§ Mr. Speaker
May I remind the House that 23 hon. and right hon. Members wish to speak in this debate. Each of them has a special contribution to make. I want to call as many of them as I can. I can do so only if those whom I call make brief speeches. I have selected the Amendment in the name of the right hon. Member for Mitcham (Mr. R. Carr) and his right hon. and hon. Friends.
§ 4.30 p.m.
§ The Minister of Technology (Mr. Anthony Wedgwood Benn)
I beg to move,That this House accepts the conclusions of the Report of the Committee of Inquiry into Certain Contracts made with Bristol Siddeley Engines Limited.I hope that it will be for the convenience of the House if we take this Motion and the other Government Motion—That this House takes note of the Third Special Report from the Committee of Public Accounts.—and the Amendment together, so as to allow a wide-ranging debate.
§ Mr. Speaker
I thought that that would be the convenient course, if the Opposition has no objection. So be it.
§ Mr. Benn
The matters that the House has before it today are of the most serious kind. They involve millions of pounds of public money, the administration of the Government's contract procedures, the behaviour of individuals exercising responsible positions both in Government and in industry, and three Reports have been presented to the House covering these questions.
The initial Government Motion relates to the Wilson Committee Report, but, of course, the two Reports of the Public Accounts Committee are also before the House. The Government thought it right not to intervene between the House and one of its own Committees, and therefore Tabled a rather different form of words for that.
§ Mr. John Boyd-Carpenter (Kingston-upon-Thames)
The right hon. Member has referred to two Reports of the Public Accounts Committee. The Order Paper 510 refers to the Third Special Report of this Session.
§ Mr. Benn
If the right hon. Gentleman will read HANSARD, he will find that what I have said is so. Three Reports have been presented to the House on this question, and are before the House in the sense that they are part of historical record.
The reports refer to events that began nine years ago and we have not yet seen the end of them.
With these ingredients, this debate could easily assume an explosive quality which would not be appropriate. No doubt, there will be sharp criticism, and, indeed, it is right that there should be. But for that very reason I hope that the House will agree that we should act as moderately as possible in debating these issues. There is another reason for this, too. Some of the issues are of such complexity that it will not be possible to present them clearly unless we adopt a dispassionate approach.
I should particularly like to ask the indulgence of the House while I try to set out the main facts and the conclusions that have been drawn about them, so that we can identify, from a mass of evidence, those issues which are the most important, and debate these as the central theme today. Our aim must be to avoid a repetition of what has happened. We should try not to be side-tracked into marginal issues, for what matters most is that we should try from this sorry story to create a new trust and confidence between Government and industry.
The background to the Bristol Siddeley affair is now so well known to hon. Members that I do not intend to describe in detail the facts that are to be found in the opening paragraphs of both the Public Accounts Committee report of July, 1967 and the Report of Sir Roy Wilson's Committee of Inquiry, published in February, 1968.
The main facts are as follows. Part of the defence work carried out by Bristol Siddeley under contract from the old Ministry of Aviation consisted of over-hauling aero-engines and repairing components and parts. The Ministry placed annual contracts for this work, and the contracts contained a provision that "fair and reasonable" prices would be paid. 511 The company submitted quotations for each contract and in most cases the Wilson Committee found that these included an exorbitant element for profit based upon inflated and deliberately deceptive estimates.
The Department's technical cost staff made their own estimates and reported them to the Department's contract negotiating officers, who then negotiated firm fixed prices with the company. We now know from what the Wilson Committee Report said that the technical cost estimates were far too high, and that the technical cost staff failed to detect the element of gross overquoting by the company.
In the result, year after year, the Department's contracts officers took part in what Sir Roy Wilson calls "a stylised game". They sat down time and again with the company's representatives, believing that the company's quotations were broadly fair and reasonable, and that the advice from their technical cost colleagues was well-founded and reliable. The staff fought hard for small reductions. On the other side of the table were the company's negotiators who, the Wilson Committee found, knew that the quotations were exorbitant and that the Department's technical cost staff were quite unaware of this.
The result was that on the overhaul contracts the company made a profit of the order of 74 per cent. on costs of about £9½ million in the years 1959–63; and that, within these figures, they made about 105 per cent. profit on costs of about £4.4 million on the overhaul of two types of engine. On the contracts for the repair of spare parts in the years 1959–65 the profits were of the order of 40 per cent. on costs of just under £8 million.
The report of Sir Roy Wilson's Committee of Inquiry describes in some detail how they found these high profits came to be disclosed. In January, 1964 the Comptroller and Auditor General had reported on the Ferranti case of excessive profits on guided weapon contracts. Until then the Department had agreed fixed prices for overhaul contracts on the basis of estimates, even though they might not have been compiled until the work was fully advanced or even completed.
As a result of the Ferranti case, the Department decided to modify its prac- 512 tice. During discussions about the pricing of a batch of new engines, a senior officer of the Department told Bristol Siddeley that in future, before forward fixed prices were agreed, costs would be ascertained for an initial production batch. He also made it clear that fixed prices would not be agreed for engines and parts which had already been delivered —in other words they would be priced on cost plus.
The company, Bristol Siddeley, realised that this new policy might be applied to the overhaul contracts. This placed them in a serious dilemma. In May, 1964 no prices had been agreed for the 1963–64 and 1964–65 overhaul contracts. Quotations had been submitted. To the knowledge of the company's commercial manager, these quotations would have produced profits, so the Wilson Committee says, averaging over 100 per cent. on costs on some engines, and very high profits on the rest.
In September, 1964, the business director put a memorandum to his chairman and board of directors. This has now been published as Appendix IV of the April, 1968, Public Accounts Committee report. It made the point that,if final prices anywhere in the region of the company's quotations are agreed on the outstanding engines…they will, on the basis of recorded costs as currently understood plus formula profit, be far in excess of what officials—or Members of Parliament—would regard as fair and reasonable.The memorandum noted that the Lang Report on the Ferranti affair had made it clear that the official view was that there was an obligation on the contractor to alert the Ministry of the situation if the contractor was aware that the Ministry was willing to agree a price not fair and reasonable. The memorandum spelled out the dilemma that for the company to carry on regardless—i.e. let the exorbitant quotations stand in the expectation that the Ministry would accept them—would beto risk a scandal of the greatest magnitude.The memorandum pointed out that if, on the other hand, it withdrew the quotations, questions would be raised about the prices fixed in previous years.
The memorandum warned the Board that the issues were grave. But it did not propose that the Ministry should be told fairly and squarely of the situation. 513 Instead, it proposed that a letter should be sent to the director of contracts saying that the company did not acept that costs, plus a fair profit, were the measure of what constituted a "fair and reasonable" price on any one fixed price contract.
There followed the interview with the Ministry announcing the withdrawal of the quotations and the substitution of fresh ones.
It was this which led to the inquiries about the profits in earlier years. But even so the company did not volunteer the necessary information but had it extracted from them by the Ministry.
It was not until February, 1967, after my hon. Friend, then Minister of Aviation, now Minister of State, had exerted a great deal of pressure that the company finally disclosed enough information to allow a settlement to be made, and that is how the £3.96 million was repaid.
Although the Ministry had long believed that the company's negotiators must have known that the quotations were excessive, and had taken full advantage of the failure of the technical costing officers, it was not until the Wilson Report was received in February of this year that the full extent of what had happened became known through the Wilson findings. I shall be saying more about the Wilson Committee in a moment but, before doing so, let me remind the House of its main findings, which I am inviting the House to accept.
The Wilson Committee found that the companybudgeted for and achieved exorbitant profits on their overhaul contracts with the Department".It also found that the approximate extent of the profits was at the time known to the company at all levels of management not only to the company's staff at lower levels, but also to the Executive Committee, of which the Managing Director was Chairman and of which most of the Directors were members. In the judgment of the Wilson Committee, the conduct of the company's estimating and price negotiating staff amounted to "intentional misrepresentation" and the double chargingwas known to the company's estimating staff from about the dates when in each case it first occurred".
§ Mr. Eric Lubbock (Orpington)
When the right hon. Gentleman says that it 514 was known to the company's estimating staff, does he mean that it was known to the whole estimating staff, or did the Wilson Committee mean that, or is his remark confined to the three individuals concerned, one of whom has been compulsorily retired and the other two of whom have been transferred to other work?
§ Mr. Benn
The Wilson Report is there for the hon. Gentleman to see for himself. It is inconceivable that the reference can be other than to the estimating staff concerned, just as when reference is made to the technical costing staff in the Ministry, it means those staff concerned with the Bristol Siddeley overhaul contracts.
The House will know that the Wilson Committee itself has been criticised sharply in the last few days: first in a pamphlet published by Bristol Siddeley, and secondly by the Opposition Amendment which condemns its procedure as being contrary to the basic rights of natural justice.
I should like to take these two criticisms separately, although there is a significant area of agreement between what Bristol Siddeley say and what the Opposition say on the question of natural justice.
The Bristol Siddeley pamphlet is a remarkable document. Perhaps the most remarkable aspect of it is that it does not contain one single expression of regret on behalf of those who were responsible for the company at the highest level, for what had occurred. Whatever interpretation may be put upon events or the conduct or the motives of individuals, there might have been some opportunity found, even by those whose main concern is to defend themselves to express some regret at what had happened. Instead there is a stream of self-justification.
The engine overhauls are described as being "relatively humdrum business". The words "fair and reasonable" contained in the standard contract are described as not having been regardedas imposing any special contractual obligation on the contractor".It is asserted thatit would be a view widely held among contractors engaged in government work that in considering the profitability of government 515 business the right course was to consider the profitability of that business as a whole".Certainly that throws some doubt on the value of individual negotiations if the profitability is to be looked at as a whole.
§ Mr. F. V. Corfield (Gloucestershire, South)
Can the right hon. Gentleman say whether these contractual obligations are created and, if so, why action on the contract was not proceeded with? It is clear that there is no legal remedy.
§ Mr. Benn
The recommendation of the Lang Committee, which was set up by the previous Government, was that the term "fair and reasonable" was to mean what it said—fair and reasonable. I am picking out from the Bristol Siddeley pamphlet the special way in which the company goes out of its way in its reply to the Wilson Committee to say that it did not regard the words "fair and reasonable" as imposing a special contractual obligation on the contractor.
In justifying the delay in reaching an agreement on the repayment negotiations, the B.S.E. pamphlet comments that the companyhad in its turn several reasons for being dissatisfied with the consideration being given by the Department to its representations on other matters outstanding at the same time (in particular claims arising out of the cancellation of the engines for TSR.2 and P.1154)".
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Does the right hon. Gentleman believe that the fair level of profit should be attached to the overall profitability of work for the Government, or to each individual contract?
§ Mr. Benn
If there are to be negotiations about individual contracts between the Government and a contractor, and if they are to be played out in a way that is other than as a stylised game, the negotiations must be about the profit for that individual contract, and it is no good later saying, "We never regarded the profit for that contract as important as the overall profitability of government business as a whole."
§ Mr. Ridley rose—
§ Mr. Benn
I have a lot to say, and I think I ought to be allowed to continue. The hon. Gentleman can make his speech 516 in due course. My right hon. Friend the Chief Secretary will be winding up and, since this matter covers the whole range of government contracting procedures, the Chief Secretary can cover it much better than I can.
I quote these passages from the pamphlet because they illustrate its general tone. Its conclusions are designed to prove that the Board and Executive Committee were wrongly implicated, although the pamphlet accepts that the Coventry chief estimatormay have misled the D.T.C. negotiators in relation to the overhaul contracts.The House will have to decide for itself whether it prefers to take the view of Bristol Siddeley or the conclusions of the Wilson Committee. The Wilson Report sets out the story very fully and its own conclusions very clearly. I certainly do not regard it as my job to try in this speech to duplicate the work of the Wilson Committee or the P.A.C. But all of us have to make our own judgement, and I accept the conclusions reached by the Wilson Committee and invite the House to accept them, too.
Both the Bristol Siddeley pamphlet and the Opposition Amendment refer to "natural justice" and, by implication, condemn the Wilson procedure. Were the House to accept these strictures, the Wilson Committee would indeed be condemned. But can a view like this really be sustained?
§ Mr. Robert Carr (Mitcham)
I am anxious that the House should be clear as to the intention of our Amendment. We are only condemning the procedures in so far as they are used not to form a general judgment, as was the case of the Lang Committee investigating the Ferranti affair, but in order to condemn certain identifiable individuals. The procedures which may be right for the first purpose, in our view, are not right for the second purpose.
§ Mr. Benn
I am just coming on to a passage which is designed to deal with this very point. I tried to address myself in advance to what I took to be the Opposition's argument.
When it was announced, a year ago, that an independent Committee of Inquiry was to be set up to investigate the 517 circumstances surrounding the pricing of these contracts, this decision was warmly welcomed by the Opposition.
The membership of the Committee was made up of three experienced and distinguished men. The Chairman, Sir Roy Wilson, himself a distinguished lawyer, was praised in this House only two days ago by the right hon. and learned Member for St. Marylebone (Mr. Hogg), who welcomed his appointment to the Race Relations Board. Is it seriously to be argued that when men of this calibre are invited by Ministers to investigate a matter of this kind they would proceed in a way contrary to natural justice?
Of course, the Committee's Report is now the property of the House, and it is we who have to decide whether to accept it. But I make no secret of the fact that the best guarantee we can have that justice was done lies in the composition of the Committee that had this task laid upon them.
§ Mr. Benn
If the hon. Gentleman will listen to what I am going to say, he will see that it is not the only argument that I am adducing.
Perhaps the most powerful point in support of this view can be derived from the fact that, before the Committee began its work, it met the leaders of the company and of the Department to agree the procedure. This was done on 2nd May last, and the procedure is described in paragraph 9 of the Report. At that meeting, with the agreement of both the Department and the company, it was decided to follow the Lang procedure, and among the Lang precedents followed was the decision that statements and submissions would not be exchanged.
It has been argued—and it is argued in the Amendment—that individuals should not have been identifiable in the Report. In this connection, I must tell the House that every witness who appeared before the Committee was told that. although the Committee intended to avoid any reference to individuals by name, it might not be possible to avoid referring to individuals by the office that they held.
The Chairman of Bristol Siddeley, Sir Reginald Verdon-Smith, agreed that form of words himself.
518 Nor is it true that in the Lang Report on the Ferranti case individuals were not identified. If the right hon. Gentleman wishes, I can find from the Lang Report references to individuals who can be identified. Indeed, there was strong pressure from hon. Members opposite that the Easter weekend should be examined very carefully. In what possible sense could the Easter weekend be examined by the Wilson Committee without identifying individuals, whether my hon. Friend and myself or, more importantly, the civil servants who were involved in those events? The objection on the ground that individuals should not be identified does not really bear examination.
§ Mr. Onslow
I was one of those who suggested that this should be done. I do not object to the identification of individuals. If the right hon. Gentleman will read our Amendment he will see that it objects to the condemnation on grounds which are unjust to individuals who are identified.
§ Mr. Benn
If individuals can only be mentioned to be praised, not criticised, there is no point in having a Committee of this kind.
This then was the procedure and, to the best of my knowledge, no witnesses objected to it. In those circumstances, it is difficult, if not impossible, to contend that "natural justice" has been violated.
This, of course, was not a judicial proceeding and was not intended to be. As the House knows, after consultation with the Director of Public Prosecutions, the Attorney-General decided not to prosecute.
I now come specifically to the Opposition Amendment which invites the House to accept the conclusions of the Report…except in so far as they condemn identifiable individuals denied, by the procedure adopted, the basic rights of natural justice.If this Amendment were accepted it would entirely negative the first three conclusions of the Wilson Committee. It would delete the reference to the finding that the exorbitant profits had been known to the companyat all levels of management".519 It would delete the criticism of the company's estimating and price negotiating representatives as havingamounted to intentional misrepresentation.It would delete the finding that double charging had beenknown to Bristol Siddeley Engines estimating staff from about the dates when in each case it first occurred, and to certain of their superiors at later dates.In short, the Opposition Amendment would completely after the main findings of the Wilson Committee and leave us with conclusions so weak and general as to make the whole Wilson inquiry into a waste of time.
I should like to ask the House to consider very carefully the implications of following such a course. For, in effect, it would be saying that the Wilson Committee should have been allowed to investigate the circumstances on the understanding that, regardless of what it found, nobody should be blamed for their part in it.
Is this really what the Opposition want by their Amendment? I do not believe that it can be. Ought they not to consider their own position, because the events with which we are concerned occurred, in the main, when they formed the Government and were ministerially responsible for safeguarding the public money involved.
When a similar case came to light—the Ferranti case—during the lifetime of the previous Administration, they set up the Lang Committee, upon which the Wilson Committee modelled itself.
Of course, it is true that the two Committees came to conclusions that were different in kind. But that was because the cases were different and the degrees of culpability were assessed differently by the two Committees; not because the rules under which the two Committees were operating were different. As I have shown, the Lang Committee identified individuals.
I think it would be a very curious procedure for a committee's report to be effectively rejected because of the nature of the things it had found out. That is the only real substance in the Opposition Amendment. At any rate, I hope very much that the Opposition will not press their Amendment to a division.
520 All procedures adopted when inquiries are undertaken represent some sort of a compromise between alternative methods of arriving at the truth, but having read what Wilson found in this case I do not believe that the procedure can be faulted and I am sure that it should not be repudiated by the House today.
I now turn to the rôle of the Department's staff in the years in question.
§ Mr. R. Carr
Before the right hon. Gentleman leaves that point, would he not think it right that at the stage when the Wilson Committee thought it might want to make very serious charges—I would not be exaggerating if I said criminal charges—against individuals, the procedure should have been changed and something else done?
§ Mr. Benn
The right hon. Gentleman knows that the Wilson Committee did not make criminal charges. The Wilson Committee in its initial work in preparing its procedure had not expected that its findings would be as they were. Indeed, we who had been working on it departmentally for some years had not expected it either. But given the fact that the task had been laid upon it to find out the circumstances and given the fact that every witness had been told that he might be identified by the position that he held, I cannot find it right to blame the Wilson Committee for carrying out the duty placed upon it by the two Ministers concerned which was reported to, and, broadly speaking, was accepted by, the House.
I now turn to the rôle of the Department's staff in the years in question. I accept that the Directorate of Technical Costingfell seriously below a reasonable standard of competence.Two years ago a departmental inquiry was held into the performance of the staff concerned, and those whose work had fallen below standard were told so. But all this happened before the findings of the Wilson Committee and the "intentional misrepresentation" was identified by it. It was before Permanent Secretaries, Ministers, the Public Accounts Committee and the Wilson Committee 521 had had their own experience of difficulty in getting the company to expose the true position.
These technical costs officers fell below standard, but, in retrospect, the House will probably feel disposed to be more generous in reviewing the behaviour of comparatively junior civil servants who thought that they were dealing with business people on the basis of ordinary directness and trust.
The House will want to know of the measures that have been taken in the Department to see that a repetition of what happened is less likely.
Those recommendations of the Lang Committee which were practical have been implemented and the Wilson Committee's own recommendations are also being studied. There is now much better co-ordination between the various directorates in the Department and the overall staffing has been substantially improved over the last four years. The total complement of the purchasing, technical costs and accountancy branches have risen from 1,126 to 1,409 and the actual strength from 1,041 to 1,210.
In addition, the Government have now reached an agreement with industry—
§ Mr. John Smith (Cities of London and Westminster)
Why is it necessary to employ all these people if the company is expected to give every piece of information that it possesses?
§ Mr. Benn
The hon. Gentleman misunderstands the position. The position was that until the agreement with industry about equality of information, to which I am about to refer, there was not, and there still is not, any right of access to the books of the companies concerned. I am describing the build-up of staff from the time when, partly due to understaffing, the technical costs officers fell below the acceptable level of competence.
The Government have now reached an agreement with industry about equality of information and post costing. This provides the best possible chance of preventing this sort of thing happening again. Linked with this agreement is to be a review board to consider and take a decision in cases where prima facie excessive profits or losses have been made.
522 I now come to the question of any further recovery which might arise from these contracts. We are here dealing with Rolls Royce, who are entirely guiltless in this affair, but with whom we are naturally discussing it since they now own Bristol Siddeley.
Rolls Royce have been invited to report on other Bristol Siddeley contracts with the Department, and I am confident that they will respond. I shall let the House know as soon as these discussions are completed.
Two relatively minor issues arising out of the Wilson Report should be mentioned.
The first relates to over-payments resulting from the billing of certain repair work at the higher prices appropriate to work done in later years. This has now been fully investigated and the sum of £84,000 has been repaid.
The suspected further double-charging referred to in paragraph 229(b) of the Wilson report has been investigated by the Department in collaboration with the firm's auditors. It is agreed that double charging within the repair of spares contracts took place, but this was to the extent of no more than approximately £300, which has also been repaid. No evidence has been found of any triple charging.
It is also known that certain of the company's cost records were altered. However, I am satisfied that these alterations were not actually used to deceive the Department in any way, and from the House's point of view it simply confirms that the Wilson Committee was right in saying that some of the estimators knew that double charging on the overhaul contracts was taking place.
§ Mr. Corfield
I think I am right in saying that it has also been agreed that the double charging on repairs was entirely accidental?
§ Mr. Benn
The accidental nature of the double charging is not disputed, but the fact that there had been an alteration of the records some time previously indicates that there was some knowledge somewhere of what had gone on.
Before I go on there are one or two points to which I should refer. I have made a passing reference to the Easter 523 weekend, and of course the Wilson Committee reported—
§ Mr. David Howell (Guildford) rose—
§ Mr. Benn
There are many hon. Members who wish to speak, and perhaps the hon. Gentleman will allow me to continue. I have a little more to say, and I should conclude it as quickly as I can.
The Wilson Committee Report covered the events of the Easter weekend and it found that thesewere not due to any impropriety but to muddles largely caused by a whole crop of mischances such as are unlikely ever to occur again".That followed from the wide terms of reference given to it.
Finally, since the Wilson Committee Report was published the Committee has revised the profit figures in paragraph 177 at line 13. These corrected figures do not in any way alter the main conclusions of the Committee. In particular, it still remains true that Bristol Siddeley's business with customers other than the Department was, during the period concerned, only viable on the basis of allocating to the Department the major share of costs which the Department still regards as largely inadmissable.
Apart from the matters which are to be further discussed with Rolls Royce, the case is almost closed, except for one issue which essentially concerns the Government. It is the most difficult issue of all, in that it raises the question of what the Government should do in respect of the leading industrialists who were responsible for the affairs of Bristol Siddeley at the time when these events took place.
They are, of course, not the only individuals affected. The technical costs staff concerned in the Department were suitably reprimanded after an internal inquiry had been held. Certain staff in the company have been moved, and in one case retired from service. The Government have had to consider the position of those leading industrialists—two of whom, Sir Reginald Verdon-Smith and Mr. Davidson—had been appointed by the Government to public positions.
In considering what action to take the Government had to take account not only of the Wilson Report, but of the fact that the Public Accounts Committee in its latest Report wrote that the evidence of these two men 524fell short of the accurate, complete and frank response to the Committee's questioning which the Committee were entitled to expectand thatin almost every relevant passage the witnesses used words capable of more than one meaning.In view of all that has happened, and in the light of the reports before the House, the Government have concluded that it would not be right for these two men to remain as members of certain public bodies to which they were appointed by the Government. Letters have been sent to them informing them that the Government propose to terminate their appointment to those bodies, and that this is being made known in the course of today's debate. These decisions, which were taken after the most careful consideration, were absolutely unavoidable. Those who hold Government appointments must enjoy public confidence.
§ Mr. R. Carr
I think that the right hon. Gentleman should tell the House the nature of those public appointments. I think that he should also say, since in the introduction to that part of his speech he said that he had to consider the position of those in charge of Bristol Siddeley's affairs at the time, why only these two men have been singled out. What about the managing director and other senior executives of Bristol Siddeley at the time?
§ Mr. Benn
The managing director of Bristol Siddeley at the time holds no public appointment. I am dealing simply with the two leading industrialists who hold public appointments. The appointments referred to are, in the case of Sir Reginald Verdon-Smith, membership of the Standing Advisory Committee on the Pay of the Higher Civil Service, the Review Body on the Remuneration of Doctors and Dentists, and the Advisory Council of the Overseas Services Resettlement Bureau. Mr. Davidson had been appointed a member of the Monopolies Commission.
§ Mr. R. Carr rose—
§ Mr. Benn
If the right hon. Gentleman proposes to ask me a hypothetical question about what would happen in other circumstances, I can tell him that I am not able to answer it. I am reporting 525 to the House the problem presented to the Government, not by the position of those two men in relation to the firms in which they were and still are occupying positions of responsibility, but whether, in all the circumstances, it would be right for the Government, or whether the Government would be in a position, to retain them in public appointments made by the Government, after the events described by the three committees and the conclusions reached by them.
I turn, now, from the past and what has happened, and what has been done about it, to the future, because the most important single thing that this debate can achieve is to mark the end of an old and completely discredited contracting system, and the beginning of a new one.
I do not believe that any responsible Member of the House, in Government or in industry, can really have been satisfied with a system of Government contracts which had become what Sir Roy Wilson called a "stylised game". Government and industry have to work closely together—and this relationship is bound to be even more intimate as industry itself grows into larger and larger units—excluding more and more products from effective competition, something that has already happened with aero-engines.
The closest of all these relationships is necessarily between a Government Department as customer and the firms which contract to it. The firms are entitled to make a fair profit out of their contracts in accordance with the terms negotiated. The taxpayer is entitled to get value for money. The Department is entitled to expect that it can deal with its suppliers on the basis of mutual trust. But this means a new system. It requires equality of information and post costing, and this my right hon. Friend the Chief Secretary has negotiated after many months of discussion. He represented the Government during the negotiations, and he will describe them in greater detail when he winds up the debate. It is this new start which really matters to the debate today.
No doubt in the administration of the new system we shall still have to expect human failings in relation to competence, or sometimes accuracy, on both sides. But if we can work it on the basis of fully justified mutual trust, the House 526 should never be called on again in the future to consider the sort of case which is before us today, and that, I am sure, is the fervent hope of us all.
§ 5.8 p.m.
§ Mr. F. V. Corfield (Gloucestershire, South)
I beg to move, at the end of the Question to add:'except in so far as they condemn identifiable individuals denied, by the procedure adopted, the basic rights of natural justice'.I should make it abundantly clear from the start, as the Amendment does, that we are concerned only with the injustices which may be done to named individuals and not to defend in any way the level of the profits, or the fact of double charging. I believe that I shall be able to convince anyone who begins to claim even a modest degree of impartiality, let alone a concern for justice, that the Amendment ought to be accepted.
Now that the Minister has made his statement in regard to the public positions occupied by Sir Reginald VerdonSmith and Mr. Brian Davidson, he has introduced into the debate a new element, and it is one that I regret. He referred in particular to the Public Accounts Committee findings as a reason. I would refer him to paragraph 18 of the Third Special Report of the Committee of Public Accounts in which the Committee say quite clearly that theyhave reached the conclusion that at no point in that evidence were the witnesses knowingly attempting to mislead the Committee.They go on to say thattheir evidence was inadequate and confusing and fell short of…and so on. If that was an intentional falling short, that paragraph becomes self-contradictory.
§ Mr. Maurice Edelman (Coventry, North)
The hon. Gentleman did not finish the quotation, because paragraph 18 says that the witnesses did not knowingly attempt to mislead the Committee. The question at issue is not whether they attempted to mislead the Committee but whether, in the course of their duties, they attempted to mislead the Department.
§ Mr. Corfield
With all due respect the hon. Gentleman is wrong. It says thattheir evidence was inadequate and confusing and fell short of the accurate, complete and frank response to the Committee's questioning which the Committee were entitled to expect.527 That has nothing whatever to do with the Department.
I would also refer the right hon. Gentleman to Questions 428 and 430 of the First P.A.C. Report, from which it is abundantly clear that when Sir Reginald Verdon-Smith was questioned on these points he made it clear that he was not the person responsible and indicated that it would be wise for the Committee to send for the person who was responsible. It was the Chairman of the Public Accounts Committee who, in his wisdom, replied to the effect that it was the custom of the Committee to ask for one or two representatives, and on that reply Sir Reginald did his best to give his replies from a document which he said was not his own responsibility.
Turning to the other matters in the Second P.A.C. Report, I suppose it will be said—in fact the right hon. Gentleman inferred this—that these two gentlemen had only a qualified acquittal on what had become issues numbers 2 and 4. Those issues depended solely on whether the answers given in the earlier proceedings were honest, and the only evidence that could have been given by those witnesses and which was given was, yes, they were honest. What other evidence could have been given? These people were in no position to call witnesses and examine them. That could only have been done by the Committee, and if the Committee were not satisfied it was for them to do so.
Let me return now to my speech. Because of this new element, I must warn the right hon. Gentleman that it will be not only the actions of the Bristol Siddeley Company which we shall now be investigating this afternoon: his integrity, the partiality of the Government, will also be investigated—[Interruption.]—and I suggest to hon. Members that in considering the Government Motion we have a grave responsibility.
Paragraph 232 of the Wilson Report does not purport to do more than mention the most important of the Committee's general conclusions, but I think it is generally agreed that it is this paragraph which will be generally understood to form the subject matter of this part of 528 the Government Motion. I do not think I need read the conclusions again, their contents are well known; the right hon. Gentleman has referred to them and he quoted them at length when he made his statement on 28th February. But inevitably it is those conclusions on which Press comment has concentrated and it is those conclusions on which individuals not inclined to study the Report in detail will have relied, and nobody can doubt that those are conclusions which will do incalculable damage to the reputations of those concerned. It was for this reason that when the Minister made his statement, I suggested that the right procedure would be to study the Report before further comment. I can only say that, for my part, the result of that examination—and far the greater part of it was done long before there was any statement by the company—has confirmed the wisdom of that suggestion.
One is struck, although the right hon. Gentleman endeavoured to dismiss this, by the extremely sweeping nature of these conclusions. Before I continue, I would just take him up on his comparison with the Lang Report. The Lang Report does not, in fact, endeavour to place individual responsibility. If he will look at paragraphs 52 and 53 of the first Lang Report he will see that it is quite clear that the findings were that the company put forwardestimates of costs which they knew were much too high.But Lang does not go into finding out who knew, or why they knew, or in what way this came about. And the same applies with regard to paragraph 53.
§ Mr. Joel Barnett (Heywood and Royton)
In paragraph 71 of the First Report of the Lang Committee it is said thatOur principal criticism of Ferranti Ltd. is that they submitted quotations and agreed prices which they knew were very likely to yield profits that the Ministry would not regard as fair and reasonable, profits which can only be described as excessive.Presumably individuals submitted the quotations.
§ Mr. Corfield
That is precisely the point I am making, but Lang did not find it necessary to name those individuals, which Wilson did. I submit that the sweeping nature of these charges is 529 a serious fault. For example, "all levels of management" referred to in the first conclusion must be taken to include all members of the board as well as those senior executives who were members of the executive committee, and it must also be presumed to include a wholly indeterminate number of other executives in a more junior position. Taking only the board and the executive committee as examples—although some individuals served on both —we have a position in which there were some 12 members of each and yet, nevertheless, only five members of the board and three members of the executive committee were ever invited to give evidence to the Wilson Committee. The rest were condemned unheard.
Let there be no doubt about this: the positions occupied by these people are widely known and widely identifiable throughout the whole of the aviation industry, throughout large sections of industry as a whole and in many spheres of public life, as well as where they live. And, as the hon. Gentleman the Member for Orpington (Mr. Lubbock) suggested, the same applies to the estimating staff. It comprises a large number of people, in the neighbourhood of 100, but only a very few can conceivably have had anything whatever to do with this. In fact, only four gave evidence and it seems that only two were actually involved in the subject matter of the inquiry, but all are smeared by these sweeping charges.
Moreover, we now learn from the company statement which was issued earlier that in some cases those who gave evidence, although ultimately charged with grave commercial misconduct or even deceit, were given no indication of the allegations made against them and therefore no opportunity whatever to rebut them.
There is a particularly disturbing example of this in paragraphs 10 and 11 of Chapter 8 on page 28 of the Company's document, which concerns the price controller and the commercial manager and the implication of knowledge by these gentlemen of double charging. I suggest to the House that those paragraphs should be studied. But equally serious is the tenuous nature of the thread between the arguments and the evidence in the body of the Report and the conclusions to 530 which such arguments and evidence purport to lead. In the body of the Report, for example, in paragraph 154, the evidence that the two members of the estimating staff involved were aware of the double chargingfrom about the date when in each case it first occurred,which is the substance of the third conclusion, is quite plainly stated not to be "entirely free from doubt", yet that conclusion is stated in wholly categorical terms and is in no way qualified.
My second example involves a somewhat closer study of the Report, but it is no less disturbing, and it is particularly pertinent to the position of Sir Reginald Verdon-Smith and the Minister's announcement today. The study which I have made reveals the gravest possible doubt about whether members of the board who were not members of the executive committee knew, could have known or even ought at the time to have known of the high level of profits, either achieved or budgeted for.
For these reasons, and because these people—directors, senior executives and the individuals specifically referred to in the Report by their positions—are very easily identifiable, it seems imperative that the House should be clear as to, first, which levels of management knew or had the means of knowing the extent of the profits; and, second, the extent to which the procedure and conclusions of the Wilson Report and their acceptance by the Government may have inflicted injustice.
I want, first, to consider the position of the board, in part because it is the Chairman, who was not a member of the executive committee, who has borne the brunt of the public condemnation to which the Minister has added this afternoon, and in part because the evidence on which the Wilson Committee relied is in this case comprehensively set out and can be seen to be wholly inadequate for the conclusion which was reached.
I suggest that, in considering the responsibility of higher management, it is necessary to distinguish among, first, the vicarious responsibility attributable to a person by way of his office—as, for example, the responsibility of a chairman of a company or of a nationalised industry or that of a Minister; second, the responsibility arising from holding 531 a position in which the person concerned either may reasonably be deemed to have a duty to acquire the requisite knowledge or in which he had the means of knowledge to which he failed to advert; and third, the closely allied responsibility of actually having the knowledge.
On the subject of higher management, the House will recognise the distinction between the Board and the executive committee. The latter included all the executive directors plus some other senior executives under the chairmanship of the managing director. The chairman and three—later, I think, four—other non-executive members of the board were not members of the executive committee and the executive committee is, of course, acknowledged by the Wilson Committee to have been the central instrument of control within the company.
The means by which the financial control was exercised by the executive committee are set out in paragraphs 76 to 84 of the Report and comprise the following: first, the annual budget, setting out targets of costs, sales and profits, and forecasting the pattern of trading for each year, with the figures for business with the Ministry and those for other business set out separately; second, the five-year forecasts, showing total but not detailed anticipated profits from Government repair contracts; third, interim accounts and reports prepared on a cumulative four-weekly basis giving total figures for overhauls for the Ministry; fourth, trading and profit and loss accounts on a four-weekly basis showing total figures for overhaul profits only; fifth, special reports; and, sixth, certain monthly reports from the managing director. The only budget which was referred to the main board was that for 1959–60, giving only, in this connection, an overall total estimate of a 28.3 per cent. consolidated profit on costs for the six-engine types with which this part of the Report is concerned.
Several points should be borne in mind in considering the relevance of this figure. First, this was B.S.E.'s first year of trading and this figure must therefore have been derived from figures derived or inherited from Armstrong Siddeley. With the proposed transfer of this work from Brockworth to Coventry, it can hardly be supposed that such a figure 532 can have had much relevance for the future.
Second, the chairman, with whom we are here principally concerned, represented the Bristol Aeroplane Company and can therefore at that time have had no knowledge whatever of what had gone on in the past either at Coventry or at Brockworth. Third, no one has, in any case, suggested that a budgeted figure of 28.3 per cent. was to be regarded as excessive. The Wilson Committee neither considered that aspect nor expressed a view, but it clearly does not appear to be the view of Sir Ronald Melville that an attempt to achieve a profit of this order could be regarded as improper.
In reply to Question 104 of the P.A.C., on 1st June, 1967, he said:Every firm knows what a fair and reasonable profit is. They know what the Government profit rate is. I certainly am not saying that a firm is not going to say to itself when it enters into a fixed price conract, 'Let us try to make 20 per cent. or 25 per cent.'. They probably do say that; they are bound to say that sort of thing to themselves…we do not mind.The second "instrument of financial control" available to the executive committee comprised the five-year forecasts. Only those for 1959–60 to 1963–64 and for 1963–64 to 1967–68 were, according to the Wilson Report, circulated to the Board. In regard to the former, it will be noticed that, apart from the figure of 36 per cent. given for 1959–60, the forecast profits ranged from 26.1 per to 26.8 per cent.
I have also carefully queried the figure of 36 per cent. for 1959–60 and I find that the forecast concerned showed two figures for this year: the first was a figure of 27.9 per cent. estimated profit on sales of £2,780,000, and the second was a forecast profit of 36 per cent. on the much smaller, indeed comparatively insignificant sum of £155,000 in respect of a contract which was not at that time firm.
It is abundantly clear that here is an error, and the figure of 36 per cent. should never have found its way into the Report. I do not suggest that that error arises from anything more sinister than a careless reading of the figures, but it is clear that the weighted averaged is in the neighbourhood of 28.7 per cent. and that that percentage and not 36 per cent. should 533 have appeared in the Report as the forecast profit for 1959–60.
With regard to the second five-year forecast, for the years 1963–64 to 1967–68, showing estimated profits on Government repair contracts of between 41.1 per cent. and 48.9 per cent., the company says that these figures appeared in a schedule to the main document, which subsequent research has shown was not attached to that document when it was placed before the board, and it should have seen that document. The document itself showed a number of more generalised figures, from which it would have been quite impossible to extract any figures indicating any forecast percentage profits on Government repair contracts. Further, the company says that it was never put to any members of the board when they were giving their evidence that they had seen either of these five-year forecasts. If this had been done, as it undoubtedly should have been, these errors would not have been made.
I now refer to the managing director's monthly reports referred to in paragraph 84. They were the only other "instruments of financial control" available to the board. Having concluded that the board was not given nearly as much or as detailed information as was available to the executive committee, this paragraph concludes:As against all this, the Board were made aware in 1959 and 1960, by means of the Managing Director's monthly reports to which we have referred, that the profit rate on over-hauls (Departmental and civil combined) was high, and by 1960 was in fact nearly 55 per cent. on cost. They had no reason to suppose that the profit rate thereafter declined. They were content to leave such matters to the Executive Committee.It is significant, in this regard, to find from the company's statement in paragraph 4.24, that only four of the 20 managing director's reports during these three years included information on these contracts. The first three of these submitted during Bristol Siddeley's first year of trading, showed a falling trend of overall profits for repairs, while in the fourth, which in fact indicated this profit of 54.8 per cent., this information was contained in a single line of a 12-page document and gave only a summary of sales for the first five four monthly periods.
534 There is no dispute that the Board had previously seen the five year forecast of profits on Government repair contracts which not only showed very much lower levels of profits—in the region of 26 per cent. for this and the three following years—but also indicated in two out of three of those years a marginal fall. The Committee's comment to the contrary—I regret to say this—therefore stands exposed as a wholly unnecessary and unwarranted innuendo. It is not supported by the facts in its own document. It is, unfortunately, not the only comment of this nature; and these comments cannot but detract from the openness, fairness and impartiality attributable to the findings.
It is to be noted in these managing director's reports that no distinction was made between departmental and other contracts. It is, unfortunately, not possible to ascertain with any accuracy from the Wilson Report itself what indication an overall figure of 54.8 per cent. would give as to the percentage of profits being earned for this period solely on departmental work. But if the figures for 1960. which can be extracted from the five-year forecasts and which are reproduced in paragraph 77, are largely accurate, it would seem that profits on Government repair work were likely to be substantially lower than overall profits on all repair contracts. I understand that at the time there were a number of civil contracts with foreign airlines on which very high rates of profits indeed were earned. I am glad to note that the President of the Board of Trade thoroughly approves of this level of profits when dealing with foreign customers.
We have thus the position in which the only figures available to the board which indicated future profits in fact ranged from 26.1 per cent. to 28.7 per cent. and the higher figure indicating profits actually achieved on both Government and other contracts combined was the 54.8 per cent. mentioned in the managing director's report.
The Wilson Committee concentrated its detailed investigation almost exclusively upon the contract concerned with Sapphire and Viper engines. It was dealing with overall profits for the period in question of 114 per cent. on the one and 535 110 per cent. on the other [Interruption] I wonder if hon. Members opposite could carry on their conversation elsewhere.
§ Mr. Corfield
I have no doubt that the hon. Gentleman will have the opportunity to express his own views. It was dealing with rates of profit of 114 per cent. and 110 per cent. respectively. Even, therefore, if this figure of 54.8 per cent. had in fact represented a profit on Government work alone—and it is specifically stated that it did not—it can by no stretch of the imagination be deemed to convey either knowledge of, or an intention to, budget for profits of more than double that percentage. It therefore follows that the bald statement in the conclusion thatthe approximate extent of the profitability of these contracts was at the time known to the company at all levels of managementis manifestly untrue.
Nor is there any evidence whatever that the board either themselves budgeted for, or knew that the executive committee had budgeted for, profits of anything like that order. Indeed, if budgets or forecasts for the first year of trading are excluded, as well they might be, the forward estimates available to the board indicated profits on Government work for the years in question in the region of 26 per cent. on cost, a figure closely in line with Sir Ronald Melville's 20 per cent. to 25 per cent., also closely in line with the Government's own criterion for submission to the Review Board of 27½ per cent. on capital employed, and less than one quarter of the profits actually achieved. Such, then, is the evidence on this issue.
§ Mr. Lubbock
Has the hon. Gentleman referred to paragraph 80 of the Wilson Report which contains a description of two meetings of the executive committee to consider individual figures of overall percentage profits on various engines? The executive committee at its first meeting decided that the profits of 44.8 per cent. on the Viper were too low and therefore, by implication, it must have considered the other figures in this table extending up to 78.7 per cent. for the Sapphire 6 and had thought that they were satisfactory.
§ Mr. Corfield
I am delighted that the hon. Gentleman has enjoyed his sleep, because I was talking about the board and these paragraphs relate to the executive committee.
§ Mr. Corfield
I am coming to that paragraph, because I am referring to the board and not to the executive committee.
I am discussing the board. It is clear that the special reports to which the hon. Member refers came to the executive committee, and to that committee only. This, as I have summed up, is the evidence on this particular issue—the only available to the board. Far from showing that the chairman and other non-executive directors knew of or budgeted for exorbitant profits, it conclusively proves the reverse.
Is this really the sort of evidence on which any decent ordinary citizen, let alone one with the responsibility of a Member of Parliament or a Minister, will convict? Is this the sort of evidence on which the Minister exacts the penalties that he has exacted this afternoon?
Nevertheless, the question arises as to whether the board ought to have had knowledge, or ought to have so arranged the management structure of the company to ensure that it did. With regard to contract details the board was, as the Wilson Committee comments,content to leave such matters to the executive committee".The company's riposte thatthis, so far from being a cause of criticism, that is obviously implied, ought surely to mean no more than normal delegation of detail to those directly concernedseems to me to be both reasonable and justified. After all, there were 89 separate overhaul contracts and 149 repair and spares contracts, covering 13 engine types, and upwards of 2,700 different spare parts for which quotations were submitted. Is it seriously suggested that this should be the concern of the chairman of a company? This represented in total only some 6 per cent. of total sales over the five-year period to 1964, of which the Sapphire and Viper contracts were approximately 50 per cent.
537 In considering this question of the vicarious responsibility of non-executive members of the board and the implication that they were negligent in failing to take on the more detailed matters of administration for which responsibility had been delegated to others, it is pertinent to draw a comparison with the Department. The officers of the Contracts Directorate and the Directorate of Technical Costs were responsible for Government contracts involving vast sums of public money, and I understand that they number about 10,000 contracts a year. The combination of the P.A.C. Report on Ferranti, the first P.A.C. report on Bristol Siddeley, the Lang Report and the Wilson Report leaves one staggered at their ineptitude.
Constitutionally the permanent secretary of a Department is the accounting officer. Nobody has suggested that successive permanent secretaries are personally responsible or even, it seems, vicariously responsible, at any rate to the extent of its being deemed appropriate to take any form of action which would interfere with their careers or damage their public reputation. Yet the responsibility of Sir Reginald Verdon-Smith in his capacity as chairman is, I suggest, very closely analogous to that of successive permanent secretaries. Nobody who reads the national Press, let alone the local Press, circulating in my constituencies, can doubt the damage already inflicted upon the career and reputation of Sir Reginald Verdon-Smith, and nobody can doubt that the Minister's speech today has added immeasurably to that damage.
I come to the dismissal announced today. If the Government studied this Report before they decided to publish and accept its conclusions, they must have been fully aware of most of the defects to which I have referred, and they could easily have discovered the others. If they failed to conduct such a study, they were grossly negligent and, because of their position and responsibility, every bit as negligent as anybody in Bristol-Siddeley, even on the most adverse reading of the Report.
If, however, they did study the Report, they must have known that in many respects it was unfair. Thus, either they simply did not care for justice or they deliberately intended to be unjust for 538 some ulterior motive best known to themselves—and the Minister's announcement today confirms the latter.
If it is the present Government's philosophy that the vicarious responsibilities vested in a chairman—and this is all that can be fairly and honestly charged against Sir Reginald Verdon-Smith—requires resignation or dismissal from bodies which have nothing whatever to do with the affairs for which he was vicariously responsible, then Lord Robens' resignation should have been accepted; and if it was not voluntarily forthcoming it should have been peremptorily demanded—and he should have been dismissed from any other public positions he might have held at the time.
If that were the Government's philosophy, few of the present senior Members of the Government would be sitting on the Front Bench opposite. But it is not their philosophy. They have shown that they are not in the least concerned with principles—[Interruption.]—and that they have indulged in a vicious victimisation of a dishonourable nature.
In coming to the question of the executive committee, I can answer the question asked earlier by the hon. Member for Orpington. It is almost impossible, I suggest, to doubt that the "instruments of financial control" which I have enumerated did, in fact, give more than adequate information from which to appreciate the very high profits being earned. The contents of the Special Reports and recorded comments of the executive committee thereon, described in paragraphs 79 to 81, are particularly damning because they show not merely that the information was available, but imply that the rates of profit were studied and considered.
The source of the Wilson Committee's information in regard to the executive committee's instructions to those concerned to study the First Special Report further, and of the executive committee's comments that profits shown were "adequate"—when they ranged from 78.8 per cent. to 35.5 per cent. on cost, and later "good", when they ranged from 142.6 per cent. to 45.4 per cent.—is not disclosed. But it must be presumed that these matters were recorded in the minutes, and presumably the minutes were at some stage approved.
539 That the level of the profits achieved on these contracts was exhorbitant can be neither denied nor defended, and it is not my purpose today to do either, let alone to excuse in any way the fact of double charging. The responsible members of the executive committee certainly had available information which should have put them on the alert, and it must either be accepted that they were negligent in attending to these matters or that they deliberately condoned profits of this order. Nevertheless, I suggest that the company's argument that it was entitled to judge these matters on the basis of the overall profitability of its Government contracts, rather than contract by contract, seems to have received far less than adequate attention.
The Wilson Committee dismisses the "overall profitability" argument on two grounds; first, that it involves a conscious adjustment of figures upwards or downwards to some as yet undefined norm—a process regarded by the Committee as not only difficult, but in most cases also requiring the agreement of the Ministry. After all, if the overall profit rate on Government contracts is to be taken as only 13.5 per cent. on cost, as stated in paragraph 177, and two of these contracts were yielding over 100 per cent. and the remaining four averaging 47 per cent., with an out-turn of about £4 million in excess profits, there must also have been some very unsatisfactory contracts involving very large sums.
§ Mr. Austen Albu (Edmonton)
Is the hon. Gentleman speaking to the Amendment, which accepts the Report except for certain parts of it, or is he speaking to something else?
§ Mr. Corfield
If the hon. Gentleman had been in his place when I rose to speak he would be aware of the subject in hand.
§ Mr. Corfield
It is abundantly clear from the letter from Sir Richard Way to Sir Reginald Verdon-Smith, dated 20th March, 1966, and published in the Second Special Report of the Committee of Public Accounts for 1966–67, that the Ministry, in March 1966, accepted that the firm was entitled 540…to look at the rate of profit on its Government work as a whole, and that I agreed that the overall rate of such profit would certainly be the product of considerably varying rates on individual contracts, extending probably from losses at one end to profits considerably in excess of the 'normal' Government rate at the other. I also said that on the evidence before me I had no reason for doubting your Statement that the overall profit made by your Company for the years concerned was not unduly high.Later, Sir Richard comments…that it is obviously a matter of judgment —a not very easy judgment at that—as to when a profit rate can be regarded as legitimately high and when it becomes excessive.He goes on to infer that profits between 90 per cent. and 150 per cent. cannot be regarded as anything but excessive, and with that I do not think that anyone would disagree.
In these circumstances it seems remarkable that while the Wilson Report follows Lang and rejects the overall profitability argument, and while paragraph 109 of the Report refers to this letter from Sir Richard Way, this particular passage is not referred to, and nowhere else in the Report is there a mention of the fact that the Bristol-Siddeley view that it was legitimate, at any rate within reason, to expect to gain on the swings what is lost on the roundabouts, was at least shared by the Permanent Secretary to the Ministry concerned long after the publication of the Lang Report, and the initial disclosure of these excessive profits by Bristol-Siddeley. As a result—
§ Mr. Robert Sheldon (Ashton-under-Lyne)
On a point of order. The Motion statesThat this House accepts the conclusions of the Report of the Committee of Inquiry into Certain Contracts made ith Bristol Siddeley Engines Limited.The Amendment is designed to addexcept in so far as they condemn identifiable individuals denied, by the procedure adopted, the basic rights of natural justice".Does the hon. Gentleman accept the first part of the Motion?
§ Mr. Sheldon indicated assent.541
§ Mr. Sheldon
My point of order was to ask whether or not the hon. Gentleman was speaking to the Amendment.
§ Mr. Deputy Speaker
The hon. Member for Gloucestershire, South (Mr. Corfield) would be out of order unless he were speaking either to the Motion or to the Amendment. He is entitled to make his speech in his own way. However, it is reasonable for me to point out that a large number of hon. Members are anxious to take part in the debate before the time arrives when we will have to conclude it.
§ Mr. Corfield
Although I regret the length of my speech, I trust that hon. Gentlemen opposite will appreciate the relevance of my remarks because I regard this matter as of the utmost seriousness and because, apart from my position as an hon. Member in wishing to stand for the rights of individuals, my constituents are keenly interested in this subject. I therefore propose to continue with my speech.
As I was saying, as a result, nowhere does the Wilson Committee consider these overall profits on Government contracts as such, let alone comment on their reasonableness. While it might be possible to obtain some indication of overall profits on Government business from some of the "instruments of financial control", it is wholly impossible to do so from any of the extracts published in the Report. All that appears in this connection are consolidated figures for the four-year period 1959–60 to 1962–63, extracted for the purposes of investigating the related, though quite different, dispute in regard to the admissibility of taxation costs. I would have commented on this matter but, in view of your remarks, Mr. Deputy Speaker, about the time available for the debate, I will leave the matter there.
Although overall profits as shown in the company's published accounts give no indication as to the breakdown between Government and non-Government customers, the Wilson Committee at least does not dispute that these profits were "no more than reasonable". It is also known from the P.A.C. proceedings that on some Government contracts the company recorded a loss. There is no mention of this in the Wilson Report, and no figures from which it is possible to relate 542 profits on particular contracts to losses being incurred at the time. This is a very unfortunate omission.
§ Mr. Edwin Brooks (Bebington) rose—
§ Mr. Deputy Speaker
I hope that hon. Members will not intervene because large numbers of Members on both sides are anxious to take part in the debate and interventions only prolong the hon. Gentleman's speech.
§ Mr. Brooks
I note your comments, Mr. Deputy Speaker. I was simply going to ask the hon. Gentleman if he is aware that in its Second Special Report the Public Accounts Committee came down quite unequivocally against the company's introduction of S.C.43.
§ Mr. Corfield
I fully agree, but with due respect to the P.A.C. I do not believe that it is really the ultimate judicial authority on contracts.
It was an unfortunate omission, because the second ground on which the Wilson Committee rejects the overall profitability argument is the contract. However convenient it may be for the taxpayer to adopt the interpretation adopted by Wilson and the P.A.C. it is not the only interpretation regarded as appropriate by some very distinguished members of the Bar. What is quite clear here is that there is a real element of doubt as to what that contract actually means. The Attorney-General will no doubt agree that it does not produce a contractual obligation such as would give a legal remedy in a court of law for failing to estimate reasonable prices. It probably should do, but the plain fact is that it probably does not. There is an element of doubt, and the benefit of that doubt should have gone to the people whom the Wilson Committee at that stage had put in the position of the accused.
These are serious defects. It has not been my wish to denigrate the work of Sir Roy Wilson and his Committee, but it is my duty to put forward, as I believe I have done, the real grounds for disquiet that justice may not have been done. If in doing it I have inevitably had to criticise the Wilson Report that is something I regret but which I regard as of far less importance than justice to individuals.
543 Let us remember that there were basic defects in the procedure. The hearings were conducted informally and in private. Documents were made available to the Committee by both sides, but not to each other. Witnesses had no opportunity to hear or see evidence, however damaging, given by other witnesses, let alone to cross-examine. There was no verbatim record of the evidence, though notes on each witness's evidence were made and submitted to him for agreement. It was agreed that the names of witnesses should not be mentioned in the Report. B.S.E. executives, however, are throughout referred to by the position they occupied and are readily identifiable. On the other hand, the activities of the Ministry are referred to collectively by sub-Departments—D.T.C., Contracts Directorate, D.A.S., A.I.D., and so on, and individual officers remain wholly anonymous.
In adopting this procedure the Committee considered that it could not do better than to follow the procedure of Lang. As I tried to point out earlier, there is a striking difference in the issues they eventually decided to investigate. That is the gravamen of our charge against the procedure used. Throughout its Report, the Wilson Committee is concerned to investigate actions and motives of individuals and their culpability.
I wish to conclude on this note. Of course, this has been a very sad affair for Bristol Siddeley and my constituents who depend upon it. But it is a much sadder affair for the Government to ask us to accept conclusions arrived at by that procedure, arrived at by reasoning which can be shown to be false and which has such damaging effects on individuals.
§ Mr. Corfield
In being asked to accept these conclusions without any qualifications, as we are asked by the Government, we are forfeiting as a House any right we have to respect as remaining an important part of an honourable concept, the High Court of Parliament.
§ 5.55 p.m.
§ Mr. Maurice Edelman (Coventry, North)
The hon. Member for Gloucestershire, South (Mr. Corfield) has very 544 closely followed the brief, or perhaps I should say the apologia, circulated to all Members of Parliament by the Bristol Siddeley Company. He has spoken with great sincerity on behalf of his constituents. I, too, should like to declare an interest, in that the main Bristol Siddeley factory referred to in all three Reports is located in my constituency. Therefore, I shall discuss the matter not only as one of national interest but as one which is of immediate concern to those who are employed in the Bristol Siddeley factory in Coventry.
It should be made clear right from the start that the subject of the debate is the financial integrity of the Bristol Siddeley board of directors and of the executive committee and those whom it instructed. At the same time it is proper to emphasise that the technical and aero-engineering competence of the company has never been in question. It has been, and remains, a source of pride to the whole nation.
The charges in the three Reports are two-fold. The central charge is that the Bristol Siddeley directorate took advantage of the Ministry of Aviation in order to exploit the Exchequer. The second charge is that wilfully or negligently the company exploited and retained for as long as possible, according to the Wilson Committee, double and, it is even suggested in some cases, treble payments.
§ Mr. Ridley rose—
§ Mr. Edelman
I should like to develop my argument. Perhaps the hon. Gentleman can intervene later, when I shall be very glad to give way.
Only the day before yesterday, in the document to which I have already referred, the company tried to exculpate itself from some of the charges directed against it in the three Reports. The Press described the document as biting and stinging but I should say that the proper adjective with which to describe it is "brazen", because the very fact of the repayment by the company of f3.9 million is an admission that the company had obtained excessive profits.
In this essay in self-justification, the Bristol Siddeley company has engaged in an exercise in semantics. While rejecting the charge in the Wilson Report that the profits it made were exorbitant, it added that the profits were "unreasonably 545 high". I am sure that the House will take the view that whether Bristol Siddeley's profits were exorbitant or unreasonably high the victim of these exactions was the nation. It was the taxpayer who was being plundered without conscience. It was the defence Services which had to forgo certain projects which they had in mind precisely because there was this form of over-charging which had elevated their apparent costs to a level which the nation and the House would not tolerate.
§ Mr. Ridley
The hon. Gentleman said at the beginning of his speech that the Bristol Siddeley board had combined to defraud the Exchequer and to condone high prices and double-charging. I am sure that he does not mean the Bristol Siddeley board. I am sure that he means the persons responsible because, as my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) clearly showed, the Brisol Siddeley board was not responsible. Would the hon. Gentleman be prepared to repeat that outside the House, so that it can sue him?
§ Mr. Edelman
The hon. Gentleman has been long enough in the House to know that it is the privilege of Parliament that hon. Members may make statements here in which they believe, which they will seek to justify, and which they regard as appropriate for debate in the House. That is what I have sought to do.
In the defence which the Bristol Siddeley company has put out, it rejects the suggestion that profiteering on the Sapphire and Viper contracts as distinct from overhaul work generally was knownat all levels of management, since this very imprecise phrase unduly implicates the Executive Committee and wrongly implicates the Board".The suggestion in this statement is that those in charge of the company were unaware of the profiteering which they later acknowledged. I must say that I do not believe that, despite what the hon. Gentleman said. I cannot believe that in any competently run company the executive committee and the board were unaware at their regular meetings that these large profits were being made from Government contracts. If they were unaware of it, they were incompetent. If they were aware of it, as I believe they were, and as has been demonstrated by these Reports, they were guilty of the 546 charges of gross profiteering which have been made.
For my part, I have a sufficiently high regard for the technical competence and financial management of the Bristol Siddeley company to think that these high profits could not possibly have escaped their attention. They knew exactly what was going on, and it was only at a much later stage, when these matters were discovered, that they felt obliged to make a confession—that is the only word for it—and to try to make amends for what they had permitted to be done by offering certain repayments, not the repayments finally made, repayments which were a token of the admission that they had over-charged.
The question of profitability has been raised in the debate, and it is taken up by the company itself in its document. There is a contradiction here because, if the board of directors and the executive committee did not know that these high charges were being made, then they would not put the argument forward. However, the suggestion has been made that, at a certain point, the excessive profitability of these contracts was admitted by the board and the executive committee but it was justified by them on the ground that it was necessary for the company to take an overall view of all the projects on which it was engaged in the interests of the country, the argument being that they did not feel obliged to isolate the individual contracts referred to in these Reports and, for that reason, felt themselves entitled to extract these high profits on the particular contracts referred to.
This is an argument sometimes put forward by drug manufacturers when they seek to justify their own high profits and to explain that a lot of the profit which they extract goes into research and development. But in the case of these contracts the argument that high profitability was necessary in order to encourage research and development in other areas does not hold water. Research and development on contracts for other projects was an element negotiated between the company and the Ministry, and there was, therefore, no justification whatever for these contracts being used in order to try to extract excessive profits which could then be attributed to other projects. On the contrary, the very fact that there is the provision dealing with "fair and 547 reasonable" prices in SC 43 is itself a reason why the contracts referred to in the Reports should be considered in isolation and each identified according to the amount of profit made.
In its 1966–67 Report the Public Accounts Committee said that the companycontinued year after year to submit quotations and to agree prices which they knew to be so far in excess of costs as to yield enormously high profits",sometimes over 100 per cent. In the face of that Report, it is impossible for the hon. Gentleman's argument to hold water when he seeks to defend the company against a charge of having made excessive profits on these specific contracts.
§ Mr. Corfield
With respect, I did not do that. The point I made was that, in the light of the Permanent Secretary's letter, I thought it odd that the Wilson Committee had merely dismissed out of hand and given no consideration to that argument. I quoted from the letter. At no time did I seek to defend the level of profits on that or any other contract.
§ Mr. Edelman
The Wilson Committee was right to give little attention to that argument about overall profitability for precisely the reason which I have advanced, namely, that the research and development elements relating to other activities of the company were already covered in Ministry contracts. It was proper, therefore, to consider these particular contracts in isolation and not to muddle them up, as the company has sought to do, with other projects on which it is engaged.
In presenting the directors with, as it were, a halo and wings, the hon. Gentleman overlooked some of the curious conduct of certain members of the board, at least since these events. There is, for example, the mystery of the chief estimator. We have all noted how, in recent weeks, a great deal of the defence by the board of its own procedures and a great deal of its attempts to identify responsibility has been expressed in a sort of covert attack on the chief estimator.
I understand that the chief estimator was not summoned before the Public Accounts Committee. Perhaps the Chair- 548 man of the Public Accounts Committee may later in the debate be able to tell us whether he was summoned, and, if not, why not. He is a key element in the whole of this issue. If there is one thing certain in the question of who profited from the over-charging, it is that the chief estimator himself was not one who profited from these transactions. The chief estimator presented certain accounts to the negotiators, who then went on to negotiate the contract.
Since the publication of these Reports, it seems that the chief estimator has been retired into inarticulate obscurity. He has, so to speak, been smuggled out of the way. He has been retired from his job, and no one has heard what he has had to say. No one has heard who gave him the instructions. No one has heard on whose orders he was acting when, year after year, he arranged these particular contracts. Therefore, the first mystery to be solved—and anyone considering the problem ought to try to solve it—is how it comes about that the chief estimator has been made the scapegoat in these matters. In addition, two subordinate estimators were temporarily retired and have since been restored, not to their previous jobs but at least to other work.
It seems to me and, I think, to many hon. Members, that if we are talking about natural justice, we ought to consider the question of natural justice for the chief estimator and those subordinate to him.
§ Mr. Lubbock
It was not the chief estimator who conducted the negotiations. It was someone called the price controller, was it not?
§ Mr. Edelman
The hon. Gentleman has misunderstood me. I am talking not about the price controller but about the chief estimator in the firm of Bristol Siddeley and two of his subordinates. I am pointing out that here is a key figure who, in my view, has been ill served by the company. He has been ill served by his superiors. Those who are seeking natural justice for themselves should seek natural justice for their subordinates and not try to make them into scapegoats.
The hon. Member for Gloucestershire, South in referring to profitability, talked about the other concerns of the board 549 of directors of Bristol Siddeley and of the executive committee on these occasions, when the Government contracts under consideration fell into a relatively small position. Indeed, Bristol Siddeley, in its defence, says that, in the light of the 1959 merger, at the time of these contracts it had to concentrate on matters of "greater immediacy and importance". But I think that no matter of greater immediacy and importance for Government contractors exists than to ensure that their methods and conduct are honest and in the public interest. It is no defence for the directors to say that their minds were distracted by other matters of immediacy and importance. It does not justify the fact that they were tolerating, whether negligently or deliberately, a situation in which these fantastic profits were made.
The Ministry is very deeply involved in these affairs. The officials of the Department do not come very well out of this matter. Indeed, I must add that, in the final settlement, the Ministry seems to have been absurdly generous to the company. The Wilson Report pointed out that, if the company had been left with no more than 20 per cent.—quite a high figure—on costs, the refund should have been £5.13 million and not £3.96 million. In other words, the Wilson Committee says—and I support its conclusion—that the company has got off extremely lightly.
It is right and proper—and I understand my right hon. Friend's position—that he should seek to defend his Department and his Departmental officers, but if it is established, as I think it has, that there has been connivance in negligence between officers of his Department and officials of the company, the matter should not be left as it is. It is not enough merely to tell the officers concerned that they have fallen below the level of their task. I believe action should be taken in order that they should not have any further opportunities of engaging in negotiations or concluding contracts which are so much to the disinterest of the country.
The company itself, in a somewhat casual way, tries to push off responsibility on to the Ministry. Although I have permitted myself a few harsh observations about officials of the Ministry, I do not believe that the company should be 550 allowed to get away with it in this way. But all it says in Part 10 of the Report which has been circulated to hon. Members is that the Wilson Committee's detailed criticisms of the Department "speak for themselves". This is, in a sense, very high-minded stuff on the part of the company. But what emerges clearly is that there was a sort of "old boy" relationship between the Ministry officials and officials of the company which is intolerable taking into account the matters involved.
There has been little record in writing of the conversations or the conclusions reached between Ministry officials and officials of the company. That has been one of the great gaps in the evidence available. Just as during the D-notice examination it was alleged that there was an over-close association between officers of a Department and those whom they sought to serve, so I believe my right hon. Friend should take this opportunity of examining very closely the relationship which has existed and which exists today between officers in his contracts department and their customers.
But having said that, I do not believe that the incompetence or the innocence of the Ministry officials is any justification for the sophisticated board of Bristol Siddeley to have taken advantage of them. Just because the till is left open is no justification for a trusted servant to put his hand into it, and I believe that what happened is that the innocence, ingenuousness, perhaps even incompetence, of certain members of the Ministry of Aviation's contracts department were such that there were members of Bristol Siddeley who abused that knowledge and were able, to the disadvantage of the country and the taxpayer, to extract so much from them.
Finally, I come to the question of the justice of the matter. I am satisfied that the spontaneous and unanimous conclusions of the Reports about profiteering by the company are fully justified. I think it right that all of it should be exposed to public view. I have only one hesitation in giving the conclusions my full endorsement. That hesitation does not spring from the fact that I doubt the conclusions of the Wilson Committee or of the Public Accounts Committee, but from the fact that it is my firm conviction, having had some 551 association with the aircraft industry over many years, that what we see in these Reports is only the tip of the iceberg.
I believe that, owing to the slackness of accounting on the part of the Ministry of Aviation there are opportunities available which have been exploited by some of its customers, running right down through the aircraft industry. I believe we have seen only the top of the abuses and I hope that from now on those abuses will disappear. Double charging, the possibility of treble charging—all these are very grave public scandals, and if the company or any members of the company are dissatisfied with the rough justice with which they claim to have been dealt, it is always open to my right hon. and learned Friend the Attorney-General or the Director of Public Prosecutions, now that yet more evidence has been made available on what appears to be collusion in order to exploit the Exchequer, to provide another forum for them to plead their case.
In the past I have sometimes been critical of the Government's aircraft policy because projects have had to be cut rather than the efficiency of the industry improved. What we read in these Reports gives a clue as to why the cost of projects has soared to such a point that they have had to be cut. Whatever the result of this debate, I hope that it will include incomparably tighter control of costs than in the past and that the guilty men who have exploited the nation's needs will be deprived of an opportunity of exercising any further their negotiating talents in connection with Government contracts or the rapacity of which they have shown so much evidence.
§ 6.18 p.m.
§ Sir John Vaughan-Morgan (Reigate)
At the beginning of the debate, Mr. Speaker, you asked if it would be to the convenience of the House to take these two Motions together, and that request was of course accepted. Nevertheless, I would like to make a protest not to you but to the Leader of the House that an important Report on a narrow issue by the senior Select Committee of this House should be taken and spatchcocked into a debate on a report of quite a different nature.
552 The debate is bound to range fairly widely, but the House should at once recognise that the issue with which the Public Accounts Committee was concerned was a narrow one and it would be unfair to that Committee and to the House if that were not taken into cognisance. I regret very much that they are being discussed together. For that reason I shall confine myself entirely to the Report of the Public Accounts Committee since I took the Chair. The House knows the reason why my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) was unable to take the Chair and that in the result I was called to the Chair. I cannot pretend that it was a very welcome task.
I begin by paying a very warm tribute to all my colleagues for their patience and diligence—and, my goodness, we were diligent—and, last but not least, for their tolerance of the Chair, particularly as there were differences of view among us. It should also go on record that the Public Accounts Committee, which I think can truthfully be described as an authoritative and even an awe-inspiring body, on this occasion was rather short in attendance. Only nine out of 15 members were able to take part. In view of the divisions, it is worth noting that perhaps if others had been present there might have been a different outcome.
I begin by saying a word about our procedure. It was not, of course, a judicial process; Sir Reginald VerdonSmith and Mr. Davidson were not facing formal charges. The facts are that they appeared last year as witnesses before the Public Accounts Committee and were invited this year to appear again because, as I said in my statement:When the Wilson Report was published, certain doubts were expressed, both in Parliament and in the Press, which clearly needed to be settled one way or the other as soon as possible as much in your interests as anyone else's and we felt it our duty to under-take that task.The witnesses asked to be accompanied by counsel, which was agreed by this House. It was the witnesses' own wish, but I think that in the event my colleagues would agree that our procedure and decisions were not affected. I am not sure that if a parallel case occurs again I could find it in my heart to 553 recommend to the House that it was necessarily wise to bring counsel in. Counsel made a submission about procedure which the Committee did not accept because we felt it misconceived the nature of our inquiry, would have required formulation of charges against the witnesses, and converted the Committee into a court of law, which was just what it was not, and it was anxious not to pretend to be one.
There were no accusations. The witnesses were asked to comment on their previous evidence. We followed the usual procedure of questions and answers between the Committee and witnesses, and counsel had every opportunity to put further questions or to address the Committee. Given the circumstances, it cannot possibly be said that our procedure was contrary in any way in practice to the principles of natural justice.
The present Report is concerned with a very narrow issue, as to whether the witnesse' evidence last year was misleading or inadequate or, more important, whether it was deliberately so. The issue here is quite different in substance from the issues in the Wilson Report or last year's Report by the Public Accounts Committee. Whatever our findings in this Report, last year's P.A.C. Report still stands and in many ways is confirmed and reinforced.
Last year we blamed the Ministry on many scores, particularly the ineffective work by technical costings officers. We blamed the company as we saw it for many things, seeking unjustified profits and putting forward a defence which we maintained was based on a quite unwarranted interpretation of the contractual term "fair and reasonable". Whatever the legality of the thing may be, this is how we saw it. Lastly, we blamed the company for an unreasonable attitude to the Ministry in negotiations about a refund. Above all, we blamed the company for what seemed to us a certain laxity in financial administration. This year the Committee found that its strictures were understated. We condemned again in particular irresponsibility and inefficiency in the administration after making the utmost allowances.
These are all serious and, I think, justified, criticisms of the company as a company, but none of these criticisms, whether the House agrees or not, proves 554 or disproves the veracity of the evidence which Sir Reginald Verdon-Smith and Mr. Davidson gave to the Public Accounts Committee last year. That is the issue with which we were concerned this year, and that is what we tried to do by considering the evidence line by line.
There were four points for examination. The first was the most difficult and most important. At the risk of over-simplification, I would describe it as the extent to which before 1964 "higher management" had detailed knowledge about the very high profits on overhaul contracts. Last year, we concluded that the directors, including the executive directors, only knew about them in general terms, but the Wilson Report implied that the executive directors had the full details. This was the discrepancy which we sought to examine.
We were told by the witnesses that the executive directors did have the full details circulated to them, but they either did not read them or remember them, and they could not, therefore, be said to have knowledge of them at the material time. The witnesses claimed that nothing they said last year was inconsistent with this. The Committee was unanimous in thinking that last year's evidence was confused and inadequate and often used words and expressions capable of more than one meaning. The explanations which we received only underline our last year's criticism of the way in which the company had conducted its financial affairs, but on the central point we were, unfortunately, divided.
No member of the Committee could identify any passage in last year's evidence which could positively be characterised as untrue in the light of the explanation offered. All the evidence could be satisfactorily explained. Only by my casting vote was the Committee prepared to say positively that at no point in their 1967 evidence were the witnesses knowingly attempting to mislead the Committee.
I digress at this stage for a moment. The Minister, in his speech, quoted from paragraph 18, I think, and referred to the fact that we said that their evidencewas inadequate and confusing and fell short of the accurate, complete and frank response to the Committee's questioning which the Committee were entitled to expect.555 But he should have read that in conjunction with paragraph 38, which sets out how the position arose last year.
We began by saying we had had a difficult task and we pointed out how our examination arose last year. Part of it—this is in answer to the hon. Member for Coventry, North (Mr. Edelman)—was thatSince it appeared to the Committee…that their enquiry might give rise to criticisms of the Company, as well as of the Ministry, they invited the Company as well as the Ministry to give evidence.In order that the company should give evidence, Sir Reginald Verdon-Smith was summoned as chairman and Sir Reginald nominated Mr. Davidson to accompany him.
Another important fact should be borne in mind in considering a point which the right hon. Gentleman the Minister took out of its context, that the Report adds:No statement of the facts which could have been derived from a scrutiny of the Company's papers was before the Committee of 1967 and the witnesses may well have failed to appreciate that in these circumstances the Committee would wish to question them about those facts and that they ought to prepare themselves to give evidence accordingly.That is part of the background to the sentence which appears in the earlier part of the Report.
Could I, in amplification of this, say that normally the Public Accounts Committee has before it accounting officers of various Ministries who are used to the procedures of the Committee and who "know the form", if I can put it so succinctly. I am always full of sympathy for those accounting officers because it is a pretty terrifying ordeal for them. But I am equally sympathetic to members drawn from the field outside the public service who come before a committee of this standing and this authority, not as well briefed, in my opinion, as they should be, but also being willing to volunteer evidence on matters with which they have not had the chance to acquaint themselves as well as they should.
It was a difficult ordeal but we must go back to the issue with which this Committee was dealing, which was whether the witnesses were deliberately misleading the Committee. At any rate, by my casting vote on the main issue the Com- 556 mittee held that they were not knowingly attempting to mislead the Committee.
There were three other issues of less importance with which I will deal as quickly as I can. On the third, which was the delay in withdrawing quotations, the Committee unanimously decided that there was no intention to mislead. I will not deal further with that. There were two others on which the conclusions of the Committee were rather left in the air. No one said there was an intention to mislead. The minority were of opinion that there was not but the majority were not willing to say that with certainty.
Another issue concerned double charging. Mr. Davidson told the Committee last year that so far as he knew, no one in the company—and I must emphasise those words—had known about the double charges. In the Wilson Report it was suggested that some people did know about those charges, but this does not at all affect the truth of Mr. Davidson's answer. There is nothing in the Wilson Report to suggest that Mr. Davidson himself had this knowledge, or which in any way controverts his evidence. Further-more, when Mr. Davidson did appear in 1967 the Wilson Committee had already been set in train. The form of the inquiry was known and Mr. Davidson, who was a witness before us, would know that all the evidence on this issue was eventually to go to the Wilson Committee; and it is quite inconceivable and insensate that anyone under those circumstances should even seek to mislead the 1967 Committee.
The last issue with which we dealt was simpler still. It related to an apparent discrepancy between certain figures given in evidence last year and certain figures in the Wilson Report. It is perfectly clear that there was a misunderstanding, and the only question was whether the ambiguity was intentional with a view to misleading the Committee. A minority was satisfied that there was no intention to mislead but the majority were not prepared to reach such a definite conclusion. I regret this. Confusion there was in plenty. The confusion was at one stage even worse confounded by the evidence given, but there could have been no purpose and no gain from wilfully misleading the Committee and, therefore, at the very least the Committee should have given the witnesses the benefit of the doubt.
557 The chairman of a Select Committee, when presenting a report—which I am not today—does not normally burden the House with his own views as opposed to those of the Committee. But this is exceptional since on each of these crucial issues there was a division in our ranks and the final Report does not represent the draft which I proposed as Chairman. Therefore, I must state categorically my own view that on all the issues the Committee had ample evidence from which to draw the right conclusion, which was that Sir Reginald Verdon-Smith and Mr. Davidson did not seek to mislead the Committee on any of these issues.
Let me add that this is in no way whitewashing, since the Committee has been free with its criticism of the company—twice now—but for different reasons. Some of that criticism must adhere to the witnesses who came before us. Today they have been treated to a measure of humiliation. They have done much public service. It might have been better in their own interests if they had devoted more of their time to their company's own affairs and avoided the charges of negligence and irresponsibility which the Committee had to find against the company. But I do not dissemble my deeper regret that the Committee did not produce a clear answer on all four points.
The Committee had set itself the task of resolving all doubts one way or the other and it owed this to the witnesses, to itself and to the House; and it failed to do so. Such confused conclusions do not enhance the reputation and standing of the Public Accounts Committee. It will not ease its future tasks in future sessions dealing with accounting officers in other spheres.
But there is this much to be said for this or any other Public Accounts Committee report—and I must point out the favourable parallel to the Wilson Report. The House and the outside world who read our Report can make its own judgments. It can follow the divisions and read all the evidence, the questions and the answers and the occasional meandering inconsequentiality of the evidence and the rather rococo syntax that sometimes appears on the printed page. It can judge not only the judgment but the judges. If this is done by those who read that Report without prejudice to 558 anything else they may have read, I feel that they and the House will reach the same conclusion as I do, that these witnesses did not mislead the Public Accounts Committee.
§ 6.38 p.m.
§ Mr. Joel Barnett (Heywood and Royton)
As a member of the Public Accounts Committee, I should like to thank our Chairman for his kind tribute to his colleagues. Even though I was one of those who moved a number of Motions which were defeated due to his casting vote, I bear him no ill-will. I will deal later with some of the points he made on that.
I do not under-estimate the vital question of natural justice which has been raised in this debate, but I must say that I have found the attitude of the Opposition as expressed by the hon. Member for Gloucestershire, South (Mr. Corfield) an utter disgrace. It has meant that this debate has become bogged down on the wrong issue. It seemed to me that what he was saying when he spoke first for the Opposition today was quite contrary to what, in effect, the Opposition Amendment was saying, which was that they accept the Government Motion generally but want only to amend it in certain respects. It was not only a defence of individuals but it seemed to me, and I believe will seem to those who read it later, to be a complete rejection of the Report and a defence of the company itself. I am particularly sad because the P.A.C., despite some differences, has always deliberated free from party strife.
The hon. Gentleman has so turned the P.A.C. Report and the Wilson Report on their head that he has implied that it is the Minister and members of the Wilson Committee and the Department who should be impeached. It was a quite astonishing speech. The hon. Gentleman did the House a disservice, because if he had wanted, in a major debate, genuinely to make a defence of his constituents, as he was perfectly entitled to do, he should have done it from the back benches and not from the Front Bench. His was an utterly ludicrous view, and it will be seen to be ludicrous by anybody who reads objectively the evidence given to the P.A.C. and the Wilson Report.
§ Mr. R. Carr
Since the hon. Gentleman has pointed out that my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) spoke from the Front Bench for the Opposition, he should admit, as the record will show in the morning, that my hon. Friend started by condemning unreservedly the exorbitant profits.
§ Mr. Barnett
It is a customary practice to say one sentence in doing that and to spend 45 minutes completely contradicting it. That is precisely what the hon. Gentleman did, as will be clearly seen in the morning.
The Wilson Report, in one sense, was unsatisfactory in that some of the evidence which the Wilson Committee heard, as referred to in its conclusions in paragraph 154 and paragraph 155, we did not hear. On the other hand, to have accepted any other method of inquiry, as has been suggested by the Opposition, would have made the position even worse, as the Wilson Committee said in paragraph 9 of its Report in discussing the methods of dealing with the inquiry. It said in paragraph 9:We are satisfied, in retrospect,"—that is, at the end of the inquiry—that this method has enabled us to investigate as thoroughly as possible the matters we have had to consider and that we could not have informed ourselves so well in any other way".The choice before the House is clear. We either accept the Report of three eminent, independent, unbiased reporters or the view of the company—and I do not blame it for being biased, but clearly it is biased in its own case. Without going over everything said in the Wilson Report or in the P.A.C. Report, there is no alternative for the House but to accept the Wilson Report.
What does one do about the question of personal justice? It was inevitable, when one set out the facts, that one was bound to refer to individuals; it would have been impossible not to do so. I accept that it would be a sad day if we were to treat the serious matter of personal justice as trivial. It is not a trivial matter. But the major issue before the House should be and is the relationship between Government and industry on major contracts involving the expenditure of thousands of millions of pounds of public money.
560 From any reading of the facts, it is clear that it was impossible for the individuals concerned in the Wilson inquiry to have been shown up in anything other than a very bad light. But we must balance the rights of the taxpayer against the rights of the individual. We had no mention of that from the Opposition Front Bench spokesman today.
§ Mr. Barnett
I would rather not. The hon. Gentleman does not generally have a serious point to make, and we have a long way to go.
The gentlemen who appeared before the P.A.C. had every opportunity to present their case. I do not see how the House can do other than accept the Report, including the inevitable criticism of the individuals concerned.
I turn to the Third Special Report of the P.A.C. Again, there is criticism of two directors. It has been said on occasions that the P.A.C. sat as a sort of quasi-judicial body and that if we could not prove that what the witnesses said was untrue we should have given them the benefit of the doubt and found in their favour. To do that, we should have needed to ask them only one question consistently, and when they said, "No, we did not know anything about it", left it at that and said that we accepted what they said and that was the end of it. But we did not do that. We asked very many questions. It was not possible to prove the witnesses wrong. But if, after all that the witnesses said to us, the reasonably clear impression was given that they must have known that there was over-charging—
§ Mr. Barnett
It seems that I was right in not giving way—it was the duty of a member of the Committee to inform the House that the Committee could not come to a clear conclusion and that this was the impression given by the two people who came before it. I should have been failing in my duty to the House if I did not tell it that that was the impression which I formed from meeting those two people and hearing their answers and from my knowledge and the little experience which I have of industry and individuals.
561 That is why in the P.A.C. I moved a very important Amendment which was defeated by the casting vote of the Chairman. I should like to repeat the Amendment because it is very important and sums up the situation. It appears on page xx of the Report and reads:Finally, on the question of the over-charging, the choice lies between two possibilities; either, one, the witnesses were aware, before 1964, that the profits on the overhaul contracts were more thin fair and reasonable; or, two, they were incredibly ill-informed on the source of a substantial proportion of the Company's profits. Bearing in mind the witnesses' knowledge of the affairs of the Company, to accept the second alternative would be to impute to them too great an ignorance. It is therefore Your Committee's impression that in the case of Mr. Davidson, and in lesser detail in the case of Sir Reginald Verdon-Smith, the first alternative applies.This remains my view, and I think that it should be the view of anybody who reads objectively the evidence given to the Committee.
I realise the consequences if my Amendment had been accepted by the Committee and by the House. Only in this sense do I accept a judicial comparison. But one cannot allow the consequences of coming to certain conclusions to prevent one from coming to them. The Economist, in an article on 13th April, said:The P.A.C. decided to accept this excuse and in doing so upheld the dignity of Parliament when to reject it would have been to embark on a course of more serious sanctions out of all proportion to the grubby little issue in dispute.The Economist could not have been more wrong. I agree that it would have been out of proportion, and I have no wish to inflict further punishment on these two individuals. But we would have failed in our duty had we allowed that to prevent us from telling the House our impression and our view. In view of the remarks referred to by my right hon. Friend when he opened for the Government this afternoon, which represented the majority view, the Government had no alternative but to take the decisions they did about the public positions held by the two gentlemen concerned.
Before I leave the Public Accounts Committee Report, as there has been criticism all round of the Ministry, the individuals and almost everybody connected with this matter, it is right that I should say that I have my own criti- 562 cisms of the way the Public Accounts Committee decided on its method of investigation of private companies, and I accept my share of responsibility for it. I believe we took a decision in the committee which left us in an impossibly restricted position.
The situation arose from the fact that normally our main duties are to investigate Ministries rather than private companies. When we investigated this private company, we decided to have before us the chairman and one member of the board designated by him. By limiting ourselves in this way, we did not have individual evidence, and we were not able to give the clear answer that the Chairman of the Public Accounts Committee suggested we should have given. We could not come to a clear conclusion because questioning only these two people did not produce sufficient evidence. Although on the over-charging issue I came to the clear conclusion that these people did know, on a number of other issues I could not come to a clear conclusion and wished to tell the House so. That is why I moved the Motions that I did.
In retrospect, I would say to the House that the method of investigation decided on by the Public Accounts Committee was inadequate. We should either have seen none of the members of the company or we should have been much more thorough. But, of course, here is the nub of the problem. Had we done that, we should have been doing the job of the Wilson Committee. In future, if ever such an occasion arises, I can see no reason why the P.A.C. should not do that.
It will be seen from paragraph 178 of the Wilson Committee's Report that the Government are giving to companies of this description very substantial sums of the taxpayers' money. I refer to what are called taxation costs. The proportion of those costs provided by the Government, through the prices obtained, is so high as to mean that they are very much like the amount of money we provide for Ministries. If the P.A.C. is to investigate matters of this sort, I see no reason why it should not investigate private companies as thoroughly as they do Ministries.
§ Mr. Ridley
I want to correct the hon. Member. He said that the taxation costs have been provided by the Government. 563 In fact, these are costs which the company incurred on research and development and other matters. According to the calculation in the Wilson Committee's Report, as amended, these costs have been entirely charged to non-Government work, that is to say, civil work. If the hon. Gentleman doubts that, I can very easily prove it to him.
§ Mr. Barnett
I would ask the hon. Gentleman to read the Report again. By "taxation costs" the company mean bank charges, and private research and development, quite separate from Government research and development which the Government have specifically ordered.
I would not have thought it would be in dispute that much of the money for private research and development has been provided through the substantial profits made on Government contracts, and in this case overhaul contracts which represent only 6 per cent. of the sales of the company. Nobody who has read the figures will dispute that. Whilst I accept that there is great benefit to the nation from the money provided by the Government, it is equally true that the nation is entitled to a greater degree of control, and this seemed to be lacking in the speech of the hon. Member for Gloucestershire, South when he spoke this afternoon.
A most important aspect of the problem is the relationship between Government and industry. Even if my suggestion as to the method of control is accepted, will this be enough? In the past there has been over-charging and double charging, and we have allowed this to obscure the much more serious loss to the taxpayer through the inefficiency of British industry, which has been shown up by these inquiries. Although I am concerned about double charging and over-charging, at least the nation recovers a substantial part of the double charging and over-charging through the tax system. On the other hand, nothing is recovered from the inefficiency of industry which has been shown up here.
I hope that the inquiries will at least explode the myth that profit is a criterion of efficiency. Certainly nobody will deny that there was very substantial profit to Bristol Siddeley, but I hope that hon. Gentlemen opposite will not argue that 564 the profit proved that the company was efficient, for of course it did nothing of the sort. It proved that it obtained the high profits through double charging and overcharging.
How then should the Government pay industry in complicated contracts of this description where competitive tendering is impossible? I do not like a cost-plus system, neither do I like the system of a fixed percentage of return on capital if, in the end, it amounts to the same thing, which it could do if one held up the fixing of the price until such time as one has the post-costing. In effect, it then becomes a cost-plus price rather than a fixed price.
The best way to get efficiency is through the fixed price system, with its genuine incentive as a goal in order to let the company go ahead to try to make higher profits. I hope we do not allow the new system recommended by the Lang Committee, as reported to the House by the Chief Secretary, to degenerate into a system of cost-plus, which is the most inefficient of systems.
On 26th February, 1968, my right hon. Friend the Chief Secretary said this to the House:The Government accept the view of the Second Lang Report that fixed prices freely negotiated should in general not be retrospectively modified. The main uses of post-costing would therefore be not to renegotiate prices, but to price follow-on orders, to check the accuracy of cost estimates and to provide necessary cost information. This should improve the quality of estimates and reduce the weight on Government Departments.That is true, and I hope the Chief Secretary will abide by that. But, if this is not to result in cost-plus, it is vital to get the price agreed in time. That is most important to prevent the built-in incentive to inefficiency that we have had in the past. The genuine fixed price with incentive to beat the 14 per cent. on capital employed is a case in point. Although, in general, I am happy with the statement of the Chief Secretary, he says further down in the same column:The basic issue will be whether the original price was fair and reasonable…"—[OFFICIAL REPORT, 26th February, 1968; Vol. 759, c. 948.]We return to these horrible words "fair and reasonable", which are the words in Standard Condition 43.
I hope by this time that it is clear that it is no longer a game, or a stylised game, 565 that is going to be played. I do not like games of any description being played with taxpayers' money, and this is what has been happening in the past. The Government must make it clear that "fair and reasonable" is fair and reasonable on each contract and not on the whole of the company's business or the whole of the company's business with the Government.
I cannot understand how anyone could interpret "fair and reasonable" as meaning overall in negotiating on a contract basis. It is quite incredible for anyone negotiating on a contract to say, "It does not matter whether it is fair and reasonable, because the important matter is that it has to be over the lot." That is completely idiotic. Surely no one could interpret the words in the way that hon. Gentlemen opposite suggest.
I want finally to refer to one phrase in paragraph 23 of the Wilson Committee's Report with which I disagree. It is rather an important point. The Committee says that the Department was in no position to dictate. That is an odd sort of statement. If that is the case, Ministers and officials of Departments should have a word with the directors of Marks and Spencers and G.U.S. They do not have any manufacturing companies, but get all their supplies from manufacturing companies. I can assure hon. Members that those two highly efficient organisations certainly dictate and put pressure on the firms which supply them with goods. Certainly they would be able to tell the Government how they could dictate in their position as a major buyer.
They should dictate a fixed price along the lines that I have suggested, with equality of information, being careful that the time element is taken into account. If they used their powers on behalf of the taxpayer in that way, great benefit would result not only through bringing efficiency to the companies concerned but bringing great benefit to the nation as a whole.
§ 7.2 p.m.
§ Mr. Philip Holland (Carlton)
Lacking the natural ebullience of the hon. Member for Heywood and Royton (Mr. Barnett), I should like to present in more moderate terms the other side of the P.A.C. penny by tracing very briefly how I reached the firm conclusions that I 566 did on all four issues before the Committee and in respect of both witnesses.
As one of the two members of the Public Accounts Committee appointed at the end of last year, I was not involved in the Committee's 1967 examination of Sir Reginald Verdon-Smith and Mr. Brian Davidson. I met them for the first time, if one can call it meeting them under such circumstances, when they walked into the Committee room upstairs on 20th March, for the first sitting of our inquiry. I knew of them only from reading their replies to questions put by the Committee in 1967 and published in its Second Special Report last July.
If I began the 1968 inquiry with any prejudice, it was one borne of their words as they appeared in the earlier Report. To be frank, I entered the Committee room on 20th March with a bias against Mr. Brian Davidson because of what seemed to me to be a difficult to believe ignorance of matters which ought to have been his concern.
As a member of the P.A.C., I regarded it as a duty to ascertain the truth one way or the other to my own satisfaction. I felt, in spite of what has been said, that we were sitting in a quasi-judicial capacity and that, as my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) said, it was in the interests of the Committee, the House, and the two witnesses that we should reach positive conclusions. As a result, when earlier questions did not elicit answers enabling me to make up my mind conclusively, I asked supplementary questions to help me achieve this. I assumed that the other members of the Committee were doing the same, and I believe that they tried to.
My doubts about Mr. Davidson's evidence last year on the first issue—that is, the knowledge of the high profits—were on two counts. The first was that he might deliberately have failed to supplement information given by Sir Reginald, knowing that it was expected of him in those areas where the non-executive chairman's knowledge could not be as detailed as his own. The second was that in his own replies he may have misled the Committee deliberately either by omission or misstatement.
567 I was satisfied on the first count by Mr. Davidson's replies to my Questions Nos. 205 to 209. It became quite clear that he had been inhibited and that, in his view, he had been there merely to answer questions put to him directly. On the second count, it was not so much Mr. Davidson's replies as the interjection by Sir Reginald Verdon-Smith in answer to my Question No. 217 that reassured me.
This set the matter in context for me and explained how Mr. Davidson could be ignorant of much of what was going on in departments for which he held overall responsibility. It showed clearly his method of working. In effect, he was a troubleshooter, delegating the work and responsibilities of the departments to his subordinates and concerning himself largely with the really difficult technical problems as they arose. In that context, I could accept his ignorance of matters of which he really ought not to have been ignorant. That may not be the way that many hon. Members would work in his position, but if that was the way that he worked, it would explain the ignorance which he professed.
On the issue about the knowledge of double charging, I sought merely to establish the relationship between Mr. Davidson, the commercial manager and the price controller and to ascertain whether any one of the three could have found out about the double charging and, if so, whether the other two were likely to have been informed.
The point was pursued by the hon. Member for Brentford and Chiswick (Mr. Barnes) in Questions Nos. 282 and 283, but it was the replies to Questions Nos. 286 to 309 by the hon. Member for Sheffield, Heeley (Mr. Hooley) and the way in which they were given which finally convinced me that in 1967 both Sir Reginald Verdon-Smith and Mr. Davidson had replied to the best of their knowledge of the point. They convinced me not only because of the words that they used but the way in which they used them and their demeanour at the time. Some of our questions could not be described as friendly, and their reaction to them was exactly what my own would have been had I a clear conscience.
On the third issue about Bristol Siddeley's actions and motives, I had 568 little doubt that, while the answers given last year could have been given more fully by a more verbose witness, nevertheless they answered the questions put to them in a narrow sense, and the additional information available to the Committee this year would not have affected materially the conclusions reached last year by the Committee. In that sense, there could have been no point in omitting the information in order to mislead the Committee at the earlier inquiry.
My right hon. Friend the Member for Reigate has explained already the difference between these witnesses and the normal run of witness whom the Public Accounts Committee interviews. The Accounting Officer knows that he has a responsibility to try and understand the nub of questions asked of him and to reply in the broadest terms to avoid possible misunderstandings. However, these two witnesses considered themselves to be in almost the equivalent of a court of law, where it is necessary to answer precisely the question which is asked of one, and no more. It may be that difficulty arose last year because the Committee itself did not understand that there would be a different approach by the different type of witness appearing before it.
On the fourth issue I had no doubt that this was due to a genuine misinterpretation of the basis of computation of the figures in Appendix IV of last year's Public Accounts Committee Report. The replies given by Sir Reginald Verdon-Smith to the Chairman's questions Nos. 272 to 283 confirmed my view that there had been no deliberate attempt to mislead. I felt that it was a moot point whether we should have considered the fourth issue anyway as I thought it was fairly cut-and-dried before we started the inquiry.
Any final doubts I may have had on any of the four issues in respect of either witness—I am speaking only of the narrow point of deliberately misleading—would certainly have been dispelled by the replies, and the way in which they were given, to the very penetrating questions put by the hon. Member for Bebington (Mr. Brooks), questions Nos. 414 to 424, which seemed to me to go right to the heart of the matter.
I can find no evidence, nor could I find at the inquiry any evidence, to show 569 that the witnesses deliberately attempted to mislead the 1967 Committee. I am sorry to add this, but I feel I must. I feel, as the Chairman of this inquiry felt, that it is to be regretted that the 1968 Committee, charged with the task of clearing up the matter one way or the other, proved incapable of reaching a unanimous and firm conclusion on all four counts. Unfortunately, most people will tend to read only the conclusions in the report without attempting to evaluate the evidence for themselves. I believe that the conclusions are misleading, because they are, by and large, a compromise between two widely differing views held in varying degrees by different members of the Committee. I am not criticising particular views held by individual Members, as members of the Committee present will understand. I am criticising the Committee's failure to obtain enough evidence to reach a firm conclusion. I feel that if we did not obtain enough evidence to reach a firm conclusion it was our fault as members of the Committee. Either we asked the wrong questions or we did not ask enough, but the facility was there. I feel we should have found enough evidence to reach a firm conclusion on all four counts.
Membership of the Public Accounts Committee compelled me to look closely at the report of the Wilson Committee. Much has been said about it, and I express the general view that what I read in it has disturbed me greatly. It is alien to our sense of justice in this House for a committee to have the power to accuse without substantiating the charge and to condemn without disclosing any supporting evidence. In my view, this is a serious erosion of the liberty of the subject if pursued. As such it must command the attention of Parliament. In its rôotector of the rights of individuals and small minorities, Parliament should be gravely concerned about the implications of the way this report has turned out. We have a duty to resist any tendency on the part of any organisation, body or the Executive, to confer on any group of individuals, for any purpose whatever, power without responsibility, because this strikes at the very roots of our democracy.
§ 7.14 p.m.
§ Mr. Charles Mapp (Oldham, East)
The debate has taken on a welcome change from the first speech that we heard from the Opposition this afternoon. I am glad that the legal stuff that we had has in the main been lost sight of. The House is concerned now with trying to assess credibility and judgment in the business world.
I recognise, as does the Public Accounts Committee, of which I was a member, that the resort of the businessman who travels either near morality or near the law will be to his legal advisers. I want the House to look at this in a balanced frame of mind. I thought that the Minister was reasonably fair in his analysis of the position, but I want to take a long-term view about the work of the Public Accounts Committee. I am not happy with the Minister's assurance that this will not happen again. I will give my reasons later.
We have six questions to answer in our minds The first is whether there has been commercial deception rather than legal deception and, if so, to what extent and what are the appropriate remedies.
The second question concerns the merits of the Wilson Report, taking note of the firm's dispute with many of its decisions.
The third point, to which reference has been made and about which I am worried, is the procedure of the Public Accounts Committee when it is called upon to inquire into a commercial firm's dealings with a Government Department in regard to the expenditure of public money. I believe that we have to find a procedure separate from the questioning of civil servants and so on.
Fourthly, we have to ask ourselves whether the present difficulty before the House has happened before and, if so, what are the right lessons to be learned from it.
Fifthly, we have to ask ourselves whether a monopoly customer—in this case the Government—in the hands of a monopoly supplier—in this case the firm—can equate a fair commercial profit. My submission is that it is completely incompatible to try to do so.
571 Sixthly, we have to ask ourselves whether the public interest is necessarily in conflict with private interest where those two monopolies are operating and, if so, what should be done about it.
First, the issue of commercial deception. The Wilson Committee is quite clear and, though much of the evidence is not published, its general conclusions 1 and 2 on page 101 are unmistakable. The House must surely respect the words of three eminent independent people who, after careful analysis and with all the implications, talk about "intentional misrepresentation". Surely in this context that is commercial deception. In my judgment, therefore, commercial deception is well established in the Wilson Report.
It may be said that the evidence supporting the conclusion is not available, but the proceedings of the Public Accounts Committee are available. That body spent considerable time on this issue of credibility in relation to the four issues which were before us at our last major sitting. I was concerned—I have some experience of the courts, not as a lawyer but as a magistrate—to try to establish fact and, in so doing, dissociating from my mind any prejudices I might have. As I say, I was concerned to try to establish fact and, in areas of doubt, having heard the witnesses fully and adequately, to assess their credibility.
In one major respect the credibility of one witness was doubtful, and that of the other more than doubtful. It became clear that the firm's management structure in relation to the board's responsibility for dealing with problems, was intended either to remove major decision-making authority from the board, or—and this is more likely—to enable the board to rubber stamp decisions made by executive officers.
After carefully studying the facts and listening to the witnesses I came to the conclusion that the chairman was able to demonstrate, by way of records, that he did not necessarily know the profitability rate during all those years. We were not able to establish beyond doubt that he knew. He knew in general terms, though we were unable to procure records to that effect. There is no doubt that he had a responsibility to know. As I say, he probably did know, but there 572 was no direct evidence about that, and I therefore felt that, as they find in Scotland, the case was not proven.
Mr. Davidson had a direct responsibility in the matter. He admitted, in effect, that he was aware that he should have known what was happening. The information was submitted to him, and his explanation to the Committee was a remarkable demonstration of what he called management by exception, and perhaps I might digress for a moment or two to discuss that.
I am sure that most hon. Members have held executive positions at some time or other. Mr. Davidson gave us a picture of a desk near him in his room, on which there were up to about 80 sets of papers. Nearly all the matters set out in those papers were going right. They were presenting no problem, and his idea of management by exception was to concentrate his attention on those problems which were going wrong.
I think that we can all have some sympathy with that view. I think that we all have personal experience of it, but we cannot persuade a canny businessman that that is so. If, at the start of the working day, having spent say an hour and a half reflecting on what needs to be done, one comes to the conclusion that 90 per cent. of the problems are going the right way, it does not mean that one does not know the outturn and profitability of the company. Being a businessman, one is happy to know that it is there, but clearly one has a responsibility to pay serious attention to the problems that are going wrong.
Mr. Davidson told the Public Accounts Committee about the method which he adopted and I was sorry that Sir Reginald supported him. It means that I am asked to believe either that Mr. Davidson was extremely naive, or that I was being misinformed. Very often what one is not told is as important as what one is told, and I believe that this was a classic case of the P.A.C. being misled.
I would have liked the P.A.C. to have been able to register a general feeling that in terms of culpability Sir Reginald might have been exonerated from a good deal of intention to mislead. There was, I think, a measure of it, and I leave it there. With regard to Mr. Davidson, however, it is clear beyond peradventure that he knew all about it, and there was, 573 I will not say a conspiracy, but an intention at least to condone what was happening at his level, and also at lower levels. It is probably fair to say that the attitude was condoned in the board room.
Having met the witnesses, one feels a certain amount of regret at what the decision announced by my right hon. Friend means for them in their public life. But public life has its penalties.
With regard to the examination of private firms doing business with the Government, it is clear that the introduction of counsel for the two main witnesses changed the character of our inquiry. It was known that the firm was involved in domestic problems which would perhaps result in court proceedings. It was clear that the introduction of counsel was not necessarily to find the truth, but to avoid the consequences. If, in such circumstances, the P.A.C. decides in future that if counsel appear for firms, or their appropriate officers, when questions are to be asked it would not be wrong for the P.A.C. to have counsel to perform a similar function on its behalf, the result could be far more damaging to firms than what is now before the House.
On balance it may be thought that we can leave the legal side of these matters to the courts. That is their job. It is not the job of this House necessarily to judge business relationships but in this context it is to take account of what happens in the ordinary commercial world.
We know that this kind of scandal has occurred before, involving firms which have been technically efficient, but which have used commercial ethics which have been found to be in conflict with the interests of the Government as a customer. I think that it is extremely difficult to equate ethics which are acceptable in commercial business with those which are acceptable in public business.
It was the Ferranti affair, and the consequential Lang Report, which confronted Mr. Davidson with double standards. It was at that point that he realised, and acquainted his colleagues with, the double standards involved in the contract conditions. Although the Treasury has recently announced changes in contract procedure to ensure full disclosure, I think that the result has been merely to define more accurately the inherent incompatible interests of the two parties—the 574 Government and a firm—within the present arrangements.
That leads me to consider whether when a monopoly customer—in this case the Government—is in the hands of a monopoly supplier—in this case this firm—we can continue to regard reasonable profit as the key criterion. Whether we are acting for a firm or for the Government, we could, and would, be honourable men, but in our hearts we would know that there was a conflict about what was fair and reasonable. I think that we in this House will neglect the issue unless we consider longer-term remedies. It is an impossible task to set either a firm or a civil servant, and in recognising that inevitable conflict I go on to look for the answer. In my view we should take advantage of what big business does.
Everyone is familiar with big firms which manufacture some utility or other relying for their raw material on smaller firms. This happens regularly and we know the inevitable consequences. The major firm takes over the smaller supplier arguing that it is to ensure regular supply and often to ensure a price that can be arranged. And if they do not do that, they certainly exchange boardroom directorships in order that the regularity of supply and price may continue. Is there not in this practice of big private interests a lesson which we can apply? I do not want to introduce an argument about nationalisation. I believe that what perhaps damages so much of our usefulness is getting bogged down in dogma.
I take the view that as regards the two firms I have mentioned—with one of which I am very familiar because it is in my part of the country—a merger should be arranged on the basis of purely commercial arguments just as happens in business. These firms which are on the periphery of science, taking great risks, possibly suffering great losses, possibly gaining great advantages, are ideal for a merger or marriage with the Government. I have no reason to believe that if it were put the right way, subject to one condition, firms in this field would resent it. I take the view that the Government could talk in terms of 50 per cent. of equities with these firms on the understanding that commercial judgment would remain with the board. That is a must.
575 The Government are unable to exercise that kind of judgment, which firms of this sort exercise in the normal course of business, but there is no reason at all why the Government should not share the risks of loss or gain in respect of these essential firms which we are bound to have within our economy. And this is a simple way of doing it. Putting two boffins, two scientific people into the board room and perhaps adding further knowledge there. Putting two accountant-minded directors into the board room. It is in this particular way that our problems could perhaps be solved. Why should not two such accountant directors be able to streamline, to make a common accountancy process, within this sort of firm which would be acceptable to the Auditor-General, would cut out so much of the double accounting that is going on and would do away with so much of the doubt, the checking and the counterchecking the story of which we have been reading in these reports.
This would, in my opinion, do two things. It would dispose of the kind of argument that we have been having today. I am not opposed to private enterprise at all. These discussions damage important firms. They damage governments too. Neither of these things is desirable in a country in which, over a long period of time, democracy has been good and in respect of firms of whose efficiency generally, with certain exceptions, one can be proud. We can thus take this subject out of the area of dogmatic argument and talk sensibly as in the large boardrooms about having a merger, a marriage—call it what you will—in which the State takes half the risk. In the background, there is the research expenditure of the State and all that sort of thing, and in the long run we in this House who are concerned with the expenditure of money can feel there is a common set of accounts and of criteria. I believe firms, industry and we as a House would benefit from the adoption of such a proposal.
§ 7.35 p.m.
§ Mr. Eric Lubbock (Orpington)
The hon. Member for Oldham, East (Mr. Mapp) has made an interesting proposal as to how excessive profits can be prevented from getting into the hands of private interests by the Government 576 having an interest in the equity of the various firms concerned, but he might like to bear in mind the fact that the Government already take 42½ per cent. of the profits of every company in this country in the form of Corporation Tax. So in this respect the hon. Gentleman's demand has already been fulfilled.
I think there are other solutions to this problem of excess profits to which it would be good for the House to give some attention instead of merely raking over the ashes in this debate of what has happened in the successive Reports of the Public Accounts Committee and the Wilson Committee that we are considering this afternoon. I know that the debate is concerned with those Reports and obviously we must refer to them, but if we merely come to a decision on the Motions in front of us in the House and do not suggest any improvements in the system which can prevent the same thing happening again, we are not doing our job properly. I will come back to that in a few moments.
First, I should like to deal with a point which has been made by one or two hon. Members—that perhaps the Public Accounts Committee's method of investigation was defective in this particular instance. I agree with the hon. Gentleman that perhaps having counsel to appear before the Public Accounts Committee on behalf of the witnesses was an undesirable innovation because, to the outsider, it makes it rather like a court room and one has the impression that the witnesses are being charged with some offences, which was not the case, of course, as the Chairman of the Committee was at pains to emphasise. I know that it was the choice of the witnesses that they should be represented by counsel, but I feel that they made a mistake in requesting the Committee to hear them in this manner and I think that, as the hon. Gentleman also said, on future occasions the Public Accounts Committee ought to consider this more thoroughly.
The other point I want to deal with in the Public Accounts Committee's method of investigation is that, as has been pointed out also, it took evidence from only two members of the Board—the Chairman and Mr. Davidson. These two directors have now been pilloried and their reputations have been 577 very severely damaged. I think that was inevitable in view of the facts revealed by the Wilson Report, but is it quite fair only to level the blame at them and not to consider the rest of their colleagues on the Board, who must have been equally culpable?
The Economist, in fact, put it in an article on 2nd March this year that other very respected figures in the aircraft industry were concerned, such asSir Arnold Hall, who was managing director for much of the period, Air Chief Marshal Sir Alec Coryton who had a long and illustrious career in the Ministry of Supply before he helped set up the Bristol Aeroplane Company's engine plant, and was Bristol Siddeley's deputy chairman until 1965; and so on, and so on.I cannot help feeling a bit unhappy that the whole of the blame has been levelled at those two gentlemen, culpable as they may have been in some respects, as the Public Accounts Committee has demonstrated—not culpable because they wilfully misled the Public Accounts Committee: I have studied the evidence of these witnesses very carefully and, so far as I have been able to form a judgment, the majority were correct and they did not seek wilfully to mislead the Public Accounts Committee last year. But I think that they withheld much evidence that would have been useful to the Committee in their investigation and that they were prevaricating rather in some of the answers they gave.
I am not saying that this was deliberate; I am sure that there is not enough evidence on which to form a definite opinion on this matter, and I think it would be wholly wrong for accusations of that kind to be bandied across the Floor of the House where, after all, neither Sir Reginald nor Mr. Davidson are present or able to make a reply. All we can do is to examine the evidence of the Wilson Committee and the Report of the Public Accounts Committee and form our conclusions on this matter.
I think it is absolutely clear that the House must begin by condemning the vastly excessive profits which were made by Bristol Siddeley over those years, as indeed the hon. Gentleman the Member for Gloucestershire, South (Mr. Corfield) did in his opening speech, even if subsequently a lot of what he had to say 578 appeared to be in exoneration of the company's policy of that time.
Before going on to the overcharging and the extent of the knowledge of it in the company in more detail, I would like to deal with one point of the hon. Member for Heywood and Royton (Mr. Barnett). He said, referring to a paragraph in the Wilson Report, that perhaps the Government had greater power to dictate to industry than Sir Roy thought and that, in view of the Government's enormous purchasing power, they could have exerted a stronger leverage and could have clawed back a larger proportion of the overpayment than they did.
But it is quite wrong for us here to talk of dictating to industry. What is required, and what has unfortunately been damaged by this episode, is a better partnership between Government and industry. I know that the hon. Gentleman was only quoting from the Report and that that was the word which Sir Roy used, but if language of this kind is used in the House it can only further exacerbate the already poor relations between Government and industry and set back the achievement of the partnership which we would all like to see. So I hope that we will not speak of dictating but more of reaching sensible agreements which will prevent this kind of thing in future.
§ Mr. Sheldon
I agree very much with what the hon. Gentleman says about a partnership, but would he deny the right of Government to act in the normal buyer-seller relationship where the buyer normally has more advantages?
§ Mr. Lubbock
Certainly not; this is an extremely important rôle of Government. In the aircraft and aero engine field, the Post Office and many other enormous and important areas of purchasing, the Government have a power to ensure that correct decisions are made in industry, but I suggest to the hon. Gentleman that this comes about not by dictation but by agreement between the Government as customers, either themselves or through the Services or the nationalised industries, and the suppliers of equipment.
It is only a matter of semantics which divides the hon. Gentleman and me. I say that we can arrive at a sensible agreement which can be operated by the Government and industry in partnership and that this should be the whole objective 579 rather than purely raking over what has happened in this instance. Certainly we should not imply that, because a very serious instance of over-charging has occurred over these engines—and double charging, indeed, on certain assemblies, which I consider even more serious—this is necessarily typical of the relationship between Government and industry. It certainly is not in the aero-engine industry.
I am pleased that the Minister said that there was no question of Rolls Royce having been involved. The fact that that company is now the owner of Bristol Siddeley is in itself a sufficient safeguard against such an occurrence in future. We know that the directors of Rolls Royce are men of the highest integrity who have very good relationships with the Ministry of Technology and would not allow this to happen or to continue for so long without themselves bringing it to the Government's attention.
I know that, in the case of the Bristol Siddeley overcharging, it was the company ultimately which brought the matter to the Minister's attention, but the question which the Wilson Committee considered was how long this knowledge had existed in the company before the disclosure to the Minister. It was a very long time, if one can believe the Wilson Report.
I would not draw such a sharp distinction between the board and the executive committee as some have done. Perhaps Sir Reginald and Mr. Davidson tended to do this rather too sharply. One would expect some distinction between the executive committee on the one hand and the non-executive directors on the other—that is fair enough—but it is wholly unrealistic to say that eight of these people wore certain hats on the executive committee and received information which is admitted, and yet, when they walked across to the boardroom, they were not receiving the same information as board members and therefore had no knowledge of it in that capacity. With respect to Mr. Davidson, this is rather a spurious distinction.
He said that the executive committee, which included all the executive directors, could have ascertained the level of profits on these engine overhaul contracts if they had studied the special reports of June, 1960, and September, 1961, and he 580 maintained that he was so busy then that he could not remember whether he had seen the reports and added that, if he had, he had never taken in their contents. He thought it even less likely that his colleagues on the executive committee had absorbed that information, because they did not have the same direct responsibility for Ministry business as he had as the member particularly charged with that task. The Public Accounts Committee accepted this explanation, although it said that the evidence…paints a picture of negligence and irresponsibility in the conduct of the Company's financial administration which Your Committee found hard to credit in a Company of this standing…".This brings me to the Minister's announcement today that he has asked Sir Reginald and Mr. Davidson to relinquish the offices which they hold at the Government's appointment. As I understand it, he is not disagreeing with the Public Accounts Committee that they did not wilfully mislead that Committee last year, but is merely saying that, in view of this very grave charge levelled at them by the whole of the Public Accounts Committee—that they were guilty of negligence and irresponsibility, which is a serious thing to say of anyone—although they are not being accused of dishonesty, he can no longer have sufficient confidence in them for them to remain in those public offices.
In that light, the Minister is surely entitled to this decision and I hope that he is not going against the Committee by maintaining that these two men have been dishonest—
§ Mr. Benn
The hon. Member's remarks enable me to confirm his impression, namely, that, in reaching this decision, the Government are not giving a decision one way or another about the findings of any one of the three Committees, but saying that, in all the circumstances, they do not feel that they can repose confidence in these two people for public appointments. That is the sole reason for the Government's decision.
§ Mr. Lubbock
I think that that is legitimate, and I am grateful to the Minister for confirming my understanding of the motives behind his announcement.
It is difficult for us, and I suppose that it must have been difficult for the Public 581 Accounts Committee because it did not have all the evidence which was presented to the Wilson Committee, if I am correctly informed. I suppose that they could have asked for it, although there are many statements made here which are not confirmed; it would have been of material importance in deciding this question of the extent of knowledge.
To take two examples, paragraph 73 says:We also think it right to say that we are satisfied that at one stage, in 1961, the Commercial Manager (Ministry) was uneasy about the level of profits which would result from his forthcoming negotiations with the Department, and that he mentioned the matter informally to the Chief Accountant, who in turn mentioned it informally to the Managing Director…".There is no point in pursuing this, because the managing director was never called to give evidence, but, presumably, if it was mentioned to him, he would have laid that information before the executive committee and, therefore, at some stage the other members of the executive committee would have known of this level of profits communicated to them up through the chief accountant.
Of course, they may not have taken it in. As Mr. Davidson said all along, the fact that information was available to the executive committee did not mean that they had taken it on board and had necessarily registered the fact that this was an outrageous level of profits on a contract like this, in which there was no risk whatever. In nearly every case, these engines had been coming to the repair shops for some time and the learning curve had already given them substantial confidence in the ability of their shops to carry out those repairs within the estimates.
Paragraph 80, to which I referred in an intervention when the hon. Member for Gloucestershire, South was speaking, states:When this Report was considered by the Executive Committee at their June 1960 meeting they noted that Viper overhaul was less profitable than might have been expected, and it was explained that the quantities being put through the shops were not yet sufficiently great for a normal level of profitability to be achieved. It was recommended hat the report be further studied by those concerned and reconsidered at a later date. When it was reconsidered at the Executive Committee's September 1960 meeting the 582 profitability on engine repair work was considered 'adequate'.Presumably the figures—the Hercules at 35.5 per cent. and the Sapphire 6 at 78.8 per cent.—were known to the Executive Committee and no doubt the members said, "Here we have the Viper at only 44.8 per cent., and that profit is too small." When the figures were brought back to the next meeting the figures had improved—indeed, they had improved to such an extent that the executive committee described them as "good". By September, 1961, that level of profit on the Viper had risen from "good" to 135.2 per cent., so that there had been a substantial improvement indeed during that period.
If I were a manager in that position, having said that the level of profit on the first occasion was inadequate, I would at least have had a look at the later figures, in the next report, to see what level of profit had been reached. I would then have known that it was 135.2 per cent. I do not think that we are in a position to say—we cannot say unless we have access to all the evidence that Sir Roy Wilson studied, as well as that available to the P.A.C.—whether or not there was knowledge to the extent that it had registered with the members of the executive committee and that they were guilty of criminal action in not revealing the matter to the Government. That would be unjustifiable, despite the findings of the Wilson Committee. The most that we can say is, like that P.A.C., that these men were negligent; and therefore the Minister has taken the correct action in depriving them of their public offices.
Nevertheless, it still seems a little unfair that Mr. Davidson and Sir Reginald should have been singled out. Mr. Davidson came into it rather by accident because it was Sir Reginald who decided to invite him to accompany him when giving evidence before the P.A.C. It seems unfair that these two men have lost their reputations while the rest of their colleagues have gone unscathed.
I said that we should not rake over the ashes. To do so would not be productive. I urge the Minister to answer some questions which need answering in view of the P.A.C. Report and the findings of the Wilson Committee. First, are we now satisfied that the Technical 583 Cost Department will not in future fall below an acceptable level of competence? We have had the Ferranti case and now this one, and in both of them the Technical Cost Department was involved. I have no doubt that the Minister will say that the Department has been improved.
§ Mr. Lubbock
I agree. It is a question of the difference in the timing of the Reports. I suggest that it would be worth the right hon. Gentleman spending a little time speaking about the measures which the Government have taken to improve the level of competence of the Technical Cost Department. I was somewhat dismayed when the right hon. Gentleman spoke on this subject earlier, because he referred to an increase in the number of people employed in the Department. I do not believe that that is the answer. I remember being astonished at the level of remuneration paid to the officers of the Technical Cost Department at the time of the Ferranti debates. The lowest salary was about £750. It is impossible for that sort of money to attract the type of men we want in this Department—and that salary was being offered before the inflation which has occurred more recently. For salaries of that kind we cannot expect to attract the sort of men who are capable of driving a hard bargain with an aero-engine firm or any other supplier of military equipment.
What upgrading has taken place in the training and capabilities of the officers of the Technical Cost Department? How many professional engineers are employed in the Department? I recall that only three or four such engineers were employed at the time of the Ferranti affair. I trust that things have improved since then. Now that we have equality of information, the trend of employing more people in a Department such as this should be reversed. Fewer people should be employed and I would welcome assurances from the Minister that now that this excellent agreement has been reached with industry, steps will be taken forthwith to reduce the number employed and transfer those not needed to other work.
584 The right hon. Gentleman might also spend a little time dealing with the question whether the target level of profit is adequate, even after the increase which the right hon. Gentleman mentioned and which, I understand, has been discussed with the C.B.I. We are now considering a figure of 14 per cent. on capital employed, which is equivalent to only 8.4 per cent. after Corporation Tax. I agreed with at least one point in the speech of the hon. Member for Gloucester, South: that if one pitches profit levels as such a low figure as 6 per cent. to 8 per cent.—the sort of figure available in the days of the Bristol Siddeley engine contracts—one is placing a great temptation on industry to cheat. Even at a level of 14 per cent.—taking into account Corporation Tax, which we have now but which we did not have then—one is asking for trouble. I beg the right hon. Gentleman to reconsider this profit figure, in conjunction with the C.B.I. and industry, to see whether it should be further raised.
I return to my first point; the need for Government and industry to work more closely together. This is the crux of the problem. I do not support the solution advocated by the hon. Member for Oldham, East, because the problem can be tackled in another way. If the Government have the utmost confidence, as I am sure they have, in the experience and trustworthiness of Rolls Royce, which now owns Bristol Siddeley, there can be less policing of contracts by low-level personnel. The tighter control mentioned by the hon. Member for Coventry, North (Mr. Edelman) is not needed.
The more trust that can exist between managers at all levels—between the negotiating staff of the various firms and those who deal with these matters for the Ministry of Technology—the better will be the climate in industry, with the result that this may be the last of this type of scandal that we shall experience. It is distressing and unpalatable for the House to discuss matters such as this, but it is necessary for us to probe them, as the P.A.C. has done. I sincerely hope that this is the last debate of its kind that will ever take place.
§ 8.0 p.m.
§ Mr. Edwin Brooks (Bebington)
I am sure that hon. Members on both sides will share at least the concluding sentiments expressed by the hon. Member for 585 Orpington (Mr. Lubbock). Those of us who served on the Public Accounts Committee both this year and last year have already had ample opportunity, both individually and collectively, to express our views on many of the matters now before the House, and I shall seek to detain the House only briefly.
In summary, the work of the Committee was to produce in 1967 a trenchant criticism of the company and, indeed, of the Ministry. Nothing that has been revealed since in Wilson—nor, indeed, in our subsequent investigation on the Committee—has in any way diminished the force of those criticisms. On the contrary, as has been made amply clear, as the picture has been filled in it has become increasingly to look a little like the portrait of Dorian Gray. The deeper the post mortems have probed, the more curious and, to many of us, extraordinary, has been the evidence of what I would call promiscous profiteering. Furthermore, the promiscuity was not furtive and secret, nor hidden from the innocent eyes of the executive committee.
Two successive special reports on engine overhaul contracts, which were submitted, as we now know, to B.S.E. in 1960 and 1961, showed the profit on Viper, one of the engine assemblies, rising, as the hon. Member for Orpington has made clear, from a not inconsiderable 44.8 per cent. to 135.2 per cent, or, in the executive committee's imperishable understatement, from "adequate" to "good". A Viper has been hitherto known as an Adder. At the very least we shall call it in future a multiplier or a digital computer.
I do not intervene in the debate to go over the familiar ground or to recapitulate the disapproval which all members of the Committee in 1967 have already expressed about B.S.E.'s quite disingenuous attempts, repeated in recent days, to justify its interpretation of Standard Condition 43. This unanimous disapproval is on the record and is absolutely clear and unequivocal. It is clear beyond a peradventure that the company's behaviour was all the more reprehensible in view of the nature of the contracts. Super profits might be justifiable in terms of trail-blazing enterprise and ingenuity, but these were routine contracts for overhaul and repair. If, in such circumstances, super profits are to be the reward for 586 dimly disguised sophistory, the train robbers were unjustly prosecuted. At least they robbed the rich. If these are to be the ethics of business, the Government must delay no longer in cleaning up the jungle.
At least we have now established the principle of equality of information. I suppose we might call it the defoliation of the capitalist jungle—and about time, too. This, together with post-costing, are the welcome developments which this otherwise uniformly depressing affair has encouraged. But there are other aspects of this scandal, so perceptively foreseen by Mr. Davidson as likely to prove a scandal of the greatest magnitude, which leave me dissatisfied and even alarmed.
To put it simply—I am bound to say this for the record tonight—I regard the Wilson Committee's procedures, its analysis of evidence, and at least some of its conclusions, with considerable misgivings. I do not see this evening's debate as necessarily leading to two alternative conclusions. To criticise certain aspects of Wilson, as I shall do later, is not in any way to exonerate B.S.E., certainly not from those very serious charges which were considered and stated unanimously by the P.A.C. in 1967. I have no reservations whatsoever about those strictures.
However, it does not necessarily follow that, because we attribute considerable blameworthiness to Bristol Siddeley, we must necessarily accept that everything about the Wilson Committee's Report is beyond criticism. When the setting-up of the Wilson Committee was announced to the House a year ago this week, I asked the Minister of Technologywhether the evidence, whether oral or in writing, which is submitted to the Committee, will be published in full.My right hon. Friend replied:The report will be published, but I think that one must be guided by the Committee itself and that it should decide its own procedure."—[OFFICIAL REPORT, 24th April, 1967; Vol. 745, c. 1164.]In retrospect, I think that to allow the Committee such discretion was a mistake. However, the Committee explains in paragraph 9 of its Report that it speedily decided—this seemed reasonable at the time—that itcould not do better than follow the procedure which the Lang Committee had adopted in the Ferranti case".587 With some aspects of this procedure I have no quarrel. I am sure that none of us has. Clearly, access to all relevant documents was absolutely necessary.
However, I see dangers—I think that the dangers have now become apparent—in deciding against keeping a verbatim record of the evidence and against publishing the evidence of witnesses or disclosing it to their colleagues, some of whom were possibly to come under accusation during the inquiry. Evidence which is given on these terms, incapable of precise subsequent reference, unknown to those against whom such damaging accusations were being made, is surely suspect evidence. I do not wish in any way to disparage the distinguished members of the Wilson Committee who, only too obviously, had a difficult and disagreeable job to do, but I must express regret that Parliament has no means of checking the evidence which led the Committee to make serious allegations, not just of business incompetence, but of commercial chicanery.
I am equally unhappy that we are now besought to approve those conclusions this evening, some of which have already been modified by admitted inaccuracies in those original conclusions which it was announced the Government were accepting when my right hon. Friend made his statement.
What rules of evidence applied during the Wilson hearing? Accepting, as now seems possible—indeed, likely—that there was some skulduggery among some of the firm's employees, it is not beyond the bounds of possibility that those who might have been guilty of certain improriety would have sought to implicate others as a sort of smokescreen and shelter. For such witnesses to be able to say just what they chose, knowing full well that their evidence would never see the light of day, is to run the risk of slandering honourable men.
Further, to obtain evidence on such terms, terms of confidentiality and secrecy, might complicate any subsequent criminal prosecution arising out of the Committee's work. This problem is not merely theoretical. It is a point that the hon. Member for Orpington touched upon. Those of us on the Public Accounts Committee were to discover, in 588 our efforts to reconcile an apparent conflict of evidence and conclusions, that there were certain difficulties in obtaining access to the files of the Wilson Committee. I personally felt, and I expressed this point of view on the Committee, that such opportunity to see the evidence on which Wilson had made his very serious allegations might be necessary for the Public Accounts Committee.
But could the Public Accounts Committee, in the circumstances of the Wilson Committee's inquiry, have properly used its very formidable powers to send for persons and papers—persons who had volunteered information to Wilson only on the understanding that it would go no further? If the P.A.C. faced, as it did, such a dilemma, would not the courts equally have found their work hindered? This point was touched upon in an Answer given by my right hon. Friend in a supplementary Answer to the hon. Member for Orpington dealing with a possible civil action following the Ministerial statement of 28th February last. In other words, a quasi-judicial inquiry or tribunal—in this case a committee of inquiry—seems to be preempting a subsequent judicial inquiry.
These, then, are some of the general doubts I have about a procedure—in a way, this is nothing to do with Bristol-Siddeley any longer, this could apply to any institution or body: a great trade union, for example—which it seems to me is contrary to certain well-tried principles of English law.
The contrast with the proceedings on the P.A.C. is clear. In that Committee, evidence is taken and published verbatim. Sidelining is permitted only in exceptional circumstances, and at the discretion of the Committee alone, such as when considerations of national security arise. I do not wish to sound complacent about the P.A.C., particularly when, as in this very unusual case, it was called upon to investigate a commercial firm rather than a Government Department. I share many of the misgivings expressed earlier by my hon. Friend the Member for Heywood and Royton (Mr. arnett). Parliament must beware of Government-sponsored Committees, armed with quasi-judicial powers and capable of making the most serious and damaging allegations against individual 589 citizens, using methods of inquiry which might even be reminiscent of the Court of Star Chamber. According to Chambers' Encyclopedia which, I suppose, is the obvious fount of wisdom in this House, the Star Chamber is described as having beenduring the Tudor age of undoubted utility as a means of bringing to justice great and powerful offenders who would otherwise have had it in their power to set the law at defiance.Perhaps this is the rationale of the Wilson inquiry. But, if so, it is a confession of weakness for those responsible for strengthening the law and a disturbing symptom of reliance on extra-judicial inquiry and inspection. Further, it is worth looking closely at the Committee's evidence and the Government's acceptance of its conclusions, for this is where the quasi-judicial seems to become, if I may so put it, the queasy-judicial.
In paragraph 232, the Wilson Committee gives its general conclusions. These have already been referred to in the debate, but the matter needs to be spelled out. I refer, in particular, to the conclusion relating to double charging, which I regard as far and away the most serious of all the charges in the Wilson conclusions. It is a charge of deliberate and wilful connivance at something which was utterly wrong and which, I should have thought, gave opportunity for criminal prosecution. The Committee states:The fact that in relation to a number of sub-assemblies there was double charging at Coventry as between the overhaul contracts and the repair of spares contracts was known to B.S.E.'s estimating staff from about the dates when in each case it first occurred, and to certain of their superiors at later dates.There is no qualification whatsoever. The double charging was known to these various people. But in paragraph 154 we find a most important qualification on precisely this point:In the result we have reluctantly come to the conclusion—although the matter cannot be regarded as entirely free from doubt—that B.S.E.'s estimating staff were aware"—and so on. According to Wilson then, the matter could not be regarded as entirely free from doubt. Moreover, this uncertainty remains even after the most thorough investigation of all the financial documents and information which, it is admitted, were willingly supplied by the 590 company. In paragraph 9 the Committee states:We are satisfied that nothing has been withheld from us".Therefore, if doubt remains, as it did and does, it is inherent in the nature of the evidence such as is now available and not inherent in or due to any prevarication by B.S.E. Such a qualification, particularly in these circumstances, with Wilson having had the run of the firm's men and materials, is extremely important. A judge faced with such doubts would surely have to advise the jury to find the case not proven, or would certainly have to put to the jury this aspect of the prosecution's case.
Yet Wilson not only comes down against the principle that a man is innocent until proved guilty but makes no reference to the qualification on the conclusion in the summary—and let us remember that it is the concluding summary which is all too often the only part read by the Press and others. I regard this as reprehensible.
If the conclusion is accepted as accurate, I see no basis whatever for not proceeding to prosecution. If there was connivance and wilful deceit, and if there is no qualification in that conclusion, there is an obligation to the people accused to be given an opportunity to defend themselves in a court of law. I feel that it is absolutely wrong to use this type of inquiry as a means of pillorying people who are in no position to answer back in any way. I cannot think that the House of Commons could regard this as satisfactory.
I shall not detain the House long, but I wish to give my approach to the second inquiry by the Public Accounts Committee. I was at times on the side of the minority, and I should like to explain the principal which seemed to me to operate. It is not an exceptional principle in our judicial system. It seemed to me that, unless we had evidence to establish that Sir Reginald or Mr. Davidson was wilfully misleading the Public Accounts Committee last summer—this is nothing to do with what B.S.E. had done in 1960 or subsequent years—then, without such evidence, we surely had to acquit them on such a charge. I made this view clear in one or two of the questions which I put.
I always found it difficult to believe that either man would be so unutterably 591 foolish, let alone dishonourable, as to seek to mislead the Public Accounts Committee in any significant or deliberate sense, knowing that Wilson was probing simultaneously into every nook and cranny of the company. I felt that one needed very definite and objective evidence before coming out with a verdict of guilty, or, indeed, a verdict which failed to exonerate both witnesses on a grave charge. I did not find such evidence, and I am bound to say that I do not regard it as sufficient to rely upon impressions. I voted accordingly.
I have had no second thoughts since, but I wish to make clear that the price of giving the witnesses the benefit of the doubt which might otherwise have accumulated over their reliability and integrity was to stress the original findings of the P.A.C. last summer, which expressed a very clear view—I hope that the hon. Members will read what was said then—about the business efficiency and procedures of the company at senior level. There is the fact, for example, which has not been mentioned today, that the board as such—the hon. Member for Gloucestershire, South (Mr. Corfield) in his long dissertation about the way in which the board worked never made this point—was never asked or even told about the decision to submit revised quotations and thereby to reveal the size of the earlier profits.
All this leaves me with a sense of sheer wonder about the processes of consultation and decision-making among the senior management of the company. Further, there is the question of alleged inefficiency. We should remember that inefficiency was by no means confined to the firm. It was 50 per cent. of one and half of the other, I suspect. But to allege inefficiency is not to allege that Sir Reginald or Mr. Davidson sought deliberately to mislead Parliament last year.
Scandals always produce an excess of self-righteousness, and there is a danger of fastening upon scapegoats. Although I understand the background, I find it unfortunate and rather sad that the Government have found it necessary to announce their decision today about Sir Reginald and Mr. Davidson. But perhaps the time has come when we should 592 be less indignant about those conveniently close at hand and in full public view.
Despite the apparent gravity of the Wilson conclusions—I have no doubt that they are grave—the Government have not prosecuted anyone. If the behaviour of the company has been within the law, then it is wrong—I am back again to the general principle—to use extra-judicial tribunals to pillory a firm in this House, particularly when there is no opportunity to answer back, or to hold Members accountable for their words in the courts. If, on the other hand, the firm has been without the law, the Government should have no hesitation in prosecuting at once. My own view is that they should have prosecuted.
I hope that by saying that I am leaving no doubt whatever about my interpretation of the gravity of the Wilson Committee's conclusions. But, with respect, I put it to the Government that they cannot have their cake and eat it without discrediting the distinction between the political executive and the judiciary.
I suppose that Bristol Siddeley will pass into the mythology of party politics, and the great deal it tells us about business morality will not be forgotten in a hurry. But we also must be the guardian of political morality rooted, as it is, in the rule of law. It is this aspect which Parliament forgets at its peril, and for these reasons I shall not be able to support the Government in the Lobby tonight.
§ 8.18 p.m.
§ Sir David Renton (Huntingdonshire)
The hon. Member for Bebington (Mr. Brooks) has made a powerful speech. I think it most regrettable that the Chief Secretary, who, I understand, is to wind up, did not hear it, and neither did the Attorney-General hear what the hon. Gentleman had to say about natural justice, in words which I myself envied. I am grateful to him because what he had to say enables me to keep my speech shorter than it might otherwise have been. I saw no one on the Front Bench taking a note of what the hon. Gentleman said for whoever is to wind up. The Minister—I do not blame him; I have done it myself—had his eyes shut throughout most of the speech, and, so far as I could see, took no note except towards the very end.
§ The Minister of State, Ministry of Technology (Mr. John Stonehouse)
I assure the right hon. and learned Gentleman that a very full note of my hon. Friend's speech will be prepared for the Chief Secretary before he comes to wind up.
§ Sir D. Renton
I am glad to hear that, because it was, if I may say so, one of the most important contributions to this debate.
First, I take up one point about the Public Accounts Committee, which has a bearing on the Wilson Committee as well. If the hon. Member for Bebington wishes to intervene, I shall willingly give way. In reading the Report of the Public Accounts Committee, I thought to myself how frightful it would have been in 1968 to be questioned before the Committee about something which I had done in 1964, in whatever capacity, and how very much worse it would have been to be questioned about what other people did in 1960 and 1961. We must bear in mind, as part of the scrutiny we should rightly make of the procedure of the P.A.C., that we perhaps impose an impossible memory test on some of the witnesses called before us.
That has a bearing on the position both of Sir Reginald Verdon-Smith and Mr. Davidson in this matter. As one of the reasons for the rough treatment which Sir Reginald and Mr. Davidson are now being given by the Government, treatment which I consider vindictive and unjustified, the Minister said that as witnesses they used words capable of more than one meaning. If that is to become a reason, or a contributory reason, for going out of public life, one wonders how the Prime Minister stands.
When the Minister announced on 28th February that he accepted the Wilson Committee's findings, including the most serious allegations involving the honour of individuals, I instinctively felt that he had jumped too quickly and easily to the wrong conclusions about the Committee's Report. Then I read it, and, like the hon. Member for Bebington, I found a great deal wrong with the Committee's procedure.
The Minister had a very difficult job this afternoon, and I felt that he was very uneasy. He was trying to say in effect that natural justice was done. I do 594 not think it is disputed by anyone that we do not try people behind their backs, or even partly behind their backs. The hearing should be in public, and evidence should be capable of challenge by cross-examination. Both sides should be heard, and should be present throughout the proceedings. Allegations of crime or dishonesty should be made known to those against whom they are made, and should be strictly proved by those making them. The people accused should be given the benefit of reasonable doubt. Those are the rules of natural justice. Can the Minister tell me if any single one of them was followed in this case? Of course not.
There is still time for the Minister to think better of what he has done. He will be a very unhappy man in Bristol from now on. He knows it. He has from now until 10 o'clock. An offer was made earlier this week of something that might be done between about four o'clock and 10 o'clock. There is plenty of time, time to consult the Prime Minister, time for the Minister to save himself from dishonouring himself by having jumped too quickly to a conclusion that men should be condemned by a method which does not correspond with British justice.
I do not want to repeat the points made so well by the hon. Member for Bebington, who made them much better than I could have done. But although it has been touched on I should like to mention that the Committee tried to overcome the obviously inherent defect in its procedure by deciding that no names should be mentioned in the Report. People were referred to by their appointments, but it was known nationally and to everyone in the House who the senior men were, and the identities of holders of other appointments must have been known to many people. Identifiable people were in effect placed on a trial which they did not attend. Some of those included in the Committee's castigations were not even asked to appear before it to explain themselves, and those who did give evidence were, on a number of points, not informed of the allegations or given an opportunity to deal with them. That procedure offended every principle of justice, and I am astonished that the Minister should have swallowed it as avidly as he did.
595 Where do the Law Officers come into this? I gave notice to the Attorney-General yesterday that if I were fortunate enough to catch the eye of the Chair I should ask what part they played. The House should know. Were they asked to advise that the Committee's conclusions should be accepted? It is incredible to me that they should have advised the Minister to accept those findings if they were asked to give an opinion. When the Minister made his announcement the Attorney-General was sitting beside him. Answering a question put by one of his hon. Friends as to whether the papers would be made available to the Director of Public Prosecutions, the Minister said that after consultation with the D.P.P. the Attorney-General had decided that the evidence disclosed did not justify proceedings.
I do not think that there could have been a fair trial at the Old Bailey or anywhere else once the Committee's findings were published, especially once they were announced as having been accepted by the Government. Therefore, even if the evidence had been available, and even if, as the hon. Member for Bebington believes, it was in the public interest that there should be a trial afterwards, no fair trial could have been held because of the procedure followed by the Wilson Committee and the way in which its conclusions, as announced, would have prejudiced the trial. That may be why the Attorney-General decided that there should not be a trial. I do not know. We are entitled to be told.
There was to be no trial because there was not the evidence, but the Minister has decided, without going into it very much today, that there was evidence to justify the Committee's conclusions in paragraph 232 of its Report including the damaging conclusions affecting the honour of individuals and, I understand, affecting the good name of over 100 people, conclusions making serious allegations of dishonesty against individuals and groups of individuals. The Minister said, "Oh, but this was not a judicial proceeding or intended to be one." He said that the best guarantee of the fairness of the Committee's work was its composition. If he is right, one could get up, when appearing for the Crown in the 596 Court of Appeal, and say, "This appeal must fail because the judge was a good judge and a decent chap." That also is a remark which, in the years to come, I think the right hon. Gentleman will regret, because it is nonsensical.
Nobody questions the capacity of the members of the Wilson Committee any more than the capacity of a judge against whom an appeal is made is questioned. Just as judges make mistakes, one is entitled to point out, as has been pointed out so forcibly by hon. Members, that these sweeping allegations in the Committee's findings are not borne out by the information contained in the Report when one distils it.
What was the result of this undefended procedure which was so indefensible? As the hon. Member for Bebington pointed out, perhaps the worst thing was in paragraph 154, the crucial one relating to double charging, where the Committee concluded that the company's estimating staff were, in effect, deliberately perpetrating a fraud. But the Committee also said in that paragraph that…the matter cannot be regarded as entirely free from doubt…Surely, in fairness, that expression of doubt should have been put into the conclusion in paragraph 232, or the Minister might have mentioned it in his statement to the House. He might have said, "But on this there is a doubt." Having read the Report, I am still not sure what the doubt is. It would be interesting to know it so that we could measure it. That is another defect of the Report.
Alas, that expression has not appeared in the Press reports either. The nature of the doubt has not been revealed but the smear of the allegation remains. Since the Wilson Committee reported, the Minister has announced, on 18th March, a most glaring error running into several millions of £s in its calculations. The company has pointed out that the Wilson Committee over estimated profits by more than £10 million. Other inaccuracies have been mentioned in the debate. Such information as the Committee has given about the evidence it collected does not support the sweeping allegations in its conclusions.
I also regret to have to point out that it seems to let the Ministry down very much more lightly than the company. After all, the Ministry was the 597 custodian of the public purse in this matter. The company was, up to the extent of 40 per cent. or something like that, the mere collector of taxation. But the Committee lets the Ministry down with a gentle little bump, for in paragraph 232(4) it says:…the D.T.C. fell seriously below a reasonable standard of competence.One night have expected, if the tenor of the Report was to be evenly balanced, that it would have described the D.T.C. as guilty of gross negligence in the spending of Government money, so it is not too much to say of the Wilson Committee that there were an unjust procedure and inaccurate findings and, I am sorry to say, that it was transparently prejudiced.
I must confess, and I am proud to do so, that Mr. Davidson is one of my oldest and best friends, and has been for many years. He is a brilliant man of high integrity who has, I believe, firm friends of long standing on both sides of the House. He has a most distinguished record of service, both in industry and public life, in local government, charitable work and so on.
May I make this plea. In all this regard for individuals, while not over-looking any errors of judgment which may have been made, let us keep a sense of proportion. As business director, Mr. Davidson had a huge job in a vast organisation employing after the amalgamation 24,000 people. During the years 1959 to 1963 he negotiated no fewer than 14 international contracts of immense value to this country. In the first of those years the amalgamation took place with all the problems to which it gave rise for him.
Some of the overhaul and repair contracts were of course inherited from Armstrong Siddeley as a result of the amalgamation. The Wilson Committee's Report said that 89 separate overhaul contracts and 149 repair contracts covering 13 engine types and over 2,700 different spare parts were involved. Every contract was complicated and technical yet—this is why a sense of proportion needs to be retained—those contracts represent a comparatively minor part of the company's business with the Ministry and an even smaller part of its total business. Obviously Mr. Davidson could not be 598 expected to know all that was going on below him in that vast organisation any more than the Minister could be expected to be aware of the theft of £7,500 worth of equipment not very long ago by people in his Department, but we have not called for his resignation nor castigated him in any way.
One thing which should come out of the debate is a fresh appreciation of the economics of scale in Government and industry. I am one who believes in the limits of the economics of scale. We get to a stage when they are too big for a human being to appreciate what is expected of him. We have also to think of something else. We must think of the doctrine of responsibility as something which will have to be divided horizontally. I do not think we can much longer assume that when we have a vast administrative pyramid the few men at the top have to be held responsible for everything that goes on right down below. This will be for business to sort out. The subsidiary company is one quite good way of doing it. It may be that divisions within a Department should be regarded as to some extent separate so that we can fasten responsibility where it belongs.
I plead with the right hon. Gentleman—whom I have always regarded as a man eager and zealous, and, I should have thought, fair-minded in his public duties—to know and realise that he may have done some tremendous damage today which on reflection he would not wish to do. There is still time for him to put it right.
§ 8.38 p.m.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The right hon. and learned Member for Huntingdonshire (Sir D. Renton) blamed the Wilson Committee for being transparently prejudiced, yet towards the end of his speech he announced his own personal friendship with Mr. Davidson. I do not believe he has the right to castigate the Wilson Committee for being transparently prejudiced in its Report.
§ Sir D. Renton
I did give the specific reason which I thought was one worthy of being regarded by this House.
§ Mr. Sheldon
I do not blame the right hon. and learned Gentleman at all for referring to his friend and even for speaking in defence of his friend. I 599 should have thought that wholly admirable, but it was less admirable that it came at the end rather than at the beginning of his speech, and the distortion of the argument, to me at any rate, was transparent.
I start with a comment on the hon. Member for Gloucestershire, South (Mr. Corfield). The House is always sympathetic to hon. Members who defend their constituents, even when they may not be sure that their constituents are wholly right. It is a right and a duty which behoves everyone of us to act in this way, but when one makes speeches of that sort I should have thought the common sense of the operation would determine that those kinds of speeches should be made from the back benches, leaving the Front Bench to make a proper examination of the case. I do not believe we have had a proper examination of the case.
§ Mr. Corfield
I believe that if the hon. Gentleman studies my speech he will see that, quite apart from having anything to do with my constituents, it was a very careful analysis of parts of the Wilson Report which I regard as important. The mere fact that my constituents were involved has not, I believe, affected my judgment in any way at all; and I do not want to retract anything I said that might appear to have been said purely on a constituency basis.
§ Mr. Sheldon
I would differ strongly from that. I believe that it did affect the judgment and the speech of the hon. Gentleman. As a result, we have not had so far from the Front Bench opposite a proper examination of the issues before us. I would like first to turn to the question of overall profitability and the argument that a fair and reasonable profit as determined by the Standard Condition 43 could be so determined on a contract-by-contract interpretation. I, and I believe anybody who had been in industry and knew the problems of industry, would know that this was transparent nonsense.
But, as my hon. Friend the Member for Heywood and Royton (Mr. Barnett) has said, it is impossible to deal with contracts in this way. One cannot regard it on the basis that in future times one will be able to recoup profits or even 600 to hand them back. Profits are always arranged on a contract-by-contract basis, and that is what industry is all about. If the company knew that some prices were not fair and reasonable, the defence of overall profitability, I believe, is not available to it.
One matter that has been mentioned but which I feel has not been quite clearly established arises from a memorandum by the Comptroller and Auditor General in which it is stated that although the directors varied from time to time, it is certain that at all times the executive directors formed by far the majority of the board. To me this is quite clear. It is clear that the board and the executive directors were very largely interchangeable. They were moving in the same kind of circles, meeting frequently, and views were passed from one to the other. I do not believe that the distinction between the board and the executive committee is a very real one. Information available to the one would, over a time, be more than likely to circulate at all levels; and, in my opinion, really important information would certainly be circulated at all levels.
Despite doubts over certain aspects of the knowledge of the two witnesses, I myself have no doubt in my own mind that they had knowledge of the general profitability of the overhaul repair contracts, and to me the most important piece of evidence lies in the financial reports. These were financial reports submitted on the engine repair contracts and they were available in a form which would enable the reader to find out the level of profitability at a casual glance. These are very expertly prepared, and I believe that anybody with even the faintest knowledge of business, or even those without any, would be able to find rapidly and very easily the amount of profits from the various contracts. They are set out in graph form that can be read from 10 yards away, almost from the other side of the House, and one can clearly see the level of profitability. That was available and the executive committee had it available freely. The mere flicking over of three or four pages, taking only a few seconds, would have given an indication of the size of profitability that was being obtained.
It might be thought that this might form a small part of the profits of the 601 operations, and was not even worthy of that kind of attention, but we know that in one year nearly £1½ million was made from these overhaul repair contracts—nearly £1½ million out of a total profitability of the company at that time of something over £4 million. It formed a very substantial proportion of the profits of the company. Having so important a factor as a large part of the profitability of the company in so readily assimilable form conclusively proved to me, on my understanding of industry and the way on which top management works, that the high profitability was known at a very high level indeed.
The relationship between the attention given by top management to certain company matters and the percentage of profits arising from those matters is very close. It is clear to me that if a large amount of money had been concerned, the attention would have been greater than if it had been a small amount. A small percentage of the profits of the company might have been overlooked if one assumed a certain level of incompetence. A modest percentage of the company's profits might have been overlooked if one assumed gross incompetence. But I find it impossible to accept that a percentage of profit, which may have been as high as one-third of the profitability of the company as a whole, was overlooked, whatever level of incompetence one might attribute.
There is a great danger of misconceiving the way in which industry works. Those who are responsible for large profits in any organisation are not ashamed of them. They do not keep them quiet. They do not hide them. They are intensely proud of them. Those responsible for a very high level of profit compare themselves with others in the company which do not contribute so effectively to the total profitability. There is very good reason for their pride, because profitability has a very important bearing on their promotion prospects and the pay which they will enjoy. So they spread the good news. That is what always happens in industry. Those responsible for high profits, be they in engine repair contracts or anything else, spread the good news and do not conceal it furtively.
602 The argument that the company was far too busy with the less profitable aspects of the business, that it had, in some peculiar way, invented a new management technique—management by exception—is blatent nonsense. Any system of control which says, "We do not know what the profitability of those earning the profits is because we are too seriously concerned with those making losses" could not exist in our industrial society. It does not happen in this world. People may not be very concerned about those elements which are earning high profits because they have no idea that the profits are at a certain level and they are proceeding at that level. But they do not proceed on the basis of ignorance and leave those areas alone because they do not know.
We frequently find that in this situation a company might well let a profitable sector continue on a steady level, because there is no great excitement in it. But when it contributes to the proportion of the profits on a level that this did, the company knows about it and the good news gets around.
The assumption of a massive degree of incompetence, so massive as to make a caricature of an industrialist, something like an idle, golf-playing playboy director, did not fit the people whom I saw before me in the Public Accounts Committee. This view was quite inconsistent with that which I formed as to the ability and characters of the witnesses before me.
On the general question of these investigations, I, too, am not happy about the way in which we arrange these things. When the P.A.C. decided to have this investigation, it had very much in mind the way in which Government Departments are investigated and appear before the P.A.C. When Permanent Secretaries come before us, if there are any untruths, prevarications or concealments we know that they will all turn up during subsequent investigations in the following year, when the Comptroller and Auditor General goes round again. This means that one can assume a much higher degree of certainty in the relationship than one can with a company, where large sums of money are at stake.
When companies come before us they know that if they escape from an investigation they are unlikely to come up again. All the factors making for this kind of investigation are more difficult in the case 603 of a company than in the case of a Government Department. The Public Accounts Committee system of approach which is devised for the one is unlikely to be so successful for the other.
We know that the Public Accounts Committee proceeded by asking for the chairman of the company, as it would, in the case of a Government department, ask for the Permanent Secretary, who would be asked to bring with him whomsoever he wished. The analogy with the Permanent Secretary and his officials is complete.
In the case of a firm this method is not adequate. At the outset, the Public Accounts Committee is not in a position to know the person with whom it should request an interview. In the future we must be much more certain whom we wish to investigate, and make sure that the preliminary work is done in a more satisfactory manner.
I do not think an investigation in the firm concerned by the staff of the Comptroller and Auditor General is likely to be a very useful way to proceed, although I hope to see something of this kind. Possibly a firm of auditors could join forces with the staff of the Comptroller and Auditor General on these special occasions, in order to find out the facts. This would give the Public Accounts Committee something on which to start its questioning.
In the case of a firm, the Public Accounts Committee cannot proceed by asking for the chairman and questioning him. There is not enough evidence and not enough body of fact on which to proceed. We need to find a method of discovering what goes on in the firm and to ascertain certain facts about the firm's relationship with the Government before the investigation starts.
The important lesson that we must learn in regard to contracts between Government Departments and private industry is that, although equality of information and post costing will be very valuable, they will not be enough.
Despite the managerial revolution, we still have entrepreneurs whose main purpose in life is profitability. Given the system that we have, this is perfectly right. When we are dealing with very large sums of money, we cannot assume that in a difficult situation the temptation 604 may not prove too great, and we might find ourselves with scandals equal to or greater than the one we have before us today.
Although equality of information as a principle is something that has to be accepted, we need to ensure with certainty in a way that we have not had before that the Government are able to get the information that they require and the sort of bargain to which they are entitled by the great purchasing power of the country.
When we look into it carefully we shall have to accept that the only way by which we can be sure of getting what is our right is to get the Ministry of Technology men into the factory so that they know what is happening on the workshop floor and in the costing offices. In the United States this is done. In aircraft firms in the United States there are Government offices within the plant. They have their cost accountants, their production engineers and a team of people going round the factory and knowing as much about the factory as the firm itself knows. We need to do the same thing, not only to check what goes on and to prevent abuses. We need these people there so that they can learn something about the way in which the industry works.
One of the great weaknesses of our civil servants is that they have insufficient industrial background. There is no easy solution to give them that and the sort of experience that can only come from industry. One way to help would be by getting them into the factories, initially to check and to learn, in that way making their contribution and creating what the hon. Member for Orpington (Mr. Lubbock) referred to earlier when he talked about some of the advantages of a partnership between the Government and industry. By doing that, the country could take advantage of proceeding not on a cost-plus basis but with the possibility of finding the ultimate solution whereby an agreed formula could be worked out under which, if industry was more efficient, there would be profits to share between the manufacturer and Government, and, if there were losses, those, too, could be borne between the Government and industry. In that way, we could find ourselves getting the kind of people whom we want to see in Government Departments and, thereby, 605 achieving an improved relationship between Government and industry which I hope to see.
It is quite clear to me that there will be more investigations of this kind in the future, however effectively the Government do their work. We have many more examples of the Government working with industry. We have the Industrial Reorganisation Corporation; there is the Industrial Expansion Bill, and there is a whole host of ways in which the Government will have to assist industry in many other ventures. These new relationships are likely to be extremely valuable but, if they are to be most fruitful, they have to be on the basis of understanding between the one and the other. This debate is likely to contribute to that end.
§ 8.57 p.m.
§ Mr. John Smith (Cities of London and Westminster)
I have an interest in this matter in that I am a director of Rolls Royce and, as you know, Mr. Deputy Speaker, I had not intended to intervene in this debate unless my colleague Sir Reginald Verdon-Smith were disparaged. Instead, he has been victimised; and in a way which will greatly damage the concept of voluntary service—an advantage that this country has over many others. If this matter should be pressed, I hope that Sir Reginald's colleagues on all the public bodies of which he is a member will resign with him in protest.
As I said, he is a colleague of mine. Hon. Members know me, more or less. I dare say that they are fairly good at judging. They will know what value to place upon what I say; and I say with great emphasis that it is quite inconceivable that Sir Reginald Verdon-Smith could act in bad faith. It is just as inconceivable as it was for those honourable men whom the Prime Minister dragged through the Bank Rate inquiry.
Sir Reginald has neither the motive nor the character for such a course of action. My life has been greatly enriched by knowing him. He is an asset to the country, but he is now prevented from contributing to the country by a Minister who arrogates to himself the function of a judge.
The House should know that the Government made strenuous efforts to 606 get Sir Reginald to resign from his public positions well in advance of this debate. That information should be considered in the light of the Minister's intervention when the hon. Member for Orpington (Mr. Lubbock) was speaking.
I hope that hon. Members will accept what I say about Sir Reginald. If there are some who cannot, I ask whether it is conceivable that an attempt to deceive on this scale could possibly remain unknown in a firm of that size. Hon. Members on both sides know how very difficult it is to keep a conspiracy secret, even among a few people. I think I need say no more on that.
Of course, Sir Reginald is ultimately responsible for all that happened, but that is not a just cause for trying to ruin a man. It seems to me that there is some misunderstanding of what happens at the board meetings of very large composite companies. For example, the agenda for a meeting of the board of Rolls Royce is made up in hard covers and is well over an inch thick. At some board meetings this book will contain no reference at all to profit margins, or perhaps only for each division as a whole, made up in the form of a net aggregation of many invisible pluses and minuses.
This means that we must recognise a distinction between knowledge actually possessed by a person and knowledge to which he has access. This distinction was recognised by the Wilson Committee when it was considering the position of the Department. On page 26 it states:D.T.C. were formally notified of the modification, as they were included in the 'circulation list', but they have frankly admitted to us that they did not notice this particular modification out of the many hundreds which were notified to them…This distinction, recognised for the Department, should also be recognised for industry.
Furthermore, whatever the hon. Member for Ashton-under-Lyne (Mr. Sheldon) may say, boards of large composite companies do not want to hear about a matter which is going all right; they concentrate on what is going badly. They also concentrate on the future—on obtaining new business. They do not wish to hear about business which has already been obtained. It is absurd to suppose 607 that Sir Reginald Verdon-Smith was involved in an attempt at deception.
A lot of nonsense has been talked about the profits actually made. There has been difficulty in establishing the amounts and percentages involved. Paragraph 177 of the Wilson Report illustrates this, and so does the fact that a correction to the Report was necessary. It is fair to point out that although Sir Roy Wilson indicated that this correction arose from "recent assurances", the facts were plain from the original documents. All this arises from the difficulty of defining the notions involved.
There have been several examples of that today. For example, a profit of 100 per cent. on cost is a profit of 50 per cent. on sales. Often people do not say which they mean. What is "capital employed"? What are "costs"? What are "departmental conventions"? This is not arithmetic, but a complex and little understood art which I do not think was fully understood by the Wilson Committee, whose Report was inconsistent in parts, emotive in parts and sarcastic in parts, thereby greatly reducing the value of the document. The Committee suffered from serious defects, as the hon. Member for Bebington (Mr. Brooks) so admirably pointed out, reinforced by my right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton).
We have been obsessed here with profits, but I can tell the House that the return on shareholders' funds—which is the final test of any industry—in the aeroengine business is far too low at the moment to make certain of its future. When we discuss these matters we should remember that. The return is too low to ensure the future of that industry, and especially if the industry is treated as a whipping boy.
Finally, instead of considering profits, do we ever consider value received? Do we receive good value from Bristol Siddeley and the aero-engine industry of this country? Pilots, passengers and airlines all over the world give us the answer to that. I hope that we can drop this matter, which is distracting the aero-engine industry from exports.
For example, this fresh inquiry into all the previous contracts of Rolls Royce 608 will take until 1971 to complete, and I should like to know what it is thought will be the cost of that. We are not I hope, to be a nation of book-keepers. I hope that we can get away from the world of the muck rake, the witch-hunt, and the postmortem to which we have sunk, and set our sights on the sky where these engines are a source of pride, and I am happy to say, a source of profit to the country as a whole.
§ 9.05 p.m.
§ Mr. John Ellis (Bristol, North-West)
The Third Special Report from the Public Accounts Committee represents the second attempt by that committee to clear up a certain matter. The Committee made it clear that it was considering the issue not from the point of view of all the questions which could have been asked the first time, or what questions it ought to have asked, but merely whether it was misled or lied to then. That was the extent of its inquiry.
My hon. Friend the Member for Bebington (Mr. Brooks) made it clear that even when the P.A.C. wanted to use evidence which had been presented to the Wilson Committee it thought it right not to do so. The limitations of this Report are, therefore, fairly obvious, and I can only say that even on this narrow basis of evidence the case, as my hon. Friend the Member for Oldham, East (Mr. Mapp) said, is not proven either one way or the other.
The Committee was split on what I call the fools or knaves Amendment. The Report says at page:either, one, the witnesses were aware, before 1964, that the profits on the overhaul contracts were more than fair or reasonable; or, two, they were incredibly ill-informed on the source of a substantial proportion of the Company's profits. Bearing in mind the witnesses' knowledge of the affairs of the Company, to accept the second alternative would be to impute to them too great an ignorance".There we have the nub of the argument.
The House tonight is considering not merely the Report from the P.A.C., limited though it is, but the report from the Wilson Committee. Having read the evidence, I think that we should bring a certain amount of common sense to bear on the issues involved. In view of the Ferranti scandal, in view of the Lang Report, and in view of everything that we know, is it credible to suppose that the 609 board of this firm did not discuss the contracts' side of its business, and what the level of profit was? Apparently the board discussed everything under the sun except profits.
I find it incredible that the executive members of the board, who were said to know more than the others, did not discuss the matter with all the members of the board when they knew that this inquiry was pending. If hon. Gentlemen opposite can believe that, they can believe in Santa Claus and the red-nosed reindeer. It is incredible that in view of what happened in Parliament and in the country, the board did everything but discuss this issue. I therefore welcome the Report, and I shall support it in the Lobby tonight.
I, too, have constituents who worked for Bristol Siddeley, and now work for Rolls Royce. We must have a viable industry, and I am therefore concerned to clear up this whole matter. I hope that we shall look particularly carefully into the sub-contracting work that is done for the industry.
§ 9.10 p.m.
§ Mr. Robert Carr (Mitcham)
We have had a great deal of detailed and very closely reasoned argument about this sad affair today, but in winding up this debate for the Opposition I shall try to concentrate on the main issues. The first main issue—and I am glad to say that it is one on which we can all unite—is that we utterly condemn the exorbitant profits that were made in this affair. We condemn the company, we condemn the Department, and we must make that clear. I take no joy in doing so—nor, I am sure, does anybody else. It would be wrong to take joy in doing so, but it is a task we must perform if we are to do our duty as the House of Commons.
It is a day of sadness and shame for both the company and the Department. A great company, with an outstanding record of contribution to this country in technological advance, in exports, in training people—a great record—and yet in this matter this great company has failed very sadly, to put it mildly, to live up to its responsibilities. And a Department responsible for spending a very large sum of public money—I have not the figures, but I imagine it is probably a larger sum of public money than almost 610 any other Department—has failed in its elementary duty of safeguarding that expenditure. So Parliament ought to condemn and we do condemn, unanimously, from all sides of the House.
This has been one of the most serious, most unhappy and, I am afraid, as it has turned out, most distasteful debates I have known since I have been in the House of Commons. I always knew that it was bound to be a serious and a sad debate, but it is a debate which has now brought in a principle which is, or should be, at the very heart of our Parliamentary system—namely, the principle of Parliament being the protector of the rights and freedom of the individual citizen and the guarantor that he will receive justice. I am sorry that I did not hear the speech of the hon. Member for Bebington (Mr. Brooks). I have read a report of it and, whether or not some of his hon. Friends agree with him, I think all the House would like to do honour to the way in which he approached the subject. I would like to say the same about my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith).
Individual citizens' rights and justice have been brought into this debate. The right hon. Gentleman the Minister of Technology started his speech by stressing the danger of this being an explosive subject and the need for moderation and a dispassionate and objective approach. I welcomed this, and my hopes rose that the House of Commons might do its duty unalloyed, and for much of his speech the right hon. Gentleman lived up to his claim. But to some extent at the beginning and to a much greater extent at the end, by announcing action which brands two men at least and destroys their reputation with no adequate proof of guilt, he took a course which I hope this House of Commons will, always, reject. We censure the Minister for that action. Even now, I join my right hon. and learned Friend the Member for Huntingdonshire (Sir D. Renton) in pleading with the Minister to think again as to whether he will be true unto himself or unto his Government, or doing his duty to this House of Commons or those it represents, in taking the action he is proposing to take.
There was one statement which the right hon. Gentleman made with which, I 611 am glad to say, I can wholly agree—that our main aim must be to prevent the recurrence of this sort of thing. As I have spoken rather severely, and shall do again, about one part of the Minister's approach, let me say that I appreciate and will try to reciprocate the non-party political sense in which he moved the Motion. It was a Conservative Government which was in power when this happened, and, therefore, he might have chosen to make this a great party political point; but he did not do so, and we respect him for that. He recognised, as we recognise, that, in grappling with these terrible subjects and these complexities of Government procedures and contracting, it is not the party complexion of the Government in power or the capacity of the Minister—although capacities of Ministers vary—which matters but something much deeper, and I am glad that the right hon. Gentleman took the approach which he did.
But if we are to get this matter right, we must do a good deal of hard thinking about how the Government do business with their contractors, because we must realise that this deplorable event was the product of an inadequate Government contracting system. As I said, over two years ago, in the debate on the Plowden Report on the aircraft industry, the customer in the end gets the sort of supplier he deserves. The Government have been a bad customer for many years in the sense of an inefficient customer, not demanding in the right way and too often demanding in the wrong way.
Many of us on both sides with experience in industry will know, whether one is dealing with private or public customers, what a difference the quality of the customer makes to the efficiency and, indeed, to the integrity of the supplier. The Government have been such a bad customer that many industrial companies which can afford to do so have, for many years, deliberately avoided Government contracts for this reason. Some companies cannot do that, but many who can have done so because the Government are a bad customer.
We must agree that the Government and industry should look at every contract on its own and not try to justify excessive price on one contract by some general overall profitability argument. As a principle, that is unexceptionable; but 612 it must be applied both ways, and hither-to the Government have not done so. If a profit is to be fair and reasonable, it must apply to both sides, and if the Government as customer start by fixing a standard rate of profit which, if all goes well, is very low and cannot be exceeded, and, on the other hand, when things go wrong, give the suppliers no chance to recover losses, one of two things must happen—either the Government will have no contractors to do business with them, because they go out of business, or, inevitably, this overall profit outlook will be the order of the day, with various degrees of consciousness and unconsciousness in the psychology and mode of conduct of companies.
This cannot be avoided, whatever one may say. There are therefore various important needs which the Government must establish in future as a customer. First, we must establish a position in which there are no abuses on either profits or losses. Then we must avoid the position in which through the terms of fixed price contracts being unsatisfactory industry tends either to move towards a kind of cost plus contract and will not accept anything else, or becomes more and more reluctant to do business with the Government at all.
We must realise that if the actual procedure for fixed price contracts is such as to screw industry down too hard and in too much detail, the tendency will be for contractors who must do business with the Government on these terms, to over-provide, to make pessimistic estimates of manpower and so on required because if they do not they will be in danger of not making a sufficient profit to remain in business. The result of this is that profits which are higher than they should be will sometimes be made.
My hon. Friends and I therefore welcome the proposals at last put forward for reform in this matter. I refer to the proposals announced in the Chief Secretary's statement in the House on 26th February. We are disturbed—I say this without wishing to make a party point—about the length of time that it took, because the Lang Committee was appointed after the Ferranti affair in 1964 and the second Lang Committee's Report was available by the end of 1964. We are now a quarter of the way through 613 1968. The length of time that this has taken is disturbing, and we are therefore particularly concerned that progress should now be faster in translating what I understand are still not much more than agreed guide lines of action into practical procedures for the future.
I emphasise a point made by the hon. Member for Heywood and Royton (Mr. Barnett)—the need to avoid cost-plus. This practice is bad for the Government, for the companies concerned and for the efficiency of British industry. There is no spur of either competition or incentive. If we are to avoid cost-plus it is important to settle prices quickly. I appreciate that that is easy to say but difficult to do.
One of the essential ways of doing it, of course, is to get a much better profit formula and review procedure, such as that outlined in the Chief Secretary's statement of 26th February. Once a contractor can see a fair profit if he does his business properly, with the opportunity of earning more than that standard profit if he proves extra efficient, with the Government sharing in it, then the "stylised game" as it is called, will largely disappear because both sides will have an incentive not to out-manoeuvre each other but to get a price fixed quickly and get on with the job.
This fixing of a proper profit formula and review procedure is as much in the interest of the tax payer as it is in the interest of the shareholder of any company. I therefore beg the Chief Secretary to see that these guide lines are converted into practicalities as quickly as possible and to ensure that his great Department, the Treasury, does not befuddle the procedure with a minutae of detail with the result that the ultimate purpose is defeated. We have a big chance to move into a new atmosphere in this matter, and I hope that it will be taken. I am sure that it can be done, if the desire is there.
I do not believe that the Plowden Committee actually used these words, but the need to get bureaucracy off the back of the industry is a phrase which has been used to me by its members and was in effect a major theme of their Report. If this could be done, some welcome reductions in staffing costs would result and we would move towards an immensely important improvement in staffing; 614 namely, a smaller number of more highly qualified, better paid people who are more able to negotiate with industry on an equal footing of status, professional skill and training.
I do not criticise the civil servants who do their work as hard and as well as they can; but we need more highly qualified professional people who are able to negotiate with their opposite numbers in industry on an equal footing. If they are able to do this they will gain the respect of industry, and confidence between the two sides will grow. I therefore ask the Chief Secretary to assure us that he will make as quick progress in this field as he can and convert the guide lines of his statement into practice as soon as possible.
I fear that for the last ten minutes of my speech I must return to some less pleasant and personal matters. They stem from the position of the individuals who have been pilloried in this debate and in the Report of the Wilson Committee. This brings up the whole question of the adequacy of the Wilson Committee's Report. The Minister, in opening, referred to our approval at the time of the announcement of both the membership and the terms of reference of the Wilson Committee. I confirm that we gave that approval. I confirm that we still stand by that. When we invite men to undertake inquiries of this kind, we give them a very difficult and very thankless task. We ought to be grateful to them. We are grateful to them.
We on this side broadly accept, as I have already made clear, their conclusions about exorbitant profits and about the failings and inefficiency of the Department and the misdeeds of the company. We accept all those broad conclusions, even though we think that some of the Committee's argument is rather sloppy; and the more it is examined the more holes can be picked in it. Although we can and should do that, nevertheless I make it clear as I did at the beginning of my remarks that we accept the broad conclusions and condemnations about the exorbitant profit and all the rest of it.
We agree, on the whole, that the Committee's procedure was adequate for the purpose of discovering whether these profits were exorbitant and whether 615 there ought to be general condemnation. Where we part company is that we do not agree that the procedure was right when it begins to lead on, not just to the general establishment of facts and blame in terms of organisations, but to identify and blame a few selected individuals—not blaming selected individuals in a minor way, but putting blame on them to the extent of condemning them, in effect, for dishonesty and even for the commission of criminal offences or something very near to that. This is not the way in which this should be done.
I suggest that one of two things should have happened. When the Wilson Committee in its deliberations found itself leaning towards the position where it thought that it would have to make such imputations against people, one thing it should have done—one possible course of action—was to have asked to be allowed to stop its inquiries and to hand over the papers to the Director of Public Prosecutions.
Secondly, if for some reason that was not practical and the Committee went on, as it did, to complete its Report, and when the Report was in the Government's hands, the Government had one of two duties. Before publishing this Report, they should either have found a way, by consultation with the Attorney-General, of bringing these charges home or, if they came to the conclusion that they could not bring the charges home, they should have amended the Report before publication and have said so or produced their own report, or commented on it. Right hon. Members opposite can look pained if they wish, but I am sure that this Report ought not to have gone on the public record containing these grave imputations against identifiable individuals without more evidence to support the charges.
That was not the end of the failure of justice. There was the question of selectivity. There is a case, however hard it may be, for putting the blame on the chairman alone. Just as a Minister may have to shoulder the sins of his Department, so the chairman of a great company may, however hard it may seem, have to shoulder all the sins of his company. Once the Government go beyond 616 that and begin to pick out individual executives, what is the justice in being so selective? Why choose only Mr. Davidson and one or two people subordinate to him? Why not other senior executives who are not mentioned, blamed or cleared? [HON. MEMBERS "The whole lot."] I hear hon. Members say, "The whole lot." All right. But if they are guilty they must be proved guilty. To name one or two in this way is disgraceful.
I come back to the procedure. If one goes beyond the chairman, how can one possibly leave out the managing director? Not only must his have been the chief executive responsibility, but he ought to be the man best able to clear up the issues of dishonesty and intention one way or another. In other words, he was the most important witness. God knows, I do not want to implicate the managing director at this time. He is a great public figure who has contributed a great deal to this country. He also happens to be a friend of mine. But if we must get down to placing responsibility on individuals, his evidence was vital, and he ought to have been included in this inquiry.
Yet the Public Accounts Committee, because of its procedure, did not question him at all.
§ Mr. Boyd-Carpenter
There has been some misunderstanding about this. During the original investigation, the Public Accounts Committee proceeded according to its normal practice of summoning the chairman. The selection of other witnesses to help him was made by the chairman and by no one else.
§ Mr. Carr
I fully accept that and I was going to make it clear. For reasons which are well understood and well justified, the Public Accounts Committee did not examine the managing director. But I understand that the Wilson Committee interviewed him for only a short time very early in its inquiries, and there was considerable difficulty, I understand, in agreeing the record of his evidence.
§ The Chief Secretary to the Treasury (Mr. John Diamond)
Is it a fact that that gentleman was called as a witness? How does the right hon. Gentleman know?
§ Mr. Carr
One reads so many papers about this matter. If I am wrong, I withdraw that. But I do not in any way withdraw my main point that his evidence was vital, and his views and the Committee's opinion of his views also were vital if we are to make imputations of responsibility at a personal level.
§ Mr. Carr
That relates only to the Public Accounts Committee's procedure. The Wilson Committee was perfectly free to do so, and may have done so, and ought to have made known its view of the managing director's views in its Report.
Our Amendment was necessary even before this afternoon, because of the procedures followed. It has become all the more so after the Minister's opening speech today, as two named men have been found guilty and have now been sentenced by the Minister.
If they are guilty, I condemn them. We would all condemn them from this side as strongly as anyone. If they are guilty, they ought to be branded. But they must be proved to be guilty before they are branded, and these men have not been proved guilty in any sense understood by British justice. I hate injustice, and I hope that the House will always hate it.
§ Mr. Carr
The right hon. Gentleman says, "Of course", but his Government's action is a shame and a betrayal of that principle.
I am no lawyer, but it seems to me, as an ordinary citizen, that there are three requirements at least for natural justice. First, a man should be told clearly the charges against him. Second, he should be able to see and study the evidence against him on which those charges are based. Third, he should be able to cross-examine that evidence and to call his own evidence in defence. Not one of those three basic rights of justice have been granted to these men who have been pilloried, condemned and sentenced in this Report and by the Minister today. This is indefensible. It is nauseating. If he adheres to this action the right hon. Gentleman is not fit to hold office ever again. That is the stuff of which tyranny 618 is made. If it is not nipped in the bud it will grow, and I beg the Minister to think again.
§ Mr. Benn
Before the right hon. Gentleman concludes, let me be quite clear about what I said. The right hon. Gentleman said that what I should have done when I received the Wilson Committee Report was to suppress from publication those parts that referred to individuals, and that despite the factors that had emerged from the Report those people concerned who are or were currently advisers to the Government, the references to them in the Report having been deleted, should have continued in their position as advisers to the Government.
§ Mr. Carr
I did not say that. I said that the matter should not have been reported in this form. It should either have led to a prosecution or the gentlemen concerned should have been given a proper right to reply and defend themselves according to the three principles of natural justice which I have just defined.
We condemn the exorbitant profits, the carelessness and inefficiency of the Department and the company's indefensible and dishonest behaviour in this matter. We shall join, too, in condemning all the individuals responsible when, but only when, the grave charges are sustained against them by proper and full procedures of justice. Mulcting the taxpayers of money is a very serious matter. It is a vital duty of Parliament to try to stop it, and, if it happens, to condemn it. That we have done, but in the long run men matter more than money, and it is an even more vital duty of Parliament to be the protector of justice and the rights of individual freedom.
§ 9.37 p.m.
§ The Chief Secretary to the Treasury (Mr. John Diamond)
The right hon. Member for Mitcham (Mr. R. Carr) began his speech in terms of extreme modesty, understanding and helpfulness. He reciprocated my right hon. Friend's careful avoidance of making this in any sense an inflamatory occasion or a party occasion. He recognised that these events occurred mainly during the previous Administration, and I am particularly grateful that he also recognised that the way forward was along the lines I had put to him. 619 I therefore want to reciprocate as far as I can, but I shall have to say something in view of what the right hon. Gentleman thought fit to say about my right hon. Friend and his judgment. I shall naturally want to make that position absolutely clear shortly.
As the right hon. Gentleman said, this is an unhappy occasion, but I do not regard it as wholly unhappy. Certainly we have had to discuss difficult topics. We have had to discuss profit-seeking carried to excess, findings of falsehood, intentions to deceive, widespread Departmental inefficiency, misplaced loyalties and a variety of issues of that kind. We have also had to discuss damage to individual reputations, which I agree is the most serious of all the topics. It is a pretty depressing group of topics. But whilst they undoubtedly make this an unhappy occasion, it is one from which lessons can be drawn—and I believe that they are being learned—of a new relationship between Government and industry. That is why I do not find it a wholly depressing occasion.
The various Reports we have discussed describe a series of events arising from a pattern of relationship between the Government and its contractor in which the directors' duty to maximise shareholders' profits has been narrowly conceived, without adequate recognition of the parallel duty to the whole community, of which every shareholder is a member and most are contributing taxpayers. That relationship is rapidly becoming out-moded, and is gradually being replaced, I believe and hope, by a new one which recognises the respective rôles of the Government on the one hand and the contractor on the other, while at the same time containing to a large degree a sense of partnership.
That relationship in future will be based on a desire to protect the individual through equality of information, to encourage the contractor by rewarding efficiency and by putting a premium on managerial skills rather than on slick negotiations. I want to deal first with the major issues raised in the debate in the light of this encouraging prospect rather than in a morass of rather sordid events.
I want first to draw the attention of the House to the procedures adopted by 620 the Wilson Committee. I remind the House of its membership in view of what has been said by a number of hon. Members. The Chairman is a distinguished lawyer, who is President of the Industrial Court. His appointment as a member of the new Race Relations Board was warmly welcomed only on Tuesday by the right hon. and learned Member for St. Marylebone (Mr. Hogg). One of the other two members is a very experienced former civil servant, now holding important positions in the City in several directorships, including a large finance house, and the other is an eminent and much respected member of the accounting profession. This is hardly the kind of committee that would conduct procedures which could in any way be unfair to individuals or deny them, in the words of the Amendment,…the basic rights of natural justice.Its impartiality, I should have thought, was self-evident and I can only say that I am glad that the right hon. Gentleman welcomed the appointment of these men to the Committee on behalf of his party in April, 1967.
Let us see what the procedures were. They were that the hearings would be conducted informally and in private; that the Department and Bristol Siddeley would give the Committee access to all their relevant documents but that they would not give such access to each other; the names of witnesses would not be mentioned in the Report; a verbatim record of the evidence given would not be made but the notes taken of each witness's evidence would be sent to him for agreement; that all the evidence of witnesses would not be published nor would it be disclosed to their superiors.
There are three important points I want to make about these procedures. First, as the Report itself points out, they followed the precedent of the inquiry into the Ferranti case set up by the last Government. Secondly, the procedures were discussed at a meeting between the members of the Committee, senior Departmental officers and, for Bristol Siddeley, Sir Reginald Verdon-Smith, Mr. Davidson and their legal representative. They were agreed by all concerned, including the Bristol Siddeley representatives. I cannot believe that they accepted that if the inquiry found any evidence of improper conduct it would be hushed up, 621 especially when one remembers that the first Lang Report contained critical observations of the conduct of both the then Ministry of Aviation and Ferranti Limited.
Thirdly, each witness who gave evidence to the Wilson Committee was given in writing a summary of the agreed procedures. This summary, the terms of which were agreed both by the Department and by the firm, made it clear that, while the Committee intended to avoid in its report any reference to individuals by name, it might not be possible to avoid reference to individuals by the office they held. The witnesses, therefore, were each to be fully on notice that the office they held might be identified in the Report, and I must say that I strongly rebut the suggestion in the Amendment and in the words used by the right hon. Gentleman that the procedures adopted were unjust.
§ Mr. R. Carr
May I make it quite clear that we do not question for one moment either the capacity or the impartiality of the three members of the Committee? Nor do we criticise the procedures, or deny that they were agreed, or say that they were unsatisfactory up to that point where they were attaching general as opposed to personal blame. The moment they get on to personal charges the people so charged, if they are to have natural justice, must know what the charges are, must see the evidence and have a chance to bring their own evidence and to cross-examine. The moment they get to that point of personal charges of this gravity, we need to have the procedures changed.
§ Mr. Diamond
The right hon. Member must understand that we are not making personal charges; nor was the Committee. [HON. MEMBERS: "Oh."] I must repeat, nor was the P.A.C. It was not making personal charges against the individuals to whom the right hon. Gentleman referred. [AN HON. MEMBER: "Why did he say it?"] The right hon. Gentleman wished to intervene, so I gave way. I am glad that he accepts its undoubted impartiality and the way in which the Committee carried out its work. Even if I must repeat it, he will recollect that these procedures were agreed throughout by those concerned, including some of the principal characters involved.
622 My next task is to remove any doubt there may be about the Government's views on their future relationship to certain individuals who hold positions of great responsibility in the company. Let me first deal with business matters. It is idle to pretend that our confidence has not received a rude shock. We cannot say that we believe—as indeed we do, and the Committee found—that we were being deliberately deceived by certain employees of the company, and at the same time pretend that our confidence in the employer is unimpaired. I could not pretend to say that.
We must at all times have in mind our responsibility as custodians of the public purse as the right hon. Gentleman—and I am grateful to him for this—himself said. Fortunately, this conclusion presents no problems in terms of future action for the new conditions of equality of information and post-costing, coupled with the new machinery and the profit formula that has been fully negotiated will, I believe, provide the necessary safeguards.
So much for the business relationship. Equally, it would not be possible to pretend that the findings of the inquiry, coupled with the conclusions of the Public Accounts Committee and reinforced by my knowledge of the course of negotiations for the refund, when a marked reticence was displayed, have not lead to a considerable diminution in the confidence the Government had in the judgment of those individuals and in their capacity therefore to continue to act as Government appointees on certain public bodies. That is the course of action which my right hon. Friend announced and that, so far as I am concerned, is the end of that matter.
I now turn to the much more acceptable topics to which the right hon. Gentleman referred. I welcome, first, that whatever difference of view there may be in the speeches which have been made, there is one thing on which everyone is agreed and united. That is our responsibility as members of the House of Commons to protect the public purse and to see that excessive profits are not made out of commercial relationships between contractors and the Government. It is certainly helpful to me to know that Parliament will be always ready to attach the greatest importance to its 623 responsibility in doing this and to protect the taxpayers who contribute to the public purse.
I must pay tribute to the Public Accounts Committee which on this occasion was, and on every occasion is willing to go to endless trouble and to any length to inquire into the complexities of any situation to ascertain the facts which will support or criticise the Government for pursuing or failing to pursue the public weal in this respect. But we must not forget that we are working in a field where the supplier is normally a private enterprise firm which regards its prime responsibility as being that of maximising profits in the interests of its shareholders and where the purchaser, the Government, are often, through the special nature of the purchase, denied the normal commercial safeguard of competition.
The first loyalty of an employee is to his employer. The first duty of a negotiator is to negotiate the best terms he can for his firm. The first duty of a director is to have regard to his shareholders' interests; and it is not surprising that in these circumstances there should develop a standard of values and a pattern of behaviour which take full account of these obvious responsibilities but sometimes pay too little regard to the responsibility to the community as a whole. In my view, such an attitude is extremely short-sighted, for it is only when the private enterprise firm takes full account of the proper needs of the community of which it is a part that it serves its own long-term interests best.
That such an attitude exists and can provide a breeding ground for difficulties of the kind we have been discussing today is beyond doubt. It follows, therefore, that new conditions should be introduced into the relationship between Government and contractor for three main purposes. The first, a very positive one, is to encourage this wider sense of responsibility; and equality of information does just that; and I am grateful to the right hon. Gentleman for what he said in that regard. It creates a sense of real partnership in place of what I can only call a catch-as-catch-can contest. I am grateful to the right hon. Gentleman for recognising what I mean by that.
The addition of post-costing, which was not always a view taken by both sides of 624 the House but which I hope now is, is based on the recognition that opinion becomes well-informed only when it takes account of hard facts, and the desire to achieve equality of information cannot be fulfilled unless, in appropriate cases, the facts in the form of all the relevant figures are made available. The second purpose is to make clear that negotiating skills alone will no longer suffice; they must be supplemented by skill in management, production and administration; and the possibility of opening up all books and records will secure this. The third purpose is a creative one. It is in the interests of both contractor and community that a contract should be carried out at the least cost. The way to improve the standard of living of the community as a whole is to allocate to each individual task the minimum of resources.
The contractor should always have, therefore, every encouragement to reduce his costs in this way. One of the major criticisms of excessively high prices is that they are a direct encouragement to inadequate efficiency, sloppy administration and wasteful management, and there is no need to reduce costs to the utmost if an adequate or more than adequate profit is being made without any effort. But we must follow the logic of the argument—and by "we" I mean hon. Gentlemen on both sides of the House. In this connection I am most grateful to my hon. Friend the Member for Heywood and Royton (Mr. Barnett) for what he said.
If, as I am asserting, it is in the interests of the community that costs should be reduced, it must be in the interests of the community that profit arising from such reduction should be made. If the sale price is fair, taking into account all the circumstances at the time it was fixed and giving full effect to equality of information, then it follows that it must be right that the profit made from further reductions in costs and from inventiveness and efficiency should go to reward those who are responsible; and we should not be timid in our acceptance of this proposition.
If at the end of the year such an efficient and profitable firm should feel disposed to make a contribution out of those profits to the welfare of the community and in the form of a modest cheque addressed to the collector of 625 taxes, I, as a Treasury Minister, would find it very difficult to refuse it.
It is my hope that the new arrangements will achieve these purposes. The new conditions of contract will provide for full equality of information and for post-costing in appropriate circumstances. I will not repeat the details now as I set them out fairly fully in the statement which I made to the House on 26th February. The profit formula should secure an adequate return in normal circumstances, and by "normal circumstances" I mean the profit accepted by the community. I refer to what the hon. Member for Orpington (Mr. Lubbock) said; I am sorry that I was not present to hear it.
The normal profit is a profit equivalent to that made by a business in dealing with the private sector as opposed to the public sector. We could not possibly accept as reasonable the proposition that the Government should remunerate industry more than the private sector remunerates itself. Therefore, the basis on which we have proceeded is to ascertain, as far as one reasonably can, the level of profit made by industry as a whole and to apply it in respect of Government contracts. We are engaged in the appropriate interpretation of that in accounting terms.
These arrangements will provide the necessary inducement to efficiency, will safeguard the taxpayer and the community, and will provide for any necessary review so as to keep the conditions up to date and relevant. I shall, of course, make it my business to keep
§ the House informed on how these matters are developing. The right hon. Gentleman thought that we had been taking rather a long time to reach an agreement with industry. It has taken a long time. It takes two to make an agreement, and to the extent that he is encouraging me to make progress. I welcome what he said. I hope that he will give similar encouragement in other quarters. I should be very grateful for that. There is no reason why this matter should not be finalised in a very short time indeed.
§ The events which we have been considering are unhappy ones, but they will have assisted in demonstrating without question that the old relationship between the Government and contractor could no longer continue unamended, and that what the Wilson Report calls "stylised game" and what the Bristol Siddeley pamphlet describes as "the traditional character of price fixing negotiations" are no longer acceptable. It is not without significance that we are discussing at one and the same time excessive profits going back over a number of years and arising out of the old system together with proposals for a new and better system which are gradually being implemented. Having drawn the right conclusions, we may, I think, properly forget the unhappy events and look forward to a period of greater co-operation, greater understanding and, I very much hope, greater efficiency.
§ Question put, That the Amendment be made:—
§ The House divided: Ayes 112, Noes 176.627
|Division No. 124.]||AYES||[10.0 p.m.|
|Alison, Michael (Barkston Ash)||d'Avigdor-Goldsmid, Sir Henry||Hastings, Stephen|
|Astor, John||Dean, Paul (Somerset, N.)||Heald, Rt. Hn. Sir Lionel|
|Atkins, Humphrey (M't'n & M'd'n)||Deedes, Rt. Hn. W. F. (Ashford)||Hogg, Rt. Hn. Qulntin|
|Baker, Kenneth (Acton)||Dodds-Parker, Douglas||Holland, Philip|
|Bennett, Sir Frederic (Torquay)||Doughty, Charles||Howell, David (Guildford)|
|Biggs-Davison, John||Drayson, G. B.||Hunt, John|
|Birch, Rt. Hn. Nigel||Eden, Sir John||Hutchison, Michael Clark|
|Black, Sir Cyril||Elliot, Capt. Walter (Carshalton)||Iremonger, T. L.|
|Body, Richard||Emery, Peter||Irvine, Bryant Godman (Rye)|
|Boyd-Carpenter, Rt. Hn. John||Eyre, Reginald||Jennings, J. C. (Burton)|
|Boyle, Rt. Hn. Sir Edward||Fisher, Nigel||Jopling, Michael|
|Brinton, Sir Tatton||Fletcher-Cooke, Charles||Kaberry, Sir Donald|
|Brown, Sir Edward (Bath)||Foster, Sir John||Kershaw, Anthony|
|Bullus, Sir Eric||Galbraith, Hn. T. G.||King, Evelyn (Dorset, S.)|
|Campbell, Gordon||Gilmour, Ian (Norfolk, C.)||Kitson, Timothy|
|Carr, Rt. Hn. Robert||Glyn, Sir Richard||Knight, Mrs. Jill|
|Clegg, Walter||Goodhew, Victor||Lane, David|
|Cooke, Robert||Gurden, Harold||Legge-Bourke, Sir Harry|
|Cooper-Key, Sir Neill||Hall, John (Wycombe)||McAdden, Sir Stephen|
|Corfield, F. V.||Hamilton, Lord (Fermanagh)||MacArthur, Ian|
|Craddock, Sir Beresford (Spelthorne)||Hamilton, Michael (Salisbury)||McMaster, Stanley|
|Crosthwaite-Eyre, Sir Oliver||Harrison, Col. Sir Harwood (Eye)||Marples, Rt. Hn. Ernest|
|Marten, Neil||Rhys Williams, Sir Brandon||Vaughan-Morgan, Rt. Hn. Sir John|
|Maude, Angus||Ridley, Hn. Nicholas||Ward, Dame Irene|
|Maxwell-Hyslop, R. J.||Rossi, Hugh (Hornsey)||Weatherill, Bernard|
|Mills, Peter (Torrington)||Royle, Anthony||Webster, David|
|Monro, Hector||Russell, Sir Ronald||Whitelaw, Rt. Hn. William|
|More, Jasper||Scott, Nicholas||Williams, W. D. (Dudley)|
|Murton, Oscar||Sharples, Richard||Wills, Sir Gerald (Bridgwater)|
|Nabarro, Sir Gerald||Silvester, Frederick||Wilson, Geoffrey (Truro)|
|Neave, Airey||Smith, Dudley (W'wick & L'mington)||Wood, Rt. Hn. Richard|
|Onslow, Cranley||Smith, John (London & W'minster)||Worsley, Marcus|
|Osborn, John (Hallam)||Speed, Keith||Wright, Esmond|
|Osborne, Sir Cyril (Louth)||Stainton, Keith||Younger, Hn. George|
|Page, Graham (Crosby)||Tapsell, Peter|
|Peel, John||Taylor, Sir Charles (Eastbourne)||TELLERS FOR THE AYES:|
|Percival, Ian||Taylor, Frank (Moss Side)||Mr. R. W. Elliott and|
|Pym, Francis||Thatcher, Mrs. Margaret||Mr. Anthony Grant.|
|Renton, Rt. Hn. Sir David||Turton, Rt. Hn. R. H.|
|Albu, Austen||Heffer, Eric S.||Ogden, Eric|
|Archer, Peter||Hilton, W. S.||O'Malley, Brian|
|Atkins, Ronald (Preston, N.)||Hooson, Emlyn||Orbach, Maurice|
|Atkinson, Norman (Tottenham)||Horner, John||Oswald, Thomas|
|Bagier, Gordon A. T.||Houghton, Rt. Hn. Douglas||Page, Derek (King's Lynn)|
|Barnett, Joel||Howarth, Harry (Wellingborough)||Palmer, Arthur|
|Benn, Rt. Hn. Anthony Wedgwood||Howell, Denis (Small Heath)||Parkyn, Brian (Bedford)|
|Bidwell, Sydney||Howie, W.||Pentland, Norman|
|Bishop, E. S.||Hoy, James||Perry, Ernest G. (Battersea, S.)|
|Blackburn, F.||Hughes, Emrys (Ayrshire, S.)||Perry, George H. (Nottingham, S.)|
|Blenkinsop, Arthur||Hughes, Hector (Aberdeen, N.)||Price, Christopher (Perry Barr)|
|Booth, Albert||Hughes, Roy (Newport)||Price, William (Rugby)|
|Boyden, James||Hunter, Adam||Probert, Arthur|
|Braddock, Mrs. E. M.||Hynd, John||Rankin, John|
|Buchan, Norman||Jackson, Colin (B'h'se & Spenb'gh)||Rees, Merlyn|
|Carmichael, Nell||Jackson, Peter M. (High Peak)||Reynolds, G. W.|
|Chapman, Donald||Janner, Sir Barnett||Richard, Ivor|
|Coe, Denis||Jay, Rt. Hn. Douglas||Roberts, Gwilym (Bedfordehire, S.)|
|Coleman, Donald||Jeger, Mrs. Lena(H'b'n & St. P'cras, S.)||Robinson, W. O. J. (Walth'stow, E.)|
|Concannon, J. D.||Jenkins, Hugh (Putney)||Rodgers, William (Stockton)|
|Corbet, Mrs. Freda||Johnston, Russell (Inverness)||Roebuck, Roy|
|Cronin, John||Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)||Rogers, George (Kensington, N.)|
|Crossman, Rt. Hn. Richard||Jones, T. Alec (Rhondda, West)||Rowlands, E. (Cardiff, N.)|
|Dalyell, Tam||Kenyon, Clifford||Shaw, Arnold (Ilford, S.)|
|Davies, Dr. Ernest (Stretford)||Kerr, Dr. David (W'worth Central)||Sheldon, Robert|
|Davies, Ednyfed Hudson (Conway)||Lawson, George||Short, Rt. Hn. Edward (N'c'tle-u-Tyne)|
|Davies, Harold (Leek)||Leadbitter, Ted||Silkin, Rt. Hn. John (Deptford)|
|Diamond, Rt. Hn, John||Lee, John (Reading)||Silkin, Hn, S. C. (Dulwich)|
|Dickens, James||Lever, Harold (Cheetham)||Silverman, Julius (Aston)|
|Dobson, Ray||Lipton, Marcus||Small, William|
|Driberg, Tom||Lubbock, Eric||Snow, Julian|
|Dunnett, Jack||Lyons, Edward (Bradford, E.)||Spriggs, Leslie|
|Eadie, Alex||McBride, Neil||Steel, David (Roxburgh)|
|Edelman, Maurice||McCann, John||Stonehouse, John|
|Edwards, William (Merioneth)||MacColl, James||Strauss, Rt. Hn. G. R.|
|Ellis, John||Macdonald, A. H.||Swingler, Stephen|
|English, Michael||McGuire, Michael||Thomas, Rt. Hn. George|
|Ennals, David||Mackenzie, Alasdair (Ross & Crom'tY)||Tinn, James|
|Evans, Ioan L. (Birm'h'm, Yardley)||Mackie, John||Urwin, T. W.|
|Faulds, Andrew||Mackintosh, John P.||Varley, Eric G.|
|Fernyhough, E.||McMillan, Tom (Glasgow, C.)||Walker, Harold (Doncaster)|
|Finch, Harold||McNamara, J. Kevin||Wallace, George|
|Fitch, Alan (Wigan)||MacPherson, Malcolm||Watkins, Tudor (Brecon & Radnor)|
|Fitt, Gerard (Belfast, W.)||Mahon, Peter (Preston, S.)||Weitzman, David|
|Fletcher, Raymond (Ilkeston)||Mahon, Simon (Bootle)||Wellbeloved, James|
|Fletcher, Ted (Darlington)||Mallalieu, E. L. (Brigg)||Wells, William (Walsall, N.)|
|Foot, Michael (Ebbw Vale)||Mapp, Charles||Whitaker, Ben|
|Ford, Ben||Marks, Kenneth||Wilkins, W. A.|
|Forrester, John||Marquand, David||Willey, Rt. Hn. Frederick|
|Gardner, Tony||Mendelson, J. J.||Williams, Alan (Swansea, W.)|
|Garrett, W. E.||Mikardo, Ian||Williams, Alan Lee (Hornchurch)|
|Gray, Dr. Hugh (Yarmouth)||Millan, Bruce||Williams, Mrs. Shirley (Hitchin)|
|Gregory, Arnold||Miller, Dr. M. S.||Wilson, Rt. Hn. Harold (Huyton)|
|Grey, Charles (Durham)||Moonman, Eric||Wilson, William (Coventry, S.)|
|Griffiths, Rt. Hn. James (Lianelly)||Morgan, Elystan (Cardiganshire)||Winnick, David|
|Grimond, Rt. Hn. J.||Morris, Alfred (Wythenshawe)||Yates, Victor|
|Hamling, William||Morris, Charles R. (Openshaw)|
|Harrison, Walter (Wakefield)||Moyle, Roland||TELLERS FOR THE NOES:|
|Hazell, Bert||Murray, Albert||Mr. Joseph Harper and|
|Healey, Rt. Hn. Denis||Norwood, Christopher||Mr. Harry Gourlay.|
§ Main Question put and agreed to.
§ That this House accepts the conclusions of the Report of the Committee of Inquiry into Certain Contracts made with Bristol Siddeley Engines Limited.