§ 11.5 a.m.
§ Mr. William Rodgers (Stockton-on-Tees)
On a point of order. To ensure the smooth course of these proceedings, Mr. Speaker, it might be helpful if at the outset, I were to express the hope that it will be convenient for the Minister of Aviation Supply during the course of this debate to answer the vitally important questions of principle which are raised in The Times this morning. In the event of the right hon. Gentleman not feeling able to make such a statement, we very much hope that either the Attorney-General or the Solicitor-General will do so.
§ Mr. Speaker
It would be permissible for the hon. Gentleman to raise that point as an interjection during the speech of his hon. Friend the Member for Derby, North (Mr. Whitehead), but it is not a point of order for me.
§ Mr. Tam Dalyell (West Lothian)
On a point of interjection—[Laughter.] Are you aware, so that we may have a coherent debate—
§ Mr. Speaker
Order. As I was endeavouring to explain, the hon. Gentleman can raise this point only if his hon. Friend is willing to give way to him.
§ Mr. Dalyell
For the purpose of the coherence of the debate, and especially in view of the news revealed in The Times this morning, it would be of great convenience to the House if the Minister would make a statement after my hon. 1080 Friend the Member for Derby, North (Mr. Whitehead) has made his speech. That would help many hon. Members who wish to take part in this debate.
§ Mr. Whitehead
I endorse what my hon. Friends have said in calling attention to the circumstances of the bankruptcy of Rolls-Royce Ltd. and, therefore, beg to move,That this House, noting the grave consequences in Derby and throughout the country of the bankruptcy of Rolls-Royce Limited, views with concern both the position of sub-contracting firms and the worsening unemployment situation; and urges Her Majesty's Government immediately to provide additional employment opportunities for the successor companies to Rolls-Royce Limited and their sub-contractors, and to assure such sub-contractors that they may legally continue trading.I make no apology for bringing this matter once again to the attention of the House, particularly today in view of what we read in the Press about certain undertakings which may or may not have been given in the matter of Rolls-Royce Ltd.
I am gratified to see that so many hon. Members who share my concern are present today. My hon. Friend the Member for Derby, South (Mr. Walter Johnson) and I face this problem in our constituencies in an acute form, though I know that it is faced with varying degrees of severity in dozens, perhaps hundreds, of constituencies throughout the country.
I am glad to see the hon. Member for Derbyshire, West (Mr. Scott-Hopkins), who is my constituency Member, in his place. His presence is another indication that this is a matter for the county as well as the town of Derby. It is a matter for country areas throughout the United Kingdom as well as for the towns, and in the area of Derbyshire where we live the outer ripples of this sad affair are having consequences throughout the smaller communities, just as they are within Derby itself.
The most indolent of my predecessors, Lord James Cavendish, was for 41 years the hon. Member for Derby, though he rose only once to address this House. He did so to suggest that the directors of the South Sea Company should be bailed out. There are two precedents which I do not want to follow; I will not follow him either in his sloth or in his addiction to the affairs of dubious 1081 companies. I say this advisedly because the Rolls-Royce company has been presented in certain quarters since the bankruptcy was forced on it on 4th February last—there has been an immense amount of odium and criticism—as a kind of South Sea Bubble, grossly inflated, which had to be burst. It was as though its whole reputation and engineering skills were themselves now a matter of disrepute and, somehow, a fraud.
It is advisable that we should say—certainly my hon. Friends and many hon. Gentlemen opposite will share this view —that the Rolls-Royce company has now, as it had on 3rd February, many distinguished engineers and many fine projects and that the company has contributed, and will continue to contribute, to engineering standards of excellence in this country.
Rolls-Royce was last debated in another place 11 days ago. Exactly the same time-span has elapsed, therefore, between that debate and this. The same time has elapsed between the day on which Lord Cole met the Rolls-Royce Board and the day on which the Minister of Aviation Supply appeared in the House on 4th February to announce that Rolls-Royce was bankrupt.
I wish I could say that the same spectacular flurry of activity which has characterised the last 11 days had characterised the 11 days between Lord Cole's meeting Rolls-Royce and the announcement of the bankruptcy. I wish that I could say that the inquiries instituted and carried out speedily and, I think, efficiently by both the assessors and the Civil Service group which was commissioned to find out the economic and social consequences of the bankruptcy had been carried out before that bankruptcy took place and not afterwards. Had that been the case, we might not now be facing the serious situation which is before us.
Many questions about this affair remain unanswered, and I refer not merely to those points mentioned in The Times and other newspapers this morning. It is for this reason that my hon. Friends want a Select Committee to probe these events. My constituents and, I suspect, the constituents of most hon. Members want to know the full facts. Why did it happen? They are entitled to know. 1082 This is why we pressed the Leader of the House to agree to the establishment of a Select Committee to go into the affairs of Rolls-Royce—to examine the precise situation —to find out exactly what brought about the bankruptcy.
We are not afraid of what might come out of such an inquiry. The Early Day Motion in the name of my right hon. Friend the Leader of the Opposition was signed by my right hon. Friend the Member for Bristol, South-East (Mr. Benn), who was, of course, responsible for the affairs of the Ministry of Technology at the time when the original RB211 contract was signed. We want the facts to come out.
§ Mr. Whitehead
The hon. Gentleman and his hon. Friend the Member for Woking (Mr. Onslow) may be shaken when the facts come out, if a Select Committee inquiry takes place.
In the debate on 11th February the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) raised a number of pertinent questions which received no answers. Like many hon. Members, I sat right through that debate in the hope that answers would be given. On that occasion the hon. Gentleman said:I propose to finish with a number of questions which I would like to put directly to the Minister because I believe they should be answered. Did either Lockheed or the airlines at any stage ever talk of invoking penalties? My information is they did not. What advice did the Government take on the operation of New York law? Were Rolls-Royce's American lawyers consulted at any stage? My information is that they were not. Was there a cash flow problem? Had the banks warned either the Government or Rolls-Royce that its overdraft limit had been exceeded or was likely to be exceeded? My information is that they were not."—[OFFICIAL REPORT, 11th February, 1971; Vol. 811, c. 872.]I cannot recall any satisfactory answers being given to those questions in the interim.
Nor were we told why it was that nobody seemed able to find Mr. Houghton of Lockheed between 26th January and 3rd February—that is, until somebody managed to get hold of his telephone number. What an extraordinary state of affairs. We have not been told 1083 what conversations took place immediately after 26th January between members of the then Rolls-Royce Board and others concerned.
We would like to know more about what went on when Mr. Hugh Conway went to Germany on 29th January to discuss the M45 engine project. We know that he was seeking additional financial arrangements to help with that project, which was in difficulty, but we do not know what the Germans said or about any of the conversations relating to the project. Nor do we know about other talks concerning Rolls-Royce Limited which took place between the British and German Governments. We would like to know more about that.
We would clearly also like to know, relating to the point raised by the hon. Member for Langstone, exactly what discussions and briefings took place regarding the situation under American law. What, for example, was the advice given by the Law Officers to the Cabinet about the question of the assets of Rolls-Royce in the United States? This is a delicate matter. I refer, of course, to the question of patents which stand in the name of Rolls-Royce. There are 200 or more of these. It has been suggested that they might possibly be seized under American law for the partial satisfaction of American creditors. This is a serious issue and we question whether this was, or at least should have been, gone into thoroughly before the bankruptcy occurred.
I will refer only briefly to the reports in The Times today. They tell of great unease in the City about the kind of undertakings which the company believed it had received and which the firm's City backers thought it had received from the Government in regard to the advance of £42 million. In a leader article today The Times states:The best legal opinion in the City seems to hold that there was not a prior condition and that the Government was, so far as that clause went, unconditionally obliged to advance the money. This was certainly the view of the accepting houses, who were mainly merchant banks with some other banks, when they agreed to renew their £18 million of outstanding finance to Rolls-Royce. That renewal was of course unconditional and many of them say that they might not have agreed to it if the contract of November 9 had not shown or 1084 appeared to show that the Government was in the same boat with them.On November 11 Mr. Corfield referred to this financing in the House of Commons. His words implied that the £42 million was conditional on a favourable report from Cooper Brothers and it has subsequently been the Government's view that this was a condititonal offer of finance. Whatever the contract said the Government behaved as if it were free to pay or not to pay, according to the character of the Cooper Brothers report.There are also doubts about the advice that the Law Officers gave to the effect that continued Government finance for Rolls-Royce in an insolvent position might create a situation in which the Government was viable for all of Rolls-Royce's obligations, including the penalty clauses to Lockheed. If at the crucial period Rolls-Royce had tried to renegotiate the RB211 contract, knowing that £60 million of cash was still available to the country, then a successful commercial outcome might have been completed.It is too late for that. Nevertheless, there are important questions to be asked. It is important to determine whether Mr. Corfield's statement of November 11 was accurate or misleading at the time he made it. There is no question that it was not made in good faith, but there seems a real possibility that it was mistaken.I echo that. I have never doubted the good faith of the Minister of Aviation Supply in this matter and in all the sad affairs with which he has been involved. He has a heavy responsibility to bear and we have been impressed at the concern which he has shown over this issue at all times, as well as over the consequences which the country as well as Rolls-Royce now face.
The Government know that there is a widespread belief, particularly in my constituency and in the constituency of my hon. Friend the Member for Derby, South, that the Government decided to kill off the RB211 project and go for an exemplary bankruptcy and only later became appraised of the full consequences. The ideological reasons, if they were ideological, should now be gone into in more detail. The Prime Minister's urgent desire to prove that the nineteenth century is alive and well has clearly gone too far on this occasion.
My right hon. Friend the Leader of the Opposition said in the debate on public expenditure on 5th November last that he could tell the Prime Minister and hon. Gentlemen opposite where their policies would lead, and he said:Is he prepared to face up to the bankruptcy of Rolls-Royce or British Leyland, or will he not find that he himself, not I.R.C. 1085 because it will have gone, will have to find the money? Perhaps he has already made up his mind that come what may, whoever may he involved, the Government will harden its heart." —[OFFICIAL REPORT, 5th November, 1970; Vol. 805, c. 1292.]Clearly the Government did, and we are now seeing the full consequences. Only now are reports coming forward. We understand from the Press that the Cabinet is only now receiving realistic reports about the level of the involvement of other firms and about unemployment.
When, on 4th February, my hon. Friend the Member for Derby, South suggested that 30,000 jobs could be at stake, he was told that that was gross exaggeration and that it was scandalous even to make that sort of suggestion. We are now told that the papers presented to the Cabinet contain the figure of 40,000—and we believe that even that may be an under-estimate.
After all the agonising reappraisals which have been going on and which clearly came to some sort of conclusion yesterday—I hope that we will hear from the right hon. Gentleman today precisely what the Government propose to do—we need to know exactly how the Government intend to extricate themselves. What exactly was decided about the feasibility of the RB211 project? Time for this project is very short. A great deal of time, as well as a great deal of confidence and a great deal of good will, has been lost.
Sir William Cook's assessors have been very courteous and thorough. Everyone in Derby and at Rolls-Royce there would wish me to say that. The assessors have done a difficult job very quickly and I think very well.
What we want to know from the Government today is this. How far does the assessors' general estimate of the performance of the RB211 agree with, for example, the current issue of Flight International, which claims that the RB211 will be up to its performance guarantees for weight, thrust and fuel consumption by 1972 and will be running then not only 40 per cent. cooler but also more economically and more quietly, I think to the level of three perceived noise decibels, than those rivals which were rather boosted in the right hon. Gentleman's earlier statements?
Mr. Willis Hawkins of Lockheed has gone on record this week as saying that 1086 an engine of acceptable thrust could be in an airline service with no more than six months' delay.
Will we see the assessors' estimate of production cost escalation, particularly of the sought-out items, which I gather are matters to which Sir William Cook is paying particular attention in terms of cost escalation? How close will this be to the R and D estimate of £170 million last quoted in the House for the RB211 even if those estimates are somewhat phased up—say, to £200 million?
The House should bear in mind that this is a figure roughly comparable to the overall costs in the military and civil version of developing the competitive General Electric CF6.
There is indeed very little time. Mr. Haughton arrives here again on Tuesday. He set prematurely, and has now had to withdraw from, a deadline of today's date for negotiations with the Government. We all realise that these negotiations will take some time. However, the House needs to know, and the House has a right to know, precisely what the Government assessment of the possibilities for the RB211 engine now are.
The Government should also tell the House exactly what sort of deadline they will now set for the negotiations with Mr. Haughton and whether the original period of four weeks' grace will be extended so that the development work now urgently proceeding on the RB211 engine will be allowed to go ahead. People have been taken off work on the engine, for a variety of reasons. We would hope to see them working at full capacity again, certainly for the period of the negotiations.
Mr. Haughton himself is under considerable pressures. It is an open secret that the four airlines which ordered TriStars have imposed on him a negotiating deadline of 5th March. One of those airlines—T.W.A.—is in a situation which might be approaching bankruptcy: last year it made a loss of about 54 million dollars. Another one— Delta —is in very serious negotiation indeed with McDonnell Douglas. Delta has been promised a favourable delivery position by McDonnell Douglas, as there have been cancellations, if it switches its order. If one order is to switch, that would be the death of the TriStar and would almost certainly be the death of Lockheed also. 1087 Therefore, what we want from the Government by 5th March is a firm guarantee that they want meaningful renegotiations, new prices, and a new contract and, if necessary, new penalty clauses written into such a contract with the new company—Rolls-Royce (1971) Ltd.
We also want—I speak now for a number of people on the engineering and development side at Rolls-Royce—a guarantee and a statement of confidence from the new Rolls-Royce Board itself about the viability of this project and its likelihood of success. It would come best from Mr. Conway himself, not only because he is the only survivor of the old Rolls-Royce Board who has been with this project throughout, but also because he is a representative of the Bristol side with its much stronger ties with the various collaborative European ventures of the merged company.
It is no secret that some people at least in Lockheed, whatever they may think about the attitude of the Government, have less than 100 per cent. confidence so far that the whole of the new Rolls-Royce Board is committed, or would be committed, to seeing negotiations go through for the RB211.
I turn now very briefly to the question of the renegotiation of other Rolls-Royce contracts. The Government are believed to be taking a fresh look at all other contracts which may be loss-makers. What is the position of the RB199, of the M.R.C.A. contract, and of the agreement with the VFW Fokker combine for the MW45, where there have been serious delays and an element of cost escalation? None of these involves quite the same stake in present employment or diverse future applications as the RB211. That is the kernel of my case, today that the RB211 project is crucial, not only in terms of employment, but for the survival of the civil aviation side of the company.
§ Mr. Cranley Onslow (Woking)
Purely as a matter of fact, surely the hon. Gentleman is aware that in prospect there are many more orders for the RB199 than there are ever likely to be for the RB211?
§ Mr. Whitehead
The hon. Member for Woking (Mr. Onslow) advisedly said "in prospect". He should know as well as anyone in the House, in spite of his constituency interests in this, that there are 1088 serious problems with the RB199 and that a number of orders it may get are themselves notional. The orders which the RB211 has are fixed at the moment; they are fixed at least until 5th March.
It is extremely disturbing to the confidence of the design teams in Derby and elsewhere in this company that so far there have been no real guarantees about the future of other research projects now proceeding. My hon. Friends and I have pressed the Parliamentary Secretary on the future of the RB162 vertical lift design. No satisfactory answer was forthcoming at that time. We should like to know to what extent projects of this sort will themselves be supported. This is very much a matter for the Government's responsibility under the reconstituted Rolls-Royce (1971) Board.
It is very disturbing to confidence, certainly in Derby at the moment if, as I am told, there are at this moment teams touring sections of the Rolls-Royce plant —the research areas—representing other firms and looking at alternative uses for this plant. In the last resort, obviously we would rather see alternative uses for the Derby plant than the one to which it has been put at the moment, but it is both disturbing and premature that these teams should be invited there at present when the whole future of this contract is in the balance.
Uncertainty on the shop floor is much greater still. Everybody in Rolls-Royce itself wants to know the scale of the redundancies which may be in prospect. Everybody wants to know the scale of the studies being made of possible redundancies now being put through the computers at the company. Many of the work force there, with 30 or 40 years' service and of great loyalty to the firm—as the Minister for Aviation Supply has himself stated, this is not a firm which has been noted for its industrial relations troubles—are now left in total doubt—total doubt about the future of their pensions if they are not taken on by the new company, total doubt about who will meet any claims for industrial injuries that may have occurred before 4th February.
In reply to a question from me recently, the Minister for Aviation Supply said that any rights to damages against Rolls-Royce Ltd. established in respect of 1089 events that occurred before the receivership would, unless covered by insurance, rank with the claims of the unsecured creditors. Claims of this nature are being made at the moment. There is also the problem of the workers' share schemes. Will these rank with the claims of the unsecured creditors right at the bottom of the list?
Later in the debate, my hon. Friend the Member for Derby, South—if he succeeds in catching your eye, Mr. Speaker—will be raising some of these points in more detail from the specific examples we have had.
We know enough now to realise that there is a very serious and very real area of concern already, irrespective of the future of the RB211 contract. The employment consequences of any decision not to proceed with the RB211 are horrifying. We know a good deal now about the position of the larger subcontractors. Firms like Joseph Lucas, Smith's Industries and Daniel Doncaster have all been seriously affected. Something is known about their problems.
I point out to the House that these and many smaller firms are now in serious doubt about whether they can continue to supply Rolls-Royce when at the moment the only guarantee of payment they get is that the Receiver will perhaps meet them at the gate each day with a cheque for that day's supplies, but he will not and cannot do anything for them for any debts incurred before 10.30 a.m. on 3rd February. These debts go back in some cases for three or four months. It is the plight of the small subcontractors which I particularly want to bring to the attention of the House. I am talking not just of the small specialist engineering firms engaged in metal cutting and the production of the various component parts for the RB211 but firms such as those which delivered the papers and cleaned the windows. All these firms are in serious trouble.
§ Mr. Dalyell
In the absence of a very immediate decision, the difficulty is further compounded by key people leaving these firms while they can, in the sense of leaving a sinking ship.
§ Mr. Whitehead
I am grateful to my hon. Friend. I agree entirely with that point. In Derby alone, I am informed 1090 by the President of the Chamber of Commerce, Mr. Foyers, 45 small firms with 50 or fewer employees are reporting to him on average between 25 per cent. and 30 per cent. redundancy. This is happening now. Many of these small firms are in extreme difficulties with their banks. Some are in doubt whether they can legally continue trading at all. In the Derby area a scratch meeting of unsecured creditors produced a list of 125 of such firms which owed £8 million between them. Surely we can expect a statement on their trading position from the Solicitor-General.
We are also entitled to hear something of the Government's reaction to the various schemes which are being floated among groups of creditors for the issue of loan stock in the 1971 Rolls-Royce Company, and the reaction of the Government to the proposals which Professor Clarkson and Dr. Elliott put up for public stock holdings in the new company. These schemes have been put up and there has been no public response to them.
We want to know also what interim payments can be arranged for the creditor companies. When my hon. Friend the Member for Derby, South and the hon. Members for Derbyshire, South-East (Mr. Rost) and Belper (Mr. Stewart-Smith) went with me on the delegation to see the noble Lord, Lord Carrington, the other day there was some mention, although he could not be specific, of the fact that interim payments might be made at least in part to some of the subcontractors. We should like to know much more about this, and before it is too late. This weekend marks the end of the month. This is the first serious crisis that some of these firms have faced. Without wishing to name names or be specific as to details, because it would further embarrass the companies, I can say that some of them face the prospect of bankruptcy this week or next. This is an extremely serious matter.
What we shall get—and my hon. Friend the Member for West Lothian (Mr. Dalyell) has supplemented my view—is a situation where the employment multiplier will be running in reverse. People are now leaving these companies if they can get jobs elsewhere. This is particularly true of design teams. Some people in those design teams will be welcomed with open arms in Germany and the 1091 United States. There are others who cannot get jobs easily and who will be unemployed for a very long time, and I understand that the papers placed before the Cabinet made reference to the prospects of unemployment. In these cases unemployment will create more unemployment, and this will roll on much beyond the figure of 40,000 which seems to have been quoted to the Cabinet. That is why we are so seriously concerned about the lack of employment opportunities.
We have come to this debate in a spirit of inquiry. I intended this Motion in no partisan spirit. There are Members on both sides of the House who would like to have a constructive contribution from the right hon. Gentleman today, and I certainly would welcome that. I seek no party advantage in this matter. My concern is to save the project, the jobs and the reputations of those involved. We would welcome a constructive statement by the Minister to that effect.
I hope that I have said something to indicate that the employment and subcontracting position largely hinges on the future of the RB211 rather than on the other projects to which I have referred. This is not a matter of paying men to dig holes and fill them in again. This is a serious matter for the future of our technology. This engine on which very largely the issues mentioned in my Motion hinge is worth saving. I say that not merely as the Member for Derby, North, as the House would expect me to say it, but in terms of the potential of the engine.
May I quote the editorial in the current issue of Flight International on this engine:Despite the Hyfil misjudgment—one of the rare exceptions to the Derby tradition of under-promising—the RB211 does appear to be ahead in terms of mechanical design. There is no reason to doubt that the three-shaft layout confers a rigidity, simplicity and noise level which spell profit for the customer in terms of undisturbed cowlings, maintenance costs, and noise-abatement payload limitations. None of these claims is proven, but none is unproven. To convert the engine into scrap metal could be as tragic a misjudgment as was the last Conservative Government's deathblow to the V.1000 and to the VC10.I ask the Government to reject two false antitheses in terms of the saving 1092 of this project. The first is the argument, widely heard and to some extent in circles not very far from Bristol, that the RB211 project is not worth saving because it is in a sense a blind alley; it is not a collaborative European project. I think that is a false antithesis. I do not think the Europeans are at all impressed by what they have seen in the course of the last month in terms of the collapse of this company. My hon. Friend the Member for Ilkeston (Mr. Raymond Fletcher), who is not in the House at the moment, told me that he has returned recently from a visit to Dortmund and that a German engineer had said to him apropos the collapse of Rolls-Royce, "When we stopped laughing at you as Germans we began to weep as Europeans." I think that is the reception that these events have had in many quarters in Europe at the collapse of this element of our high technology industry.
I urge the House, and the right hon. Gentleman in particular, not to take the view that the RB211 must be scrapped in order to save other projects like the RB119 and the M.R.C.A. I urge the House not to be put in a position where it feels that it must choose between the Concorde and the RB211. The Concorde is a much more glamorous project. It is ours. It is flying, It is beautiful. It is supersonic. It is a kind of flying cathedral of our technology. It gets a degree of approbation which the subsonic RB211 cannot achieve; yet the RB211 in its own way is an equal development not only into a new sphere but into that area which in the 1970s and 1980s we shall need to develop—an area of quieter and more efficient engines which do not further disturb and exacerbate the kind of noise patterns which the people in the developed world already have to tolerate. As such it is worth preserving.
We should look at the prospects for this engine in terms of the technological future and the serious consequences now placed before the Cabinet of the collapse of this project in terms of employment and the kind of social backlash that would result. If this project were abandoned in favour of some notional promise of saving 6d. on the income tax in two months time, it would be the most absurd selling of our engineering birthright for a veritable mess of pottage which this country has ever seen.
§ Mr. Speaker
A number of hon. Members wish to speak in this debate. I believe that if there is some effort at compression on their part I shall be able to call everybody who wants to speak. It will mean a certain amount of self-sacrifice.
§ 11.39 a.m.
§ The Minister of Aviation Supply (Mr. Frederick Corfield)
In response to the suggestion made by the hon. Member for Stockton-on-Tees (Mr. William Rodgers), perhaps I might intervene at this point, though, as he suggested, I would not like it to be regarded as my contribution to the debate since it would be discourteous if I did not listen to what the House had to say before making my main speech. I was asked to comment on what has appeared in The Times this morning, and this I now do.
In the article and the leading article there are certain allegations of fact which certainly do not accord with my recollection of what went on. These will have to be checked most carefully before I can pronounce upon them and, certainly, before it would be reasonable to ask my right hon. and learned Friend the Attorney-General to give a definitive opinion thereon.
There are two matters which I ought to mention at this juncture. First, I think that the central point of what happened is that the Government did not at any time withdraw their £42 million, or their offer—or whatever it was thought to be —and thus precipitate the crisis. What happened was that the board of Rolls-Royce, taking it own legal advice, decided that its financial prospects were such that it could not start drawing on that £42 million—incidentally, I think it relevant to comment that the launching aid contract had not been fully drawn up and agreed at that stage—or on the banks' £18 million and stay on the right side of the law. That was the advice which the board was given, on the basis that to continue trading, even by drawing the tranche of the £42 million which might have been available up to the end of January, would mean increasing the amount by which its liabilities would exceed its tangible assets, and, therefore, it would be indulging in what the law regards—rightly, I think—as fraudulent trading.
1094 My right hon. and learned Friend's advice, which the Solicitor-General explained to the House in our recent debate, was clearly that if the Government provided the money in order to ensure that there was time to renegotiate with Lockheed, which is what everybody wanted to do, the Government would be party to the fraudulent trading.
There are, of course, certain privileges in the Crown, but sucessive Governments and successive Law Officers have always taken the view that the Government have a moral obligation to behave as though they were governed by the ordinary law which governs everyone else. I believe that to be absolutely right, and, as I say, my right hon. and learned Friend's advice was definitely that that would be the case. If I may venture a private opinion, I believe that that is beyond dispute. Those are the two facts which I wished to establish at the outset.
As regards the main article in The Times and the other allegations to which have referred, I have not had time to check them. I cannot be in two places at once— though many of us would like to be able to—but I am having it studied throughout the day. If there is anything which I can add when I intervene later in the debate, I shall keep the House informed. It is a complex matter, and many of these allegations involve checking with people in the City and so on who were in negotiations or, possibly, under contractual obligations to which the Government were not a party, so it will not be a very rapid operation to check all the facts.
§ 11.42 a.m.
§ Mr. William Rodgers (Stockton-on-Tees)
We are grateful to the right hon. Gentleman for intervening to comment, however briefly, on the report which appeared in The Times this morning. Perhaps I may make two observations about that.
First, if we accept, as I think we must, the difficulty which the right hon. Gentleman has had in making a fully authoritative statement—he referred to his recollection and said that he had not been able to look at the documents—may we have an understanding that we shall have a full statement, either from himself or from one of the Law Officers at the appropriate time making the record perfectly clear? 1095 Second, I think it reasonable to ask that the agreement around which the argument turns should be published in a form convenient to the House.
§ Mr. Corfield
May I enter this caveat on "the appropriate time"? It might not be possible to do it fully today. I am sure that the hon. Gentleman understands that.
§ Mr. Rodgers
Yes, I entirely understand that, and I would not wish to press the right hon. Gentleman today, but if it were made early next week it would probably be for the convenience of the whole House. This is not a matter upon which there are strong political differences of opinion. Those concerned are concerned because livelihoods are in one way or another at stake.
I shall endeavour not to detain the House for long because we want most of all to hear what hon. Members have to say about their own constituency interests and then allow the Minister to take such time as he wants to reply to the points which have been made.
My hon. Friend the Member for Derby, North (Mr. Whitehead) has been wholly justified in his choice of the occasion, particularly in view of the moderate and fair-minded way in which he stated his case. I agree with all he said about the right hon. Gentleman. I imagine that Rolls-Royce must be etched on his heart in blood. We appreciate the heavy burdens which lie on him now, not only in reporting to the House, as he must, but in carrying out the proper responsibilities of his Department. We have no complaint whatever in that respect. But my hon. Friend has said, I say now, and I shall say again—I am sure that hon. Members on both sides will say the same —that, whereas we understand the right hon. Gentleman's problems, it is right that the House should know the facts.
I press the right hon. Gentleman to put before the House, in whatever form is convenient, the maximum of information on which we can judge—not judge whether he has been right or wrong but judge, primarily, what is now the best solution to what remains an exceedingly difficult problem. That is our concern. Inevitably, the past will come up, and inevitably we shall argue about what or might not have been done, 1096 but we are concerned to salvage what can be salvaged from the wreckage. In the spirit expressed by my hon. Friend in his speech, the right hon. Gentleman will have our full support in so far as that is his objective.
We do not believe that the Government had the full facts in their possession or had a full analysis of the consequences of collapse when they made the decision announced on 4th February. But we are led to believe that yesterday the Cabinet had not only the report of the "three wise men" on the technical characteristics of the RB211 but also a report from the civil servants on the wider economic consequences.
For the life of me, I do not understand why the report from officials on the economic consequences was not prepared between November and 22nd January, and neither do I understand, if it had not been done then, why it was not done between 22nd January and 4th February. But we must now assume that the Government have in their possession all the facts, they have made an assessment of both the human costs of collapse and the human consequences if the RB211 does not go ahead, and also they have made an assessment of what has happened to Britain's commercial reputation as a result of this unhappy story.
We hope—I certainly assume that this is their wish—that the Government will be doing what they can in human terms, bearing in mind the grave anxieties which have been caused to very many people, those employed by Rolls-Royce, the subcontractors and others, and also will be doing what they can about Britain's commercial reputation.
On both those counts, I say again that the Government will have our full support in any constructive course which they take. But I enter this one caveat, that they will have our full support in so far as we know the facts upon which they are making their decisions.
My hon. Friend referred to the Motion on the Order Paper for a Select Committee. We should still like to see that acted upon. However, in the event of the Leader of the House feeling that he cannot provide time for a debate or that he cannot acquiesce in the appointment of such a Committee, I hope that we shall have a White Paper soon setting out the essential background information in 1097 unmistakable terms, including first, the technical appraisal which the Cabinet had yesterday, and, second, the economic assessment. There surely cannot be anything in either of those two reports which could not be put before the House and the public. I cannot see why publication of these documents in a White Paper, together with any other information, should prejudice the negotiations which we hope will begin. I expect that in his later contribution the right hon. Gentleman will say something about the Cabinet's decision yesterday on renegotiations. I do not mean by that that he will be expected to spell out the terms. That would be foolish. At no time have we asked for that to be done and we do not ask for it now. But will he say categorically that it is still the Government's intention to renegotiate the contract for the RB211 if they possibly can? May we also take it that the money on offer in November is the minimum on offer now as a contribution to renegotiation?
Whereas we want the Government to get the best possible terms, it takes two to make a bargain, and unless they are prepared to recognise the problems with which Lockheed is faced there can be no meeting in the middle. There must be a meeting in the middle, and therefore both sides, in so far as there are two sides to the matter, must make concessions of one kind or another.
When we last debate this question of Rolls-Royce on 11th February I said that there were some lessons not for us in the House but for those outside. I referred to lessons for the City, and I was glad to note that on both sides there was some understanding that there were problems about the rôle of the merchant banks. I am not the only person who has been puzzled and alarmed by the way in which the Stock Exchange stopped dealings in Rolls-Royce shares, resumed them and suspended them a second time. I hope that it is the case, as I understand it to be, that the Stock Exchange Council will conduct an urgent inquiry into whether that was the right course and whether there are lessons for the future. In matters as grave as this, with personal consequences of great concern to many people, it seems to me that it was wrong to suspend dealings, resume them and then suspend them again.
1098 In the short time I hope to take, I want to ask the right hon. Gentleman some further questions, not drawing conclusions of my own. I shall remind him of questions I asked on 11th February to which he was unable to give a reply, and endorse some of the questions asked by my hon. Friend this morning.
Today's will obviously be unfinished business. My hon. Friend has provided hon. Members on both sides with an opportunity to look further at the problem. But it is one that lies on the Government's doorstep, and they will appreciate that it is for them to provide in their own time further opportunities for discussion—not only a statement on the lines for which I have asked and a White Paper but an opportunity for a full debate, which will perhaps be conducted in the constructive spirit that I think will characterise everything said today.
In anything further I ask I shall assume that there will be meaningful negotiations, as my hon. Friend described them on the RB211, that we are approaching today's debate essentially in the spirit of inquiry, and that questions not answered today will be answered later.
I ask first for the latest figures for the development costs of the RB211, because I assume that there are new ones. The Chancellor of the Exchequer on 8th February referred to a provisional estimate of £170 million at least. Is that still the figure?
What part of the development cost is included in the unit cost which has been mentioned for the engine? In other words, does the higher price now quoted, the £460,000, include any allowance for the escalation of the development costs?
Second, will the right hon. Gentleman refer to the technical point mentioned by my hon. Friend, as I presume he can on the basis of the report the Cabinet received yesterday? Will he confirm that the best advice he has is that an engine of acceptable although derated thrust could be available within about six months to enable the airlines to fly the Lockheed 1011 commercially by May, 1972? That is obviously a very important point and a matter which will have a bearing on the negotiations.
Third, will he say categorically that the breathing space for continuing work 1099 on the RB211 will be continued beyond 5th March, which is now very close? May we assume that he will give an undertaking, and that the Receiver will have the necessary guarantees, that until the contract has been renegotiated or has proved not to be negotiable, if that is the unhappy case, the options will be kept open?
§ Mr. Rodgers
I am very grateful to the right hon. Gentleman. That will bring some comfort to everyone involved.
Fourth, there has been some discussion about the future of the car division. We on this side believe that it should be taken into the nationalised company. I shall not pursue that matter today, but the right hon. Gentleman will be aware of the correspondence between my right hon. Friend the Member for Dundee, East (Mr. George Thomson) and the Secretary of State for Defence. Will he now say, first, that he takes the view, as I understand his right hon. Friend does, that the car division is not engaged in vital defence work and therefore is in no way on a par with the divisions of Rolls-Royce to be taken over, and, second, that he is prepared to see it pass into foreign ownership? These are important points, and we are entitled to know the right hon. Gentleman's view or to have confirmation of what the Secretary of State for Defence says about the matter. Although the car division may not now be providing engines for the new generation of military vehicles, it is essential for spares. There would be grave consequences if the spares element in the car division passed into unacceptable hands, which could include foreign ownership of any kind.
Whereas it was thought when the matter first arose that the car division was profitable, there is some belief now that it is much less profitable than it seemed. Therefore, I hope that the Government will not necessarily exclude a different solution to the one they previously had in mind if that is necessary to keep the car division in being. The motor industry is going through a bad period. Although a number of people said that they would make bids for the car division, it is not clear what the outcome will be.
1100 Fifth, I assume that the right hon. Gentleman will say something about the Government's intention with regard to contracts other than the RB211. Is the new company committed to them? Is it likely to renegotiate those contracts? If so, what would the Government's rôle be? As long as the matter remains unresolved, the links between the Government and the new company are so close that it is not possible to pass such matters off as the responsibility of the board. If such renegotiation is likely, would this lead us to believe, as the right hon. Gentleman implied when he made his first statement to the House, that the cause of Rolls-Royce's collapse is not solely the RB211 but that there are other factors? We should know, as this will have a bearing on the outcome.
Sixth, what decision has been arrived at about employees' shareholdings in Rolls-Royce? This bears on something which I gather will be raised by my hon. Friend the Member for Derby, South (Mr. Walter Johnson) if he catches the eye of the Chair. The Lord Chancellor referred to the question in the other place on 15th February, and my reading of what he said was that he did not reject the possibility of preferential treatment of the kind which I think my hon. Friend the Member for Derby, North implied. If the Lord Chancellor's statement is not to be read in that way, we should know now, and any misgivings should not persist.
Seventh, I asked in previous debates about the revenue position. I understand that revenue has prior or equal claim on the assets with the preferential shareholders. It must be within the Government's power to waive this claim. Would the right hon. Gentleman assess the size of this matter and say whether the Government will in fact be prepared to waive it?
Eighth, paragraph 3(8) of the memorandum of association refers to paying or makingsuch arrangements for providing such pensions, benefits, share acquisition schemes and other matters as may seem directly or indirectly to advance the interests of the company.This refers in part to matters relating to the security of existing employees. Could we have an interpretation of that paragraph and be told whether the Government will stand by the board if it decides 1101 to use discretion to help employees of the company in this way.
Ninth, in regard to sub-contractors what information has the right hon. Gentleman about some suppliers who have a direct claim against the Government as sub-contractors supposedly specified in the original contract? The right hon. Gentleman will know that there was reference to this matter in the Investors Chronicle on 12th February. It is a fine but important point on which there may be dispute, and it would be right to know now the opinion on this matter of the Law Officers.
The problems arising from Rolls-Royce's collapse will not simply go away either with the passage of time or if they are not mentioned too often. The consequences are persistent and far-reaching, and it is right that they should not be talked about in whispers behind closed doors. If the Government seriously intend to renegotiate the RB211 contract, we wish them well. They have our good will as long as they seek a constructive solution to what is still a terrifying muddle.
§ 12.3 p.m.
§ Mr. William Clark (Surrey, East)
I congratulate the hon. Member for Derby, North (Mr. Whitehead) on the way he has introduced the matter of the Rolls-Royce collapse, though I do not agree with all that he said.
We appear to be getting into a sort of economic philosophy that it is not necessary to bother about the value of money. In looking at the Rolls-Royce affair it is easy to see why it collapsed. Misgivings were evident on 4th February and the RB211 contract was the last straw that broke Rolls-Royce. Rolls-Royce has, of course, other divisions than the aero-engine division, such as the marine division and the car division which are profitable, but the development of the RB211 was the most stupid contract any business man could ever have signed. It was plain stupidity to sign a fixed-price contract for delivery in a year or two's time with not even a clause written in to provide for escalation in case of inflation.
§ Mr. Stanley R. McMaster (Belfast, East)
Would my hon. Friend not agree that the problem in regard to escalation was that there was not sufficient provi- 1102 sion to make allowance for research and development costs?
§ Mr. Clark
Yes. Indeed, the point I am making is that there was no such escalation clause in the contract and one obviously was necessary. The original estimated cost was £110,000, which has now gone up to £300,000 or £400,000. Even with hindsight, it must be said that this was a silly contract to enter into.
§ Mr. Onslow
Might I suggest to my hon. Friend that an even stupider provision of the contract was that under paragraph 18 the purchaser of the RB211 was allowed to change the design specification during the first 12 months of the contract, and the manufacturer had to pay for all the changes?
§ Mr. Clark
That is a further point to prove to the House and to the country that the contract was a tragedy. The Government were right in what they did since they could not allow this contract to continue at the cost of the Exchequer. Why should the British taxpayer have to subsidise the Americans, which is what it amounted to? My right hon. Friend was absolutely right to take the action he did. In fact, action was taken by the company itself and a receiver was appointed. Rolls-Royce is not a statutory body but an ordinary company, and this was the only way in which it could be kept in existence to protect its existing assets.
Far too much reliance has been placed in the past on the provision of Government money. This is a world-wide attitude. There are all the various aid programmes—I do not object to aid in itself and welcome it—there are research and development costs, and great amounts of public money go into the industrial world. It is here that there is slackness in industry. I am certain that this applies to Rolls-Royce, where there was a certain amount of slackness and no sufficient control.
I hope that the Board of Trade inquiry will be expedited. If it takes two or three years, the Rolls-Royce affair will be completely forgotten. If such an inquiry is to be of any use at all, it should carry out its work and report as soon as possible. I do not think there is any point in setting up a Select Committee 1103 since the Board of Trade has absolute power to inquire into a company's affairs. I hope that the inquiry will not only probe the rôle of the officers of the company and what they did in the matter, but also will examine what advice the officers and directors of the company were given by the Government of the day when injecting this money into the contract.
Although we know that most of the emphasis has been on the RB211 contract, could we be told what other money has been wasted in Rolls-Royce? Is there a waste of manpower in the company? These are the sorts of question we must ask. When a company relies too much on Government money, it would appear that there is lazy control and ineffective management. Could we be told about the cash flows of the company? How could it be said that the company was being run efficiently when we remember that last summer there was a statement to shareholders that everything in Rolls-Royce was perfectly all right in regard to immediate commitments and that up to 1972–73 the cash flow would be sufficient and then one month later the directors were in Whitehall trying to get some money? This is disgraceful. Where was the financial control in Rolls-Royce?
I hope we shall learn the lesson that any company which has Government contracts involving research and development must have efficient management. We all share the concern about some of the contractors and the possibility of unemployment. We must be realistic. We must not just give an open-ended cheque to people merely to supply jobs unless we know that those jobs are being efficiently run. We must not waste manpower. It is disgraceful that in Rolls-Royce subcontractors and employees have been put in jeopardy. The country cannot afford it.
I agree with the comment of the hon. Member for Derby, North about the breaking-up of the design teams. Of course nobody wants to see this happen. I felt this also to be true when the TSR2 contract was cancelled, which was a fairly analogous case except that here was no resulting bankruptcy.
I am certain that as a country we cannot continue to run unprofitable exer- 1104 cises, and in this the Government are completely right. I do not think that the hon. Member for Derby, North seriously suggests that the Government must assure sub-contractors that they may legally continue to trade, for that is an impossibility, as being able legally to trade depends upon so many things, and no Government, regardless of party, could give such an assurance.
Presumably the parts of the company to be taken over will be the so-called profitable parts, and presumably the receiver will have left on his hands—for the moment leaving aside the car division—only the assets or equipment connected with the RB211 contract. At this stage nobody can say what the valuation will be, but I hope that it will be taken over on a going concern basis. I should like a consortium to be formed as soon as possible to help the Government to run the new company, because I do not want the Company to be wholly owned by the Government without there being sufficient financial control.
I do not say it in any derogatory way, but one of the difficulties of Rolls-Royce was that it was controlled by engineers, and, although they were first-class engineers, it is a matter of every man to his own job, and an engineer is not a financier, and a financier is not an engineer. Rolls-Royce may have had too many engineers and too few financiers interested in the project. We must not get into that difficulty again.
The Opposition are asking many questions, and I understand their thirst for knowledge. But it must be remembered that if there is any question of the renegotiation of the RB211 contract, and I hope that there is, it is the responsibility not of the Government alone but of the Receiver. It is his assets that he is looking after. The Government could give great assistance in renegotiation, but it is clear that, although there are many questions which hon. Members want to ask, it would not be politic at this time to give answers.
Perhaps the Opposition want answers to some questions so as to give the Government the benefit of their advice. I ask my right hon. Friend to resist them, because I do not make only a party point when I say that the Labour Party must share responsibility for the collapse of Rolls-Royce. 1105 I am certain that everyone in the country wants Rolls-Royce to continue. It can continue if the profitable parts are taken into ownership, but I beg my right hon. Friends not to hold it too long as a wholly-owned subsidiary. Let us get in outside capital from the City, people with a stake in Rolls-Royce, because only in that way shall we bring this company back to its reputation and that degree of profitability which in the last resort is the answer to all the economic ills of this and any other country.
§ 12.16 p.m.
§ Mr. Frederick Willey (Sunderland, North)
It will be a salutary discipline for me if I declare that I intend to speak for less than five minutes. I have a direct constituency interest because we have a Rolls-Royce factory in Sunderland and I shall therefore confine myself to two comments.
I should have thought that we ought not to consider setting up a new Select Committee to go into this matter. We have the Select Committee on the Nationalised Industries and that would be the appropriate Committee to look into it. If my recollection is right, I remember that on the initiative of the then Government the House requested the Select Committee on Science and Technology to inquire into the "Torrey Canyon" incident. I believe that that would be an appropriate step in this case. The Select Committee on Nationalised Industries has thoroughly established itself and it has much background experience of this sort of inquiry. From what the hon. Member for Rushcliffe (Mr. Kenneth Clarke) himself has said, it seems that there are matters outwith a Board of Trade inquiry which the Select Committee should inquire into.
There are about 850 employees in the Rolls-Royce Government-built factory in my constituency and with subcontractors there are probably about 1,000 employees on this work. My hon. Friends from Derby may therefore feel that my interest is comparatively minor, but I assure them that it is not, because for the past two or three years we have never had less than 8 per cent. male unemployment in Sunderland. That figure is now running at well over 10 per cent. Several Government-built factories in the town are vacant and idle.
1106 I did not have the foresight or the flamboyance to suggest at the last election that Rolls-Royce should be nationalised, but I said, as I have repeatedly said, that when the Government have provided the factories, they could not afford to allow that capital to remain unused, and nor did development area policy make sense if all the Government did was to provide premises which were unoccupied. One of the Government factories has been unoccupied for two or three years. This is why we now have a particular interest in Rolls-Royce.
We now have the position that there is a Government-owned factory and the Government themselves are responsible for the production in that factory. They have a direct responsibility to see that these highly skilled men in the town, which has probably the most persistent unemployment in Britain, are kept at work.
With others, I hope that the contract will be successfully renegotiated. I have much sympathy with the Minister. I thought at one point that he was placing a sort of slick business acumen higher than the reputation of Britain abroad, but it is now clear that, whatever criticism one might make of different phases of his activity, we are now concerned about renegotiating the contract on fair terms if that can possibly be done.
But if it cannot be done, responsibility still remains on the right hon. Gentleman's shoulders. The men and the plant must be kept working on production which is in the national interest. I assure the right hon. Gentleman that his success in this respect will be used by me politically to argue the extension of the principle. It is fundamental to a solution of the development area problems when Government-built factories remained unused. The Government simply have to go into production in the fields where production should be extended. Only in this way will our development area problems be solved.
§ 12.19 p.m.
§ Mr. Cecil Parkinson (Enfield, West)
I share everyone's concern about the plight of Rolls-Royce. We are all agreed that what is threatened is not just a commercial concern, but a national institution. But "national institution" is a vague definition, and at the end of the 1107 day Rolls-Royce has to operate as a commercial concern. It has to conform with the Companies Act. We might have all sorts of emotional attachments to the company and we might feel that it is something very special, but it is a company financed by shareholders and it borrows money from the banks and takes credit from its suppliers, and if it gets itself into the state that it cannot meet its obligations, it must do what other commercial concerns have to do.
I have read the reports of the various debates on the subject extremely carefully. A tremendous amount of emotion and a tremendous amount of feeling have been generated, but we have to go back to the original statements of the directors to find the heart of the matter. It said very simply:In these circumstances it is not feasible for them to proceed with the RB211 under the present contract. The loss of resources already committed to the project combined with the losses which will arise on termination are of such a scale that they are likely to exceed the net tangible assets of the company. In the light of this situation the Board have decided that they had no alternative but to ask the Trustees of the debenture holders to appoint a Receiver.The directors, honest men, put into the situation of running a very complicated company, have had access to the services of one of the top firms of accountants; a new chairman after four months comes to the conclusion, which he must have wanted to come to least of all, that the company simply could not continue. Therefore, a national institution or not, the board came to the conclusion that a receiver had to be put in and various consequences flowed from that.
It is easy for anyone who has been involved in Receivership work, as I have, to understand this. One of my first jobs when I qualified as an accountant, because I was too innocent to avoid it, was to be appointed receiver-manager of a company. I was appointed because the directors came to the conclusion that they had no alternative. Within a matter of hours I was being told by people, "Given another 48 hours I could have saved this company." Even two years after the whole thing was finally wound up, to everyone's immense relief, a man who put the original money in came to see me and said, "I have always been 1108 convinced that we could have made it work." The wish became the father of the thought.
When a commercial situation is going wrong as Rolls-Royce was time is of the essence. It was simply running out of money. It could not get any more from the bankers, it had already raised money from the shareholders. It could not ask the debenture holders for any more and it was getting to the state when it simply could not pay its wages. It could only have been a matter of time before the news got to the ears of its suppliers. Several of us have heard from suppliers that there were already on the point of starting to issue writs against the company. Suppliers were already getting to the stage when they were beginning to feel that Rolls-Royce, national institution or no, was in trouble.
If the Government had not done what they did within a month the writs would have been flowing thick and fast and the creditors would have been calling meetings and we would not have been in the position we are now of discussing whether it is possible to save the RB211. Because of Government intervention we are able to have this discussion, because the Government stepped in and solidified the situation which was in danger of falling apart.
We are in the unhappy position today of being able to debate, not at our leisure but at comparative leisure, what could or could not have been done. I am convinced, and I have discussed this with friends who are very much involved, as I have been all my working life, in finance, that without Government intervention the situation would have collapsed. The Government are to be congratulated on stepping into a disintegrating situation and holding it. I take a different view from hon. Members opposite. I sincerely hope that the Government will salvage all jobs, but I regard jobs salvaged, if it is only 55,000, as an immense bonus which might not have been available without swift action on the part of the Government.
We have had a mass of speculation from hon. Members opposite but no one has yet produced evidence to say that the directors of that company, using their commercial judgment, were wrong in reaching the decision they reached. I believe that they were right and that it 1109 is almost arrogant of hon. Members, on the basis of the 1969 balance sheet, and having the wish as the father of their thought that a thing like this could not happen to a company like Rolls-Royce to do what they are doing—suggesting that the directors of the company were hopelessly wrong. They have never said that, but it is the only conclusion to be drawn from their arguments that the directors did not do the right thing having weighed all considerations in putting in a Receiver.
I would like to comment briefly on the article in The Times, today. I am sure that every hon. Member who read it reacted as I did with grave concern. I regard that article as one of the most mischievous articles that has yet been written. It is one that bears rereading, because at the end of it it will be realised that it says absolutely nothing. I have heard of making bricks without straw but as an exercise in that art the article is in a class of its own. Let us look at what is said. It is said that there was a gap of two days between the time that the agreement is dated and the announcement in the House. But is it said that anything flowed from that gap? Did the banks lend any more money? The answer is, firmly, "No". Did the acceptance houses do anything extra? The answer is, "No". It is said that there was an £18 million drawing on the 9th November and by 4th February there was a £20 million drawing upon the tranche. The fact is that the acceptance houses were committed to the £20 million on 9th November. It was a facility to which they had been committed for seven months and it still had another five months to run. Nothing happened as a result. They did nothing extra. They did not make it a condition that the Government would intervene when they made available this facility. Were the creditors misled? How many of the creditors had read the detailed agreement drawn up on the 9th? I am sure that no one would contradict me when I say none, but they had all read the statement of my right hon. Friend on 11th February and any creditor who tries to say that he did not read the detailed agreement but did give credit because of it simply lacks credibility.
My right hon. Friend's statement about where the Government stood is absolutely clear. What does the article say when 1110 it is boiled down? It says that between 9th November and 4th February the acceptance houses advanced another £2 million which they had been committed to advancing for seven months before. That is all it says. It is a tribute to the shortage of news that The Times features something which is as simple as that as its main story of the day. I said that it was a mischievous article but that is too polite a word. I think that it is a disgraceful article.
§ 12.38 p.m.
§ Mr. Dan Jones (Burnley)
It is not my intention to follow the hon. Member for Enfield, West (Mr. Parkinson) in emphasising the financial aspects of this project. It is my intention to deal with the more technical problems which must be mentioned to be brought into balance. I do not intend to make a yard of political milage because I frankly do not give a damn about the issues of public ownership nor the extension of public ownership. I care simply for one thing, and that is the continuation of the RB211 engine.
I want to speak on two separate topics. First of all, I want to deal with how this effects my constituency of Burnley, and North-East Lancashire, generally. I interrupt myself to say that I am pleased to see the hon. Member for Skipton (Mr. Drayson) in his place. I know that he is similarly involved. I also want to try and show the Government that there is every reason why they dare not do otherwise than continue with this engine.
My first comment in that direction stems not from an article in The Times but the Guardian. Here I quote from Ian Aitken, who says today:The Cabinet has given the go-ahead for serious negotiations with Lockheed Aircraft Corporation to save Rolls-Royce's contract to supply the RB211 engine for the TriStar airliner. A great deal of hard bargaining lies ahead but Whitehall is slightly more optimistic.I can only hope that that really is an inspired leak.
Ten thousand people in North-East Lancashire are immediately affected. If the RB211 does not continue the number may be far in excess of that. I have a list of the companies affected. It would take me a long time to read it out. Some of them are involved to the extent of 40, 60 and 80 per cent. in RB211 work. If 1111 the RB211 is discontinued, other projects will immediately be prejudiced—and I know quite a bit about the industrial economy. I do not think that the existing work force can carry the overheads unless it continues. Without the engine the whole of North-East Lancashire will suffer seriously from industrial insecurity.
I have known the area around my constituency for the last 12 years and I have grown to respect it very much. It is only beginning to rise from the industrial ashes of the demise of the cotton and coal industries. It would be a real shame if the RB211 were not continued because engineering, which is providing the momentum for this area and has made such a handsome contribution over many years, would receive a blow which I greatly fear would be very severe indeed.
I turn my attention to the Government and give what I honestly consider to be the most compelling reasons why the RB211 should be continued. I am sorry that so many hon. Members opposite, no doubt sincerely, have dwelt exclusively on the financial issues. I am prepared to agree that they are very important, but to dwell on them solely is to put the matter entirely out of balance. To term, as some Tories, whom I would describe as belonging to the right wing of the Conservative Party, have termed, Rolls-Royce as a failure is disgraceful. The right hon. Member for Wolverhampton, South-West (Mr. Powell) has a companion in the hon. Member for Bolton, West (Mr. Redmond), who has stated that had the Governmentdecided to bail out Rolls-Royce, as he believed the Socialists would have done, it would have been financing failure".These are the sort of terms used by certain sections of the Conservative Party, and I hope that those responsible for taking the decisions will entirely ignore such criticism because it is ill-informed and almost insulting.
I have before me the record of Rolls-Royce. It is a magnificent record judged by any standards. I have a list of 30 aero engines which the company has produced. I want to relate these engines to a period in our history which we would ignore only at our peril and if we were guilty of a base form of appreciation. The first engine is the Merlin which was put into the Spitfire and Hurricane. 1112 Every year we honour the pilots of the Battle of Britain, and rightly so. There can be no doubt that the freedom which we enjoy today is substantially due to them. I was personally associated with this period.
Is it wrong to remind people that those very brave pilots would not have gone into the skies and done such heroic work for us were it not for the products of Rolls-Royce? Is it wrong to remind ourselves of what we owe them? People in Rolls-Royce spent years and years on research and development long before Government finance helped them out. I was involved in the aircraft industry when the Manchester failed us during the war. Our ability to go across to the Continent and stop bombers coming over here was seriously prejudiced because of the failure of the Manchester and of the Short Stirling. Rolls-Royce produced the Vulture and enabled the Lancaster to take to the air and do another great job for the freedom of this nation.
To call this company a failure, having spent so much of its time and resources on work which was invaluable to this nation, is disgraceful.
§ Mr. John Wilkinson (Bradford, West)
For the record, may I point out that it was the Vulture which was fitted in the Manchester? The Merlin powered the Lancaster, the four-engined successor of the Manchester.
§ Mr. Jones
All right. My record says that it was the Vulture. However, I am sure that the hon. Gentleman will agree that it was a Rolls-Royce engine. That is the most important point—"a Rolls by any name".
Hon. Members opposite who have concentrated almost exclusively on financial matters should realise that profit-making in research and development is absolutely nil. About 100 countries and 200 airlines are purchasing Rolls-Royce products. It is a little bit disgraceful to call these people failures. I am not even prepared to agree that they have not been conscious of their financial position.
In December 1969, with members of the Labour Party's aviation group, I met the then Chairman of Rolls-Royce, Sir Denning Pearson, and his financial and technical advisers. He told us of the 1113 difficulties which the RB211 would undoubtedly be in and that if it was to come to productive fruition Government assistance would be needed and that the Government were being informed of the position.
§ Mr. G. B. Drayson (Skipton)
The hon. Gentleman has said a great deal about the question of failure. I am sure that he is misinterpreting the situation. What has been referred to is financial failure. No one in the House or in the country has suggested that Rolls-Royce products are not the best in the world. We as a nation are proud of them. "Failure" is a word which is constantly used in the City if a firm goes bankrupt: it fails financially. The hon. Gentleman should make a distinction between financial failure and technical failure. We know that there has been no technical failure.
§ Mr. Jones
I am prepared to accept that. But when hon. Members' talk about failure it would be as well if they qualified the term. To talk about "failure" by itself implies something different.
I have a list of the dividends paid by Rolls-Royce over 13 years. Anyone investing in the company would have received more by way of dividend from a building society. The money which the company needed could not be obtained from the market. For that reason, the Government were under an obligation to keep the company going. My opinion, which I want to express charitably, remembering the tremendous and honourable history of this company during our country's time of greatest need, is that if we throw the RB211 into the industrial gutter, we shall irretrievably prejudice our technical future and we shall treat with cold indifference people who, when our need was greatest, afforded us the means of protecting ourselves.
I feel that with these facts in mind hon. Members opposite ought to join with Member on this side of the House and put all the pressure they can on their Government to see to it that this engine is continued with, because it is that which is the nub of the crisis now facing Rolls-Royce. There can be no doubt about that, I say with due respect to my hon. Friend who mentioned other engines. I hope that each contributor to this after- 1114 noon's debate will remember just what this company has done, and will, in consequence, apply pressures on the Government so that this engine, the RB211, can be continued with so that the sales potential can be realised. I am given to understand that the sales potential is as high as 1,500 engines. The Minister shakes his head. Here is one of the differences which need to be cleared up, and which gives some indication of the need for an inquiry. That is the figure we are asked to believe, and, since we have no inside information, that is the figure we are bound to accept. Perhaps during the debate the Minister will tell us precisely what the sales potential is like, because it is an important factor, for, of course, if the sales potential is of that order, financial help to Rolls-Royce will not be so much a gesture as an investment which can be recovered in future through the sales.
However, I want to keep to my promise to keep within my 10 minutes, and for that reason I shall now resume my seat, saying I am not prepared to make any political mileage out of this problem at all. I frankly do not care a toss about the question of public ownership. I am concerned simply and solely that this valuable engine, valuable to the nation and, indeed, possibly to the world, should be continued with.
§ 12.42 p.m.
§ Mr. John Wilkinson (Bradford, West)
I should like to put this debate into a wider context, into the context of the health of the aerospace and engine industry in which Rolls-Royce Ltd., from now onwards Rolls-Royce (1971), has always played such an important part and will continue to play an important part.
If we examine the period before this Government came to office one thing is manifestly clear, and that is that although the British aerospace industry and the British aero-engine industry were earning more and more foreign exchange by an outstanding export performance, in net terms, in terms of gain to the balance 1115 of payments, our position was deteriorating throughout. I believe that this was a factor which led to the RB211 contract with Lockheed's. If we take the year 1963, which was the last full year of Conservative Government in the 1960s, we see that in the aerospace industry we earned a net surplus on our balance of payments of £73 million.
In 1969–and this figure includes aero-engines; both figures do—the surplus had decreased to £31 million, and this although our exports in 1969 were a record for all time of £304 million. In other words, our industry was having to run faster and faster not just to stand still but not to go backwards, and the reason for this, again, is manifestly obvious. It was because of the policy of importing from abroad aerospace products, particularly military aircraft, which we should have been producing ourselves. This was the policy advocated constantly in verbose and misleading articles by Richard Worcester and pursued blindly by the Socialist Administration, and I think that in this respect they stand to be blamed very much.
If we look at the RB211 contract itself in the context of the American market it is right to insist that the American market is exceedingly important for the British aerospace industry. It is our leading overseas market and has been for the last six years. If we go back to 1965 and 1966 we notice that our most important market for aerospace products was South Africa, but that is by the by. None the less, the United States is still top of the league, and we have got to get in there and stay there. This is the reason why so many hon. and right hon. Members, with no partisan feeling, have insisted that we must renegotiate the RB211 contract if at all possible.
Another reason is that aerospace exports, even if one won at cost—and I am sure that the RB211 contract would be very much at cost even if we have to renegotiate it—are exceedingly efficient because in terms of export per man the aerospace industry has a better performance than any other industry in this country except the motor car industry. Its exports have a very high added value, and we must stay in the race in this field. That is quite clear.
1116 However, I do not believe that we can stay in the race if we merely try to develop a power plant industry without an effective airframe industry, and this is another of the lessons which has been rammed home in the last few years and has been rammed home very hard in these last few days and weeks, because the RB211 would have been a much better engine perhaps, certainly an engine with a much more assured financial future, if it had been installed in a British or even European airframe.
The fact was that on the A300, because the right hon. Gentleman the Member for Bristol, South-East (Mr. Benn) did not go ahead with the air-bus consortium, apart from the private Hawker-Siddeley deal on wings, because we had no British participation, there was no chance of getting a British engine in. Then again, because of the extremely serious delays on coming to a decision on the 3–11 we on this side, when we came into power, found ourselves in effect with a decision which had already been made, because any procrastination or indecision can lead to a decision being made when opportunity and the market are lost. What we are left with was a fairly small market for the RB211, a market which was not financially assured, but if we can renegotiate the contract I believe it will be well worth persevering with.
I must proceed to the local aspects of the Rolls-Royce crisis. So many hon. Members in this debate have emphasised them, and they are right to do for constituency reasons. The right hon. Member for Sunderland, North (Mr. Willey) and the hon. Member for Burnley (Mr. Dan Jones) exemplify how broadly-based geographically the aerospace industry is in this country and that is the reason why we cannot afford to ignore its importance to local communities. It is important to Glasgow, for Rolls-Royce has a plant there and it is crucial to a development area. I come to Burnley where components are made, and there is Lucas on Merseyside, at Liverpool as well. Bradford is interested, too. Then there is my hon. Friend the Member for Skipton (Mr. Drayson) who, in his constituency, has the Rolls Royce Barnoldswick plant where 3,000 Rolls-Royce workers are engaged in an area in which a considerable part of the wool textile 1117 trade is declining and where engineering plays a crucial rôle in the economy. My own city is a wool textile town, but we depend more and more on engineering and making components in factories like Hepworth and Grandage, which produces turbine blades for Rolls, and Rotax, which is involved in the Lockheed 1011 contract.
So, one cannot divorce the overall financial implications from all the implications for regional policy and regional development, and that is another reason why we would insist again that my right hon. Friend should renegotiate, if at all reasonably possible, the terms for RB211. However, it would again be misleading to assume that this particular version of the 211 is the be-all and end-all of the British aero engine and aerospace industries. When one considers the broad spectrum of products upon which Rolls-Royce is engaged, this is manifestly not so.
The hon. Member for Derby, North (Mr. Whitehead) mentioned the RB199, I thought rather too scathingly in his partisan and local interest for his constituency town. The 199 is a vital power plant. The whole M.R.C.A. programme is dependent on it, but I believe that more than that is dependent on it. It is yet another quantum jump, this time in the military field, as the 211 was in the civil field. The M.R.C.A. programme is worth 900 units, 900 aircraft at present, and the 199, which is a turbo-fan with a high power/weight ratio, has immense potential for a whole range of military projects which could stem from M.R.C.A., from development of the variable geometry principle.
I suggest that this engine must be persevered with. It would be foolish to imagine that, just because the 211 is in trouble, the 199 is not important and should not receive attention front the Government.
§ Mr. Whitehead
I was trying to say that the two projects were equally important. I hope that the hon. Gentleman would agree with that.
§ Mr. Wilkinson
It is important for the health of the British aerospace industry that we should have a comprehensive capability in the civil sector as well as in the military. They are complementary. 1118 They always have been in the post-war period and should continue to be.
Then there is the Pegasus, of course, which has now reached only 15,000 pounds static thrust, but which has the potential for doubling in thrust if full development went into its power plant. It has applications not only for the Harrier and its more refined and sophisticated developments but for a range of potential civil projects which could rely, in the STOL and VTOL fields on the Vector thrust principle. This is an area where we are ahead of any other nation. The Bristol Siddeley division of Rolls-Royce has developed this and we must remain in the lead.
§ Mr. Dan Jones
In a very interesting speech, the hon. Member is making the case for Rolls-Royce even better than I did. In these developments, does he not agree that research and development here makes it so much a non-profit-making activity that someone must support these ventures?
§ Mr. Wilkinson
The Government have given an assurance that they will support these ventures. That is what we on this side welcome.
On the question of supersonic power plants, we are the only European country with a lead. The Olympus 593 in the civil field was a development of the TSR2 engine, which was in turn a development of the Vulcan engine. In collaboration with S.N.E.C.M.A., we are producing an engine of immense potential. Then there are a number of more minor projects which are none the less important. The Viper for executive jets and jet trainers, and the RB20, which is a lower thrust turbo-fan, are examples. There are turbo-shaft engines and booster jets as well. There is a whole range of projects of great potential application.
The trouble with Rolls-Royce is not just that it had a particularly unprofitable project on its hands with the 211 but that it had entered a period in which its main longstanding engines, like the Spey, the Avon and the Dart, which provided the bread and butter of the company for so long had come to the end of their life as exportable, marketable products. Therefore, they had to concentrate more and more of their precious funds on the research and development of new engines. 1119 When this generation has been developed—I speak here of the 199, the Adour and the Pegasus—we will have a range of engines which in turn will make the company profitable again, a broadly based company with a wide range of interests. It would mislead both the House and the country to say that the RB211 is the be-all and end-all.
The other thing is that we do not have a British or European airframe in which to hang this engine. The development of an aircraft industry just by pursuing engine developments is costly and usually ineffective. This is the lesson. Therefore, finally, in regional terms, we must support Rolls-Royce all we can. I am very glad that my right hon. Friend is doing so. This is most important for our area of Bradford but in terms of the long-term future of the country, we would not be doing it justice if we over-emphasised the importance of the RB211 by itself.
§ 12.56 p.m.
§ Mr. Scholefield Allen (Crewe)
I shared the shock of millions of people in this country and abroad when we learned that Rolls-Royce, that famous name, had been compelled to declare itself unable to meet its liabilities and had been put in the hands of a Receiver. Rolls-Royce has been the high water mark of British enterprise. In my constituency, it employs between 5,000 and 6,000 people in a large factory built just before the war. Crewe supplies most of the labour which is required, but fortunately the larger portion of the work done at Rolls-Royce in Crewe is in the car division.
Our men in Crewe share deep feelings for Rolls-Royce throughout the country, and all the workers in its factories. I would heartily endorse everything which my hon. Friend the Member for Derby, North (Mr. Whitehead) has said. I hope that the Minister will have very meaningful negotiations with Lockheed and that Rolls will be able to go on manufacturing one of the finest engines in the world.
Many questions have been addressed to the Government but the tragedy now is that the time for decisions is so short and may run out next week. We are up against cold hard facts. I am not saying this in a partisan spirit. I am sure that the right hon. Gentleman has worked day and night, but we have not had the 1120 answers which we require. I hope that he will search through the questions addressed to him by the Leader of the Opposition and several hon. Members on this side in previous debates over the last fortnight and give us as many answers today as he possibly can. I wish him all good will in his terrific job. It will take a lot out of him before he has finished, but I hope that he will get a lot out of his labours.
One question which worries the majority of my workers, certainly my supporters, in Crewe, is the position of the car division. It was almost unbelievable to think that this could be hived off.
On 5th November, 1970, my right hon. Friend the Leader of the Opposition said:I will tell the right hon. Gentleman, and also the Prime Minister, where his policies will lead. Is he prepared to face up to the bankruptcy of Rolls-Royce or British Leyland or will he not find that he himself, not I.R.C. because it will have gone, will have to find the money?That prophetic utterance, which nobody dreamt would prove correct in so short a time, is true today. My right hon. Friend said later:I am telling the Prime Minister that, if this were to happen, the Government would either have to find the money themselves directly instead of finding it through the I.R.C. Or if not, the first result of their decision not to do so would be the takeover of a firm that is vitally necessary to Britain in peace or in a national emergency—a takeover by predatory American interests, who would be only too glad to have it."—[OFFICIAL REPORT. 5th November, 1970; Vo1. 805, c. 1292–3.]We wondered whether anybody would have the temerity to suggest that the car division of this firm should be sold off to an American company. However, on 24th February my right hon. Friend the Member for Dundee, East (Mr. George Thomson) received a letter from Lord Carrington saying:As to the future, we should, of course, be sorry to lose the Rolls-Royce potential in this part of the defence field, but I do not see why continued private ownership in British or foreign hands should necessarily threaten this.A great many of our military vehicles are engined by Rolls-Royce and vast numbers of engines in the military command require spares which must come from this company. I trust that we will be told without delay that there is no proposal whatever to dispose of certainly the car division of this company to any 1121 foreign firm, by merger or otherwise. The workers are extremely concerned about this.
We should not forget that many of the machines used by this company have a dual purpose. For example, some machines used for minor aero-engine work are also used in the production of motorcars proper, including military vehicles. This split cannot be carried out with ease, and it can be achieved only if the motorcar division is part and parcel of the general operations of the company.
I was relieved to hear the Minister say, in effect, "Do not take everything you read in The Times for granted." I was alarmed when I first read the reports in The Times today, and then I realised that the newspaper had found time to write a two-column leading article on the subject. I found this disconcerting. The times may be getting out of hand and I have no doubt that the times have been getting out of hand for a long time. I hope, however, that The Times will maintain its reputation for caution and probity. On too many occasions recently it has come out with rather off-the-cuff, hastily made statements which, in the end, have proved to have little foundation. That is not the sort of journalism we expect from The Times.
We must have a complete answer to the allegations that have been made because they will spread quickly throughout the world. They should be contradicted or corrected at the earliest possible moment. I regard it as lacking in decent journalism for a matter of this kind to be dealt with in an article of that sort in The Times, together with a leader, without the authors having taken the trouble to discover from the Ministry whether there were any facts of which they were not in possession. Had they taken the trouble to do that, they would no doubt have been put on the correct lines by the right hon. Gentleman.
We want the car division to remain part and parcel of Rolls-Royce. After all, if the company can be put on its feet in relation to the RB211 the car division would be an asset and not a liability. It would assist the Government in their operations over Rolls-Royce.
1122 The Rolls-Royce motor car division is still making profits. I am informed that it has a long order book. We are speaking of a vehicle which is coveted throughout the world. If this car division became associated with that of any other car manufacturer, for how long would people consider it to be "the" motor car of all time? It would be bound to lose its pre-eminent position.
The Rolls-Royce car has some great competitors, but not one of them produces a vehicle which can really compare. Mercedes are making their way into this country and I agree that they produce a very good car. We do not want any watering down of our fine product as a result of mergers, take-overs or any other form of get-together which might result in the Rolls-Royce car being merged with the product of another manufacturer.
We have had too many mergers in the motor industry. None of them has turned out to be particularly good. Usually the vehicle previously made by the firm taken over is merged with the products of the other company. The efficiency of the industry has not improved as a result of larger units being created. The Rolls-Royce motor car has proved its excellence throughout the world. Let us keep it.
§ 1.9 p.m.
§ Mr. Stanley R. McMaster (Belfast, East)
I share the concern which has been expressed by the hon. and learned Member for Crewe (Mr. Scholefield Allen) about the facts, if indeed they are such, set out in the news columns and leading article of The Times today. I am convinced that The Times is making a mountain out of a molehill. It has done no service to Rolls-Royce or to the nation in the way in which it has built up this case. I believe that everyone who heard or who has read the statement made by my right hon. Friend the Minister for Aviation Supply on the Rolls-Royce position and the Government loan is clear that the promise about the Government's share of the £60 million which was to be advanced was conditional upon a favourable report being received. I look forward to reading the details of the contract when they are published, as I hope that they will be.
I stress that the reason for the debate and for the disaster facing Rolls-Royce 1123 does not, as the Editor of The Times should know, itself turn on the £60 million. The chairman and the directors of Rolls-Royce stated quite clearly that the company could not remain in business even with the £60 million because its liabilities under the penalty clauses of the RB211 contract were such that the company was insolvent.
As my hon. Friend the Member for Enfield, West (Mr. Parkinson) said, this placed the position clearly before the Government, who had no choice. I congratulate my right hon. Friend on his courage in immediately announcing to the House the proposal to nationalise Rolls-Royce, a decision which could not have been an easy one for a Conservative Minister to take but one which I am convinced provided the only opportunity for saving the aero-engine side of Rolls-Royce and of putting Rolls-Royce and the Government in a position where it might be possible to renegotiate the RB211 contract.
I support almost all of what my hon. Friend the Member for Bradford, West (Mr. Wilkinson) said about the importance of the RB211 to the aircraft industry. I agree with him especially that it is a tragedy that the British airbus did not receive the Government's support. Britain requires a viable airframe as well as an aero-engine business—and not only because it provides us with a large part of our export income. If it were not for our aircraft industry we should have, and in future will have, to import most of the aircraft which we need for civil and defence purposes. This is adequate reason why the Government should make available the necessary funds to permit the research and development to go ahead which will enable the aircraft and aero-engine industries to remain in business.
Apart from the trading position, there is also the defence position. Britain cannot do without her aircraft industry. Aircraft industries in other countries, particularly those in the United States and in Russia, are supported on the backs of massive defence budgets and, to some extent, on the backs of rocket research. We cannot afford to mount such support. In place of this, direct grants can be made to the aero-engine industry and the air-frame industry to match the 1124 moneys made available to the aircraft industries in other countries under defence contracts.
The benefit of the technological spin-off cannot be quantified. The Government have a duty to make moneys available to our aircraft industry, and particularly to our aero-engine industry, which are pushing forward the frontiers of knowledge for the benefit and prestige of the nation and in the advance of technology which is shared by the motor car, radionic and many other industries. The RB211 is an advanced technology engine which leads the world. The RB199 is another engine which could earn a great deal of foreign exchange for the nation.
The Government should help Rolls-Royce and make the help practical by using their best endeavours to renegotiate the RB211 contract. This cannot be left to the nationalised company and to Lockheed. Lockheed itself is not in a strong financial position. Therefore, our energy should be directed partly towards the United States Government; and a deal should be made in which the four parties—Lockheed, Rolls-Royce, the United States Government and the British Government—share in providing the necessary additional money to continue with the construction of the RB211, and TriStar.
I take this view because throughout these debates the Opposition have been vague and woolly. In our last debate on this subject the right hon. Member for Bristol, South-East (Mr. Benn) pressed the Government and lambaster them for not supporting Rolls-Royce in an open-ended manner—various estimates have been made of the amount of taxpayers money which would have to be made available; sums such as £150 million and £200 million have been mentioned —to build an engine and provide it at less than cost to an American aircraft manufacturing company most of whose products would be sold in the United States.
As my hon. Friend the Member for Enfield, West said, Britain cannot afford to enter such open-ended contracts, particularly when they are for the benefit of an airframe industry outside Britain.
The only way of saving the RB211 is for Lockheed to agree to pay more. So 1125 far 160 to 170 planes have been ordered, including the order by Air Holdings in Britain. This price should be renegotiated.
If the price cannot be completely renegotiated, the United States and British Governments should between them play a part in making up the difference, in view of the hardship that we would suffer because of the unemployment which is facing, not only those employed by Rolls-Royce directly, but also those employed by the company's many sub-contractors. Large-scale unemployment here would, like a stone thrown into a pond, have repercussions throughout the economy. Similarly, a failure in Lockheed would create enormous unemployment in the United States.
The Government should provide the money which is required. The contract has become uneconomic simply because of the escalation in research and development costs. The amount required adequately to cover that spent by Rolls-Royce on research and development can be quantified, and this should be made up by the Government so that Rolls-Royce can complete its side of the agreement and this essential industry can be preserved. However the figures must be clarified, and a definite limit must be set to the nation's liability.
I am glad that the hon. Member for Derby, North (Mr. Whitehead) initiated this debate, and I was greatly interested in his speech. He made one suggestion which perhaps went a little further than it would be wise for the nation to go. Britain cannot afford to lose her scarce resources and technological skills in developing projects which will not make money. The hon. Member for Burnley (Mr. Dan Jones) seemed to suggest that this country could afford to spend unlimited amounts of money in research and development which, he said, might well be uneconomic. I do not agree with that proposition. The money that we spend in research and development must clearly be designed to earn a profit in this country in the long run. Otherwise, those employed in research and development, whether in the aircraft industry or in any other industry, should be otherwise employed in more profitable ventures. We are a small country and we have to feed our population. Nobody is going to keep us. If we continue to pour money into research and development for which 1126 there is no economic use, the country as a whole will suffer.
I feel that a limited amount—an amount in excess of that which a company like Rolls-Royce can raise in the market for a project such as the RB211 —should be made available by the Government because of the very risks which are involved in a scheme such as developing a new engine like the high bypass RB211. This can be clearly stated and quantified. The amounts involved and the risks are too great for the market, and therefore there is a clear duty on the Government to subsidise the company within given and known limits in order that we can remain in the aircraft industry.
I notice that some hon. Members opposite are smiling. There is a conflict here, and, indeed, the position which I am taking is not as extreme as the position adopted by hon. Members opposite, many of whom have advocated a sort of open-ended agreement, and yet not as hard as that suggested by my hon. Friend the Member for Enfield, West. It was implied in his speech that all contracts should be viable, that research and development should only be undertaken when the money can be raised in the City and a clear profit can reasonably be expected. I am suggesting that there is a position in between, where the length of time or the amount involved, is so great that the money cannot be found in the City and where, for defence and social reasons, the Government should come in and make up the difference. But this should not be an open-ended agreement.
I should like briefly to refer to the position in Northern Ireland. We have a Rolls-Royce factory in Northern Ireland near my constituency, and we also have the firm of Short Brothers which is engaged on the RB211 contract. It is expected that 2,000 men will be employed in Short Brothers making the pods for this engine and another 800 to 1,000 men in the Rolls-Royce-owned factory are involved.
I do not intend at this stage to weary the House with any reference to the unemployment position in Northern Ireland, but I should like to know from my right hon. Friend what consideration he has given to alternative plans, particularly for 1127 Short Brothers and Harland, if the Government are unable to renegotiate the RB211 contract. If what I have been suggesting proves impossible, I should like my right hon. Friend to say something of the work which could be made available to this company in which the Government have a majority shareholding and in which so many of my constituents are employed.
There is a great deal of uncertainty and anxiety in Belfast with the disturbing economic background and the background of him unemployment—some 7½ per cent. total unemployment, which means the unemployment of almost one man in every 10. It is impossible for these men to find other work in Northern Ireland. Indeed, one can foresee this adding to the tension which already exists there, and for this reason alone the Government should be thinking in terms of some alternative work for Short Brothers.
I wonder also whether my right hon. Friend could say what, in his estimation, would be the effects on Short Brothers of the RB211 contract not being renegotiated. Will the company be able to continue its other work on Skyvan, the Fokker sub-contracts and work on the missile side, or is the RB211 such an important part of the work of Short Brothers that what is left would not be viable?
These questions must be answered, and there should be no delay in the answer.
§ 1.25 p.m.
§ Mr. Walter Johnson (Derby, South)
This debate is being held at a most opportune time. Certainly it is being conducted in a very moderate manner. I am sure that hon. Members on both sides of the House want to see a successful renegotiation of the Lockheed contract.
I have no doubt that I am joined by other hon. Members on both sides of the House in congratulating my hon. Friend the Member for Derby, North (Mr. Whitehead) on his excellent opening speech.
It is certainly good news that we have read this morning—which some of us may have heard a day or two ago—that the Government have agreed that the RB211 project will continue while the 1128 negotiations with Lockheed are continuing. I can assure the House that this news will be received with very great relief in many parts of the country, and in particular in Derby. I am certain that none of us will want to say anything today which will make the negotiations with Lockheed any more difficult. As has been said already, we wish the Government every success in these negotiations which I hope will mean the continuance of the RB211 project.
Some of us have been in almost constant touch with our trade union colleagues in the workshops and have been talking to design engineers and technical engineers. Above all, we are tremendously impressed by their loyalty, faith and devotion to Rolls-Royce and by the way in which they are prepared to go to any lengths to save what they believe to be a very viable and profitable project in time. Certainly this project must go on if we are to maintain our position in the aerospace industry. We lead in this type of engine design, and, more important than anything, it will enable many thousands of highly-skilled design and technical engineers to continue on this great project.
I am aware that practically every argument that could be advanced in support of the RB211 engine has been put forward, but for the record it is necessary to go over some of these points again. The RB211 engine is the only commercial three-shaft jet engine in the world. It is technically in advance of its American competitors. The RB211 is the quietest engine of its size. Furthermore, the TriStar, the aircraft which will fly with this engine, we hope, is appreciably quieter than 90 per cent. of all commercial jet aircraft.
Rolls-Royce is the only aero-engine manufacturer to produce the engine complete with surrounding pod installations. This integrated design has resulted in an engine-aircraft combination which has considerable advantages in terms of engine handling and reverse thrust, making this very much a pilot's aeroplane. The Lockheed TriStar flight programme —we have heard a lot about that during this week—is well on time and the pilots are very satisfied with the performance of the engine. The incorporation of the modifications to overcome technical difficulties will result in a delay of roughly 1129 up to six months in the engine delivery programme, resulting in only four months' delay in the aircraft delivery programme.
At present, the cost of the RB211 engine is high, but the Rolls-Royce workers are confident that production costs can be significantly reduced. The customer airlines and Lockheed remain convinced that the RB211 engine is the best which they can buy. Cancellation of the project would jeopardise the future of the British aircraft industry.
Information recently came to me from other sources in America on this subject. For example, one of the engineering vice-presidents of Lockheed who recently visited Derby and went over the Rolls-Royce factory reported favourably to the Lockheed management and to Lord Carrington that with a six-months' delay Rolls-Royce could deliver production engines, to a standard adequate for initial operation, and he was very impressed with the spirit at Derby at the working level and with the technical progress now being made. He said that the greatest worry which Lockheed had was serious reservations about the determination of top management at Rolls-Royce really to proceed with this project. I hope that the new company, and the new directors appointed to it, will soon allay those fears.
I understand from New York sources—again, this information has just reached me—that the banks have agreed to put an extra 75 million to 100 million dollars into the programme in addition to previously agreed sums if they can be convinced that the relaunched programme is viable. Their existing commitments are so vast that it may be worth their while spending some more money to recoup as much as possible. That is a measure of their confidence in the report which they have had from people returning to the United States after visiting Rolls-Royce in this country.
The whole tenor of comment in the industry, in the Administration and in the Press is that if the RB211 is not continued no airline will buy any British aero-space product again. This specifically includes Concorde. This cannot be emphasised too much, and I hope that the Government will take note of it 1130 when carrying out the negotiations with Lockheed. It is of tremendous importance.
White House sources have already suggested that the whole United States-United Kingdom trading relationship will have to be restudied, and the Administration may actively discourage the buying of British products in all fields. It is considered that the RB211 was purchased with United Kingdom Government participation and with implicit United Kingdom Government assurances. I shall say more about that later.
The Government now have the report from the three assessors. It appears that this report must have been favourable to the future technical prospects of the engine. I am pleased that the chairman was able to find time to see the trade union representatives and senior technical engineers from Derby, for I believe that he found their contribution most helpful in arriving at the right sort of assessment.
I hope that the Government can now be in no doubt about the technical arguments. All that appears to remain in doubt now is whether we can renegotiate a better price for the engine and whether Lockheed will be prepared to waive penalty payments for late delivery. On this point, I must return to the question of what the Minister said to his opposite number in America.
The right hon. Gentleman was kind enough to reply to a Question from me on Wednesday this week asking what assurances the Government gave to the United States Government about the future of the RB211. He replied:None."—[OFFICIAL REPORT, 24th February, 1971; Vol. 812, c. 153.]I accept what he says, but the suspicion will remain and will be cleared up only if the Government are prepared to say, either through the medium of an inquiry, such as we are asking for on this side, or in the form of a White Paper just what discussions did go on with the Minister's opposite number in America.
§ Mr. Corfield
I wish to make this absolutely clear, as I have done on several occasions to the Press. I have talked or corresponded with no member of the United States Administration on this subject. In fact, the only member of the United States Administration with whom I am aware of discussing anything is 1131 Mr. Volpe, and that was on the subject of hijacking when I was at the Board of Trade.
§ Mr. Johnson
I am honestly prepared to accept the Minister's assurance in this matter, but I feel that the full evidence ought to be put down at some time. It is clear from certain normally reliable newspaper reports—
§ The Parliamentary Secretary to the Ministry of Aviation Supply (Mr. David Price)
They are not reliable reports.
§ Mr. Johnson
—that the Minister had conversation with his opposite number in America, Mr. Packard, and that the discussions which he had with him led to the—
§ Mr. Onslow
On a point of order, Mr. Deputy Speaker. If I understand the hon. Gentleman aright—I may not have done—he is, in effect, telling the House that the assurance which the Minister has just given cannot be relied on, and he prefers to rely upon what he describes as normally reliable newspaper sources rather than the Minister's word in the House of Commons. I hope that he will make perfectly clear that that is not what he intends.
§ Mr. Deputy Speaker (Sir Robert Grant-Ferris)
Order. The hon. Gentleman knows very well that that is absolutely no point of order, and he has no right to raise it like that with the Chair.
§ Mr. Onslow
With great respect, Mr. Deputy Speaker, may I put it to you like this? If I was justified in submitting to you that the hon. Gentleman's words bore that construction, I should have been perfectly justified in asking you to call upon him to withdraw.
§ Mr. Johnson
I shall not labour the point because I am prepared to accept the Minister's word. I said that at the beginning of this part of my speech. What 1132 I am saying to the House, nevertheless, is that, if that is the information, it is time the question was cleared up once and for all, and it should be put down in some form of written evidence to the House, either in a White Paper or as part of an inquiry.
§ Mr. Corfield
With due respect, I do not feel that this is something which the House or I should be required to accept. I have given a definite assurance to what I regard as the highest body in the land, the House of Commons. It is, I submit, totally unnecessary to imagine or assert that it would have more force, or that it needs reinforcing, by being put in writing in a White Paper. It will be in print in HANSARD tomorrow. I hope that the hon. Gentleman will make abundantly clear that he accepts my assurance to the House of Commons, and that that is the right place to give the assurance.
§ Mr. Johnson
I fully accept what the right hon. Gentleman says, and I started my comments by saying that I accept the Minister's word.
§ Mr. James Scott-Hopkins (Derbyshire, West)
But then the hon. Gentleman went on to make allegations.
§ Mr. Johnson
No. What I am saying is that if we are to have this point cleared up once and for all, it is only common sense, in my view, for some sort of evidence to be laid before the House.
§ Mr. Corfield
Mr. Packard is a member of the American Administration, the Deputy Secretary of Defence. I gave a clear assurance that I had spoken to no member of the Administration, and that includes Mr. Packard, but to be absolutely accurate, and to ensure that there was no misunderstanding, I recalled the conversation which I had had with Mr. Volpe about hijacking when I was at the Board of Trade. On the subject of Rolls-Royce, since I have been in this Department I have had no discussions or correspondence with any member of the American Administration, and that includes Mr. Packard. I cannot be clearer than that.
§ Mr. Johnson
I wish that the right hon. Gentleman had made that clearer at an earlier stage. That could have saved these exchanges, because what we wanted was the background and the available evidence, and it had not been made clear until this debate.
§ Mr. Johnson
With the setting up of the new Rolls-Royce (1971) company we have been told this week the names of various eminent people who have agreed to serve on the board. If the Minister is to have the full confidence of everyone working in the industry he should go further than appointing people with the background of those who have already been appointed, about whom I make no criticism. It is usual in a nationalised industry to have on the board someone with knowledge and understanding of the workers' interests. The right hon. Gentleman should consider the appointment of a trade union official as an additional member of the board to give the workers confidence and to make sure that their point of view is made known there.
I also ask the new company to get into discussion and negotiation with the trade unions. For the past three weeks they have been out on a limb, being unable to talk to anyone. There has been no management to negotiate with about conditions that might arise in the factory and no opportunity to consult about these very important matters affecting their livelihood. They have taken every opportunity to pursue their members' interests and to get the right information across to help the Government make their decision. They have been with Members on both sides to visit Ministers to give that information. The trade unions should be praised for their commendable restraint during this difficult period.
§ Mrs. Sally Oppenheim (Gloucester)
Does the hon. Gentleman accept that a three-months' draughtsmen's strike at Rolls-Royce must have had a very undesirable effect on the overall profitability of the company and to some extent have led to this tragedy?
§ Mr. Johnson
That type of suggestion is thrown at us during the discussions. 1134 It is suggested that it is the workers who are responsible for the collapse of Rolls-Royce. That is absolute nonsense. If the evidence is finally drawn up in a court of inquiry or presented in a White Paper I think that it will be seen where the blame lies.
§ Mr. Whitehead
Is it not a fact that trade union wage demands and so on in the escalation of the cost of the RB211 represented about 2 per cent., and no more?
§ Mr. Johnson
I hope that the new Rolls-Royce company will quickly get into negotiation with the trade unions. They have to bear the brunt of this very difficult situation in the knowledge that thousands of work people whom they represent might find themselves without jobs in a few weeks' time. I ask the company quickly to start discussions with the trade unions in the various factories not only in Derby but up and down the country.
We face very difficult times in Derby in particular if the project is not continued. In Derby alone about 15,000 people have had hanging over their heads the threat of unemployment for the past 3½2 weeks. It is still there, but trade union representatives have been trying to allay their fears and do everything to help them in these matters. They have carried out their duties by passing on information and telling them as much as they could, which has been very little as they were unable to negotiate with or consult anyone.
The trade unions have to deal with a number of worries in Derby in connection with various aspects of what might happen should the project not be continued. Even if it does go on, there are still bound to be a number of redundancies in Derby.
I ask the Minister to study some of these points. He was good enough to look at one or two of them in response to Questions, but I am not entirely satisfied with the replies. Obvious questions are: what will the redundancy payments be? Can they be paid from existing sources? Will they be paid by the new company?
In reply to a Question from me the Parliamentary Secretary said:Arrangements for occupational pensions and redundancy payments for Rolls-Royce Ltd. 1135 employees are in the first instance a matter for Rolls-Royce Ltd. under the authority of the Receiver and Manager. However the Memorandum and Articles of Association of Rolls-Royce (1971) Ltd. provide for the transfer of rights in existing pension schemes of Rolls-Royce Ltd. in relation to employees of the new company."—[OFFICIAL REPORT, 24th February, 1970; Vol. 812, c. 154.]That is all right for those who will move and have been taken over by the new company. But if the RB211 project does not continue, what happens to those people who are not moving over? Will they be looked after, and will their redundancy payments and pension arrangements be dealt with satisfactorily?
I must say a word, too, about workers' shares. Hon. Members on both sides have received a volume of correspondence on the question. I have had a number of letters, and last Friday in Derby a number of constituents came to see me about their own problems. I can do no better to show the plight of people who were advised by the company over the years to invest in the success and future of their own company by buying workers' shares than to read one of the letters I have received. Those workers who invested now wonder whether their savings will be honoured under any new set-up and any new company that might be brought into operation. The letter says:I am very concerned about my life savings which I invested in Rolls-Royce comprising £800, which is the maximum for all employees. in workers' shares, and £747 in ordinary stock, a total of £1,547, which I thought would be as safe as the Bank of England. This was invested variously over the past 16 years to bring me a bit of money in dividends for my old age and with the hope of selling a few now and again if and when I needed money.I think that that is true of other retired employees. Many of us have evidence that it is.
I ask the Government and the new company to take note of this problem and do what they can, whatever the financial circumstances are, to make good the workers' shares so that at least this part can be honoured. It would be grossly unfair if those people who were encouraged by Rolls-Royce to save with the firm by acquiring workers' shares were not paid. It would be a national disgrace.
There are a number of outstanding claims for industrial injury compensation. 1136 I am dealing with one such case at the moment, concerning a man who was injured at Rolls-Royce in 1967. Discussions between the company and the trade unions have been going on since then. The negotiations for damages resulted in an offer being made, but the man was advised not only by his trade union solicitors but also by a specialist not to accept. The negotiations have been going on year after year and the matter has not been resolved.
What will happen in such circumstances? One can imagine the anxiety and worry of an individual who already is in a broken state of health as a result of this industrial collapse. I hope that the Government and the new company will be able to do something about this matter. It is an indication of the sort of problems which arise in the present situation.
The Government are now engaged on these crucial negotiations and the whole House wishes them well. We want to see a renegotiated contract with Lockheed. I ask the Government to keep in mind not only the economic circumstances and the financial commitments but also the social consequences of the cancellation of this project. In Derby alone there could be 15,000 skilled employees without jobs. This is quite apart from the effect on contractors and sub-contractors. If nothing is done to save this project, Derby will become another Jarrow.
It is extremely important that these highly skilled men should not be put on the scrap heap and that design teams should not be broken up since they may never be able to be drawn together again. Highly technically skilled men will leave the country if they can get jobs elsewhere. That would be a disgrace. I am certain that the Government will take account of all these points.
We are now in the position of having to wait while the negotiations go on. I hope that the Minister in his reply will be able to give more up to date information. Although the Government have agreed to allow the project to go on and work to continue in Derby, the fear is in everyone's mind that the project might not proceed. I ask the Minister to inform the House at regular intervals about what is going on so that we can 1137 pass on the information to our constituents.
§ Mr. Dalyell
On a point of order. Everybody who has listened to the speeches in this debate must regret the absence of one of the Law Officers. Is it not possible, in view of the very real problems raised by my hon. Friend the Member for Derby, South (Mr. Walter Johnson), for a Law Officer to be present?
§ Mr. Deputy Speaker (Sir R. Grant-Ferris)
It is an old idea that Members should ask for the presence of a Law Officer during a particular debate. They are, of course, entitled to do so. However, the Chair has no power to instruct Law Officers or to direct the Government to produce them. It is entirely a matter for the Government as to whether a Law Officer should be present or, when asked by an hon. Member, to decide whether a Law Officer should be asked to come to the House. The matter must be left to the Minister in charge of the Bill.
§ 1.53 p.m.
§ Mr. James Scott-Hopkins (Derbyshire, West)
Although it would be pleasant to have the Law Officers of the Crown present during this debate, I am sure that they will read in HANSARD what has been said in this debate. Doubtless they will find time in due course to advise the House on the problems which have been raised.
All hon. Members are in agreement that we should do our very utmost to save the RB211 contract if it possibly can be done and to minimise the damage to our constituents who work for Rolls or any of the sub-contractors. I shall not attempt to follow some of the points of the hon. Member for Derby, South (Mr. Walter Johnson). It is important that we should get back to the Motion, which mentions the effect which the failure of Rolls-Royce has had and is having not only in Derby and in Derbyshire but in many other places throughout the country. There is no doubt that there is a tremendous devotion on the part of Rolls-Royce workers and among workers who are engaged in producing Rolls-Royce products in the sub-contracting companies. They wish, of course, to continue to do their work and are happy to do so.
1138 The last two weekends I have spent in my constituency have been some of the most harrowing days I have ever experienced in the constituency. People have constantly been telephoning me or coming to see me. They have been engaged in management or work at these firms or on other contracts with Rolls-Royce. It has been difficult to give them any sensible advice.
I am no expert in the technicalities or capabilities of the RB211 and I am more than prepared to let the three wise men, the assessors, tell the Government all about the situation. I hope that my right hon. Friend will be passing on that information to the House in the coming weeks and months. I have been told all kinds of conflicting stories about the RB211 project by technicians, designers and by those who work in the Rolls-Royce sub-contracting companies, and I am sure that they are all sincere in what they have told me. I hope that all the advice given to the Government on this matter will be favourable to the RB211 contract in the technical sense.
However, that does not end the matter. It is not just a matter of whether the contract is technically feasible or will fulfil the technical specifications which are laid down. There is also the extremely important matter of whether the economic and financial arrangements can be satisfactorily renegotiated, initially by the Government and then by the new Board when it meets Lockheed in the weeks ahead. I regret that in the matter of renegotiation there should have to be a deadline of 5th March. It is difficult that such a time limit has been laid down, but we have to do the best we possibly can in that time. I hope my right hon. Friend will direct his attention to the many points which have been put to him in this debate and we shall listen to his reply with interest.
We have had three debates on this matter and many things have been said about the failure of Rolls-Royce and the reasons. I am glad that my right hon. Friend intervened a little earlier to say that it was Rolls-Royce who decided to withdraw from the £42 million offer in November last year. There are decisions which must be taken in principle by the Government. All we can do in this debate—and I am extremely glad that 1139 the hon. Member for Derby, North (Mr. Whitehead) initiated it—is to remind my right hon. Friend that it is not only Rolls-Royce which will be severely affected. I will not name companies since that would be an invidious thing to do, but there are many other firms in Derbyshire, in Scotland and all over the country who are gravely affected. This involves not only the RB211 contract but other contracts as well.
During my visits to my constituency I have been asked, "Should I continue these lines of production on Spey, Conway and so on, or what shall I do?". I have been asked my advice on these sorts of matters and I cannot give such advice since I have not sufficient knowledge of what is going on or what is liable to happen. My right hon. Friend has said that the RB211 work will continue while negotiations are going on. There is already a severe cash crisis and crisis of credit in all these smaller companies. I do not know whether they will be able to continue work on the contract either this week or in the weeks ahead. Many of these sub-contractors will be in difficulties and may go bankrupt and therefore will be unable to continue to supply spare parts in the contracts which they had with the main company. This could be an embarrassing situation for the new Board.
I know that my right hon. Friend is restricted in what he can do. I know that the Bank of England and the joint stock banks have done the maximum they can to carry these companies through, but I fear that in many of these cases it will not be enough. Special action will have to be taken and special thought given to these matters. I am not clever enough to try to advise the House or my right hon. Friend on what this action should be. I point to the dangers that exist not only in human terms but in terms of striking at the policy of the new company in being able to fulfil existing contracts with airlines.
I am glad that we have had this debate. It has highlighted some of the more abstruse matters which are only of slightly less importance than the major question of principle, which is whether Rolls-Royce should be nationalised and, if so, how. These matters are important in human terms in Derbyshire where 1140 some indication of the Government's thinking and the thinking of the new board is needed as soon as possible. I appreciate that this cannot be until after the negotiations are completed by 5th March, but I ask my right hon. Friend as soon as possible after that to see that a statement is made about the future of the sub-contracting contracts.
§ 2.0 p.m.
§ Mr. Raymond Fletcher (Ilkeston)
I am glad to follow the hon. Member for Derbyshire, West (Mr. Scott-Hopkins), because I agree with everything he said, which is astonishing as we meet in different contexts at different times. This afternoon it is important to emphasise that we are not conducting either an inquest or a post mortem. Rolls-Royce is not dead; it is not a heap of ruins; it has been neither annihilated nor liquidated. It is still a going concern.
There have been faults in the financial superstructure which have produced a hiccup, but it is only a hiccup, in the history of aero-space. It has produced distubance and alarm, but no more than that. Rolls-Royce is still a going concern, still a highly enterprising concern. We are not trying to find out why it ran into difficulties; there have been three previous debates on that question. But it is important to say in the House this afternoon things to which attention will be paid on the other side of the Atlantic, for we are not dealing with something which is dead.
I have read many reports about the RB211. Like the hon. Member for Derbyshire, West, I am not a technical specialist. Without being conflicting, those reports which have reached me have contained differences of emphasis, but it seems fairly clear that we must emphasise that this is not simply an engine on paper but an engine which exists. It is also an engine which is doing and has already done some of the things which the next generation of aero-engines will have to do if the aero-space industry is to survive at all.
Let us look at the matter in the historical context. What is happening is that the whole age of aeronautical development, culminating perhaps in the Dart engine, is coming to an end. We can no longer—I am referring not to myself but to the technical designers 1141 and others who are my personal friends—just sit in our offices or go to the workshop and project our ideas in terms of more and more speed and more and more power. Modern technology in many areas other than aero-space now has to take a kind of U-turn. It has to meet human needs as distinct from mathematical and technological requirements. It has been the same in the motor-car industry even since Mr. Ralph Nadar hit the American auto-industry with something of the impact of a 2-kiloton nuclear bomb.
In this engine we have an attempt, and I firmly believe, as there was no depression among the Rolls-Royce technicians and workers whom I recently met in the House, that it is a successful attempt, to get the noise, the stink and the filth out of aero-engines. Knowing the men concerned, many of them personally, I firmly believe that this will be a successful attempt. If it is successful, this will be not only a successful engine, but it will breed other engines, which is the characteristic of technological success in this respect. Personally, as I am much more of a political philosopher than a politician, I am rather more interested in the RB211 Mark IV and Mark V, the kind of engines which will be bred from this first experimental engine, than in the experimental engine itself.
Here I want to interject a constituency interest. I have between 600 and 700 workers in a small Rolls-Royce plant in my constituency. Although the plant is small, it has a distinguished history of contribution behind it. It started with the Merlin and it went right through all the engines between the Merlin and the Dart. At this moment, it is engaged on certain specialised work which fits in with the RB211 project. It is producing construction materials designed to absorb and suppress noise. Because of this kind of work, it is one of the most advanced plants in Europe of this kind and even the Americans visit it to see sound absorption techniques and sound attenuation techniques. It has recently installed the most modern vacuum furnace in Europe.
I am content to leave all the technical matters to the assessors, three very competent men. I should like to ask whether, even if anything should happen to the RB211, and at this moment I cannot conceive that anything will, there is a spin- 1142 off, part of which is represented by this small plant in Ilkeston. I leave it there, because the Minister is to speak later and I prefer to leave it with him.
"Spin-off" is a rather hypnotising expression. It hypnotised me far too often in the last few years when I was writing about technological developments, a disgracefully bad habit which I have long since given up, because I landed myself constantly in difficulties. I tended to get enthusiastic about spin-off and technological developments as such, nobody more so on this side of the House. In arguing about the American space programme with someone who did not like it as much as I did, I was told that after millions of dollars had been spent and six men put on the moon, we had got the non-stick frying pan. One tends to get too enthusiastic about the spin-off and about technological developments as such.
To take a slight look backwards, not in the sense of recrimination, but to put certain things in perspective concerning the Rolls-Royce board of directors; every person in the country was far too enthusiastic at the time the contract was signed. It was the whole national atmosphere, and it was suggested that we had achieved a triumph. Hon. Members on both sides of the House in recent years have learned to treat triumph and disaster as two imposters, as Kipling once told us we should treat them. Because all of us were too enthusiastic, the then directors of Rolls-Royce did things which, in their cooler and calmer moments they might not have done. They signed things which, if the atmosphere had been different, they might not have signed.
I mention this to emphasise that it must not be assumed that Labour Members have any less respect for financial discipline in and out of industry than hon. Members opposite. For example, a trade union which did not carefully relate the scale of its contributions to the scale of its benefits would not last very long as a trade union. One is not suggesting something heinous when one suggests from this side of the House that financial discipline is necessary, bearing in mind all the time the necessary inevitable losses involved in research and development. 1143 It is time that financial discipline was restored to Rolls-Royce and I welcome the fact that it seems to have been. In spite of that I do not think that we should be too savage in our criticism of the directors who negotiated the original Lockheed contract. In so far as any men could they were reflecting the national mood at the time, which was not generated by the late Government or by hon. Members on this side of the House. When there is a national mood of that kind mistakes can be made.
Having said all of that I wish the new enterprise well. It is rather ironic that in many debates in my own party I stoutly resisted the nationalisation of Rolls-Royce under the Red Banner yet I am here today welcoming it under the Blue Banner. In addition, I have contributed to the writing of a little anthem to celebrate this historic event. I do ask the Minister when he replies to emphasise as firmly as he can that we are not discussing either a dead project or a dead enterprise. Rolls-Royce is still there, RB211 is still there and I hope that he will let the world know that as loudly and clearly as I know he can.
§ 2.11 p.m.
§ Mr. G. B. Drayson (Skipton)
As I have informed the House, I have one of the main Rolls-Royce factories responsible for the production of RB211 in my constituency. All of my constituents who work there are hoping that the new Rolls-Royce Company will be successful in its negotiations with Lockheed and that there will be a continuation of the RB211 project. What appears to be lost sight of in the discussions in connection with the problem is that all this arises out of action taken by the directors of Rolls-Royce in issuing a statement early this month. That statement said:The programme of the RB211 engine for the Lockheed Trijet aircraft, due in service in November of this year, has met with even greater problems than were foreseen in November last. … These factors give rise to additional costs and liabilities which are wholly beyond the financial resources available to Rolls-Royce. In these circumstances it is not feasible for them to proceed with the RB211 under its present contract.The statement goes on to say:In the light of this situation the Board have decided"—1144 not the Government—that they have no alternative but to ask the Trustees of the Debenture Holders to appoint a receiver and manager.The Government are to be congratulated on their speedy reaction to this statement. They immediately announced that they would be responsible for the continuation of this programme, that they would save those assets of the company which were considered to be vital to the national interest. Rolls-Royce engines are used in 81 of the airforces throughout the world and in 200 international airlines. I have had several hundred letters from my constituents expressing their anxiety about the situation in their town. Often members of families have been working there for 20 or 30 years, frequently as a husband and wife team. People are buying houses on mortgage and paying for cars and it is easy to appreciate the tremendous impact that this event has had on their lives.
Often there is a tendency to look for a scapegoat. Unions may blame management, management may say that the unions were in some way responsible. It is far better when it can be said that the Government were responsible—they are considered to be responsible for almost everything. In this case the Government are the least blameworthy of any of the parties and I congratulate my right hon. Friends upon their prompt action. What we all hope is that they will be successful in renegotiating the RB211 contract. Unfortunately there are a number of disturbing factors.
Hon. Members have quoted The Times and The Guardian, and when I knew that we were to discuss the economic consequences of the failure of Rolls-Royce I turned to the Economist to see what it said about the Rolls-Royce situation. It said that the cost of the Rolls-Royce engine would be 30 per cent. higher than the original engine and 20 per cent. higher than the American equivalent.
§ Mr. Drayson
I am quoting from the Economist. It goes on to say that the cost for thrust of the United States General Electric engine is £8.50 per pound of thrust whereas at present rates the cost of the RB211 is £1090 per pound 1145 thrust. Hon. Members opposite say that this is not the case, but I am sure that the Economist must have had very good grounds for quoting these figures.
The trade unions, which play such an important part, have come forward with their own suggestions as to how they might be able to help. It has been rumoured that in the last two or three weeks production at Derby has gone up most remarkably. I hope that that is so and that it will continue. As the hon. Member for Derby, South (Mr. Walter Johnson) had much to say about the part that the unions can play, I must draw to the attention of the House and the hon. Gentleman to an article in a newspaper in my constituency which announced the news about Rolls-Royce going into liquidation and, on the same day and page, carried the statement that workers at Rolls-Royce Barnoldswick had put in a wage claim of 21 per cent. At that time the management offered 9¼ per cent., which was rejected. I was glad to read that certain members on the shop floor were not happy with the attitude taken by the unions. They said:The management offer has never been put to the shop floor before being rejected.I would draw to the attention of the House the article in the Sunday Times of 26th July, 1970. The headline is:The war inside Rolls-Royce.It says:On Tuesday George Doughty, the general secretary of the militant Draughtsmen and Allied Technicians Association declared war on Rolls-Royce. It is only too clear that he means business. … It promises to be a long and bitter war, and it could just bring the company crashing down around the combatants.Is that what they wanted? Further on it says of the D.A.T.A. claim:Its formal document contains one chilling paragraph: Notwithstanding the company's financial position it is necessary to remind management that D.A.T.A. members are not a philanthropic organisation but that they come to work in order to buy the necessities of life. Even if the company were completely bankrupt we would still be seeking wages commensurate with other workers in engineering.'The Sunday Times goes on to say:That paragraph has a ring about it of an epitaph".The Government have come to the rescue of the old Rolls-Royce Company by forming Rolls-Royce (1971). I hope that some understanding has been reached 1146 now. But will the union at Barnoldswick press ahead with its 21 per cent. claim? If so, allowance for it will have to be written into the new price for the Lockheed contract. It may well be one of the factors which makes the Government's negotiations more difficult. I should like to hear from the Minister what assurances he has received on this matter. He has had assurances from some of my constituents who are building the prototypes of the RB211. The engines that have been flown to the United States and fitted into and are now flying in the Lockheed frames.
My constituents have said that they do not always go along with Derby. They do not ask for parity with Derby. They want to keep the happy situation which exists in this small town on the Lancashire and Yorkshire borders.
I read in the newspapers today that the Amalgamated Engineering Union is calling a one-day strike on Monday because it does not like certain legislation which is going through the House. I wonder whether the workers at Rolls-Royce will join in that escapade. I hope not. I hope that they will show a sense of responsibility and will realise that it is this House which is trying to save their business. For the A.E.U. to indulge in political action of an industrial kind just because it does not like something in the Industrial Relations Bill is, at the present juncture, highly irresponsible. I hope that Derby and the rest of the country will set an example on Monday morning.
The success of renegotiating the contract depends very much on the question of costs. I think that the Government must put in an element of subsidy, eventually. We may jib at the idea of subsidising American airlines, but in the long-term it may be to our advantage. We have dispensed with the open-ended contract of the old Rolls-Royce Company which could have involved us in the expenditure of unlimited sums of money.
§ Mr. Dan Jones
I should hate anyone to give the impression that the trade unions have contributed in any way to this unfortunate situation. I remind him that the wages of Rolls-Royce workers are below those of workers in the automobile industry. The wages of workers in his constituency and in Burnley are below those of workers in Derby. I do not think that it can be said that wages 1147 are a contributory factor to the present unfortunate situation.
§ Mr. Drayson
I do not think they are not and I am glad that the hon. Gentleman has reminded the House that the wages of workers in my constituency are not comparable with those of workers at Derby. They are much less. They are prepared to allow the present situation to remain in order to encourage the Government to continue to run the Rolls-Royce factory there. The shop stewards committee, when it met my hon. Friend the Minister of Aviation Supply, pointed out this factor to him. But it is when the prototypes are finished with at the Rolls-Royce factory in Barnoldswick and work is started on the production models that the costs may escalate because of further wage demands.
§ Mr. Whitehead
Is the hon. Gentleman aware that there has not been a serious industrial dispute at Derby since before the war?
§ Mr. Drayson
That may be so. What I am concerned with—and this is the vital factor in the negotiations—is the question of costs and their escalation. The Economist—and here I do not agree with it—states:But there is no point in even attempting an RB211 salvage unless the way can be seen to bringing the Rolls-Royce costs down to a point where they are internationally competitive again.We must be internationally competitive if we are to continue in this business. It is not only a question of the Lockheed contract. The original order was for 540 engines. If we can look forward to a figure of 1,000 or 1,500 engines I shall be only too pleased. But costs are a vital factor.
The Government are playing their part by ensuring that the aviation side of Rolls-Royce is enabled to continue. I give them my full support. I am sure that the House wishes the Minister and the Government well in the negotiations which are to start next week.
§ 2.26 p.m.
§ Mr. Leslie Huckfield (Nuneaton)
I rise to speak on behalf of the 8,000 workers in the Rolls-Royce Coventry factories of Parkside and Ansty.
The hon. Member for Skipton (Mr. Drayson), who represents a Rolls-Royce 1148 factory, made a most unfortunate speech. I cannot see what we stand to gain by recrimination.
§ Mr. Huckfield
The Minister has assured us time and again that labour costs represent only about 15 per cent. of the escalation in the Rolls-Royce launching and development costs. It is therefore most unfortunate that the hon. Member for Skipton should have spoken in the way that he did.
I congratulate my hon. Friend the Member for Derby, North (Mr. Whitehead), not only on raising this subject, but on the manner in which he introduced it. The moderate question-asking, fact-seeking way in which he raised it on behalf of his constituents was commendable and was in the best tradition of inquiry of the House. I propose to approach this matter in exactly the same style on behalf of my constituents and the sub-contractors who have approached me, as they have approached hon. Members on both sides of the House.
Irrespective of the legal interpretation put on the guarantee of £42 million which was made available on certain conditions last November and of the interpretation which the Law Officers of the Crown have put on it, the general interpretation and opinion not only in the City of London but in the country as a whole is that Rolls-Royce had already got the £42 million.
I quote page 17 of The Times Business News for this morning:There is a strong impression in the City that the accepting houses would not so readily have agreed to continue and indeed take on an additional proportion of the Rolls-Royce credit risk if they had thought that the whole package was conditional on a satisfactory report from Cooper Brothers".About three weeks ago I quoted in the House a letter from a sub-contractor in my constituency—and I beg the House's indulgence to quote it again—which made exactly the same point. It said:This company, during November, when the Government promised £42 million was led to believe that Rolls-Royce had official and intense Government backing and on such a belief was quite prepared to carry on with sub-contract work and in fact, in good faith, took on substantial additional work, I might add, to the detriment of other customers1149 This is the general climate of opinion in the City of London and in the country, and perhaps in the United States, about the Government's commitment to back up Rolls-Royce.
We are bound to accept the undertaking given by the Minister that he never guaranteed any such thing to any American counterpart. But, irrespective of that, if there is such a general prevailing mood of opinion in the country that the guarantee had already been given, there is bound to be some washing over of that prevailing mood into the United States and into Lockheed that the Government had already guaranteed the money. In view of the quotations which have been given showing that Mr. Haughton, of Lockheed, seemed very surprised that the Government were no longer prepared to continue the funding of the operation on the same basis, one can only wonder what kind of overspill of prevailing mood there was into Lockheed and into that country at large.
I do not, however, wish to pursue that point except to say that when my hon. Friend the Member for Heywood and Royton (Mr. Barnett) received his letter from the Minister of Aviation Supply in which it was made clear that the £60 million was absolutely conditional on the report of Cooper Bros., I echo my hon. Friend's observations in saying that I, too, wish that that letter had been made a lot more public in this country.
§ Mr. McMaster
Is not the hon. Member aware that the reason for the bankruptcy has been clearly stated to be that the £42 million that the Government agreed to advance, whether conditionally or unconditionally, plus the £18 million from the banks, making a total of £60 million, proved to be inadequate? The company was insolvent in spite of the £60 million.
§ Mr. Huckfield
I suppose that I should be grateful for that interjection, but it was not germane to the point. I was making the point that many subcontractors throughout the country did not pursue a legal battle with Rolls-Royce and certainly agreed to carry on with Rolls-Royce work. As the hon. Member himself has admitted, the subcontractors are vitally important to Rolls-Royce. They agreed to carry on with the work on the 1150 understanding that additional Government backing was already there.
I want to turn to one or two other points which have not been adequately explained from the Government Front Bench. First, there is the question of why we got no real explanation in the House of the original cost escalation from £75 million to £135 million. There has been quite a bit of speculation about the reason for the original cost escalation, including that in Aviation Week and Space Technology of 15th February, which categorised several important difficulties which may have arisen. I would certainly like clarification from the Minister on these points.
That journal mentions the serious difficulties in blade clearances; leaking seals, which at one point resulted in engines being covered with oil; design delays in connection with gas producer efficiency; delays in connection with the new combustion chamber at Derby and, of course, the well-publicised failure of the Hyfil blades. I wish that the House could be given information about the reason for the original cost escalation.
More important still, what was not know in November that was known in January? What information suddenly emerged in January which could not have been found out with a little more diligent perception last November? The Industrial Reorganisation Corporation had been investigating Rolls-Royce since January, 1970. The Under-Secretary will know quite well that it was one of the conditions of the £10 million Rolls-Royce aid from I.R.C. that Mr. Morrow and Lord Beeching were put on the Rolls-Royce Board and a report was called for from I.R.C. Surely, therefore, most of the information which, the Government claim, suddenly came into their hands in January must have been available, had they taken the trouble to inquire, in November. If that was not the case, I hope that the Minister can provide fur-their enlightenment. In debates hitherto, that enlightenment certainly has not been forthcoming.
I want to return once more to the important point about labour costs, because I regret sincerely that hon. Members opposite have attempted to introduce this point. It is true that labour costs in the Coventry factories may, to 1151 a certain extent, be higher than labour costs in one or two other factories. That applies to Coventry generally; parity with the Midlands is the cry throughout the country. I wish, however, that productivity comparison with Coventry was also the cry, because when one examines the substantially higher levels of productivity in the Coventry area I am bound to justify some of the wage claims which have been made in the Coventry area over the years. It is not simply parity with wages: it is parity with the productivity of Coventry and the West Midlands at which we should also aim.
Will the Minister in his reply please tell us why all that is now being said from the Government Front Bench could not have been known with a little more diligent perception last November, when all those rather confusing statements about the £42 million were made?
Far more important as a general aviation point is that despite the rather disparaging comments which have emanated from the Minister, and despite the doubts and, indeed, the whole cold water policy which has been adopted by one or two hon. Members opposite, the Lockheed TriStar project as a whole is going very well indeed. I could quote, as I have done already, from the Flight report when it sent its reporter out to Palmdale, in California, before the Rolls-Royce debacle was announced in the House.
To quote from Flight of 11th February:The genuine optimism in this respect is still complemented by a belief that not only will the TriStar survive the financial troubles of the corporation, which revolves around the C-5A. but that in the long term it will be a profit-maker".To endorse that, as is by now well known, we had the very complimentary reports from the chief test pilots of Lockheed who have been flying the two TriStars. Therefore, despite the general lack of optimism from hon. Members opposite about the RB211 and TriStar, out in California up to the introduction of this new crisis the whole thing was going very well.
In a debate in another place on the Rolls-Royce Purchase Bill, the noble Lord, Lord Kings Norton said:I think that the first flight of the first Lockheed TriStar was one day late.1152 In fact, it was 25 minutes late.
To fly a prototype aeroplane 33 months after its inception is no mean feat; to have a flyable engine 33 months after its inception is nearly a miracle."—[OFFICIAL REPORT, House of Lords, 15th February, 1971; Vol. 315, c. 413.]Despite all the scorn which is being poured upon the financial management of Rolls-Royce, to get 10 flight-rated engines out to Palmdale and flying in 33 months is nearly achieving a miracle. That is the kind of feeling which should go out from this House to Rolls-Royce and to Lockheed in California.
I am sorry to continue with so many quotations, but there is need for authoritative comment on this project. I quote from Aviation Week and Space Technology of 22nd February—this week—a report, again, on the prospects for the 1011 test series:If the additional engines are fully rated at 40,600 lb. thrust, Lockheed could probably receive type certification for the L-1011 on schedule.Despite all that we have heard, there is, therefore, still a very good possibility that we could get certification of the TriStar on schedule.However, highest thrust obtained so far in flight tests has been 33,000 lb. If the later engines are similarly under-rated, the company will have to choose between delaying certification until fully-rated engines are available, or certifying the L-1011 with considerable performance and gross weight restrictions imposed by the reduced thrust.The main point is that despite all the disparaging comments, the Lockheed TriStar test programme is going ahead bang on schedule towards certification. If only Lockheed could get some more flight-rated engines out to Palmdale, we could make sure that the final certification was also completed bang on schedule. This is why the additional aid just announced by the Government for the RB211 is so vital to get those additional flight-rated engines out so that more TriStars can be flying.
Apart from the general optimism of Lockheed, I want to refer to one thing that his not been mentioned very much here, and that is the position and the anxiety of the airlines involved. We know that T.W.A. has a crucial stake in the Lock 1011. Indeed, it is already known to be something like 100 million dollars in progress payments. Just imagine the position of T.W.A., particularly on the 1153 Chicago to New York route where United Airlines and American Airline will be flying the DC10. Just imagine the position of Eastern Airlines on the Florida-North-east route when their main competitor, National, has already a very good lead and has a very good option position on the DC10. This is precisely why T.W.A. and Eastern Airlines are so very keen to get TriStar with the RB211.
Hon. Gentlemen may think that Lockheed can do well with JT9D or the CF6 in the 1011, but the fact is that without the RB211 TriStar is just another American aeroplane with the same engine; it is not different. It is for that very reason that Eastern and T.W.A. insisted upon the RB211.
First of all, this was a far more advanced engine technologically, a quieter engine, and they thought that the whole of this engine project was the biggest selling point for operating TriStar. That is why it is so vital. It seems to me that the whole impetus of this project should not be allowed to slack off and that T.W.A. and Eastern and indeed all other American airlines which have placed confidence in TriStar should not feel that their confidence has been misplaced.
I want now to refer to what has been said about the overall cost of the RB211, and I am bound to say that the Economist seems to have gone slightly wrong again. It was wrong before about Wilberforce, and now it is wrong again about the RB211 in this week's issue when it says the RB211 costings are 20 per cent. more pound for pound of jet thrust. Flight in its issue for 18th February puts it the other way round:The highest revised R & D estimate for RB211 is £170 million, including the £70 million or so already spent. The American Government spent exactly £124 million on TF39 R & D, a comparable engine.That was the forerunner of the C518.General Electric have budgeted a further £108 million R & D for the CF6-6 and the CF6-50A.In other words, the comparable launching costs of the CF6 must be very nearly £200 million.
Yet here is the hon. Gentleman believing the Economist and saying that the RB211 is much more expensive. The most important thing is that over three-quarters of the launching, research and 1154 development cost of CF6 is paid for out of the United States defence budget. Here we have hon. Gentlemen opposite complaining about the runaway escalation in Government public expenditure on the RB211 project.
I still quote Flight of 18th February, that investment in the JT9D initial launching costs, which came out of the CF6-6, is not generally known but it must be of the same order. It adds:Agreed that the original cost estimates were unpardonably optimistic. Nevertheless Britain has produced a competitive technology at a lower price, and that is not a technical failure. That is the perspective in which the past should be judged and the future planned.In fact I do nothing but wholly endorse those sentiments, and I only wish that hon. Gentlemen opposite would bear in mind the comparable costs of some of the American equivalents and bear in mind how much launching development costs of these American planes has come out of the United States budget. We do not find very much of the launching costs here coming out of the United Kingdom defence budget, and it is about time that we started examining such costs.
But apart from this the quieter technological engine in itself is very significant and the achievement of the RB211 is much more important than that, because if we can get the contract negotiated—we cannot renegotiate it, because we have got a new company, and there has to be a completely new contract—we can have a permanent toehold and a very important foothold as well in the North American market. Rolls-Royce never had that with the 707, 727 or the 737, or any of the American aeroplanes up to date. With a British engine in a North American aeroplane at last Rolls-Royce has gained a real hold in the United States market which the company has always been looking for. That is why the RB211 is so vitally important.
Then, of course, there is the very important contribution which the RB211 makes to the whole environmental issue and to a whole generation of quieter aeroplanes which hon. Gentlemen want.
I could also mention the need for considering the social cost benefits in relation to this whole project, because if there is now a general feeling not only in the City of London but also up and down the country that if we take all the 1155 costs involved in the potential cancellation, the costs of unemployment benefits and redundancy benefits and loss of corporation tax—all costs of that kind—it will probably be much more expensive to cancel RB211 than to go ahead with it. I think that Clive Jenkins was right about that cost side if the project were cancelled. On the cost side, if the project was cancelled it would be the fact that an Englishman's word would never again be his bond.
From the constituency point of view the whole affair makes one very sad, because a lot of redundancies have already started and started in a pretty big way. In the Coventry area and certainly in my constituency this could not come at a worse time, after Alfred Herbert's and the colliery closures which there have been.
I am wondering how many of the subcontractors continued with their work on the understanding that the Government were backing the firm. What the subcontractor wants is something with which he can go along to his bank as potential collateral security. At the moment he cannot give his bank manager that. He does not know what he will get from the Receiver. He does not even have a target percentage set by the Receiver. If he could have some word from the Receiver by way of indication of how much he will get he would be in a much better position when he goes to bargain with his bank manager. I know that the Minister and other persons in Government have given directives to the banks to be more flexible, but the fact is that apart from experiences with one or two bank managers, if one is a Rolls-Royce creditor one has not much to offer when one talks to one's bank manager. What the sub-contractors want are better guarantees from the Government and from the Receiver.
§ Mr. Dalyell
On this matter of the recent guidance to firms in this position, what on earth is to be said to banks about lending money to firms whose only assets are Rolls-Royce contracts?
§ Mr. Huckfield
I am very grateful for that intervention which is very valuable. My hon. Friend has made a very vital point, particularly as many sub-contractors of Rolls-Royce may find themselves, 1156 and, indeed in my constituency are finding themselves, in the position of being able to get a certain amount of alternative work but they need loans. They may have to get new jigs and tools for that alternative work and if they go along to ask for loans to get their jigs and tools in order to do the alternative work they come up against the fact that their bank managers know they are unsecured creditors of Rolls-Royce. So we must have something more positive from the Government Front Bench to assure the liquidity of creditors, apart from the partial leaning on the banks of the past fortnight.
The only way to clear up much of this is to appoint a Select Committee to inquire into the whole affair. Perhaps the Financial Times today is right, and the kind of commercial industrial structure of finance which has in the past been applied to Rolls-Royce is not appropriate to a company a high proportion of its expenditure tied up in research and development. We may have to go for a rather different commercial structure, and I would like it to be publicly owned.
I hope that the Parliamentary Secretary will help to clarify for me a point which has been worrying me in his answer to questions in Committee on the Rolls-Royce (Purchase) Bill. He said:Assuming that nothing else happens, these firms"—that is, the creditors and subcontractors—will be in a position to renegotiate possibly a higher price with the new company—they could argue that they have outstanding debts owed them by the old Rolls company."—[OFFICIAL REPORT, 11th February, 1971; Vol. 811, c. 1042.]I am not sure what he meant there. If that kind of sentence is taken to its logical conclusion, it is worrying to certain creditors in this country and abroad, but I hope that it can be explained.
What it comes down to is, do we want an aero-engine industry or not? We must have a Select Committee on this whole affair. I believe that we must have an aero-engine industry and that it should be publicly owned.
§ 2.52 p.m
§ Mr. John Spence (Sheffield, Heeley)
I am glad to see the hon. Member for Derby, North (Mr. Whitehead) back in his place. He mentioned employee shareholders in Rolls-Royce. About three 1157 weeks ago I addressed a Question to the Minister about this problem, and he promised to let me know as soon as possible the legal position of such employee shareholders. I am hoping that, for their benefit, in future—whatever lessons may be learned from Rolls-Royce—all employee shareholders in that company will find that their position is no less favourable than that of the debenture holders or people with a prior charge. I hope that that is the situation which exists in Rolls-Royce and that we are prudent enough to ensure that this is the status of private concerns of the future.
I should like to confirm what my hon. Friend the Member for Derbyshire, West (Mr. Scott-Hopkins) said about the great support and loyalty shown by companies and their employees to the great Rolls-Royce concern. This applies to the Sheffield creditors and others in the Derbyshire area. My hon. Friend knows, as I do, the number of people who ask us for guidance. Many companies have come to me with this question. One of the great difficulties is getting any reliable information from the company itself. I was on the telephone last night as late as 10.30 p.m. trying to get certain information. I am not suggesting that the person to whom I spoke was being unhelpful—I believe that he was acting on instructions—but I cannot give the information which I was asking for.
The best that we can do in such circumstances is to look to other sources of information which can lead us to some conclusions as to the state in which this company finds itself. It all leads back to this unfortunate RB211 contract. I would emphasise that it is the contract which has been the company's undoing and not the product. Hon. Members opposite have said that we might inadvertently be knocking the product. There is no question of that. We are not knocking the product or British industry or the technical achievement which this engine undoubtedly represents. What we are doing is considering the contract, the written words, not the machinery which has led the company into this situation.
That underlines how vital are the talks which will be conducted for renegotiating this contract with Lockheed. While we exhort our right hon. Friends to do all they can—I am sure that they do not need such exhortation—there must be 1158 some limit which the country's economy can stand. We would not be right or wise to raise false hopes that in our negotiations we shall get the contract going at whatever the cost. That would be going too far and perhaps would not be in the best interests of the aero-engine industry or of the whole economy.
At the same time as we are embarking on negotiations with Lockheed for the RB211, we should also be looking for a European partner with whom we can share both knowledge and cost in this field. if the Rolls-Royce issue speeds up the pursuit and the successful acquisition of a European partner, I believe that it will have done a lot to bring stability to this rapidly changing industry.
No on so far has mentioned education and training. Part of my difficulty has been getting information from the company and from the Engineering Industries Training Board, because of the confidential nature of its arrangements with the company. I quite understand this and I am not criticising it. I have had great difficulty in getting information which would lead me to make a rational judgment on the likely effect of the Rolls-Royce affair on the engineering and technical training, as distinct from the management training.
Part of the difficulty lies in the great network of companies which are dependent on and interlaced with Rolls-Royce. I understand that there are about 2,000 such companies. On the best information available to me, I gather that within the entire Rolls-Royce complex there are about 6,500 engineering apprentices under training. If things go wrong and we find ourselves left with this number of apprentices on our hands, we shall have quite a problem. It will certainly be a problem beyond the engineering industry or the training board to solve without assistance. This problem can be foreseen. I hope that special contingency measures are being planned for that eventuality.
I must utter a word of warning about the RB211 negotiations. While there is no weakening in the resolve of the creditors of Sheffield in giving every support to the efforts that are being made to renegotiate this contract on new terms, there must be a time limit to the period available to the Government for these negotiations. 1159 It is a matter of industrial fact that production lines assembled for Rolls-Royce cannot be kept assembled indefinitely. There must come a time when, in the interests of the employees of the companies concerned—for the continuation of their jobs and of the business which these companies do—those assembly lines must be dismantled and new work put in their place.
I hope, therefore, that in so far as they can, the Government will keep us informed of the progress of the negotiations so that we may do our best for our constituents.
§ 3.0 p.m.
Mr. Bruce Milan (Glasgow, Craigton)
There are many aspects of this affair which I would like to discuss, but in the interests of brevity I will restrict my remarks to about 10 minutes.
I repeat what many hon. Members have said, that we require the whole coherent story of what happened between November of last year and 4th February. Whatever may be said in reply to this debate, some of us will continue to press for that full and coherent story. In this connection, what the Minister said about The Times' article did not sufficiently cover the points made in that article, but we can discuss that on another occasion.
We wish the Government well in their renegotiations of the RB211 contract. There must be a real determination to succeed, backed by the necessary financial help. Unless they enter the negotiations on that basis, they will not be successful. It is to be hoped that the negotiations will be brought to a successful conclusion shortly, and we shall be able to judge the good faith of the Government in this matter when we have information at the outcome of the negotiations.
Be they successful or not, we shall want, certainly at the conclusion of the negotiations, a complete account of all the financial factors, including the effects of closures, in this affair. We shall want to be told the likely social effects of closures. I was surprised to learn that only yesterday the Government received, at Cabinet level, a comprehensive account of what is involved in this matter.
If the negotiations fail, the number of redundancies will be appalling. I do 1160 not wish to add to the alarm and despondency which already exists, but the Government should give an idea of the scale of the redundancies that would be likely in that event, and tell us what they have in mind for a reappraisal of the company's activities as a whole. I am not suggesting that anything as alarming as the RB211 aspect could be repeated, but there is considerable disquiet among employees of Rolls-Royce, and we are anxious that the Minister should say something to reassure them, though not to mislead people into believing that the situation is better than it really is.
It has been pointed out time and again that the best way to protect the creditors and sub-contractors is successfully to renegotiate the RB211 contract, and this applies generally, whether or not they have been engaged on that contract. If that does not happen, there will be considerable claims by Lockheed for cancellation charges, which, as these will rank as unsecured debts together with those owing to the other creditors, will prejudice the amount of money which will be available to the other creditors.
What is just as dismaying is that such claims are likely to be so complicated that they will delay the settlement of the claims of the unsecured creditors generally. The time factor involved is almost as important, at least in some cases, as the financial effects of the failure.
The other crucial point to which I hope the Minister will direct his attention is the price to be paid by the Government.
Various financial arrangements have been suggested by, I suppose it is, an unofficial creditor's committee, to be adopted by the Government or the receiver—I am not sure who would be involved—which would in some way protect the interests of, and give a better financial return to, the creditors than they are likely to get if the present position continues. The House would be greatly assisted if the Minister would give a much clearer account of what these various schemes consist of other than the details which have appeared in the Press. I have great difficulty in understanding what was put to the Minister earlier this week.
If the RB211 contract is not renegotiated and there is a substantial deficiency, any financial scheme can only somehow 1161 redistribute the deficiency amongst the various creditors. It may redistribute the deficiency as to amount or as to time, but no scheme which is legal can itself reduce the deficiency. If there is a deficiency, no scheme of reconstruction or rearrangement can of itself reduce the deficiency. The deficiency can be reduced only by someone putting money in. The only agency which can reasonably be asked to put money in is the Government. If this is not a basic proposition, I hope that the Minister will say so.
There is the suggestion in some of these schemes that in some way the unsecured creditors can get a financial advantage whilst Lockheeds would not get that advantage. It is difficult to understand how there could be a legal scheme which in some way gave rather more to the unsecured creditors generally and cut Lockheed out. I do not think such a scheme could possibly be legal, although I do not know the details of any such scheme. If it is not legal, Lockheed is not likely to stand by and allow such a thing to go ahead.
We have already dealt Lockheed a considerable blow and, anxious as I am to help the unsecured creditors in Britain, this cannot be done again at the expense of Lockheed. I think that any such scheme is neither legally possible nor morally defensible.
The creditors could kill the new project almost immediately either by reducing supplies, which some of them may have to do, or by insisting on liquidation, a course which is open to creditors at this point. They have been extremely constructive in their approach and in not insisting on that up to the present day.
If we are to save the creditors, the RB211 ought to be saved and the contract re-negotiated. If that does not prove possible, I see no other way of helping the unsecured creditors except by direct Government intervention, by supplying money, by either loan or grant, or some such device, and not by some peculiar scheme or rearrangement of doubtful legality and doubtful moral validity. The action should be taken directly by the Government.
Therefore, I want from the Government some pledge that they will consider a scheme of this sort, at least in 1162 principle. I do not expect them to produce details this afternoon, for this is an extremely difficult operation. We cannot treat every creditor on exactly the same basis. Some are involved only to a limited extent. Some are involved in large amounts, although in relation to their financial development and the scale of their business these substantial amounts are not damaging to them. Some are involved in small amounts, but in relation to the scale of their business these amounts are damaging and can but them into bankruptcy. Therefore, it is not an easy operation to save the creditors. Nevertheless, it can be done. It may require legislation. It may require the Government to take enabling powers.
If the Government could say something about such a scheme, it would be a very pleasant surprise for all of us, but I ask them to agree in principle to consider something on these lines. As the least, I ask them to pledge themselves to consider in principle whether there is something that they can do directly in order to save some of the creditors and subcontractors. This is a matter of extreme urgency. It cannot be dealt with in any way except by direct Government intervention and financial assistance.
§ 3.12 p.m.
§ Mr. Cranley Onslow (Woking)
I shall be very brief. I am sorry that the original injunction to brevity has not been followed by all hon. Members, and I am particularly sorry for my hon. Friend the Member for Derbyshire, South-East (Mr. Rost), who has sought to speak throughout the debate but has not, so far caught your eye, Mr. Speaker.
I shall deal with only two or three points. One is the question of a Select Committee, advanced by many speakers on the other side of the House. I do not think those who advanced the idea can really have thought what they mean, if they are genuine in their professions not to make party political advantage. First, it may well be that events have taken place in this long sad story which are susceptible of remedies in the courts, and it would be wholly inappropriate that these should be inhibited by inquiries in this House.
Secondly, let nobody have any doubt that all hon. Members want all the facts to come out. When I intervened earlier 1163 in the speech of the hon. Member for Derby, North (Mr. Whitehead), he said that I might be surprised if they were to do so. I believe that I would be far from surprised. It is in the public interest that all the facts should be known.
The hon. Member for Derby, North would not let me intervene in his speech, but the point that I wished to make was that my inquiries, which I have carried out as accurately as I can among those who know the facts in the United States, have led me to believe that the report to which he referred should have been attributed to the state of affairs under the previous Government. I have fund nobody in the United States who can tell me that the previous Government took steps to make it plain to Lockheed that they could not rely on the British Government seeing this contract through to the bitter end, no matter what happened. That seems to me to have been a major omission.
I want to turn to the question of the Rolls-Royce management and its relations with the sub-contractors. I have had a letter from a firm—I shall not specify whether or not it is my constituency and I shall not give its name—which has told me that it is owed £112,000 by Rolls-Royce, and it classifies itself as a relatively small creditor. Most of this money is in respect of two furnaces supplied to Rolls-Royce in July, 1970, for which this firm had not been paid by February of this year. I am fairly sure that those articles have been in use by Rolls-Royce, because they were for the RB211. I regard it as a scandal that that sort of money can remain unpaid for that sort of time.
I have also been in touch with a smaller firm owed about half that sum—though it is much more important to this company, none the less. Its managing director, in no spirit of rancour, said something to me which I believe should he put on record. He said that it was all right dealing with Bristol—Bristol was run like a business—but when one got to Derby—I shall not quote all his words exactly— "How could anyone continue to work for a firm like that?". What he told me about the way in which he and other small creditors have been treated would 1164 make an East End tailor thoroughly ashamed if he had behaved in that way.
§ Mr. Onslow
No, I will not give way.
He was told time and again that a cheque was in the post, but events subsequently proved that no cheque was in the post. He was told time and again that the reason why he could not be paid was that invoices had not yet come through from Northern Ireland, and he found that not to be true.
That kind of conduct and the commercial ethics which it represents should, in my view, be condemned, and I will condemn it. The people in the Rolls-Royce management structure who lent themselves to that sort of behaviour do not deserve to keep their jobs.
§ Mr. Onslow
No, I will not give way. I have made plain that I shall be brief.
Now, a point which may have been overlooked. In January last year Flight International published on page 139 a brief report which said in terms,There have been delays in settling accounts with creditors for periods of up to 12 months.The following week, on page 175 in the same magazine, there appeared a paragraph, no doubt dictated by the lawyers, under the heading, "Rolls-Royce—a correction", which said:Our report also stated that there have been delays in settling accounts with creditors for periods of up to 12 months. It is both untrue and unrealistic to believe that Rolls-Royce suppliers wait 12 months for payment. Any instances of such a long delay could only occur when disputes about invoices prove exceptionally difficult to resolve.I direct that statement to the attention of the inspectors who are to inquire into the affairs of this company, and to the new management. That sort of situation, clearly, was accurately reported in the first instance, and it must be dealt with.
Let us, for heaven's sake, not be mesmerised by the RB21I. Let us understand that, whereas we may have found ourselves forced out, by mismanagement on a massive scale, of the large-bodied large-engined subsonic civil aircraft market, we must keep our capacity going in other areas, and particularly in the military field. The RB199 is a vital 1165 project to the defence of this country and to joint endeavours with Europe in future years. Short take-off and landing has enormous potential ahead of it, for all sorts of reasons.
Let us not be tied down and hypnotised by this one RB211 contract lest we find in 12 months that events have not gone as we have optimistically supposed and that Lockheed is threatened with another financial crisis because orders have not materialised, and we are then, indeed, in the gravest danger of having done ourselves out of the rest of the aero-engine business as well.
§ 3.18 p.m.
§ Mr. Ray Carter (Birmingham, Northfield)
; There is a great deal which I should like to say, but I realise that I have only about five minutes. I wish to speak on three counts: first, as a former technologist who had 10 years in the aerospace industry; second, on my strong constituency interest; third, on the economic and political arguments surrounding the Rolls-Royce affair.
As a former employee of a company predominantly concerned with the aerospace industry, I wish to recall for the benefit of the House an incident in the middle of my term with that company, when a contract on which it was engaged and heavily committed—namely, the Blue Streak project—was cancelled. This had an effect on the company which to this day it has not been able to live down. About 1,700 people were sacked. There were no redundancy payments then, though the position is somewhat better now.
Unless the Rolls-Royce company is saved, as it seems likely to be saved, there is a danger of whatever remains of the company never being able to recover its former position. In the aerospace industry teams tend to build up around a project, and they go from one project to another within a company. If they are broken up it is highly unlikely that the company could ever recover its viability.
In Birmingham we have a number of sub-contractors with major interests in the RB211 contract. Lucas, Birmids and Wilmot-Breeden are some of the biggest. Thousands of workers in Birmingham are 1166 concerned with those sub-contractors contracts. Many have already been put on short time, and some have even been made redundant. There is also the problem of the position of the sub-subcontractor and very often of the sub-sub-sub-contractor. With contracts like the RB211, new firms proliferate on a massive scale, sometimes with just half a dozen people working perhaps on a wiring contract or small mouldings, for example.
What efforts have the Minister and his Ministry made to determine precisely how many workers are locked into the RB211 contract? I have read various figures. In the main they account only for those directly employed by Rolls-Royce. It may well be that we could quadruple the number of workers in one way or another tied into the contract if we took into account all the contractors, sub-contractors and sub-sub-contractors.
We in Birmingham are in an extremely desperate position, with redundancy in the car industry and allied engineering fields. Unemployment is at a level we have not seen for the past 35 years. I ask the right hon. Gentleman to consider not only those parts of the country directly concerned with Rolls-Royce, which have Rolls-Royce plants within them, but those which have these quite large sub-contractors.
I should like to say a word on the economic and political aspect of the Rolls-Royce affair. In the debate in November I argued for a European aerospace industry. In reply to a debate on this subject, on one occasion the Minister indicated that perhaps he would initiate moves towards the formation of such an industry. That is the only way in which Britain can utilise to the full its very clear historic contribution to the total aerospace industry. Will the right hon. Gentleman answer that specific point this afternoon? It is most important.
In advanced technology in general, not only in aerospace, Britain has for far too long tried to pursue a role which was not consistent with her economic ability. We have lived with port on the sideboard and bread in the larder. The only way in which we can return to a firm basis in advanced technology is to make our contribution in a very worthwhile way to a European aerospace effort.
§ 3.25 p.m.
§ Mr. Peter Rost (Derbyshire, South-East)
I am grateful, Mr. Speaker, that you have allowed me to intervene at this last moment; and my thanks are also due to the Minister for allowing me to intervene in his time. I hope that the 80,000 constituents in South-East Derbyshire whom I represent will now at least appreciate that I have tried to intervene in this debate, even if I am not able to make the points I wished to make. The main emphasis I wanted to make concerns what I regard as the moral responsibilities of government—I emphasise government rather than "the Government".
From the very beginning of the RB211 contract the country, and indeed the whole world, was under no misapprehension with regard to the partnership in which this contract was signed between government and Rolls-Royce. I had intended to quote from the original debate on 1st April, 1968, when the then Minister of Technology made various statements emphasising the Government's partnership and obligations in this contract. The purpose of those quotations was not to score political points, but simply to emphasise that in the eyes of the world the Government were under an obligation to participate in this venture.
There is no doubt that many subcontractors in my constituency were under the impression, until February, that the Government were backing this project. Even in November when the money was due to be provided, subject to investigation by Cooper Brothers, there is no doubt that many sub-contractors and suppliers were under the impression that this money would be made available, and, indeed, many believed that it had already been made available. This raises some important moral issues. It was not only the suppliers and sub-contractors who were under this impression, but it would appear that the banks and discount houses were equally confused about the extent to which the Government were backing the project and to what extent they were in partnership.
There is, therefore, a moral obligation to ensure the continuity of Rolls-Royce and the aerospace industry in this country, upon which we are all agreed, but there is a moral responsibility to the 1168 sub-contractors and creditors to ensure a favourable settlement. This should allow for the Government to look seriously at the various proposals which are being put forward by creditors and debenture holders, in conjunction with the banks, to secure a scheme of reorganisation, which may well be to the advantage not only of the creditors but also to the future of the company in this form.
There is a moral responsibility also to the shareholders, particularly the worker shareholders. There are more than 10,000 worker shareholders whose life savings are involved, and it must be borne in mind that they were not able to cash their shares after last November since they were locked in. The point which has not yet been made in the House is that the worker shareholders are in a different category, which cannot be described as equity but is something in between. They were at no time able to cash in on those shares at a profit. The shares were issued at 10s. and had always been represented at that figure. That made them nothing much more than a preference share with rights of dividend income but without the benefit of capital gain. Therefore, they stood the risk that they did not stand to gain capital profits as did the other shareholders. For those reasons there is a special case involving a moral obligation.
I obviously shall not be able to make the speech I was hoping to make on behalf of my constituents, who are desperately anxious to ensure that the RB211 contract is successfully renegotiated. This is vital in Derby and the surrounding areas, but there is far more at risk than just the jobs and prosperity of the Derby and Derbyshire areas. There is at risk even more than the future of the aviation industry, or whether we opt out of advanced technology and, therefore, suffer a decline in Britain's standard of living. What is at stake is whether this nation wishes to preserve its world reputation and its integrity. What is at issue is whether the nation will display its moral fibre and its determination not to abdicate in the face of difficulties and whether we are prepared to resist the slippery slope of decadent decline and to restore our self-confidence to play our part in Western civilisation and continue the struggle against the enemies of democracy.
§ 3.31 p.m.
§ Mr. Corfield
By leave of the House, I should genuinely like to add my congratulations to the many offered to the hon. Member for Derby, North (Mr. Whitehead) at moving the Motion, if only because it is so important that no one should underestimate the seriousness of the situation created by the collapse of Rolls-Royce. That, of course, applies especially, as we all appreciate, to the many thousands of men and women who will be affected directly or indirectly, and the fears and anxieties of the employees of Rolls-Royce about the security of their jobs, an anxiety which must extend far beyond Rolls-Royce, as my hon. Friend the Member for Derbyshire, South-East (Mr. Rost) said, including the employees of the many sub-contractors and suppliers whose businesses may also be affected. There must also be anxiety as to the viability of some of these firms and, therefore, among those who own and manage them. Whether this applies more to smaller than to larger firms I do not know, but one assumes that the latter are more likely. But one would be unwise to accept any more precise categorisation.
I want to make it clear to the House that the Government have considered and continue to consider these aspects very seriously, as well as the wider effects on the economy as a whole and upon the fortunes and prosperity of localities particularly affected, whether because of the numbers possibly involved, or because of the size of the local work force already suffering unemployment. Although there have been Press reports that a paper was considered in the Cabinet yesterday, I want to make it clear that that does not indicate that it was the first consideration of this problem. There has been consideration from the outset, but it has had to he continuing, for the very good reason that it is not possible to get complete information immediately and there are aspects of information which are changing almost daily. One should not attach the importance which has been attached to this Press statement.
All these factors and those which have very much reinforced the other arguments with which the House is by now familiar have determined the Government to act quickly to secure the continuity of at least the greater part of Rolls-Royce activities, 1170 whatever may be the ultimate fate of the RB211. These are also factors which are very much in our minds as we consider the minimum terms on which it would be sensible in all the circumstances to continue with the RB211 if Lockheed is willing and able to make realistic proposals.
I am sure that the House will also appreciate that it would be quite improper for me at the present juncture to speculate as to the outcome of these negotiations with Lockheed. They start next Tuesday, and I think that I should be unwise even to try to speculate how long they will take. But, as I assured the House earlier today, we have made arrangements for the continuity of the necessary indemnity so that we shall not be negotiating close to a point at which the rundown of the work may make it difficult or impossible to reactivate without further serious delay or loss.
§ Mr. Corfield
I am afraid that I cannot give way. I have far more than I can get through in half an hour, and I hope that the House will give me a chance to answer some of the many questions.
Before turning to some of those questions I must apologise to the House for the fact that some of the earlier questions in other debates have not been answered by letter. This is entirely due to the fact that there have been heavy pressures in my officials, who have been working day and night and over the weekend. I would like to pay a tribute to them. I am sure that, even so, they are probably ahead of me, and it may well be my fault, because there are some things still in my "In" tray which I would like to have put in the "Out" tray. There have been certain pressures here, as well.
The hon. Member for Derby, North asked about the position with regard to Lockheed's invocation of penalties. I can only say that Lockheed certainly did not invoke its penalties and has not done so. To be fair to the Rolls-Royce board, no one could be sure about that, and certainly it would not have been right for the Lockheed board to have given such an assurance. Any company in a similar position would not feel bound to do so in certain circumstances. There was a cash flow problem in this sense. It was not 1171 immediate but it was quite clear that it would become critical at a later stage, not all that far distant, because of the RB211 cost overrun problems.
The hon. Member commented perfectly justifiably on the failure of Rolls-Royce to contact Mr. Haughton earlier. This is a matter that has concerned me, and I have throughout tried to impress my views on this subject upon Rolls-Royce. It came to the conclusion after having tried to contact Mr. Haughton that it was not possible to bring the meeting forward. It is not quite true to say that Mr. Conway said that Mr. Haughton could not be found. I hesitate to go into this in great detail because I had the story third-hand and it may not be wholly accurate, but I understand that Mr. Haughton was very much engaged on equally crucial matters to do with other aspects of his business, and it would have been almost impossible for him to have fitted in a change of programme.
I want to make it absolutely clear that it is not true that the Government decided to drop the RB211 and wanted to bring about what the hon. Member described as an exemplary bankruptcy. We were faced with the situation I have described over Rolls-Royce. Taking into account the launching aid available and likely to be available, it was nevertheless clear that its liabilities exceeded its tangible assets and that this situation could only be worsened by continuation of trading, which would have put the company in breach of the Companies Act. The sums were very large indeed.
The hon. Member went on to talk about the technical disability of the RB211. Everyone, certainly myself, has confidence that the problems can be overcome but it is a question of time. No doubt when these problems are overcome this engine will have distinct advantages over its rivals.
§ Mr. Corfield
Technical. The fact is that it is late, and I think we would be unwise to shut our minds to the idea that lateness affects markets. The fact is that if other manufacturers of aircraft engines get their products into service there is a strong reluctance to make a change, for a variety of reasons with which the House is familiar, unless there is a substantial 1172 rather than a relatively marginal advantage.
Several hon. Members asked about other Rolls-Royce contracts which may not be considered to be economically viable. The hon. Member for Stockton-on-Tees (Mr. William Rodgers) suggested that some of these other contracts might have been responsible in whole or in part for the financial difficulties of Rolls-Royce. On the second leg of that question, there were other weaknesses in the company, some of which have become self-evident as we have seen how the cost control broke down. Undoubtedly there has been a degree of over-staffing, which I have mentioned in the House before. But there is no evidence that these weaknesses were the cause. They may have aggravated the situation, but they were not the cause. The RB2l1 contract remains the basic fundamental cause.
The situation on the other contracts is simply this. The Receiver has a duty to consider any contracts which are losing money and, therefore, losing what will be available to the creditors. But if he should decide that he is in duty bound to his creditors to cancel them he would come to the Government and it would be for the Government to decide what form of indemnity he should be given, provided the Government decided that these should go on. I cannot think offhand of one where we would wish to see him drop out. The same sort of procedure would inevitably apply when the company takes over. Its board must have power to review its contracts. If they are on behalf of the British Government or foreign Governments, or are on a bilateral basis, the same reference to the Government would certainly take place.
The hon. Gentleman mentioned the M45A engine for the VHW aircraft. The Germans have been kept closely in touch with the position. I have written to my opposite number, and so has my right hon. and noble Friend. The Vice-Chief of the Air Staff has visited West Germany, and I have seen the West German air attaché. The German Government have made a contribution towards the engine. Financial talks were going on about it before the collapse of Rolls-Royce, and these will have to be continued. It is a joint operation between Rolls-Royce and S.N.E.C.M.A. 1173 If I could answer all the questions put by the hon. Member for Stockton-on-Tees I would practically answer all the debate. I will go through his questions rather sketchily. He asked whether the latest figures from the assessors were the same as those we had announced before. It would not be right for me, particularly just before the negotiations, to mention the assessors' findings, but I think that I can say that they are no more cheerful.
The hon. Gentleman asked whether it was possible and acceptable to produce a de-rated thrust engine by May, 1972. The answer to both aspects is "no". First, I do not think it could possibly be acceptable to Lockheed, and, secondly, the time scale is too close. With regard to the breathing space, I have mentioned that the indemnity has been continued today.
I turn to the question of a Select Committee, upon which many hon. Members have touched. I feel strongly that this matter should be treated in the same way as the directors and decisions of any other company are treated under the Companies Act. This is why I very much welcomed the board's decision to call an extraordinary general meeting, which will be held, I understand, as soon as the postal strike allows, in order to pass a resolution under Section 165 that a Department for Trade and Industry inquiry should take place.
My only comment on the question of a Select Committee is that I think that almost inevitably the inquiry will be concerned with the reputations of individuals. It may be a question of my legal prejudices, but I am by no means certain that a Select Committee is the right forum for this sort of operation.
§ Mr. Whitehead
The call from this side of the House for a Select Committee has been reinforced by the allegations in The Times. Would the Minister say something about the allegations relating to multilateral agreements allegedly entered into on 9th November? Would he also say whether he inadvertently misled the House on 11th November or whether he was misled himself?
§ Mr. Corfield
That is a difficult question to answer off the cuff and without reminding myself of what was said and 1174 of what the negotiations were. However, I shall say more about that point later.
On the question of transferability of pensions, I drew the attention of my hon. Friend the Member for Derby, South (Mr. Walter Johnson), who put down a Question for Written Answer on this subject, to the relevant paragraph in the memorandum or articles of association which was inserted specifically to cover this point. It is impossible for me to say specifically that every employee will be covered, because I understand that no fewer than 15 different schemes are operated by Rolls-Royce. They all have somewhat different conditions, which in some cases apply differently to different people in relation to their employment history, and so on. It would be quite wrong for me to attempt to give an overall statement of that sort.
I should like now to revert to the problems of the trade creditors, who have been specifically mentioned in the Motion, and whose plight has, understandably, been so frequently referred to during the debate. Before I do so, however, I think that hon. Members would be interested to know, as they will when they read HANSARD tomororw, that my right hon. Friend the Secretary of State for Trade and Industry has decided that investment grant payments relating to capital expenditure in the quarter April to June, 1970, will be paid one month earlier—that is, from 1st March, 1971, instead of from 1st April. This acceleration in grant payment will be made in respect of all claimants and will provide £10 million to £20 million extra cash flow to industry in the month of March. Similar additional advancements of claims in respect of later periods will also be made, details of which will be published in HANSARD tomorrow.
I want now to refer back to the question of the article in The Times. I am sure that the House will accept, as it so readily and generously accepted earlier today, that I have not been able to go into this in detail—I cannot be in two places at once—but all these things are being carefully examined.
In the meantime, I think that I can shortly amplify what I said earlier today. First, I want to make it clear that it was clearly understood between myself and the directors of Rolls-Royce as early as 1175 6th November that the loans which were being discussed were subject to the outcome of the review of Rolls-Royce's finances by the chartered accountants appointed for that purpose. The minutes of a meeting held that day make this abundantly clear.
On 9th November heads of agreement were agreed between Rolls-Royce, on the one hand, and the Bank of England, Lloyds Bank and the Midland Bank, on the other hand. My Department had sight of those heads of agreement in draft but the Government were not parties to the agreement. The position about the whole agreement being subject to the outcome of the accountants' review had been established between my Department and Rolls-Royce at the meeting on 6th November. On 11th November I made it clear that the additional launching aid to which I referred was subject to a further check of the figures by independent accountants.
I hope that these statements make the position of the Government negotiations clearer, if not entirely clear. By "not entirely clear" I mean that I inevitably cannot cover the whole field.
§ Mr. Millan
It is not simply a question of making the Government's position clear to the company, but also a question of making it clear to the banks. The right hon. Gentleman has not covered this point. Are we to see the terms of the agreement sometime next week?
§ Mr. Corfield
If the hon. Gentleman will bear with me, I understand that the banks were informed but I have not had time to check the document. I will certainly consider that.
§ Mr. Whitehead
Since the right hon. Gentleman intervened briefly in the debate this morning, I have spoken to Mr. Stephenson, who wrote this article. His contention is that the banks and the senior partners in the counting houses were of the opinion, having seen the agreement, that there was no prior condition attached to the £42 million advanced by the Government.
§ Mr. Corfield
As I say, this was an agreement to which the Government were not parties, so I have to be cautious in how I comment upon it. But certainly these things will be looked into.
1176 I should like to revert to the problem of the trade creditors, who are specifically mentioned in the Motion, and whose plight has, understandably, been so frequently mentioned in this debate. The hon. Member for Heywood and Royton (Mr. Barnett) asked me on 10th February whether I would give the House an assurance that I did not rule out the possibility of helping to avoid liquidation by one of the several options open. I replied to the effect that I gave that assurance and I want to make it clear that that stands.
I can tell the House that I am considering several propositions from various sources, at least one of which, to which the hon. Member for Glasgow, Craigton (Mr. Millan) referred, has been mentioned in the Press. But I am sure that the hon. Gentleman will appreciate that these are complicated matters. I would not dissent from the comments which he made as to the overriding limitations, but it is only fair to say that they are too complicated to try to discuss at the present juncture.
However, I have promised to look into them, as indeed I promised in one of our earlier debates to look into the question of the workers' shares. Although I introduced that subject myself, it was not made any easier for me by a number of hon. Members immediately seizing upon that attempt to be helpful by saying, "Why not all the other categories of shareholder as well?" I believe that there is a case for differentiating, and this is something which we are looking into.
If any of these schemes should prove workable, I want to make it clear that the fact that the wholly-owned Government company has already been formed, as yet with only nominal capital, need in no way prove an obstacle. Moreover, for the reasons which my hon. and learned Friend the Solicitor-General gave in the House on 11th February, it is in the meanwhile, I am afraid, quite impossible to give the general assurance which the Motion urges the Government to give.
If I might try to summarise the position again briefly, it is simply that the boards of directors will be in breach of their obligations under Section 332 if they continue trading with no reasonable prospect of paying their debts. Put the other way, they will not be in breach 1177 of the Act if they have reasonable expectations that they will be able to meet their financial obligations. There are obviously overwhelming difficulties in the way of giving a general assurance, in view of the fact that this decision can only be made in the light of individual circumstances.
But it must be appreciated that the Government's immediate reaction, to set up the new company to cover the greater part of Rolls-Royce, the marine engine activities, and, impliedly, to take over the corresponding groups of workers employed, must go a considerable way to help even this situation of the sub-contractors. For those sub-contractors whose business is to supply goods, whether or not connected with the RB211, there is normally every prospect of their having an opportunity to renew their contracts and continue trading. That seems to me to be a factor which they are undoubtedly entitled to take into account in considering the future of their business.
If the negotiations in regard to the RB211 proceed successfully, that same factor will cover a much wider sphere among the creditors. The fact is that neither I nor any member of the Government, including the Law Officers, can release any company from the provisions of the Companies Act. We cannot take it upon ourselves to adopt the discretion or judgment which, under that Act, is the responsibility of directors, even if it were practicable, as it quite clearly is not, to interpret for every sub-contractor of Rolls-Royce his own particular situation in the light of the law.
The suggestion has been made that, for various reasons, this Rolls-Royce bank-rutcy or liquidation should be considered a special case, but I think we want to be very clear as to the grounds on which that could be done. Nobody, I think, would suggest that the Government should underwrite the risks of creditors as a general proposition. It has been suggested that one of the grounds should be that the Government, because of launching aid, were supporting, and, so to speak, standing behind, this engine, but I am sure the House will understand, and I am quite certain, too, that the whole of what might be called the aviation world very well understands also, the basic concept of launching aid. The basic concept 1178 is that a substantial degree of the capital required and of the risks involved should fall upon the company concerned. This is the incentive, and if we were to underwrite that risk—and the ultimate risk is insolvency—then we should destroy completely the concept of launching aid. I have no doubt that among the people who move and deal in the aviation world this is a concept which is understood. So I think altogether that at this stage I can add very little more to what has already been said by my hon. and learned Friend the Solicitor-General in the past.
§ Mr. Millan
Would the Minister say he is not excluding altogether the possibility of Government aid to some of the creditors? He is not excluding them altogether, is he? I hope he is not.
§ Mr. Corfield
I cannot commit myself further than what I have said. What I have said is that I am looking at various schemes. Some involve measures of that sort, but I cannot commit myself further than that.
Another point I want to make also is in relation to the claim that Rolls-Royce should be considered a special case because the Government are nationalising it. I think we want to be quite clear that the Government are not nationalising it in the ordinary sense of taking over a company as a going concern in return for the payment of compensation. The Government are buying assets, buying assets in the same way as frequently happens when other companies unfortunately go into liquidation, and the receiver or liquidator has to dispose of those assets, but in so far as the Government can ease the situation we are, as I have said, embarking on negotiations with Lockheed. I also refer to the statement, in answer to a Question, by my right hon. Friend the Secretary of State for Trade and Industry. This means that something up to £15 million on accelerated terms may be made to industry as a whole in the period up to the end of July.
In addition, I refer to the statement made by my right hon. Friend the Chancellor of the Exchequer on 8th February to the effect thatsteps will be taken to ensure that banks will not be prevented by current credit restrictions from accommodating, subject to normal banking criteria, those companies, trade creditors, 1179 suppliers or sub-contractors of Rolls-Royce. who may need additional temporary finance …" —[OFFICIAL REPORT, 8th February, 1971; Vol. 811, c. 601]So to conclude my remarks on this aspect I would simply repeat my assurance that I will consider these various schemes which have been put forward, but the House will appreciate that all this depends on the future of the RB211, and the same, of course, applies very largely to the other soaring problem of unemployment. Again, this must to some considerable extent be dependent on that, but I must warn the House that I think that in any case there is bound to be some redundancy because of the overstaffing to which I have referred. I know that many of the employees recognise this to be true, for many have told me so in forthright terms. Having said that, I would pay tribute to the responsible attitude of many of them who have come to see me with various delegations of hon. Members of this House.
I would like to conclude by saying that in my judgment the greatest—
§ It being Four o'clock, the debate stood adjourned.