HC Deb 08 April 1986 vol 95 cc82-98

'Any contract made between the Secretary of State and any dockyard contractor shall contain a proviso requiring the transfer to a person or persons not resident in the United Kingdom of any shares in any company connected directly or indirectly with the provision of dockyard services by the dockyard contractor to be notified to the Secretary of State and where shares subject to such transfer exceed 5 per cent. in number or value of the total share capital of such company or companies, then the Secretary of State shall forthwith terminate the contract'.— [Mr. Denzil Davies.]

Brought up, and read the First time.

Mr. Denzil Davies

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

New clause 2 is concerned with foreign ownership. I accept entirely that it is not easy to draft foolproof clauses, regulations or articles to cover such an area, and the Government will accept that that is not a defensive statement.

Our first criticism of the Government with regard to foreign ownership is that they have put nothing in the Bill to prevent the foreign ownership and control of assets of national strategic importance. That is not surprising because the Government do not care. They are prepared to sell off almost anything to cobble up a bit of money. The dockyards are an important national asset and I believe that there will be widespread support both in the House and in the country for ensuring that the dockyards do not fall into the hands of foreign countries.

In Committee, the Government said that it was not necessary to deal in the Bill with the question of foreign ownership. They said that their lawyers had come up with a complicated scheme to deal with the problem. No doubt the Minister or the Under-Secretary will tell the House —they have already told the Committee—what that scheme is.

As I understand the scheme, if 30 per cent. of the shares in any one of the consortium companies—I suspect at the end of the day there will be a consortium of some kind —become owned by foreigners, however they are to be defined, there will be some mechanism, at the discretion of the Secretary of State, for the contract to be terminated.

That would not happen automatically. The company apparently has a duty to notify the Ministry of Defence when the shareholding by foreigners has risen to 30 per cent. That is all that happens. Presumably the company will, out of the goodness of its heart, send a note to the Ministry to tell it that the company is now 30 per cent. owned by the Moscow Narodny bank nominees, or whoever it might be. At that point the Secretary of State may study the contract and consider whether he should terminate the contract.

Frankly, for all the high drafting and precision that appears on the surface, these provisions are worth little. They are purely cosmetic. They pretend that the Government are concerned about foreign ownership. The Government have not made a real effort. I shall try to show that. The new clause seeks to put that right.

Thirty per cent. is too high. Of course 30 per cent. is more than 25 per cent., but 25 per cent. is a magical figure when it comes to company law. A shareholding of 25 per cent. in effect represents, as the Government well know, control of a company. Such a holding can block a liquidation or it can block special resolutions. It is no coincidence that, some months ago, Sikorsky-Fiat was aiming for a 29 per cent. share of Westland but there were also stock exchange reasons. With a 29 per cent. shareholding, one is in the driving seat, especially if the other shares are spread widely. We are not talking about a company where 75 per cent. or 65 per cent. of the shares are held by one person. In consortiums such as Appledore International, Trafalgar House, the Weir Group and various other public quoted companies, there will be a wide spread of shares. It may well turn out that the foreign national or company owning 30 per cent. of shares would be the largest single shareholder, so 30 per cent. is far too high. It does not give the protection that is necessary. The new clause makes it clear that the figure that we would accept is 5 per cent. We accept that there will be changes, in the shareholdings of companies from time to time and 5 per cent.. as the lawyers say, is a kind of de minimis. That would be acceptable, but anything above that would not.

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Secondly, the duty to notify the Ministry of Defence is far too weak. A legal duty to notify may be written into the contract, but I do not know how that can be enforced. Will the Ministry of Defence sue its contractor? What damage will the Ministry of Defence suffer? The duty to notify is not worth the paper it is written on. We have seen nothing in writing—I do not know whether the details are contained in the documents that we were presented with today—but the duty is to notify when the figure becomes 30 per cent. and it will be too late by then because the holding will have been built up. That really is bolting the stable door after the horse has gone.

The new clause reasonably points out that where there is a transfer of shares to a foreign resident or national—it is possible to find that out — there should be immediate notification, and where that transfer and others come to more than 5 per cent. the axe falls on foreign ownership. The 30 per cent. is too high a figure. The duty to notify is ridiculous, and it is too late at that point because the shareholding has been built up.

The third weakness in the Government's scheme is that the Secretary of State merely has a discretion to terminate the contract. A complex legal arrangement has been built up. The contract contains all the provisions. Lawyers have been richly paid to do all the drafting, yet at the end of the day the Secretary of State has a discretion to terminate a contract with his contractor. That is the only contractor that there is to repair the ships and that contractor's shareholding already stands at 30 per cent. If the contract were then terminated, somebody else would have to he found to do the work, with all the hassle that that would entail.

Does anybody believe that a Secretary of State for Defence would terminate such a contract because of the foreign holding? Certainly this Secretary of State would not. No, Mr. Deputy Speaker, that is nonsense. Ministers have worked hard. The Minister of State looked pained when I criticised his scheme and no doubt the Under-Secretary also feels that he has put long hours into this splendid piece of legal complexity. However, they should not take too much pride in it. It may be good in theory, but it makes no sense in practice.

The new clause provides for a termination of the contract at an earlier stage—when the shareholding stands at 5 per cent., not when it has been built up to 30 per cent. Clearly the Government must think about this again. They must take seriously the view that we must not allow any substantial shareholding from abroad in the royal dockyards. If they are not prepared to put a new clause into the Bill at this stage, such matters can be dealt with in the other place. The clause would be better in the Bill. That is where it should he. We do not accept that a shareholding of 30 per cent. provides the kind of safeguards that we require.

Mr. Hancock

The points on the new clause were well made in Committee and the right hon. Member for Llanelli (Mr. Davies) spelt out the difficulties that could arise. We must consider the sort of situation in which we might find ourselves. What will happen if control of the royal dockyards falls into the hands of a foreign company holding at least 30 per cent. of the shareholdings? If the company refuses to drop a foreign-held shareholding the provisions in the Bill to terminate will then have to be put into practice. As the right hon. Gentleman said, what will happen to the work in progress? The one thing that we do know is that if the Bill is enacted there will be no turning back the clock. There will be no ready-made labour force and management to step in to fill the gap that will be created once one sets about trying to terminate a contract. What chance does that give of looking sensibly at the way in which the dockyards work? It will be an impossible situation. A seven-year contract may have run for three years when it has to be terminated and then other interested parties will have to be found. We know from Committee of the reluctance of many companies to look seriously at such a situation. More than one hon. Member suggested that strong arm tactics were being used to get people to show some interest. That would be par for the course should a contract be terminated.

It would be a grave dereliction of the Government's responsibility if they were not to act sensibly in the protection of the national interest and the defence of the realm and, more importantly, the conscious giving of control of something as important as our dockyards to foreign companies or people with hostile intent, whether politically or militarily, towards the United Kingdom.

I hope that hon. Members will see the sense of supporting new clause 2. It makes sense now and it did so in Committee. I have yet to hear a sustainable argument from the Government against it. I beg the House to support new clause 2.

Mr. Gordon Brown

The question is whether, in their enthusiasm to transfer the dockyards from public to private control, the Government are inadvertently creating conditions which may transfer the dockyards from British control to foreign control. In recent weeks Conservative Members have filled the House to discuss the importance of British control over the British car industry, and the Conservative party has been divided over who controls the British helicopter industry. Yet it is remarkable that not one Conservative Back-Bencher is present this evening, and only three Conservative Members are present on the Front Bench, when we are discussing legislation that contains not one safeguard against the possibility of foreign control of the royal dockyards. There is not one safeguard in the Bill to prevent or avert the possibility that a foreign company may be entrusted with the responsibility of refitting not only our sophisticated nuclear submarines but our nuclear deterrent. Despite hours of Committee debate on some of these matters and the presentation of various formulae and amended formulae by Ministers, none of my hon. Friends can be happy with any assurances that have been given about preventing foreign control when the Government are not prepared to include stipulations in the legislation.

Because there are to be no legal guarantees against foreign control, the Government have been retreating daily from their determination to prevent foreign control of the consortiums running either of the dockyards. The original position was set out by the Minister of State in the Second Reading debate on 2 December in response to a question from my right hon. Friend. He said: tenders would be sought from British companies."—[Official Report, 2 December 1985; Vol. 88, c. 98.] The assumption that underlay our initial discussion of the Dockyard Services Bill was that no company other than a British-owned and British-registered one would be in a position to bid for the dockyard franchise.

During Committee stage a revised position was presented by the Parliamentary Under-Secretary. He said that to avoid the possibility of foreign control the Government would introduce a stipulation that no more than 30 per cent. of the shares of the consortium could be in the hands of a foreign firm. When we asked how he would eliminate foreign firms that might be interested in the dockyard franchise, and deal with other problems, he said: The answer … is that the problem will be picked up at the pre-qualification stage, which we are now moving towards. That stage has come and gone. On the list of companies being invited to tender for the royal dockyards, exclusively as a single company and not as part of a consortium, is a wholly owned American company. The assurance that the problem would be picked up at pre-qualification stage was a bland one. It was one on which the Minister has not yet been able to deliver, at least in the parliamentary answers that he has given.

The Parliamentary Under-Secretary of State then redefined the position again. In reply to a question in Committee he said: It would be theoretically possible for Foster Wheeler,"— a wholly owned American company— or another foreign company, to satisfy the shareholding requirements but come in with financial rather than commercial trading partners."—[Official Report, Standing Committee D; 30 January 1986, c. 376.] In other words, for all operational purposes the controlling interest could be a wholly owned American company, for technical purposes holding only 29 per cent. or 29.5 per cent. of the shares, but being the only company with the technical expertise that would allow it to succeed in winning the contract.

At first, no foreign companies whatsoever were to tender. Now, the Minister is apparently prepared to contemplate a foreign-owned company bidding for the franchise, going beyond the pre-qualification stage, choosing a few banks and financial institutions to back up its application and to satisfy the shareholding requirement, and being effectively in control of the dockyards at Devonport or Rosyth.

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It is a situation unique in the Western world where an American-owned company that is not in a position to hid for the contracts to run the American shipyards and dockyards is somehow placed in an advantaged position to bid for the contract for the British dockyards. Neither America nor any European country would contemplate the refitting of its most sophisticated nuclear weapons already in commission by a consortium with a substantial foreign shareholding.

Some of us have had a chance to look, if only briefly, at the documents issued to companies over the past few days. Annexe 4.2 is of special interest. It is headed: Proposed conditions governing foreign shareholdings in the dockyard company. It contains the Government's definition of a foreign corporation that would be able to hold up to 30 per cent. of the shares in a consortium running the royal dockyards. In the list of possible foreign corporations to hold shares in the dockyard, we find: A Government or Governmental Department or Government agency or body other than of the United Kingdom or any part thereof'. In other words, as well as the fact that, under this legislation and the Minister's own regulations, a foreign, private company may be able to hold up to 30 per cent. of the shares in the consortium, it is also possible that a foreign Government could hold up to 30 per cent. of the shares in the royal dockyards. As far as Britain is concerned we are transferring control from public to private hands, but apparently the Government can contemplate the possibility that another state—perhaps Libya, Argentina or South Africa or another of the countries that might be interested in having refit work done at the dockyards—could become part of the consortium running the royal dockyards. That is the effect of the Minister's statement.

Conservative Members seemed to be concerned about the future of Westland. They seemed determined to keep British Leyland under British control for strategic—they said—as well as financial and employment reasons. I cannot understand how they are prepared to contemplate the possibility of a foreign Government being the major party with a controlling operational interest in the running of the dockyards. Yet in one of the last sittings of the Committee the Minister of State told us that the only sensible criticism that might be made of these arrangements was that they were too restrictive. In other words, he seems to think that it would be better to open the floodgates, to allow foreign companies to hold a higher proportion of the shares, to let foreign Governments do what they want with the royal dockyards and to allow a strategic asset to fall into other people's hands. That is the effect of the statement that he made when we were discussing the stipulations governing foreign control of the franchise.

It is small wonder that the hon. Member for Plymouth, Sutton (Mr. Clark), the Minister for Trade, is not here today. I gather that he has stated to the local newspaper that he is not here because he would be too embarrassed at having to vote against the Third Reading of the Bill. As the Minister may already know, the Minister for Trade has written to the trade unions at Plymouth dockyard saying that his real apprehension is that the fate of the dockyards might be decided by people with no interest in or experience of conditions in the city of Plymouth, and that a great asset may be sold into the hands of strangers.

Perhaps the hon. Member for Sutton, who has had to be silent in debates on this matter in the House, will carry some weight with the Prime Minister when the final decision is made on whether to go ahead with the Bill.

I note that the hon. Gentleman also told the trade unions that there remains the possibility of a number of detailed changes to the Bill in its passage both in the Commons and in the Lords". It is precisely such changes that we are proposing today.

Mr. Denzil Davies

The hon. Member for Plymouth, Sutton (Mr. Clark) may not be the only one who has deserted the Government on this issue. There are no Conservative Members on the Back Benches.

Mr. Brown

I do not think that the Government can call on any physical support today outside the Division Lobbies. It is noticeable that some hon. Members from the south-west, whom one might have expected to be here, have absented themselves from the Chamber and also from the Division Lobby. It may be that more hon. Members than the 10 who abstained on Second Reading will abstain on Report and Third Reading. It is a sign of the declining support for the Bill that the Minister who who should be going through the Lobby as a loyal Government supporter has made a public statement to the effect that he could not support the Bill in the Lobby this evening. I mean the Minister for Trade. It is clear that the Minister of State for Defence Procurement is a loyal supporter of the Government and will support them no matter what they say and no matter what wrongs they are doing to our defence forces.

My right hon. Friend the Member for Llanelli (Mr. Davies) mentioned another problem associated with the dangers of foreign control. He mentioned the possibility that during the period of a seven-year contract a greater amount of foreign shares may be put into the consortium. We have to remember that the Ministry of Defence is not committed to re-tendering every seven years. All it wants to retain is the right to re-tender every seven years. The Minister of State was quite clear on 2 December on Second Reading. Where the consortium became subject to foreign influence he said: In such conditions it would be written into the contract that the company would lose the contract to manage the yards".—[Official Report, 2 December 1985; Vol. 88, c. 98.] That seemed a clear statement that the contract would contain a clause not that the company might lose the contract to manage the yard but would lose the contract. That statement has been evacuated by the Minister. On 30 January the Under-Secretary told the Committee something totally different. Looking at a number of options open to him in circumstances where a consortium became subject to foreign control, he said: The third option would perhaps be to allow the new situation to continue as it was in the overall interests of national security…Here, we would obviously take account of the time left for the contract to run, the adequacy of the contractor's performance to date and the nature of the foreign influence involved."—[Official Report, Standing Committee D, 30 January 1986; c. 375.] In other words, what the Minister said on 2 December is meaningless. It is not something that the Government are prepared to hold to. He misled the House on 2 December and I hope that he will apologise to the House for a statement that has not been justified by events in Committee or by the proposed conditions governing foreign shareholding in the dockyard company. That is a five-page statement which has been sent to the contractors. It goes into great detail about what constitutes a foreign consortium and a foreign shareholding and what 30 per cent. means. It defines foreign corporations, foreign shareholdings and project contracts. It defines what an "interest" is, and what a Government nominee is. It goes into all that detail and then says that if the contractor or the consortium raises its share above the 30 per cent. limit and does not reduce its shares, if there are transfers of shares between parent companies, if directorships change and we have foreign directors in control the answer is that the authority, meaning the Government, may in their entire discretion terminate the agreement. It does not say would or will but may. In other words, what was said to the House on 2 December by the Minister of State is proved not to be what the Government are now saying to the company. Therefore, no matter what the level of foreign control, what sort of consortium emerges during the period of a contract, how many foreign directors there are or how many foreign Governments buy 5 per cent. or 10 per cent. of shares in the consortium, the Government are leaving it open to decide whether they will or will not leave the dockyard consortium in foreign hands.

That emphasises the point that if the conditions governing foreign control are not enshrined in the legislation we will have evasion and retreat even from the bland assurances that Ministers have given during our debate.

This not an academic argument. One foreign company is already expressing interest. There is the possibility that consortia may be made up by other foreign partners. The Government should realise that there is no more important strategic asset for the maintenance, repair and refit of our defence forces than the royal dockyards. If it is inconceivable that any other country would pass the control of its dockyards from its own native control to foreign control, it should be unacceptable to the Government to allow a foreign consortium to be in a position to be the major partner, no matter what shares it holds, in running British dockyards.

As usual, Ministers wear the clothes of patriots but leave those clothes oddly empty. Having got into a situation where our helicopter industry has passed, in the main, into foreign control, along with many of our other assets, it is the last straw for the Opposition to see the dockyards being put in a position where, inadvertently, through Government neglect and negligence they too may pass into foreign control. If the Government are serious about retaining the dockyards as a British asset for the use of the British defence forces, they would include in the legislation a clause preventing foreign control of the consortia or even a substantial share in the consortia.

The dockyard planning team reports still mention the possibility of refits for foreign navies. Argentina and South Africa are still part of the list that the Ministry of Defence seems prepared to contemplate. If the dockyards are to do work for foreign navies, the least we can expect is that they are not under foreign control. I believe that the Minister should take to heart the warnings that have been given by the Minister for Trade and should accept amendments to the Bill here before the other place includes them as part of its deliberations. If the Government were serious about retaining British control, they would accept the amendment moved by my right hon. Friend the Member for Llanelli.

The Parliamentary Under-Secretary of State for Defence Procurement (Mr. John Lee)

In essence new clause 2 seeks to provide that the contract between my Department and the successful bidders for the management of the dockyards will provide that if shares in any company directly or indirectly connected with the provision of dockyard services by the dockyard contractor are transferred to someone not resident in the United Kingdom my right hon. Friend the Secretary of State should be notified. Where the transfer exceeds 5 per cent. in number or value, my right hon. Friend should terminate the contract.

I say with the greatest respect to the right hon. Member for Llanelli (Mr. Davies) and his hon. Friends that this is a narrow, unrealistic and unnecessary reaction. On the assumption that the amendment has been drafted to mean what it says, I doubt very much whether it would even achieve what the right hon. Gentleman and his hon. Friends hope. It is by no means certain that the new clause would prevent any number of transfers, providing each was below the magical 5 per cent. figure, which could result in a transfer to foreign ownership in small stages.

Nor is the new clause very specific about which company or companies it is seeking to constrain. The wording refers to Any company connected directly or indirectly with the provision of dockyard services by the dockyard contractor Again, I say with respect that that is pretty loose wording. I shall explain why I believe it is not only loose but misguided. It certainly has very little to do with preventing foreign control of the dockyards which it is clear from what Opposition Members have said is their concern, and the purpose of the new clause.

The clause is also wholly inflexible and as soon as the very low level limit which it sets of the transfer of more than 5 per cent. of the shareholding of any company to non-UK residents is reached, the contract with the dockyard company must be terminated "forthwith". There is no question here of any discretion. There is no question of determining whether such a shareholding amounted to foreign influence — much less foreign control—in the dockyards. There is no question of considering whether any harm would be done to national security or other interests as a result of such a foreign shareholding. The wording of new clause 2 is simply a knee-jerking reaction, typical of the sort of opinions increasingly emerging from the Opposition that if it is foreign it must be bad. Or worse, it is an example of even more anti-Americanism on the part of the Opposition.

Let me make it quite clear that safeguarding national security interests has always been, and will remain, a vital concern in our policy of introducing commercial management into the dockyards. I can say without any hesitation that the idea that what we are proposing somehow puts national security at risk is absolute nonsense. In a moment I shall outline, for the benefit of those who were not on the Standing Committee, what we propose. I am sure that all those who, unlike some Opposition Members, are prepared to listen will accept that we are taking the sort of steps on foreign shareholding that any prudent Government should take.

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The new clause moved by the right hon. Member for Llanelli is at best unclear which company and to what extent it is seeking to constrain. Taken literally, any purchases of even a minute shareholding by an overseas resident in the parent company of the managing company —for example, just two shares in Trafalgar House plc or Babcock International plc—would have to be notified to my right hon. Friend the Secretary of State.

Our proposals require my right hon. Friend the Secretary of State to form a Companies Act company at each dockyard. Each company will have an authorised share capital of £50,001, divided into 50,000 ordinary shares of £1 each and one special share of £1 which my right hon. Friend will retain. The 50,000 shares will be transferred on vesting day to a managing company which will either be whichever company has been successful in tendering to manage that dockyard for the initial period of seven years or, where a consortium has been successful, it will be a company formed and owned by the consortium. All 50,000 shares will be owned for that entire period by the managing company. It is not our intention that anyone other than the managing company should hold those 50,000 shares and that will be in the contract. In the articles of association of the company which my right hon. Friend forms at each dockyard, he will make provision for a special share to be held by or on behalf of himself. The rights attached to that share will ensure that no change is made to the articles of the company or to its memorandum without my right hon. Friend's approval. No change in the ownership of the shares in the dockyard company may be registered without my right hon. Friend's approval. However, I have already said that ownership of the shares in the dockyard company must, under the contract, remain with the managing company for the period of the contract.

On foreign control, therefore, one must consider also the managing companies. I must stress here that we do not propose the privatisation of the dockyards and the transfer to a private company of Government assets. Anyone would think, from the speeches of Opposition Members, that we intend to give away or sell the assets. They will be retained in public hands. To that extent, constraints on foreign shareholdings which were relevant to, for example, British Aerospace are not relevant to the dockyards. In this case, the Ministry of Defence will retain the ownership of the land, buildings, plant and equipment and we shall retain the right to change contractors at the end of the seven-year contract.

As to the protection of information about our naval refitting programme, including—Opposition Members referred especially to this in Committee—information related to nuclear aspects, I can assure the House that the controls which apply to other defence industries—many of which are no less vital to our security than are the dockyards—will apply in full to all companies involved. These controls are those which apply to list X companies, and they have ensured that there has been no threat to national security from, for example, the involvement of companies in our nuclear and other weapons programmes or in the construction of nuclear submarines.

Following the pre-qualification exercise which my Department carried out earlier this year, we published the names of those companies which we would be inviting to tender for the contracts. Last week, the invitation-to-tender documents were issued for Devonport, to a consortium of Trafalgar House, Plessey, A & P Appledore, and to the management-led Devonport Dockyard Limited; and for Rosyth to the Babcock International/Thorn EMI consortium, the Balfour Beatty Weir group consortium, Press Offshore and Northern Engineering Industries.

Of course, the dockyards are of unique strategic importance, and for that reason cannot be regarded in the same way as any other defence contractor. We have made it clear that we could not accept that the dockyards should be run by foreign companies because of the obvious necessity to protect security interests. The relevant concern, with which the contract will deal, is the shareholding and management structure of the managing company which will, for the period of the contract, own and therefore control the dockyard company employing the work force. Annexed to the invitation to tender, a copy of which has been placed in the Library of the House as hon. Members will gather from earlier deliberations—perhaps better late than never—are draft contractual clauses relating to foreign control. Although they are no more than draft clauses, the principles upon which they operate will not significantly change. Those clauses define, for the purposes of the contract, key terms such as "foreign corporation" and "corporation under foreign control".

I accept that one can debate the shareholding which represents "control" of a company. We are really considering influence and the meaningful control which that may give. It is not, however, as simple as Opposition Members suggest. A shareholder who has 20 per cent. of the issued shares in a company may have considerable influence where no one else has more than 5 per cent.; however, a 20 per cent. interest in the shares of the company having four other shareholders each of whom also has 20 per cent. could hardly be described as a controlling influence. In terms of voting powers at a general meeting, the ability to exercise 51 per cent. of the shares voting is regarded as control. As I have said, for British Aerospace, foreign participation in share capital has been limited to 15 per cent. In yet other contexts, 30 per cent. has been considered to be the shareholding giving rise to control—that is the shareholding in a publicly quoted company at which a mandatory bid must be made under City rules.

Our view is that, given the other safeguards to which I referred—the articles of the companies set up by my right hon. Friend, the fact that without his consent significant articles cannot be changed and shares cannot be transferred, the tried and tested protection which list X procedures afford—the shareholding in the managing company at which we consider, in normal circumstances, a risk to security may begin to arise is 30 per cent.

This is the foregn shareholding in the managing company to which we expect we will, in the interests of security, expect tenderers to conform at the initial bid stage. But whatever the tenderer's proposals are, we shall examine them to satisfy ourselves that security interests will not be prejudiced. If we think that is their effect, we shall not agree to them.

Opposition Members may ask how we shall determine whether shareholding in the managing company is foreign. The answer is that we will look at the parent company which holds it. Under the contract, my right hon. Friend will be entitled to assume, unless the parent company establishes otherwise, that any share in it is foreign held. If foreign held shares in the parent company exceed 30 per cent. it will be considered under the contract to be a corporation under foreign control, and the shares which it will hold in the managing company will also be considered foreign owned. If the parent company is foreign registered, or if its principal place of business is abroad, it will be considered to be a foreign corporation, resulting in its shares in the managing company also being considered foreign held. We are, therefore, not excluding foreign owned or registered companies or their United Kingdom subsidiaries from joining a consortium to bid to manage the dockyards, though their shares in the managing company will be considered foreign for the purposes of the 30 per cent. level.

The final question to consider is what would happen if the proportion of the foreign shareholding were to rise above the 30 per cent. level. My hon. Friend said on Second Reading that if a company which had been awarded the contract came under foreign control, it would be written into the contract that the company would lose the contract to manage the yards. My hon. Friend went on to say that the precise proportion of shareholding had not then been defined. We have, as I have just said, decided to place the "trigger point" in the managing company at 30 per cent. The contract would not automatically be terminated, but the important point is that the parent company or companies could not assume that it would continue.

Mr. Denzil Davies

The Minister referred to the duty on the company to inform the Secretary of State when shares reach the 30 per cent. level. What sanction does the Secretary of State have on a company if it fails to carry out that duty?

Mr. Lee

If the company fails to carry out that duty of notifying the Secretary of State, and if my right hon. Friend believes that there is a real concern about national security, he can, at his discretion, terminate the contract.

Mr. Gordon Brown

rose—

Mr. Lee

If my right hon. Friend considered that the degree of foreign shareholding was contrary to the interests of security and that action should be taken, he could terminate the contract—and the company would know that. Alternatively, the parent company might be required to reduce the level of foreign shareholding. If, however, my right hon. Friend did not consider that the circumstances were contrary to the interests of security, the management contract would be allowed to continue.

Mr. Brown

Will the Minister explain why, on 2 December, the Minister of State told the House that in conditions of foreign influence and control it would he written into the contract that the company would lose the contract to manage the yards."—[Official Report, 2 December 1985; Vol. 88, c. 38.]

Mr. Lee

With great respect, I have already covered that point. I explained that the precise percentage for the trigger mechanism had not be defined at that stage.

May I make it clear that in my comments I have dealt with what has been of principal concern in the debate on this new clause, namely, foreign control or influence by virtue of shareholding. The draft foreign control clauses, which are both complex and comprehensive, also address the issue of foreign influence at board level of the managing company. So far as that is concerned, it is our intention that if 30 per cent. or more of the directors of the managing company or the votes they exercise are, to put it very generally, subject to the influence of foreigners or foreign corporations or parent companies under foreign control, my right hon. Friend may act in the same way under the contract as he can if the specified foreign shareholding level has been reached. But, that said, we are not banning foreign directors per se.

I should add that a further contractual safeguard will exist. Whether or not the 30 per cent. limit affecting the shareholding or board of the managing companies has been passed, my right hon. Friend will retain the power to terminate the contract where security interests, justify it if, in his opinion,

any other circumstances whatsoever have arisen which constitute any foreign ownership, control or influence over the managing company". The potential danger associated with foreign control can and will be avoided by the combined effect of the articles of association of the dockyard companies in which my right hon. Friend will retain a special share, by the standard security procedures covering all defence contracts, and by clauses in the contract giving my Department powers of termination if the degree of foreign control is such as to cause my right hon. Friend to consider that the interests of security are in any way threatened.

I therefore invite the House, with confidence, to reject the new clause.

Mr. O'Neill

Perhaps the Minister can answer one question before he gets too comfortable. He read out a list of companies that had passed the prequalifying stages, but he omitted any reference to Foster Wheeler. Am I right to assume that that wholly owned American company is no longer interested in bidding for the contract for either of the yards?

Mr. Lee

Although I had finished my speech, I am charitable, and am glad to respond as the point has already been raised once. Foster Wheeler is a list X company. It therefore satisfied the prequalification exercise. But it was not sent an invitation to tender because it is a foreign company and it has not formed itself into a consortium that we would find acceptable. Therefore, it is at present a non-runner.

Mr. O'Neill

Although I wish to avoid the charge of being anti-American, the Opposition can at least take some satisfaction from the fact that we exposed a foreign-owned company that was not prepared to change its terms and articles of association, and that as a result it has backed off or been discouraged from applying for the contract.

Due to lack of time, we have been unable to study the provision with the care that the Under-Secretary of State has been able to give it. However, I understand that it contains a catch-all clause to the effect that if the Secretary of State does not, for any reason, like the look of a company, he can terminate the contract in the middle of the seven-year period. It seems unfair and unjust that a company can virtually be subject to the Secretary of State's whim. If it does something that he does not like, there does not seem to be any form of appeal. There is no clear indication of what procedures would be established for examining—

Mr. Norman Lamont

Would the hon. Gentleman care to sort himself out with the hon. Member for Dunfermline, East (Mr. Brown)? The hon. Member for Dunfermline, East has complained that the Government's proposal is far too flexible, and says that we need a catch-all automatic mechanism, but the hon. Member for Clackmannan (Mr. O'Neill) wants the exact opposite.

Mr. O'Neill

I am grateful to the Minister for showing such interest in a debate in which he has not been participating. However, my hon. Friend the Member for Dunfermline, East (Mr. Brown) did not have the opportunity to hear what the Minister said earlier.

The initial burden of our attack—and it remains the same—was that the figure of 30 per cent. is too high. But, at the end of his speech, the Under-Secretary of State seemed to say that 30 per cent. did not matter, and that the figure could be 1 per cent. If the directors had some sort of brainstorm and started acting in a manner characteristic of foreign nationals, he seemed to say that such a company would be debarred from retaining the contract. But our view is not narrow or unrealistic. We say that a figure of 5 per cent. should be set and that if it is exceeded the Secretary of State should allow termination. We believe that the 5 per cent. figure would provide such a low threshold that the Ministry of Defence would have no difficulty in establishing when it had been breached.

I understand that at present the 30 per cent. level is dependent upon the company letting the Secretary of State know that its shareholding has fallen into foreign hands. The Under-Secretary of State has not disputed the fact that 25 per cent. could give control of a company. As has been pointed out, in such circumstances the figure of 30 per cent. is too high. The recent tangles experienced by the Ministry of Defence and the Department of Trade and Industry with British company law and the ownership of companies suggests that in some circumstances 25 per cent. could easily be recognised as giving control over the company.

We therefore chose what lawyers would call the de minimis figure of 5 per cent. It has a precedent; it affords adequate policing and would enable us to be sure about the companies that we wanted to deal with. There could be no possibility of dawn raids and take-overs of companies unbeknownst even to the directors. The failure of the Department of Trade and Industry adequately to police take-overs and mergers gives us little confidence in the Minister's vague assurances. Given present Government policy, there is no likelihood of the Government exercising any powers that they reserve to themselves under that catch-all provision. This is no more than a bit of sophistry on their part.

We believe that if our defence interests are to be adequately protected, there must be an upper limit of 5 per cent. It would be easily understood by the contracting companies and by the work force. Indeed, workers would be very distressed at the prospect of being employed by those who did not necessarily have the best interests of Britain's defence at heart. Therefore, I ask Conservative Members to join my right hon. and hon. Friends, whom I know will vote in great numbers, in supporting the new clause.

Question put, That the clause be read a Second time:-

The House divided: Ayes 169, Noes 213.

Division No. 121] [8.48 pm
AYES
Archer, Rt Hon Peter Benn, Rt Hon Tony
Ashdown, Paddy Bennett, A. (Dent'n & Red'sh)
Ashley, Rt Hon Jack Bermingham, Gerald
Atkinson, N. (Tottenham) Bidwell, Sydney
Bagier, Gordon A. T. Blair, Anthony
Barnett, Guy Boothroyd, Miss Betty
Beckett, Mrs Margaret Boyes, Roland
Beith, A. J. Bray, Dr Jeremy
Bell, Stuart Brown, Gordon (D'f'mline E)
Brown, Hugh D. (Provan) Litherland, Robert
Brown, N. (N'c'tle-u-Tyne E) Livsey, Richard
Brown, Ron (E'burgh, Leith) Lloyd, Tony (Stretford)
Bruce, Malcolm McCartney, Hugh
Buchan, Norman McKay, Allen (Penistone)
Caborn, Richard McKelvey, William
Callaghan, Jim (Heyw'd & M) McNamara, Kevin
Campbell, Ian McTaggart, Robert
Campbell-Savours, Dale McWilliam, John
Cartwright, John Madden, Max
Clark, Dr David (S Shields) Marek, Dr John
Clarke, Thomas Marshall, David (Shettleston)
Clay, Robert Martin, Michael
Clelland, David Gordon Mason, Rt Hon Roy
Clwyd, Mrs Ann Maxton, John
Cocks, Rt Hon M. (Bristol S) Maynard, Miss Joan
Cohen, Harry Meacher, Michael
Cook, Frank (Stockton North) Meadowcroft, Michael
Corbett, Robin Michie, William
Corbyn, Jeremy Mikardo, Ian
Craigen, J. M. Millan, Rt Hon Bruce
Crowther, Stan Miller, Dr M. S. (E Kilbride)
Cunliffe, Lawrence Mitchell, Austin (G't Grimsby)
Dalyell, Tam Morris, Rt Hon A. (W'shawe)
Davies, Rt Hon Denzil (L'lli) Morris, Rt Hon J. (Aberavon)
Davies, Ronald (Caerphilly) Nellist, David
Davis, Terry (B'ham, H'ge H'l) O'Neill, Martin
Deakins, Eric Park, George
Dewar, Donald Parry, Robert
Dixon, Donald Patchett, Terry
Dormand, Jack Pavitt, Laurie
Douglas, Dick Pike, Peter
Duffy, A. E. P. Powell, Raymond (Ogmore)
Eadie, Alex Prescott, John
Eastham, Ken Radice, Giles
Edwards, Bob (W'h'mpt'n SE) Randall, Stuart
Evans, John (St. Helens N) Redmond, Martin
Ewing, Harry Rees, Rt Hon M. (Leeds S)
Fatchett, Derek Richardson, Ms Jo
Faulds, Andrew Roberts, Allan (Bootle)
Field, Frank (Birkenhead) Robertson, George
Fields, T. (L'pool Broad Gn) Robinson, G. (Coventry NW)
Fisher, Mark Rogers, Allan
Flannery, Martin Rooker, J. W.
Foot, Rt Hon Michael Ross, Ernest (Dundee W)
Forrester, John Sedgemore, Brian
Foster, Derek Sheerman, Barry
Foulkes, George Sheldon, Rt Hon R.
Fraser, J. (Norwood) Shore, Rt Hon Peter
Freeson, Rt Hon Reginald Short, Ms Clare (Ladywood)
George, Bruce Short, Mrs R.(W'hampt'n NE)
Gilbert, Rt Hon Dr John Silkin, Rt Hon J.
Godman, Dr Norman Skinner, Dennis
Golding, John Smith, Rt Hon J. (M'ds E)
Gould, Bryan Snape, Peter
Gourlay, Harry Soley, Clive
Hamilton, W. W. (Fife Central) Stott, Roger
Hancock, Michael Strang, Gavin
Harman, Ms Harriet Thomas, Dafydd (Merioneth)
Hart, Rt Hon Dame Judith Thomas, Dr R. (Carmarthen)
Haynes, Frank Thompson, J. (Wansbeck)
Hogg, N. (C'nauld & Kilsyth) Thorne, Stan (Preston)
Home Robertson, John Tinn, James
Howell, Rt Hon D. (S'heath) Torney, Tom
Howells, Geraint Wallace, James
Hoyle, Douglas Wardell, Gareth (Gower)
Hughes, Robert (Aberdeen N) Wareing, Robert
Hughes, Roy (Newport East) Weetch, Ken
Hughes, Sean (Knowsley S) White, James
John, Brynmor Wigley, Dafydd
Kaufman, Rt Hon Gerald Wilson, Gordon
Kennedy, Charles Winnick, David
Kilroy-Silk, Robert Young, David (Bolton SE)
Kirkwood, Archy
Lambie, David Tellers for the Ayes:
Lamond, James Mr. Allen Adams and
Leighton, Ronald Mr. James Hamilton.
Lewis, Terence (Worsley)
NOES
Ancram, Michael Jones, Gwilym (Cardiff N)
Ashby, David Jones, Robert (Herts W)
Atkins, Robert (South Ribble) Jopling, Rt Hon Michael
Beaumont-Dark, Anthony Joseph, Rt Hon Sir Keith
Best, Keith Kellett-Bowman, Mrs Elaine
Biggs-Davison, Sir John Key, Robert
Body, Sir Richard King, Roger (B'ham N'field)
Boscawen, Hon Robert Knight, Greg (Derby N)
Bowden, Gerald (Dulwich) Knight, Dame Jill (Edgbaston)
Brinton, Tim Knowles, Michael
Buchanan-Smith, Rt Hon A. Lamont, Norman
Burt, Alistair Lang, Ian
Carlisle, John (Luton N) Latham, Michael
Chapman, Sydney Lee, John (Pendle)
Chope, Christopher Leigh, Edward (Gainsbor'gh)
Clark, Sir W. (Croydon S) Lennox-Boyd, Hon Mark
Cockeram, Eric Lester, Jim
Coombs, Simon Lewis, Sir Kenneth (Stamf'd)
Cope, John Lilley, Peter
Couchman, James Lloyd, Peter (Fareham)
Cranborne, Viscount Lord, Michael
Currie, Mrs Edwina Luce, Rt Hon Richard
Dorrell, Stephen McCrindle, Robert
Douglas-Hamilton, Lord J. McCurley, Mrs Anna
Durant, Tony MacKay, Andrew (Berkshire)
Eyre, Sir Reginald MacKay, John (Argyll & Bute)
Fairbairn, Nicholas McNair-Wilson, M. (N'bury)
Favell, Anthony McNair-Wilson, P. (New F'st)
Fenner, Mrs Peggy Madel, David
Fletcher, Alexander Major, John
Fookes, Miss Janet Malins, Humfrey
Forth, Eric Malone, Gerald
Fox, Marcus Marlow, Antony
Franks, Cecil Maude, Hon Francis
Fraser, Peter (Angus East) Mawhinney, Dr Brian
Freeman, Roger Mayhew, Sir Patrick
Fry, Peter Merchant, Piers
Galley, Roy Meyer, Sir Anthony
Gardiner, George (Reigate) Miller, Hal (B'grove)
Gardner, Sir Edward (Fylde) Mills, Iain (Meriden)
Garel-Jones, Tristan Moate, Roger
Goodlad, Alastair Monro, Sir Hector
Gorst, John Montgomery, Sir Fergus
Gow, Ian Moore, Rt Hon John
Gower, Sir Raymond Morrison, Hon C. (Devizes)
Grant, Sir Anthony Morrison, Hon P. (Chester)
Gregory, Conal Mudd, David
Griffiths, Sir Eldon Neale, Gerrard
Griffiths, Peter (Portsm'th N) Nelson, Anthony
Grist, Ian Newton, Tony
Ground, Patrick Nicholls, Patrick
Hamilton, Hon A. (Epsom) Onslow, Cranley
Hamilton, Neil (Tatton) Oppenheim, Phillip
Hampson, Dr Keith Oppenheim, Rt Hon Mrs S.
Hanley, Jeremy Ottaway, Richard
Hannam, John Page, Richard (Herts SW)
Hargreaves, Kenneth Parkinson, Rt Hon Cecil
Harris, David Parris, Matthew
Harvey, Robert Patten, Christopher (Bath)
Haselhurst, Alan Pawsey, James
Hawkins, C. (High Peak) Pollock, Alexander
Hawksley, Warren Porter, Barry
Hayes, J. Powell, William (Corby)
Hayhoe, Rt Hon Barney Rowley, John
Heathcoat-Amory, David Prentice, Rt Hon Reg
Heddle, John Price, Sir David
Henderson, Barry Proctor, K. Harvey
Hickmet, Richard Rathbone, Tim
Hill, James Renton, Tim
Hind, Kenneth Rhodes James, Robert
Hogg, Hon Douglas (Gr'th'm) Rhys Williams, Sir Brandon
Holland, Sir Philip (Gedling) Ridley, Rt Hon Nicholas
Holt, Richard Roberts, Wyn (Conwy)
Hordern, Sir Peter Robinson, Mark (N'port W)
Howarth, Alan (Stratf'd-on-A) Roe, Mrs Marion
Howell, Rt Hon D. (G'Idford) Rossi, Sir Hugh
Howell, Ralph (Norfolk, N) Rowe, Andrew
Hubbard-Miles, Peter Rumbold, Mrs Angela
Jessel, Toby Ryder, Richard
Sackville, Hon Thomas Townend, John (Bridlington)
Shaw, Giles (Pudsey) Townsend, Cyril D. (B'heath)
Shaw, Sir Michael (Scarb') Trippier, David
Shelton, William (Streatham) Twinn, Dr Ian
Shepherd, Colin (Hereford) van Straubenzee, SirW.
Shepherd, Richard (Aldridge) Waddington, David
Shersby, Michael Walden, George
Silvester, Fred Walker, Bill (T'side N)
Sims, Roger Wall, Sir Patrick
Skeet, Sir Trevor Waller, Gary
Soames, Hon Nicholas Ward, John
Spencer, Derek Wardle, C. (Bexhill)
Spicer, Jim (Dorset W) Warren, Kenneth
Spicer, Michael (S Worcs) Watts, John
Stanbrook, Ivor Wells, Bowen (Hertford)
Stanley, Rt Hon John Wells, Sir John (Maidstone)
Steen, Anthony Wheeler, John
Stern, Michael Whitfield, John
Stevens, Lewis (Nuneaton) Whitney, Raymond
Stewart, Allan (Eastwood) Wilkinson, John
Stewart, Andrew (Sherwood) Winterton, Nicholas
Stewart, Ian (Hertf'dshire N) Wolfson, Mark
Stokes, John Wood, Timothy
Sumberg, David Woodcock, Michael
Taylor, John (Solihull) Yeo, Tim
Taylor, Teddy (S'end E)
Terlezki, Stefan Tellers for the Noes:
Thompson, Patrick (N'ich N) Mr. Michael Neubert and
Thornton, Malcolm Mr. Donald Thompson.
Thurnham, Peter

Question accordingly negatived.

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