The Government and the board of Rover Group have always looked forward to the day when the businesses of the Rover Group could be returned to full private ownership. That became a firm political commitment for the Government in the 1983 Conservative manifesto for the general election. We believe that a huge manufacturing business of this kind performs best under commercial management and subject to the normal demands of the market place. The interests of employees, suppliers and dealers are best served when the company is able to raise its capital, to invest and to make strategic decisions without the direct supervision and intervention of Ministers, Whitehall or Westminster.
Indeed as evidence of that claim I want to stress that privatisation has already brought benefits to the former parts of the group that have been liberated from state ownership. Jaguar has increased both production and employment since its flotation in 1984 and its excellent products are sought after across the world. Employees in Unipart have seen the value of their shares rise as that firm's profitability has grown since privatisation. The same applies to Istel, the information technology group. Leyland-DAF, in which Rover Group holds a 40 per cent. stake, has seen recent announcements of increased United Kingdom productivity and production. Jaguar Rover Australia is also trading profitably. Indeed all the privatised businesses where the Rover Group has maintained a minority stake are now contributing to the group's profitability.
While the Minister is recounting the list of former Rover Group businesses, especially those from Coventry, would he like to complete the list and add Alvis, the tank manufacturers in Coventry which is proposing to close its city centre site and which has shed hundreds of jobs since privatisation, Self-Changing Gears, the gearbox manufacturers, which, within six weeks of privatisation, sacked 20 per cent. of the work force, and, primarily, Coventry Climax—the factory which I live next door to and which is 10 yards from my back gate—which, after privatisation in 1981 when it had a work force of 3,000, shed 80 per cent. of that work force in five years? In Coventry we do not believe the Government when they argue for the supposed benefits of privatisation. Our experience in Coventry, Jaguar notwithstanding, is not what the Minister claims.
Neither nationalisation nor privatisation can guarantee commercial success or sustained employment. I suppose that we have seen the biggest drops in employment in some of the great nationalised industries such as steel, ship building and others. Where the products can be sold successfully and the industry is not overmanned, the companies have a secure future.
The companies that I have mentioned have been enabled to take advantage of their position in the market place. The hon. Member for Coventry, South-East (Mr. Nellist) is perfectly aware of the background to the companies to which he referred. He is also aware that the overmanning in some of those businesses was bound to be reduced, no matter who owned the company.
My examples show that the best parts of the Rover Group, when privatised, have thrived under privatisation, and employees and customers have benefited.
We are of course accustomed to the Minister's traditional introduction to this type of debate. Where is the evidence that privatisation and a change of ownership have made a difference? Surely all the evidence, even according to the Minister's statements, shows that ownership, in itself, makes very little difference.
I always make this traditional opening to my speeches on privatisation because, having debated nationalisation and privatisation so often over the past six or seven years, I hope that the argument is now won. The general public must be aware that the climate has changed with regard to state ownership of manufacturing.
I concede that, in itself, the change of ownership does not produce the change. The management of the company is freed from the constraints of the Treasury, Ministers like myself, the officials who support me and the attempts of the House to interfere politically in what are essentially management and commercial decisions. That gives the best companies the prospect of thriving more than they otherwise would have thrived so long as they are not nationalised and are returned to the private sector. That is our belief and we are now at the stage where the Rover Group has made steady progress and has reached the point where privatisation on acceptable terms is not just a prospect but a reality.
I pay tribute to Graham Day's two years at the helm. It is a tribute to his performance that Rover should just have reported its best trading performance for nine years. At the operating level, performance was turned round from a loss of nearly £0·25 billion in 1986 to a positive result. That has been achieved on the back of record exports. At home, the group has improved the reputation of its products and is paying greater attention to the needs of its customers.
I did, and I shall repeat them—based, as they are, on what I regard as excellent briefing. The hon. Gentleman will correct me if I have been misled. I believe that a record export performance has been achieved for the Rover Group's present companies.
As the House may have inferred from my opening remarks, I do not anticipate a great deal of controversy in the debate about the principle of privatisation. I take it almost for granted that for the world at large the argument is won. I shall find out in due course whether this is one of the days when the hon. Member for Dagenham (Mr. Gould) is in favour of renationalising the company—no doubt we shall come to that later. I believe that the House is mostly interested today in the way in which we have chosen to privatise the group and the terms of the proposed sale. I shall seek to satisfy the House that that method and those terms are fair, sensible and a good bargain for the taxpayer and for the company.
The Rover Group has the kind of business which cannot easily sustain uncertainty about its future. The House will recall that, when there were rumours that various bidders were in the field in 1986, they had a very adverse effect on the state of the company. During that period of speculation, the group lost £250 million worth of sales and 2 per cent. of its market share, which it has never since recovered.
It is for that reason that when British Aerospace, having talked to Rover Group in the first place, made its approach to the Government, we were determined to handle the situation in a way that would not risk damaging the group. There are those who argue that we should have thrown open the question of purchasing the Rover Group to a variety of bidders. I can only say that I believe that such a prospect would have been grossly irresponsible in respect of a business occupying such an important role in this major industry. The strong advice that we received, particularly from Graham Day and the board of Rover Group, was that we should accept British Aerospace's request that sale negotiations should be on an exclusive basis for a limited period. In my opinion, it would have been reckless to ignore that advice.
In considering the proposals from British Aerospace, we first satisfied ourselves that such a solution would give Rover Group the opportunity to develop its independent role in the vehicle industry. British Aerospace is strongly committed to the future development and growth of Rover Group and is looking to build on the strategy and progress made by the existing Rover Group management. We underlined that commitment in the negotiations which took place between the Government and British Aerospace through the conditions we introduced— particularly those intended to control on-sale.
The deal we concluded ensures that were British Aerospace to decide for some reason to relinquish control within five years the principal subsidiaries of Rover Group, their principal registered trade marks or any substantial part of the undertakings of those subsidiaries, British Aerospace could be required to repay any net economic benefit. That means that it could be not worth while financially for British Aerospace to contemplate any of those steps, which it is not contemplating in any event. That provision is in no way meant to inhibit the commercial freedom of management to run those businesses or to exploit opportunities as they see fit. What it will do, I believe, is contribute to a period of stability in which the Rover Group may operate.
Will the Minister tell the House his definition of a "substantial part" of the undertakings of the subsidiaries? Will he also make clear to the House whether British Aerospace will actually be required to forgo any of the advantages it has enjoyed? The Minister significantly used the phrase "could be required". Will he clarify that point?
We have not defined that aspect in any substantial or quantified terms—it will be a matter for judgment at the time. Plainly, one can consider extremes. A small site or particular building might be shed without the terms I have mentioned being relevant. On the other hand, the sale of a substantial part of the business, if it were a significant part of the business, would certainly mean that the conditions would apply. As to the hon. Gentleman's second point, he is quite right, in that we have not made the conditions inflexible. It is not necessarily the case that they will be insisted upon by the Government. That provides for the possibility that there could be favourable circumstances in which the Government decide that it is in the public interest, as well as in the interests of the company, that such permission should be given. There might be some perfectly desirable commercial reason, raising no controversy on either side of the House, why that should be done.
Circumstances might arise in which British Aerospace wished to dispose of a subsidiary company. Therefore, we leave open the possibility that the Government might waive the condition. For the moment, British Aerospace has no intention of doing any of the things I have talked about, which I believe is why it accepted that condition. We do not foresee any circumstances in which we would want to see an on-sale of the kind I have described. However, we would expect the conditions to bite if British Aerospace suddenly decided to sell for reasons that were not readily accepted as being in the public interest.
Does the Minister accept that when his Conservative predecessors were willing 20 years ago to give similar assurances in good faith about Chrysler, those pieces of paper were worth nothing in the end? My hon. Friends and I are entitled to press the Minister about what would happen if the events which the Minister does not envisage happening did happen. Suppose that there was a disagreement about what is a significant or substantial part of the business. How would that dispute be settled? Would the Government have the last word in defining what is significant or substantial, in their judgment? What if the management and directors of British Aerospace disagreed? Will there eventually be legal wrangles and court cases?
Any contract can give rise to the possibility of litigation, but the parties to any sensible contract do not contemplate engaging in litigation. I cannot enter into discussion about what might happen if a dispute arose between the Government and British Aerospace about what comprised a "substantial part" of the business. I do not believe that anyone could put forward a tight, quantitative definition of what is meant by "substantial". It is one of those words that most people would find no difficulty in applying to a set situation.
I described those terms to the House because I believe they give a valuable assurance that the group will enjoy a period of stability. They reinforce the stated commitment of British Aerospace to acquire the businesses as going concerns and to develop them. I do not expect that the conditions will give rise to difficulties, and it is not fruitful to speculate what might happen if they did. Those conditions are not inflexible because circumstances might arise in which, for example, the hon. Member for Birmingham, Hodge Hill (Mr. Davis) might press on Ministers the case for permitting British Aerospace without penalty to sell a subsidiary to another purchaser, when that was thought to be desirable by everybody. It is right that we should not make the terms bite automatically when one of the interested parties wishes them to do so.
In negotiating terms with British Aerospace, the Government were aware mainly of the burden of debt borne by the Rover Group, which had been built up through years of accumulated losses. The banks had been willing to finance that debt only on the strength of the Government's involvement. We faced the situation—and we face it now—that whatever route was adopted for the company's return to full private ownership, and whatever sale was considered to any purchaser, it would be necessary to tackle the debt problem. Those losses were historic and irrecoverable. The bank indebtedness had to be taken off the back of the new owners—as it would have to be taken off the back of any new owners who might be interested in the group.
Therefore, the Government agreed that it was right to make a cash injection of £800 million to deal with that indebtedness. That was our calculation and reasonable judgment of the level of the indebtedness likely to exist at the time of the sale. With that slate wiped clean, we were able to conclude an agreement for the sale of the Government shareholding for £150 million. That purchase price reflects of course a balance between the prospects and the risks now in the business. However, in judging that deal—which is, I believe, the principal point of interest in the debate—it is necessary to appreciate all the elements of the agreement.
In addition to the £800 million historic debts that the Government are wiping clean and the £150 million being received for the Government shareholding, the taxpayer will benefit from the fact that some £1·1 billion of Rover Group's trading tax losses will effectively be eliminated. That reduces by about two thirds the amount that would otherwise be available to offset against future Rover Group profits. The hon. Member for Dagenham laughs, but that is worth about £400 million to the British taxpayer.
Moreover, BAe and the Government have agreed that the other currently available tax reliefs within the Rover Group will be applicable only within Rover's businesses. It is also an immense relief to most hon. Members—as it certainly should be to taxpayers—to see the prospective extinction of the contingent liability represented by the Varley-Marshall assurances on the group's obligations—a potential liability that now stands at about £1·6 billion.
Taking into account those features of the deal, I hope that hon. Members will see why, viewed as a whole, it is a good, sensible, realistic bargain for the Government and the company.
I am sorry to intervene again, but I am fearful that the right hon. and learned Gentleman is about to leave the subject of financial arrangements. Let me say in passing that it is a novel doctrine that wiping off a debt owed to the taxpayer is somehow to the taxpayer's advantage.
I want to ask about the £800 million that the Minister described, in a somewhat confusing way, in two different parts of his speech. As I understand it, it is—as he described it initially—a cash injection. Will he tell the House how much of that £800 million is needed to eliminate debts, and how much is properly to be regarded as simply a cash gift to the new proprietors of Rover if the deal goes through?
The hon. Gentleman ought to have a look at the position of tax losses. Accumulated tax losses of the kind that I am talking about are a potential asset of a company such as this, because it is possible to offset future profits against them. By wiping off all but £500 million of the tax losses, the taxpayer frees himself from £400 million worth of potential cost in the future. This is genuine indebtedness. It is not a cash injection into the company.
Yes, all of it. It is a reasonable calculation of the level of indebtedness at the time of completion of sale. It is arrived at by a combination of the present indebtedness, the likely accumulation of further indebtedness by the time of conclusion of sale and some outstanding liabilities still to be incurred, which relate to the restructuring of Leyland-DAF last year. The figure was arrived at on that calculation and no other basis.
Certainly—if you, Mr. Deputy Speaker, will forgive me for giving way so often in such a short debate. I had prepared a reasonably short speech. I shall have to stop giving way soon.
The debt position at the end of 1987 comprised short-term borrowings of £400·1 million, and amounts falling due after more than one year of £228·7 million. From those figures, cash and short-term investments of £42 million must be deducted. That leaves a total immediate debt at the end of 1987 of £585·8 million. To that figure must be added the part of the money provided in March 1987 for announced future restructuring in the commercial vehicle businesses, which has yet to be spent. The remainder of the £800 million takes account of changes that we estimate will take place in the group's indebtedness between the end of 1987 and completion of the sale in the summer. It is important that hon. Members and the European Commission understand how we arrived at that figure.
As I have said, the deal is a sensible and realistic bargain, satisfying the genuine interests of both parties. The Government were concerned that the merger of these two major manufacturing groups should move forward only on a firm financial footing, and I believe that the House should share that desire. BAe has expressed its confidence that the enlarged group will be able to support development programmes in the combined businesses.
As I explained to the House on 29 March, the proposed cash injection is subject to the completion of the normal European Community procedures. The Community applies rules which we accept and support. It must be ensured that the cash injections are legitimate and in accordance with the Community rules before they are allowed to proceed.
Following the meetings between my right hon. and noble Friend the Secretary of State and Commissioner Sutherland in March, we have continued to assist the Commission to reach a full understanding of the Government's objectives and proposals. Following its usual practice, the Commission has also invited comments from other member states and interested parties on the state aid proposal. I hope that the House will understand that it would be wrong of me to pre-empt the Commission by making any further comment on the progress of its studies. I am glad to say that the Commission is acting with expedition, and I am confident that it realises the need, in the interests of the business, to reach a conclusion and will—within the necessary confines of its procedures —seek to achieve a speedy resolution of its examination.
I expect some hon. Members to attack the terms on the basis that they are too favourable to BAe and Rover Group. That, indeed, was the implication of some of the murmurings a few moments ago. Some people attacked the terms on that basis when I made my original statement on the deal. I hope that the European Commission will not be influenced by such claims, because, when made in the House, they will probably be made on a political rather than a well-informed basis.
I also hope that hon. Members who are tempted to make such criticisms will ask themselves what is their aim and purpose in doing so. Do they want to threaten the deal with BAe, so that we return to uncertainty over privatisation and the Rover Group can be bid for again by all corners? Do they want BAe and the Rover Group to trade in a more cash-constrained way, and with a burden of debt? When I made the statement, I thought that some Opposition Members who attacked the terms had no idea of the point of the criticisms that they put forward, although I realise that some contemplate permanent nationalisation as the only future for the group.
Perhaps I can help the Minister. Let me explain why I feel that the matter is a subject for inquiry. When BAe was privatised, having received a cash injection of £400 million, eyebrows were naturally raised outside the House, as well as on the Opposition Benches. The right hon. Member for Chingford (Mr. Tebbit) leaves the Cabinet and the chairmanship of the Tory party to become adviser to the chairman of BAe. Then, hey presto! Out of the blue along comes this whippersnapper Minister, acting on behalf of Lord Young—who has previously had a row with the right hon. Member for Chingford—and wanting to settle the argument. He gives in and acknowledges that there is a prospect of getting some deal through. To appease the right hon. Member for Chingford, he says, "Here is £800 million of taxpayers' money. If you give us £150 million back, that will be all right. It will cloud the issue. By the way, we are writing off another £1,100 million."
All in all, the right hon. Member for Chingford did not do badly for his friends at BAe. In my opinion, there ought to be a public inquiry into the affair.
I came to the House at the same time as the hon. Member for Bolsover (Mr. Skinner), and I think that my age and political experience are about the same as his. Speaking as one whippersnapper to another, let me tell him that my right hon. Friend the Member for Chingford (Mr. Tebbit) is a considerable expert on the aerospace industry, which is no doubt why he gives unpaid advice to the chairman of BAe.
If the hon. Gentleman reflects on what I have said, I trust that he will be persuaded of the wisdom of the deal. His intervention did not reveal what he is aiming at by seeking to undermine it. If he is saying that it is too generous to British Aerospace, is he seeking to undermine the position of the business as it proceeds? If he is saying that it stinks, he will have to give a slightly less tortuous explanation the next time that he goes through the deal, and try to explain where he thinks that any money that is changing hands is first not properly accounted for, and second is not passed for the purpose of sustaining the industry on a fair basis for the future. The fact is that the hon. Gentleman's advice on aeroplanes, paid or unpaid, is of even less use than his advice on the coal industry, although he has slightly more knowledge of that industry.
The hon. Gentleman frequently muddles up the taxpayers' money in his own mind. I trust that he is not about to suggest that my right hon. Friend or anyone else has muddled up the taxpayers' money in this particular case. I have given the most detailed exposition of it to the hon. Member for Dagenham who understands these matters rather better than the hon. Member for Bolsover does, and does not resort to vague, unsubstantiated smears which the hon. Member does not understand when he repeats them.
If we can get back to the serious business in hand, I ask the more responsible hon. Members to consider exactly what, from the point of view of the British motor industry, British Aerospace or anyone else, they are driving at when they seek to criticise the deal and to suggest that we have arrived at our conclusion after anything other than a sensible appraisal of the need to get rid of past debts and to put the company on a sensible footing for the future.
I have never worked in industry. I was talking about the experience of my right hon. Friend the Member for Chingford in the aerospace industry. However I have considerable experience of privatising industry, I am glad to say, and experience of facing criticism from Opposition Members. As this privatisation goes through they will find that their criticisms are ill-founded.
I have described the deal, I believe that it is sustainable and I trust that the Commission will approve it with expedition. Completion of the agreement between British Aerospace and the Government announced on 29 March is of course subject to the approval of British Aerospace shareholders and completion of the European Community procedures. The Government firmly believe that the best interests of the business will be served by speedy implementation of the deal that we have negotiated. The company needs to be removed at long last from the spotlight of political debate and the political battlefield, and should he allowed to get on with the business of making and selling passenger vehicles.
I believe that that view is shared by the vast majority of Rover Group employees who are delighted to see the company passing out of the political arena at last. I certainly believe that that view is shared by all the suppliers who make a vital contribution to the United Kingdom economy, particularly in the west midlands, and all those whose livelihoods are dependent on the distribution chain.
I am very conscious—as no doubt are many hon. Members from constituency correspondence—of the support of the 1,000-strong Austin Rover dealer network for the deal that the Government are proposing. My right hon. and noble Friend has also discussed the deal with Honda whose operational partnership with the Rover Group has already generated the flagship Rover 800 range and is being taken forward with a new mid-range model. The Government were particularly mindful of the importance that Honda placed on the continuity of the Rover Group management. Honda was reassured by British Aerospace's ownership of the company. The Government very much welcome the prospect that the relationship with Honda should continue to develop satisfactorily on the basis that we are proposing.
I gave a list of the people who have broadly welcomed the deal. I believe that the only basis on which any hon. Member can be opposed to the deal is on some continuing doctrinaire commitment to nationalisation of this car company. The Labour party has never extended its desire for nationalisation to the whole of the vehicle industry. Fortunately, the Labour party has never yet threatened to nationalise Ford or Nissan in this country—although it has devised other means of driving away investment in Dundee, but that is not relevant to this debate. The Labour party appears to retain a lasting yearning to intervene in the management of what was British Leyland.
No, I cannot give way; I must conclude.
In this short debate I have described the terms again. There is nothing new to be said about them. I do not think that much can be said by either side. One thing that can be resolved today and would be of wider interest outside is whether the Labour party's attitude has in some way changed towards the public ownership of the Rover Group. I have the pleasure of being shadowed by the great revisionist in the Labour party. I hope that he will not avoid the only interesting topic of this debate: is the Labour party still committed to nationalisation of the commanding heights of the economy? I hope that the hon. Member for Dagenham will not avoid the question as he did last time by arguing the industrial logic of the proposal. If people are interested in logic I ask them to choose between the judgment of Professor Roland Smith, Sir Raymond Lygo, Graham Day and the management of both these great companies and that of Labour politicians.
Has the Labour party yet acquired the courage to abandon the idea of state-owned manufacturing? If it has, now is the time to declare it. If it has decided to abandon the principle of nationalised manufacturing I hope that Opposition Members will give backing to a deal which is extremely good for the taxpayer, the company, the company's employees, the company's dealers and for everyone who wishes a good future for those dependent on the Rover Group.
Opposition Members recognise that what is at stake in the issues that we are debating this evening is the survival of an indigenous British volume car manufacturer—indeed, the last indigenous volume car manufacturer.
We believe that the car industry is of great importance to our economy in terms of employment, overseas earnings, wealth creation and the whole hinterland of economic activity that depends on it. That is true not only of our economy but of all major advanced economies which have at the heart of their industrial capacity a powerful and successful car industry. It is significant—and perhaps in microcosm an indication of our industrial decline—that we are at the bottom of the list of the G7 countries in terms of car manufacture. The Minister looks somewhat puzzled. I can assure him that we have now been overtaken by Spain, which is not a G7 country.
For all those reasons, we are concerned to preserve an expanding and prosperous car industry. We approach the matter with great seriousness and a sense of responsibility. We are not going to make cheap party points from the Dispatch Box or engage in debates about various forms of ownership, although I shall attempt to answer some of the Minister's questions. We do not want by any statement, doubt or point that we make this evening to jeopardise what we believe is the very fragile future of the industry.
Given that that is our basic purpose, we are entitled to express to the Government our grave disquiet. I shall try to explain in detail our grave disquiet—which is not unknown to Conservative Members—at what the deal will mean for the future of the indigenous British volume car industry five years down the road.
The Minister asked me about our view of the industry and what we think should happen to it. Our view is quite clear. We believe that the stability that the Minister emphasised, which I agree is extremely important, would best be achieved by the present ownership of that industry. I shall be quite categorical. We believe that the onus is on the Minister and the Government to explain how the deal will improve the industry's prospects. I propose to give him some reasons for thinking that the deal will worsen those prospects. I have yet to begin to develop that argument, but I gladly give way.
The Chancellor of the Duchy of Lancaster has pointed to two major obstacles over which the deal has yet to climb—the EEC and British Aerospace shareholders. Therefore, we have yet to see whether the deal takes place. My purpose is to show that, far from the argument that the Chancellor advanced—that there is no alternative —there is indeed an alternative. That alternative is to maintain the status quo. Indeed, I would go further.
If we are really concerned about the future of the Rover Group and volume car manufacturing in this country under British ownership and control—this is in support of the point made by the Chancellor of the Duchy of Lancaster—we need the commitment of an owner who is willing to make the long-term investment that is required. We need an appreciation by the owner of the long-term importance of the industry to the British economy. We need pride of ownership. Those things have been missing in the hands of the Government, who have made it clear that all they are concerned about is getting shot of the industry as quickly as possible and on whatever terms they can scrabble together. That is an indictment of what the Government have done. We believe that the alternative that I have mentioned should have been opted for. The commitment of the present owner would guarantee the future of the industry.
What is missing from the Government's recent record as the owner of Rover and from the deal they now propose in order to get rid of Rover is a sense of strategy, a sense of the importance of the industry and a sense of determination to maintain the industry in at least its present form or, preferably, in an expanded form. That is missing from the analysis offered by the Chancellor. In the absence of a strategy, we are offered the dogma of privatisation. That simply will not do. It is not good enough.
We have heard all this before. Here we go again. The last strategy the company had under a Labour Government was called the Ryder plan. That ended in the most appalling mess, from which it took years for the company to recover. Is the hon. Gentleman suggesting that we want a Ryder plan mark II, because that is what strategies mean?
I am glad that the hon. Gentleman thinks that he has heard our arguments before, because, with luck, the message may be getting through. I am suggesting that we need a strategy based on a commitment to make the necessary investment. For reasons which I shall elaborate, I do not believe that the present deal offers that commitment or a prospect of investment.
As I have said, we have the dogma of privatisation, which means that a buyer has to be found. There has to be a buyer on any terms. The Government have nailed their colours to the mast and made their intentions clear. Therefore, somewhere, a buyer has to be found. The Government know already that for political reasons that buyer has to be British, and along comes British Aerospace. It is certainly British and it is welcome on that account. We certainly do not cavil at the prospect of a British owner if we believe that the other criteria are met. However, the questions and doubts that arise must be settled. Nothing that has been said this evening has settled those doubts or gone any way towards doing so.
The first doubt that will occur to anybody can be summed up in what a trade unionist working at the Longbridge plants said to me yesterday. He said, "What does British Aerospace know about making cars?" That is a simple question, but it is at the heart of the argument. Put in a different way—
The Government have installed the present management and provided, at least until now, the investment required. If the hon. Member for Birmingham, Northfield (Mr. King) will contain himself for a moment, he will discover that it is on that question that I believe British Aerospace will prove deficient.
The question, "What does British Aerospace know about making cars?", is the same question as that on which the Chancellor poured scorn a moment ago. It is the same as asking, "Where is the industrial logic?" That is the way the leader writers tend to put it, but it is the same question. How can it make sense to put those two companies together? It certainly looks good on a balance sheet. The assets mount encouragingly, employment looks rather better, and so on. But not a whit of strength has been added to Rover as a car manufacturer or to British Aerospace as a plane maker. All that has happened is that the two balance sheets have been put together. The truth is that building cars on a production line is different from the work patterns, production runs and scheduling required for manufacturing specialised products such as aircraft.
We have heard much talk about synergy. It is a wonderful word. It is likely to dazzle some of those who do not bother to look behind it. Synergy has been rejected as an argument in favour of the deal by all those whom the Chancellor failed to mention. All the experts, commentators, academics and those who know about the industry are agreed that there is virtually nothing in the synergy argument. Of course, at the margins, if one puts two engineering companies together, however disparate, one might find some slight benefits here and there.
However, I suspect that those who talk so glibly about synergy have been dazzled by the glossy television adverts by Saab. Those advertisements are very much in the tradition of the current Department of Trade and Industry, so it is no wonder that people are susceptible to them. Those advertisements have made great play of the idea of synergy. However, if one asks Saab what has been the reality of its experience, it will say that it has proved to be of little value. What little value it has experienced has been produced over 40 years or more. It has had remarkably little impact on its overall operation. Indeed, its connection with Scania, the truck maker, has been of much greater importance than its role as an aircraft manufacturer. When one looks at all the other supposed synergistic liaisons between car makers and plane makers, one discovers that in almost every case the object of the acquisition—usually made by the car maker, not the aircraft manufacturer—has been diversification, not synergy. Let us set aside synergy, which is just a nice word that is sometimes used to impress Chancellors of the Duchy of Lancaster.
It is sometimes said—indeed Professor Roland Smith has said this—that British Aerospace has expertise in marketing around the world which will be of great value to Rover. I wonder whether the dealers whom the Chancellor prayed in aid will be impressed by the odd foray that British Aerospace makes to far flung corners of the world where it enters into long drawn out negotiations for the sale of two or three specialised products, dealing with Governments and, often, military regimes. I do not believe that those dealers will think that that sort of experience and expertise will help to develop mass markets for standardised products or help to maintain effective dealer networks in Britain and around the world. That is a very different experience. I do not believe that any serious person, looking at the two operations, can truly expect that marketing will be one of the great strengths that British Aerospace will bring to the Rover Group.
It gives me no pleasure to say what I have to say, but I believe that we have to point it out in view of the glowing picture developed by the Chancellor. If British Aerospace is deficient in experience and expertise, what about the crucial commitment that it is likely to make to the long-term investment, without which Rover cannot develop the new model ranges that are required if it is to stay in business? Where is that commitment to come from? It cannot come from Rover itself.
Let me pay a tribute to Rover, not so much to Mr. Graham Day—he simply produced his figures by going for margins rather than market share—but to the work force. The work force deserves a great deal of credit for the improvement in the Rover Group's performance. The problem is that, even with its present performance—its brief surge into profitability—Rover, with 15 per cent. of a market that some believe may be close to its peak, cannot generate for itself the investment that it needs. It is too small. Almost all commentators accept that, if Rover is to stay in business as a volume car manufacturer, it needs the support of a larger, preferably car manufacturing, firm.
A few moments ago the hon. Gentleman mentioned that he had been to Longbridge, or spoken to someone there. Had he visited and examined the plant, he would have seen the enormous amount of investment going into it, with new factories being converted to the latest high technology equipment and new engine plants. coming on stream in preparation for a new car. There is no shortage of investment. The company is generating investment from its present business.
For once I am delighted to have given way to the hon. Gentleman, as he made the point that I was about to develop. Of course, he is right. Great investment has taken place in Rover, but under whose auspices? Where has the money come from? It has been generated not by Rover sales and profits, but by the willingness of the present owners to invest. In other words, the taxpayer has made the investment, and it has been valuable and important.
How is this investment to be sustained? Not from the resources of Rover cast adrift by the taxpayer. Rover will not make the investment. Some other source must be found, not from the taxpayer but from somewhere else. That means that we must turn to British Aerospace. Unless the investment is made and products such as the Metro—the most outdated small car model on sale anywhere in the world—are moved out of the way and replaced by new models—I concede that some are in the pipeline—Rover's future is bleak.
Of course, it is true, as the hon. Member for Northfield pointed out—and this is the case for public ownership—that the investment has largely been made in the K series engine and the R8 and R6 models. However, it is also true that the launch costs for those models have yet to be found. New investment will be required if the R8 is not to be—as I fear it may well be—the last car produced in Britain that can properly be regarded as a British car. If we are to avoid that outcome—it is an evident danger staring us in the face—capital must be produced and invested.
We look in vain for such a commitment from British Aerospace. British Aerospace is not in a shape to generate the sort of investment resources that will be required. It is on record as saying that at an exchange rate of more than $1·70 it cannot remain profitable. We know what the Prime Minister thinks of that sort of special pleading from industrialists. How dismissive and contemptuous she is of those who must operate in the real economy. But British Aerospace is in difficulties with the present exchange rate. It is making a huge loss on Airbus. It cannot easily sell civil aircraft at a profit with the exchange rate above $1·70. So British Aerospace is not now or in the foreseeable future likely to generate the cash that it needs to make this investment.
It is worth remembering that British Aerospace was itself the prospective victim of a takeover bid not so long ago. There may well be clever men in the City on the board of British Aerospace who reckon that, to ward off another takeover bid, it might not be a bad idea to surround themselves with the protection of Rover Group, which might deter possible predators.
Far from British Aerospace being a source of investment capital, we believe there are real reasons for fearing that its attitude to Rover will be the reverse—that it intends to take money out. That is what the company did when it acquired the royal ordnance factories last year —profitable factories that helped to keep British Aerospace in profit. That was a good move. Perhaps for the time being, or even for five years—there may be real significance in that period—the calculation is that British Aerospace can do with Rover what it has been doing with the royal ordnance factories.
Far from being anxious to invest its non-existent hundreds of millions of pounds in British industry, British Aerospace has been cutting back. It has been reducing its work force, closing down its sites and plants and making it clear that it is likely to move substantial production abroad. Some reports say that £1 billion of Airbus production may well be moved to the United States because of the exchange rate. The Chancellor lauded the prospects of the British components industry. If British Aerospace carries through its plants to move production of Airbus to the United States, I fear that there is a grim message in that for the British components industry. The Rover Group and its predecessors have been faithful customers of the British components industry, on which the livelihoods of so many people who are represented by Conservative Members depend. The message is grim, inspired by the new ruthlessness that British Aerospace is likely to bring to the car industry, as it did to the aircraft manufacturing industry.
The danger is that British Aerospace will look on Rover, for the reasons that the hon. Member for Northfield gave, as a company that has already made a valuable investment. That investment is likely to pay off, at least in cash terms, over the next few years. Little will be required for a period. British Aerospace has orders but no cash, because no one will pay for those aircraft for several years to come, and it desperately needs things to sell. That is why it wanted the royal ordnance factories and why it wants Rover. At least Rover has cars in showrooms which can be sold to bring in some cash.
The danger is not only that British Aerospace might want to regard Rover as a sort of cash cow for a period; it might also intend to treat some of the Rover assets—particularly its sites—in the same way as it did its own. It is significant that British Aerospace tended to close sites in the south and concentrate its operations in the north. It has sold the sites with the greatest development value—
If that is regional policy, we now understand more clearly that it is about destroying jobs and capacity.
If British Aerospace seriously tackles the task of making volume cars; the one site that looks at risk is the Cowley south site, which happens to be of great potential development value. It is perhaps not an accident that British Aerospace, like so much of the rest of British industry, has found property development rather more to its liking than manufacturing the basic industrial products that brought it into existence. It is no accident that British Aerospace has had a profitable series of joint ventures with Trafalgar House, the property developer, which will have an eye on some of these sites.
The Chancellor fairly conceded that the relationship with Honda was of great importance to the future of Rover. The need for that relationship is unaffected by the link with British Aerospace. The Chancellor's agreement to that suggests the very point that I am making—that the link with British Aerospace does nothing to strengthen Rover as a car manufacturer. It still depends on the link with Honda. If, for any reason, Honda withdrew, British Aerospace would not have the expertise to make good that loss. Honda's attitude is of great importance.
The Chancellor has from time to time given slightly differing accounts of when Honda was first told about this deal, how closely it was consulted and what its current attitude is. He has revealed that the Secretary of State has been to Japan and talked to Honda. He brought back some general encouraging noises, but we have had little by way of assurance or detail. I hope that the Parliamentary Under-Secretary will remedy those omissions later this evening. We want to know more about what Honda has said, what intentions it has expressed, what assurances it has given and what its attitude to the change is. As the Chancellor rightly said, the one thing that Honda will want is stability of ownership and management. That is another powerful argument for maintaining the status quo of public ownership.
So much for what the deal offers to Rover. I wish that I could say that it offers a rosy future, but that cannot be said. What about British Aerospace? It is not in the healthiest of conditions. It has been made extremely unprofitable for the time being by the rise in the exchange rate. Its proposed link with Rover has already been criticised in today's newspapers by one of its potential European partners, Aerospatiale. The French have warned—I take no responsibility for the statement but simply report it to the House—that this sort of distraction may prove an obstacle to British Aerospace in developing the sort of European co-operation as aeroplane makers that is so essential if we are to withstand competition.
Of course, the deal offers British Aerospace total assets which will put it ahead of Lockheed, so it looks the part it— looks like a major industrial company. As I have argued already, as neither Rover nor British Aerospace is strengthened by the deal—indeed, they are conceivably weakened—looking the part will not be good enough. There is a great danger, as surely everyone must concede, that British Aerospace will get into the age old practice of cross-subsidisation. That has bedevilled the British car industry, especially British Motor Holdings and British Leyland, over a long period. The problems of British Motor Holdings dragged down Leyland Motors. We have seen it all before. There must be a fear that it will happen once again.
Rover, too, although briefly in profit, will be affected by rising exchange rates. It is not immune from the market. It will find difficulty in maintaining its sales and holding on to its market share, or at least holding on to its market share and to margins, with an exchange rate which is soaring against European currencies. The prospects of Rover staying in profit for more than three, four or five years without the investment that is required are grim. That is why we come to the detail of the deal and the financial arrangements that have been made.
The Chancellor of the Duchy of Lancaster can argue for as long as he wishes about what this or that sum represents, but the truth is that, to persuade British Aerospace—and if all other bidders were discouraged—to take Rover off their hands, the Government were prepared to pay £650 million. The sum of £800 million of taxpayers' money—a cash injection, as the Minister so charmingly put it—was handed over to British Aerospace. The reason was that, unless Professor Roland Smith could be guaranteed by that sum that he would not lose in the next three or four years, he would not be able to sell the deal to his shareholders. Even as things stand, he may have great difficulty in convincing them that this is a wise move.
If Professor Roland Smith has insisted on this £800 million cash injection as the price of his doing a deal and if it is calculated—as I understand the Minister has done— that that will see the deal through the first five years, the logic of that approach is extremely worrying to those who believe that the deal guarantees any sort of future to Rover. Clearly, after five years, when the cash has run out, without the investment having been made, it is all too obvious what will happen to the bits of Rover that British Aerospace no longer wants. The Government know that and simply could not care less.
That is why it is important we should know what the EEC is likely to say. If the Minister's view is right and the EEC can he persuaded that this £800 million is entirely to do with writing off debts and so on, however calculated, Professor Roland Smith has an outside chance, according to his calculations, of selling the deal to his shareholders. But the EEC may unpick the deal and not accept all that the Minister has said. The EEC may say, "Just a moment. Rover's known borrowings amount to about £560 million. Even if you wanted to cover them—current borrowings as opposed to writing off accumulated losses—what is that extra £240 million for?" If the EEC decides that that is not a cash injection but a cash handout to sweeten the deal to make it possible, the deal starts to look not only in jeopardy from the Commission's view but a good deal less attractive to British Aerospace shareholders.
That is why, without any wish to jeopardise the deal, we need to know what the Chancellor of the Duchy of Lancaster thinks the chances are. We know the arguments that he will advance, but there is some evidence that the Commission in Brussels is unlikely to accept them. If the arguments are not accepted and £240 million, or perhaps some smaller sum, is removed from the £800 million, the question arises as to whether the deal looks sufficiently attractive to be able to sell it to British Aerospace shareholders, given that the Government have already committed the shareholders and themselves to a five-year guarantee—as I understand it, a legally binding guarantee in contract—that no disposal of any substantial part of Rover will be made over that period. We need to know what is likely to happen, because it is crucial.
We have not approached the debate in the sense of trying to destroy what the Government think they have achieved. We should like to see—indeed, we are desperate to see—a viable and prosperous future for the industry. We have felt contrained to argue that the deal does not guarantee that future. There are reasons for fearing that the future as a consequence of the deal is extremely truncated. We do not believe that the Government have had adequate assurances or guarantees. We do not believe that the Government have thought for a moment about what they will do if the EEC, some other agency or British Aerospace shareholders at some point say that the deal is not to go through. What then is the Government's position? They have ruled out other bidders. Indeed, they say that there are no other bidders. They have committed themselves, for political and ideological reasons, to private ownership as opposed to maintaining public ownership. It is the Government who have decided to play politics with this industry and those who work in it. We are fearful for the industry's future and we hold the Government responsible for whatever happens.
I listened with great interest to the hon. Member for Dagenham (Mr. Gould). I congratulate him on his guarded comments, and we shall study with great interest what he said. One thing which has come across loud and clear is that he is a gentleman of very little faith. Conservative Members have great faith in what this merger will bring to the last remnant of the British motor industry.
The hon. Member for Dagenham said that he would like to see a plan and strategy for the development of the Rover Group. We have had many plants and strategies over the years, going back to the white hot heat of technology during the 1960s. We have brought together all the last outposts of the British motor industry in one great unit in an attempt to take on the world competition and breathe more life into the industry. We have seen progressively over the past 15 or 20 years that that has counted for little. New leaders of the industry have come and gone and strategies and plants have been cast to the wind as they have all been seen to have failed. I do not think that we need a plan concocted by Whitehall or by any political party. We need good, sound, solid management with the resources capable of continuing the progress on which this country has already embarked.
We have been asked, what do British Aerospace know about making cars? It is not necessary for everyone to know the detailed work of making cars, any more than it is necessary for many companies to say that they know exactly what they are involved with. Vickers, which is a very successful company, manufactures Rolls-Royce cars. One would think that Vickers would not know much about making photographic plates, yet it makes them very successfully. One would think that Vickers would not know very much about pharmaceutical equipment, yet it manufactures pharmaceutical equipment of a high quality and is very successful in the market. It is possible for companies such as Vickers to run other companies successfully because they know about delegating management on the spot, not management in Whitehall being dictated by a political party. Management is left to get on with the job.
Sir Michael Edwardes, who was chairman of BL Cars, and Graham Day, who is chairman of the Rover Group, exercised responsibility and told the management to control and develop on their own as far as they could, and they were successful in so doing.
In some ways, I am sad that we are debating the future of the Rover Group. Once again, its employees see that their future is being debated in Parliament. Over the years we have had more debates about the future of this part of the motor industry than about any other part of British industry.
The last thing that we should be doing tonight is debating the future of the Rover Group because talks between the Rover Group, British Aerospace and the EEC are at a delicate stage. It would be better for the House to say nothing, to allow the negotiations to continue and then to debate the issues once we knew what decisions had been made.
Is the hon. Gentleman aware that a merger between GEC and Plessey could this week result in the loss of 4,000 jobs in Coventry, South-East? Arnold Weinstock, who is the managing director of GEC, has not come to the House with a Bill to sack those workers. There has been no debate in the House about that matter. Should not the future of hundreds of thousands of car workers in the west midlands, who rely on the publicly owned Rover Group for their jobs, be debated in the House? What is this place for if it is not to debate the jobs and future of workers in the car industry?
I am glad that the hon. Gentleman recognises that there are hundreds of thousands of workers in the industry. He describes the car industry as though nobody works in it and it is an industrial desert. I cannot comment on the talks between GEC and Plessey.
We have debated the future of the Rover Group on many occasions. Negotiations about the Rover Group are at a delicate stage, and we should allow them to be completed before debating the matter in detail. We are talking about a merger that will not result in a loss of jobs or a cutback in production but will bring much benefit to the Rover Group and British Aerospace. A formidable industrial combine will be created that will be able to take on the rest of the world.
The Labour party's message is that it loathes privatisation, particularly this deal. Some people in the EEC may be encouraged by Labour Members' words. They may say, "If the British Parliament is not speaking with one voice, perhaps we should consider the deal closely." Obviously there are parts of the deal that those people can latch on to and criticise us about. If the Commission gets tough and demands substantial changes that are unacceptable to British Aerospace, where will that leave the Rover Group? We know that the Labour party would like it to remain a nationalised company, but that is clearly a non-starter. We have seen in Socialist France and almost every developed western country that Government's role is to get out of manufacturing and to get its sticky fingers out of matters that are best done in the private sector.
The French Government intend to privatise Renault, and they should be congratulated on that. Why is it good for the Socialist Government of France to privatise Renault but wrong for our Government to privatise the Rover Group?
The consequence of a breakdown in negotiations for Rover dealers could be quite substantial. Every time that we debate the future of the Rover Group in the House there is a registered downturn in its market the following month. Confidence in the company must be built up, and it has developed strongly not only in this country but in Europe and the rest of the world. The fact that every month or so we debate the Rover Group deters customers from buying its products.
My constituents have worked hard to achieve success for the Rover Group. Its model range is good and is well received in export markets. The Government have patiently nursed the Rover Group through an enormous setback in the market place and back to considerable health.
The merger with British Aerospace represents an exciting way forward. The realistic terms that have been negotiated—I admit that large sums of taxpayers' money have been written off—merely confirm the reality of the company's position. There is no question of us ever seeing that money return, at least in the short term, although as the company's profits increase the taxpayer will receive his fair share. The large sums that were written off had been invested to ensure that the Rover Group remained a major car manufacturing company. The Rover Group has been essential to the west midlands economy and the plethora of component manufacturing industries that follow in its trail.
The debate is timely because it gives us an opportunity to remind the country just how far the company has come. The Rover Group has a future only because the Government have remained steadfast and resolute and dragged its affairs successfully into a demanding and challenging world. It is ably led by managers of a high quality and calibre.
The Labour party has much to answer for, given its track record in the motor industry. I mentioned what happened in the 1960s when the Government of Lord Wilson helped to create the British Motor Holdings group. In those days the company had 48 factories and employed 190,000 people. Each employee produced only 5·6 cars per year; its productivity record was not good. Harold Wilson knew the reality of the matter and when BMC shop stewards descended on the 1966 Labour party conference to protest about redundancies he was asked whether a deputation of six of them could address him at his Brighton hotel. He agreed and 12 of them entered the hotel. Harold Wilson said, "That is what is wrong with the British motor industry—it always needs 12 men to do what six could do."
The industry was faced with the challenge of dragging itself into the latter part of the 20th century and to match Japanese and European competition. The conflict between management and employees was never ending. In 1969–70, 5 million man hours were lost through disputes. In 1971–72, the figure was 10 million; the year after that it was 7·4 million; and in 1973–74 it was 9·6 million. That continued until the Conservative Government took office and brought some law and order to industrial relations, which was the catalyst necessary to maintain the viability of much of our industry, particularly the British motor industry. It heralded the end of Red Robbo and his sort, who used to call out the work force at the drop of a hat, thus disrupting production and sales throughout the world.
No Labour Government could tackle overmanning and poor productivity, preside over closures, rationalisation and redundancies because their paymasters would never allow it. The survival of British Leyland depended on unpalatable decisions being taken. If we were to maintain a British car industry, those choices had to be made. The Conservative Government, using the support and skills of Sir Michael Edwardes, ensured that a large portion of the British motor industry survived. The choices were painful and tragic for those who were affected. Labour relations were tackled and the troublemakers finally cast to the wind.
Despite these great changes, the company still had a long way to go, and losses were still being incurred. Rumours abounded that the Government were anxious to ensure a sell-off, but, despite the discussions taking place, the business remained substantially intact until Graham Day took over in 1986. His policy of business disposal has been absolutely right. Jaguar had shown the way in 1984 —and what an outstanding success that company has been. It is employing more people than ever before, for higher wages, and turning out more products, bringing wealth to Coventry, to the country and to the people who are employed in that business—an outstanding achievement.
Is the hon. Gentleman aware that, towards the end of last year, in a six-week period, 17 shop floor workers at Jaguar died from stress-related diseases, including strokes, and since then the company has demanded an extra 92 cars per week off the track? is that the benchmark of the hon. Gentleman's productivity?
The facts speak for themselves. If they are to survive, the productivity and performance of companies must be of a high standard. The output of Jaguar is still nowhere near the level of some of the European factories, which seem to manage perfectly well. I cannot comment on the physical standards of shop stewards and employees. However, the regular hours that they have been putting in and the good money that they have been earning has been reflected by a substantial upturn in the economy of the west midlands.
The Rover Group has been successful in privatising Unipart, Leyland Bus, Leyland Trucks and Freight Rover, Istel and smaller component businesses, and all are doing well. That is why I welcome the British Aerospace-Rover proposals. Along with my hon. Friend the Member for Bromsgrove (Mr. Miller), I expressed reservations initially about the early proposals, and asked whether there were any alternatives. Along with my hon. Friend, I went to see Graham Day. After our private talks with him, we were optimistic about the outcome and sure about the future of the business.
Rover and British Aerospace will be a formidable partnership. The merger is popular with the work force, just as the merger between Freight Rover and DAF was. When that announcement was made, Freight Rover workers were pleasantly surprised about their future, going into the Leyland-DAF combine, and the evidence shows that they were right. The factory is engaged in substantial expansion and there is talk of the work force being doubled in size. We look forward to that successful expansion.
The Rover-British Aerospace deal takes away the immediate worry of who will own what, and leaves everyone to get on with what they do best—building good quality vehicles. Labour Members would not prattle on about investment and the future so much if they could see the enormous investment taking place in the company with new engines, gearboxes and cars produced to the highest technology and by a skilled work force, determined to give themselves and their families a secure future. These investments are taking place under the financial regime of the business. It has not used Government money for the past four years. It is financing its own investment from its own earnings. It is cautious about its investment programme—as it is about all that it is achieving—which was set out by the Rover Group board and approved by the Government as part of the corporate plan. It is sustainable and it means that the Rover Group can maintain its viability as a separate car company, although it will be better off under the wing of British Aerospace.
Throughout the region car workers can take out mortgages and other such commitments because their income will be on a regular day-to-day basis. Productivity and quality are setting new standards and are nearly equal to those of the best of our competitors. Much of that has been learnt by the company in its dealings with Honda. Honda has taught the business to produce cars of a high quality, and that is reflected in many of its products. In a recent back-to-back test conducted for the April edition of Company Car, which is available in the Library, four popular fleet cars were tested—the Montego, the Sierra Sapphire, the Cavalier and the Peugeot 405, which is made in Coventry and is an outstanding vehicle. This was the conclusion:
in overall assessment there is no escaping the conclusion that the Montego offers more than its rivals. It is not quite as fast as the Peugeot 405 manages to be, but it is more economical, offers much better accommodation … and is generally better equipped. As to the Cavalier and Sierra, they are both excellent fleet cars, but I find no grounds for changing the conclusion reached last year, that they are both beaten by he Montego. The Peugeot seems to drop neatly into second place".
The company is making outstanding products and will go on doing so as new products come forward.
My hon. Friend the Member for Solihull (Mr. Taylor),:
who by convention cannot speak in this debate, has been a staunch supporter of Land Rover and has played a leading part in ensuring the continuing viability of that company. What an outstanding future it will have under British Aerospace, as British Aerospace's military contacts throughout the world open new opportunities for the sale of Land Rover's military derived vehicles. That is an exciting prospect, and I know that my hon. Friend looks forward to the benefits of this merger for his constituents.
There is no doubt that all those connected with Rover, especially in the component industry, owe a huge debt of gratitude to the Government. With its new products, its dedicated work force and its new partner of British Aerospace, the future looks bright. Let us send out a clear signal to the European Commission tonight. It should not stand in the way of this deal, but should let it go through intact, as we have proposed., and it will play a substantial part in the continuing revitalisation of our industrial capacity and the resuscitation of our car industry.
I want the Rover Group to succeed, not least because thousands of my constituents depend on the Rover Group for their jobs and wages, but the Government's sale, or gift, of the Rover Group to British Aerospace is a bad deal for the taxpayer, for the people who work for the Rover Group and for the thousands of people who work for dealers and components manufacturers in the west midlands and elsewhere, and who depend on the success of the Rover Group for their future livelihood.
The hon. Member for Birmingham, Northfield (Mr. King) missed the crucial point, which is not that British Aerospace knows nothing about making cars but that it knows nothing about selling cars. Indeed, the hon. Gentleman made hardly any reference to the sales and marketing problems of the Rover Group. He talked at length about the production of cars but he said nothing about selling cars. The biggest weakness of British Leyland, then Leyland Cars and now the Rover Group, has always been its sales and marketing department. Its biggest problem has always been its inability to design and sell cars.
That is the first criticism—that the deal will put the Rover Group under the control of a company that is in a different market. As my hon. Friend the Member for Dagenham (Mr. Gould) explained, people who sell planes are selling to a few customers with high-value orders with a great deal of Government involvement—the sales may even be made to Governments. People selling cars are selling them through dealers and retailers to individual customers and to the fleet market which is still a relatively large number of customers compared with the people buying planes. The markets are different, and that is why this is a bad arrangement.
The second problem is that of finance for investment in the future. A year ago, British Aerospace needed the Government to help it with money to finance its contribution to the Airbus project. To his shame, the Minister suggested that Labour critics of this deal were saying that the Government should not have helped British Aerospace with the Airbus project. He should know that that is not true. My hon. Friends and I were constantly pressing the Government to help British Aerospace by making available the money for our contribution to the Airbus project, as other Governments are doing for their companies. We did not criticise that. The Minister has deliberately missed the point, which is that if British Aerospace needed Government help for that contribution, how can it finance future model development at the Rover Group? Indeed, how can it finance the acquisition of the Rover Group? The answer is that it is not buying the Rover Group because the company is not being sold—it is being given to British Aerospace. That is the truth behind the arrangements that the Government have concluded with British Aerospace.
This is not a good deal for the taxpayer who has invested in the Rover Group over the years and is now beginning to see a return on that investment. The future profits of the Rover Group will go not to the taxpayer but to British Aerospace.
British Aerospace has an immediate cash flow problem over the next few years before the sales of planes generate the money that it needs. British Aerospace needs the Rover Group as it needed Royal Ordnance to provide the money for its day-to-day cash needs for the next few years. That is what the deal is about.
What will happen after those five years—after BAe has achieved that short-term cash flow—to the investment that needs to take place in new models at Longbridge and elsewhere? We fear that the answer is that British Aerospace will not be able to afford investment for future new models. The cash cow will dry up and then British Aerospace will want to close down plants and dispose of assets. In fact, British Aerospace may not even wait five years; it has a record of closing down factories—not only its own factory at Weybridge but the Royal Ordnance factory at Enfield. The policy of British Aerospace is to generate cash by capital receipts as a result of closing factories and selling prime sites.
Not only Cowley will be at risk. Cowley and Longbridge are not the only factories in the Rover Group. Many other smaller sites still operate in Birmingham and the west midlands. It is only a few years since the Solihull factory was closed down, and what happened once can happen again. Other smaller factories may well be closed and sold off to generate cash to tide British Aerospace over its short-term cash problems.
The Minister has not explained, and cannot explain, how the arrangement between British Aerospace and the Rover Group will strengthen Rover as a volume car producer. In the immediate future, Honda will be more important than British Aerospace to the Rover Group. The irony is that if the worst happens, we may find that not only have the Japanese acquired the Rover Group but they have acquired British Aerospace through the back door as well.
The real reason why the Government are so anxious to get rid of the Rover Group is that it is becoming profitable. The hon. Member for Northfield made our case for us when he told us about the investment that had taken place and how, thanks to the hard work of its employees, the Rover Group was beginning to make a profit. That is the point. The Government cannot stand profitable publicly owned industries. That is what it is all about. The Government want to get rid of profitable nationalised industries because they do not fit its dogmatic approach to industry.
The point is not that the companies that have already been privatised are doing well because they have been privatised. They are not doing well because they were sold; they were sold because they were going to do well. It is precisely because companies such as Jaguar and Istel and the others were becoming profitable that they were sold by the Government. Because the Government could not sell Rover Group, they are about to give it away.
The hon. Member for Northfield referred to the 1960s. It is important to emphasise that the Rover Group was not taken into public ownership as a result of a Labour Government's hankering to tinker with manufacturing industry but because the company had failed under private ownership and had become virtually bankrupt after four years of Conservative Government—a point carefully glossed over by Conservative Members. At the end of four years of Conservative Government, the privately owned British Leyland had to be rescued by the Labour Government because the country could not afford to allow it to be closed. Thousands of people depended on what was then British Leyland for their livelihood. Thousands more depended on it for their employment at component manufacturers and hundreds of privately owned dealerships depended on it for employment and profits. That is why we had to take British Leyland into public ownership.
We need a continuing long-term commitment. The Minister was right to say that uncertainty and instability damage our prospects of selling cars. But who created the uncertainty and the instability? The Government created them by their own 1983 manifesto commitment to sell or get rid of Rover Group. We need a continuing long-term commitment from the present owners—the Government, on behalf of the taxpayers—to the group and an equal commitment from the people who work there.
I thought it very significant that, while the Minister was lavish in his praise for Graham Day and made passing laudatory references to the present management, he could not find it in him to say a word of congratulation or appreciation to those who have worked for the Rover Group not for two years but for 22 years or longer. Virtually the only people left, as most of the newcomers have been sacked, are the hundreds of people who have worked at the Rover Group all their working lives. I should have thought that they deserved some congratulations on their hard work through the bad years as well as the good years to keep the Rover Group going.
The Minister said that the employees were delighted by his arrangement. He said that the majority of those who worked at the Rover Group were delighted by the takeover by British Aerospace. How can he say that? I do not know how he can have reached that conclusion. To the best of my knowledge, there has been no ballot on the proposals and no attempt to take soundings of employees. There was no discussion with the trade unions that represent the work force. The Government did not even adopt the latest Land Rover management technique of using an outside polling organisation to phone employees' ex-directory numbers, intrude on their privacy and seek their opinion. How can the Minister have reached that conclusion? He is making it up, just as he made up most of his comments about the Rover Group.
We need a commitment from the Government to keep the Rover Group in public ownership and an equal commitment, which has been forthcoming over 20 years or more, from the people who work at the Rover Group. If we have that, we shall continue to have success and the taxpayer will then enjoy the profits from the investment that has been made in the past.
My old and valued opponent, the hon. Member for Birmingham, Hodge Hill (Mr. Davis), has been going through the routine again. He gave exactly the same song and dance act on television the night that the Leyland-DAF deal was announced. There were the workers in his constituency being interviewed about what they thought of the deal. They were welcoming it while the hon. Gentleman forecast doom and gloom. He conveniently forgot to mention that while they were on strike the Land Rover workers welcomed the British Aerospace deal. Opposition Members never consult the workers. They blather on about them but they never bother to find out what they think. Instead, they pursue their own ends.
I am not surprised that the Opposition have recoiled from their initial reaction to the announcement of the deal. They had to ask for a debate because they knew they had made a botch of it. Now they have had time to reflect and are beginning to jabber for the first time about the need for stability in the company. Having made a ritual obeisance, they then go all out to destroy its fragility.
My hon. Friend the Member for Birmingham, Northfield (Mr. King) was right to say that every time we have a debate on the matter a new question mark appears. That is one very good reason for getting into privatisation —to get away from public discussion of the company's affairs, which can be so damaging.
Opposition Members put up a number of Aunt Sally s, which they then proceeded to destroy. They bore no relation to my right hon. and learned Friend's speech. They were imaginings designed to prove the Opposition's case that all would be well if the world could stand still and remained in public ownership. Of course, we have not had the form of that public ownership defined. We do not know whether it is social ownership or a new form of ownership. The revisionist hon. Member for Dagenham (Mr. Gould) was remarkably coy on the subject. No doubt the hon. Member for Great Grimsby (Mr. Mitchell) will give us the revealed truth—the tablets of the Old Testament. Perhaps a new testament is being hatched by Opposition Members.
The hon. Gentleman's only connection with the car industry lies in his christian name.
Let me return to the background. It is important to bear in mind that, thanks to the Government's policies and the philosophy that underlies them, our motor industry is beginning to recover. It is important to recall that production in the United Kingdom is likely to rise this year to 1·25 million vehicles, of which approximately 350,000 will be exports.
Some Opposition Members questioned the increase in our car exports. That increase has been solid, and it has particularly contributed to the recovery of the Rover Group. Of the 1·25 million vehicles produced, the Rover Group accounts for 600,000. Of those 600,000, approximately a third are accounted for by the Metro— the only car produced by the Rover Group that is in the top-selling six or seven vehicles. Therefore, that car is crucial to the 1,000 dealers and many hundreds of suppliers. In that context it is important to mention that there are about 2,000 components suppliers in the United Kingdom motor industry, but only 60 of them have a turnover that exceeds more than £10 million a year. The motor industry is fragmented, but it is important to many hon. Gentlemen and their constituents.
I wish to explore the flexibility that my right hon. and learned Friend announced—I believe for the first time—in the operation of the condition on the disposal of a substantial part of the car-making asset. That flexibility is important, and I welcome what I detect as a forward move on the part of my right hon. and learned Friend. I have always argued, right back to the balmy days recalled so fondly by the hon. Member for Hodge Hill—the clays of the Ryder plan and nationalization—that the Rover Group needed to collaborate with other manufacturers. Indeed, that collaboration already takes place with Honda, Peugeot and Volkswagen. I believe that such co-operation should be extended if we are to manufacture a full model range. I hope that the condition of disposal will not prevent collaboration with another manufacturer, including a possible share particiption.
Once again, the Opposition talk about investment as if mere quantum investment is sufficient to produce the results that we are seeking. I believe that it is easy to place too much reliance on technology and consider it a short-cut to quality, productivity, output and, in some cases, a means of bypassing responsibility for labour problems.
I well recall sitting in front of Mr. Toyoda in Toyota city. He said, "Welcome. We are happy to show you around our factory. Let me give you a word of warning, however. You will not find any plants here as advanced as that in Longbridge." My goodness, that was true. Nevertheless, productivity and profitability were much higher in that company. Exactly the same was said to me, in slightly different terms, by the managing director of a Japanese shipyard that I visited. He said, "I believe that your yards have too many computers. You have become too inflexible. You have gone too far down that road when you should have been developing communications with the work force, proper preparation of the work and proper presentation of it to the workers so that they can accomplish their target." We should not be misled by the parrot cries of the Opposition who claim that it is just a question of more and more investment and that only the state can guarantee that investment. All Opposition Members say the same thing.
The Opposition believe that it would be lovely if the world stood still and we could all stay as we were. They are the original Conservatives. They are unable to contemplate change and unwilling to give effect to it.
Let us examine the record of public ownership. I believe that the hon. Member for Hodge Hill was rather selective because he overlooked the role that was played by his right hon. Friend the Member for Chesterfield (Mr. Benn) who, in 1968, put the plan together with Harold Wilson. Public ownership has been no protection against low wages. After nationalisation, the wages of car workers, in comparison with other occupations, dropped from the top of the league to near the bottom. The Opposition do not often think about the customer and nationalisation. It did not protect the customer from poor quality or rising prices. We sat up all night discussing the prices and incomes policy introduced by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). The car makers put up their prices every quarter, and a fat lot of good that was. Nationalisation offered no guarantee to suppliers, designers or dealers of a market of parentage or of supply. Nationalisation was no basis for exports or strategy. As my hon. Friend the Member for Northfield has said, there was no guarantee that the Ryder plan would be fulfilled.
It is for good reason that it has been the policy of the Rover hoard, as well as of the Government, to return the firm to private ownership. The Labour party always wants to keep its fingers on; it always wants some sort of control. It does not tell us what sort of ownership or what sort of management it has in mind. Would we see a return to the co-operative form of management? Would we go back to the Triumph Motor Cycle company, which was a co-operative venture? Would we see the resurrection of Kirby Engineering—another venture of the right hon. Member for Chesterfield? The Labour party is reluctant to yield control. In some ways it resembles civil servants. As I was a civil servant, I am reluctant to make that comparison. Certainly, the Labour party and civil servants share the same inability to distinguish, on occasion, between capital and revenue.
What I object to most of all is the false distinction that the Opposition continually try to make between capital and labour—between workers and managers—as if everyone was not involved in the success of an enterprise or as if managers do not work. They are myths from Labour's past; they are bogy men paraded in front of us. They are an attempt to frighten the workers into the belief that their futures will be at stake if they are allowed, for once, to acquire a shareholding in their companies. That is what is at issue. The Labour party does not like the idea that workers should have real power of ownership which is not exercised by the Opposition.
The Opposition talk about worker representation on the board. Do we seriously imagine—as my hon. Friend the Member for Northfield has said—that we would have Red Robbo on the board? Would that be in the best interests of the workers, customers or suppliers?
We must conclude that, thanks to the policy followed by the Government, the timing of this deal is right. Our policies have made it possible; our underlying philosophy has made it inevitable. Commercial decisions must be made commercially because that is the only way in which we can match competition.
The Opposition have nothing to offer—neither the old nostrums nor the new panaceas that they carefully left unelaborated. With them, it is jam tomorrow. With the Conservative party, it is power and shares to the workers today.
I have listened with some disillusionment to the debate. I thought that sterile toing and froing between nationalisation and privatisation had been written into the history books.
The Minister had to start with a sterile description of the benefits of privatisation. I suppose that that would be what the hon. Member for Bromsgrove (Mr. Miller) would describe as one of the new panaceas. The examples that the Minister gave showed the turnround which has happened while the company has been publicly owned. That does not mean that privatisations are wrong. It means that the company need not be privatised for there to be a turnround.
Equally, we have heard the Labour party say that the company should remain nationalised. It does not follow that there is a benefit from that. Many of the workers and consumers who obtain their products from the nationalised sector would hardly see that as being the case. Equally, there is nothing intrinsically wrong with it. When it is appropriate, the state can help to turn round an industry. Indeed, the Government have been reaping the benefit of their ability to do that. They cannot deny that.
Let me nail my colours firmly to the mast. I believe that it is important to consider the long-term viability of the Rover Group, its engineering integrity, its ability in research and development and, in particular, its ability not just as an assembler—such as Peugeot and Nissan—but as an integrated designer and builder of motor cars from the bottom up throughout the range of cars. It is important, not only because of the nationalism associated with the motor industry, but because of the jobs and the engineering ability which could be lost. The records show that when we lose that ability and that integrity, they do not come back. We are not looking suddenly to plough back into mainstream motor cycle building. As has been said, we lose it for ever, if we lose it at all.
Any deal that involves the strengthening of the position of the Rover Group, and guarantees that it will remain at its current position or, preferably, move forward, would of course be welcomed by hon. Members on both sides of the House, although some hon. Members may be more up front than others. In our hearts, we know that we are debating how to ensure the integrity of the group. The essential question is addressed somewhat inadequately, judging by the way the debate has gone: will the British Aerospace link-up achieve what the Government say it will achieve and Opposition Members say it will not?
The question mark that is hanging over that matter was well stated by the Financial Times. That is hardly a Socialist rag, but nor is it just crawling to the Government. It is an independent voice in the business sector, writing largely for business men. It said:
The basis on which the Government has chosen to negotiate appears more designed to save political face than to protect the taxpayer's interest.
That is what the Financial Times describes as the real objection. That is the basis on which the debate is taking place.
The more one learns about the deal, the more remarkable it appears. Consider Lord Bruce-Gardyne, who is hardly a critic of the Government's comments. When the announcement was originally made, Lord Bruce-Gardyne, in another place, called it "Golden giveaway terms." That is not echoed by Government Back-Bench Members on this occasion. That is a comment of a strong supporter of the Government, especially as regards his business and monetarist views of the economy. That rather contrasts with the view of the Secretary of State for Trade and Industry that it is the deal of the decade for the Government. It is difficult to see that that is the case.
When one looks at Rover's accounts and adds together the net asset value and the giveaway of £800 million—the write-off of large sums of taxpayers' money—it is clear that British Aerospace is getting a bargain. It is being paid to take the company off the Government's hands. That is the truth of the spectacular deal that it has made with the Government. It means that the Government have valued Rover's shares at only 2·7p a shot, whereas the market values the shares at 75p a shot. That is the truth of the Government's best deal of the century.
It may be a good, sensible, realistic bargain, as the Minister described it, to British Aerospace, but it does not look like a bargain to the taxpayers in my constituency. Nor does it appear that it will be much of a bargain to those who already own shares in the Rover Group. If the Government have already put that value on the shares, what value will they put on them when they offer them for sale to potential shareholders?
In The Times of 3 March, Professor Smith said:
We shall strike a very hard bargain on the purchase.
He was clearly signalling that the Government were going to lie back and let him have it without any serious negotiations. There was no possibility of turning down the deal or of considering other offers.
Nevertheless, we are told that the golden giveaway will be of benefit to the country and the Rover Group. There are no hard, economic grounds for the deal, but perhaps the Government took the view that an overall strategic viewpoint would be more beneficial. They do not appear to have put much thought into the matter or to have thought seriously about negotiation or turning down the deal. British Aerospace must have been aware of that and realised that the Government had put themselves into a corner on the very day of the announcement. They could not turn it down after that.
As the hon. Gentleman says, it was decided at a cocktail party. Clearly, Lord Young had no thoughts on the matter until it was presented to him. At the press conference where Rover announced its 1987 results, he said:
I have literally an open mind on it…I will wait for Mr. Day to tell me even whether privatisation is feasible. I have no thoughts of my own on the subject at the moment.
That hardly suggests that the Government were considering in detail the advantages and disadvantages of the company moving into the private sector, or the deal that they wanted.
If that is how much the Government were putting into consideration of the strategic overview, it is just as well that they are giving the company away on golden giveaway terms. At least a group of people in the private sector might be prepared to consider the strategic implications for the company and to look ahead and to sell the company, rather than, as the Government have tended to do, undermine it on every possible occasion.
The Government have shown an ideological commitment to the private sector as poor as any that has been heard from the Labour party in favour of the nationalised sector. They have paid no attention to the fact that companies in both the private and state sectors go up and down. The basis of the Government's privatisation successes has been laid down in the public sector when those companies have been properly managed.
The Government must respond to a number of important questions. What do they believe will happen with the EC? What indications have they of the EC"s view on the matter? The EC is taking an increasingly tough line on such Government giveaways. Indeed, it forced a reduction in the terms of the Leyland-DAF deal. The EC has accepted an agreement between Renault and the French Government, but that involved no new money, only enough to restore the company to net worth zero. I cannot believe that the EC will take as lightly as Government Back Benchers the idea that £800 million is not a giveaway.
More important, what guarantees have the Government extracted in those detailed and difficult negotiations about British Aerospace's future investment plants for the Rover Group? We are told that BAe sells the deal to its shareholders on the basis that everything will be generated within Rover and that nothing will come out of BAe. That does not suggest that there will be any guarantees for the company if it is hit by hard times. What guarantees have the Government won for the future of an integrated business? Will the engineering status of the company be maintained in terms of engines and model range? Have the Government won guarantees on research and development ability and for the various major industrial sites and factories that the company runs?
Are there any plants for the future of the Rover Group? We have heard much about difficulties that can be caused by political debate, but what are the plants for the group if the EC should reject the current proposals? The Government seem to have written off any hopes for the company in the absence of BAe. Have the Government considered what will happen if the shareholders object? What guarantees have the Government extracted from the five-year rule? We have not heard much about that.
What would happen if BAe were taken over? There have been possible bidders in the past. There is a list of companies that might be interested in taking it over. For example, GEC has expressed an interest. Other possibilities are thought to be Hanson Trust plc, BTR plc and Thorn EMI plc. Given the recent profit failings of BAe, a takeover is hardly an impossibility. If that were to happen, what guarantees would remain with the Rover Group and what would be the strength of the Rover Group?
The Minister said that if there were a sale of any major part of the company it would lose any economic gain as a result. How do the Government define economic gain? Does that encompass a distress sale or unloading the Rover Group into another area for economic gain in the strategic interest of the company rather than for immediate cash gain? How will the Government judge the economic gain to the company? Will the Government put the matter before the House if a major disposal is planned? When the Government say that they will consider these matters, do they mean that they will do so at a Cabinet meeting or within a Department, with the result that we shall never have the chance to debate the issue on the Floor of the House?
The Government must acknowledge that, while the deal may be good for BAe at a time of losses on several aircraft orders and uncertainty over the Airbus, BAe has no expertise in the manufacture and selling of motor cars and no expertise in the overseas markets of the sort engaged in by the Rover Group. Its expertise lies in specialised international defence markets. I note that it has been suggested that BAe had no interest in the Rover Group as a whole. It was interested only in Land Rover as that division comes under the military wing and, to some extent, within the interest of the Government.
The future of the group will depend on the willingness of the owners of Rover, nationalised or privatised, to invest in its future and to see it through dark days as well as good. That is the history of the company. That is the history of car manufacturing throughout Europe and throughout the world. There is rise and fall followed by rise and fall. The winners are those who can invest during the falls and who are prepared to do so. The evidence is that BAe, willing or not, is in no position to give such guarantees.
I guarantee briefness, Mr. Deputy Speaker. However, having heard what sounded like Gilbert and Sullivan without the songs and the humour from Opposition Members, I was at one stage tempted to speak at length.
I wish to pay tribute to my constituents' work in the Rover Group factories, in the component manufacturing industry and in the many dealerships throughout the midlands. I pay tribute to their improvements in productivity, their better designs, their better appreciation of their markets, their more professional management skill and their more dedicated work force. Surely these are guarantees of an excellent company that has put its house right and is now seeking a partner.
Opposition Members who use phrases such as "the deal of the century" and "to get rid of" denigrate a great British company that employs many of my constituents and constituents of many colleagues on both sides of the House. They do themselves and their parties great harm in not recognising that. It is sad to see such unbelievably negative attitudes and almost synthetic passions about the arrangement between a great British car company, which is now high-tech and enjoying high productivity, and a great British Aerospace company, again high-tech and enjoying high productivity. It would seem to be an excellent marriage and one in the national interest. It will benefit the future of the people working in the company —both managers and employees—and the future of the component manufacturers and dealers.
I condemn the synthetic disagreement expressed by Opposition Members with a Conservative Government giving money to someone and writing off debt. Opposition Members were not singing that tune last week. However, if that action enables the company to approach its new partner and match the strengths of the two companies, it must be beneficial. So many Opposition Members are interested only in looking for notional weaknesses in the partnership rather than the strengths.
The Rover Group includes Austin Rover. Land Rover is particularly important to my constituency. I know that my hon. Friend the Member for Solihull (Mr. Taylor), who has listened so assiduously to the debate, takes a passionate interest in this matter. He and I represent Land Rover employees in the borough of Solihull. We are aware that this merger is very important for the people working in Land Rover. Their plants for the future will be aided by the strength that British Aerospace can bring to the Rover Group. Indeed, the employees at the Rover Group will bring strength to British Aerospace.
I do not have many questions to ask my hon. Friend the Minister. Indeed, perhaps I should address my questions to Opposition Members. Perhaps the Opposition will tell us what they would do with the group. Will they renationalise it if they have the chance? They will not have that chance, but let us enter their thinking and learn what they intend to do. The hon. Member for Dagenham (Mr. Gould) was not clear about that.
Would public ownership be to the advantage of my constituents? It is inconceivable in a highly competitive world market that public ownership could continue to allow a company like the Rover Group to develop, to design, have access to the markets and to be successful. The Opposition are living so far in the past that their comments tonight will go unreported, largely unnoticed and unsupported by the majority of people in the midlands to whom I have talked about this natural partnership involving two great British companies. The company needs the resources to compete with European competitors in 1992 and also with international competitors. It must also compete with emergent nations like Korea and China. I hope that China will thank us when it gets its car manufacturing going.
I have many Jaguar workers in my constituency. I worked in the components industry for 18 years and I know the car industry and its dealers. I welcome this period of stability. I encourage the Government in their efforts to ensure that the European Commission approves the proposal as quickly as possible and I wish all the employees in the Rover Group success in future.
I will be as brief as I possibly can to allow other hon. Members to speak. However, I must declare an interest as I am the joint president of the Manufacturing, Science and Finance Union.
At the end of the day the workers must work in the industry under any management. The Government have a lot of cheek in pretending that this is a grand strategy which has been proposed as part of a long-term plan. That is absolutely wrong. The Government simply did not want a privatised company. Why could not the Government have written off the debt and let the company remain where it was? The profits would then have come in. However, that did not suit the Government's commitment.
There are 71,000 people employed in British Aerospace and 60,000 are employed directly in the Rover Group. That 60,000 does not include workers in the components industry. Rover Group and British Aerospace are two of the major exporters in this country.
In the short time available to me, I wish to pay tribute to the people responsible for that success—the workers in those industries. Some of them are members of my trade union, while others belong to different unions. None of them has been consulted by the company. Indeed, the company has kept them at arm's length and has failed to consult them about the future of the industries in which they work, despite the 22 per cent. sales increase at Austin Rover and a similar increase at Land Rover. There has also been a tremendous increase in export sales, and a 16 per cent. overall rise in production at both Rover and Land Rover. It is on the basis of that success story that the company has been sold to British Aerospace.
We heard from the Minister, when he opened the debate, the usual glib and shallow speech, but he has given no answers about the future. What guarantees about the future have been sought by the Government? When the Minister replies, I hope he will answer some of the questions that have been put. We know that the K-series engine is going ahead, and that it is a highly successful and versatile engine. We know also that the R8 is due to come on stream in 1989, and I am sure that it will be a very successful model. However, what about the replacement for the Metro? Was any guarantee sought by the Government in that connection?
It is true that neither of the companies has funds available for the new model programme. What guarantees have been given in that respect? We have heard that Honda are prepared to collaborate, but what terms have been agreed? What kind of collaboration will there be with Honda in the future? I am concerned about Longbridge and Cowley. Will one of them be sold off for property development—because we have heard about the situation in which British Aerospace has found itself?
The workers involved want answers to all those questions. Whatever may be the future, they are concerned about the success of the industry. They have made a success of British Aerospace and they want to continue in their jobs and build on that success. Have the Government sought any guarantees, and what replies has the Minister been given? Only when we know those facts—whether or not we shall be given them tonight, I am not sure—will we be able to judge whether the merger will be a success.
I am surprised at the paucity of the arguments that have been advanced from the Opposition Benches tonight. During the whole time that British Leyland was the plaything of the dead hand of Socialism, or was in the manipulative hands of the trade unionists who operated it in Birmingham, where my constituents were dependent upon it for their jobs, there was a shambles all round. There were losses and there was the failure of the industry. Well does my hon. Friend—yes, I say "Friend"—the Member for Birmingham, Hodge Hill (Mr. Davis) know that to be true, and well does he know the satisfaction of his own workers in that area of the city about the fresh Rover situation.
In the past we have seen the failure of the group being directly attributable to the manipulative scheming of the right hon. Member for Chesterfield (Mr. Benn), who put together the British Motor Corporation and made British Leyland a massive, overwhelming and complicated body of over-employment that was bound to make a loss. Now that that has been put to rights, no argument can be raised against it. Even Professor Bhattacharyya of Warwick university, who has worked on these matters and analysed them with the Austin-Rover Group, says that he expects that within three years or so the group under British Aerospace will be earning £250 million a year in profit.
It is probable that many of the new models will be produced—strangely enough—by an economic process engendered from profits, unknown in earlier times and unappreciated by Opposition Members: the installation of good management, the cultivation of excellent labour relations which did not exist before, and the development of factories able to produce goods that are wanted throughout the world. Exports have risen throughout Europe and in the far east, and the group is responsible for producing three quarters of the cars that we export.
Now, rightly, the business is being retained in British hands. That was demanded overwhelmingly by the Opposition in previous years, when they joined us in claiming that it was wrong for British Leyland or the Austin-Rover Group to be sold abroad. Now the situation has been saved: it is in British hands. However, the Opposition are still complaining about the position, as indeed are the French. The French say that the deal will prevent the organisation of a. pan-European international aeroplane business. I find that those arguments are strangely not shared by the Germans, who are attempting —unsuccessfully—to do precisely what the Government have been able to do with this formula.
If the French are complaining, I am very happy that this is an excellent formula. A full part is being played by the British car manufacturing industry, in a new way and a new form which will succeed, and which the Opposition do not like.
I do not think that the long-term interests of a successful Rover Group—or of the country's car industry—are helped by the ideological ranting about the dead hand of Socialism such as we have just heard, any more than they are helped by the unbelievable protestations from Conservative Members that we have debated the Rover Group a number of times recently. Whose responsibility is that? It is, of course, the Government's responsibility, as they brought forward the proposals to sell off the group, just as previously they were anxious to get rid of it at any price to Ford. That is why the company is continually in front of the public as a matter of general debate. It is a matter of the Government's own choosing, through their ideological commitment—there is no other industrial rationale—to remove the company from the public sector.
As has been said, a remarkably generous deal is being offered to British Aerospace. I emphasise that my concern is to ensure that the revenue and capital resources that are available are applied within Rover Group, and are applied to investment in the model range. No one with the interests of the industry at heart wants Rover Group to be saddled with a millstone of debt for the future. We are right to ask, however, what tangible benefit the Government have secured for the future of the company and the industry in the negotiations through which those generous terms were reached.
My particular concern is for the future of the Cowley plants in my constituency. As production of the Maestro comes to an end, and in the knowledge that production of the Montego will not continue for ever, it is abundantly clear that however successful is the excellent Rover 800 and its derivatives—in that respect, much turns on the value of the pound—we are fast approaching a point at which the prospects for employment at Cowley require the announcement of a new model, and confirmation that the Rover 800 reskinning will go ahead by 1992.
I have every confidence that, given the opportunity, Cowley will deliver the goods. Cowley has an extremely committed and skilled work force at all levels which has been responsible for dramatic improvements in productivity and quality. I join my hon. Friend the Member for Warrington, North (Mr. Hoyle) in saying how unbelievably disrespectful to the work force it was for the Minister to praise Graham Day and not to utter a word of praise for the commitment of the workers which has actually turned the company round. I trust that the Minister will rectify that omission.
Internal company studies show that the workers at Cowley are being expected to put in 20 per cent. more effort than workers in West German car plants. The commitment of the work force is not in doubt. Cowley is eminently suited to producing competitive and successful models for the future, which the country and our community want. At the same time, however, it is clear that expressions of confidence in the future must be based on more than that excellent potential and the Minister's vague aspirations. We need a clear indication of the model programme, and we need to know that resources will be available to build on Rover's undoubted strengths to put that programme into effect.
As my hon. Friend the Member for Dagenham (Mr. Gould) said, the Government have no industrial strategy whatsoever to ensure that that happens. The workers at Cowley, and those in Oxford and in other areas most immediately affected, want to know what the Government have done to represent their interests in the takeover. What have the Government done to secure a viable future for the plants? As the public custodian of the company, what have they done to make sure that there will be new models for the future? What have they done to make certain that the deal does not become an asset-stripping exercise in the long term?
The Minister's response to my earlier interventions about the conditions under which British Aerospace might divest itself of substantial holdings or parts of sites will have done nothing to reassure my constituents or others in the west midlands who are dependent upon the Rover Group for their livelihood. I shall listen very carefully to the reply from the Parliamentary Under-Secretary of State for Industry. If he says, as the Chancellor of the Duchy has said, that the Government in these negotiations sought to impose no such constraints and that it is up to the management and the market, I shall have to say that that answer simply is not good enough. It is further evidence that the Government set a higher stake on washing their hands of the Rover Group than securing a prosperous future for my constituents and for the country.
If the deal goes ahead, we must all hope that the amalgamated company is successful, and we must do what we can to ensure that it is successful. If the deal goes ahead, the Government should be left in no doubt whatsoever of their responsibility for the consequences. A responsible Government would not be embarking upon this course, as my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) and others have pointed out. The Government are pursuing their ideological commitment in such a cavalier and uncertain way, and without the assurances for the future that could and should have been obtained, that no one can be in any doubt where the responsibility will lie if things go wrong. That responsibility rests squarely on the Government. For ideological reasons, the Government may seek to wash their hands of the Rover Group, but they must and will not be allowed to escape the consequences of the decision that they have taken.
There have been two themes from the two sides of the House. From the Conservative Members we have heard forced praise for the arrangements, and from Opposition Members we have heard doubt, hesitation and pain. From nowhere has there been a "glad, confident morning", from nowhere has there been a real welcome.
We have heard forced praise from Conservative Back Benchers who have to say something nice and do not have the understanding to say the truth or the guts to ask for guarantees and therefore have clutched at straws—from which Central Office makes the bricks for them to drop —by claiming that there is some kind of synergy involved. There is as much synergy in this merger as there would be
if Rover were to merge with the manufacturer of the fluffy dice that hang in the back of cars. The best test of synergy is the reviews in the quality newspapers. The Financial Times said:
The industrial logic behind the proposal scarcely adds up to much.The Guardian said:
In terms of industrial logic the merger is madness.The Economist said that so much industrial logic is
PR fiannel. Aircraft and cars are utterly different to make, utterly different to sell. Rover needs car company skills, full stop.
That is true.
Hon. Members on both sides of the House are trying to make the best of a bad job. It is time that we looked at the basic truth, which is that the Government have betrayed, are now betraying and will continue to betray the British car industry. The car industry in this and any other country is central to a powerful manufacturing economy. We need a strong manufacturing industry and a strong car industry. Our industry has been allowed to shrink so that we are now well behind any other major industrial country in the share of home market that our car industry has and in the size and capacity of our domestic producer. Our car trade deficit with the EEC is nearly one third of our visible trade deficit.
The Government have betrayed the car industry because they have used a high exchange rate as a discipline on industry. They are dedicated to making the land fit for investors to live in. For investors to invest overseas they need a high pound. The Government have refused to let the market operate on the pound by propping it up with high interest rates, thus imposing a double burden on industry. That has caused the ruination of the car industry in the years during which they have been in office.
Imports make up a large share of our market. It is a far higher share than in any other industrial country. That has occurred simply because of the economic policies carried through by the Government. That is the first betrayal.
The second betrayal is the Government's failure to compensate the industry for the consequences of their folly. Let us look at the walking wounded that came out of their industrial folly. The problem is that Rover is not big enough for a volume car producer. It is not big enough to obtain the economies of scale that it needs and there is not enough investment to enable it to become the specialist up-market producer that it needs to be.
Between those two stools Rover is sinking. It needs help to overcome its problems. Every major car manufacturer in the world has had problems at some stage and in every other country the car industry has been helped and sustained by its Government. Volkswagen, Fiat, Peugeot, Renault and Chrysler in the United States have all received help. That help has built up and sustained the car industries, not whittled them down, which is what has happened in Britain. It would cost us to provide that help, but we must carry those costs if we are to maintain the car industry, which is vital to manufacturing. We cannot just close the industry down. We have to build it up and that is why the Government have to sustain their responsibility.
In every other country Governments work with industry. In this country the highest wisdom of the Government is to wash their hands of industry. They have a Lady Macbeth approach to industry. They want to wash their hands and divest themselves of it. We understand that the Minister is under a binding mandate from the Prime Minister to get rid of Rover. That is what this is all about. Let us look at how the Minister could approach that.
The only test of whether the industry could be privatised is whether it could be floated on the market. It fails that test because nobody will buy it. If it were floated, it would sink. Even if it were advertised as a slightly used car industry with one lady owner, it would not sell. The Government cannot float it; they will not build it up; they would rather give the money to tax cuts. They cannot close it—even Sir Keith Joseph was not crazy enough to do that. It would pull the heart out of the industrial midlands.
The Government cannot even adopt the Victor Kyam approach. He is the man who liked the Remington razor and bought the company. That is the approach the Government are taking with. British Shipbuilders—"You like the ships? Have the shipyard." They cannot take that approach with Rover because no one will have it given to them. So they must do what they have done. First, they put in Mr. Graham Day to give Rover the anorexia nervosa treatment—to sell it all off. What is the logic in selling off all those related businesses? The list of them is enormous and I shall not go through it all. He has sold off all those car businesses and divested the company of responsibility in the car industry for radiators and engineering design, and then merged with another company in a wholly unrelated business.
If Rover is to compete in the world it must be a specialist, strong car producer, not a limping part of another organisation in another activity. There is no logic in what Mr. Day has done. apart from prettying up the profits to get the company sold as quickly as possible. He has gone for profit, not market share. Market share has fallen consistently under his running of the company. That is the major test, and he has not solved the problems.
Now the Government are getting rid of the company. It would be better for the taxpayer to sell it to a foreign manufacturer who would pay more for it, but the Government's Back Benchers would not allow them to do that, and rightly so. They would get more money for the company in that way, but they must sell it to a British firm—but which one? That is the Government's problem. Who will take it off their hands?
Enter the well-known industrial Toby jug Professor Smith. He is not daft. He will not take Rover from the Government or have it given to him. He must be paid to take it. He will drive a hard bargain. However much he gets—one estimate is £650 million, another is £250 million—he will have been paid to take the company off the Government's hands. And that is a good deal for the Government. It uses the window of opportunity that arises as the company becomes profitable again and as the exchange rate fall of 1986 makes it profitable again. The deal allows the Government to get rid of the company, which is their highest ambition and wisdom.
The problem is that it is no ringing declaration of confidence in Rover, if the Government are so anxious to get rid of it that they will pay someone to take it. Conservative Members may criticise us for being critical of it, but this is a good deal for the Government because it gets rid of their obligation. It is our responsibility not to be taken in by ministerial speeches that are more sighs of relief than arguments.
What is to happen next? Now comes the Wendy hamburger question: where is the logic of this deal? Aerospace is an industry which needs heavy long investment runs. If British Aerospace wants a merger with other firms it would do best to take over an insurance company, a money cow that will provide the assistance to keep it going through early investment runs.
The merger with Rover will certainly put up BAe's earnings per share. Phillips and Drew say that they will be approximately doubled. The merger will give British Aerospace a stronger share price which will help it to avoid takeovers and give it better survivability.
For the rest, the merger only adds to the problems of British Aerospace. Both organisations have problems now that the dollar is falling and the pound rising. The pound has risen in real terms by 18 per cent. since the last quarter of 1986. That poses major problems for British exports and manufacturing. Tying these two firms together when there is an overvalued exchange rate is as logical as tying two one-legged men together and expecting them to compete in a three-legged race.
The merger will demand management time from British Aerospace which can scarcely be spared, given the company's severe problems with commercial aircraft. The merged Rover will need money of its own. It needs the new investment for new models that my hon. Friend the Member for Oxford, East (Mr. Smith) mentioned. It must have investment to keep going. If it is to be worth anything to Honda, it must have something to offer. That requires investment.
Once the survivability crisis has passed in two or three years, the company will need massive sums, which British Aerospace will not be able to provide and which Rover will not be big enough to generate from its own sales. According to the evidence of its previous managing director, it needs sales of more than 600,000 vehicles to generate the profit needed for new investment. The company is not making anything like that amount.
There is nothing much in it for British Aerospace, apart from in the immediate short-term period. There is nothing in it for Rover. It is not even a resting place for Rover. The basic dilemma remains: the company is not big enough to produce the volume and there is not enough investment for specialist production. There is no escape from that dilemma. That is why Rover must stay with the state. It is a matter not of the case for and against nationalisation but of who has the power, the muscle and the money to provide the investment to build up Rover. That is essential to our industrial base and economy. No one else is qualified to do it, and that is why the company should remain with the state. That is why the Minister is being irresponsible in getting rid of it in this fashion.
Labour would keep the company in the state and build it up as the kernel of the manufacturing expansion which will dominate the 1990s, with a Labour Government rebuilding our economy and using Rover as the powerhouse for that expansion. The job of the next Labour Government will be to rebuild from the wreckage generated by this Government.
Rover finds a reasonable home. New parents move into it, but they do not like Rover. They want to get rid of Rover so they do not feed or sustain it. In that case, Rover is probably better off with the People's Dispensary for Sick Animals. That is what is happening to the Rover Group, but it is not the best fate for it. Rover should be expanded and sustained through the difficulties. The Government have that responsibility. The responsibility for Rover, the future of the car industry, the workers in it and the dependent industries all over the west midlands is the Minister's. He is not getting rid of that responsibility by this manoeuvre. We will hold him to it.
I have the good fortune to be a Member of Parliament for a constituency in which the Rover Group and British Aerospace have substantial interests, so I am well placed to speak with some knowledge about the activities of both companies. The Rover Group originally started as Leyland Motors in the town of Leyland, in my constituency, so I can speak with some personal knowledge and the knowledge of my constituents about what Leyland, now the Rover Group, has achieved, the problems which it has faced and the potential success offered by this deal.
British Aerospace operates near my constituency, with the military aircraft division centred in the Preston area. The aircraft activities of British Aerospace have been especially pertinent to the good fortune which has been achieved by many of my constituents who work for that company or for Royal Ordnance, which is partly based in my constituency.
The hon. Gentleman, who, as always, is concerned about matters relating to the motor industry and to Coventry, should not gainsay the fact that the difficulties faced by these companies have been overcome by privatisation. Many of the constituents of my hon. Friends who have been here and participated in the debate will confirm that. I visited Leyland-DAF the other day and drove the 50,000th truck off the line. Productivity has doubled since privatisation, and that is not the only example that I could give. I am sure that the same will be the case with regard to the deal between the Rover Group and British Aerospace. My constituents and those of my hon. Friends have achieved some remarkable results. They have had to do so because the pressure of world competition on the passenger car and commercial market has been substantial. It forced them to realise that productivity had to be improved.
We have heard that not only the constituents of my hon. Friends but dealers, component manufacturers and almost anyone who knows anything about the motor industry welcome this deal—except of course the Labour party. The speeches of Labour Members were well summed up by my hon. Friend the Member for Bromsgrove (Mr. Miller), who made a typically robust speech. He said that the Labour party is out of date and does not recognise the new interests that are being pursued by those who work in the motor industry. It does not recognise that this deal is important for the future of the two companies. It is ever ready to snipe, predict doom and gloom and disaster and devalue possible and actual success. It is now following the dictum that the Opposition's duty is to oppose. It goes to such lengths to score what it classes as a few points, but that flies in the face of the industry's success story, which has been achieved as a result of its hard work at management and shop floor level in overcoming its difficulties.
My right hon. and learned Friend the Chancellor of the Duchy of Lancaster dealt with the substance of the debate, but a number of matters have been raised that I should try to deal with in the short time available to me. The hon. Member for Dagenham (Mr. Gould), in his usual, reasonable and amenable way, refused to answer the question that was asked by my right hon. and hon. Friends about whether the Labour party would renationalise the Rover Group if, as we confidently expect and hope, the deal goes through. We have noted that the hon. Gentleman avoided answering that question. I know that there are difficulties in the Labour party about its exact policy on social ownership, public ownership and nationalisation.
The question is whether the deal will help tile Rover Group to survive. The question that should be put to the Government is, if the deal does not work and the Rover Group suffers as a consequence, will the Government take it hack and support it as they should?
The hon. Gentleman must not wag his finger at me. I have asked the hon. Gentleman and his hon. Friend the Member for Dagenham a question, but I have received no answer. My hon. Friends and I want to hear an answer. Would the Labour party renationalise the Rover Group?
The hon. Member for Dagenham asked about Honda. My right hon. and learned Friend the Chancellor of the Duchy of Lancaster and my right hon. and noble Friend the Secretary of State have said on many occasions that Honda welcomed continuity of British—British Aerospace—management—[Interruption.] I shall say again, so that the hon. Member for Dagenham can hear, that Honda welcomed the continuity of British management, as represented by British Aerospace, which, in case the hon. Gentleman was not aware, is British management.
I have just said so. The hon. Gentleman should listen. Honda welcomed the continuity of British management and the deal that we are debating. It positively welcomed it—what more does the hon. Gentleman want?
I assume that the Minister chose his phrase with care and placed emphasis on the continuity of British management. He took care to correct what I take to be a slip of the tongue when he talked of British Aerospace management. The impression given is that Honda expressed strong support for the existing management. Is that what the Minister is saying?
The hon. Gentleman has a capacity to split a phrase into different words and to make of them what he wants. Honda welcomed the deal. It welcomed continuity of British management and the future as represented by British Aerospace. Does the hon. Gentleman want it spelt out any more clearly than that? Honda welcomed the deal. There it is, and there it lies.
The hon. Gentleman asked what British Aerospace knows about making cars. What does Ford know about making aircraft? There is a company called Ford Aerospace within the group which knows a great deal about making aircraft.
My hon. Friend the Member for Birmingham, Northfield (Mr. King) made an excellent speech, which showed how much he knows about the motor industry. He said that management is what counts, and consultation with the work force. It almost does not matter what is being made as long as the management and the work force are properly looked after and properly understand what is required—the end product—in a variety of areas.
The hon. Gentleman also asked about British Aerospace commitment. The company has made it clear that it is delighted with the continuity that it sees in the management of Graham Day, and the plants and ideas that he has set out, both publicly and privately, about the future of the Rover Group. It wishes to abide by those ideas and plants.
The hon. Member for Dagenham called in aid Aerospatiale. I find that astonishing, because the French never miss a chance to undermine the British aerospace industry, particularly—as I have cause to know in my constituency—when they have considerable problems in their own industry, caused largely by the success of British Aerospace and other related companies. To pray in aid Aerospatiale is taking it a long way down the line, and the hon. Gentleman should be careful.
If the hon. Gentleman will forgive me, I will not, as I have only a few moments and several questions to answer.
My hon. Friend the Member for Bromsgrove asked me a particular question. I assure him that nothing in the detailed arrangements that we have been discussing would prevent further collaboration or joint ventures with other manufacturers, provided that control of the principal businesses remained unchanged. Nor would the arrangements inhibit any shareholding in the principal businesses by the potential collaborative party. I hope that that goes some way to answering his problem.
A number of hon. Members have asked about so-called guarantees. Without constraining British Aerospace's day-to-day management of the business, we have agreed important conditions on the acquisition. British Aerospace has undertaken not to relinquish control of Austin Rover or Land Rover within five years. This undertaking is supported by legal arrangements that ensure that, even if there were to be a sale within five years, the net financial benefits of British Aerospace's holding of the business and the net proceeds of the sale would be repaid to the Government subject to a ceiling of £650 million. British Aerospace has made clear its intention to hold and develop the businesses, but these arrangements ensure that it would not be to its financial advantage to break its undertaking. I cannot be more clear than that.
I represent more than one or two aerospace and car workers, and I am probably the only hon. Member in the Chamber who has had a job with the predecessors of both Rover and British Aerospace. There is not much connection between a Rapier and a Rover—between a ground-to-air missile and a family saloon car. What confidence can car or aerospace workers have in Graham Day, who sold 18 businesses in two years and reduced the number of shipbuilders by 55,000 in the previous three
years, or in Mr. Smith, who talked about reducing the number of aerospace workers by about a third by 1992, or in Lord Young? He said on the Channel 4 business programme of 6 March:
We will not impose conditions about manufacture at Cowley and Longbridge.
What confidence can car workers and aerospace workers have in anything that the Government spokesmen have said tonight?
The hon. Gentleman has made his point, which I dealt with in some detail earlier. I hope that he will allow me to proceed to ensure that the debate is concluded in a proper way.
In his opening speech, my right hon. and learned Friend made it clear why, when one takes account of all the components of this agreement, and not the simple arguments relating merely to the cash injection and consideration, this deal represents a fair balance of various interests. I stress that the Government believe that privatisation is in the interest of the business. On that matter, I can do no better than to quote Graham Day, who said, when explaining why putting the business back in the private sector had been one of his objectives:
For me, it is not simply a matter of ideology, it is a matter of very good common business sense.
The Government for their part were determined that privatisation should take place in a way that recognised the contribution made to the economy by the Rover Group and gave the company the best available chance of developing its independent role in the vehicle industry.
This is an excellent deal for the Rover Group and an excellent deal for British Aerospace. It is an excellent deal for the taxpayer and also for many of our constituents whose interests have been so ably represented in the speeches made by my hon. Friends. We are exceedingly proud of the deal and more than content for it to be subjected to scrutiny when it is completed, as we hope it will be. I know that my hon. Friends will recognise that we believe that this deal could be very exciting for the future of this country.