HC Deb 23 April 1991 vol 189 cc1025-34
Mr. McLoughlin

I beg to move amendment No. 8, in page 9, line 36, leave out 'ten' and insert 'fifty'.

Mr. Deputy Speaker

With this it will be convenient to discuss amendment No. 46, in page 9, line 36, leave out `ten' and insert 'one hundred'.

Mr. McLoughlin

The amendment rectifies a slight mishap that occurred when the Bill was in Committee. In the main, the Opposition brought it on themselves. They tabled an amendment to increase the rate of levy on the proceeds of the port sales to 100 per cent., and spoke vehemently in favour of it. They then somehow managed to vote for a probing amendment tabled by my hon. Friend the Member for Thurrock (Mr. Janman) to reduce the rate of the levy to 10 per cent. They got the result they deserved.

We in the Conservative party are in the familiar position of having to rescue the hon. Member for Kingston upon Hull, East (Mr. Prescott) and his colleagues from their embarrassment. The hon. Member was quite open in Committee when he said that he saw himself on the bridge and saw the possibility of causing a disaster——

Mr. Prescott

I said "a revolt in the engine room".

Mr. McLoughlin

I apologise—he saw a revolt in the engine room and took advantage of it. However, he did say that he would not be surprised if the Government returned to this on Report, and that is exactly what we are doing.

The issue of the levy has been discussed at great length, but it is an important matter and I make no apology for returning to it.

The lack of any owner of the trust ports, except the state, means that there is no vendor to receive the proceeds of sale when one of them is privatised. Hon. Members have argued that some or all of the proceeds should go to the nearest local authority, but many of these ports are national rather than local assets, and their relationship with their local authorities varies considerably from one port to the next. Without any levy, the entire proceeds of sale would revert in the form of a windfall gain to the purchaser. That seems clearly wrong, and one side effect is that in theory there would be no limit on the price which a purchaser would be prepared to pay for a port, because he would get the purchase price back as well as becoming the owner of the port. We believe that it is right that the taxpayer should have a share of the proceeds by means of a Government levy.

The question is, how much should this share be? Let us look at the two extremes. At 10 per cent., the figure currently in the Bill, the purchaser of a newly privatised trust port gets back virtually all the money that he has paid. In a situation of competitive bidding, this would drive the price of the port up to ridiculous levels—a result which could, incidentally, seriously disadvantage a managment-employee buy-out team, which might be ill-equipped to raise the amount of finance necessary to mount a successful bid. An example should illustrate this point. If the value of a port is generally accepted to be about £10 million, a bidder might be prepared to pay as much as £50 million for it. The Government would take £5 million as their 10 per cent. levy, but the bidder, if he were successful, would get back £45 million together with the port, worth £5 million. I think everybody would agree that that would be a fairly good deal.

From the standpoint of simplicity, a 100 per cent. levy has more to recommend it, since it does not drive up the price of the port; the Government simply take the whole of the proceeds. But this would put the sale of the trust ports on the same basis as that of nationalised industries and would ignore the very significant differences that in fact exist between them. Hon. Members will not be surprised to learn that the idea is not at all popular with all the ports themselves, not least because it appears to ignore the fact that the trust ports are independent of Government. By allowing nothing back to the purchaser, it would not allow them to plough any extra capital back into the industry.

With the levy at 50 per cent.—the rate of levy originally in the Bill—a balance is maintained between the interests of the taxpayer and of the new port owner. The Government could indeed, as has been pointed out, stand to get something like 100 per cent. rather than 50 per cent. of the actual value of the port by way of levy, since setting the rate at 50 per cent. is likely to cause the price of the port to rise above its market value, although not so much as to distort the bidding process as seriously as a 10 per cent. levy would. But 50 per cent. of the price will revert to the purchaser of the port, and that will be a further incentive for a port to privatise itself, on top of the benefits of privatisation itself. That is because of the extra capital which the sale will generate for the port, which it may need for investment in the port or to use as seems best in its commercial judgment.

For these reasons, I make no apology for bringing this amendment back to the House. I believe that 50 per cent. is the right level for the Government's levy, and I accordingly commend the amendment to the House.

Mr. Prescott

The reason we voted for the 10 per cent., as the Minister knows, is that we wanted to hear from him an explanation that we did not hear in Committee, and which I think we have just heard from him, of how they arrived at the figure of 50 per cent. Our amendment for 100 per cent. tonight gives us a chance to reiterate our committee amendment, although we were not provided with the opportunity to vote for it.

We voted for the 10 per cent. of the hon. Member for Thurrock (Mr. Janman), who I see is not here this evening. Is the Select Committee still sitting, or is it on a visit? There are precedents. Those who vote against the Government are often sent to the most attractive places in the world. I do not know whether that is what has happened to the hon. Member for Thurrock, although I note that the amendment relates to precisely the clause about which he was concerned. He said that it entailed exploitation, and that the Government were not entitled to take the money, which belonged to the ports themselves.

11.30 pm

The Minister has already conceded part of the argument. His illustration based on everyone operating on the £10 million figure appears to have come from the interesting document made available to the conference held by the Waterfront organisation and produced by Mark Seligman, of the consultants Warburg and Co. Ltd. which dealt wiih getting the capital structure right. That is a very important point, and the matter is highly complex.

Any hon. Member reading through the passages about how one gets the capital structure of the companies right in such circumstances will realise that the judgment of Solomon needs to be exercised. Presumably that also applies to commercial judgments as to whether one makes a profit or not. The heart of the matter is the question that we are dealing with here: would the Government's take affect that balance? Presumably, not only the share price will be affected by that judgment. Presumably it also affects the possibility of people bidding for a buy-out.

The Minister made clear what would happen to the value of the company if the figure were 10 per cent.—the figure stipulated in the Bill as drafted following amendments accepted in Committee. I shall not go through all the details. Hon. Members can see from the document how the example is arrived at. It refers to a model company worth £10 million—with a turnover of £10 million—and a profit of 15 per cent. A judgment is made about how the price-earnings ratio is arrived at, and the document gives a net asset value of £5.3 million. The figures are there in the document should hon. Members wish to read them. As the Minister said, if the Government took 50 per cent., it would be equivalent to the £5.3 million net asset value. It would then be argued that the Government were getting 100 per cent., as some hon. Members said in Committee.

The question that is important to this debate is whether the purchase price for a management-worker buy-out will be affected. I hope that the Minister will now answer a question that he did not answer before. I do not intend that as a criticism, as he had a number of questions to answer, but he now has another opportunity to answer it. The statement in The Guardian said that the Department was making it clear that it would be bound to accept the highest figure. As has been said, that is not necessarily the case under competitive tendering arrangements; they can accept less. But presumably there is a limit to how much less they can accept.

Mr. McLoughlin

I confirm that the story in this morning's edition of The Guardian is inaccurate and that our original statements to the effect that we may not necessarily go for the highest bidder still hold good.

Mr. Prescott

That statement will be welcomed by those who want a move in that direction. We have made our position clear. In the main, however, the Government say that it is one of their objectives to do that, and I think that they will have to do it. The interesting question is to what extent the Government are prepared to discount the highest bid in order to accept an employee-management buy-out. That is the importance of the judgments made about the net asset value of the companies and the price that is arrived at.

The Minister has conceded that, even under his own formula, the 10 per cent. figure would produce a £45 million windfall. Clearly that would be an advantage to the purchaser, who will have no legitimate claim to that money. At least the Government can say that they have a more legitimate claim. That is their argument for the 50 per cent. levy. Unlike the individual who purchases a company with its assets and either makes a killing or not, depending on the Government's levy, the Government will take the money in the name of the community.

The other side of the coin is the Opposition amendment, which provides for the 100 per cent. figure. The Minister rightly pointed out that that would take out the excess money that can be made. He then said—curiously, in my view—that the company would be like a nationalised industry, because it would not be left money with which to expand. I do not understand that. A public limited company cannot be like a nationalised industry in that sense. The company would have its own debt and equity structure.

Presumably, before making a bid, the prospective purchasers would make judgments about the distribution of the company's equity, its value and its debts. The judgment whether sufficient resources will be available to meet the investments that might be required to allow the company to expand will depend on the circumstances. In the case of a port such as Dover, for example, the problem is not a shortage of money for use in developing the port; Dover has already done as much as it can in that direction.

There is a strong argument for gold-plating port investment. We say that the assets could be used for investment in activities other than port-related activity which may be beneficial to the port. That is a legitimate argument. It is about using the extra land that becomes available. There is not necessarily a shortage of money, as the Minister suggested. That is a side issue. We are expected to vote on whether to change the levy from 10 per cent. to 50 per cent., as the Government require, or to 100 per cent.

As we are agreed that to give the whole windfall to the taxpayer, we should opt for the full 100 per cent. levy in this manoeuvre, and our amendment does so, we can be said to be the taxpayer's champions on this occasion. We are taking the 100 per cent. option. The Minister says that a 50 per cent. levy is better because it will allow some money to go back into the coffers. That is where the formula produced by the expert comes in. He says that, if one does that and buys a company for £10 million, of which the net asset value is less than the market value, one could purchase the company, pay £10 million for it and put £5 million of it—50 per cent.—back in the books.

It is argued that, somehow, a corporate raider may then decide that it wants to take out that £5 million and put it in some other part of its operation outside port activity. There is nothing to stop it doing that. The important point for the debate is that the job of the people who want to form a management-worker buy-out—that is one of the objectives of the Government—is made much more difficult with a 50 per cent. levy than with a 100 per cent. levy. That is the case by virtue of the Minister's own argument. The 10 per cent. levy is one extreme. The 100 per cent. levy is the other. With a 50 per cent. levy, hey diddle diddle, he thinks he is down the middle, he has landed with the Liberals and he is happy. Fine. But he cannot ignore the fact that that is likely to be less attractive to the buy-out consortium than the 100 per cent. levy.

Mr. Henry Bellingham (Norfolk, North-West)

No, it is not.

Mr. Prescott

I am simply using the Minister's arguments. I believe that they are reasonable, but the hon. Member for Norfolk, North-West (Mr. Bellingham) may have a different view. We even argued it out in Committee. But the point is that the 100 per cent. levy is a better deal. If the hon. Gentleman cannot accept my view, I suggest—even the Minister's Parliamentary Private Secretary may get around to reading things—that he reads an article in The Financial Times on 6 January 1991 which dealt with the point. It said: There is little rationale for the proposed 50 per cent. levy. Whatever money a port receives from its sale will revert to the person who buys it …the result will be to drive up the bidding, perhaps beyond the reach of a management-employee consortium. The Government cannot have it both ways. If they want to get money out of sales, that is fine: they can take the full 100 per cent. If they want to go halfway, they can take 50 per cent. But that will affect the price, and it is likely to be a disincentive to management and employees to buy out the port, or to make it more difficult for them to do so.

We started the debate on the point that the Government came along with a generous offer to pay some of the expenses of preparation for an management-employee buyout. That is a helpful move to those who want to be involved in that process. It is all right providing the money to work out the bid, but it is much more important to provide the capital to make the bid. Otherwise, it is just an exercise. Indeed, it is likely to be just that. If the Government stick to the 50 per cent. levy, they will get the worst of all worlds. They could take the full money—the 100 per cent. Or they could take the 10 per cent. Then someone would get a large windfall. I agree with the Government that that is not an attractive way of dealing with the matter. But given the circumstances, the 50 per cent. levy is not the best.

If we want to give a definite preference to the management-employee buyout, it would be better to vote for the 100 per cent. levy. The Financial Times says so, and it follows from the logic of the argument. It is absolutely right. The Minister has already said that he will not accept the highest bid. He has not said by how much he would discount it. Would it be as much as 50 per cent? I doubt it. Under those circumstances, the Minister has convinced me more than ever to vote for the 100 per cent. levy in order to assist those who wish to take part in a management-employee buy-out.

Mr. Michael Carttiss (Great Yarmouth)

I accept the Committee's decision. I regard it as a mishap—even if the hon. Member for Kingston upon Hull, East (Mr. Prescott) and his friends voted with my hon. Friend the Member for Thurrock (Mr. Janman), who I am sure is detained on important business. He has not been sent anywhere. No one offered me the opportunity to go anywhere else. Had they done so, I should have gone to Great Yarmouth, of course. But here I am and I have not changed the view that I expressed in this Chamber on Second Reading.

It is wrong for the Government to take 50 per cent. of the disposal of the securities of the successor companies of trust ports. I shall not vote for the 50 per cent. which my hon. Friend the Minister is seeking to restore to the Bill. Up to now, he has a good Bill. Even the 50 per cent. clawback on the sale of land I was not too worried about. Here he is spoiling a six-hour day with his attempt to reverse an excellent decision in Committee.

I object to the 50 per cent. levy for two principal reasons. First, I see no reason why the Government should get a share of the proceeds when they have contributed nothing. We have had much talk about windfall. In the Tory party where I was brought up that was called legitimate profit motive. What is all this nonsense about windfall? Since when has purchasing shares and selling them at a profit, or investing in an enterprise and making money out of it, been a windfall? That is what the Conservative party exists to promote.

A Minister in a Conservative Government, even in the post-Thatcherite era, should not talk in such contemptuous terms about "windfall", when he knows very well that even under this Government the tax regime will enable profits to be taxed and some money to go back to the community. The Government have given nothing to the trust ports and, in setting them up as private companies, have no business taking any share of the proceeds. That is my first reason for objecting. It offends my concept of the Conservative party's devotion to the profit motive as a proper and legitimate exercise for business people to engage in when purchasing an enterprise.

My second reason is more local. My port of Great Yarmouth is under the turnover limit of £5 million above which the legislation will operate the compulsory privatisation provision. People in Great Yarmouth will be in the fortunate position of the people of Poole, in the sense that they can or cannot, as they please, go ahead with privatisation.

The second and far more important reason for my opposing the Government amendment to restore the 50 per cent. levy that they had in the Bill originally is that it will act as a disincentive for the port of Great Yarmouth to go down the path towards privatisation that the Government would surely wish to encourage, and which I have been doing my utmost to persuade the authority and the port users to do. There is no way that I am going back to Yarmouth tonight if the amendment goes through—[Interruption.]Well, at the end of the week or whenever it is. If I lose the argument I might go home and not come back for a week or two.

There is no reason for my arguing any further in Great Yarmouth for the privatisation of the port if 50 per cent. of the money from the disposal of the shares is to go to the Government. The Government are a successor of many Governments who have contributed not a penny piece to the port of Yarmouth, and they will not get a penny piece except through the proper taxation procedures, which naturally I support.

I hope that the House will wholeheartedly oppose this ill-conceived amendment.

Mr. Wallace

As in Committee, I find myself in great sympathy with the hon. Member for Great Yarmouth (Mr. Carttiss). He chides the Government for trying to impose a tax where no tax existed, which ill becomes a Government who have set themselves the standard of being a tax-cutting one. Here we have them introducing a new tax. At least tonight the Minister gave a slightly better justification for the levy than we have heard before.

When the matter was first introduced as part of the Finance Act 1990, the reason given by the then Chief Secretary to the Treasury, now Chancellor of the Exchequer, was that it reflected the fact that Governments had contributed so much to the ports over the years through grants and loans that it was time they got something back. As the hon. Member for Great Yarmouth has just pointed out, there are ports to which the Government have not contributed a penny piece, yet they want to take money from them.

My main objection is that the Government are seizing money because it belongs to no one else. They are doing so because of the decision in the case of the Trustee Savings bank, when the House of Lords took the view that, although a property may not belong to the Government, because it belongs to no one else it must belong to the state. This country has never developed the concept that such property might belong to the people. Many of the trusts were set up to serve the local communities and those who trade in them and the Government are taking money away from those communities.

11.45 pm

If the Minister had proposed a levy and said that its proceeds would be reinvested in the communities in which the ports are situated, many of us would have supported it enthusiastically. As the hon. Member for Great Yarmouth said, the ports cannot exist in a vacuum. In Committee, we heard the details of the long-awaited dual carriageway or flyover in Great Yarmouth. If such transport provision were made there, it would greatly benefit the port. Therefore, it would not be unreasonable to expect that any proceeds from the sale of the port to the private sector should be used to finance the infrastructure to support the port. If the Government had adopted such an approach, it would have been supported by the House, but they are pocketing the proceeds of the sale of ports for themselves. I did not think that that was what the Conservative party was about, so I have no enthusiasm for the increased amount that it will put into its coffers.

Mr. McLoughlin

I am not sure what the hon. Gentleman thinks the Government do with the money they raise. It goes neither to my right hon. Friends nor to myself; it goes to the people. It goes straight into the Consolidated Fund to provide various services. Some of the hon. Gentleman's arguments are strange, to say the least.

Mr. Wallace

What objection does the Minister have to that money being reinvested in the communities from which it comes?

Mr. McLoughlin

The ports are not necessarily local assets but can also be national assets. They may have obtained their wealth from people from other parts of the country. Nobody would argue, for instance, that Dover has obtained its wealth because people from throughout the country use the port. It would be hard to say that the proceeds of the sale of that port should go into the Dover area.

My hon. Friend the Member for Great Yarmouth made a vociferous speech, as he did in Committee, and I respect his position. However, the Government decided the best way to proceed. Although I accept some of the arguments that the hon. Member for Kingston upon Hull, East put on record, I have outlined the reasons why the Government decided to take 50 per cent.

Question put, that the amendment he made:

The House divided:Ayes 140, Noes 52.

Division No. 123] [11.48 pm
Alexander, Richard Colvin, Michael
Alison, Rt Hon Michael Coombs, Anthony (Wyre F'rest)
Amess, David Cope, Rt Hon John
Amos, Alan Cran, James
Arbuthnot, James Currie, Mrs Edwina
Arnold, Jacques (Gravesham) Davies, Q. (Stamf'd & Spald'g)
Arnold, Sir Thomas Day, Stephen
Baker, Nicholas (Dorset N) Douglas-Hamilton, Lord James
Bellingham, Henry Dover, Den
Bennett, Nicholas (Pembroke) Dunn, Bob
Benyon, W. Durant, Sir Anthony
Bevan, David Gilroy Dykes, Hugh
Blaker, Rt Hon Sir Peter Evennett, David
Bonsor, Sir Nicholas Fallon, Michael
Boscawen, Hon Robert Field, Barry (Isle of Wight)
Boswell, Tim Forman, Nigel
Bottomley, Peter Forsyth, Michael (Stirling)
Bottomley, Mrs Virginia Freeman, Roger
Bowden, Gerald (Dulwich) French, Douglas
Bowis, John Gale, Roger
Brandon-Bravo, Martin Gill, Christopher
Brazier, Julian Goodhart, Sir Philip
Bright, Graham Goodlad, Alastair
Browne, John (Winchester) Gorman, Mrs Teresa
Buck, Sir Antony Greenway, John (Ryedale)
Burns, Simon Gregory, Conal
Burt, Alistair Griffiths, Peter (Portsmouth N)
Butterfill, John Ground, Patrick
Carrington, Matthew Hague, William
Channon, Rt Hon Paul Hamilton, Hon Archie (Epsom)
Chapman, Sydney Hamilton, Neil (Tatton)
Chope, Christopher Hargreaves, Ken (Hyndburn)
Harris, David Rhodes James, Robert
Hawkins, Christopher Rifkind, Rt Hon Malcolm
Hayes, Jerry Roberts, Sir Wyn (Conwy)
Hayhoe, Rt Hon Sir Barney Rumbold, Rt Hon Mrs Angela
Heathcoat-Amory, David Ryder, Rt Hon Richard
Hicks, Robert (Cornwall SE) Sackville, Hon Tom
Hogg, Hon Douglas (Gr'th'm) Sainsbury, Hon Tim
Howarth, Alan (Strat'd-on-A) Shaw, David (Dover)
Howell, Rt Hon David (G'dford) Shaw, Sir Michael (Scarb')
Hughes, Robert G. (Harrow W) Shepherd, Colin (Hereford)
Hunter, Andrew Speller, Tony
Irvine, Michael Stanley, Rt Hon Sir John
Jack, Michael Steen, Anthony
Jackson, Robert Stern, Michael
Jones, Robert B (Herts W) Stevens, Lewis
King, Roger (B'ham N'thfield) Stewart, Allan (Eastwood)
Kirkhope, Timothy Stewart, Andy (Sherwood)
Knapman, Roger Stewart, Rt Hon Ian (Herts N)
Knight, Dame Jill (Edgbaston) Summerson, Hugo
Knowles, Michael Taylor, John M (Solihull)
Lang, Rt Hon Ian Thompson, Patrick (Norwich N)
Lawrence, Ivan Thorne, Neil
Lilley, Rt Hon Peter Townend, John (Bridlington)
Lloyd, Peter (Fareham) Twinn, Dr Ian
Lyell, Rt Hon Sir Nicholas Viggers, Peter
Macfarlane, Sir Neil Walden, George
MacKay, Andrew (E Berkshire) Waller, Gary
Maclean, David Ward, John
McLoughlin, Patrick Warren, Kenneth
Mans, Keith Watts, John
Maples, John Wells, Bowen
Maxwell-Hyslop, Robin Wheeler, Sir John
Mellor, Rt Hon David Widdecombe, Ann
Meyer, Sir Anthony Wilkinson, John
Mills, lain Wood, Timothy
Morrison, Sir Charles Yeo, Tim
Nicholls, Patrick
Norris, Steve Tellers for the Ayes:
Paice, James Mr. Greg Knight and Mr. David Davis.
Patnick, Irvine
Barnes, Harry (Derbyshire NE) Lamond, James
Battle, John Lewis, Terry
Bell, Stuart Livsey, Richard
Bellotti, David Loyden, Eddie
Bradley, Keith Madden, Max
Brown, Ron (Edinburgh Leith) Marshall, David (Shettleston)
Campbell, Menzies (Fife NE) Morgan, Rhodri
Carlile, Alex (Mont'g) Murphy, Paul
Carttiss, Michael Nellist, Dave
Clelland, David Pike, Peter L.
Crowther, Stan Powell, Ray (Ogmore)
Cryer, Bob Prescott, John
Dalyell, Tarn Quin, Ms Joyce
Dixon, Don Robertson, George
Doran, Frank Salmond, Alex
Dunnachie, Jimmy Skinner, Dennis
Fearn, Ronald Spearing, Nigel
Foster, Derek Steinberg, Gerry
Galloway, George Taylor, Matthew (Truro)
Griffiths, Win (Bridgend) Wallace, James
Hain, Peter Walley, Joan
Haynes, Frank Wardell, Gareth (Gower)
Henderson, Doug Welsh, Michael (Doncaster N)
Howells, Geraint Williams, Alan W. (Carm'then)
Hughes, John (Coventry NE)
Hughes, Robert (Aberdeen N) Tellers for the Noes:
Hughes, Simon (Southwark) Mr. Thomas McAvoy and Mr. Allen McKay.
Illsley, Eric

Question accordingly agreed to.

Amendment made: No. 9, in page 9,line 43, at end insert— '( ) costs incurred in pursuance of section (Financial assistance for proposals to maximize employee participation in equity or successor companies) below in connection with any proposal for maximizing participation by employees of the company whose securities are the subject of the disposal in ownership of its equity share capital (whether or not the disposal is made for the purposes of implementing any such proposal);'.—[Mr. McLoughlin.]

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