§ 3.12 p.m.
§ THE EARL OF KINNOULL rose to ask Her Majesty's Government whether they are satisfied with the commercial and financial practice adopted by the direct-labour departments of local authorities and whether these contribute adequately to the national economy. The noble Earl said: My Lords, the subject of direct-labour departments of local authorities, their work and their cost to the community, raises, I appreciate, a fairly wide avenue for an Unstarred Question. I am particularly glad to see that my noble friend Lord Brooke of Cumnor and other noble Lords intend to take part in this short debate, as well as the noble Lord, Lord Kennet, for the Government. Perhaps I should say at the beginning that there are a great many differing and varying services that the direct-labour departments provide for the community, and some of them, such as street cleaning, refuse collecting and sewerage are thankless tasks carried out often under difficult conditions by a loyal and in many cases underpaid staff. All of us, I am sure, would wish to pay tribute for those services.
§ The purpose of my Question to-day is to draw the Government's attention to the widespread concern that is felt about the work, the productivity and the efficiency of the direct-labour building departments of local authorities, handling both the maintenance work and the new construction work; for it is these departments which, week by week, absorb so much of our national and local resources and which almost week by week are shown by one report or another to be almost squandering public funds through inefficiency. Yet despite the cases we read about, despite the recommendations on cost control by the District Auditors Society, and despite the recommendation by the Prices and Incomes Board, in their Report No. 29, on more work study leading to greater productivity, the Government appear to have shown a singular lack of leadership in seeking ways to improve the efficiency of these departments. I hope to-day that the noble Lord, Lord Kennet, will be able to tell us what positive plans they have for the future.326
§ As the House will be aware, by far the biggest proportion of work handled by the direct-labour building departments is concerned with repair and maintenance work. In fact, I believe I am correct in saying that out of the 178,000 men employed by the 1,300 local authorities in the direct-labour building departments four-fifths of them, or 138,000 men, are engaged in maintenance, and only one-fifth, or 28,000 men, are employed in new construction work. When one examines the productivity figures and the cost figures of those maintenance departments, the general picture appears that the departments are being run far too often on the principle of low wages and low productivity. The noble Lord, Lord Kennet, will, I am sure, have far more facts than I have been able to glean on this point, but I am sure he would agree that the scope for improving the management and the productivity of those departments is enormous. The Prices and Incomes Board highlighted this in their Report No. 29, and they strongly recommended that more work studies should be carried out; and not only that body but the District Auditors Society as well came out in favour of stronger cost control. But I think I am right in saying that, despite those recommendations, the progress towards more work study and towards bonus incentive schemes is proving very slow.
§ I am told that over the past ten years only one-quarter of the local authorities have instituted work studies and bonus incentives, often with the help of management consultants, and the results of those studies coupled with incentives have been a truly remarkable and astonishing increase in productivity, ranging from 60 per cent. to 100 per cent. Yet, despite that staggering saving, and with the evidence that incentives clearly increase productivity, again it is a remarkable fact that only 16 per cent. of the entire direct-labour department staff are at present on such incentive schemes.
§ The enormous slack that can Le taken up in maintenance departments following work studies and incentives can best, I think, be demonstrated by the actual savings that have taken place in various local authority areas. In Norwich City, for instance, over £40,000 was saved within one year following a work study and a resulting management planning and 327 budgetary control service. In Slough, I am told, over £100,000 has been saved; in Grimsby £68,000; in Cardiff £100,000; in Wolverhampton £60,000; in Nottingham £90,000. To many of these local authorities this can represent up to 6d. on their rates. All these examples, and the many more examples I could quote, prove, in my opinion, the urgent necessity to persuade local authorities to examine their maintenance departments by work study without further delay and to stop the waste of national resources.
§ I consider that the Government themselves should take a leading part in this matter. One is aware that the Government set up the Mann Committee to examine maintenance departments, and perhaps the noble Lord, Lord Kennet, when he comes to reply can say when he expects the Committee's Report to be published. The policy adopted by many of the local authorities in placing a very low percentage, in some cases no percentage at all, of maintenance work to outside contractors is, I believe, a policy that should not be encouraged when the management and productivity of direct-labour departments is so much in doubt.
§ May I turn briefly to the new construction work of the direct-labour departments? The record of these departments in recent years is even more unhappy than that of the maintenance departments. The House will be aware that the direct-labour departments employ about 26 per cent. of the total labour force in the new construction industry, yet their productivity contributes only some 14½ per cent. of the national productivity. Despite this, the Government have never disguised their encouragement to local authorities to increase their share of new construction work and in a circular, No. 50/65, have even issued a directive absolving local authorities from obtaining any outside competitive tenders. They followed this up in 1966 by announcing that direct-labour building costs were proving cheaper per square foot than outside contractors' costs. This has always been questioned.
§ But despite this optimism on the part of the Government, we have witnessed in the last two years an increasing number of failures by direct-labour departments of local authorities. In the well known 328 case of Salford City, where the costs escalated by some £700,000 above the original estimates, we learn that 33 out of 40 separate contracts given to the direct-labour departments have exceeded their original estimates. We learn also, with regard to this case, that the root cause of the trouble lay in poor management, poor budgetary control and poor productivity. As the House will know, the result of the inquiries led to the closure of this department, and in other cases where investigations have been carried out—in Southwark, Camden, Coventry, and in Wolverhampton—we have seen overspending on the original estimates as high as 30 per cent.
§ With all this recent evidence, are the Government really still satisfied that their Circular 50/65 is in the best national interest? The method the direct-labour departments adopt for estimating the new work has been under fire for a considerable time, both from the outside contractors, their competitors, and also from the District Auditors Society who consider that the on-costs have never been carefully enough taken into account. I hope that when he comes to reply the noble Lord, Lord Kennet, will be able to say what action, if any, the Government intend to take to see that the direct-labour departments' estimating procedures are improved.
§ The policy of outside tendering in competition with direct-labour departments has also been the subject of debate for some time, and the Banwell Committee examined this in great detail. The House will recall that this Committee came down in favour of negotiated tenders or selective tenders from contractors they already knew—suitable contractors. I suggest that this question of direct-labour departments of local authorities is a subject of tremendous concern, and to-day I hope that the noble Lord, Lord Kennet, will be able to advise us what steps the Government intend to take to try to improve the efficiency of these departments so that they may contribute more adequately to the national economy.
§ 3.25 p.m.
§ LORD FISKE
My Lords, I am sure that this is a subject which will be debated here with knowledge and with skill. I am sure that we are all grateful to the noble Earl, Lord Kinnoull, for the way 329 in which he has introduced this matter this afternoon, because so often the subject of building by direct labour can become a political shuttlecock between the champions of private enterprise, on the one hand, and the champions of public enterprise on the other.
I want to suggest to your Lordships that this is not enough. What we really need is an assessment of building by direct labour in our society: what are its advantages, what are its disadvantages, what are its limitations, and what are its possibilities. I think this is not perhaps the easiest of moments at which to discuss this subject, because in the whole field of local government we have to await the Report of a Royal Commission whose findings its would be wrong for anybody to try to anticipate. If by any chance the Royal Commission should come down in favour of larger units in local government, then of course the case for building by direct labour would be that much strengthened, because I think it is the size of the local government unit that can often decide whether a direct-labour department is a viable proposition or not. For example, first, the larger authority can so arrange its work that there is continuity of work for the direct-labour department—surely the most important part of all—and, secondly, by reason of its size, it can secure a better management structure both in salary and therefore in calibre.
I should like to pause for a moment to consider this question, because one of the great handicaps to direct-labour building by local authorities is the fact that none of the opportunities that are open to a private trading organisation is open to a local authority, for the simple reason that the salary of its chief operatives must be fixed within the scale of salaries of officers of local authorities. Nor has a local authority the power to dispense any of the fringe benefits which can be done in the private sector. This has a great effect on management calibre and, as I shall hope to show shortly, on the size to which the organisation can grow and the complexity of work that it can undertake.
There is one more thing that I want to refer to, which I think is most important. It is that the direct-labour organisations that I know carry out their full part in the training of apprentices. 330 This, within the building industry, is something of supreme importance. If we do not train apprentices we must not complain of bad or shoddy workmanship. It is up to the local authorities—and I think they are doing this—to set an example to the building industry as a whole, to see that the proper quota of apprentices is trained. I have noticed that in the last twelve months the apprentices' register for the year ended December, 1967, showed a figure of 13,839, whereas that for the twelve months ended in December, 1966, was 16,369. So it will be seen that there is a considerable fall in the training of the next generation of building operatives. This, I think, is one of the most important activities that a direct-labour department should indulge in.
As I see it, the great disadvantage of direct labour is the impossibility of its always—I stress "always"—going to tender, unless it is also to be allowed to tender for work outside the province of the authority's own work. I underline "always" because I believe that any direct-labour department should from time to time put itself to the test with its competitors, to make quite sure that the whole of its organisation is competitive as well as being publicly owned. Such a course ensures that the quantity surveyors, the accountants who look after the building accounts, and the critics, are on their toes. In a field of productivity which takes place in the full blaze of Press and public watchfulness, direct labour must be seen to be more economical and of benefit to the ordinary ratepayer.
Should it have limitations? This is something which your Lordships will wish to consider very carefully. The noble Earl referred to its work in the maintenance of a council's corporate estate. This is a very valuable contribution to the public work. In the authority which I know best, there is a permanent force of some 7,000 men who are responsible for maintaining and repairing something like 250,000 dwellings. They do this as permanent employees of the authority, pensionable with the same sickness rights, and so on, as anybody else employed by that authority. This must be seen as a great improvement in the terms of employment which normally obtain in the building industry as a whole.
331 There is another great sphere of activity in which I believe that direct labour can be very usefully employed, and that is where it is virtually impossible to give an estimate unless it is heavily weighted. I will illustrate what I mean by that. Before the war, in the Mile End Road, in Stepney, there was a very well-maintained estate of 24 almshouses and a chapel, maintained by Trinity House for (the inscription says) "decayed mariners". At the end of the war that group of almshouses, built about the time of Wren, was a bombed ruin, and a decision had to be taken as to whether it should be swept away with a bulldozer, or whether it should be restored to become a useful addition to the housing provision in that part of London. The second decision was ultimately taken.
No ordinary contractor would have dared to give an estimate for this job unless it had been extremely heavily weighted, so heavily weighted, in fact, that the authority would probably have been unable to accept it. By giving it to the direct-labour department, however, it was possible to do several things. It was possible to restore those almshouses to their previous glory; it was possible to provide housing at economic rents to people who found themselves, for social reasons, working in Stepney, so that it has never been a burden on the ratepayer; and it gave unique opportunities to train the building authority apprentices in work which they would never otherwise have seen. To my mind, these were worthwhile objectives which went towards restoring what is now a unique and very pleasant corner of what used to be the Borough of Stepney. I consider that direct labour is eminently suitable for that sort of work.
We then come to new work. It is in regard to new building work that we have to think of limitations, since so much new building work employs not only builders but many other professions and skills. It also involves very expensive and seldom-used plant, and it may be that new building undertaken by direct labour should be confined to new building that falls within the scope of an ordinary builder and is not the sort of work usually undertaken by a large-scale contractor. But, with that limitation, it is fair that the direct-labour departments should have some new work, so long as they can 332 prove to the authority, and through the authority to the public at large, that, taking one job with another, they can do it as cheaply as, or cheaper than, the private contractor would do it. Public accountability and eternal vigilance are essential requisites to public enterprise of any kind, and perhaps in this sphere they are more essential than ever. But I am sure from my own experience that if this is done there is a great role indeed for direct-labour building.
§ 3.35 p.m.
My Lords, may I crave the indulgence of your Lordship's House if I read my speech, for the sake of accuracy? The Tenterden Rural District Council, in whose area I live, have been practising building by direct labour since 1946. I am very grateful to the Chairman and officers of this Council who have readily made available the following information which I feel will be of interest to your Lordships.
The Tenterden Rural District Council is a small authority, which has a penny rate product of £830, and administers a population of 8,000. The Council has built houses by direct labour successfully over a period of 22 years, completing a total of 286 houses, fiats and bungalows. Direct-labour contracts at present in hand consist of 24 bungalows and 8 houses. The direct-labour department carries out maintenance and repair of over 800 properties and also is carrying out major improvements and extensions to pre-war houses. Cost of building has been reasonable and tenders have always been lower than those of outside contractors. The following figures of actual cost confirm this.
In 1966, 12 3-bedroomed houses were completed at a cost of £1,860 per house. In 1967, 19 bungalows with central heating and other amenities for old people were completed at a cost of £1,935 each. This year the latest direct-labour tenders for one-bedroomed bungalows to Parker-Morris standards are £2,100 each, and for three-bedroomed houses to similar standards at £2,770 each. This latter price compares favourably with the Ministry's cost yardstick of £3,008 per house. This may seem a large increase on the 3-bedroomed houses over the 1966 figure, but one must bear in mind that the new 3-bedroomed houses are built to 333 a higher standard, which also includes central heating. Direct-labour building bears its proper apportionment of salaries, architects' fees and administrative costs, and overheads on wages, stores and tools, and these facts are carefully checked by the district auditor annually. The Council is satisfied that the workmanship is of a high standard. This is shown in the repairs account, and is also due to the fact that the same workmen who build the houses also have to maintain them, and often live in them. There are both good and bad builders, and this can apply to housing authorities; but it is certain that the strict financial control and supervision of local authorities and the penalties attached to both officers and councillors must, in the long run, keep them on the right path.
If any of your Lordships are interested in further details of costs et cetera, or in seeing what this very small Council has achieved, the Chairman and officers will be delighted and proud to show them what the Council is doing. In conclusion, my Lords, I feel that the facts and figures quoted indicate the desirability of the employment of direct labour in council building. The saving of costs in this authority appear to be at least 10 per cent. However, it is essential to have very accurate planning and programming of work. Also, good supervision is a "must". Certainly I would stand up for the small authorities' being allowed to continue using direct labour.