§ 2.57 p.m.
§ THE MINISTER WITHOUT PORT-FOLIO (LORD DRUMALBYN)My Lords, I beg to move that this Bill be now read a second time. Your Lordships will recognise this Bill as being almost identical with the one which was introduced by the previous Government into this House on April 14 last year. That Bill completed its passage through this House but was lost on the Dissolution of Parliament. Since the Bill is already familiar, I hope that your Lordships will forgive me if I do not explain its provisions in great detail. I shall confine myself in the main to developments that have taken place since the last Bill was before the House. Even that will take a little time, but I hope it will help to expedite the later stages of the Bill.
The Bill provides for the transfer of the nuclear fuel and radio-isotope trading business of the Atomic Energy Authority to two companies to be set up under the Companies Acts. This business has been carried on by the Trading Fund of the Authority since April 1, 1965; and the Bill represents a further step in putting these activities on to a fully commercial basis.
The radio-isotope business at the Radiochemical Centre at Amersham will be transferred to the Radiochemical Centre Limited. The Radiochemical Centre was first established in 1946 to provide radioactive substances for medical, industrial and research use. The amount of business has steadily grown. In the last full year, 1969–70, net sales of radioactive products increased by 22.6 per cent. to £4 million of which £2.4 million—60 per cent.—was exported. The Centre employs over 600 people, most of whom are non-industrial.
The nuclear fuel services business carried out by the Production Group of the Authority will be transferred to British Nuclear Fuels Limited. This business is carried on at Springfields, Capenhurst and Windscale in the North-West. It embraces not only the manufacture of fuel elements from uranium ore but also services at intermediate stages of the nuclear fuel cycle; for example: conversion of uranium ore into uranium hexafluoride at Springfields, which can 823 then be passed through enrichment plants; the enrichment process carried on at Capenhurst; and the reprocessing of irradiated fuel elements at Windscale. The reactors at Calder Hall and Chapel-cross which generate electricity for sale to the Generating Boards will also be transferred to the fuel company. The total numbers employed are about 8,800.
The turnover in sales of nuclear fuel services and electricity in 1969–70 amounted to £37.8 million of which £4.4 million was in exports. The value of sales of nuclear fuel services has increased by about 50 per cent. since the first financial year of the Trading Fund in 1965–66, as also has that of radio-isotopes. In the last financial year the overall surplus on trading before deduction of interest, tax and development expenditure was £9.3 million. This represented a return of 23 per cent. on trading capital of about £40 million. A target rate of return of 13 per cent. is specified for trading in nuclear fuel services with the home generating boards. In 1969–70 the return was 12.9 per cent. Combined with a slightly higher return in the previous financial year, this gives an average return in line with the target.
Your Lordships will no doubt wonder what is the value of the assets to be transferred to the companies. The assets have, of course, been subject to appropriate annual rates of depreciation and the accounts have been examined in the usual way by the Comptroller and Auditor General. In their accounts for the year 1969–70, the Authority wrote up the value of the fixed assets at Windscale because they considered that the six-year depreciation period which they had adopted was unnecessarily conservative. Windscale was transferred to the Trading Fund on April 1, 1970, and is not therefore shown in the balance sheet of the Trading Fund as at March 31, 1970. Taking account of the transfer of Windscale, on a rough estimate, the value of the net assets to be transferred to the nuclear fuel company is in the region of £50 million. The value of the net assets to be transferred to the Radiochemical Centre Limited, is about £4 million. Loan liabilities to be transferred will include about £36 million in the case of the fuel company and £3 million in that of the Radiochemical Centre Limited. 824 These figures for the value of the net assets refer, of course, to the value as shown in the books and not to a commercial valuation, which is an essential pre-requisite for private participation. About that I shall have something to say later.
Clause 24 of the Bill empowers the Secretary of State to appoint, by order made by Statutory Instrument, the day or days on which the transfers of the appropriate parts of the Atomic Energy Authority's undertaking shall take place; and it is intended that the appointed days for both the fuel and the radiochemical companies should be April 1. It is therefore appropriate that both companies should be registered in the near future. This will be done after the Bill has been considered in Committee in this House. The draft memoranda and articles are available for inspection in the Library. At least, they have been placed in the Library.
I should also comment briefly on one or two differences between this Bill and its predecessor. It will be recalled that there was some debate previously about the original provision that a majority shareholding should be retained by the Authority or the Government, and particularly about the precise words in which this was expressed. The Government have come to the view that, primarily because of the strategic importance of the fuel company, it is sensible to provide for retention of a majority public shareholding in it. Having reached that view, the Government felt it would make the transfer to both companies easier if they were treated alike. The opportunity has been taken however to improve the wording of Clause 11.
The Bill provides not only for transfer of certain Atomic Energy Authority establishments and assets, but also for transfer of the employees who are at present doing the work. As was appreciated in another place recently, these employees are themselves the principal asset of the two businesses; and both the previous and also the present Government, and the Authority, have gone to very considerable lengths to ensure that the conditions on which the employees are to be transferred are fair and reasonable. The staffing clauses are identical with those in the previous Bill but for 825 changes in the references to clauses. But there has also been a great deal of consultation, both before and since the change of Government; and the extensive staffing safeguards in the Bill are now supplemented by a number of assurances and clarifications. Some of these assurances and clarifications have been given by the Authority, on behalf of the prospective managements of the companies; others, by the Government.
As I say, Clauses 8 and 9 are identical with the corresponding clauses in the earlier Bill. Clause 8 provides that immediately after their transfer to the companies staff are to be employed on terms and conditions appropriate to them immediately after transfer, and that means terms and conditions which correspond as nearly as the circumstances permit to those which they enjoyed in the Authority immediately before the transfer. Clause 9 then lays an obligation on the companies to establish negotiating machinery in consultation with representatives of the staff; and the clause goes on to lay down that the terms and conditions of employment to be negotiated in substitution for those deemed to be in force under Clause 8 shall conform with the principle that, taken as a whole, they are to be no less favourable than the terms and conditions which staff enjoyed immediately before the date of transfer.
The clause also provides for arbitration on the question whether this principle is adhered to. There is thus an interim period between the transfer and the adoption, in consultation and by agreement, of new terms and conditions of service. The staff have been concerned about this interim period. Assurances have accordingly been given that, for a period of up to two years from the appointed days, any Authority pay increases that would have applied to the staff concerned, had they remained in the Authority, would automatically be applied to them as members of the staff of the companies, from the same effective date, except to the extent that the managements and staff representatives may agree otherwise. This overlap of up to two years should be amply sufficient for setting up company negotiating and arbitration machinery and for negotiating most if not all the company terms and conditions of service.
826 My Lords, as pension schemes give rise to transitional problems of a special character, the Bill deals separately with pensions. Clause 20 permits both staff transferred to the companies and also new recruits to the companies to be members of a pension scheme maintained by the Authority. If and when the companies set up their own pension schemes, the clause lays a duty on the Secretary of State to satisfy himself that the provisions of the company scheme are no less favourable, taken as a whole, than the Authority scheme. Supplementary assurances have been given that the Secretary of State will pay particular regard to the provisions relating to transferability of pensions to and from a company scheme; that the Government will consult representatives of the employees so dial: the Secretary of State, would be willing to consider seeking independent, authoritative and expert advice; and that, although the decision as to whom to turn to for advice must rest with the Secretary of State, he would take account of any firm views that the representatives of the staff had on this.
As was pointed out in the Committee stage of the previous Bill by the noble Lord, Lord Delacourt-Smith, who was the Government spokesman on the Bill, there are obvious objections to subjecting individual items of a superannuation code to arbitration; and what matters is the acceptability of the schemes as a whole. A pension fund scheme is, after all, a very complex and finely balanced set of provisions. The Government believe that the interests of the staff will be best safeguarded by the provisions in the Bill, together with the assurances which I have mentioned, and which will apply in the event that the companies decide to set up their own pension schemes.
Under Clause 7 of the Bill the companies will issue shares to the Authority in consideration of the property, rights, liabilities and obligations transferred to them. Your Lordships will except me to say a word about the Government's policy on private participation in the companies. Subject to the retention of a public majority shareholding, as now provided for in Clause 11, the Government favour private participation in both companies, as the Bill, like its predecessor, allows; provided that satisfactory agreements on the terms and on the price of shares can 827 be reached. The Government are commissioning a merchant bank to advise on this question in relation to the nuclear fuel company; and a similar policy will be followed for the radiochemical company.
In pursuing this policy the Government have two financial aims: first, the maximum realisation from the public investment in the nuclear fuel business, and second, the maximum contribution by private interests to the future financing of the business. The matters on which the Government and the Atomic Energy Authority are seeking advice from a merchant bank can be broken down into four elements. First, the possible approaches to valuation and determination of a price for the shares. Second, the desirable capital structure of the company and form of private participation, bearing in mind the need on the one hand for further substantial investment and on the other for the maximum incentive to increase the profitability of the fuel company. Third, the extent and nature of the interest in participation in the fuel company. Fourth, the amount of finance likely to be forthcoming from private participation, both initially and subsequently. The possibility of a public issue of shares at some stage is not ruled out. The merchant bank will have available an assessment of the financial performance of the Trading Fund by a firm of accountants. Before final decisions are reached on the basis of expert advice, Parliament will be given an opportunity to consider the Government's intentions.
I should draw attention to the fact that, compared with the previous Bill, the limits in Clause 13 for the aggregate of the issue of loans to the fuel company and purchase of further shares issued by the company are reduced. The change reflects the Government's belief that the fuel company can expect to raise a substantial proportion of its capital requirements from the private sector. The limit, which is still very substantial at the maximum figure of £75 million, is not expected to impose any restriction on the company's investment during the first five years of its life.
A new clause, Clause 19, has been included in order that the Government can implement the security annex to the 828 Gas Centrifuge Agreement with the Netherlands and Germany which was signed by the previous Government in March last year. The clause permits certain of the security provisions of the Schedule to the Bill to be applied to any international company registered in the United Kingdom and established pursuant to the Centrifuge Agreement. The Government will be tabling a simple Amendment to this clause to improve security in one particular respect.
In connection with the Gas Centrifuge Agreement with the Netherlands and Germany, I should mention that before the Government can ratify the agreement, Clause 17 of this Bill must become law. The Agreement needs to be ratified within one year of its signature, which took place on March 4, 1970. I hope therefore that your Lordships will agree to give the Bill a fair wind. As matters stand now, only the Atomic Energy Authority may carry out enrichment of uranium or reprocessing of nuclear fuel elements for a purpose other than research and development—that is as a production business. The Amendment in Clause 17 will enable the nuclear fuel company or other bodies to carry out enrichment or reprocessing subject to licensing and safety controls. One of these other bodies will in due course be the Enrichment Organisation to be set up under the Gas Centrifuge Agreement. This organisation, in which the nuclear fuel company will have a one-third shareholding, will initially operate two enrichment plants—one at Capenhurst and one in the Netherlands.
In this introduction of the Bill I have not attempted to deal comprehensively with all its provisions. I know that there is some apprehension amongst the staff who will be transferred to the companies under the Bill. They will be leaving the Authority as their parent body and will be moving out into the private sector. But while it is natural that there should be some apprehension, I believe there is no real justification for it. The Radiochemical Centre and the Production Group have over the years established a firm base from which to exploit the rapidly growing markets both at home and overseas. I believe that the staff, as well as the management, will value the greater freedom and opportunities that the new status of companies set up under 829 the Companies Acts will provide. I have been impressed by what I have seen of the achievements of the people who have built up the isotope and fuel business, and I see no reason why they should not look forward to continued expansion and profitability. In moving the Second Reading of the Bill, I would wish them that continued expansion and continued profitability, and every success. I beg to move.
§ Moved, That the Bill be now read 2ª.—(Lord Drumalbyn.)
§ 3.15 p.m.
§ LORD DIAMONDMy Lords, I can certainly respond to the noble Lord's request for a fair wind by giving him an affirmative answer straight away. Certainly all of us on this side of your Lordships' House would wish to see this much-discussed Bill turned into an Act of Parliament as soon as may be convenient to your Lordships. I want first to thank the noble Lord for having explained the recent developments and having added to our knowledge of this matter, and also to congratulate once more all those concerned in the Authority for having achieved what is undoubtedly a great success story. What they have achieved in terms of increased sales, in terms of increased exports—in terms of increased proportion of exports, as I understand it, as well as merely increasing the absolute figure—in terms of having achieved their target and the 23 per cent. figure mentioned by the noble Lord: all these make up a real success story. Indeed they immediately pose the question: if everything is going so well, why not leave well alone? I should like to spend just a moment or two of your Lordships' time in explaining the attitude of those of us on this side of the House about that question.
One could, of course, have taken the view that this business was going very well indeed: that here was an example of an organisation which was suitably constituted and able to make great headway, in terms both nationally and internationally—because I have referred to the increase in the proportional exports. One could have taken the view that if there are certain skills or certain needs which are not available to a body constituted as the Authority is at the moment, those skills could be hired. One could have appointed agents; one could have 830 consulted: in short, one could have left the constitution of the Trading Fund and the circumstances in which it operated exactly as they are at present.
It will be more in your Lordships' recollection than mine that this Bill has already come before your Lordships' House, put forward by the previous Government, and we on this side of the House—I hope I may be thought to be entirely non-contentious when I say this—took the completely undogmatic approach of saying that although this was a great success story, even more could be done; even more freedom could be made available to the enterprise in a commercial way if it were to take the form not merely of a public enterprise but of a partnership betwen public and private enterprise. That is, in fact, what is happening. Without wishing to draw too many conclusions, or indeed to preach to your Lordships—I should be incapable of doing that—I would suggest that this should be borne in mind in any sensible approach to developments, which ought to be looked at objectively in terms of what is to the benefit of the nation as a whole rather than in terms of preconceived and somewhat narrow dogma. That is what we have done; and if in due course we in your Lordships' House are to debate certain attitudes which seem to be developing with regard to public corporations as a whole, certain contrasts may appropriately be drawn.
Suffice it to say that I welcome this Bill. I welcome the development that is taking place. I am sure that it will be for the added advantage of all concerned and, indeed, for the welfare of the nation as a whole. I welcome, also, if I may be particular, the re-inclusion of Clause 11(3). That is perhaps the most moderate way of describing that subsection. I think that the arguments for its reintroduction were very solid indeed. As the Minister has explained, it is essential for strategic reasons. I should have thought it was also essential, having regard to the very sensitive technology involved; I should have thought it was also necessary, having regard to the promises originally made to the staff at A.E.A., and I should have thought that it was also essential in order to secure an effective, permanent, partnership. It is also wise as a recognition of a decade and a half of public enterprise.
831 But there may have been, and there may still be, those who have an anxiety that the retention of a majority shareholding would result in Government interference in the day-to-day affairs of the two new companies. If that were so, then I agree that this would be not merely an unwise but a disastrous result. There is nothing which is so opposed and hostile to the healthy development of commercial enterprise of the kind that is needed to add to the Government enterprise and national enterprise which is already taking place, as people breathing over the shoulders of those who have a commercial task to perform, reporting on their day-to-day actions, either to this House or to another House. Therefore I wish to say straight away that we on this side entirely support the view that freedom from day-to-day interference in management is essential for the health of these two newly-constituted companies. If that freedom were not to be achieved there would be no point at all in the change which is taking up your Lordships' time.
As to the history of this clause I will not say any more than that there will be special joy in Heaven. I recognise that in your Lordships' House there are others who are much better equipped to describe what is going on in Heaven than I am, but there will be more joy in Heaven over the restoration of this clause than in relation to the nine-and-ninety just men behind me. There were two points that the Minister mentioned which I should like to underline. First, there is the question of the share valuation. He was careful to point out that the figures he gave to us indicated the order of magnitude of the book value of the assets. Naturally we are all extremely interested in the processes of valuation and the final recommendation—because I understand that it will be no more than a recommendation when it reaches us again. So we shall all be very interested in the processes of valuation and the recommendation of the final figure, which is to be a fair figure as between the contribution by private enterprise and the contribution by public enterprise.
We must not forget, and I am sure your Lordships will not forget, that as taxpayers (making assumptions that there are some taxpayers in your Lordships' House) we have all contributed, through public expenditure, considerable sums to 832 the development of this body over the past 15 or 16 years, and it is right that there should be a full recognition not only of the past achievement of the Trading Fund but also of the future profitability of these two companies, when the valuation and the structure of the share capital are considered. I imagine that the Minister had it in mind to put before your Lordships' House not only suggestions as to valuation of the shares but also suggestions as to the gearing and general structure of the capital proposed, which would obviously affect the situation.
There are a number of minor points on which I do not wish to delay your Lordships to-day. The Minister was good enough to refer to discussions which are going on with the staff associations; I hope that by the time we reach the Committee stage it will not be necessary to deal with them in any detail. If not, we can raise those detailed points at that time, and we shall then want to be satisfied particularly about the superannuation provisions. A further point which the Minister may wish to delay referring to until that stage—although I should be happy if he could find it convenient to include it in his reply later to-day—is the future of the A.E.A. itself. I do not know yet whether he is able to tell your Lordships what proposal he has for that body, which will now, in terms of staff, be, I suppose, something of the order of two-thirds the present size. That is really all I want to say. We are grateful to the Minister for having explained the matter. I entirely support what he says in wishing a peaceful and profitable development to these two companies in their attempt to achieve the best that public and private enterprise can jointly contribute.
§ 3.26 p.m.
§ VISCOUNT THURSOMy Lords, may I first of all associate those of us on these Benches with what the noble Lord, Lord Diamond, has said? We wish this Bill a fair wind, and I will confine the puffs of wind which I hope to give it now to being short and sharp. I should begin by declaring an interest: in the first place a local interest, in that atomic energy is by far the largest employer of labour in the town of Thurso. Atomic energy has trebled the size of the town in ten years, and is a very important part of the whole economy of the Northern Highlands of 833 Scotland. I must also declare a personal interest in that, by a curious turn of circumstances, I happen to be, through the chairmanship of a small family company, the Atomic Energy Authority's landlord for its pensions office. Perhaps I may tell your Lordships a little more about that later.
In associating myself with the good wishes to this Bill, I have three points to make. It is interesting that in passing on the assets of Windscale in particular to the new fuel company, the Atomic Energy Authority will continue to be a tenant of those assets. As I read the Bill (and I should be grateful for clarification on this point later on), it is going to sit there rent free. I am not at all sure that I am happy about the idea of the Atomic Energy Authority sitting rent free.
The object of the Bill is to set up a commercial enterprise to handle the commercial side of atomic development in this country and to handle the selling of what we have developed and tested. If that is so, then relationships between the Atomic Energy Authority and the new companies should be on a commercial basis. I should like to be sure that the new companies will, where facilities and space are available on other atomic energy sites, commercially hire these facilities, if that is thought wise and desirable.
If I may deal for a moment with the Atomic Energy Authority pensions scheme, something has been said in this House, and much has been said in another place, about the desire to achieve a pensions scheme for the new companies which will be every bit as good as the scheme which employees of the Atomic Energy Authority already enjoy. In the early stages of the Atomic Energy Authority, pensions were handled individually at individual sites. But the then member of personnel on the Board of the Atomic Energy Authority, Sir Donald Perrott, looked at his organisation and thought to himself that, to strengthen the community which was dependent on atomic energy employment in the North—in other words, Dounreay—he could put together his pension schemes from all his different sites and locate them in one office in Thurso.
834 This is the most imaginative dispersal of office accommodation that has ever been tried, and it has worked. The Authority is rightly proud at the way it has worked; at the way in which the building in Thurso is able to service the pension schemes of all its different plants throughout the country. I would hope that this imaginative scheme would not be weakened by splitting up the pension schemes as between the Atomic Energy Authority and the new companies. I would hope that the new companies would be able to have their pension schemes, if it is desired to make them different from those of the Atomic Energy Authority, administered in Thurso in the existing Atomic Energy Authority superannuation office. As I say, this is where I have to declare an interest, because the building in which this work is carried out was provided by us because no Government funds were available at the time, and in order to have an office located in the North we built the building and the Authority are our tenants. But this is a small matter compared with the job opportunities which it gives to the wives and daughters of people employed in atomic energy in Thurso, and we would not want to see these job opportunities diminished.
The third point that I should like to make, about which I should like to seek some assurances from Her Majesty's Government, relates to the structure of the new companies. As I read the Bill, the intention is in the first instance to set up shell companies, while an examination and a valuation is made of the assets and while consultation is undertaken with merchant banks to find how best to value the shares in the new companies. But I would hope that at the earliest possible opportunity, there would be a further public participation than merely to allocate blocks of shares to existing large firms who are interested in atomic energy. I feel that to construct a company which is solely answerable to the boards of other companies who have an interest in the work being done, and to the Board of the Atomic Energy Authority, is to remove the operations of these important new companies one stage further from direct accountability.
I feel also that if there is to be an object in setting up these new companies it must not only be, as the noble Lord, 835 Lord Diamond, said, freedom from interference in day-to-day management, but also be to draw from the market, from business in general, the know-how on commercial matters that is available—to draw know-how in business accountancy, in salesmanship and so forth. This is not the sole prerogative of the public companies who will participate in the formation of the initial atomic energy companies; this is also the prerogative of the market. It is a good discipline that a public company should be accountable to shareholders and that it should be questioned by people who have knowledge of salesmanship and of accountancy.
May I close my words on this Bill, my Lords, by associating myself again with the praise that has been given on both sides of your Lordships' House to the Atomic Energy Authority? The Atomic Energy Authority is an Authority of which all who have worked in it, all who have been associated in establishing it, and the whole country, can be justly proud. It is one of the few areas in which Britain is still the greatest—in the words of Cassius Clay, "We are beautiful!" At Dounreay we have still the most exciting atomic energy plant in the world, to which the Russians come, to which the Americans come, the Japanese and the whole world come, to see the new generation of fast reactors. And I think we can congratulate all those who were associated with the Atomic Energy Authority, in setting it up, in managing it, in working it. Finally, may I say that if the new companies are able to do one fraction as well in the commercial field as the Atomic Energy Authority has done in the development and research field, we shall look forward to a very profitable era, which will be profitable to all of the country and will make worth while the investment which we put into the research.