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Orders Of The Day

Volume 772: debated on Friday 8 November 1968

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Miscellaneous Financial Provisions Bill

Order for Second Reading read.

11.5 a.m.

I beg to move, That the Bill be now read a Second time.

The Bill, as its Title indicates, refers to a number of matters—in fact, three separate matters, one matter per Clause. Perhaps it will be convenient, therefore, if I deal with it in that way.

Clause 1 is of some importance, not because of the size of the matter with which it deals, which is an increase in the amount available to the Civil Contingencies Fund of £50 million from £75 million to £125 million, but because of the content matter and because it touches upon the power of the House to control the Executive in relation to Government expenditure. Therefore, I think it is right that I should deal with it in some little detail.

The size, I repeat, is not great. The cost is nil. The justification could be made in one short sentence, the uprating of a figure that was fixed in 1955 to a figure that is comparable in the circumstances of the day. But I do not think the House would wish me to deal with it as shortly as that, and so perhaps I might go over the ground in a little more detail.

As every right hon. and hon. Gentleman knows, the procedure when the Government seek money for Government expenditure is to submit Estimates to this House. Those Estimates are examined, and in due course approved, if appropriate, and the money is voted. But if every time the Government needed some money they had to come to the House, a good deal of the time of the House would be taken up in examining and approving Votes. Therefore, what the Government do is to have batches of Estimates—they are four times a year now; the main Estimates in February and then the summer, winter and spring Supplementary Estimates—so that the House is not troubled too frequently, and, indeed, so that it need not be recalled when it is not in Session in order to provide money.

But the position inevitably arises from time to time that money is needed with greater urgency than is convenient for submitting Estimates and obtaining the Vote after full examination and the consequential passing of the Consolidated Fund Bill, which provides the resources. Where that urgency arises the standing procedure is that the Government have to make use of the Civil Contingencies Fund, but this is done on the condition that as soon as is conveniently possible they reimburse that Fund by the same process of submitting Estimates and having them approved.

So the point that I am making is not that by the use of this Fund the House is denied the possibility of scrutiny, examination, investigation or calling of witnesses, but that, looking at it sensibly and practically, the power to control the spending of the Executive is reduced when the Executive spends first and comes for approval later than when it seeks approval first and spends consequent upon that approval. Where the Civil Contingencies Fund is used, that diminution in the powers of control of the House takes place, and it is right, therefore, that one should not adopt that procedure unnecessarily.

When I gave evidence to the Select Committee on Procedure in 1964–65 I made this point very strongly. It was then put to me by more than one member of that Committee—particularly by Sir Martin Redmayne as he then was, now Lord Redmayne, speaking with all the experience and authority of one who had been a Government Chief Whip for many years—that it was appropriate to adjust this Fund from time to time in relation to revenue.

I nevertheless took the view that the time was not then ripe to make an adjustment in the Civil Contingencies Fund and that one should, as far as was humanly possible, continue on the basis of bringing to the notice of the House immediately the Government were aware of it the need for further expenditure in the form of Supplementary Estimates. Equally, we all recognise that the Government, or indeed any organisation, cannot function without a minimum cash float; everyone has to rely on this. So one has to draw a reasonable balance between using a cash float, which is essential in order to carry out one's day-to-day functions, and relying on it overmuch in our procedures, which limits in the way I have suggested the controlling powers of the House.

Having explained the background, I am now putting forward the Bill, of which I hope the House will approve. Clause I contains a proposal to increase by £50 million the Civil Contingencies Fund simply for the reason that it is no longer capable of carrying out its original function. This became clear last year when we were compelled, through the inadequate amount of the Fund, to invite the relevant Sub-Committee of the Estimates Committee to work at such an inconvenient speed that they found it impossible adequately to perform their work of examining Estimates and calling witnesses before reporting to the House on Parliament's control of expenditure by the Executive. It is therefore an important issue, and I hope that I am explaining it in a way which will show that I would continue to be averse to suggesting this proposal unless we had now clearly reached, and indeed passed, the stage at which it was possible to avoid an appropriate increase. I am, therefore, recommending an appropriate increase.

In 1955 the Fund was fixed at £75 million. In 1963 we adopted as a regular procedure a further batch of Supplementary Estimates, and it is now right to consider what should be a comparable figure, having regard to the circumstances not only of 1955 but also of 1963. Having regard to the size of the expenditure and to the additional batch of Supplementary Estimates, the figure would be about £140 million, but I want to err, as usual, on the cautious side, and I am suggesting a figure of £125 million, which I hope will be acceptable to the House. If I have been overlong in explaining this, I apologise, but in matters where the Executive is seeking a minor but nevertheless real reduction in the powers of Parliament to control the Executive, it should justify its case up to the hilt, and I hope that I have done so.

Clause 2 is explained in the Explanatory and Financial Memorandum in words of such clarity and persuasiveness that I doubt if I could improve upon them. As the Memorandum makes clear, the purpose of the Clause is to give legal effect to the administrative arrangements for paying to the Northern Ireland and the Isle of Man Governments their proper share of the revenue which accrues to the United Kingdom out of the United Kingdom share of the Continental Shelf. The Continental Shelf is greater by virtue of the existence of Northern Ireland and the Isle of Man and it is therefore appropriate that those countries should receive a share. The share is calculated on the basis of population, which is a just way of dividing the revenue. The method of administration has been chosen because it is the cheapest.

That is all I need to say at this stage, but if I have the undeserved privilege of catching your eye a second time in one debate, Mr. Speaker, I shall be glad to answer any questions which right hon. and hon. Members care to put. The Financial Memorandum also sets out what has already been paid and what is due to be paid. What has already been paid is the larger figure since that is the share of the grant of the original licences. We are now concerned with the share of the royalty revenue which is much smaller.

Clause 3 deals with the borrowing powers of the Industrial Reorganisation Corporation. We are proposing that the Corporation should have an additional flexibility in its borrowing powers; not an additional ceiling, not an additional amount, but an additional flexibility, one which is claimed and exercised by every similar independent organisation, so it is difficult to see why the same flexibility should not be granted to the I.R.C. It involves the right to borrow in non-sterling currency. As every hon. Member knows, there has developed a market, centred mainly on London, of non-sterling currency, that is to say, other currencies which are deposited here and are used for this purpose. To borrow on this Fund is a convenience adopted by many similar organisations. At the present time borrowing, including the cost of borrowing, is a quarter per cent. cheaper than borrowing from the Government. This is not only an extra source for bodies such as the I.R.C., but it is also a slightly cheaper source.

It is not proposed to increase the ceiling of £150 million which exists in the original Act, but merely to give to the I.R.C. the right to borrow non-sterling currency up to such amount within the £150 million as the Government may from time to time, if they think fit, decide. That is to say, there would be a limit for sterling borrowing, there would be a limit for non-sterling borrowing, but the two together could not exceed the existing figure of £150 million.

This is not the first time that such a proposal has come before the House. The House has given similar powers to the Air Corporations under the 1967 Act and to the Gas and Electricity Councils under the 1968 Act. I think it is right to accede to the request of the I.R.C. that it should be placed in the same position as those who carry on a similar business and have similar powers. The borrowing of non-sterling currency can only strengthen the nation's reserves, and cannot add to inflationary pressures. Therefore, we have no reason to resist this request.

Those, in short, are the three Clauses on miscellaneous matters, as described in the Title to the Bill, and I hope that the House will be good enough in due course to give the Bill a Second Reading.

11.20 p.m.

First of all, as this is the first opportunity that I have had, I want to congratulate the right hon. Gentleman on his elevation to the Cabinet. Those of us who have sat opposite him over the last four years have developed a tremendous respect for the great amount of sheer hard work that he has done and perhaps also for his great talent in making all arguments sound equally plausible no matter what their intrinsic merit. I am sure that I carry the House with me in extending those congratulations to him.

I am bound to say, however, the Government having apparently bid one Hart and one Diamond, their policies remain in a position of No Trumps. It is clear from the by-election result yesterday that they are now having great difficulty in even retaining their deposits—

I come back immediately to the Bill, Mr. Speaker. I have had occasion in the past to complain about the titles of Treasury Bills. I recall, for example, the Revenue Bill, which had nothing to do with raising revenue. We were told that the Treasury had problems in finding sufficient titles for Bills. However, on this occasion, one could not quarrel with the chosen Title. Like Gaul, it is divided into three parts, having something to do with the Civil Contingencies Fund, the Continental Shelf, and the borrowing powers of the I.R.C. It is difficult to think of anything more miscellaneously financial.

It is true that it will not raise any very strong passions on either side of the House. None the less, it is very important that we should scrutinise it carefully, and our ultimate attitude to it will depend very much on the answers that we get to a number of specific questions which I think that it is right and proper to clarify. The action that we take later depends on the reaction that we get from the Government.

The first point that we have to consider is the increase in the Civil Contingencies Fund from £75 million to £125 million. The Chief Secretary has spelt out in some detail the reason why the amount should be increased, though he expressed some reluctance about it. We need to look at it more closely because it is a matter of great importance.

It would be true to say that the prime function of the Fund is twofold. It is to be used either when Parliament is not sitting, or, alternatively, to provide finance when the machinery of the Supplementary Estimates would be too cumbersome and slow on certain occasions. However, the fact is that the Fund contains within it possibilities of abuse, as I think the Chief Secretary would probably concede.

I went into this matter in some detail. I had not realised that, when the first atom bomb was built by this country, it was financed out of the Civil Contingencies Fund. In that way, the whole matter went by without Parliamentary control described as "Public Buildings in Britain", and the Government of the day were able to present to the House what amounted to a fait accompli. Perhaps in a more difficult situation, it is said that the Fund was used on the eve of the General Election in 1950 to finance an increase in the costs of the National Health Service. It is possible that the Fund can be abused in various ways, though one's views on whether it is right to use it in one way or another will depend on the item of expenditure incurred.

Surely there is no moment at which we should be more careful about increasing the Government's scope to go ahead with expenditure without submitting it to Parliamentary control than at present. A great many of our problems in the last couple of years or so have turned on the way in which the Government have increased public expenditure over and above the original estimates that they have provided for the House in the first instance. The Chief Secretary will recall our debate on 18th March of this year, immediately before the Budget. It was an unprecedented debate on the Vote on Account. In the course of it, I pointed out the extraordinary way in which the Supplementary Estimates had exceeded the original Estimates by £440 million. Clearly there are problems if we increase the scope of the Government for making expenditure without first coming to the House.

That brings me to a number of debates which have taken place recently on the subject. I want to draw special attention to the Estimates Committee and the views expressed by my hon. Friend the Member for Aylesbury (Sir S. Summers), who is very sorry that because of long-standing engagements elsewhere he is unable to be with us this morning. To put the matter in perspective, and taking a longer view before turning to detailed points, it is not only important in the sense that there was a problem last year but because the economic situation is doubtful even now. Although the Chancellor maintains that his Budget judgment is unaltered, in answer to a Question by my hon. Friend the Member for Petersfield (Miss Quennell), the Board of Trade said that it hoped that the hire-purchase restrictions would help ensure that consumer expenditure in the second half of this year would be contained to the level of expenditure last year, which is vastly different from the Chancellor's original Budget expectation that consumption would be cut by 2 per cent. Therefore, if it is likely that Government control again will have too much flexibility without reference to this House or with reference to it only after a time, that is a matter which we should scrutinise with great care.

Speaking in a debate in the House on 30th January, my hon. Friend the Member for Aylesbury stressed the fact that the Estimates Committee had been put in a very difficult position because of the speed with which it had to consider these various matters. He said, referring to the presentation of the Supplementary Estimates at such short notice:
"As the Estimates Committee has reported, it is due to the fact that there is great pressure on the Civil Contingencies Fund and there is, therefore, the need to submit extra Winter Supplementaries to Parliament in order to bail out the Fund."
As I see it, that is not the position which the Chief Secretary described. He said that the Fund was not big enough. The problem arises because Government expenditure is much greater than normal, which is a rather different point.

My hon. Friend went on:
"I want to say quite categorically that any suggestion that this situation is satisfactory because it could be put right by increasing the size of the Civil Contingencies Fund is one which would not be acceptable to the Estimates Committee."—[OFFICIAL REPORT, 30th January, 1968; Vol. 757, c. 1100.]
Therefore, I ask the Chief Secretary if he will say whether or not the Estimates Committee has been consulted about this increase and, if so, what views it has expressed.

It is a grave situation when we can have the kind of statement that was made in the Seventh Report of the Committee, Session 1967–68, where it says:
"It was, therefore, a shock to Your Committee to find that a further £39 million should be sought only some six weeks later."
The whole system of control has become increasingly suspect over the last year or two. I would have thought that the need is to tighten up the procedure rather than to loosen it in the way in which the Chief Secretary suggests.

There is an alternative view. In large measure, the problem arises because the Civil Contingencies Fund can be used for two purposes: either to carry over the Government and provide them with finance if there has been a mistake in the Estimates and they have to be upgraded, or if there has been a change in Government policy.

The Fund is also used for particular emergencies. One type of emergency is to do with bad estimates. There was the case of the investment grants last year. When this was investigated by the Estimates Committee, the people responsible were not able to provide any clear view as to why the estimates should have gone so badly astray. This ought to come out of the Civil Contingencies Fund, but in the circumstances the Fund ought to be as tightly drawn as possible. There is a second group, of genuine emergencies, such as expenditure on foot-and-mouth disease last year, which could not have been predicted but which also comes out of this same Fund.

The essence of the problem is that we have a single Fund to cope with changes in Government estimates and policies, and actual emergencies which are completely unforeseen and which no one would suggest anyone would be able to foresee. If the Chief Secretary is genuine, as I am sure he is, in his belief that Parliamentary control should be as direct as possible, there is a strong case for saying that we want not one Fund but two. If we have only one, its size will be such that it will inevitably give the Government too much scope for the first category of expenditure, and may, on any occasion, be too small to cope with any other genuine emergency, because it has been "mopped up" by expenditure on policy changes, or making up differences in Estimates.

We shall listen with interest to the Chief Secretary, should he be fortunate enough to catch your eye later Mr. Speaker, to see, given that legislation on this subject is infrequent, whether there is not a case for perhaps limiting the extent to which the Contingencies Fund is expanded to cope with bad estimates, or alternatively changes in policy, but also to establish in this Bill or another, a second fund, or some division within the Fund to ensure that the two functions are adequately fulfilled, and do not lead to the kind of abuse that I have suggested.

I want to turn to Clause 2 and the question of payments for licences granted for the exploitation of the Continental Shelf with regard to petroleum and so on. Like the Chief Secretary, I found that the Explanatory Memorandum was singularly cogent, and there were few matters which one needed to go into in any great detail. There are two points about which I am not entirely clear. Why is it necessary for us to allocate specifically to Northern Ireland and the Isle of Man the revenue which comes in in this way, after expenses, rather than to bring it into our general Exchequer and allocate it to these areas as part of normal transactions, out of the general Exchequer? I am sure that there is a perfectly reasonable explanation for this.

The second point, a rather detailed one, is concerned with the objective of this Clause. As I understand it, it is to achieve equity between the rest of the United Kingdom and the two areas specified. If that is the aim, am I mistaken in thinking that it does not achieve that objective? We are told in Clause 2(2):
"Where for any financial year the expenses of administration exceed those proceeds, both shall be carried forward and treated for the purposes of this section as expenses and proceeds of the following year."
This could roll on year after year. If that is so, it may be that there is a situation where a loan is carried forward year after year and is carried by the United Kingdom, but when it is paid out to Northern Ireland or the Isle of Man, the full amount is paid out. We may have lost interest on that amount in the interim. Should some allowance be made for this, if the objective is to achieve equity between the United Kingdom and two areas?

That was a pretty thin piece of meat between two singularly soggy pieces of bread. I turn to the other part of the Bill which is concerned with the right of the Industrial Reorganisation Corporation to borrow abroad. I had hoped that the Opposition's attitude to this body had been made abundantly clear. My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) spelled out on 8th July this year the attitude of the Opposition towards it when he moved the Motion:
"That the House, while upholding the independence of the Industrial Reorganisation Corporation, deplores its action in intervening with public money on behalf of one bidder in a merger operation, and regards such action as a dangerous precedent for the future."
Our feeling is that whatever one may think about the overall case for the I.R.C. it is quite wrong that it should impose its will on a particular merger and a particular bidder, because we do not believe that it is in a position to appraise better than the market what the position is. I was concerned by the Prime Minister's statement at the beginning of the Gracious Speech, suggesting that the controversy on this subject had died down and that the I.R.C. was:
"…fully established—almost part of the Establishment itself—fully accepted and responsible for a wide and growing range of measures…"—[OFFICIAL REPORT, 30th October, 1966; Vol. 772, c. 32.]
The grave danger is that it does become part of the establishment, and uses public money to alter the structure of the economy in a particular way which we on this side of the House do not feel it is qualified to do. It does not find itself in a position, with a board of part-time businessmen, to appraise the public interest of any merger, and indeed it is known not to have all the facts about the various people who might take over a given company.

The right approach is that which I tried to suggest to the President of the Board of Trade in a Question on 6th November. I suggested that the I.R.C. mergers should be submitted to the Monopolies Commission. We understand from The Times Business News and elsewhere that there has been a great deal of controversy within the Cabinet about this. The Chief Secretary will know whether this is so. Strangely enough, the President of the Board of Trade seemed unaware of these statements. If we are to have this kind of organisation and it is to be given more flexibility, then we ought to have particular cases submitted to the Monopolies Commission. This inevitably means that the Monopolies Commission must be given greater powers and a more efficient staff, and be able to scrutinise this kind of merger proposed by the I.R.C. in a comparatively short time. It is not able to do this at the moment.

Until it is, we on this side of the House view the actions of the I.R.C. with considerable suspicion. It follows that we also view with suspicion any further increase in its powers to borrow, whether in this country or elsewhere. I have one or two specific questions for the Chief Secretary about the proposal that the I.R.C. should be allowed to borrow abroad, or in non-sterling currencies. We fully appreciate that the I.R.C. will still be working within the limits of the £150 million in the original Act and that the Treasury may limit the amount borrowed in currency other than sterling. What is the position about the Treasury guarantee? The loans which the I.R.C. takes out are sometimes given a Treasury guarantee.

This is in the final sentence of the Explanatory Memorandum to the Bill. What is the position if the I.R.C. borrows abroad, or in non-sterling currencies, and then there is a variation in the exchange rates, not necessarily the United Kingdom exchange rates, maybe the exchange rate affecting the currency in which the I.R.C. borrows? What is the position if we incur, as a result of changing parities, an exchange loss? Is this covered by the Treasury guarantee? We are concerned about the position, because it may have some effect on the balance of payments, as this will further increase the rates of overseas debts which we are incurring. It is already the case that the level of indebtedness of the country over the last four years has increased by £3,000 million, and anything else which further increases this through a Government body, is something which we ought to scrutinise very carefully indeed.

In that connection, may I ask the Chief Secretary again whether the borrowings which the I.R.C. makes in currencies other than sterling will appear in the National Loans Fund accounts? He will be aware that at present any amount borrowed by the I.R.C. appears in that account. It becomes part of the borrowing requirement, and can be scrutinised by this House and by the I.M.F. when it sends over its team from time to time. But if there is this kind of borrowing internationally it rather by-passes the National Loans Fund account. At all events, I do not see how it becomes integrated with those accounts, and I shall be glad if the Chief Secretary will say what the position is in that regard.

Those are the major points which I should like to clarify with the Chief Secretary, and I have only one other point to raise. In its first annual Report the I.R.C. suggested that it might be going to engage in encouraging mergers which involved overseas companies as well as companies in this country. It does not suggest in its Report that it might be necessary to have the powers which we are now giving it in this Bill. I think I am right in saying that the Report made no suggestion that this might be necessary, but it suggested that it might be necessary to encourage mergers across national boundaries. Is this, rather than the question of whether the interest rate is marginally different, what is at the back of this proposal? If it is, I think we ought to be told, because it has important implications.

Given the fact that there is no international monopoly legislation, we shall rely, except in the case of the Common Market countries, on national legislation. If we are to have the I.R.C. encouraging international mergers, this will raise very broad questions, and this should be made explicit by the Chief Secretary. We can then appraise it, and return to it at a later stage of the Bill should that prove necessary.

This is a highly complicated subject, and I think it is right and proper that we should scrutinise it carefully because, as the right hon. Gentleman said, it strikes at the whole basis of Parliamentary control. We shall listen with interest to what the right hon. Gentleman says if he gets an opportunity to reply to the debate, and in the light of that we shall decide whether specific Amendments need to be tabled. It would be wrong to say that we greet this Measure with enthusiasm, but we shall feel it right to let it go forward if the Chief Secretary succeeds in satisfying us this morning on the matters which I have raised.

11.43 a.m.

I should like to follow the hon. Member for Worthing (Mr. Higgins) because I think that he touched on an interesting point when he said that in reviewing the Bill we should remember that it was proper to ensure that this money was available for certain purposes, and he instanced the outbreak of foot-and-mouth disease, and the recent flood disasters.

I add my congratulations to those which have been offered to my right hon. Friend the Chief Secretary on his elevation to Cabinet rank.

I think that in dealing with contingencies the Treasury, in addition to its customary rôle, can play a progressive part. Flooding cannot be expected in any particular year, but it can be expected to the extent that it has occurred at various times. I think, therefore, that overall the Treasury can play an important watchdog rôle by ensuring that the various Departments which are likely to be concerned in any emergency have their networks of operations adequately laid out.

I have a feeling that when there is flooding a number of Departments and Ministries are involved, and that sometimes their functions overlap and there is excessive spending. When there is an emergency, the House is quite rightly concerned about it. The Government of the day come under heavy pressure to be generous in the help which they give to the distressed areas. But when the emergency is over it seems that we forget to learn the lessons which could have been learned from it.

I do not wish to anticipate a debate which we may have next week on emergencies, but I think it right, when discussing this Bill, to consider what happens when, for instance, there are floods. Naturally the police are involved, and that brings in the Home Office. The Meteorological Office issues warnings. The Ministry of Housing and Local Government comes in to clear up the mess, and spends a lot of money in doing so. The Ministry of Agriculture, Fisheries and Food is also involved because it provides grants, to farmers to help them clear up the damage. All these Departments overlap in certain respects, and I hope that the Treasury will ensure that the various Departments have adequate plans ready to deal with emergencies which can be foreseen.

There is the danger of us having to contend with another outbreak of foot-and-mouth disease. There is the danger of there being more flooding.

Order. We cannot discuss in detail the various contingencies for which the Contingencies Fund makes provision. Up to this moment the hon. Member has been in order, but he cannot go into the merits and prospects of another flood, or another outbreak of foot-and-mouth disease.

Mr. Speaker, I immediately bow to your Ruling.

I hope that my right hon. Friend will be able to ensure that if an emergency arises the necessary network or administrative structure will be there to meet it, so that the Fund will be used for the emergency, and not for the purpose of setting up the necessary administrative structure after the event.

The hon. Friend for Worthing, in his charming way, mentioned the possibility of this Fund being used in an irregular manner; of it being used for a purpose which Parliament never intended. I thought it rather interesting that he cited it being used in the past to bolster the National Health Service, and to finance the manufacture of the atom bomb. I agree that the money should not be used for those purposes, and I hope that my right hon. Friend will assure us that, whatever has happened in the past, the money will not be used for such purposes in the future.

It is right that the House should make allowances for contingencies, but it should be the aim of the Treasury to ensure that the money is not used. I think that the success achieved by the Treasury should be measured by the amount of money which is not used. If we ever get to that happy state where none of the money is used my right hon. Friend will have deserved his elevation and will have achieved something miraculous. I commend my remarks to him and hope that he will succeed in carrying out what I have suggested.

11.50 a.m.

My hon. Friend the Member for Worthing (Mr. Higgins) has done a very valuable service to the House by asking searching questions on all three matters covered by the Bill. I hope that we shall receive full replies to those questions. I also congratulate the right hon. Gentleman on his elevation. The points that I wish to put to him are related mainly to the Industrial Reorganisation Corporation.

On Clause 1, however, since I recently had the interesting duty imposed upon me of conducting an inquiry into the coastal pollution arising from the wreck of the "Torrey Canyon", I realise that in some strange way unforeseen disasters do recur in one form or another, and that it is essential that money should be available to meet them with the minimum of delay. When we debate the matter more fully next week I hope that this financial aspect will be fully considered.

On Clause 2, I should like the right hon. Gentleman to tell us from what period the £8,600, now due to be paid, dates. The Explanatory and Financial Memorandum tells us that payment will be made in arrear. All of us who endeavour to discover the full financial state of the nation experience increasing difficulties, year by year, in sorting out expenditure—often on defence—which dates back a year or two and does not come fully into the open until two or more years later.

In these circumstances it is increasingly difficult for Parliament to carry out its traditional rôle as custodian of the public purse, and I hope that we shall receive an assurance that the permission to make these settlements in arrear will not mean that they will be held over, to the embarrassment of others, any longer than they have to be.

I was surprised that in introducing the Bill the right hon. Gentleman did not mention the fact that a principal reason why the I.R.C. may wish to borrow abroad, in currencies other than sterling, is the enormous importance that may arise from time to time of bringing about trans-national mergers. I should have thought that, of all justifications for allowing the I.R.C. to borrow abroad, this was about the best, but the right hon. Gentleman never mentioned it. It was left to my hon. Friend the Member for Worthing to do so.

I should like to know whether the I.R.C. is finding that applications made to it often involve possibilities of trans-national mergers, because if they do I suggest that this fact amounts to a better case for the new Clause than the right hon. Gentleman himself made out. Whether we are going to consider the possibility of the I.R.C.'s borrowing Eurodollars I do not know, but we should be given more information than the right hon. Gentleman has given us on this aspect of the matter.

As a result of the Report of the Select Committee on Science and Technology in respect of the nuclear power industry the I.R.C. has been asked to look into this industry, and we know that one of the consortia—the T.N.P.G.—has already made a big tie-up with Germany, Italy, Belgium and France on an international basis. If the I.R.C. is to carry out these studies and work out the possibilities of re-gearing the Atomic Energy Authority to fit in with a new concept of manufacturing, for example, nuclear power boilers, we should know what is in the Government's mind on the matter.

Will the right hon. Gentleman tell us whether Clause 3 has been inserted in order to bring the I.R.C. into line with other bodies, such as nationalised industries, or whether it is the first Government organisation to be allowed to do this. He indicated that independent bodies are able to do this already, but I was not certain whether he also meant to include those bodies which are quasi-governmental. If all the industries in which the Government have some stake or for which they have some responsibility are already doing this I can see that, in logic, there is a case for giving the I.R.C. a similar power.

But when assessing the situation we must ask ourselves what is the real need for this power. Has the I.R.C. itself made the request for the inclusion of this Clause, or is it the idea of the Government to bring the I.R.C. into line with things that the Government are doing on other fronts? As yet we have had no public indication that the I.R.C. is registering a real need for this. I am not saying that the need may not arise, but it would be interesting to know whether any specific instance of this need being likely to arise has been given to the Government by the I.R.C. The House is entitled to know this.

I back up forcibly the plea made by my hon. Friend the Member for Worthing in respect of the effect on the balance of payments and also the National Loans Fund Account, and I hope that we shall have an answer to the questions put by my hon. Friend. The Clause does not empower the I.R.C. to borrow above the original figure of £150 million laid down in Section 7 of the Industrial Reorganisation Corporation Act, 1956, but since the Act was passed we have had devaluation, and we must face the fact that if the I.R.C. were to take the fullest advantage of this new power it would, as a result of devaluation, limit its own total borrowing, in the actual amount. Foreign currencies may be more expensive than sterling, and if the Corporation is limited to borrowings up to £150 million and it borrows from abroad when the £ is depreciated in relation to other currencies the net effect will be a reduction in the limit of £150 million. I hope that the right hon. Gentleman will deal with that point.

11.58 a.m.

I share some of the apprehensions mentioned by the hon. Member for Worthing (Mr. Higgins) and the hon. Member for the Isle of Ely (Sir H. Legge-Bourke), but I find it a little irritating that the Opposition should express one view on Thursday about using public money to assist industry and then have serious misapprehensions about it on Friday morning. The Industrial Reorganisation Corporation should have been brought into being many years ago. In essence, the Bill provides that the Civil Contingencies Fund should be enlarged.

That is a logical move, because over the years expenses in all forms of life have increased, and even if there were no specific reason other than that I would have thought that it was necessary to bring a Bill of this sort before the House. The Corporation's effort has made a contribution not only to one side of industry; it is not fair to say—as some people have said—that it is helping the already well-off, that is to say, those people who have large interests and large shareholdings in certain firms. It has made and will, I hope, continue to make a worthwhile contribution to the whole of industry. In economic emergencies and contingencies, the Corporation should be able to play an even more useful role. But there must also be some form of public accountability of what the fund is being used for, whether by the Corporation or for any other emergency. There should be a method of letting the House know what is being done with the money.

The hon. Member for Worthing mentioned ways in which the Fund might be used for purposes for which it was not intended, and instanced the construction of an atom bomb. I would deplore this. That example was the "Gor blimey", and he then went on to the sublime, saying that part of it had been used for the National Health Service. I did not agree with his point then, since I would congratulate whoever thought it necessary to use the Fund to save part of the National Health Service.

Although I agree that there must be public accountability and that Governments, irrespective of political colour, should reveal what public funds have been used for, we should not fall into the error of finding, when there is a real emergency, that we have such a set of rules to examine what is going on that we could be criticised for having bound ourselves hand and foot in Whitehall red tape and the necessity for civil servants to check before anything could be done. I ask the Opposition to acknowledge that that is a real argument.

Therefore, there should be immediate freedom to use the money in genuine emergencies, and no red tape or inhibitions within the limits of the fund, but there should be a method of seeing how the money is used.

12.3 p.m.

First of all, I am personally most grateful to the hon. Member for Worthing (Mr. Higgins) and the other hon. Members who have been kind enough to take note of the fact that I now happen to be a member of the Cabinet. I also thank the hon. Member for the care which he has given to the Bill and I hope that I may satisfy him with my answers—

Order. It will help the Official Reporters if the right hon. Gentleman will speak up.

What I have so far said, Mr. Speaker, is of no importance whatsoever. What I am about to say, however, is.

I hope to be able to satisfy the hon. Gentleman that the Bill should receive a Second Reading. I will come to Clause 1 at the end, since it deals with a major principle, and will deal first with the matters of detail on the other Clauses. Most of the questions relate to Clause 3. There is no relationship between the request contained in this proposal for additional flexibility in the borrowing powers of the I.R.C. and the statement in the I.R.C.'s Report of its desires and intentions.

The Bill does not alter the powers of the I.R.C. to spend its money, nor does it alter its total borrowing powers. It adds flexibility, since the Corporation would be entitled under the Clause to borrow as all similar independent—that is, private enterprise—organisations in the City borrow, on the Euro-currency market, which is helpful to the City and the country. We want to encourage that market and we see no reason why the I.R.C. should not extend the flexibility of its borrowing by using funds which may be available there. I repeat it does not affect the total borrowing.

The hon. Member for Worthing asked whether these borrowings would be subject to a Treasury guarantee. The answer is, yes, and that is the reason for the passage in the Explanatory and Financial Memorandum to which he referred. As to whether that Treasury guarantee will cover loss and additional cost arising out of the revaluation of a currency, the answer is, no. There is no relationship between the borrowing on the Eurocurrency market, which will merely go into the funds of the I.R.C., whether borrowed in sterling or on the Eurocurrency market and subsequently converted into sterling. They will go into one fund, from which the Corporation will carry out its present responsibilities and duties.

Since the Bill does not alter those responsibilities or duties one whit, I hope that I will be excused from entering a debate about the function of the I.R.C. and the extent to which it has been accepted or not fully accepted by either side of the House, since these questions are not raised here. I have listened carefully to what the hon. Member has said, as has my hon. Friend the Under Secretary of State for Economic Affairs, the Department which is primarily responsible for the I.R.C.

Another question on Clause 3 was whether this appears under the National Loans Fund. Where the I.R.C. borrows and no guarantee is involved, that borrowing will appear in the I.R.C.'s accounts and nowhere else. Where the I.R.C. borrows on the Euro-currency market and the guarantee is given, there will be a statement of the guarantee laid before the House, which is the normal practice whenever a guarantee is entered into which is not the subject of an immediately forthcoming Estimate. Where that happens, there will be a statement but there will not be an estimate, or a payment, or an entry in the National Loans Fund.

Would the right hon. Gentleman just clarify this? Consequently, of course, it means that the apparent Government borrowing requirement which appears in the National Loans Fund, and which is the figure mentioned in the I.M.F. letter of intent, will appear to be reduced. Is that right?

No, it will not affect that one iota. It will not affect the central government borrowing requirement one iota. I have dealt with all the questions which arose on the I.R.C. under Clause 3.

The right hon. Gentleman has not answered one very important question which I put to him—whether this power was being given at the request of the I.R.C. or whether it was being given as a matter of Government policy to bring the I.R.C. into line with others.

There is no question of bringing the I.R.C. into line. There is no question of imposing the Government's will on an unwilling body. The I.R.C. thought that this would be a useful addition to its flexibility of borrowing. I see no reason why it should be denied the right to borrow in a particular market rather than in any other market. It does not affect its total borrowing. All other similar organisations have access to this market under the same conditions as affect all borrower in that market. The I.R.C. will be under exactly the same conditions.

I was asked whether other public bodies had this power. The right of access to this market was given to the Air Corporations, the Gas Council and the Electricity Council. Indeed, I recollect saying from this Box that if any further nationalised industries found it convenient, because they had legislation coming before the House, to ask for this right of access to the market, they should have it. Neither the Gas Council nor the Electricity Council have used the borrowing powers so far, but, in the nature of their different business, the Air Corporations have used them. I hope that I have answered the hon. and gallant Gentleman. There is certainly no need for me not to answer him. We are not imposing our will on the I.R.C. The I.R.C. is extending the flexibility of its borrowing by having the right to go to markets in the same way as do similar organisations.

The hon. and gallant Member also asked me another question. He wanted to know the period covered by the £8,600 mentioned in Clause 2. I think that I am right in saying that it covers the last two years, 1966–67 and 1967–68. If he would like me to go further, I can tell him that the current estimates suggest that the probable payment in 1969–70 will be about £28,000, in 1970–71 £56,000 and in 1971–72 £84,000. If he wishes the figures for the years after that, perhaps we can return to the matter in due course.

I turn to Clause 1, about which the hon. Member for Worthing expressed a certain anxiety. I hope that I have made it clear that I am as anxious as he that we should not go far too far in this direction and that I feel that all that we should do is to restore, or nearly to restore, to its original value and original purpose a flexibility which has gradually been eroded.

Perhaps I may, first, therefore, deal with the proposal put by the hon. Member for Aylesbury (Sir S. Summers). I, too, regret that he is not here today because he speaks with great authority and experience on these matters. In our last debate he put forward the idea of having a separate emergency fund. I promised to give that suggestion consideration and I have done so. I come down against it for the very reason that it would add to the flexibility of the Executive and not reduce it. I cannot see that two funds give more power to the House than one fund. If one does not like the use of one fund, I do not see that the problem is solved by suggesting the creation of two funds. Inevitably, the more funds there are, the more power one gives to the executive to draw on cash in advance of Estimates, which is what we are trying to avoid, as far as it is reasonable to avoid it.

I therefore suggest to the hon. Member, on the same philosophy as that which he put to me—a philosophy which I share—that we ought not to extend the number of funds. If we had a special emergency fund there would inevitably be arguments about what was the definition of a special emergency. When something happened, the question would be, "Is this part of the occurrence a special emergency or is the whole of it a special emergency?"

My hon. Friend the Member for Bristol, North-West (Mr. Ellis) spoke of the floods. There was a time when we could call it a regular occurrence. There has been flooding in the part of the country near my hon. Friend's constituency, in my constituency in Gloucester, in York and in the Thames Estuary. Almost everywhere one looks there has been flooding. We should immediately have the problem of definition—whether it was a special emergency for which it was appropriate to use the new fund.

This is a matter for the House, and we shall listen to any proposal which any hon. Member cares to make, but to avoid the arguments which I have suggested might occur, I have come down fairly firmly on the view that an additional fund would increase and not reduce the latitude of a Government who wished to avoid bringing to the House their detailed Estimates at the earliest possible opportunity in order to seek the authority of the House for their payment. I therefore prefer to continue with one fund but to have it to such an amount as is reasonable in all the circumstances.

The hon. Member for Worthing thought that the use of this Fund still contained the possibility of abuse. I would point out to him that the use of the Fund is audited by the Comptroller and Auditor-General. He pays regard to the use of the Fund as well as to the amounts and the purposes for which they are spent. I hope that that is a reasonable safeguard for the House.

The hon. Member gave two examples. I will, of course, look into them, but I have not had an opportunity so far to examine them sufficiently carefully to comment on them. But what he seemed to say was that he was criticising not the use of the Fund but the fact that the Estimates put before the House were not, in their descriptive terms, as clear as they might have been. He said that they referred to building. This Fund does not determine the wording of the Estimates. All that it does is to enable the Estimates to be put in a little later than otherwise would be the case.

I cannot have made it clear, and that is perhaps because hon. Members opposite were waxing enthusiastic about the virtues of the National Health Service. This was done on the eve of an election and, therefore—I may be wrong—the Estimates were probably put in after the election.

I will look into that, because nobody is more anxious than I am to see that this Fund is not used in any sense which causes criticism. I am charged with the responsibility, and I will look into the point most carefully. But my view is that, inasmuch as what Governments have to do is to put the Estimates before the House at the earliest possible opportunity, the Fund has the effect only of delaying for a short time the presentation of the full details and the granting to the House of an opportunity of examining them. The only time that the Committee of the House does not have a full opportunity carefully to examine the Estimates or the Supplementary Estimates is when we have to rush that Committee, as we did last year, because the Fund is not of sufficient size to enable us to do otherwise.

I suggest to the hon. Member that the way to protect the House is to have our existing procedures, which are good and full, and to enable the Sub-Committee of the Estimates Committee charged with this responsibility to take adequate time to examine the Estimates and to see that the Contingencies Fund is properly used—and used in such a way as to enable that to take place. It is possible to say that if we never had a Supplementary Estimate we should not need this facility at all. My hon. Friend the Member for Bristol, North-West was right when he said that were I ever to achieve that state of affairs I should be achieving a miracle. It is not the sort of achievement which I expect to bring about every day of the week.

I remind hon. Members that, for example, every increase in pay which has not been agreed by the time an Estimate comes before the House is, by tradition, omitted from that Estimate. It is not possible, therefore, to perform such a miracle every day. The solution is not to avoid Supplementary Estimates completely, because that is incapable of being done. The solution is, I suggest, the one I have indicated.

I was asked if the Estimates Committee had been consulted about this matter in view of the statement which the hon. Member for Aylesbury made on the last occasion we discussed it. I do not want to say that the Committee was consulted, if that might be a misleading word. I wrote to the Chairman of the Committee and to the hon. Member for Aylesbury, who was the Chairman of the relevant Sub-Committee—for all I know, he may have been reappointed to that office—drawing attention to the fact that the Government were seeking these powers and would shortly be putting a proposal before the House. As far as I know, I have not received a reply from either of them. There has been ample time in which they could have replied and I can only assume that the matter has not caused undue fluttering in their hearts.

I believe that I have answered all the questions put to me on this matter. I am anxious that the hon. Member for Worthing should feel satisfied that what we are doing by Clause 1, which is of particular importance to the House, is to restore, and no more than that, the flexibility which all Governments have found necessary; and which we are proposing to restore to an amount which is somewhat less than it was before.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[ Mr. Ioan L. Evans.]

Committee upon Monday next.

Miscellaneous Financial Provisions Money

Queen's Recommendation having been signified

Resolved,

That, for the purposes of any Act of the present Session to provide for increasing the capital of the Civil Contingencies Fund, to provide for making payments to the Governments of Northern Ireland and the Isle of Man in respect of revenue from the continental shelf and to enable the Industrial Reorganisation Corporation to borrow in currencies other than sterling, it is expedient to authorise—

  • (1) any increase in the sums to be issued out of or paid into the Consolidated Fund which is attributable to any provision of that Act—
  • (a) raising the capital of the Civil Contingencies Fund to £125 million; or
  • (b) enabling the Industrial Reorganisation Corporation to borrow in currencies other than sterling; and
  • (2) the payment, out of moneys provided by Parliament, of sums to the Governments of Northern Ireland and the Isle of Man in respect of revenue received from petroleum licences granted for the continental shelf.—[Mr. Diamond.]
  • Import Duties (Silicon Products)

    I beg to move,

    That the Import Duties (General) (No. 10) Order 1968 (S.I., 1968, No. 1510), dated 23rd September 1968, a copy of which was laid before this House on 30th September, in the last Session of Parliament, be approved.
    This Order raises, from nil to 14 per cent. ad valorem, the full rates of import duty on certain monocrystalline silicon, and on products containing more than 99·9 per cent by weight of silicon, both of which I shall call semi-conductor grade silicon. Imports of this material from the European Free Trade Area which satisfy the origin rules will remain duty-free. The material is used in the manufacture of devices such as integrated circuits, transistors and diodes. Tariff protection is intended to secure the viable production of semi-conductor grade silicon in the United Kingdom. Hitherto, we have been the only major market in the world for this material which has given no protection to its domestic producers, and our market has tended to become a magnet for the surplus production which has arisen from time to time in other producing countries. The duties which the Order imposes are roughly in line with those of the E.E.C., the U.S. and Japan.

    Semi-conductor grade silicon must be produced at or near full capacity to reduce unit costs and to earn a reasonable return on investment. Manufacturing equipment becomes obsolete in a few years. Some United Kingdom firms which specialised in the production of semi-conductor grade silicon have ceased to produce for general resale, and over the years the remaining industry, which is centred at present in an area of high unemployment, has found production generally unprofitable. There are indications that the industry, with protection, is already expanding. The tariff application was widely advertised and the trade associations concerned fully consulted.

    I realise that the imposition of duties on one of their basic materials will not be welcomed by all United Kingdom manufacturers of semi-conductor devices. United Kingdom production of semiconductor grade silicon should expand more securing given the stabilising effect of the tariff. Some users make their own semi-conductor grade silicon and I hope that those who do not will find United Kingdom supplies increasingly adequate to their needs. In general, the value of semi-conductor grade silicon represents a quite low percentage of the value of a complete device. While I appreciate that there are many variations, I would not expect the introduction of the duties to place in general an intolerable burden on those device manufacturers who consider it necessary or desirable, whatever the reason, to continue to import part of their needs. The Board of Trade will, in any case, consider applications for the repayment of duty of imports of semiconductor grade silicon used for export production. Polycrystalline silicon will remain duty-free from all sources.

    Semi-conductor grade silicon represents the output of one industry, in this case a capital intensive one, but also, of course, part of the necessary supply to another sophisticated industry. The latter has enjoyed, and will continue to enjoy, tariff protection and I consider it a not unreasonable compromise between the varying interests now to establish this degree of protection for the former. The duty was left unbound in the Kennedy Round and there are no international commitments standing in the way of a duty increase.

    12.28 p.m.

    My hon. Friends have made it clear in the past that we believe that applications for increases in duties should be looked at with a jealous eye because we take the view, which I believe is shared by the Government, that it must be in the interests of this country to move in the direction of freer trade.

    As has been pointed out on both sides of the House, there have in the last year or two been indications of protectionist tendencies in the world, which are against our interest. I agree, however, with what is implied in the Government's action in this case, because the circumstances here are unusual, particularly in view of the point the Minister made, that the United Kingdom alone among the producer countries has had, until the introduction of this Order, an unprotected market.

    In the circumstances which prevail in this industry, this is a powerful argument for this duty, because an unprotected market means, and has meant, that Britain tends to attract more than its reasonable share of the over-production of other countries. This is the main point in the case of the applicants for this duty. I believe, they would be satisfied with equal treatment with their foreign competitors, even if that means a lower duty than the one which is imposed by this Order. I would like to ask the Minister whether any attempt was made, in the Kennedy Round or otherwise, to secure a general lowering of the duties which are in operation in other countries before we imposed a duty of 14 per cent.?

    Secondly, I refer to the time that it has taken the Government to make the Order. I believe that some 4½ years have elapsed since application was first made for a duty, and even allowing for some delay caused by the interregnum of the Kennedy Round negotiations, those negotiations finished 16 months ago. That means that 16 months have elapsed while the Government have, presumably, been reconsidering the application.

    I understand that representations against this duty have been made to the Government by firms in the semi-conductor industry. The Minister of State has explained in general terms why he did not feel able to accept those representations but I should like to put to him two particular questions, and perhaps he will be good enough to expand on his opening remarks when he replies.

    The first question concerns prices. The main reason why most manufacturers of semi-conductors have opposed the duty—and I believe it is true that most of them have opposed it—is that they fear there will be an increase in the cost to them of pure silicon and, therefore, in their own production costs. Since the application for a duty was first made, devaluation has occurred and this could have been expected to impose a deterrent on imports and to give a shot in the arm to United Kingdom manufacturers. Perhaps the hon. Gentleman can say what the effect of devaluation has been on the prices in the United Kingdom. I understand that the price has not increased significantly in spite of devaluation, so the implication must be that overseas exporters have reduced their prices.

    As the Minister of State said, the costs of pure silicon are important to the manufacturers of semi-conductors if they are to remain competitive in both the United Kingdom and overseas markets. Prices of semi-conductors themselves have been coming down regularly. I understand that there is keen competition, and that in spite of the 20 per cent. tariff on imports of semi-conductors there are substantial imports.

    It is also true that the exports of our manufacturers have been growing very fast, and that the international market is expanding. If we can remain competitive in this very fast-moving industry there are good prospects of further growth. This is part of the argument against the Order, and I was glad to hear the Minister say that if applications were made for a drawback of Customs Duty by manufacturers of semi-conductors which are exported, those applications would be sympathetically considered.

    On the other hand it is part of the case of the applicants for a duty that world prices of pure silicon have themselves come down very substantially in the last eight years. I understand that in the four years to 1964, when the application was first made, they had come down by 50 per cent., and I have no doubt that they have come down even further since. Perhaps the hon. Gentleman can confirm this.

    The House would like to hear a little more about the Minister's assessment of the effect of the Order on the prices which United Kingdom producers will have to pay. Does he expect that the prices will be higher than they were before? Will they be higher than the prices of other producer countries? That is an important aspect. Will there will be a differential between the prices of home-produced and imported pure silicon?

    My second question relates to supplies, and this, of couse, is linked with the question of prices. I believe that if United Kingdom manufacturers of semiconductors were satisfied that the one remaining United Kingdom manufacturer of pure silicon was able to supply most of the United Kingdom demand at reasonable cost, and with a good quality product, some of their doubts would be allayed. I believe that it is true that until now the United Kingdom manufacturer has supplied less than half the market, and that demand in this country is rising very fast. Is it the expectation of the Minister of State that the United Kingdom manufacturer will be able satisfactorily to supply most of the market?

    I hope that the Minister will be able to answer these questions, since whatever the case for the Order—and, as I have said, I think the point about the United Kingdom being the only producer country out of step so far is a strong one—it is right to have the Government's reasons for the imposition of duty put on record.

    12.35 p.m.

    With the permission of the House, Mr. Speaker. I agree with the hon. Member for Blackpool, South (Mr. Blaker) that applications for increases in duty should be looked at with a jealous eye. I also entirely agree with him in saying that one of the factors we had to consider here was that the United Kingdom was the only major unprotected market, and that our principal international competitors in this field have tariffs of approximately this level. On balance, taking account of the representations from both sides on this issue, we decided that it was right to introduce the duty.

    This product was on the exceptions list in the Kennedy Round, and the duty remained unbound at nil. Some other countries, notably the European Economic Community, made their agreement in the Kennedy Round to reduce their duties on high purity silicon products, dependent on the abolition of A.S.P. in the United States of America. The hon. Gentleman will be aware of the supplementary agreement on chemicals negotiated in the course of the Kennedy Round.

    It has, I accept, taken time to come to this decision, and the reasons for this were in part pointed to by the hon. Gentleman himself. It was not a decision that we wished to take before the Kennedy Round negotiations were completed, but even when they were completed this was a difficult issue involving contrary interests. We had to go—and, I think, very rightly went—through a period of detailed discussions with all the interests involved, and we have now come to the decision. This is one of those cases in which care is required, because the decisions one can take to protect the interests of one industry can damage those of another industry which is of great importance to the country.

    The hon. Gentleman argued that devaluation in itself provided United Kingdom industry with some protection. That is true. We expect devaluation to have an effect on imports. Nevertheless, the argument of principle remains. We have not reduced other duties as a result of devaluation, and on a judgment of the case we decided that, despite devaluation, we should take this step.

    The hon. Gentleman asked me what my expectation was in respect of prices. I certainly would not expect prices in this country to rise as a result of this decision, and I would expect the Board of Trade to be involved in discussions with any manufacturer who wished to use this protective duty in that way. It is not my expectation that there will be any rise in prices. It is my hope that as production becomes more efficient, and taking account of the other factors he mentioned, there may, in due course, even be reductions.

    The cost of silicon is important to the manufacturer of semi-conductor devices but, as I said earlier, its importance to them is, I suppose, to be judged in relation to the percentage of the total value of the semi-conductor device the silicon represents, and this is a relatively small percentage. I do not deny that this decision is unwelcome to the manufacturers, but I do not think that it is so detrimental to their interests that we should not have taken this step.

    The hon. Gentleman also asked me what my expectations were regarding supplies from United Kingdom sources. I think that one of the effects of our decision will be that production in the United Kingdom will expand. I hope that it will quite rapidly reach an amount which will satisfy most of the demands of the United Kingdom manufacturers of semi-conductor devices, and provide room for exports.

    I have no doubt that imports will continue, particularly of certain specialised grades that may not be available here. But it is my hope that, taking account of the existing manufacturers of these products—and at least one other manufacturer has indicated his intention to enter this field now that we have the duty—supplies from the United Kingdom will rapidly form a much larger proportion of total supply than at present.

    I hope that in view of this answer the House will accept the Order.

    Question put and agreed to.

    Resolved,

    That the Import Duties (General) (No. 10) Order 1968 (S.I., 1968, No. 1510), dated 23rd September 1968, a copy of which was laid before this House on 30th September, in the last Session of Parliament, be approved.

    Customs And Excise (Italian Refrigerators)

    12.41 p.m.

    I beg to move,

    That the Countervailing Duty Order 1968 (S.I., 1968, No. 1240), dated 2nd August 1968, a copy of which was laid before this House on 9th August, in the last Session of Parliament, be approved.
    The Order has been made under the Customs Duties (Dumping and Subsidies) Act, 1957, as amended by the Customs Duties (Dumping and Subsidies) Amendment Act, 1968. It imposes a countervailing duty of £1 4s. 3d. per cwt. on domestic, electrically-operated refrigerators with a storage capacity not exceeding 12 cubic feet originating in Italy. In accordance with normal practice, there is provision for relief under Section 3 of the 1957 Act in respect of any consignment on which it can be shown that the full subsidy has not been given.

    This is the first occasion on which a countervailing, as opposed to an antidumping, duty has been imposed. However, this does not represent a sudden change in United Kingdom policy in these matters. There have been cases in the past where countervailing duties might well have been imposed but for the fact that satisfactory undertakings were received from the authorities concerned. The Italian authorities were given an opportunity to act similiarly in this case.

    The duty countervails 36 lire per kilogramme of the Italian Customs rebate of 45 lire per kilo on exports of these goods to the United Kingdom. Nine lire per kilo was accepted as being a legitimate rebate. It is fairly common knowledge that a rebate of only 9 lire per kilo is given on Italian exports to Italy's partners in the European Economic Community. Our findings were reached after a seperate and quite independent investigation.

    Before a countervailing duty could be imposed in this case, the Board of Trade had to be satisfied that subsidised goods had been or were being imported into the United Kingdom, that the subsidisation was causing or threatening material injury to a British industry, and that countervailing action would be in the national interest. In this case, an application under the 1957 Act, alleging dumping and/or subsidisation, with consequent material injury, was received from the British industry in August, 1967. On the evidence furnished to it, the Board of Trade was satisfied that a prima facie case had been made for an investigation, and a public announcement that the Board was considering the application was made on 8th September, 1967, in which representations from interested parties were invited.

    After a detailed investigation, the Board announced on 11th January, 1968, that it was satisfied that imports of Italian refrigerators had not been dumped prior to the devaluation of the pound in November, 1967. However, the Board had still to complete its investigations into the position after devaluation and of that part of the application concerning subsidisation.

    After further detailed investigations, my right hon. Friend the President of the Board of Trade was satisfied that, apart from a minor exception, imports of these goods from Italy had not been made at dumped prices either before or after devaluation. However, he concluded in the light of the evidence that no more than 9 lire per kilogramme of the Italian Customs rebate of 45 lire per kilogramme on exports of domestic electrically operated refrigerators to the United Kingdom was a justifiable rebate, and that the remaining 36 lire per kilogramme, equivalent to £1 4s. 3d. per cwt., constituted an export subsidy. Furthermore, my right hon. Friend was satisfied that this subsidy had caused, and threatened further, material injury to the domestic refrigerator industry in the United Kingdom, and that countervailing action against it would be in the national interest.

    The House will not expect me to give detailed reasons for our findings in relation to dumping, subsidisation and material injury. They were based on financial and other information given to the Board in strict confidence. However, I can assure the House that the case was investigated most carefully, and that the decision on the question of subsidisation was based on a thorough study of extensive explanatory material and calculations supplied by the Italian authorities concerning the operation of, and justification for, their 45 lire per kilogramme export rebate.

    I must emphasise that this is in no way a protectionist measure, as has been suggested in certain overseas Press reports. It is a carefully considered and appropriately limited reaction to a payment which has been judged, after thorough investigation, to be an export subsidy and materially injurious to the British industry. Both the procedure followed in reaching a decision on this case and the decision itself were in conformity with Article VI of the G.A.T.T. and, in relation to the dumping aspects of the case, with the provisions of the International Anti-Dumping Code which was agreed as part of the Kennedy Round negotiations.

    The countervailing duty on domestic, electrically operated refrigerators originating in Italy took effect from 10th August, 1968. For the reasons I have given, I hope that the House will approve the Order.

    12.48 p.m.

    I welcome the fact that the Government are prepared to make this Order, and the Minister's assurance that it is not a protectionist move. As I have already said this morning, as a nation we have a great interest in freer trade. It is also true that cheap imports are a benefit to the shopper. But these things are only true provided goods are not dumped or unfairly subsidised.

    If Italian refrigerators come to this country without dumping or subsidies, it is up to the British manufacturer to complete, but we are entitled to insist that the competition which he has to face is fair, and it is the job of the Government to act as the policeman to see that the rules agreed in G.A.T.T. and laid down in British legislation are observed.

    As the hon. Gentleman rightly said, this is the first Order under existing legislation to impose a countervailing, as opposed to an anti-dumping, duty. He said that one reason why it is not surprising that we have not had previous Orders of this kind is that in past cases satisfactory assurances were received from the exporting countries. I think that another reason is that the practice of export subsidisation has been growing fast only in recent years, but it has now become widespread not only in other parts of the world but also in the Common Market. We have seen its effect in a number of industries, not least in agriculture.

    Therefore, this Order is of special significance. I noted the hon. Gentleman's statement that it does not mark any change in the Government's policy. But now that the Government have learned how to make such an Order, I hope that they will be quite firm in doing it again when circumstances justify it.

    The Order originates in an application made by the British industry in 1967 before devaluation. The background to that application is a tremendous growth in imports to Britain of Italian refrigerators. I understand that until 1963 or 1964 they were hardly significant. In 1965 they amounted to £1,280,000, representing at that time still only 7 per cent. of home deliveries. By the first nine months of this year that figure had risen, in spite of devaluation intervening, to £4,600,000. It seems clear that the deliveries by British manufacturers, at least in 1966 and 1967, have suffered in consequence of these very rapidly rising imports.

    How is it that the Italians are able to export their refrigerators to Britain at such very low prices? The mere fact that their prices are or have been low is not a proof of dumping or, indeed, of export subsidies. There is no doubt that the Italians are very efficient producers of refrigerators. This is not surprising because I understand that they have only three producers and that between them they have a production which is over twice as much in numbers as that of the United Kingdom. The biggest Italian producer alone produces 50 per cent. more refrigerators than the whole of the British industry.

    So far as their prices are the result of efficient production, we have to compete; and it may be that the rationalisation which has taken place in British industry recently will help British manufacturers to do that in future.

    Nevertheless, the British industry believes still that there has been dumping. I welcome the hon. Gentleman's assurance that the investigations conducted by his Department have been as thorough as they could possibly be.

    However, the British producers point to the development in France, where the French refrigerator manufacturing industry has been very badly damaged by Italian imports. I believe that the production of the French home industry is now only 40 per cent. of what it used to be. A similar evolution has occurred in Germany.

    The British manufacturers believe also that the full effects of Italian competition has not yet been felt and that we are on the verge of a very well organised Italian promotion drive in the British market. They also point out that the Italian producers carried the effect of devaluation without increasing their prices. The British manufacturers have their suspicions still that, if the Italian product was not dumped before, it must be now.

    I come now to the countervailing duty. The Minister of State explained that it amounts to £1 4s. 3d. per cwt. The effect is to add about 30s. to the cost of a £40 refrigerator in the British market. In this case I understand that the countervailing duty has already been reffected in the prices which are being asked for Italian refrigerators in Britain. Nevertheless, that still leaves a differential of £5 to £10 between the cost of an imported Italian refrigerator and the cost of the British product. I hope that in the absence of an anti-dumping duty but with the benfit of this countervailing duty the British manufacturers will now be able to compete.

    I want to ask a question about the Italian customs rebate, part of which the duty is designed to set off. I understand that this rebate has been a bone of contention since it was introduced in the middle 1950s and that it was originally introduced as a form of rebate to exporters of manufactured goods for Customs duties paid by them on imported raw materials. However, some of the raw materials which were then imported are no longer imported. This may be why part of the rebate is no longer justified.

    The hon. Gentleman pointed out that for exports to the Common Market countries the Italians have now reduced the rebate to 9 lire per kilo instead of 45 per kilo. Therefore, the action the Government are taking in this Order is parallel to the move made by the Italians in relation to their exports to the other Common Market countries.

    The Minister of State said that the figure had been arrived at as a result of an independent investigation by his Department. I know that he cannot go into too much detail, for reasons of confidentiality, but it would be helpful to the House and to British industry if he were to explain what is the distinction—there must be a broad distinction—between the 9 lire of rebate which the Department regards as permissible to the Italian manufacturers and the 36 lire of rebate which, as reflected in the Order, are not permissible according to the international rules.

    The manufacturers have complained in the past about a different form of rebate from which the Italian exporters have benefited, namely, the turnover tax rebate. The Order does not provide anything to offset that rebate. Consequently, the Government must think that this is permissible, and I should be grateful if the Minister of State will say why they do.

    I have no doubt that the Minister of State will have explanations of these points, but it would be useful to the House and to the country to have them on the record.

    12.58 p.m.

    The hon. Member for Blackpool, South (Mr. Blaker) spoke about the present position in the British refrigerator industry and emphasised the importance of that industry taking full advantage of the rationalisation that has recently been going on to make itself more efficient in face of international competition. I agree with the hon. Gentleman that the industry must be competitive and must not simply try to survive behind protective barriers.

    A case like this, where there are accusations of dumping and subsidisation—accusations, in other words, that unfair competition is taking place—is examined by the Board of Trade once a prima facie case is made out and decisions are taken in the light of the facts and in the light of whether material injury is being done to the British industry.

    This is what we did in this case. A prima facie application was made. We examined it thoroughly, both before and after devaluation. We concluded that the charge of dumping could not be sustained but that the charge of subsidisation could, to the extent I indicated earlier, be sustained and that countervailing duties should be introduced to assist the British industry to that extent, as we were also satisfied that material injury was being done to the British industry.

    The hon. Member asked about the rebate arrangements that exist in Italy. The rebate of 45 lire with which we are here concerned was introduced by the Italian authorities in 1955 to ensure that their exporters of engineering goods did not suffer from the high prices of Italian steel and the high Italian customs duty then imposed on imported steel. In 1964 these arrangements were prolonged indefinitely at largely unchanged rates on the ground that they now represented a repayment on exports of various internal taxes paid in the course of manufacture of the various goods concerned plus a wide range of customs duties paid on imported materials, semi-manufactures and components. The rebate arrangements now cover some 400–500 different headings in the mechanical and electrical engineering sector.

    However, in our judgment, the steel situation in Italy is very different from what it was in 1955. We were satisfied that the 9 lire represented a genuine rebate of taxes paid in the course of production. We were not satisfied in the case of the remaining 36 lire. On the other hand, the rebate of the Italian turn- over tax of 6·3 per cent. was judged to be justifiable on the basis of the facts revealed in the course of our investigation. Therefore, we came to the conclusion that it would not be legitimate to react against the Italian turnover tax but that it was legitimate to react against this particular export subsidy.

    This is what we have done. It gives some help to the British refrigerator industry. However, I am sure that this will in no way stop the industry noting, to the extent necessary, the remarks of the hon. Member about achieving a very much greater efficiency in order to be thoroughly competitive with imported goods. I must say—and this is fair, I think—that we are very encouraged by the increase in its exports this year.

    Question put and agreed to.

    Resolved,

    That the Countervailing Duty Order 1968 (S.I., 1968, No. 1240), dated 2nd August 1968, a copy of which was laid before this House on 9th August, in the last Session of Parliament, be approved.

    Adjournment

    Resolved,

    That this House do now adjourn.—[ Mr. Ioan L. Evans.]

    Adjourned accordingly at three minutes past One o'clock.