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Workers' Co-Operatives

Volume 884: debated on Thursday 23 January 1975

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6.58 a.m.

I think that the House would agree that the use of public funds to provide direct financial assistance to workers' co-operatives in industry as opposed to agriculture is one of the most interesting and potentially significant developments of industrial policy under the present Government. I welcome the opportunity of a short debate upon this subject.

I should like to make it clear that I have no personal, philosophical or practical objection whatsoever to the provision of Government financial assistance to workers' co-operatives. As a matter of principle, that does not seem to me in any way to be contentious. It has been accepted over many decades and by successive Governments that it can be in the public interest for public funds to be made available to companies. If that is so, it cannot be contentious that where a group of workers incorporate themselves and form themselves into a company they may equally be able to qualify for public assistance in the public interest.

If I have no specific objection to the principle as such, I should like to say that in the operation of the present policy I believe that there are grounds for objection in the specific cases in which Government funding has been provided. I shall be concentrating principally on the provision of assistance to the co-operative at Kirkby, as the Under-Secretary no doubt expected. But, before coming to that, I should like to refer briefly to the other co-operatives to which the Government have declared their intention and willingness to make public funding available.

First, let me deal with Meriden. Both sides of the House deeply regret that this has now become a very protracted industrial dispute. Industrial action began at Meriden in September 1973 and it has continued over the last 16 months. There has been a considerable cost to the balance of payments and to the company which nominally owns the Meriden works, Norton Villiers Triumph. The company has lost nearly two seasons' motor cycle production, principally in the North American market.

The Government's intentions are still most unclear, and I hope that the Minister will be able to help on that score. The only announcement so far has been that £4·95 million was offered in principle last July to the co-operative at Meriden. In addition, a sum of £12,872,000 appears day after day on the Order Paper, indicating that the Government are willing to make this further sum available to NVT under the Industry Act, but as yet we do not see an order coming forward for debate in the House. I believe that the sum has appeared on the Order Paper every day without exception since the present Parliament opened in October.

It is not clear whether the Government have a firm intention to try to revitalise the industry on a three-factory basis, and, if so, whether they accept the previous evaluation which was done in 1973, when it was apparent to the then Government and to NVT that to proceed on that basis was unlikely to produce a commercial situation in the motor cycle industry for a period of up to six years. It is not clear whether the Government intend to provide financial assistance to the Meriden co-operative or to NVT or to both. It is not even clear whether the Govern-ment are considering as a possibility the outright nationalisation of NVT and, effectively, of the British motor cycle industry. I hope that the Minister will be able to clarify some of these points.

There is a clear commitment to provide public finance to the co-operative which has been set up to run the Scottish Daily News and an offer of £1·75 million has been made available in principle to that co-operative, subject to a number of fairly stringent conditions. In the last parliamentary answer on the matter the Government stated that the deadline for making the necessary cornmercial arrangements to establish the co-operative and the acceptance of the grant of £1·75 million was 28th February 1975.

I hope that the Minister will clarify what has happened to the application by the workers' co-operative at Propytex for Government assistance under the Industry Act. I know that the co-operative there wanted the assistance, but it is not clear whether the Government have turned the application down.

Turning to Kirkby, the Opposition take a very poor view of the fact that the Secretary of State delayed publication of the Industrial Development Advisory Board's comments about the possibility of making a grant to the Kirkby co-operative, and that he delayed publication of his views and comments on the board's report, until the last Friday before the Christmas Recess. The statement having been delayed until then, we deeply regret that the right hon. Gentleman chose to make it in writing and not in the House. It is a strange contrast that, whereas the right hon. Gentleman is enthusiastic in the Press and on radio and television about this initiative to finance and support workers' co-operatives, he appears to be so diffident and reluctant about explaining in the House the reasons for his decisions about individual co-operatives. I mean no disrespect to the Under-Secretary when I say that as this is the first opportunity we have had to debate the subject I had hoped that the Secretary of State might have used that opportunity to explain the decision about the Kirkby co-operative.

It will be acknowledged by hon. Members on both sides of the House, and by people outside, that by any standards the Secretary of State has taken a high-risk decision in making funds available to the co-operative at Kirkby. Some might describe it as a reckless decision, because the burden of advice he received from consultants and experts outside his Department, and also, apparently, from within it, has been unanimously against the commercial prospects and viability of the co-operative. In its report to the right hon. Gentleman, the Industrial Development Advisory Board said:
"Confronted with obstacles of this magnitude, no concern, however well-intentioned, could expect to be viable on the basis of the proposals advanced, and the support of such ventures raised crucial issues about the proper employment of taxpayers' money."
The chairman of the board, Mr. Robert Clarke, went still further in a radio interview in which he took part on 22nd December, when he said of the Kirkby co-operative:
"we think it doesn't have a chance of success."
The Government have also received advice from the management consultants, Inbucon. Although their report has not been published it has been leaked extensively in the financial Press. It appears that Inbucon had every reason to be no more sanguine about the commercial prospects of the Kirkby co-operative than the Industrial Board was. The report has apparently suggested that the extent of overmanning at Kirkby, which is one of the major reasons for its lack of prospective viability, has been between one third and a half.

In addition to that external advice, the unusual step was taken by the Second Permanent Secretary in the Department of placing on file a written objection to the use of the selective assistance powers under the Industry Act in this case. I believe that I am right in saying that the whole question of his objection is likely to be considered by a Select Committee. In that case, the objection will no doubt be made public. Does the Under-Secretary propose to make the Second Permanent Secretary's objection public earlier? It is very much in the public interest that the objection and the Secretary of State's comments should be made public as soon as possible.

There is no doubt that there has been a formidable weight of objection to the basic viability of this industrial operation. I hope that the Under-Secretary can tell us why the Secretary of State's commercial judgment in the matter has led him to different conclusions from those of the expert advisers that he has both inside and outside his Department. I hope that the Minister will not use what I regard as a fallacious argument that has been used outside the House by the Secretary of State in defending the grant—namely, that if the grant were not made to keep this operation in being, public funds would have to be used to pay unemployment benefit to those who are now working at the co-operative. If the operation is not viable, all that is happening by the paying of the grant under the Industry Act is the deferring of the unemployment benefit that will be claimed subsequently.

There can be only one justification for providing public funds for the co-operative—namely, a reasonable assumption, contrary to all the evidence made available to the House, that it will prove to be a commercial success.

I ask the Minister to elaborate and clarify the statement that the grant of £3·9 million represents—I use the phrase of the Minister's Department—"a once-and-for-all grant". Does that mean that the £3·9 million represents the total public financial commitment, or does it apply only to grant finance? When reference is made to the £3·9 million in those terms, is it meant that that sum might at a future date be supplemented by loan finance or by a Government guarantee to provide loan finance? Does it represent the total public commitment by way of grant, loans and guarantees to loans? Assuming that the latter is the case, will the Minister confirm that after the £3·9 million has been spent and the co-operative has not managed to prove its viability and is unable to meet its commitments it will be the Government's policy to allow the newly formed company to go into liquidation in the normal way?

Although the Government have taken some steps to try to ensure that the commitment of nearly £4 million to the co-operative is accompanied by a proper measure of public control and accountability, the evidence which has been made available from the Secretary of State's written statement suggests that there are real grounds for doubts as to whether the public control and accountability is adequate. We are dealing with a situation in which 100 per cent. of the capital of the co-operative has been provided from public funds. It would be reasonable to expect that the appropriate degree of control and accountability would be that applicable to a 100 per cent. owned company in the public sector.

I am well aware of the conditions for accountability that are set out in the Secretary of State's statement of 20th December, but I believe that there are some serious omissions. For example, no provision has been made for the ownership of the shares in the company which has now been formed by the co-operative. I hope that the Minister will be able to clarify who owns the shares. Are they owned by the directors of the company or by those who are employed in the co-operative? This is a material point, because if a total of £3·9 million has been put into the company the shares prospectively have a value of £3·9 million. It is important for the House to know who are the legal owners of the shares of that value.

I am aware of no provision relating to conditions covering the transferability of the shares. I appreciate that the Government take the view that if the assets of the company were suddenly liquefied and turned into cash it would not be in the public interest for those who are employed in the co-operative to use the cash in their own way.

For that reason the Secretary of State said in his statement that the grant would be repayable in the event of its being used for purposes other than those specified; namely, the running of the factory at Kirkby. Although there is a clear commitment to prevent the assets of the company being turned into cash and used by members of the co-operative as they choose, there is no provision dealing with the transferability of the shares. It appears to be open to the owners of the shares, whoever they are, to on-sell the shares to another company in the same business. Presumably at that point the holders would have a legal entitlement to the sum realised by the on-sale. Perhaps the Minister can clarify this point.

Third, there is no provision in the conditions for the repayment of the public money made available in the event of the co-operative being a success. I appreciate that this is not in any way a precedent and that there are many types of Government and local authority grant which can be made available to private individuals without there being a provision for repayment. However, I believe I am right in saying that in every other such case, if public funds are being made available on a grant basis, such a grant is accompanied by an obligation on the person receiving the grant to contribute some proportion of his resources.

In this case there is no contribution from the personal resources of those employed in the co-operative and, therefore, they are the beneficiaries of 100 per cent. financing by the Government. It seems appropriate in this case for the Government to give consideration to the circumstances which will arise if the co-operative is a success and the value of the shares is substantially increased. Obviously, that is the hope of the Government and of the Opposition. It seems to be a basic requirement of accountability that there should be some provision, in certain circumstances, for the repayment of at least part, if not all, of the funding which has been made available.

The fourth and final point about accountability on which I would like the Minister's views concerns the fact that we have here what is effectively a 100 per cent. owned company in the public sector, It is a company which has been funded exclusively by the taxpayer. Although there are provisions for regular financial reports from the workers' co-operative to the Department of Industry, there has, as far as I know, been no appointment of Government directors to the board of the company.

That would seem to be a basic requirement if the public accountability is to be real and ever-present, particularly in a high-risk commercial situation such as this. Will the Minister say whether Government directors have been appointed, and, if not, whether it is the intention of the Secretary of State to appoint such directors to the board of the company?

There are two essential types of workers' co-operative. The first is a co-operative in a basically profitable commercial or industrial situation, in which the workers both own and operate the business, sharing collectively in the rewards and risks. The second category is a co-operative in a basically non-profitable situation, in which the main impulse behind the co-operative is the joint protection of existing jobs, regardless of whether the concern is sound. Co-operatives in the first category are a desirable development, and I am happy to see them encouraged. I suggest that to encourage those in the second category as an instrument of job preservation regardless of commercial viability—and this appears to be the Secretary of State's policy—is neither in the interests of the public nor, equally importantly, in the interests of those involved in the working of the co-operatives concerned. All it is doing is discouraging them from seeking employment in more profitable, secure, and sound sectors of the economy and extending the period during which they and their families will be subject to anxiety about their livelihood.

7.20 a.m.

I congratulate the hon. Member for Tonbridge and Malling (Mr. Stanley) on his well-prepared speech. He has shown great persistence in the scrutiny of this important subject, and I hope to be able to assist in answering his questions.

The House last had an opportunity to discuss aid to co-operatives under the Industry Act during the Second Reading of the Consolidated Fund Bill (No. 1) on 4th December. My hon. Friend the Minister of State, Department of Industry then explained to the House the general attitude of the Government in offering aid to Meriden, the Scottish Daily News and the Kirkby Manufacturing and Engineering Company Limited. It is a mark of the importance of these projects in industrial organisation and experiment that we are tonight discussing these projects again.

The hon. Gentleman has asked about the terms and conditions on which offers of assistance have been made to KME, Meriden and the Scottish Daily News. I can assure the hon. Gentleman that whenever assistance is offered under the Industry Act appropriate conditions are attached and monitoring arrangements made which are commensurate with the amount of public money and the degree of risk involved. That applies in all cases.

The purpose of these provisions is to ensure the proper use of public money and to maximise the chances of securing the purposes for which the assistance was offered. Thus in the case of Meriden and the Scottish Daily News the Government's offer is conditional upon the fulfilment of certain prior conditions.

On Meriden, my right hon. Friend informed the House on 29th July 1974 that the Government would, subject to the conclusion of certain agreement with Norton Villiers Triumph Ltd, make available a maximum of £4·95 million, for purchase of factory and assets and for marketing of motor cycle output.

When consulted, the IDAB did not feel able to support the project, but, while the Government recognise the difficulties to which it drew attention, they concluded that because of the contribution to export earnings and the new approach to industrial relations it was in the national interest that is should go through.

The Government offer still stands. Discussions are now in progress under the auspices of the Confederation of Shipbuilding and Engineering Unions to find a means by which the fears expressed by the Small Heath work force can be allayed. I was pleased to read in a newspaper report two days ago that the shop stewards have reached agreement with the union officials, although this agreement is subject to confirmation by the work force.

In the case of the Scottish Daily News

Before the Minister leaves Meriden, will he confirm that it is the Government's clear policy to continue on a three-factory basis for Meriden NVT? Will he confirm that it will require public expenditure of £18 million to £19 million.

The Government are considering their policy towards industry as a whole. It is true that we have received proposals from Mr. Dennis Poore, Chairman of NVT. I can neither confirm nor deny the precise figures given by the hon. Gentleman until that investigation is complete, but the important thing at this stage is to ensure that the offer goes ahead to the Meridan co-operative. I am pleased to say that there is a sign of definite progress in that direction.

In the case of the Scottish Daily News the Government have also laid down conditions relating to the amount of finance for the project to be provided from non-Government sources. On 25th July last year my right hon. Friend the Secretary of State made an offer of a loan of up to 50 per cent. of the cost of the project to a maximum of £1·75 million subject to certain conditions. Those conditions were laid down to ensure that the project had support from commercial sources and the general public as well as from the workers, and that all investors in the project were aware of the risk involved and had seen the advice that had been given to the Government in the reports which they had received from the Industrial Development Unit and the Industrial Development Advisory Board.

On 31st October the Secretary of State wrote to the action committee re-affirming the Government's offer of a loan of up to 50 per cent. of the projected cost, now estimated at £2.4 million, and the conditions attached to it. A deadline of 30th November was set for meeting those conditions. Since then the action committee has informed the Department of the successful progress that has been made towards raising the non-Government finance required by the conditions. In the light of that progress the time limit attached to the Government's offer has been extended to 28th February of this year to give the committee time to complete and issue a prospectus. I am pleased to be able to tell the hon. Gentleman that the completion of this prospectus is now far advanced.

Conditions of this nature are, I emphasise, quite normal in offers of assistance under the Industry Act. In the case of KME the prior conditions for the negotiation of a satisfactory agreement with the receiver for the purpose of the assets have been satisfactorily complied with. A formal agreement with the company has been completed. The first payment of grant was made on 15th January, and the co-operative has now assumed full control of the business. The monitoring arrangements that will apply in the case of KME were described in the statement which my right hon. Friend the Secretary of State laid before the House on 20th December at the request of the Industrial Development Advisory Board.

In answer to the hon. Gentleman's question, there is a requirement under the Act that this be laid before Parliament, and it is, therefore, entirely appropriate that it should be in answer to a Written Question.

I fully accept, as the hon. Gentleman said, that there is a statutory requirement that when the Industrial Development Advisory Board requires to make its views known they should be laid before the House, but did not the Secretary of State on the same day, 20th December, choose to make a statement about his own volition on the amount he was making available to the Kirkby Co-operative, and is there any reason why that statement should not have been made verbally to the House?

As I said, the Secretary of State carried out the requirements laid upon him under Section 9(4) of the Industry Act 1972, and there is no reason why those should necessarily form part of the same statement. A Written Answer can be a cause of future debate, but there is no requirement laid upon the Secretary of State to make an oral statement to the House.

The grant is being paid to KME in tranches on proof of need. Further payments may be stopped if the Secretary of State considers the project to be in jeopardy. The grant becomes repayable if it is not used for the intended purpose or if the co-operative fails. The co-operative is to supply information regularly to the Department so that its progress can be carefully monitored. Appropriate monitoring arrangements are, I repeat, quite normal in cases of assistance under the Industry Act.

I should perhaps add a few words about the rôle of the IDAB. In asking for a statement to be made to Parliament on KLE, the IDAB was exercising its right under Section 9 of the Industry Act 1972. The board's view that the project should not be supported was made public in the Government's original announcement on 1st November. Therefore, contrary to the impression the hon. Gentleman gave, the fact that the statement was not made until 20th December does not imply any attempt by the Government to conceal the IDAB's view. In deciding to provide assistance contrary to IDAB advice, the Government were motivated by the high level of unemployment on Merseyside, the resolution and determination of the workers to succeed and the significance of the co-operative as an experiment in industrial organisation. The Government have made clear that this aid is on a strictly once-for-all basis. That implies a total commitment.

The hon. Gentleman also raised one or two other questions on KME which I shall answer. On the matter of vesting and the transferability of shares, the precise details of the constitution are still under discussion. I can assure him that transferability will be regulated by the constitution when finally published and made known. The Government do not intend to appoint Government directors.

A great deal of attention has been focused on points of difference between the IDAB and the Government, and it might be helpful to put the matter in perspective. We should perhaps view the few cases where the board's advice has not been followed in the context of the total number of cases considered by the IDAB. Since the board was set up in 1972, the total of cases has been 87. Of that total, 39 cases have been considered since the present Government took office. In only five cases was there any difference of view; the three cases dealt with in this debate, Aston Martin, which is in receivership, and Alfred Herbert, a case which we are fully examining.

The hon. Gentleman also mentioned that it is a novelty for the Government to offer public funds to a co-operative. I was grateful to hear him say that there is no reason why they should not be made available to a co-operative as indeed to other companies. Any co-operative—and there are about 30 producer co-operatives in this country at present—can make application for Industry Act assistance. A co-operative is as free as any other company to apply for assistance under the Industry Act, and I see nothing extraordinary or novel in providing assistance to a co-operative under the Industry Act. If a producer co-operative has planned to expand employment in the assisted areas, its application will be considered in the normal way. An appraisal of the viability of the proposal would be made, the security that the co-operative could offer would be negotiated, and so forth.

The criteria for selective financial assistance under Section 7 of the Industry Act 1972 were published on 2nd October 1972 and were notified to the House on 1st November of that year. The essential requirements for Section 8 assistance are set out in Section 8(1) of the Act. Therefor, the full details of the criteria for giving selective financial assistance are entirely known.

The novel characteristic of the Scottish Daily News, KME and Meriden in that these co-operatives have arisen from close-down situations where the employees concerned have had a choice of endeavouring to find other work or of working up alternative proposals which would provide lasting employment at their existing place of work.

The Government have made available in these cases the advice of expert consultants in order to assist the workers in their decision. This was also done in the case of Propytex, and in that case the workers, in the light of the expert advice from the consultants, have decided that it is not feasible to formulate alternative viable proposals, and my Department is endeavouring to find, as quickly as possible, someone who will take over the Propytex factory and provide jobs. The situation of the Scottish Daily News, KME and Meriden arose from a response to particular situations, and the Government have equally responded to the particular circumstances of each case.

Will the hon. Gentleman kindly deal with the remaining two points I raised? First, could he tell us who are the owners of the shares in KME, who have the legal entitlement to the value of the assets represented by those shares? Secondly, could he say whether it is the Secretary of State's intention to make public, at the earliest possible date, the written objection placed on file by the Second Permanent Secretary to the grant to KME?

On the latter point, I remind the hon. Gentleman that it is not normal practice to make public advice which is given by permanent civil servants to Ministers, and there is, therefore, no intention in this case to make public advice on that matter. I am coming to the point about legal status, but in the meantime I assure the hon. Gentleman that the legal status is that a co-operative enterprise is vested, as with any other limited company, in the directors.

Another question raised concerned the Government's policy on announcing offers of assistance to individual companies. Arrangements for the publication of offers amounting to £10,000 or less, or, in the case of interest relief grants, loan equivalent, were announced by my right hon. Friend on 31st July.

The total amount of selective assistance committed will be published in the quarter after that in which the first tranche is paid. I expect the first of these lists to be published next month. In cases of great and immediate public interest, it is normal practice to make an announcement as soon as possible, thus, the offers of assistance to the co-operatives at Meriden, Kirkby and the Scottish Daily News were all announced as soon as the Government' decision was made.

I turn now to the question of legal status of workers co-operatives. I was asked, for example, whether they will accept liabilities under the Companies Acts. The answer in the case of KME is that it is a limited liability company properly constituted under the Companies Acts, and, therefore, has a legal status no different from that of any other Companies Act company. The legal liabilities of the directors, and their responsibilities to their shareholders and employers, are determined, in the same way as for other companies, by the provisions of the Companies Acts and other relevant legislation. The detailed constitution of the Scottish Daily News will no doubt be set out in its prospectus, but I understand that it is also its intention to be a public company. The legal status of the other co-operative, Meriden, is not yet finally settled, but incorporation under the Companies Acts is, naturally, a possibility. Other possibilities can be considered in appropriate cases—for example, registration under the Industrial and Provident Societies Acts, under which a number of existing co-operatives are registered.

I end by drawing particular attention to existing co-operatives. A point which is sometimes overlooked in discussions about Government assistance to co-opera- tives is the extent to which producer co-operatives and common ownership firms have already established themselves in manufacturing industry in this country. I am referring to enterprises such as the co-operative productive societies, some of which are members of the Co-operative Productive Federation, and to members of the Industrial Common Ownership Movement. Such enterprises, as the hon. Gentleman rightly acknowledged, are eligible to apply for assistance in the same way as other companies for projects that will create new employment or help safeguard existing employment in the assisted areas.

Industrial co-operatives are, therefore, rooted in the experience of successful enterprises both in Britain and in other European countries. We believe that they have a significant role to play in harnessing the new social forces in Britain today.

In the short time I have had available this morning I hope that I have been able to indicate that this new experiment is nevertheless rooted also in well-accepted and fully accountable procedures.

The Minister has not dealt with the last question which I put to him. It is a very material point. He has not said who are the owners of the shares in KME. He will be well aware that if that company is constituted, normally under the Companies Act—the Minister has said that it is—those who own the shares will be the legal owners of the assets which have been financed solely from public funds. This is a material point. Who will own the shares and, therefore, be the legal owners of the assets which have been purchased with public money?

Although I had concluded, I will respond to the point to which the hon. Gentleman has drawn particular attention. I indicated that the constitution of KME is still under discussion and that this is a matter which will be settled when that constitution is finally settled. There has not yet been a full distribution of shares. Therefore, I cannot give a comprehensive answer. I assure the hon. Gentleman that, as with all the other points he has mentioned and all the questions which have been raised in the House about accountability of co-operatives, he will in due course have access to a complete answer.