Rolls-Royce

– in the House of Commons at 7:13 pm on 28th April 1987.

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Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham 7:13 pm, 28th April 1987

We now come to the second motion in the name of the Leader of the Opposition. I have to announce to the House that Mr. Speaker has not selected the amendment.

Photo of Mr John Smith Mr John Smith , Monklands East 7:41 pm, 28th April 1987

I beg to move, That this House deplores the proposed privatisation of Rolls-Royce and the way in which it would be sold off at well below its proper value; and believes that the company should remain in public ownership in order to secure British ownership, adequate capital investment, research and development, and job security. as well as a proper return for the taxpayer on the massive public investment which, together with the commitment of all its employees, secured the recovery of a company which is crucial to this country's aerospace and engineering industries. May I first observe that this is a debate that should have taken place in Government time. The proposal to privatise Rolls-Royce comes from the Government, and the Government alone. Were it not for a technical matter, the way in which Rolls-Royce was taken into the public sector, they would in other circumstances have had to come here with a piece of legislation and we could have had the adequate and thorough debate that an issue of this importance demands. It is not for want of trying. We have repeatedly approached the Government, insisting that the debate should be held, but all our requests have been turned down. So the duty that properly lay with the Government has on this occasion been accepted by the Labour party. That is why we put the motion down tonight.

Our case is that the proposed privatisation of Rolls-Royce is motivated by dogma, pure and simple. There is no case whatever on grounds of competition or of an industrial, financial or technical kind for privatising Rolls-Royce. It is simply another—yet another—expression of the Government view that all successful enterprises in the public sector must be moved to the private sector. We know that Rolls-Royce has been in the public sector since the tragic collapse in 1971, when it was acquired by a former Conservative Government who, on that occasion at least, rose to their responsibilities. Since then, the company has, as a result of massive public investment, been turned round. It is a major achievement by the company, and I pay tribute to all who work in it for their success in doing this. It now has a turnover of £1·8 billion, and last year it declared profits of £120 million.

Apart from the efforts of everyone who works there, this could not, of course, have been achieved without the very strong and sustained financial support provided by successive Administrations. One would have thought that the sensible thing, having recited this period of recovery and being on the verge of years of profitability, would be to keep it in the public sector and to obtain a return for the public on the investment made on its behalf; but that is not what has happened.

It would be instructive just to look for a minute or two at the financial proposals behind the privatisation scheme. We know that the Government supplied equity capital to the extent of £508 million. My right hon. Friend the member for Glasgow, Govan (Mr. Milian) has been pursuing these matters relentlessly by questions. In an answer that he received from the Minister for Information Technology, the Minister confirmed that, at today's prices, the equity capital was valued at £1,063 million.

We know also that because of expenditure on the RB211–22B project £537 million was supplied by the Government, with £334 million recovered. That has been confirmed in correspondence from the Minister. So we know that another £203 million went in on that account. We also know from the pathfinder prospectus that the Government propose effectively to wipe out £283 million by the way in which the shares are to be sold.

Adding that up, we reach a figure well in excess of £1·5 billion. That is without taking into account the substantial amount of money advanced by the Department of Trade and Industry through the advanced engineering programme which, between 1982 and 1986 alone, amounted to £162 million, and the money for development contracts from the Ministry of Defence which, after allowing for repayments over the same small period, amounted to £241 million. So we know that more than £1·5 billion has gone into Rolls-Royce from the public coffers, a figure which, if we take account of launch aid and research and development support, is much nearer £2 billion and may even be higher than that.

Then we look at the prospectus and at the price at which the Government propose to sell the company. They announced the figure this morning. It is likely to raise £1·3 billion. So why on earth are we selling one of Britain's most prestigious companies, in which we have invested probably more than £2 billion, for £1·3 billion? Why are we handing it over, now that it is making a profit of £120 million, and effectively telling those who will purchase it that, although they did not put in any investment over all those years, and although they did not take the risk of turning the company round, we are handing over to them more than £100 million of profit for as far ahead as we can see?

Even worse, we know, again from the prospectus, that there are £600 million-worth of unabsorbed tax losses with the company and that the company will get the benefit of that. So we know that for years ahead the privatised Rolls-Royce will not pay any corporation tax whatever. The more one looks at this, the more one sees that the privatisation of Rolls-Royce is a one-way street — burdens and losses for the taxpayers, profits for the private sector. It is an appalling example of the stewardship of our public funds by the Government.

I note also with alarm that in today's Evening Standard one of the brokers for the company at Hoare Govett, Peter Deighton, talking about who would invest in the company, said: The public will subscribe in force and the US and Japanese investors are likely to pile in. It will not be beyond the Government's knowledge that the Japanese are not exactly allowing British investors to "pile in" to take shares in Japanese companies at present.

I can think of no example in the recent history of our public finances when a more irresponsible exercise has been conducted than on this occasion. That is why we argue with force that there is no financial justification whatsoever for this move. There is not even on this occasion the notion of piling up an election fund for the Conservative party.

The matter is, of course, serious because, as we stress in our motion, it is important that British ownership should be secured for one of Britain's most important companies.

No doubt the Secretary of State will say that he has once again produced a golden share in the company's articles of association and that, for the £1 share that he buys, but that he can never use in a voting capacity, he can block any change in the articles of association that might allow foreign ownership to predominate in the company. That is all very well, but it is an untried and untested mechanism. It is one thing to take a power, but another thing to exercise it.

We should consider the way in which the Government behaved over another important aerospace company, Westland, in allowing that company's fate to be decided by people whose interests are, as yet, unknown even to the Government, never mind to the British public or the employees and management of the Westland company. In all probability a concert party took place on that occasion and was designed to manipulate the ownership of the company. Surely we can never contemplate Rolls-Royce being made the victim of such circumstances, or its future being decided by anonymous foreign owners.

Therefore, I ask the Secretary of State to give us categorical assurances about the maintenance of a predominantly British ownership in the company. We know that if the company were to stay in the public sector there would not be a problem about that. We know that it would remain British because we would continue to own it on behalf of the British people. The risk is created only by the privatisation exercise upon which the Government have embarked.

We know also that Rolls-Royce is a crucial national asset. The Financial Times recently observed: Virtually the whole of the RAF and important elements of the other two services, depend on the company. Its importance in civil aerospace cannot be overestimated.

One of the difficulties faced by a high technology company such as Rolls-Royce is the enormous cost of modern development. The research and development contribution is necessarily high as the company operates on the frontiers of new technology. We are fortunate to have such an excellent company operating in that way.

However, Rolls-Royce is not a large competitor in a competitive game. The turnover of Rolls-Royce is £1·8 billion, whereas the turnover of General Electric Corporation is $30 billion and that of Pratt and Whitney is $16 billion. Both those companies form parts of large and diversified groups. Therefore, Rolls-Royce always has a difficult time competing against such formidable and well-financed competitors.

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley

I thank the right hon. and learned Gentleman for giving way. He is quoting slightly misleading figures when he states that the turnover of General Electric Corporation is $30 billion and that of Pratt and Whitney $16 billion. He must know that General Electric Corporation is a large and diversified engineering company and that its engine-making side is only a small part of that. Likewise, United Technology has a turnover of $16 billion, and not Pratt and Whitney.

Photo of Mr John Smith Mr John Smith , Monklands East

It might help us all if the hon. Gentleman listened to what was said in the Chamber. Just before he got to his feet, I was making the point that General Electric is a large and diversified company. Of course that gives it added economic strength. It can cross-subsidise from one activity to another and can call upon the resources of the entire conglomerate.

As we know, the United States Government make sure that such companies are supported through the Department of Defence. The notion that the United States Government do not involve themselves in subventions to industry is one of the great myths of our time. It is done in a different way. It is not done through a Department of Industry. It is wrapped up in the flag, put in defence appropriation and is then voted through. Throughout the entire aerospace industry, never mind the aero-engine industry, we know that that happens with large amounts of money. Other countries take care to secure the national interests that are represented by important companies in their economies.

That is why, over the years, Governments have assisted Rolls-Royce with important research and development. That is why we know, again from the prospectus, that the company intends to come hack to the Government for more money for research and development. The company will be right to do so.

However, where is such research and development in the private sector? What is the point of privatising a profitable asset if one must meet the bills that it cannot face on its own in the private sector? Why do we not use the profits that we would make from maintaining it in the public sector to finance its research in the future, instead of asking for further subventions from the taxpayer?

Photo of Mr Ernie Ross Mr Ernie Ross , Dundee West

That is too simple.

Photo of Mr John Smith Mr John Smith , Monklands East

As my hon. Friend has said, that proposition is probably too simple to be grasped by Conservative Members. If they showed just one glimmering of the sense of propriety that they exhibit in attending to their own personal financial affairs in respect of our public financial affairs, we should make much more progress in this country. [Interruption.] The hon. Member for South Ribble (Mr. Atkins) should not engage in naming those people who have acted improperly when it comes to the acquisition of shares in privatisation exercises. If he selects that as as weapon, he may find that it is a boomerang.

Photo of Mr John Smith Mr John Smith , Monklands East

I shall give way to the hon. Gentleman if he wishes, but I do not think that it will help.

If I can try to get the debate hack to the important issues that we were discussing, the truth is that the future of Rolls-Royce will be dependent upon the City of London. It is not as if we can look at the City of London with any confidence so far as the financing of high technology and long-term projects are concerned. We know that the City is in the grip of a woeful short-termism and that would be wholly inadequate for Rolls-Royce. Indeed, we have seen that British Aerospace has had to come to the Government to ask for launch aid for airbus. We were told that it would be marvellous when British Aerospace was privatised and that there would not be any interference by Ministers. However, we learned something different during the Westland affair, when there seemed to be some odd interference by Ministers. British Aerospace is knocking at the Government's door. However, I am sorry to say that so far it has not received any positive response for the funding of the airbus project. Those projects are so great and demanding in financial terms that they cannot be faced by private sector companies alone.

Why on earth do we want to privatise Rolls-Royce? Why do we put at risk the interests of the company's 160,000 employees? About 160,000 people work in supply industries or for sub-contractors who work in association with Rolls-Royce. They are scattered all round the United Kingdom. There is hardly a part of Britain that will not be affected by the future of Rolls-Royce. From the north of Scotland right down to the south of England, there are factories that make an important contribution to Rolls-Royce efforts. The future of communities all over our country is tied to the future success of the company.

There is planning to be done by the company, but it could be done equally well within the public sector. During the past few years the company has shown that can be done. There is no reason to suppose that that success could not be maintained. Indeed, the notion that somehow there is chronic Government interference has been denied by chairman after chairman of the company. However, if the company stays in the public sector we know, purely and simply, that it will not risk another collapse such as happened in 1971. Many people still working in the company remember that dreadful day, when it looked not only as if their jobs would go but as if one of Britain's crucial industries would disappear. If that had been allowed to happen, what an episode of criminal neglect that would have been.

We know that the private sector was totally incapable of rescuing the company when it was in that position. The company needed public sector intervention. That public sector intervention probably went against the grain of the Conservative Government of the day but, to their credit, they knew that in the national interest they had to do that.

Mr. Dave Nellis:

I was one of those who worked for the company—at least, I attended the Rolls-Royce technical college — on that day in February 1971 when it collapsed because of the overstretching of the financing of the RB211 project. Is it not a fact that, despite the complacency of Government spokesmen and Tory Back Benchers, the stretching on the Superfan of $3,000 million, the problems of the V2500 engine, the loss of the A340 airbus contract, together with Rolls-Royce in the private sector could mean the same thing happening again on the same scale as at the beginning of 1971, with 200,000 workers finding their jobs at risk?

Photo of Mr John Smith Mr John Smith , Monklands East

I know that my hon. Friend, not only on the basis of his personal experience, but also because he represents many people who work in the company, is expressing a deeply held fear that is felt through many parts of the company. There is little else but apprehension about what lies ahead for the company because such people know that crucial research and development and capital investment is totally dependent on what one can only call the caprice of the City of London.

We also know that the management of the company will inevitably always have to look over its shoulder at the reactions and interests of the City of London.

Under public ownership, with the Government backing the company through to success, the management and workers can get on with the crucial job of ensuring that Rolls-Royce remains a world leader. Why must we add this complication, knowing the way in which the City behaves on these occasions?

For research and development, capital investment and for maintaining Rolls-Royce in its position of excellence in the world there is every reason to keep it in the public sector and none for privatisation. That is why we argue the importance of public sector participation and why after the general election we shall secure a strategic public stake in Rolls-Royce so that the public interest can be maintained. [Interruption.]

The reaction displayed by Conservative Members shows an overweening confidence on their part about a decision which the electorate has yet to make. The look on some of their faces will change when they see the results coming in. Indeed, I hope their look will change. This will be an important issue in the general election campaign and some of them will be called to account for the votes that they cast at the end of this debate.

This is nothing more or less than a scandalous exercise which betrays all the chronic weaknesses of the Government. First, it shows their desire to mix public obligation and private profit in ways which always favour private profit. Secondly, it shows a failure to appreciate the vital role of Government in high technology industries and a belief that responsibility for our industrial future, let alone our defence needs, can be shuffled off on to some shoulders other than those of the Government. Thirdly, it displays the narrow dogmatic prejudice that lies behind most of the privatisations, but which in this case can be uniquely demonstrated to rest on dogma alone.

That is why we shall vote with conviction for our motion tonight. If for one moment hon. Members in other parties were to allow a glimpse of the national interest to peek through their dogmatic prejudice, they should in all honesty join us in the Lobby tonight.

Photo of Mr Paul Channon Mr Paul Channon , Southend West 8:01 pm, 28th April 1987

The Opposition's motion is wrong on virtually every count. I note that the motion which states that Rolls-Royce is being sold off at well below its proper value was tabled before the Opposition knew the price at which the shares were on offer. That is all too typical of the way in which the Opposition do not let facts get in the way of their prejudices and over the years we have learnt to accept it. The amendment in the name of the right hon. Member for Plymouth, Devonport (Dr. Owen) is not much better.

The House will be aware of the constraints under which I and other Ministers are placed during the run-up to privatisation. As owners of the shares to be sold, the Government may make no predictions or forecasts about the future of the company or the issue. Therefore, I intend to restrict my remarks purely to the facts.

Rolls-Royce has a special place in British industry. It is a symbol of excellence and, more than that, a symbol of British excellence. The name itself has a unique place in the British manufacturing tradition and it is recognised the world over. [Interruption.] Whatever the differences may be between the two sides of the House, it must at least be common ground that we wish the employees and all those who work in Rolls-Royce a successful and prosperous future.

Rolls-Royce is not only a company with a proud tradition, but one with a strong presence and a future full of opportunities. It competes extensively in world markets—270 of the world airlines use its engines, as do more than 110 of the world's defence forces. It employs 42,000 people throughout the world and helps secure the employment of many thousands more through its suppliers. Rolls-Royce is also a profitable company. In 1984, it made pre-tax profits of £26 million, in 1985 the figure was £81 million and in 1986 it made record profits of £120 million.

Since 1973, the company has operated on the basis of assurances that the Government would meet its debts in the extremely unlikely event of liquidation. As part of the arrangements for the sale, the company will receive an injection of new capital amounting to £283 million, a major proportion of which will be used to repay most of the company's borrowings. The prospectus notes that the board considers that, taking into account available facilities and the injection of new capital, the company will have sufficient working capital to meet present requirements. The Government assurances referred to will thus be withdrawn on completion of the offer for sale.

I cannot make any predictions tonight for the future. Investors must make up their own minds, based on the prospectus issued today, whether they wish to invest in the company; I am not allowed to, and must not, say anything which would suggest anything other than that investors read the prospectus carefully before making their decision. However, I can say that the Government are confident that there will be considerable interest in the shares, both from institutional investors and the general public.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

More than 500,000 members of the public—I do not imagine that all of them are parasites—have registered with the share information office and both the directors of the company and the Government—

Photo of Mr Dave Nellist Mr Dave Nellist , Coventry South East

People who live off other people's work.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I am sorry that the hon. Gentleman keeps interrupting on this point. I am talking about 500,000 members of the general public who have registered their interest in the issue with the share information office. Both the directors of the company and the Government welcome its return to the private sector.

The right hon. and learned Member for Monklands, East (Mr. Smith) has already made several criticisms of the Government's privatisation programme, but he has not spoken of the advantages of privatisation and why we believe that to date the privatisation programme has been a great success.

When the Conservative Government first came to power in 1979, state-owned industries accounted for about one tenth of the United Kingdom's gross national product. they dominated the transport, energy, communications, steel and shipbuilding sectors of the economy. But the Government have now sold about one third of those businesses, including, with Rolls-Royce, 15 major companies. More than 600,000 jobs have been transferred to the private sector and following the sale of Rolls-Royce and later this year the BAA, the state-owned sector of industry will have been cut by about 40 per cent.

There are two main lessons from this programme of privatisation. First, privatisation has enabled large numbers of people who had never previously owned shares to hold shares in British industry and for a great number to hold shares in the company in which they work. Instead of public ownership, which in practice means ownership by a Minister and control by bureaucrats, we have ownership by many thousands of private investors.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

Moreover, despite the claims of Opposition Members about industrial democracy, which has too often meant democracy for a small number of trade unions, many thousands of people have experienced real industrial democracy through a direct stake in the company for which they work.

Secondly, the experience to date has been for privatisation to be of direct benefit to the companies concerned. There is no great secret about why that should be the case. For far too long, too many of our key companies have had their operating flexibility constrained by Government ownership. They have had to refer investment decisions to Government to justify their plans and proposals to Ministers and officials, and on occasion they have faced the conflict between commercial decisions and transient Government policies.

Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Stockton South

. If the Government wish to encourage wider share ownership in this particular case, why has not greater incentive been given to smaller investors, as was done in other cases?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I shall deal with that in a moment. I note with astonishment that the alliance thinks that the company should not be privatised and that the Government should retain a 51 per cent. holding. We note that policy with considerable interest.

That does not mean that some companies have not been successful. Indeed, Rolls-Royce has been an extremely successful publicly owned company. But state control has undoubtedly been a real constraint on the company, which it can well do without. It is operating on an international scale and cannot easily fit its decision making into the necessary requirements of Government financial planning and funding. Of course, Rolls-Royce will continue to work extremely closely with Government, not least because of its position as a defence supplier, but also because of the Government's support through launch aid for certain of its civil aero engine projects. The relationship with Government will continue but the requirement to have commercial decision second-guessed by the Government will cease.

This morning the offer for sale of ordinary shares in Rolls-Royce was fully underwritten at a price of £1·70 a share. The shares have now been sub-underwritten at that price. This represents—

Photo of Mr Paul Channon Mr Paul Channon , Southend West

The right hon. and learned Gentleman will understand that I express no opinion on merits, apart from what is in the prospectus of this company.

Photo of Mr John Smith Mr John Smith , Monklands East

Before the Secretary of State leaves the question of second-guessing commercial decisions, can he please tell us which commercial decision by Rolls-Royce since 1979 has been second-guessed by this Government?

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I am not going to answer that ridiculous question. The House knows perfectly well that, with any company under Government control, there are controls and procedures which have to be gone through. The right hon. and learned Gentleman, who has served in government, knows that to be absolutely true, absolutely inevitable and absolutely a fact. It is very important to have commercial decisions taken by commercial people in the private sector.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I am not going to answer that ridiculous question. The House knows perfectly well that, with any company under Government control, there are controls and procedures which have to be gone through. The right hon. and learned Gentleman, who has served in government, knows that to be absolutely true, absolutely inevitable and absolutely a fact. It is very important to have commercial decisions taken by commercial people in the private sector.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

No, I must get on. We have under an hour and three quarters and many hon. Members wish to speak.

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. The hon. Gentleman knows that, if the Member addressing the House does riot give way, he must not persist.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

Approximately 320 million shares are initially being offered to the general public, including Rolls-Royce employees and pensioners. If the offer is at least twice subscribed, this number will be increased to 400 million shares, some 50 per cent. of the total. The remainder of the shares will be placed with financial institutions in the United Kingdom. There is no overseas offering.

A number of special offers have been made to employees and pensioners of the company. Employees with at least 12 months' full-time service will receive approximately £70-worth of free shares plus a further £2-worth of shares for every year that they have worked for the company. Such employees will also receive two free shares for every one which they buy, up to a limit of £150 for each employee. All eligible employees of the company will also receive a 10 per cent. discount on all shares bought, to a maximum of £2,000 per employee, and will be entitled to apply for a further £10,000-worth of shares on a priority basis. Pensioners of the company will also be able to apply for up to £10,000 worth of shares on a similar priority basis and at lower minimum application bands than members of the general public.

The prospectus will be published on Thursday 30 April. all who have registered with the Rolls-Royce share information office will be sent a prospectus, including a public application form. Application forms must he received by 10 am on Thursday 7 May. Copies of the prospectus have been placed in the Library of the House

It is not for me to make forecasts about Rolls-Royce's financial and commercial prospects. Hon. Members, together with prospective investors, must look at the prospectus and make their own judgments on the basis of the information it contains.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I am not going to give way. I want to get on and what I want to say must be said to the House. It is not my fault that the debate was fixed for today. The Opposition have a Supply day practically every week, and have not sought to choose this subject until today.

Photo of Mr Doug Hoyle Mr Doug Hoyle , Warrington North

On a point of order, Mr. Deputy Speaker. Is it not true that this debate would not he taking place at all but for the Opposition's making time for it?

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

That is a matter for argument; it is not a matter for me. I must say to the House that a number of Members with very strong constituency interests are anxious to catch my eye and it is a very short debate. Interruptions of this kind only make it less possible for me to call those who want to be called.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

I should like to refer to some of the key information in the prospectus and to what the board has to say about the company's prospects. I have already told the House the figure of profit before taxation of £120 million in 1986. The turnover of Rolls-Royce was then £1,800 million, of which £757 million was attributable to civil aero sales, £740 million to military aero sales and the balance to industrial and marine and other activities. It invested £132 million of its own funds in research and development. The total value of the company's order book at 20 March 1987 was £3.1 billion.

The prospectus says that the company has substantial order books for a number of its existing military aero engine products and good prospects for further sales. The company considers that its current Ministry of Defence and company-funded military development programmes give it a broad base of techology to explore new opportunities in the overseas military commercial market as they may arise.

There is no truth in the suggestion that Rolls-Royce is vulnerable to foreign control. Under the company's articles, no more than 15 per cent. of the company's shares can be foreign-held. This restriction applies to shares held by nominees on behalf of foreign interests. Anyone wishing to register a share must sign a declaration whether the share will be foreign-held. The provisions in the articles are similar to those that have operated successfully in the case of British Aerospace for no less than the last six years.

Nor is it possible for the articles to be changed in the future without the consent of the Government, who have a special share which enables them to prevent any change to the articles dealing with foreign ownership—a special share which continues indefinitely. There is no justification whatsoever for claims that these provisions will not be effective in ensuring domestic control of the company.

It is nonsense to state, as does the amendment tabled by the alliance, that this or any other privatisation is ideologically motivated and determined by the Government's excessive desire to reduce the public sector borrowing requirement. The Government are committed to privatisation because it works. The list of companies whose performance has been transformed once they have been liberated from state ownership grows ever longer. As far as the Opposition are concerned, it is very much a matter of sour grapes.

I would remind the House that, since being returned to the private sector, Amersham International has seen its profits double, British Aerospace's profits have tripled, Cable and Wireless has quadrupled its profits and the National Freight Consortium, 82·5 per cent. of which is owned by its employees, has increased its profits sevenfold. The Jaguar car company is now producing more cars than ever before and has created 2,000 new jobs since privatisation. Those are the facts, which the Opposition wilfully ignore.

All over the world, Governments are following the example that is being set in this country. In France, the Government have announced their intention to return 65 companies to the private sector. In Sweden, the state holding company has already sold 15 companies. Only the Opposition, blinkered by their ideological obsession with the past — clause 4 and all the rest of it — believe in public ownership and nationalisation. Even they, however, recognise the gulf between them and the British people, and we shall see who wins the argument at the end of the day. They dare not describe their policy by its proper name: "renationalisation" has become "social ownership". I do not believe that the British people will be so easily fooled.

Rolls-Royce will shortly become the 15th major business transferred to private sector ownership under this Government. The British Airports Authority will follow shortly. We intend to carry on with our programme of privatisation in this Parliament and in the next — [Interruption.]

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. It must be obvious to the hon. Member for Coventry, South-East (Mr. Nellist) that the Minister is not giving way.

Photo of Mr Paul Channon Mr Paul Channon , Southend West

As I have told the House, and the Opposition do not like it, we shall continue with our programme of privatisation in this Parliament and in the next because it has been clearly shown to succeed. That will be the message not just from the House tonight but from the electorate when the time comes.

Several Hon. Members:

rose

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

In view of the pressure of time, I appeal for extreme brevity by all those who now catch my eye.

Mr. Bruce Milan:

The speech of the Secretary of State in no way answered the case that was put by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). Indeed, many of the remarks of the Secretary of State had no relevance at all to Rolls-Royce. His speech will be of no comfort to my constituents who are employed by Rolls-Royce in Hillington and East Kilbride, or to Rolls-Royce employees in any part of the country, who are deeply worried about the threat of privatisation. This concern extends beyond the employees to the local authorities, as was demonstrated by the lobby in the House a few weeks ago from lord mayors, mayors, lord provosts and others. The right hon. Gentleman could not be more mistaken if he thinks that the concerns of employees will be bought off by the special employee share offers that he mentioned in his speech.

There is good reason for those concerns. In recent years Rolls-Royce has had a tough time and lost about 20,000 jobs. In my own factory at Hillington, the number of employees, 2,700 is less than half what it was three of four years ago. Many sacrifices have been made by Rolls-Royce employees to bring the company into its present profitable position. The reward from the Government is to create this new uncertainty of privatisation, with real fears in many parts of the country that units of Rolls-Royce will be closed down completely after privatisation.

The right hon. Gentleman gave no assurances about that and made it a virtue that he could not give promises for the future. The people working in Rolls-Royce are concerned about the future. They remember the history of the 1971 bankruptcy. It is an open secret that there have always been people within the management of Rolls-Royce who have considered that Rolls-Royce works on too many different sites all over the country.

A former chairman of Rolls-Royce told me that if those concerned were starting Rolls-Royce today they would not have their operations spread over 14 different locations in the United Kingdom. A number of these locations are very vulnerable to closure after privatisation. I can say with a good deal of authority, having been involved with the company for many years, that some of those sites would have been closed by now if Rolls-Royce had not been a publicly owned company.

Nothing that the right hon. Gentleman said will assuage the concerns of the employees, who have sacrificed jobs and have worked very hard to bring the company to its present position. The rewards are going, not to the employees, but to private shareholders. The share price was announced today. The initial reaction in the evening papers—The London Evening Standard and the London Daily News—was that when the shares eventually go on the market they will probably open at perhaps 20p premium on the first instalment of 85p of the price of 170p. On those expectations there will be a considerable killing. The rewards will go not to those who built up the company to what it is today, but to those who will invest in the company on the basis of the prospectus, and these will largely be financial institutions.

The Secretary of State confirmed that no less than 60 per cent. of the shares on offer have been placed with financial institutions. What have they to do with the past or future success of Rolls-Royce? The Secretary of State mentioned a profit of £120 million. If the extra £283 million that the Government are now putting in had been put in at the beginning of last year, the profit would have been £148 million. The taxpayer is not likely to get much from the future profitability of Rolls-Royce, because the prospectus says that £675 million-worth of unabsorbed tax losses are being carried forward, and no corporate tax will be paid for many years. The irony is that these tax losses have been allowed to accumulate only because the Government have been putting in money to cover the losses during earlier years when the company was recovering from its bankruptcy.

As my right hon. and learned Friend pointed out, there is no way in which the proceeds from the issue and sale of shares will in any compensate the taxpayer and the Government for the vast sums of money that have been put into Rolls-Royce since 1981. The gross proceeds that are allowed for in today's announcement are £1·36 billion. The net figure, deducting the £283 million that the Government put in, is just over £1 billion, which is roughly what the Government, on present-day prices, have already put into the company in share capital. Therefore, none of the launch-aid money—£400 million since 1971—the money that went into rescuing the RB211–22B, which brought down the company in 1971 and cost the Government £200 million, and the money that has gone into MOD contracts and into advanced engineering development, and so on, will be recovered from the sale of shares that has been announced today.

Over recent years this company has received £120 million net per year on average from the Government in launch-aid and in other ways, yet its directors have the impertinence to support privatisation, because they want the Government off their backs. Many other companies in the United Kingdom would be delighted to have the Government on their backs to the tune of £120 million a year. The same is true of British Aerospace. Sir Austin Pearce, in the recently published 1986 report, talks about the virtues of privatisation and not having to deal with the Government. British Aerospace has made an application to the Government for £750 million for development of the A330 and A340 Airbus. British Aerospace—and Rolls-Royce is exactly the same—will depend on Government money and cannot survive without it.

I am cynical about the attitude of the directors of Rolls-Royce when I read in the prospectus that they will all receive substantial increases in their salaries immediately after privatisation. I hope that it is some comfort to the employees of the company to know that the directors will do well out of privatisation.

Money has gone into this company. That is acceptable, because it is not just another private company, but a national asset. Rolls-Royce would not have been nationalised if it had not been a national asset. These so-called safeguards would not be needed, even under this privatisation, if the company was not considered, even by this Government, to be a national asset.

The safeguards apply only so long as the Government of the day want them to apply. We do not have the slightest confidence that the Government will continue to apply these safeguards by a restriction on foreign shareholding or in any other way. What will happen if the company gets into trouble again? I shall not talk down the company by mentioning the problems with the V2500 project, which only went ahead with Government launch aid, or the decision not to go ahead with V2500 Superfan, which could proceed only with launch aid. The Superfan project, if it proceeds, will go ahead—and I hope it will—only with launch aid. Some of these developments have not improved the prospects for Rolls-Royce in the years ahead.

What happens if at some time in the future—God forbid that it should happen, even under privatization— Rolls-Royce gets into difficulty once more? The decision of the Government of the day will be to save the company, as in 1971, or see it go into foreign hands. Pratt and Whitney, and General Electric, would be delighted to buy up Rolls-Royce, which is their only competitor in the world. There are only three major aero-engine companies in the world. Two are in America and the other one is here, in this country—Rolls-Royce. Perhaps at some time the Japanese would be delighted to get their hands on it, because they are involved in the V2500 joint project.

All these are real risks that are causing genuine concern to my constituents who are employed in Rolls-Royce. They see the action of the Government in putting this major company at risk again as completely irresponsible. It is now enjoying success after an extremely difficult period following bankruptcy. My constituents support overwhelmingly the view of the Labour party that this privatisation should not happen. A Labour Government will reverse it at the earliest opportunity.

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley 8:30 pm, 28th April 1987

The main consideration in the privatisation of Rolls-Royce should not be what is good for the Government or what is good for the trade unions, but what is best for the company and its work force. Privatised companies almost always do better than companies in the public sector. The reason for this unassailable fact is that companies in the private sector are largely unshackled from Government interference and meddling. One of the main reasons why Rolls-Royce has done well over the last few years — management will attest to this—is that the Government have had a rigorous hands-off attitude towards the running of the company.

Unfortunately, there is no guarantee that another Government which, heaven forbid, might be elected at some time, would pursue such an enlightened policy. We only have to go back to the 1970s to see the tremendous damage that Government intervention and meddling wrought on British industry. Managers in British Steel who suffered in the 1970s say that it was not the market place that decided what products and how many British Steel should produce, and that it was not management who decided on productivity and investment, but that it was the Government, the bureaucrats and politicians, who dictated what management should do. The damage that those policies caused to British Steel is still being felt today. Towards the end of their period of office, the Labour Government had to back-track rapidly on those policies. Almost brand new plants were mothballed or closed. That is the damage that Government interference and meddling can do to state-run industries.

I can understand the legitimate fears of people working for Rolls-Royce, who can remember well the traumas and problems when the company collapsed in 1971. I respect those fears, but the people should remember that Rolls-Royce is a very different company from what it was in 1971. It has a substantially better management. It has better manufacturing technology and more of it. It has a far bigger product spread, including co-operative deals with manufacturers all over the world. It is far less dependent on one leading technological product, which caused it so much trouble previously. Above all, it is a far more efficient company. In short, Rolls-Royce is better able to compete now than it was, admittedly under a bad management, in 1971.

Opposition Members show remarkably little faith in the management and work force of Rolls-Royce if they believe that it cannot survive and prosper in the private sector. The majority of the work force and management do not share the view of the Opposition; far from it. I do not want to imply disrespect towards the campaign against privatisation that has been waged by the trade unions, but the Strangers Gallery is hardly packed this evening. Only a few weeks ago there was an Adjournment debate about the proposed closure of a school in Derby; at 3 o'clock in the morning the Strangers Gallery was packed with 400 people.

Photo of Mr Ernest Armstrong Mr Ernest Armstrong , North West Durham

Order. The hon. Gentleman should not refer to places outside the Chamber.

Photo of Mr Philip Oppenheim Mr Philip Oppenheim , Amber Valley

I fully accept your ruling, Mr. Deputy Speaker, and apologise.

When other high technology companies were privatised we heard exactly the same fears as are being expressed legitimately by the opponents of privatisation. The trade unions, some of the work force, and Opposition Members said, for example, that British Aerospace would not be able to compete in the private sector. They said that research and development would suffer, that the company would go down the tube, that product development and investment would suffer, and that the company would rapidly go bankrupt. In fact, in the private sector British Aerospace has a record order book; it is spending record amounts on R and D; its profits are at a record level and its turnover is booming.

Exactly the same has happened to British Telecom. I remember well sitting through more than 100 hours in Standing Committee dealing with the privatisation of British Telecom when we were told by Opposition Members that after privatisation country areas would be cut off, that people would be electrocuted by their telephone apparatus, and that the whole system would collapse. British Telecom still has problems and it is not as efficient as it should be but it provides a much better service at a lower cost in real terms than it did in the public sector, when just to order a piece of equipment was like trying to get an interview with the Pope.

Another scare propagated by Opposition Members and put about by the right hon. and learned Member for Monklands, East (Mr. Smith) when he visited Derby recently was that Rolls-Royce in the private sector would be prey to foreign takeover bids. Opposition Members know that that is total nonsense. They know that the Government have proposed a golden share which will give them a veto on a foreign takeover. They know that under the privatisation proposals foreign share ownership will be limited to 15 per cent. or less and that 75 per cent. of the board, including the chairman and the managing director, will by law have to be British citizens. I can understand ordinary people being worried about such things but Opposition Members should not stoop to running a scare campaign when they know that the Government have made ample provision to prevent foreign takeover. Opposition Members are preying unfairly on people's fears.

Far from the taxpayer doing badly out of privatisation of Rolls-Royce, he will do amazingly well. Opposition Members say that we should keep this asset but if we did, when would we get a return? When would the Opposition propose selling it — in one year, in two years? If the Opposition say that the Government should never sell shares in Rolls-Royce that would mean that the taxpayer would never get a return on his investment. By selling the shares now the Government will get a double return. First, there will be more than £1 billion from the proceeds of the share sale; secondly, we will eventually get a substantial tax take on the profits of Rolls-Royce.

The profits of privatised industries have almost always been much larger than the profits when the companies were in the public sector. The profits of British Telecom and British Aerospace are more than twice what they were when in the public sector. The Government tax take is substantially larger. Surely it must he better for these large sums of money to be deployed where they are needed in health and education, rather than being locked up in a spurious, out-dated 1930s concept of public ownership.

Opposition Members have also claimed that the Government will not back Rolls-Royce in large strategic research and development projects, but the Government backed British Aerospace on the A320 and they have backed other companies on technological projects. The Government have backed projects which may not be commercially viable but which none the less are in the national interest. The Oppostion mentioned that the Government have been reluctant to put the full amount into the A330 and the A340 which British Aerospace wanted. The reason is that the Government and many experts have a strong feeling that the A330 and the A340 projects may not be viable. Whereas the A320 had no real rivals when it was conceived, unfortunately the A330 and the A340 have pitched against them the Boeing 757, which uses Rolls-Royce engines, the Boeing 767, which also uses Rolls-Royce engines, proposed smaller versions of the long-serving Boeing 747 and the MD11 of McDonnell Douglas, which is selling extremely well.

Perhaps Opposition Members feel that they know better than the experts whether the A330 or the A340 are viable. If Opposition Members think that they know better they should ensure that these projects are viable before proposing that hundreds of millions of pounds are taken in tax from successful industries to put into those dubious projects. If they take that money away from our successful areas of manufacturing they will leave those successful industries with less money to invest in producing their products and jobs.

I am astonished that Opposition Members have not realised that privatisation is a positive policy. It works and it is good for companies and their work forces. Opposition Members are out on a limb on this matter. Socialist Government all over the world are busy privatizing almost anything that moves. Recently in Spain, a strongly Socialist Government privatised its car industry. They are even proposing to privatise the motorways in Spain. Recently a Socialist-led coalition in Italy privatised Alfa Romeo, its state-owned car company. Recently in Australia, the Socialist Prime Minister proposed the privatisation of its state-owned internal airline, Australian Airlines.

Opposition Members are no strangers to privatisation. Was it not the Labour Government in 1977 who sold off huge chunks of the Government's holding in British Petroleum to get out of the financial mess that they had dug themselves into as a result of their irresponsible promises in 1974? I do not remember many Labour Members of Parliament objecting to that privatisation. Perhaps we shall hear something about that from Opposition Members later on.

If Rolls-Royce remains a well-managed company with a good work force it will succeed. Without a good management and strong work force, first-class products and without marketing those products positively and successfully, Rolls-Royce will not survive in the private or public sector. It is as simple as that. It has a better chance of surviving, prospering and contributing to the economy in the private sector.

Photo of Mr Ian Wrigglesworth Mr Ian Wrigglesworth , Stockton South 8:41 pm, 28th April 1987

The hon. Member for Amber Valley (Mr. Oppenheim) began with one of the most self-contradictory arguments that I have heard in favour of the Government's policy. First, he argued that the interference of Government inevitably led to the downfall of companies, and that that did not happen if the Government did not interfere. Yet we are debating a company that got into severe difficulties, not as a result of Government interference but while it was in the private sector, and like many companies in the private sector it came to grief because of bad management. That had nothing to do with Government interference. The hon. Gentleman said that in all the time that Rolls-Royce has been in the public sector the Government have not interfered in its activities and that it has been an enormous success, so now it can go to the market. If it has been an enormous success—undoubtedly it has and we should pay tribute to the management and staff for the success that they have achieved in recent years—that seems to prove that companies in the public sector can also succeed without Government interference. The hon. Gentleman cannot have it both ways.

The future of Rolls-Royce must be secured, in the interests of the country. I am sorry that the Secretary of State did not respond to the compelling arguments for securing the future of Rolls-Royce. We believe that the only way in which that security can be given to the company—I shall come to the reasons why it is necessary—is by retaining a majority shareholding in the company.

Why is it necessary to secure the interests and future of Rolls-Royce? It has a strategic role in the defence and industrial life of this country. A substantial public investment has been made in the company and there is a strong argument for ensuring a continuing return to the public from the profitable activities of the company now that it has been given support from the public purse. Any profitable company is giving tax returns in corporation tax to the country and the Exchequer.

The substantial Government stake in British Petroleum, to which the hon. Member for Amber Valley referred, did not inhibit its success. Indeed, it helped to sustain that company and make it the successful British multinational that it now is.

We believe that there is an overwhelming reason for giving the employees an opportunity to participate in the ownership of shares in Rolls-Royce, and I welcome the incentives that have been given to employees to participate in that. I am sure that that is a development which will be widely welcomed in the company.

I am sorry that the Secretary of State did not respond to my intervention and tell us why the Government are not ensuring the wider share ownership of smaller shareholders. Perhaps the Minister for Information Technology will tell us why that is the case when he responds to the debate.

The alliance strongly believes in wider share ownership and we are sorry that the inducements that have been given to small shareholders on previous occasions have not been given this time.

Why must the position of Rolls-Royce be protected? Defence orders amount to £1·46 billion of Rolls-Royce's total order book of £3·1 billion. A substantial amount of its output is going straight into the armed services. As has been pointed in the debate, it is unlikely that the Air Force and many other parts of the armed services could operate without Rolls-Royce products. That does not merely relate to the provision of initial products. It also relates—as I was able to see with my own eyes in the Royal Navy spare parts depot in my constituency—to the spares which are necessary, particularly during times of crisis such as the Falklands. to ensure that there is continuity of supply and that that supply is sustained to defend the country.

That is why there is a major strategic defence interest for sustaining Rolls-Royce. It plays a vital role in industrial activities of Britain. It is one of the major contributors to United Kingdom research and development, and on average it has contributed £220 million a year over the past five years. As a percentage of turnover, gross research and development expenditure was £255 million in 1986, or 14 per cent. That substantial research and development activity is a key part of the country's research and development work. It applies to materials and high technologies and involves highly skilled, highly educated and experienced people who are a prime asset not only to Rolls-Royce but to other companies and the country. It is vital that our presence in the technological sector in which Rolls-Royce operates is maintained.

The total launch aid that the Government have provided since 1982 for research and development, tooling and learner costs is £199 million. The Government have made an enormous contribution to that research and development work. The Government have made a contribution of £162 million to advanced engineering programmes and since 1982 Rolls-Royce has received £287 million in development contracts from the Ministry of Defence.

The role that the company plays in engineering and high technology is substantially funded by the Government and is of strategic importance in the industrial sector. The figures have already been given for the substantial investments in the company since 1971. It is right and proper that the taxpayer should expect a continued return on that investment.

Inevitably, after the events that led to Rolls-Royce coming into the private sector, doubts must be raised about whether the same problems could arise again in the future. The cost of developing aero engines is quite enormous. New engines such as the prop fan cost at least £500 million, and bigger ones cost more, up to £1 billion in development. I was interested to read in The Economist two weeks ago its estimate that on today's costs, developing a novel engine design such as the prop fan may be as difficult and as expensive as it was for Rolls-Royce to give birth to the RB211. The danger is that another development could have the same debilitating effect on the company's fortunes.

I do not believe that anybody in the House or in the country wants to see Rolls-Royce in that predicament again. We believe that the way in which that can be safeguarded against, and in which Rolls-Royce's position in the defence and industrial spheres can be secured for the future, is by the Government retaining a majority stake while having the benefit of private funds to buy some of the shares, and above all by allowing employees to have a stake in their own enterprise. That would ensure that the company could succeed, have a secure future and continue to play the role that is so important in this nation's life. We very much regret that the Government have not gone down that path.

To sustain the argument for total state ownership, the Labour Opposition have had to exclude any possibility of the employees having any stake in their own enterprise. We do not believe that that is necessary. The future of the company can be secured without total state ownership and we very much regret that the Labour party, despite its new ideas about social ownership, has not been prepared to go down the road of seeing the importance of giving employees a share in the company, even if it does not want to give the public a share.

We believe that the future of the company can be secured by the Government having a majority stake, and we regret that neither the Conservative nor the Labour party is prepared to accept that alternative.

Photo of Stephen Dorrell Stephen Dorrell , Loughborough 8:52 pm, 28th April 1987

The hon. Member for Stockton, South (Mr. Wrigglesworth) made an interesting speech because, not for the first time, the alliance spokesman chose his path by referring to the two major parties in British politics and simply splitting the difference. It was also interesting that he devoted most of his speech to arguing that there is an important national interest in having Rolls-Royce in British hands. That is not controversial. My right hon. Friend the Secretary of State has put forward a procedure that will ensure precisely that. All my hon. Friends agree with the hon. Member for Stockton, South on that point.

What the hon. Member did not do is explain either why my right hon. Friend's scheme is inadequate or how, in detail, his preferred alternative would work. If one is to adopt the alternative of a 51 per cent. shareholding in the company, it is incumbent on one to explain whether one proposes to use those shares to get involved in the company, in which case there will be some difficulty in persuading others to buy the other 49 per cent.; or whether one would stand apart from the company and not use the right that a 51 per cent. holding gives, in which case the obvious question is, "What is the point of the alliance policy?"

Like, I believe, the large majority of my constituents who work at the Rolls-Royce plant at Mountsorrel in my constituency, I support the privatisation that my right hon. Friend has introduced. I hasten on to say that I would also, if I had been a Member of the House then, have supported the nationalisation of Rolls-Royce in 1971. I see nothing inconsistent in my position. Quite the contrary — I think the fact that some Labour Members have sought to suggest that there is some inconsistency there reflects the extent to which the Labour party is still a prisoner of the political philosophy written by an obscure German philosopher in the middle of the last century. The history of the state's involvement in Rolls-Royce is an important example of how the Government and industry, working together, can produce benefits to society as a whole which neither on their own would have been capable of producing.

In 1971, Rolls-Royce went bust, as my hon. Friend the Member for Amber Valley (Mr. Oppenheim) rightly said, purely because it was badly run, and the top management and investors paid the price of failure. The investors lost their investment and the top management lost their jobs, and rightly so. We do not need to waste much sympathy on them. If Rolls-Royce had been a minor engineering company, that would have been the end of the story, but it is not a minor engineering company. It is, as the hon. Member for Stockton, South, said, a vital strategic company and the Government led by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) quite rightly stepped in, recognising the vital national interest that existed then and still exists, and ensured that both the industrial peace and the defence interest represented by Rolls-Royce were safeguarded.

It is also worth mentioning that the thought would probably have occurred to my right hon. Friend that Rolls-Royce represented a vital industrial and defence interest not only for this country but for the continent of Europe as a whole. It is the only significant European aero engine producer. Therefore, the Government of the day were right to take the view, both as a British Parliament and as Europeans, that they could not allow Rolls-Royce to disappear.

That position is now totally transformed. The bulk of the progress since 1971 has happened since 1979. The improved performance of the company occurred between 1979 and 1987 and not between 1971 and 1979. We now have a company with a product range that can stand alongside that of Pratt and Whitney and General Electric and can offer a product across the whole range of aero engines, and, even more importantly, a product range the production of which is supported by competitive manufacturing costs.

Mountsorrel plant is one among many in Rolls-Royce that have lost jobs as a result of the slimming-down process, but the chairman of Rolls-Royce, contrary to the scare tactics adopted by the Opposition suggesting that the future of the plants is insecure, wrote to my hon. Friend the Member for Rutland and Melton (Mr. Latham) making this clear. He said: I do not think your constituents need to worry about the vulnerability of Mountsorrel. Its productivity is much improved, and we arc currently working on plans for future investment. The company has pursued a strategy of making production costs competitive and then investing in success. That is the record of success of Rolls-Royce over the past few years.

Why should we change the position that has endured since 1971? I make no apology for my belief that it should be the norm in a mixed economy for successful firms to be in the private sector. I believe that private sector management is right in theory as it devolves decision making through society and works in practice, as it produces faster growth, better job prospects and higher living standards for those operating under that system. Therefore, I believe that my right hon. Friend is right to introduce a change to Rolls-Royce.

The effect of that change is to maximise the responsibility and involvement of those in the company, whether they are managers, shop-floor workers or investors. All those people should have a stake in the consequences of decisions taken. If the company is successful, those people should participate in that success. When they make decisions they should recognise that, if those decisions are wrong, they are expected to accept responsibility. They cannot expect to shuffle responsibility on to some obscure Whitehall committee. Because of that commitment to a sharpened sense of responsibility, I particularly welcome the employee share ownership incentives that my right hon. Friend discussed today.

Those provisions may lie behind the fact that, although the shop stewards committee of the Confederation of Shipbuilding and Engineering Unions put out propaganda opposing the Rolls-Royce privatisation, all the evidence suggests that a large number—

Photo of Stephen Dorrell Stephen Dorrell , Loughborough

The evidence I have obtained from people who have visited my surgery. The evidence I have received from people I have stopped in the street and the people who talked to me when I went round the Rolls-Royce plant a week ago. That evidence suggests that many Rolls-Royce employees want to buy shares in the company and want to participate in an important and successful company.

I believe that the privatisation route is exactly right for Rolls-Royce. It is also important that we do not overstate the extent to which privatisation cuts the umbilical cord between the Government and Rolls-Royce. We are all aware that, in the market place in which Rolls-Royce operates — as the right hon and learned Member for Monklands, East (Mr. Smith) rightly said — it will be competing against Pratt and Whitney and General Electric. Those companies are involved in a sophisticated support operation with the American Government. The American Government give considerable support to the companies that compete against Rolls-Royce.

My right hon. Friend has made it abundantly clear that Rolls-Royce will receive the same level of support as its competitors within the market. Although the Government are privatising Rolls-Royce, they are far from neutral about whether Rolls-Royce succeeds. The Government, like any patriotic British person, want Rolls-Royce to succeed.

In the months ahead, I hope that my right hon. Friend will follow up the commitments that he has given to ensure that public purchasing in Britain is clearly attuned to the needs of Rolls-Royce. We should copy the public purchasing practice of the United States. I hope that my right hon. Friend will ensure that launch aid will be available so that Rolls-Royce can compete with American competitors. Moreover, in the European Council of Ministers, I hope that my right hon. Friend will take steps to encourage the European dimension of the Rolls-Royce market. It will be easier for my right hon. Friend to do that when Rolls-Royce is a privatised company rather than part of the United Kingdom's public sector. Rolls-Royce is part of the European fight back in the aerospace industry. In recent years that industry has been dominated by American competitors.

I support privatisation because I believe it gives greater incentives and responsibility to the people in the company. I believe that it paves the way to a more mature relationship between Rolls-Royce and the Government.

Photo of Mr George Park Mr George Park , Coventry North East 9:02 pm, 28th April 1987

The hon. Member for Loughborough (Mr. Dorrell) confirmed what my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said—private enterprise is happy to take the profits when they are going, but reserves the right, when the going gets rough, to go back to the taxpayer to bail it out. Apparently, the hon. Member for Loughborough wants it both ways.

We are all aware that the Government do not like public enterprises — the Secretary of State underlined that in his speech. This dislike seems to increase in proportion to the success of the enterprise. If ever there was a case of dogma defying logic it is the privatisation of Rolls-Royce. Everything that a newly privatised Rolls-Royce might wish to do can be done now by the publicly owned enterprise. The Government are not allowing the facts to get in the way of their prejudice.

In 1976 the then chairman of Rolls-Royce, Sir Kenneth Keith, a self-confessed private enterprise man through and through, said that he had a high degree of autonomy in the company and that the Government did not interfere with the running of the business. Three years later a Conservative Government were elected who never had an industrial strategy. They failed to acknowledge that national interests required Rolls-Royce to stay in the forefront of world technology. Even more significantly, the Government started to interfere because of their political beliefs. I think that that sparked off the comment today by the current chairman, who says that Governments do not know how to run businesses. That is true in the case of this Government.

Since 1971, when private ownership failed and the company had to be brought into the public sector by the Government of the right hon. Member for Old Bexley and Sidcup (Mr. Heath), there has been an unremitting struggle by the work force and the management to bring the company to its present successful position. Large-scale redundancies took place in 1971, both in the company and in its outside suppliers. Redundancies have continued at intervals up to the present time and in the last few weeks there have been several hundred redundancies at the Ansty plant near Coventry. Let me remind the House that those redundancies were on top of 1,000 redundancies in Massey-Ferguson. At a time when the work force, as a result of its efforts, is entitled to look forward to more secure and better-paid jobs, the whole enterprise is to be thrown back into the melting pot.

The effects of the privatisation proposals are already being felt. The collaborative venture on Superfan has been abandoned and the Government are again dragging their feet on repayable support for the airbus 330 and 340. More orders for Rolls-Royce worth £1·2 billion would have been secured if Superfan had been available. The collaboration with General Electric has collapsed, leaving Rolls-Royce with a bill of about £100 million for tooling.

This situation highlights one of the principal concerns about the privatisation proposals—the continuing need for high levels of research and development. It is a dilemma that faces all the principal engine makers — General Electric and Pratt and Whitney as well as Rolls-Royce. The first one that eases off on research and development faces the prospect of losing its position on radical technology and consequent sales.

Prospective investors will not have forgotten that it was the pursuit of high technology on the RB211 that contributed to the Rolls-Royce bankruptcy in 1971, when the company was recovered only by Government intervention. It could happen again and employees and communities around the plants could once more face the traumas of the early 1970s. At the same time there would be the further erosion of the technological base of British industry. There is some faint recognition of this possibility in the privatisation proposals, with the emphasis on institutional investors rather than small shareholders, despite the claims of the Government to be creating a nation of shareholders.

The limitations on no more than 15 per cent. for a single shareholder and no overseas offers are only delays to take the issue safely beyond the date of the next election and to allay fears that Rolls-Royce could find itself in the same position as Jaguar, with over half its shares in American hands. The vital difference between the two companies is the implications for Britain's national security, yet the Government know that they have no control once shares are freely traded.

Financial pundits are forecasting that profits will soar after privatisation. However, it was only in 1984 that, for the first time in years, Rolls-Royce made a small profit of £20 million, rising to £120 million in 1986 on a turnover of £1,802 million. Creditable though these efforts are, they are hardly likely to be the sort of returns looked for by the City and must put at risk the levels of expenditure on research and development running at the rate of £255 million in 1986. That has the consequences that I outlined earlier, given the track record of most of British industry on investment in research and development.

According to the 1986 annual report of Rolls-Royce, military sales remained static. Industrial and marine sales rose by 7 per cent. due to the depressed state of the power generation and oil and gas markets. It was really the increase of 31 per cent. in the civil sector which led to the present healthy order books. But the airlines are in some difficulty, as the 140 airline members of the International Air Transport Association made a total profit of only $100 million in 1985. If Rolls-Royce is to maintain its share of that market, it must also retain its lead in technology through R and D. Private enterprise has shown once before that it cannot take the strain. Why should it be any different second time round? What sort of interest and commitment would be shown in longer-term projects such as HOTOL?

Experience shows that what is more likely is a maximising of profits irrespective of the consequences, since short-term returns are the be-all and end-all. Complaints are being heard today that the share issue price will not yield a big enough killing. Private investors would not be prepared to wait 15 to 20 years for a good-selling engine to progress from development to break-even cost.

To make the forecasts of soaring profits come true more quickly after privatisation, there is the likelihood of moves to hive off the repair and overhaul activities at East Kilbride, the industrial and marine division at Ansty, plus the sale of Leavesden to property developers. At present, when Rolls-Royce collaborates with other partners on a project, its expertise is safeguarded by strict rules about technology transfer. But in the future the company's rivals may own part of it. Here the brokers of Hoare Govett disagree with the Secretary of State because they are quoted as having said that they look forward to American and Japanese investors piling in, to use their words. It will be entirely different from what we have seen in other privatisations such as Coventry Climax referred to by my hon. Friend for Coventry, South-East (Mr. Nellist).

The proposals before us this evening will plunge Rolls-Royce back into doubt and uncertainty. What profits there are will not go to the taxpayer or the work force whose money and whose dedication brought it to its present position. Why should this highly skilled work force be asked to re-enact the struggles of the 1970s? Why should the nation's security be put in jeopardy? Why should we agree to further erosion of the technological base of British industry? Why should we put Rolls-Royce at risk to satisfy dogma and greed?

Photo of Mr Lewis Stevens Mr Lewis Stevens , Nuneaton 9:13 pm, 28th April 1987

The attitude of Opposition Members is always one of trying to ensure that as much fear and distrust is generated on almost anything that takes place. That is again happening with Rolls-Royce. There is uncertainty in the minds of many employees. Any major change brings about uncertainty. As the hon. Member for Coventry, North-East (Mr. Park) said, the Ansty factory in my constituency has lost jobs again recently. That also breeds an uncertainty, but that uncertainty within Rolls-Royce has been going on for many years.

Rolls-Royce is a profitable business now, and it should be a profitable business in the future. From that base, one of the things that privatisation is likely to do is to develop the company in a way that is likely to remove the uncertainty. People will be able to see with confidence what the future holds. Whatever may be said, it is hard to believe that Governments who try to control or interfere with any company that is nationalised do not have a major effect on how that company develops.

One of the compensations for the people in Rolls-Royce is that as it moves forward it will need to diversify considerably. No company is static. The Opposition seem to suggest that it is static industry that develops only one technology. They seem to be suggesting that we just took over in 1971 and that it has carried on in the old way, but with support from the Government. The position is entirely different from that. Since 1971 there has been the construction of a company that is distinctly more efficient. It is no longer reliant on such a small base for its production, profit and success. Its technological developments and international collaboration are bringing about a progressive view of the industry that was not there in the past.

I pay tribute to the management and workers of Rolls-Royce for what they have had to suffer. What they saw in 1971 must be at the back of minds. However, the way to give confidence in the future is not to suggest that the company may or may not be subsidised to some extent, but to look forward with vision, believing that the diversification and flexibility that private enterprise can bring will serve the company better than the dependence that it has had in the past. That does not mean that research and development, defence contracts and other interests in development and technology will not receive help or encouragement from the Government in different ways. Of course they will. The important thing is that there will be flexibility, which will give confidence.

The pay back to the Government and the taxpayer is the possibility of increased profits from a company that is free to go forward. It will possibly generate more profit than could ever have been expected if it had remained in Government control.

It has been said that the Government cannot run industry. The hon. Member for Coventry, North-East said that this Government cannot run industry. I would suggest that no Government can. It is wrong to rely on the Civil Service or the House for the successful running of a major technological industry. We can help, as we helped Rolls-Royce from its delicate and harmed state of 1971. That company has now been rebuilt so that it is strong enough to go where it properly belongs—in the private sector, where it can hold its own against global competition. More and more the competition has not been European or British, it has become global, and Rolls-Royce is beginning to live with that successfully.

That situation will be developed in the private sector, with a proper return to the investor and the work force, because the work force will own part of the company. I am sure that many of them will take up the shares that are being offered to them. That is the success of a company developing; a company with the interests of the work force and the country at heart. Rolls-Royce should have a much better time in the future than it has had in the past 16 years.

Photo of Mr Robert Clay Mr Robert Clay , Sunderland North 9:18 pm, 28th April 1987

I wish to make a few brief remarks about my concern and the concern of the work force at the Rolls-Royce plant in Sunderland. I have heard some remarkable things about the success of private enterprise, and I want to put the debate in a Sunderland context.

Private enterprise led to more than just the collapse of Rolls-Royce in 1971. Around the same period, we remember in Sunderland the Court Line disaster. Had the shipbuilding part of that company not been nationalised by my hon. Friend the Member for Chesterfield (Mr. Benn), the few remaining shipyards in Sunderland would no longer be there. That is a tale of the failure of private enterprise. There are other examples of that failure. Plessey, a multinational private company, pulled out of Sunderland. Joplings Forge, which is privately owned, recently pulled out of Sunderland. Some smaller parts of British Shipbuilders have already privatised, such as Sunderland Forge. What happened to that company is a scandal. The conduct of its owner, Mr. Brian Masterson, ought to merit a full debate in the House. There is a sorry story of private enterprise and privatisation under the Government.

We know that Rolls-Royce in Sunderland is highly successful, but it is one of the few employers left in Sunderland; one of the few that is expanding and which still has training and apprenticeships. The fear is that it is a peripheral plant. When the Secretary of State opened this debate he dismissed the notion of the Government, as; he put it, second-guessing and interfering. That shows the deep division of philosophy between him and Labour Members.

The one assurance that we in Sunderland want is that Rolls-Royce will come tinder public ownership, so that in times of competition and intense and ruthless multinational market forces, if there were an attempt to rationalise the plant, close it down, move it elsewhere, contract the work out, diversify or whatever, there would be the possibility of state intervention to prevent that happening. State control is one of the reasons why we still have some small shipbuilding and coal mining in Sunderland, pathetic as it is and much as it has declined, whereas private industry has failed on almost every front.

In a constituency which has the 12th highest unemployment in the country—two thirds of our school leavers are unemployed and long-term unemployment is getting worse—one of the few signs of hope and the only connection we have left with high technology engineering is Rolls-Royce. The danger is that under private ownership, because of market forces or rationalisation, the plant may close. Apart from the strong objection on principle, I know from my experience that the Rolls-Royce work force in Sunderland—whatever Tory Members have said about workers in other parts of the country—are overwhelmingly opposed to privatisation.

With all the talk about the success of private enterprise and the assurances I have been given by Rolls-Royce management, recent events have put a question mark over it all. For instance, a multinational company ruthlessly decided to close the Caterpillar plant at Uddingston—a profitable plant which had a full order book. No one could stop that plant closing, just as there is no assurance that Rolls-Royce in Sunderland, which is successful, profitable and expanding, will survive outside public ownership.

I would like the Minister to state in his reply not only that the plant will remain open and continue to expand, but that the East Kilbride and other plants will do so as well. Unless the Minister can speak confidently in that respect, our fears will remain. He cannot speak confidently, because this Government are washing their hands of any responsibility for people in the work force in a town of high unemployment such as Sunderland.

Photo of Gerald Howarth Gerald Howarth , Cannock and Burntwood 9:23 pm, 28th April 1987

I rise to speak because of the comments of the hon. Member for Sunderland, North (Mr. Clay). Everything that is negative and gloomy has been brought out. We are debating tonight one of the greatest success stories of British manufacturing industry, because Rolls-Royce epitomises all that is excellent. It stands for craftsmanship and reliability throughout the world. It has emerged from that 1971 disaster, which has been referred to many times, to become a world-beating company at the forefront of high technology, exporting no less than 28 per cent. of its output to the competitive market in North America. It has set a first-class example to the rest of British industry on how best to co-operate, not only with our friends in Europe but with our partners in North America and Japan.

It is a great tribute that we have seen today, on impact day, the launch of this magnificent company on the runway to a highly successful privatisation.

I understand the concern of the Rolls-Royce employees. I have met representatives of the unions and discussed those concerns with them. But they should take heart from the success of the privatisation policy in many other spheres. It has been an overwhelming success and has returned industries into the hands of genuine public ownership; into the hands of the people and out of the day-to-day control of politicians. I am convinced that the people of Britain would feel that our country was safer were such a strategic industry to be in the hands of shareholders rather than in the hands of a Government in which the hon. Member for Coventry, South-East (Mr. Nellist) and some of his wilder friends had some control. Britain now has 8·5 million shareholders. That is genuine public ownership, and evidence of the enormous popularity of the policy.

It is offensive to suggest that somehow a privatised Rolls-Royce will not be able to look after Britain's defence needs. That is a disgraceful statement to make. I know that the unions feel strongly about it, but I urge them to hold back on that one, because it does not help their case. The Rolls-Royce success has been built in the private sector. It is worth reminding the House that it was due to the judgment of Rolls-Royce that R. J. Mitchell and others produced the Spitfire, initially as a private venture operation, which saved Britain from defeat. It was despite the misjudgments of pre-war politicians that the second world war was not the disastrous defeat for Britain which it might have been.

That is a salutary point for some of those who argue that Rolls-Royce should remain a nationalised industry in order to provide for the defence needs of the nation. That never was the case until 1971. Indeed, our defence needs have, for the major part of the century, and at our most critical hour, been provided by the private sector.

I pay tribute to the management and work force of Rolly-Royce who have brought about this magnificent transformation and enabled the company to return to its rightful place in the private sector. I do not represent Rolls-Royce workers, but I am proud to have visited several of its factories in Britain and to have seen the excellent work that has been done and the new technology that has been put in. That is a great tribute to British manufacturing industry.

The tribute that I can pay to the management and work force of Rolls-Royce is best summed up in the splendid stained glass window which is to be seen at Derby which is a tribute to the Battle of Britain pilots. An inscription at the bottom says Dedicated to the pilots of the Battle of Britain who turned the work of our hands into the salvation of our country. In the work that they have done at Rolls-Royce in peacetime they have turned the work of their hands into the economic salvation of our country, and I warmly commend privatisation.

Photo of Margaret Beckett Margaret Beckett Shadow Minister (Social Security) 9:28 pm, 28th April 1987

I have listened with fascination to the debate, and I particularly note the observation just made by the hon. Member for Cannock and Burntwood (Mr. Howarth) about the stained glass window in Rolls-Royce in Derby, which, like all the rest of the Derby Rolls-Royce plant, is in my constituency, where many thousands of my constituents work.

I do not know how many constituents the hon. Members for Amber Valley (Mr. Oppenheim) or for Loughborough (Mr. Dorrell) have heard from who have spoken in favour of the privatisation of Rolls-Royce, but I wish that they had attended the open-air meeting at which I spoke which was attended by thousands of the Derby work force—it did not quite pour with rain but it looked very much as though it was about to — who came to protest at the way in which the Government are putting their jobs at risk.

As has often been mentioned during the debate, Rolls-Royce is a wonderful company. Rolls-Royce is a world-beating company. Conservative Members cannot stand the fact that that world-beating company became a world-beating company again in the public sector. That is why they are insisting on putting the jobs of our constituents at risk. The fact of the matter is that Rolls-Royce failed in private hands. It has been restored to prosperity in public hands.

I object strongly to the impertinence of those favouring privatisation who suggest that those hon. Members and their constituents who oppose privatisation lack faith in Rolls-Royce. Of course they have faith in the company. They have faith in the company and the sales force. They have faith in Rolls-Royce to make good, particularly if it operates and competes fairly with other companies in the world. However, they have no faith in the Government and their friends in the City. They are convinced that the City, which would have let Rolls-Royce go under and which was quite prepared to let Ferranti go under — another company operating in a high-tech area where there is a long lead time for a return on capital and where large sums are needed for research and development— and particularly after the Government's encouragement of shareholding as easy and a certain get-rich-quick operation, will not support and sustain Rolls-Royce in the way that is needed, and so provide the only way to secure jobs for our constituents.

Our constituents have no faith in the Government's golden share mechanism. No one knows who was behind the Westland operation, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) mentioned earlier. What faith can we possibly have in the Government's assurances that they will know who is behind the shareholdings in Rolls-Royce? Our constituents have no faith in the Government to protect them with regard to shareholding and share ownership. They have no faith in the Government's willingness to put money into Rolls-Royce as the Government are now being asked to do for British Aerospace to continue to support the projects that are so desperately needed.

Many of my constituents fear that Rolls-Royce is coming full circle and that the Government are experimenting with Rolls-Royce because of their hatred of success in the public sector. Unfortunately they are justified in fearing that their jobs are being put at risk by the Government's dogma. I trust that when they go to the polls, they will remember that in considering the jobs of Conservative Members.

Photo of Mr Peter Pike Mr Peter Pike , Burnley 9:31 pm, 28th April 1987

In the few minutes that are available to me, I want to make a few references to the Rolls-Royce plant at Barnoldswick in the constituency of Pendle. A number of workers in that factory come from my constituency and several factories in Burnley are dependent on the success, viability and future of Rolls-Royce. Lucas Aerospace and BEP are two of the larger companies involved, but a number of other industries in Pendle, Burnley and north-east Lancashire as a whole are vitally dependent upon the success of Rolls-Royce. Bearing in mind what happened in February 1971, there is a great fear among the employees in Rolls-Royce and employees in the other industries involved in north-east Lancashire and in the community at large.

One worry of the people in north-east Lancashire and a worry especially felt in Barnoldswick can be summed up in the words of the Minister for Information Technology, who visited Barnoldswick last year. He referred to the factory at Barnoldswick as being "a bit off the beaten track". Many people in north-east Lancashire believe that, because they are not on the main railway network or linked to the main motorway network, they are a "bit off the beaten track". Therefore, we are afraid that, if there are to be any cuts or factory closures, they may well unfortunately take place in north-east Lancashire.

For many years, our traditional industries have declined and the people of north-east Lancashire have entered other industries. Indeed, Rolls-Royce and Lucas Aerospace were relocated in north-east Lancashire during the war and played a vital part in the early work of the development of the jet engine. At the moment, one of the important development sections of Rolls-Royce is at Barnoldswick. However, there is talk of closing that section. When we refer to rationalisation and diversification — to which Conservative Members have referred tonight—we all know that that frequently means factory closures and redundancies, most often in areas where there is little alternative employment for the people affected.

This is a genuine fear of ours. I must again stress that it would affect not only Rolls-Royce but the other-industries as well. We recognise that the present position has been achieved largely because of Government support given to the industry and also because of the sacrifices made by many of the workers, who have been determined to make a success of the company. What a tragedy it would be if, having reached the present position, we were to throw the company's prosperity away because of the dogma of a Government who are determined to privatise everything that it is possible to dispose of as speedily as they can.

We must recognise that private ownership is greedy for quick profits. The Secretary of State himself, when speaking earlier this evening of the success of the privatised industries, summarised that success by speaking in terms of the massive growth in profit of those companies. The one big difference between the two sides of the House is that Opposition Members do not judge everything in terms of profit. We judge in terms of service to the nation as a whole, to the consumer and to the employees of an industry. These aspects cannot be ignored.

The future of the industry, in the interests of both the nation as a whole and the employees, would be far better served if this company, whose name enjoys worldwide renown, remained in the public sector rather than being privatised in accordance with the Tory party's dogma.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill 9:36 pm, 28th April 1987

On behalf of the Labour party, I should like to make it clear at the outset that we very much hope that Rolls-Royce will be successful and profitable and that we expect it to be so, at least in the short term. That is the whole point of the debate. Rolls-Royce is engaged in a high-risk business, which needs long-term investment and a long-term view of its projects, product developments and prospects. After all, that is why Rolls-Royce was taken into public ownership in the first place.

Rolls-Royce went bankrupt under private ownership and was rescued, with all-party support, by a Conservative Government. The Secretary of State tells us, by implication at least, that in the past 16 years of public ownership Rolls-Royce has improved its management, its efficiency and its sales and has now begun to make a profit. But the world outside the company has not changed. The design, manufacture and sale of aeroengines is still a high-risk and competitive business. Nor have Britain's financial institutions changed. The City of London still takes a short-term view and wants short-term profits. So a Rolls-Royce dependent on the City of London for investment, however profitable the investment in the long term, will always have a question mark over its long-term future. Rolls-Royce will inevitably suffer from that uncertainty. Uncertainty is the real enemy of industrial success. That is why the Government's insistence on privatising Rolls-Royce is bad for the company.

It is also bad for the people who work for Rolls-Royce. The hon. Member for Loughborough (Mr. Dorrell) tells us that the work force want a stake in a successful and profitable company. But what they want above all is the certainty, the security, the stability of knowing that they have a job, a real job and a job for the future. They do not want any unnecessary uncertainty about that future. That is why privatisaton and a privately owned Rolls-Royce, which is dependent on the City of London for its funds, is bad for the work force.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

Although I am pressed for time, if the hon. Gentleman wishes to intervene, I shall certainly give way.

Photo of Patrick McLoughlin Patrick McLoughlin , West Derbyshire

What happened to Jaguar when it was privatised? The hon. Gentleman comes from the west midlands and he knows what happened to that company.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

I am delighted that that has been raised. I was about to come to Jaguar in my speech. In fact, I shall refer not only to Jaguar but to other companies in the west midlands.

However, it is because privatisation is bad for the work force that so many local authorities have expressed concern, and why so many mayors, lord mayors and lord provosts and leaders of all political parties, including Conservatives, came to the House of Commons to lobby against the Government's policy.

The uncertainty is also bad for a group of people who have hardly been mentioned this evening. They are the suppliers of Rolls-Royce and their employees. The people who work for the suppliers must rightly be concerned about competition from other suppliers who can provide components of higher quality, or more cheaply. They do not need any additional uncertainty about the long-term future of their principal customers.

The Government's insistence on privatisation is bad for the taxpayer. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) explained how the Government's total investment in Rolls-Royce is now somewhere between £1·5 billion and £2 billion. However, that investment is to be sold for £1·3 billion. It is to be sold at a loss, at the very time when the company has become profitable. The taxpayer took the risk, but private shareholders will take the profits. However, it will not stop there. Everyone agrees that after privatisation Rolls-Royce will still need Government funds for research and development and launch aid. In good years, the shareholders will take the profits, but in bad years, when the company needs money to launch new products, the taxpayer will foot the bill.

The only argument that has been advanced by the Secretary of State and his hon. Friends is to tell us that, in some mysterious way, privatisation leads, inevitably, to even greater success. The Secretary of State listed five companies, the performance of which has improved since privatisation. The hon. Member for Derbyshire, West (Mr. McLoughlin) referred to one of those companies, Jaguar. However, to say that the performance of those companies has improved since privatisation, is not to say that their performance has improved as a result of privatisation. That ignores completely, as the hon. Gentleman ignored — [Interruption.] The Secretary of State was totally unable to answer a direct question from my right hon. and learned Friend the Member for Monklands, East who asked him to tell us on what occasion even this Government second-guessed the management of Rolls-Royce. We have it on record from the former chairman of Rolls-Royce that the previous Labour Government did not intervene.

Let us deal with the mysterious way in which privatisation improves the performance of companies. The hon. Member for Derbyshire, West ignored the fact that there are many companies which, like Rolls-Royce, have flourished under public ownership. We have had debates on other industries, such as the motor industry. Sections of the Rover Group are profitable and have improved their performance.

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

Those sections have done that as a result of investment under public ownership. To give just one example, Freight-Rover was losing money under private ownership. Conservative Members also wish to ignore those companies that have been privatised, and then have failed. [Interruption.] The hon. Member for Derbyshire, West, referred to Jaguar — [Interruption.] The hon. Member for Amber Valley (Mr. Oppenheim) should listen. I have already identified one such section in my own constituency. I am now dealing with his hon. Friend who claims to know Coventry and who referred to Jaguar.

Coventry also has Rolls-Royce. Right next to Rolls-Royce is Coventry Climax, which was privatised in 1981. At the time of privatisation, Coventry Climax had 3,000 men and women working there. They were told that their jobs were secure, just as the Rolls-Royce workers have been told that their jobs are secure now. Their jobs were secure for five years, past a general election. However in 1986, the work force at Coventry Climax was reduced from 3,000 to 600. Conservative Members ignore that also. I am not saying that that was necessarily the result of privatisation. However, I think it was because of the people who bought Coventry Climax and who took over the company, milked it, stripped it and ran it down. But the point is that privatisation is not some mysterious, magic formula which produces job security or increases profits. It can lead to failure as well as success.

We all know that the Government are determined to privatise everything they can, not because it is in the industrial interests of companies, nor because they are interested in industrial success; they are interested in dogma. For 40 years we have had a consensus between the main political parties that there should he a mixed economy. The Labour party still believes in it, but the Conservative Government have rejected it. By voting for the motion tonight the Labour party will affirm its belief in the mixed economy and reject the views of the extremists on the Governments Benches.

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton 9:45 pm, 28th April 1987

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) and I agreed to restrict the time that we would take in the debate to allow the maximum number of hon. Members to participate, so I hope that that will be borne in mind in interventions.

The hon. Gentleman spoke about Government interference, and I should like to observe immediately that the present administration between Rolls-Royce and the Government operates on the basis of an annual report and frequent consultations between the company and the Government. It is a question whether that is interference. The plain fact is that it is not possible for the company to embark on major investment programmes, or even to decide on matters such as the salaries of the chief executive and top people in the company, without consulting the Government. If that is not interference, I do not know what is.

For some time the right hon. Member for Glasgow, Goven (Mr. Millan) has been asking, and I have been attempting to answer, questions about the extent of the launch aid given on the RB211 programme. He will have seen from my answers that it totals £537 million. He seems to want to import launch aid into the present privatisation process, when the capital structure is completely different. I tried to understand from his speech whether he was suggesting that Rolls-Royce should not be eligible for launch aid. I have already told him about the levies of £340 million that we receive from that programme, but he wants the company in future to continue to be eligible for research and development programmes. Indeed, my hon. Friend the Member for Loughborough (Mr. Dorrell) urged that the company should be so eligible.

Tonight many hon. Members have voiced their anxiety on behalf of their constituents about the future of employment in the industry. In particular, they have referred to 1971, when Rolls-Royce was heavily exposed to the development costs of a single engine. In 1987 the company's strategy is somewhat different. The prospectus, which is available today, makes it clear that the principal objective in the civil aero-engine market is to be able to offer, either alone or in collaboration with other manufacturers, an engine to compete within each principal market sector. There is no suggestion of over-reliance on a single development and the importance of collaboration is well recognised.

I must tell all hon. Members who spoke of anxiety about the future that the only guarantee that any commercial enterprise can have is of the success of its product through marketing, design and the ability to collaborate and to sell that product in international markets. There can be no guarantees, and there never have been any guarantees. Indeed, during public ownership 22,000 jobs have been lost from Rolls-Royce, so, far from there being any guarantees in the public sector, there appears to have been none. The reality has been that in the last 17 years Rolls-Royce has had to reduce its work force in order to remain competitive.

I wish that when the right hon. Member for Govan and his hon. Friend the Member for Coventry, North-East (Mr. Park) make points about certain individual programmes, such as the V2500 engine and the Superfan, they would get their facts right. To describe the V2500 as the media did, and as some Members of the House have done, as a troubled programme is untrue. It is a development programme, which means that the engine has to be run and run until it gets to the point of destruction. It is not right to describe a programme such as that in those terms, and to say, as the right hon. Gentleman and his hon. Friend did, that the Superfan programme has stopped, is not true. The programme has not stopped. What happened was that the international consortium IAE decided that it could not give a guarantee to have the Superfan engine available at a particular time, which meant that A340 airbus would be disadvantaged.

It is also not true for the hon. Member for Coventry, North-East, who I see is in his place now, to describe the Government's response to those two programmes, the A330 and A340, as miserly, or niggardly, or some such word, when it is widely known and recognised that the Government have already discussed with British Aerospace a sum of £400 million. I would not have thought that that was either a miserly or a niggardly figure, and the description is not deserved.

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton

As the hon. Gentleman has not been able to make a contribution to the debate, I shall give way.

Photo of Mr Dave Nellist Mr Dave Nellist , Coventry South East

I am grateful to the right hon. Gentleman. If the V2500 is doing so well, why has Pratt and Whitney taken over engineering control? If privatisation means that the company will be successful in the future, why have the Government had to write off £645 million of company debt? Finally, if privatisation is so attractive to the work force, why, over the last 12 months, has the company banned any discussion of privatisation issues by the workers and their unions inside the plant, while it spends a fortune on videos and luxurious surroundings to launch the programme? If privatisation is so wonderful, let us have answers to those three questions.

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton

I hope the hon. Gentleman realises that I have been generous to him. First, Pratt and Whitney has not taken over control of the V2500 programme. There have been some compressor problems, but Pratt and Whitney has not taken over control of the programme. No debt has been written off. If we had more time I would be able to explain to the hen. Gentleman the reasons for the mechanisms that have been used.

The videos are part of a process that I would have thought the hon. Gentleman would welcome. If nothing of that sort had been produced, the criticism would now be levelled that the management was not telling the work force anything. Indeed, that criticism was made at one time, but on asking the company what it was doing I discovered that there were regular weekly briefings in all the various plants to make the work force aware of exactly what was going on.

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton

The hon. Gentleman says that they were one-sided. Is a briefing riot normally one-sided?

Photo of Mr Terry Davis Mr Terry Davis , Birmingham, Hodge Hill

The right hon. Gentleman has missed the point. If it is such an obvious case and it will persuade all the work force, why will the management not allow the work force to discuss it?

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton

I am talking about the ability of the management to inform the workers in the company of exactly what its plans are. At such meetings it is surely open to the work force to make their views known.

We shall have to wait and see, as several of my hon. Friends have said in this debate, how interesting the share offer is to the employees of Rolls-Royce. We have seen this situation before. I well remember the British Aerospace flotation, when the trade unions campaigned, as they are perfectly entitled to do, and said, in my constituency among others, that they hoped that their comrades would not be taking up the awful offer. Of course, when the time came the comrades took up the offer, as they were free to do. We know from the whole of the privatisation programme, going back to 1980, that there are now more than 480,000 employee shareholders. I should have thought that that was extremely good news. That surely is genuine public involvement and public ownership worthy of the name.

Photo of Mr George Park Mr George Park , Coventry North East

My hon. Friend the Member for Eccles (Mr. Carter-Jones) and I, with hon. Members from other parties, accompanied a whole series of delegations to Ministers—when the Minister was in the MOD—about providing help for the A320—repayable help, I might add. The offer that has been made on the A330/340 is less than half what British Aerospace reckons it needs. The danger is that the work will go to other Governments in Europe who are prepared to be more forthcoming.

Photo of Mr Geoffrey Pattie Mr Geoffrey Pattie , Chertsey and Walton

The amount that the Government advanced on the A320 was £250 million. Now we are talking about figures that are considerably in excess of that sum. Tonight we have not heard what the Opposition have to offer Rolls-Royce. We know that it is something called social ownership—a nice, modern, red-rose term for nothing less than renationalisation. Nobody will be fooled by that. Nationalisation means bureaucratic and political interference, over-manning, inefficiency, huge losses, and poor services to the customer. Privatisation, on the other hand, has extended share ownership and real employee participation, as was welcomed by my hon. Friend the Member for Nuneaton (Mr. Stevens).

My hon. Friend the Member for Cannock and Burntwood (Mr. Howarth) paid tribute to the excellence of the Rolls-Royce management and work force. The efficiency and service to customers of newly privatised companies have increased enormously. The comments of my right hon. Friend are proof of that pudding. The hon. Member for Burnley (Mr. Pike) said that all we seem to talk about are profits. The hon. Gentleman did not seem to realise that profits are a way of leading towards jobs. Without profits, there are no jobs.

Jaguar has produced 2,000 more jobs, 96 per cent. of BT employees own shares in that company, and the pressure of competition on British Telecom has meant that its prices have come down by 8·5 per cent. in real terms. That is the power of competition. My hon. Friend the Member for Amber Valley (Mr. Oppenheim) reminded the House of the excellence of, and new-found pressure on, British Telecom. The fundamental proposition is: why should we not allow men and women in the country to own shares in major British companies? If we can do this and promote improved efficiency, competition and better services in these companies, the whole process will be successful.

The problem for the Opposition is that privatisation is a roaring success. They are stuck with their opposition to it. They know that wider share ownership will be to the 1987 election what wider home ownership was to the 1983 election. Unfortunately, they are stuck on the rock of that hard-left dogmatic Labour position. They cannot get off it. They know that they are on to a loser, but they cannot move. They are looking at privatisation, which the customer wants and which the management, the work force and the shareholding public also want. They look at all these things and say, "We know we are on a loser." I urge the House to throw out the motion.

Question put: —

The House divided: Ayes 157, Noes 236.

Division No. 148][10 pm
AYES
Adams, Allen (Paisley N)Bagier, Gordon A. T.
Archer, Rt Hon PeterBarron, Kevin
Ashley, Rt Hon JackBeckett, Mrs Margaret
Atkinson, N. (Tottenham)Bell, Stuart
Benn, Rt Hon TonyLambie, David
Bennett, A. (Dent'n & Red'sh)Lamond, James
Bermingham, Gerald Leadbitter, Ted
Bidwell, SydneyLeighton, Ronald
Blair, AnthonyLewis, Ron (Carlisle)
Bray, Dr JeremyLewis, Terence (Worsley)
Brown, Hugh D. (Provan)Litherland, Robert
Brown, N. (N'c'tle-u-Tyne E)Lofthouse, Geoffrey
Brown, Ron (E'burgh, Leith)Loyden, Edward
Buchan, NormanMcCartney, Hugh
Caborn, RichardMcGuire, Michael
Callaghan, Jim (Heyw'd & M)McKay, Allen (Penistone)
Campbell, IanMacKenzie, Rt Hon Gregor
Campbell-Savours, DaleMcNamara, Kevin
Canavan, DennisMcTaggart, Robert
Carter-Jones, LewisMadden, Max
Clark, Dr David (S Shields)Marshall, David (Shettleston)
Clarke, ThomasMartin, Michael
Clay, RobertMason, Rt Hon Roy
Clelland, David GordonMaxton, John
Clwyd, Mrs AnnMaynard, Miss Joan
Cocks, Rt Hon M. (Bristol S)Meacher, Michael
Cohen, HarryMichie, William
Conlan, BernardMikardo, Ian
Cook, Frank (Stockton North)Millan, Rt Hon Bruce
Cook, Robin F. (Livingston)Morris, Rt Hon A. (W'shawe)
Corbett, RobinNellist, David
Corbyn, JeremyOakes, Rt Hon Gordon
Craigen, J. M.O'Neill, Martin
Crowther, StanPark, George
Cunliffe, LawrencePatchett, Terry
Cunningham, Dr JohnPendry, Tom
Dalyell, TamPike, Peter
Davies, Ronald (Caerphilly)Prescott, John
Davis, Terry (B'ham, H'ge H'I)Randall, Stuart
Deakins, EricRaynsford, Nick
Dewar, DonaldRedmond, Martin
Dixon, DonaldRees, Rt Hon M. (Leeds S)
Dobson, FrankRichardson, Ms Jo
Dormand, JackRoberts, Allan (Bootle)
Douglas, DickRoberts, Ernest (Hackney N)
Dubs, AlfredRobertson, George
Duffy, A. E. P.Robinson, G. (Coventry NW)
Dunwoody, Hon Mrs G.Rogers, Allan
Eadie, AlexRooker, J. W.
Eastham, KenRoss, Ernest (Dundee W)
Evans, John (St. Helens N)Rowlands, Ted
Fatchett, DerekSedgemore, Brian
Faulds, AndrewSheldon, Rt Hon R.
Fields, T. (L'pool Broad Gn)Shore, Rt Hon Peter
Fisher, MarkShort, Ms Clare (Ladywood)
Flannery, MartinShort, Mrs R.(W'hampt'n NE)
Foot, Rt Hon MichaelSkinner, Dennis
Forrester, JohnSmith, C.(Isl'ton S & F'bury)
Foster, DerekSmith, Rt Hon J. (M'ds E)
Foulkes, GeorgeSnape, Peter
Fraser, J. (Norwood)Soley, Clive
George, BruceSpearing, Nigel
Gilbert, Rt Hon Dr JohnStrang, Gavin
Golding, Mrs LlinStraw, Jack
Gould, BryanThomas, Dr R. (Carmarthen)
Hamilton, James (M'well N)Thompson, J. (Wansbeck)
Hamilton, W. W. (Fife Central)Thorne, Stan (Preston)
Harrison, Rt Hon WalterTinn, James
Haynes, FrankWarden, Gareth (Gower)
Healey, Rt Hon DenisWeetch, Ken
Heffer, Eric S.Welsh, Michael
Hogg, N. (C'nauld & Kilsyth)White, James
Holland, Stuart (Vauxhall)Wigley, Dafydd
Home Robertson, JohnWilson, Gordon
Howarth, George (Knowsley, N)Winnick, David
Howell, Rt Hon D. (S'heath)Young, David (Bolton SE)
Hoyle, Douglas
Hughes, Robert (Aberdeen N)Tellers for the Ayes:
Hughes, Roy (Newport East)Mr. John McWilliam and Mr. Tony Lloyd.
Hughes, Sean (Knowsley S)
John, Brynmor
NOES
Aitken, JonathanCoombs, Simon
Alexander, RichardCope, John
Alton, DavidCormack, Patrick
Amess, DavidCurrie, Mrs Edwina
Ancram, MichaelDickens, Geoffrey
Arnold, TomDicks, Terry
Ashby, DavidDorrell, Stephen
Ashdown, PaddyDouglas-Hamilton, Lord J.
Aspinwall, Jackdu Cann, Rt Hon Sir Edward
Atkins, Rt Hon Sir H.Dunn, Robert
Atkins, Robert (South Ribble)Durant, Tony
Atkinson, David (B'm'th E)Dykes, Hugh
Baker, Rt Hon K. (Mole Vall'y)Evennett, David
Baker, Nicholas (Dorset N)Fallon, Michael
Baldry, TonyFarr, Sir John
Banks, Robert (Harrogate)Fenner, Dame Peggy
Barnes, Mrs RosemaryFletcher, Sir Alexander
Batiste, SpencerForman, Nigel
Beaumont-Dark, AnthonyForsyth, Michael (Stirling)
Bellingham, HenryForth, Eric
Bendall, VivianFox, Sir Marcus
Benyon, WilliamFraser, Peter (Angus East)
Bevan, David GilroyFreeman, Roger
Biffen, Rt Hon JohnFreud, Clement
Biggs-Davison, Sir JohnFry, Peter
Blackburn, JohnGale, Roger
Body, Sir RichardGalley, Roy
Bonsor, Sir NicholasGardner, Sir Edward (Fylde)
Boscawen, Hon RobertGarel-Jones, Tristan
Bowden, A. (Brighton K'to'n)Gilmour, Rt Hon Sir Ian
Bowden, Gerald (Dulwich)Glyn, Dr Alan
Boyson, Dr RhodesGoodhart, Sir Philip
Braine, Rt Hon Sir BernardGorst, John
Bright, GrahamGow, Ian
Brittan, Rt Hon LeonGower, Sir Raymond
Browne, JohnGrant, Sir Anthony
Bruce, MalcolmGreenway, Harry
Bryan, Sir PaulGregory, Conal
Buck, Sir AntonyGriffiths, Sir Eldon
Budgen, NickGriffiths, Peter (Portsm'th N)
Bulmer, EsmondGround, Patrick
Burt, AlistairGrylls, Michael
Butcher, JohnHamilton, Hon A. (Epsom)
Butler, Rt Hon Sir AdamHamilton, Neil (Tatton)
Butterfill, JohnHampson, Dr Keith
Carlisle, John (Luton N)Hancock, Michael
Carlisle, Kenneth (Lincoln)Hannam, John
Carttiss, MichaelHarris, David
Cartwright, JohnHarvey, Robert
Cash, WilliamHaselhurst, Alan
Channon, Rt Hon PaulHawkins, C. (High Peak)
Chapman, SydneyHawksley, Warren
Chope, ChristopherHayes, J.
Churchill, W. S.Hayward, Robert
Clark, Hon A. (Plym'th S'n)Heathcoat-Amory, David
Clark, Dr Michael (Rochford)Heddle, John
Clark, Sir W. (Croydon S)Henderson, Barry
Clarke, Rt Hon K. (Rushcliffe)Hickmet, Richard
Clegg, Sir WalterHirst, Michael
Cockeram, EricHolland, Sir Philip (Gedling)
Conway, DerekHowarth, Alan (Stratf'd-on-A)
Howarth, Gerald (Cannock)St. John-Stevas, Rt Hon N.
Howell, Ralph (Norfolk, N)Sayeed, Jonathan
Howells, GeraintShaw, Giles (Pudsey)
Hubbard-Miles, PeterShaw, Sir Michael (Scarb')
Hunter, AndrewShelton, William (Streatham)
Hurd, Rt Hon DouglasShepherd, Colin (Hereford)
Irving, CharlesShepherd, Richard (Aldridge)
Jackson, RobertSilvester, Fred
Jenkin, Rt Hon PatrickSims, Roger
Johnson Smith, Sir GeoffreySkeet, Sir Trevor
Johnston, Sir RussellSpeed, Keith
Jones, Gwilym (Cardiff N)Speller, Tony
Jones, Robert (Herts W)Spencer, Derek
Kellett-Bowman, Mrs ElaineSpicer, Jim (Dorset W)
Kershaw, Sir AnthonySteen, Anthony
King, Roger (B'ham N'field)Stern, Michael
Kirkwood, ArchyStevens, Lewis (Nuneaton)
Knight, Greg (Derby N)Stewart, Allan (Eastwood)
Knight, Dame Jill (Edgbaston)Stewart, Andrew (Sherwood)
Lawrence, IvanStewart, Ian (Hertf'dshire N)
Lee, John (Pendle)Stradling Thomas, Sir John
Lennox-Boyd, Hon MarkSumberg, David
Lester, JimTaylor, Matthew
Lilley, PeterTaylor, Teddy (S'end E)
Livsey, RichardThomas, Rt Hon Peter
Lloyd, Sir Ian (Havant)Thompson, Patrick (N'ich N)
Lloyd, Peter (Fareham)Thorne, Neil (Ilford S)
Lyell, NicholasThornton, Malcolm
McCrindle, RobertTownend, John (Bridlington)
MacKay, John (Argyll & Bute)Townsend, Cyril D. (B'heath)
Maclean, David JohnTracey, Richard
McLoughlin, PatrickTrippier, David
Major, JohnTrotter, Neville
Malone, Geraldvan Straubenzee, Sir W.
Maples, JohnVaughan, Sir Gerard
Meadowcroft, MichaelWaddington, Rt Hon David
Mitchell, David (Hants NW)Wakeham, Rt Hon John
Monro, Sir HectorWaldegrave, Hon William
Neubert, MichaelWall, Sir Patrick
Norris, StevenWallace, James
Oppenheim, PhillipWaller, Gary
Page, Sir John (Harrow W)Wardle, C. (Bexhill)
Pattie, Rt Hon GeoffreyWatson, John
Peacock, Mrs ElizabethWatts, John
Pollock, AlexanderWells, Bowen (Hertford)
Porter, BarryWells, Sir John (Maidstone)
Portillo, MichaelWhitfield, John
Powley, JohnWinterton, Mrs Ann
Raison, Rt Hon TimothyWinterton, Nicholas
Rhodes James, RobertWolfson, Mark
Ridley, Rt Hon NicholasWoodcock, Michael
Ridsdale, Sir JulianWrigglesworth, Ian
Rippon, Rt Hon GeoffreyYeo, Tim
Roberts, Wyn (Conwy)Young, Sir George (Acton)
Robinson, Mark (N'port W)Younger, Rt Hon George
Roe, Mrs Marion
Rossi, Sir HughTellers for the Noes:
Ryder, RichardMr. David Lightbown and
Sainsbury, Hon TimothyMr. Francis Maude.

Question accordingly negatived.