HC Deb 16 December 1975 vol 902 cc1164-79
The Secretary of State for Industry (Mr. Eric G. Varley)

With permission, Mr. Speaker, I should like to make a statement about Chrysler.

As the House knows, Her Majesty's Government first learnt of the possibility of Chrysler withdrawing from this country from reports of a Press conference taken by the Chairman, Mr. Riccardo, at the end of October. This was despite the approach made to him by my predecessor, my right hon. Friend the Secretary of State for Energy, in January and the very closest contacts maintained through the year with the senior management of Chrysler UK.

I at once wrote to Mr. Riccardo to seek clarification. On 3rd November he and his team told my right hon. Friend the Prime Minister, myself and other colleagues that his Board had decided that it would provide no further funds for Chrysler UK.

From the time Chrysler Corporation took over in 1967 to the end of this year Chrysler UK was expected to have a cumulative trading loss of £80 million, with the expectation of losses continuing at a substantial rate next year. The Board of Chrysler Corporation had decided that it could not continue to meet such losses from its own resources.

Accordingly it told us that it would start liquidating Chrysler UK from the end of November—that was in under four weeks from that meeting—unless Her Majesty's Government in the meantime took it over. This was the fearsome choice we have been wrestling with ever since.

The Prime Minister (Mr. Harold Wilson)

Hear, hear.

Mr. Varley

Liquidation would put 25,000 people out of work in Chrysler, with at least as many more in supplying and related industries. We should lose the important contract to supply car kits for assembly in Iran, with all the effect that this might have on our prospects of further trade with that country.

We should lose other exports. The gap left by the disappearance of Chrysler from our market would cause serious damage to our balance of payments.

On the other hand, just to take over Chrysler UK completely—even with a £35 million payment which Mr. Riccardo subsequently offered us in later intensive negotiations—would have passed over to us very substantial existing liabilities and heavier still prospective financial commitments. We should have had to take direct responsibility for heavy redundancies whatever happened—heavier than those which, as I shall tell the House later, will now have to be faced. We should have become responsible for the direction of the United Kingdom operation even though Chrysler offered to provide the necessary managerial, technical and distributing skills and facilities in this country and abroad and the necessary design assistance for a new model range.

We should have been dependent on Chrysler, but it would have had power without responsibility and without the incentive to minimise losses and maximise profits and to make a real sucess of this difficult operation.

We did not consider that this would be a satisfactory or indeed tolerable situation for the Government to be in.

We have studied many schemes with the Chrysler team. Ministers have had 11 meetings with Mr. Riccardo, and in addition there have been many meetings with officials. I pay tribute to officials, who have worked for exceptionally long hours and with great professional skill to suport me and other Ministers in these operations.

I can now tell the House that the Government and Chrysler have achieved an agreement. We were prepared to accept an alternative solution only when Chrysler eight days ago made it clear that it would now be prepared to remain in this country, and that Chrysler UK would have its full support.

It will streamline its operations by moving assembly of the Avenger car from Ryton to Linwood. Of its present 25,000 employees there will have to be some 8,000 redundancies, but the stark choice is between keeping this opportunity to maintain these 17,000 jobs or losing not only the full 25,000 but also many others in firms which depend on Chrysler. The Chrysler management is now telling representatives of its workforce how this necessary rationalisation will affect them.

The redundancies will fall most heavily in the Midlands, where we have the best prospects of providing other work as trade picks up. The Employment and Training Services Agencies stand ready to help in all possible ways.

Because the Chrysler Corporation made clear throughout that it was not in a position to advance the necessary further funds to the United Kingdom company we have devised with it a scheme to share risks and expenditures. For next year it forecast a loss of £40 million. We have offered to meet this, in addition to meeting half of additional losses, if any, up to limits of a further £20 million next year, £20 million in 1977, £15 million in 1978 and £10 million in 1979, making a total commitment to provide up to—72.5 million over these four years. But together we aim to turn these losses into profits, and we shall share equally with Chrysler in any profits which accrue in these years.

We have also undertaken to provide a loan of £55 million to finance capital expenditure on plant and model development. This loan will be at a rate of interest no less than the Government lending rate.

The Chrysler Corporation in return will guarantee the first half of this amount, amounting to £28 million. It will also provide £10 million to £12 million for the first stage of a programme to enable the C6 Alpine model to be assembled at Ryton from kits imported from Simca in France, and if this enterprise is successful—as we must endeavour to see that it is—later stages to be considered would provide for the United Kingdom supplies for these cars to be increased from rather over 50 per cent. to 100 per cent. This would involve a further capital development programme for Chrysler UK of about £23 million.

The effect of this scheme is to provide work at Ryton in place of the Avenger assembly. In the early stages there will be 2,500 redundancies there. There will also be substantial loss of jobs initially at Linwood.

Chrysler UK has not been able to convert its short-term liabilities into medium-term finance. The London and Scottish clearing banks have agreed in principle to provide a medium-term loan up to £35 million against the guarantee of the Treasury, which would be counter-guaranteed by the Chrysler Corporation. All these measures of financial support have of course been offered subject to our obtaining parliamentary approval.

The total potential commitment will be £162.5 million, but this includes the maximum guarantee liability for the £35 million medium-term loan, the full £28 million of capital development which is counter-guaranteed by Chrysler Corporation, and the maximum possible loss payments year by year. These guarantee commitments are payable only if the Chrysler Corporation were unable to honour them. That is the maximum extent of our commitment. It is important to make clear that it is not open-ended; it is clearly defined.

The responsibility for the success of the operation is also Chrysler's.

As activities in this country have been running down for some weeks, it is essential to get work started as soon as possible. I shall therefore be laying the necessary Order in the House later today.

The House will thus see that the situation has changed dramatically since November. The Chrysler Corporation, instead of pulling out completely, as was its earlier intention, is now prepared to increase substantially its financial commitment in this country. It also intends that Chrysler UK will now play an important and expanding role in its worldwide activities, and that it is to be fully integrated into the corporation's overseas market structure.

In addition, the Board of Chrysler Corporation has approved an important declaration of intent about the long-term future of Chrysler UK. Copies of its declaration of intent are available in the Vote Office.

We have the basis for a continuing operation into the 1980s which will provide jobs for 17,000 out of the present 25,000 work force, not counting many more jobs in related firms.

We have safeguarded the important Iran contract and avoided further damaging consequences to our balance of trade from the disappearance of Chrysler production in this country.

We shall be appointing two directors to the Chrysler UK Board and will be developing a planning agreement with the company.

The whole future of this operation depends on the fullest co-operation of the work force in accepting redundancies and the movement of work between plants and in collaborating to improve productivity. I have kept in touch with the trade union leaders and with Members from Chrysler constituencies, and further necessary consultations are now in train.

It will not help to try to allocate blame for all the industrial relations trouble of the past which is highlighted in the Central Policy Review Staff Report which has just been published. We mustall—Government, management and representatives of the work force—ensure that industrial relations are put on a sound basis so as to secure the future of this operation in the United Kingdom, with all that this implies for jobs and the balance of payments.

Several Hon. Members


Mr. Speaker

Order. I am now in a difficulty, and so is the House, because a great many right hon. and hon. Members wish to speak in the debate that is to follow, almost all of them with equally good claims. Therefore, I hope that questions will now be put to extract information and not to advance arguments.

Mr. Heseltine

Having heard the enormity of the commitment, the House will understand why the Secretary of State for Industry threatened to resign. He would have been well advised to do so. Will the right hon. Gentleman understand that we cannot appreciate why, in announcing the deal, he has abandoned the whole of the recommendations of the CPRS Report which made it clear that he should have gone in a totally different direction to the one that he has taken?

What does the right hon. Gentleman believe will be the effect on the balance of payments of the decisions that he has announced today?

What consultations have there been with the dealers, upon whom the right hon. Gentleman must be dependent for the success of this strategy?

Will the right hon. Gentleman say how many of the 8,000 redundancies will be in the Midlands?

To put the deal in perspective, having announced what will be the expenditure by the Government next year on Chrysler UK, will the right hon. Gentleman compare it with the expenditure by the American company in the United Kingdom next year?

Finally, will the right hon. Gentleman understand that, in the view of the vast majority of right hon. and hon. Members, the Government have now abandoned their Chequers strategy and, with it, what little respect they were entitled to expect?

Mr. Varley

In the debate that we shall be having later, I hope to relate the action that the Government have taken to the CPRS Report, when I think that the hon. Member for Henley (Mr. Heseltine) will see that, far from abandoning that Report, the slimming-down operation of Chrysler UK is in line with it.

As for the effect on our balance of payments, we were told by the Iranians that they attached a good deal of importance to the continuation of the knock-up kits supplied from the Stoke plant. That was in danger and would have seriously affected our balance of payments.

The dealers are another vital element. There are 850 exclusive Chrysler dealers in the United Kingdom and they have made it plain to my hon. Friend the Minister of State that they attach importance to the Chrysler company continuing in this country.

As for redundancies, those in the Midlands will be about 5,500, but this would have been much worse if it were not for the Chrysler commitment to keep the Ryton plant operating on the basis of bringing in work from France—lthe C6 Alpine car. I hope that the hon. Gentleman will not jump to conclusions about this. He should study my statement and listen carefully to what I shall be saying in the debate. I think that he will change dramatically his view that this is against the Government's overall policy for the car industry or detracts in any way from our industrial strategy.

Mr. Buchan

Will my right hon. Friend say more about his reference to the substantial loss of jobs at Linwood, initially? Will he quantify that? Will there be a build-up shortly afterwards if and when the Avenger is transferred to Linwood?

Mr. Varley

The current level of employment at Linwood is about 7,000. There will be about 3,000 immediate redundancies because of the phasing out of the Imp and, later, the Hunter. But there will be a build-up later on, and the level of employment in August next year, assuming the smooth transition of the Avenger work to Linwood, will mean that we shall be able to restore some jobs and that employment at that time, in August 1976, will be about 5,500.

Mr. Richard Wainwright

Will the Secretary of State help us to reconcile Chrysler's declaration of intent, especially with regard to expansion and new models, with the relatively modest amount that it is committing to the operation? Where will Chrysler get the immediate facilities for an increase of working capital and for financial losses which may go over the budget? Has Chrysler overdraft facilities which have not been mentioned in the right hon. Gentleman's statement?

What access to capital markets does Chrysler envisage for the latter part of its intended development programme in, say, 1978 and 1979?

Mr. Varley

I hope to be able to say more about this when we debate the matter. The funds for Chrysler's capital development programme of £55 million will be provided as a loan to Chrysler from the Government and it is secured on the assets of the Chrysler Corporation not Chrysler UK. As far as we can envisage at the moment, this finance will be adequate for the development plans that we have outlined today.

Mr. Duffy

How can my right hon. Friend reconcile his announced funding proposals for Chrysler—a privately-owned overseas corporation amongst whose longer-term beneficiaries American shareholders are more likely to figure than any British employees—with the tougher commercial criteria announced last week to British Leyland workers before they can receive any more public money, even thought they are employed by a British corporation that is publicly owned? Will my right hon. Friend assure the House that the rescue of the first will not prejudice the survival of the second?

Mr. Varley

I hope that my hon. Friend does not think that the support that I have announced today means that the whole of Chrysler UK is supported. There are many painful decisions which have to be taken. For example, 8,000 redundancies arise immediately. That is in line not only with the CPRS Report but with the views of the Select Committee chaired by my hon. Friend. This is not a soft option, and it will be painful for those working for Chrysler UK.

Mr. Peter Walker

Is the right hon. Gentleman satisfied that the £162.5 million which the Government have committed to Chrysler is the best way of using that sum of money to reduce unemployment? Is he satisfied, further, that a region such as the Midlands, where unemployment has trebled in the past two years, where the number of vacancies has gone down faster than in any other region and where there are 14 unemployed for every vacancy, is the ideal region at which to deal this vital blow?

Mr. Varley

The right hon. Gentleman cannot have it both ways. First, he asks me whether the £1621 million contingent liability—I emphasise the words "contingent liability"—is justified. Then he makes a special plea for the Midlands in supporting the whole of the operation. He should sort himself out on this. Our commitment is fully justified. I agree that it is harsh for the West Midlands, but the prospect of a total closedown at Linwood, with no alternative work, would have been even more severe for those in that area.

Mr. Henderson

If the right hon. Gentleman considers that the redundancies are falling most heavily on the West Midlands, how does that explain that view, in terms of the proportion of Scottish workers at Linwood who will be out of a job as a result? Can he tell us whether any of the new models coming forward in the next two or three years will be allocated to Linwood? Will he take this opportunity to pay a tribute to the SNP voters of Bishopbriggs and Bo'ness, who kept Linwood open?

Mr. Varley

I know that the SNP lost no opportunity to be opportunistic and to use every tragic circumstance to increase its votes. I wish that the Scottish National Party would act more responsibly in these matters. It is not only the car industry to which this applies: when it comes to the steel industry and any of the other severe problems of British industry, one can always rely on Members of the SNP to try to make the most out of it for their own political benefit.

To answer the hon. Member's serious question, there are certainly the more immediate redundancies at Linwood because of the phasing out of the Imp and the Hunter, but the transfer of work and the new model—the foreshortened Avenger car—which Linwood will get will mean that, by August of next year, about 1,500 of the 3,000 job losses will be restored.

Mr. Les Huckfield

Will my right hon. Friend accept that many of us recognise that the Government had a difficult decision to make and that we welcome their initiative in trying to save jobs, although this will still present a savage blow to Coventry? Will he further accept, however, that the problem with the last set of undertakings given by the Chrysler Corporation in 1967 was that they totally failed to bind Chrysler? What is to stop the Chrysler Corporation coming back to the Government in two years with exactly the same demands, threatening once more to pull out? Did my right hon. Friend not at all, during the negotiations, consider either putting somebody from the Government on the board or, better still, taking a stake in the company itself?

Mr. Varley

Part of the support operation was to ensure that Chrysler United Kingdom would be firmly locked into the world-wide operations of the Chrysler Corporation. If we cannot achieve that, there is not much hope for the company at all. I think that the agreement that we have reached and the declaration of intent spells that out. It is impossible to give the declaration of intent legal force, just as it was impossible in 1967 to give that declaration legal force. In fact, I think that the 1967 declaration was relaxed marginally by the previous Conservative Government in 1973. But one thing that is happening as a result of this arrangement is that Chrysler Corporation is committing funds immediately to this operation. As time goes on, and if it becomes a success, it will commit even more money.

Miss Harvie Anderson

Will the right hon. Gentleman accept that anyone with a close connection with Linwood must accept that a rescue operation was necessary? Will he tell the House that there is absolutely no alternative employment in the area? Will he also accept that the extent of help given is something that will be highly criticised, not only by members of my party but also by the taxpayer and by other industries, and that there is a grave question whether the nation can afford this amount?

Mr. Varley

Again, I think that the right hon. Lady, who I know is usually very fair about these things, is being schizophrenic. On the one hand, she points out, properly, the difficulties at Linwood and the problems of attracting new work to the area. Then she goes on to criticise the amount of aid given. She cannot have it both ways. Linwood was a problem that the Government had to face, and I think that we have faced it realistically.

Mr. Palmer

Is my right hon. Friend aware that many of us—perhaps all of us—on the Government side are extremely unhappy about this matter? Can he tell us why British taxpayers' money, poured into this bankrupt American concern, will make it pay when it has not paid in the recent past? Is that not the real issue?

Mr. Varley

I do not think that my hon. Friend is right to refer to the Chrysler Corporation as a bankrupt company. The Chrysler Corporation is in a different situation from that of Chrysler UK. It is true that Chrysler UK has lost money, I think, for six years out of the last nine, one of the problems, which one of my hon. Friends has just expressed, is that it had no new models. As a result of the agreement that we have reached, there will be new models coming along. We hope that, integrated within the international operations of Chrysler Corporation, it will be a success.

Mr. Hal Miller

Will the right hon. Gentleman tell the House whether, in pursuit of the objectives of the CPRS Report, he will insist on an equal percentage of cuts in employee numbers at British Leyland? Quite apart from the question of manning, will he address himself to the subject of capacity? Can the capacity available at Chrysler, in the light of the over-capacity noted in every report on this industry, ensure that it has a viable long-term future?

Mr. Varley

The reduction in capacity in Chrysler UK as a result of this operation is 25 per cent. That is a considerable reduction. I think that the reduction in manning is even higher than that—perhaps 35 per cent.—but I am not absolutely clear on that. The reduction in capacity is 25 per cent. and the reduction in manning might be as high as 35 per cent. When the hon. Member has had a chance to refresh his memory and to look at the CPRS Report again, I think that he will see that this is generally in line with the predictions, forecasts and recommendations in that Report. As for British Leyland, it should not escape the attention of the House that, in the last 12 months, its labour force has been reduced by 28,000.

Mrs. Renée Short

Is my right hon. Friend aware that his statement will be received with great concern in the West Midlands? What jobs does he expect the displaced car workers to go to after the training that he has mentioned? The jobs just are not there. How does he equate his largesse to this American multinational firm with his refusal to help Norton Villiers Triumph, for example, and the crisis facing the railways, which has brought a lobby to the House today? What guarantees has he from Chrysler that the management of the British end will be improved in order to turn out a better product?

Mr. Varley

My hon. Friend will be aware that I announced that there will be two Government-appointed directors on the board of Chysler UK. I think that our decision can be related realistically to the attitude that the Government have taken to the motor cycle industry. I am pleased that my hon. Friend has raised the question of that industry, although it is not strictly within the scope of this statement. The last time that we debated this matter, my hon. Friend did not bother to turn up. [Interruption.] My hon. Friend asked about the employment prospects in the West Midlands. I do not think that it has escaped her attention that we are suffering the worst recession for 30 years. When we have suffered recessions of less severity than this one, the upturn has always been quicker and more marked in the West Midlands than elsewhere.

Mr. Alan Clark

Will the Minister enlighten the House about the balance of payments aspect? If the injection of public money is related to the Iranian contract, it is the equivalent of buying on the foreign exchange market at the rate of $1.30 to the pound. However, if it is followed by deductions for the purchase of kits from France and the remittance of money to the parent company, it is probable that we shall be in net deficit on the foreign exchange account.

Mr. Varley

I do not think that is so. The Iranian contract is worth, I believe, £100 million a year. Reference has been made to the Ryton operation. It will not have escaped the hon. Gentleman's attention that I said that initially only 50 per cent. of the work would arise there. As time goes by, if it is successful, more of the work will be undertaken in this country. There is another point concerning the balance of payments, which the hon. Gentleman should realise. Chrysler has about 5 per cent. or 6 per cent. of the British market. It is were to go, its share of the market could well be taken up by importers.

Mr. Mackintosh

I understood my right hon. Friend to say that there would be 5,500 jobs retained at Linwood. Can he give us the precise cost to the Exchequer of retaining these Scottish jobs? I understand that the Cabinet has recently decided on cuts in the health, housing, education and road programmes in Scotland. Would not the leaving of the same amount of public expenditure in those areas have left more jobs in those areas? If that were so we would have had some houses, schools and roads, whereas the likely outcome of these proposals is that we shall still have just one uneconomic car factory.

Mr. Varley

I do not think that it would be appropriate for me to comment on some of the aspects raised by my hon. Friend about health, and so on. However, there is one simple calculation that my hon. Friend should make. He should try to cost, as we have done, what would be the payments from the Exchequer if 25,000 people were immediately declared redundant, and probably the same number in the supplying industries. We calculated that cost as about £150 million a year, which is a considerable sum. Far from believing, as my hon. Friend does, that this will not be successful, we believe that, given good will on both sides, it will be successful.

Mr. Churchill

Is the Secretary of State aware that the Government's announcement today will be seen as an act of gross economic mismanagement and of political cowardice, based on party political fear of Scottish nationalism? Is he further aware that there will be great anger among English workers be cause their jobs are being sold down the drain so that the Labour Government can appease the Scottish National Party?

Mr. Varley

I have listened to the hon. Gentleman's extravagant remarks on many occasions in this House. I recall one occasion when I made a statement about nuclear reactors, and about the steam-generated heavy water reactors being the next generation of nuclear reactors. He told me that the workers in his constituency had been betrayed. Far from it; the workers of his constituency sent a telegram congratulating the Government on their decision. I do not think that we need take the hon. Gentleman's strictures all that seriously.

Mr. Molloy

Is my hon. Friend aware that the whole sad saga of the Chrysler business is simply a repetition of the Rolls-Royce disaster? Both are classic examples of the continual failure of capitalist private enterprise. It lies ill in the mouth of any Conservative Member even to have the gall to speak about it. Does my right hon. Friend agree that the money he is prepared to spend to bolster up a failing capitalist private enterprise disaster would have been better spent on some of the publicly-owned industries of Great Britain that are struggling under difficult circumstances because of the undermining of their efforts by private enterprise, which, indeed, they are subsidising—[Interruption.] I intend to carry on telling as much of the truth as possible, as opposed to the hypocrisy of Conservative Members.

Mr. Speaker

Order. I asked hon. Members not go get into area of argument. I think that the hon. Member for Ealing, North (Mr. Molloy) is doing so.

Mr. Molloy

There was a great deal of argument long before I spoke, Mr. Speaker. Will my right hon. Friend assure the House that if no practical results are forthcoming from this public aid to a private company he will see that such action is never repeated?

Mr. Varley

I know that my hon. Friend appreciates that is one of the most difficult industrial decisions that have faced the Government. We have been struggling with the serious problem of the prospects of 50,000 men or more being thrown on the scrapheap in a few weeks' time. I do not believe that any British Government would have washed their hands of the situation. They would be bound to look at it and see how they could ameliorate and help the situation, and show sympathy and understanding.

Mr. John Davies

In choosing to reply to my right hon. Friend the Member for Worcester (Mr. Walker) by attacking him, the Secretary of State conveniently managed to avoid answering his question. The truth is that on the figures given—the £162 million is not wholly contingent—for 17,000 jobs saved, the cost per job would seem to work out at nearly £10,000. Can the Secretary of State really assure us that the vast sum of nearly £10,000 per job is better employed in this way than in finding work for the millions of unemployed, whose numbers are growing daily?

Mr. Varley

The right hon. Gentleman's figuring is all wrong. When he has had time to study the figures and the contingent liability he will realise that that is not the case. However, it is highly appropriate that the right hon. Gentleman should ask this question, because he has been in exactly the same position as I am in now. He will remember the difficulties he had with the Upper Clyde Shipbuilders, when he, as the Secretary of State for Trade and Industry, decided that help had to be given. Therefore, rather than make carping criticisms it would be better for him to realise and to express to the House the difficulties that are involved.

Mr. Heffer

Is my right hon. Friend aware that most Labour Members believe that it is quite right for the Government to take this action to defend and save as many jobs as possible? Is he also aware that many of us believe that in the process of doing so the Government should have carried out the Labour Party manifesto commitment to take over or to take an appropriate share in any companies that are desperate in this way? Is he aware that although we support the Government in saving the jobs, we shall look carefully at the final package when it is presented to the House in an Order? We trust that the Government will reconsider this matter and concern themselves with taking an appropriate share of equity in line with Labour Party policy.

Mr. Varley

The primary consideration was to ensure that this slimmed-down motor car company should be as tightly integrated as possible into Chrysler's world-wide operations. If that had not been done I do not think that it would have had any chance of success. We are satisfied that we have an agreement to that extent. My hon. Friend is right to say that the House will want to scrutinise the Order that I shall be laying before the House later today. I am sure that we can go some way to satisfying him that proper accountability will be maintained on the basis of the Government-appointed directors, the re-activating of the Chrysler UK worker participation scheme and the planning agreement that we hope to have with that company.

Several Hon. Members


Mr. Speaker

Order. We must now move on to the debate.