§ Mr. GouldI beg to move amendment No. 24, in page 2, line 16, leave out from 'by' to end of line 19 and insert
'an amount equal to the accumulated historical cost losses on vesting day, thereby extinguishing those losses.'.
§ Mr. Deputy Speaker (Sir Paul Dean)With this it will be convenient to take the following amendments: No. 3, in page 2, line 16, after 'amount', insert
'not exceeding 10 per cent. of the total'.No. 25, in page 2, line 38, at end add—`(5) The Secretary of State shall direct that a public investment reserve be created of an amount equal to the reduction of public dividend capital under subsection (1) above which—
- (a) so long as it exists, ranks for dividends on the same basis as an equivalent nominal amount of share capital in the successor company which is held by the Secretary of State; and
970 - (b) may be extinguished at any time by payment by the successor company to the Secretary of State of the then current market value of the equivalent nominal value of the share capital so extinguished'.
No. 6, in page 5, line 6, leave out '("the statutory reserve")' and insert
'which shall be known as the British Steel Investment Reserve and used exclusively for the purposes of investment in new plant and training.'.No. 7, in page 5, line 7, leave out subsections (2) to (4).
No. 26, in page 5, line 7, leave out from 'reserve' to end of line 23 and insert
'shall rank for dividends on the same basis as an equivalent nominal amount of share capital in the successor company which is held by the Secretary of State.(2a) The statutory reserve may be extinguished at any time by payment by the successor company to the Secretary of State of the then current market value of the equivalent nominal value of the share capital so extinguished'.No. 28, in page 5, line 14, leave out from 'applied' to end of line 16 and insert
'to investment in plant or capacity or to sustain plants threatened with closure.'.
§ Mr. GouldThe amendments bear upon clauses 2, 3 and 7 which are, in many respects, at the heart of the Bill. The Bill is, of course, principally concerned with the capital restructuring of the British Steel Corporation so that it can be prepared for privatisation and its assets and liabilities vested in the successor company in such a way as to comply with companies legislation.
A way must be found of taking over a corporation that has accumulated considerable losses and has, accordingly, drawn substantially on taxpayers' financial support. That is essentially the problem faced by the Government, and it causes us great concern. We must find a way of taking account of that and of writing off a good deal of the indebtedness and losses so that the assets and liabilities can be put in a proper form to comply with company legislation.
However, the Government appear to be trying to draw a line at the point where the corporation ceased to make losses and moved into profit and to provide that, until that point, those losses were the taxpayers' responsibility, but that after that point, any profits should be available to the new private owners. We are concerned about that aspect and wish to quiz Ministers about it.
We are assured that none of this involves any subsidy of any sort. One understands exactly why that firm protestation should be made. Apart from any anxiety that might arise on this side, it would undoubtedly create slight difficulties with the EEC Commission if there were thought to be any element of subsidy. We are also told that there is no gift to the new private owners and no loss to the taxpayers. Ministers have made this clear on several occasions. Whenever these issues were debated in Committee, they have given us exactly those assurances.
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The Government have gone further than that in the valuable and welcome notes on clauses. In respect of clause 2, for example, the notes say that this is "solely an accounting transaction". Another passage states that there is
no forgiveness of debt or other liabilities.The guidance notes on clause 7 say:The provision does not have the effect of giving money to the successor company.In picking out these remarks in the guidance notes, I do not mean to be churlish. They are extremely welcome and 971 valuable, and we are grateful to the Government for providing them. I hope that nothing I say will deter their production in future. But are these statements to be taken exactly at face value?It is not surprising that some sensitivity on this issue is displayed by the fact that these notes specifically took up these points and tried to give assurances. It is worth trying to unravel exactly what has happened to the financial structure of the British Steel Corporation and what the Bill proposes to do to change it. For reasons that are well understood, BSC traded at a loss over a long period. I would argue that this was for reasons that were at least primarily the responsibility of mistaken economic policies, not least to do with the exchange rate introduced by the Government in the early 1980s. Taxpayers were required, for good reason, to stump up a good deal of money to keep this vital British industry afloat.
It was decided by the Government that the provision of that financial support should not take the form of an ordinary loan or some other form of repayable capital sum on which dividends or interest should be paid, but should be public dividend capital. In principle, even that public dividend capital, as its title suggests, should have produced a dividend for taxpayers. But as we established in Committee, except for an early period, in practical terms no dividend or other payment has ever been made to taxpayers.
Perhaps the Minister would confirm that the public dividend capital totals more than £4 billion. It is worth adverting to a point that I raised on a couple of occasions in Committee, but which the Minister failed to answer. It is that no payment of any sort and no interest or dividend has been paid on that public dividend capital. That has strongly influenced the corporation's profitability over that period and today. When considering the future profitability of the corporation we must take into account the fact that the cost-free public dividend capital will not be available to the private owners.
Does the Minister agree that the benefit to the corporation and the disadvantage to the future operation of the successor company could be quantified? It should be possible to make a calculation according to the then prevailing commercial interest rates—let us set aside the question of dividends and assume that the money was made available on ordinary commercial terms—of how much that dividend capital was worth year by year to the corporation, and its impact on the much touted level of profitability, on the basis of which the industry is now being offered for sale.
We well understand that the level of profitability is the key to the price that the Government think they can achieve on the market. Clearly, they are basing their calculations on a projected level of profitability of about £400 million per annum. If that figure is to be written down to take account of the cost of the capital—the borrowing— which has not been taken into account, that will substantially affect what the Government could expect to receive in the market place. I hope that today the Minister can enlighten us on what that figure might represent, because it tells us a great deal about the price which might be expected.
It is the taxpayers' misfortune that the Government decided that taxpayers should make that £4 billion contribution not in the guise of the ordinary creditor who could expect to be repaid—not only the capital sum but some return on the loan—but as public dividend capital.
972 Because of that, the taxpayer finds himself in a similar position to that of the equity holder. That is the closest analogy that I can draw. It is on that basis that the Government have treated public dividend capital when they have tried to subsume the corporation within the ordinary private sector company.
Under clause 2, about hall the sum that taxpayers have paid—we are simply assuming a sum of £4 billion and I hope that the Minister can confirm its general accuracy—is simply to be written off to cover the accumulated losses that have been chalked up. As the guidance notes make clear, that is essential, if the corporation is to be privatised, to meet the Companies Acts requirement that a company cannot be floated if the assets do not match or exceed its capital and undistributable reserve. That may be a good argument from the Government's viewpoint. It would be impossible to privatise the corporation if the write-off did not take place. But that is not of much comfort to taxpayers, half of whose money is written off, and it begs the question whether privatisation is a necessary and desirable step.
The Minister will then say, "Don't get too agitated about this because this is a perfectly normal transaction. It is purely an accounting procedure which a private company can do and it is specifically provided for in section 135 of the Companies Acts." But there are various safeguards for a private sector company operating under section 135. This must be provided for in the articles of association, and there must be a special resolution, and authorisation by the courts. The reason for all those safeguards is that the write-off, at least potentially, prejudices the interests of several people, not least the potential creditors of the company.
Other than introducing this legislation and refusing to go into any detail of by way of explanation, have the Government taken any steps which would be equivalent to the formal and substantial steps which a private sector company would have to take to satisfy a court that this was a proper procedure? What consultations have been held, for example, with potential creditors? Because taxpayers are not technically in the position of creditors, they have the misfortune of not being regarded as creditors. They could well have been so regarded. They find that £2 billion of investment loan has simply disappeared. We want the Minister to answer those questions.
The next step in the proceedings outlined in the Bill is that the remaining public dividend capital, having been reduced by about half, is extinguished. Any liability to the Secretary of State is extinguished. Under clause 3, part of it is converted into securities, which are then offered for sale. Under clause 7, the balance passes to a statutory reserve. The guidance notes are again helpful on the meaning of the procedure. They point out that the statutory reserve provided for by clause 7 is meant to act as a substitute for what, in the case of a private sector company, would be a share premium account. As there is unlikely to be any share premium, the statutory reserve is provided to fulfil that role.
The difficulty for the Government is that the Companies Acts treat the share premium account in a special way—as being available only for certain purposes. That is right, and one understands why that should be so. The money in the share premium account is limited to particular purposes, such as the writing off of unrealised losses. Will the Minister estimate to what extent the money 973 which will pass to the statutory reserve will be devoted to that purpose? Will he also estimate what proportion of the extinguished public dividend capital will end up in the statutory reserve? It is difficult to debate the issues without indications from Ministers as to what figures should be put to the various categories into which the public dividend capital will fall.
Let us go back to the equivalent of the share premium account. If the ordinary company rules were to apply to the share premium account, and if in essence it were regarded as undistributable, this would not meet the Government's book. As we know, the Government are anxious to present the books and the balance sheet of the corporation, and therefore of the successor company, in the most favourable light so as to emphasise the potential profitability of the successor company.
If the money were to be tied up in a statutory reserve and were not distributable, it would dampen the ardour, one assumes, of those who might want to get their hands on it. Therefore, it is provided by clause 7(2)(b)—this is the provision which the Minister has to defend—that the Secretary of State may direct that some part of the statutory reserves
may be applied as if it were profits available for distribution".I am by no means an expert but, as far as I am aware, the Secretary of State is thereby taking a power which is not available in similar circumstances in a private sector company. Therefore, the argument that this is merely a technical adjustment or an accounting procedure which is exactly equivalent to that of a private sector company falls down at this point.I do not believe the Government claim that this is normal procedure. They claim that it represents the past profitability of the corporation and argue that if it had been a private company, it could have passed those profits to a reserve which would have been distributable. This merely makes our case that the Government are intent on drawing a line at the point at which the corporation became profitable and that their real purpose is to ensure that the losses are the responsibility of the public sector owner but the profits, as soon as they arise, will be money on which future private owners can get their hands. That is the essence of what the Government propose.
Under clause 7(3), the power of the Secretary of State to make the direction is limited to the period in which the ownership of the successor company remains in the hands of the Crown. It is clear that the provision would not be in the Bill if the Secretary of State did not intend to make such a direction. I want the Minister to confirm that any direction that is thereby made will have consequences for the successor company. The disposition of capital into securities on the one hand and into the statutory reserve on the other, and the direction as to what part of the statutory reserve will be distributed, will be decided before the successor company is floated. Will the Minister confirm that that position will be inherited by the new private owners of the successor company, and that any sums which are declared to be distributable by a direction of the Secretary of State will remain distributable in the hands of the private owners?
If that is so, notwithstanding all the technical arguments, we have a magical process by which a substantial sum of taxpayers' money, totalling over £4 974 billion, which stands as a debt owed by the corporation to the taxpayer, is converted, at least in part. into profits available to private owners. That is a remarkable procedure whereby debt owed to one group of people is transformed by the stroke of a pen into profits available to another group. It must be a wonderful feeling for people to have the law operating so benevolently and for them to be able to say that there is nothing unusual about it and that it just happens to enable them to get their hands on hundreds of millions of profit. Will the Minister confirm that that is the general effect of what is proposed in the Bill?
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There is a further objection to what is proposed. Not only does it do the taxpayer down and provide, in a sense, false profitability as a bait to private owners, but it is a reversion to the bad old days of private ownership in the steel industry when dividends were paid not out of trading profits but out of capital, and time after time the private owners bled the industry dry, ate the seed corn and paid dividends out of money which was desperately needed for reinvestment.
The Government are laying down the guidelines whereby that process is to be renewed even before private ownership takes effect. Once again we see private ownership in the steel industry being encouraged to take its profits and dividends out of money that has been accumulated as capital and ought to be used for investment. We understand why the Government have been compelled to do this. The unseemly haste with which they tabled the legislation, for reasons which have yet to be properly explained, means that the Government have had to bring the industry to the market without a proper track record of profits. That is why they have had to make the peculiar arrangement whereby there is a built-in substitute for profitability. That substitute is the ability to lay hands on capital which was provided in the past by the taxpayer.
That is unsatisfactory and an unfortunate indicator of the future of the industry under private ownership. Ministers can confirm that the industry requires substantial investment for the foreseeable future if it is to maintain its competitiveness. The best estimate of the required investment is about £300 million per annum. That investment will be required year in, year out, in good times and in bad, in an industry which is essentially cyclical, for all the reasons which we debated at length in Committee.
If the Government are already not only permitting but encouraging private owners to pay themselves dividends out of capital, we can have little confidence that there is any long-term intention on the part of Government or of the new private owners to make the essential investment. Not only is the financial and capital restructuring a fraud on the taxpayer and a hidden gift to the new private owners, but we fear that it points the way to an uncertain future for the industry. That is why we have tabled amendments to clauses 2 and 7, which are designed at least in part to try to curb the excesses that the Government intend to permit.
Our amendments will introduce a greater rigour in the degree to which capital can be written down. As provided by clause 2(1), there is less discretion for the amount by which the public dividend capital can be reduced. We have provided by our amendments Nos. 24 and 3 limits which will at least impose some discipline on the extent to which that writing down will take place. In the case of 975 amendment No. 24, they are limits which will, at least in part, enable the Government, even within the context of privatization—which we oppose—to meet the requirements of the Companies Acts.
We have a second group of amendments which will retain for the taxpayer some interest in the future profits of the steel industry, if any profits are made, and some possibility of being repaid for the very substantial investment that the taxpayer has made. That is the purpose of amendments Nos. 25 and 26.
The next group of amendments ensures that the capital which passes to the statutory reserve is retained, not to pay dividends from day one to private owners who have not done anything to earn them, but for investment in essential plant and equipment, which are important to the industry's future. That is the purpose of amendments Nos. 6, 7 and 28.
I hope that the Minister will take these amendments seriously and will answer my questions in detail. Further, I hope that he will satisfy us that our fears about the irresponsibility of the Government in these matters are misplaced. I doubt that he can do that, but we shall listen with interest to what he has to say.
In conclusion, our objections are to that essential "short-termism" which characterises all that the Government do for our industrial future. First, it is the Government who take a short-term view. They are so concerned to get shot of an industry at the best possible price that they are prepared to jeopardise its future by the way in which they restructure its capital. By giving this open invitation to the new private owners to rip off what remains of the taxpayer-provided capital, the Government are selling the industry in circumstances which are the least favourable to its proper and secure future.
Secondly, there is the "short-termism" that we have seen before from the private owners in the steel industry and elsewhere. That is the "short-termism" which is now made possible, and indeed encouraged, by the Bill, and will encourage private owners to pay themselves dividends before they consider the investment that is needed to secure employment and output in the interests of the national economy. That is why we regard these amendments as important and the provisions of this bad Bill as unsatisfactory.
§ Mr. CryerI want to speak especially to amendments Nos. 28 and 6. Amendment No. 6 provides for the statutory reserve to be used exclusively for the purposes of investment in new plant and training. Amendment No. 28 says that money may be applied.
to investment in plant or capacity or to sustain plants threatened with closure.Those two items are essential, beccause we are talking about privatising an industry which since 1979 has lost 134,000 jobs. Privatisation will be carried out by this Government on the backs of 134.000 people who are walking the streets, having mainly been sacrificed on the altar of the Government's economic policy of selling off our assets at knockdown prices. Those assets have been provided by the taxpayer for unlimited distribution in the way that my hon. Friend the Member for Dagenham (Mr. Gould) described.I want to draw attention to the problems of the steel industry and the way in which these two amendments will provide for training and the sustenance of plants threatened with closure. They are important because of the 976 steel industry's failure to provide training payments. As the Minister may know, I am also a member of the Common Market assembly. Some people call it a parliament, but I never give it much credit. I prefer to use the more accurate description of consultative assembly. In that capacity, I have come across a number of cases where former members of the steel industry are being retrained through a less than adequate scheme. These two amendments will ensure that, however the steel industry develops, it will make provisions for retraining within its own revenue sources rather than relying on external ones. There is a retraining scheme that is designed to train redundant steel workers for new jobs elsewhere.
The Department of Trade and Industry likes to pretend that it is the sole arbiter of the iron and steel employee redundancy benefit scheme, which is called ISERBS for short. However, the truth is that it is not. The decision whether money shall be applied from the Common Market for retraining is not a decision of the Ministers, of the House, or of civil servants. It is a decision for a Commissioner. The Commissioner in this instance is Commissioner Marin.
Nine ex-employees of Eaton and Booth in Sheffield have been waiting for a decision from the commissioner for 12 months. I wrote to the commissioner and begged him to give a decision which was confidently anticipated by the Department of Trade and Industry. I received a reply from the commissioner on 28 March stating:
The demand for readaptation aid under Art. 56 as a result of accelerated restructuring in both the coal and steel industries of the European Community had by the end of 1987 outstripped the available budget. Since the Council refused to make more funds available and bearing in mind the prospect of even lower budgetary resources in the future the Commission has been obliged to carry out a realignment of its strategy with respect to its readaptation commitments.The complex process of realignment is being carried out as rapidly as possible and I will shortly be informing the UK government of the allocations to be made in respect of their outstanding readaptation requests.The people who were the subject of those readaptation requests have been on retraining courses on the promise of readaptation payments being made. At the time of that letter they had been waiting for 10 months. They have now been on the course for over 12 months with the promise of finance. However, that finance is being held up by the commission.The Minister, who is a Member for one of the Ribble Valley constituencies—he has moved about a bit since he was elected for Preston. so I cannot pinpoint him precisely.
§ Mr. AtkinsSouth Ribble.
§ Mr. CryerThe Minister said to me in a letter of 11 May:
I regret that the position has not changed since my letter of 30 April. My officials are still continuing to press the Commission for early decisions on the application for aid being held, but to date no progress has been made. As soon as the Commission do approve the applications for aid ISERB Scheme payments will be authorised.He concludes with the assurance that the people mentioned in his letter will be paid first. So they should be.Those amendments would help to deal with the position where civil servants and elected representatives have been entreating the Commission to make the payments, and where Ministers also, as I understand it, have been making representations to the Commission to make those payments, yet no payments have been made. That has gone on month after month. It enrages me because these 977 people have been made redundant from the steel industry, and in good faith have attended courses, yet month after month their home economies are devastated. They have to borrow money to sustain their existence. Meanwhile, some overpaid bureaucrat in Brussels is withholding his decision and keeping these ordinary people in suspense and penury. That is not good enough.
I hope that the Minister can accept the amendments in the belief that it is necessary for the future that the Government have some insulation against the machinations of the Commission. I believe that that Commissioner is using those workers as pawns in the negotiations over the budget. That is a rotten and foul thing to do, but that is the conclusion that one reaches because of the implications of the Commissioner's letter to me.
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If the Minister cannot accept the amendments, I hope that he will say that, if the Commission will not pay, or continues to procrastinate as it has done for over 12 months, his Department will make the funds available to take those workers and their families—the innocent victims—out of the financial doldrums that they are in due to the machinations of that wastrel in the Common Market—Commissioner Marin. If the Minister has any sense, he will consider the amendments carefully because the industry needs better protection than it has obtained so far—both when in the private sector before nationalisation and under the protection that the Common Market is alleged to give it.
Time after time, Commissioners and, indeed, Ministers in this House, cosily claim that the Commission's ISERBS payments protect steel workers when there is readaptation and rationalisation. Those words hide the grim reality of managers making decisions which put people on the dole. It is not adequate simply to rely on the Commission to provide support, because its words mean nothing. The cases that I have mentioned apply not only to Sheffield, but to Rotherham and south Wales. Alpha Steels is a case in point.
The Minister should consider the amendments seriously so that in the future the Government have some right of independent action. The Minister is sitting at the Dispatch Box absolutely powerless. He is a pawn in the hands of the Commission. I regret that, because I would far rather be able to press the Minister for a decision, but at the moment he is powerless to give one. The amendments go some way towards redressing that terrible imbalance that the steel workers face.
§ Mr. Barry JonesLike my hon. Friend the Member for Bradford, South (Mr. Cryer), I rise to speak in support of amendment No. 6. I have recently had the honour of giving fifth-year high school leavers their record of achievement. That is an enlarged report on the last years of their school life. In meeting those excellent and hopeful young men and women, I have been struck by the large number who have opted to join the armed services. In conversation, it has become clear that they are enlisting because they will then have the most thorough apprenticeship grounding. There is no doubt that there is a shortage of apprenticeships locally on Deeside, throughout Wales and, I suspect throughout the United 978 Kingdom. That is partly the reason why those young men and women are seeking to join the armed forces on leaving school.
As the House knows, since 1979 the industrial training boards have, by and large, been swept away and apprenticeships have declined as unemployment has risen. That cannot be good for Britain's prospects for the 21st century. We should invest more and more in training and apprenticeships. The investment reserve that we propose in our amendments could help Britain's economic future.
Clause 7 is the financial heart of the Bill. It is the mechanism whereby the public dividend capital is done away with. In arguing for a British Steel investment reserve, we are urging the Government to recognise that steel is a strategic industry, which is vital for Britain's economic and military future. It is Britain's foundation industry. Without it, we have no reliable manufacturing base and an impaired defence capability.
I want to speak briefly to amendment No. 6 regarding the need to spend more money from our proposed investment reserve on improved and enlarged training. The background is that in the 1980s Britain has lost nearly 2 million manufacturing jobs. As my hon. Friend the Member for Bradford, South has said, steel has suffered greatly. We lost as an industry in the great jobs shake-out of the 1980s. At BSC Shotton in my constituency, we lost 8,000 jobs in just three months. We lost our steel-making capability.
The attention given to training and to providing apprenticeships declined, not unnaturally, during what was an industrial emergency. Before the major cuts in steel jobs and the large closure programme, virtually every British steelworks ran large, successful apprentice schools. That was certainly the case in my constituency. The standards of those apprentice schools were high and the places were much sought after. Any young man or young woman in receipt of such an apprenticeship knew that the world was his or her oyster if the course was completed. 1 want us to attempt to return to that position in at least some degree.
When parents visit my surgeries to seek help in placing their teenage children in work, they always mention apprenticeships. The apprentices' schools in our steelworks at Shotton had a high reputation and there was heavy demand for its many places. Today there is huge competition for apprenticeship places at a steelworks such as Shotton or the nearby Aerospace factory. Hundreds apply for the dozens or for fewer than dozens of places and many young people are disappointed. That is a blow to the morale of young school leavers and to their families.
I fear that, when a sustained upsurge in demand occurs in manufacturing generally, and in steel in particular—I hope that that upsurge is ahead—we shall be short of the required skills. Amendment No. 6 will help Britain's future. I do not want the steel industry to be caught short. I should like the British Steel investment reserve to be set up and its funds directed to training in particular.
In today's world economic climate—in a climate of collapse and speculation and black Mondays—an enlarged and skilled work force in steel will be a priceless asset. The BSC's management and labour have recently been spectacularly successful in productivity and manning. They should now have the reassurance of knowing that they can carry enlarged apprenticeship schools at individual plants. Each steel plant and its surrounding 979 travel-to-work area could then have at its disposal a reservoir of recently trained potential labour. That is what I should like to see in my own area of Deeside.
Quick profits and enlarged dividends can be the enemy of thorough high-class training. That is one of the dangers inherent in these privatisation proposals. Training is not only for school leavers. It can be for the existing work force also.
I should like the Secretary of State for Wales to set up an economic planning council in Wales, which would enable trade unions, employers and Government agencies to work together to establish a strategy for economic recovery. At the top of the agenda for such a council, I should like education and training to be writ large. Perhaps the British Steel investment reserve could play an important part in such a steel industry and in that industry's training opportunities. That is why I support this batch of amendments.
§ Dr. ReidI take as my starting point the comment made by the Under-Secretary of State during the debate on the previous group of amendments. It seems that he is suffering from the misapprehension that Opposition Members always regard profit as a dirty word, even when it is applied to the steel industry. Profit, profitability and productivity are not dirty words to us. It is as well to make that clear at the outset.
Opposition Members are pleased that Britain has a healthy, profitable and productive steel industry. We draw strength from and take pride in the fact that in the first two months of 1988 Scotland produced 46,700 tonnes of usable steel, compared with only 32,700 tonnes in the first two months of 1987. We are pleased that the weekly national output in February was in excess of 388,000 tonnes, the highest that has been achieved by the industry in many years. We are pleased that that is not far short, when projected, of the 21.5 million tonnes for which we have argued for Britain. The average weekly output for February would amount to 19.75 million tonnes for the year.
§ Mr. Rhodri Morgan (Cardiff, West)In a leap year?
§ Dr. ReidIt would be slightly more in a leap year.
We are pleased that profits and productivity have risen in the British Steel Corporation, and we take this opportunity to express that pleasure and pay tribute to the management and workers who have made the achievement possible.
That leads me to the amendments. All the signs confirm that the taxpayers' sacrifice over many years has been worth while. The signs confirm that the faith of the taxpayers in the industry has been well and truly vindicated. As that faith has been shown and as those sacrifices have been made over so many years, and now that we have a profitable industry, surely this should be the time to repay the taxpayers and to reward their sacrifices.
What do we find instead of repayment and reward for the British people? We find contained in the Bill what my hon. Friend the Member for Dagenham (Mr. Gould) has described as a magic formula. My hon. Friend is a man of extensive vocabulary but moderate language. This afternoon he has pushed to the fullest extent both his vocabulary and his moderation in referring to the financial clauses as a magic formula.
In Motherwell we have a simpler word that is picked from a less extensive vocabulary. That word is swindle. 980 The reality is that the sell-off of the corporation is the greatest con trick ever played on the British taxpayer. To paraphrase a cliche, never, even under this Government, have so many been swindled out of so much by so few with such little talent.
Ministers, who have crowed constantly of value for money for taxpayers, have been prepared to write off millions of pounds of taxpayers' money to float the corporation. The Government, who boast constantly cif creating a share-owning democracy, have resolved to write down the taxpayers' public dividend capital to less than half its value to sell off the corporation to City institutions. Having written off the losses, the Government, who proclaim their aim to be a policy of fair taxation, will allow the already written-off losses to be offset against future profits in a tax bonanza for the new City shareholders of our steel industry.
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The privatisation of British Steel in its present form is a political scandal and a financial swindle. That is why the Opposition have tabled the amendments. The primary purpose of the amendments is the protection of those whom all of us in this House are supposed primarily to represent—the taxpayers. Secondly, they are aimed at the long-term protection of the steel industry, albeit in private hands.
The amendments tackle the financial heart of the Bill, which contains a mechanism whereby the public dividend capital, as outlined by my hon. Friend the Member for Dagenham and others—it has financed the corporation since the mid-1970s—is to be extinguished and replaced by a share issue which, together with the new statutory reserve, will have the equivalent value. The mechanism will allow the new company to pay out of the reserve. To be technically correct, the statutory reserve will act as the platform and the justification for the payment of dividends to shareholders in future.
The amendments seek in various ways to preserve the new company's capital and to divert the reserves for use as investment and to finance training and the refurbishment of old plants that will become necessary if recapitalisation and reinvestment is to be commensurate with the demands of a continuing and thriving steel industry.
The amendments seek to protect taxpayers by transferring to the new company some consideration of the financial support that they have provided for many years to the corporation. It is amazing how little interest exists in the Bill for taxpayers, especially when we think of the huge debt that British Steel owes them. We have become familiar since Second Reading and our debates in Committee with the Government's tendency to deny access to the flow of financial information to Committee members and to the public generally. This has been justified under the cloak of commercial confidentiality. For whatever reason, the flow of information on financial matters has, to say the least, been stemmed by the Government. The same can be said of the financial implications for the taxpayer and the write-off of debt.
We have been forced to look slightly further than the Government for academic support for our arguments. One of the best studies—it was referred to in Committee and it appears to have been ignored by the Government—is that which was undertaken by Bell, Findley and Oughton of the department of political economy of Glasgow university. The report states that British Steel's existing debt takes 981 two forms. The first form is public dividend capital, which has been defined as the aggregate of sums paid, or treated as paid, to the corporation under section 18 of the Iron and Steel Act 1982. This debt amounts to £3,980 million. The second form is the corporation's accumulated losses, which amounted by 1987—the last financial year—to £1,023 million.
The Government maintain that the capital restructuring under this Bill involves no writing off of debt. Once again, the old magic formula plucked from the extensive vocabulary of my hon. Friend the Member for Dagenham could be applied to the Government's position. The Government insist that there is no writing-off of debt, which may be true according to the letter of the law but which is certainly not true according to the spirit of any possible definition of the writing-off of debt.
We understand why the Government must be economic with the financial truth in these circumstances. We understand why they cannot admit to the House or to institutions outside it—perhaps on the other side of the Channel—that no debt has been written off. However, in economic terms and in the spirit of any reasonable definition of what constitutes the writing off of debt, large resources have been invested in British Steel throughout the 1970s and during the lifetime of the Government, and those resources are not to be returned to those who invested them in the first place.
This leads me to the point that the Minister made about profits. I said during discussion of the previous group of amendments that, unskilled as I am in economic theory, my simple understanding of profit was always that profits were the return to investors on the capital they had invested. We are now left with a generation of profits that will clearly not be returned to the people who made the investment in the first place—the great British public.
To disguise this sleight of hand, the Government argue that no debt will be written off under the Bill. But we contend, as we did on Second Reading and in Committee, that the massive subsidy given to the British Steel Corporation by taxpayers in recent years will not be repaid. Furthermore, we maintain that that subsidy may be written off by the Government's sleight of hand. They may pretend that it has disappeared through a hole in the floor of the stock exchange or of the House, but any ordinary non-skilled non-economist taxpayer will ask why, when profits have been generated after millions were invested, he is receiving no return from the now profitable corporation.
It would help those of my hon. Friends who are as unskilled as I and who cannot countenance discussing these matters with the Minister's advisers if we considered the economic base of the British Steel Corporation as consisting of four shares, each valued at £1 billion. The Bill gives the Government the right to transfer those shares into ordinary equities which can then be traded in the same way as those of any publicly quoted company. The difficulty would arise when the equities were sold and the Government were forced under the Companies Act to set the nominal value of the shares at the sale issue price of the time of flotation.
Let us suppose that the shares were valued by the market, as we have been led to believe they will be, at about £2 billion, which represents a price-earnings ratio of 982 eight, which we believe would be necessary to attract investment from prospective shareholders who were unfamiliar with the industry. There would be a clear discrepancy between the value of the public dividend capital and the sale value of the company.
That would mean that the market value of the taxpayers' investment was expressed at half its worth. That is how the subsidy to the British Steel Corporation will come about—not through the technical writing-off of debt but through the halving of the capital asset paid back to the taxpayers.
This is not a bagatelle or mere financial trifle. We are dealing, if future projections are correct, with about £2 billion of taxpayers' money, which will be written off by this mechanism. It will not be a publicly declared writing-off; it will be a halving of the share capital invested in the company.
One further complication adds salt to the taxpayers' financial wounds. As has been said, the difference between the value of the public dividend capital and the sale value, which we expect to be about half of the public dividend capital, is to be put into what is called a statutory reserve. Subsequently, that statutory reserve could be used either to write off unrealised losses or to be distributed as profits, with the permission of the Treasury, to pay up unissued shares of the company. Not only is the public dividend of the company halved, therefore, but once halved, the half that mysteriously disappears is then used as the justification to pay out profits in future, not to the taxpayer who has invested and already lost, but to the new shareholders who have already purchased and reaped the benefits of the write-down in the dividend capital.
If someone with even the most extensive vocabulary could find a phrase other than "financial scandal" to describe this, I should be grateful to hear it. The company will be compensated; the taxpayer will not. That is the first reason why we tabled the amendments. The accumulated losses of the company have been met by the taxpayer but they still exist on the corporation's balance sheet. They are to be treated as a one-off reduction in the capital base of the company or as an equivalent reduction in the public dividend capital.
It is argued that the amount of capital shown on the balance sheet will more truly reflect the net assets of the company. Let us suppose that the value of that company is £2 billion and that the public dividend capital is reduced to £3 billion after the accumulated losses are deducted. That would leave £1 billion to be entered into the statutory reserve, which could be used subsequently to generate liquidity for the company or to justify the pay-out of profits.
This outline shows the need for the amendments. Such a scheme, in any other circumstances, would be regarded as nothing less than a rip-off of the taxpayer. Is it fair? Would it be fair under any circumstances? Would it be fair in this context? Would it be fair in the context of a political world that increasingly demands attention for the small investor? Why should we raise a hue and cry when some City slicker gets involved in a massive fraud, but refuse to raise one because the slicker happens to sit around the Cabinet table?
We have spent some time considering how this rip-off—let us give Cabinet Ministers the benefit of the doubt and say it is an unconscious rip-off—of the taxpayer will take place. Now it is worth reminding ourselves of the extent of the burden that the taxpayer has borne under this 983 Government since 1979. It is evident from all the figures available in the published material that until relatively recently the taxpayer has gone without dividends. The corporation has not paid one since 1975. The taxpayer has borne the heavy losses since the Conservatives came to office in 1979. Even allowing for the £400 million profit, about which we are all pleased and constantly told in the new advertisements that have appeared on television, which feature a shareholder working out in the morning and gloating over the prospect of increasing his BSC shares in the afternoon, there has been a loss to the taxpayer of almost £4.5 billion since 1979–80.
The Prime Minister constantly speaks about taxpayers, and the Chancellor directs his attention to them—yet on this occasion they are to be cast aside, willingly and knowingly, because that suits the Government's purpose of channelling money from BSC into City investors. Those who bore the brunt of the subsidy to the BSC during the downturn in the market and the brunt of rationalisation in the steel industry are to receive nothing.
We have always supported investment in the British steel industry on the precondition that, if taxpayers pay for investment, capitalisation and rationalisation, bear the brunt of redundancy payments and support losses during the lean years, when the fat years arrive they will receive some of the fat. That is the least that any reasonable Government should do. The Bill ensures that taxpayers will be cast aside just as the fat years are beginning to arrive.
The Government cannot abandon their responsibility. They must maintain a degree of fairness. They used to argue that taxpayers wanted rid of the responsibility of the steel industry, but it is noticeable that that argument is no longer employed. The argument apparently applies only when the taxpayers suffer a loss. Ministers claim until they are blue in the face that when the British steel industry was making a loss taxpayers wanted to lose the British Steel Corporation and get rid of the need to subsidise it. Nowadays no one believes a Minister who says that the British taxpayer wants rid of a healthy, profitable steel industry and does not want in any circumstances to receive some repayment for his investment.
6 pm
Taxpayers deserve something better in return for their commitment and investment. The British Steel Corporation would have gone bankrupt twice, once in the mid-70s and once in 1979–80, if it had not been for taxpayers' support at a time when the demand for steel in a notoriously cyclical industry fell by about 50 per cent. For years, taxpayers have subsidised the industry and will receive no return on their investment. Common sense, public interest, decency and fairness demand that they do. The purpose of the amendments is to rectify the Bill and they should be supported by any hon. Member who shares that feeling of common sense, public interest and fairness to the taxpayer.
§ Dr. Jeremy Bray (Motherwell, South)My hon. Friends have spoken about the massive giveaway in this privatisation. Such giveaways took place in previous privatisations and will take place in the biggest jumbo of them all—the privatisation of the electricity supply industry. It is a scandal of such outrageous proportions 984 that it will go down in history as financial swindling by the Government of the British people and will for eyer blight the name of the Conservative party.
The country's assets are being sold at knockdown prices and that will obviously create problems for future Governments. People have been given wealth—assets for which they have not paid the proper price. They have acquired taxable capacity and the only possible course for future Governments is to tax those people and take that wealth away from them. The Government are ensuring higher future levels of taxation, not only under Labour Governments but under Conservative Governments. Income tax will be higher and there will certainly be a wealth tax, because to create a reasonable balance, future Governments—even a Conservative Government—will have to make good the swindling that has taken place under this Government.
Another problem involves the viability of the financial structure that the Government are creating in the Bill for the British Steel Corporation. The treatment of past losses and the window dressing that has been carried out in recent years and which will continue to be carried out to prepare for privatisation have been well covered by my hon. Friends. How will the corporation survive with the financial structure that it is to be given?
One would normally look at current cost accounts in order to assess prospects. Page 43 of the BSC accounts contains the notes to the current cost accounts and, contrary to normal accounting practice, the assets are valued at historic cost. That means that, if plant built a long time ago cost £1 million at that time, it would cost £2 million or £3 million to build today because we have to allow for inflation. Assets are valued at current cost to make sure that the value of the business is being preserved and that future depreciation is directly provided for.
The figure of £1,928 million used for tangible fixed assets and recorded in the historic cost accounts is the same as that in the current accounts. Had the assets been revalued in accordance with proper accounting practice the figure would have been £3,294 million—higher by £1,366 million. Additional depreciation of £132 million a year should be charged on that in the current cost accounts. That means that, effectively, the current cost profits are being overstated by £132 million.
That was picked up by the auditors and used to qualify the accounts. On page 23, the auditors say that in their opinion the historic cost accounts give a true and fair view of the state of affairs of the corporation, and that the accounts have been prepared to comply with the requirements of the Iron and Steel Act 1982 and the directions of the Secretary of State. On pages 42 and 43, the auditors, speaking about the current cost accounts that give the present picture, merely record that the accounts have been properly prepared in accordance with the policies and methods described in the notes thereto. The accounts do not purport to be true and fair or to have been prepared by any accounting standards other than those described in the notes.
To justify that, the corporation says that its utilisation continues to be significantly below the installed capacity. That means that it has left out of the current cost valuation of its fixed assets items such as the big blast furnace a t Llanwern, the unused BOS vessel capacity at Port Talbot and so on. Effectively, the BSC has been stashing away plant for future use, and that plant has not been fully reported in the accounts. That may be a smart thing to do 985 and it may kid the investors when they read about the levels of recorded profits and apply the appropriate ratios. But the chickens will come home to roost in the long term when it becomes evident that the corporation has not been investing and will not in future invest adequately to maintain the value of its business.
The consequence of that will not be immediately evident. For some years, the continuation of such policies will enable the corporation to report artificially high profits. That will only store up trouble for the future when the corporation begins to be seen to have failed to invest at the levels required to maintain the value of the business, the security of employment of the steel workers and an adequate supply of steel for British industry. It is not a very smart move by the corporation or Ministers in the Department of Trade and Industry and it will be added to the other squalid moves by which the Government have applied their industrial and economic policies.
§ The Minister of State, Scottish Office (Mr. Ian Lang)We have had an interesting debate. The hon. Member for Dagenham (Mr. Gould), who is not in his place but no doubt may return, approached these issues in a more realistic, balanced and comprehending way than did some of his colleagues. I agree that clauses 2, 3 and 7 go to the heart of the Bill. I do not accept his suggestion that the Government are drawing a line from the time of profitability and that profits made thereafter will be made available to the new owners. That is not what we are about. We are preparing BSC for privatisation and are doing so against the background of a dramatic improvement in its results, leading to its move into profitability, without which privatisation would not have been easy to contemplate.
I welcome the recognition from the hon. Member for Dagenham, if not from some of his hon. Friends, that what we are proposing does not include any writing off of debt or any measure of subsidy. I welcome the hon. Member back to his place. He will be glad to know that I have been agreeing with some of the things he has said.
The debate has covered ground that will be familiar to members of the Standing Committee. The issues raised were discussed at great length in Committee on a number of occasions, but it might be helpful if I start by outlining briefly the operation of those parts of the Bill to which the amendments relate. I shall try to deal with most of the points that have been raised.
Clause I provides that all the property rights and liabilities of the corporation will be vested in a successor company. The successor company will inherit all the corporation's undertakings, both assets and liabilities. After vesting has taken place, on a day appointed by order by the Secretary of State—that is, "appointed day"—British Steel will be a plc that is wholly owned by the Government. The successor company will require a capital structure compatible with the requirements of the Companies Act 1985, and clauses 2, 3 and 7 provide for that capital structure.
The hon. Member for Dagenham identified as the starting point for our structural provisions the public dividend capital, and asked me to confirm the figure. As he will know, it is in BSC's accounts, and is shown as £3.98 billion at the end of the year 1986–87. He implied that the 986 development of public dividend capital was a recent phenomenon, but it has its antecedents in the 1978 White Paper of the Labour Government.
The hon. Gentleman asked a question that he had already asked in Committee. I know that he had difficulties in Committee because he tended to ask a question and then leave the room because he was busy not so much in restructuring the steel industry as in restructuring his party's nationalisation policy—or rather, renaming it. At one time it was known as social ownership, which I characterised as being an upwardly mobile form of nationalisation or yuppie nationalisation, but I understand that that, too, has been dropped and the hon. Gentleman has had to go back to the drawing board.
The hon. Gentleman asked me a hypothetical question about the extent to which BSC might have paid dividends or interest on its capital in the past. Althought it is possible to make theoretical calculations, it is not helpful to do so, and it does not enhance the discussion about the successor company structure. The BSC did not pay dividends because it had no retained earnings with which to do so. It did not pay interest on its capital because it was not interest-bearing.
It is self-evident that, as the hon. Gentleman suggested, if interest or dividends had been paid, BSC's losses would have been correspondingly greater. One might speculate on what might have flowed from that; the return to profitability that we are seeing might have been that much more dramatic. The Labour Government recognised that had BSC been interest and dividend-bearing, its losses would have been correspondingly greater, and they did so in 1969, when they allowed BSC to convert £700 million into equity; and again in 1978, with the change from the national loans fund to the Exchequer capital funding and section 18 capital. We do not achieve very much by jobbing backwards in this way.
§ Mr. GouldIf the Minister is unwilling to give the House such information, does he at least foresee that he may be required to meet an obligation to potential private investors? Presumably, he, or someone on his behalf, will have to make some statement on the subject in the prospectus when it is eventually published.
§ Mr. LangPotential investors will be presented with a prospectus and with all the appropriate and necessary details, but I do not see it as part of the compilation of a prospectus to answer questions relating to events that did not occur and speculating what might have happened if they had occurred.
Under clause 2(1), BSC's captial will be reduced, by an amount directed by the Secretary of State, to extinguish an amount of accumulated realised losses. The purpose of the capital reduction is to eliminate the deficit on its profit and loss account. The deficit is not a debt. I cannot stress that strongly enough. The corporation does not owe this money to anyone—it is simply a record of past trading losses. It reflects the erosion of the original capital base of the company through those trading losses. It is open to any Companies Act company to go to court and apply for a reduction of its capital to eliminate its accumulated losses. The BSC is unable to do this because of its status as a corporation. Therefore, we propose to proceed through 987 the Bill. It is not going to the court as a private company, but we are enabling it to happen through the High Court of Parliament.
The amount of the capital shown in the balance sheet, will, following the capital reduction, better reflect the value of the net assets. It will not change the value—there is no subsidy involved. Under clause 2(3), the capital remaining after the reduction will be extinguished and replaced by shares or other securities issued to the Secretary of State or the Treasury under clause 3. No loss of taxpayers' money is involved in this process. The Secretary of State remains the sole owner of British Steel, which will be worth the same as a plc as it was a corporation.
The hon. Member for Motherwell, North (Dr. Reid) raised an issue that he and I have already debated in Committee. He suggested that the reduction in capital would create benefits for the company, but not for the taxpayer. Even on the basis on which he puts that case, he seems to forget that the taxpayer owns the company. If he were right about the value accruing from the reduction in capital, it would accrue to the taxpayer at the time of the sale. As I have explained to him, the value of the company is unaffected by the restructuring exercise because the reduction is on both sides of the balance sheet. The reduction in public dividend capital is matched by an equal reduction in accumulated losses, so the net value is unchanged.
§ Dr. ReidI know that I have raised this point before, but does not the Minister recognise that it is not as easy as saying that this is just like a restructuring which can be carried out under the Companies Act? The difference is that, when a restructuring is carried out under the Companies Act, those who owned the company before the restructuring are almost always those who own it after the restructuring. Therefore, they gain any benefit. In this case, the people who own the company before the restructuring—the taxpayers—will not be those who own the company after the restructuring. It will be owned by the private investors. Therefore, the people who gain the benefits of the restructuring are different from the people who subsidised the losses before restructuring.
§ Mr. LangNo, the hon. Gentleman is wrong. The taxpayer owns the BSC and the taxpayer will own the public limited company that will be created by the restructuring. It is at the time of flotation that investors will place a value on the company and they will bid for it. The value that they place on it will take account of the condition of the company's balance sheet.
The statutory reserve that is provided for under clause 7 will be the balancing item between the total nominal value of the shares and other securities issued to the Secretary of State or the Treasury, and the amount of the public capital extinguished. It is common practice in these circumstances for the sale price of shares to be greater than their nominal value, and the reserve partly reflects that difference, but it is essentially required to ensure that the balance sheet balances.
Private sector companies generally have a mixture of share and loan capital and reserves. The process of restructuring the balance sheet of the corporation is complementary to the vesting provisions of the Bill. Instead of a nationalised corporation funded by public 988 dividend capital, the successor company will be a Companies Act company with capital and reserves, like other Companies Act companies.
Amendments Nos. 3 and .24 seek to limit the capital reduction under clause 2 to a particular amount. That would not be acceptable to the Government, because, as I have explained, a limited company may, by a special resolution of its shareholders confirmed by the court, reduce its capital in any way, including a reduction to eliminate its trading losses. The provisions of clause 2(1) are equivalent to that procedure, which is not open to the BSC because it is not a limited company.
The reduction will result in the writing off of an equal amount of accumulated realised losses from the balance sheet so that the capital more accurately represents the net assets. I must stress that there is no magic formula or mystery in that arrangement. It corresponds fully with the Companies Act 1985 and is purely a balance sheet transaction. It is required to ensure that the successor company can be registered as a plc and be able to pay dividends.
We have not yet decided the capital structure of the successor company, and it would be premature to seek to take such decisions until the issues can be fully considered in the light of the BSC's audited accounts for the present year. The principle and purpose of the capital reduction are, however, clear and will be carried out entirely within the scope of existing company law.
Amendments Nos. 6, 7 and 28 are concerned with the statutory reserve created under clause 7. I am sorry to say that amendments Nos. 6 and 28 are based on a fundamental misunderstanding of the nature of the statutory reserve that I explained. It was debated fully in Committee, and I hope that I have clarified it in this debate. A normal private sector company's balance sheet contains a mix of capital and reserves.
Clause 7 provides for the creation of a reserve, called the statutory reserve. It will be equal to the difference between the nominal value of the securities issued to the Secretary of State under clause 3, and the amount of public dividend capital extinguished under clause 2. The nominal value of the securities issued under clause 3 will necessarily be less than the amount of capital extinguished—that is, the amount of capital after its reduction under clause 2(1). That is because a company cannot issue shares at a discount and, therefore, in order to have the ability to raise new capital at any future time, the market price of its shares needs to exceed their nominal value.
The statutory reserve is similar to a share premium account, in that it may be applied in issuing fully paid bonus shares to its members. It may also be applied, however, to the extent that the Secretary of State directs, in writing off unrealised losses arising from a revaluation of the successor company's fixed assets, and as a distributable reserve. As I said in Committee, it has not yet been decided whether any revaluation will be undertaken, but if it is, it is not expected that there will be any material change to the basis on which British Steel's fixed assets are recorded.
I was asked about the proportion and the amount of a revaluation. It is unlikely that the revaluation would have any material effect on BSC's total asset values. Any revaluation will have to be conducted by professional valuers and assess the value of all the company's fixed 989 assets to conform with section 275 of the Companies Act 1985 if it is to lead to an unrealised loss that subsequently can be written off against the statutory reserve.
§ Dr. BrayThere is a note in the accounts to which I referred, saying
As their utilisationof assetscontinues to be significantly below installed capacity, the Corporation considers that it would be premature to anticipate that more than this value will be so recovered.In view of the very big increase in capacity utilisation during the past year, is the Minister saying that that will not be taken into account in the annual report this year?
§ Mr. LangIt has not yet been decided whether there will be a revaluation, but if there were to be a revaluation, it would not materially change the figures that are recorded in the balance sheet.
§ Dr. BrayIn that case, is the Minister saying that he does not expect the huge increase in capacity utilisation that has taken place in the past year, which has brought extra capacity into use and has not been included in the accounts, to be taken into account? Is he saying that the accounts will not take account of that? If so, he is saying that the books have been rigged.
§ Mr. LangI am not saying that; nor am I suggesting that the books have been rigged. I take this opportunity to correct the hon. Gentleman, who seemed to imply, if I understood him correctly—I shall read his words tomorrow—that the auditors have qualified the accounts of the BSC. That is not the case. The note that he read out was a clear and unqualified assessment of the company's account on an historic cost basis. In addition, a separate supplementary note within the accounts gave an historic cost basis.
It is normal for private sector companies to have both distributable—revenue—and undistributable—capital—reserves. Any revenue reserve authorised under clause 7 will reflect the profits that the corporation has earned in recent years, with the result that the successor company's balance sheet is a more accurate depiction of the present position of the business. I should stress that the creation of reserves has no effect on the cash position of the company; the company receives no money from the Government. It is simply a matter of bringing the historical financial record, as shown in the balance sheet, up to date.
Amendment No. 7 would delete subsections (2) to (4) of clause 7. These subsections define the uses to which the statutory reserve may be put, and which I have just described. It is normal practice for the functions of a statutory reserve to be defined by statute, so the subsections are necessary.
The provision that the Secretary of State may direct, under subsection 2(b), that a specified amount of the reserve may be treated as if it were profits available for distribution is not the same as giving cash to British Steel. Most companies have a revenue reserve, which is a book-keeping record of accumulated realised profits. British Steel is now profitable and would have been able to credit its profit to a revenue reserve had it been able to apply to the court before now—as a private sector company certainly would have done—to reduce its capital, thereby eliminating its accumulated realised losses.
990 The BSC has not been able to do that because of its status as a public corporation. Its recent profits have therefore been set off against its accumulated realised losses. The Bill provides that the Secretary of State may direct that a part of the statutory reserve may be applied as if it were profits available for distribution. The successor company may thus be provided with a revenue reserve which reflects the company's recent profitability and therefore its true trading position. This is not a cash transaction; no money is being given to the company and no subsidy is involved.
Amendments Nos. 6 and 28, to which the hon. Members for Bradford, South (Mr. Cryer) and for Alyn and Deeside (Mr. Jones) referred, provide for the statutory reserve to be used for investing in new capacity and training or to prevent plant closures. As I have said, the amendments are based on a fundamental misunderstanding of the nature of the statutory reserve. It is simply an accounting entry. It is not a pool of cash or a treasure trove that can be used in the ways that the hon. Gentlemen suggested. The successor company will have to generate profits to invest in new plant and equipment, as I am sure it will, and as the BSC does now. The investment policy of the privatised company must, in any case, be a matter for the company and not for the Government.
§ Mr. CryerI was making the point that there are now problems through the non-payment of ISERBS payments by the Commission, and that it would be desirable for any new venture to be insulated against that. Will the Minister turn his mind to that and assure the House that he and his ministerial colleagues—one of them has had correspondence with me—will continue to press the Commission and bear in mind the desirability of that contingency being avoided in future?
§ Mr. LangAlthough the hon. Gentleman's comments did not relate directly to the purpose of the statutory reserve, I intended to say that I have noted what he said about the need for help from the Commission for training and retraining purposes. One need only think back to earlier steel closures in the constituency of my hon. Friend the Member for Corby (Mr. Powell) to reflect on what can be achieved and what has been achieved. I know that my hon. Friend the Under-Secretary of State for Industry is taking a close interest in this matter and will have heard what the hon. Gentleman said.
On amendments Nos. 25 and 26, it is clearly incorrect for Opposition Members to state that the public money paid to the BSC should he regarded as some form of debt to the taxpayer. The provisions in the Bill lead to no loss of taxpayers' money. The amendments are thus based on a complete misinterpretation of the position. It is wrong to assume that the BSC can somehow be valued solely in relation to the capital shown in its balance sheet. That is a book-keeping figure. A company's worth is a matter not of balance sheet arithmetic, but rather of its performance and prospects. I suggest that privatisation will provide a better return to the taxpayer than many years of dividend payments.
The amendments are also unworkable. The hon. Member for Dagenham accused the Government of being too concerned with dividends and not enough with investments, but the amendments would land the successor 991 company with such a potentially crippling dividend burden that it would be unable to invest adequately in new plant and equipment for its future.
What we have in mind in the proposals in the Bill is not, to use the phrase of the hon. Member for Dagenham, short-termism. The restructuring is not, as the hon. Member said, a fraud on the taxpayer; still less is it, as the hon. Member for Motherwell, North suggested, a swindle. It is a proposal to put the corporation on all fours with a Companies Act company. It reflects the recent trading position of the British Steel Corporation. It enables it to have a fair chance of a successful future, which I believe is in the best interests of the taxpayer and the industry. I urge the House to reject the amendments.
§ Mr. GouldWhen I moved the amendment, I posed a number of questions to the Minister about the capital restructuring provided for in the Bill. I asked him how much, in his estimation, had been saved by the non-payment of any dividend or interest on public dividend capital. He declined to answer that. I then asked how much of the public dividend capital would be written down. I asked what safeguards would be provided in the absence of the proceeding, on which he places great reliance, that would have been followed in the case of a private sector company where application to the court would be necessary. I asked him how much of the extinguished public dividend capital would be passed to the statutory reserve. I asked how much of that sum would be directed under clause 7(2)(b) to be deemed to be distributable. I asked whether that direction would apply to the successor company.
We did not receive an answer to any of those questions, except, by implication, to the last, and there it was made clear—it is clear in the Bill—that any direction that the Secretary of State makes under that provision—it is intended to make such a direction—will inure to the benefit of the new private owners.
In the light of the absence of answers and of the suspicions that we have about the purpose and effect of the capital restructuring, we are satisfied that what is proposed is not fair to the taxpayer and does not point the successor company in the appropriate direction. In other words, it encourages emphasis to be placed on the payment of dividends as a priority over and above the need for investment. We believe that that is the wrong direction for the British steel industry to take. For those reasons, we are extremely disappointed that the Government have not moved in the direction of the amendments and we intend to vote in support of them.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 210, Noes 249.
994| Division No. 311] | [6.32 pm |
| AYES | |
| Abbott, Ms Diane | Barron, Kevin |
| Allen, Graham | Battle, John |
| Alton, David | Beckett, Margaret |
| Anderson, Donald | Beith, A. J. |
| Archer, Rt Hon Peter | Bell, Stuart |
| Armstrong, Hilary | Benn, Rt Hon Tony |
| Ashdown, Paddy | Bermingham, Gerald |
| Ashley, Rt Hon Jack | Blair, Tony |
| Ashton, Joe | Blunkett, David |
| Banks, Tony (Newham NW) | Boateng, Paul |
| Barnes, Harry (Derbyshire NE) | Boyes, Roland |
| Barnes, Mrs Rosie (Greenwich) | Bradley, Keith |
| Bray, Dr Jeremy | Howell, Rt Hon D. (S'heath) |
| Brown, Gordon (D'mline E) | Howells, Geraint |
| Brown, Nicholas (Newcastle E) | Hoyle, Doug |
| Bruce, Malcolm (Gordon) | Hughes, John (Coventry NE) |
| Buchan, Norman | Hughes, Robert (Aberdeen N) |
| Buckley, George J. | Hughes, Roy (Newport E) |
| Caborn, Richard | Hughes, Sean (Knowsley S) |
| Campbell, Menzies (Fife NE) | Hughes, Simon (Southwark) |
| Campbell, Ron (Blyth Valley) | illlsley, Eric |
| Campbell-Savours, D. N. | Janner, Greville |
| Canavan, Dennis | John, Brynmor |
| Carlile, Alex (Mont'g) | Jones, Barry (Alyn & Deeside) |
| Cartwright, John | Jones, leuan (Ynys MÔn) |
| Clark, Dr David (S Shields) | Jones, Martyn (Clwyd S W) |
| Clarke, Tom (Monklands W) | Kaufman, Rt Hon Gerald |
| Clay, Bob | Kennedy, Charles |
| Clelland, David | Kinnock, Rt Hon Neil |
| Clwyd, Mrs Ann | Kirkwood, Archy |
| Cohen, Harry | l.ambie, David |
| Coleman, Donald | Leadbitter, Ted |
| Cook, Frank (Stockton N) | I.estor, Joan (Eccles) |
| Cook, Robin (Livingston) | Lewis, Terry |
| Corbett, Robin | Livsey, Richard |
| Corbyn, Jeremy | Lloyd, Tony (Stretford) |
| Cousins, Jim | Loyden, Eddie |
| Cox, Tom | McAllion, John |
| Crowther, Stan | McAvoy, Thomas |
| Cryer, Bob | McCartney, Ian |
| Cummings, John | McFall, John |
| Cunliffe, Lawrence | McKay, Allen (Barnsley West) |
| Dalyell, Tarn | McKelvey, William |
| Darling, Alistair | McLeish, Henry |
| Davies, Rt Hon Denzil (Llanelli) | Maclennan, Robert |
| Davies, Ron (Caerphilly) | McTaggart, Bob |
| Dewar, Donald | Madden, Max |
| Dixon, Don | Marek, Dr John |
| Dobson, Frank | Marshall, Jim (Leicester S) |
| Doran, Frank | Martin, Michael J. (Springburn) |
| Douglas, Dick | Martlew, Eric |
| Dunnachie, Jimmy | Maxton, John |
| Dunwoody, Hon Mrs Gwyneth | Meale, Alan' |
| Eadie, Alexander | Michael, Alun |
| Eastham, Ken | Michie, Bill (Sheffield Heeley) |
| Ewing, Harry (Falkirk E) | Michie, Mrs Ray (Arg'l & Bute) |
| Ewing, Mrs Margaret (Moray) | Millan, Rt Hon Bruce |
| Fatchett, Derek | Moonie, Dr Lewis |
| Faulds, Andrew | Morgan, Rhodri |
| Fearn, Ronald | Morley, Elliott |
| Fields, Terry (L'pool B G'n) | Morris, Rt Hon A. (W'shawe) |
| Fisher, Mark | Morris, Rt Hon J. (Aberavon) |
| Flannery, Martin | Mowlam, Marjorie |
| Flynn, Paul | Mullin, Chris |
| Foot, Rt Hon Michael | Murphy, Paul |
| Foster, Derek | Nellist, Dave |
| Foulkes, George | O'Neill, Martin |
| Fraser, John | Orme, Rt Hon Stanley |
| Galbraith, Sam | Owen, Rt Hon Dr David |
| Galloway, George | Parry, Robert |
| Garrett, John (Norwich South) | Patchett, Terry |
| Garrett, Ted (Wallsend) | Pendry, Tom |
| Gilbert, Rt Hon Dr John | Pike, Peter L. |
| Godman, Dr Norman A. | Powell, Ray (Ogmore) |
| Golding, Mrs Llin | Radice, Giles |
| Gordon, Mildred | Randall, Stuart |
| Gould, Bryan | Redmond, Martin |
| Graham, Thomas | Rees, Rt Hon Merlyn |
| Grant, Bernie (Tottenham) | Reid, Dr John |
| Griffiths, Nigel (Edinburgh S) | Richardson, Jo |
| Grocott, Bruce | Roberts, Allan (Bootle) |
| Hardy, Peter | Rogers, Allan |
| Hattersley, Rt Hon Roy | Rooker, Jeff |
| Haynes, Frank | Ruddock, Joan |
| Healey, Rt Hon Denis | Sedgemore, Brian |
| Heffer, Eric S. | Sheerman, Barry |
| Henderson, Doug | Sheldon, Rt Hon Robert |
| Hogg, N. (C'nauld & Kilsyth) | Short, Clare |
| Holland, Stuart | Skinner, Dennis |
| Home Robertson, John | Smith, Andrew (Oxford E) |
| Hood, Jimmy | Smith, C. (Isl'ton & F'bury) |
| Howarth, George (Knowsley N) | Smith, Rt Hon J. (Monk'ds E) |
| Soley, Clive | Wareing, Robert N. |
| Spearing, Nigel | Welsh, Andrew (Angus E) |
| Steel, Rt Hon David | Welsh, Michael (Doncaster N) |
| Steinberg, Gerry | Wigley, Dafydd |
| Stott, Roger | Williams, Rt Hon Alan |
| Strang, Gavin | Williams, Alan W. (Carm'then) |
| Straw, Jack | Wilson, Brian |
| Taylor, Mrs Ann (Dewsbury) | Winnick, David |
| Taylor, Matthew (Truro) | Worthington, Tony |
| Thomas, Dr Dafydd Elis | Wray, Jimmy |
| Thompson, Jack (Wansbeck) | Young, David (Bolton SE) |
| Vaz, Keith | |
| Wall, Pat | Tellers for the Ayes: |
| Wallace, James | Mr. Allen Adams and |
| Walley, Joan | Mr. Adam Ingram. |
| NOES | |
| Adley, Robert | Cran, James |
| Aitken, Jonathan | Currie, Mrs Edwina |
| Alexander, Richard | Davis, David (Boothferry) |
| Alison, Rt Hon Michael | Day, Stephen |
| Allason, Rupert | Devlin, Tim |
| Amess, David | Dickens, Geoffrey |
| Amos, Alan | Douglas-Hamilton, Lord James |
| Arbuthnot, James | Dover, Den |
| Arnold, Jacques (Gravesham) | Dunn, Bob |
| Arnold, Tom (Hazel Grove) | Durant, Tony |
| Ashby, David | Evans, David (Welwyn Hatf'd) |
| Atkins, Robert | Evennett, David |
| Atkinson, David | Fallon, Michael |
| Baker, Nicholas (Dorset N) | Farr, Sir John |
| Baldry, Tony | Fenner, Dame Peggy |
| Banks, Robert (Harrogate) | Field, Barry (Isle of Wight) |
| Batiste, Spencer | Fookes, Miss Janet |
| Beaumont-Dark, Anthony | Forsyth, Michael (Stirling) |
| Bellingham, Henry | Forth, Eric |
| Bendall, Vivian | Fowler, Rt Hon Norman |
| Bennett, Nicholas (Pembroke) | Fox, Sir Marcus |
| Benyon, W. | Franks, Cecil |
| Bifien, Rt Hon John | Freeman, Roger |
| Biggs-Davison, Sir John | French, Douglas |
| Blackburn, Dr John G. | Gale, Roger |
| Blaker, Rt Hon Sir Peter | Gardiner, George |
| Bonsor, Sir Nicholas | Garel-Jones, Tristan |
| Boscawen, Hon Robert | Gill, Christopher |
| Boswell, Tim | Goodhart, Sir Philip |
| Bottomley, Mrs Virginia | Goodlad, Alastair |
| Bowden, A (Brighton K'pto'n) | Goodson-Wickes, Dr Charles |
| Bowden, Gerald (Dulwich) | Gorman, Mrs Teresa |
| Bowis, John | Gorst, John |
| Boyson, Rt Hon Dr Sir Rhodes | Gow, Ian |
| Braine, Rt Hon Sir Bernard | Gower, Sir Raymond |
| Brandon-Bravo, Martin | Greenway, Harry (Ealing N) |
| Brazier, Julian | Greenway, John (Ryedale) |
| Brittan, Rt Hon Leon | Gregory, Conal |
| Brooke, Rt Hon Peter | Griffiths, Peter (Portsmouth N) |
| Brown, Michael (Brigg & Cl't's) | Grist, Ian |
| Browne, John (Winchester) | Ground, Patrick |
| Bruce, Ian (Dorset South) | Gummer, Rt Hon John Selwyn |
| Buchanan-Smith, Rt Hon Alick | Hamilton, Hon Archie (Epsom) |
| Budgen, Nicholas | Hampson, Dr Keith |
| Burns, Simon | Hannam, John |
| Butcher, John | Hargreaves, A. (B'ham H'll Gr') |
| Butler, Chris | Hargreaves, Ken (Hyndburn) |
| Butterfill, John | Harris, David |
| Carlisle, John, (Luton N) | Haselhurst, Alan |
| Carlisle, Kenneth (Lincoln) | Hawkins, Christopher |
| Carrington, Matthew | Hayes, Jerry |
| Carttiss, Michael | Heathcoat-Amory, David |
| Chapman, Sydney | Heddle, John |
| Chope, Christopher | Heseltine, Rt Hon Michael |
| Churchill, Mr | Hicks, Mrs Maureen (Wolv' NE) |
| Clark, Sir W. (Croydon S) | Hicks, Robert (Cornwall SE) |
| Clarke, Rt Hon K. (Rushclitte) | Higgins, Rt Hon Terence L. |
| Colvin, Michael | Hill, James |
| Conway, Derek | Hogg, Hon Douglas (Gr'th'm) |
| Coombs, Anthony (Wyre F'rest) | Howard, Michael |
| Coombs, Simon (Swindon) | Howarth, G. (Cannock & B'wd) |
| Cope, John | Howell, Ralph (North Norfolk) |
| Couchman, James | Hughes, Robert G. (Harrow W) |
| Hunt, David (Wirral W) | Onslow, Rt Hon Cranley |
| Hunt, John (Ravensbourne) | Oppenheim, Phillip |
| Hunter, Andrew | Page, Richard |
| Irvine, Michael | Paice, James |
| Irving, Charles | Patnick, Irvine |
| Jack, Michael | Patten, Chris (Bath) |
| Jackson, Robert | Patten, John (Oxford W) |
| Janman, Tim | Pattie, Rt Hon Sir Geoffrey |
| Jessel, Toby | Pawsey, James |
| Johnson Smith, Sir Geoffrey | Peacock, Mrs Elizabeth |
| Jones, Gwilym (Cardiff N) | Porter, Barry (Wirral S) |
| Jones, Robert B (Herts W) | Porter, David (Waveney) |
| Jopling, Rt Hon Michael | Portillo, Michael |
| Kellett-Bowman, Dame Elaine | Powell, William (Corby) |
| Key, Robert | Raffan, Keith |
| Kilfedder, James | Raison, Rt Hon Timothy |
| Kirkhope, Timothy | Rathbone, Tim |
| Knapman, Roger | Redwood, John |
| Knight, Greg (Derby North) | Renton, Tim |
| Knight, Dame Jill (Edgbaston) | Rhodes James, Robert |
| Knowles, Michael | Ridsdale, Sir Julian |
| Knox, David | Rifkind, Rt Hon Malcolm |
| Lang, Ian | Roe, Mrs Marion |
| Lawrence, Ivan | Rossi, Sir Hugh |
| Lee, John (Pendle) | Rost, Peter |
| Lennox-Boyd, Hon Mark | Rowe, Andrew |
| Lightbown, David | Rumbold, Mrs Angela |
| Lilley, Peter | Sackville, Hon Tom |
| Lloyd, Peter (Fareham) | Sainsbury, Hon Tim |
| Lord, Michael | Shaw, David (Dover) |
| McCrindle, Robert | Shaw, Sir Michael (Scarb') |
| Macfarlane, Sir Neil | Shelton, William (Streatham) |
| Maclean, David | Shephard, Mrs G. (Norfolk SW) |
| McLoughlin, Patrick | Shepherd, Richard (Aldridge) |
| McNair-Wilson, M. (Newbury) | Sims, Roger |
| McNair-Wilson, P. (New Forest) | Smith, Tim (Beaconsfield) |
| Madel, David | Soames, Hon Nicholas |
| Major, Rt Hon John | Speller, Tony |
| Malins, Humfrey | Spicer, Michael (S Worcs) |
| Mans, Keith | Squire, Robin |
| Maples, John | Stanbrook, Ivor |
| Marlow, Tony | Stern, Michael |
| Marshall, Michael (Arundel) | Stevens, Lewis |
| Martin, David (Portsmouth S) | Stradling Thomas, Sir John |
| Mates, Michael | Summerson, Hugo |
| Maxwell-Hyslop, Robin | Taylor, John M (Solihull) |
| Mayhew, Rt Hon Sir Patrick | Taylor, Teddy (S'end E) |
| Meyer, Sir Anthony | Thorne, Neil |
| Mills, lain | Thornton, Malcolm |
| Miscampbell, Norman | Townend, John (Bridlington) |
| Mitchell, Andrew (Gedling) | Townsend, Cyril D. (B'heath) |
| Moate, Roger | Trotter, Neville |
| Monro, Sir Hector | Waddington, Rt Hon David |
| Montgomery, Sir Fergus | Waldegrave, Hon William |
| Moore, Rt Hon John | Walters, Dennis |
| Moss, Malcolm | Wheeler, John |
| Moynihan, Hon Colin | Widdecombe, Ann |
| Mudd, David | Wilshire, David |
| Nelson, Anthony | Wood, Timothy |
| Neubert, Michael | Young, Sir George (Acton) |
| Newton, Rt Hon Tony | |
| Nicholls, Patrick | Tellers for the Noes: |
| Nicholson, David (Taunton) | Mr. Richard Ryder and |
| Nicholson, Emma (Devon West) | Mr. Stephen Dorrell. |
§ Question accordingly negatived.