HL Deb 25 October 1990 vol 522 cc1608-11

7.16 p.m.

Lord Reay

rose to move, That the draft order laid before the House on 16th July be approved [24th Report from the Joint Committee].

The noble Lord said: My Lords, the history of the Crown Agents goes back over 150 years. During that time they have continued to provide a wide range of services and supplies to a growing number of principals. Progress has not always been smooth. Your Lordships will recall that during the 1960s and 1970s the Crown Agents became involved in property speculation and secondary banking, which led eventually to their having to seek financial support from the Government.

The Crown Agents Act of 1979 put an end to the uncertain status of the unincorporated Crown Agents and regularised their position as a public corporation. The Act sets out in detail what they may and may not do, and for whom, as well as their responsibilities to the Government. Since incorporation, the Crown Agents have continued to provide a range of services covering purchasing and supply, financial and economic services and the provision of professional and technical advice. The loss in 1983 of the Brunei Investment Account reduced their profitability for a time, but since then they have been steadily building up their business. In 1989 their total gross income was just over £40 million, giving a profit after tax of £2.4 million. This represented a return on capital of 17.6 per cent. That is substantially higher than the 10 per cent. target set by the Government for the Crown Agents as a public sector trading body.

Most of the Crown Agents' business is done on an agency basis; that is to say at principals' instruction and at principals' risk. But the Crown Agents are also empowered to provide services in their own right; that is to say, at their own risk. In both cases they are only able to provide services for authorities and bodies scheduled under the Crown Agents Act. These are in general public or charitable bodies, both domestic and foreign, but not bodies in the private sector.

This limitation is now an anomaly. For a number of years we and other donors have been encouraging developing countries to pursue sound economic policies, including that of placing greater emphasis on the private sector. Many, I am glad to say, are responding. They are insisting not only that their public sector bodies adopt more commercial practices, but they are also shifting functions generally into the private sector. It would be wholly unreasonable, therefore, to deny these organisations the Crown Agents' services the moment a body becomes privatised when they may have benefited from those services for many years.

Furthermore, a number of the Crown Agents' traditional principals, while themselves remaining in the public sector, are altering the way in which they undertake procurement in that they have started to employ private sector intermediaries and to insist that procurement agents deal only with them. Wherever that happens the Crown Agents are at present unable to continue to provide a procurement service.

The purpose of the order, therefore, is to allow the Crown Agents to provide their own right services, as set out in Section 5 of the Crown Agents Act, to private sector clients. This will allow them to continue to provide procurement and other services to their traditional clients, and thus to diversify their sources of income. Their ability to provide such services will continue to be subject to the consents that apply at present to their provision of own right services for scheduled authorities and bodies. The Government also intend to limit the volume of own right business undertaken by Crown Agents for the private sector to not more than 25 per cent. of their total budgeted own right business and to keep that proportion under review. For 1990 the Crown Agents are budgeting own right business of £27.5 million, which would imply a limit on business for the private sector of some £9 million. In practice the share of private sector own right business is expected to be substantially less than 25 per cent. of the total.

I therefore commend the order to your Lordships as a sensible and practical measure to enable the Crown Agents to continue to provide own right services to those of their traditional clients who may, either now or in the future, no longer count as scheduled authorities and bodies; and other clients in the private sector, and thus to diversify their source of income and enhance their competitiveness in an increasingly competitive world. I beg to move.

Moved, That the draft order laid before the House on 16th July be approved [24th Report from the Joint Committee].—(Lord Reny.)

Baroness Ewart-Biggs

My Lords, I thank the Minister for explaining the order very clearly. We on these Benches welcome the decision to allow the Crown Agents to deal with the private sector. I should also like to take this opportunity to pay tribute to the work of the Crown Agents. After all, the Crown Agents have come very a long way from their original role as the agency responsible for sending men, money and material from Britain to the colonies. Now they are in the forefront of ensuring that official aid donors obtain value for the money they spend. As the Minister has said, the Crown Agents now face new challenges in the battle to develop and expand their unique range of services. I should like to seek clarification from the Minister on one or two points. First, perhaps the Minister could say what steps the Crown Agents will take to deal with the new challenges afforded by the worldwide trend away from tying aid to procurement of the donor's goods and services. Secondly, how will they adapt to the 1992 single European market and the opening of Eastern Europe? Their role will now be to compete with the private sector to provide services even to the UK Government who owns them. Will the Minister outline to the House what progress has been made by the Crown Agents' European economic interest group in obtaining business in Eastern Europe?

My last question relates to the staff of the Crown Agents. Can the Minister say how the order will affect the staff and whether it will have any bearing on the current uncertainty which surrounds the pension rights of members of staff of the Crown Agents? I understand that when the agency is privatised in April the 13,000 staff will have to negotiate private pension contracts to replace the existing scheme, which provides automatic protection against inflation. Staff of the Crown Agents—which are part of the Property Services Agency—have been told that the existing pension safeguards will be honoured only until next April. After that the agency will have to make their own arrangements, bearing in mind the need to make a profit. It would be ironic if the staff, who only last year were praised by the management consultants, McKinsey and Co., for their skills and "extraordinarily high esprit de corps" were to lose valuable pension rights when the Property Services Agency is hived off from the Department of the Environment and becomes an independent agency next year.

There is concern about that point. I should be grateful if the Minister could make some general comments on the first points that I have raised and provide a more specific answer to the question of pension rights.

The Earl of Kinnoull

My Lords, I should like to add my congratulations to both the Government and the Crown Agents. The Crown Agents have been through some turbulent times and have restored their integrity and reputation. They do a wonderful job.

I should like to ask whether the 25 per cent. limitation is a sensible figure. I know from other arrangements that governments make in releasing new rights to such organisations that they tend to err on the side of caution. Can my noble friend say whether any expansion of the 25 per cent. limit would have to be made via another order or whether it could be increased by some other mechanism? I should also like to ask my noble friend at what point within the next five years the Crown Agents expect to reach the 25 per cent. limitation.

Lord Reay

My Lords, I am most grateful to the noble Baroness for her generally warm welcome for the order and for the tribute which she paid to the Crown Agents. She asked me a number of penetrating questions. So far as concerns the Crown Agents pensions, we are aware of the concern on the matter. If I may should like to write to her on the matter rather than answer her now.

The noble Baroness also asked me about the response of the Crown Agents to the trend away from tied aid. The Crown Agents will continue to compete for that business. They have done so successfully up until now, notably in the case of Japan where they have won a large contract, and also in Bolivia. Regarding Eastern Europe, the Crown Agents are keenly aware of the opportunities which are being opened up in Eastern Europe and will pursue such opportunities as they arise.

My noble friend Lord Kinnoull asked me about the 25 per cent. limit. There is no expectation of it being reached in the near future.

On Question, Motion agreed to.

7.27 p.m.