Lords Sitting of 29 October 1975

Preamble
The House met at half past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Ripon

STUDENTS' EXPENSES AND TAXATION
Lord BEAUMONT of WHITLEY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will consider making the educational expenses of students not receiving grants allowable against tax.
Lord JACQUES: My Lords, I have noted the noble Lord's suggestion, but I could not recommend a departure from normal rule that personal expenses not directly connected with earning income are not allowable for tax purposes.
Lord BEAUMONT of WHITLEY: My Lords, while thanking the noble Lord for that rather disappointing Answer, may I ask whether the Government will look at the situation again, or at any rate will investigate other methods of helping students—especially university students—with their increased expenses and fees at the present time?
Lord JACQUES: My Lords, coming back to the original Question, I would point out that to increase the fees with the one hand and to allow them for tax on the other would be difficult to justify because it would mean that the higher the income the lower the net cost, and the lower the income the higher the net cost. That is something to which I am sure your Lordships would not expect this Government to contribute. Any money which is available for this general purpose should be used to minimise the increase in fees. This is far better than providing for tax exemption.
Baroness LEE of ASHERIDGE: My Lords, is the Minister aware that poor
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students are now excluded from the Open University as they cannot pay the increased fees? Does he not think this is directly relevant to earning a living when I inform him that I received a letter this week from a girl in a very low income group who has been made a headmistress because she had an Open University degree, yet at the moment only £50,000 —a derisory sum—is available for poorer students? If this particular proposition is not acceptable, will the Minister see whether something cannot be done to remove the disgrace that poor students are not now able to take advantage of Open University facilities?
Lord JACQUES: My Lords, I will pass that suggestion to my right honourable friend. I fear I can do no more than that.
Lord SOMERS: My Lords, would the noble Lord also consider the case of music students who, above their ordinary expenses, have the extremely heavy expense of buying their instruments? Would he consider whether there is some possibility of allowing for that?
Lord JACQUES: My Lords, our problem is that everybody wants curtailment but everybody has his own priority, and eventually we end by doing nothing in curtailment.
Lord INGLEWOOD: My Lords, will the noble Lord bear in mind that the teachers of these students are allowed to set off certain expenses against tax and surely it is only right that the students should be put on something of the same basis?
Lord JACQUES: My Lords, the noble Lord is referring to Schedule E, under which when the expense is in the performance of employment it is allowed. That is a different matter.
Lord MACKIE of BENSHIE: My Lords, would the Minister explain the logic of stopping people from contributing to the expense of education in direct grant schools and forcing them to pay the full fees in the case of university education?
Lord JACQUES: My Lords, I am pleased to say that is entirely a different question.
Lord GARDINER: My Lords, will the Government consider the suggestion

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put forward by the noble Lord, Lord Beaumont of Whitley, for this year, bearing in mind that in the case of the Open University all grants are discretionary and there is a probability that local authorities will not make the grants that they have made in the past?
Lord JACQUES: My Lords, I can only repeat the very strong case there is against tax exemption. If any money is available, it should be used to minimise the increase in the fees, which is a much better way of handling the situation.

EDINBURGH: "ROYAL MILE"
2.40 p.m.
Lord ALPORT: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will introduce legislation to declare the whole of Edinburgh's "Royal Mile "an area of special historic importance not only to Scotland but also to Great Britain as a whole, and whether any steps will be taken by the authorities concerned, with Government help, to prevent its further deterioration into slum conditions, and to restore such ancient buildings as are left.
The MINISTER of STATE, SCOTTISH OFFICE (LORD KIRKHILL): My Lords, the Town and Country Planning(Scotland) Acts already contain provisions for the designation of areas of special architectural or historic interest, the character or appearance of which it is desirable to preserve or enhance as conservation areas. I understand that proposals for the designation in this way of the "Royal Mile "and adjacent streets are currently being formulated by Edinburgh District Council as the responsible planning authority. Government financial help has already been given to various restoration and improvement projects in the area.
Lord ALPORT: My Lords, I am grateful to the Minister for his reply and I should like to say how glad I am that something is being done. But will the noble Lord consult the drawings of the late Mrs. Stuart Smith, which I think
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are in the Scottish National Gallery, to see how much has been lost up to 1925, to consider how much was lost in the subsequent 50 years, and to consider how important it is that this part of Edinburgh —which bears the imprint of the whole history of Scotland and which is associated with so many of its men of letters —should be preserved before the rest of it goes in the way in which a recently issued report described as a "rotting slum ", even if the cost is substantial at the moment.
Lord KIRKHILL: My Lords, I agree with the noble Lord's retrospective view of that which has happened to the whole area surrounding and including the "Royal Mile ", but I think the noble Lord will agree with me that a substantial change in policy has emerged in recent years and there now seems to be evidence of a new purpose, a new initiative, taking place. As I understand it, at this time plans as to areas of designation are being formulated by Edinburgh District Council which is the planning authority concerned.

CONCORDE: DISPLAY OF PROTO TYPE AIRCRAFT
The Earl of KINNOULL: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what proposals they have for the disposal of the prototype and pre-production Concorde aircraft and whether they will bear in mind the need to preserve what will be a historic aircraft.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord BESWICK): My Lords, having considered all possibilities put to us, it is now our proposal to hand over the British-owned Concorde prototype 002 to the Science Museum. It will be placed on display adjacent to the Fleet Air Arm Museum at the Royal Naval Air Station, Yeovilton. We propose to offer pre-production aircraft 01 to the Duxford Aviation Society to be held by them, in association with the Cambridge County Council.
The Earl of KINNOULL: My Lords, while thanking the noble Lord the Minister of that reply, may I ask whether

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he would agree that the preservation of the prototype Concorde aircraft is important not only because of the present great public interest but because of the future interest of the public? Would he agree that it represents both the flame of British achievement in flight technology and also a symbol of national pride? Would the noble Lord further agree that it is important that the siting of these two Concorde aircraft should be made with the greatest possible accessibility for the public in mind? Can he say what criteria have been adopted by his Department in choosing the sites and what consultations have taken place?
Lord BESWICK: My Lords, I absolutely agree with what the noble Earl, Lord Kinnoull, says, that these aircraft will take their place in the future as being quite historic achievements. It is essential that they should be preserved. The question of access was one of the criteria we applied. Access will be possible both in the case of the Royal Naval Air Station at Yeovilton, where already they have aircraft on view, and at Duxford. Other criteria we had to consider were the possibility of landing the aircraft there and the possibility of maintenance.
The Earl of KIMBERLEY: My Lords, in view of the fact that it is such a wonder of the world, would the Government reconsider siting one of these aircraft at London Airport, thereby making it a great tourist attraction, for many years to come?
Lord BESWICK: My Lords, that was one of the sites considered. There is a suitable runway there, but public access is difficult. Space is limited, and the British Airports Authority do not necessarily have the funds for maintenance.
Lord WIGG: My Lords, would my noble friend the Minister be good enough to ensure that when the aircraft is on show there is a tablet showing what were the original estimates of the cost and what the ultimate price was?
Lord BESWICK: Yes, my Lords; and on the same tablet we could say what the technological objectives were and how they were so splendidly achieved.
Earl FERRERS: My Lords, does the noble Lord the Minister realise that the
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statement he has made will give a great deal of satisfaction to all those concerned with the achievements which this aeroplane represents? Can he tell us whether these aircraft will ever fly again? Are they capable of flying? Shall we be able to see them fly again?
Lord BESWICK: My Lords, they will not be capable of flying once they are sited there. They have fulfilled their part in the programme. We shall now turn to the operational aircraft that are flying.
The Earl of IDDESLEIGH: My Lords, on behalf of the West Country, I should like to thank the noble Lord the Minister for that undertaking, and I hope he will not change his mind.
Lord BESWICK: My Lords, I am obliged for what the noble Earl, Lord Iddesleigh, has said.
Lord IRONSIDE: My Lords, can the noble Lord the Minister say whether the French Government have similar plans for the display of their prototypes in France?
Lord BESWICK: Yes, my Lords: they have one at Le Bourget and one at Orly.

GIBRALTAR: BRITISH AIRWAYS' WEEK-END TOURS
2.47 p.m.
Lord MERRIVALE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what representations have been received from the Gibraltar Government regarding the withdrawal by British Airways of the option of a week-end stay of 3 or 4 nights under "Special Group Inclusive Tour" regulations for the winter period of 1975–76.
The PARLIAMENTARY UNDER-SECRETARY of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, representations by the Gibraltar Government about this matter were received in my Department on 10th October and were referred to the Civil Aviation

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Authority for advice. The Gibraltar Government have been told that we hope to forward comment by the end of this month.
Lord MERRIVALE: My Lords, I am grateful to the noble Lord, Lord Goronwy-Roberts, for that reply, and for the action taken vis-à-vis the Civil Aviation Authority. But can he say whether, in effect, British Airways have the authority to alter cabotage regulations without consulting the Civil Aviation Authority? If they have not, may I ask whether the CAA were consulted, as they would have to be in the case of IATA resolutions or regulations? Secondly, with regard to air tour certificates for inclusive tours and inclusive tour literature, may I ask the noble Lord whether he can confirm that this must be approved solely by the sponsoring IATA member airline itself?
Lord GORONWY-ROBERTS: My Lords, I am informed that these arrangements lie outside the IATA procedures and agreements. I am hopeful that the arrangements from the end of this month will substantially provide for the clientele the noble Lord has in mind; that is, that there will be a reasonable Special Group Inclusive Tour.
Lord LEE of NEWTON: My Lords, is the noble Lord aware that following the closure of the Spanish frontier the Gibralter Government are faced with grave economic problems? Is he aware that the British Government of the day did an enormous amount, including the investment of large amounts of cash, to ensure that Gibraltar would become economically viable? And is he further aware that the inclusive tour would form a part of that? Therefore, it would be a great tragedy if anything now happened to prevent three or four day visits to Gibraltar, which are of enormous importance to this country as well as to Gibraltar?
Lord GORONWY-ROBERTS: My Lords, I agree with the noble Lord, Lord Lee of Newton, that Her Majesty's Government over the years have rightly given special provision to assist the people of Gibraltar in their rather difficult situation. However, I would point to the fact that in July, when it was decided to end the present arrangements for the SGIT
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facilities, it was also decided that as those were phased out the three-night provision would continue, the particular provision to which my noble friend Lord Lee of Newton referred. To that extent, together with other scheduled services which we maintain, I would think that we are serving the interests of the tourist trade in Gibraltar, not perhaps so far as we might wish so to do but to a very considerable extent.
Lord JANNER: My Lords, would my noble friend realise that his Answer will bring a considerable amount of satisfaction to those who have been interested in the relationship between Gibraltar and ourselves? This particular facility, after all, not only results in bringing some economic advantage to Gibraltar but shows the Gibraltese people that we are thinking of them all the time. Will the Government do their best to encourage continuance of this particular facility?
Lord GORONWY-ROBERTS: Yes, my Lords. British Airways, of course, have a statutory obligation to operate as profitably as possible. They will continue to lose considerable sums of money on these facilities, but they will persist with them on the basis that I have described in answer to my noble friend Lord Lee. We are very sensible of the difficulties that confront the people of Gibraltar, and I personally welcome the exchanges in the House this afternoon which will serve to remind everybody concerned that we are well aware of the need to support the Gibraltarians in every possible way.
Lord MERRIVALE: My Lords, the Minister referred to week-ends of three nights, but he omitted to mention what was applicable previously, the four-night week-ends. Does he not feel that if these are withdrawn there will be discrimination against certain tour operators who in effect have only been given four-night week-ends, while I believe it is only Cadogan Travel who have the three night week-end; therefore, they would benefit unfairly in relation to the other tour operators.
Lord GORONWY-ROBERTS: My Lords, I take note of what the noble Lord has said, and no doubt the CAA, when they supply me with their observations on this fairly complicated matter, will have noted what the noble Lord has said.

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I repeat that there is a continuing provision for the three-night stay. This is quite something, considering the very great expense of maintaining these special services.

EEC COUNCIL OF MINISTERS: BUSINESS
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, a Statement is being made in another place today about business to be taken in the EEC Council of Ministers during November. With the leave of the House, I will, as usual, arrange for the Statement to be made available in the Official Report.
The Statement referred to is as follows:
"With your permission, Mr. Speaker, I will make a Statement about business to be taken in the Council of Ministers of the European Community during November. The monthly forecast for November was deposited yesterday.
"At present five meetings of the Council of Ministers are proposed for November. Foreign Ministers will meet on 5th and 6th; Agriculture Ministers on 10th and 11th; Finance Ministers on 17th; Fiscal Ministers on the 24th November and Budget Ministers on a date yet to be set. There will also be a tripartite Conference, probably on the 18th of November, of Ministers of Employment and Economic Affairs, the Commission and European Employer and Trades Union organisations. In addition there is to be a meeting of Education Ministers on the 20th November.
"At the Foreign Affairs Council, Ministers will discuss the consumer/producer dialogue in preparation for the conference on international economic co-operation. They are also likely to discuss preparations for the European Council meeting scheduled for early December. They will consider the extension of the fishing zones around Iceland and possibly around Norway, and will resume their consideration of the overall Mediterranean approach in the context of negotiations with the Maghreb and of the mandate for negotiation with the Mashraq. There will also be discussion of the Community's relations with Portugal and Canada, and of long-term contracts with Egypt, and consideration will be resumed on the 1976 scheme of generalised preferences. There is also likely to he discussion of the Working Group report on direct elections to the European Assembly which was commissioned by Heads of Government at their last meeting in July.
"Agriculture Ministers are expected to resume consideration of the re-structuring of the Community wine regime and the arrangements for UK imports of New Zealand butter after 1977. There may also be a joint meeting of Foreign and Agriculture Ministers, on
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a date not yet set, but likely to be near the end of the month, to discuss aspects of the CAP stocktaking report.
"Finance Ministers will consider the annual report on the economic situation in the Community following the convergence decision of the 18th of February 1974. They will also discuss possible Swiss membership of the Snake and perhaps Euratom loans for nuclear power stations.
"At the Fiscal Council, Ministers are expected to consider the draft sixth directive on Value Added Tax, the Commission's action programme on taxation, and possibly the Commission's draft proposal on tax reliefs for small packages imported from third countries and the draft second directive on tobacco duty harmonisation.
"Ministers at the Budget Council will consider the amendments and modifications proposed by the European Assembly to the draft Community budget for 1976.
"The tripartite Conference on the 18th November stems from a decision taken at the meeting of the European Council in July following representations by the European Trade Union Confederation, and is expected to focus on the employment effects of the present economic crisis and the measures which are being or might be taken to deal with these effects.
"The meeting of Education Ministers will consider a report from the Education Committee about educational co-operation in the European Community."

PORT ASKAIG PIER ORDER CONFIRMATION BILL
Considered on Report.
ROYAL COLLEGE OF SURGEONS OF EDINBURGH ORDER CONFIRMATION BILL
Considered on Report.

PETROLEUM AND SUBMARINE PIPE-LINES BILL
2.54 p.m.
The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh): My Lords, I beg to move that this Report be now received.
Moved, that the Report be now received.—[Lord Balogh.]
On Question. Motion agreed to.
Clause 1 [Constitution of the Corporation]:
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 1:
Page 2. line 14, leave out paragraph (c).
The noble Lord said: My Lords, I beg to move Amendment No. 1. This is the paragraph which would require two of the members of the British National Oil Corporation to be persons employed in the Civil Service of the State. We had a debate on this—it was the first debate—at the Committee Stage of the Bill, and we from this Bench were seeking an explanation from the Government of the purpose of having, as nonvoting members of this Corporation, two civil servants who would still be paid and employed by their Departments and therefore be full-time civil servants. This is something quite new; it has never been required in other public corporations or nationalised industry bodies. We later went on to consider in further debates the role of the British National Oil Corporation, but at no point did we get a satisfactory explanation of why on this new body there should be this requirement of two non-voting members who should be civil servants—not civil servants seconded, but still being employed in the way in which they previously had been employed in their Departments. As a result of what the Government said in these debates, we understood that they would still be responsible to the Ministers in their Departments. I made it clear that we were not proposing in your Lordships' House to try to remove the British National Oil Corporation from the Bill, or materially to change its proposed functions, although we do not think it necessary or appropriate and we also have serious doubts about its functions. But what we are now trying to do is to consider this point about membership.
We think there is aflaw in the proposed structure of the Corporation, and this is because the two civil servants will be placed in an invidious and anomalous position. In their departmental work they will learn confidential information about companies which are competing with the British National Oil Corporation. That information will be circulating in the
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Departments. It is quite normal for companies, as we know—we discussed this on the Industry Bill and other Bills—to supply confidential information knowing that it is protected within Government Departments. May I say straight away, as I said on the previous debate, that, of course, the two civil servants themselves are protected; there is no question that they would divulge any confidential information.
The point is that in their contributions to discussions and to decisions of the Corporation, where they are playing their part as members, they will be giving advice, knowing this special confidential information about competitors; and that does raise a dilemma for them. Are they to say nothing in discussions of that kind? Are they to make no contribution to the Corporation's deliberations where they possess such special knowledge? This would be a self-denying and scrupulous regard for the conventions of safeguarding confidence. If so, then that would be restricting their usefulness as members of the Corporation. Or, on the other hand, do they give the Corporation the full benefit of their advice based on all the information available to them, not disclosing that information but of course based upon it? If they do that, then it may well he thought that BNOC will have an unfair advantage over competitors; there may well be fears about the way they will operate, and it will seem that those fears are being substantiated.
It is wrong, I submit, to place civil servants in that difficult position. It is wrong also to make BNOC suspect to its competitors in a quite unnecessary way. The noble Lord, Lord Balogh, when we discussed this in Committee, said that it was necessary to have the two civil servants in this situation for good communication with the Government; that was the main reason that he gave. We find this difficult to follow. Are we to conclude that other public bodies, other nationalised industries, are unable to communicate effectively because they do not have full-time serving civil servants on their hoards?
When discussing this in Committee we also were able to consider an alternative, because an Amendment was put down in the name of the noble Lord, Lord Lloyd of Kilgerran, suggesting that civil servants

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might be seconded to BNOC. Certainly that seemed a better way of dealing with this. There would then be no division of loyalties where the civil servant was concerned. He would be employed by BNOC for the two, three or more years he was with them; he would be paid by them, and for all purposes he would be working as part of BNOC. But that could be done without any need for legislation. There is a system existing at present whereby individuals can be seconded from the Civil Service to industry and to public corporations for a number of years at a time. This operates the other way; persons from industry come on exchanges and serve for a period in the Civil Service. While they are doing it they are treated as part of the industry or service to which they are seconded. So the Government could at any time arrange for one or two civil servants to be appointed on secondment to senior positions in BNOC without the need for anything in the Bill.
Of course that is not what they arc proposing here. In the discussions we had it was perfectly clear that what the Government want is not a secondment like that which can be achieved without the additional legislation proposed. What they want is to have two civil servants, who are still acting completely as civil servants and working for their Departments and responsible to their Ministers, as non-voting members of the Board. We believe that this will provoke the kind of situation I have described, and that it is not necessary. We therefore ask the Government to think again about the suggestion of putting two civil servants in this anomalous position.
I said in a previous debate that we are fortunate in this country in having an outstanding public service which is the envy of the rest of the world, but part of the reason for that is that the Civil Service is kept to the tasks which it can do, the tasks it knows, the tasks which are its concern, and it makes it more difficult for our Civil Service to carry out its proper tasks if members of it are then put in this exceedingly difficult situation, which I have described, as a result of the explanation, so far as we have had one, from the Government.
Not only do we think it wrong that these two civil servants should be placed in this situation because of the effects which it will have on confidence in BNOC, but we also think that it would create quite unnecessary doubts in the minds of competing companies. If BNOC is to be successful, and we hope that once it is launched, although we should have done something different, that it will be successful, then it must have the confidence of the industry as a whole.
Lord SLATER: My Lords, I am rather surprised to listen to the statement on the Amendment moved by the noble Lord who is an ex-Secretary of State for Scotland. It seems to reveal that through his past experience as a Minister of the Crown he has a lack of trust and faith in the Civil Service.
The LORD CHANCELLOR: My Lords, I do not know whether this is an intervention by way of question or whether I should now put the Question.
Lord CAMPBELL of CROY: My Lords, I could answer it if it was a question, because I can put the noble Lord's mind at rest. I do not think he realises that before I went into Parliament I was for 12 years a full-time professional civil servant.
The LORD CHANCELLOR: Amendment proposed, to Clause 1, page 2, line 14, leave out paragraph (c).
Lord SLATER: May I just continue with what I was saying in the first place. The statement that the noble Lord made in regard to the Amendment that he has moved seems to carry with it a lack of faith and trust in the Civil Service, even in the Department in which he was engaged. Even as an ex-civil servant he was overlooking one important feature, in that so far as the Civil Service in this country is concerned, and within the Departments in which they are engaged, they have throughout the Civil Service a proper screening system, and that ought not to be overlooked. The people engaged in that kind of service give of their best to the Ministers to whom they are responsible.
Lord CAMPBELL of CROY: My Lords, that is what I said.
Lord SLATER: They do their best with the form of guidance when they are asked for it, because they know they are placed in offices of trust. So far as this Amendment and the speech which the noble Lord made are concerned, the Civil Service after reading it will find it rather surprising to think that an ex-Minister would make such a statement.
3.5 p.m.
Lord LLOYD of KILGERRAN: My Lords, in rising tosupport this Amendment, may I say at once, in view of the speech by the noble Lord, Lord Slater, that I am one who recognises the great contributions made by civil servants to industry and also to Government. In supporting this Amendment, I in no way reflect upon the sincerity, honesty, and desire of civil servants to serve their country and do their job in whatever capacity to which they find themselves appointed.
I should like to make my first point in support of this Amendment. If this Amendment is accepted, the Secretary of State in his discretion would in no way be rendered less flexible in his powers for making appointments to that body. The proposal of the Minister to include civil servants in the constitution of the Oil Corporation is first justified by the noble Lord, Lord Balogh, at Committee stage by reference to the fact that there were civil servants appointed to certain Government organisations dealing with oil matters in France and Germany. In my view, there is no analogy between the appointment of civil servants in France and Germany and appointments in this country, owing to the great differences from ours in the financial and administrative practices in those two countries. His second reason for supporting the appointment of civil servants to this Corporation was, as the noble Lord, Lord Campbell of Croy, has indicated, one of communication.
I submit, as I submitted in Committee —and I was then supported by my noble friend Lord Avebury—that it is inevitable that, if you appoint a civil servant to the Corporation, there will naturally be a dichotomy arising in his interests, in his loyalties. He will naturally have a loyalty to his Minister; in being appointed to the Corporation he will necessarily have a loyalty to the chairman
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of that Corporation; as a civil servant he will no doubt also have a loyalty to the Secretary of State concerned. Therefore, there seems to be a trichotomy of loyalties with which this civil servant is confronted.
It may be said that our civil servants are so well trained, and such great men, that they will be able to ride over that kind of trichotomy. However, as indicated by the noble Lord, Lord Campbell of Croy, this great Corporation, which is being appointed in the national interest, as we are so often told by the Government, should make its lines of communication clearer than they are now in relation to the members of that body. The noble Lord, Lord Balogh, emphasised the desirability of communication. May I say, with the greatest respect to him, that the communication with civil servants in the Corporation in this way is through the wrong channels, and would lead to tensions, mistrust and inefficiency.
Lord LEE of NEWTON: My Lords, I have no objection to civil servants being appointed to this kind of category, but I was a little surprised on Committee stage when my noble friend, in answer to the case which was made, then said that the two civil servants in question would not necessarily come from the Department which is really the sponsoring Department for the energy programme. It would be far more sensible if the two civil servants did come from that Department. My experience of energy matters on a number of occasions has led me to believe that, for example whereas a nationalised corporation possesses the scientists on whose advice it acts, the Department itself does not possess such scientific knowledge and, indeed, in the case I have in mind, it would have been a complete and unnecessary duplication if it had.
Thus, it seems that there is much to be said for establishing a liaison between the industry and the appropriate Department; in this instance, the Department controlling energy matters. I do not feel that this would be a spy in court. I believe that great advantage could come if, prior to outstanding decisions being made, either by the Department or by BNOC, there was the closest possible liaison, and in my view that could be established by the inclusion of high-ranking civil servants from the Department

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which is responsible for energy matters.
Although I have not had a chance to discuss this with the noble Lord, Lord Kearton, I should have thought that the fears expressed by noble Lords opposite must be reasonably groundless or a man such as the noble Lord, Lord Kearton, who is not particularly backward in expressing himself when he dislikes certain things, would not have been unheard when a proposition of this type was being placed within the legislation for which he will be responsible. I think, therefore, that there is much to be said for it. I repeat that I would be surprised if the two gentlemen in question did not come from the appropriate Energy Department, and I commend to my noble friend the proposition that he could establish a better working relationship between the two vital bodies, the Energy Department and the nationalised industry, if the two gentlemen in question were brought from that Energy Department.
Lord TREVELYAN: My Lords, I support this Amendment because, in my view, the arguments adduced by the noble Lord, Lord Campbell of Croy, were genuinely sound. This sort of appointment would put the civil servants in a very awkward position. I have been a civil servant all my life in various Governments, although I do not have any great belief in the ability of the civil servant who have spent all their lives exercising their remarkable commercial judgment in advising the Government on commercial matters, but these civil servants will not be there in order to give advice on commercial matters; presumably they will be there as watchdogs of the Minister. Obviously the Minister has important regulatory functions to perform, but surely it is better not to get the commercial and quasi-commercial activities of BNOC mixed up with the regulatory responsibilities of the Ministry, and putting in civil servants would, I think, give the impression that it was so getting mixed up. I believe, therefore, that it would decrease the confidence that it is necessary to build up in the Corporation if this provision were retained.
The Earl of HALSBURY: My Lords, I remain an unrepentent supporter of this Amendment. I will not repeat what I said
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in Committee or what has been said this afternoon, beyond saying that I agree with all of those who have spoken in favour of the Amendment. I have a point to emphasise because, like the noble Lord, Lord Campbell of Croy, I, too, have been a civil servant, although for not quite as long as he was, and a public servant for about as long. The way to have good relationships with one's sponsoring Ministry is to want to have them, and one then simply sets about getting them. This, of course, has to be reciprocated and I have never known a case where it was not. They want to have good relations with the activity which they are sponsoring.
Communications take place at different levels and merely to provide for one level by Statute and leave the others to be provided for on the basis of solvitur anbulando is going about it the wrong way. The answer is to let matters take their course over communications and, with good will, what one wants to achieve will normally occur. I believe that what is proposed is a bad precedent which should not be set. I entirely agree with what the noble Lord, Lord Lloyd of Kilgerran, said about Continental civil servants. There are Continental patterns which just do not translate into English, and the Government should be aware of that.
Lord POLWARTH: My Lords, with respect to the noble Lord, Lord Taylor of Mansfield, he was a little less than fair to my noble friend Lord Campbell of Croy, who I did not understand to be criticising civil servants or their ability.
Lord TAYLOR of MANSFIELD: My Lords, did I understand the noble Lord to refer to Lord Taylor?
Lord POLWARTH: I beg the noble Lord's pardon. I meant to refer to Lord Slater, my Lords; it was a slip of the tongue. I have no objection to civil servants serving on a board of this kind. Indeed, I can think of a number from the Scottish Office, where I used to work, any one of whom would make an outstanding member of such a board. As I see it, the problem is in the dual context that the Government have seen fit to create. It is this whole set-up where the Secretary of State, his Minister of State, his junior Ministers and his officials will

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have a dual and, I think inevitably, at times conflicting role; namely, on the one hand to regulate the whole industry —and, I hope, to help it towards its aims—and, on the other, to look after its own creature, BNOC, competing with the other companies in this field. This is one of the greatest difficulties of the whole of the subject with which we are dealing in this Bill and it is highlighted here by the proposition of having civil servants serving on the board of BNOC.
3.15 p.m.
The Earl of LAUDERDALE: My Lords, lest it be thought that the supporters of this Amendment are all bitterly hostile, critical and nasty, let me point out that the Government have already gone some way in this matter in another place, and my hope is that, having gone a little way, we may yet end up by making a real and honest woman of them. In the other place they conceded that the civil servants would not form part of the quorum. Originally one of them was to be part of it, but finally they conceded that neither need form part of the quorum. That is already an advance and the Government should receive what credit one can find it in one's heart to give them at the beginning of the afternoon; as the evening wears on we shall give them less credit. Once they conceded that the civil servants are not to form part of the quorum, surely the function of informing the Minister or Ministers disappears, because if they do not form part of the quorum the board can meet without them; and if the board can meet without them it can meet without their knowing what goes on, and if they do not know what goes on how can they inform the Minister?
Is not the very fact that these civil servants are to be appointed slightly reminiscent of practices elsewhere where everybody has to be double checked, and here we have these two people watching the chairman? The chairman is an eminent person, a Member of this House, a man of great distinction and ability whose resource and imagination, brought to BNOC, can only be to its advantage. But fancy surrounding him with a couple of watchdogs! It is like when a Minister comes to give evidence before a Select Committee and he is surrounded by an army of advisers to make sure that he
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does not say or do anything. It is insulting to the chairman that he should have these watchdogs on his board. They cannot effectively inform the Minister because the board can meet without them. The Government have already started—I say this with great respect—being more sensible about this, and I hope that we shall end up by really making an honest woman of the noble Lord, Lord Balogh!
Lord POLWARTH: My Lords, with respect to my noble friend Lord Lauderdale, I think he is mistaken. I do not think that any company or board can hold a board meeting, legally constituted, without notifying all the members of the board. I think the quorum is solely for the purpose of having a minimum number present.
Lord BALOGH: My Lords, before I begin, may I seek the approval of noble Lords opposite to discuss, with this Amendment, the following Amendments: Nos. 1, 9, 10, 11, 12. 13and 14? These are all consequential in relation to the official members. Would that be convenient?
Lord CAMPBELL of CROY: Certainly, they are so consequential and minimal that it is hardly necessary to discuss them.
Lord BALOGH: I thank the noble Lord. This little intermezzo on the Benches opposite has shown how artificial and rather unhelpful are these suspicions which have been expressed about a procedure which is completely natural, open and which has been followed. I cannot quite understand the mystical references of the noble Lord, Lord Lloyd of Kilgerran, to the great differences in the capital market and financial affairs from this point of view. If anything, the French and the German economists have shown a greater vigour than ours and it seems to me wrong to dismiss them as completely different and, therefore, not worthy of investigation and action in this respect.
Lord LLOYD of KILGERRAN: My Lords, I am sorry to interrupt the noble Lord, but I am sure he did not wish to misrepresent me. I did not make an attack on the French oil industry. I merely pointed out—and I am supported from the Cross-Benches—that in relation to this matter there were vast differences

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between the financial structures and the business arrangements on the Continent, and when the noble Lord justifies putting civil servants on this Corporation because civil servants are on the corresponding bodies on the Continent that analogy just does not work. In conclusion, I should like here and now to recognise what the noble Lord referred to as the vigour particularly of the Government oil organisation in France in dealing with these matters.
Lord BALOGH: My Lords, the noble Lord has not said a word which is really relevant to this question. He said that the financial arrangements in France and Germany are different; therefore do not let us have civil servants on the National Oil Corporation. If ever there was a non sequitur, that is the biggest one that I have heard in 35 years in the service of Balliol College, Oxford.
Lord LLOYD of KILGERRAN: As I was at the other place, perhaps I can forgive the noble Lord.
Lord BALOGH: My Lords, the noble Lord, Lord Lee of Newton, said that I said that one of the two civil servants would not necessarily be a member of my Department. I have not mentioned any Department and there is no reason why I should speculate. We have not passed this Amendment over the Commons veto so I do not think we ought to speculate about the problem. At the Committee stage—and I must correct the noble Lord, Lord Campbell of Croy, because we have discussed this question more than once already—we had at least three second reading debates on this question in respect of various matters which are now considered unimportant. I am sorry that we were unable to provide any justification in the eyes of noble Lords opposite for this provision. I was astonished that the noble Lord, Lord Trevelyan, who was a distinguished diplomat and is now a distinguished director of BP and that all the other noble Lords who are ex-civil servants and who are now running financial and commercial companies, should underestimate civil servants who, I hope, are younger and more vigorous than the old men. I am astonished that Lord Trevelyan should speak against this paragraph. From his great experience he
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ought to know a number of cases abroad where civil servants have served with distinction and success and co-ordinated the policies of the companies.
First, let me deal with one argument that somehow or other BNOC's having civil servants as members of the Board would give it an unfair edge in competition. The whole problem of the industry is that it is not competitive in the sense of classical economics—free and perfect competition. Of course they are competing, but competing in what in economic jargon is called oligopolistic competition; that is competition between the few. BNOC will be a partner of these companies. It will not for a very long time compete with them in the sense of having its own exploration, its own production and its own downstream activity. It has not been decided, but it seems to me that it will take some time. In the meantime, obviously the most important function of BNOC will be whether it is going to participate and thereby acquire the knowledge and physical capacity. All this was discussed ad nauseam when we talked about the problem of participation, of the need and justification for participation.
There is also another question. I should have thought that all the objections which the noble Lord, Lord Campbell of Croy, mentioned against civil servants because they will be mixed up, so to speak, in various companies, can be voiced against all the bankers, the accountants and solicitors who have as clients more than one company. But there was never any suspicion that an accountant's firm would give away the secrets of one of its clients to another. It is absurd to suggest that this sort of situation could arise in the case of BNOC. From time to time I have been known as not being a total admirer of our Civil Service, including my present Department; but I should never dream of suspecting them of not being able with perfect equanimity to carry two loyalties and at the same time, giving service to both sides who employ them. Their personal integrity, which am sure none of us would impugn, is perfectly capable of sorting out what is their duty in each case.
BNOC will not be part of the Government in this sense, and official members will be bound by the term of the licences.

513
I know it has not been alleged that official members will disregard the licence terms so that they will breach any other confidence, merely that they will be put in an invidious position. But is it so invidious? As the Secretary of State pointed out in another place, civil servants are used to being in receipt of commercial confidences. He also pointed out that the record in respecting the confidences is absolute. I do not think that anybody would disagree with that. I do not say that there is no problem but only that if there is a problem it is not a new one and it is one which is clearly capable of resolution. Neither this nor the other possible difficulties to which the noble Lord has drawn attention outweigh the benefits we stand to gain from the appointment of official members.
Lord CAMPBELL of CROY: My Lords, I should like to reply briefly to what has been said. The noble Lord, Lord Slater, misunderstood what I said, First, he thought that my views about the Civil Service might have been soured by years as a Minister, but I was able to point out that it happens that my past enables me to see this matter from the point of view of a professional civil servant and, later, a Minister. There are several noble Lords on the Cross-Benches whom I had the privilege of serving when they were heads of Departments, and they certainly would not misconstrue what I have said as showing any lack of faith in the confidentiality observed by the Civil Service; and the noble Lord, Lord Trevelyan, voiced his support.
The point I make is that the two civilservants to be placed in the position which Clause 1 requires will have special additional information about companies which are competitors; and the question is not that they would divulge that information but rather how they can act and contribute in the work of the Corporation when they have this special information. I will not go over the ground again, but the noble Lord did not understand my point, which is either that they are handicapped by not being able to give this advice where they have this special information (because that would be fully observing the confidentiality; in which case their use to the Corporation is restricted), or, if they are free to use all the information—not actually to divulge it, but to base
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their advice and suggestions during discussions upon that confidential information about competitors—then the suspicion that BNOC has an unfair advantage would be substantiated.
I pointed out that none of this would arise if the civil servants were seconded; if they were no longer working in their Departments, with therefore, access to this secret information about competitors. As the noble Lord, Lord Slater, referred to my past, I must make it clear that in the course of it I worked for two years as a private secretary to the late Lord Norman brook when he was Secretary to the Cabinet, and at another point I worked personally for the late Lord Bridges when he was head of the Civil Service; so I am very much aware of the views which those two great public servants had about the uses to which the Civil Service should be put. I have myself made it clear that we are lucky in having the traditions of our Civil Service, and I am making no reflections at all on civil servants.
The noble Lord, Lord Balogh, was arguing against a case which I did not make. He was arguing about the question of whether civil servants in this position would keep the confidential information from being disclosed. I do not think that any of us have any doubts about that. They would certainly not divulge that information. As we have said in debates on other Bills (such as the Industry Bill) there is complete confidence on both sides of this House that information given to Government Departments, for the use of the Departments, is not disclosed. The problem is, how are these two civil servants to operate and be able to make a full contribution to the work of the Corporation if they are restricted by not being able to act, give advice and make suggestions based on this very confidential information, which itself would be completely safeguarded? That is the problem. We have not had an answer to that point which is the dilemma in which these two persons would be placed.
The noble Lord, Lord Balogh, spoke of the personal integrity of civil servants; we are all agreed on that. But that is not the problem. He spoke of commercial confidence being observed within Departments, and the good record there. Again, that is not the issue. The issue is how these two civil servants, given this

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anomalous and invidious situation, are to make a worth while contribution, knowing that they have this special knowledge about competitors. The noble Lord, Lord Balogh, said that the two civil servants themselves would have to decide how they would do their work for the Corporation. I believe that that is passing the buck to two persons who would be put in a position, which I think most Members of your Lordships' House would agree, would be extremely difficult. I must point out that the Bill as it stands requires that there should be not less than two persons. It is not a matter of the Secretary of State being permitted to appoint one or two if he wishes. A minimum of two civil servants is required in the membership of the Corporation.
The noble Lord, Lord Lee of Newton, said that as the noble Lord, Lord Kearton, the prospective chairman of the British National Oil Corporation, had not, so far as we know, publicly raised any objections to this provision, then it must be all right. But I should say that he would have far more reason to raise an objec-
tion if he were the chairman of one of the companies competing with BNOC. I can certainly see that in such circumstances he may well raise objections, because he would then be worried about confidential information concerning his company. But I do not think that as chairman of the Corporation the noble Lord need raise objection. He probably has many other things concerning the Corporation which he considers more important.
This is a matter on which we believe the Government ought to be given the opportunity to think again. It is an important matter; not one of the major points concerning BNOC, but one on which your Lordships' House ought to give the Government the opportunity of having second thoughts. Therefore, I ask noble Lords to support me in pressing this Amendment.
3.36 p.m.
On Question, Whether the said Amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents 120; Not-Contents, 62.

CONTENTS

Aberdare, L.

Eccles, V.

Kinloss, Ly.

Aberdeen and Temair, M.

Effingham, E.

Kinnaird, L.

Airedale, L.

Elles, B.

Lauderdale, E.

Alport, L.

Elton, L.

Lindsey and Abingdon, E.

Amherst, E.

Emmet of Amberley, B.

Lloyd of Kilgerran, L.

Amory, V.

Energlyn, L.

Long, V.

Arran, E.

Exeter, M.

Loudoun, C.

Balerno, L.

Ferrers, E.

Lyell, L.

Balfour, E.

Foot, L.

Macleod of Borve, B.

Balfour of Inchrye, L.

Fraser of Kilmorack, I,.

Macpherson of Drumochter, L.

Barnby, L.

Gage, V.

Mar, C.

Barrington, V.

Goschen, V.

Margadale, L.

Beaumont of Whitley, L.

Grenfell, L.

Merrivale, L.

Belstead, L.

Grimston of Westbury, L.

Mersey, V.

Berkeley, B.

Hailsham of Saint

Monck, V.

Bessborough, E.

Marylebone, L.

Monson, L.

Birdwood, L.

Halsbury, E.

Morris of Borth-y-Gest, L.

Brock, L.

Hampton, L.

Mowbray and Stourton, L.

Byers, L.

Hanworth, V.

Northchurch, B.

Campbell of Croy, L.

Harmar-Nicholls, L

Nugent of Guildford, L.

Carrington, L.

Hawke, L.

Ogmore, L.

Clwyd, L.

Hayter, L.

O'Neill of the Maine, L.

Coleraine, L.

Henley, L.

Onslow, E.

Cork and Orrery, E.

Hereford, V.

Orr-Ewing, L.

Cottesloe, L.

Hinton of Bankside, L.

Platt, L.

Cranbrook, E.

Home of the Hirsel, L.

Polwarth, L.

Cromartie, E.

Hood, V.

Porritt, L.

Daventry, V.

Hornsby-Smith, B.

Powis, E.

De Clifford, L.

Howe, E.

Robbins, L.

De La Warr, E.

Hylton-Foster, B.

Sackville, L.

Denham, L.[Teller.]

Iddesleigh, E.

St. Aldwyn, E. [Teller.]

Drumalbyne, L.

Inglewood, L.

St. Davids, V.

Dudley, B.

Ironside, L.

St. Helens, L.

Dundonald, E.

Kemsley, V.

Saint Oswald, L.

Ebbisham, L.

Kimberley, E.

Sandys, L.

Sharples, B.

Strathcona and Mount Royal, L.

Vivian, L.

Simon, V.

Wakefield of Kendal, L.

Slim, V.

Thomas, L.

Ward of North Tyneside, B

Somers, L.

Thurso, V.

Wigoder, L.

Stamp, L.

Tranmire, L.

Young, B.

Strang, L.

Trevelyan, L.

NOT-CONTENTS

Arwyn, L.

Gardiner, L.

Pannell, L.

Aylestone, L.

Geddes of Epsom, L.

Pargiter, L.

Balogh, L.

Gordon-Walker, L.

Phillips, B.

Beswick, L.

Hale, L.

Rhodes, L.

Birk, B.

Henderson, L.

Rusholme, L.

Blyton, L.

Houghton of Sowerby, L.

Sainsbury, L.

Brockway, L.

Hoy, L.

Segal, L.

Bruce of Donington, L.

Hughes, L.

Shinwell, L.

Buckinghamshire, E.

Jacques, L.[Teller.]

Slater, L.

Burntwood, L.

Janner, L.

Stedman, B.

Burton of Coventry, B.

Kirkhill, L.

Stewart of Alvechurch, B.

Castle, L.

Leatherland, L.

Stow Hill, L.

Champion, L.

Lee of Newton, L.

Strabolgi, L.

Chorley, L.

Llewelyn-Davies of Hastoe, B.

Summerskill, B.

Crook, L.

Lovell-Davis, L.

Taylor of Mansfield, L.

Crowther-Hunt, L.

Lyons of Brighton, L.

Walston, L.

Delacourt-Smith of Alteryn, B.

McLeavy, L.

Wells-Pestell, L. [Teller.]

Douglas of Barloch, L.

Maelor, L.

Willis, L.

Douglass of Cleveland, L.

Mais, L.

Winterbottom, L.

Elwyn-Jones, L. (L.Chancellor.)

Noel-Buxton, L.

Wootton of Abinger, B.

Evans of Hungershall, L.

Paget of Northampton, L.

On Question, Amendments agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.
3.46 p.m.
Clause 3 [General duties]:
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 2:
Page 5, line 38, at end insert—
("(9) —

(a) Notwithstanding anything contained in this Act it shall be the duty of the Corporation in relation to proprietary information of another person obtained by the Corporation either,

(a) from the Secretary of State; or

(b) from any member of the Corporation; or

(c) from any person in consequence of an agreement of the kind referred to in Section 2(1)(e) of this Act,

not to disclose or permit the disclosure of such proprietary information otherwise than to the Secretary of State or any person in the service or employment of the Crown nor to use such proprietary information in any of its operations or activities other than for the purpose for which it was originally supplied by such person.

(b) In this section the expression "proprietory information "means information, in whatever form, consisting of operating, financial or technical data which is neither in the public domain nor generally available to those persons who are likely to be most interested in obtaining it or any conclusions, reports or opinions based wholly or mainly on such data.")

The noble Lord said: My Lords, this Amendment is linked to the Amendment that we have just been dealing with, but may I start by saying that during the Committee stage debate the noble Lord, Lord Balogh, said:
"…obviously it is expressly provided in the Bill that confidentiality will be preserved in all the operations of BNOC, and this includes the civil servants ".—[Official Report, 24/9/75, col. 323]
We completely agree with those sentiments, but I am bound to tell the noble Lord that I cannot quite see where it is so provided in the Bill. The purpose of this Amendment, therefore, is to do his work for him—in a totally friendly way, of course.
What this Amendment says is that it shall he the duty of the Corporation not to disclose or permit the disclosure of proprietary information. I had better reiterate once more that nobody is trying to cast any doubts upon the motives or the actions of civil servants serving on the Board, but we have discussed at some length the obvious difficulty which arises in this direction. The very nature of BNOC creates this kind of possibility, which has caused a considerable amount of doubt in the industry. This kind of doubt, I think, is bound to be exacerbated by the nature of participation. Here again, I am not trying to argue whether or not

519
participation is a good or a bad thing —I think I have made my views reasonably clear—but the fact remains that if you have participation then you create this problem.
I think it is fair to point out the kind of difficulties that can arise. In the first place BNOC could be placed in an unfairly advantageous position both upstream and downstream, and I think these jargon words are now reasonably well understood by your Lordships in view of their use throughout our debates. It will get information about its competitors' business plans and activities, or it could do so, which those competitors have provided to the Government on a confidential basis. BNOC could, wittingly or unwittingly, leak confidential information about its partners to the Government, to the commercial disadvantage of those partners in their negotiations with the Government; or BNOC could leak information about one company to another company with whom it was associated, to the first company's disadvantage.
We recognise, of course, that leaks by the Government to BNOC are protected by existing legislation; and, furthermore, the industry has lived with this kind of situation for many years and totally accept that information that they give to the Government about their downstream activities will not be disclosed to competitors. Indeed, I think it is model Clause 31 that restricts the disclosure of upstream information which the Government might obtain under the terms of the licences. I do not really believe that the civil servant issue needs to be rehearsed any more, but the dangers will be particularly acute where BNOC is going to be in competition, rather than in partnership, with commercial companies. I could expand at considerable length about the worries underlying the reasons why we put forward this Amendment. We want to try to stick closely to our Amendments in this debate and there is quite a number to be dealt with. I am sure that noble Lords do not want to go on too late today; to that I shall try to be as brief as possible.
It may be that the wording of our Amendment is not satisfactory. As I have said, I feel sure that the purport of the Amendment must commend itself to the noble Lord since he himself seemed to
520
agree with it in his Committee stage speech. If he is good enough to agree that he goes along with our intention but is unhappy about our wording, possibly one side or the other could produce satisfactory wording to deal with the situation in the 48 hours that we have before Third Reading. I sincerely hope that the very least that we shall be able to get from the Government is a clear and categorical statement (either now or at Third Reading) on their attitude and in what way they would wish to reinforce the statement by the noble Lord—preferably by putting some Amendment such as we are suggesting into the Bill. I beg to move.
3.52 p.m.
Lord BALOGH: My Lords, I have listened with interest to the noble Lord but he has not, I fear, convinced me. I understand that the object of the Amendment to be to secure that BNOC, in broad terms, plays fair by those with whom it is participating; that it does not, for example, use information obtained from a licensee in connection with a participation agreement with that Licensee to that Licensee's disadvantage in its operations in another agreement; or to obtain a favoured position where it acts, or might act, as a sole licensee, in a neighbouring block, for example.
I shall come later to the substantive argument, but, in passing, I must point out that I am not at all certain that as drafted the Amendment would be wholly effective. There is apparently to be free exchange of information with the Secretary of State and, in the absence of any condition to the contrary, there is to be free use of information supplied by the Secretary of State or by a member of the Corporation. If the Secretary of State and BNOC members really are the Machiavellian characters which this Amendment and noble Lords opposite may suppose—for it makes no sense if they are not Machiavellian—are noble Lords certain that they could prevent BNOC relaying to the Secretary of State information supplied by one of its partners for a particular purpose and the Secretary of State supplying it back to the Corporation, perhaps in a suitably different format, for its own information? I mention that merely to highlight how difficult and inappropriate legislation is for this purpose.

521
BNOC will participate in licences with a variety of partners. It will acquire information which is commercially confidential; and, naturally, licensees are anxious that this information will not be used to their disadvantage and to the advantage of their competitors. I must confess that I can see very few occasions where this situation can arise. But never mind that; these are understandable attitudes, but this is not something which is best dealt with by legislation. Legislation is not practical and it is not necessary. Licensees already have the assurance that BNOC will not be privy, without their consent, to information which under the licence terms they give to the Secretary of State. That is quite categorical. In regard to BNOC's operations and the use of information it acquires through participation, their safeguard is that BNOC to be successful will need and want to establish itself as a credible commercial partner. This involves preserving confidences, not breaking them; co-operating with one's partners, not stealing a march on them. And, of course, it is always open to the BNOC's partners to suggest that their operating agreement with BNOC should contain safeguards. These operational agreements are freely operated and can contain any sort of clause which the oil corporations may wish to have. Does the noble Lord wish to intervene?
Lord ORR-EWING: My Lords, I could not help hiccuping when the noble Lord said that these participation agreements are entirely voluntary. We come to the big issue there. We all know of cases where rather harsh blackmail was exercised. It is a strange voluntary relationship.
Lord BALOGH: My Lords, I am sorry that the noble Lord sees fit to repeat completely illegitimate claims which an American businessman voiced the other day, and which I hopefully controverted in "Panorama".
The participation agreement is different from the operation agreement. Perhaps the noble Lord, Lord Orr-Ewing, will agree with that if he knows how this affair is operated. I can give an assurance that the Government and BNOC will be very willing to consider any suggestion for including such provisions in agreements to which BNOC is a party.
522
This is the proper manner in which to deal with this question. Operating agreements can be tailored to meet the needs of an individual situation, legislation cannot.
My Lords, Licensees have already had, for a number of years now, the experience of working with British Gas and the Coal Board in the North Sea. There has been not a single complaint that these bodies have acted unfairly; on the contrary, I know that they are well regarded by their partners. It is our intention and belief, which I am confident will be fulfilled, that their experience with BNOC will be no different. I would ask the noble Lord to withdraw his Amendment.
Lord ORR-EWING: My Lords, I think the noble Lord will recognise that the companies are genuinely concerned over this matter. In fact, in his reply to my noble friend he recognised that. He said that he recognised that the Licensees have anxieties. The companies concerned are realists. They know the great risks that there arc in this operation. They know that the stakes are higher than in almost any other single commercial operation anyone has undertaken for many decades. They also know that the format of control and competition simultaneously from within the same Ministry is quite different from anything that they experienced anywhere else. I would not accept that the noble Lord's example of the British Gas industry is really reproduced in the format we are now debating.
We had an assurance in this House from the noble Lord, Lord Balogh—it was on 24th September; in column 323 of the Official Report—which was referred to by my noble friend in his opening speech. The noble Lord, Lord Balogh, then said:
"…obviously it is expressly provided in the Bill that confidentiality will be preserved in all the operations of BNOC, and this includes the civil servants."
Many of us have combed through the Bill; and I was listening so far as I could and I think I caught almost every word the noble Lord said; but I have never yet found the exact place in the Bill which would justify that expression or undertaking. However, there was one chink of hope and light in his reply when the noble Lord said that the Government would

523
consider any agreement with the oil companies which might give them further assurance on this point. I hope that if he does not find our wording completely acceptable—and he expressed the view that in this matter legislation was not appropriate—he will find a form of words which he could speak at Third Reading which puts beyond all peradventure and sets at rest the anxieties which, understandably, the oil companies have that information which they provide in good faith will possibly leak across to BNOC which is in competition with them, particularly downstream.
This year has been the busiest one that any Government has ever had. There has been more steamrolling of Bills through our House, as we have all experienced in recent weeks, than ever before in my 25 years of Parliamentary participation, and we have heard a lot about open government. We have heard a lot today about participation. Participation does not mean anything if it does not rest on complete trust between the oil companies, BNOC and the Ministry. That is why we seek an assurance that some words, if they cannot be written into the legislation, should be spoken by the noble Lord. I will not ask him to do that this afternoon; it wants to be carefully worked out. Perhaps the oil companies should be consulted. We want a firm assurance that there will be no leak, but that if there is a leak, normal disciplinary action will be taken within the Ministry to make sure trust is restored. Nothing could undermine the whole of this operation more quickly and definitely than any leakage from this source.
Lord BALOGH: My Lords, with permission, I will read Schedule 2, paragraph 31:
"All records, returns, plans, maps, samples. accounts and information (in this clause referred to as "the specified data") which the Licensee is or may be from time to time required to furnish under the provisions of this licence shall be supplied at the expense of the Licensee and shall not (except with the consent in writing of the Licensee which shall not be unreasonably withheld) be disclosed to any person not in the service or employment of the Crown:"
Lord ORR-EWING: But, my Lords, it is the last words there which disturb me:
"…not in the service or employment of the Crown."
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This is exactly the point which arose in our first Amendment. Two people wear two hats; they are direct employees of the Minister and have an ability to see the plans, forecasts and intentions of the oil companies. Yet they serve the Ministry also as directors and therefore the confidantes of BNOC. They are therefore in the employment of the Crown. That is why there is still not complete trust by the companies. From what the noble Lord has said, it is clear that it is the intention that there should be trust. I ask him to look at this point and let us have an assurance on it.
Lord BALOGH: My Lords, these doubts are unnecessary. I repeat that Schedule 2, paragraph 31, says that information shall not be disclosed to any person not in the service or employment of the Crown. BNOC is not in the service or employment of the Crown. If those two civil servants violate confidentiality, they can be dealt with under the Official Secrets Act.
Lord STRATHCONA and MOUNT ROYAL: My Lords, it is abundantly clear that the noble Lord is intending to give as much assurance as he can. Happily, we are not going to indulge here in legal argument—or I hope we are not. The noble Lord used the word "categoric" and quoted various passages from the Bill which he indicated gave the categoric assurance which he felt we were seeking. We will look at this and I sincerely hope that this will satisfy those with whom we arc discussing the situation in the industry. I do not find his actual debating stance wholly credible. He goes to great pains to say he does not think it appropriate to legislate about this matter, but we have quoted twice the reference he made in Committee where it was made clear he was saying then that he had already legislated. Today he went on to say "we intend to legislate" and quoted the passage which indicates he was trying to do so. That is a debating point, and I do not think there is any great need to pursue it.
We are after a categoric assurance. He has used the words "categoric assurance" and quoted a passage which he categorically assured us gives the categoric assurance. I sincerely hope that, on close examination by those who understand these things better than I

525
do, that argument stands up. Having said that, I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Clause 5 [General financial duties]:
4.6 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 3:
Page 6, line 27, at end insert—
("(5) The Secretary of State shall, in relation both to such of the main activities of the Corporation and to each of its subsidiaries as are or will be in competition or partnership with any company which is not a subsidiary of the Corporation, from time to time determine, with the approval of the Treasury and after consultation with the Corporation, as respects such period as the Secretary of State may so determine:

(a) the rates of return on the capital employed by the Corporation and its subsidiaries in carrying out those activities which the Secretary of State considers it is reasonable for the Corporation and its subsidiaries to achieve in that period, and

(b) the minimum acceptable prospective rate of return on new investments which the Secretary of State considers it is desirable for the Corporation to foresee before it undertakes new investments, having regard both to the risks involved and the investment criteria set out by the Treasury from time to time for the guidance of nationalised industries:

and in calculating what rates of return are reasonable for the Corporation to achieve the Corporation shall be treated as if it were not exempted from petroleum revenue tax and stamp duty by section 9 of this Act.
(6) The Secretary of State shall give notice to the Corporation of any determination under subsection (5) above.
(7) The Corporation shall conduct its affairs during any period as respects which a determination has been made under subsection (5) (a) above with a view to achieving in that period a rate of return on capital employed not less than that specified by the determination as for the time being in force.
(8) The Corporation shall so order its investment as to exclude any investment the prospective return from which is less than the minimum determined under subsection (5)(b), unless otherwise directed by the Secretary of State.").
The noble Lord said: My Lords, here again we are dealing with the misgivings felt by the industry about the fairness and equity of the competition they can expect from BNOC. I am not going to take the House through this long Amendment; have already explained the purpose of it. It has been said many times that the worries about BNOC on the part of
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private industry stem from the rather special circumstances which are going to surround BNOC in its style of operation. First, there is the point that it will not be paying petroleum revenue tax. Secondly, there is the unique arrangement whereby BNOC will have access to the massive funds which are intended to flow into the National Oil Account. The misgivings one might have as a result of this are the lack of provisions in the Bill of any financial, operating or investment criteria which BNOC is going to be expected to operate in performing its various functions. The Amendment would ensure that in establishing pricing policies and performance level, proper regard was given to the commercial and market factors to ensure that the overall performance met the financial targets set from time to time by the Government. It would also ensure that there were reasonable prospects for the projects in which BNOC is going to indulge in meeting what the financiers call the "hurdle rates" set out by the Government for the guidance of nationalised companies.
The Government already seem to have recognised in a debate in another place that there is concern felt in the industry about BNOC going downstream or acting as a co-Licensee and possibly competing on unfair terms. It was also conceded on 26th June that the rate of return on the capital should be a relevant consideration in setting the objectives of BNOC. The point of this Amendment is to emphasise once again that it must be in the national interest that private industry can proceed with its investment intentions without the fear of unequal and unfair competition from BNOC. I will leave the matter there until we hear what the Government have to say. I beg to move.
Lord BALOGH: My Lords, this Amendment seeks to ensure that in relation to activities in which BNOC or its subsidiaries will be in competition with the private sector, the Secretary of State will exercise his power of setting financial duties to determine rates of return on capital and target rates of return on new investment, calculated as if the Corporation were not exempt from PRT. My Lords, throughout debates on this Bill, both here and in another place, much has been said about the commercial behaviour of BNOC, and assurances have been

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reiterated at every stage. Let me briefly summarise what has been said both in general and in particular relation to this clause, the importance of which we have repeatedly stressed as an instrument of securing that our commitments on BNOC's commercial behaviour are met.
First, from the verystart—from publication of the Bill and its Second Reading, through Committee, Report and Third Reading in another place, through the corresponding stages to date in this House—it has been clearly and unambiguously stated by two Secretaries of State, by the Under-Secretary and myself, that when in partnership and when operating downstream BNOC will act commercially. Secondly, we have moved Amendments to the Bill which make it easier to see what is happening. We have provided for the publication of the Corporation's financial duties; we have provided—or rather if noble Lords agree, we are about to provide—that the Corporation's accounts must be analysed by main activity, and we are also, I hope, about to provide that an estimate will be given in the annual report of the amounts of PRT and corporation tax which the Corporation would have paid had PRT been payable.
Thirdly, we have given more specific assurances about setting financial duties under this clause: first, that the Government will take into account the sort of return expected by a private sector company (Official Report, Committee, House of Commons, 26th June, col. 811); secondly, that before the financial objectives are set Parliament will be informed about them (Official Report, Commons Committee, 26th June, Mr. Smith, cols. 811–812); and, thirdly, that PRT exemption will not be allowed to confer an advantage on BNOC over its partners or competitors when it comes to appraising investments (Official Report, Commons Committee, col. 953, 1st July.).
The Amendment of the noble Lords opposite is in general terms and would not, I think, add a great deal to the provisions and undertakings I have listed. It does not write into the Bill any criteria of profitability; it only requires financial duties to take the form of rates of return on capital and target rates of return on new investment. On the other hand, this would have the disadvantage of con
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stricting the Secretary of State in an area where it is necessary to retain a fair degree of flexibility. It may be objected that there can be nothing wrong in requiring the Secretary of State to set target rates of return on capital employed, and in practice that may well happen. But let me set out three considerations which will need to be taken account of in administering this clause, the effect of which cannot be predicted with certainty and which therefore make it important to leave the Secretary of State's discretion untrammelled.
First, under subsection (2), the Secretary of State must consult the Corporation before issuing any notices. The noble Lord's Amendment refers to consultation but it would be only partial consultation if the form of the duty is determined in advance and only the detail remains to be filled in. This leads to the second consideration. There are a number of ways of defining financial targets. The Under-Secretary spoke in Committee in another place of the history of financial targets in the nationalised industries. There is no standard method, and this is as true of the oil industry as of anywhere else. Targets and yardsticks which purport to be the same and are called by the same name quite often turn out in practice to produce different results as applied by different companies. For example, the profitability of new investments can be expressed in terms of internal rate of return, the present value of the flows, payback and profit/investment ratio. All these criteria are used by the oil industry in assessing projects and not many have the same methods. Others may be developed in future. The BNOC ought to have maximum freedom to use all the techniques of the still-developing science of investment appraisal.
Thirdly, there is the problem of inflation accounting. The noble Lord did not mention this, but I am sure it is very near to his heart. The Under-Secretary also referred to this and I do not want to embark on a discussion of it at quarter past four. I mention it merely to demonstrate one more factor which will need to be considered in relation to these questions of financial duties. This is an area in which work will have to be done and it cannot be done before the Corporation is formed. We have set out the parameters within which it will proceed and

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have given undertakings about the publication of the duties when they are set. Short of that, there is advantage in preserving maximum flexibility, and therefore I hope that the noble Lord will be kind enough to accept what I have said and not to press the Amendment.
4.17 p.m.
Lord ORR-EWING: I was glad to hear the noble Lord saying, quite rightly—indeed I have the same quotations here that—there have been assurances and reassurances on a number of these points, but our anxieties on this side of the House spring from the fact that in almost no instance, except for one minor matter, have the Government allowed these assurances to be written into the Bill. Nor have we got an independent appeal procedure which would allow a complainant, if the assurances were to be broken, to subject the matter to independent review and judgment. It is fair to say that the noble Lord quoted what was said at column 953, where the Under-Secretary spoke in another place about Clause 9(1) during the Committee stage; but the noble Lord did not quote one portion of that remark, and perhaps I might remind him of it. It was this:
"Therefore my right honourable friend is very willing to have discussions on this point with North Sea operators, if they wish, to hear their views and to explain the Government's thinking to them. He will listen carefully to what the industry has to say."
Perhaps the noble Lord, if he is able to speak again, would tell us whether those consultations took place and whether the operators are now completely satisfied, because, as I understand it, they are still not satisfied with the discussions and such assurances, if any, as they have received.
I come to what is very much a second difficulty. I should like the Government to explain how the reporting by BNOC of its notional (and incidentally totally unpaid) PRT responsibilities up to 18 months after decisions have been taken is to be effective. The Government have said they will publish an annual report of BNOC. It is generally expected, and indeed has been said by the Government, that this will appear six months after the end of BNOC's financial year. But this means they will be reporting decisions which could have been taken up to 18 months before, and I am not sure that this is a satisfactory way of presenting the whole case.
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I hope that BNOC will make proper commercial decisions, as we have been assured; but I do not see how it is going to refer this to public judgment, except very much later than when those decisions were taken. Perhaps we could have an assurance from the Government that if these decisions are to be on a pure commercial basis we can have prompt reports about them (there is no reason why a Question should not be put down to the Government) and we should be informed as we go along about matters which have been decided by BNOC and which are of tremendous importance to the oil operating companies which have so much at stake.
Lord BALOGH: My Lords, I can assure the noble Lord that discussions have taken place, in a very friendly and co-operative spirit, I am happy to say. They are continuing and United Kingdom oil is being invited to make further observations. So far as the commercial nature of the activities of the BNOC is concerned, I am quite sure that the oil companies are not mute and willing victims of oppressive bureaucracy, and when there is any doubt about a commercial operation, I am sure that the oil companies will make representations, and, as our experience in practice has shown, an accommodation will be found.
Lord STRATHCONA and MOUNT ROYAL: My Lords, the noble Lord has clearly taken on board the worries that have been expressed from this side of the House and has certainly done his best to give us all the verbal reassurance that he can reasonably be expected to give. I am grateful that he spared us a discourse on Sandi lands-type accounting which is something I find supremely difficult to understand; this is no place for us to go into that, even assuming that the noble Lord understood it, which I might venture to doubt. But we are once again in this area where the Government give all kinds of verbal assurances and then they stick when it comes to the fence of actually putting it into the Bill. They are inclined to use this delightful phrase which is trotted out all the time, a good Government phrase, "We must retain our flexibility". That phrase ought to go into the dictionary along with "terminological inexactitude" and one or two other phrases of that kind. What it means is that the Government

531
say, "Yes, we agree with everything you say. We give you all the assurances we possibly can. But we are not going to write it into the Bill because we may want to do something different if the situation works out that way".
Having said that, and having registered a mild protest, we accept with gratitude the reassurance that the noble Lord has given us and sincerely hope that his Government and future Governments stick to those reassurances. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 10 [Accounts and audit]:
4.23 p.m.
Lord LOVELL-DAVIS: My Lords, with the leave of the House, I think I can deal briefly with both these Amendments, Nos. 4 and 5. These Amendments follow the undertakings we gave during Committee stage on 24th September. They provide that where the Corporation or a group consisting of the Corporation and subsidiary companies prepare accounts under this clause, these accounts must be broken down into each of the main activities. My Lords, I beg to move.
Amendment moved—
Page 9, line 9, leave out (", if and so far as the Secretary of State so directs").—(Lord Lovell-Davis.)
Lord CAMPBELL of CROY: My Lords, we are grateful to the Government for having carried out their undertaking in response to a previous debate.
Lord LOVELL-DAVIS: My Lords, I beg to move Amendment No. 5.
Amendment moved—
Page 9, line 25, leave out ("if the notice so requires,").—(Lord Lovell-Davis.)
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 6:
Page 9, line 45, leave out ("if the notice so requires,").
The noble Lord said: My Lords, we thought that the noble Lord would agree that the same words, "if the notice so requires," also needed to be put into this part of the Bill in carrying out the under-taking which had arisen from the debate
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in the Committee stage. I therefore beg to move.
Lord LOVELL-DAVIS: My Lords, in examining this clause and our Amendment to it we considered whether the mandatory provision should extend to subsidiaries' accounts prepared under subsection (3). We decided that it should not, for the same reason that I think led the Conservative Government to that same decision in the case of the Gas Act; there may well be subsidiaries formed jointly with private sector companies. It may also be desirable to have accounts for those subsidiaries prepared under subsection (3). In that way, for instance, they are sure to be laid before Parliament, as the Select Committee on Nationalised Industries recently recommended in their examination of oil and gas. But it would be wrong in exercising this power to be forced to require greater disclosure than the private sector partner would need to provide under the Companies Acts. The absence of the mandatory provision is, in other words, a protection for the private sector company rather than for BNOC.
I acknowledge that in practice difficulty of this kind is not perhaps likely to arise, and where it does not I can undertake that accounts rendered for BNOC subsidiaries will, where practical, show separate activities, and in any event BNOC's acounting will, I can assure the House, give no less information than British Gas and the Coal Board have customarily given in their accounts, about which I have not heard any complaint from any noble Lords.
Lord CAMPBELL of CROY: My Lords, when I put this Amendment down I had thought that the Government had simply overlooked this part of the Bill and that it would have been their intention to put this Amendment in this place as well as at page 9 at line 25. But I am glad that I caused this short debate to take place because it has enabled the Government to indicate that, in fact, there was not an oversight, but for the reasons the noble Lord has given it was decided not to make this change. We will examine further what he has said in relation to the other nationalised industries which he mentioned, but at this stage I would simply beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 15 [Annual report]:
4.27 p.m.
Lord BALOGH: My Lords, I beg to move Amendment No. 7.
Amendment moved—
Page 12, line 42, at end insert—
("(cc) a statement of the amount by way of petroleum revenue tax and the amount by way of corporation tax which the Corporation estimates would, but for section 9(1) of this Act, have been payable by the Corporation and relevant subsidiaries in respect of their profit for that year;") —(Lord Balogh.)
Lord CAMPBELL of CROY: My Lords, Amendment No. 7 is the Amendment which the Government undertook at the Committee stage to put down at the Report stage. I suggest we might, in considering this matter, discuss also the Amendment in the name of my noble friend Lord Strathcona and myself, Amendment No. 16, which, in a slightly different form, we discussed at the Committee stage when we were considering whether the British National Oil Corporation should be exempted from petroleum revenue tax, as the Bill suggests, and if it were to be exempted, whether something should be written into the Bill so that notional tax should be paid. Amendment No. 16 is the form in which we discussed the matter on the last occasion.
The difference between our Amendment and the Government's Amendment is that ours suggests that BNOC should pay tax due into the National Oil Account. The Government's Amendment requires BNOC to publish the figure for the petroleum revenue tax which it would have paid and also, quite correctly, a separate figure for corporation tax because the amount of corporation tax for which it would be liable would be different if it paid PRT.
Amendment No. 7 is the one which the noble Lord, Lord Shepherd, said during the Committee stage that he would have discussions about with me and the noble Lord, Lord Lloyd of Kilgerran. As it happened, Lord Lloyd of Kilgerran was not available at the time when Lord Shepherd arranged the meeting, but I was able to discuss this Amendment with him. Lord Shepherd also said that he had to be in India this week and, therefore, could not himself be at this debate, and I entirely understand that. The
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undertaking by the Government to put down such an Amendment, having discussed the matter with me in the meantime, a further undertaking given at the Committee stage, has been carried out.
We are, of course, glad that the Government have decided to put down an Amendment, although it does not go nearly so far as we have been suggesting from this side of your Lordships' House. We believe that BNOC should not be exempted from PRT. I will not go into all of the reasons again, but it will be difficult for it to be seen that BNOC is not enjoying an advantage when competing with other companies both in the oilfields and downstream in other activities. There are also problems when they are working in partnership with companies in producing oil from oilfields. The way in which a Corporation which is not liable to PRT plans ahead will be different from the way their partners, which are companies that have to pay it, plan ahead—for example, whether they decide to buy or lease equipment.
I will not go into all of those points again because they were made at the Committee stage. However, there is still the difference between noble Lords on this side of the House and those who sit on the Government Front Bench that we do not think that BNOC should have this special dispensation. It is to be the only nationalised industry which will be exempt from tax in this way. None the less, we are glad that the Government have at last made a move on this subject and that if Amendment No. 7 is passed there will be a requirement in the Bill which will mean that about six months after the year in question it will become public knowledge what BNOC estimates it would have had to pay in PRT. That will help all of those in the industry concerned to work out whether BNOC is gaining an unfair advantage from its activities. It is by no means complete, but it will be helpful to others in the industry who are having to pay tax. I understand that they will be unaudited figures but I accept that. It is more important that the figures should be made available as soon as possible rather than that they should be precise audited figures. This is acceptable practice and is understood.
The other point which I raised at Committee stage was a strange anomaly. I pointed out then that as the legislation

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stands, including the Oil Taxation Act which we considered earlier this year, private companies which are in partnership with BNOC in producing oil from a field will enjoy a larger oil allowance than companies which are working a field without being in partnership with BNOC. This is because BNOC's unused oil allowance will accrue to the partner companies. Clearly this is not what the Government intend. At Committee stage I asked what the Government propose to do about that anomaly which arises from the exemption from PRT. I hope that during the course of this afternoon the noble Lord will be able to reply to that point.
Lord LLOYD of KILGERRAN: My Lords, I rise to record my personal gratitude to the noble Lord the Leader of the House, Lord Shepherd, on two counts. The first count is that when I moved an Amendment to Clause 9 of the Bill, which is a very important part, and submitted that BNOC should not be exempt from the petroleum revenue tax, it was the noble Lord, Lord Shepherd, who replied to the speeches of both the noble Lord, Lord Campbell of Croy, and myself. He told us that he was sympathetic towards the difficulties that the industry found in relation to this exemption, and in view of its importance he undertook to give careful consideration to this matter. Secondly, I am grateful to the noble Lord for the way in which he attempted to arrange with me a time for discussing orally these matters. Unfortunately, I happened to be away in Brussels in connection with the activities of a Select Committee, of which I have the honour to be a member. We were discussing the Report of the EEC Select Committee on energy in relation to the strategy of the EEC. Therefore, I did not have the advantage of a personal discussion with the noble Lord, but I was informed of the discussions by his secretariat and I have had the opportunity to discuss what was said with the noble Lord, Lord Campbell of Croy. Therefore, on two grounds, I am deeply grateful for the personal courtesy which has been shown to me by a member of the Cabinet of this Government in regard to my submissions and attempts to put before the House certain important matters in relation to the Bill, as seen through the
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eyes of industrialists, scientists and technicians.
I support the noble Lord, Lord Campbell of Croy, in saying that this Amendment does not go far enough. However, it is a very important step forward, and on these grounds I welcome it. I should like to be recorded as having said that it is an anomalous situation which, as I said at the Committee stage, may unfairly prejudice foreign firms in particular which are assisting in the effort to get out the oil from the North Sea. Nevertheless, we welcome this Amendment as a substantial step forward.
4.36 p.m.
Lord BALOGH: My Lords, I shall certainly report the very gracious words of the noble Lord, Lord Lloyd of Kilgerran, for which I am grateful, to the noble Lord the Leader of the House. May I say first that the noble Lord, Lord Campbell of Croy, has already pointed out that there is a loophole in the Oil Taxation Act whereby a company in partnership with BNOC might enjoy a larger oil allowance. I can tell the noble Lord that this matter is under consideration and that we shall have to consider amending legislation.
I am sorry that our Amendment does not reassure noble Lords opposite, because I think that it fulfils the undertaking that my noble friend gave to the House. I hope that this Amendment will serve to remove the anxieties which noble Lords have about the corporation tax exemption from PRT and that they will now be satisfied that it does not mask an insidious plot by the Government to provide an unfair commercial advantage to BNOC in its dealings with the private sector of the industry. Right from the start—from the publication of the Bill last April—the Government have made it clear that the reason for the exemption is very simple. It is to avoid the administrative encumbrance of levying a new tax on a new corporation when, under the financial arrangements which will operate for the corporation, the money will in any case be immediately paid into the National Oil Account. The exemption represents a new procedure for new circumstances. Perhaps, understandably, the industry and noble Lords opposite were wary of accepting the Government's assurance that this was all there

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was to it, and I hope that this Amendment will now set their fears at rest. The PRT which would have been paid will not now be known. That applies also to the corporation tax position which would have obtained had PRT been payable.
So far as Amendment No. 16 is concerned, noble Lords opposite continue to be suspicious about the PRT exemption and this is another manifestation of their anxiety. I had hoped that our debate on their Amendment to Clause 5 and the debate that will come later on Clause 15 might reassure them. They want to be reassured that it will confer no investment appraisal advantage and they are not satisfied that the amounts payable will be shown. They now want to make doubly sure by providing that there will be no cash-flow benefit to the Corporation. I hope that I can reassure noble Lords that this Amendment is otiose. There is provision for exemption. Clearly BNOC will have their day-to-day expenses for which they must always have cash in hand. Apart from that, it is the intention—and planning has proceeded on this basis—that BNOC will regularly pay its revenues into the National Oil Account, just as it and any other company would to a bank account, and just as operating divisions or subsidiaries of a number of oil companies do to their parent company. In other words, the sums to which the Amendment refers will he in the NOA anyway. Indeed, if this Amendment were carried BNOC would find itself in the position of having to draw money from the NOA in order immediately to pay it back again so as to comply with the Amendment. No one could maintain that that makes sense.
I do not suppose that at this stage we shall convince noble Lords opposite of the merits of NOA. Understandably, and rightly, the proposal has been subjected to critical examination, but I am confident that once it is in action its merits will be seen, namely that it combines flexible—not in the pejorative sense—and effective means of planning and budgetary control with a high degree of disclosure accountability. Nothing, in practice, would be added to control accountability by the Amendment, but I shall request noble Lords to take action when we come to it.
Lord CAMPBELL of CROY: My Lords, with leave, as I find myself
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virtually introducing this Amendment, perhaps I may say a few words of thanks to the noble Lord, Lord Balogh, first for having given me the information about the anomaly and confirming that I have found a loophole, as he described it, which no doubt will have to be put right in due course and which means that the legislation requires adjustment. Secondly, I am also grateful to the noble Lord. Lord Shepherd, with whom I have been dealing. The result is that I was able to begin this debate by informing the House of what had happened with regard to this Government Amendment.
I say straight away that the noble Lord, Lord Shepherd, and the noble Lord Balogh—who put his name to this Amendment—have completely carried out their undertaking given at Committee stage, which was to table an Amendment of this kind. What I was doing, which of course I had to do at this stage, was to remind your Lordships' House of our attitude to the whole question of exemption from PRT. So I thank noble Lords for having tabled this Amendment, which they undertook to do, but at the same time I think I have made it clear that we would have preferred BNOC not to have any exemption at all from PRT.
Lord LLOYD of KILGERRAN: My Lords. I also wish to thank the noble Lord, Lord Balogh, for the further explanation he has given in relation to this Amendment.
4.43 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 8:
Page 12, line 44, at end insert—
("(e) particulars (including financial details) of those activities of the Corporation and its subsidiaries in which they have been engaged and in respect of which there was no duty to make, or, reasonable prospect of making, a profit.").
The noble Lord said: My Lords, this Amendment relates to Amendment No. 3 and is affected by some of the Amendments moved by the Government, but its purpose is slightly different in so far as what we are seeking here is to ensure that in its annual report BNOC gives details of its non-commercial activities. I do not think this would be covered by the obligation to split its accounting functions as between the main activities of the undertaking. It is not an abstruse

539
or artificial point, although perhaps it is not entirely obvious at first. I do not think this is so much a matter of nervousness on the part of the industry as proper public concern about the kind of activities in which BNOC will be engaged. I have already laboured at some length to establish the need for a rigorous test of commerciality on the side of BNOC, even when it is engaging in an activity which will not earn a proper return.
The noble Lord, Lord Balogh, has made it clear on several occasions that BNOC might be directed by the Minister to do certain things which would be considered useful or in the national interest but would not be within the definition of a commercial activity. One would envisage such things as running a Government pipe-line, or developing a wholly uneconomic oilfield, which might be required for a national reserve, for example; and indeed they might indulge in downstream activities which the Government feel should be undertaken, although they recognise that there will not be any profit.
Public control demands that the public and Parliament should be aware of how the BNOC is operating these non-commercial activities, and furthermore there is the possibility that if the noncommercial activities can be muddled with the commercial activities we could end by not being able to judge how effectively BNOC is undertaking its commercial functions, because in the event that those functions produce an unsatisfactory result we obviously do not want there to be what I might call the "yardarm clearer" of: "Oh well, you see, one of the things we were involved in here was always known to be uncommercial so you cannot expect the whole activity to show a profit, can you?"
The Amendment seems to me quite clearly to be desirable. This is not intended in any way to be a very rigorous Amendment, but I hope the Government may agree with us that it would be desirable to establish that the BNOC will "tag" its activities from the very start as to whether or not they expect them to be commercially viable, and if they do not expect them to be commercially viable they should be extracted and dealt with separately in the accounts. I beg to move.
Lord LOVELL-DAVIS: My Lords, following the undertaking given in Committee, I can assure noble Lords opposite that we have considered carefully whether we can meet them on this point. As was said on that occasion, the principle of the Amendment is not one to which we take exception. I fear, however, that the Amendment would pose several severe practical difficulties. Neither "activity" nor "profit" is defined and, while to most of us the terms might seem to stand in no need of definition, when it comes to writing Statutes these questions rightly assume importance and demand answers. I doubt, for example, whether anyone would seriously want the annual report to contain financial details, say, of a subsidised canteen—if anyone does he seeks to impose a greater burden of disclosure on BNOC than is accepted by the private sector oil companies. Yet the disclosure of such details could arguably be required under the terms of this Amendment. Again, what is to be taken into account in determining "profit" in respect of activities, however defined, under this provision?
For these reasons, I cannot recommend the House to accept this Amendment. But I repeat: I do not dispute that in business it is a good principle that in general significant loss-making activities should be identifiable, and through the publication of BNOC's financial duties as provided for in Clause 5 and the breakdown of their accounts under Clause 10 there is already provision (which I hope will satisfy the noble Lord, Lord Strathcona and Mount Royal) for making available much, if not all, of the information sought by this Amendment. I assure the noble Lord that little would be added by the Amendment, but difficulty and confusion might arise from it. I must therefore recommend the House not to accept it, while emphasising that BNOC will prepare its accounts in a manner fully consistent with the best standards prevailing in the private sector.
Lord STRATHCONA and MOUNT ROYAL: I am grateful to the noble Lord. Clearly, we must accept the comments he makes about our Amendment. I think in his last sentence he fell into the same trap as I did. I referred to the "accounts", and so did he. In point of fact we are really addressing ourselves

541
to reporting separately in the report. I made exactly the same slip myself.
Provided he is accepting the principle here, I will obviously read carefully what he has said. I do not think there is any need for us to pursue the point, certainly at this juncture. Clearly, I would have preferred the noble Lord to say he thought he could find some words to meet the case and that therefore, he would bring them in later. But I think I understood him to say that the Government have at least tried to do so, and have found it difficult. We would not arrogate to ourselves that we are likely to find words when the draftsman the noble Lord has available to him cannot. Therefore, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Schedule 1 [Additional provisions relating to constitution etc. of British National Oil Corporation]:
4.51 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendments No. 9 to 14 en bloc:
Page 50, line 11, leave out ("except an official member").
Page 50, line 15, leave out lines 15 and 16.
Page 50, line 29, leave out sub-paragraph (3).
Page 50, line 37, leave out paragraph 5.
Page 51, line 3, leave out ("but must not be an official member").
Page 52, line 19, leave out from ("Corporation") to end of line 21.
The noble Lord said: My Lords, I suggest it would be convenient for us to consider Amendments Nos. 9 to 14 together. They are all consequential on the decision taken on Amendment No. 1 by the House this afternoon and they have the effect of removing the references in Schedule 1 to the civil servants. I beg to move.
Lord BALOGH: My Lords, this was discussed before, so I think we can accept it.
The DEPUTY SPEAKER (Baroness Wootton of Abinger): My Lords, with your Lordships' permission, I will put Amendments Nos. 9 to 14 together.
Clause 41 [The National Oil Account]:
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 15:
Page 42, line 9, after ("paragraph") insert ("but before 1st January 1979")
The noble Lord said: My Lords, we now come to the National Oil Account, and I beg to move Amendment No. 15. We are proposing to consider two ways in which some financal discipline can be asserted for the benefit of the nation, first, with this Amendment that we are proposing, the date which allows royalties to be paid into the account for the next three years only. We recognise that the British National Oil Corporation will need funds to begin with in the first two or three years of its existence, but should not need them later on. On the Government's estimates of oil production during this period in question, a considerable sum of royalties at 12½ per cent. will arrive in the National Oil Account by the end of 1978. Thereafter, BNOC should be able to operate like other corporations or companies.
My Lords, if the National Oil Account were allowed to become inflated in later years, or if no national overall priority decision were being taken on how the funds should be spent, we shall not he making the best use of our country's resources. The Secretary of State for Energy or BNOC might decide to use the funds for petroleum schemes which could be considered by most of the country to be far less in the national interest than some other important and urgent use here at home, particularly at a time when public expenditure in what many people would think were very important sectors was being cut.
My Lords, during the Committee stage the noble Lord, Lord Balogh, defended the concept of funds collecting in the National Oil Account by saying that it was a convenient way to keep account of receipts and payments arising from petroleum licences. But I would point out that this is already available, as I think the noble Lord has acknowleged, in the Petroleum Production Account under the 1934 legislation. We suggest the Government should look again to make the National Oil Account, if we are destined under this Bill to have that account, a sensible working arrangement where the funds are not idle or ill-used. I beg to move.
Lord BALOGH: My Lords, we have debated this Amendment in Committee and further consideration on this occasion has not led me from the view expressed then. Royalties will be paid to the National Oil Account. This is in line with the function of the National Oil Account as the account into and out of which will flow the receipts and payments receivable or payable by the Secretary of State in connection with the issue of licences. However, this is not the main function of the National Oil Account; it is to account for BNOC receipts and expenditures, but this is only one of its functions. As such, it makes no sense to change the arrangement in 1979. BNOC will have access to royalties as they form part of the National Oil Account, but BNOC will not thereby be enabled to incur additional expenditure. BNOC expenditure is not determined by the magnitude or consistency of the National Oil Account, but as part, an important part, of public expenditure as a whole. The Exchequer will not lose by payment of royalties to the National Oil Account. If the National Oil Account has surplus funds, these must be transferred to the consolidated fund. For these reasons, I cannot see the merit of changing the arrangement for the royalties after three years, and I hope that the noble Lord, Lord Campbell of Croy, is convinced by what I say.
Lord ORR-EWING: My Lords, I should like to intervene for a moment here because I do not feel that the noble Lord, Lord Balogh, has made a convincing case, either in the principle or on personalities, that the Secretary of State is the most prudent and careful operator of taxpayers' funds. Speaking as a Minister in one spending Department, the Admiralty, for some five years, and having introduced some five Naval Estimates—I think the last one stood at something around £400 million for the year—and, incidentally, having balanced my budget, which is almost fatal for any Minister if he wishes to receive promotion, I know just how, if one has spare money around one looks to see which pet theory within the Department it can be spent on. We had a term called "vironment" in the Admiralty, an old-fashioned term, which allowed one to switch monies from one vote to another.
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The same thing goes on today as in my period of office, so I have not got complete faith that Ministers will always administer their funds, such as exist, or that BNOC will do the same. They will tend to cling on to that money, and I feel it is better that it should he passed back, and passed back quickly into Government funds, under and within Treasury control.
My Lords, I have not been a tremendous admirer of the Treasury, but I hoped that the noble Lord, having served there for some years—some would say with distinction and others might not agree—would have stood up for the Treasury and said, "Yes, one's alma mater in Government is always the best, the biggest and the fairest that ever existed". I hoped he would be saying, "Yes, there is some sense in this; the Treasury should administer these funds; they should be passed back. They are safer in the Treasury's hands than anyone else's." I also happen to disapprove of the personality. I would remind the noble Lord that the present Minister, Mr. Wedgwood Benn, has not got a tremendous track record for backing winners in the financial stakes. Only last week, following the Norton-Vililers-Triumph fiasco, where he was rapped by the Acting Permanent Secretary of his Department, and was warned that it was totally unviable—
Lord BALOGH: My Lords, I must interrupt. I really protest against this sort of abominable and filthy language used about my right honourable friend. I think it is a disgrace.
Baroness WARD of NORTH TYNESIDE: Rubbish!
Lord ORR-EWING: My Lords, I am so glad to have the objection of the noble Lord, Lord Balogh, which only strengthens my resolve to give the facts as printed in the paper, and stated in Parliament, and I do not think there is anything wrong. I thought the Opposition were intended to point out mis-demeanours by Ministers. If Ministers are going to get too sensitive on this position, it will undermine any respect they have in any part of Parliament. It is not anything which could be wished for by those dedicated to democracy and its well-being. I go on to say that Mr. Wedgwood Benn has not got a very good track

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record. I will complete my sentence; in the same week the Scottish Daily News, after receiving substantial sums, has gone bust. So on principle and personalities we do not happen to have a Minister who is careful with taxpayers' funds. That is why I ask the Minister, with all his loyalty to the Treasury, his first Department, whether these funds in the hands of the Treasury are really best regulated.
I would add one further point. All companies—and I am associated with a number of large public companies—have problems of trying to persuade our subsidiary companies to pass the funds back so that they may be deployed most efficiently and quickly. In every bank nowadays overnight money is sent back so that it may be employed to the greatest and quickest extent in the best way possible. So again, not only on principle but also on speed, it would seem to be desirable that funds, when they accrue in very substantial quantities to BNOC, should, when they are surplus to immediate requirements, be passed back under Treasury control. I cannot help feeling that in the interests of the taxpayers of this country that is a wise and sensible provision.
Lord BALOGH: My Lords, the noble Lord, Lord Orr-Ewing, has shown how little knowledge he has of this business and of the personalities. I have not served in the Treasury: the noble Lord is mistaking me for Mr. Kaldor, who is a very different person from me.
Lord ORR-EWING: My Lords, I apologise to the noble Lord. I was under the impression that at one time in his political career, in the previous Labour Government but one, he was one of the two senior advisers to the Treasury. If that is totally untrue, I apologise.
Lord BALOGH: My Lords, no apology is needed; I would not accept it anyway. I was serving in the Cabinet Office and later on in No. 10. The same semi-truth, half truth or untruth comes into the other observations, which just shows that the noble Lord has no idea how Government business of planning is conducted. He has probably never heard of public sector borrowing requirements, which obviously includes NOA because it is one of the parts of the Government's income and expenditure.
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All planning is done obviously by the Public Expenditure Survey Committee, and so far as BNOC capital expenditure is concerned we have given undertakings that forward estimates of BNOC's capital expenditure will be published. The medium of publication is a matter for the Chancellor of the Exchequer as the Minister responsible for overall public expenditure. I cannot anticipate how he will make this information available, but it will be available; that assurance I can give.
With regard to the important point which the noble Lord, Lord Campbell of Croy, made, I can tell him that the NOA will supersede the petroleum production account, which is abolished by Clause 17(3) of the Bill. It is therefore sensible to pay the whole thing into the NOA, whch is under the overall control of the Treasury; and of course the plans of the forward capital expenditure of BNOC will be published.
Lord CAMPBELL of CROY: My Lords, first of all and without entering into the argument on that point, I must say that when the noble Lord, Lord Balogh, jumped up and accused my noble friend of having used "filthy language", lest anybody should misinterpret what that was supposed to mean and unless there are some new words of which even I do not know the meaning I did not hear anything which could possibly be described as "filthy" in what my noble friend Lord Orr-Ewing said, and certainly nothing which was un-Parliamentary. As I understood it, what he was doing was criticising what he described as the "track record" of the Minister. I am sure that is justified in this House, and I am sorry that the noble Lord should have reacted in that way. But I do not intend to follow that point.
I am sorry that the Government are not changing their mind about this proposal, which would be one way of achieving financial discipline in a simple, straightforward way. I hope this means that the Government are now more attracted by the alternative and that when we reach the next Amendment, No. 17, we shall find that they have decided to accept that instead. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 17:
Page 42, line 34, leave out ("Secretary of State considers and the Treasury agree") and insert ("Treasury considers").
The noble Lord said: My Lords, this is an Amendment which we moved and withdrew at Committee stage saying that we might have to come back to it again at Report stage, and come back to it we have. Perhaps I had better first explain that the purpose of this Amendment is perfectly simple. It is to ensure that there is Treasury control over these large funds which are to be accumulated in what we have accustomed ourselves to calling the "oil industry slush fund". We considered the possibility of moving an Amendment which would allow either the Secretary of State or the Treasury to control this fund, because we thought that might go some way towards meeting points made at Committee stage by the noble Lord, Lord Balogh.
However, on the whole, that seemed to be only creating confusion, whereas the issue here is a perfectly simple one. If, on the other hand, an Amendment on those lines were to commend itself to the noble Lord we should be very happy to withdraw this one and to move instead the other Amendment. I do not think there is much point in rehearsing all the argument we went through about this question of the control of this large fund. I would merely like to say this: it seems to me that the noble Lord, Lord Balogh, in speaking to the last Amendment, almost made my case for me. I have not got his exact words, but I think I understood him to say that the Secretary of State and his Department's spending is not determined by the National Oil Account but as part of the normal financial provisions. I think all we are saying is, so be it, that is exactly what we are suggesting should happen.
I have always understood it to be nailed up over the Treasury door, "Thou shalt not have hypothecated revenues", and yet here we are, not hypothecating a little bit, like the Road Fund, but absolutely gigantic and ever-increasing—at least increasing for 20 or 40 years—enormous sums of money, and these are to be put under the control and discretion of the Secretary of State; whereas my understanding is that the whole system of Government in this country has always been
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based on the proposition that these sums of money will be controlled by the Treasury. I am not going to comment on whether I think that is a good or a bad thing, but that is the normal accepted practice. I have not heard anything so far to convince me that there is any reason for not continuing to do that in this case. Furthermore, if the noble Lord says that it is necessary for BNOC, to enable it to act quickly, to have a large sum of money readily available to it through its own Secretary of State, then let the Secretary of State indent for that large sum of money from the Treasury and defend his action, in the ordinary way to which we are all accustomed.
It may be that it is desirable for the Secretary of State to establish a fund which he will control, but let him justify this by indenting for it to the Treasury in the way to which we have grown accustomed. It is simply that we cannot see that any case has been made yet for altering the ordinary way of operating the financial and executive affairs of this country. I beg to move.
5.10 p.m.
Lord TREVELYAN: My Lords, I should like to support this Amendment strongly. It is essential that we should keep normal Treasury practice and should strengthen the Treasury control as much as possible. Under the clause as it now is it would appear that the initiative is entirely in the hands of the Secretary of State and that he has a veto, in effect, over the Treasury. Surely that is not what we want. It seems to me that if we do not look out we shall be approximating to the system which it used to be said rudely was the one adopted in the Government of India by the Finance Department there. This was that if you wanted 6d. you had to fight a year for it and would probably lose, and if you wanted £10 million you would get it at the drop of a hat.
Lord POLWARTH: My Lords, I find the situation as it exists at present under this clause somewhat bizarre. At one time in my renegade past I was something of a supporter of the idea of hypothecation of oil revenues for certain purposes for regional development, not only in Scotland but in all the regions. It was only after a spell in Government and seeing what happened on the inside

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that I was converted to the idea that hypothecation of such revenues might create more problems than it would solve. The Government are strongly resisting pressures from the Nationalist Party for what would amount to hypothecation of oil revenues for the benefit of Scotland on the theory that it is Scotland's oil. They are resisting them, in my opinion, quite rightly. Yet here we appear to have a form of hypothecation of oil royalties which we have been told are to do so much for the benefit of our national exchequer in general: the hypothecation of these revenues, in the first instance, for the benefit of British National Oil Corporation, unless and until the Secretary of State determines otherwise. Therefore I feel that I must support this Amendment.
Lord ORR-EWING: My Lords, the speech which was described by the noble Lord as "filthy language" was intended to be against this Amendment. I have an apology to make to the House because I thought that we were taking Amendments Nos. 15, 16 and 17 together, and I was speaking to this Amendment on the last occasion. I should like to give the noble Lord an apology for using an epithet which is so unparliamentary in this House.
Lord BALOGH: My Lords, the NOA under the Act will be under the control and management of the Secretary of State. The statutory responsibility to Parliament and the public will be his. It would be anomalous and unfair to both to interpose the Treasury in the one matter of transfer of surpluses to the Consolidated Fund. It would not only be anomalous, it would be unnecessary. Noble Lords opposite have called this fund a "slush fund". I do not know whether this is in the American sense of the word or the British sense. There is an ominous difference between the two senses.
The NOA does not weaken Treasury control or overturn time-honoured and fixed procedures in financial control. It is no hypothecation in the sense that the NOA revenues will be earmarked for BNOC purposes and those alone. They are payable, and must be transferred, when surplus, to the Consolidated Fund. Therefore, BNOC's activities and expenditure will be, as I explained on
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the previous Amendment, No. 15, subject, as everything else is subject, to the overriding Treasury rule. There is a well-established system for allocating public expenditure and, as the noble Lord, Lord Campbell of Croy, and other noble Lords who have had experience of government must know, major decisions on these matters cannot be taken, and are not taken, by Government Ministers alone, or even by the Departmental Ministers and the Treasury; they go to Cabinet, or to Cabinet Committee. They are Government decisions. The amount of money in the NOA will not be the determining factor at all. What the NOA enables us to do is to see how profitableor unprofitable the oil business is for this country. I am delighted to hear that the noble Lord, Lord Strathcona and Mount Royal, talks about these billions, because that shows that he has changed his mind and is now optimistic about our policy in the North Sea, because without our policy there would be no billions accruing to the State.
Lord STRATHCONA and MOUNT ROYAL: My Lords, I am sure that I do not know how the noble Lord managed to draw that last conclusion. Nobody has ever disputed that there was going to be a good deal of money kicking around in the next few years in respect of North Sea oil.
Lord BALOGH: In American pockets.
Lord STRATHCONA and MOUNT ROYAL: If you want to go into that, we still think that there is going to be less money less fast than there would have been if some other people I could mention had been in control of the development. We are trying to be constructive, and I do not believe that this is a particularly political debate that we are having. It seems to me to be a simple issue of fundamental Government principle. I am bound to say I did not hear anything in what the noble Lord said in reply to what I suggested that remotely began to make me change my mind. I claim to be a person of—dare I say?—flexible outlook on these and other matters. I persist in believing that unless we have an Amendment of this kind the Secretary of State will be accumulating large sums of money which will be under his control, for which I admit he

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is answerable to Parliament, but this is not the kind of procedure to which we are accustomed.
I see no reason. I hear no case being made, for changing. I am not instinctively a conservative with a small "c" by any means; I am all for trying a new idea if it appears to have promise or merit. However, I am bound to say that the noble Lord has totally failed to convince me, at any rate, and I believe
I speak for most of my noble friends behind me, that this proposal has any merit at all; and we have a certain amount of Cross Bench support. I feel bound to invite my noble friends to support us in the Lobby.
5.18 p.m.
On Question, Whether the said Amendment (No. 17) shall be agreed to?
Their Lordships divided: Contents. 96; Not-Contents. 57.

CONTENTS

Aberdare, L.

Dundonald, E.

Meston, L.

Aberdeen and Temair, M.

Eccles, V.

Monck, V.

Alport, L.

Elles, B.

Monson, L.

Amherst, E.

Elliot of Harwood, B.

Mowbray and Stourton, L. [Teller.]

Amory, V.

Elton, L.

Auckland, L.

Emmet of Amberley, B.

Netherthorpe, L.

Balerno, L.

Exeter, M.

Newall, L.

Balfour, E.

Ferrers, E.

Nugent of Guildford. L.

Banks, L.

Fraser of Kilmorack, L.

Onslow, E.

Beaumont of Whitley, L.

Gainford, L.

Orr-Ewing, L.

Belstead. L.

Goschen, V.

Polwarth, L.

Berkeley, B.

Greenway, L.

Rhyl, L.

Bessborough, E.

Grenfell, L.

Sackville, L.

Boothby, L.

Grimston of Westbury, L.

St. Aldwyn, E.

Bradford. E.

Hailsham of Saint Marylebone, L.

St. Davids, V.

Brentford, V.

Sandford, L.

Butler of Saffron Walden, L.

Hanworth, V.

Sandys, L.

Caccia, L.

Hawke, L.

Sempill, Ly.

Campbell of Croy, L.

Hereford. V.

Shannon, E.

Carrington, L.

Home of the Hirsel, L.

Stamp, L.

Clifford of Chudleigh, L.

Hornsby-Smith, B.

Strathcylde, L.

Coleraine, L.

Inglewood, L.

Strathcona and Mount Royal, L.

Colville of Culross, V.

Killearn, L.

Cork and Orrery, E.

Kings Norton, L.

Thorneycroft, L.

Cottesloe, L.

Lauderdale, E.

Tranmire, L.

Cowley, E.

Lloyd of Kilgerran, L.

Trevelyan, L.

Craigton, L.

Long, V.

Vickers, B.

Crawshaw, L.

Lucas of Chilworth, L.

Vivian, L.

Daventry, V.

Lyell, L.

Wade. L.

Davidson. V.

Mackie of Benshie, L.

Wakefield of Kendal, L.

de Clifford, L.

Mancroft. L.

Ward of North Tyneside, B.

Denham. L. [Teller.]

Margadale, L.

Wigoder, L.

Drumalbyn, L.

Merrivale, L.

Young, B.

NOT-CONTENTS

Ardwick, L.

Douglass of Cleveland, L.

Llewelyn-Davies of Hastoe, B.

Arwyn, L.

Elwyn-Jones, L. (L. Chancellor.)

Longford, E.

Aylestone, L.

Evans of Hungershall, L.

Lovell-Davis, L.

Balogh, L.

Fisher of Camden, L.

Maelor, L.

Beswick, L.

Geddes of Epsom, L.

Mais, L.

Blyton, L.

George-Brown, L.

Noel-Buxton. L.

Brockway, L.

Goronwy-Roberts, L.

Paget of Northampton, L.

Bruce of Donington, L.

Hale, L.

Pannell, L.

Buckinghamshire, E.

Harris of Greenwich, L.

Rusholme

Castle. L.

Harris of Greenwich, L.

Champion, L.

Houghton of Sowerby, L.

Sainsbury, L.

Chorley, L.

Hoy, L.

Shinwell, L.

Collison, L.

Hughes, L.

Slater, L.

Crook, L

Jacques. L. [Teller.]

Snow, L.

Darling of Hillsborough, L.

Janner, L.

Stewart of Alvechurch, B.

Delacourt-Smith of Alteryn, B.

Kirkhill, L.

Strabolgi, L. [Teller.]

Douglas of Barloch, L.

Lee of Newton, L.

Summerskill, B.

Taylor of Gryfe, L.

Wells-Pestell, L.

Winterbottom, L.

Taylor of Mansfield, L.

White, B.

Wootton of Abinger, B.

Walston. L.

Willis, L.

On Question. Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.
Clause 20 [Provisions supplementary to Section 19]:
5.30 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 18:
Page 17, line 2, leave out from ("possess") to end of line 7 and insert ("in respect of the valuation of petroleum under the Oil Taxation Act 1975 won by virtue of a licence granted under the Petroleum (Production) Act 1934—
(a) may be disclosed by the Commissioners to the Secretary of State, or to an officer of his who is authorised by him to receive such information, in so far as its disclosure is necessary for the purpose of calculating royalty payments due under the provisions of the licence ' ").
The noble Lord said: My Lords, this is a fairly simple point involving the normal principles of taxation. It is a long established principle that the Inland Revenue would never pass tax information to a third party except in the most exceptional circumstances and under the most stringent conditions. The Amendment which we have tabled makes sure that the information which is passed on to a third party is related only to the purpose involved. Therefore the additional wording we have put in makes clear that in so far as this disclosure is necessary the information is required simply for calculating royalty payments under the provisions of the licence. It is to that information that this part of the Bill should apply and it should not be as wide as at present appears. At various stages in another place the Government criticised some of the Amendments which my right honourable and honourable friends put forward because they were not drafted tightly enough. I suggest that in this case we are making amends by putting forward what is virtually a drafting but none the less important change which would tighten the provisions in a way which is understood by everybody concerned with taxation. I beg to move.
Lord LOVELL-DAVIS: My Lords, there is an identity of intention in this matter. By this Amendment the noble Lord, Lord Campbell of Croy, seeks
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assurance that information passed by the Inland Revenue to the Secretary of State will be only that necessary for the calculation of royalty. That in fact is the Government's intention, and the restriction of information for purposes connected with royalties is already in the Bill. There is no question of the Secretary of State using the subsection as drafted to acquire information which goes beyond the needs of valuation for royalty purposes. But the drafting of the subsection has had to be in terms that will accommodate the diverse and unpredictable circumstances of the industry, as they affect tax and royalty valuation. The Amendment proposed by the noble Lord, because it tries to narrow the powers of disclosure, does not succeed in doing this.
Again, the word "necessary" in paragraph (a) introduces a test which is so stringent that it might make the procedures unworkable. Much, or indeed most, of the information to be disclosed by the Revenue will merely confirm the royalty returns made by the Licensee. Could the disclosure of such information be said to be "necessary" to royalty valuation? But could the system work in practice without a continuous and systematic check of this kind? The word "calculating" may also be too narrow when the purpose of the disclosure is to check information already received. These points may seem pedantic atfirst sight, but there are two important underlying principles at stake. The first is that any disclosure by the Revenue of information about a taxpayer can only be permitted where it is explicitly allowed by Parliament. We could not, for example, rely on a practical or administrative interpretation of such words as "necessary" or "calculating". The matter is so important that the Revenue must be sure that they are acting with Parliamentary authority and that that authority allows of no doubt.
The second principle is that it is enormously important to this nation to get royalty as well as tax valuation right. We cannot risk losing potentially large sums of money because of doubt about the meaning of words such as those I have mentioned. I hope I have succeeded

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in convincing the noble Lord that the Government agree with him in principle and that in practice Clause 20(2) will work as he wants it to but that the Amendment will introduce inflexibility and carries the danger of making the procedures ineffective and impractical.
Lord CAMPBELL of CROY: My Lords, I am certainly not going to challenge the noble Lord on the technical matters he has raised. I am glad he has gone into this subject and has given the assurance that the purpose in our Amendment is to be carried out. I therefore beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord CAMPBELL of CROY: My Lords, I beg to move Amendment No. 19. This is simply a consequential Amendment resulting from the new subsection (4) which was inserted in the Bill at the Committee stage and is a matter of editing.
Amendment moved—
Page 18, line 17, leave out ("and (5)")— (Lord Campbell of Croy.)
Schedule 2 [Production licences for seaward areas]:
5.36 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 20:
Page 62. line 13, at end insert ("but before giving such a direction to the Licensee pursuant to the provisions of this paragraph, the Minister shall give the Licensee an opportunity of making representations about the proposed direction and consider any representations then made by the Licensee in the same manner as is provided in paragraph (7A) of this clause.")
The noble Lord said: My Lords, I wonder whether the noble Lord is going to suggest that several Amendments might be discussed with this one. If he is going to suggest that the Government Amendments Nos. 21 and 22 be discussed here I should not dissent from that, together with the repeated parts of those Government Amendments. Because of the way in which the Bill is constructed, all the Amendments which we are now coming to have to be repeated in various forms no less than three times elsewhere in the Bill. I say that now
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because it will save a lot of time later in Schedules 2 and 3 to the Bill. I am possibly anticipating what the noble Lord is going to say in thinking that he would suggest that the Government Amendments Nos. 21 and 22 might be considered with our Amendment No. 20 and then Amendments Nos. 30, 40, 51 and 52. I will not read out the others because these are the repetitions in Schedules 2 and 3.
The purpose of Amendment No. 20 is to extend the scope of the Government's Amendment No. 22 which we are discussing with this and which, no doubt, the noble Lord, Lord Balogh, will explain. As we see from the Marshalled List it provides for Licensees to be given the opportunity to make representations about technical and financial factors in certain situations arising under model Clause 15. This is to cover cases where a Licensee is directed to prepare an extended development programme under model Clause 15(3). We are concerned here with the extended development programme. Under model Clause 15(3) the Minister has power to direct Licensees in their development programmes covering either an extended area or a different area in the same licence or an extended period of time. If an extended development programme which originates in this way is approved by the Minister, the Licensee automatically becomes obliged to carry out the programme without having had the opportunity under the Government's Amendment No. 22 to make representations to the Minister about the financial and technical implications. Thus Amendment No. 22 which the Government will be moving does not provide an opportunity where there is an extended development programme.
An extended development programme could involve a substantial additional investment for a Licensee and the effect of lack of consultations could be to render a project uneconomic. It seems reasonable to ask that this situation should be covered on the same basis as other situations are to be dealt with in the Government's Amendment No. 22. I hope that the noble Lord will recognise that our intention is that what the Government are aiming at in their Amendment No. 22 should also cover extended development programmes, as we suggest in Amendment No. 20.
5.40 p.m.
Lord BALOGH: My Lords, the effect of Amendment No. 20 would be to ensure that the Licensee has a right to make representations before the Secretary of State requires a second or subsequent programme in respect of any licensed area. Noble Lords will be aware that we have already made a proposal to make very significant changes to the depletion powers in model Clauses 15 and 16. These changes have been made to meet what we acknowledge to be legitimate concerns of the industry. There comes, however, a point where change ceases to have much substance; it becomes the icing on an already very appetising cake. I am bound to say that I think we have now reached that point with this Amendment, and I am disappointed that our concessions have not been accepted by noble Lords opposite—or perhaps they will be accepted.
At best the Amendment will give the Licensee no more than he will have in any case in practice. The Secretary of State—and noble Lords opposite, as well as the industry, know this—will not out of the blue require a list of development programmes. Wherever there is a likely field the Licensee and the Department's technical staff will have been in close consultation well before any question of calling for a programme arises; that is already when the discovery wells have been successfully completed. At worst, on the other hand, the express power to make representations could be used by an unwilling Licensee as just one more device to delay events. I need hardly add that this would not be in the national interest. Indeed, there is a distinction to be drawn between, on the one hand, the rejection of a programme by the Minister or his serving his own programme, and, on the other hand, his requirement of the preparation of a programme. In the first case—where the Licensee's programme is rejected, or the Minister's programme is served upon him—the Licensee might be involved in real financial loss, and it is right (as the Government Amendment recognises) that the Minister should be required to consult him and take account of his representations.
In the second case—where the Licensee is simply asked to prepare programmes—the need for such a statutory safeguard is much less clear. The Licensee is in
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effect being asked to give the Minister his proposals for development of the area. Is it really right that the Minister cannot even ask for proposals without having by Statute to consider representations? Indeed, it may well be that the Minister could not reach a fully informed view until he has the programme to consider. No, it is unreasonable to say that the Minister cannot even ask for proposals without having to consider representations. The stage at which he must do so, and at which a safeguard for the industry is justifiable, is before he reaches a decision on the basis of those proposals which might involve a commercial loss for the Licensee.
I must emphasise that the Licensee already has considerable protection. If he submits a programme which does not satisfy the Secretary of State, he must be given a chance to make representations. If the matter comes to revocation, if he has a commercial field elsewhere in the licensed area, that will be protected; and even the rest of the licence need not, under our proposals, be revoked in full. These are very substantial safeguards. To extend them in the way this Amendment seeks would in practice add little to the Licensee's protection, but could lead to unnecessary and undesirable delay in the exploitation of our offshore resources. Therefore I cannot accept the Amendment.
Our Amendment No. 21, and the consequential Amendments, are in response to the undertaking given in Committee on 25th September to consider inserting a provision to emphasise the right of Licensees to make financial and technical representations about a proposed programme. Noble Lords will see that we have gone considerably further than merely to impart a reference to financial and technical matters in the existing provision for representation in paragraph (5). That provision relates only to the case where the Secretary of State is minded to approve a programme, subject to a condition as to the use of specified works. The Amendment we have tabled provides for representations not only in that case, but also where the Secretary of State proposes to reject a programme outright, or to serve one upon the Licensees.
I hope noble Lords will agree that this is a very significant change. It makes it clear that the Licensee has in every

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case—even where the Secretary of State proposes to reject a programme on grounds of national interest—the right to make representations and have these representations considered. It has never of course been the Government's intention to deny the Licensee this opportunity, but under our proposals the Licensee now has it as of right. We shall later be discussing an Amendment which deals with partial revocation for a breach of model Clause 15. I do not want to anticipate that discussion, but I hope that noble Lords will agree that that Amendment, together with this and the similar Amendments to model Clause 16, represent a substantial move by the Government to meet what I believe can be said to be the remaining fears of the industry about our proposed depletion and production controls. We have had a very constructive dialogue with the industry, which I believe has produced proposals which safeguard the legitimate interests of both parties, and we intend to administer the controls in that spirit.
Finally I come to Amendments Nos. 25, 35, 46 and 57. Amendment No. 25 is similar to Amendment No. 21 which we have—
Lord CAMPBELL of CROY: Would the noble Lord give way? When I moved this Amendment I understood that we were to discuss Amendments Nos. 21 and 22 with it. The noble Lord is now moving on to Amendments Nos. 24 and 25, but we would hope to have a separate debate about those.
Lord BALOGH: Most certainly.
Lord CAMPBELL of CROY: I should like at this stage to comment on what the noble Lord said in speaking to his Amendment No. 22, which was being discussed with Amendment No. 20, which I moved. I say straightaway that we welcome it so far as it goes. It is a modest step in the direction in which we have been urging the Government. But what we were aiming to do with Amendment No. 20 was to suggest how the Government could go a step further and carry out their operation more completely by extending their action to cases where a Licensee is directed to prepare and extend a development programme. I regret that the noble Lord, Lord Balogh, does not see fit to accept our Amendment which
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we hoped would be helpful. We could see what the noble Lord was aiming at when he tabled his Amendment, and we were simply hoping that this would augment it, and that the noble Lord would find it satisfactory and helpful. But at this stage I can only express my regret that the noble Lord is not prepared to accept our Amendment No. 20. I have pointed out the situation to him, and I hope that at least the Government will take all this into account when this Bill becomes an Act and is being carried out. I beg leave to withdraw Amendment No. 20.
Amendment, by leave, withdrawn.
5.48 p.m.
Lord BALOGH: My Lords, I beg to move Amendment No. 21.
Amendment moved—
Page 62, line 40, leave out paragraph (5).—[Lord Balogh.]
Lord BALOGH: My Lords, I beg to move Amendment No. 22. We have spoken to this in relation to Amendment No. 21.
Amendment moved—
Page 63, line 52, at end insert—
("(7A) Where the Minister proposes to approve a programme subject to a condition in pursuance of paragraph (4)(b) of this clause or to reject a programme in pursuance of paragraph (4)(c) of this clause or to serve a programme on the Licensee in pursuance of paragraph (7) of this clause he shall before doing so—

(a) give the Licensee particulars of the proposal and an opportunity of making representations to the Minister about the technical and financial factors which the Licensee considers are relevant in connection with the proposal; and

(b) consider any such representations then made to him by the Licensee;

and the Minister shall not approve a programme subject to such a condition unless he is satisfied that the condition is required in the national interest.")—(Lord Balogh.)
Lord LLOYD of KILGERRAN: My Lords, from these Benches we support this Amendment, which is a further step forward in approving the procedure for dealing with the approval or rejection of a programme by the Secretary of State. This was discussed in detail at the Committee stage, and I thank the noble Lord for introducing it so clearly and explicitly.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 23:
Page 63, line 52, at end insert—
"(7B) Where under the provisions of this Clause or Clause 12B of this licence the Minister is required to consider representations made to him by the Licensee he shall in so doing have regard to the powers conferred upon him for the purpose of facilitating or maintaining the development of the petroleum resources of the United Kingdom by virtue of subsection (3) of section 42 and section 43 of the Petroleum and Submarine Pipe-lines Act 1975 so as to ensure that the programme in question is one which a person could be expected to carry out having regard to all the relevant considerations if that person had the resources needed to carry out the programme to the best commercial advantage and were seeking to do so in that manner and the provisions of Clause 34 of this licence shall not apply to this paragraph."
The noble Lord said: My Lords, I again suggest that I need not mention three times that this Amendment has to be repeated later on the Marshalled List; nevertheless I draw attention to the fact. The purpose of this Amendment is to prescribe more precisely a principle which the Government have already recognised; namely, when a Minister invokes the national interest and imposes a development programme on a Licensee, the undertaking should be on a commercial basis. The Amendment is based on that premise. We believe that the national interest must prevail, and it is for this reason that the question of arbitration is excluded, and the Minister has the final word. The last two lines of the Amendment have the effect of excluding arbitration. The Government have accepted that the Minister should consider representations about the technical and financial factors which a Licensee considers are relevant. We are concerned about the situation in, say, a few years' time, perhaps 10 years' time, and we think that this should be made clear in the Bill.
In Clauses 42 and 43 the Bill contains provisions which will enable the Government to assist the development of marginal or sub-commercial fields where it is in the national interest, and we think that that is the right way to do it. The Government can grant loans and the Government can waive royalties and in other ways under those two clauses ensure that companies are assisted if it is necessary in the national interest. We believe that this addition, which would become paragraph (7B) in the Bill, again is supplementary
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to paragraph (7A) which the Government have just moved and which we have included in the Bill; and I commend it to the Government as, again, I believe it will help them in carrying out the purpose which their Amendment No. 22 is seeking to fulfil. I beg to move.
Lord BALOGH: My Lords, this Amendment seeks to ensure that in operating the production and depletion provisions of the licence terms the Secretary of State will have regard to his powers to assist marginal fields by way of royalty refund, loans and guarantees. It also, apparently (though this is not quite clear), requires the Minister to use these powers to ensure that any programme carried out is commercial. In so far as the Amendment stipulates that programmes carried out under Clauses 15 and 16 must be commercial, it covers ground we have discussed before. We do not agree with the principle that such programmes must be commercial, for the national interest must be very much involved in questions concerning the rate of depletion. This is not to say, of course, that we shall use our powers unreasonably, as our assurances and Amendments to the Bill have shown.
The Amendment, however, introduces the new thought that the Minister, in exercising his powers, shall have regard to the assistance he can give under Clauses 42 and 43. This is not objectionable in principle, but I am bound to say that I regard it as another piece of icing on the cake. The Secretary of State will of course have in mind, both in the administration of these model clauses and at other times, his powers to assist marginal fields. It is absolutely no part of our policy to render the North Sea operations unprofitable. The existence of the provisions to assist marginal fields is ample proof of that. I would remind noble Lords, too, that the provisions for assistance are not confined to this Bill. The Oil Taxation Act provides a number of automatic reliefs for marginal fields—the oil allowance, the uplift of 75 per cent. on capital expenditure and the relief from PRT in any year where the return on capital falls below 30 per cent. These are automatic in their effect, and the discretionary provisions in this Bill are supplementary to them. They will certainly be available for fields which become marginal because of depletion control and

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remain marginal after the operation of these automatic reliefs. Each case will be considered on its merits. It is not possible to lay down precise criteria, but the powers will be there for use as and when required for the purpose for which they are granted. Of that I can assure your Lordships, and in the light of that assurance I hope noble Lords will not feel it necessary to press this Amendment.
Lord CAMPBELL of CROY: My Lords, I am afraid I must again express regret that the Government do not immediately recognise this as a helpful addition supporting their Amendment No. 22, which we have just passed. We had hoped that the Bill would gain by this amplification of the criteria which should apply to the Minister's consideration of the representations made by the Licensee on a commercial basis for an imposed development programme. The noble Lord has given certain assurances to us in reply to this debate, and I hope that these will be remembered in the years to come, because these situations are unlikely to arise until the 1980s. But clearly this is not an Amendment that I intend to pursue at this stage, and the noble Lord has given us the Government's attitude. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
5.55 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 24:
Page 64, line 19, at end insert—
"(8A) If the Minister—

(a) directs the Licensee in pursuance of paragraph (3) of this clause; or

(b) gives notice to the Licensee in pursuance of sub-paragraph (b) or sub-paragraph (c)(ii) of paragraph (4) of this clause; or

(c)serves a programme on the Licensee in pursuance of paragraph (7) of this clause,

the Licensee may within two months thereafter, notwithstanding the provisions of Clauses 4, 5, 6 and 7 of this licence, surrender that part of the licensed area in respect of which the Minister has given such direction or notice or served such a programme and thereupon all rights, powers, liabilities and obligations arising under the licence shall cease in respect of the part surrendered (but without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence before the date of surrender other than a requirement imposed upon the Licensee in pursuance of the provisions referred to in sub-paragraphs (a) to (c) above)."
The noble Lord said: My Lords, again this Amendment looks forward to the Government Amendment No. 25, and without wishing to be either ungrateful or ungracious we feel that the Government Amendment No. 25 does not really go quite far enough. I think this question of revocation of the whole licence for a breach of part of it is the thing that worries the industry more than almost anything else, and I shall seek to show that what we are suggesting really is a very straightforward, simple and common sense way to deal with a difficult situation. It is worth noting, in passing, that this new condition is to be imposed upon an existing licence—and we have already dealt with the objection in principle to that—but what I am seeking to demonstrate here is that the situation we are facing, unless we do something about it, leads us into a totally unreasonable state of affairs with the danger (which we keep on reiterating) that we are afraid we may either frighten off or slow down the development of the Continental Shelf oilfields.
The kind of situation that we are dealing with here is a breach of the provisions of the model clause where the Minister has invoked the national interest and has imposed the development of a marginal or uncommercial programme upon the Licensee, and where, despite any discretionary inducements the Minister may offer, the Licensee finds himself unable to carry out the development programme which has been imposed upon him by the Government. There could be a number of reasons why a situation like this might arise, and they are perfectly straightforward. The Licensee might find that he has not got the technical capacity to do what he is being ordered to do by the Government; he might be unable to finance the programme that is being imposed; or he may be totally convinced that to undertake this programme would be a commercially unviable thing for his company to do, and something which would put his company at risk. So we are not dealing here with a company which is deliberately or unreasonably attempting to obstruct a reasonable instruction by the Government; and we are glad to discover that the Government have moved to the extent of saying that it would be manifestly unreasonable to deprive a

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Licensee of a commercial field simply because he declines to carry out certain operations in one small part of his licence area.
Model Clauses 6 and 7, I think, already accept the principle of partial revocation of a licence without putting the whole licence at risk, and, without trying to make this too complicated, we are taking the reasonable position that the Government say to a company, "We wish you to carry out development in a certain area" and the company say, "We do not feel able to do this". Is it not therefore an eminently sensible thing for the company to turn round and say: "All right. We do not feel able to develop this field which you wish to have developed. We will hand the field over to you, and either you can hand it to another company or you can hand it to your BNOC, or you can develop it yourselves according to your wish"? Incidentally, it is worthy of notice that this field that the company is handing over could be an area on which the company has spent a great deal of money on exploration and further investigation having had a find in it. We are suggesting that given the situation that the company says that they are going to hand it back to the Government, that they ask no compensation for the money they have spent on it and that the Government may do what they wish with it; that it seems a sensible and reasonable way of dealing with it and that if they want to develop it then the Government must find somebody else to do it rather than to force a company to do something that it cannot or will not do.
My Lords, we have already talked about taking out a commercial field; but there is another set of circumstances which could arise. It is a little complicated—at least, I find it so, perhaps because I do not totally understand it. You can get a situation where a company is exploring two or three different promising structures within its licence area. One of the structures, it concludes, is not commercial and is not worth developing. It begins to think that the other, which is not so advanced in the exploratory programme, looks very attractive. You could get a situation, as things now stand, where—in connection with the first field, the one that the company feels is not worth going further with; although the
566
company consoles itself with the thought that the other structure which it is gradually investigating shows promise of being commercial in due time—the Government could say: "We are not interested in the fact that you think you have a commercial find coming up. The fact that you decline to develop a non-commercial find is sufficient for us to abstract from you the licence to the potentially commercial find." Here, we revert again to what seems a common sense and straightforward proposal; even if the language and the way in which this Bill expresses some things is not too simple. What we are saying is that if the company does not wish to go on with a field, let it give up its interest in the field and let the Government take it back and carry on with it. I beg to move.
Lord LOVELL-DAVIS: I should like to get one thing straight. The noble Lord referred to the Government Amendment No. 25. I think he meant Amendment No. 26. In dealing with this Amendment may I speak also to Amendments Nos. 34, 44 and 55. This Amendment would, in effect, allow the licensee an automatic right to surrender any portion of the licence which was the subject of a dispute over a model Clause 15 development programme. We shall come shortly to discuss the Government Amendment to model Clause 16 which deals with this topic. It does not go quite so far as the Amendment now before us.
It provides that in the case of such a dispute a commercial field elsewhere in the licence which is already the subject of a programme or consent under model Clause 15 will be protected from revocation and it further provides that the remaining part of the licence, or the whole licence if none of it is subject to a programme or consent, may be revoked only in part. We have considered this carefully and I do not think it would be appropriiate to go further than our own Amendment provides.
The reason for this is as follows We are giving unqualified protection to existing fields. This is the main point. It is where there is a field producing or under development that the licensee will have committed substantial funds and in these cases it is entirely reasonable for him to seek and obtain protection for this investment where there is a dispute

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about the development of another part of the licence and the commitment of further large sums in respect of that development.
But we must bear in mind that these provisions represent a major departure from the basic principle that the licence is a unity. I know the noble Lord, Lord Campbell of Croy, suggested in Committee that this principle was no longer valid, that it had been breached by the partial revocation provision of model Clause 14 dealing with additional exploration programmes. It is true that the principle is also modified there; but even two swallows do not make a summer. In respect of all the other terms, the principle of the unity of the licence remains, and rightly remains. It follows that we should abandon it only where there is a very powerful reason for so doing. I accept that the Licencee's investment which a commercial field represents should be protected against revocation ensuing from a dispute over further development in the same license area. I know that this, too, is the case about which the industry are most anxious, and I believe that they would acknowledge that the Government Amendment on the point meets nearly all their case. I cannot think it right automatically to extend the same indulgence in a case where no such investment is in question. I stress "automatically"; for we are prepared to admit the option of partial revocation as Lord Strathcona and Mount Royal said. But to enjoin partial revocation only—which is what this Amendment would amount to—tilts the balance too far, and I must maintain my resistance to this Amendment.
Lord TREVELYAN: My Lords, I do not want to anticipate matters, but as the Minister has twice used the phrase "commercial field", may I say that I wonder how one defines that. I do not think it is as simple as all that.
Lord ENERGLYN: My Lords, may I follow in support of the philosophy of this Amendment. Geological structures do not, or only rarely, follow the cartographical boundaries of licences. The other factor which I suggest is worthy of repetition is that this is a field as a whole. They are not separate oilfields; they are
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all interrelated and the physical chemistry of this whole field is a kind of natural balance. You will hear many times from experienced oil men that bore holes will go through strata and apparently strike no oil. This is due to a number of subtle factors, not the least of which is the kind of mud that is used for the drilling which tends to seal back the pressure.
This brings me to the point that I am making; that is, that assessing what is a marginal or viable field is a very dangerous undertaking. My plea is that one should be exceedingly careful before one, as it were, forces an operator to consider his position at any moment; for at that moment he may find that he has available a much more attractive prospect.
I would remind the Government that the North Sea is not the only continental oilfield yet to be discovered. I recollect some 10 years ago looking at some specimens brought back by the ill-fated Scott expedition to the South Pole. Among these specimens was a specimen of sandstone representative of a very large tract of sandstone called the Beacon sandstones of Antarctica. This specimen yielded oil. At that time this was an interesting academic find, but since then we have seen submarine drilling the like of which had never been seen before. We can now recast that signpost and say that there is as much likelihood of an oilfield around the Horn, the Falklands and Antarctica as there is anywhere else. It will turn out, I forecast, to be a field very similar to that which the British Petroleum Company were largely responsible for finding in Alaska. The point I wish to make is that in discussing this word "marginal" one should be exceedingly careful before referring to a desk definition of the viability of any one borehole, because it is boreholes that you are assessing.
6.10 p.m.
Lord LLOYD of KILGERRAN: My Lords, the noble Lord, Lord Energlyn, has a vast knowledge of these mining matters. I have put my name to this Amendment, and part of the Amendment incorporates a number of suggestions I made regarding the powers of an operator: that he could surrender a licence or part of a licence when he failed, for realistic reasons, financial or technical, to operate. I should like to support this Amendment.
Lord LOVELL-DAVIS: My Lords, to answer the noble Lord, Lord Trevelyan, may I say that the definition of a commercial field is that it is one the development of which promises to give a reasonable return on the capital investment. The noble Lord, Lord Energlyn, talked about the marginal fields and the care needed in these matters. I can assure him that for the purposes of model Clause 15 we shall think of a field as one geological structure and comprising the whole of that structure. We fully accept that in the case of decisions on marginal fields care is needed. He referred to the North Sea in terms about which my noble friend Lord Balogh and I have constantly disagreed with your Lordships' House. This is one of the least speculative oilfields, and we are continually stressing this. Beyond that, I will not attempt to pursue the noble Lord in his comments on marginal fields generally, and I bow to his geological knowledge and experience.
Lord TREVELYAN: My Lords, I do not think that definition of a commercial field would necessarily cover the ground. There will be cases where you cannot yet say that the field can be developed in a way to give a reasonable return. On the other hand, from geological surveys and preliminary explorations it may appear to have a reasonable chance, but that would not be known till afterwards. In order to assert that this was a commercial field I do not think you would necessarily have to say it is a field in which already you can say there are good prospects of making a development which will give a sufficient financial return.
Lord WELLS-PESTELL: My Lords, I hope that the noble Lord, Lord Trevelyan, will not feel I am being unkind, but there is a rule in your Lordships' House that no noble Lord can speak more than once on an Amendment in the Report stage. As this has happened several times recently I thought your Lordships would excuse me if I pointed it out. The Minister, with the leave of the House, can speak more than once.
Lord CAMPBELL of CROY: My Lords, I think also the mover of an Amendment has a right to reply at the end.
Lord WELLS-PESTELL: Yes, my Lords; I thought that was clearly understood.
Lord STRATHCONA and MOUNT ROYAL: My Lords, with the leave of the House, may I say I am disappointed and confused by the reply of the noble Lord. He produced the expression "we give unqualified protection to existing fields". Now we have not only the words "commercial fields"—which we think is easy to define—but also "existing fields". That is a very interesting question of definition.
Lord LOVELL-DAVIS: My Lords, may I clear this matter up? In attempting to band these Amendments together, I have perhaps confused myself and the noble Lord. When I say we are giving unqualified protection to existing fields, I am anticipating Amendment 26. By "existing fields" I meant fields actually producing or under development.
Lord STRATHCONA and MOUNT ROYAL: My Lords, I am grateful to the noble Lord. He certainly succeeded in confusing me. The other expression he used, which we have used before, is that the licence is a unity. I am not sure why the Government are so stuck on this matter, which does not seem to have any validity. However, I make the point because it seems to me they have already conceded that the licence is not necessarily a unity, and certainly I have not seen anybody defend the reason why it should be so considered. I am disappointed and would remind the Government that they should not speak as if they were conferring a privilege on the companies by tolerating or being prepared to consider partial revocation. To me they are seeking to impose a very draconian imposition; and trying to suggest that they are conferring a privilege by graciously saying that they may not do that reminds one of the attitude taken by one's commanding officer during the war. If one complained that one was due for leave but had not had it, one was told, "Leave is a privilege". But one regarded it much more as a right. My Lords, having expressed my disappointment and reservations about looking at some of these complicated definitions, I think this would be the

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right moment to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord LOVELL-DAVIS: My Lords, I beg to move Amendment No. 25. My noble friend has already spoken to this Amendment.
Amendment moved—
Page 65, line 33, leave out from ("the") to end of line 35 and insert ("technical and financial factors which the Licensee considers are relevant in connection with the proposal; and
(b) consider any such representations then made to him by the Licensee;").—(Lord Lovell-Davis.)
6.17 p.m.
Lord LOVELL-DAVIS Lord LOVELL-DAVIS moved Amendment No. 26:
Page 66, line 19, at end insert—
("(8) If in respect of part of the licensed area—

(a) a consent has been given in pursuance of paragraph (1) of clause 12A of this licence; or

(b) the Licensee has submitted to the Minister, in accordance with a direction given by virtue of paragraph (3)(a) of that clause, a programme in pursuance of paragraph (2) of that clause—

(i) as respects which the Minister has served notice in pursuance of paragraph (4)(a) or (b) or paragraph (7) of that clause, or

(ii) in consequence of which the Minister has served a programme on the Licensee in pursuance of the said paragraph (7), or

(iii) in respect of which it has been determined by arbitration that the Licensee is not required by virtue of paragraph (6)(c)(i) of that clause to submit modifications,

paragraph (1) of clause 33 of this licence shall not authorise the Minister to revoke this licence in relation to that part of the licensed area in consequence of any breach or nonobservance, while the consent is in force or during the period to which the programme relates, of any provision of the said clause 12A in connection with a different part of the licensed area.
(9) Where in consequence of any breach or non-observance by the Licensee of any provision of clause 12A of this licence the Minister has power by virtue of paragraph (1) of clause 33 of this licence to revoke this licence or, in consequence of paragraph (8) of this clause, to revoke it in respect of part only of the licensed area, he may if he thinks fit—

(a) in a case where he has power to revoke this licence, exercise the power in relation to such part only of the licensed area as he may specify; and

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(b) in a case where by virtue of the said paragraph (8) he has power to revoke it in respect of part only of the licensed area. exercise the power in relation to such portion only of that part as he may specify;

and where in consequence of the said paragraph (8) or by virtue of the preceding provisions of this paragraph the Minister revokes this licence in respect of a part or portion of the licensed area, the rights granted by this licence shall cease in respect of that part or portion without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.")
The noble Lord said: My Lords, I think it would be for the convenience of the House if we also discussed with Amendment 26 Amendments Nos. 46, 47 and 58. Perhaps the noble Lord, Lord Campbell of Croy, would also agree that we could also discuss Amendments Nos. 27, 37, 48 and 59 as they cover the same area.
Lord CAMPBELL of CROY: My Lords, I agree with that.
Lord LOVELL-DAVIS: My Lords, Amendment No. 26, and those consequential upon it, are in response to the undertaking given in Committee on 15th October. Briefly, the Amendment provides three things. First, in paragraph 8 it provides that where there is a field, or a part of the licensed area, already the subject of a consent or established programme—and I think these are the words I may have used during the previous discussion to clear up our confusion about existing fields and commercial fields—the Secretary of State may not, in revoking the licence for a breach of model Clause 15 in respect of a different part of the licensed area, revoke the part of the licence which contains the field. Secondly, it provides that where the Secretary of State has unrestricted power to revoke the licence for a breach or non-observance of model Clause 15, he may at his discretion revoke only in part. This is parallel to the partial revocation power already in model Clause 14. Thirdly, it provides that where there is a field and where the power of revocation is restricted, the power of revocation may be applied at the discretion of the Secretary of State to a portion only of that remaining part.
That is all rather complex, I agree. But in practice it means that, first, commercial fields for which programmes have

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been approved are now fully protected from revocation as a result of the Licensee's failure to comply with model Clause 15 in respect of some other part of the licence; that is, the threat of being forced to develop unpromising acreage on pain of losing a field in the same licence which is producing or being developed is completely removed. And I can here give an assurance that we shall think of a field as one geological structure and comprising the whole of that structure. Secondly, there is flexibility, whether or not there is a field in part of the licensed area, to revoke only part of whatever is revocable. This, too, provides an important safeguard.
This is an important Amendment, which reflects the spirit of constructive dialogue which has characterised the Government's consultation with the Licensees on this Bill. It has never been the Government's intention to apply these controls so as to render North Sea operations unprofitable. We have welcomed, and shall continue to welcome, the private sector companies' presence and we recognise their entitlement to a fair return for their effort. This was made clear by Mr. Varley at his Press conference on 9th April, when the Bill was published. This remains our position. The Amendments we have moved, in particular relating to the production and depletion controls, are a complete reflection of this policy and of our intentions generally on the administration of production licences.
So far as Amendment No. 27 is concerned, which has been moved by the noble Lord, Lord Strathcona and Mount Royal, and those consequential upon it, Nos. 37, 48 and 59, his Amendment seeks to protect from revocation, in the event of a dispute about an additional programme under model Clause 15, not only a commercial field— that is provided for by our Amendment No. 26—but in addition any part of the licensed area where there seems likely to be a commercial field.
In talking to Amendment No. 24, I have already explained why we did not think it right to go thus far in our own Amendment No. 26. The dispensation from the normal practice that the whole of the licence shall be capable of being revoked, which we have accorded in our own Amendment, was specially given to protect the field which is producing and
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under development—that is where the Licensee has committed very substantial funds by way of investment. The same considerations do not apply where there is only the prospect of a field. Even so, we do not rule out protecting such a prospective field from revocation. The Secretary of State will have discretion not to revoke in respect of it. But to remove that discretion and protect such a part of the licence completely would, we consider, infringe unacceptably the concept of the licence as a unit. On those grounds I would resist the Amendment which is being put forward by the noble Lord, Lord Campbell of Croy, while at the same time, in respect of Amendment No. 26, I beg to move.
Lord CAMPBELL of CROY: My Lords, Amendment No. 26 moved by the noble Lord is the one that was anticipated by the noble Lord, Lord Balogh, at Committee stage when he said:
"At Report stage we will bring forward Amendments which will ensure that if there is a breach of the licence terms in respect of a programme under model Clause 15 the Secretary of State will not be able to exercise his power of revocation so as to deprive a Licensee of a commercial field."
The difficulty—one which we realised straight away at that Committee stage—is how to define a commercial field.
In principle we welcomed his statement on that day that the Government had decided not to stick to the principle of revocation of a whole licence and that they were seeing the point that it should be possible for the Minister to carry out only a partial revocation where it was only a part of the licence which was affected by some non-observance of the regulations. The difficulty is illustrated by the definition given by the noble Lord in reply to the noble Lord, Lord Trevelyan—because I wrote down most of the words. He said he would define a commercial field as one the development of which promises to give a commercial return. But Amendment No.26 covers only fields for which a development programme has been approved by the Minister. That, I think, is rather different because there can be fields which promise to give a commercial return but are still in the stage of advanced appraisal and have not received approval from the Minister. Those are the situations we are trying to cover in our Amendment No. 27; that is to say, we are trying

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to help the Government to define what is a commercial field. The definition the Government have used for Amendment No. 26 is a very limited one and would simply apply where a Minister has approved a development programme.
So in welcoming what the Government are doing in their Amendment No. 26, I would point out that it does not carry out what the noble Lord, Lord Balogh, said at Committee stage—that commercial fields would be exempted from this total revocation of the licence. I recognise the difficulty of trying to define a commercial field, and my noble friend and I were trying to help the Government through our additional Amendment No. 27. Here the aim is to exclude from revocation discoveries which are not yet the subject of an approved development programme but which none the less have reasonable expectation of commercial development within the remaining term of the licence. The Amendment would provide the Licensee with the right to demonstrate to the Minister that there exists in the licence petroleum which can reasonably be expected to be developed within the remaining term of the licence. It does not provide the Licensee with recourse to arbitration, but does require that if the Minister is satisfied that the Licensee has demonstrated the existence of commercial fields, though not yet the subject of approved devolopment programmes, such fields should be protected from revocation arising from a dispute which was quite unrelated to that area.
The noble Lord, Lord Trevelyan, pointed out that even the definition given by the noble Lord, Lord Lovell-Davis, of a commercial field did not cover what industry would regard as all the categories of a commercial field. Our Amendment No. 27 draws attention to this category of fields which are regarded as commercial but which have not yet received approval for a development programme. The noble Lord, Lord Lovell-Davis, said that the Minister would have discretion to allow the subjects of Amendment No. 27, that is, commercial fields which have not yet received approval for a development programme, to be excluded from a revocation order. We naturally attach importance to his words—because it would be a nonsense if the Minister were to revoke the area of a licence where
576
there was an exceedingly promising field, perhaps, say, one of the most promising so far discovered, but which was still at the stage where a development programme has not yet been approved. Therefore we would hope that the Government would accept our Amendment No. 27 which would put this into the Bill, rather than merely leaving it to the Minister's discretion.
I noted the Minister's assurances that a field would be regarded as one geological structure, but I ask the Government to consider very carefully our Amendment No. 27, which was tabled after their Amendment No. 26. We said we would look very carefully at the Amendment promised by the noble Lord, Lord Balogh, at Committee stage. Having seen the Amendment which has been produced, we then realised it did not cover all the commercial fields he had mentioned. In our Amendment No. 27 we have tried to help the Minister by complementing his Amendment with this additional category. I feel sure that common sense will indicate to him that this area for a licensed field should, in these circumstances, be exempted from revocation. I ask him to consider this very carefully.
6.29 p.m.
Lord LLOYD of KILGERRAN: My Lords, I should like to welcome Amendment No. 26 as a further step forward in the improvement of procedure where revocation arises. The concession allowing partial revocation is a very important one, and I was glad to hear the noble Lord the Minister say that he himself has heard that this Amendment has reduced the anxieties of the industry. If I may also speak to the following Amendment, No. 27, I should like to endorse the words of the noble Lord, Lord Campbell of Croy, in saying that this is a further improvement. which is intended to be helpful to the Government in dealing with the further anxieties of the industry in relation to revocation.
The Earl of ONSLOW: My Lords, there is just one question I should like to ask Her Majesty's Ministers. We have had a lot of discussion on commercial fields. Recently there has been published a book called Seven Sisters—I see that the noble Lord, Lord Balogh, finds it funny—which implies that the oil companies were helping the Arab Governments to maintain a cartel. In the event

577
of that cartel breaking several North Sea oilfields will cease to be productive or cease to be commercial. Then what happens on the revocation? What happens about the large reserve oilfields from which it costs a lot of money to get oil? What is the Government's view on revocation with regard to that matter? Please, can noble Lords come forward with some ideas?
Lord LOVELL-DAVIS: My Lords, I recognise that the noble Lord, Lord Campbell of Croy, is trying to help, but our Amendment No. 26 goes as far as we feel is right. So far as protection from revocation is concerned, basically we are proposing to protect from revocation only a field already covered by a programme, not all commercial fields. That is because, first, onlya field covered by a programme will have had money spent on it, since expenditure will take place only after a programme is agreed. Secondly, all commercial fields will eventually be covered by a programme. Thirdly, there is the difficulty, which has been stressed, of definition. Fourthly, there is the need for the minimum departure from the unity of the licence. Fifthly, we feel that in our Amendment we are meeting the industry's main worry.
Lord CAMPBELL of CROY: My Lords, if no other noble Lord is going to speak I want to stress that this is, as I think noble Lords on the Government Front Bench realise, an exceedingly important subject. We welcomed what the Government said at the Committee stage and the fact that they now have an Amendment on the Marshalled List, which naturally we will support. But I must draw attention to the fact that it does not cover the commercial fields which the noble Lord indicated he would be trying to define in this Amendment and which we think ought to be excluded. Naturally we will accept Amendment No. 26, but we do not think it goes as far as it should.
Amendment No. 27 would have provided a helpful way of adding to what the Government are doing. I have noted the assurance the Ministers have given on this matter, but I do not think the Government have been able to define commercial fields. I accept the principle which they stated, that they had abandoned the idea of total revocation. So, while welcoming Amendment No. 26, I am afraid it
578
does not go far enough in its definition; but I am not intending to press Amendment No. 27.
6.34 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 28:
Page 71, line 11, at end insert ("and an agreement in so far as it provides that, after any petroleum has been won and saved from the licensed area, it shall be exchanged for other petroleum.").
The noble Lord said: My Lords, this is a rather complicated little technical Amendment. I shall try to be quite brief about it. When the Bill was first introduced it included a new licence provision under model Clause 32, paragraph 3, whereby ministerial consent will be required for all so-called illustrative or royalty agreements between the Licensee and a third party. At that time it was assumed that co-Licensees would not be carrying out straightforward exchanges of oil from their shared fields, and no exemption was made for normal exchanges of oil. I believe that in any event this is an Amendment which commends itself to the Government. It merely seeks to correct the omission of the exchanges from exemption of the provisions of Clause 38(5). To do this the same exemption provision for sales and exchanges as already exists in Clause 38(3) is incorporated in Clause 38(5). I beg to move.
Lord BALOGH: My Lords, as the noble Lord said, the exemption of part of this is already in paragraph 3 of this model clause. I can tell noble Lords that it was omitted from paragraph 5 because it seemed unlikely to be needed. This was not a mere hunch on our part but also the initial view of the industry. However, we are persuaded that circumstances could arise when such changes would be made. We have no wish to object to them, so I am pleased to recommend the House to accept the Amendment.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 29:
Page 72, line 17, at end insert—
("(6) Notwithstanding the provisions of paragraph (1) of this clause, where the Minister proposes to revoke this licence in pursuance of that paragraph on the occurrence of any one or a combination of the events

579
specified in paragraphs (2) and (3) of this clause he shall before doing so—

(a) give the Licensee (and where two or more persons are the Licensee, to each of those persons) written particulars of the proposal including the grounds upon which he proposes to revoke the licence and an opportunity of making representations to the Minister about the proposal; and

(b) consider in relation to the factors referred to in sub-paragraph (c) below any written representations then made to him by the Licensee and any such person within twenty-eight days of giving such particulars as aforesaid; and

(c) shall have regard to—

(i) the gravity of the event or events in question;

(ii) the extent to which, if two or more persons are the Licensee, they were not equally or at all responsible otherwise than constructively for the occurrence of the event or events in question and, if they were not, the extent to which those persons are able and willing to remedy the consequences of that event or those events forthwith;

(iii) whether the event or events in question was or were a first occurrence;

(iv) whether the event or events in question are capable of remedy and if so the extent to which the Licensee is able and willing to remedy the consequences of that event or those events forthwith;

(v) whether the event or events in question together with any previous event or events amounted in combination to such a series of occurrences as to warrant revocation of the licence;

(vi) whether the event or events in question was or were the result of wilfulness or negligence on the part of the Licensee.").

The noble Lord said: My Lords, I will attempt to move this Amendment as shortly as possible in order that we can, if possible, get through our business before dinner. This is another Amendment seeking to avoid revocation but rather to give the Licensees an opportunity to put things right. Surely the Government's main interest is not to punish people but to get things the way they want them. The most important example here is the possibility of changing of partnerships, particularly in those cases concerning control over a minor participant in a partnership; and possibly a change of control completely outside this country may have taken place. This Amendment seeks to give the industry an opportunity under the Bill for a Licensee who might suffer damage to make representations to the Minister
580
before he suffers the ultimate penalty. My Lords, I beg to move.
Lord BALOGH: My Lords, this Amendment seeks to set out the considerations which the Secretary of State would take into account before proceeding to the revocation of a licence. I should like to remind noble Lords on the other side that no licence has yet been revoked. This was so under both Tory Governments and Labour Governments. Revocation is obviously a serious step, not to be undertaken lightly, and, as I say, it has never occurred. If a question of revocation should arise it is absolutely inconceivable, as the Minister is responsible to Parliament, that the Secretary of State should not consider very carefully all the factors listed in paragraph (c) of the Amendment. That assurance I am glad to give to your Lordships, and especially the assurance that of course the fact that an offence was a first offence will very much be taken into account. But I am not persuaded that there is a case for including the provisions of this Amendment in the Bill.
In the first place, the power of revocation has already been circumscribed by the special revocation provision relating to model Clause 15 and the provision for remedy within three months of a breach of the new control over ownership of a Licensee. There are good reasons for these provisions. Model Clause 15 is of unique importance because of the financial commitments which it entails. Opportunity to remedy a change of ownership and control is particularly apposite because the Licensee may not himself be able to determine who owns or controls him. But in other cases like considerations do not apply. Indeed, 28 days' delay in revocation becoming effective, which is what this Amendment would involve, could he very damaging indeed. If, for example, a Licensee became insolvent a month's delay in removing him from the licence could mean a costly and long delay in the development of the field; and there are of course possibilities in this respect. As noble Lords know, weather conditions in the North Sea often mean that very stiff timetables have to be followed.
Again, the licence obligations are joint and several. In practice, if it is clear that only one of the group of co-Licensees

581
is the cause of the event which occasions revocation, the Secretary of State will be very likely to issue a new licence to the innocent parties. However, it would be wrong to create, as the Amendment does, a presumption that this will always happen. As it is, the joint and several concept ensures a degree of self-policing of the licence terms which is in everybody's interest. Each Licensee is at pains to ensure the due performance of the licence terms. It has been proved that this greatly reduces the chance of any breach. If a Licensee knew that his own licence was inviolable regardless of what his partners might do, inevitably there would be some relaxation of vigilance and a greater chance of the power of revocation being invoked. I am sure we all agree that this ought to be avoided at all costs.
Finally, may I point out that the existing licence terms, based originally on regulations made in 1964 by a Conservative Government and amended in 1971, though not on this point, by another Conservative Government, have never contained any elaboration or qualification of the power of revocation such as this Amendment proposes. The noble Lord may remember this. I can assure noble Lords that the revocation clause will be operated reasonably and with restraint. In practice, the Secretary of State will take into account the factors set out in the Amendment. To incorporate this provision in the Bill is unnecessary. It could also introduce an undesirable lack of flexibility, although the noble Lord does not like the word, and would tend to weaken the force of the sanction which itself serves to ensure that the sanction need not in practice be invoked. For these reasons, may I ask the noble Lords to withdraw their Amendment.
Lord LLOYD of KILGERRAN: I welcome the assurances which have been given by the noble Lord the Minister. There is, however, one point which does not seem to have been emphasised in relation to this Amendment and it may be a point which the Government will wish to consider further before Third Reading. It does not seem to me to be realised that in most instances the Licensees consist of a consortium of many firms. It may be that there will be a breach by one member of the consortium, which is not known to the other
582
co-Licensees, if I may use that term. In those circumstances an opportunity should be given to the other parts of the consortium to put the matter right and therefore avoid the difficulties which may arise from a potential revocation.
Lord STRATHCONA and MOUNT ROYAL: I am not sure whether we go along with all the points that the Minister has made. However, he has given us a number of assurances which we accept with gratitude, and I am pleased to withdraw the Amendment at this stage.
Amendment, by leave, withdrawn.
Lord BALOGH: My Lords, I beg to move Amendment No. 31.
Amendment moved—
Page 85, line 40, leave out paragraph (5).—(Lord Balogh.)
Lord BALOGH: My Lords, I beg to move Amendment No. 32.
Amendment moved—
Page 86, line 44, at end insert—
("(7A) Where the Minister proposes to approve a programme subject to a condition in pursuance of paragraph (4)(b) of this clause or to reject a programme in pursuance of paragraph (4)(c) of this clause or to serve a programme on the Licensee in pursuance of paragraph (7) of this clause he shall before doing so—

(a) give the Licensee particulars of the proposal and an opportunity of making representations to the Minister about the technical and financial factors which the Licensee considers are relevant in connection with the proposal; and

(b) consider any such representations then made to him by the Licensee;

and the Minister shall not approve a programme subject to such a condition unless he is satisfied that the condition is required in the national interest.")—(Lord Balogh.)
Lord BALOGH: My Lords, I beg to move Amendment No. 35.
Amendment moved—
Page 88, line 13, leave out from beginning to end of line 15 and insert ("technical and financial factors which the Licensee considers are relevant in connection with the proposal: and
(b) consider any such representations then made to him by the Licensee;").—(Lord Balogh.)
Lord BALOGH: My Lords, I beg to move Amendment No. 36.
Amendment moved—
Page 88, line 42, at end insert—
("(8) If in respect of part of the licensed area—

(a) a consent has been given in pursuance of paragraph (1) of clause 15 of this licence; or

(b) the Licensee has submitted to the Minister, in accordance with a direction given by virtue of paragraph (3)(a) of that clause, a programme in pursuance of paragraph (2) of that clause—

(i) as respects which the Minister has served notice in pursuance of paragraph (4)(a) or (b) or paragraph (7) of that clause, or

(ii) in consequence of which the Minister has served a programme on the Licensee in pursuance of the said paragraph (7), or

(iii) in respect of which it has been determined by arbitration that the Licensee is not required by virtue of paragraph (6)(c)(i) of that clause to submit modifications,

paragraph (1) of clause 39 of this licence shall not authorise the Minister to revoke this licence in relation to that part of the licensed area in consequence of any breach or nonobservance, while the consent is in force or during the period to which the programme relates, of any provision of the said clause 15 in connection with a different part of the licensed area.
(9) Where in consequence of any breach or non-observance by the Licensee of any provision of clause 15 of this licence the Minister has power by virtue of paragraph (1) of clause 39 of this licence to revoke this licence or, in consequence of paragraph (8) of this clause, to revoke it in respect of part only of the licensed area, he may if he thinks fit—

(a) in a case where he has power to revoke this licence, exercise the power in relation to such part only of the licensed area as he may specify; and

(b) in a case where by virtue of the said paragraph (8) he has power to revoke it in respect of part only of the licensed area, exercise the power in relation to such portion only of that part as he may specify;

and where in consequence of the said paragraph (8) or by virtue of the preceding provisions of this paragraph the Minister revokes this licence in respect of a part or portion of the licensed area, the rights granted by this licence shall cease in respect of that part or portion without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.").—(Lord Balogh.)
Schedule 3 [Production licences for landward areas]:
Lord BALOGH: My Lords, I beg to move Amendment No. 41.
Amendment moved—
Page 113, line 26, leave out paragraph (5).—(Lord Balogh.)
Lord BALOGH: My Lords, I beg to move Amendment No. 42.
Amendment moved—
Page 114, line 41, at end insert:
"(7A) Where the Minister proposes to approve a programme subject to a condition in pursuance of paragraph (4)(b) of this clause or to reject a programme in pursuance of paragraph (4)(c) of this clause or to serve a programme on the Licensee in pursuance of paragraph (7) of this clause he shall before doing so—

(a) give the Licensee particulars of the proposal and an opportunity of making representations to the Minister about the technical and financial factors which the Licensee considers are relevant in connection with the proposal; and

(b) consider any such representations then made to him by the Licensee;

and the Minister shall not approve a programme subject to such a condition unless he is satisfied that the condition is required in the national interest."—(Lord Balogh.)
Lord CAMPBELL of CROY: My Lords, I beg to move Amendment No. 45. This is consequential, resulting from an Amendment which we made to the Bill at Committee stage.
Amendment moved—
Page 116, line 6, after ("programme") insert ("and the quantity so specified in such a further notice shall not be less than four-fifths of the proven production capacity of the field for the period specified in that further notice;").—(Lord Campbell of Croy.)
Lord BALOGH: My Lords, I beg to move Amendment No. 46.
Amendment moved—
Page 116, line 19, leave out from ("the") to end of line 21 and insert ("technical and financial factors which the Licensee considers are relevant in connection with the proposal; and
(b) consider any such representations then made to him by the Licensee;").—(Lord Balogh.)
Lord BALOGH: My Lords, I beg to move Amendment No. 47.
Amendment moved—
Page 117, line 7, at end insert—
"(8) If in respect of part of the licensed area—

(a) a consent has been given in pursuance of paragraph (1) of clause 12A of this licence; or

(b) the Licensee has submitted to the Minister, in accordance with a direction given by virtue of paragraph (3)(a) of that clause, a programme in pursuance of paragraph (2) of that clause—

(i) as respects which the Minister has served notice in pursuance of paragraph (4)(a) or (b) or paragraph (7) of that clause, or

(ii) in consequence of which the Minister has served a programme on the Licensee in pursuance of the said paragraph (7), or

(iii) in respect of which it has been determined by arbitration that the Licensee is not required by virtue of paragraph (6)(c)(i) of that clause to submit modifications,

paragraph (1) of clause 31 of this licence shall not authorise the Minister to revoke this licence in relation to that part of the licensed area in consequence of any breach or nonobservance, while the consent is in force or during the period to which the programme relates, of any provision of the said clause 12A in connection with a different part of the licensed area.
(9) Where in consequence of any breach or non-observance by the Licensee of any provision of clause 12A of this licence the Minister has power by virtue of paragraph (1) of clause 31 of this licence to revoke this licence or, in consequence of paragraph (8) of this clause, to revoke it in respect of part only of the licensed area, he may if he thinks fit—

(a) in a case where he has power to revoke this licence, exercise the power in relation to such part only of the licensed area as he may specify; and

(b) in a case where by virtue of the said paragraph (8) he has power to revoke it in respect of part only of the licensed area, exercise the power in relation to such portion only of that part as he may specify;

and where in consequence of the said paragraph (8) or by virtue of the preceding provisions of this paragraph the Minister revokes this licence in respect of a part or portion of the licensed area, the rights granted by this licence shall cease in respect of that part or portion without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.")—(Lord Balogh.)
Lord LOVELL-DAVIS: My Lords, I beg to move Amendment No. 52.
Amendment moved—
Page 138, line 22, leave out paragraph (5).—(Lord Lovell-Davis.)
Lord LOVELL-DAVIS: My Lords, I beg to move Amendment No. 53.
Amendment moved—
Page 139, line 26, at end insert—
("(7A) Where the Minister proposes to approve a programme subject to a condition in pursuance of paragraph (4)(b) of this clause or to reject a programme in pursuance of paragraph (4)(c) of this clause or to serve a progamme on the Licensee in pursuance of paragraph (7) of this clause he shall before doing so—

(a)give the Licensee particulars of the proposal and an opportunity of making representations to the Minister about the technical and financial factors which the Licensee considers are relevant in connection with the proposal; and

(b) consider any such representations then made to him by the Licensee;

and the Minister shall not approve a programme subject to such a condition unless he is satisfied that the condition is required in the national interest."—(Lord Lovell-Davis.)
Lord CAMPBELL of CROY: My Lords, I beg to move Amendment No. 56. This is also consequential, resulting from an Amendment which we made to the Bill at Committee stage.
Amendment moved—
Page 140, line 34, after ("programme") insert ("and the quantity so specified in such a further notice shall not be less than four-fifths of the proven production capacity of the field for the period specified in that further notice;")—(Lord Campbell of Croy.)
Lord BALOGH: My Lords, I beg to move Amendment No. 57.
Amendment moved—
Page 140, line 45, leave out from beginning to end of line 47 and insert ("technical and financial factors which the Licensee considers are relevant in connection with the proposal; and
(b) consider any such representations then made to him by the licensee;")—(Lord Balogh.)
Lord LOVELL-DAVIS: My Lords, I beg to move Amendment No. 58.
Amendment moved—
Page 141, line 24, at end insert—
("(8) If in respect of part of the licensed area—

(a) a consent has been given in pursuance of paragraph (1) of clause 15 of this licence; or

(b) the Licensee has submitted to the Minister, in accordance with a direction given by virtue of paragraph (3)(a) of that clause, a programme in pursuance of paragraph (2) of that clause—

(i) as respects which the Minister has served notice in pursuance of paragraph (4)(a) or (b) or paragraph (7) of that clause, or

(ii) in consequence of which the Minister has served a programme on the Licensee in pursuance of the said paragraph (7), or

(iii) in respect of which it has been determined by arbitration that the Licensee is not required by virtue of paragraph (6)(c)(i) of that clause to submit modifications,

paragraph (1) of clause 37 of this licence shall not authorise the Minister to revoke this licence in relation to that part of the licensed area in consequence of any breach or nonobservance, while the consent is in force or during the period to which the programme relates, of any provision of the said clause 15 in connection with a different part of the licensed area.
(9) Where in consequence of any breach or non-observance by the Licensee of any provision of clause 15 of this licence the Minister has power by virtue of paragraph (1) of clause 37 of this licence to revoke this licence or, in consequence of paragraph (8) of this clause, to revoke it in respect of part only of the licensed area, he may if he thinks fit—

(a) in a case where he has power to revoke this licence, exercise the power in relation to such part only of the licensed area as he may specify; and

(b) in a case where by virtue of the said paragraph (8) he has power to revoke it in respect of part only of the licensed area, exercise the power in relation to such portion only of that part as he may specify;

and where in consequence of the said paragraph (8) or by virtue of the preceding provisions of this paragraph the Minister revokes this licence in respect of a part or portion of the licensed area, the rights granted by this licence shall cease in respect of that part or portion without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.")—(Lord Lovell-Davis.)
Clause 23 [Compulsory increases in capacity etc. of pipe-lines]:
Lord LOVELL-DAVIS Lord LOVELL-DAVIS moved Amendment No. 62:
Page 21, line 1, after ("pipe-line") insert ("can and").
The noble Lord said: My Lords, we undertook in Committee on 15th October to look again at the drafting of this passage in the light of Amendment No. 39 which was moved on that occasion by the noble Lord, Lord Campbell of Croy. I am pleased to say that we can follow his suggestion and insert in paragraph (b) these words which were accepted in another place for insertion in paragraph (a). I beg to move Amendment No. 62.
Clause 24 [Acquisition by persons of right to use pipe-lines belonging to others]:
6.50 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 63:
Page 22, line 33, leave out from beginning to ("payments") in line 37 and insert ("so as to secure to the owner recovery of an equitable proportion of the relevant capital and operating costs of the pipe-line;
(d) for securing to the applicant the right to have a pipe and apparatus of his connected to the pipe-line by the applicant or the owner;
and such a notice may also authorise the owner to recover from the applicant reasonable commercial").
The noble Lord said: My Lords, we come to the last debate of the Report stage of this Bill. I beg to move Amendment No. 63 which is similar in form to two Amendments which we moved at the Committee stage and discussed there. Since the Committee stage we have been able to examine the statement of assurances given by the noble Lord. Lord Lovell-Davis. The problem is that a company or a consortium could find itself considerably at a loss commercially because, by accident, there was a national interest involved in the pipe-line capacity in a certain area. The owner of the pipeline could find that by chance the area through which his pipe-line ran involved a national interest and compelled certain action to be taken which resulted in his suffering because the transaction was not carried outon a commercial basis.
We discussed this at the Committee stage and we pointed out that this was something to which the industry attached a great deal of importance. The cost of North Sea pipe-lines is very high. At the moment in the Northern North Sea. it costs a million pounds a mile, and most of these pipe-lines run for more than 100 miles to the shore. If we are to encourage people to build these pipe-lines and if we are to get the best use from pipe-line capacity, and make sure that people think ahead and provide as full capacity as they can foresee will be needed in the future, we must give them some assurance that the investment they put into these pipe-lines will not result in their losing later on the value of their investment because of the way in which other people are allowed to use the pipeline.
The Government are familiar with this; we have put this argument to them before. The Amendment puts into the Bill wording which the Government could easily accept; "equitable proportion of the relevant capital and operating costs" and the words, "reasonable commercial" are broad enough to cover the variations in circumstances that will occur. Therefore, I hope the Government will recognise that this is an exceedingly important matter which ought to be put into this Bill if we are to encourage not only the pipelines that we need to be built but also the best use of those pipe-lines in the future from the point of view of the country. I beg to move.
Lord LOVELL-DAVIS: My Lords, I made a fairly long and detailed statement about our policy on charges in Committee on 15th October, as the noble Lord, Lord Campbell of Croy, has pointed out, and I said then it was a statement of how we would administer the provisions of the Bill and that we did not intend to put anything in the Bill itself. That I fear must remain our position, but perhaps I can take just a little time to reassure noble Lords of our intentions in the matter of these charges and to explain why we feel that we cannot do what noble Lords opposite would like and write some provisions on these lines into the Bill.
There are no circumstances in which the owner of a pipe-line can be financially worse off through the admission of a third party. That is a fundamental point—a
590
basic safeguard—which I must emphasise strongly. I must also remind the House that we are here talking about only those cases where the Secretary of State is called upon to intervene in the setting of charges—a situation which we hope and expect will be the exception and not the rule.
Both in the case of admission to a line being built—where the route or capacity or both may need to be changed—and in the case of admission to an existing line, where some new equipment or other modification to the line might be necessary, the Bill makes it clear that the costs of the third party must be wholly borne by the third party. That is Clauses 22(5)(a) and 23(1)(ii). Those provisions do not cover costs resulting from interruption of supply during the process of linking a third party line to the owner's line and I made it clear in my statement to Committee that we shall ensure that any such costs are reimbursed. Nor do those provisions cover running costs; again I made it clear that the third party will in every case be required to pay his share. The owner cannot therefore lose from the admission of a third party. Financially he will be at least in the same position as he would have been had no third party appeared.
That leaves the question of a contribution to the basic capital costs of the line. I know that many in the industry feel that a third party should always pay his share of these, take a share in the equity, as it were. This is understandable—it is good business and reflects what I believe to be a common practice in the oil industry. We have nothing against it. We have no desire to give third party corners generally a free ride when they can afford to pay the full fare, and again my statement in Committee made this clear. The financial arrangements made will normally take account of basic capital costs, except where the owner has made other sufficient arrangements to recover the full capital costs. I might add here that I understand that there has been some uncertainty in the industry about the meaning of this last phrase, and I should therefore like to take this opportunity to give your Lordships a further explanation of it. The example we have in mind is that in the case of a gas pipe-line the owner could be reimbursed by an adjustment of the price of his gas. I qualified my statement on the treatment of basic capital

591
costs only in the case of marginal supply, and it is this case which precludes unqualified acceptance of the principle of this Amendment.
The case of marginal supply illustrates clearly how the national interest and the companies' interests might diverge. The situation is simple. A pipe-line owner has no interest in enabling his competitor with a marginal field to get his product ashore at a price which will make exploration of the field viable. The nation, on the other hand, does have such an interest, and it is right that we should have power to see that that interest is served. I repeat that this is very much a long-stop power and we shall require to be satisfied beyond any doubt that normal commercial terms are not possible before we invoke it. The owner, no less than the third party, will be able to put his case to us; that is in the Bill. He must be given notice of an intention to admit a third party and be given an opportunity to make representation and to be heard. So the owner's case will not go by default. But in the national interest—in the interests of exploiting our offshore oil for the full benefit of the nation—we must retain the ability to assist third party marginal supply in this way so long as the owner suffers no loss. For that reason I must resist the Amendment. I am afraid I have spoken at some length, considering the hour and the rather wild night we spent last night, but I hope I may have persuaded the noble Lord to withdraw his Amendment.
The Earl of LAUDERDALE: My Lords, without wishing to introduce any wildness at this late stage—and the noble Lord may be gratified that I have been busy elsewhere this afternoon—I should like to go a little further into what he has said. He has said that the basic capital costs will be covered. At the Committee stage I asked a question about this and we were told then that the pipe-line entrepreneur and owner would not be out of pocket, and we have just been told again that he cannot be worse off. But we are all worse off, all the time, thanks to inflation. I asked the question whether, when the costs are considered at some future date, these are the historic costs in £s as they were reckoned at that time, or whether they are the historic costs
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adjusted to take account of inflation. I asked that question in Committee: I did not get an answer and I think it is fair to ask for it now because there is an element of vagueness when the noble Lord says that the pipe-line owner will not be out of pocket. It is a loose phrase and is not one that would commend itself to the students and to Ricardo and Stuart Mill and the others. It is a loose phrase; it may pass muster at certain levels of political debate but it is really not quite sufficient for this case.
The second point I think we should stress is the point on assurances. The noble Lord has been good enough to say—so many times now that he must be tired of saying it, as we are tired of hearing it—that they have given assurances about how they will administer the Bill when it becomes an Act, but the fact is that this legislation is looking to a period in the mid-80s and beyond. Does the noble Lord know who is to govern the country, whether anybody will govern it, whether it is capable of being governed? Certainly whether it will be that kind of Government, or whether it is Right, Left, middle, up or down, we do not know. Therefore the assurance about how the present Government propose to administer this Bill when it becomes an Act, long before the situation really arises and calls these matters into question, is not sufficient. I do not want to introduce a discordant note and spoil the party at the end of the day. I am sure the noble Lord is just longing to go home and have a drink, but these points deserve a little clarification before we bid each other "Good night".
Lord LOVELL-DAVIS: My Lords, in answer to the noble Earl, Lord Lauderdale, as I said, the financial arrangements made will normally take account of basic capital costs, and I qualified that by saying that it applies in the case of marginal supply only. So far as the costs are concerned, they must be the historic costs. The noble Earl throws up his hands. There is inflation, but also there is the matter of depreciation as well. Equipment depreciates all the time.
The Earl of LAUDERDALE: My Lords, if the noble Lord will allow me to interrupt, may I say that I appreciate the point he has just made, which is a fair one, but if he says, "Yes, inflation on the

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one hand against depreciation on the other", we have some idea of what he is talking about. The noble Lord said this is an historic cost, which will mean absolutely nothing. What about replacement cost? Might that not be a valid basis?
Lord LOVELL-DAVIS: My Lords, as I understand it, what we are talking about is the historic cost. So far as the mid-1980s are concerned, I hope that the Party I represent will still be governing the country and guiding our oil policy to the full benefit of the nation.
Lord POLWARTH: My Lords, may I say a word or two, since the noble Lord, Lord Lovell-Davis, at the last stage of the Bill, was good enough to reply to some points I raised on the clause. One of the points raised by me was whether it would not be better to have provision for an independent arbitration on this question of costs, on who pays what. In reply, the noble Lord said that he thought it would be unnecessary, because the Secretary of State, acting in his quasi-judicial capacity, would find it very hard; he would not know whom to favour, BNOC being involved in all the companies concerned, a point which was challenged somewhat by the noble Earl, Lord Lauderdale, but I do not propose to follow that this evening. I am not sure that I can reconcile that with what the noble Lord said a little later on when, referring to the need to retain this famous flexibility, which has been a theme throughout the afternoon, he said, "We must retain flexibility to provide some assistance to marginal supply where the supply is very marginal. Making it bear a full share of the basic capital cost of the pipe-line might make it uneconomic." Surely this means that it is not BNOC which makes the decision, but the Secretary of State. The cases where he will want to use his influence are where there are marginal fields that would not be viable otherwise, and therefore, even if BNOC is involved on both sides of the operation, there will be a case of swings and roundabouts so far as they are concerned. As fortheir partners, it will be a case of swings for some partners, and roundabouts for other partners, so I am not sure that I agree with this particular point.
My Lords, I must once more declare my own interest, because it is very relevant here. I am a director of a company
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developing fields in the North Sea, which has already laid a substantial length of pipe-line. This brings me to the particular point, namely, that whereas it may or may not be that BNOC will have an interest eventually in all the oil fields, certainly in regard to Frigg—if it is not improper of me to refer to a specific field with which I am concerned—this will not be the case, because of the time at which its development is started. The noble Lord said that the consideration was essential for gas because there was no alternative of loading into tankers. I do not want to go too far into this matter except to say that my own company, if it is not improper to say so, is still somewhat concerned about this provision with relation to pipe-lines, with regard especially to the gas fields. There are a number of applications which the Government will have to bear in mind here. There is the possibility of the discovery by the existing owners of pipe-lines, of further fields. If there is a probability of that, it will be very unfair that they should be made to have their spare pipe capacity taken up by having to take in someone else's field, when they have good prospects of using it themselves.
The second point, which I shall not dilate on here but I think it should be borne in mind, is that in this particular case, and it may well be in others, there will be international problems, in that the owners of a British pipe-line may be required to have agreements to transport products from the other side of the median line and, therefore, from the domain of another company. I mention these points because they complicate this new issue quite considerably.
Lord LOVELL-DAVIS: My Lords, at this stage I will not attempt to follow the noble Lord, Lord Polwarth, by going over the matters he has covered fairly discursively. As he said at the end, he has expressed his views and made his comments. On reading Hansard, if there are any specific points on which he feels he would like a Written Answer, I shall be happy to write to him. The noble Lord, Lord Polwarth, raised a specific point on the decisions made under Part III; these will be made by the Secretary of State, not by BNOC. The point I was making in that debate was that the Secretary of State would not give unfair preference to BNOC.
Lord CAMPBELL of CROY: My Lords, the noble Lord, Lord Lovell-Davis, spoke about retaining flexibility, but as I indicated in moving this Amendment, we believe that is retained in the wording of the Amendment. He spoke about the national interest, which I also recognised could occur in different parts of the Continental Shelf where pipe-lines were concerned. But we believe there are other ways in which the Government should be able to come forward and give assistance where the national interest is involved, and it should not be left to accident that a company should suffer
Resolved in the affirmative, and Amendment agreed to accordingly.
commercially simply because the national interest arose in the course of the pipeline which it owned. The noble Lord referred to last night as being a wild night. Those of us who were here all last night will not wish to go on discussing this Amendment at great length. I would simply say that we regard this as a most important Amendment, and ask noble Lords to support me in pressing it.
On Question, Whether the said Amendment (No. 63) shall be agreed to?
Their Lordships divided: Contents, 63; Not-Contents, 38.

CONTENTS

Aberdare, L.

Drumalbyn, L.

Mowbray and Stourton, L. [Teller.]

Alport, L.

Duncan-Sandys, L.

Amory, V.

Dundonald, E.

Newall, L.

Auckland, L.

Ellenborough, L.

Onslow, E.

Balerno, L.

Elles, B.

Orr-Ewing, L.

Balfour, E.

Elliot of Harwood, B.

Penrhyn, L..

Banks, L.

Elton, L

Polwarth, L

Beaumont of Whitley, L.

Ferrers, E.

St. Aldwyn, E. [Teller.]

Belstead, L.

Furness, V.

Sandys, L.

Berkeley, B.

Gainford, L.

Selkirk, E..

Brougham and Vaux, L.

Hereford, V.

Skelmersdale, L

Campbell of Croy, L.

Inglewood, L.

Somers, L.

Carrington, L.

Kemsley, V.

Stamp, L.

Clifford of Chudleigh, L.

Kings Norton, L.

Strathclyde, L.

Cork and Orrery, E.

Lauderdale, E.

Strathcona and Mount Royal, L.

Cowley, E.

Lauderdale, L

Craigavon, v.

Lloyd of Kilgerran, L.

Swansea, L

Cullen of Ashbourne, L.

Long, V.

Tranmire. L.

Davidson, V.

Lyell, L.

Vickers, B.

de Clifford, L.

Margadale, L.

Wakefield of Kendal, L.

Denham, L.

Masham of Ilton, B.

Ward of North Tyneside, B.

Digby, L.

Monck, V.

Wigoder, L.

NOT-CONTENTS

Ardwick, L.

Fisher of Camden, L.

Pannell, L.

Arwyn, L.

George-Brown, L.

Phillips, B.

Balogh, L.

Goronwy-Roberts, L.

Rhodes, L.

Beswick, L.

Harris of Greenwich, L.

Rusholme, L.

Blyton, L.

Houghton of Sowerby, L.

Segal, L.

Brockway, L.

Jacques, L.

Stewart of Alvechurch, B.

Castle, L.

Janner, L.

Strabolgi, L. [Teller.]

Champion, L.

Kirkhill, L.

Taylor of Gryfe, L.

Collison, L.

Llewelyn-Davies of Hastoe, B.

Taylor of Mansfield, L.

Crook, L.

Lovell-Davis, L.

Wells-Pestell, L. [Teller.]

Cudlipp, L.

Maelor, L.

White, B.

Darling of Hillsborough, L.

Melchett, L.

Winterbottom, L.

Elwyn-Jones, L. (L. Chancellor)

Milner of Leeds, L.

CINIMATOGRAPH FILMS (LIMIT OF LEVY) ORDER 1975
7.16 p.m.
Lord WINTERBOTTOM Lord WINTERBOTTOM rose to move, That the draft Cinematograph Films (Limit of Levy) Order 1975, laid before the House on 13th October, be approved. The noble Lord said: My Lords, with the agreement of the House, I propose that both these draft Regulations—the Cinematograph Films (Limits of Levy) Order and the Cinematograph Films (Collection of Levy) (Amendment No. 4) Regulations—be considered together because they both stem from the rise in the level of prices, which some of us have noticed, and not from any change in policy. The first Order amends Section 2(3)(b) of the Cinematograph Films Act 1957. This Act provided for the imposition of a levy on exhibitors of cinematograph films and for the British Film Fund Agency to distribute the bulk of the proceeds to the makers of British films. The levy is collected on cinema admissions and is payable in respect of all cinema performances, except for cinemas whose takings are small.
The purpose of the levy is to encourage the production of British films by providing a significant bonus to the makers of successful films, without putting too heavy a burden on those who pay it. Parliament therefore provided that the estimated yield of the levy in any levy year should not be less than £2 million or more than £5 million. It may seem unusual to refer, as the Act does, to the estimated yield rather than the actual yield, but it is necessary for the Department to estimate the yield of the levy before the rate can be fixed. Once the rate is fixed the yield depends on the number of cinema admissions and on the seat prices, and these are not, of course, known in advance, so it is only possible to refer to the estimated yield. The upper limit of £5 million was specified in 1957 and its equivalent today is about £13 million It is therefore reasonable to increase the maximum limit to a more realistic level. This needs to be done now because at its present rate of one-ninth of the amount by which admission price exceeds 7½p, and taking account of the rising price of cinema seats, the levy is expected to yield £6
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million next year. This is outside the prescribed limits of between £2 million and £5 million, and would require the rate of levy to be reduced, even though £6 million is well within the original limits in real terms.
In my view, any increases in the general level of prices over the next two years will be covered by an increase from £5 million to £7 million, and it would, in any case, be inadvisable to look further ahead because the whole question of the future of the film industry is currently being examined by a Working Party set up by my right honourable friend the Prime Minister. The increase to £7 million is, of course, an upper limit and does not imply that the rate of levy will be increased to yield that amount. I can assure the House that there arc at present no plans to increase the rate of levy.
The second Regulation deals with the levy exemption limit and with children's entertainments. First, it amends the Cinematograph Films (Collection of Levy) Regulations 1968, by raising the limit of weekly cinema takings at or below which a cinema is exempted from payment of levy, from £500 to £700. The present limit was set in 1971, and its equivalent today is approximately £850. An increase to £700 is not, I think, unreasonable. Secondly, it will specifically exclude children's entertainments from payment of levy. Up to now levy has not been paid on these entertainments because the prices of admissions have been below the 7½p (or 1s. 6d. in old money) above which levy becomes payable. Prices of admission have risen during the past year to 10p and are likely to rise further to 15p, but many children's entertainments are, unfortunately, already liable to pay levy. This was never the intention, and the draft Regulation will provide formal exemption. The Cinematograph Films Council has been consulted in accordance with the parent legislation, and the Council are content that all the proposed changes should be made. I therefore commend them to the House. I beg to move.
Moved, That the draft Cinematograph Films (Limit of Levy) Order 1975, laid before the House on 13th October, be approved.—(Lord Winterbottom.)
On Question, Motion agreed to.

CINEMATOGRAPH FILMS (COLLECTION OF LEVY) (AMENDMENT No. 4) REGULATIONS 1975.
Lord WINTERBOTTOM: My Lords, I beg to move.
Moved, That the draft Cinematograph Films (Collection of Levy) (Amendment No. 4) Regulations 1975, laid before the House on 13th October, be approved.—(Lord Winterbottom.)
Lord AUCKLAND: My Lords, may I ask the noble Lord two questions arising from his statement. First, how is the estimate of cinema attendances to be obtained, particularly in small cinemas, because there is a trend now, as the noble Lord knows, for these three-tier cinemas, which would be very difficult to compute from the small cinemas, which seem to be dying out. Secondly, the noble Lord mentioned the Working Party set up by the Prime Minister. Could he say who is to serve on this Working Party? In view of the present parlous state of the cinema industry, when is it likely to report, and will there be an interim report on this matter?
Lord ELTON: My Lords, may I thank the noble Lord for his succinct exposition of these two small, generally speaking, beneficial Orders, and welcome, in principle, the exemption of children's entertainments. May I ask him to confirm that the Orders take account of inflation, so far as exhibitors are concerned, by recognising that it costs more to show films now than it used to do in roughly the order of expense he has declared? That is less than that allowed for in the Orders, but it does not take account of inflation so far as production companies are concerned, although it also costs more to make films at the same rate. The yield from this levy is paid into a fund for the ultimate benefit of the film industry in various guises, and the effect of increasing the exemption rate must be some reduction in that yield, with the result that the sum available to production companies will not rise to the limit of £7 million which the noble Lord has adduced as the ceiling in the first of the Orders which he introduced.
Moreover, on Monday we are to consider a Bill, the Cinematograph Films Bill, of which a principal effect will be to
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impose still further charges on that film fund, thus increasing the number of recipients without increasing the resources they are to share. I should like, with my noble friend Lord Auckland, to put it to the noble Lord that now would be a suitable time, in consequence of this, at which to review the increasingly common phenomenon of the cinema complex. I refer to establishments which are a cluster of small cinemas created in the place of one big one, and as each cinema is in the same ownership the exhibitor does not necessarily have, in aggregate, fewer seats to sell than he had before the conversion. I believe I am right in saying, although I think my noble friend was not aware of this, that as a result the owner of the three cinemas, perhaps, has trebled the exemption entitlement that he would have had under the old structure, and thus yet further reduced the yield of the levy to the fund. It seems to me that if account is to be taken of the increasing expense of producing films by means of increasing the yield of the levy, it would perhaps be sensible as a preliminary step to look at this development.
Lord WINTERBOTTOM: My Lords, the noble Lord, Lord Elton, has drawn the attention of the House to the fact that on Monday we are to have a rather more extensive debate on certain new proposals for the film industry levy, or the use of the levy. Perhaps it would be at that point that we could go in greater depth into these problems of allocation of resources to various activities of the film industry. By next Monday I am certain we are all going to be much brighter and more perceptive after a good weekend resting.
May I, before I sit down, reply to one point made by the noble Lord, Lord Auckland. Each unit in a multiple cinema is assessed separately for levy purposes and will be subject to minimum takings limits of £700 approved by the regulations. That is a technical point which is cleared out of the way. The Working Party was something about which I was going to say a few words on Monday. It is hoped that it will report towards the end of the year. It seems rather soon, but that is the intention. We are getting on towards the end of the year and the horrors of

601
Christmas are near upon us. Nevertheless, that is what I am informed.
I will note carefully what the noble Lord, Lord Elton, has said about the allocation of these resources, which are limited, and indeed, interestingly enough, seem not to be taking inflation into account to its full extent. As I said in my speech, in every case we are taking less than might have been done if we had indulged in inflation accounting. As a sort of trailer, or advance notice, I think on Monday we might have a rather
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interesting short debate on the film industry and its finances. I am not trying to wriggle out of answering fundamental points on the industry, on a couple of Orders which are interesting, but which I believe are generally acceptable. On Monday we may perhaps dig a little deeper. I beg to move.
On Question, Motion agreed to.
House adjourned at twenty-eight minutes past seven o'clock.