§ 12.10 p.m.
§ Mr. Maurice Edelman (Coventry, North)
I am sorry to usher in the debates on the Christmas Adjournment with a subject as gloomy as the slump in the machine tool industry, but I do so because the matter is both grave and urgent.
It is grave and urgent not only because it affects large numbers of my own constituents who work in the most important machine tool factory in the whole of Europe but because, it affects the whole of our national engineering industry. It is grave and urgent because the machine tool industry as such is the lifeblood of industry. It is the heart and centre of the second industrial revolution, just as it was the pacemaker of the first Industrial Revolution, and so in raising this matter I am raising a subject not only of a constituency or of parochial interest but of national concern, and I hope that as a result of the debate the Minister will be able to give encouragement not only to 1513 my own constituents but to all those others who are dependent upon or involved in industry throughout the country.
The symptoms of the grave depression from which the industry is suffering are clear. In the first instance, there has been a decline in the order book of the machine tool industry. It has fallen this year, compared with last year, by about 43 per cent. The figure is not final but it is something of that order. In addition to that, Alfred Herbert Ltd. has underlined the seriousness of the matter in its company report, which shows that last year it lost over £2 million and was able to pay only a token ½ per cent. dividend in order to maintain its trustee status. Even more serious than that is the fact that the continuing redundancies mean the progressive loss of skilled men. They mean that no new apprentices, who are, in turn, the lifeblood of industry, are being taken on. So it all adds up not only to a human tragedy but to a possible national industrial tragedy. Indeed, I would say to the Under-Secretary of State that what we are now seeing in this industry, certainly what we are now feeling, reflects very much the mood and atmosphere of last year when the misfortunes of Rolls-Royce and U.C.S. came to a head.
It is perfectly true that managements in this difficult situation are making desperate efforts to remedy the situation. Not only are they sending out their salesmen to try to obtain more orders, a proper and natural thing to do, but, in the interests of their shareholders, they are trying to rationalise and slim down their companies. Although in a sense this is a logical thing to do, I believe that in practice what may well serve the interests of the shareholders when a company goes in for the rationalisation of production and of the number of its superfluous employees may ultimately be contrary to the national interest—that a great industry like the machine tool industry should go in for methods of rationalisation and even of diversification which may affect not only the machine tool industry itself but the whole of our national industry. Indeed, what has happened with redundancies is very much like putting a man suffering from a wasting disease on a starvation diet. The result is likely to be death—at a time 1514 when it is necessary to broaden the whole basis of the industry by enlarging the numbers of productive, technical workers.
What is happening is that productive and technical workers are being made redundant while managements, inevitably the last to go, are left in their place in an industry which is top heavy with managements and has not got the productive capacity to meet what might well be future opportunities if the industry were helped to recover.
I believe that in the machine tool industry, as in most other industries, the great need is for expansion, but what we have seen in the last 10 years has been the very reverse of expansion. In fact, in the last 10 years there has been a steady, progressive decline, in the number of machine tools in use. In 1961 there were 1.25 million machine tools in service. In 1971 there are only 1 million.
Worse than this shrinkage in the actual number of machine tools, which are means to improving technologies, is the fact that there has been a rising obsolescence, not to say obsoleteness, in the industry, which a few figures will illustrate. Today, four out of five British machine tools are over five years old. If we compare that with our keenest competitors, Germany and Japan, we see that in West Germany one in three machine tools are over five years old and in Japan only one out of two machine tools are over five years old. In other words, what we are now confronting is the fact that we have to face the challenges of the 21st century with designs, and sometimes actual tools, of the 19th century. Someone has rightly said that our machine tool industry is dying of old age, and unless there is some kind of refreshment, that, indeed, will be the case.
It might be argued that statistically that does not tell the whole of the story, so let us look at it from a different angle. If we look at the industry from the point of view of capacity we see that in the last five years the United Kingdom bought 200,000 machine tools. Germany bought over double that number. 480,000, and Japan nearly four times that number, 760,000. In other words, the net result which we have to face fairly and squarely, without sentimentality, is that our own 1515 workers in the engineering industry generally and certainly in the machine tool industry are being increasingly underpowered, not only absolutely but certainly in relation to our competitors.
Just to illustrate that further—this will be the end of the major statistics which I want to offer to the Minister today, and I offer them because they are relevant and illustrative of the difficulties which the industry is facing—as long ago as 1967—unfortunately, these are the last figures available—it was established that Sweden invested approximately 1,500 dollars per man; the United States 1,250 dollars per man; France 1,000 dollars per man: West Germany 810 dollars per man; and ourselves only 560 dollars per man.
We have to consider that it is in this enfeebled and debilitated situation that we are going to face the prospect of entry into the Common Market, where already there are well-established competitors, well equipped, and renewing their industry, with whom we have to cope.
I agree that protectionism is not the answer, and I am not a protectionist. Protectionism merely leads to a stagnating industry, and that is as true of the machine tool industry as of anything else. The situation since 1962 has deteriorated in terms of investment. If we look at the outcome of that deterioration we have cause for alarm. Last year 15 per cent. of our expenditure of £200 million on machine tools went on European Economic Community production, whereas we supplied only 4 per cent. of the E.E.C. total consumption of £500 million worth of machine tools. There can be only one conclusion from these figures, and it is that unless we modernise and re-equip our industry we shall face the gravest and direst consequences.
What is needed now—I urged this on the Minister yesterday when he received a deputation of trade unionists, members of all the unions concerned in the machine tool industry in Coventry, reinforced by the national organiser of the Amalgamated Engineering Union—is that the Government must give some kind of shot in the arm to the industry if it is to survive. I do not believe that I am overstating the case.
1516 At present there is a turning away, even inside the industry, from forms of investment which it has believed might not bring the results which could be achieved with diversification. Thus we have the picture of a great machine tool firm turning from machine tools to chemicals, and other firms which, instead of using their resources for production, are acting as factors and agents for foreign machine tool producers because they are able to make as much, if not more, profit in that way rather than concentrating on actual production. Those are the soft options in which many firms are engaged understandably in the interests of their shareholders but wrongly in the interests of the country and their workers, to whom they are responsible.
I hope the Government will agree to set up an ad hoc working party of trade unionists, employers and Government to look into the structure of the industry and see what can be done in the longer term, taking into account the ambiguous activities of such firms as I have mentioned, acting as agents on the one hand and producers on the other, and to inquire into whether that is the proper way of revitalising the industry.
In raising the major point in my speech I turn to a matter on which all those concerned in the machine tool industry are in agreement—Members of Parliament, managements, trade unions and their members. Everyone believes that the time has come for the Government to give some stimulus to existing machine tool firms. They need this first-aid treatment now. What I have proposed has been widely welcomed, namely, the idea that the Government should encourage the nationalised industries—and I use the word "encourage" because I know that constitutionally the Minister does not have direct responsibility for the commercial policies of such industries—to re-equip and modernise their machine tools. This is a practical thing which can be done. For the cost of two Concordes it would be possible for the Government dramatically to change the picture in the industry, to stimulate it so that the new tools are there to meet any upturn in trade. The Minister will no doubt say that in six months' or a years' time industry will be put into first gear and if we make this move now 1517 the machine tool industry will be able to meet that challenge.
I was disappointed with a reply I received from the Minister for Industry on 20th December. I had asked him what percentage approximately of machine tools operated by nationalised industries were over 10 years old. He replied:The information is not available.That seems to be a very grave dereliction on the part of either the nationalised industries or the Minister if such important information about the condition of the tools employed by the industries is not available. He went on to say, when asked about the replacement of such tools:decisions on the replacement of equipment are a matter for the commercial judgment of the industries".I do not believe that the matter can be left there. There is total unanimity in the industry such as I have never observed with any industry with which I have been concerned as a Member. This is specific action which the Government can take without any cost to themselves. It would result in a stimulation of industry, bringing new hope to those working in it.
I do not say that the transformation would take place overnight but if we look ahead six months I would hope that something could be done about this. I know that the Minister is a Latin scholar, and I would say to him quis cito dot, bis dat. Help given now is help which will not decline in value as the years go on. There are other means of helping, such as the restoration of investment grants, more regional help, and tax reserve certificates on the Swedish model for machine tool investment. Those are matter for dispute and discussion.
§ Mr. Robert Redmond (Bolton, West)
One of the things that worry me about the machine tool industry is that British industry seems to buy so many of its machines from abroad. I have never seen a British-made centrifuge or compacting machine in any of the factories I have visited. Will the hon. Gentleman take this up with the industry in his constituency?
§ Mr. Edelman
I agree with the hon. Gentleman. One of the most depressing 1518 things is to go around some Coventry factories and see machine tools from Cincinatti, Zurich and East Germany. I am sure that had there been the design drive inside the industry such machines would not be there.
In addition to this, there are some firms acting as agents for continental firms. I urge the Minister to undertake that he will consult his right hon. Friend and other members of the Government so that immediate action can be taken. While the doctors are arguing, the patient is bleeding to death. I say that advisedly, not merely as an extravagant comparison. There is something very grave happening to the machine tool industry, and I urge the Minister most strongly not to leave it too late. There are times when, even if he cannot give a promise, a word of hope can effect a magical transformation. Such a time is now, and I ask the Minister to give us that word today.
§ 12.29 p.m.
§ The Under-Secretary of State for Trade and Industry (Mr. Nicholas Ridley)
I am grateful to the hon. Member for Coventry, North (Mr. Edelman) for giving the House this opportunity to discuss, albeit briefly, this important industry. I share in the concern which he expressed, for the industry has grave problems at this time. The hon. Gentleman expressed himself in moderate and accurate terms and described a situation which has been causing the Government concern and worry for some time.
I was pleased to receive a delegation yesterday from the Coventry machine tool factories—a delegation of shop stewards and trade unionists led by the hon. Gentleman. I hope that our exchange of views was helpful and that it will lead to further discussions, which I would personally welcome. The problems of the industry cannot be solved by any single action or stroke of the pen. There is a great deal to be done in many ways as the hon. Gentleman suggested, to pull the industry out of the doldrums.
I share the hon. Gentleman's concern about those in the industry who have been made redundant. It is tragic that skilled men with years of experience should find themselves without a job—in my opinion temporarily, because I believe 1519 that matters will improve and that business will pick up; but even a temporary redundancy is not without pain, grief and hardship for those concerned.
The hon. Gentleman suggested that management was top heavy. I draw his attention to the announcement that one of the big machine tool companies, Elliott, has agreed to cut board salaries by 10 per cent. That rather belies what he says, and shows that management is acutely aware of the need to economise during the difficult period which the industry is going through.
I will make a few general points before coming to the specific points raised by the hon. Gentleman. First, this is a cyclical industry and always has been. It is usually one of the last industries to be hit in a recession. As the shortage of business works through the consumer industries and engineering, it is finally the machine tool orders which fall. The industry, therefore, is one the last to recover from a recession. It is also often one of the worst hit industries in a recession because the depth of the recession is multiplied in the capital goods end of industry by a factor which makes it all the worse. The industry has certainly had a rough time.
Secondly, it is a completely international industry. I was interested in the exchange between the hon. Gentleman and my hon. Friend the Member for Bolton, West (Mr. Redmond). Inevitably there will always be large imports, and the only answer is for us always to have large exports. There is a great degree of specialisation. There has to be and, as the years go by, there will be, more and more specialisation in particular types of machines. No country can dominate in the production of all the different types of machine tools that are marketed. There will have to be companies which are dominant in one field and which sell worldwide. This means that we need not only high engineering skill and good design but also tremendously effective market research and sales effort, apart from efficiency of production, at home. These lessons have already been learnt by the industry.
The United Kingdom trade balance in machine tools has improved startlingly over the last few years. In 1967 we had 1520 a balance of payments loss of trade in machine tools of £9 million, since when a surplus has been achieved of £12 million in 1968, £27 million in 1969, £39 million in 1970, and in the first nine months of this year £32 million. This is no mean feat in a world recession in machine tools, and I pay tribute to the industry for this achievement.
The hon. Gentleman felt that there was something to fear, because of the present condition of the industry, in our accession to the European Economic Community. Here the figures are even more dramatic. In 1967 we had a balance of payments deficit of £18 million with the countries of the Common Market, whereas in the first 10 months of this year we had a balance of payments surplus of £1.2 million. That is a remarkable turn-round, and it shows that we are competitive with Europe, although we are selling over a tariff varying between 3 per cent. and 11 per cent. and we are at home protected by a 9 per cent. tariff against Common Market machine tools. Despite these tariffs, which will of course drop by stages as the transitional period goes by, we have at present a positive balance of trade with Europe. We are, therefore, highly competitive and we have five years in which to become more competitive. I should have thought that the industry would regard this as an opportunity and not something to fear. The fact that we have spare capacity is a positive factor which will enable the industry to undertake the orders it receives in due course from our European partners.
§ Mr. Antony Buck (Colchester)
Is my hon. Friend aware that the view he has just expressed is shared by the management of the Colchester Lathe Company, which has one of the most outstanding records? The view is taken that when the 7 per cent. tariff differential against which the company is operating in Europe is removed there will be further expansion, and that confidence will be assisted, as it has been in the machine tool industry in my constituency by what has been agreed in Washington.
§ Mr. Ridley
I am sure my hon. Friend is right. I have personally visited three machine tool fairs in Europe, one on the Western side of the Iron Curtain and two on the Eastern side. I was extremely impressed by the quality of the machine tools on display there, as I believe were 1521 the customers. We have nothing about which to be ashamed or frightened in our product, but it will require sustained effort on market research and marketing to translate this into orders for the home industry.
British industry has been expanding in production and not, as the hon. Gentleman said, the reverse of expanding. But he is right that the major producers of the world have been expanding much faster than we have. I am certain that there is an expanding market for the industry if only we can take hold of it.
At home there has been this large and deep cyclical down-turn. In the first half of 1970 the average orders for the British machine tool industry were worth about £11 million per month. In the first nine months of 1971 this had fallen by half to £5½ million per month. There has been a steep dip in orders. Worse, there are so far few signs of an improvement in orders. It is possible to say that we have reached the bottom of the trough, but I do not think it is possible to say vet that we have started to climb out of it. This has reflected itself in redundancy. A year ago, in August, 1970, 8,807 men were employed in the industry in Coventry; now there are only 7,109. This is the measure of the way the recession has hit the hon. Gentleman's constituency.
The industry will be the last to benefit from the gathering reflation which is taking place, but it is worth listing some of the things which the Government have done to stimulate industrial investment as opposed to general reflation. There is now 2 per cent. off Bank Rate, which stands at 5 per cent.; 5 per cent. off corporation tax; free depreciation in the regions and generous tax allowances elsewhere; and S.E.T. has been halved. In addition, there is the accelerated payment of investment grants, which will cost £25 million. The total of tax reliefs, including personal tax relief, is about £1,100 million this year and will be £1,400 million in a full year.
These measures must have a stimulating effect on machine tool orders once they work through to that industry. I do not believe that any more could be done at present for a general stimulation of engineering as a whole and investment in particular.
I take the hon. Gentleman's point that the average age of British machine tools 1522 is too high and I would like to see it being reduced by copious ordering. But I do not think the Government can be accused of not having made available incentives, inducements and the green light generally to industry to make those investments. Therefore, I hope the industry will begin to make them now that they see the opportunity of Europe opening before them.
The hon. Gentleman's main suggestion was that we should bring forward replacement of machine tool plant in the nationalised industries and he complained about the lack of information given to him in an answer by my hon. Friend. If I now give him a considerable amount of information on this subject, he will see what scope there is in the policy he has advocated, and I fear he will realise that there is very little scope indeed.
The electricity and gas industries have practically no machine tools at all and have no requirement for them. The National Coal Board has a small use for machine tools, and its replacement orders are about £50,000 a year, which is such a small amount that it would not be significant against the size of the problem. The air corporations both have small maintenance workshops, but nearly all the machines there are under 10 years old, since they are tailored to the particular aircraft in service and such aircraft are rarely, if ever, 10 years old. So far there would appear to be no scope at all for replacing machine tools in the possession of nationalised industries.
British Railways have their own workshops, as the hon. Gentleman knows. My right hon. Friend, the Minister for Transport Industries is discussing with the railways means of bringing forward investment in those industries, and the hon. Gentleman might like to question my right hon. Friend on the situation in the railway workshops since he will appreciate that that is not the responsibility of the Secretary of State for Trade and Industry.
The requirement in British road transport for machine tools is virtually nil. The situation in the British Steel Corporation is that it has £15 million worth of machine tools, but most of the machines are under 10 years old and there is very little scope indeed for bringing forward investment there.
§ Mr. Edelman
I am obliged for this information, but in advancing the idea of replacement of machinery over 10 years old I am not putting forward the figure of ten years as a magic figure. It has been suggested that machine tools over five years old should be replaced. Since the hon. Gentleman mentioned the British Railways workshops and also the relatively substantial amount of machine tools which are owned by the British Steel Corporation, will he endeavour to give a global figure of the machine tools over five years old which might be replaced?
§ Mr. Ridley
I believe that if I were to give that figure—and I do not have that information—the hon. Gentleman would then ask me to give the figure for machine tools over 2½ years old. I believe that what I have said demonstrates that, even if everything the hon. Gentleman asks were done, the scope would be very small for improving the machine tool industry. I should like to persuade the hon. Gentleman that it is far better to operate by bringing forward major capital projects in nationalised industries which, in turn, then call for orders from the engineering industry and machine tool industry to complete the cycle.
I shall list for the hon. Gentleman some of the things which have been brought forward by the nationalised industries, the impact of which on the machine tool industry will be far greater than the replacement of machine tools in the possession of the nationalised industries themselves. The naval shipbuilding programme will have capital works amounting to £70 million, which will have a stimulating effect on the engineering sector as a whole since much of that work will go out from the yards to other engineering works. Then there is the bringing forward of the Ince Power Station in Cheshire, which will have a large effect. Then there are some other small items amounting to £100 million extra capital expenditure. There will be expenditure on distribution and transmission networks by the gas and electricity boards; capital works expenditure by the National Coal Board; replacement of rolling stock for use on Southern and Eastern Region commuter lines by British Rail. Furthermore, British Rail is to build two new ferries to replace existing ships on the Sealink services to the Isle of Wight; Scottish transport 1524 Group is considering the possibility of advancing a new ferry for use on the Clyde; and London Transport Executive will bring forward orders for new trains on the Northern Line.
In addition, there will be some £4½ million of additional defence expenditure, which would include 100 Bulldog light aircraft for the R.A.F. There is also to be a Scottish fisheries protection vessel. All those projects, either directly or indirectly, will create a far greater stimulus for demand in the machine tool industry than anything which may be done within the nationalised industries themselves.
I should like to end on a brighter note because, although the situation is serious, a new confidence is beginning to run through industry. I should like to point to several other factors which should bring more orders to the machine tool industry. Only yesterday we saw a further improvement in confidence expressed by the Association of British Chambers of Commerce, and we have also seen a recent upturn in engineering orders generally. The degree of industrial de-stocking is quite startling; there has been a great increase in car registrations and production. All this will mean more work for engineering. I would also mention the increase in the demand for consumer durables, which, again, tends to give more work to engineering which, in turn, will need to order new machine tools. The decision to go ahead with Concorde may also call for a considerable increase in the number of numerically controlled machine tools that will be needed.
There is one piece of good news I can give to the hon. Gentleman, which is that the acceleration of the retraining programme and the decision to build extra Government training centres will provide an extra 3,000 training places. It is expected that this will result in orders for 500 new machine tools worth around £500,000. This will shortly be processed.
Finally, the lifting of the United States surcharge and the realignment of parities gives us a great advantage in the United States, as opposed to the situation which prevailed immediately hitherto, and also in Germany and Japan. Therefore, the opportunities for industry in that respect are very great. Then we have opening up before us the Common Market. The opportunities could not be greater. There 1525 are no restrictions or hindrances in the way of this industry. Therefore, I hope that the industry will take these opportunities, that it will develop, expand and improve marketing research and marketing design and that productivity will flourish.
The hon. Gentleman suggested an ad hoc working party to discuss this matter. I never believe that it is worth asking about the fora in which we discuss matters since we are always happy to discuss these things and to help in any way we can. I would remind the hon. Gentleman that there is a Little Neddy which deals with the machine tool industry which is an ideal forum where trades unions, employers and Government assemble to discuss these matters. As I said to the hon. Gentleman and to the delegation which met me yesterday, my Department will be only too happy to consider any other suggestions the hon. Gentleman would like to make so that we may discuss them with the various parties. I do not think that anything should stand in the way of greater communication between all the parties concerned.
I conclude by hoping that the machine tool industry will have a happier year than it has had in 1971. I wish all success to those who have the great responsibility of bringing about recovery and expansion in the industry.