HC Deb 04 April 1979 vol 965 cc829-32W
Mr. Townsend

asked the Secretary of State for Industry what has been the percentage increase in output per man within British Shipbuilders between 1976 and the latest date for which figures are available.

Mr. Kaufman

This is a matter for British Shipbuilders.

Mr. Blenkinsop

asked the Secretary of State for Industry what steps, in addition to intervention fund support, he is proposing to take in response to British Shipbuilders' corporate plan to assist British Shipbuilders to secure further work; and whether he is also proposing to provide any assistance to the ship repair industry.

Mr. Varley

As the House knows, shipbuilding worldwide is facing a recession unparalleled since the thirties. Without continued substantial Government assistance, our merchant shipbuilding industry would not survive and there would be very severe additional unemployment in localities where the level of unemployment is already too high. Assistance from the intervention fund so far has provided some 30,000 man years of work in the yards and at least an equal amount among the suppliers.

As required by the Aircraft and Shipbuilding Industries Act 1977, British Shipbuilders has submitted its corporate plan to the Government. Its preferred strategy is to retain its historic share of the market around 3¼ per cent.

The Government accept the Corporation's strategy of aiming to retain its existing share of the commercial market. The market is, however, too uncertain to make any realistic forecast of the employment consequences. The Government have always recognised that, given the severity of the recession, some contraction is inevitable, but our aim is to save as many jobs as possible. The Government therefore propose that the progress of the industry in relation to market developments should be considered on a step by step basis.

To support British Shipbuilders' objective of retaining its market share, the Government are proposing that intervention fund assistance of £85 million should be made available for the coming year. These proposals will need to be put in due course to the Commission, with which we shall seek constructive discussions in the light of this statement and the general shipbuilding situation in the Community as a whole.

The Government will bring forward as many public sector orders as possible. These will be eligible for intervention fund assistance in the same way as private sector orders. Developing countries have benefited from the overseas aid programme by the purchase of ships from BS, and we expect that further orders should arise from this source.

The Defence budget ceilings set out in the White Paper on Public Expenditure (Cmnd. 7439) provide for a considerable expansion for naval shipbuilding in the next few years. To assist exports of naval ships, the Government are now prepared to consider, in appropriate cases, the offer at the outset of improved credit terms comparable to those available for merchant ships.

British Shipbuilders, working closely with the Ministry of Defence, has produced an outline design for an export frigate which is a good export prospect. The Government have authorised certain development expenditure on this vessel over the next 12 months.

In international meetings on the world shipbuilding crisis, the Government are also taking an active role in current discussions on possible improvements to credit for shipowners now being considered within OECD and on "scrap and build". The EEC countries are at present considering whether a practicable and cost effective "scrap and build" scheme can be worked out. Both of these measures could help to advance orders but international co-operation and agreement are essential if progress is to be made.

British Shipbuilders, in common with other shipbuilding industries, will continue to make losses in this period. It will be required to operate within a total cash limit for 1979–80, including intervention fund assistance, of £250 million, and within a total loss limit of £100 million after crediting intervention fund assistance. This compares with the financial target this year of £45 million loss after crediting Intervention Fund assistance. In the difficult market situation which has prevailed, the outcome for this financial year has become increasingly uncertain and will not be known until the accounts for 1978–79 are finalised.

Pending decisions on the corporate plan, British Shipbuilders has been financed on an interim basis through National Loans Fund advances. However, it is clear that, given the severity of the world recession, the Corporation will continue to make substantial losses because its facilities will not be running at their economic level. Against this background, the Government believe that BS should not be financed from the National Loans Fund. Instead, in the Government's view, it should be financed by public dividend capital and, after the necessary Estimate provision has been approved, advances would be made to enable the interim NLF loans to be repaid. BS would not be able to pay a dividend on its PDC until it is profitable, and it would not be able to meet the general criterion for dividends set out in paragraph 86 of the Government's White Paper on the nationalised industries, Cmnd. 7131.

It is also clear that it is unrealistic in present circumstances to expect British Shipbuilders to service commencing capital. Under section 15 of the Aircraft and Shipbuilding Industries Act, the commencing capital may be set at any level below the maximum defined in the section. The Government believe that the only realistic level in present circumstances is nil. The Government are confident that it will be possible for the industry to become profitable again, but until demand and supply are in better equilibrium neither British Shipbuilders nor any other shipbuilding industry is likely to be profitable.

In its corporate plan, British Shipbuilders also asked the Government to consider assistance for ship repair which has suffered equally with shipbuilding in the current recession.

In response to this, the Government have prepared a shipbuilding guarantees Bill to extend the home credit scheme to conversion by United Kingdom shipowners. We also believe that there should be discussions with the shiprepair industry, both private and public sectors, to see if there is a case for any further assistance. The ship-repair industry is important to a maritime nation.

The Government accept that, despite these measures of support, some contraction will be inevitable. The Government therefore believe that the shipbuilding redundancy payments scheme, which was introduced to alleviate hardship, should be extended to end-June 1981, which is the maximum permissible under the Shipbuilding Redundancy Payments Act 1978. The maximum earnings limit under the scheme should also, in our view, be increased from £100 to £110 per week, which is the new limit for redundancy payments under the Employment Protection (Consolidation) Act 1978.

In the longer term, the prospect for British Shipbuilders will be brighter. Shipbuilding is cyclical and world shipping demand will eventually recover. Our object is to ensure that as much as possible of our industry survives. It would not be sensible either in social or economic terms to allow our industry to be exposed wholly to market forces and be unable to meet demand when eventually it picks up. The realistic approach which the Government have adopted is to support, within financial limits, British Shipbuilders' aim of retaining market share, above all to alleviate the effects of contraction, and to save as many jobs as possible.