HC Deb 31 July 1972 vol 842 cc214-52
Sir Brandon Rhys Williams (Kensington, South)

I beg to move Amendment No. 57, in page 8. line 5, after 'assistance', insert: 'to institutions constituted in accordance with conventional banking principles with the object of encouraging industry in assisted areas'. It may be for the convenience of the House if I read the first few lines of Clause 7 as it will be if my Amendment is accepted: (1) For the purposes set out in the following provisions of this section the Secretary of State may, with the consent of the Treasury, provide financial assistance to institutions constituted in accordance with conventional banking principles with the object of encouraging industry in assisted areas where, in his opinion—

  1. (a) the financial assistance is likely to provide, maintain or safeguard employment in any part of the assisted areas, and
  2. (b) the undertakings for which the assistance is provided are or will be wholly or mainly in the assisted areas."
It will be apparent that this is a major Amendment and not merely a minor matter of verbal improvement. By it I am trying to draw attention to the fact that I believe the means by which financial assistance for industry in assisted areas is granted could be organised on a totally different basis from that envisaged in the Bill.

My right hon. Friend may have detected that there is on my part a certain hostility to the Bill as it now stands. But I assure him that I recognise that it is answering a real need. I am not hostile to it in a Second Reading sense. However, I think that it is in need of much improvement and that, as it has come from the Committee, the improvements which have been made are not wide enough.

The Bill anticipates the regional problems which will follow if we make strides towards monetary union in conjunction with our prospective partners in the European Community. It is an earnest of the Government's intention to grapple quickly with unemployment. I am certain that right hon. and hon. Members on both sides of the House will applaud that. It shows that the Government recognise the need for measures to accelerate industrial reorganisation somewhat as under the IRC. But I feel that my right hon. Friend is making a fundamental error as to the means of giving this financial assistance.

I recognise that it is the intention to give Parliament control over the very large expenditure which is envisaged in the Bill. But it appears to me that parliamentary control over very large areas of the Department's work in the dispensing of these grants and loans will be largely nominal. We in this House have a duty to protect the taxpayer from the excesses, enthusiasms and errors of the Executive. However, in passing this Bill, especially in the way in which it is being dealt with on Report, Parliament is abdicating its responsibility.

We are introducing a system for controlling the expenditure of the Department which, putting it at its mildest, seems unlikely to be effective. Many of us are concerned that the Civil Service is taking power from Parliament more and more with each year that passes. In this Bill, it is not merely taking power from Parliament. It appears that the Department is proposing to take power from the banking system as well.

My right hon. Friend has noted in The Times on 28th July an article about Rolls-Royce, entitled "Rolls-Royce: the illusion and the reality" by Joe Roeber. It is an interesting article dealing particularly with the problems of that company. It closes with a few lines which the House should consider: … It cannot be disputed that the whole mess has arisen from the confusion that lies between the illusion of private freedom and the reality of public involvement. If, instead of making fierce ideological noises—only to subside a year or so later—the Government properly analysed this problem, it will have made a real contribution to the economic management of the country. The problems which we are trying to tackle in this Bill arise from the fact that we have a mixed market economy which is not working. It is not a theoretical and perfect market economy of the sort that one reads about in Ricardo and Adam Smith. Therefore, there has to be an element of Government interference. I am not trying to argue, as some hon. Members perhaps are, that the Government ought not to interfere at all in the way in which industry is managed and financed; but one would have hoped that Clauses 7 and 8 could give us a more inspiring insight into the thinking of my right hon. Friend in this immensely important field.

I should like to state briefly some of the reasons why I think the Government should interfere in the financing and management of industry. It must be established that there are real problems before we can go on to see how they should be tackled. British industry is particularly uneasy in a time of continuing and very high interest rates. The interest rate structure in this country is not of our own choosing. It is imposed upon us because London is one of the world's greatest capital centres, and interest rates in London have to be influenced by world trends in the price of capital.

It might be pointed out that the German economic miracle took effect largely in a time of historically very high interest rates, and it might be argued that British industry should be able to achieve an economic miracle in spite of the interest rates which are in force now. Possibly it is the climate of rapidly declining profitability now afflicting British industry which also makes it especially discouraging to investment to have to overcome the brake put upon investment by high interest rates. So here is a special reason why the Government should interfere.

It is also perfectly proper that the Government should take into account social considerations. In the academic systems labour is perfectly mobile, but we know that in this country it is not, and we would not wish the Government to bring too much pressure to bear on labour to move to the places where the jobs are. The social consequences would be insupportable in Central London, for instance, and the South-East. The Government have got to do a lot of catching up with the problem of retraining. This has been neglected for too long in this country, and until we are really organised to make labour more mobile, through retraining and acquiring new skills, we shall have problem industries and problem regions where Government assistance is essential.

Possibly the most important reason why the Government have to act at this time is reflected in the policy of, I believe, Montague Norman before the war with regard to the banking system, in which he insisted upon a division of function between the clearing banks and the merchant banks. To this day it is the policy of the Bank of England to insist that there should be two different types of banks. The clearing banks do not encroach too far into the function of the merchant banks and the merchant banks are not expected to link up—too openly at all events—with the clearing banks. We do not, therefore, have the advantage which American and German industry have of a banking system which is able to carry out the work which the Bill is seeking to do.

I am particularly aware, having had some years of experience in personnel management in industry, of the need for specially expert pressure to be exerted to secure the reorganisation of senior management. I do not think that Clauses 7 and 8 tackle all these problems in the right way.

Why is it right that the Government should act through the banking system and not through the Department's own resources? We have a satisfactory precedent in the setting up, in 1945 I think it was, of the ICFC. That body has advanced more than £200 million to about 2,300 British companies.

As I recall the history of the ICFC, it was recognised at the end of the day that clearing and merchant banks were not meeting the need for finance for small companies, but instead of yielding to the temptation to interfere directly, Sir Stafford Cripps called the Bank of England and the heads of the City banking institutions together and told them to set up a subsidiary which would be able to provide the finance for small companies. That was the right way to tackle the problem as time has proved, and my Amendment is trying to draw attention to the fact that this alternative still exists if the Government choose to use it.

By acting through the banking system the Government would cause the minimum amount of disturbance to the balance in our mixed economy. They would be able to make use of the exercise of trained, up-to-date and expert discretion in handling loans and grants. They would be able to maintain the confidential tradition of business; and, of course, there would be what there cannot be in a system which is too closely linked to politics, continuity of policy. It may be said that what I am arguing for is a kind of sheltered banking system for problem industries and regions.

I should like to show why it is wrong to act through the Department. First, once again if we refer to history, we see what happened about the management of nationalised industries. Perhaps we can remind ourselves of the hopes that were expressed, that when problem industries were brought under parliamentary control their problems would evaporate, that the wisdom and sincerity of Members of Parliament could be directed to disposing of their difficulties and that the nationalised industries would be happy and profitable thereafter. The history of the nationalised industries shows how ineffective parliamentary control has become, and must become by the very nature of the difference between political life and business life.

I think, too, that industrial and commercial risk-taking require the kind of experience and temperament which are unlikely to be found in the Civil Service. A man is attracted to a career in the Civil Service for precisely those reasons which make him less likely to be a success in exercising judgments in the commercial and industrial field. If a man joins the Civil Service and finds that he has a flair for industrial management, now that the Civil Service has transfer ability of pension rights I imagine that he will leave the service and make his way in industry rather than hope to find his way into a place, perhaps in the Department of Trade and Industry, where, under the Bill, he might be able to exercise his talents.

Also, if Parliament intervenes openly in the way in which loans and grants are handled there will be no more secrecy. Inevitably, if Parliament investigates the circumstances which have justified some of the payments envisaged the confidential atmosphere will evaporate altogether, and there will be a total lack of the speed and finesse that are necessary in handling the financial problems of large and small businesses.

12.45 a.m.

I know that my right hon. Friend has recognised these difficulties, and has therefore sought to introduce safeguards into the Bill in order to overcome the obvious disadvantages. First of all, we have the new appointments of the Minister for Industrial Development and the Secretary of State for Trade and Industry. I know that the whole House welcomes those appointments and has absolute confidence in the Ministers' judgment, perspicacity and integrity in their very important responsibilities. But one wonders who in due course may come to fill their places, particularly if there were a change of Government. As an hon. Friend comments, that is a worry. It is a worry that so much power may be put into the hands of Ministers without there being any effective parliamentary control.

There is also the appointment, which again we welcome, of the Director of Industrial Development. The Government could not possibly have found a person better suited or qualified than Mr. L. V. D. Tindale, whose success as general manager of ICFC makes him specially suitable to assume the responsibility which it is proposed to put on him. But, once again, if he is attracted back to the City, as no doubt he will be, how do the Government propose to replace him?

W read of the Industrial Development Advisory Board. My misgivings about that arise from what I read in page 5 of the White Paper where it says: The Minister will be advised by an Industrial Development Board which will comprise within its membership prominent persons in industry, banking, accounting and finance, and international industrial investment with particular emphasis on relations with Europe. Obviously we applaud that, but anxiety arises when we read: The Board will be available to advise on industry-wide problems and priorities, and to consider specific major cases for selective assistance. My right hon. Friend on Friday did not entirely satisfy the House that loans of £1 million would never involve the risk of taxpayers' money being wasted, even though he saw insuperable difficulties in bringing those loans to the attention of the House. In the Committee, as I read it, reference was made to the Public Accounts Committee, the Select Committee on Nationalised Industries and other Select Committees, including the Select Committee on Expenditure, and the Comptroller and Auditor General. I am certain that all these bodies and people will play a very important part in making sure that the taxpayers' money is not wasted if the Bill is enacted, as seems inevitable. But that work will tend to be of a retrospective character, and will also deal only with this or that particular aspect of the operations of the Department which is being brought to their attention. I cannot express too much confidence that no waste of taxpayers' money will occur in spite of the pressure of all those bodies.

The Minister also said in Committee that hon. Members could depend on Question Time, Adjournment debates and other debates to probe into what the Department was doing. Considering the breadth of the field in which the Department will act I do not think that hon. Members will have very much opportunity of investigating in depth what the Department is doing, even if they make full use of the facilities of the House.

Then we have the regional boards as a safeguard. They do not appear in the Bill, so they seem to be a sort of non-statutory barrage balloon tethered in the various regions, or perhaps Aunt Sally's; but will they have power without responsibility or responsibility without power? I am left uncertain as to which, but I cannot feel that they will have a very big part to play in safeguarding taxpayers' money from waste or misuse.

In effect, the Bill raises a constitutional issue. How is expenditure to be controlled in a democratic system? In the European Parliament and in the American system it is controlled through the restriction of the money supply and not by the direct management of the functions of the Executive. But in the British variant, of which we were proud in the days when we read Dicey's work on the constitution, the heads of the Executive also sit as Members of this House.

It is the Department of Trade and Industry, however, which seems to have made the biggest dent in the doctrine of ministerial responsibility. The Department abandoned it, in effect, over the V and G affair. I said about that unhappy affair that the civil servant who seemed to be so unfairly criticised was being asked to make bricks without straw. But, after the passing of the Bill, the Department will not be making bricks without straw. It will have the bricks and the straw, and Parliament will be giving it effective discretion to build whatever it likes.

The House has been patient with me. The Amendment may well be faulty in the choice of words. If the Secretary of State was impressed with my argument, however, he would be able to perfect it in another place. If he declines to accept my line of thought, I feel certain that the Bill will contain a major flaw which the passage of time will make painfully apparent.

Mr. Anthony Grant

My hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) has made an extremely interesting speech. It covered such a wide range that it was, perhaps, more of a Second Reading speech than a speech for Report stage.

I can best help the House by confining my remarks to the Amendment. My hon. Friend says that he is not hostile to the Bill in any real sense but that he seeks to improve it. But I am afraid that in my judgment it is not a question of the Amendment being faulty in its wording. It is not fundamentally the right approach. I shall give the reasons for that view.

First, I was glad to hear the tribute paid by my hon. Friend to Mr. Tindale, who came from the ICFC. My hon. Friend was extolling the virtues of the ICFC, and I agree with him. But it is fundamentally a different body from that which my hon. Friend proposes to insert into the Bill, because the ICFC is not aided by funds from the Secretary of State. My hon. Friend seeks to take the provision of regional selective assistance in the assisted areas out of the hands of the Secretary of State and put it in the hands of a banking institution instead. Therefore, the institution he seeks to set up, unlike the ICFC, would be in receipt of taxpayers' money direct from the Secretary of State.

I believe that the organisation we are proposing in the Bill, the industrial development executive, which is designed specifically to be an amalgam of the outside banking expertise, of which my hon. Friend is quite rightly in favour, with Government, is a better vehicle, for reasons which I shall explain, than an entirely outside body as proposed by my hon. Friend.

First, if we are to achieve the best use of resources to improve our economic performance and regenerate the regions, it requires, as my hon. Friend will recognise, that the combined resources of the Government and the public and private sectors of industry are working together. On the Government side, therefore, close liaison is required. This needs to maximise the advantages resulting from the improved co-ordination between Government Departments. The sort of exercise one has to envisage in the regions cuts across a whole range of Government Departments when dealing with the infrastructure, new towns and the whole range of activities which the Government have to carry out in the regions. In those circumstances, it is fairly clear that all these can be co-ordinated only through the Government and not by merely an outside banking organisation.

My hon. Friend has referred to the need for continuity of policy. I suggest to him that another need is that policy should be a developing thing and that there should be a degree of flexibility and an ability in the Industrial Development Executive, the vehicle which is to carry out the new policy, to influence the Government at an early stage in adapting to changing needs. This can far better be done by an organisation such as the Industrial Development Executive, which is a combination of the Government, the Civil Service and outside expertise. That is another reason why I believe that the system we propose is better.

Again, when one considers the general cohesion of administration, the administration of regional development grants by the Government has never been challenged. This has always been carried out by the Government as opposed to an outside body. It is not very practical in the regions for the selective assistance to be administered entirely separately by a separate body divorced away from the Government administration.

Perhaps the most telling point against my hon. Friend's Amendment—I think that he recognised this and expressed his concern—relates to the problems of ministerial responsibility and accountability. The very fact that my right hon. Friend was appointed as a Minister to take charge of the Executive provides an assurance that the policy it pursues will be acceptable to Parliament. My hon. Friend's proposal of an outside body would not have this advantage. There would be no such safeguard in the case of his outside body.

The serious points of concern about accountability quite rightly posed by my hon. Friend would apply with even greater force to the proposal he makes in his Amendment. In addition to the parliamentary control over policy to which I have referred, the inclusion of the Industrial Development Executive within the Government provides for much stricter parliamentary control over the disbursement of its funds than there would be from an outside body. All the expenditure has to be voted annually and accounted for. Unlike an outside agency's expenditure, the industrial development expenditure will come within the purview of the Comptroller and Auditor General and, of course, the Public Accounts Committee. Whether those are adequate is another matter but the Industrial Development Executive comes within our purview, whereas the outside body proposed by my hon. Friend would not.

In addition, as regards expenditure under Clause 8 of the Bill, which we debated at considerable length on an earlier occasion, the specific limits to the expenditure are incorporated specifically to provide opportunities for parliamentary debate before a new tranche of expenditure can be used.

For all these reasons, I believe that the proposals we have put forward of an Industrial Development Executive—a combination of the expertise drawn from the banking world, of which my hon. Friend is quite rightly praiseworthy, and the Government, with the controls and the accountability which have been pressed upon us during the course of our debates—are a much more effective vehicle than the entirely outside body proposed by my hon. Friend. Therefore, fascinating though my hon. Friend's speech was and greatly though I agree with much of his philosophy, I regret that I must advise the House to resist the Amendment.

1.0 a.m.

Sir B. Rhys Williams

I recognise that if the form of words which I seek to introduce were to be adopted it would have to be worked out in much greater detail than has been possible for a back bencher. I thank my hon. Friend for his sincere analysis of the problem. He has made it clear to the House that he understands the difficulties in the choice the Government have made and the difficulties which would have confronted them if they had made any other choice. In the light of my belief that at any rate my point has been seriously considered, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Adam Butler (Bosworth)

I beg to move Amendment No. 56, in page 8, line 25, at beginning insert: 'Subject to the following provisions of this scection'.

Mr. Speaker

With this Amendment it is suggested that we should discuss the following Amendments: No. 15, in page 8, line 30, leave out from 'including' to end of line 31 and insert: 'an acquisition effected by the Secretary of State through another company, being a company formed for the purpose of giving financial assistance under this Part of this Act'. No. 17, in page 8, line 40, leave out subsections (4) and (5) and insert: '(4) The Secretary of State, in giving financial assistance under this section in the way described in subsection (3)(a) above, shall not acquire any shares or stock in a company without the consent of that company'. Plus sub-Amendment (a), leave out from beginning to 'shall' in line 2 and insert: '(4) Financial assistance shall not be given under this section in the way described in subsection (3)(a) above unless the Secretary of State is satisfied that it cannot, or cannot appropriately, be so given in any other way, and the Secretary of State, in giving financial assistance in the way so described'. Plus sub-Amendment (b), leave out 'without the consent of that company' and add: 'unless he has—

  1. (i) obtained the consent of that company; and
  2. (ii) given to that company an irreversible undertaking that he will dispose of the acquired holdings, other than to an agency or institution in which he already has, or at a future date will have effective control, and that he will do so at the earliest opportunity after the ending of those conditions or circumstances which gave rise to his decision to acquire the said holdings'.
Amendment No. 58, in page 8, line 43, leave out 'without the consent of the company'.

Amendment No. 18, in page 9, line 5, leave out subsection (6).

Amendment No. 21, in Clause 8, page 9, line 29, leave out subsection (2) and insert:

  1. '(2) Financial assistance under this section may, subject to the following provisions of this section, be given in any of the ways set out in subsection (3) of the last preceding section.
  2. (3) The Secretary of State, in giving financial assistance under this section in the way described in subsection (3)(a) of the last preceding section—
    1. (a) shall not acquire any shares or stock in a company without the consent of that company, and
    2. (b) shall not acquire more than half, by nominal value, of the equity share capital of any company.
  3. (4) Where financial assistance is given under this section by acquiring shares or stock in a company the Secretary of State shall dispose of the shares or stock as soon as, in his opinion, it is reasonably practicable to do so; and before making the disposal the Secretary of State shall consult the company'.
Plus the sub-Amendments thereto:

(c) leave out lines 4 and 5 and insert: '(3) Financial assistance shall not be given under this section in the way described in subsection (3)(a) of the last preceding section unless the Secretary of State is satisfied that it cannot, or cannot appropriately, be so given in any other way, and the Secretary of State, in giving financial assistance in the way so described'. (a), in line 7, leave out from 'company' to end of line 13.

(b), in line 8, leave out 'more than half, by nominal value, of' and insert 'a controlling interest in'.

(d), in line 11, leave out from 'stock' to end of line 13 and add: 'at the earliest opportunity after the ending of those conditions or circumstances which gave rise to his decision to acquire the said holdings, and to effect such disposals after consultation with the company'. Amendment No. 22, in page 9, line 32, Clause 8, leave out from 'section' to end of line 34.

Mr. Butler

Amendment No. 56 as such is clearly a drafting Amendment which introduces the provisions which it is proposed should limit the giving of financial assistance under the Clause. It is of equal relevance to Clause 8. I shall speak particularly to sub-Amendment (a) to Amendment No. 17 and to sub-Amendment (a) to Amendent No. 21.

I refer initially to Amendment No. 58 in the name of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), the intention of which is to prevent the taking of shares by the Government on behalf of the taxpayer. Doubtless my hon. Friend will expand on this point. This is a laudible aim. I do not believe that any of my right hon. or hon. Friends look for a permanent extension of State shareholding whether by the front or back door. This is in contrast to the wording or intention of Amendment No. 18 in the names of right hon. and hon. Members opposite which shows their intention clearly.

However, I am sure that my hon. Friends have read the Committee proceedings where I acknowledged that there were occasions when the taking of shareholding by the Government would be necessary. It is conceivable, for example, that in certain circumstances a loan would be inappropriate and might over-strain the financial liabilities of a company. I suggested in Committee that a company might welcome a temporary State holding as an indication of a commitment by Government to meet the cost escalations—that is, the over-run beyond original expectations—which have so characterised, and which might continue to characterise, advanced technology projects. Such projects, apart from a long period of gestation, contain essentially a high risk element. It is because of their features that they do not attract money from the private money market.

I will not expand on this theme beyond saying that hon. Members may argue that if the money market, with its shrewdness and nose for a profitable return on its investment, is not prepared to advance money in these circumstances neither should the Government on behalf of the taxpayer. The answer to this is that the magnitude of some of these investments is literally beyond the money market's resources, and the search for essentially short or—at the most—medium turn returns, which is the hall mark of the money market, automatically acts as, at best, a restrictive caution and, at worst, a brake on investment in advanced technology.

If the House accepts the principle of share acquisition by the State, it is essential to our philosophy on this side that such share shall not be controlling and it shall be temporary. In Committee, my right hon. Friend acknowledged and accepted that any shares should be sold back as soon as practicable, and for that we are most grateful. His new Amendment in respect of Clause 8 proposes that a majority shareholding shall not be permitted, and this also is welcome. We should have liked to see the same restriction in respect of Clause 7, but I accept that circumstances may require otherwise. All that my sub-Amendments do is carry the restriction one stage further and propose writing into the Bill the assurances given by my right hon. Friend in Committee; namely, that the taking of shares, when this is necessary, shall be a measure of last resort.

It is necessary to make the Secretary of State the arbiter of whether the money can be provided by other means, by loans or grants, for instance, and I hope that this requirement, which is combined with the requirement to sell back as soon as possible, will be acceptable not only to the Secretary of State but to those of my hon. Friends who have shared some disquiet on this whole subject.

Mr. Dell

I rise at this stage because the right hon. Gentleman did not, though I had expected him to wish to speak now to his Amendments within this group. If he wishes to do so, I shall give way. I am sure that it would be of assistance to the House if he explained the Government's Amendments, but, if he does not wish to do that, I shall continue.

As the right hon. Gentleman is not rising—

Mr. Chataway

I do not want to cause the right hon. Gentleman any distress. If he feels, and the House feels, that it would be convenient if I intervened at this point, I am happy to do so.

In the Government Amendments, we seek to give effect to assurances which were given in Committee. Amendments Nos. 15 and 17 are, in effect, drafting Amendments, making certain that in all circumstances the Secretary of State, acting directly or indirectly through a financing company, shall not acquire any shares or stock of a company without the consent of that company.

Amendment No. 21 gives effect to the undertaking which I gave in Committee that the Bill would be amended to prevent the Secretary of State taking a majority shareholding in any company under Clause 8.

There may be circumstances in which the Government, a Conservative Government, will think it right to take a controlling interest in a company outside the assisted areas. It is possible that there could be another situation, such as that which arose over Rolls-Royce, in which there appeared to be no alternative and where over-riding needs either of defence or of the national interest made it imperative to maintain that company in some shape or form. But if that arose the Secretary of State would now have to bring forward fresh legislation.

Mr. R. J. Maxwell-Hyslop (Tiverton)

May I give my right hon. Friend the opportunity to correct himself? Surely, the undertaking which he gave was not that the Bill would be amended but that he would introduce an Amendment? There is a difference.

Mr. Chataway

I accept my hon. Friend's correction. I had hoped that this would be an acceptable Amendment to the Government side of the House at least, and all the indications that I have been given to date suggest that it is an Amendment which many of my right hon. and hon. Friends feel should be made.

I would recommend that the Amendment moved by my hon. Friend the Member for Bosworth (Mr. Adam Butler), sub-Amendment (a) to Amendment No. 17 should be accepted. It will have been clear from the speeches made at earlier stages of the Bill by myself and by the Secretary of State that it is the intention that equity participation shall only be embarked upon where the Secretary of State is satisfied that assistance cannot appropriately be given in any other way. Therefore, my hon. Friend's Amendment is acceptable and is useful because it spells out clearly what has been the expressed intention of the Government in this respect.

I believe that there is value in my hon. Friend's sub-Amendment (c) to Amendment No. 21 which again ensures that equity participation shall only be undertaken where no other form of assistance is possible. I realise that a number of my hon. Friends, perhaps including my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams), will doubt whether there are any circumstances in the Bill in which it would be right for the Government to take an equity shareholding.

Mr. Bruce-Gardyne

Before the Minister goes on with the point, it might save time if he explained why the terms of Amendment No. 21 are applied to Clause 8 but not to Clause 7. Why do the Government feel it desirable that they should not have the power to acquire more than half by nominal value of the equity shareholding of any company under Clause 8 but not under Clause 7?

Mr. Chataway

I am happy to deal with that point at this stage. As I made clear in Committee, the Government believe that there can be circumstances in the assisted areas where it will be right for the Government to acquire, perhaps only temporarily, a majority share- holding in a company. One can envisage a situation in which a company which is an important employer in an area already suffering very high unemployment is in financial difficulties. It may be that the company has been extremely badly managed. It may be that it is facing overseas competition which it is unable to stand. The company goes into liquidation and the Government must decide whether they would be justified in letting the company go completely and immediately, perhaps causing very high rates of unemployment. If that company were to be reconstructed and set on its feet, it could be that the only way in which that could be done would be for the Government to take a controlling interest. The Government might do that with a view to bringing about an orderly rundown in the firm's activities, gradually reducing their scope until it was viable. Or it may be the situation in which with competent management it would be possible to put the firm on its feet and float it off again. So it is felt that in the assisted areas it is right that the Government should have the power, principally with rescue operations in mind, to take a majority interest. The Secretary of State and I have made it clear that that is a last resort. I need not stress that point again.

1.15 a.m.

I think there will be doubts among some of my hon. Friends whether, outside the assisted areas, there is ever a justification for taking an equity share in a company. Those who believe that it is never justified outside the assisted areas to assist private companies will a fortiori believe it entirely wrong for a Government to invest by way of equity; but those who, for example, have read the recent and valuable report of the Expenditure Committee will have seen listed in paragraph 19 some of the circumstances in which the great majority of those who gave evidence to the Committee from the city, industry, all quarters, consider that in these days it is necessary for a Government to intervene.

Given that that is so, will there eve[...] be circumstances in which a Government, however reluctant to take control and get involved by way of equity participation, would be justified in proceeding in that way? My hon. Friend the Member for Bosworth has given the House a fair indication of some of the circumstances in which it would be right to do so. There are cases in which the gearing of a company may mean that if it is to be given assistance it will be necessary to do so by means of equity. If the company is already carrying as much debt as it can, to assist the company it will be necessary to do so by means of equity. Again, there may be situations in which it would be right to assist, perhaps in an area of high technology where high risks are involved, and some equity participation will be the only commercially sensible way of ensuring to the taxpayer a return commensurate with the risk that is being undertaken.

I hope my hon. Friends will feel that these Amendments are worth supporting and that they represent substantial safeguards for both the House and the taxpayer.

I emphasise that it is not the Government's intention to use these powers to extend the public sector. It has been clear from what has been achieved with the I.R.C. Portfolio that there is no reason why holdings should not be disposed of. There is no reason to believe that, by supporting companies which, for one reason or another, qualify, we shall inevitably be holding those shareholdings on any permanent basis.

I do not believe that the Bill would be a very convenient vehicle for right hon. and hon. Gentlemen opposite, if they were to come into office. Those who have had the pleasure of reading their latest policy document will have noticed very sweeping proposals for nationalisation and for extension of the public sector. A Bill which ensures that an equity participation can be taken only with the consent of the company involved, which makes it clear that the Secretary of State is under an obligation to sell his holdings as soon as possible and which prevents the Government from taking a controlling interest in any situation outside an assisted area, will not be much good to a party which is bent on the kind of nationalisation proposals that have recently been outlined.

Mr. Maxwell-Hyslop

The difference between an assisted area and an unassisted area is very often merely that the circumstances have not yet happened. An assisted area is where disaster has happened, and unless my right hon. Friend takes these powers in the case of a large company it may be that another area will need to be an assisted area. The distinction between the two can be very artificial. Using the powers could prevent a new area becoming an assisted area.

Mr. Chataway

I take my hon. Friend's point, and the fact that we have the Clause is in part a recognition of the argument he is deploying. None the less, I think the differences between the two justify the somewhat different treatments described in Clauses 8 and 7.

It will be clear from what I had said that I would not recommend to the House the Opposition Amendments, because they are directed towards an exactly contrary objective to that which I have outlined.

I turn to sub-Amendment (b) of my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) to Amendment No. 21. He suggests that instead of talking about a majority holding in Amendment 21 we should refer to a controlling interest. I understand his point, which is that a shareholding less than 50 per cent. can in many circumstances be a controlling interest. We can think of circumstances in which a shareholding of 5 per cent. can be a controlling interest. But the Amendment is not feasible, first, because of the difficulties of definition, and, secondly, because there could be continued room for argument during the course of changes in the construction of a company as to whether the Government shareholding was nominally a controlling shareholding or not. If there were a sale of shares between two other shareholders it might be argued that that had changed the Government's position, without any action on their part, from a controlling to a non-controlling shareholding. I understand my hon. Friend's desire for perfection—it is what I expect of him—but I hope he will recognise that something a little short of perfection is necessary in this case.

I have complete sympathy with the objectives my hon. Friend the Member for Cheadle (Mr. Normanton) has outlined for his sub-Amendment (d) to Amendment No. 21, but I am advised that the words he has suggested do not go significantly further in their effect than the words we have already agreed to write into the Bill. He is anxious, and we are anxious, that it should be made clear that the Secretary of State is under a duty to sell as soon as is right and practicable, and those words are already included within the Bill. I know that it was my hon. Friend's intention to give them an even greater effect, but I believe that that would not be achieved by his Amendment.

By sub-Amendment (b), my hon. Friend the Member for Cheadle wishes to ensure that the Secretary of State has to obtain the consent of the company and is under an obligation to sell as soon as possible. This is a form of words which again would perhaps impose a somewhat firmer obligation, but I believe that the wording of the Bill suffices. In addition, sub-Amendment (b) is subject to a number of drafting difficulties.

Our purpose in the Bill is to assist and strengthen private industry, to enable private industry to operate in a number of areas where without some Government support the job would either not be done or would have to be done by nationalised industry. In most of our high technology industries, if we are to compete with industries abroad receiving Government help, the job can only be done, if we do not help private industry, by nationalised industry. The Bill is designed therefore to help private industry operate in areas where, as I say, it would not otherwise be able to do so and to meet social needs which would otherwise only be met by nationalised concerns.

That there should be a difference between the Amendments submitted from the two sides of the House is hardly surprising. I hope that the House will accept the Government's Amendments and Amendment No. 56 and not the others.

Mr. Dell

The right hon. Gentleman spoke as though the object of all the Amendments was to prevent the Labour Party from using the powers of the Bill when next in Government. But if that were the object it would be absurd because, as the Secretary of State said on Friday, the next Labour Government can introduce the necessary legislation, using this Bill as far as it goes, reversing the Amendments which the right hon. Gentleman now feels it necessary to make.

It was clear from the moment the Bill was introduced that it would put power into the hands of the next Labour Government to use for purposes different from those which a Conservative Government would use them for. The Bill is being amended not from fear of the Opposition and what they might do with its powers but because the Government have been surprised to find considerable pressure from their own back benchers, who evidently do not trust the Government to spend public money wisely under the Bill. Concessions are therefore being made in the hope of conciliating them into believing that with these additional controls the Government might conceivably spend wisely.

I have considerable doubt as to whether, given this instrument, the money will be spent wisely, just as I continue to doubt whether there is in the Bill sufficient control in the hands of Parliament over the way the Government will spend the money. The Amendments as I say are an attempt to conciliate hon. Members opposite who are critical of this complete departure from the principles on which the Government came to office. One might ask why, given the reversal of policy on so many points, given the acceptance that it is necessary from time to time for the Government to intervene in industry—and intervene far more widely than the Secretary of State suggested even at the initiation of his radical policy—there should be these special restrictions on the acquisition of shares.

1.30 a.m.

The position is that no one will buy the shares which the Government acquire if the company in which the Government invest is not a success. The only circumstances in which those shares will be saleable is if the company is a success. Here, by definition, we shall have a situation in which the investment of public money in a company by way of equity has achieved its object—it has enabled assets to be restored to profitability, or it has raised the profitability of those assets—and yet, for some reason unexplained, having made a success of this task, which so many hon. Members opposite believe cannot be done under public ownership, a vaguely worded requirement in the Bill provides that at the point of success the shares must be sold as soon as reasonably practicable.

In the circumstances, that cannot be anything else but dogma. There is no other justification for it. If hon. and right hon. Gentlemen opposite were taking up their ancient position and arguing that the acquisition of equity by the public could only have deleterious effects on a firm, presumably they would oppose the Government's taking equity under any circumstances. But to argue that the Government can take equity and then, when the thing is successful, to require that if the shares are disposable they have to be disposed of, means simply that the taxpayer is to be sacrificed to dogma.

Mr. Adam Butler

I am not sure that the right hon. Member followed my argument, which I put both in Committee and a few moments ago. Does not he agree that in the situation where a State shareholding is taken as an indication of the commitment of the Government to stay with a project it does not necessarily imply that the public partner company is unprofitable?

Mr. Dell

I think that I understand the hon. Member's point. I am not saying that the company is necessarily unprofitable, but whether the effect of the Government's investment is to convert assets from unprofitability to profitability or to increase their profitability, this investment has achieved its object, and I can see no reason, other than dogma, why, at that stage, the shares have to be sold.

There could be a commercial element in it. In certain circumstances the Government might wish to sell because of their judgment of the public interest. They could take up that position and argue justifiably that that was not dogma. But what is written into the Bill is dogma, because it provides that the Secretary of State must sell where in his opinion it is reasonably practicable so to do. That is dogma; no commercial judgment is left to the right hon. Gentleman. If, in his opinion, it is reasonably practicable to do so, he must sell the shares.

There can be no justification for taking that position in logic, once the Government have departed from the argument that public ownership is in any case necessarily deleterious to the interests of industry. They cannot take that position any more. They have nationalised Rolls-Royce themselves, but, having changed that, they should change the whole lot and not, in any attempt to conciliate dogma and back benchers, introduce these requirements into the Bill at the last minute.

The requirements are effectively that this must not be done without the consent of the company. That was in the Bill to start with, although I would like to know what the Government will do if they find a recalcitrant company which does not want investment put in by the Government. Why a company should decide the manner in which the investment is to be made, I do not know. There is also the requirement that investment should not be more than half the total.

The right hon. Gentleman said that he cannot accept that requirement in respect of assisted areas, and that even outside assisted areas it might sometimes be necessary to take over more than 50 per cent., but when it is necessary outside assisted areas he will introduce special legislation, so the Government are going through this process of legislation to enable them to assist industry outside the assisted areas but are placing this limitation on their action.

When we were asking for greater parliamentary control over the Government, they were saying "No. It would prevent speed of action", but here they are prepared to prevent speed of action, although the right hon. Gentleman admits that it might be necessary and would be necessary in assisted areas, under Clause 7.

The hon. Member for South Angus (Mr. Bruce-Gardyne), who intervened and asked for what possible reason it is justified to introduce these provisions in respect of Clause 8 but not in respect of Clause 7, did not receive a satisfactory answer. If it is sensible to do it in respect of Clause 8, it is sensible in respect of Clause 7; but it is nonsense in respect of either Clause. There is no difference between the two, as the hon. Gentleman tried to suggest.

In Committee I asked what these words, so readily accepted from the hon. Member for Bosworth (Mr. Adam Butler), "that in the opinion of the Secretary of State it is reasonably practicable", really meant. The only comfort I take is that those words are meaningless. I take it that if the Secretary of State thinks it would not be wise to sell a public holding, he would hold that in his opinion it was not reasonably practicable to do so, taking account of all the interests involved, and he might take account of the interests of the taxpayer who invested the money in the first place.

If these words mean something and are not just thrown at Conservative back benchers in the hope that they will allow the Bill to pass, I believe they are dangerous because they mean that a public investment will not be exploited in the public interest; dangerous because they could mean that the Government would be required by this provision into this legislation to sell to what would often be the most likely purchaser of such shares—another company in competition with the company the Government had assisted, and which might, therefore, establish a monopoly or dominant position in the market.

There is nothing in the legislation to prevent that. On the contrary, if the words mean anything, they are a specific instruction to the Secretary of State to ignore his responsibility under the Monopolies and Mergers Acts and to sell where it is reasonably practicable to do so. My only hope is that this means nothing at all.

One thing we know is that these Amendments are offered in an attempt to conciliate Conservative back benchers. Why they should do that I do not know and perhaps they will not. As I understand it, the basic opposition of hon. Gentlemen opposite is that the Government cannot do this sort of investment successfully and wisely. If that is their position why they should accept that the Government can do this because it is 50 per cent. of the total equity of the company and why they should not insist on a nil figure I cannot understand. It shows how easily they are swayed.

Mr. Normanton

After listening to the right hon. Member for Birkenhead (Mr. Dell) on the question of political dogma I must confess that even at this late hour I am almost tempted to indulge in the same. I will not offend my hon. Friends and keep them up by indulging in the exercise, other than to say in clear and unequivocal terms that Clauses 7 and 8 even when amended will stick in my gullet. I say that not with a view to being offensive but just to reinforce a point of view which I expressed in Committee and last Friday.

Having said that, I am unrepentant and I will continue to be so, about the basis of the participation of the Government in equities in private industry. I will not pursue the argument for one minute further and will try to be constructive in asking a number of questions. I have great misgivings as to how these Amendments will operate in practice.

The Amendments which have been accepted ensure that the consent of the company is one of the prerequisites of participation in the equity or the taking of equity in a company. This is put extremely crudely. I hope there will be some clear guidelines given, and a clear set of rules laid down to establish what is meant by the term "consent of the company." Does it mean the board of directors of the company? Does it mean a company in formal general meeting and by a show of hands or by a poll taken at such a meeting? Does it mean that there should be a requirement that in the general meeting the company will be required to amend its articles, to increase its borrowing powers, to increase its authorised capital?

These are not frivolous technicalities, they are very much the essence of what is involved in the meaning of "consent of the company." Such a phrase can in certain circumstances be taken—and could be within the terminology of these Clauses—to be the decision of 2 per cent. or 3 per cent. of the quoted holders. If I were to have 5 per cent. of the equity of, say ICI, I would believe that I could remove the board; I could make more appointments to the board and so arrange affairs that I could truthfully claim, although not by a poll at an annual general meeting, that I controlled that company. Any decision taken by me would therefore fall as I interpret it, within the definition of "consent of the company."

I earnestly hope that my hon. and right hon. Friends in dealing with these Amendments will make this clear and leave no doubts in the mind of private industry as to what is meant and the way in which this Clause will be operated. There are situations when the consent of the company is something which automatically falls into the category here, for example, where a bank may threaten foreclosure. Through demanding settlement of an overdraft a bank can in practice bring about a situation where freedom of decision is totally denied to shareholders of the company.

There are also situations in the case of private non-quoted companies where very different requirements will operate where the transferability of shares is limited and restricted by articles which are quite different from those applying in public companies. Here again, I hope that my right hon. Friend will be prepared to give some form of assurance that this kind of problem will be spelled out clearly and unequivocally for industry as a whole.

1.45 a.m.

I have two last points which relate to the Amendments and about which I feel strongly. There is a major difference between the problems which may face the Secretary of State when trying to consider taking over a large public company and those facing him when taking over an industry made up of a series of small companies. Can my right hon. Friend assure us that private industry, especially that vast sector of industry which is made up of small and medium size private companies, will not be discriminated against in practice in favour of large companies? I hope that he will do that. Certainly the Minister of State is responsible under the terms of his portfolio for the interests of small companies. I hope that we can have the assurance from my right hon. Friend that in no way will this Bill be used to promote the interests of large public enterprise concerns at the expense of and to the detriment of small companies. At the end of the day, this vast number of small companies are the seed corn for numerous growing enterprises.

Lastly I refer to the question of equity. Equity is thought by many to be the sole means by which industry is financed. It is not. It never has been and never can be. The acquisition of 50 per cent. of the equity of a company is probably not in itself likely to provide sufficient funds to enable a doubtful company to be revived. What is clearly required in most situations of this kind is loans, secured and unsecured, and debentures. Those are not provided for in this Measure, although there are references to stocks. If there are references to stocks, presumably debentures and perhaps convertible stock, why is the emphasis on equity?

However, I am grateful to my right hon. Friend for the way in which he has clearly taken careful note of the concern and anxiety voiced in Committee, in this Chamber on Friday, and consistently from this side of the House about the departure from the fundamental belief of many of us that the Government should stay out of industry. We are grateful for the way in which my right hon. Friend has listened to our appeals. On the basis of small mercies, perhaps the matter is better left there.

Mr. Douglas

It would be very interesting to discover just what it is that sticks in the gullet of the hon. Member for Cheadle (Mr. Normanton). However, perhaps I ought not to attempt to spoil his digestion too much. He enunciates a doctrinaire, dogmatic view which is rightly expressed from the benches opposite about certain parts of the Bill. The Minister has endeavoured to present one or two baubles to those of his hon. Friends who are opposed to the Bill. However, they are not all that meaningful when they are subjected to examination. Nevertheless, they are concessions aimed at undermining public accountability and a proper use of public funds.

We are told that public funds can be used in a variety of ways under Clauses 7 and 8 to prop up ailing industries and to assist the development of industry generally. But it is now suggested that under Clause 8 there is some limitation to the use of public funds. Great stress is laid on the contribution of public funds to equity in companies, and there is some Plimsoll line in terms of equity which reaches the 50 per cent. level and no further. Of course, this is fallacious, as hon. Members opposite know. The Minister has conceded that it is possible to get effective control of companies without having more than a 50 per cent. equity in them.

The Minister referred to paragraph 19 of the excellent Sixth Report from the Expenditure Committee. Let us see what it says. I do not wish to quote it all, but no doubt the Minister will interrupt me if he thinks that I am quoting unfairly. After dealing with the general situation, the final sentence of the paragraph states: In such situations it was considered that the free operation of the money market does not always meet national needs. I think the Minister accepts that. But by the Amendments which he is accepting we get an interpretation of national need. Under Clause 8 national need is acceptable up to 50 per cent. of the equity, but no further. Then he went a bit further and said, "If we wanted to go further than 50 per cent. this would require legislation." I want to know the form that that legislation would take. I want to know why it is not acceptable to him to write into the Bill a provision for taking action by means of a Statutory Instrument subject either to the affirmative or negative procedure. Why is that not acceptable? Would it take some of the tinsel off the bauble that he is offering to his hon. Friends? Would not the Minister introduce such a provision either in a manuscript Amendment or in another place?

The Minister makes these concessions and gives the impression that it is quite acceptable to use the public purse to bolster up and develop industry, but when the industry becomes efficient in commercial terms, when it is "reasonably practicable", he intends to hive off certain sections of the industry. I appreciate that he would take commercial advice in doing so, but, as I understand it, there is nothing in the Bill to ensure that he will be accountable to the House in any way except in the form of an annual report.

The Minister is taking power to use public funds to bolster up industry. He is reluctant to provide effective control, but once an industry is on its feet he can sell it off when he determines to do so and when his advisers think it is "reasonably practicable" to do so. That is not acceptable to us on this side of the House. This Bill is generally acceptable to us, but I caution the Minister that there are many of his own hon. Friends who, although they expressed acceptance on Second Reading, now view the Bill with extreme caution.

Therefore, it is in essence a Measure which would be eminently acceptable to us, albeit slightly amended. We would have little difficulty in using it in ways that would be suitable to our purposes. I am suggesting that the Minister might make our task a little easier by introducing a procedure by which if it were necessary to go over the 50 per cent. level in terms of equity this could be done by introducing a Statutory Instrument for consideration by the House.

Mr. Bruce-Gardyne

The hon. Member for East Stirlingshire (Mr. Douglas) was being a little mischievous. He should not go around saying that the Opposition would make appropriate use of the Bill. To do that is to stir up anxiety which I am sure the hon. Gentleman would not wish to stir up.

The right hon. Member for Birkenhead (Mr. Dell) accused some of us of exposing our dogmatism. I shall not be dogmatic. I think that there has been a great deal of unnecessary alarm and despondency about this group of Amendments, on both sides of the House. The hon. Gentleman and to a lesser extent the right hon. Gentleman are concerned that the Government will dispose of equity shareholdings under the provisions of the Amendments which they are accepting and thereby deprive the taxpayer of a profit which he might otherwise enjoy. They need not worry about this. I do not think that the institutions to be financed under Clauses 7 and 8 are the kind of institutions that will offer the prospect of a commercial return to the taxpayer, not for a moment. There is no danger of that.

I am a bit dubious about the likelihood of equity shareholdings, having been taken, finding a ready market, for precisely that reason, but, equally, I do not entirely share some of the anxieties that have been expressed by hon. Gentlemen opposite, because if one accepts the proposition that under Clauses 7 and 8 we are to have an open-ended commitment to public expenditure, and in practice an open-ended extension of the public sector, the form in which that extension occurs is of limited significance. In reality the distinction between an equity shareholding and loan capital of one kind or another as is on offer under Clauses 7 and 8 is basically that the equity capital will be provided to concerns which are unlikely even to be able to finance prior charge capital.

Mr. John Biffen (Oswestry)

Public dividend capital.

Mr. Bruce-Gardyne

Yes. That is all there is to it. The difference is that no interest or dividends of any kind will be paid.

I do not think that we should be too much concerned about the fine distinction between whether one is extending the activities of the public sector by means of prior charge capital, or by means of equity capital. The end result is much the same, except that the taxpayer is likely to get a worse bargain if the extension occurs in the form of equity capital.

2.0 p.m.

For that reason I do not wish to add very much to what my right hon. Friend said about my own modest Amendment on the question of whether one went for half or for a controlling interest in taking equity. As I argued on Friday evening, I accept broadly my right hon. Friend's argument that this piece of legislation might not be. terribly well suited to the purpose of a Labour Government, but what my right hon. Friends perhaps need to consider from time to time is the attitude they would adopt in the hypothetical and I believe unlikely eventuality of the party opposite being in a position to introduce legislation of its own choosing.

The point that should concern us is the evidence we have had of the embarrassment which a party in opposition may find itself in if its actions in Government can be adduced and taken down and used in evidence against it when a successor Government of an opposite persuasion introduces legislation which is perhaps not totally dissimilar from that which it favoured when in Government.

My reason for suggesting that one should limit oneself to a controlling interest rather than a 50 per cent. interest under the terms of Clause 8 was simply that this was perhaps a small marker; that my right hon. Friends might have a point at which they could say, "Well, at least our integrity and orthodoxy is intact", if a moment came when Members of the present Opposition produced their own ideas along the lines of this present legislation.

This is not a matter of dramatic importance. We should in all fairness accept, and I think that members of the Opposition would be well advised to accept, that basically there will be occasions when under Clauses 7 and 8 the extension of the public sector under the Bill takes the form of an equity holding rather than the provision of loan capital in one form of infrastructure or another, the reason being quite simply that the firm is not in a position to pay prior charge interest rates.

Sir B. Rhys Williams

I listened carefully to all that my right hon. Friend and others had said. I remain convinced that it would be for the good of the Bill if the power to take equity shareholdings was excised, perhaps in another place. I hope that the Minister will have seen some of the difficulties that lie ahead, from what has been mentioned tonight.

It seems to me that he has a point when he says that there will occasionally be firms where the gearing of the capital makes it dangerous or unsuitable to advance further loans, but if such firms have the prospect of becoming reasonably profitable they should be able to look after themselves, particularly with the benefit of free depreciation and Government help in the offing. But if there are quite exceptional circumstances where the Government wish to intervene in a company by taking shares, they can always obtain the approval of the House, as they did in the case of Rolls-Royce.

I believe it is pregnant with danger to write into the Bill a power to invest in equity shares. If the Government insist on going ahead with this, they ought to take certain decisions as to what their rôle will be in the future as shareholders. Do they intend to be absentee shareholders of the kind I am constantly complaining about, or will they seek to intervene in the management of the firm, using their shareholding to threaten the management? Will they take an active part in the selection of directors or is it intended that they should act as a sleeping component in the capital plan? The House is entitled to ask my right hon. Friend to express his view as to the way in which the Government will act as shareholder if he insists on the power to take that rôle.

Mr. Normanton

If the Secretary of State were to appoint the board of a company, would it not be logical to expect that the House would be able to question the Secretary of State about the management of such companies? As I read it, these companies would not be in the same category as, for instance, a nationalised industry. The board would be directly appointed by the Secretary of State and answerable to him. Would my hon. Friend care to bear that in mind? Perhaps my right hon. Friend the Secretary of State might be prepared to comment.

Sir B. Rhys Williams

I am grateful to my hon. Friend for adding that question, which I should have asked myself. It seems to suggest yet another anxiety lying ahead, that is to say, the extent to which the House ought to feel it incumbent upon itself to intervene if it is responsible for public money in the form of equity shareholdings.

As to the point raised in subsection (6), I have tabled a separate Amendment, in which I am joined by the right hon. Member for Bristol, South-East (Mr. Benn). It is not very common that we have precisely the same thing in mind, but here we have. It is to delete what seems a hastily drafted subsection which puts a rather indeterminate obligation on the Minister to dispose of the shareholding when it is "reasonably practicable" to do so. One can always get rid of one's shares at a price, so it is always practicable to do so. The interpretation of the words "reasonably practicable" seems to have very much the appearance of a minefield lying ahead of my right hon. Friend.

I am impressed by the argument that it might be inadvisable to sell if the Government went in because the capital structure of the firm was all wrong and the only way to put it right was for the Government to go in. In what circumstances would the Government be able to get out again? The Stock Exchange will be full of rumours as to what might be in the Minister's mind, and that is likely to affect the price of the shares. Regrettably, the private sector of our mixed economy has something of the atmosphere of a casino. What will be the effect on the Stock Exchange of the likelihood of the Government's buying and selling of equity shares?

In the next Session I hope that the Government will introduce their big pensions Bill, which will, among other things, set up a huge public unit trust. This Bill seems a minor foreshadowing of that, because it gives the Secretary of State the right to run an open-ended unit trust of his own. Unfortunately, for technical reasons, I am unable to press my Amendment to a Division. The Amendment has the effect of taking from the Minister the power he is seeking in the Clause. But I say in the strongest terms that the subsection ought not to appear in the Bill. I hope that the Minister will consider seriously whether he might not delete it in another place.

Mr. Warren

I approve very strongly of Amendment No. 21, and particularly the subsection (4) contained in that Amendment. In that subsection I do not see the fears of the hon. Member for East Stirlingshire (Mr. Douglas) about hiving off. The merit of disposing of shares as soon as possible is surely the ability to keep the amount of aid which is available rotating among a number of industries and companies which need that aid. We do not want to see the aid locked up permanently in particular companies. We want the aid to give individual companies the ability to get up to a self-sustaining momentum so that they can look after themselves and not be dependent for ever on the taxpayer.

What is more important than whether we have equity is the standard of communication between the companies which benefit from the aid and the people in the Government who are responsible for administering that aid. The degree of communication will ensure that there is, I hope, a high standard of maintenance of accountability for the way in which the money is invested and used.

My hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) should get an answer tonight to his comments about whether the Government will be an absentee shareholder or a sleeping component of the aid programmes. We do not want to be left in the position that there are so many diverse interests for which the Government are responsible that everything is milked down. I hope that this aid will not be considered as a permanent prop for decaying industries or companies. I hope with my hon. Friend the Member for Cheadle (Mr. Normanton) that the primary concentration will be on smaller companies. These are the places where there is the best chance of growth.

The right hon. Member for Birkenhead (Mr. Dell) commented on whether we had doubts about public ownership. At this late hour I do not want to open up a debate on this. I merely say that the historical experience of the last 25 years is that the nationalised industries have turned out over and over again to be the weak sectors of the economy. They have not been good examples of how to deliver goods on time at a price that the public can afford. In many cases they have been repositories of bad labour relations.

In terms of nationalising Rolls-Royce, it was not an end in itself to nationalise Rolls-Royce. It was a means of saving a strategic industry with an important export commitment. We have to distinguish between our determination to try to reduce unemployment, which is surely the heart and motive of Clauses 7 and 8, and the Bill, which I would never regard as a means of investment in industry to give the best possible return. That is not what we are here about.

With so many constituencies represented by Labour Members which stand to benefit more than any other part of the country from the Bill, it is remarkably surprising that even at this late hour only four hon. Members opposite, gallant men I know, are present when there should be at least 100 if not 200 of them. This is a remarkable reflection on the real interest and dedication of the party opposite to the Bill.

Mr. Dell

Would not the hon. Member agree that if there were 100 or 200 of my hon. Friends present, the Government would lose many Amendments on the Bill?

Mr. Warren

That is hypothetical. Hon. Members on the Opposition side are not likely to press Amendments to Divisions tonight.

2.15 a.m.

Mr. Millan

Despite the Minister's criticisms of our Amendments, all that they would do is to restore the Bill to its original state. They seek to emphasise the Government's original intentions. The Government have succumbed to pressure from some of their back benchers. Many hon. Members opposite were perfectly happy with Clauses 7 and 8 as they were originally drafted. A small number of hon. Members opposite objected to Clauses 7 and 8 for doctrinaire reasons and the Amendments tabled by the Government in Committee and these Government Amendments are part of the Government's conciliatory approach to their back benchers.

I doubt whether the Amendments will mean much in practice. It was plain from the Minister's highly defensive speech that, even if the Amendments are carried—we have considerable objections to them—the purpose of Clauses 7 and 8 will not be seriously damaged.

We object to two points in particular about the Government Amendments. First, they will provide that under Clause 8 it will not be possible for the Government to take more than a 50 per cent. shareholding in any company. The Minister's arguments as to why this is a reasonable proposition for Clause 8 but that something else is reasonable for Clause 7 were weak. One hon. Member opposite argued that as we were dealing with similar circumstances it was absurd to draw artificial distincts between Clauses 7 and 8.

Rolls-Royce was partly in assisted areas and partly outside assisted areas. It would be absurd for the Government to argue that, if the whole of the Rolls-Royce establishments had been in assisted areas, it would be in order for the Government to use their powers under Clause 7 to take a 100 per cent. shareholding without any special parliamentary procedure and without a separate nationalisation Measure whereas, because Rolls-Royce had some establishments in assisted areas and some outside, it was necessary and desirable to have a separate nationalisation Measure. Because of the large sums and important issues involved, it was a good thing to have a separate nationalisation Measure for Rolls-Royce. A manuscript Amendment is to be moved to provide a certain amount of parliamentary procedure for assistance under Clause 8.

Whatever may be the arguments about parliamentary procedure and whatever the merits of having a separate nationalisation Measure in a case like Rolls-Royce, there can be little argument in favour of the distinction the Government draw between Clauses 7 and 8. We on this side recognise that there are many circumstances in which it is reasonable and indispensable that the Government should take a majority holding. There is nothing wrong with that. We take the view that there are many situations in which the only adequate way to safeguard the public interest is by taking the majority equity holding. It is doctrinaire to say that in no circumstances should there be anything like a majority holding, although that is the point of view of hon. Members opposite, or that there should be a majority holding only in Clause 8 cases with a special additional parliamentary procedure.

Therefore, we object to this weakening of the Bill in this important regard, although we think that in practice it will probably not make much difference. We object even more to the proposal that any shares which are taken up shall be disposed of as soon as it is reasonably practicable to do so. Hon. Members opposite are not saying that it is wrong for the Government to get involved in private industry or to assist private industry—if that were a point of principle, one could respect it, even if one disagreed—but they say that it is all right in certain circumstances to put Government money into private industry so long as the Government get out as soon as possible, regardless of the national interest.

There will be nothing in Clause 7 or Clause 8 about the public interest. The requirement will simply be that the Government shall dispose of their holding as soon as … it is reasonably practicable to do so"— I am not altogether sure what that means—and that obligation is to over-ride the public interest. It is a monstrous suggestion. Hon. Members opposite are quite willing to help private industry in circumstances where, without Government help, private industry would go bust, but as soon as the industry is on its feet again, the Government will dispose of their shareholding regardless of the public interest.

Mr. Normanton

My sub-Amendment (b) to Government Amendment No. 17 would meet the point, would it not?—that the Secretary of State shall dispose of the shares at the earliest opportunity after the ending of those conditions or circumstances which gave rise to his decision to acquire the said holdings".

Mr. Millan

The hon. Gentleman is expressing clearly what the Government are doing. He says, in effect, that it is all right for Government money to go in when private industry needs it, when the circumstances are such that it is unlikely to be an immediately profitable investment from the public point of view, but, as soon as it becomes a profitable investment, or potentially profitable, it must be got rid of. That is exactly what I am objecting to.

Govan Shipbuilders, which is to have £35 million of Government money, is a good example. Incidentally, that will be a 100 per cent. shareholding, because nothing is going in from private sources at present, and Lord Strathalmond has made clear that he sees very little prospect of private money coming in. All the money is being supplied by the Government, and yet, at the end of the day, as soon as there is any real sign of profitability, there will be the requirement to dispose of their shareholding.

Mr. Bruce-Gardyne

Is the hon. Gentleman asking the House to accept that a time will come when private shareholders will be interested in taking an equity shareholding in Govan Shipbuilders?

Mr. Millan

I am saying the very opposite. The money is being put in by the Government. The first Part of Government Amendment No. 21 about a 50 per cent. shareholding is absurd in such circumstances. Then, if there is any possibility of profitability, the shareholding is to be disposed of. We object to that.

There are even worse examples. Harland and Wolff has had large sums of Government money put in already, and more is committed, but there is still a considerable private equity shareholding.

Large sums of Government money are being put into Harland and Wolff to keep the company going, and when it becomes profitable a large element of the profits will go to the private shareholders who are not at the moment supplying the capital to maintain the company. That is an abuse of the use of public funds. It is neither the principled argument that Governments should not get involved, nor is it what the Opposition would like to see, Government involvement but always with due regard to the public interest on profits and in every other way.

Government money will be going into the company under conditions which will mean in practice that if those conditions are discharged that public money, the taxpayer's money, will be wasted. It will be wasted in the sense that when profitability looks as if it will arrive the benefits of public investment will be handed over to private enterprise. For those reasons, we very much deplore the weakening of the Bill.

Mr. Chataway

I shall not weary the House by restating the case I put forward earlier, but I shall answer specific points raised by my hon. Friends. My hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) asked about our relationship with companies in which we had an investment. We shall certainly monitor the progress of companies in which we have an investment of any kind. Where there is an equity shareholding, as for example in the case of the 10 per cent. equity shareholding in ICL, a director is often appointed. But I regard the most important means of monitoring and controlling the investment of the Government in any company as reposing in the system of reporting which is instituted by my Department. The fact that we now have the expertise from finance, the City and business within the Department on short-term secondment, which is of a type that has not been available to Government before, should assist us in the execution of policy under the Bill and in our monitoring.

My hon. Friend also asked about the effects of selling the Government's investments. The hon. Member for Glasgow, Craigton (Mr. Millan) and a number of others made heavy weather of this, because the Government will, of course, take account of the circumstances in selling, and "reasonably practicable" can mean that. If shares are sold when the company is profitable naturally the taxpayer will benefit. The selling of the Industrial Reorganisation Corporation portfolio should reassure those who believe that the Government cannot sell. I do not think that my hon. Friend the Member for Kensington, South has noticed, as a result of the sales that have taken place of the IRC portfolio, on the advice of Rothschilds, that the market has been disrupted in the way he fears. I do not think there will be disruption in the future.

My hon. Friend the Member for Cheadle (Mr. Normanton) asked me three questions. I think that he recognises that equity by no means bulks large in this operation. We made it clear that the taking of equity would be done only in exceptional cases. He was anxious that I should take account of a number of factors in preparing guidelines. I take note of what he said and I shall bear it very much in mind. Perhaps his most important point about which he was most anxious was that medium and small companies should not be discriminated against. I can assure him that this is my intention and it is the intention of the Under-Secretary who has special responsibility for small firms. I hope on that basis that the House will be prepared to accept the Amendments.

Amendment agreed to.

Amendment made: No. 15, in page 8, line 30, leave out from 'including' to end of line 31 and insert: 'an acquisition effected by the Secretary of State through another company, being a company formed for the purpose of giving financial assistance under this Part of this Act'.—[Mr. Chataway.]

Amendment proposed: No. 17, in page 8, line 40, leave out subsections (4) and (5) and insert: '(4) The Secretary of State, in giving financial assistance under this section in the way described in subsection (3)(a) above, shall not acquire any shares or stock in a company without the consent of that company'.—[Mr. Chataway.]

Amendment made: as an Amendment to the proposed Amendment, in line 1, leave out from beginning to 'shall' in line 2 and insert: '(4) Financial assistance shall not be given under this section in the way described in subsection (3)(a) above unless the Secretary of State is satisfied that it cannot, or cannot appropriately, be so given in any other way, and the Secretary of State, in giving financial assistance in the way so described'.—[Mr. Adam Butler.]

Proposed Amendment, as amended, agreed to.

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