§ 12.59 p.m.
§ Mr. J. M. L. Prior (Lowestoft)
As the Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food has just concluded, by wishing his colleagues a happy Christmas, may I begin by wishing a happy Christmas to yourself, Mr. Speaker, and to the Joint Parliamentary Secretary to the Ministry of Technology, who has to reply to this debate. I would also like to express my appreciation of this opportunity to speak. It is not an opportunity that I can take very often, and probably it is a good thing for me that the House is as empty as it is.
I also thank the Joint Parliamentary Secretary for coming down to reply to this debate at short notice. As he knows, 1748 I had planned to raise another matter. I wanted to raise two matters. The other fell through, luckily for me, and that is why I am raising this problem.
Lowestoft is one of those areas which, before the war, was very depressed but since the war has been fortunate in attracting new industries and employment. This is largely due to the food industry and its effect on agriculture and fishing. But the amenities and infrastructure of the town and area are still very bad. It takes many years of full employment to put right the neglect of the past and this is very true of the sewerage, roads, municipal buildings and cultural institutions of the area. However, there are hopeful signs now that improvements are beginning to happen and that the past neglect is being put right. For this process to continue, both time and continuing prosperity are necessary. This is what forms the background to this short debate.
I daresay that the same story could be repeated all over the country—for example, in North-East Lancashire, where I was the week before last, on Humberside and anywhere in East Anglia. These areas have become known as the intermediate areas and are, unfortunately in some respects, termed colloquially the "grey areas". There are two aspects with which I want to deal—the local problem and the national problem, although they are interconnected, since one will not be solved without the other.
In all the discussions and questions and deputations of the last few months on the problem of the Lowestoft shipyards, the answer which I have received has always been the same: "We have a national problem and have set up the Hunt Committee to deal with it." I believe—this is no reflection on those who serve on the Hunt Committee, but it is on us here and particularly on the Government—that committees have been and are being used by Governments as an excuse for putting off decisions or removing from the Government for a period a direct responsibility which they alone can shoulder.
It is this attitude as much as anything else which has produced the cynicism and frustration and feeling of remoteness which colours the opinions of so many people in this nation and 1749 condemns the activities of politicians. I believe that the time has come when Governments should stop setting up committees and should make their own decisions. Therefore, I do not want the Parliamentary Secretary to hide behind the Hunt Report, although, since it is sitting, I should like to know when it will report. We were told recently that it would report in the autumn and then heard that it would be a little later, before Christmas. When will it report?
I turn now to the local problem, which is the besetting problem of the Lowestoft shipyards, as well as of a number of others which also lie outside development areas—particularly Humberside, Leith, Vosper Thorneycroft and Bristol as well. Lowestoft, of course, is my chief concern. A total of 1,500 people are employed directly in the shipyards there and many more indirectly. These 1,500 represent just under 20 per cent. of total manufacturing employment. There are very few other opportunities in the area for heavy industry, and it is remarkable that, since 1951, the number of people employed in the yards has gone up from 500 to 1,500. Of course, also, the amount of sub-contracting done in the yards has meant that the increase in labour is even greater.
As for capital investment, one yard, Richards, has invested £825,000 since 1957 and the other, bigger yard, Brooke Marine, £1.4 million since 1953. These are two modern yards, therefore, and their growth potential has been demonstrated, as has their ability to obtain orders for a variety of vessels from all parts of the world.
The demand for vessels which can be built at Lowestoft exists here and overseas. It is open in most cases to any shipyard which cares to tender, but in others only the shipyards of Lowestoft, which have developed their markets by perseverance and personal contact over many years, could meet it. Should these shipyards cease to operate, those markets would be lost to Britain.
Shipbuilding in Lowestoft can continue effectively only with a fair balance between home and export orders. Brooke Marine has averaged 60 per cent. for export over the last 20 years and, at the moment, its total production is going for export. Vosper and Brooke Marine, 1750 significantly, were the only shipyards to my knowledge—certainly of their size, although I believe on a wider basis also—to be awarded the Queen's Award to Industry last year. It is also significant that both lie outside development areas.
I turn now to the position of these yards vis-à -vis their competitors in development areas. Compared with its competitors, Brooke Marine loses the regional employment premium of 30s. per week per man which amounts, since it averages 1,250 employees, to £97,500 a year. It also loses the S.E.T. refund of 7s. 6d. per week, which amounts to another £24,875, and since additional apprentices do not qualify for the £100 allowance applicable in development areas, there is a difference of another £5,000. Thus, in any one year, it is disadvantaged to a total of £126,875. In addition, there are special grants for trainees in development areas, which were given in 1968 and firms outside development areas get less money in investment grants, which, in this case, was £20,000 in 1968. Board of Trade building grants add another £4,000 and there are the sub-contractors' costs, which amounted for Brooke Marine to 5 per cent. of £400,000, or £20,000.
In all, therefore, the difference totals £193,000, at a very conservative estimate. It is equal in terms of shipbuilding to an increase in labour costs of not less than 12½ per cent. and probably nearer 18 per cent. It is a discriminatory disadvantage equivalent to 4.4 per cent. on the selling price of a ship, which means, in practice, that a ship built outside a development area will cost 3 per cent. to 5 per cent. more than one built inside.
This has led to a loss of orders. When I saw the Minister in the spring with a deputation, he asked me for examples of lost orders and at that time I could not provide them. The regional employment premium scheme had not been in operation for very long and it was not apparent at the time where shipyards had actually lost orders.
Unfortunately, there is now proof that some orders have been lost. Only the other day I heard that Brooke Marine had lost an order from Iceland for a research vessel to a German yard because it was £70,000 over the mark in an order of nearly £1½ million. The 1751 five Humberside ship builders have lost nine orders for a total of 14 vessels worth £4½ million. Brooke Marine beat three German and two Norwegian competitors, for one contract but lost to another German yard by a narrow margin. Richards recently lost two contracts to West German yards and three contracts to development area shipbuilders. Vosper-Thorneycroft recently lost an important overseas order to a development area yard and is finding it increasingly difficult to remain competitive. Charles Hill of Bristol, which has been building ships since the 18th century, has had to close its shipbuilding activities.
The effects of discrimination against the yards outside development districts are undoubtedly beginning to show up. It is no answer to say that devaluation has helped. It may have helped the shipbuilding industry as a whole, but it has made no difference to yards outside development districts from the point of view of the competition of one yard against another.
I want to stress the seriousness of the situation without giving rise to anxiety or rumour. It could be that unless Brooke Marine receives additional orders very soon it will have to pay off many men in the middle of next year. I must stress this as we are shortly to face a situation which management and unions have been warning the Government about for a long time. I have avoided publicity in the House until now because I hoped that we should reach an agreement without it, but the time has come when the stark facts must be made known.
I now turn to a possible solution, but qualify my suggestions by saying that the right answer is a change in Government policy towards development areas. The latest estimate of expenditure on them is £255 million, of which the regional employment premium is £100 million and the Selective Employment Tax refund £25 million. The scale of help is so indiscriminate, and the areas so great, that it is impossible not to cause grave distortions in the economic pattern of the regions. The disparity between development and intermediate areas is so great that it is bound to damage industry in the latter. The present policy 1752 is in danger of spoon-feeding declining and inefficient industry in development areas and wiping out efficient industry in others. I cannot see the justification for paying a premium for everyone employed in manufacturing industry in the development districts, regardless of how long they have worked in the area and whether they are in declining or expanding industries. This is not the way to encourage productivity. Moreover, industry in the intermediate areas has to help, through its taxation, its competitors in the development districts. The size of the development areas reacts against the intermediate areas, and we are merely swapping one problem for another.
I do not believe that the full implication of the present policy has been thought through. If the Lowestoft shipyards are closed down, with all that that means, the district will become a depressed area and, presumably, a development area. What a waste of resources and manpower that would mean! Yet that could be the result of the Government's policy and their failure to modify it. The proper remedy is a change in the policy, involving the abolition of Selective Employment Tax, the phasing out of the regional employment premium, and the contraction of the development areas into growth points, as they used to be. In other words, we should have a policy that concentrates on improving the infrastructure of the regions, removes the discrimination between intermediate and development areas and saves a great deal of cash, which I and my party believe is not being put to the best use.
Since I presume that the Government will not do that, I must ask them to do one of the following things. There are three possible remedies for the immediate problems of the Lowestoft shipbuilding industry. The first is to make the regional employment premium, Selective Employment Tax refund, apprentice grants and investment grant payments available to the shipbuilding industry as a whole. The second is to discount in Government contracts differentials cause by R.E.P., S.E.T. refund and so on when assessing tenders. The third is to pay a lump sum encouragement allowance to Lowestoft shipbuilders equivalent to 4.4 per cent. 1753 of the value of orders obtained. The payment could be made by instalment during the progress of the contract. I can see no other way in which these shipyards can be given the opportunity to compete on equal terms.
I hope that I shall not be told once again that we must wait for the Hunt Committee report. The problems are well known and it is obvious that the solution can be found only by easing the discrimination between development areas and grey areas, perhaps by less Government cash for one or more Government cash for the other. That is the choice the Government must make. They must make the decision. They cannot wait for the Hunt Committee to report, and then sit on it for months. It is essential that action be taken at once, and I hope that the Minister can say today what the Government are prepared to do.
It cannot be in the interests of the country, my constituency or the shipbuilding industry outside the development districts that the policy should be allowed to continue. It can only result in these yards losing orders and going out of business. If it does not, the shipyards in development districts are not doing the job they should be doing, because there should not be another order outside the development districts. If they are to have this constant advantage, they should win every time, which is tantamount to saying that the Government do not wish any shipyards to continue outside development districts. I cannot believe that that is Government policy or that it is the right policy. It is very damaging to the morale of the shipbuilding industry in the areas I have mentioned. It is very damaging to the interests of my constituency and constituents. I hope that the Government will change their policy in one of the ways I have suggested.
§ 1.20 p.m.
§ The Joint Parliamentary Secretary to the Ministry of Technology (Mr. Gerry Fowler)
I am glad of this opportunity to debate this subject, albeit in a poorly attended House and when I am suffering from both a cold and cough. I therefore apologise to the hon. Member for Lowestoft (Mr. Prior) for my voice. This subject has been aired at some length in the Press and at a variety of meetings, 1754 some of them involving Ministers, during the last year. It is as well that we can set the record straight to some degree today.
The hon. Gentleman concluded his remarks with what was, in effect, an impassioned attack on development area policy. In essence, this attack was not restricted to the problem of shipbuilding either inside or outside development areas. Some of the remarks in the latter part of his speech were applicable to any industry.
If it be argued that no shipyard—this seemed to be the tenor of his final argument—outside a development area can hope to compete and that the end result of Government policy must be that all orders should go to shipyards in development areas, then the same argument could equally apply to other industries. After all, the shipbuilding industry buys out a large part of the material it uses and inevitably, therefore, labour costs do not play as high a part in shipbuilding as in some other industries. Thus, if one is to argue the matter from the point of view of, say, R.E.P., it could apply more forcefully to industries other than shipbuilding.
This is where I am in some difficulty, because the hon. Gentleman is really asking me to anticipate the Hunt Report. Perhaps a year ago he might have been justified in saying, "The Government should do something in anticipation of Hunt." But it becomes more difficult to make that argument as we get nearer to the expected date of publication of the Hunt Report. The hon. Gentleman knows as well as I that we might expect the report to be available in the early part of next year. I would not forecast a precise date. It is not my Departmental responsibility to do so. We expect it in the not too distant future. That is something that we could not have said a year ago.
If the right hon. Gentleman asks why the Government insist on waiting for the Hunt Report and insist on setting up committees, there is a good answer. If he thinks that doing these things is merely an excuse for putting off a decision, he is wrong. The issue which the Hunt Committee has been and still is examining is not only a complex one but extends over many areas and industries. Perhaps the hon. Gentleman 1755 is saying that the Government should make up their mind about what they intend to do without taking outside advice, not only about shipbuilding outside development areas, but about, for example, North-East Lancashire, the cotton areas of Lancashire, the areas of the Yorkshire and Humberside region, which also have industrial problems rather special to them, and a host of other problems.
Perhaps the hon. Gentleman would argue that the Government should make up their mind about these things in a way which related the solution of each problem to the solution of the others, along with the general development area policy. But there have been many occasions when Governments of whatever political complexion have thought it wise to seek advice from people outside the governmental machine, not least industrialists, about what should be done in such complex matters as these.
If we had done precisely the opposite and had announced our decisions piecemeal, each decision emanating solely from the Government machine, not only the hon. Gentleman but some of his hon. Friends would have been criticising us on two counts. The first would have been that the decisions were unacceptable, not least because one could not expect unbiased decisions. After all, they would not have been based on sound outside advice, and so on. The second would have been complaints that we had mounted a massive exercise inside the Government with the result of increasing yet again the number of civil servants. Those are two of the arguments that the hon. Gentleman and his hon. Friends would have used had we operated in a different way and not sought outside advice.
There is an advantage in getting this job done by an unbiased panel of people who have wide experience of industry and other walks of life. The Hunt Committee will be reporting shortly and I hope that that report will provide a solution not only to the problem which the hon. Gentleman has raised but to many others.
The hon. Member for Lowestoft mentioned that the Charles Hill yard in Bristol had gone out of shipbuilding. In the fifteen months during which I have 1756 been connected in a Ministerial capacity with the shipbuilding industry I have faced three difficulties of this kind. One was the Charles Hill yard, but that was the least of those difficulties. The major difficulty was the closure of Furness, a large yard inside a development area. We have just been faced with the problem posed by the impending closure—I hope that we can avert it; no solution has yet arisen—of the Burntisland yard, which is also in a development area. This shipyard is not a small one within the meaning that is normally given to that term, and it was one of the shipyards to be included for consideration by the Geddes Committee.
It is the second of those two major problems with which we have been faced—inside and not outside development areas—and which suggests that the problem to which the hon. Gentleman has drawn attention is not solely restricted to the non-development area yards. It might be helpful, therefore, if I went into some of the background to the matter. One important fact follows from the class of ship built by most of the yards outside development areas. Most of them build relatively small ships such as fishing vessels, harbour launches, tugs and the occasional yacht. We are inclined to think that there is a world-wide boom in orders for all kinds of ships. One might wonder, therefore, why some of the smaller yards seem not to be participating in this boom. One might go on to argue that the responsibility must lie with Government policy, particularly since ships are being ordered throughout the world.
The world demand for new tonnage has been at a high level for the past three years or so and it is naturally disappointing that the small yards have not been able to lengthen their order books. Indeed, in some cases order books have shortened. The increased demand for tonnage is essentially for large ships. This is the explanation for the boom in world ordering. This has arisen for a variety of factors, not least from the escalation in the size of tankers, a trend which stemmed, certainly in part, from the Suez Canal closure.
There is also the trend towards container ships and the need for ever larger bulk carriers, almost following the pattern of the escalation in the size of tankers.
1757 This trend has applied to O.B.O.-carriers as well as conventional bulk carriers, and particularly to the new type of gas and chemical carriers. There is no sign of a similar high level of demand for the sort of ship which is the characteristic product of the small yards outside development areas.
The lack of orders in smaller yards outside development areas compared with the order books of yards building bigger ships tends to be attributed wholly to the effect of the Government's regional policies when, in large measure, it is due to the state of the market and the many small yards competing for available business. I do not deny that there are difficulties in Lowestoft, but the hon. Gentleman made out a case which, in essence, was meant to apply to all small yards outside development areas.
I draw attention to the fact that, taken as a whole, the Humberside yards have, in the 11 months from January to November of this year, taken rather more orders, expressed in gross tonnage terms, than they did in either 1967 or 1966 and, as the hon. Gentleman knows, 1966 was a year in which no R.E.P. was paid, and in 1967 it was paid only in the latter part of the year. That is significant. It might suggest that there is something attributable peculiarly to the Lowestoft situation rather than to Government policy as it affects non-development area yards as a whole.
Another result of the specialisation of yards outside development areas in various types of small vessels is that they are inevitably more vulnerable to changes and fluctuations in the size and pattern of demand. In the past, the least competitive yards have from time to time found themselves in something of a plight, to use the word used by the hon. Gentleman in opening this debate. But now—and this is really the change in the situation, I suspect—meeting with difficulties not altogether dissimilar from those they faced in the past, there is a natural tendency to exaggerate the effects of the lack of development area benefits. I call it "a natural tendency." I do not hold any resentment about it, and I do not blame anyone for having it. Nevertheless, it is an exaggeration.
The hon. Gentleman gave certain figures, and suggested that the effect on the cost of a ship was as high as 4.4 per 1758 cent., and might, in the final price, be expressed as being between 3 per cent. and 5 per cent. I cannot make these figures add up as an average. I am prepared to concede that on certain types of ships the effect is higher than on others, but my own calculations indicate that the effect is about 2 per cent. or not much above it, on the total cost of the ship.
I am sure that the hon. Gentleman will accept from me that the scope for improved efficiency in the small yards, as well as in the big yards, must considerably exceed that 2 per cent.; that is to say, that there is another solution to the problem. Although the proposals in the Geddes Report for grouping and re-organisation were not directed to the small yards, as I concede, and may not be suitable in detail, there can be little doubt, and I have expressed this view on many occasions in various fora, that considerable benefits could be obtained by a much closer degree of co-operation and, in some cases, by integration into groups.
The Government carefully prepared the Shipbuilding Industry Act in such a way that it should not be limited to the yards covered by the Geddes Report and thus made assistance by the Shipbuilding Industry Board available for the grouping of small yards. Hitherto, the response has not been exciting. We had the Robb-Caledon merger—one firm being inside and the other outside a development area—and we have also seen something of a grouping of small yards in another area with the creation of the Swan Hunter small ship division. It is interesting to note that that grouping included the Goole yard. Here I pay tribute to the part played by my hon. Friend the Member for Goole (Mr. George Jeger) in the campaign to get a better deal, as he sees it, for a non-development area.
The Goole yard is now part of the Swan Hunter small ship division, the bulk of which is located in development areas. Therefore, I stress that S.I.B. assistance is available to the smaller yards inside or outside the development areas, and if more of them would prepare plans which they could submit to the S.I.B., whether for total merger or for integration of certain facilities, they might be able to improve their competitive position, not just against other 1759 British yards, but against international competition.
I should like now to refer to the examples which the hon. Gentleman adduced in support of his case. He suggested that Brooke Marine had lost an order for an Icelandic ship to a German yard by £70,000 when the tender price was about £1½ million. His argument seemed to be that this was clearly attributable to lack of development area benefit. He spoke of another order lost to a German yard, despite the fact that Brooke Marine had beaten off the competition of a German and three Norwegian yards.
The interesting thing about this argument is that in both cases the competition was essentially foreign, and the order went to the foreign yard. The hon. Gentleman did not suggest that in those two cases there was unfair competition from other British yards inside the development areas. He suggested that if the yards in Lowestoft had had the same sort of help from the Government as obtains in development areas they might have succeeded in gaining those contracts. If that were the burden of his argument, I do not question it but, if that is what he asks for, his argument is that the industry as a whole, irrespective of regional location, should receive a general subsidy from the Government. Otherwise, the argument does not stand up.
He suggests that if the sort of benefit that is at present received by development area yards were extended to yards wherever they were, those yards would be able more readily to gain orders against foreign competition. That, I do not for a second deny—
§ Mr. Prior
No, that is not the whole argument. If we have a firm with a home demand for shipping, as well as an export demand, and if we can keep the yard full, we can cut our overheads. The fact of the matter is that although these yards are not competing directly with shipyards inside development areas, they have to take into consideration each time the fact that their overheads are that much more. This places them at a disadvantage compared with development area yards. I am not suggesting that the whole industry should have subsidy—I do not believe that this is the right thing 1760 for the industry—but I think that the argument that it is discrimination between what is inside and what is outside development areas still holds, even when dealing with foreign orders.
§ Mr. Fowler
I am sure that the hon. Gentleman would never suggest, nor would any hon. Member who is perplexed about the matter, that the proper solution is to abolish all the aid which flows from various Governmental policies to shipyards and to all other manufacturing establishments inside development areas. If that were the burden of his argument, the hon. Gentleman would be saying that all should share the same distress and the same misery. He would be saying, "Let us ensure that no yard will receive these benefits." That, on his argument—and I am not sure that I entirely accept this—would seem to demonstrate that only by virtue of receipt of these benefits can yards compete with foreign yards. If we were to abolish the benefits, R.E.P. and investment grant differentials, it would in no whit improve the position of yards in Lowestoft or Humberside. It would merely produce a commonalty of misery, if his argument is accepted, between all yards, whatever their geographical location.
There have been many suggestions for what can only be described as a general subsidy to increase the shipbuilding relief from the present 2 per cent., where it is a genuine relief for indirect taxes paid by the industry, to a level where it will match R.E.P. The argument he advanced today for giving to non-development area yards a subsidy of 4.4 per cent. on the price of a ship, is a plea for a subsidy for the industry which would be in direct contravention of all our international obligations. That is the reason why we could not accept such a suggestion.
The world-wide shipbuilding industry is a jungle of subsidies and aids. The objective of this country in international dealings has consistently been to clear away some of this jungle and not to increase the density of the foliage. It would be a profound mistake for us to act in breach of our international obligations by offering any kind of general subsidy.
§ Mr. Prior
I do not take that point at all. So much of the shipbuilding industry lies within development districts 1761 that the position is grossly discriminatory against those which lie outside. We are pretty well breaking an international agreement by giving so much aid to the industry as it is. I do not see what difference my suggestion would make.
§ Mr. Fowler
I cannot accept that argument for a second—neither can the Government. The aid that we are giving to the industry by virtue of R.E.P. or investment grants stems entirely from our desire to seek to help underdeveloped and backward regions. In shipbuilding and other such industries the Government's regional policies provide help for development area firms. But in shipbuilding there is no significant evidence of a general diversion of orders to development area yards.
The hon. Member adduced one or two examples of orders having been lost by non-development area yards and gained by development area yards. It is easy to bring forward such examples, because multiple tendering is the pattern in shipbuilding. It is very easy to produce a list of orders lost to other areas, whatever their geographical location, which will prove to be a far longer list than the list of orders gained by any one yard. That is a necessary consequence of the system of multiple tendering. That evidence is very dubious, and I am not sure that it should be admitted. We should consider the level of ordering, and I suggest that although Lowestoft may be suffering from a dearth of orders, that is not the case with non-development area yards in general.
My right hon. Friend the Minister of Technology has promised to review the position in shipbuilding as part of the Government's consideration of the Hunt Report. At that stage it will be possible to consider the contribution which shipyards in particular localities make to the local economy and to assess their importance to areas in which the growth rate gives rise to concern. I give the hon. Member the assurance that that will be done.
A case for emergency action in advance of the Report can arise only in respect of an individual yard in a certain area. I am not convinced, and neither is my right hon. Friend, that where the situation is serious it can be fairly attributed, except in small part, to the lack of development area benefits, or that 1762 those benefits would solve the problem of the individual yard. In a debate of this kind there is a danger of exacerbating the very problem that we are discussing by suggesting that yards outside the development areas are facing closure. Nothing could be more calculated to reduce their ability to obtain the kind of work they need and to retain the best managers and workers on whom their long-term future may depend.
There is a continuing place in a thriving British economy and a thriving British shipbuilding industry—and the picture of British shipbuilding industry as a whole is radically different from the picture 18 months or two years ago; there has been a radical transformation of the industry—for the efficient and small shipyard outside as well as inside a development area. Firms who can integrate or form larger groupings may have the best chance of success and growth. The anxiety of many firms about future development area benefits is fully understandable, but I nevertheless hope that their attention will not be so concentrated on this single question, which the Government have promised to review, that they talk themselves into failure by neglecting the fundamental and long-term problem of improving the organisation and efficiency of this sector of the shipbuilding industry.