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Ferranti Limited

Volume 892: debated on Wednesday 14 May 1975

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

In August 1974 Ferranti Limited sought the Government's help to overcome the company's financial difficulties. As the House knows, the Government gave a guarantee under Section 7 of the Industry Act 1972 to the company's principal banker of additional overdraft facilities. Adequate finance was thus made available for the continuance of the company's business while solutions to its difficulties were considered.

Ferranti Limited is an important company. It has developed valuable technological capabilities in a number of areas, it is an important supplier of defence equipment, it has gained valuable exports, and it provides employment, mostly in assisted areas, including Scotland. Furthermore, with changes in financial and management structure, there are good prospects for the viability of the company. With the objectives of establishing a viable company, thus preserving emloyment, and maintaining a British capability in those areas where Ferranti Limited has a high reputation, the Government have agreed to provide financial support.

After constructive tripartite discussions with representatives of the work force and following negotiations by Sir Don Ryder with the major shareholders of Ferranti Limited, arrangements for the Government's financial support have been settled.

Details of the arrangements will be included in the Official Report but their broad effect is that the Government will subscribe a total of £15 million of new capital, partly in voting equity, partly non-voting, and partly in loan form at a commercial rate of interest. The Government will have 62½ per cent. of the total equity, and 50 per cent. of the votes, which is more than enough to give the Government effective control over the company.

There are provisions in certain circumstances for part of the Government's non-voting shares to be made available if the company is able to arrange a public marketing of its shares. At that time or at the latest on 1st October 1978, all the non-voting shares will acquire voting rights. The Government's voting power could not in any circumstances tall below 50 per cent. and might well increase.

Some changes will be made in the management of the company. A new chief executive will be appointed, as will a finance director, both to be approved by the Government, which will also have the right to appoint some other directors.

The Government believe that these arangements represent the soundest basis for an agreement between the Government and the shareholders to give Ferranti a viable future and to safeguard the interests of the work force. The new management would be required to prepare plans for the future of the company, including an assessment of the prospects for the transformer division which has been making heavy losses, but no decision to separate the transformer division from the company will be made without Government approval.

I should add that, in accordance with our approach to industrial policy, we shall be arranging for a planning agreement with Ferranti and that the Government will encourage the development of industrial democracy within the firm on an agreed basis.

These arrangements should provide the opportunity for the company to recover from its present difficulties and make a full contribution to the national economy.

I appreciate that the House does not have before it the Heads of Agreement between Ferranti Limited and the Government which the Secretary of State has kindly provided for me. May I therefore ask, in the light not only of the statement but of the Heads of Agreement which the House will want to study, whether the right hon. Gentleman would agree that this is an unnecessary and expensive deal that he has concluded? Does he agree that, first, it contains no indication about how profitability is to be achieved, nor does it give any indication of a commitment from the unions that they will help in achieving that profitability?

Second, is the right hon. Gentleman not aware that the nub of the argument lies in Section 11 of the Heads of Agreement wherein it is said that if the company wishes to float, the Government will take over an unending commitment to the losses of the transformer business at the date of flotation? While the Government are prepared to take over the liability for the losses of that company in the sort or medium-term future, is it not the case that if the Government took over the losses now there would be no need for the £15 million of taxpayers' money which is embodied in the statement we have heard today?

Third, is the right hon. Gentleman aware that while Section 7(4) of the Industry Act 1972, which must have been the basis of the legislative backing for his announcement, does not allow him to give such aid to a company unless there is no practical alternative means of helping that company, Section 11 of the Heads of Agreement proves that there is an alternative method of helping the company in partnership with the private sector at a much greater—[Laughter]—lower cost to the taxpayer? Fourth, will the right hon. Gentleman confirm that permission from Brussels was either not necesssary or has been sought and obtained?

I do not accept the first point made by the hon. Gentleman. As for the prospects for viability, work is needed to give viability to this company which has been managed without commercial success. Attention needs to be given to its problems. I believe that the prospects are good.

Turning to the point about the commitments by those who work in the company, our view is that these should best be tackled on a tripartite basis. Over the past few months we have achieved a notable contribution from those who work at Ferranti. I would not regard any commitment as being required solely from one side.

There are possibilities of dealing with the losses that have been accumulating over a period in the transformer division. I would be sorry to see another example of manufacturing capacity chopped out in the interests of short-term profitability, which is the broad view of the Opposition, made clear on many occasions.

Section 7 of the 1972 Industry Act, which was legislation enacted by the Conservative Government, did not even require me to report this matter to the House. The degree of accountability we have tried to breathe into that measure was reflected by my statement.

There was, of course, the alternative of a receivership. We took the view that a receivership at a time when the company's prospects depended on confidence in its continuing operations, and with employment at stake, would not be the right course for us to adopt.

Dealing with the question about the provisions under the Treaty of Rome, the Treaty of Accession and the European Communities Act, I understand that in this case, although we are today telling the Commission of the statement I am making, we are operating, as I understand it, within guidelines already approved. Therefore I am authorised to make the statement in this way.

Will my right hon. Friend accept the congratulations of hundreds of my constituents whose jobs are involved and the congratulations of thousands of members of the AUEW, which sponsors me in Parliament? Is he aware that those workers realise that it is only through actions of this kind that the Labour Government are able to safeguard them from the worst economic ills of the capitalist system? Will my right hon. Friend also bear in mind that it is important to ensure that the transformer division remains part of the industry? Although at the moment it is making a loss, in the past many of the experiments that were carried out by the firm were financed by the profits from the transformer division. Will my right hon. Friend accept that my constituents have been watching with interest the reaction of the Conservative Party, and will no doubt in future act according to what has taken place in the House today?

I am grateful to my hon. Friend for what he has said. My hon. Friend faithfully reflects the views of workers in Ferranti and workers throughout the country who are confronted, through no fault of their own, with a threat to their employment. I believe that the policy of Her Majesty's Government receives warm support throughout industry. Unlike the hon. Member for Henley (Mr. Heseltine), whose first remedy is always to sack them, we believe in re-equipping and improving manufacturing capacity as far as we can.

Although the Scots have very often heard it argued that their own plants are non-viable whereas the English plants might be viable, in this case the viability of the Scottish operations is very clear. I am grateful to Scottish workers for recognising that they should not impose on the English workers in the transformer division the penal sanctions that in the past other Governments have applied to unviable Scottish plants.

Will the right hon. Gentleman take note of the fact that my Liberal colleagues and I take the view that the electronics industry is a growth industry that should be encouraged, and that basically we welcome his statement? But will the right hon. Gentleman say whether the non-transformer divisions of the company have made a profit? If so, and if those profits are greater than the losses of the transformer division, will the right hon. Gentleman say what the company's profit forecasts are for the future? Finally, will the right hon. Gentleman give us the total global sum promised by the Government to industries in Great Britain in order to get them out of financial difficulties?

I am glad that the hon. Gentleman's considerable weight is placed behind our policy in this matter. I cannot answer his questions specifically. It would take some time to provide answers to them. However, I shall seek out such answers as can be given without damaging the interests of the company, and I shall let him know. The amount of public money that was running into private industry when the Conservatives were in power was about £2 million a day. We take the view that where support on this scale is required it is right that the injection of money should be followed by public equity and accountability appropriate to what has been put in.

Will the right hon. Gentleman tell the House who advised him to keep together the transformer division, which is loss-making, and the profitable Scottish operations? Will the right hon. Gentleman tell the House whether this take-over will be handled by the proposed National Enterprise Board or the proposed Scottish Development Authority?

As regards advice, as the hon. Gentleman will know, I have tried in all these cases to bring together management, the work force and Government to examine collectively the problems of companies that run into difficulties and not to operate only with the managements on the basis of restoring them to short-term profitability regardless of export and employment consequences. I have attended and participated in three tripartite meetings. Many of the proposals that have come forward have emerged from those meetings. The negotiations were undertaken on the Government's behalf by Sir Don Ryder. I should like to pay tribute to Sir Don's work in the difficult negotiations which have taken place. It follows that when the Industry Bill is enacted the shares that we acquire in the company will, in the normal course of expectations, be transferred to the National Enterprise Board.

Is my right hon. Friend aware that last week the Edinburgh Workers' Council, which represents approximately 5,000 production workers and salaried staffs, unanimously agreed to record its appreciation of the skill with which he has handled this problem and its support for Government intervention? Will my right hon. Friend assure the House that if there are to be changes in the management structure of the company the changes will be sensitive to the need to preserve the considerable autonomy that is at present enjoyed by the Scottish group of factories?

I am grateful to my hon. Friend for what he has said, but my part in this matter has been a small one because the work has been done by the people who work for Ferranti. It is not my wish or desire to seek to impose solutions on companies which probably know better than most what is wrong with them. Probably their advice is the best advice to be sought. However, we have had to take the decision ourselves as to the measure, nature and character of Government support.

As regards autonomy, there has been a general view expressed within the company, which I share, that decisions should be taken nearest the point where they are to be applied. That is in line with our thinking both about industrial democracy and management thinking. It is also in line with what both management and workers think. Having said that, I repeat my gratitude to the Scottish workers for not having sought to make safer their own survival at the expense of workers at Oldham and elsewhere.

Will the right hon. Gentleman tell us what steps he took to encourage other British companies in simililar lines of business to rescue Ferranti rather than to burden the taxpayer with the whole of the cost as it is now to be put on them?

There were discussions of one kind or another which I would not think it right to reveal to the House, as these matters have to be conducted with a reasonable degree of discretion. However, I say in all sincerity to the hon. Gentleman that, having had some experience in an earlier manifestation as Minister of Technology, the idea that somehow a merger is the answer to the problems of a company does not now seem to be as sensible as at one time it seemed, when really re-equipping, better management or better industrial relations are required. It is necessary to look into the heart of a company to find out why things have gone wrong and to see how they can be put right. That must be done on the basis of discussions with those involved, in the hope that out of them will come the will to implement what needs to be done.

Does my right hon. Friend think that there is a case for the rationalisation of transformer manufac- turing capacity in general in this country? When the National Enterprise Board is set up, will Sir Don Ryder be looking into that possibility?

I am not ruling out the possibility that there may be some improvement or strengthening of the industrial structure. These matters are in part dependent upon the level of domestic ordering and the prospect of export orders. What I would be opposed to—I know that my hon. Friend would be opposed to this as well—would be to use a difficulty in a single company as an excuse to rationalise to a lower level of capacity, so that when the upturn comes this country, as has so often happened in the past, will not have the necessary capacity.

Is it not the clear implication of the Secretary of State's statement that the company was at fault in not enforcing redundancies in the transformer division? What estimate has the right hon. Gentleman made of the numbers of redundancies required to make the company profitable?

The passion for redundancies on the part of secure and well-paid people, such as the hon. Gentleman, throughout our society, including ex-Cabinet Ministers on the Opposition Benches and even present Cabinet Ministers, indicates that underlying their apparent claim for efficiency there lies a hatred of working people that is reflected by what they say.

Now that HMS "Belfast" has finished firing, may I ask the right hon. Gentleman to explain to the official Opposition that they can neither defend nor expound capitalist enterprise until they are prepared to proclaim that there is no substitute for bankruptcy?

I do not want to intervene in an historic intellectual argument that has been going on between the right hon. Gentleman and his former colleagues, or to complicate the prospect of his return to the fold when they have seen the error of their ways, but the right hon. Gentleman is certainly right in saying that the Conservative Government in 1972 entirely reversed the Selsdon Park policy based upon the idea that bankruptcy was the right course for capitalist enterprise that failed. The right hon. Member for Knutsford (Mr. Davies), who advocated that policy, is leaning anxiously forward to confirm the wisdom of his own late conversion to a different course of action. The Conservatives abandoned that policy. They gave an incoming Labour Government an instrument of intervention that I have been glad to use until our new instruments are available, and all that is revealed is that their attachment to bankruptcy has extended to their own policy.

Order. I gather that the hon. Gentleman wishes to raise a point of order. I should prefer him to do so at the end of questions on this statement.

I should like to raise the point of order now, Mr. Speaker, because it so much affects what the right hon. Gentleman said in answer to a previous question which I think will worry many hon. Members who heard it. I shall be grateful for your advice, Mr. Speaker. The Secretary of State included his colleagues who are members of the Cabinet in those Members of the House who were in favour of redundancies. I should be grateful if the Secretary of State would clarify that remark.

As I have said before, fortunately or unfortunately I have no responsibility for what the right hon. Gentleman says, provided that he uses parliamentary language. Mr. Dalyell.

Even if it is out of order, may I say that if in the heat of the moment I appeared to give the impression that I was referring to members of the present Cabinet and not of the Cabinet of a previous administration, I simply admit the error.

Is the Secretary of State aware that many of my constituents who work at Ferranti are thankful that he had no truck with the idea of a receivership. Is it not true that many of the difficulties in which Ferranti is placed could have been avoided if we had pursued the concept of joint ventures in exports, as certain German electrical firms have done? Will not my right hon. Friend, with the Department of Trade, examine the whole question of joint ventures in exports with a view to building up further trade, particularly with Latin America, where Ferranti is doing rather well?

My hon. Friend will know that I have never criticised the management of a company that has got into difficulties, because I know that the problems of British industry are formidable, and I have never believed that there are heroes and villains in our industrial story. I am sure that what my hon. Friend says is right. Export possibilities in many firms have been lost. My view is that had there been a planning agreement in this company four years ago, the problems would have been identified earlier and could have been corrected without the trauma and anxiety of the last few months.

Will the right hon. Gentleman accept that the bankruptcy of individual concerns is perhaps preferable to a policy which leads to the bankruptcy of the whole nation?

I yield to the right hon. Gentleman in my expertise in these matters, as he bankrupted Rolls-Royce and Upper Clyde Shipbuilders and then brought them back into the public sector. Looking back over his experience in that period, it is questionable whether it would not have been better to call in the people concerned with those two great companies and seek answers to the problems without following the savage doctrine from which the right hon. Gentleman's own ideas derive.

Is the right hon. Gentleman aware that many of us heard him say that there were many in the House, including some of his fellow Cabinet Ministers, who advocated redundancies without themselves being prepared to accept them? In fairness to him, we also heard him say that that was a slip of the tongue and was unintentional. Are we to take it, therefore, that he excludes all his colleagues from being prepared to face redundancies, including those of them who are pathologically opposed to remaining in Europe now and who will not be prepared to face redundancy after 5th June when the country decides to remain in Europe?

The right hon. Gentleman's question is not even up to his usual low level of supplementary questions on industrial matters. If in the heat of the moment I made a slip of the tongue, I corrected it in the House. Well-paid and secure people in any walk of life or in any party are not strongly placed to demand redundancies in British industry. To that point of view, I strongly adhere.

On a point of order, Mr. Speaker. May I draw to your attention that you must have inadvertently failed to notice one Member of the Scottish National Party who wished to intervene on the statement and was not called.

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