§ 2.55 p.m.
§ THE SECRETARY OF STATE FOR DEFENCE (LORD CARRINGTON)
My Lords, I beg to move that the Rolls-Royce (Purchase) Bill be now read a second time. There cannot be anybody in your Lordships' House, wherever he sits, who can welcome the reasons for to-day's debate or who does not feel a sense of sadness at what has happened. We have all been brought up to believe that Rolls-Royce was the greatest, or one of the greatest, names in British industry, and the events of the last few weeks and months have not been good reading to any of us. It is equally no use disguising or trying to minimise the effects which the failure of the company will have. What I shall try to do this afternoon is lo explain, as shortly as I can, the situation which faced the Government, the options which were open, the decisions which we reached and the action which has since been taken. I think that this will meet the point which the noble Lord, Lord Shepherd, very properly and rightly put just now.
First of all, I think it essential to emphasise, in the light of some of the comment that I have read, that we were faced with a commercial failure of a private company. The commercial failure was caused by the contract which the company entered into to produce the RB.211 engine; in effect, to undertake to produce a new engine of great complexity within a fixed time at a fixed price; an engine which, being of an entirely new design, involved technical developments which in the nature of things could not be accurately foreseen.
My Lords I have no intention whatever this afternoon of criticising the board of Rolls-Royce, or indeed the ex-Minister of Technology, Mr. Wedgwood Benn. 358 They have spoken, and will speak, for themselves. In any event, the Rolls-Royce board have decided to seek a Board of Trade inquiry to investigate all aspects of this matter. But the fact remains—and I must emphasise this once again—that the failure of Rolls-Royce was not a failure on the part of the Government. It was a commercial failure by a company which entered into a contract which it came to the conclusion it could not fulfil.
I must also emphasise once again that the Government have no legal obligation for the continuation or maintenance of the RB.211 contract which was between Rolls-Royce and Lockheed. In this connection, I am assured by my right honourable friend the Minister of Aviation Supply that he has at no time given an undertaking to Mr. Packard, the United States Deputy Secretary of Defence, that the RB.211 would be continued. Indeed, he has never spoken to Mr. Packard.
My Lords it is no part of this Government's philosophy that even had it the resources to do so, it has a general responsibility to prevent commercial undertakings from going bankrupt by underwriting their liabilities when they make a mistake. The collapse of any commercial undertaking inevitably has grievous side-effects on other companies and individuals both at home and abroad. It is the Government's duty to do what it can to minimise such harmful side-effects and to soften such blows. But in the long run the principle that the Government should therefore always step in to bail out the bankrupt company—large or small—must clearly be wrong. It is the bad commercial decision which causes the suffering.
Some two or three weeks ago the board of Rolls-Royce came to the conclusion that they would not continue trading legally since their financial position, as explained to them by their accountants and lawyers, was such that they did not have the funds to do so. It may be helpful at this point if I run briefly over the recent history of the RB.211 project and the attendant financial difficulties which led to this decision. In April, 1963, the then Minister of Technology announced his Government's decision to provide launching aid for the Rolls-Royce RB.211 engine which had been adopted by the Lockheed Aircraft Corporation for their 359 TriStar jet civil aircraft. He subsequently announced, in October, 1969, after the negotiation of the launching aid contract, that the aid would amount to £47 million; this was 70 per cent. of the then estimate of £65 million of the cost of launching the engine. In 1969, after an investigation of the Rolls-Royce Company by the Industrial Reorganisation Corporation, the I.R.C. made a loan to Rolls-Royce of £10 million and some changes were made on the company's management, including the appointment to the Board of Mr. Morrow and Lord Beeching and the creation of a new post of financial controller.
In the autumn of 1970, Rolls-Royce informed the Government of a substantial increase, to £135 million, in the estimate of the cost of work on the RB.211 and the Government decided, after serious consideration, to help meet the increased cost by providing a further £42 million in launching aid. This was part of a joint operation in which the banks were to contribute a further £18 million, and the provision of additional aid was made conditional upon an independent investigation by a firm of accountants of Rolls-Royce's financial position and prospects. There were also some further changes in the company's management and Lord Cole was appointed chairman.
Three weeks ago, however, the company were apprised of the fact that a very great deal more money would be needed to continue the development of the RB.211. It was now estimated that the production cost of the engines to be supplied to Lockheed would be £460,000 each, instead of £350,000—a loss of £110,000 per engine—and that the engine was going to be anything between six months and twelve months late, which under the terms of the contract meant that very large sums in indemnities would have to be paid both to Lockheeds and to the airlines which had ordered the TriStar. In these circumstances, before the accountants' investigations were completed, Lord Cole told the Ministry of Aviation Supply on January 22, that his Board thought that the RB.211 development and production programme could not be met.
On January 26, the Rolls-Royce board decided that, subject to consultations with Lockheed and the Government, the company 360 should not continue with the project. Such was the enormous size and cost of this single project that the Board were forced further to conclude that the losses incurred on it and the liabilities likely to arise on termination of the contract were such that they would exceed the company's assets. In this situation the company would be in the position of trading without being able to meet its commitments. On February 4, the Rolls-Royce Board decided that it had no alternative but to apply for a Receiver under the Companies Act.
My Lords, faced with this problem the Government had three choices. The first was that, the Receiver having been appointed, we could do nothing and must let events take their course. This, it seems to me, would be an inconceivable course for any responsible Government to take. Virtually the whole of the Royal Air Force and important elements of the other two Services depend in one form or another upon the company, as do numerous other countries' air forces and airlines throughout the world. Furthermore, we are engaged at the present time in collaborative development projects of the greatest importance in both the military and civil fields. They will be well known to your Lordships. There is the Concorde, on which very large sums of both British and French taxpayers' money has been spent. There is the M.R.C.A. aircraft, on the development of which it is planned that a large part of the future of the Royal Air Force will depend. This is being undertaken in collaboration with the Germans and Italians. There is the Jaguar aircraft, in a very advanced stage of development, powered by the Rolls-Royce Adour engine, a project on which the French and British Governments are relying for the re-equipment of a sizeable proportion of their Air Forces. The Royal Navy depends to a certain extent for the gas turbine propulsion which it has introduced in warships, on the aero engine company and the marine gas turbine company. At home the sudden crash of Rolls-Royce would have had serious economic consequences and led to much hardship, while abroad there would have been a great loss of confidence.
My Lords, it may be argued by some who are opposed to what the Government have done, that it would have been 361 possible to allow and encourage other private companies, or another private company, to take over Rolls-Royce. In the view of the Government it would not have been possible in the time available, even if there had been a company with such resources at its command. There would not have been time to make arrangements which would have both kept confidence and ensured the continuation of these important Defence projects. The delay to these projects might well have been fatal. Some might have been abandoned altogether, and a situation would have arisen which certainly I, as Secretary of State for Defence, would consider to have put at risk a great part of our Defence effort. It would have been unforgiveable to do nothing, and in the time scale on which we were working there would have been no prospect of a private company taking over Rolls-Royce in the conditions in which it found itself.
Secondly, and at the other extreme, the Government could have taken over Rolls-Royce and nationalised it lock stock and barrel—a solution which I think probably some noble Lords opposite would have preferred. But that would have involved the total assumption of the company's liabilities, and, in any case, it is not part of this Government's policy to nationalise such industry as is viable and is perfectly capable of being sold at a proper price. Nor is it the intention of the Government to acquire assets for which they have no use, or activities which are themselves unprofitable. The Government have a duty to the whole country to use the money which they have the power to take in taxation as wisely and economically as possible. For that money comes not only from those who pay tax on their incomes, but also from taxes which enter into the costs and prices of all goods and services—whether bought by the pensioner or the well-to-do. And, as I said, to follow this second course would also have meant taking over the whole of the RB.211 contract, with the losses and penalty clauses to which I have already referred.
It would have meant accepting financial responsibility for an engine when we had no clear idea of whether it could in fact be developed to the performance required; if it could be developed how long this would take, and what the total cost in development, production and indemnities for failing to meet the original 362 contract would be. This would have been an enormous and open-ended commitment. It was the considered view of the Law Officers of the Crown that, had Her Majesty's Government taken over the RB.211 in these circumstances, when Rolls-Royce was facing insolvency, we should also have inherited these vast liabilities.
There was a third course, which was to take into public ownership those parts of the Rolls-Royce Company which were essential for our defence effort and for the continuation of the collaborative projects to which I have referred, and for the assurance of spare parts and servicing to those 280 airlines and air forces who operate with Rolls-Royce engines. This meant the acquisition of such assets of the aero engine and marine and industrial engines of the company as were essential for these purposes. The legislation which is before your Lordships this afternoon is designed to put into effect these proposals as indicated in the Statement I made to the House on February 4.
My Lords, this would seem to be the appropriate place to comment very briefly, as it is a very short Bill, on the actual provisions of the Bill itself. The Bill consists essentially of a single clause which permits the Government to acquire those parts of the undertaking and assets of Rolls-Royce Ltd. and its subsidiaries which are required for the defence and civil purposes I have indicated. At this stage, when there has not been time to define the requirement precisely, the Bill is necessarily drafted in very general terms to provide the flexibility we need. It is, of course, the intention that a company will be set up for the purpose of taking over the assets we agree to acquire, and the necessary formalities for this are in hand.
There are only two points to which I would draw your Lordships' particular attention. The first is that the Crown has, of course, an inherent power to dispose of what it acquires—that is not something which it is necessary to spell out in the Bill—and it is certainly the intention of the Government to introduce private capital into the firm. But in this context it is as well to remember that there may be an opportunity for some form of integration into an international aero-engine company, with the participation of European partners. But 363 what one envisages in this context is as yet only a speculative possibility, and we should need to examine very carefully any proposals. Secondly, as the Financial Memorandum makes clear, it is not at present possible to make any reliable estimate of the purchase price of the assets to be acquired, or the cost of carrying on the new company. There will have to be a careful assessment to determine what assets are to be acquired and a process of valuation to agree upon a fair price.
I should like to make it clear that negotiations have already started with the Receiver, not only to identify the assets which are needed but to agree a formula about a fair price, and the Receiver has agreed that, subject to the satisfactory formula about the price, it is likely to be in the best interests of the debenture holders and the creditors of Rolls-Royce that the Government should acquire these assets. Work is in hand but, as those of your Lordships who have firsthand knowledge of these affairs will appreciate, the task is an extremely complex one, and it is bound to be some time before final figures can be produced. Estimates will of course be presented to Parliament in due course. Meanwhile, this does not delay the creation of the new company or the taking over of control by the Government.
§ LORD DIAMOND
My Lords, would the noble Lord allow me to ask him to explain a little further what he meant when he said that, subject to satisfactory negotiation, a price has been agreed between the Receiver and the Government? Surely this cannot be so. Is it not the case that the Receiver must sell at the highest price he can get? Is that not his duty to the debenture holders, for whom he acts; and are not the Government therefore in the position that they cannot make the statement which the noble Lord has just made?
§ LORD CARRINGTON
My Lords, I have made the statement with the full authority of the Receiver, and there is no doubt that this is the situation as it now stands.
My Lords, I am absolutely convinced that the course which the Government have undertaken is the correct one in the national interest. Of course a Conservative 364 Government do not find it agreeable to have to form a company to take over the aero-engine industry of this country. But when the defence interests and the collaborative projects and the continuation of foreign air forces and airlines are involved, then unpalatable decisions have to be taken; and the Government, in my view rightly, have been prepared to act in such a fashion in order to preserve what they believe to be the national interest.
The Bill makes no mention of the RB.211 engine, which has been the centre of the debate during the last ten days. This project placed the Government in a very difficult position. There were undoubted and very serious problems created for Lockheed's by the Rolls-Royce failure, since they had, in turn, contracted to sell the TriStar airliner with RB.211 engines to several airlines by a fixed date. There were problems for Rolls-Royce employees and for supplier companies, some of which may have to make workers redundant. There were difficulties about production, cost and performance of the engine, in which there was a considerable area of uncertainty.
The Government were, and are, anxious to see whether there is any prospect of saving this engine on terms acceptable both to Lockheed's and to the new Rolls-Royce company owned by the Government, but time is needed to investigate the various possibilities. We therefore decided, when the Receiver disclaimed the contract with Lockheed's on February 11—as, indeed, in the circumstances, he was bound to do in the interests of the debenture holders—that Her Majesty's Government should immediately indemnify the Receiver for a period of four weeks from February 5 to permit the continuation of essential work on the RB.211. This will enable the options to be kept open and the programme to continue, and for discussions to take place with the parties concerned. It will also permit Her Majesty's Government to form a judgment about the possibilities of this engine, its performance, the time it will take to build it and the cost of the engine, together with an assessment of the further money required for its development.
My Lords, these are very difficult and technical matters, and I have thought it right to appoint a team of independent 365 assessors to advise the Government. I have asked Sir William Cook, until recently Chief Scientific Adviser at the Ministry of Defence; Sir St. John Elstub, of Imperial Chemical Industries; and Professor Holder, Professor of Engineering at Oxford University, to undertake this task. I am glad to say that they have all three agreed to do so, and I should like to take this opportunity of thanking them for the way in which they responded to my request, particularly since I have impressed upon them the need for speed so that the Government may be enabled to form their judgment before negotiations take place. My Lords, I realise how greatly inconvenienced these three distinguished people must be, and I am very grateful to them for their agreement. They have, indeed, already started on their task, and they are at Derby with Rolls-Royce to-day. I perhaps should add that the Prime Minister has asked me to take charge of co-ordinating action in Whitehall on the wide range of problems which have been thrown up by this issue.
My Lords, there were three things necessary after the Government had made up their mind to pursue the course which I have outlined. First, it was necessary to set up a new entity which could carry on these vital defence and civil activities. This we are in the process of doing. Negotiations have started with the Receiver, and the assets which we need to take over are being identified; and the articles of the new company and the associated matters are being dealt with. Lord Cole, who was asked to take over the chairmanship of Rolls-Royce last November, and Mr. Morrow, who came in to reorganise the company last July, have both been asked to continue in their capacity as chairman and deputy chairman of the new company. Does the noble Lord wish to interrupt?
§ LORD PARGITER
My Lords, could the noble Lord say, in connection with the acquisition of assets, whether this is the acquisition of the physical assets and work in progress, or does it include the goodwill element and things of that kind which normally come in?
§ LORD CARRINGTON
My Lords, this is of course, a matter that is at the moment being discussed with the Receiver, and I should not like to answer 366 that question specifically to-day. The noble Lord will understand that very complicated matters are being discussed at the present time.
Secondly, it was necessary to provide the Receiver with sufficient cash flow to ensure that these essential military and civil activities could continue uninterrupted while the necessary restructuring arrangements were made. The assurance of February 4 that the Government intended to acquire the aviation and marine and industrial gas turbine assets of Rolls-Royce as a going concern has meant that the Receiver has authorised the continuation of work on engines produced by those sectors of the company, not only for the Government's defence programme but also on contracts for other Governments and for civil airline customers. The Receiver has published en announcement to all suppliers of Rolls-Royce repeating his intention of continuing the company's operations in most areas and stating his intention of paying for all new supplies on orders which he authorises. He adds that the maintenance of the business as a going concern will ensure that the assets available for the general body of unsecured creditors (including sub-contractors owed money at February 4) are maximised to their general advantage, so that suppliers can help themselves by co-operating in maintaining what he describes as "the immense value of the goodwill of the business". As my right honourable friend the Chancellor of the Exchequer said in another place on February 8:… steps 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, suppliers or sub-contractors of Rolls-Royce, who may need additional temporary finance as the result of these developments."—[OFFICIAL REPORT, Commons, 8/2/71; col. 601Thirdly, it was necessary to inform our friends and allies of the course which the Government were proposing to take and assure them of the continuation of the aero and marine engineering side of the Rolls-Royce business. My Lords, this was done. My right honourable friend the Prime Minister had conversations with the President of the United States, and subsequently I have spoken to Mr. Packard of the Department of Defence. I sent high-ranking officers to Germany, 367 Italy and France with whom we have these important collaborative projects to make it abundantly clear that the new company under Government management intended to continue with these projects.
Finally, my Lords, it is when Sir William Cook and Sir St. John Elstub and Professor Holder have reported that it will be possible to begin substantive negotiations with the interested parties about the continuation of the RB.211 engine. Mr. Haughton, the chairman of Lock-heeds, will be coming to this country for a meeting with my right honourable friend the Minister of Aviation Supply and myself on Friday of this week, although the discussion on that occasion will necessarily be of an exploratory nature, Since it will be a little longer before our studies are sufficiently advanced to enter into negotiations of substance.
My Lords, I have tried this afternoon, in what I hope has not been too long a speech, to give some account of what the Government are doing in this very difficult situation. Much remains to be done, but of one thing I am absolutely convinced; that is, that the Government decision was right and absolutely inevitable; that any other course which they pursued would either have been intolerable for the taxpayers and contrary to the public interest, or disastrous to the national interest. I hope, as I am sure we all hope, that out of this affair there will once more arise Rolls-Royce with the same brand of distinction for its products and its engineering which it has always had; for in that company there work some of the finest engineers and technicians in this country. Nothing which has happened detracts from the quality of their products or the quality of those who work on them. It is our firm intention to see that that quality is maintained and improved, that the company should be well managed and that those who work for it have the same pride in their work and in their company as they have always had in the past. I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Carrington.)
§ 3.24 p.m.
§ LORD BESWICK
My Lords, we are all grateful to the noble Lord, Lord 368 Carrington, for the way in which he has explained to us the background and the purpose of the Bill as the Government see it, and we appreciate the tone which he chose to adopt. I realise that he had to eat Tory words about nationalisation with a good deal of care, and I admire the delicate way in which he justified nationalisation in particular but not in general. We are also grateful to the noble Lord for giving us the latest information of the steps he is taking in order to try to clarify some of the essential features of this affair, and we wish him well. At the outset I have to say that I have myself an interest in the aerospace industry; and that I declare readily and immediately. I hope that it will be taken that that interest clarifies, not clouds, any judgment that I may make.
This Bill refers specifically to one company, but its implications are as wide as the national economy itself. I propose to deal with the wider implications on this Second Reading and I am glad to have the noble Lord's assurance that this will be generally acceptable. I have no need to labour further the great sense of shock which we all felt at the news of a Receiver for this company. This bankruptcy, by any standard, is a tragedy of the first magnitude. I do not propose to dwell unduly on causes of past failures except to seek guidance for decisions on the future; but one point I make at the outset. In the aviation world it would be accepted that there is seldom if ever a single simple cause of an aircraft accident. Almost always it is a matter of several adverse factors coinciding at one point of time. It was so in the case of the Rolls-Royce downfall. Almost everyone has put the blame upon the character of the RB.211 contract, but it is more complicated than that. Undoubtedly their immense technological strength had been over-stretched. They suffered a sad and significant loss in the premature death of the late Adrian Lombard, a man whose engineering capability and leadership they sadly missed. And while their managerial and engineering capacity had suffered in some ways, they acquired a quite spectacular increase in their workload. It was in the flush of exuberant success that they fought for and won the Lockheed competition to power the TriStar.
There is one feature of that controversial contract of which until to-day, in the 369 Press this morning, I had seen no mention. It is significant that it was the first British engine that was not intended for a British airframe. If we take all the other great aero-engines of the war and since, they have all been nurtured in British aerospace. The Merlin, Avon, Dart, Spey and Tyne engines, all were part of a highly successful partnership between the airframe and the aerospace industries. It was a partnership which for the industry as a whole has produced exports of over £2,000 million since the war. In 1969 alone the figure was £305 million. The company with which I am associated can claim the fantastic record of £2,000 exports per annum per employee—four times the national manufacturing average. Thus we are dealing here with an industry which profoundly affects our whole economic position as an exporting nation—and that mean our whole standard of life. This RB.211 contract was a break from that partnership. I do not complain about that, but it may well be that there are lessons to be learned for the future in any plan for aerospace. A successful aero-engine enterprise needs a successful airframe industry, whether we look upon this in a British or a European context.
That has relevance to the next point that I want to make, the need for a positive plan for the future of this company affected by the Bill and for the industry of which it is part. The noble Lord gave me an assurance last week—he was repeating it, I understood, to-day—that it was not proposed to buy Rolls-Royce assets simply to keep them on a care and maintenance basis. We all agree with what he said about the skills embodied in the Rolls-Royce company and the Rolls-Royce workpeople. He has told us that current contracts are to be honoured. That is fine so far as it goes, but it does not go far enough. Decisions will be needed this year about engines for the next decade. Much has been said about the quietness of the RB.211, but there are other quieter engines already gestating. I believe that in fact we are on the threshold of a new era in air transport. Short, and eventually vertical, takeoff now offers practical solutions to noise and environmental problems. It will be folly of quite historic proportions if at this point of time we lose our nerve and our grip and allow our lead in this industry to escape us.
370 Under public ownership Rolls-Royce can help to make a decisive contribution to all this if, and only if, the Prime Minister and his Government can equate courage, not with a negative decision to disengage from industry but with a positive, constructive determination to build upon the assets which they propose to acquire. I ask the noble and learned Lord who is to reply to re-emphasise the assurance which the noble Lord, Lord Carrington, has given that the Government are going to give real meaning to the initial action taken by this Bill; and that they are going to assure this company that it will have all the facilities necessary for making plans covering the next period of 10 years.
So far, my Lords, I have not sought, any more than did the noble Lord, Lord Carrington, to attach blame in this matter. I believe that to be irrelevant; certainly in dealing with the immediate problem. But the way the crisis was handled when it broke is an entirely different matter. If ever there was a case of "instant government" this was it. I cannot believe that they thought this thing through; I cannot believe that they properly considered the consequence to hundreds of innocent firms and to tens of thousands of workpeople. I cannot believe that they even began to understand the consequences to our trading reputation abroad. The device of going bankrupt, repudiating liabilities and starting up under another name is not unknown; but never, so far as my memory goes, has there been any precedent in the whole of British commercial history for a firm of national standing to adopt a technique or device of this kind.
All of us, every one of us—the Prime Minister included—has always been ready to share in the national glory which Rolls-Royce brought in the days of success. We just cannot speak, as the noble Lord spoke a few minutes ago, as if this was a decision made by a company that was like any other company in the country. It is not possible to deal with Rolls-Royce in that kind of way. It is not possible to ride off all this by saying the decision about the Receiver was one for the board of Rolls-Royce alone That just is not true. Whatever decision they made could be made only in the light of overriding decisions by Her Majesty's Government about financial support. The 371 noble Lord said that the board of Rolls-Royce were advised by their legal adviser that they were bankrupt. How could he give that advice unless they pursued further with Her Majesty's Government as to how much financial support was to be forthcoming? At what point did he assess the goodwill of Rolls-Royce in the market?
When challenged by my noble friend Lord Pargiter, the noble Lord, Lord Carrington, said that it was impossible now to say at what figure the goodwill of Rolls-Royce could be calculated. How, then, could it have been said that weekend—or whenever it was—that Rolls-Royce were bankrupt, unless it had been possible to assess all these matters? My Lords, it is useless to quote the law which regulates these matters; the law is already being supplanted or by-passed by Her Majesty's Government. In what other case, for example, has the Receiver been told that whatever extravagant bids are made for the assets, a higher bid will be forthcoming from the Government? If Lockheed wanted to follow the tactics of the Government, they could ensure that the Receiver had ample funds to pay the maximum compensation to which Lockheed are entitled, simply by bidding up the price which the Government pay to the Receiver under the terms of the Bill. My Lords, it may be that the Lord Chancellor would be good enough to tell us when he replies whether this is so or not.
There is another question I would put to the noble and learned Lord the Lord Chancellor. As I understand it, the Government have now, after reflection and on second thoughts, indemnified the Receiver for any action he may take to keep the RB.211 production going for another month. Why could they not have given a similar temporary financial undertaking before, and not after, the Receiver was brought in? If they were given a deadline, could not urgent negotiations have been started? Would this not have given us a chance to avert the national shame and industrial confusion now brought upon us?
There is another question, my Lords. If, as the Government seem to think—though I do not—that it is possible to draw a line between assets and liabilities 372 relating to the RB.211 contract and other activities, what is the position of those suppliers and sub-contractors who are not concerned with the RB.211 contract? Can the suppliers and sub-contractors rely on being paid in full for goods they have supplied before February 4 when the Receiver took over? These are the companies upon which Rolls-Royce will depend in the future. If Rolls-Royce are going to continue in business, as the noble Lord has said and as we all hope, they will depend on these sub-contractors being able to supply them with materials and the fulfilment of contracts in the future as they have done in the past. Can we really say that for goods supplied before February 4 payment is in jeopardy, if we intend that the sub-contractors should continue in trading relationship in the future?
My Lords, there are other questions, and it would allay natural anxieties if satisfactory answers could be given to them. I would ask the noble and learned Lord who sits on the Woolsack—I gave him notice of this question—what is the position of the Rolls-Royce pension fund; has that been affected by the collapse of the company? Can present and prospective pensioners be guaranteed their pension expectations? What about those employees who in effect agreed to accept part of their remuneration in equity shares; is any special arrangement to be made for them? Satisfactory answers to any of those questions would play some part in re-establishing shattered confidence; and that is the greatest need of all—the restoration of confidence.
§ LORD CARRINGTON
My Lords, I wonder whether I might interrupt the noble Lord for one moment, because I do not think he has addressed himself to the point I made about the continuation of the company when the company knew that it was insolvent. The Government got the view, and the considered view, of the Law Officers that had Her Majesty's Government put any more money in Rolls-Royce when the Rolls-Royce company knew it was insolvent, they would have inherited all the liabilities of Rolls-Royce. The noble Lord, Lord Shepherd, who, so far as I know, is not so distinguished a lawyer as a Law Officer of the Crown, may shake his head; but that is the considered advice the Government were given by the Law 373 Officers of the Crown. It would have meant that the Government would have taken over not only all the liabilities, all the indemnities to which Rolls-Royce were liable under the terms of the RB.211 contract, but also the continuation of the contract. The whole thing would have been open-ended and would possibly have run into many hundreds of millions of pounds. Would the noble Lord have accepted that?
§ LORD BESWICK
My Lords, the noble Lord says that if the company were known to be bankrupt they would have been contravening the provisions of Section 322 of the Act; and he says that the Government, if they had continued to give the company support, would have involved themselves in all the liabilities which might have flowed from the contract. He gives us the opinion of the Law Officers of the Crown (and we shall be very interested to hear what the highest judicial authority in the land says when he addresses us today), but we find it difficult to accept that. But his case rests upon an assumption, with which I dealt before: that Rolls-Royce knew themselves to be bankrupt. It was impossible for the company in that situation to say that they were bankrupt unless it was possible to assess their assets, and the noble Lord himself said it was not.
§ LORD CARRINGTON
My Lords, I do not think it is a secret that this is not only the opinion of the present Law Officers of the Crown; it is also that of the previous Attorney General in the case of Beagle Aircraft.
§ LORD BESWICK
It may well be that in another particular case that situation would arise. We are talking about this case, and there are features about this case which are completely different from any case that has gone before it. As I say, we shall be very interested to hear what the noble and learned Lord on the Woolsack says on this point. But I would say—and I hope the noble Lord will accept this—that the greatest need at the present moment is to re-establish confidence: confidence of those abroad to whom we need to sell in future; confidence as between one British company and another. And, not least, we need to re-establish the self-confidence of 374 those workers, on both sides of industry, upon whom our future depends.
Confidence is the key factor. And one thing more than any other can help give that necessary confidence a secure base. If Her Majesty's Government would face up to the physical facts of life in the second half of the twentieth century; if they would give up their absurd nineteenth century dogma about disengagement from industrial decisions; if they would recognise that in the modern technological age it is absolutely imperative for the State to take responsibility—financial responsibility—for a significant area of the economy, then, and only then, can proper confidence be restored. It is just childish to talk of handing back Rolls-Royce to private enterprise. That creates uncertainty from the start. No risk-taking private entrepreneur will ever take on the risk of launching another major aero-engine in this country. The sums are too big and the time scale too extended.
It may be said that American experience proves otherwise, but that is not completely true. Leaving aside the present financial plight of some of the big United States firms engaged in modern industry, the truth is that the cash flow with which they operate is overwhelmingly dependent upon Government funds. The then Minister of Technology, two years ago, said that 40,000 million dollars had filtered into American aerospace and computer industries from Government-sponsored space exploration. According to a recent O.E.C.D. report on computers, the United States firm, I.B.M. have captured 80 per cent. of the world market in computers. On this kind of achievement their prosperity depends. But between one half and two thirds of the cost of those orders was funded by the United States Government; and this is in addition to direct Government orders for products on a huge scale. No doubt it was as the result of this start that I.B.M. could spend 5,000 million dollars over four years in developing a new generation of computers.
It may well be that before we can tolerate expenditures of that magnitude we have to think in terms of a European rather than a British industrial effort, and I would not seek to controvert that proposition so far as future developments are concerned. But we must recognise 375 that this Bill is concerned with that area of human affairs which will determine our future standard of living. The essential fact to establish to-day is that we pass this Bill with the firm determination to accept the consequences and the opportunities which flow from it.
And, my Lords, those opportunities are massive. The same Minister of Technology, in the same speech referred to earlier, said that in aerospace alone the estimated future market for aircraft was of the order of £30,000 million to £40,000 million in the next ten years. There is no reason at all why we should not get our fair share of that market, provided that we determine to surmount this tragedy and make a fresh start in aerospace business. We shall, therefore, help to get this Bill on the Statute Book. To do otherwise would put the jobs of thousands of workpeople in greater jeopardy.
But we do need certain assurances. In particular, apart from the specific questions I have already put, we want to be assured that the Government, with a fresh sense of their responsibility in the matter, will do everything to get a fair and honourable settlement with Lockheed. But when considering a fair settlement, fair to Rolls-Royce and its future, we should bear in mind that there are other engines on the benches and on the drawing boards upon which a prosperous future can be based. But, above all, it must be seen to be an honourable settlement. I was talking a few hours ago to someone who had just come back from the United States, where he has been discussing these matters. He said to me, "Once there was a credibility gap about our technological capability; now there is a credibility gulf." It is that gulf which we now have to close.
Secondly, I ask the noble and learned Lord on the Woolsack whether he can give use some indication that the Government are now prepared, after some experience of these affairs, to accept the full responsibility of Government in the 1970's. We want to know that they new realise that it is not good enough to offer ad hoc ambulance assistance to industry just in times of trouble. We want to know that they accept a more positive, constructive role, especially in those areas 376 of advanced technology in which R and D costs are so high, but which are essential to national survival. My Lords, if we can have those assurances, for our part we shall give this Bill the necessary Second Reading.
§ 3.48 p.m.
§ EARL AMHERST
My Lords, on behalf of my colleagues on these Benches, I should like to echo what the noble Lord, Lord Beswick, has said about the way in which the noble Lord, Lord Carrington, presented this Bill. I should also like to re-echo what has been said about the gravity of the calamity which has overtaken Rolls-Royce, which goes far beyond the perimeter of the company. The repercussions affect us as a whole nation and the shock waves will be heard and felt around the world. As we know, the Bill before the House to-day gives the Government authority to proceed with the salvage operation, which is to involve at least the partial nationalisation of the old company. We on these Benches agree as to the necessity and urgency of the Bill, but we think that it is much too restricted. Even so, we will support the Bill, however much we deplore the circumstances that have made it necessary.
I see that there are 21 speakers down to speak to-day and I shall be as brief as I can. I understand that negotiations between the interested parties on the vexed question of the contract to supply the RB.211 engine to Messrs. Lockheed are shortly to be started, if they have not already started, and I do not want to say anything that could possibly prejudice the successful outcome of these negotiations, especially when we remember that something like 40,000 jobs, half at Rolls-Royce and half in dependent companies, may be at stake. Even so, I wonder whether the Government would not agree that it is essential in the interests of the country that the RB.211 engine is proceeded with. And if it comes to it, would not the Government be prepared to come to the aid of the situation by way of a subsidy? I rather wonder whether this is the moment, or indeed the place, to attempt an inquest and an examination of all the facts and issues that have led up to this position. I suggest that we should be better advised to examine so far as we can what the Government now 377 propose should be done to revive what is salvageable. To this end, my colleagues on these Benches would like to seek clarification of many points and to have full information on what are now the intentions of the Government. I propose to limit what I have to say to questions on that subject.
In any case, as I understand it, the Government's intention is to proceed with the part nationalisation of the company. There is to be a new company formed which will take over those sections of Rolls-Royce which cater for and supply the needs of our national defence, the needs of various foreign defence requirements and the many civil air lines around the world who have aircraft that are powered by Rolls-Royce engines; but certain other profitable sections, notably the motor car section, are to be hived off and sold to the highest bidder. My colleagues on these Benches dislike this part of nationalisation. If nationalisation in this industry was the correct cure, then it should have been complete and all the activities of the old Rolls-Royce company should have been taken over. This selecting of particular sections, hiving off others and leaving what remains—what one might describe as the carcase of the old company—to go bankrupt and leave the creditors and the shareholders, but not the debenture holders, to go hang, comes perilously close to being somewhat of a shabby manoeuvre, even though it may be just legal. May we be told whether the prices and terms specified in the original contracts concerning the sectors that the new company is to take over, including those affecting the sub-contracting companies, will continue to hold good, even though it may be necessary from a legal point of view to make new contracts: or will there be a complete re-think?
I do not have to remind your Lordships of the immense importance worldwide of the reputation and unique appearance of the Rolls-Royce car. It is like no other. That has been recognised round the world ever since the first car was produced. But if this motor car section is to be sold to the highest bidder, how is the car to be marketed in the future? Can it still be called a "Rolls-Royce"? Or will it have to be known as something like "Rolls-Royce Mark II," as acquired (I apologise to your 378 Lordships for this revolting expression, but it seems to be in current use commercially these days) by the So-and-So Company Atkiengesellischaft of Stuttgart or the So-and-So Company, Inc., of Detroit, Michigan? And even if foreign ownership is ruled out, will the quality of the car be maintained? Presumably all the jigs, tools and spares will be sold to the new owners, who may well have premises of their own and not wish to leave all the plant and equipment where it is now. If so, what about the craftsmen, the technicians with their know-how and their long experience, without whom the car can hardly ever be the same again? Are they to be taken over, too, and possibly asked to up-stick and move out to another location? It should be remembered that many of these have given a lifetime to the job and have long established homes and families in their present localities.
I understand that the new company is to be wholly Government owned, but there may come a time when there will be room for foreign participation. If that is so, will the employees who hold a large amount of bonus shares in the old company—the noble Lord, Lord Beswick, referred to this subject—be allowed to participate by an exchange of their bonus shares for shares in the new company, possibly on reasonably favourable terms, bearing in mind that there can be little doubt that until recently many of them must have looked upon these holdings as a nest-egg? Some of them may now find themselves in desperate straits. Then there are those important pension funds which in days gone past, when Rolls-Royce shares were regarded as something of a blue chip, invested in the company. Are they now to be told: "Sorry, chum, but you've lost your money"?
I have read that the Minister indicated in another place that if and when the business can be so far salved and the new company is able to trade in a way that will enable it to stand on its own financial feet, then it will be offered to the public. Presumably this will require a new isue. Will there by any kind of safeguard that the price the private sector will have to pay for these shares will fully compensate the Treasury for all the money now to be expended, with or without interest? I see by the Financial Memorandum printed on the front cover 379 of the Bill that it is impossible at this juncture to make a reliable statement of the value of the plant and equipment, including spares, to be taken over by the new company. But could the noble and learned Lord who is to reply give the House an assurance that the prices will be negotiated on a going concern basis and not on a break-up value?
§ THE LORD CHANCELLOR (LORD HAILSHAM OF ST. MARYLEBONE)
My Lords, I wonder whether the noble Earl would put his question again. I lost track of it. I should like to make a note of it so that, if possible, I may reply to it.
§ EARL AMHERST
I apologise if I did not make it clear. I referred to the Financial Memorandum on the front cover of the Bill, which indicates that it is impossible to make a reliable estimate of the value of plant and equipment to be taken over. I was asking the noble and learned Lord if he could give an assurance that the prices to be negotiated for these will be on a going concern basis and not on a break-up value.
I have one last question, and the noble Lord, Lord Beswick, also referred to this point. Will the pension funds established by the old company be wound up and the members paid out, or can there be an arrangement with the new company for their continuance, so that there will be no break in the periods involved and members will not be penalised?
As I have said before, my colleagues on these Benches fully appreciate the necessity and urgency for passing this Bill, and will accordingly give it their support, albeit with a certain amount of misgiving, some of which could be partly assuaged by the answers given by the noble and learned Lord who is to reply to the questions that I have asked. I know that I have asked a lot of questions and it may well be that some of them are not possible of answer at this stage in the proceedings. If that is so, may I ask the noble and learned Lord who is to reply whether he can tell us when the House can have the answers, and in what form—possibly a White Paper?