§ 11.36 a.m.
§ The Lord PRIVY SEAL (LORD SHACKLETON)
My Lords, I beg to move that this Bill be now read a second time. A little more than two years ago I moved the Second Reading of another Iron and Steel Bill, which nationalised the bulk of the steel industry, and I repeat now, as I said then, that I was grateful for the co-operative way in which the Opposition dealt with the Bill. We had some useful discussions and a good deal of agreement, granted of course that there was some fundamental difference of approach. At that time I explained—and everything that has occurred since I think has confirmed—the need for a drastic and urgent reorganisation of the industry. That Bill, which became the Iron and Steel Act 1967, provided for that reorganisation by bringing the major part of the industry under the single ownership of the British Steel Corporation. The Bill before the House today is essential if full advantage is to be taken of the reorganisation and if the movement of the industry towards full efficiency and competitiveness is to continue. 569 During the two years since nationalisation took place the British Steel Corporation has been reviewing all the fundamental policies of the nationalised sector of the industry to make them fit both the needs of the new organisation and the changing nature of the steel industry itself. This Bill is the outcome of the Corporation's work and the Government's consideration of it.
I will briefly describe the Corporation's work and how the Bill fits into it. It is concerned with three main areas of policy: capital structure, long-term developments and management organisation. Dealing with capital structure, I would point out that the first area of policy and probably the primary purpose of the Bill is to provide for a new and more appropriate capita] structure for the British Steel Corporation. The present capital structure of the Corporation consists entirely of fixed interest debt and loan capital. It assumed on vesting date, July 28, 1967, a commencing capital debt to the Government of just under £834 million, reflecting the cost of the securities vested in it and loans transferred to it. In addition it was given borrowing powers of up to £300 million which were increased in July of last year by Resolution in another place to the maximum of £400 million.
A fixed interest structure is, by its nature, inflexible, and the Corporation found itself operating in a market which was not only highly competitive but also highly cyclical, giving rise to marked fluctuations in returns. Had the Corporation started life at the top of the cycle this might have been tolerable. Unfortunately 1967-68 was a time when the industry's fortunes were on the ebb and the Corporation was faced with the daunting prospect of servicing a large capital debt out of inadequate profits and without reserves. A heavy loss would necessarily result. More generally, the Corporation has emphasised that as long as it is financed entirely by loan capital, interest on which is a deduction before profits, its results will not be comparable with those of its competitors, nearly all of whom have a substantial element of equity in their capital. The Corporation believes that if there were no change in its capital structure its relationships with its customers would be marred and unnecessarily so, and the morale of the industry would suffer. It has therefore 570 asked that £700 million of the commencing capital, or some two-thirds of its total long-term debt, should take the form of public dividend capital such as was adopted for B.O.A.C. as an experiment in 1966.
May I remind your Lordships' House about the Government's thinking and policy on this form of capital? This is that it is appropriate only for those nationalised industries which are fully viable but which are subject to fluctuating returns because of their trading conditions and the nature of their assets. Noble Lords can immediately see the great difference between an industry like the steel industry and some of the other nationalised bodies. The Government consider that the British Steel Corporation meet both these conditions, and that the Corporation presents a suitable case for development and further experiment in this kind of capital. The Government have therefore accepted the British Steel Corporation's proposal to convert £700 million of the commencing capital debt into public dividend capital. Further, the Government consider it important that the new capital structure should operate effectively from vesting date so that the Corporation's position is clearly shown from the start.
I Wish to make it clear to the House that the proposed capital reconstruction is not a write-off in disguise. The Minister has declared the policy he intends to follow regarding dividends. Initially, he will expect that as a minimum all profits after clearance of any past lasses, shall be paid as dividends until the Government have received, by way of dividends and corporation tax, a sum equivalent to the interest which would otherwise be paid on the public dividend capital had it been in the form of fixed-interest capital. Thereafter the Minister will be prepared to consider on merits proposals from the Corporation for the allocation of some amounts to reserve against contingencies other than fluctuation of dividends; otherwise profits should continue to be paid as dividends.
The Memorandum on the Bill gives details of the provisions for this capital reconstruction. In essence, Clauses 1 and 2 provide power to invest sums in the Corporation otherwise than by way of loan—that is to say, in the form of public dividend capital, subject to the limit set by Parliament which will apply 571 in future not only to borrowing but also to any future payments of public dividend capital. They convert £700 million of the commencing capital debt into public dividend capital by deeming that sum to have been paid on vesting date instead of lent to the Corporation and by declaring the commencing capital debt to consist of the remaining £134 million. They also provide for the Corporation to make a proposal about the payment of a dividend on public dividend capital each financial year, though the final determination will rest with the Minister after agreement with the Treasury. It is important that these dividends should be related to a proper, realistic capital base. The Bill, in Clause 4, therefore provides for the notional capitalisation of the reserves of both the Corporation and the publicly owned companies by empowering the Minister to direct, after consulting the Corporation, that some or all these reserves shall be deemed to be public dividend capital and to which the provisions regarding dividends will apply.
As a consequence of the adoption of public dividend capital, Clause 5 replaces the general financial duty placed upon the B.S.C. by Section 16 (1) of the 1967 Act with a more specific duty to be expressed in terms of a rate of return on net assets over a given period to be determined by the Minister after consultation with the Corporation and with the approval of the Treasury. It may be that experience will show some other form of objective to be more suitable, so provision is made for the Minister to change the form of the financial duty by order, subject to Parliamentary approval. Parliament will have the opportunity to review this reconstruction after it has been tested over a reasonable period of time before the provisions could be made permanent. Clause 6 therefore provides that the powers I have just outlined shall terminate in 1974 unless the Minister, by order, directs that they shall continue in force either permanently or for one further trial period. Any such order will, however, have to be approved by an Affirmative Resolution of both Houses of Parliament.
I should like to turn briefly to the long-term development to which I have already referred. The Corporation's long-term planning will of course be absolutely vital to its success, and they have 572 therefore devoted a special effort to their work in this field. Detailed decisions on the nature and size of future investments remain to be taken, and the Corporation certainly do not intend ever to have a fixed blueprint for future development; they wish to be free to take account of changing circumstances. But already the shape of the industry over the next few years is clear. To meet the expected growth in home demand and to take full advantage of export opportunities, the Corporation's output of crude steel will be increased from its present 25 million tons a year to between 30 and 34 million tons by 1975. This expansion will be accompanied by an extensive programme of modernisation. The bulk of crude steel production will, by the mid-1970s, be based on a comparatively small number of large plants situated on or near the coast, all using the most modern techniques and all based on high standards of labour productivity and all able to compete on equal terms with the similar plant now in operation or being built in America and Japan. Of course this programme of expansion and modernisation will lead to heavy capital expenditure. Legislation is therefore necessary to increase the Corporation's financing limit, and this is the second of the main functions of this Bill.
My Lords, the present position, and the Government's proposals for increasing the limit, which will now be broadened to include any future sums invested as public dividend capital, are fully explained in the Memorandum on the Bill (Cmnd. 4022). As your Lordships will see, by the end of the Corporation's first financial year at September 30, 1968, the Minister had loaned to the Corporation £179½ million and had given his statutory consent to temporary borrowings of up to a maximum of £155 million, of which £54 million remained available. This means that the Corporation had used £334 million of its borrowing powers and had £66 million in hand before reaching the present borrowing limit of £400 million.
The Corporation's plans for development will, however, require heavy capital investment. The Government have considered that it would be prudent and reasonable to allow for an estimated requirement of about £315 million of external finance over the five and a half years from September, 1968 to March, 573 1974, £150 million of which will be wanted during the first three years to September, 1971. With £66 million in hand (and I apologise for giving all these figures), we are, therefore, in Clause 3 of the Bill, proposing to increase the borrowing powers by £100 million, in the first place, to a limit of £500 million, and to empower the Minister to raise this limit by up to a further £150 million as necessary by Order subject to an Affirmative Resolution in the House of Commons. It will be for the Government to decide, according to the circumstances at the time after consultation with the Corporation, whether the additional finance should be provided in the form of fixed-interest loans or further public dividend capital or a mixture of both.
The Corporation outlines its case for an increase in borrowing powers in pages 7 and 8 of its brochure, Finance for Steel, which I am sure the noble Earl, Lord Bessborough, has read. Their figures may seem at variance with those put forward by the Government. The main reasons why this has arisen—and this was explained in another place—are that there is a difference of six months in the time base, and because they refer to a further need for substantial additional sums but do not allow a specific sum. The Government Memorandum has quantified this last amount as an allowance of £150 million for contingencies. The Ministry of Power have prepared an explanatory note reconciling differences in the figures, and this note has been made available to your Lordships.
It is, as your Lordships know, the Government's policy to permit the nationalised industries to take advantage of favourable opportunities to borrow in foreign currencies if they so wish. Appropriate powers have already been given to the Air Corporations and to the Gas and Electricity industries. Clause 7 of this Bill extends these powers to the British Steel Corporation. Such foreign borrowing will of course count against the financing limit, and each borrowing will be subject to the Minister's consent and the approval of the Treasury, and will be eligible for Treasury guarantee.
The last point with which I want to deal is management organisation. Since nationalisation the Corporation has been examining this aspect of its affairs also, 574 and I should like to pay tribute to the really tremendous energy and effectiveness with which it has examined these problems: it is a great tribute to the noble Lord, Lord Melchett, who is known to us all, and to the members of the Corporation. In its Second Report on Organisation, laid before Your Lordships' House in March, the Corporation made an important recommendation on the future of the nationalised companies. The 1967 Act left the companies in existence and affected nationalisation by vesting the ownership of the securities in the Corporation. But of course the whole point of nationalisation was that the Corporation and not the companies should subject to the Minister and Parliament, be in full control of the nationalised industry. Moreover, the companies were very small by international standards and the boundaries between them cut across: the rational patterns of production for the industry. As a result they have ceased to play any real part in its management. They have, however, continued as nominal owners of the industry's assets, and their existence has involved the Corporation in the formalities of the Companies Acts, which means considerable work, as there are over 150 companies. This is pointless and the Corporation therefore recommended in its Second Report on Organisation that the companies' undertakings should be transferred to itself. Without legislation, and with so many companies involved, this transfer, and the consequent dissolution of the companies, would be an enormous and quite unproductive operation, distracting the Corporation from its real work of making and selling steel. Clause 8 of the Bill therefore empowers the Minister of Power to transfer the undertakings of the publicly-owned companies, and to dissolve them, by Order, subject to Parliamentary procedure.
To facilitate the early dissolution of the companies and ensure that financial or fiscal penalties are not incurred in the process, the Bill, in Clauses 9 and 10, provides for accumulated tax losses and allowances of the companies in respect of any trade taken over by the Corporation from those companies to become available to the Corporation—and for any capital losses of companies which are dissolved to be set against chargeable gains of the Corporation. Similarly, Clauses 11 and 12 provide for payment 575 to the Corporation of the equivalent of investment grants which would otherwise have been payable to any of the companies had they not been dissolved or their undertakings and assets transferred to the Corporation. The Bill also contains two additional minor provisions. One is to permit a greater measure of flexibility for fixing the end of the British Steel Corporation's financial year and the other is to permit the Corporation's seal to be authenticated by the signature of the Corporation's Secretary or some other authorised person instead of by the Secretary or such a person jointly with a member of the Corporation. Both are common-sense provisions designed to ease administration. They are contained in Clauses 13 and 14.
I am sorry to have taken up so much time; I have tried to cut my speech as much as possible. But this is an important and technical measure, even though it is embodied in a comparatively small Bill. It is an important Bill, and it is designed to put British Steel in a position from which it can face the challenges, the very real challenges, which face it with very much greater confidence, and accordingly I have no hesitation in commending this Bill to your Lordships for approval.
§ Moved, That the Bill be now read 2a.—(Lord Shackleton.)
§ 11.45 a.m.
The Earl of BESSBOROUGH
My Lords, we must be grateful to the noble Lord the Leader of the House for explaining the contents of this Bill to us, especially after his rather rough ride last night. I am glad he has surfaced again and is in such good form. "Once more unto the breach", I might say, except that perhaps "Oh God of Battle, steel my soldiers' hearts" might be more appropriate.
My Lords, this certainly is a very important Bill. I much regret that it should come to us on a Friday morning towards the end of the Session, and that the Committee stage should be put down to be taken so soon afterwards—that is to say, I understand, on Tuesday. In another place there was a long Second Reading debate, 11 sittings in Standing Committee, as well as further debates on Report stage and Third Reading, lasting alto- 576 gether from early May well into July. We have to deal with this on a Friday morning and on Tuesday.
There are many features of the Bill about which we on this side of the House are unhappy. I hesitate to give all the adjectives which have been used to describe the Bill; I am sure the noble Lord will already have read them. Accordingly, a number of Amendments were put down, both in Committee and on Report in another place. There was one Amendment put down on Report to which we attach considerable importance. I deal with it first because we should have liked to see it as a new Clause 1, although perhaps on reflection it might go better at the end of Clause 5, on the Corporation's financial duty. It concerns the information to be published in the report of the British Steel Corporation; and I hope the noble Lord, who must have been through the various stages of the Bill elsewhere (although I do not know how he could have found the time) will be able to give us some assurance on this, either today or in Committee.
The effect of the new clause would have been to require the Corporation in its annual statement of accounts to present details of the returns both on the total net assets of the Corporation itself and on the net assets of each of its principal regional product groupings. The arguments in support of this were cogently put, and I will not repeat all of them here, except to say that when a Corporation is virtually a monopoly and is dividing itself up into monopolistic groupings, customers of the Corporation will want some insight into the trading activities of the group. A public company would have subsidiary companies each of which would give separate returns, and I would particularly ask the noble Lord whether, on the dissolution of the companies, as provided for in Clause 8, as we have heard, separate accounts for each product group will be published. Fuller disclosure of information is today a general trend, and I should like this to be spelt out and written more fully into the Bill. At the least, I should like, for the record, to obtain an undertaking from the noble Lord that full information will be made available. The point is: are the Government satisfied, as guardians of the public 577 purse, that sufficient information will be made public?
However, this apart, I must proceed this morning to summarise as briefly as possible some of our main objections to the Bill as a whole. This is not easy with a Bill on which long speeches had to be made in another place. Our first criticisms concern the present Clauses 1 and 2, regarding the conversion of the £700 million of the loan capital into public dividend capital—p.d.c. We on this side of the House do not like, I must admit, the fudging effect of public dividend capital. It has been widely censured, both in regard to the Air Corporations Bill and during debates on the present Bill. The fact remains that the concept of public dividend capital will not of itself make a corporation competitive, and there is no true equality with private companies or public companies. No matter how anxious a Corporation such as British Steel may be to model itself on the private sector, it can never be regarded as a normal joint stock company. We on this side strongly approve of the Corporation's desire to become fully commercial, but unfortunately, as noble Lords opposite know only too well, the Act of nationalisation is passed and steel has fallen a victim to Socialist dogma.
Public dividend capital has been described as the merest window dressing, as a sort of bastard equity, a bogus equity, a sham equity. The essence of equity is that the shareholders own the business. It is the function of shareholders to take the chance of profit, the risk of loss, and to exercise discipline on management. They may not always do so, but there have been some encouraging instances of late. It is no use the Government's saying that the taxpayer is an equity holder in British Steel. That, as my right honourable friend has said, is so diffuse a truth that it loses all bite. If the Corporation had equity in the proper sense it would have to seek finance from the market and satisfy its shareholders that management was effective. These initials, p.d.c., public dividend capital, were indeed described by one of my honourable friends as meaning "payment deferred constantly". It is, after all, the taxpayer who will have to find the money which is represented by this public dividend capital.
578 I understand that the basic idea (I am sorry to labour this whole question but it seems to me very important) of p.d.c., is to introduce an element of challenge to management by giving an appearance of similarity to private enterprise, and that the size and regularity of the dividend is supposed to be an overt and public test of the success, or otherwise, of the Corporation. The Government have even described it as a spur to efficiency and morale, and as an incentive. We on these Benches very much favour incentives, whether they be to management or to staff, but there is a danger that p.d.c., may convey a false impression of efficiency or inefficinecy, of success or lack of success. We just do not believe that public dividend capital meets this requirement or is anything like analogous to the equity holding in a private company. The dividend paid on this capital may be positively misleading as a basis of comparison with privately-owned industry.
We on these Benches hope that at least the Minister will fix a realistic target rate of return on assets at which the Corporation should be required to aim during the year. The Minister has power to impose a target but is not required to publish it. Nevertheless, we believe that the Minister should tell the public the target he gives to the Corporation, because unless that is known we cannot judge whether the Corporation's investment decisions are sound. If the target is not realistic, the Corporation will be allowed to trade with the benefit of subsidy and there will be unfair competition with the private sector.
Another matter which concerns us is Clause 3, the financial effects of the Bill and the extension of the limit on the borrowing powers of the Corporation to include all public dividend capital issued to the Corporation. We know that under the principal Act the aggregate of borrowings by the Corporation was not to exceed £300 million sterling—I take these items from memorandum "Financial Effects of the Bill", and the noble Lord mentioned them. Then in July, 1968, the limit was raised to £400 million. Now Clause 3 fixes a new limit of £500 million, and Clause 3 also empowers the Minister to raise this limit to £650 million—another £250 million—by Order requiring approval by Resolution in another place. 579 My Lords, when is this going to stop? I must say that when I read this I wondered whether we ought not to move an Amendment reducing, rather than extending, this borrowing; and I shall say something more of this later. Even in regard to the monies which the Corporation has already borrowed, Ministers have seemed unable to account for the way they have been spent. This hardly reassures us on their responsibility and effectiveness as guardians of the public purse.
Moreover, in spite of all the efforts of my honourable friends to get at the truth, we still do not know (the noble Lord has partly explained it to us this morning, but I am still not quite clear about it) the extent of the Corporation's long-term borrowing. I understand about the six-months difference in time base, but I am still not completely clear in my mind whether it will be £157 million, as given in a Written Answer on June 10, or £176 million, as appears in the Corporation's publication which the noble Lord mentioned, Finance for Steel, or indeed £200 million, which was the figure given by the Minister in Standing Committee. But I will not labour this point further, because the noble Lord went some way to try to explain this discrepancy.
However, one thing is certain. This Bill enables yet another nationalised industry to have a substantial part of its capital debt reduced; £700 million of the liabilities arising out of the Act of nationalisation are to be converted in variable interest capital. One of the reasons the Government give for this is that the industry operates in an internationally competitive atmosphere. We on this side of the House find this rather strange when we recall that, during the passage of the 1967 Act, one of the principal justifications for nationalisation was the Government's claim that there was no competition in the steel industry. So they created a State monopoly. Now, two years later, the Government are asking Parliament to pass a Bill to help them enable their own State industry to take on as many trappings—but only trappings—of private enterprise as may be convenient to them. Very strange! "Curiouser and curiouser", as Alice would say.
580 In regard to Clause 5, the financial objective of the Corporation, we are particularly concerned with the rate of return which it is laid upon the Corporation to earn over a given period of time on the Corporation's net assets. We must know the rate of return on capital investment. I fear that the use of public dividend capital is likely to be a step in the wrong direction, because the reason why we should invest money and therefore be able to pay dividends on the investments in steel is not that it is a good idea to have a steel industry or because it saves imports, but because it is a profitable thing to do. Therefore, to give the British Steel Corporation the type of capital which enables it to shirk the profit aspects of what it is doing is a mistake.
I know that the Corporation is subject to the 8 per cent. discounted cash flow test on all new investments; but what we on this side of the House do not understand—I asked the noble Lord, Lord Beswick, about this only the other day—is why this same test should not apply to the investment of new public dividend capital rather than just to the making of investments in general. Supposing the percentage of 8 per cent. were the correct one, which patently it is not, then we should be told in advance that the Steel Corporation should not make investments, even in the medium of public dividend capital, unless they can yield 8 per cent. At a time when there is a capital famine and capital is costing up to 11 per cent. in the markets, here are the Government solemnly pushing through this Bill and going through the paraphernalia of trying to raise the borrowing powers of the Corporation by a further £250 million, as I said, from £400 million now to a possible £650 million—millions of scarce capital—to make investments for political reasons without knowing what return we shall get.
The 8 per cent. test rate continues, as the noble Lord, Lord Beswick, told me on May 22, and he told me then that the result of the Government's review would not be known before the autumn. In the circumstances, I find this quite extraordinary. If rates for borrowing go up, surely you must adjust the rate of flow at a time when it is more expensive to borrow money.
581 Just a word about Clause 7, the power of the Corporation and the publicly-owned companies to borrow money in foreign currency—overseas borrowing. I should like the noble Lord to give me an answer on this question because no adequate answer was given in another place. This country has borrowed enough at home and more than enough abroad. Our total indebtedness abroad now amounts to over £6,000 million, which has to be repaid within the next seven years. This is a monumental strain on the country and is far beyond the capacity of this Government to achieve. We should think most carefully before allowing the Government any further powers to borrow abroad, and I feel strongly that the power to borrow overseas should be in the control of Parliament and permitted only with Parliamentary approval.
An Amendment tabled by my honourable friend on the Report stage would have made such borrowing accountable to Parliament and would have made it necessary for Ministers to justify any departures in Treasury economic thinking or in Government policy. Indeed, the Chancellor of the Exchequer recently felt it necessary to explain the significance of the commitments we were undertaking in respect of applications entered into by this country to the International Monetary Fund.
Only last Wednesday the Financial Secretary to the Treasury sprung on us news that he thought that Britain's short-term debts should be paid on a long-term basis or, according to the jargon, funded. In a speech to the European Monetary Conference he admitted that it was high time to recognise openly that Britain was in no position to repay her debts to the I.M.F. and the Central Banks on schedule. What a terrible admission to have to make! And what, for example, is the attitude of the Germans to this? It was reported only yesterday in The Times that the Electricity Council Bond Issue on the German Market, which has been hanging fire since April, is likely to be only half the 300 million Deutschmarks originally discused. The Germans did in fact react unfavourably to the first issue by a nationalised British industry, the Gas Council's 300 million Deutschmarks, in March. I gather that the Electricity Council hope that they may be 582 able to go back to the German market at a later date and thus make up the 300 million Deutschmarks in two separate tranches. I wonder what their attitude will be to similar approaches by the British Steel Corporation—also a nationalised industry.
It seems in fact that the Government are casually taking steps to organise matters so that we should suffer an increase in the money supply at a time when we are in deficit in our balance of payments. I do not think that the Government's argument that to the extent that the Corporation borrows abroad it will borrow less from the Government holds any water at all. The Corporation does not borrow only from the Government; it borrows also from the banks and from the public on its own stocks.
In regard to Clause 8, we on this side of the House are concerned about the dissolution of the companies, which was mentioned by the noble Lord the Leader of the House—the companies which were in public ownership on April 30, 1969. These companies must go because the Bill gives the Minister power to authorise the Corporation to abolish them as well as all their trading names. We are not saying that every company and every trading name should be preserved, but in many cases there are links of loyalty between companies and managers and men, and some of the products of some of the trading names are world renowned. Everywhere I go in the world I am asked about the Spencer Steel Works. I hope that the noble Lord will reassure us that he will not allow the Corporation before the new organisation has been decided, to abolish the companies and their names without seriously considering the damage which may be done.
I note what the Minister of Power and the noble Lord have said about the dissolution of these companies: that it would have no real effect on the industry's operations or policy; that it would not affect its productions policy, selling policy or labour relations. The Minister has said that the companies have already ceased to play any real part in the management of the industry, so that their disappearance would not affect these matters, and that he saw the dissolution of the companies as having two effects. First, and as the noble Lord said, it would give the Corporation direct ownership of the 583 industry's assets as well as effective control of the industry's operations; and secondly, it would free the Corporation from the costly and time-consuming administration involved in maintaining the companies. I admit that there may be some truth in this, but I am still not happy about scrapping these famous names. I would also ask the Government when they intend to fix the financial objectives for the Corporation. I know that the Minister believes that this will be done as soon as possible after enactment of the Bill, but I should like to know from the noble Lord how long he thinks it will be after enactment before these financial targets are fixed.
On the subject of the reorganisation of the industry, I was interested to learn of the new development of steel-making facilities at Scunthorpe and the ore terminal at Redcar on Tees-side; and also to learn that the proposals, which were announced on July 11, would require the Minister's approval because they form part of the capital investment programme. This, again, is most strange. I do not know where I am. Apparently, the proposals which have been announced still require the Minister's approval, despite the fact that he has announced them. Are the proposals approved, or are they not approved? I should like to know about this. I find it hard to have confidence in a Minister in another place who makes such an extraordinary remark. Who has jumped the gun on this?
§ Lord SHACKLETON
I wonder whether the noble Earl could restate his question. His fervour is rather confusing my understanding of what he is trying to ask me.
The Earl of BESSBOROUGH
My Lords, I am sorry to be so fervent, but I do feel rather fervent about this Bill. On July 11 the Minister announced that there were to be these further steel-making facilities at Scunthorpe and on Tees-side, and yet he said that they required the Minister's approval. What I do not understand is how you can announce a development of this kind without approval having yet been given. In connection with these new developments I might also ask whether we must now say goodbye to thoughts of a large new 584 £300 million steelworks on Humberside or Clydeside?
Finally—and I really have come to the end—I would emphasise, that in regard to the management of the Corporation we on this side of the House in no way blame my noble friend Lord Melchett or his staff for the numerous criticisms which have been made of this Bill. We are merely advocating that the Minister, rather than the industry, should ensure that the taxpayers' money is being properly invested, and in my view, the Minister should impose sufficient discipline on the Corporation to see that this happens. I would say only this: we dislike the Bill because it may well be that there will be inadequate disclosure of information in regard to the accounts of the product groupings. We dislike this Government's use of public dividend capital; we dislike the extension of the borrowing powers, and especially further overseas borrowing; we are concerned about the rate of return which the Corporation is to earn over a given period. We cannot understand why the test discount rate has not been raised, and we are concerned about the dissolution of the companies and their trade names. It may well be that we shall have to put down certain Amendments at Committee stage.
§ 12.12 p.m.
§ Lord SHACKLETON
My Lords, I congratulate the noble Earl. I am not sure that his speech would not have been better delivered in the debate yesterday, and I can understand his rather regretting that it is Friday when he has not a bigger audience for the enormous fervour he brought to bear on this question. I will try to answer some of his questions. I am sure he knows the answers to some already, but he is just trying to test whether I understand the answers. I am not sure whether either of us will succeed in clarifying one another's mind on some of the complications of the details of the borrowing, and on this particular point I would ask the noble Earl to read rather carefully what I said. I shall read rather carefully what he said; we can then see whether we have reached agreement. On this particular point I believe the Government have done all they can to explain, but there are some things which it is beyond the capacity of lesser mortals 585 to understand. I am not just singling out the noble Earl, because I would perhaps bracket myself there in respect of some of these matters.
I am a little sorry that the noble Earl spoke quite in these terms. He says that it is not the fault of the Corporation that these things have to be done, and he exonerates them, but when it comes to matching the judgment and experience of the people who run the Steel Corporation (who are men of great experience in business) and who have put forward these proposals, with the experience and views expressed by the noble Earl and some of his honourable friends in another place, I back the Steel Corporation every time. I must say I thought he made very heavy weather of the public dividend capital issue. We have never attempted to suggest that it was identical with equity in private industry—it would be absurd to do so. I will not go through the differences, but to call it "fudging "I think is rather unfair. There are arguments in favour, and if the noble Earl wishes, either on the Committee stage or later, I will give them.
I do not myself attach such great importance to this question of whether it should be fixed interest capital or public dividend capital, but there are good arguments for having a certain amount in public dividend capital. I hope that what the noble Earl has said is not an indication of the Conservative Party's attitude in this field in the long run in case, by any chance, they should happen to find themselves in charge of nationalised industries. There were some very long debates in another place. I do not think they have done the Conservative Party much good in the eyes of those who know the steel industry, and it is probably as well if we do not bother to go into this subject in the detail they did in another place.
The noble Earl asked me a number of questions. I shall answer a few of them now and will certainly do my utmost to answer others when we come to the Committee stage. Let me say something on the information in the accounts. First of all, I think it is fair to say in this matter that the nationalised industries are ahead of rather than behind private industry. Let me admit straight away that there have been shining examples in private industry, and 586 many of the leading firms have gone well beyond the requirements of the Companies Acts. This is admirable and wise, and it is good business and enlightened self-interest. I would only say of the particular point the noble Earl raised with regard to the financial results of the companies and to the question of providing something equivalent to this for the product groups, that certainly I will convey his further point to my right honourable friend. I do not know how far we can do this. I think it is a matter for the British Steel Corporation. I am sure, having seen their publications and the amount of information they have already given, that they will do their utmost to provide all the information possible.
I was asked a question on foreign borrowing. The real effect of this foreign borrowing is to make it possible to convert short-term debt into medium-term debt, which I am sure is to be welcomed. This is a matter which has been carefully considered and which has applied elsewhere. It is a matter, I do not doubt, that we shall debate in the future, and quite rightly so. It is a complicated issue. In addition to the foreign debt question, there is the allegation of its effect on domestic credit expansion, and so on. I have noted what the noble Earl has said, but I am satisfied that this is a proper thing to do. However, as I say, I expect my noble friend Lord Beswick and others will be having exchanges on the general principle in the future.
I was asked about the companies' names. It will of course be for the British Steel Corporation to decide this, not for Ministers, and I am quite sure that noble Lords will agree that in this matter it is for the Corporation to judge what its own interests are. It can continue to use the names if it wishes and if it considers it is the right thing to do. I do not doubt that they will in fact continue to use some of these world famous names, but I can assure the noble Earl that in this matter the Corporation will obviously have regard to its own best interests; and in this matter the national and the Corporation's interests clearly run together.
The noble Earl asked me one rather tricky question in connection with the announcement about Scunthorpe and Tees-side. The announcement was not 587 made by the Minister, it was made by the British Steel Corporation. The British Steel Corporation has approved the development at Scunthorpe and at Tees-side, but the investment programme of which these form part does require the Minister's approval.
§ Lord SHACKLETON
I can well see how the noble Earl could get confused. It is very easy to get confused; but I hope that I have clarified this. I would add that the Corporation have said that they think it unlikely that any entirely new green field development—for example, at Humberside or Clydeside—will need to be in operation in the period up to 1975.
There were a number of other interesting points which emerged under the great flow of eloquence we had, and I shall look forward to discussing them at the Committee stage. I think that quite a number of the points raised today were advance warning of points which the noble Earl intends to make in Committee. I should say something about the rate of return and the test discount rate. I noticed that when the noble Earl was speaking his noble friend Lord Goschen was looking very worried indeed, especially when reference was made to discounted cash flow. I was not quite clear myself in what way the noble Earl was referred to d.c.f. in this matter, but the test discount rate of 8 per cent. referred to is not applicable to the British Steel Corporation. As the White Paper (Cmnd. 3437), entitled Nationalised Industries—A Review of Economic and Financial Objectives, said, this rate is designed to allow for the fact that other nationalised industries do not receive investment grants on their main activities. The British Steel Corporation, as a manufacturing industry, receives these grants, and the test discount rate to be set for them will allow for this. It is hoped to settle the rates for the British Steel Corporation shortly.
The Government's policy on financial obligations is set out in the Command Paper I have mentioned, and is intended to follow from sound investment and pricing policies and to reflect the appropriate discount rate. The financial objec- 588 tive which will be fixed for the Corporation under Clause 5 will reflect these policies, and we intend it should be a stiff incentive to the Corporation which they must gear themselves over a period to achieve. I assure noble Lords that there is no question of either "fudging" or providing an easy option in these matters. Indeed, any noble Lord who has had dealings with the Treasury—and the Treasury exercise a tight and continuing interest in these matters—knows that nobody is going to get away with a soft option here. Nor, indeed, would the British Steel Corporation wish to do so.
My Lords, I do not claim to have answered all the noble Earl's points. I will study closely what he has said, and either on the clauses or on particular matters which he may wish to raise I will do my best to answer them. I think this has been, although short, a useful debate. I hope we shall gradually come to a degree of understanding in these matters. Our interests are similar. The British Steel Corporation is of tremendous importance to this country, and I hope that the proposals which are contained in this Bill and which they so strongly support will receive, in the end, general approval.
§ On Question, Bill read 2a and committed to a Committee of the Whole House.