HC Deb 01 July 1975 vol 894 cc1337-49

Question again proposed, That the amendment be made.

Mr. Kaufman

As I was saying when I was so unnecessarily interrupted, it is necessary, if we are to get the full effect of this Act, that we do not diffuse the aims as laid down in the Bill. We are particularly concerned in it with manufacturing industry, which lies at the heart of our economic progress as a nation, and we made that clear in the White Paper when we explained that the powers under discussion might be used when there was loss to unacceptable foreign control of any key sector of manufacturing industry.

The hon. Member for Caernarvon drew attention to the statements made in Standing Committee by the then Under-Secretary. We have considered the matter in the light of what my hon. Friend said but we have decided, on balance, that it is unnecessary to extend the powers in the way that the hon. Member would like—even though his amendment would not achieve what he would like—partly because we are most concerned about manufacturing industry and partly because there exist for many sectors of non-manufacturing industry other powers to achieve our objectives, such as legislation to control insurance companies or civil aviation.

I therefore hope that the hon. Member will withdraw his amendment, especially since to make it would do very little good.

Mr. Wigley

I shall be withdrawing the amendment for the same reason that I did not put it forward in the detailed manner that would be necessary to make coherent sense of it, and that is that the Welsh Development Agency (No. 2) Bill is passing through the House, The powers in Clause 2 are built into that Bill to a large extent, and those powers would be applicable to commercial activities in Wales, which includes extractive and service activities.

Notwithstanding that, the Welsh Development Agency will have the powers to do anything in Wales and any other part of the United Kingdom calculated to secure its functions. Therefore, if there are things in Wales which are to be controlled from England, even though they are in the service sector, the Welsh Development Agency will be able to make attempts to take over if that is deemed to be in the public interest.

We therefore feel that we have the necessary powers in the Welsh Development Agency Bill and we sympathise with those people in the regions of England who do not have such powers but would obviously like them. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Kaufman

I beg to move Amendment No. 43, in page 7, line 6, at end insert 'or relevant bodies corporate'.

Mr. Deputy Speaker

With it we may also take Government amendments Nos. 44 and 45.

We may take Amendment No. 165, in line 18, leave out 'not resident in' and insert: 'assuming control, whether or not they are resident in the countries of'. We may also take Amendment No. 46, in page 7, line 19, at end insert: 'and, where one or more of the persons carrying on the undertaking is a body corporate, also includes the happening of any such event as is specified in subsection (3) below: relevant body corporate" means—

  1. (a) a body corporate (whether or not incorporated under the law of the United Kingdom or of a part of the United Kingdom) carrying on as the whole or the major part of its business the whole or part of an important manufacturing undertaking, or
  2. (b) a body corporate incorporated under the law of the United Kingdom or a part of the United Kingdom which is the holding company (as defined by section 154 of the Companies Act 1948 or section 148 of the Companies Act (Northern Ireland) 1960) of a group of companies carrying on as the whole or the major part of their business the whole or part of an important manufacturing undertaking.
(3) The events mentioned in subsection (2) above are all events whereby—
  1. (a) a person not resident in the United Kingdom becomes entitled to exercise or control the exercise of the first, second or third qualifying percentage of votes; or
  2. (b) a person resident in the United Kingdom and entitled to exercise or control the exercise of the first, second or third qualifying percentage of votes ceases to be resident in the United Kingdom; or
  3. 1339
  4. (c) control of the exercise of the first, second or third qualifying percentage of votes passes from a person not resident in the United Kingdom to another person not so resident.
(4) For the purposes of this Act—
  1. (a) the first qualifying percentage of votes is thirty per cent.;
  2. (b) the second qualifying percentage of votes is forty per cent.; and
  3. (c) the third qualifying percentage of votes is fifty per cent.,
of the votes that may be cast at any general meeting of a relevant body corporate
. (5) In determining whether there has been a change of control, one or more persons acting together in concert may be treated as a single person.'. With this goes Amendment (a) to Amendment No. 46, leave out subsections (3) and (4) and insert: '(3) An event mentioned in subsection (2) above occurs whenever an interest in shares comprised in relevant share capital of a relevant body corporate to an extent which carries an entitlement to cast or to control the casting of thirty per cent. or more of the votes that may be cast at any general meeting of the body corporate—
  1. (a) is acquired by any person not resident in the United Kingdom, or
  2. (b) passes from a person not resident in the United Kingdom to another person not so resident,
and occurs also whenever— (c) a person resident in the United Kingdom who is entitled to such an interest ceases to be so resident'. We may also take Amendment No. 168, in page 7, line 19, at end insert: 'or the relocation of a person or persons in control from within the United Kingdom to outside the United Kingdom'.

Mr. Kaufman

I thank the hon. Member for Caernarvon (Mr. Wigley) for the sympathy he expressed for the English regions. We in the North-West have for some time consistently suffered a higher level of unemployment than has existed in Wales and therefore we are grateful for his sympathy.

These amendments have been tabled in part in order to give effect to assurances given in Committee. We gave an assurance to the hon. Member for Surrey, North-West (Mr. Grylls) which he was kind enough to call a "semi beau geste". We gave an assurance to the hon Member for Caernarvon which I am glad on this occasion to be able to fulfil, and we gave a further assurance to the hon. Member for Surrey, North-West.

10.15 p.m.

The amendments are in part designed to give effect to the assurance given in Committee and are in part designed to deal with the technical points of difficulty which arise from the fact that what we wish to preserve under national control are businesses, which are referred to in the Bill as "undertakings". But where-ever possible it is most convenient to protect the control of the business by preserving national control over the company which runs the business. The drafting of the Bill to cover both the undertaking and the body corporate which carries it on is somewhat complex. I hope that the House will be assisted and will bear with me while I attempt to explain our purpose.

I should first like to deal with the promises which the Government made in Committee to clarify certain points. First, it was pointed out that the definition of an important manufacturing undertaking in Clause 9(2) might cover an undertaking which had only some slight or marginal involvement in manufacturing. To meet that point we propose, in line 9 of page 7, to insert the words "wholly or mainly" to make it clear that we wish to have the power to make a prohibition or vesting order only in respect of an undertaking at least mainly engaged in manufacturing.

The second amendment, which results from an assurance given in Committee, is contained in Clause 9(3)(b) and is slightly more complicated. In Committee the hon. Member for Caernarvon put down an amendment dealing with the circumstances where the same person—natural or corporate—remained in control of a company but moved from the United Kingdom to become a resident abroad. Since the Bill as drafted referred to "a change of control" this was not covered since the control had not changed—only the place from which it was exercised. That loophole is now closed by subsection (3)(b).

The third assurance that we seek to honour is that we would define what is meant by "control". Here, in principle, our aim was simple, although in practice some further difficulties presented themselves. We see advantage, both to the companies concerned and to the Government, in there being certainty as to the position of control in any company. For that reason we believe that a numerical definition of control, reflecting the principles of the take-over code, is to be preferred to looser and more pragmatic definitions. We therefore thought that the powers could be usable when control over 30 per cent. of the shares is involved. The 30 per cent. figure is one accepted as conferring control in many situations: it is used in Clause 8(1)(a) as the percentage that is held to give the NEB a controlling interest in a company; it is the percentage which, under the city code on takeovers and mergers, requires a bid to be made for all other equity shares. I hope therefore that the 30 per cent. figure will be seen as fair and sensible.

But it has proved necessary to go beyond this. The disadvantage of defining "control" in numerical terms is that there are times when someone controls the numerical percentage but does not in practice control the company. For example, ownership of 30 per cent. of a company's shares does not give control in practice when the remaining 70 per cent. are all in the hands of another person. Because of this, the Government accept that there may be times when a foreigner acquires 30 per cent. in such a way that the "control" he thereby acquires is purely formal. In these circumstances the change of "control" would not be such as to satisfy the conditions set out in Clause 10(1)(b), and no order could be made.

But under Clause 10(8)(b), three months after the Secretary of State learnt of this change of "control", his powers would have lapsed, had control been defined as 30 per cent. only After that period, the foreign owner of the 30 per cent. might have bought the remaining 70 per cent. of the shares, without any possibility of his being restrained under this Bill.

To guard against this we propose in subsection (4) that there should be three levels of qualifying percentages-30 per cent., 40 per cent. and 50 per cent. A non-United Kingdom resident who was about to acquire or had acquired 30 per cent. of the shares of a vital British firrn could seek the Government's approval and would then be free to proceed. He could then buy further shares, if he so wished, but the Government would be able to take action if he were about to acquire, or had acquired, shares which would bring his holding to 40 per cent. or to 50 per cent.

These provisions are designed to give scope and freedom to the overseas purchaser, while retaining an element of control necessary if a numerical definition is not a result in a loophole in the powers. I regret that they are somewhat more complex than might be desirable, but I hope I have explained why that is so.

Lastly, I turn to technical amendments which we wish to make to deal with the United Kingdom business that is carried on not by one company but by a group of companies. As the Bill was drafted, the powers related to the company carrying on the undertaking, and this would not have permitted the Government to deal with a case where an important manufacturing undertaking was carried on by a group of companies, and no single company could be dealt with because no single company could be said to carry on the undertaking on its own.

We therefore wish to introduce the concept of "a relevant body corporate" to Clause 10 (1) (a), and to define this in Clause 10 (2) to cover United Kingdom holding companies whose subsidiaries carry on an important manufacturing undertaking, as well as companies which together or separately carry on such a business.

We recognise that the power to vest the shares of a company, and still more those of a holding company, should be exercised only if the important manufacturing undertaking accounts for a major part—that is, more than half—of the activities of the company or group. This is achieved by the phrase carrying on as the whole or the major part of its business the whole or part of an important manufacturing undertaking". There is thus no question of the shares of the ultimate holding company being vested simply because it controls, as a small part of its business, an important manufacturing undertaking. We shall, of course, always be able to vest the assets of that undertaking itself.

The amendments that we propose are technical and sometimes complex, but they are designed with the overall purpose of enabling the Government to take action as effectively as possible in respect of key United Kingdom manufacturing businesses. If accepted, they will ensure that the powers are confined more directly to such businesses and to the companies or groups of companies in which they account for more than half of their commercial and industrial activities.

Mr. Grylls

The Minister was kind enough to say that I had said in Standing Committee that his assurances to move amendments at the Report stage were a "semi-beau geste". To be fair to the Government, they have come forward quite well with a number of the things for which we asked. Above all, we were concerned that Clause 9 should be clarified. I think the Minister will agree that these matters were rather vaguely worded. The amendments are an improvement, therefore we welcome them —particularly the changes proposed in the definition of "control".

What worried us was that there was no definition of control, so I think that what is now proposed is right. Having suggested in Committee that 30 per cent. would be a reasonable amount as the Minister said himself, in line with the City take-over code, I would not object to that at all. I think it is helpful and useful. We have put forward in Amendment (a) to Amendment No. 46 a simplification of Amendment No. 46, which I think anyone would accept is a highly complex amendment. We had asked for a clarification of the definition of "control". I accept that the Minister has tried to bring forward a clarification, and many right hon. and hon. Members, on reading Amendment No. 46, would say that it is a good attempt, but I am not sure that it has not fogged the issue a little more.

We were concerned about the qualifying percentages and why it was necessary to have the three-tier system. It seemed to us that there was a simpler way of doing it, such as in Amendment (a), simply by taking 30 per cent. and leaving it at that. However, in the light of what the Minister said, it is possible that someone could come in and have, as it were, a second bite at the cherry after the moment had passed. If that happened and it were a case of 15 per cent. on top of the 30 per cent. the Secretary of State then could do little about it.

It would be wrong to look that gift horse in the mouth. Generally, it is an improvement. So Amendment (a) was a probing amendment. I do not think that we have any great objection, and we understand the explanation which the hon. Gentleman gave.

Amendment No. 44 is very important. In Committee, quite a lot was made of the point that, for example, there could be a Hong Kong company with most of its manufacturing in Hong Kong but with a small unit in Britain. I felt sure that the Secretary of State did not mean that kind of situation to come within the ambit of the clause. I think that the insertion of the words "wholly and mainly" in line 9 will improve that.

The addition at the beginning part of Amendment No. 46 again is an improvement. For that reason, we have no objection to it. What worried us and what worries me still, even with the definition of "control" being restricted to 30 per cent. and over, is the possible combined effect of these clauses on joint ventures in this country. I am sure that the Secretary of State, with his recent experience, will know that in North Sea oil there are many joint ventures whereby foreign technology is shared with our own firms and British firms are involved in North Sea oil technology. If joint ventures of this kind are to prosper, it is important that we do not frighten them off. The 30 per cent. will help. It may be that from now on foreign ventures will be less than 30 per cent. so that these clauses will not be triggered off. But there is still a danger.

In applying this part of the legislation in the future, I hope that the Government will think about the effect on overseas associates. With the present economic situation which everyone is so worried about, it is important that we have responsible foreign investment in this country which will bring us technology and jobs. It is important that there is transferability of this investment and that foreign companies do not feel locked in or that, if they wish to make a transfer of their shares, they will be snapped up by the Government.

Although we accept these amendments as an improvement, the fact remains that the way that the Secretary of State and his successors use these clauses will be more important than the actual drafting of the clauses. It is vitally important, as the Chancellor of Exchequer said a few months ago, to use the recycled Arab oil petrodollars and to ensure that this money comes here. If we are to get it, we must not frighten them off.

I ask the Minister to clarify one further matter. In Committee, in the course of our Seventeenth Sitting, the former Under-Secretary put to us what we thought was an ominous suggestion. He said: The Government have been approached by management and unions outside the manufacturing sector requesting that the scope of these clauses be extended to other sectors of industry not in manufacturing".—[Official Report, Standing Committee E, 22nd April 1975, c. 950.] I hope that the Government have abandoned that one. If that is part of the shuffling round of chairs in the recent Government reshuffle, we welcome it. But I hope that the Minister can confirm that that suggestion made by the former Under-Secretary has been abandoned. To be fair to the hon. Gentleman, he did not say that it was Government policy. He said merely that the Government were considering it.

I hope that the Minister will give an assurance—because it is important, if we have accepted amendments—that it should apply only to manufacturing industry or undertakings wholly and entirely in manufacturing industry and that they are not thinking of extending it outside. I hope that we can have that assurance tonight.

I hope that we can end in a friendly way and that peace can reign between us. I hope that the Minister will tell us that that has been dropped, in which case we shall not vote against his amendment.

10.30 p.m.

Mr. Wigley

I welcome the move made by the Government which makes Amendment No. 168 unnecessary because its provisions are contained in the complicated amendment tabled by the Government, which we welcome.

I should like to ask one or two questions which arise from Amendment No. 165. We have suggested that change of control is pertinent to the public interest, whether or not that change of control involves moving control from within the United Kingdom to outside. The Minister will have noticed from reading the report of the Committe that we went into this matter in fair detail. There may be changes in control that could be against the public interest. If control is put into the wrong hands of residents of the United Kingdom that could be as much against the public interest as if it were put into the wrong hands of people outside the United Kingdom.

Linked with that—and this was discussed in Committee—is the situation of companies within the EEC. A certain amount of doubt was expressed in Committee about the future before the referendum. We now know that our future is with our colleagues in the EEC. The question arises whether we are building in legislation that discriminates against other countries of the EEC acquiring control and whether that is contrary to the requirements of the Treaty of Rome that there should be freedom of movement of capital and that companies in other countries within the EEC should have the same freedom as companies within the United Kingdom.

It is for that reason that we put forward Amendment No. 165. This would permit an intervention in the change of control just within the United Kingdom so that there would be no degree of discrimination against companies from within the EEC. The same rules would apply to them as would apply to companies within the United Kingdom, but it would be necessary to adopt Amendment No. 165 to avoid cutting across the provisions of the Treaty of Rome. This is a probing amendment and I ask the Minister to reply to these points.

Mr. Kaufman

The hon. Member for Surrey, North-West (Mr. Grylls) was kind enough to say that peace can reign among us if I give him further assurances. I accept what he said in the spirit in which he said it, but may I say, in the friendliest possible way, that peace will reign between his Front Bench and mine and between us if he does not seek to drive some kind of wedge between my right hon. Friend, myself and the Ministers in the Department. We are carrying out the policies of the Department and the fact that Ministers have changed does not mean that those policies do not continue and that we do not keep to the assurances that we gave in Committee on this and other matters. I should be grateful if that could be borne in mind when dealing with further amendments.

The hon. Member for Caernarvon (Mr. Wigley) was good enough to accept the amendment we put forward following the assurances we gave him in Committee. However, he asked about the EEC. He gave us as one of the reasons for parity what one might call a kind of reverse punishment. He was speaking to Amendment No. 165. My right hon. Friend the then Secretary of State discussed this point at some length in Committee at a highly factual level in slightly fevered circumstances.

Our legal advice is that the acquisition of property of one member State by a national of another does not fall within the freedom of establishment when the acquisition is being attempted from outside the member State in which the property is situated. This was a matter which particularly concerned my hon. Friends, among others.

It would, therefore, be no infringement of the right of freedom of establishment for a prohibition or vesting order to be made to prevent or frustrate a bid for a United Kingdom company made by a company registered in another member State—that is, a takeover bid from abroad —but it would infringe our Community obligations if we prevented a United Kingdom subsidiary of a company registered in and controlled by residents of a member State from acquiring a British concern through these powers which could not by their nature be used to prevent acquisition of a British company which was not foreign-controlled.

If, therefore, an EEC company organised a bid for a key British manufacturing undertaking through a United Kingdom subsidiary, Clauses 9 to 13 could not be applied to prevent or frustrate the acquisition without the United Kingdom breaching its obligations. It would not be in breach of our EEC obligations to prevent the acquisition of key British manufacturing enterprises by companies which are themselves controlled by non-EEC residents provided that the prohibition applied equally, no matter whether the acquiring company was a United Kingdom company or a company of any other EEC member State.

The explanation for this is that such action would not discriminate between British and other EEC companies but would rather be an action applying to companies in all EEC member States which were controlled by non-EEC residents. Thus, it would not be possible for a bid by a non-EEC acquirer to evade our legislation by being routed through a non-EEC subsidiary even if that non-EEC subsidiary were an established company.

I have gone into a little detail on this, but if it would suit the hon. Gentleman I will write to him in further detail so that he shall be enlightened. If he does not object, I will perhaps arrange for that information to be printed in the Official Report—if that is allowed—so that other hon. Members may be able to see the advice that I am able to pass on to the hon. Gentleman.

In view of what I have said I do not know whether the hon. Gentleman will be anxious for me to respond to his amendment. If he wishes it, I shall have to tell him in a little detail that we do not find it acceptable.

Amendment agreed to.

Amendments made: No. 44, in page 7, line 9, after 'undertaking', insert 'wholly or mainly'.

No. 45, in line 15, leave out 'or any body corporate which carries on such an undertaking'. No. 46, in line 19, at end insert 'and, where one or more of the persons carrying on the undertaking is a body corporate, also includes the happening of any such event as is specified in subsection (3) below: relevant body corporate" means—

  1. (a) a body corporate (whether or not incorporated under the law of the United Kingdom or of a part of the United Kingdom) carrying on as the whole or the major part of its business the whole or part of an important manufacturing undertaking, or
  2. (b) a body corporate incorporated under the law of the United Kingdom or a part of the United Kingdom which is the holding company (as defined by section 154 of the Companies Act 1948 or section 148 of the Companies Act (Northern Ireland) 1960) of a group of companies carrying on as the whole or the major part of their business the whole or part of an important manufacturing undertaking.
(3) The events mentioned in subsection (2) above are all events whereby—
  1. (a) a person not resident in the United Kingdom becomes entitled to exercise or control the exercise of the first, second or third qualifying percentage of votes; or
  2. (b) a person resident in the United Kingdom and entitled to exercise or control the exercise of the first, second or third qualifying percentage of votes ceases to be resident in the United Kingdom; or
  3. (c) control of the exercise of the first, second or third qualifying percentage of votes passes from a person not resident in the United Kingdom to another person not so resident.
(4) For the purposes of this Act—
  1. (a) the first qualifying percentage of votes is thirty per cent.;
  2. (b) the second qualifying percentage of votes is forty per cent.; and
  3. (c) the third qualifying percentage of votes is fifty per cent.,
of the votes that may be cast at any general meeting of a relevant body corporate.

(5) In determining whether there has been a change of control, one or more persons acting together in concert may be treated as a single person.'.—[Mr. Kaufman.]

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