§ 2.51 p.m.
§ Order of the Day for the House to be put into Committee read.
§ Moved, That the House do now resolve itself into Committee.—(Lord Chesham.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD MERTHYR in the Chair.]
Clause 1 [Power to make advances for construction of vessel]:
(3) If interest on any sums advanced by way of loan under this section is at a rate exceeding four and a half per cent. Per annum, the Minister and the Company may, notwithstanding subsection (2) of this section, agree on terms which provide for a part of any sums advanced under subsection (1) of this section being by way of grant (instead of by way of loan) but which in the opinion of the Minister do no more for the Company than place them in a position which is, within a reasonable degree of approximation, equivalent to the position in
which the Company would have been if every part of the sums advanced under subsection (1) of this section had been by way of loan, but had carried interest at the rate of four and a half per cent per annum.
(5) A copy of any agreement between the Minister and the Company regarding the making of advances for the purposes mentioned in subsection (1) of this section shall be laid before each House of Parliament.
LORD LATHAM moved to add to subsection (1):
Provided that no part of any advance or grant made under this section shall be used for any purpose other than the construction of a large vessel for the North Atlantic shipping trade.
§ The noble Lord said: The Amendment which I rise to move does not concern the unwisdom of replacing the "Queen Mary," a view which is held, as is known, by a very significant number of informed parsons; and, according to reports in the Press, it would seem that there is a very significant number of shareholders of the Cunard Company who are equally opposed to this proposal. The purpose of the Bill is to authorise the advance of money to the Cunard Company; in short, to subsidise what is mistakenly called free enterprise. The purpose of this Amendment is to ensure that none of the Government money is used to undermine Government enterprise—namely, to undermine and to compete with B.O.A.C.
§ The Chandos Committee, whose Report we have not been permitted to see, stated that the Cunard Company could not find the £30 million out of its own resources; that it could find only £12 million; and that is why the Bill proposes that the Government should advance £18 million. The statement of the Chandos Committee may have been correct at the time when it was written, but subsequent events have disclosed that it is not wholly accurate, because the Cunard Company could find an extra £6 million, which they have diverted, or propose to divert, to the Cunard Eagle Airways Company, a company which proposes to compete with B.O.A.C. In short, this subsidiary company of the Cunard Company proposes to purloin a large share, or a large element, of the goodwill of B.O.A.C. and to pay nothing for it, a goodwill which has been built up by State money, State assistance and State guidance. Really this is something in the nature of plundering the nation's 519 patrimony. Even in the worst kind of take-over goodwill is wholly or partially paid for, whereas this proposed competition with B.O.A.C. is to be free. My Lords, this is the fine flower of Tory free enterprise: the handing over of State assets free to private enterprise as soon as they become profitable, rather than competition by free enterprise, is regarded as a virtue, whereas it is nothing of the kind; it is an operation and an exercise in purloining.
§ The company which is formed or is to be formed, to be known as the Q 3 Company, will be a subsidiary, wholly owned, as I gather, of the Cunard-White Star Company, and Eagle Airways will also be a subsidiary. Whether it will be a wholly-owned subsidiary I do not know, but it is not material for my point. However, it is the case that the Cunard Company, who are to be the guarantors of this advance of £18 million, could divert, temporarily or otherwise, some of the money put up by the Government to purposes which would really be giving assistance to the Eagle Airways enterprise. It would really be a Gilbertian situation that the Government's money should be used, directly or indirectly, in order to damage a Government undertaking, namely, B.O.A.C., and this Amendment is put down in order to make doubly sure that none of this money is in any way used to assist, bolster up or sharpen, the competition or the activities of the Eagle Airways. It seems to me that if, in good faith, this money is to be used only for the purposes provided in the Bill, the Minister will find himself able, indeed may well be a little anxious, to accept my Amendment. I beg to move.
Page 1, line 11, at end insert the said proviso.—(Lord Latham.)
§ 3.0 p.m.
§ THE JOINT PARLIAMENTARY SECRETARY, MINISTRY OF TRANSPORT (LORD CHESHAM)
When I first saw the Amendment which the noble Lord has put down and which he has just moved, I thought it was a rather innocuous one. Then I thought a little more, and I concluded, from its somewhat strange drafting and its content, that he must have intended it as some kind of peg upon which to hang a hat; 520 and indeed it has proved to be so. May I, for a moment, deal with the Amendment itself as such? It is, of course, completely redundant. What the noble Lord wants is already stated in the Bill, and if your Lordships would refer to Clause 1, subsection (1), you will see that the last few lines make that quite clear.
Therefore, I think I must turn for a moment to the noble Lord and the hat which he has hung on this peg, and deal with the first point regarding aviation. I dealt, I thought at some length and I hoped with some degree of clarity, with this matter on Second Reading. I cannot recall off-hand whether the noble Lord opposite heard it or not, or perhaps he subsequently read it in Hansard, but I am quite happy, since he has brought the point up, to deal with the matter again. I said at the time that I thought his argument was quite misconceived, and I went to some further length to explain that there was really no connection between the aviation enterprise and the purchase of Boeing Aircraft to use in connection with it, because, so far as raising the funds was concerned, it was quite separate. I said at the time that Cunard had raised this money on the security of some of their property in the United States. I said at the time that your Lordships could ask why this could not be used for the building of the new "Queen", and I answered that it was a totally different proposition. I drew your Lordships' attention to the fact, as the noble Lord has done to-day, that the Chandos Committee had accepted that £12 million was the maximum amount that Cunard could be expected to find, and the Government had accepted it, too.
§ LORD LATHAM
Would the noble Lord say whether at that time Cunard had decided to enter into the aviation field and needed the £6 million?
§ LORD CHESHAM
Yes, I can say that quite easily. They had, at the time, revealed the fact quite openly and honestly to the Chandos Committee, and the Government also knew of it at the time they decided to accept this recommendation. I was going to come to that.
VISCOUNT ALEXANDER OF HILLS BOROUGH
Could I ask what the properties were in America upon which the 521 money was raised for Cunard's own purposes? Was it on the shipping properties of the Cunard Company?
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
Held by a shipping company. It was obtained on the shipping properties. I thought that if they wanted to develop the shipping line they would do it, like the P. & O., out of their own resources, instead of coming, for public money.
§ LORD CHESHAM
I do not think I want to go over all my Second Reading argument again, but I would say this: the point is that raising money for these aircraft is a totally different operation from raising it for a ship They have applied those assets they have in America.
§ LORD LATHAM
That means, the noble Earl will admit, that there will be £6 million less assets available to support the guarantee of the Cunard Company.
§ LORD CHESHAM
No, I do not mean that. May I go on to make my point? I had already explained on Second Reading—I am sorry to go over this again, but I must do it in view of the arguments that have been put forward—that nobody has ever said that Cunard were unable to raise £30 million. What has been said, to the satisfaction of the Chandos Committee and of the Government, was that £ million was the most they could raise for the purpose of replacing a "Queen"— a slightly different matter. I will go on to make the point, if I may, and that is that raising money for aircraft is a very different matter from raising it for a "Queen". The reason for that is that the aircraft pay for themselves very much more quickly, and that in the event of their not proving successful it is possible to sell them, because they are widely used on services all over the world. Therefore, to raise the equivalent amount of money for a ship would require much wider collateral and there would be no scope for selling the ship if the need arose.
§ LORD LATHAM
Is it not a fact that in the summary of the Chandos Committee's Report, published on June 1, 1960, in the OFFICIAL REPORT of the other place Vol. 624, column 1441, it says:Since Cunard have available only £12 million from their own resources to invest in the project, the Government would have to provide the remainder of the capital cost.That is precisely 'what I said.
§ LORD CHESHAM
And it is precisely what I say. The operative words are: "to invest in the project". Nobody has ever tried to hide that it has been said right from the word go that that was the amount they had to invest in the project. This aircraft project has arisen purely and simply on the strength of Cunard's property in America.
The noble Lord said that it was wrong that they should invest this money in aircraft and compete with B.O.A.C. I can say nothing about that. Developments have gone further than on Second Reading, when I spoke. It is known that Cunards have applied for rights on this traffic route. I said then that I could not say much because it was still subject to a possible appeal by B.O.A.C. Today I can say even less, because B.O.A.C. have appealed, and therefore the matter becomes, so far as I am concerned at any rate, sub judice, and I can say no more than that. It seems to me that 'the noble Lord has rather missed the point of this, in that if this ship is not built, Cunard, far from getting large presents from the Government with which to acquire aircraft, will not build the ship and will therefore presumably have, if they wish to employ it in that way, £12 million to put into their aircraft. I should have thought that was a point the noble Lord should have taken with some force. Therefore, these things, as I have tried to show, cannot be connected together.
I would refer to paragraph 6 of the White Paper, which is to re-emerge as a formal agreement with the company, where it says that Cunard are not to call for contributions from Her Majesty's Government except as required to meet the commitments of the Q.3 Company in connection with the building of the ship. I do not think that that leaves me with any other option than to hope that 523 the noble Lord will not press this Amendment, and that if he does your Lordships will reject it.
§ 3.10 p.m.
§ LORD OGMORE
I find this matter more and more curious to understand as it unfolds. We are now told that the Cunard Company could, if they had wished, have provided this sum of £18 million from their own resources. No doubt that is the case. We do not dispute that. What we are disputing is that the Government should produce £18 million out of their resources. The noble Lord, Lord Chesham, has told us that the company were able to provide a large sum for the purchase of aircraft by mortgaging their assets in America. They could have mortgaged them just the same for the purchase, or to go towards the building, of a steamship or a large vessel of this kind. A person who lends money on mortgage is not particularly interested in whether the person who borrows it is going to build a ship. Why should he be? If a person has a piece of Fifth Avenue and he goes to a mortgage company, all the person at the mortgage company looks at is the value of it—it is the land and the security that he is looking at.
I think there is a good deal in what the noble Lord, Lord Latham says. We have built up these two Corporations at enormous expense to the taxpayer, with an enormous amount of trouble and work on the part of those who have served in the two Corporations throughout the years. Unlike most nationalised industries, they are subject to fierce competition because, in the main, certainly so far as B.O.A.C. are concerned, their operations are outside the country. They have to face competition from other operators. Quite frankly, if any substantial inroad is made into the cream of the traffic they will not be able to make their operations pay. We have to face that fact.
I do not care whether the matter is sub judice or not. We use the phrase "sub judice" for all sorts of things that are not sub judice at all. But whether it is or not, I do not care. But, having been into this carefully throughout the years, and knowing the history of civil aviation, I warn your Lordships that the Corporations will not be able to make ends meet if the cream of the traffic is taken away from them, either on the Atlantic route 524 or on the other routes. That is the only part of the operations that most of these independent transport operators want. They do not want the parts that do not pay; they want the parts that do pay—and they only want them, as a rule, at the peak of the season. The two Corporations have to run their operations all through the year; they have to run on low load factors at certain times of the year. They provide a service.
Whilst I am all in favour of competition—I am very much for competition, and I wish that we had more competition, both in the nationalised industries and also in the private sector, where there seems to be far less competition than even we thought—one must remember that when you are dealing with these airlines you are dealing with a special case, and that up to now the history of civil aviation has been that Britain has never been able to put more than one major line on any route. When more has been attempted it has soon proved to be not profitable, and one or other of those particular airlines has had to cease business.
Those are the facts and, as the subject has been raised on this Amendment, I think it ought to be known that those are the facts. What we are doing in this Bill, it seems to me, is to deal a crippling blow to B.O.A.C.; and by enabling the Cunard Company to have the taxpayers' money to finance their ship, as the noble Lord, Lord Latham, so rightly said, we are freeing their assets in the United States for them to buy aircraft. I would suggest a quite simple way out of this. In view of Mr. Selwyn Lloyd's speech at Hawarden Castle on Saturday, and the serious economic position that he states the country to be in—and we have no reason to believe that he is not absolutely right—I am going to suggest a way in which the Government can help Mr. Selwyn Lloyd to save £18 million of the taxpayers' money. It will help him to the extent that he will have to find £18 million less than he would otherwise. I suggest that the Government withdraw this Bill.
§ VISCOUNT MASSEREENE AND FERRARD
I should like to point out that we have been talking about £18 million. In actual fact it is only £,3¼ million. The other money is on loan at an extremely high rate of interest. It is completely guaranteed by Cunard's 525 assets; there is no danger of any loss by the Government. It is inaccurate to talk about a subsidy of £18 million; it is a subsidy of £3¼ million. As we heard in the Second Reading debate, the North Atlantic express sea service has always been a subsidised service. We hear how the American Government have subsidised the cost of building their new ship at 58 per cent. and are giving a 28 per cent. subsidy towards operating cost; the Dutch with a 40 per cent. subsidy of the capital cost, and the French with 20 per cent. subsidy. Are we, the greatest maritime Power in the world, going to be driven off the North Atlantic? We also heard in the Second Reading debate of the dollars that these "Queens" earn—20 million dollars a year, in hard currency. Is that not something? If this country is coming to economic difficulties, as it appears to be, I feel that this is the kind of endeavour we ought to support. We want to support something that is going to redress our balance of payments. I honestly cannot support this Amendment. I think it is nonsense. It is, as my noble friend said, completely redundant.
§ On Question, Amendment negatived.
§ 3.18 p.m.
§ LORD HUGHES moved, in subsection (3), to leave out "four and a half" and insert "five and three-quarters". The noble Lord said: I think it might be convenient, if your Lordships agree, that Amendments Nos. 2, 3, 4 and 5 should be spoken to as one, because they are linked. I should like to say that, although I was not present during the Second Reading of this Bill, I have read the Report of the debate. It is quite obvious that the Bill had a somewhat lukewarm reception in this House—a fate no worse than it had in another place, because it did not appear there to be welcomed by many people with open arms. Since it was introduced in another place, circumstances, economic and financial, have changed. At least, our attention is being drawn to a circumstance which is now claimed to have changed, though many people have thought it was there all along. What has been said in another place to-day, and what is to be said by the Chancellor of the Exchequer next Tuesday, will surely emphasise that position.526
But, as I have said, I read what the Ministers had to say on Second Reading, and there appears to be a certain inconsistency between the remarks made by the noble Lord, Lord Chesham, and those made by the noble Lord, Lord Mills. I apologise for drawing attention to something so ordinary as Government inconsistency. In the debate last Monday, July 10, the noble Lord, Lord Chesham, said [OFFICIAL REPORT, Vol. 233 (No. 106), col. 7]:
From the depth of their own very long experience, the Cunard Company believe that the service would continue to be a commercial proposition even after the retirement of these ships, but they could not find themselves able to provide enough capital from their own resources to replace them with new ships of the same class at current high shipbuilding costs.
Later (col. 11) he said:
The split between loan and grant will be so calculated as to be equal in value to a loan of the same total sum at 4½ per cent. The only purpose of this change is to make clear the amount of subsidy involved, because we think it right for this to be seen clearly for what it is. It has been provisionally calculated at £3¼ million.
But then in column 46 we see that the noble Lord, Lord Mills, stated:
But the Committee under Lord Chandos who looked into this matter said it would be unwise for the company … to attempt to commit themselves to paying more than 4½ per cent. for the large sum of money which had to be borrowed.
The first statement of Lord Chesham indicates that the only difficulty was the need to raise the capital from the company's own resources; that some of it had to come from outside. The second indicates an expectation of profitability great enough to pay a 7½ per cent. dividend, if a dividend were to be disbursed, but at least a 7½ per cent. profit, and to repay a 25-year loan in something like 10 to 15 years. The third indicates an inability to pay, rather than an inability to raise capital. Fortunately for Lord Chesham, the noble Lord, Lord Mills, proceeded in the next part of that statement to agree with him, because he went on to say (col. 46):
The Chandos Committee said that they thought the company would get through all right if they could borrow this very large sum of money at 4½ per cent.
I must say that I agree with that statement of the Chandos Committee and its quotation by the noble Lord, Lord Mills. I think the company will be all right if
it gets the equivalent of £18 million at 4½ per cent. Who would not be in these days?
But what of the general public, the taxpayers? The Government propose to charge the current Public Works Loan Board rate for a 25-year loan. In the White Paper that is referred to as 6¼ per cent., but the Government have moved in these matters since then. The current rate, as from last week, is 6½ per cent. But they further propose that the sum lent should be limited to the amount which, at current rates, would require the same annual repayment as £18 million lent at 4½ per cent. Eighteen million pounds at 6½ per cent. requires £1,475,000. In the figures I am going to quote there are a number of odd hundreds of pounds, but for simplicity I will ignore them. But these figures have been calculated and checked. Eighteen million pounds at 6½ per cent. requires £1,475,000; at 4½ per cent. It requires £1,213,000. The sum which would be serviced at 6½ per cent. By this lower annual payment is £14,867,000. The difference between these two capital sums is £3,192,000, which would be the amount of the cash grant stated in the Paper at approximately £3¼ million. In explaining that policy the noble Lord, Lord Chesham, said (col. 11)—and I am repeating the remarks he made because I think it is worth while repeating them:
The only purpose of this change is to make clear the amount of subsidy involved.
I venture to suggest that the method proposed by the Government, far from making it clear, most effectively conceals how much of the public resources are being handed over to the Cunard Company.
§ The difference between a loan of £18 million at 6½ per cent. and at 4½ per cent. requires an annual charge of £261,000. Over 25 years this totals £6½ million, and that is the real, effective subsidy which is being given to Cunard from public funds—an interest-free grant of £3¼ million which would have required, at current rates, £61 million to repay. It does not need much of a calculation to see what that is, represented as a percentage of the capital cost of the ship.
§ But the Government go further than that. They propose, in the agreement which was tabled as a White Paper, to 528 allow the Cunard Company to earn 7½ per cent. of their equity, and to provide, in addition, for depreciation of the ship before there can be any accelerated repayment of the public loan. Twelve million pounds at 7½ per cent. over a 25-year annuity requires £1,076,000 a year. When this is added to the sum the Government require to service their £18 million loan at 4½ per cent., the total amount is £2,290,000. This is the sum which, on the Government statement, the new ship can be expected to carry; and in the first ten to fifteen years, if we are to believe the Government, it will carry a great deal more, because it is going to repay the whole of the loan in that period.
§ In passing, it is interesting to note that the shareholders will receive more, a greater cash sum, each year of their £12 million than the taxpayers will receive of their £18 million. It seems to me that this is a proposal which would be difficult to justify if the national position were in every way sound.
§ VISCOUNT MASSEREENE AND FERRARD
My Lords, the shareholders are the taxpayers. A great deal of that goes back to the Government from the shareholders.
§ LORD HUGHES
My Lords, the noble Viscount speaks more correctly than he knows. The public are shareholders in the Cunard Company to a limited extent. The Government hold one £20 share in the Company. That is the only extent to which the public are shareholders in Cunard. If the suggestion the noble Viscount is making is that it is good policy to hand over 100 per cent. in the expectation that you will get back 7s. 9d. in the pound, that seems to me to be even more of the economics of the madhouse than is customarily expressed in these times of so-called crisis. It would be difficult to justify this proposal if times were good; but to continue to put it forward in present circumstances seems to me to be nothing short of iniquitous.
A capital sum of £30 million requires for servicing over 30 years at 5¾ per cent. (which is the figure suggested in the Amendments) a sum of £2,291,000, which is the same to within £1,000 as the aggregate amount required under the Government's proposals. It is for that reason, and that reason alone, that the figure of 5¾ per cent. is put in to replace the figure of 4½ per cent. It is put in because it 529 does not increase the total financial burden which the ship is required to carry. If it is a proper total under the Government's proposals, it remains the same proper total under the Amendments. What is done is that the burden is shared 'proportionately between the contributions of the shareholders and those of the taxpayers.
This is still a generous deal for the Cunard Company—more, perhaps, than many people would say is justified. But the Amendments in the name of my noble friend Lord Latham and myself are deliberately restricted to keep the matter within the financial structure of the framework of the Bill. We do not wish the Government to hide off, as they did on another occasion quite recently, by arguing that to pass this Amendment would be to make the Bill unworkable. The Bill, boy the Government's own financial reasoning, would be as workable with the Amendments as in its original state.
But my noble friend Lord Latham and I are not seeking in these Amendments to commit your Lordships to the principle that there should be no subsidy to the Cunard Company. We are even prepared to keep within the framework of the Bill to that extent. Because, after all, the loan at the rate we suggest, 5¾ per cent., would require an annual servicing charge of £1,374,000, which is almost £101,000 less than the 61 per cent. rate would require; and it would be sufficient to servlice a sum of £1,230,000 for 25 years at 6½ per cent. It is for that reason, and that reason alone, that Amendments Nos. 4 and 5 propose to substitute the figure of £1½ million for the figure of £3¾ million. The cash grant is equal, with interest, to a real subsidy to the Cunard Company of £101,000 a year for 25 years—a total sum of £2,521,000 being paid to them from the public pocket. If I might repeat what the noble Lord, Lord Mills, quoted from the Chandos Report, the company will still be doing all right.
The present dividend on Cunard's shares is 6 per cent. per annum. Their £1 shares were quoted last night at a middle price of 15s. I can see in these figures no justification Whatever for guaranteeing to the shareholders of Cunard for the next 25 years a dividend of 7½ per cent. on the £12 million which they propose to invest in this new Q.3. 530 It is even more difficult to justify in present circumstances, because he would be a bold man who would predict that the outcome of the events through which we are going just now will be to guarantee that over the next quarter of a century the money policies which animate the present Government will be perpetuated—and it is only a continuation of these circumstances which could begin to justify what is the equivalent of a guaranteed 7½ per cent. dividend for the shareholders.
I have one final proposal to put forward, and this has nothing to do with what is in the Amendments, other than by direct consequence. We appreciate that if the Amendments are carried the agreement with the Cunard Company will have to be rewritten. The present agreement allows the Company to keep earnings up to 7½ per cent. on their equity, and it is only after they have received that, plus various other sums—depreciation and the like, including the nice little titbit thrown in, that the money is not to be compounded until the ship actually sails: and I may say here that some of the nationalised undertakings would be very appreciative of getting their interest not compounded until a scheme was completed—and after the 7½ per cent. had been retained, that the accelerated repayment of the loan may take place. I think it would be equitable if, in the proposed agreement, the figure of 5¾ per cent. were substituted for the figure of 7½ per cent. presently in the agreement. I should not be averse, and I do not think my colleagues would be averse, to any surplus that existed after that being divided proportionately between the taxpayers and the shareholders: three-fifths of anything after 5¾ per cent., shall we say, going towards the accelerated repayment of the loan, and two-fifths being permitted to remain with the company to do with as they please, either to retain within their resources to buy more aeroplanes to compete with B.O.A.C. or to distribute in dividends to their shareholders.
To sum up, the effects of the Amendments will be that the shareholders, like the taxpayers, will receive an initial rate of interest of 5¾ per cent., requiring, as I have said, the same total annual sum as the Bill requires at present. The cash grant, the gift, will be £1¼ million, 531 with an ultimate value of £2½ million, instead of a gift of £3¼ million with an ultimate value of £6½ million. I beg to move.
Page 1, line 18, leave out ("four and a half") and insert ("five and three-quarters"). —(Lord Hughes.)
§ 3.38 p.m.
§ LORD CHESHAM
I am naturally delighted to join with the noble Lord opposite in dealing with all these Amendments together. I am sure he will not mind my saying that his argument has been a little on the intricate side to follow, and I hope that neither he nor the Committee will think I am being in any way unco-operative if I do not follow him in quite the intricacy and length to which he has gone in moving the Amendment that he has put before your Lordships. However, there are three quick points that I should make, and make as clearly as I can, because it seemed to me that there existed some slight misunderstanding in the mind of the noble Lord—or some misconception, perhaps—as to the actual position.
The first thing is that, as I understood him to put the case, it seemed to me that he was quite determined that the 7½ per cent. which is mentioned was in same way some kind of guaranteed return to Cunard.
§ LORD CHESHAM
That was the impression the noble Lord gave me, whether or not he gave it to the House.
§ LORD HUGHES
I am sorry; the fault must be mine, but I thought it was quite clear that what I was putting before was what the noble Lord had stated, what the Government had stated: that there is no acceleration until the company have earned 7½ per cent.—and I repeated the word "earnings". That is not to say have distributed as dividends. They could make a nest-egg of it if they wanted; but they are allowed to earn 7½ per cent. before there is any acceleration of payment.
§ LORD CHESHAM
That is exactly what I said. I did not take the noble Lord's words down, and I shall be quite prepared to withdraw later if I am 532 wrong, but I certainly understood the noble Lord to refer on more than one occasion to a guaranteed return of 7½ per cent. I willingly apologise to the noble Lord if I am wrong, but that is how I understood him to put the matter.
§ LORD HUGHES
May I repeat what I said, because I have my note here? I said the Government proposed to allow Cunard to earn 7½ per cent. on their equity, and to provide for depreciation, before accelerated payments will take place.
§ LORD CHESHAM
That is what the noble Lord said on that occasion. I do not want to argue with him, because it is rather important that we get on to the substance of the Amendment, but I still have that impression, although I am prepared to stand corrected. If the noble Lord had said up to 7½ per cent., it would have made the matter very much clearer, but they have to earn that. That is the point of the accelerated payments. But the noble Lord implied that that was a lot of money to allow Cunard to earn. I would have put it rather as limiting the amount they could earn in this regard. That is the point I wanted to get straight.
The second point is this. Cunard's contribution of £12 million is equity capital. It is completely at risk; whereas the Government's loan, in the form of a debenture, is not. The Government's interest in this matter which they receive from Cunard, the repayments, and so on—because I think we have driven a very hard bargain with Cunard on this—are, as near as anything can be, assured. Cunard's £12 million return by way of equity interest is not assured at all. That, I think, is the position.
I ask the noble Lord to forgive me if I do not follow him, as I said, very intricately into what he said, but the point I must make is this. I rather hesitate to use this term, because it sometimes has a slightly offensive connotation, and I certainly do not mean it in that way; but, either consciously, or probably much more likely unconsciously, this Amendment which the noble Lord has put forward is tantamount to a wrecking Amendment. That I am bound to say.
§ LORD CHESHAM
The reason I say that is because the essential point is that 4½ per cent. on this loan is the most at which Cunard can do the job. I must ask your Lordships to remember that the Chandos Committee, expert as they were, worked very hard, almost exhaustively, on all these matters.
§ LORD OGMORE
May I interrupt the noble Lord? How can we possibly remember that when they have not produced the Chandos Committee's report? The noble Lord is imputing to us knowledge we cannot have, because they will not give us the report.
§ LORD CHESHAM
It appeared to me the other day that the noble Lord had not become acquainted with the summary of their report which has been published, but I hope he has now. I thought perhaps he would have done.
§ LORD LATHAM
Would the noble Lord say that, if serious Amendments are moved in Committee stage, we are then to be told that they cannot be dealt with because they would wreck? What is the good of a Committee stage if that be the case?
§ LORD CHESHAM
If I had an opportunity to develop my argument, I should be able to inform the noble Lord just exactly what I meant. I have been interrupted twice consecutively, and it is rather difficult to give these answers, which I am trying to do. Perhaps I may go on.
The essential point is that the Chandos Committee had exhaustive evidence presented to them which, as your Lordships know, was given under a pledge of confidence by the Chairman of that Committee, as otherwise it would not have been obtained. I explained that at some length the other day. The Government have accepted the recommendation of the Committee that 4½ per cent. is the maximum at which Cunard can do this job. There has been an alteration, as I told your Lordships the other day, of form: to a higher rate of interest on a lesser sum of capital, plus a grant, to make things (as the noble Lord pointed out) crystal clear. The sense in which this is a wrecking Amendment is that, if this Amendment were accepted by your Lordships, this venture would collapse. 534 Cunard would not go on with it, and the ship would not be built. In that sense, I must say, without wishing to give offence to the noble Lord (because it is quite probably not meant like that at all), that that is the effect of the Amendment; and therefore I must ask your Lordships to reject it.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
I must say that I do not accept that this is a wrecking Amendment at all. It is fixing a different rate of interest. The only point on which the noble Lord, Lord Chesham, thinks it is wrecking is because he considers that 4½ per cent. is the maximum that the Cunard can pay in respect of the loan. I do not Think that is at ell the case, especially if you wait for a few weeks to see whether they lose their application for a licence. I am quite certain that this is not a wrecking Amendment. This is an Amendment to do justice by the British taxpayer in relation to the loaning of public money for, in the end, private profit. Therefore, should think it is quite proper, in the interests of the protection of the general public, to go to Division.
§ LORD CHESHAM
If I might add a point to that, I tried to point out (perhaps was too hasty) that I used the word "wrecking" in a technical sense, and not in any way a personal sense. I hope noble Lords opposite will accept that. But, as I have tried to explain, we are convinced that this is the maximum rate of interest at which this ship can be built. Perhaps I should have added that since the Chandos Committee reported and their recommendations were accepted by the Government there have been two wage awards which affect the Cunard Company in their operations and which were not anticipated beforehand. These will make a considerable difference to this operation, or so I am told.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
I must say at once that the noble Lord must not talk of wage awards in this connection. Otherwise any time there is a wage award in the country you will be getting an application for a special grant of public money.
§ LORD CHESHAM
That has nothing to do with it. I was merely saying that if at that time 4½ per cent. was the most 535 that Cunard could carry, and was the maximum burden they could face, it has now become a little more difficult. That is all I am saying. I am merely adding that fact to the weight of my argument. But if an Amendment is moved which, as clearly as I can foretell, would, if carried, result in this ship not being built—which is the sole purpose of the Bill— then I think I am justified in saying that I cannot think of any other term to apply to it than that of a wrecking Amendment.
§ LORD HUGHES
I cannot possibly accept that as a fair interpretation of what will happen under the Bill. The noble Lord referred to the circumstances which exist and to changes which have taken place. Four-and-a-half per cent. was apparently stated by the Chandos Committee, according to the Summary of its Report, as the most that the Cunard Company could pay. That was conditioned by another set of circumstances: provided they were to be left with sufficient resources to leave them with earnings of 7½ per cent. on their equity. That might have been appropriate when the Chandos Committee was considering the situation, because over the previous two years the Cunard Company had paid a dividend of 8 per cent. Therefore, 7½ per cent. might be regarded as a fair comparison with the current dividend. But the report presented a month ago shows that in the last year the Cunard dividend was only 6 per cent.; so it would be fair to relate what they might earn in the immediate future with what they are earning at the present time, bearing in mind the fact that the 6 per cent. is not covered in the year's operations. A reference to today's Financial Times will make that perfectly clear; you do not have to take my word for it.
§ THE PAYMASTER GENERAL (LORD MILLS)
Could I just say, in reply to the noble Lord, that he is talking about the Cunard Company and its earnings, whereas 'this venture is a separate one? It is a separate company with a separate balance sheet and it will have to stand on its own earnings for this new venture. The noble Lord is trying all the time to make us think that this is the Cunard Company's whole operations. It is nothing of the sort.
§ VISCOUNT SIMON
May I ask one question, because it strikes me as extraordinary that either the noble Lord or the Chandos Committee can be so categorical as to say that 4½ per cent. is the most that the Cunard-White Star Company can pay for this loan? I have not the report with me, but I think I am right in saying that the Chandos Committee estimated that the ship would not cost as much as £30 million. Surely what matters is the amount of money that has to be paid out in capital charges against the earnings of the ship. How can anybody say that 4½ per cent. is the absolutely God-given maximum they can pay on £30 million? If they get the ship for £28 million, then the rate would be different from 4½ per cent. It seems to me difficult to accept the statement that there is a line drawn and they would pay up to that amount and could not possibly pay any more.
§ LORD CHESHAM
I think the answer to my noble friend's question is that they went into every foreseeable and fore-tellable facet of this matter, including future trends of every kind, and on that examination it was decided on Government aid to the extent of a loan of £18 million at 4½ per cent. It so proved that, if they had to borrow that money at a larger interest rate, the operation would not succeed. The anticipation for the future, as best they could work it out, indicated that if the company had to pay more, the operation would not be possible.
The last point which my noble friend made, about what would happen should the ship in fact cost less, was one of the points of divergence between the split (so to speak) that was set out in the summary produced by the Chandos Committee and published in the OFFICIAL REPORT on June 1. The point was that the Government negotiated with the Cunard Company that should the ship cost less than £30 million, the Government contribution should go down pro rata. That was not the original recommendation, but from our point of view we regard it as a slightly improved arrangement. It is to be found in the White Paper. I think that that takes care of the second point that my noble friend raised.
§ On Question, Whether the said Amendment shall be agreed to?
§ 4.0 p.m.
§ VISCOUNT SIMON had given Notice of two Amendments, the first of which was, in subsection (5), to leave out "copy" and insert "draft". The noble Viscount said: I think the Committee will readily see what is the object of these Amendments; it is simply that whatever agreement is eventually made between the Government and the Cunard Company in this matter should be brought before Parliament for approval. It seems to me to be a grave fault in this Bill that that is not provided for, and I cannot for the life of me see why that is so. The ancillary agreement in regard to insurance, as your Lordships will see by referring to Clause 2 (2), will be placed before both Houses of Parliament in draft, and the Minister is bound not to enter into the agreement until the draft has been approved by Resolution538
§ Their Lordships divided: Contents, 30: Not-Contents, 71.537
|Airedale, L.||Hughes, L.||Pethick-Lawrence, L.|
|Alexander of Hillsborough, V.||Latham, L.||Rea, L.|
|Amulree, L.||Listowel, E.||Rusholme, L.|
|Amwell, L.||Lucan, E. [Teller.]||Silkin, L.|
|Attlee, E.||Macdonald of Gwaenysgor, L.||Simon, V.|
|Burden, L. [Teller.]||Macpherson of Drumochter, L.||Sinha, L.|
|Chorley, L.||Meston, L.||Summerskill, B.|
|Colwyn, L.||Morrison of Lambeth, L.||Walston, L.|
|Harvey of Tasburgh, L.||Ogmore, L.||Williams, L.|
|Henderson, L.||Peddie, L.||Wise, L.|
|Ailwyn, L.||Elliot of Hardwood, B.||Massereene and Ferrard, V.|
|Airlie, E.||Ferrier, L.||Merrivale, L.|
|Allerton, L.||Foley, L.||Mills, L.|
|Ampthill, L.||Fraser of North Cape, L.||Milverton, L.|
|Atholl, D.||Freyberg, L.||Monson, L.|
|Baden-Powell, L.||Furness, V.||Montgomery of Alamein, V.|
|Baldwin of Bewdley, E.||Goschen, V.||Mowbray and Stourton, L.|
|Balfour of Inchrye, L.||Gosford, E.||Newall, L.|
|Bird wood, L.||Grenfell, L.||Newton, L. [Teller.]|
|Brecon, L.||Haddington, E.||Northesk, E.|
|Buckinghamshire, E.||Hailsham, V. (L. President.)||Onslow, E.|
|Carrington, L.||Hastings, L.||Rathcavan, L.|
|Chelmsford, V.||Horsbrugh, B.||Robins, L.|
|Chesham, L.||Howe, E.||St. Aldwyn, E. [Teller.]|
|Congleton. L.||Jellicoe, E.||St. Oswald, L.|
|Craigton, L.||Jessel, L.||Salisbury, M.|
|Crathorne, L.||Kilmuir, V. (L. Chancellor.)||Soulbury, V.|
|Denham, L.||Lansdowne, M.||Spens, L.|
|Deramore, L.||Lothian, M.||Stratheden and Campbell, L.|
|Digby, L.||Luke, L.||Swinton, E.|
|Dundee, E.||Lyle of Westbourne, L.||Tenby, V.|
|Dunleath, L.||Mac Andrew, L.||Teviot, L.|
|Dynevor, L.||Macclesfield, E.||Twining, L.|
|Effingham, E.||Margesson, V.|
Resolved in the negative, and Amendment disagreed to accordingly.
§ of each House. Why should not a similar procedure be laid down in regard to the main Agreement.
I imagine that what I shall be told is that the Government have published a White Paper, which we have here, called The Memorandum of Points of Agreement, but, as I took occasion to point out on Second Reading, all that it says in this Memorandum is that it is intended to enter into an agreement based upon the Memorandum. The actual words are:
This Memorandum is being used as the basis on which the Agreements have been prepared.
It seems to me that "basis" is a fairly general word, that an Agreement substantially different from this one could quite correctly be brought forward and that the Minister could tell us, with perfect truth, that it was on the basis of this Memorandum.
§ Furthermore, I would call attention to the fact that although this Memorandum has been circulated with the preamble to it, there is no connection between the Memorandum and the Bill. The White Paper is not referred to in the Bill; it does not appear as a Schedule or anything. If the Minister were to come at a later date with a completely different agreement, although no doubt he would very properly be subjected to some fairly severe criticism, he could say, turning to Clause 1 (5), that what he was doing was perfectly legal, and there was nothing in the Bill to prevent him from bringing in any agreement, subject only to the limitation on the amount of the subsidy contained in subsection (4). It seems to me that this is a bad principle.
§ If an agreement is being made with a private company it is right that the terms of that agreement should be placed before Parliament for scrutiny and discussion. Fortunately, in this House we have fairly broad Rules of Order, otherwise I suppose it would not be in order to discuss the terms of the agreement at all unless somebody put down a Motion to discuss the White Paper, because it is not in the Bill; and presumably when considering the Bill we can discuss only what is in the Bill. For that very reason, I do not want to talk about the terms of agreement, but surely they are so important a part of this matter that they ought to be in the Bill; or if the fact is, as we assume, that agreement has not been reached, then there should be some provision that when agreement is reached the matter should be brought before Parliament for approval.
§ I was a little disturbed during the Second Reading debate when the noble Lord, Lord Mills, in reply to a question of mine, said that he understood the position to be that the Government were so far committed that certain alterations could not be made. That seems to me a curious position, too. Here are the Government entering into negotiations, and, it appears, committing themselves so far that they can honestly say, behind their staunch umbrella, that they are not susceptible to any criticism about it at all. I realise, from my own experience, that when you enter into negotiations you have to get a certain distance before you can produce anything like 540 this Bill, and I make no complaint about the Government's having negotiated with the Cunard Company to find out what measure of agreement could be reached; that is quite proper and necessary. But I should have thought that the Cunard Company, in the position in which they stand, would be perfectly willing to understand that any agreement they might reach with the Government would be subject to Parliamentary approval. If that had been put to them, I cannot imagine that they could have raised the slightest objection to it.
§ This and the following Amendment (and with your Lordships' permission I am speaking to both of them) are aimed at getting the agreement brought before Parliament. If I can put the matter quite distinctly, it is that if an agreement is already negotiated, why cannot it be brought before Parliament and put in the Bill? And if it is not already negotiated, then I ask the noble Lord who represents the Government to tell us that they will accept this Amendment, so that we shall have a subsequent opportunity of discussing the terms of the Agreement. I beg to move.
Page 2, line 16, leave out ("copy") and insert ("draft").—(Viscount Simon.)
§ LORD CHESHAM
My noble friend is perfectly right about one thing—namely, that he is going to be told from this Box about the existence of the White Paper; and because of that, I am bound to say that I find the two Amendments in my noble friend's name (quite correctly discussed by him together) are unnecessary. The substance of the agreement has been set out fully in the White Paper, which has now been before your Lordships and everyone else for quite a long time. It has been perfectly possible during the passage of this Bill, both in another place and here—and what we are doing is to give effect to the provisional agreement with the Company—to discuss any part of the White Paper and any provision in it by proposing Amendments to the Bill. That is really what we have just been doing, in a sense, in discussing the Amendments proposed by the noble Lord, Lord Hughes.
The purpose of the formal agreement is to do no more (however much one may argue about the meaning of the word "basis") than put the provisions 541 in the White Paper into legal form. One could hardly ask the Cunard Company to sign on the bottom of that. Those provisions would have to be put into legal form, and that is what the formal agreement is for. No new points of substance, or anything of that kind, will be included in it. On the other hand, my noble friend referred to the insurance agreement which is to be subject to the approval of both Houses, and he drew a parallel from that. But it is not a parallel, because Parliament has not yet had the opportunity to see the substance of the insurance agreement, and, therefore, it is perfectly proper and reasonable that that should be subject to approval.
There is another objection to this Amendment, and that is the effect it would have on the timetable to which everyone is trying to work in this matter. We shall not know for certain until the tenders come in at the end of this month, but it is certainly hoped that some at least of the tenderers will be able to offer completion by the spring of 1965. That is important and no doubt will be a significant factor. Obviously, you want to start a ship of this kind at the beginning of the summer tourist season, and not in the autumn. Therefore, the only practical alternative to the spring of 1965 is the spring of 1966. Not only would that year's delay be the loss of what would quite likely be a very valuable earning year for the ship, but there is the fact that to keep the "Queen Mary" running for another season at that stage would be extremely expensive in terms of repair bills and of lower earning power. In fact, I am told that it might not be possible to keep her running; in which case we should have to abandon the weekly service, at any rate on a temporary basis, for a year, with all the loss of goodwill that would be entailed.
The timetable to which we are working requires that the Government should be in a position to sign the formal agreement with the Cunard Company during the summer so that no time will be lost—and I think your Lordships would agree as to the importance of this aspect—in giving a firm decision to the successful tenderer. If it were necessary to await the affirmative approval of Parliament, which could not be given before the beginning of next Session, obviously and inevitably that would 542 mean delay which in turn would make it very unlikely indeed that the ship could be put into service in the spring of 1965. In view of that explanation, I hope my noble friend will not press his Amendment.
§ 4.15 p.m.
§ VISCOUNT SIMON
I confess that I do not feel too happy about that reply. I recognise, of course, that there is an important time element, and that if this scheme is to be proceeded with it is right that it should be done quickly. But it seems to me that the Government, if I may say so, have brought this upon themselves. This is in fact an agreement, and it could have been put into the Bill, or something could have been put into the Bill. It seems to me such a bad principle to bring forward a Bill of this kind and not to have the substance of the agreement in the Bill itself, not even as a Schedule. Of course, the noble Lord 'has much greater knowledge of the timetable than I have. If the agreement is ready, I do not know why it cannot be tabled immediately. If the agreement is not ready, then clearly it is impossible to go ahead with the timetable. I do not find this very convincing. I still feel strongly that this is an issue on which we ought to press the Government, either to accept this Amendment, or to meet it in another way by adding a Schedule to the Bill containing the terms of agreement.
§ VISCOUNT ALEXANDER OF HILLSBOROUGH
May I say a word about this matter? I am very interested in it, and I have been from the time I saw the Amendment on the Paper. But I am afraid that I should find some difficulty in going into the Lobby in support of the Amendment, for reasons of Parliamentary procedure to which we have been accustomed. In this case, there is in the Bill a provision that will mean that the agreement is laid before Parliament. The only process we have adopted in the past is that, where it is necessary to move specifically through a Minister proceeding with a statutory order procedure, we have an order laid in draft so that we can debate it. But I think that, with a Bill of this kind, if you are going to lay an order to show what the agreement is, the House should have before it, during the discussion of the Bill, the actual terms of the agreement. The 543 Government say that they are trying to do that in the form of a summary. I must say that, when large sums of money are involved, I think we ought to have the actual agreement that has been entered into. But I do not think I could press for this form of Amendment which would upset, in my rather ordered Parliamentary mind, the procedure for this kind of thing. It is going to be laid. I think you could make quite a nice opening for debate on the agreement when it is laid.
§ LORD CHESHAM
Might I add something, for the sake of complete clarity, because I would not wish in any way to appear to be concealing anything from my noble friend, the noble Viscount or the House. I am grateful to the noble Viscount for what he has said, but, of course, the agreement at to-day's date is not ready. It will be ready during the Recess. As the noble Viscount who leads the Opposition has pointed out, when completed it will be laid. In view of the delay that will be caused, which might be serious to the ship and in getting the service going, I hope my noble friend may think again about pressing his Amendment.
§ LORD CHESHAM
I have just said the opposite to that, if the noble Lord recalls. I said that we had produced this White Paper. The reason for producing it was so that the substance and the points that would be in the agreement could be looked at and debated in the course of the passage of the Bill in either House—as, indeed, they have been to a certain extent—and that the formal agreement would only be the legal form, as it were, of the agreement and will no doubt contain a great many more words than the White Paper does, That was the object of the White Paper, to disclose what were the provisional terms of agreement; and the formal agreement will only be the legal engrossment—is that the right word?—of what is in the White Paper.
§ LORD LATHAM
I am sorry to press this but the noble Lord's reply does not 544 accord with what is stated in the White Paper. The first paragraph saysThis Memorandum is intended to record the main items on which"—and then comes the important word"—provisional agreement has been reached"."Provisional agreement" means that it is provisional. So surely it is susceptible to modification.
§ LORD CHESHAM
Obviously it must say provisional, because the Government were not in a position, before the Bill was passed, of having Parliamentary authority.
§ LORD LATHAM
That was not the case. You really must read the sentence as a whole:…to record the main items on which provisional agreement has been reached".Not agreement as a whole, but the main items on which provisional agreement has been reached.
§ LORD FERRIER
In supporting the principles enunciated by my noble friend Lord Simon, I feel, like the noble Viscount the Leader of the Opposition, that if It is a matter in which, if 'the Amendment were carried, it would mean delays, I should not be prepared to go into the Lobby, but in my short experience in your Lordships' House this is the second time I have felt bound to take this position: that I feel it is the duty of Parliament to watch every word, to provide against the possibility of decisions being taken and being laid before Parliament as a fait accompli. To that end I would repeat my support for Lord Simon's Amendment. However, if the noble Lord at the Despatch Box can convince us that it would mean delay, I should not necessarily go into the Lobby.
§ VISCOUNT SIMON
I think it is clear that I should accept the advice of the noble Viscount, the Leader of the Opposition, who along with nearly all noble Lords in this House has far greater experience of the Parliamentary world than I have. I therefore beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Clause 1 agreed to.
§ Remaining clauses agreed to.
§ House resumed.
§ Bill reported without amendment.