HC Deb 08 February 1979 vol 962 cc585-623

Order for Second Reading read.

4.40 p.m.

The Minister of State for Overseas Development (Mrs. Judith Hart)

I beg to move, That the Bill be now read a Second time.

I have it in command from the Queen to acquaint the House that Her Majesty, having been informed of the purpose of the Bill, has consented to place Her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Perhaps the first thing that I should say is that this is historically a considerable event. It is the first time since their inception in 1833 that this House has legislated about the Crown Agents' status. Therein has lain one source of the recent problems which have troubled us so much. I hope that the Bill will provide a sensible and satisfactory basis for the constitutional relationship between the Crown Agents, the Government and Parliament. It may even be that it can do so for the next 150 years, though I would not be so brave as to predict it.

I shall, of course, explain the Bill to the House. But at this point I can best summarise it by saying that it gives the Crown Agents a recognised legal status as a statutory corporation, responsible to the Minister of Overseas Development. It gives important powers of direction to the Minister, as in the case of other public sector corporations. It puts the Crown Agents on a financial basis comparable with that of other public corporations, including provisions about reserves, borrowing powers and audit arrangements.

But there is one important difference between arrangements in the Bill and other Acts of Parliament concerning natonalised industries and public sector bodies. It reflects the very special function of the Crown Agents in relation to their principals—their clients, whom they serve. The Bill carefully protects this, which is their traditional role, in their relationship with overseas Governments and bodies. It would not be right for the Minister and the Government here in Britain to be involved in the arrangements for procurement or money management carried out by the Crown Agents on the instructions of, and on behalf of, an overseas principal, subject of course to the proper financial safeguards in the Bill. So it is a public sector corporation with a difference.

To explain the real and urgent need for the Bill, which seeks to establish beyond doubt a new constitutional relationship, I must remind the House of the background. As hon. Members know, it has been my responsibility, shared with my Treasury colleagues, to cope—there is really no other word—with events, crises, urgencies and inquiries stretching back over the last three Parliaments. But one should begin at the beginning, and that was in 1833. The House will forgive me if I spend just a few moments on the history.

The Crown Agents were first established in 1833 by the Secretary of State for the Colonies, then Mr. Stanley, later the Earl of Derby, to act as agents for the procurement of goods and services for colonial Administrations. It was the heyday of colonialism and empire, and throughout the last centutry and the first half of this century a Crown colony Government would put its orders in to the Crown Agents.

The relationship with the Secretary of State for the Colonies emerges very clearly in a report of a Select Committee of this House in 1909. As a Minister, one does not have time for such entertaining historical reading, but I read it in the Library in my Oppoistion years as Shadow Minister, and I recommend it strongly as a fascinating read to give the full rich flavour of empire and colonialism.

The report, which was Cmnd. 4473, said: the Crown Agents form part of the general machinery of Crown Colony government and are necessarily subject to the instructions of the Secretary of State. The fact that the Crown Agents are allowed, especially in financial matters, considerable discretion in transacting a Colony's business, and that it is their duty to point out to a Colony if and when its interests could best be served by some modification in its orders, certainly does not enable them to overrule the maintained opinion of a Colonial Government. They may appeal to the Secretary of State from the decision of the Colony, and ask for his instructions on uncontroversial matters when the question is urgent and cannot wait for reference to the Colony; but the Secretary of State decides all such questions on his own authority in virtue of his powers of control over the Crown Colony Governments, and the Crown Agents can only act on his instructions, and have no independent authority. On this question the Committee feel that the evidence which they have taken leaves no doubt. The evidence of an assistant undersecretary, Mr. Bertram Cox, to that 1909 inquiry further clarified the position. The Crown Agents were— servants of the Colonial Governments paid out of Colonial funds … and appointed by the Secretary of State as representing the Crown's final controlling power in Crown Colonies. So in 1909 the Government had complete powers of direction on questions of detail as well as of principle, exercised through the Secretary of State for the Colonies. So continued the position.

The next time Parliament interested itself in the Crown Agents was in the Session of 1947–48. The Estimates Committee reported on colonial development. Perhaps it was inspired by the grant of independence to India in August 1947. In the course of its investigation, which was concerned mainly with delays in procurement of orders, it took evidence from the Senior Crown Agent of the time, Sir John Calder. In its report, which was the fifth report in Session 1947–48, it said inter alia: The Crown Agents act on behalf of Colonial Governments in a great many matters requiring to be dealt with in the United Kingdom. Though they are under the general supervision of the Secretary of State for the Colonies, the Crown Agents receive their instructions direct from the Colonial Governments. The Government's reply to various of the recommendations made in that 1947–48 period included this: It must be remembered, however, that the Crown Agents are in fact, as well as in title, the agents for Colonial Governments; and that it is only in very exceptional circumstances that interference can be justified with the normal flow of orders placed and deliveries secured by an agent. So, looking at it historically, between 1909 and 1947 it would seem there had already been a subtle change of emphasis, probably as a result of the emergence of self-government in a number of colonies. The Secretary of State for the Colonies had slightly distanced himself from the Crown Agents.

In 1954 it was announced in the London Gazette that the Queen had approved the change of name from "Crown Agents for the Colonies" to the "Crown Agents for Oversea Governments and Administrations", which is the title that we give to them in the Bill. It was from that point onwards, in my view, that the area of constitutional confusion developed, as what is summarised as "the wind of change" swept through our world of empire. In 1965 the management structure of the office was reorganised and a board was formed consisting of the Senior Crown Agent, Assistant Crown Agent, Assistant Crown Agent and Engineer-in-Chief, the Directors of Finance and Contracts, head of the computer installation group, Establishment Officer, Head of External Relations Department and an Additional Member—capital A, capital. M. When Sir Stephen Luke retired as Senior Crown Agent in 1968, the title of the office was changed and Mr. Claude Hayes—now Sir Claude Hayes—was appointed as first chairman of the Crown Agents. In the same year management consultants recommended the continuance of the board system of management established in 1965 and advised an extension of membership. Four additional directors were appointed.

In August 1966 the Secretary of State for the Colonies disappeared—not literally; my noble Friend Lord Lee of Newton has certainly not disappeared. His post was absorbed into the Commonwealth Office, and in fact I replaced him as Minister of State. In October 1968 the Commonwealth Office merged with the Foreign Office.

The next clear statement of the relationship between the Government and the Crown Agents occurred in 1968. The noble Lord, Lord Brockway, speaking of arms supplies to Nigeria, asked: Who are the staff at the Crown Agents? … Are they British civil servants? Have they any responsibility to the Houses of Parliament? In reply, the Government spokesman, then Lord Shepherd, said the Crown Agents were a completely independent body responsible to no Minister and not responsible to Parliament."—[Official Report, 29 April 1968; Vol. 921, c. 951–69.] My own inquiries in early 1970—as the Fay report records—established only that the Minister of Overseas Development had the power to appoint the Crown Agents but appeared to have no power to give them directions, and that the constitutional position was, to say the least, unclear.

This Bill makes it clear, and, I hope, clear beyond doubt. The Crown Agents will retain the title given to them in 1954—the Crown Agents for Oversea Governments and Administrations. But, in spite of the name, they will no longer retain their present Crown status, which is why I made my introductory remarks about the consent of the Queen. Also, they will lose their present immunity from taxation.

On the appointed day, when the new corporate body comes into existence, it will be my intention to appoint the chairman and board at present serving in our ad hoc situation. They are doing a splendid job, and have done so in very difficult circumstances, as indeed did the recently retired chairman, Sir John Cuckney, who met the acute crises of the past years with courage, resilience and determination. We owe a great debt of gratitude to him. We are fortunate that Mr. Eburne has now succeeded to the post of chairman. He was managing director, and is thoroughly familiar with the Crown Agents' affairs. I am confident that he will carry on the work of his predecessor with the same success.

I would also like to thank a number of hon. Members on both sides of the House for their co-operation in all our joint efforts to retain overseas confidence in the Crown Agents at those points when I have had to announce Government support for them as the degree of financial crisis in the past unfolded. We have succeeded. Their traditional operations, so valuable overseas, have not suffered. They stand high in respect and regard all over the world.

The Bill regularises the constitutional relationship. I have given an interesting historical background to that. It provides for the capital structure of the Crown Agents. It defines their functions and powers. It does not impair the traditional confidential nature of their relations with their principals.

I turn now to the financial aspects. I would like to stress that the Crown Agents have no liquidity problem, and under the arrangements proposed the new Crown Agents will start on a sound footing. As the House will recall, in July 1974 I directed the Crown Agents—on this ad hoc basis without proper constitutional backing—that they were no longer to engage in own-account activities in property and secondary banking.

On 31 July 1974, I announced the creation of a new board structure for the Crown Agents; the appointment of a new chairman from 1 October; and my intention to issue new investment guidelines for the own-account business. On 18 December 1974, I told the House of Commons of the Crown Agents' financial difficulties and announced the Government's intention to provide a recoverable grant of £85 million. On 23 April 1975, I announced the Government's decision to appoint a committee of inquiry under Judge Fay, QC.

On 16 October 1975, the Government announced their intention to publish a White Paper setting out their proposals for legislation to incorporate the Crown Agents. The White Paper was published in April 1976. On 3 May 1977, I told the House of the arrangements which had been made for dealing with the Crown Agents' Australian property investments, and in July 1977, on my instructions, my Department issued further detailed guidelines to the Crown Agents about consultation over realisation of their own-account investments.

On 1 December 1977, the report of the Fay committee of inquiry was published, together with the earlier Stevenson report, which I felt should be published, and a statement by the Government. On 15 February 1978, I announced the Government's intention to give a further grant of £90 million to the Crown Agents in respect of losses on their own-account business, and on 28 February 1978, following a considerable debate in the House in December, the Home Secretary announced the Government's intention to set up a tribunal of inquiry into the conduct of events described in the Fay committee's report.

As I told the House in reply to a question yesterday, there is no longer any need to have the standby facility with the Bank of England. This was arranged in December 1974 as part of the rescue package. It is not needed because the liquidity position of the Crown Agents is now entirely satisfactory, so it has been discontinued. We have had to provide two large grants, as the House is very well aware. It is also aware that the full background to the own-account activities of the Crown Agents which led to this disastrous situation are now being fully investigated by the tribunal of inquiry under Mr. Justice Croom-Johnson.

Mr. Dennis Skinner (Bolsover)

Can my right hon. Friend assure the House that in the period after 1974, when properties were sold off which hitherto had had connections with the Crown Agents in this rather sleazy episode, the disposals were made correctly and in the appropriate manner? This part of the operation will not be dealt with by the Croom-Johnson tribunal, which is concerned only with events up to 1974.

Mrs. Hart

My hon. Friend is right. The tribunal of inquiry will be dealing with the events that led to the disastrous losses on own-account activities. I gave instructions to the Crown Agents to disengage from those own-account activities in property. The process of disengagement has been a matter of steady and, I hope, careful and intelligent consultation between myself and the Chief Secretary, together with the Crown Agents themselves. If my hon. Friend has any doubts about the way in which the process of disengagement has occurred—

Mr. Skinner

I wrote to the Minister.

Mrs. Hart

My hon. Friend wrote to me. I wrote to him about one or two aspects of this matter. If he wishes to discuss this further or write to me about it, I shall be happy to engage in that. The realisation account is a matter for the Chief Secretary, myself and the Crown Agents. I should not wish to feel that anything that was done in the process of that, which we could affect, was not being corrected. I hope that that meets my hon. Friend's legitimate point.

This is relevant to my hon. Friend's point. The Bill provides for the maximum possible separation between the financial consequences of those own-account activities between 1967 and 1974 and, on the other hand, the Crown Agents' financial responsibilities in their continuing traditional services. This is to be done by incorporating also a separate holding and realisation board. It will have the same management as the Crown Agents but will be under direct and close ministerial control, which in effect means very close consultation between myself and the Chief Secretary, concerning the management of the withdrawal from past own-account activities from which disengagement is to be made—which means of all of them. On all these matters I consult closely with my right hon. Friend the Chief Secretary.

The major remaining unrealised asset lies in the Abbey Capital Property Group investments in Australia. A fairly lengthy period of disengagement offers the best prospect there of reducing demands on public funds. We should not do it too quickly. It is best to make it a fairly lengthy period. When the realisation account is no longer needed, the separate holding and realisation board will be wound up. If, in the event, there should prove to be a surplus, there is provision in the Bill for the Minister to pay this to the Consolidated Fund in recognition of the grants made as a result of the Crown Agents' losses on their own-account business.

I am certain that I have taken scrupulous care, which the House would want me to do, to protect the confidential relationship between the Crown Agents and their principals. In the Bill before us, the Minister does not intervene in the day-to-day operations involved in this important relationship, which lies at the heart of the Crown Agents' success in their traditional activities of procurement and services for overseas countries and public bodies. It is most important that this should be so.

The Crown Agents' functions have grown steadily and successfully over the years to cover not only procurement but recruitment, management and investment on behalf of and as agents for their principals. Those hon. Members who read the Quarterly Review of the Crown Agents will be well aware of the importance of all they do and of its value to so many Third world countries.

At the same time, I have been determined that there should be complete safeguards against any possibility that at any time in the future the Crown Agents might follow the dangerous road which they pursued in their own-account affairs a few years ago.

We all know of course—as I have said in the House before on a number of occasions—that what essentially happened was that the Crown Agents walked straight into the trap of property speculation. They did it not only unwisely but with amateurism. I must not trespass upon the affairs of the tribunal of inquiry, but I have said these things sufficiently often before not to do so again. I can refer to a number of highly informed newspaper comments by reputable and distinguished financial journalists. The Crown Agents involved themselves with the shady side of the City.

I should like to pay a particular tribute to Mr. Charles Raw, then of The Guardian and now of the Financial Times, for the investigative work he did, which my hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham)—who I know is not able to be here today—and I so much appreciated at a time when we were all trying to look into these matters.

This must never be allowed to happen again. So I have taken specific and considerable powers in this Bill, for any Minister to exercise in the years ahead, to define and direct what the Crown Agents may and may not do in their own right, as distinct from acting on behalf of their clients and their principals. Very largely these powers, spelled out in necessary detail, I fear, in the Bill, embody the practices which have been willingly and happily agreed upon and accepted by the Crown Agents without legislative backing since the new era began in 1974.

The Minister's powers of direction in these matters are comprehensive and precise. But I think this is necessary. I think it is right. I hope that the House will agree.

The Bill is not a simple one, but I should tell the House that every possible effort has been made to make it as clear-cut as it possibly can be. I use a cliché, but no stone has been left unturned to make it as short and understandable as strict legal requirements allow.

I should draw attention to one aspect of the Bill in clauses 4 and 5. It seemed right to me that we should not at this moment in time encapsulate the Crown Agents in their present field of activities on behalf of their principals, so we do not define them once and for all in this Bill. It allows an extension of their services and activities in the future, but it provides that any such extension shall have the approval of Parliament. For example, at present the Crown Agents carry out feasibility studies for development projects. They provide inspection services for the supply of goods. They give professional advice on technical matters. All these activities they carry out as paid services to their overseas principals.

The Crown Agents also act for us under various technical co-operation schemes such as the Colombo plan, and they administer the supply of goods which we supply as tied aid both for development projects and programme aid. They are often deeply and quickly involved in our urgent disaster relief programmes.

A number of these activities have developed very substantially during the last decade or so. I think it is right that a door should be left wide open for the future. I should not like to find—or for my successor to find in years to come—that some valuable new area of activity in which the Crown Agents could even more usefully help their overseas principals, or enter into even closer co-operation with our programme of development assistance to the Third world, was closed to them because this Bill was too tightly drawn.

Mr.Christopher Price (Lewisham, West)

The Minister spoke of some of the services which the Crown Agents perform for the Government. She referred to additional services that might take place in the future. She will be aware that at one stage many of our defence arrangements, run under Millbank Technical Services which somehow turned into International Military Services, were hived off from the Crown Agents and put under the Ministry of Defence, where I suspect they should properly be. Will the Minister give an assurance that she does not envisage the Crown Agents taking on further defence responsibilities of that kind as an agent for the Government? Can she see any other areas similar to Millbank Technical Services which should properly be taken away from them and put directly under Government Departments?

Mrs. Hart

I can give my hon. Friend that assurance. The hiving off of Millbank Technical Services to the Ministry of Defence is now absolutely complete. The Bill does not, and the Crown Agents do not, deal in that way with arms supplies. That is entirely a matter for the new body which is responsible to my right hon. Friend the Secretary of State for Defence. I do not envisage in any way that by opening a door here for future developments we are at all likely to include anything to do with defence and arms sales. This is one of the reasons why the hiving off took place. It is most important that any activities that we might envisage in the future for the Crown Agents—that is why I want to leave a little door open, subject to parliamentary approval—should be concerned essentially with development. I give my hon. Friend that complete assurance. He will find that the Bill is drafted tightly enough to provide that assurance within its clauses.

Essentially, then, I want to leave freedom for the right kinds of initiatives concerned with development—freedom to meet the changing needs which could arise in the years ahead and to respond to new challenges in development. We cannot at this moment say what they will be. But it is right that Parliament should approve any developments of this kind, and clauses 4(3) and 5(5) do this.

There are, naturally, several clauses in the Bill which follow standard Treasury procedures in relation to public bodies, and which can be further explained, if need be, in Committee. They provide for an appropriate capital structure, with the usual powers of borrowing to meet the functions very precisely specified in the Bill and its schedules.

The Bill, in clauses 13 to 24, brings the Crown Agents for the first time within the general financial framework for public sector bodies, as outlined in the Government's White Paper on the nationalised industries, published in March last year. In particular, it has been decided that the Crown Agents, like other bodies in the public sector, should be required to make a reasonable return on the public resources invested in them. This is a necessary test of whether those resources are being efficiently used—until we discover some other test that serves the purpose. Thus, the Crown Agents will be required under clause 17 to assume a commencing capital debt in respect of the assets transferred to them on the appointed day.

This debt will be deemed to be a loan from the national loans fund, which means that the Crown Agents will be required to service the capital employed in their assets at the rate of interest which would have applied had they borrowed from the national loans fund in order to acquire their assets. Rates of interest on loans from the NLF are geared to what the Government have to pay to borrow money. This represents a change in the financial basis on which the Crown Agents have operated to date, and the Bill therefore provides for a transitional period of five years, which may be extended to seven years by order, during which interest on the debt may be waived. This should give the Crown Agents time to adjust to the new financial framework.

There is no question of levying interest charges on the Crown Agents during this period in a way that would put their commercial viability in doubt, nor is it the intention in any way to penalise the Crown Agents for the own-account losses of the past. The financial powers and duties laid down in the Bill with respect to the Crown Agents have been drawn up solely and entirely in relation to the ongoing business.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

I should like to put a question to the Minister, to clear up a doubt in my mind. If the Crown Agents prosper, will they be allowed to pay back their £25 million commencing capital debt, or whatever it will be, or is that something that the hon. Lady envisages will remain for ever?

Mrs. Hart

Perhaps we can explore this in greater detail in Committee, but the position is that there are the two accounts, the realisation account and the normal account. If on the realisation account it is possible to pay back into the Consolidated Fund money which has been granted by the Government, that will be done. That is the purpose of having the two accounts. Concerning the seven-year period during which the Government will decide what is the proper rate of return, we shall be having regard to the circumstances of the Crown Agents during those years. But perhaps we can explore this a little further in Committee.

We have, of course, very recently had another illustration of the unsatisfactory nature of the existing constitution of what the Bill describes as the "unincorporated Agents". This was the legal advice, of which I informed the House three months ago, to the effect that in strict law the Crown Agents' revenues should have been paid into the Consolidated Fund as hereditary revenues of the Crown, and their expenditure met from Votes. I remember reminding the House that this all went back to William IV. It was described by a Conservative Member as a bizarre situation, with which I completely agree. In addition, as a matter of constitutional practice, their borrowing should have had the authority of Parliament. I told the House then that I could see no alternative to allowing the Crown Agents to carry on as they had for many years, until we could legislate to regularise the position. The House will, I am sure, be glad that this can now be done in the Bill, and I shall be glad if the House will be so kind as to do so. I hope that the House will agree to make an honest woman of me, because that legal discovery made me feel that I was offending a little against all constitutional proprieties.

There could have been alternative approaches to that which is presented here. As the House will know, the Stevenson report, presented in 1972—which I decided in 1977 should be published—put forward some possible options, and there have been others. They ranged from incorporation by Royal charter to a mere definition of powers and functions with no statutory backing, and from a public trust to incorporation as a limited liability company.

I do not believe that any of these would meet our needs. We must have the firm legislative authority of Parliament to define the functions and powers of the Crown Agents, against the background of the past. We must create a sound and responsible capital structure with sensible financial arrangements. I believe that the Bill provides a workable and flexible basis for the future and which can, I hope, carry on into the future.

I mentioned earlier the great anxieties that we have all had at the various points of past crisis. It was always utterly possible that there could be a crisis of confidence overseas in the Crown Agents. A great deal of consultation and care went into every one of my past statements. I stressed throughout that the Government stood behind the Crown Agents, and I know that Opposition Members supported that view as much as did my right hon. and hon. Friends. It is now in the past. The Crown Agents, concentrating now entirely on those traditional services upon which their history has been built, are going from strength to strength. They deserve to do so. I hope that we can all agree, as I know that overseas Governments agree to do, to regard the inquisitions upon the past as just that—inquests upon a brief inglorious and costly episode in a history of over 150 years.

I am sure that the whole House will agree that we all place our complete confidence—and the backing of Parliament as well as of the Government—in the ability, the capacity and the potentiality of the Crown Agents to serve their overseas principals in a way which will assist the process of development which will engage them in one of the most fundamental economic developments in the world today.

5.19 p.m.

Mr. Richard Luce (Shoreham)

The Minister will know that on a number of issues concerning overseas development she and I do not always see eye to eye. On this occasion, she will not be surprised to learn that we on this side of the House give full support to the principle behind the Bill. It can only be right that the status and the function of the Crown Agents should be clearly defined for all to see, that the Crown Agents should have proper statutory authority, and that they should be fully accountable for their activities.

The catalyst for the introduction of this Bill has been the appalling story of the so-called own-account activities, the financial disasters that took place in the 1960s and, particularly, in the early part of the 1970s. I agree with what I believe the Minister was implying in her introduction to the Bill, that a sharp distinction should be drawn between the traditional services of the Crown Agents, that have grown up substantially and steadily since the establishment of the Crown Agents in the last century, and the short-lived but nevertheless sad episode of the own-account activities. The Government seem to acknowledge that there should be a sharp distinction. As the Minister explained, the Bill establishes two separate organisations to deal with the two separate sets of activities or problems.

The Crown Agents are a unique organisation providing a unique range of services. I can think of no parallel organisation, certainly in the United Kingdom, or, indeed, in any other part of the world. Perhaps some hon. Members can. I do not believe that there is an organisation in any part of the Western world which is parallel to the kind of organisation that has grown up in the form of the Crown Agents. It is right that we should consider this as a unique body and deal with it on a pragmatic basis. We should accept the Bill in some respects as a unique measure to deal with the situation.

The right hon. Lady has set out clearly the historical background to the introduction of the Bill. I do not intend to weary the House by repeating what she has said. She has highlighted the fact that since the early part of the last century, for nearly 150 years, the Crown Agents, who started by providing a service for the procurement of goods and services to our colonial territories, have expanded and extended their range of services to the financial, professional, technical and commercial fields, provided in various colonial dependencies and to a vast range of independent Governments, most of them, if not all, members of the Commonwealth, granted independence in the 1940s, 1950s and 1960s.

Two notable developments have occurred since the independence of these countries. The first, stemming from the process to independence, was the financial disaster and the accompanying reports and inquiries with which we have been dealing throughout this decade. Secondly, the Minister revealed another notable facet to the whole problem on 10 November last year when she told the House in so many words that some genius— because he must be a genius—in her Department—

Mrs. Hart

Not mine.

Mr. Luce

—well, some genius in the Government or somewhere—I would love to know who he was, because, if we are to have an honours system, he deserves a high honour—had actually discovered that after nearly 150 years of the existence of the Crown Agents they had been operating, however successfully in their traditional services, illegally and unconstitutionally.

An extraordinary situation was revealed to us. I described it at the time as an Alice-in-Wonderland situation. We had two options. One was to deal with the matter promptly, to face the past and eliminate it and to produce this Bill. Alternatively, I suppose, we could have had another inquiry, summoning from the dead all the ex-Secretaries of State for the Colonies since 1833, and taking further evidence. But this Bill is also intended to deal with that situation.

I should like to say a few words about the own-account side of the Crown Agents and then briefly turn to the traditional services. As the Minister has said, the problem of the financial crisis of the 1960s and the 1970s stemmed from the process towards independence of these Governments. The right hon. Lady has stated that while they were colonial territories they were the responsibility of the British Government and there was therefore a much tighter control, using the Crown Agents as the agents over the whole operation. As these territories proceeded towards independence, I can understand that the Crown Agents were anxious to know how their organisation would develop, how they would make themselves viable in the long term, and how they would get extra business.

The White Paper of 1976 highlighted this problem as perhaps one of the reasons why the Crown Agents had a major financial setback. They developed a wide range of services and built up investments and reserves. They invested catastrophically in secondary banking and property development. We know the story of the insolvency, of Government grants, of the inquiries and the losses which, I believe, amounted to over £200 million. The whole story is familiar to the House.

The Fay report contained a massive condemnation of unwise decisions taken by those within the Crown Agents at the time, the lack of expertise, the neglect of accounting systems and also the failure of Governments to inform themselves of developments. We now have yet another 1921-type tribunal to look at the past. It has been a sorry chapter in an otherwise distinguished history for the Crown Agents.

The Minister has provided in the Bill for a Crown Agents holding and realisation board. She is right to treat that as a separate problem. The right hon. Lady described as recoverable grants the two sets of grants of about £175 million provided by the Government. It is obviously hoped to recover as much as possible. It would be helpful if the Minister who is to reply to the debate could say more about this matter. I appreciate the right hon. Lady's point that it may take time to recover some of the losses.

I should like an impression of the Government's hopes for recovering at least part of this sum, although it would be better if the whole of the grant could be recovered. I should also like to know how long the Minister expects it to take to make a reasonable recovery on the losses. It is sensible to allow time. There is property in Australia. It would be sensible to allow the realisation of possible potential assets there.

Mrs. Hart

I do not think that my hon. Friend the Under-Secretary will be able to add much to what I have said. As hon. Members will be aware, it is a most difficult procedure to anticipate what one may recover in terms of selling assets. The Australian property investment is one which we think, if we take a little time, may yield something. But it would be most unwise to make any predictions as to whether we think we will get some money back. It is not predictable at the moment.

Mr. Luce

I am grateful to the right hon. Lady. I entirely accept the unpredictability of the problem. It may be possible for us to explore it further in Committee.

I turn to the traditional services. It is remarkable to note the wide range of principals served by the Crown Agents. They include more than 100 Governments, all within the Commonwealth, local government organisations, many ports and harbours throughout the Commonwealth, banks and currency boards all over the world, development and research bodies, universities and schools in the Commonwealth and Government-sponsored organisations in this country and elsewhere. It is not fully understood what a remarkable range of principals the Crown Agents serve.

It is a measure of the maintained confidence that the principals have in the Crown Agents that, despite the financial setbacks of the past few years, the traditional services have continued to increase. The House and the country should note that.

The Crown Agents provide a wide range of services which were listed in the 1976 White Paper. They bring in visible and invisible earnings and make a healthy economic contribution to this country. They serve many of our traditional Commonwealth friends in many ways. For example, they have recently provided railway wagons for Bangladesh, cyclone relief equipment for India and a colour television station for Brunei. Those are just some examples of the remarkable range of services that they provide for the Commonwealth, the Third world and many of our traditional friends throughout the world.

My hon. Friends and I believe that in the previous chairman, Sir John Cuckney, and the present chairman, Mr. Eburne, the Crown Agents have had two outstanding men who have contributed in a unique way to enabling the Crown Agents to get through a very difficult period and to enter a new and healthier future. That is good news for the House and for the country.

The Bill provides for an incorporated body for the traditional services. I agree that it is right to have tight ministerial control over the own-account activities, which will have a separate board, because they involve a great deal of taxpayers' money.

The Minister started to explain the structure for the traditional services. The Stevenson report suggested four models for consideration. One was a nationalised industry-type model and the second suggestion, which was most strongly recommended, was a model on the lines of a private sector body with minority Government interests. I accept that a lot of water has gone under the bridge since that report was prepared, and the financial aspects have been the main part of the story.

The Minister told us that none of those models has been accepted. She has taken parts of models one and two and has established a body along the lines of the relationship between the Government and the Commonwealth Development Corporation. Perhaps the Minister who is to reply will indicate whether the Government see that proposal as distinctive from the four recommendations of the Stevenson report. It would be helpful to have the Government's understanding on the record.

Mrs. Hart

It is important to understand that the Stevenson report was prepared in 1972 and the Government of the day were not fully aware of the own-account activity losses.

When I approached the matter in 1974, I did not do so on the basis of asking which of the possible Stevenson recommendations could be accepted or modified. I took a new view of what should be the responsibility between the Government and the Crown Agents in order to protect the taxpayer against future losses. It was a matter not of taking the Stevenson options and asking whether we could modify them but of taking a distinctly new approach.

Mr. Luce

I am grateful to the Minister for that intervention. The Crown Agents are a unique body and it is right that they should be treated in a unique way.

The question of accountability is critical. It is crucial that Parliament should be able to scrutinise sensibly the activities of the Crown Agents. I hope that the Minister who is to reply will tell us to what extent he and his right hon. Friend will be able to answer questions in the House and how far they will be able to go in answering questions on both aspects of the Bill—the own-account activities and the traditional services.

Subject to closer scrutiny in Committee, I hope that the Bill will provide the basis for the eradication of the one major financial blot in the history of the Crown Agents and, more important, will provide a foundation for a new era to enable the traditional services to expand their business confidently to the benefit of both this country and many Commonwealth countries.

5.37 p.m.

Mr. Donald Anderson (Swansea, East)

The Crown Agents are a peculiarly British institution. They were not planned and their role developed, as we have learned lately, in an unconstitutional way over a longish period at a time of rapid change in the decolonialisation period.

The role of the Crown Agents was adjusted to meet new demands, but their services were greatly valued and, had they not existed in their original form, something like them would probably have had to be invented. They have played a significant and beneficial role and have made a major contribution to British prestige overseas and to our own industrial and export efforts.

I agree with the hon. Member for Shoreham (Mr. Luce) that it is sad that, after such a long and distinguished history, the Crown Agents' record was impaired in the early 1970s as a result of their intoxication in the heady days of property speculation. Amateurishness was displayed by the Crown Agents in the own-account activities in that area—though many who thought that they were experts also had their fingers badly burnt at that time.

Worse than that, there was a lack of control by the Government at that time. It is significant that it was largely as a result of investigative journalism by Mr. Charles Raw and others that the full extent of what was going on was revealed to the public. The result of those activities must have been a considerable blow to the morale of those working for the Crown Agents, and there must have been some diminution of the esteem in which the Crown Agents are held overseas. However, it is good that the principals are still going—and now in greater numbers—to the Crown Agents, recognising that that was but a brief and unhappy period in what has been an excellent record of service to their principals over a long period of time.

What are the lessons of the past that have been revealed by Fay and are now being revealed by the tribunal? The Government have sought to learn those lessons and to make control as watertight as possible over the Crown Agents by the Treasury and by Parliament. A good example of such increased control is the one given by my right hon. Friend, namely, that Parliament should be consulted for approval before there is any extension of the competencies of the Crown Agents. That is set out in clause 4(3).

However, in spite of the commendable attempt by the Government to make more watertight the Executive and legislative control, I feel that there are still gaps in the Bill that might properly be filled to ensure that what occurred in the early 1970s will be a thing of the past, because that was an unhappy blot on an otherwise excellent record.

I believe that Treasury control of the Crown Agents should be spelt out more clearly in the Bill. Clause 18(4) provides: The Minister shall not give any consent or authority under subsection (2) or (3) except with the approval of the Treasury", but that provision has not been made in clause 6, relating to ancillary powers. Subsection (3) (b) states that the Crown Agents except with the consent of the Minister, shall not have power in their own right to guarantee any obligation (however arising) incurred by such a subsidiary. The Treasury is not mentioned specifically there, but it is in clause 18.

Surely the lesson of the past, revealed particularly by Fay, is that the Treasury must be given muscle to intervene directly. Officials of the sponsoring Department were previously misled or bamboozled—or perhaps there was inadequate financial expertise in the Department. The Treasury must be shown at every stage to have ultimate authority, and that should be written into the Bill in much clearer terms. It is mentioned in clause 18 as a specific reference to overseas transactions, but I believe that there should be a specific reference in clause 6, as it may also encompass overseas transactions.

I turn to the control to be exercised under the new dispensation by the House over the Crown Agents. The Bill recognises, properly, that the shareholders in the new company are the taxpayers, who are represented in the House. Therefore, there should be proper control by the House over the activities—and the possibly extended activities under clause 4—of the Crown Agents. If that control is to be meaningful, Parliament should see the report and the accounts as soon as possible.

The Bill lays reasonably strict obligations on the Crown Agents vis-à-vis the Executive. The obligations vis-à-vis Parliament are not nearly so strict. It was pointed out by Fay that the lack of time limits caused a number of the problems associated with the sad events of the past. There should be a strengthening of the time limits in clause 11, particularly under subsection (1). There should be a strict timetable within which the Crown Agents must report to the Minister and consequently the Minister to Parliament.

For example, what objection can there be to an obligation on the Crown Agents to report within a period not less than a stated maximum? Similarly, under clause 11(3) why should there not be an obligation to lay the report in Parliament within, say, 28 days of receipt? There can be no question of waiting for the audited accounts, because those will be dealt with separately. Parliament is entitled to know when it can receive the reports.

There is a distinction between the lack of time limits under the reporting clause, clause 6, and the obligations under clause 22(7), where it is said: As soon as the accounts kept, and the statement or statements prepared, by the Crown Agents in pursuance of the preceding provisions of this section have been audited, the Crown Agents shall send to the Minister a copy of the statement". Therefore, there is an immediate obligation at that time. There is no similar obligation in clause 11 in respect either of a report to the Minister or the laying of that report by the Minister to Parliament in clause 11. If, in reply, my hon. Friend says that no Minister would unduly delay the laying of such a report. I feel that is hardly an onerous obligation on the Minister. It would be, in strict terms, what the Minister would do in any event.

A relatively minor point is the possible unfairness vis-à-vis the principals under clause 8(3). Unlike the normal agent at common law, the Crown Agents do not have to account when acting as a surety—they only pay interest. Therefore, that goes further than in a case of an ordinary agent and may enable the Crown Agents to make a profit out of smaller associated States which pay in advance.

I am told that in some cases, and for certain services, the smaller associated States are bound to use the Crown Agents. That would not be significant in the case of, for example, Hong Kong and countries of that financial standing which are able to look after themselves, but it would be more significant for the smaller States. The Government should consider carefully whether the interest obligation in clause 8 should be at normal commercial rates of interest—bank rate plus 2 per cent. or whatever is the relevant definition.

I welcome the Bill. It represents a major advance in control over the Crown Agents. I believe that control can be strengthened in the respects which I have mentioned, namely, control by the Treasury and by the House. That might be done, and certainly is done by the House, by stricter time limits being set and by not having a discretionary reporting obligation.

5.50 p.m.

Mr. J. W. Rooker (Birmingham, Perry Barr)

I do not intend to delay the House for very long on Second Reading. I apologise for not being here for the whole of the two Front Bench speeches.

I welcome the Bill. It is a pity that we have had to wait nearly three years for it, following publication of the White Paper in 1976. One does not normally go into great detail on Second Reading, but there is one aspect of the Bill which is worthy of being brought out here and now. I refer to clause 32(3), which deals with the repeals in schedule 7. This Bill will have the effect of repealing the whole of the Moneylenders (Crown Agents) Act 1975. That was retrospective legislation introduced by the right hon. Member for Newham, North-East (Mr. Prentice) when he was a member of the Government. Much as he despised bringing forward retrospective legislation, it was necessary for the public purse, in effect, to fund the bucket-shop operations which had been carried out to the tune of £85 mil- lion because of the unacceptable aspects of capitalism that the Crown Agents had unwisely got themselves into. It is nice to know that that Act will no longer remain on the statute book following the passage of this Bill.

I think that people should constantly be reminded of the actions of the Crown Agents and the fact that the Government—the taxpayer—had to come to the rescue of many fringe operators in the City. I refer to some of the fringe banks and the property speculation which went on with the misuse of the Crown Agents' funds. It was outrageous. It is a tragedy that it has taken so long to find out what went on and to do something about it.

I want to ask only a few questions of my hon. Friend the Parliamentary Secretary. I hope that he will forgive me if I speak briefly, but I have to attend a meeting. If my hon. Friend wishes to write to me about these matters, I shall certainly take on board any comments that he makes.

The questions relate to certain aspects of the Crown Agents' operations. The Crown Agents go under many names. There were many subsidiaries of the Crown Agents. One could not tell from looking at the name of a company whether it was the Crown Agents. Occasionally, if one was in the know and knew the address of the Crown Agents at 4 Millbank, when one saw a company, such as Four Millbank Nominees or Four Millbank Holdings, the bells might ring and one might realise that was the address of the Crown Agents.

The Crown Agents went under many other names as well. One was Millbank Technical Services Ltd.—MTS—which operated in a wide range of spheres. Of course, it provided business for this country. I applaud the operations of the Crown Agents 100 per cent. I do not knock them in any shape or form. But, because of their unincorporated status, they had to create these self-imposed internal quangos, as it were. All the agents put themselves on the boards and sought business overseas for this country.

On 24 November last year I spotted a question by my hon. Friend the Member for Walsall, South (Mr. George) about Millbank Technical Services Ltd. The question was posed to the Secretary of State for Defence. I could not see the significance of it at the time. It turned out that the name Millbank Technical Services Ltd. had been changed to International Military Services Ltd.

On 11 December last I put down a question asking the reasons for that change. I was referred back to an answer on 29 March 1977 in reply to a question asked by my hon. Friend the Member for Dearne Valley (Mr. Wainwright), who, as far as I know, had no wide-ranging interest in the operations of Millbank Technical Services Ltd. or the Crown Agents. I am not knocking my hon. Friend. However, he had clearly been co-operating with the Minister by putting down a question so that the Minister could make a statement. It was a planted parliamentary question. It happens all the time.

MTS was a wholly-owned subsidiary of the Crown Agents. It was supposed to have been getting orders from overseas principals for all kinds of civil and defence equipment to be supplied mainly by British companies. In 1977 the Crown Agents were still a matter of public and almost daily concern in this House. MTS was wrapped up. Its name was changed and ministerial accountability was transferred from the Ministry of Overseas Development to the Ministry of Defence. It would seem that the most massive laundering operation of the decade has been perpetrated. It is not shown in the Bill, as far as I can tell. This operation has been carried out by virtue of planted parliamentary questions and announcements. There was a further question only a few days ago. On 29 January my hon. Friend the Member for Horn-church (Mr. Williams) put down a question, to which the answer was that the shares had been transferred on 24 January 1979—the day before the Bill was published. The Bill was actually published on 25 January.

For two years there had been questions and answers telling us in obscure ways that this laundering operation had started. Then, on the day before the Bill was published, the shares in International Military Services Ltd. were transferred from the Ministry of Overseas Development or the Crown Agents—they are one and the same as far as I am concerned—to the Ministry of Defence. Apparently legislation will be brought forward as soon as parliamentary time permits to cover that.

Why is there not a schedule to the Bill to deal with that matter? This is the appropriate vehicle. There is no pressure on Second Reading. This debate will be over in a few minutes. Why has this Bill not been used as the vehicle for transferring those shares? If it were, hon. Members could discuss this laundering operation in the context of the change of status of the Crown Agents now and not in some future debate on the Army or on some aspect of the Ministry of Defence.

Some commissions have been paid or earned—I have to use the word "earned"—by people working for Millbank Technical Services Ltd., such as the famous Sir Shapoor Reporter, who was reputed to have got £3 million commission for arranging to flog or sell 800 Chieftain tanks to the Shah of Iran. That is some commission—£3million. It is a good thing that the Shah did not buy Concorde. I understand that Sir Shapoor Reporter would have got £10 million commission through MTS, because he was the agent—"consultant" was the posh name used—of the Crown Agents and Millbank Technical Services Ltd. as well as the Ministry of Defence, the British Aircraft Corporation missile division and GEC.

MTS is now dead and buried. The name has been changed and responsibility for the shares has been moved to another Department. There have been no press statements about this matter. It has been done by planted parliamentary questions. Why is the Bill not being used as the necessary parliamentary vehicle to effect that transfer? Last week it was admitted that on the day before the Bill was published the shares were transferred in deed and name.

Is any action being taken about the commission paid by MTS and the Crown Agents to people, such as Sir Shapoor Reporter, who got massive commissions out of these contracts? That is the way business is done in the Middle East. Is anything being done to recoup any of that commission?

I do not expect my hon. Friend to give off-the-cuff answers, because I did not warn him that I proposed to raise these matters tonight. If my hon. Friend would care to write to me, or arrange for one of his ministerial colleagues to write to me, about this matter, I would be extremely grateful. The nub of the argument is that this laundering operation could have been included in the Bill. What I really want to know is why it has not been done in that way.

6.0 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The speech of the hon. Member for Birmingham, Perry Barr (Mr. Rooker) was most interesting. I hope that the Minister will not answer the hon. Gentleman by letter but will tell the House the answer, because he raised points of general interest.

I do not want to go over the history of the Crown Agents. It has already been amply documented by the Minister of State and by my hon. Friend the Member for Shoreham (Mr. Luce). However, there is one point which neither of them touched upon, and that is that in 1832 Mr. Patrick Maxwell Stewart, MP, was appointed agent for Tobago. What surprises me is that, as a Member of this honourable House, he was allowed to be an agent.

It is a curious thought that colonial secretarial control over the Crown Agents has weakened in the years since 1832. In those days hon. Members were allowed to be agents, but according to the Bill they are not allowed to be agents, and I am sure they have not been allowed to be agents in the recent past. Indeed, schedule 1(9) makes it clear that they cannot be agents in the future either.

Mr. Anderson

A quango.

Mr. Ridley

I was coming to quangos. I must plead that I am a newcomer to these debates on the Crown Agents. I think that I have only one record in Hansard as contributing to recent statements and debates, and that was when I called the Crown Agents a quango. Indeed, I think that they were a quango, though they will be slightly less quango-shaped when this Bill becomes law.

The tale about Mr. Patrick Maxwell Stewart illustrates the problem, which is that the Crown Agents had no owners. They were not responsible to the Crown, they were not responsible to shareholders, and over a period they ceased to be res- ponsible to Ministers. I believe that in any commercial enterprise there has to be an owner or proprietor of some kind to exercise that ultimate supervision of the use of the funds.

No hon. Member of this House criticised the Crown Agents on their activities on behalf of principals. Indeed, there has been universal praise for what they did. We are told that last year they traded £216 million with the principals but that 65 per cent. of the orders came to this country. That is held out by all to be of great economic importance to us. I press Ministers and hon. Gentlemen not to overdo the praise, because it gives the impression that there is, as it were, some special advantage to the United Kingdom which brings this business here, which might not happen if we did not have the Crown Agents. It is even as if they were slightly bent in favour of this country to praise them thus. That, I believe, is not so. The Crown Agents have always been required to get their supplies in the market at the cheapest price. Indeed, in the instructions to the agents—I think this was at the end of the nineteenth century—they were required to act as follows: You are to procure all such stores by public tender and open competition, or by applying to three or more different tradesmen for a list of the net cash prices at which they would supply the articles required; in which latter case the lowest tender is to be accepted. That should still be the rule for their trading on behalf of their principals, and there should be no particular advantage derived to us unless it be that we put in the lowest tender. We all congratulate the Crown Agents on that part of their activities and wish them well for the future in their actions on behalf of the principals, although we cannot escape the fact that we should discuss recent troubles in the own-account side. Indeed, the hon. Members for Perry Barr and Swansea, East (Mr. Anderson) did just that.

I think that the House should pay a tribute to Judge Fay for the clarity of his report. It reads like a really good novel. It is almost impossible to put it down once one has started to read it. It is one of the most literary excellent and convincing documents emanating from Her Majesty's Stationery Office that I have ever read. Yet it comes out again and again that it was lack of control which caused the disaster.

In passing, it is worth commenting that there are several other bodies to which that lack of control is perilously close to applying. I remember the old saga of the Mersey Docks and Harbour Board in 1970. I believe that the National Enterprise Board is in a very similar position in relation to lack of parliamentary control and lack of access by the Comptroller and Auditor General to the affairs of the Board.

I hope that the affairs of the Crown Agents' own-account trading will be a lesson to the Labour Party. However much it might like to think that the State can engage in trading, banking, insurance, investments and risk-taking, what is likely to happen is the same as has happened with the Crown Agents. The concept of the nationalisation of banking, which has been advocated by many Labour Members, is that the State would not make a much better fist of it than the Crown Agents. Therefore, I hope that that lesson has sunk in.

All the civil servants who were concerned with monitoring this affair do not come out of it very well, nor does the Comptroller and Auditor General. I believe that no one really thought that it was his responsibility to control what was going on. The lessons which come out of it are as follows. First, there are lessons about accounting. I believe that this House should make sure that the Comptroller and Auditor General has access to all bodies which receive or borrow public money so that he can report to the Public Accounts Committee.

The Government have now agreed to set up an inquiry into the future role of the Comptroller and Auditor General, and that is welcome. We understand that legislation may be in preparation. But the diffidence of the Comptroller—which comes clearly out of the Fay report—to take action which would have been sufficiently drastic to make sure the Treasury and civil servants in the Ministry of Overseas Development took action and his inability to alert the Public Accounts Committee are weaknesses which would be remedied if the reports of the Public Accounts Committee and the Select Committee on expenditure were put into practice.

In addition to what has already been said, I believe that we need a code of practice laid down by the Comptroller, so that where there is a public body which may be employing private auditors—quite properly—those private auditors follow that code. In addition, I believe that the Comptroller and Auditor General should have the right, and the power if necessary, to go in and check that proper accounting procedures are being followed, and to report accordingly to the Select Committee if he feels that something is wrong. That is one of the lessons which we learn.

The second lesson that I believe we learn is that the Civil Service can never be equipped with the necessary skills to monitor complicated banking and property transactions of this sort and that it is quite wrong to expect that sort of skills of it. The third lesson—this is one which I think the right hon. Lady has eminently accepted and put into the Bill—is that there should be limits on the activities in which nationalised industries can engage, and that it is when they get out of their immediate responsibility that troubles such as this are liable to arise. It is possible that this scandal could have occurred in an organisation such as the National Coal Board. I do not say for one moment that it has, but there is very little to have stopped it happening.

I commend the right hon. Lady for drawing tight limits upon what the Crown Agents may or may not do. I believe that this will be salutary for the future. If we have learnt that lesson, it will be some contribution towards avoiding this happening in the future.

The last lesson—again I pay tribute to the Government for learning it very thoroughly—is that the constitutional position should be clear. It is to the Bill that I turn to discuss that. I should like to know why the illegality of the last 130 years which the right hon. Lady brought to the House in November did not go undiscovered earlier. It is extraordinary. There was inquiry after inquiry in the Ministry of Overseas Development. There were inquiries in the Treasury. There were so many inquiries that I cannot remember how many. There were the Fay report and the Stevenson report, and Sir Arthur Grattan-Bellew, the legal adviser, spent a considerable time on investigating the constitutional position of the Crown Agents. Yet, after all that activity, it was in November of last year that the right hon. Lady was first alerted to the illegality and unconstitutionality of the Crown Agents. I wonder how the fact unearthed then went unknown for so long.

Mrs. Hart

As the hon. Gentleman will appreciate from the brief historical account that I tried to give of what developed in the constitutional, non-constitutional and unconstitutional relationships between the Crown Agents and the Government from 1833 through to 1909 through to 1947, and the reply that was given in the House of Lords in 1968, there were clearly a number of matters in which the intelligence and capacity of Government had not been fully involved. As a result of the preparation of the Bill, greater intelligences and greater involvement ensued, as a result of which the legal advice available to the Government indicated that this was another factor in the situation which up to then none of us had fully appreciated. I can only explain it in that way.

Mr. Ridley

I must accept that. To my way of thinking, there are other directions in which the intelligences and capacities of Government are not fully developed, although we must not go into them now.

I come to the question whether the right hon. Lady and the Government have chosen the right model for this new statutory corporation. I can find very little difference between what is in the Bill and the first model put forward by Stevenson, which, in effect, is a nationalised corporation. I accept and agree with the distinction that there is no ministerial power of intervention over the activities of the Crown Agents in respect of work for their principals. But that exception might almost be paralleled by saying that the Secretary of State for Energy does not have power to decide the best type of pick for the pickman to use underground. To that extent, there is very little difference between the form of the legislation and the forms of the numerous committees on nationalisation Bills on which I have had the privilege to serve in the past.

I wonder whether the right hon. Lady is entirely right about this matter. As was said, a lot of water has flowed under the bridge since Stevenson. It is this excess of speculation on the side which makes it perhaps more undesirable than was perhaps said earlier strictly to limit what happens. Nevertheless, the role of the Crown Agents in the future is remarkably without incentive and without possibility of reward for doing well. The whole financial set-up for the repayment to the Government of part of the reserves of the existing Crown Agents seems to be putting the Crown Agents into a suitably tied-up situation in the future, but the room for scope, initiative and connecting reward with success is rather too limited.

I do not quite know why the right hon. Lady rejected the possible solution suggested by Stevenson that there should be share capital for the Crown Agents with at least the majority of it owned by the Government. In fact, there is little difference between a nationalised corporation and a "company law" company in which 100 per cent. of the shares is owned by the Government. In many respects there are extraordinarily few differences, except that it enables shares to be given perhaps to the managers or the agents, and even at some stage allows other corporations or investors to partipate with or without losing control. It makes it a less rigid framework for the future.

To that extent, we shall want to ask the Government in Committee to justify their choice of model. I personally believe that there was a strong case for at least having the Crown Agents represented by shares which could be used to try different forms of organisation for the future.

I believe that there should be two separate funds. I personally entirely support the concept of the realisation board. But we have some concern about how long the assets in Australia will go unrealised. I accept that we should await the peak of the market before they are sold, but I see a slight temptation never quite to believe that we have reached the peak. I should not like it if in five years the British Government were still the owner of large office blocks and buildings in Melbourne and Sydney which we could well have disposed of. That is something on which we shall want to press the right hon. Lady in Committee.

I should also like to refer to the commencing capital debt. As I understand the transaction, about half of the present reserves of the Crown Agents is to be paid over to the Consolidated Fund, leaving half of them in the hands of the Crown Agents as working capital. But, at the same time, they are debited with a commencing capital debt—I do not think that I am disclosing anything that I should not—which I believe will be about £25 million. That represents the value of their land and buildings. This is a rather restricting atmosphere. The commencing capital debt could have been public dividend capital, which is known as PDC. I am not enamoured of PDC. At one time I thought it meant "payment deferred constantly".

Is the commencing capital debt repayable by the Crown Agents? If with the five-year moratorium on their capital, their £7 million reserves and their enterprising and successful chairman, which in every respect he certainly is, the Crown Agents prosper and do well, will they be able to pay back their commencing capital debt in five years or 10 years, whatever it may be, and once again build up balances that a different and less scrupulous chairman may be tempted to use in a different way? I am not criticising. I am merely asking whether they are stuck with the commencing capital debt for ever or whether they may repay.

That question has never arisen before when dealing with a nationalised industry. I do not know of any other nationalised industry that has ever been in the position to repay its capital debt.

Mr. Anderson

What about British Gas?

Mr. Ridley

That is probably true. I should like to ask the Secretary of State for Energy whether that nationalised industry will pay its commencing capital debt. I accept that I should not be in order if I were to put that question to the right hon. Lady.

Various aspects to which I have referred require a little more explanation. However, the form in which the right hon. Lady has established the new structure of the Crown Agents is acceptable.

The success of the Crown Agents will be the success of those who are engaged in their business. I wish them well. I am glad to know that they will not be civil servants or Crown servants. I am glad to know that they are to be employees of the Crown Agents. That will help enormously to give the board and the chairman the power to recruit widely and to obtain those with the skills that they require rather than relying on Buggins's turn. One of the facts to emerge from the Fay report was that that is a most unsatisfactory way of filling high commercial posts, as has been shown in the past.

It seems that the employees of the Crown Agents will have inflation-proofed pensions. What accounting procedures have been used? They are not to be civil servants and presumably they will not be bound by Civil Service pay scales. On the other hand, they are to have inflation-proofed pensions. With all respect to them and with all good luck to them, we do not want them to have the best of every bargain.

There are many who are free to earn as much as they can in the market. There are many who are not so free, such as those in the Civil Service, but they have the privilege of inflation-proofed pensions. There are not many who are free to earn as much as their efforts justify in a commercial atmosphere who at the same time are blessed with inflation-proofed pensions for which they probably do not pay the full contribution. That is another matter that we should consider in Committee.

Once or twice during the past five years I have felt it right mildly to criticise the Government for some of their actions. It is only fair on this occasion to say that they have the Bill fairly nearly right.

6.24 p.m.

The Parliamentary Secretary to the Ministry of Overseas Development (Mr. John Tomlinson)

This short debate has been worth while and constructive. Although the speeches have been few in number, I am happy to pay tribute to the positive and helpful way in which the Bill has been approached.

The essential purposes of the Bill have been well set out. There is no real need for me to elaborate on them further. Both in the Bill and in the debate we have made it clear that our aim is to strike a balance between the legitimate interests of the public in the operations of the Crown Agents and the requirement that the Crown Agents should have day-to-day freedom to get on with their job of providing goods and services for their principals.

The Bill does not ignore the past or the lessons to be drawn from it. The decision to establish two corporations—the Crown Agents and the Crown Agents holding and realisation board—flows directly from the past losses of the unincorporated agents and the need, as a result, clearly to distinguish between the realisation of the old own-accounting business and the continuation of the on going traditional business of the Crown Agents on behalf of their principals. That is a traditional business to which everyone who has participated in the debate has paid tribute.

The hon. Member for Shoreham (Mr. Luce), speaking from the Opposition Front Bench, welcomed the Bill and rightly drew attention to the sharp distinction between the traditional activities of the Crown Agents and the period of own-accounting activity that led to the tribunal of inquiry. Illegal and unconstitutional activity has been taking place for over 150 years. As that was before the 1832 Act, I suggest that that probably exonerates the spiritual forebears of my right hon. Friend and myself, most of whom would not have been enfranchised at that time.

The hon. Gentleman asked a number of specific questions. He asked about the £175 million that has been described as recoverable grant. That is an important matter, and, as my right hon. Friend said in an intervention, it is difficult, if not impossible, to make a forecast. I merely add that the Bill makes provision for any money in excess of that needed to enable the board to discharge its liabilities to be paid into the Consolidated Fund. Thus any money that would have been available to repay the grants will come back to the Government. There is no need specifically to preserve the liability of the unincorporated agents to repay the grants.

Clause 26 clearly establishes a link between the liability of the old agents that has been extinguished and the power of the Minister to recover money from the board.

The hon. Gentleman referred to the Stevenson committee recommendations on alternatives to incorporation. That matter was also referred to by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). As my right hon. Friend said in an intervention, the Stevenson recommendations have largely been overtaken by subsequent events, notably the ending of the own-account business and the new legal advice on the treatment of Crown Agents' revenues, which has made legislation necessary.

It is clear that none of the alternative solutions that has been suggested in the past will on examination offer all the benefits that accrue from the proposed incorporation. If we were to summarise the benefits, we could say, first, that there will be a readily comprehensible solution on recognised lines and corporate status ending the Crown Agents' status as a Crown body, including, secondly, their immunity from taxation. Thirdly, there will be statutory backing for their powers and functions as well as for the Minister's functions. Fourthly, there will be provided detailed parliamentary scrutiny of the proposals. None of the alternatives suggested by the Stevenson committee offers as wide a range of benefits as those that stem from incorporation.

The hon. Member for Shoreham asked a number of questions about accountability, some of which he may wish to pursue in Committee. He was concerned about the details of the report to Parliament on both sides of the new Crown Agents' activities. The Minister will be answerable for the exercise of specific powers relating to Crown Agents' activities in their own right. Obviously the Minister will have to give consent for borrowing to take place, to financial targets and to the controlling of reserves. The annual report and accounts will be laid before Parliament and the report will inevitably specify any directions given to the Crown Agents by the Minister during the year that the report covers. This question of accountability was dealt with in some detail by my hon. Friend the Member for Swansea, East (Mr. Anderson). The detailed question that he raised about Treasury control is one which we will have to look at in more detail. My right hon. Friend will, as she explained in her speech, maintain the closest consultation with Treasury Ministers in exercising her powers of financial control; and in regard to the regulations which will govern the Crown Agents' investment of funds in their own right, these are all covered under the general statement in clause 31 where this is specifically required to be done in conjunction and with Treasury approval.

The other question raised by my hon. Friend concerned parliamentary control. In particular, he deplored the lack of a timetable and a time scale in relation to the reports. He pointed out that there was a specific requirement upon the Crown Agents for a time scale in which they would present their reports to Ministers, but not a similarly closely defined time scale on which Ministers needed to act in laying their reports before Parliament.

That is a reasonable point which my right hon. Friend and I will certainly consider. I welcome my hon. Friend's approach in making these detailed criticisms and in indicating that this Bill was a major advance in both Treasury and parliamentary control.

My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) raised the question of Millbank Technical Services, which he rightly said had been renamed International Military Services Ltd. International Military Services Ltd is no longer a subsidiary of the Crown Agents. That is why it is not dealt with in this Bill. The shares were transferred to my right hon. Friend the Secretary of State for Defence on 22 January, and this arrangement, which my hon. Friend saw as being an attempt to avoid saying anything to Parliament—in view of the fact this this arrangement only happened a couple of days before this Bill was published—was merely the completion, in a legal sense, of a transfer of responsibility which was effected by an agreement as long ago as April 1977.

The transfer of the shares had to await the resolution of certain legal technicalities. It was a coincidence rather than a Machiavellian plot that it took place so close to publication of the Bill. However, if my hon. Friend, who has apologised for not being present, would like further details, I would be happy to hear from him and to reply.

The hon. Member for Cirencester and Tewkesbury, in replying to the debate, ranged rather widely in a number of his observations. I do not complain, but to me the dreadful saga of own-account activity, which he seemed to see as a condemnation of public sector activity, did, I think, rather turn on its head the argument about what happened during that period. The problem was not one of public sector activity but more one of the unacceptable face of capitalism as reflected in the areas of property speculation and secondary banking.

Though we may well differ about the cause of the problem, I welcome the fact that the hon. Gentleman welcomed the Bill. He suggested other forms of organisation for the board, and yet in his concluding remarks he seemed to think that my right hon. Friend had got the Bill just about right.

The hon. Gentleman pursued the idea that shares should be used to try different forms of organisation. Something the Crown Agents can well do without at the moment is any great innovation or experimentation. Experimentation in the form of own-account activities is one factor which has brought us to the present situation. I should not like to see any further experimentation. Incorporation makes the position quite clear and does not need any basis on which we can experiment in future.

But if the hon. Member was suggesting, when he talked about shares being used to try new forms of organisation, that we should perhaps establish the Crown Agents as being a company under the Companies Act, that is a different matter. We have no reason to suppose that the Crown Agents' principals would regard this as a preferable scheme to incorporation by Act of Parliament, which has been the expressed intention since the White Paper of 1976. Legislation would, in any case, be necessary, by reason of the legal advice received last August, in relation to the revenues of the Crown Agents being hereditary revenues of the Crown.

Moreover, legislation would be required to provide the necessary statutory backing for the Ministers' continuing functions in relation to the Crown Agents. My right hon. Friend said in her opening speech: We are sure that the powers conferred on the Minister in the Bill are the least which are called for in the circumstances of the case. If the Companies Acts were to be used, the same sort of provision would have to be brought in, presumably in a memorandum and in articles of association. It would be extremely complicated and unusual in relation to such memoranda and articles, and I believe that we have it absolutely right in seeking in this Bill not a Companies Act company but the process of incorporation.

The hon. Gentleman mentioned a number of points in relation to audit arrangements which we will want to look at in detail in Committee. The same applies to the detailed question raised concerning the borrowing powers. I have been particularly glad to note the recognition afforded throughout this debate to the valuable services provided to their principals by the Crown Agents. That is one of the threads which have united everybody who has spoken in the debate. I do not doubt for a moment that an understanding of the importance of the Crown Agents' work, not only for their principals, but also because of the benefit which this country derives from their services, will animate our further deliberations on the Bill.

I look forward to a constructive discussion when detailed consideration is given to the clauses in Committee. I am encouraged in my conviction that hon. Members on both sides of the House share the objective of making this Bill a sound foundation on which the Crown Agents will be able to build a secure future.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).