That is why we decided to issue a Statement to inform Parliament of what is happening between the two companies. Therefore, I can confirm to the noble Lord, Lord Peston, that there is no hidden message in this Statement. There is no great Government secret. Indeed, he may well have found out all he could by Teletex or the newspapers, but he would not have had the opportunity of questioning the Government unless there had been a Statement.

For that reason, my right honourable friend the Minister for Industry met the chief executives, not because he believed he could change their minds or even would want to do so, but to understand the thinking that had gone on in their minds so that he could find out at first hand exactly what decisions had been made.

The noble Lord, Lord Peston, asked whether we had heard about this agreement for the first time on 26th January. I can confirm to him that we first heard of the firm bid by BMW on the 26th January. But, of course, the DTI is firmly in contact with all sectors of British industry and I can tell the House that there have been a number of informal contacts with British Aerospace since February 1993 about the future of Rover, as a result of which we have been informed of key developments.

The Statement today outlines certain assurances that have been made by BMW, and again I can confirm to the noble Lord, Lord Peston, that these are statements of intent. Of course they are not guarantees. BMW are not in the business of providing that kind of guarantee nor would British Aerospace expect that. However, they are firm statements of intent, and I have to wonder why BMW would invest such an enormous amount of money in this country if it did not have every intention of staying here. I can confirm to the noble Lord, Lord Ezra, that BMW has given a guarantee to the workforce that there will be no changes. It is my belief that they will work hard to continue to make sure that Rover is a great company based here in Britain.

Some mention has been made outside Parliament, and again today by the noble Lord, Lord Peston, about the connection with Honda. Honda owns 20 per cent. of the Rover Group, and now BMW owns 80 per cent. It is perhaps not surprising that Honda is not entirely delighted with the events of today but the collaboration over the past 15 years between Honda and Rover has been mutually beneficial to both companies, and I can only assume that that collaboration and that good relationship will continue.

Turning now to the question of financing, the noble Lord, Lord Peston, asked whether BAe had not made quite a good return out of this deal. It will be up to the shareholders to decide whether or not it is a good return, but from the figures I have seen British Aerospace bought the company for some £150 million. Although it is being sold for £800 million BAe has, of course, been investing at the rate of £200 million a year to improve the quality of the product that Rover offers. There is no regret on the part of Her Majesty's Government for having made the sale in 1988. It was the right decision then for the sake of our industrial future, and I believe that the announcement which has been made today will also be good for the future of our industrial infrastructure.

The noble Lord, Lord Ezra, commented about the European nature of this bid. I agree with him that it is clearly good news for the whole of Europe that a major vehicle manufacturing company from Germany, providing a quality product—probably one of the best motor companies in the world—should get together with this British company which has a record, or at least a heritage, of providing quality goods, well designed at reasonable prices. That is the kind of merger we can all support and I believe that it will be in the best interests of both companies and, in particular, of their workforces.

4.18 p.m.

Lord Jenkin of Roding

My Lords, I wonder if I might press my noble friend a little more on the position of Honda. I was one of the Ministers who, over a period, helped to secure the negotiations which led to the Honda/Rover deal; and I was delighted when my noble friend said that it has indeed been very fruitful. I believe that to be the case and that the Honda expertise, both in management and in technology, has been of inestimable value.

However, is my noble friend aware that it is therefore a Little disappointing to hear that the first reaction of Honda was one of some dismay that it had happened? Is one justified in putting this in the context of the very substantial volume of Japanese investment which has come into this country and which I, the Government, and I believe all parties, have been delighted to see since it contributes considerably to our economic growth and industrial progress? Was Honda given any advance warning? What steps have been taken to protect the intellectual property which Honda and Rover have shared? Is Honda likely to be happy to find itself sharing this with BMW?

On the whole, the deal is a very satisfactory one and I share my noble friend's enthusiasm. It is very good to see a big German company investing a large sum in this country, but in the case of our relations with a big Japanese company like Honda, I should like to feel satisfied that it is not going to feel "done down" in some way. If that were to be so, I do not think it would be very good for the future of Japanese investment in Britain.

Lord Strathclyde

My Lords, my noble friend is right to remind us of the enormous amount of investment made by the Japanese during the past few years. We welcome that kind of inward investment into the United Kingdom and hope that we shall see Japanese investment for many years to come. Indeed, one of the most active and successful aspects of that investment has been in the motor industry from Nissan, Honda and Toyota, which brought a substantial uplift in the number of vehicles that we now manufacture in this country.

In reply to the noble Lord, Lord Peston, I said that Honda was not entirely delighted by what happened, and there are a number of reasons for that. I can confirm to my noble friend that Honda was consulted. As I understand it, there have been ongoing discussions between British Aerospace and Honda for some time in regard to the future of its shareholding. Honda was therefore well aware that there was a substantial discussion regarding the future of Rover and could not have been surprised at today's announcement.

I cannot answer questions in relation to intellectual property. It will depend on the arrangements in place between Rover and Honda and how that relationship is affected since the ownership changed from British Aerospace to BMW. But overall I can confirm to my noble friend that we hope that the hard-working relationship built up between Honda and Rover will continue for many years to come.

Lord Cledwyn of Penrhos

My Lords, while I wish the new arrangement every success, I feel that this is a sad day for Britain. A country which produced motor-cars over a long period with great success, after this new arrangement will no longer have control over a single motor-car company. Is not that the case? Does not the noble Lord feel ashamed that he represents a government which has been in office for 15 years and which leaves this country the poorer for it? Can he say whether any motor-car-producing firm comes under British control today? If the answer is in the negative, it is a state of affairs about which he and his Government should feel extremely ashamed.

Lord Strathclyde

My Lords, I am saddened by the words of the noble Lord, Lord Cledwyn. I recognise that he voices a great deal of natural patriotic feeling towards British-owned companies. However, his sentimentality in this case is misplaced. In the modern world of cross-ownership and multi-nationals, it is sometimes difficult to see whether a company is British, French or German. Any company may have shareholders based in different countries. It is the shareholder who ultimately owns the company.

My view on the matter is simple. A British company is one based in Britain which employs British people who pay British taxes. That is a definition of a British company. On that basis there will be no change to the composition of Rover as a British company after today's announcement.

Lord Clark of Kempston

My Lords, does not my noble friend agree that it is unfair to criticise the purchase price paid by British Aerospace a few years ago while at the same time ignoring the massive investment that it later put into the Rover Group? Does he not also agree that, while we warmly congratulate the workforce at Rover, one of the reasons for the decimation of our motor industry is that the trade union legislation allowed people like Mr. Robinson—known as "Red Robbo"—to kill the motor industry? Does he not further agree that if the trade union legislation had not been changed, neither Honda, the Japanese, the Americans nor the Germans would have invested in the motor industry in this country?

Lord Strathclyde

My Lords, I agree with my noble friend Lord Clark that British Aerospace has made a substantial investment over the past five-and-a-half years. That is one of the reasons BMW felt that it was worth its while investing in Rover. It is hard to believe that BMW would have bought British Leyland back in the 1970s, when it was bedevilled by the problems mentioned by my noble friend. He is right also about the legislation. After 15 years of Conservative government, that is one of the many problems that we have solved.

Lord Dormand of Easington

My Lords, has there been an indication as to whether there will be a reduction in the workforce?

Lord Strathclyde

My Lords, BMW confirmed that there will be no change in the workforce.

Baroness O'Cathain

My Lords, I agree with the noble Lord, Lord Cledwyn, that today is a sad day for those of us who have worked in the British motor industry. But is it not true that BMW has been experiencing setbacks due to the economic situation in Germany and in turn has reduced its labour force by 20,000 over the past few months? What guarantee do we have that that will not happen here and that BMW do not see this as an opportunity of taking out a strong competitor?

Lord Strathclyde

My Lords, if BMW is taking out a strong competitor, it is finding an expensive way of doing so. It is extremely unlikely that that is the kind of operation in which a successful company like BMW would wish to be involved. The answer is much more simple. BMW saw that in the West Midlands and other areas where Rover is based, there was a workforce which was well trained, well educated, keen to improve the quality of its product, selling better and offering the kind of value-for-money for which German companies have been well-known in the past. Unfortunately, due to a variety of reasons Germany finds itself with economic and financial problems. Today's announcement shows a great step forward in the industrial network of Great Britain and a great future for vehicles manufactured in the United Kingdom.

Lord Marlesford

My Lords, I find myself in agreement, as I often do, with the comments made by the noble Lord, Lord Peston. Nevertheless, can my noble friend try once and for all to quash the fallacious thoughts that remain on the Opposition Benches—which one is surprised to find in this House, especially among people as distinguished, and by me esteemed, as the noble Lords, Lord Peston and Lord Cledwyn —on matters such as the price for which something is sold being lower than the price for which it is subsequently sold? A shareholder buys a share because he thinks it will go up in value; an investor buys a company because he believes that he can make more out of it than the present owners. Is it not true that it does not matter who owns economic and industrial enterprises, provided that they are in this country and providing employment, prosperity and wealth for the people of this country?

Lord Strathclyde

My Lords, I do not always agree with what is said by my noble friend. But I can disagree with nothing that he said very clearly, eloquently and rather better than I said it earlier.

Baroness Dean of Thornton-le-Fylde

My Lords, perhaps I can press the Minister a little harder on the employment undertakings. When one looks at employment and the research and development assurances sought by the unions, the responses sum up to me what I would call a "definite maybe". When BAe acquired Rover there was a lot of discussion in relation to employment. There has been a remarkable turn around by this company with a remarkable effort by the workforce. Indeed, only last year when the question of their future was raised, the employees were given assurances by BAe that the Rover Group was part of the core business of BAe. One can therefore understand the shock that they felt.

There must also be concern about the markets in which these great companies compete. Many of the models produced by both companies are for similar market customers. Clearly there is concern about that. I press the Minister to give some stronger assurances or for an indication of what consultation will take place with the trade unions on the assurances in regard to future employment, because this is a complete takeover of a major British company.

Lord Strathclyde

My Lords, all I can say to the noble Baroness, Lady Dean, is that I am not in a position to give assurances. That is not my role as a Minister in the Department of Trade and Industry or as a Minister of the Government. It is for the workforce of Rover to decide with their new owners exactly what the employment levels will be. That will depend upon the success of the company. I believe that it will be very successful. BMW has agreed to many of the matters currently carried out by Rover, including a new deal announced in April 1992 called Rover Tomorrow—the New Deal. The key principles of that deal were that no employee would be laid off, that employees who wanted to work with Rover would be able to stay, and so on. That is the basis of an agreement which has held Rover in good stead, and I very much hope that it will continue.

Lord Bruce of Donington

My Lords, the noble Lord will be aware that my noble friend Lord Cledwyn is not alone in voicing misgivings about this latest corporate move in Europe. The noble Lord has been very careful to say that he cannot possibly give any firm assurance that binds the future actions of this German company. No doubt he has had a statement of intent. Your Lordships will be aware that on many occasions over the past 15 years statements of intent of all kinds have been made by all kinds of people but in the event have not always been honoured.

The noble Lord said emphatically that the most important factor was that Rover would remain a British company with its operations, staff and management in this country, and that it would be subject to all British laws. He indicated that ownership was quite irrelevant to the whole matter—an argument which he may at a later stage regret having used. It is not the case that the Stock Exchange market comprising a whole series of individuals has taken over the ownership of Rover; a corporate body, which is subject to its own shareholders, has carried out the takeover.

We do not know to what pressures BMW will be subject in future. It is not subject to British laws. We do not know what commercial pressures it has to resist or support. We do not know what its financial position is likely to be under any future financial regime either in Germany or Europe. In short, we are allowing this company to enter into the realm of deals in the field of corporate capital, not among individual shareholders. It is a very sad thing that in this modern age a powerful corporate entity, as distinct from a whole mass of individual shareholders, has been allowed to take over and effectively control operationally and in every other way, as corporate shareholders can, the company's future operations. I venture to predict that the day will come when the country as a whole will deeply regret that this step has been permitted.

Lord Strathclyde

My Lords, I deal first with the premise of the noble Lord, Lord Bruce of Donington, that a corporate investor has taken over Rover. The same position has obtained for the past five-and-a-half years. It has been owned by another corporate investor: British Aerospace. Before that, it was owned by the most obvious corporate investor: Her Majesty's Government. It is a long time since individual shareholders have been able to control Rover. It may be that if many years ago these companies had not been nationalised we would have had a far more successful motor-car industry than we have today.

I believe that the noble Lord, Lord Bruce, misheard what I said. I hope I did not say that ownership was irrelevant. I believe I said that ownership was now international. One cannot tell whether a company is British or foreign-owned because of the way international capital works through international stock exchanges. I believe that that argument is still true, although I will be delighted to debate it with the noble Lord at some other time.

As for the commercial pressures that will be brought to bear on BMW, I believe that such pressures are the same all over the world. It has to make a profit. If Rover produces a profit because of the excellence of its product, there is no reason why motor-car manufacturing in this country should be threatened. What about all the other overseas companies that own manufacturing entities in this country? Ford, Peugeot, and General Motors make cars in this country, and do so with great success. Many British companies with headquarters and staff in this country own some very important companies overseas. I know that the noble Lord, Lord Bruce of Donington, basically believes in free trade. I am sorry that he just does not like this announcement.

Lord Sefton of Garston

My Lords, I ask the Minister whether he recalls that on the previous occasion this issue was raised in the Chamber the Government were asked what they intended-to do to prevent the transfer of British Leyland and the manufacture of the 125 aircraft into foreign hands. If the Minister cannot remember, I will remind him that the reply of the Government was that in both cases it was a matter for the company to decide. In view of the possibility of British Aerospace beginning to negotiate for the sale of the plant manufacturing the 125 aircraft at Chester, can the Minister give an assurance that the Government will do their best to dissuade them from selling off parts of our aircraft industry?

Lord Strathclyde

My Lords, I return to the same basic concept that these matters are best decided by individual companies. That is as true for this announcement as it is for the rest of British industry.

Viscount Ullswater

My Lords, I see from the Clock that we have spent 20 minutes on this matter. I believe that we should continue with the Northern Ireland order.