§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen.]11.58 pm
§ Mr. Ian Lang (Galloway)
I am grateful for this opportunity to raise the question of compensation under the Aircraft and Shipbuilding Industries Act 1977 because it is now a matter of urgency and gravity to the companies involved and to all who value justice.
Although I established some time ago with the Registrar of Members' Interests that I have no interest to declare it is as well, in order to remove any possibility of misunderstanding at the outset, that I state that I was a small shareholder in John G. Kincaid and Company Limited, marine engine builder of Greenock, which was nationalised under the 1977 Act and for which compensation was agreed and a final instalment paid more than a year ago.
660 Far from weakening my case tonight, I believe that that fact strengthens it. First, I have had occasion to follow the progress of events since 1974 more closely than some hon. Members. Second, it is not part of my case that every company has received less than it deserved. Nor do I consider that all the affected companies are equally deserving of more.
It appears to be the case that for those who either have not settled or who have despairingly accepted what was offered, while reserving the right to press for more, the terms offered have been especially unfair, and the continuing delay has made matters even worse. It is no argument for a Government to say that because they cannot turn back the clock to the beginning they cannot do anything at all. To do justice even to half of the injured parties does not compound an injustice; it halves it.
My hon. Friend the Minister will know from correspondence that I have had with his Department of my interest in the cases of two Scottish shipbuilding companies that are gravely affected by the Act, namely, Yarrow and Scott Lithgow. They are two fine, long-established Scottish companies, with world-wide reputations, which the previous Labour Government were able to nationalise, moving. control from Scottish hands to the Whitehall bureaucracy only with the active connivance of the Scottish National Party. To date, Yarrow, has secured 661 only £6 million in compensation—£1 million less than its pre-tax profits in 1974 alone. Scott Lithgow has received, on account, the princely sum of £750,000.
It must be emphasised that in the overwhelming majority of cases the compensation amounts will not line the pockets of individual shareholders but will go to successful, proven companies, such as the two that I mentioned, to enable them to create new employment where it is badly needed. During the past three years Scott Lithgow has trebled real output and doubled employment. It is now having to cut back heavily on its development programme because the Department of Industry has held on to its money. Otherwise, it had expected to double its numbers again. From talking to my hon. Friend the Member for Argyll (Mr. MacKay) I know of the dramatic improvement in employment in part of his constituency that that could generate. Yarrow could doubtless tell a similar story.
I hope that any comments have a general application. I refer as a starting point to the written statement of my right hon. Friend the Secretary of State on 7 August, first, that the Government were postponing their plans to denationalise the shipbuilding industry and, secondly, that while admitting that the compensation terms of the 1977 Act had been grossly unfair to some of the companies, they proposed to do nothing about it. Those two announcements hit the industry like a double blast from a sawn-off shotgun. The gross unfairness of the formula in the 1977 Act needs a little re-emphasis. First, there was the six months' reference period from September 1973 to February 1974, on which the average stock market price was assessed—so short a period and so long before vesting date. Many of the companies, indeed most, were not listed on the Stock Exchange. Negotiations had to take place on the basis of what the quoted share price would have been if they had been listed. Already we are in Alice-in-Wonderland territory.
The whole case was founded on a fiction. But it was a fiction hedged about with a number of distorting facts—the reference period coincided with a depressed stock market, the Arab-Israeli war, the quadrupling of oil prices, the three-day working week in the United 662 Kingdom and the threat of nationalisation of companies. Even in normal times the Stock Exchange price does not reflect the takeover value of the company when complete control is being obtained. Usually there is a substantial premium reflecting the additional value of total ownership and control. Because the reference period to which valuations are related ended more than three years before the actual date of nationalisation on 30 June 1977, no allowance was made for the changed circumstances of some companies during that period.
Payments of compensation were satisfied by the issue of 9i per cent. Treasury stock maturing in April 1981. That interest rate was significantly below the interest rates that had prevailed since June 1977, which had averaged above 12 per cent. Even the recent coupon, which I understand has been higher than the 91 per cent., certainly does not rectify that complaint. Although interest payments were back-dated to 1 July 1977, no concession was made for the ballooning of payments received within one tax year. The stock issued has the added refinement of meanness in being exceptionally liable to capital gains tax on encashment.
The result of all this is a series of grotesque anomalies, of which there are many examples. I mention Vosper as one. This was a company with fixed assets of £25 million and with £5½ million cash in the bank, which was offered £4½ million. Of course, all this lies at the door of the previous Government and not the present one. I am relieved that my right hon. and hon. Friends should share my view of its gross unfairness, but their unwillingness to do anything about it is what alarms me, because in doing nothing they are condoning the unacceptable face of Socialism.
If they said that the terms were fair and that they would do nothing, that would be wrong but honourable. If they said that the terms were grossly unfair and that they would do something about it, that would be right and honourable. But if they say, as they have done, that the terms are grossly unfair but that they intend to do nothing about it, that seems. to me to produce the worst of all possible worlds. I ask my hon. Friend how such a stance can honourably be sustained or defended.
663 Are the Government willing to leave on the statute book as a precedent for possible future nationalisation a basis of compensation that is so far removed from all the nationally and internationally recognised standards of fairness and justice? We know that the Labour Party has plans for further sweeping nationalisation. Are we to leave on the statute book, unquestioned, this formula for future confiscations? As Shakespeare's Portia said:Twill be recorded for a precedent,And many an error by the same exampleWill rush into the state.That lady's other views on justice are also fairly well documented.
Are the Government willing to defend such gross unfairness, to use their own phrase, in the face of a judgment by the Court of Human Rights at Strasbourg, for that is where the matter will certainly go? They may point out that most, although not all, of the companies have now settled. That is so, but only in the sense that a starving man will take the crust that is offered to him. It does not prejudice his right to a square meal, especially when the food comes from what was his own larder.
The Government may point out that there was scope for arbitration in the 1977 Act. But the powers of the arbitration tribunal were limited within the parameters of the Act itself. They may point out that they are subject to very tight expenditure constraints and cannot afford largesse. But it is not special treatment that is being asked for, or charity, or a higher priority in the allocation of expenditure. It is justice, and the capital at stake is the property of these companies, which was taken from them against their will.
My hon. Friend may suggest that the Government do not wish to set a precedent with retrospective legislation. I must point out that no such sensitivity constrained the previous Government, who legislated retrospectively to deny to the Burmah Oil Company compensation for its war-destroyed assets in the Far East. But in the case that we are now discussing, the retrospective legislation would be to right an admitted wrong. Surely nobody objects to that kind of retrospective legislation.
664 Even if it were to set a precedent, would not that precedent be preferable to the more sinister precedent that the Government now seem to be setting by allowing the breaching of a long-established constitutional tradition that no Government can bind their successor? Evidently in this case the previous Government could. My right hon. Friends seem ineluctably bound to a precedent of unparalleled inequity.
What is most disquieting about the present position in the reason given by my right hon. Friend in his statement of 7 August, namely, thatto establish new compensation terms retrospectively would be unjust to the many people who sold shares on the basis of the previous terms".—[Official Report 7 August 1980; Vol. 990, c. 290.]In other words, because we cannot be fair to everyone we are not prepared to be fair to anyone. That argument ignores the corresponding unfairness to the many others who bought shares, or to the many who retained shares in the expectation that the new Government would bring them justice. My right hon. and hon. Friends need not take this from me. Let me quote from a letter from the chairman of the Stock Exchange. Mr. Nicholas Goodison writes:it is irrelevant to argue that such injustices cannot be rectified because many shareholders will already have sold their shares on the basis of the original terms. The argument has no validity in the context of the stock market. Dealings take place on the basis of full disclosure of all relevant information as it exists at the time of dealing. Investors may be influenced in their dealing decision by many facts, hopes or fears. These include political considerations. Everyone was fully aware of the possibility of a change of Government, and might have reasonably hoped for a re-consideration of the compensation terms under the Act. Those who have already sold are likely to have considered this possibility. But whether or not this was so in any particular instance, a selling shareholder cannot argue that the terms on which he sold in the market have been invalidated by subsequent events. Were it otherwise, the stock market could not operate".In my view, the argument of my right hon. Friend The Secretary of State for Industry has no foundation either in market logic or practice.
§ Mr. Peter Lloyd (Fareham)
Is not the Government's position on this point even more untenable than the chairman of the Stock Exchange indicates? When they were in opposition the Conservatives 665 took good care not to rule out the possibility of the change of the settlement. Indeed, they condemned it so fiercely when it went through Parliament that shareholders had excellent reason for expecting such changes to be made when the Conservatives came into power. Therefore the balance of injustice must lie in leaving matters as they are.
§ Mr. Lang
My hon. Friend is right, and the point that he makes strongly underlines the forceful letter from the chairman of the Stock Exchange. The National Association of Pension Funds, representing many institutional investors who have held shares in the affected companies or their holding companies has written a letter stating a similar view.
But there is a new factor in the whole equation of injustice—the unconscionable delay that has taken place. It is that delay that creates a new situation. I believe that even the Socialist perpetrators of the 1977 Act would have paused if they had known that three years after vesting date and seven years from the reference period this matter would still be unresolved and their formula would have depreciated by over 60 per cent. The cost of living has risen by over 2½ times in that seven-year period and the affected companies have been offered not one penny more on that account. They are frozen like fossils in another age, when today's 40p was worth £1.
I say to my right hon. Friends that to do nothing now but simply to acquiesce in the existing arrangements is not just to be neutral; it is to create a new injustice. It is to compound the gross unfairness of the original Act. That is why I ask them to take a new initiative and I remind them that last July over 100 of my right hon. and hon. Friends signed early-day motion 760 calling for action, and that 153 right hon. and hon. Members supported the Ten-Minute Bill so ably moved by my hon. Friend the Member for Fareham (Mr. Lloyd).
I ask my right hon. Friends to set up an independent commission comprising representatives from industry, commerce and the Stock Exchange, chaired by a judge, with wide powers to re-examine the whole affair, to consider alternative methods of rectifying it and to make recommendations.
666 Among the points that such a commission would consider must surely be the question of index-linking and an option to revert to an asset-related formula for compensation, as at vesting day. Those are the two approaches that would bring most justice to those who have suffered the greatest injustice.
This whole shabby business of aircraft and shipbuilding nationalisation has left a dark stain upon the record of the previous Government. Sadly, today that stain is still wet. It is in danger of spreading until it taints the record of this Administration. That is why I urge my right hon. and hon. Friends to take action with all deliberate speed to right a serious wrong.
§ The Under-Secretary of State for Industry (Mr. Michael Marshall)
I have listened with interest and sympathy to the plea of my hon. Friend the Member for Galloway (Mr. Lang) on behalf of certain of the former owners of nationalised aircraft and shipbuilding companies. I congratulate him on the way in which he puts his arguments and I appreciate the interest that he has taken in the matter over a long period, particularly in regard to Yarrow and Scott Lithglow. I recognise the intervention by my hon. Friend the Member for Fareham (Mr. Lloyd), with his interest in Vosper, which I have also followed with close interest. I also recognise the interest of others of my hon. Friends who are present.
I remind the House that my right hon. Friend the Secretary of State said in his statement to the House on 7 August:We recognise that some previous owners and many Members of this House … believe that the terms of compensation imposed by the 1977 Act were grossly unfair to some of the companies and we share this view."—[Official Report, 7 August 1980; Vol. 990, c. 290.]In other words, we are on common ground with much of the basic argument that has been put forward tonight. However, sadly, it is one thing to recognise that legislation is unfair and another to devise ways of putting that unfairness right, in circumstances where the legislation has been in force for a considerable time and many people have entered into financial transactions on the existing basis.
A good deal has been made of the fact, not just here but elsewhere, that in 667 opposition the Conservative Party bitterly opposed the legislation leading to the nationalisation of the aircraft and shipbuilding industries, and remarks made by sonic of my right hon. and hon. Friends at that time have been quoted to us with the intention of spurring us into introducing amending legislation. It has also been suggested that not to put right the unfairness relating to certain companies could make it much easier for a future Labour Administration to carry out further nationalisation on the same unfair basis or on even less satisfactory terms.
If I may, I will for the moment return to my right hon. Friend's statement of 7 August. He told the House that the Government had explored every possibility to right the injustice done by the previous Government. I can reaffirm that that is so. This has been a task with which my hon. Friend the Minister of State, who is present tonight, and I have been closely involved, but we have regretfully concluded that to amend the compensation terms retrospectively would be unfair to all those people who had acted on them and sold their shares in those companies or in companies which formerly owned the nationalised businesses.
I am sure that my hon. Friend, despite what he has said in criticism of the Government must, in his heart of hearts, realise that if the Government had been able to see any way to remedy the perceived injustice to certain companies, we would not have hestitated to take such action. But, of course, it is not simply a question of waving a wand to remedy an injustice and to turn back the clock, or to implement a few simple principles which will leave everyone happy with the results.
What is being said in this case, though it may be unpopular for me to say so, is in fact special pleading. Because certain former owners have not received what they, and we ourselves, might consider to be fair compensation for the nationalisation of their enterprises, they seek major changes in the 1977 Act. Such changes would almost inevitably lead to a re-examination of the position of others of the 25 companies nationalised, whose former owners have long since agreed to the amount of their compensation and received payment. Indeed, there was no problem in many of these cases. My hon.
668 Friend will be aware that the problem of delay has, by definition, related to arguments over terms and settlements.
It follows that we have, therefore, two categories here, of those who have settled and those who have still not settled over the period in question. We have to weigh on the one hand the understandable grievances of a limited number of companies against the incalculable damage which could be done by the Government's not only condoning but actually introducing into our system of Government the principle that it is permissible, even laudable, to introduce legislation amending an Act duly passed by Parliament, whose provisions are still operative, and on the basis of which large numbers of individuals and companies have entered into transactions.
On this occasion it might be done—and my hon. Friend has certainly argued his case well—with the best will in the world, to try to cure the legitimate grievances of certain citizens. But there is no saying that on a future occasion the precedent would be used for such benevolent purposes. I believe that tremendous confusion would be introduced into people's everyday dealings if they were in a constant state of apprehension about the permanence of legal provisions under which they are operating.
May I remind the House of some of the background facts in this matter? The Labour Government announced compensation terms in March 1975 and this was done in some detail. Thus five and a half years have passed since it was made clear what the intentions of the Government were at that time. Although we ourselves were extremely vigorous in our criticism of the compensation terms, the resistance of the Labour Government to any amendments was equally determined. I remind the House that the Conservative Party gave no undertaking before taking office that it would repeal or change this legislation. Since coming into office, the position has been very thoroughly examined, but we have made no statement that would lead anyone to suppose that amendment of the Act was a possibility. Indeed, the Government have continued to implement the Act by entering into settlements with those former owners who were willing and ready to sign settlements.
669 The present position is that compensation has to be settled for 25 companies; 11 were covered by settlements before we took office, three more before the announcement in August, and six subsequently. We are thus concerned with five remaining cases.
As my hon. Friend said, the real cause of the trouble is the length of time between the introduction of the Bill and its becoming law in 1977. During that time, the fortunes of the companies to be nationalised fluctuated. Some of them performed very poorly, while a small number improved their performance, some of them quite remarkably and all credit to them. Of course—and ironically—it was our own success in opposition that, by contesting the passage of the Bill, caused this problem of delay.
The owners of some of those companies would like the Government to change the compensation terms so that compensation is based on the value of the enterprise at vesting day. Whilst this would undoubtedly benefit that minority of the companies which had improved their profit record during the long interval, the logical corollary of this—I urge my hon. Friends to consider this aspect carefully—is that those companies whose performance deteriorated would do very much worse. The principle of retrospective amendment would thus appear to extend to attempts to recover compensation paid under settlements long ago concluded.
The precedent there is one that must be weighed carefully. In terms of fairness, whole new arguments would appear. Even if new terms were made available as an optional alternative, it is not self-evident what alternative formula would fit properly with the general scheme of the 1977 Act. Indeed, the act of giving such an option might well be construed as giving an unfair advantage to those who had already settled on the existing terms, and who could well seek to reopen their cases. The further delays involved in passing amending legislation and in reopening negotiations on the altered basis are self-evident. A change in the terms is thus not to be regarded as the easy way which perhaps some might suggest.
While we very much sympathise with those who feel aggrieved by the 670 operation of the Act, I have to say in all honesty that 1 believe they are ignoring or brushing aside important points of principle in the light of what they feel to be injustice in the situation as it relates to them. The Government have to take a wider view, and after full and careful consideration we came to the decision which was announced by my right hon. Friend in August. It was not an easy decision to make, and we fully realise its unpopularity in certain quarters.
In this connection, I turn to the criticism of the Government's reasoning which has been voiced, among others, by the chairman of the Stock Exchange. My hon. Friend has referred to this tonight. It is pointed out that people who sell their shares on the Stock Exchange have to take their chance that subsequent events may invalidate the reasons for which they considered selling to be appropriate at the time. Therefore, it is said, there is no justification for refusing to amend the 1977 Act on the grounds that those who sold their shares in those years following the then Government's announcement in 1975 would be entitled to complain about the change of Government policy.
Clearly, as a general principle of stock market transactions, buyers and sellers have to accept that subsequent events may make their decisions look ill-advised. That, however, is not the question here. What we are considering here is whether the Government have a moral responsibility towards a selling shareholder in a nationalised enterprise or its parent company in the event of a retrospective change in the compensation terms being made by that Government.
Here I turn to what I think is a key constitutional issue. As far as I am aware, there has never been a case where compensation terms laid down in a safeguarding statement and subsequently enacted by Parliament were altered by legislation of another Parliament. We have in fact as a party consistently deplored retrospective legislation of all kinds. Coupled with the fact that, as I have already said, the party gave no indication that it intended to repeal or amend this legislation, either before the last general election or since taking office, there can have been no expectation on the part of shareholders that any such amendment 671 was contemplated, except on a speculative basis.
There is also the matter of the effect of inflation. There is little resemblance between movements in stock market prices and the course of inflation. To introduce some form of indexing would have very far-reaching implications again.
My hon. Friend referred to the intention of some former owners to raise under the European Convention on Human Rights their complaints about compensation under the 1977 Act. The Government are not presently aware of the arguments which are likely to be advanced before the European Commission on Human Rights in support of these complaints but have no reason to suppose that the 1977 Act involves a breach of the convention.
My hon. Friend spoke repeatedly of fairness, and I have to say that the Government have reached the view that within the formula laid down by the Act, compensation has been negotiated on a fair basis. Moreover, it is important to stress that we have reviewed each outstanding case in great detail and, wherever possible, made improved offers. I must also point out that the Act provides for reference to an independent tribunal if agreement cannot be reached in negotiation with the Secretary of State. Some former owners have taken advantage of this provision. We fully respect the right of anyone who feels aggrieved by the existing legislation to have recourse to such arbitration, and we, for our part, will readily accept the outcome of the independent tribunal's assessment.
To sum up, I am not defending the Act. Indeed, I was one of those who had the privilege of opposing it. But the fact is that in certain cases its operation 672 does give rise to justifiable grievances. However, the Government are convinced that amendment at this very late stage would raise equally justifiable grievances among many other people, and, even more important, would introduce a dangerous possibility of turbulence into our legislative process, as a result of which people would never be clear where they stood under any enactment. It would certainly give ammunition to those critics who constantly complain that business and industry have variations of policy with each change of Government.
If the Government could have found a way of meeting the problems of those who have sought to have the Act amended they would have been only too happy to go ahead on that basis. I am sure that no one on my side of the House can doubt that. I assure hon. Members that the question was studied exhaustively. The conclusion that we reached was, in the circumstances, the only proper course open to us, and, however unhappy we may feel about certain aspects of this matter, we must stand by that decision. Alongside this, we have done what we can within the limitations of the Act.
I very much appreciate the measured and reasoned way in which my hon. Friend spoke. I shall certainly consider all that he has had to say. However, just as he spoke plainly, I must give a direct and honest response to a very difficult matter. I hope that there is much more common ground on the Government Benches than may appear from some of the arguments that we have had to explore tonight.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-seven minutes past Twelve o'clock.