HL Deb 24 September 1975 vol 364 cc311-450

3.33 p.m.


My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, that the House do now resolve itself into Committee.—(Lord Balogh.)

On Question, Motion agreed to.

House in Committee accordingly.

[The Earl of LISTOWEL in the Chair.]

Clause 1 [Constitution of the Corporation]:


Before I call Amendment No. 1, I should point out to the Committee that if the Amendment is agreed to I cannot call Amendment No. 1A.

Lord CAMPBELL of CROY moved Amendment No. 1: Page 2, line 14, leave out paragraph (c).

The noble Lord said: I wonder whether it would be convenient to the noble Lord, Lord Lloyd of Kilgerran, if his Amendment No. 1A were discussed at the same time?


I certainly agree. It would be very convenient to have Amendment No. 1A discussed at the same time.


I believe that it will save time if we have one debate, as I feel that my Amendment gives rise to a debate on both these Amendments. Amendment No. 1 would have the effect of leaving the following words out of the Bill: shall ensure that two members are persons employed in the civil service of the State". So far as I know, this requirement that there should be two serving civil servants in the Corporation is a completely new kind of constitution for a public corporation or a nationalised body. Certainly an explanation by the Government is required as to why this is necessary for the British National Oil Corporation while it has not been necessary in the case of other bodies which are public bodies or bodies connected with nationalised industries.

I should like to start the debate today by making clear the attitude of this Bench to the British National Oil Corporation which the Government proclaimed before the Election last year that they would set up. It is that we ourselves do not consider that a juggernaut of this kind is necessary in order to deal with the situation concerning offshore oil. In our view, what would be needed would be a small agency to carry out the necessary co-ordination and control. However, we shall not seek to remove this agency from the Bill. It has so far been passed by another place. What we shall seek to do is to establish more clearly the role of this Corporation and its functions and also to concentrate on any changes which we suggest on what the Corporation can do to operate in the best interests of the country.

The first question which we raise on these Amendments is the nature and form of the Corporation. In the two debates which we have had on the Bill—we had one general debate at the end of July before the Bill reached us and we then had a debate on the Second Reading of the Bill on the last day before the Recess; and, indeed, we were speaking here when the other place had already gone into Recess—I asked the Government to explain the new nature of this kind of Corporation because it is almost part of the Department of Energy. It is constructed in such a way that the Secretary of State for Energy has power which is quite unparalleled in any other nationalised industry. Here we have this provision for at least two civil servants to be members of the Corporation.

Then there is the point that, in the Schedule regulating the Corporation's work, it is clear that the civil servants attend but are not allowed to vote. So, again, we need an explanation of their role. They are members of the Corporation but they do not vote. They could be in a difficult and invidious situation. If they are working normally as civil servants in the Department, they are bound to know about the confidential plans of companies working in offshore oil—not necessarily all the plans but, in the work they are doing, companies are asked to give the Government confidential information, and we have had long debates on the Industry Bill with which I have been dealing and which I shall not go into now in which it has been agreed on both sides of the House that companies give the Government information which is confidential and which is not made public or even passed to trade union representatives. In the past, Government Departments have had an excellent record of observing confidentiality so that there is trust between the companies and the Departments who sponsor them.

Two civil servants serving in the Department of Energy could not fail to know about commercial information which was circulating in the Department and which was being provided by companies. But at the same time they would be members of the Corporation —a nationalised body—which would be working in competition with some of those companies. We shall be coming later in these debates to the fact that the Corporation is also working in partnership with other companies in individual oilfields. That is difficult enough in itself. But I am merely dealing with the point that the civil servants, if they are serving civil servants, will find themselves in this ambivalent and invidious position, whereby they are bound to be aware of confidential information concerning other companies—which there is no reason for the British National Oil Corporation to know about —while at the same time they are members of a board (although they are not voting) on which they will be in competition with those other companies.

The noble Lord, Lord Lloyd of Kilgerran, will be speaking to his Amendment, but I wish to point out that he has suggested as an alternative that the civil servants might be seconded. That would certainly be an improvement— until we have heard an explanation from the Government—because in those circumstances the civil servants would at least then be away from their Departmental duties and would not find themselves in the position I have mentioned. As noble Lords opposite will know, such secondment is quite common in the Civil Service. I was a professional civil servant myself for 12 years and I worked in two or three Departments. In recent times more civil servants have been seconded to industry for a period of years, or have gone to other jobs, at universities or elsewhere. In such circumstances they are then working fully for their new employer and in their new business until the time comes for them to return to the Civil Service. In that way there is a cross-fertilisation between the Civil Service and outside bodies, which I believe is valuable to both and is also valuable experience for the civil servants. That at least would seem more easy to understand than the simple proposal contained in the Bill. Therefore I beg to move.

3.43 p.m.


I rise to support the submissions made by the noble Lord, Lord Campbell of Croy. We on these Benches echo his views that in order to achieve what the Government have in mind in relation to the broad aspects of North Sea oil and associated matters, it was not necessary to have a juggernaut of this kind. I wish to assure the noble Lord the Minister that anything I say today in support of my submissions as to these Amendments will, I hope, be put forward objectively and in a sense of endeavouring—if it is not a presumption to say so—to help in these matters.

If the proposal that two civil servants should be members of the Corporation were removed from the Bill it would not prevent the Secretary of State appointing civil servants at his discretion. But if the Bill contains a positive statement that two civil servants shall be members of the Corporation then immediately some basic difficulties arise. First, if it is deliberately written into the Bill that the Minister must appoint representatives of a particular class, it would naturally be questioned why other classes had been left out. The second serious difficulty, as adumbrated by the noble Lord, Lord Campbell of Croy, is that it produces a serious dichotomy in the administration of this Corporation.

The main function of an employee of a corporation is a loyalty to that corporation. But the function of these men and women who are civil servants is quite a different function. They owe a loyalty to the Department from which they come. As has been said in another place, the Corporation is to be closely associated with industry and industrial matters. If, as it seems to me, we have therefore a positive statement in the Bill that there shall he civil servants, then there will be a dichotomy of interest and divided loyalties in relation to the civil servants' activities.

May I briefly mention an example? It is essential that a civil servant be expected to have general views as to the public interest in the field with which he is involved. Therefore if one of the civil servants appointed here is concerned with the energy field, it may be unsatisfactory if, as an employee of the Corporation, he has to become directly involved in one corner of the energy field; namely, oil. I say at once that I have always accepted the view that the contribution made to industry by retired civil servants has, in many cases, been very great indeed. But that is a different matter from having civil servants as employees of a corporation.

With the leave of the Committee, I should like to refer to my Amendment No. 1 A which suggests that instead of appointing civil servants they should be seconded, as the noble Lord, Lord Campbell of Croy, has indicated. In my view that would be an improvement and would be a less embarrassing situation. Therefore I beg to move Amendment No. IA, or at least I am speaking to it at the moment, and no doubt we can deal with the procedural matter in a moment.


Before the noble Lord answers, I should like to support these two viewpoints and add one further argument as to why the Minister might be in a mind to accept these two very sensible Amendments. The clash of interests is a very real point. It might he avoided if it were perhaps agreed in the Bill—the Minister might state this, as a second best—that the civil servants would not come from the Department of Energy. They could come from any other part of the spectrum, but not from the Department of Energy. That would leave the widest scope and flexibility for the Government of the day. I believe that at least one of them should come from the Treasury. Later we are to criticise the way in which we think this rather exceptional organisation with which we are concerned is being set up, apparently outside Treasury control. The Minister looks aghast, but the income from the oil levies is to go into the "slush" fund. It starts at £600 million and may be £900 million, and it will go on accruing from the levies from the other companies. But it is not under Treasury control so far as we know. If we are to have an assurance about this later, it will be warmly welcomed on all sides of the Committee.

But that is an aside. The point I am making is that these two civil servants should not come from the Department of Energy. it should never be possible to say that they have inside knowledge of the plans of competitive companies as a result of the dichotomy to which the noble Lords, Lord Lloyd of Kilgerran and Lord Campbell of Croy, referred. Perhaps the Minister will consider this matter. If he cannot immediately give way on it, perhaps we can press the matter further and he can make a minor amendment during the Report stage or on Third Reading.

The Earl of HALSBURY

I support this Amendment from the standpoint of practical experience of working on this type of board. Though I support the noble Lord, Lord Campbell of Croy, I cannot agree with the noble Lord, Lord Orr-Ewing, that the problem would be solved by allowing civil servants to play hide and seek between Ministries not concerned with energy and those concerned with energy. He has been a civil servant —so have I—and we both know that the Civil Service is one organisation and civil servants therefore cannot play hide and seek in the way suggested by the noble Lord, Lord Orr-Ewing. If civil servants were capable of doing the work of these public corporations it would not be necessary to set up public corporations to do that work.

It is precisely because one cannot draw on the expertise required in the civil service that it is necessary to set up public corporations, if they are to be set up at all. One must presuppose that having set up a body, its view and the Ministry's view will not necessarily always be identical, and the civil servants on a board of this kind will be placed between two fires. Whether or not they are in the Ministry, they will come under the Ministry view as civil servants, yet they will have to form a view which is possibly in opposition to the Ministry in their capacity as members of the Corporation.

I have been a Governor of the BBC and there found myself in precisely that position. I have been a member of the North Thames Gas Board and found myself entirely in that position of having to disagree with the Ministry to which we were responsible. I have been a managing director of another body, and I think it is high time that the Government, who set up one corporation after another, should try to evolve something like Schedule A to the Companies Act which is a sort of model scheme of Memorandum and Articles to which public corporations would conform. We have had a tremendous amount of legislation this Session, in its original form nearly all ill-thought-out with no coherent philosophy behind it. Here, there is to be more than one chief executive: a chief executive appointed by the Minister, a chief executive appointed by the Board, for Scotland, Wales, for industry and the lot. And here is a new one—civil servants are to sit on these Boards. It does not convey the impression of responsible, knowledgeable administrators proposing legislation to your Lordships' House. It sounds like a bunch of amateurs having a bit of fun. The sooner they get a coherent philosophy behind it, the better. I support the Amendment.


Without having the expert knowledge and experience of the noble Earl, Lord Halsbury, I rise to support the Amendment. 1 begin by assuring noble Lords opposite that I have come back relaxed from the Recess and I am doing my best to forswear the temptation to throw epithets about. I want to join in the business of pleading with noble Lords opposite who arc responsible, serious and are to be taken seriously—at any rate from time to time—to listen patiently, and perhaps indulgently, to those who find some aspects of this Bill weird, bizarre and curious.

We are told in this clause of the Bill that the Board will be not fewer than eight and not more than 20. Let us suppose that there are eight members including two civil servants. Those two have not the right to vote. Therefore you have six on the Board who vote, the chairman and five others. It is not clear what will be the function of the civil servants. If the Board is extended to 20, then, of course, the civil servants are in a smaller minority; but one question which surely deserves an answer is left vague in Schedule 1. What is to be the quorum of the Board? According to Schedule 1—I think it comes in paragraph 4—this is to be determined some time in the future. Are the civil servants in attendance to be part of the quorum or can the Board meet without them? What is the intention? Surely we are entitled to ask that question and I think we are entitled to some sort of answer.

There is also the question of divided loyalty, which is a point raised by the noble Earl, Lord Halsbury; and by the noble Lord, Lord Lloyd of Kilgerran. Are these civil servant directors to be loyal to their Ministers or to the Board? If there is a conflict, which way do they go? If there is a conflict between the Board and the Minister, do they resign? Can they resign? Are they free to resign? Are they free to refuse the appointment in the first place? What is their position?

Then there is the question of which Department they are to represent. We are not told in the Bill. They could come from the Treasury and I should hope that if they have to come from somewhere, that is where they should come from. There might be a case for saying that there should be one from the Treasury and one from the Department of Energy. I recognise what was just said about that: that it would not really solve any particular problem, except that if we are going to have civil servants at all, surely this is a mammoth undertaking which appears to hypothecate revenues which do not yet exist, one that will have at its disposal an enormous slush fund, as my noble friend has said. Surely some Treasury supervision might be arguable if you are going to have civil servants at all. We have not been told—the Bill does not tell us—which Department or Departments they are to come from.

What is their function? By paragraph 5 of Schedule 1 they have no vote. Do they have any voice? Are they to sit silent, to express a view which may be contrary to that of the rest of the Board and to stay silent when the Board votes against what they suggest? What are they there for? It is difficult to understand. I come here fresh, relaxed, friendly, longing to be enlightened; but I ask myself whether they arc not there in the position of spies. Why do you need spies? You have appointed a chairman. Did Lord Kearton cheerfully accept this particular aspect of the constitution? Is it a matter that those who refused the job before him drew attention to and disliked? What is the precedent for this? It may be said that the noble Lord opposite does not require precedents. He is an original thinker. We listen to him with profit and I personally have a great regard for him; and precedent is not a great factor in his thinking; but it would be helpful, looking at it constitutionally, to know what precedent there is for what otherwise appears to be a weird, curious and bizarre innovation.


May I support my noble friend Lord Lauderdale in what he said about the very novel constitution of this Board? May I ask the noble Lord who is to reply whether there is any precedent for creating a Board, a Corporation or anything of this kind with apparently two different classes of member: a first-class member who is entitled to a vote and a second-class member who is not? I have not come across one; and I should be interested to hear whether there is a precedent.


May I add as a footnote that the British Petroleum Company does not present any precedent since there they are Government representatives and not serving civil servants.


Does not Rank Xerox present exactly the precedent?

3.57 p.m.


All the precedents that can be quoted, and which were quoted by the Under-Secretary of State in the Committee stage in the other place, were from countries other than Great Britain. There were certainly cases mentioned by the Under-Secretary of State in France where the members of the Electricité de Franceand other corporations had been appointed by responsible Departments for some time. But the Minister did not go on to develop the philosophy of those appointments and say whether it was going to be run on the same lines in this country. He did not explain why the French Government had originally thought it necessary to have civil servants appointed to the Board of EDF and other corporations and whether the relationships would be precisely the same in this country.

It appears to me that the representatives would be from the Department of Energy rather than from the Treasury, to take up a point raised earlier. In the same speech the Under-Secretary of State said that the reason for this proposal was to ensure the fullest possible flow of information from the Corporation to the Government. I should like to suggest that this could be achieved by other means. The Secretary of State could give a general direction to BNOC to give full and comprehensive reports of any matters discussed at the meetings of the Corporation or he could ask them to maintain a full shorthand note of everything that was said in the meetings of the Corporation and for this to be transmitted to the Secretary of State; so that the same object would be achieved unless the civil servants had some other function. But, as has been said, in Schedule 1 it is provided that they do not vote.

So it appears that they are—I would not say "commissars", as my right honourable friend described them in another place—merely "narks", which is probably a better word. They go back to the Secretary of State and report to him on anything which has been said at the meetings of the Corporation, but they do not play any part in the decisions. They are certainly not independent. If they were —and one noble Lord raised this question —there would be no point in having civil servants. The raison d'être must be that they are creatures of the Minister. If that is the case, I do not understand why the powers which a Secretary of State normally possesses in relation to any other public corporation should not be adequate; so that powers of direction could be given in any case where the Secretary of State wished a certain course to be taken. But if they are there to be consulted as to the views of the Secretary of State on matters that may come up at the meetings, then I see this as imposing an extremely inflexible and long-winded procedure on the Board. Every time a new decision has to be made the Civil Service representatives there, although not entitled to vote, will be asked, "What do you think the Secretary of State's views will be on this?" The civil servants will reply, "We do not know; we will have to go back and ask". The decision will be put off until the next meeting of the Corporation, which I would have thought is not an efficient way of conducting business.

There is one further point to which I should like to draw attention: unfortunately, as many civil servants think, and, indeed, as a Permanent Secretary said to me in the past few months, the rate of change in senior posts in the civil service is much more rapid than is conducive to the maximum efficiency. One can understand the reasons for this: promotions take place, career opportunities have to be offered to civil servants and they wish to enhance their careers and professional abilities. It may well be, the Secretary of State having appointed two senior civil servants in the Department of Energy, they will then move on to some other Department and fresh appointments will have to be made. There is a new learning process while the new civil servants become used to the affairs of the Corporation, and before they can play any useful part in the transmission of information between the Department and the Corporation. It would be much better if this proposal were dropped altogether, but I hope that if the Committee will not agree to the Amendment that has been proposed by the noble Lord, Lord Campbell of Croy, it will at least accept the proposition so ably advanced by my noble friend Lord Lloyd of Kilgerran.

4.2 p.m.


Listening to this debate, I am bewildered. We have had glimpses of a Second Reading debate in the speeches of some of the noble Lords about the juggernaut, and the function of the juggernaut, matters which do not really belong to this stage of the proceedings, but either to the Second Reading debate or the Third Reading debate. Therefore I am not going to defend the BNOC. I have done whatever I could; I am sure that I will never satisfy noble Lords opposite, and I will just have to take my fate as given. So far as the substantive part of the problem is concerned —the appointment of the two civil servants—here I find myself in a more amusing frame of mind because really a bowling green of Aunt Sallies was offered to me; not one but at least three or four. I do not know how many there are in the normal bowling green; I do not frequent them.


You do not bowl with Aunt Sallies.


They might be carved like Aunt Sallies. First, there was the great agony which was expressed that two people who have no vote will dominate the Board—that was Lord Halsbury's objection.

The Earl of HALSBURY

I never implied anything of the kind.


When the noble Earl reads his speech in Hansard—unless suitably adjusted—he will find that the implication was as I said.

Several Noble Lords



If I find that I have made an error, I will apologise. The official members obviously will have a double loyalty, but the double loyalty is conjuncted to the single loyalty to the State, to the Government, to maximising the revenue of the BNOC, and therefore of the people of Britain from this arrangement. We have heard much about confidentiality; but the confidentiality aspect, if our plans go through—and no doubt they will do so—will be resolved because the BNOC will have all the information which the Secretary of State will have, being a member of the various consortia who will operate the oilfields.


Before the noble Lord leaves that point, is it not the case that the BNOC is to have power to enter downstream operations, and there will be no participation knowledge of downstream operations in the way there will be participation knowledge of production? Therefore the Corporation would not necessarily have all information anyway, because downstream is something else altogether.


I do not think this problem will arise in the near future. Secondly, 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. I do not see any conflict in that.

Our civil servants have done a splendid job in keeping themselves informed and, at the same time, not giving away information which would be prejudicial to those firms which gave the information. I see no reason why we should at the moment have raised such doubts in anybody's mind. I am strengthened in my belief that this is the right solution because this Corporation is different from any other nationalised industry. We are not nationalising the oil industry, we are trying to get participation and remedy the problems caused by the 1971–72 round of licensing. Obviously participation is very direct, and an extremely close association between the Ministry and the BNOC is absolutely essential. The noble Lord, Lord Avebury, mentioned one matter. There are hardly any countries with these strategically important nationalised industries in which civil servants do not serve. Take any of them. Even in Germany—often regarded as the champion of free enterprise—the Government has a stake in Deminex and VEBA, which are the oil complexes in Germany, and there are obviously a great number of civil servants. Take France; in the Electricité de France, there are five civil servants and five others. In ELF—a very successful oil company—there are three civil servants and seven others. In ERAP there are six civil servants and six others. In the Gaz de France there are six civil servants and five others.

Viscount BOYD of MERTON

May I ask if they are all non-voting directors?


No, so far as I can see, they are voting directors. We want to experiment gently, and we are not giving a vote at the moment. We are going to have a halfway house. If you go abroad you will see these very successful nationalised industries and all these frightful doubts and suspicions which we heard just now will dissolve. It seems to me that we really must have a direct and intimate connection between the Department and BNOC. This, I think, can best be achieved in the way we have suggested.

I agree with the noble Lord, Lord Orr-Ewing, that of course there ought to be no merely Ministry of Energy people on the board; but at this stage it is not for me to speculate about that. think the very arguments which noble Lords opposite have brought forward strengthen me in not going too far and giving too much information about things which are being discussed between the organising committee of the BNOC and the Government. It seems to me that to bind ourselves at this stage and say that X Department or Y Department should be represented on the board would not really be very productive. Therefore I hope that noble Lords will not insist upon their Amendment.


Perhaps I could say just one word more, particularly in the light of the noble Lord's final sentence. He said it would be foolish to bind ourselves at this stage to make provision for X Department or Y Department to be represented on the board. Why then does the noble Lord not follow this argument to its logical conclusion and say that it is equally foolish to bind ourselves permanently to having these two individuals on the board, whichever Department they come from? The noble Lord emphasised the experimental nature of the scheme and said that the Government were only feeling their way towards the kind of representation which exists in France—which I had already mentioned and which was taken up by the noble Lord—and some of the other European countries. If it is purely experimental, why is the power in this Bill not permissive? Why is the Secretary of State not given authority to appoint up to two civil servants, but leaving him free, if he wished, to make other arrangements after the experiment had been tried for some time? One does not, in science, embark on an experiment in the certain knowledge of what the conclusion is going to be. I am sure the noble Lord is aware of that. That would be fundamentally contrary to the scientific method, which has been handed down to us over many generations from Bacon. The idea of an experiment is to arrive at a decision on what the conclusion should be, to verify an hypothesis or to establish the truth or otherwise of a theory. The noble Lord is embarking on this experiment having already made up his mind on what the conclusion is to be, and he is not willing to be dissuaded by your Lordships from taking sensible measures to free future Secretaries of State to decide on the best possible system in the light of the results of that experiment.


Would the noble Lord just clear up one point? It may be that it is still under discussion, in which case he may be able to tell us about it at a later stage of our proceedings. On the question of the quorum, are the civil servants to be part of the quorum or not?—because if they are to be part of the quorum that would compel the rest of the board to meet "round the corner" and make up their own minds quietly, without the Secretary of State looking over their shoulders. So the quorum is really important. If the noble Lord tells us, as he may well do, that this is under discussion, can he perhaps assure us that before we complete the Committee stage and proceed to the Report stage we shall have an answer?

Coming back to the question of confidentiality, perhaps I did not make myself quite clear. There is a distinction between BNOC having the information about exploration and development deriving from its participation—and that is something which we understand although we may not like it—and BNOC having powers to go into downstream operations in competition with the companies in which it is going to participate on production. It is in that respect that the problem of confidentiality seems to arise. I would therefore ask the noble Lord, who I am sure will look at this fairly and sincerely, to explain a little further. If he cannot do so now, perhaps he could help us at some later stage, and certainly before we reach the Report stage.


I thank my unofficial friend the noble Earl, Lord Lauderdale, for putting his questions without condemning me as a flat-earther. Official members are not necessary to the quorum. The quorum and other related matters will be arranged by regulation under paragraph 4 of Schedule 1. There is provision in the Bill that confidentiality, especially in respect of operations in competition with the private sector, will be strictly preserved. I do not think I can give further assurance than that.

4.15 p.m.


As I think your Lordships will have realised, we were hoping on this Amendment to receive an explanation of what these two gentlemen were there to do and what their function was. What we have just heard appears to indicate that this is an experiment, so that even the Government do not appear, according to the noble Lord, Lord Balogh, to have cleared their minds as to what the functions of these two civil servants should be.


I am so sorry: I must have expressed myself extremely badly and apologise for that. I said that the two civil servants are necessarily there because closer contact between the on-going operations of BNOC and the Department is necessary. This is not snooping: it is communication. It seems to me that to encourage people to take these very responsible positions, the filling of which is vitally important to this country, and then to compare them to "narks" and spies is not really going to promote the national interest. I am trying to keep my profile very low indeed, and I very much hope that the same thing might be done on the other side.


I am grateful to the noble Lord for those further words. I myself had not suggested that they might be "narks" or spies, but I did hear other noble Lords inquiring what their task was to be and whether this might be it. But the noble Lord now appears to be explaining that it is a matter of communications. It is apparently necessary to have two civil servants sitting in this Corporation as nonvoting members in order that the Government should be able to keep good communications with the Corporation—


If I might have one final word—


Yes, I will give way in a minute: but it seems strange to me, because there are other public corporations and nationalised bodies. Does this mean that it is not possible for Ministers to keep as good communications with other nationalised bodies and public corporations? My understanding is that there are good communications. Sometimes there are misunderstandings, but good communications can be retained without this device. But if we are to understand the last remarks of the noble Lord, it sounds as though the Government are putting this forward simply as a matter of communications. We have not heard about the relationship between the Corporation and the Government. The noble Lord I think suggested that I ought not to have referred briefly again, as I did, to our general attitude towards the Corporation but I felt that in ills first debate on this subject at this Committee stage I should state very briefly our attitude in general to this matter before considering some of the points in detail. I reminded the noble Lord that we have asked in two debates for an explanation of this quite new rela- tionship that is proposed with the Government, and that we have received no proper answer yet.

On the question of confidentiality, I must take the noble Lord to task, because he said that the Secretary of State for Energy would know everything about the operations in every offshore oilfield. Those were the words—if they were not the exact words, they were certainly the sense of what he said. This seems strange because although—


The BNOC because it is a partner in the consortia.


Yes; that is the point. As I said in my earlier remarks, the Corporation is to be a partner with private companies in consortia for some oilfields. The Corporation will find itself a partner quite quickly when it takes over the National Coal Board's interests in existing oilfields. But that does not mean that the BNOC is to be a partner in every oilfield. The point I was making (this is where I think the noble Lord has misunderstood) is that the two civil servants will have access in the Department to information from all the oil companies. If they find that they have confidential information that has come in in the normal course of exchanges with the Government Department from companies with whom they are not partners but are competitors, then they are in a very difficult situation.

This is quite different—this is another place where I take issue with the noble Lord—from not giving away information. Of course, people have a great deal of confidential information, particularly if they have been civil servants, which they keep to themselves. That is quite different from them having to sit on another board and take decisions, knowing information which other members of that board do not know. It places them in a position, even if they are not voting, of acquiescing in and discussing matters, if they are going to take any part at all, where the Corporation will be discussing its future policy and taking into account competition with private companies which are not partners in this case but are operating elsewhere, whether it is upstream or downstream. I have just been asked what those terms mean. I will say that privately I will use these terms in these debates. Downstream starts when stable crude is delivered to a refinery, for processing. In both upstream and downstream the Corporation will find itself in competition as well as in partnership with private companies.

I declared my past interest, but I can none the less say that we in this country are fortunate in having a Civil Service which carries out its tasks superbly and perhaps better than such tasks are carried out in any other country. They are very willing to serve and they carry out Ministers' directions, but that is at their own work, at the jobs they are there to do. It is misuse to deploy them in areas which are not their work. Running industry for the whole country is certainly not their work. That is why, presumably, in this country civil servants have not been put in a position of this kind in public bodies or national boards before. The noble Earl, Lord Halsbury, spoke about this matter from his personal experience and the noble Lord, Lord Lloyd of Kilgerran, has pointed out that secondment would be a more favourable alternative if we eventually, after discussing the functions of the Corporation, acquiesce in the Government's suggestion.

This is the first Amendment to be considered in the Committee stage and I regard the explanation which we have received as unsatisfactory. On the other hand, I should have preferred to have this discussion after we had had discussions about the role and functions of the Corporation, which are to come. I hope, therefore, that we can reserve our position because as we go along it may be that, with the noble Lord's help, we shall find reasons for the two civil servants to be on this Corporation when we are discussing the Corporation's functions and duties; that we shall be doing when considering the coming clauses and Amendments to them. So for my part I would not seek to press this Amendment at this point, and hope that we shall have a much better explanation later, or shall discover in the course of considering the functions of this Corporation where these civil servants have a part to play. It may be that noble Lords will wish to say more in this debate, but I make it clear at this point that I merely regard this as an opening exchange of views on a subject which we shall pursue later. I pause at this stage simply to give an opportunity to any other noble Lord to speak. If not, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

4.26 p.m.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 1A: Page 2, line 14, leave out ("employed in") and insert ("seconded from").

The noble Lord said: I do not propose to delay the Committee very long about this matter. I listened with great interest to what the noble Lord the Minister said in his reply to the first Amendment, but I also listened with great surprise because he laid great emphasis on the importance of these two civil servants being on the board for the purposes of communication. That surely implies that there are to be direct communications from members of the board to the Secretary of State, thus short-circuiting the chairman. I had always understood that no doubt in these organisations it would be the chairman who would be reporting to the Secretary of State, but apparently in this instance we shall also have two civil servants who will be reporting direct to the Secretary of State and short-circuiting the chairman. But, having regard to what the noble Lord has said, I ask leave not to move Amendment No. 1A.

Lord LLOYD of KILGERRAN moved Amendment No. 1B: Page 2, line 19, at end insert ("and also of there being members at least one of whom is in the full time employment of the Corporation.")

The noble Lord said: I submitted in my address to your Lordships about the civil servants that one of the difficulties there would at once be is that if there is specified a particular class of persons to go on to the board, then the question might arise whether another class of persons should be represented on it. One class of persons which, in my submission, it would be helpful to have on the board is at least one of the employees of the Corporation. We hear a great deal these days about worker participation in industry. I am not going to weary your Lordships with a dissertation on this subject and on the effect it might have on industrial relations. But I should like to have some comment by the Minister as to whether or not this last person—the employee of the Corporation—should be represented as one of the classes on the board. I beg to move.


I welcome the intention of the noble Lord, Lord Lloyd of Kilgerran, to be brief. I hope we can deal more quickly with this Amendment than we did with the previous two, or this Committee will be something of a marathon. First of all, the functions are very different. He referred to the official members and to worker directors, as they have come to be called. These are not the same thing at all.


I did not refer to worker directors.


I am sorry. I know the noble Lord did not; I did. This Amendment, as I see it, is intended to ensure that there is appointed to the membership of BNOC what I would call a worker director, as the phrase has come to be, because that is, in effect, what he would be. The Secretary of State for Trade made a Statement about industrial democracy on 5th August in another place, in which he pointed out that the Government are committed to carrying through a programme for the radical extension of industrial democracy in both the private and public sectors. He pointed out that the Government would wish to have the best available advice before coming forward with legislation. This Statement was repeated in your Lordships' House by my noble and learned friend the Lord Chancellor.

The setting up of an independent committee of inquiry was announced to advise on questions relating to representation at board levels in the private sector.

The Statement also said: In parallel with the work of the Committee the Government also intend to take a radical look at the role of employees in relation to decision-making within nationalised industries. A study has been set in hand. It seems to me, therefore, that it would be jumping the gun if at this stage we were to write in a provision which would anticipate the results of this study.

May I remind noble Lords that in the Bill there is already provision for the appointment of members experienced in the organisation of workers and I certainly expect somebody with this important qualification to be appointed. We should also bear in mind that there is nothing in the Bill to preclude the appointment of worker directors, should that be considered appropriate in the future.

In conclusion, I understand and sympathise with the purpose of the Amendment and I am grateful to the noble Lord for giving us this chance to have a brief discussion on it, but in order not to prejudge the essential decisions on this very important question I would ask him not to press the Amendment.


I am sorry that the noble Lord the Minister could not be a little more forthcoming in relation to my noble friend's Amendment. Despite the fact that we welcome the review which is being conducted and endorse the necessity of obtaining the best available advice before coming forward with comprehensive legislation, we may not get an early opportunity to amend the Bill which is at present before your Lordships' Committee. Therefore it could be some time before any proposals that are developed by the Secretary of State in consequence of this review could be implemented. I should have thought it was much better to start off by having the powers in the Bill so that they can be implemented as soon as the Corporation starts its work. If necessary—if, as one hopes, the Government's comprehensive proposals are more far reaching than those of my noble friend—they can be expanded later on. After all, my noble friend's suggestion is of an extremely modest nature, as I remarked to him before we came into the House. He is suggesting only that the Corporation should have on its board at least one person who is in the full time employment of the Corporation. If, as the Minister says, this review is intended to be a radical look at the role of employees in relation to decision-making, I should imagine we would finish up with more representation of employees on the governing body—the Corporation, the board, or whatever you like to call it—than merely one out of quite a large number and that there would be a bigger representation of workers than is provided for as a minimum in my noble friend's Amendment.

The noble Lord said that already there is provision in the Bill for somebody with experience of the organisation of workers to be on the board. One has to welcome that as a partial step towards participation but this person, as in the case of some of the Steel Corporation appointments, may be a person from an industry other than that with which we are concerned and without direct knowledge of the problems and needs of the employees whose interests he might be expected to take into consideration. In any scheme of employee participation it is absolutely necessary to have the people concerned directly represented and not by someone who is an expert, however well endowed with experience he may be, from a totally different field. Therefore, I hope that the noble Lord the Minister will review this matter again before we come to Report stage, that without prejudice to any more far reaching legislation which may be in the minds of the Government he will be prepared to take a small step forward while the opportunity exists and that the noble Lord the Minister will not rule out some proposals on the lines of the Amendment proposed by my noble friend Lord Lloyd of Kilgerran.


As I said to the noble Lord, Lord Lloyd of Kilgerran, I sympathise with and fully understand the purpose of this Amendment. In reply to the matters raised by the noble Lord, Lord Avebury, may I say that things will not go forward all that rapidly. If I may quote again from the Statement of the Secretary of State for Trade, he said: The Committee will be asked to present its report to the Government within twelve months so that legislation can he placed before Parliament during the 1976–1977 session. I should not have thought that this period was at all excessive and that our not putting this into the Bill now would cause any serious difficulties. On the question of a larger representation than one member, that may well be so. This is something which will have to be discussed and considered as a result of the findings of the Committee. Obviously in appointing to the British National Oil Corporation someone with experience in the organisation of workers one would indeed hope to get someone who, if not experienced in that field, would be experienced in areas very closely related to the oil industry.


I am very grateful to the noble Lord the Minister for his careful and sympathetic approach to the Amendment which I have put forward. In the circumstances, I do not propose to press the matter further. Before I sit down, with the leave of the Committee may I refer at this stage to an inaccuracy which I find in the Marshalled List in relation to an Amendment standing in my name. I find that Amendment No. 17A occurs on page 8 of the Marshalled List and that there is an identical Amendment on page 10—Amendment No. 25A. Probably it was due to an error in my secretarial arrangements, but those two Amendments arc in identical terms, and in my view Amendment No. 17A is not appropriate as an Amendment standing in my name. However, Amendment No. 25Ashould remain.


We can deal with this matter by taking these Amendments together at some stage.


I should prefer not to move Amendment No. 17A, without prejudice to the fact that there is an identical Amendment later on. I beg leave to withdraw Amendment No. 1B.

Amendment, by leave, withdrawn.

4.39 p.m.

On Question, Whether Clause 1 shall stand part of the Bill?


Earlier this afternoon the noble Lord the Leader of the House assured us that the Government realise the importance of finding any way that is possible to cut down public expenditure. This is an example of quite large public expenditure because every single member of this large Corporation will have to be paid a suitably large salary. Although it is obviously too late to do anything about it now, I should like to have some explanation from the noble Lord first as to how much, roughly, he thinks this is likely to cost the country and, secondly, as to why it is necessary.


I hope that between now and Report stage the noble Lord will give more attention to this problem of members of the Corporation. I hope he will ask the organising committee to consider this matter and I should like to refer to a precedent for this. I myself was on the organising committee of the British Library Board which was set up as a result of the Dainton Report. That report showed that as an agency the British Library Board would serve the country's interests in the information and library field. Among other things the committee considered the membership of the board. We felt that we did not want Fellows of the Royal Society named as such; we felt that we did not want civil servants named as such and we gave the Minister of the Arts advice accordingly. The Bill was framed and went through your Lordships' House in the normal way. This is an experiment in creating a new board and I think that the noble Lord should ask the organising committee to give their opinion about the constitution of the board. Perhaps he will give serious thought to this point.


Certainly I assure the noble Lord that I will give most serious consideration to this. It is obvious that the organising committee and the Department will be in contact with each other over a number of questions and I do not see why this should be excluded. With regard to the intervention by the noble I Lord, Lord Somers, as I said on Second Reading, and in the previous debate, I believe that in this particularly difficult and extraordinarily profitable field a special type of agency is necessary if we are to hold our own. This has been shown by many countries and I fear that if we do not learn from the experience of other countries our downward slide, which is so noticeable, will continue. It seems to me that noble Lords arc right to insist on precedents, and there are wonderful precedents in English history, but I do not think that precedents should rule the future.


Before we leave Clause 1, can the noble Lord help us by giving an assurance that he will draw the attention of the organising committee to the dilemma which has been pointed out in this debate about the civil servant directors? There really is a dilemma because, on the one hand, the noble Lord told us—and I am grateful to him for clarifying the point—that the Civil Service directors will not be neces- sary to the quorum. If that is so, it means that the rest of the directors can meet without the civil servants being present and so the purpose of communication, which the noble Lord has given us as the real reason for having the civil servant directors, can be circumvented. If he can assure us that this dilemma in regard to the novel experiment, imported from Europe, of having the civil servants will be drawn to the attention of the organising committee, I am sure it will help us all to sleep a little more easily in our beds tonight.


If I may speak again, I consider this to be a most important point. It is my experience that civil servants who were involved on the organising committee have become members of the British Library Board. In fact, the senior civil servant involved in the organising committee applied for the job of chief executive of the Board and obtained it, and as far as I am aware he is able to return to the Civil Service later if he should so wish. He tied his future to the British Library Board and I see no reason why, following the theory propounded by the noble Lord, Lord Lloyd of Kilgerran, about secondment, if a civil servant needs to be put there he should not apply for the position.


Like my noble friends in all parts of the Committee, I do not believe it is healthy to have a board with different powers and different responsibilities between two sections of it. I think the fact has been faced by the Minister that these two civil servants will be second-class citizens; for instance, they will not vote. We have never been told whether they are to be paid as members of the board, or whether they are just going to draw their Civil Service pay and not be paid as directors of the BNOC.


In regard to the last point, I think the noble Lord is quite right. They will be serving civil servants and therefore, like Ministers, they cannot draw any salary from outside. With regard to the point about being second-class citizens, there is inevitably a difference between the influence and power of the individual board members. This is quite inevitable, because some are full-time and some are part-time. It could be said that we should never have any outside part-time members as they would be second-class citizens, because they would obviously not devote their whole attention to a very complicated industry. It seems to me that to introduce this sort of distinction and, because people are appointed for different purposes, call them inferior is not helpful. I consider that we should want to be helpful, because no one knows better than the noble Earl, Lord Lauderdale, how extremely important it is for us to get the maximum help and the maximum revenue out of this. I do not say that our whole future depends on it, but that future would be transformed.

Clause 1 agreed to.

Clause 2 [General powers]:

4.48 p.m.

Lord LLOYD of KILGERRAN moved Amendment No. 1C: Page 2, line 45, leave out ("the world") and insert ("Great Britain and its controlled waters").

The noble Lord said: We now come to a most important part of the Bill, which deals with the general functions of the Corporation, and the purposes of the few Amendments in my name in this connection are to limit those general functions. This Amendment relates to subsection (l)(a) which gives the BNOC the powers to search for and get petroleum existing in its mineral condition, its natural condition, in strata in any part of the world. This Amendment is designed to delete the words "the world" and to substitute the words "Great Britain and its controlled waters" so that the general function of the Corporation would be to search for and obtain the petroleum existing in its natural condition in strata only in Great Britain and in the controlled waters.

My reason for submitting this Amendment is that it is clear that this Corporation will be a creature of the State. It is to report to the Secretary of State, the members are to be appointed by the Secretary of State: the whole atmosphere of the Bill—if I may refer to the Bill in that way—is that it will be a creature of the State. Therefore if this body is to operate abroad it will in effect be the British Government operating abroad, and I ask the Government to think of the difficulties which could arise if this Corporation therefore endeavours to put those functions into practice in other parts of the world. It would be recognised as a subsidised corporation, and many Governments may object even on that ground that it would be unfair competition that a corporation such as this—a creature of the Government—should be operating. Again, at this time a great deal of criticism has been made of international companies operating in various countries. Therefore would it not be a greater criticism of a Government-controlled corporation even attempting to operate abroad?

It may be said by the Government that some other clauses have been included in other Bills and other Acts; I believe there is a similar clause as a precedent for this in the Gas Act of 1972. But I am not moved by such an argument, which to my mind is not relevant to the circumstances of the proposed functions of this Corporation. To limit its activities, as I have suggested, to Great Britain and the controlled waters would limit the horizon of the activities of the Corporation's employees to an area so essential to the United Kingdom economy. As it seems to me, to include powers for the Corporation to operate in any part of the world may encourage sincere employees in the company to direct their attention to other parts of the world and not to concentrate their might on the area which is so important to the British economy. On those grounds I beg to move this Amendment.


I quite agree with the noble Lord, Lord Lloyd of Kilgerran, that it is highly unlikely that in the next few years the BNOC will go outside this country On the other hand, this Amendment seeks to confine BNOC to searching for and getting petroleum in "Great Britain, and its controlled waters". This will drastically curtail the powers of BNOC even though those powers, I am certain, will not be exercised immediately. But how much better to provide the power now rather than to set up a limited BNOC, and have another Bill in the future to extend its powers. We have been discussing a Bill to give BNOC power to search for and get petroleum only in Great Britain and its controlled waters, and we would have been accused of being dishonest in providing for a limited BNOC, when our intentions were otherwise. We have been transparently honest in saying that we want BNOC to grow into a fully integrated oil company.

Of course, the noble Lord, Lord Lloyd of Kilgerran, is quite right in saying that there are difficulties in certain countries for government-controlled companies, although even those one ought not to exaggerate. After all, Statoil has just acquired power to extend its activities ouside Norway, and has done so in four blocks in the Dutch Continental Shelf. Petro Canada can explore for and produce oil and get gas ouside Canada. We have BP associated with the Iranian Oil Company in the North Sea. The Parliamentary Under-Secretary pointed out in another place. at column 520 of the Official Report of the Committee: The British Gas Corporation was given power to conduct activities abroad with Ministerial consent. It has already received consent to go into the Irish sector, and has done so. If there is this need for British gas, how much more is this true of BNOC, which will be dealing with a much more international commodity? Its development would be hampered all along the line by a provision for limiting its operations only to Great Britain. For instance, recruitment of staff would be very much more difficult for an organisation with such limited horizons. The British public would be denied a share of the profitable enterprise, and when operating abroad the nation would not be able to exploit fully the knowledge and expertise which it will derive from our own Shelf. I therefore think this Amendment would not be good for BNOC, and would not be good for Britain. I fear that I cannot commend it to your Lordships.


I should like to give my support very briefly to this Liberal Amendment. The first task of BNOC is to try to bring into production the North Sea, the Celtic Sea and British waters. I must say that if I were the Minister I would have welcomed the Amendment, because it would concentrate BNOC on the task for which, as 1 understand it, this Government have set it up. Those of us who do not sit on the Treasury Bench like this solution, and since the Government believe in this, why do they not concentrate on helping BNOC to use its efforts where they are most needed? I am reminded that as it is a Government body, since it is subsidised and does not pay taxation, it cannot compete for contracts in Common Market countries, because it would be against the Treaty of Rome, under which one is not allowed to have subsidised competition against other companies. So obviously BNOC could not do that; unless the Minister will make an amendment and say that it is going to pay PRT.

If it is to pay taxation as will other companies in competition, of course it will be fairer competition. But while BNOC is subsidised by not being taxed at the same rate as other companies in the EEC it would be against EEC rules to compete for contracts. It can compete in Tierra del Fuego, the Argentine and in Canada, but if I were a national of those countries I would bring strong pressure to bear on Parliament not to give jobs to a British outfit subsidised by the British taxpayer at the expense of other companies in which, perhaps, the national oil companies had an interest which was not subsidised. As long as this is a subsidised outfit, it seems to me that it would be better to limit its operations to the area for which it was set up.


I should like to support the Minister on this Amendment. It seems to me that with demarcation lines in territorial waters running all around this country, there are sure to be a number of fringe problems. It is possible that it would suit ourselves and Norway, for instance, that BNOC should work one area, and they another. But it would restrict the operations of the Corporation very much. It does not seem likely that it will want to go to Canada, but it will be faced with operating problems all along these lines. That is why I think the Minister is right on this.


In view of the careful and sympathetic approach made by the noble Lord the Minister to this matter, I do not propose to press the Amendment any further at this stage.

Amendment, by leave, withdrawn.

4.55 p.m.

Lord LLOYD of KILGERRAN moved Amendment No. 1D: Page 3, line 6, after ("services") insert ("as are connected with the purposes set out in paragraph (a) above").

The noble Lord said: This Amendment too is directed to limiting the functions of the Corporation. At page 3, paragraph (d) gives the Corporation extremely wide powers and, apart from the explanation from the Minister, quite unnecessary powers. May I delay the Committee by reading this paragraph because it gives powers to the Corporation: to perform for any Minister of the Crown or Northern Ireland department such services connected with petroleum and anything derived from it …". In my submission those are extremely wide powers. They will enable this Corporation: to perform for any Minister of the Crown or Northern Ireland department such services connected with petroleum … in the widest possible sense. The purpose of my Amendment is to secure that the services to be rendered by this Corporation should be limited to the general functions of the Corporation as set out in paragraph (a). It seems to me reasonable that the Corporation should perform for any Minister only such matters as come within the functions of paragraph (a).

Before I sit down, with the leave of the Committee may I refer to Amendment No. 1E, which has somewhat similar purposes, because the Amendment suggests the same wording, to paragraph (g), limiting the functions to the purposes in paragraph (a). Paragraph (g) as it reads at present enables BNOC, to do anything which the Corporation considers is calculated to facilitate, or is conducive or incidental to, the performance of any of the Corporation's functions. It may be that this would enable the Corporation to go into the hotel-building business because of the difficulties of finding accommodation, and perhaps other facilities, for members of the Corporation. Amendment No. 1E limits the powers of the Corporation to doing anything within its general functions in paragraph (a). I beg to move.


I wonder whether this Amendment might not wreck three-quarters of the activities of the proposed board. The noble Lord, Lord Lloyd of Kilgerran, has already referred us to paragraph (a) of Clause 2(1). He now refers us to paragraph (d), but has said nothing at all about paragraph (b) and paragraph (c). Paragraph (b) authorises the board to, move, store and treat petroleum and anything derived from it"; and paragraph (c) enables the board to, buy, sell and otherwise deal in petroleum and anything derived from it". But now the noble Lord in his Amendment No. 1D wants to restrict the activities of the board to paragraph (a); that is to say, to, search for and get petroleum existing in its natural condition in strata in any part of the world". He says that the activities of the board shall be restricted to the purposes mentioned in paragraph (a); therefore, he would not allow the board to carry out its duty specified in paragraph (b) that is to say, "to move, store and treat petroleum"; nor would he allow the board to carry out the matters referred to in paragraph (c); that is to say, "to buy, sell and otherwise deal in petroleum". If the board is to be hamstrung in that way; if it is enabled to search for and get petroleum but not to move it and store it or buy it or sell it, the whole board will be castrated and useless. I am quite sure that whatever good idea the noble Lord has in mind, this particular Amendment would not bring about a satisfactory state of affairs.


May I intervene again to try to assist the noble Lord, Lord Leatherland, in the confusion in which, I say with great respect, he finds himself. I was tempted, as the noble Lord, Lord Leatherland, may have been, to consider that the words "anything derived from it" in the two paragraphs (b) and (c) were too wide. My view was that it would be quite unreasonable to attempt to delete or amend the words "anything derived from it", because that would affect the movement of gas and the storing and treating of gas, which can, of course, be derived very easily from the petroleum source. Therefore, "anything derived from it" were not words that I felt should be deleted. It seems to me that the services which this Corporation could perform for any Minister of the Crown or Northern Ireland should be limited to the wide general functions to be found in paragraph (a), and it does not destroy the purpose of the Bill in the way the noble Lord has suggested.


The noble Lord's explanation is a very interesting one but it does not meet the fundamental point I made; that is to say, if this Amendment is carried, paragraphs (b) and (c) will be something the board cannot operate. It will be restricted to operating under paragraph (a); that is to say, to search for and get petroleum. It will not be permitted to move or store petroleum or buy and sell it, and that would make the board completely useless.


First of all, may I say that I am grateful to the noble Lord, Lord Lloyd of Kilgerran, for linking Amendments Nos. 1E and 1D, since I had intended to ask the Committee to consider them at the same time. I shall try to keep out of the difference of interpretation and opinion which exists between my noble friend Lord Leather-land. and the noble Lord, Lord Lloyd of Kilgerran.

As I understand Amendment No. 1D, its intention—thoughI think the paragraph would read a little oddly if it were made—is to ensure that BNOC can perform services for the Government only if those services are limited to the searching for and getting of petroleum, thus limiting the area in which BNOC can act un commercially.

We consider that the Amendment is unduly restrictive. The then Secretary of State for Energy said on Second Reading in another place that BNOC would be available to perform services for the Government other than in connection with exploration for and exploitation of petroleum reserves. For example, it could be asked to take over management of the Government pipeline and storage system which is maintained for emergency purposes. It could act for the Government in any future barter deals. It has repeatedly been made clear, both in your Lordships' House and in another place, that BNOC will act commercially when in partnership with other companies and there is no risk that the Government will use BNOC as an agent in these circumstances. It will also act commercially when it extends into refining and distribution. I cannot, therefore, commend the first of these two Amendments to your Lordships. One of the reasons for setting up BNOC was to put at the disposal of the nation a public sector body with general expertise in oil matters. We do not want to be unable to make maximum use of this expertise as a result of restrictions of the kind imposed in the first Amendment.

So far as Amendment No. 1E is concerned, the provision in paragraph (g) of this subsection is standard form in national industry Statutes, and it only makes explicit what would probably in any case be thought to be implicit powers of the Corporation. The paragraph confers no new powers but merely puts beyond doubt the Corporation's power to do things which are essential accompaniments to the discharge of its main functions; for example, the purchase or rent of premises, office machinery et cetera, the provision of canteens and so on. The effect of the Amendment would be to allow these provisions for only one of the Corporation's activities. Thus BNOC would be able to acquire premises so as to conduct the business of exploration and production but not refining or distribution. I am sure noble Lords will agree, regardless of what view they take of the powers sought for BNOC to go downstream, that such a situation would be a nonsense. I hope, therefore, that the noble Lord may decide to withdraw his Amendment.


In view of the explanation given by the noble Lord, Lord Lovell-Davis, I do not propose to press this Amendment further, and I beg leave to withdraw it.

Amendment, by leave, withdrawn.


In view of the very full explanation given by the noble Lord earlier this afternoon, I do not think it would be right to delay the Committee any further in regard to Amendments Nos. 1F, 1G or 1H, and I do not propose to move them.

On Question, Whether Clause 2 shall stand part of the Bill?


On this clause there is the very important subject of participation, the 51 per cent. participation which is the Government's apparent objective. Paragraph (e) on page 3, concerning the Corporation's functions, states that it will have the power to do anything, with a view to securing participation by the Government of the United Kingdom, or by the Corporation …in activities connected with petroleum beneath controlled waters. This is the part of the Bill which would seek to give the Corporation powers to carry out this policy which we have heard described as at least 51 per cent. participation in Britain's offshore oil and the operations to extract it. This Committee, I submit, should have an explanation of this policy of the Government, and this is the Part of the Bill on which I think we should seek it.

As we understand it, negotiations are taking place between the Government and the companies direct. Negotiations are being carried out under the supervision of the Chancellor of the Duchy of Lancaster, I think it is, not the Secretary of State for Energy. But these discussions are taking place behind closed doors. There have been some announcements that certain companies have accepted in principle the policy of 51 per cent. participation, but that is all.

We recognise on this Bench that any talks on confidential commercial matters between the Government and individual companies must, of course, remain confidential. But we believe that the Government should tell Parliament and the public what they are trying to achieve, and how it is being done. Certainly the Press and the energy correspondents are having to guess at what is going on behind those closed doors. I would point out that the list of companies that has been so far announced as apparently accepting in principle this policy, if BP is excluded, amounts to only 4 per cent. of the known reserves in the North Sea, so there is still clearly a great deal more to be done if this policy is to be pursued to the Government's end.

It is some weeks since the debates in July and on 7th August when we were able to raise this before, but the Government said very little about it then. Therefore, we ask now whether the noble Lord, Lord Balogh, or one of his Ministerial colleagues, can tell us what is happening. In what forms are the Government hoping to obtain at least 51 per cent. participation in offshore oil activities? Is it still to be by free negotiation, because in their previous statements the Government have said that this is something which they will only expect companies to enter into voluntarily. Can the Government give an assurance to the Committee that they are not threatening companies in these talks behind closed doors with various powers, including the powers to be included in this Bill, in trying to persuade them to accept this policy?

The Government have also stated publicly that their view of the 51 per cent. interpretation is that the companies will not be worse-off, but nobody can discover what that means. The companies certainly give the impression that they consider that they are likely to be worse-off if they were to accept some of the initial proposals of the Government. This is an opportunity for the Government to tell us the latest position in this extremely important matter, which is a very large part of the present Government's policy.

Secondly, I should like to draw attention to Amendment No. 50 which, because of the sequence in which we have agreed to take the clauses and Schedules in this Bill, comes near the end. I think that we should reserve another debate on it because it may well be October before we reach that in Committee. I draw attention to it now because that would put into the Bill assurances that Ministers have already given that powers which the Secretary of State for Energy will receive under the terms of this Bill will not be used against companies under duress to force them into participation. To put it briefly, this is to exclude all possibilities of blackmail. Looking forward to that Amendment, I should point out that we shall be seeking later to ensure that participation will be achieved by voluntary agreement after negotiation, and that the Secretary of State will not, by withholding consent and approval under this Bill or under other powers, force companies to do things against their better judgment, and which are probably commercially unsound.

The Bill adds enormously to the Secretary of State's powers. I have a copy here where every single passage in which the Secretary of State is given more power, authority, and latitude, is underlined in red. I can tell you that a great deal of red ink is in that copy of the Bill.

We ask the Government whether they can categorically state again today that their quest to obtain at least 51 per cent. participation in this new offshore industry will be achieved voluntarily and will be negotiated. Could they tell us what progress is being made—what is going on—without giving away any individual company's commercial secrets? I am sure that there will be other noble Lords who will be exceedingly interested in what the Government have to say to this point.

5.15 p.m.


I should like at this stage to raise the question of the research functions of the board. I gave notice to the noble Lord that I intended to do so, and he told me that he would look upon anything I said sympathetically, so I hope that he will. It is obvious that the BNOC has powers to set up a research division or company which would become involved in many things such as chemicals, solar energy, agriculture, perhaps even designing engines to use less oil. However, there are many things in which it could become involved. There are powers to promote activities for the purpose of turning to account the results of research.

The Secretary of State will quite clearly have considerable cash flow and funds for the promotion of activities resulting from research on many subjects. The BNOC wishes to promote activities in one way or another, and can virtually act as if it were a specialised energy technical requirements board, and would need to sponsor or commission research. Has the BNOC such powers? Under the circumstances they will be desirable, particularly in the early days when a research division laboratory, or an R and D company, as might be established in the future, does not exist.

As we shall see later, the BNOC is very much the Minister's creature. Therefore, it would seem sensible that if it has surplus funds at its disposal and the Secretary of State would like to sec it undertake the commission of research, the Corporation should be given adequate powers of sponsorship if they do not already exist. As I said at Second Reading, there are precedents for this, looking at the British Library Act and the Nature Conservancy Council Act. I should like to ask the noble Lord whether he would consider an Amendment at Report stage to carry out and commission research, if powers to commission or sponsor research do not exist as the Bill is drafted at the moment.


Before the noble Lord replies to those questions, there are one or two questions I should like to ask. First, I support what my noble friend Lord Campbell of Croy said from the Front Bench. We are really in need of something better than assurances about this procedure on negotiating participation. I leave aside the question which apparently is open, and perhaps the noble Lord when he replies can answer whether it is 51 per cent., or is it not less than 51 per cent., or is it not more than 51 per cent.? Could it be 89 per cent.? No doubt he will answer that.

The difficulty that some of us are in is that, having had two dummy runs on this Bill, a debate on the general principle of the BNOC and a debate on Second Reading, we are left befogged by some of the answers that were given on technical points and some of the failures to answer questions.

If I may have the Minister's attention and that of the noble Lord, Lord Lovell-Davis, who was involved, I do not want to labour the matter but the answer was very unsatisfactory when we raised the question of whether or not there is a slow down of activity in the North Sea arising, among other things, from the Government's policy. One of the examples given was the number of platforms now on order. The answer that we were given at one point by the noble Lord, Lord Lovell-Davis, was that the technological progress, especially the sub-sea completions, has enabled the Government to plan for, on average, a smaller number of platforms for discovery. One does not use platforms for discovery. They are used for development and I draw attention to that statement, which was made at the end of the debate before we rose for the Summer Recess, because—


I interrupt the noble Lord to assure him that that was not an error in reporting. I did, in fact, say precisely that.


That confirms my point; the noble Lord is stressing something which, so far as I am aware, is not corroborated in the industry. Earlier, we heard from the noble Lord who is now happily free from Governmental responsibility below the gangway —and I assure him that we miss him very much—that deviated drilling had advanced so much that one could have so many more wells from a production platform and, therefore, fewer platforms were needed. Again, this is not corroborated in the industry. I draw attention to these matters only because it is when, on the technical level, one gets answers which do not seem to square with the experience some of us have been at some pains to obtain that one wonders really where the Government are.

This brings me back to the whole problem of—I was going to say "veracity", but I do not want to use that word—the seriousness of some of the comments the Government have made. On Second Reading I asked: Will the Government guarantee publicly that any company or consortium not accepting the terms of participation will not be the victime of discrimination in the future: for example, in the next licensing round?"—[Official Report, 7/8/75, col. 1970.] That question was not answered and, because it was not answered, I take leave to raise the matter again because it is relevant to what was said by my noble friend Lord Campbell of Croy. It is particularly relevant to raise that question and stress it in view of the statement we had from Mr. Harold Lever back in February, and it is worth quoting it again because Parliament must be seized of this.

He said: It is very possible, if they"— that is, the oil companies— did not agree to State participation, that the Cabinet could feel free, and indeed might feel obliged, to nationalise that portion of the licence that they thought right. It is in the light of the failure to get a clear answer on that matter and the very clear threat that was made by Mr. Lever that one feels it important to get something better than mere assurances.

My noble friend Lord Campbell of Croy said he had a copy of the Bill with a number of passages red-inked. Let us just consider some of the phrases which bespatter the Bill. The Government can request, give directions, direct, require, consent, serve notice, approve, specify, authorise in writing, issue an authorisation, determine sums to be paid, make appropriate provision by notice and so on. There are probably another 20 of them. With those kinds of phrases spattered about the Bill, one is really apprehensive about the use which the Government may make of some of the powers provided in this Bill to further their cause of participation. Model Clause 15, later on, is one by which a licensee will not be allowed to develop his field except on a development programme approved by the Minister, who has entire discretion. If he uses that discretion to refuse approval, the Company cannot carry on. The same applies to restrictions on assignment and, indeed, it was noticeable that one of the successes that the Government claimed in regard to the acceptance by Deminex of participation coincided with the transaction of an assignment.

Those matters really deserve to be cleared up and if they are not cleared up now, then we have quite a long Committee stage before us. Some of us are in no hurry to get back to our holidays and there are plenty of ways to prolong the sitting of this Committee. It really is in the Government's interest—and I am trying to help the Government; I am not being unpleasant—and it will help us if we can have better explanations about two other questions which I should like to raise before we leave this clause. I was disappointed when the noble Lord, Lord Lloyd of Kilgerran, rather flaked out, as it were, and did not move a couple of his Amendments which I was hoping to support, but we do the best we can in the interests of coalition and support for Liberal thinking.

The noble Lord, Lord Lloyd of Kilgerran, is a colleague of mine in another connection and I was disappointed in not being given a chance to support him. One of his Amendments, No. 1F, was to leave out part of this clause which would have referred to the BNOC's potential operations in refining. It will be known to noble Lords opposite, and certainly to the noble Lord, Lord Balogh, that there is a considerable surplus of refining capacity in this country at the present time, something like 50 million tons of surplus refining capacity, and with the slow-down in the economy all over the world, to say nothing of the effects of higher oil prices, it is likely that the expected increase in demand for refining capacity will not take place.

Is not this an area where the Government are seeking needlessly wide powers? I accept the logic—I do not accept the premise—of the Government's argument that if they are once going into exploration there is something to be said for going into refining, and I can see the case on planning grounds for centralised control better than is provided by the ordinary planning procedures. But is it really in accordance with the standards of this Parliament to confer unnecessarily wide powers at this time? It might be that in five years' time BNOC—if it is established and if, having hypothecated its revenues, it survives bankruptcy—will well have a good cause to come to Parliament for extra powers to refine, but at this time they seem to be needless and superfluous.

Another matter to which it is worth drawing attention and to which we may return, as we have three or four weeks before us before the overspill Session, is the whole business of authorisation by the Secretary of State. Here again the noble Lord, Lord Lloyd of Kilgerran, had down an Amendment which would have coupled the Secretary of State's consent with a resort to Parliament. I think the drafting of the Amendment was unsatisfactory, but the principle was clear. These matters are serious and they are ones to which some of us at any rate may feel inspired to come back to later if we do not, as time goes on, get rather more satisfactory answers than we have been favoured with so far.


I had not expected to return to the speaking list. though I want to make it clear that I never intended that my removal, of my own accord, from the pay roll should take me off the speaking list at the same time. The noble Earl, Lord Lauderdale, referred to what I said in an earlier debate, and I wish to tell him that when I was speaking on matters within my personal knowledge I was absolutely certain of the accuracy of anything I said. When I was speaking, as in matters of this kind, and had to reply on the advice of experts, I assumed that they were as infallible in these matters as I was in the matters of which I had knowledge. If, therefore, they are not, then I can rest content on the fact that, so far as your Lordships' House is con- cerned, there is no greater expert on these matters than the Minister who is in charge of the Bill, and we can at least be absolutely certain that on anything he says which is contradicted either by the noble Earl or by people in the industry, it will be my noble friend Lord Balogh who will turn out at the end of the day to be right. I would add, however, in respect of any of these differences on technical matters, that I do not think it is useful for the noble Earl to raise these in connection with the principles of the clause, which was, in fact, what the noble Lord, Lord Campbell of Croy, was raising when he spoke earlier. I do not intend to say any more than this, except that I agree with the noble Earl that it is desirable to get on with the Bill and I think it would be helpful if I expressed these sentiments in fewer words than he did.

5.30 p.m.


I must support both my noble friends. I am glad that the question of participation has cropped up at this juncture. It is going to crop up again a number of times in discussing the Bill. Amendment No. 50 was intended to put into formal manner some of the noble aspirations which the noble Earl has frequently stated to be his aim. It is perhaps a little unfortunate that in the course of agreeing the order in which the Bill was to be discussed Part V, of which it is a part, got divided into two. I am not suggesting that there was anything in any way Machiavellian about that. but it is perhaps a pity that it has gone right to the end.


My understanding is that we have been requested by the Opposition to take this line and this division of the subject. We wanted to be as forthcoming as possible and this is how it happened.


I am grateful to the noble Lord. It is possibly entirely my own fault because when we discussed this through the usual channels it was the National Oil Account question which we all agreed logically came at the end of Part 1, and I rather superficially imagined that that included the whole of Part V. It is irrelevant, but that is the reason why I think it is useful to have such a widespread discussion on participation which at least lurks in the shadows behind a great many of the issues, particularly in regard to the questions that will come up in Part II.

I have said this before to the noble Lord and I hope we shall not have to repeat ourselves overly much because we have no wish to prolong this debate unnecessarily or to hold up the Bill, however much we may dislike it. We have a number of serious points to make. The point is that the message I get is that the confidence of the industry in the Government and their intentions has been seriously eroded and it is now at a very low ebb, to the point that it is mistrustful of a number of the provisions which the Government have put in the Bill and behind which it sees a sinister intent on the part of the Government. It is just as well to get this out into the open and to admit that this is the situation. The worry is that the Government could create conditions whereby it would be impossible for any company to operate in the North Sea unless they had first given 51 per cent. participation. As we shall be saying a number of times, because of the way in which BNOC has been constructed under this Bill, I would also go so far as to say that it may equally be impossible to operate effectively with BNOC as a participator. But perhaps that is looking ahead to points which we shall be raising a little later on.

It appears that in every case where participation has already been agreed there has been an element of what we might call arm-twisting by the Government. I should like to ask the Government whether there are any cases where assignments have already taken place, let alone assignments that might take place as limited by the additional restrictions of Clause 38? Have there been any cases of assignments or farm-outs which have taken place without participation having curiously come about at more or less the same time? My noble friend Lord Lauderdale refered to the case of Deminex which is one well known example.

There are several other worries that underlie the objection to the notion of participation. First, if BNOC is to control 51 per cent. of the whole of the industry it is going to have a vast enterprise and a vast span of control. So far there are no indications that they are finding it easy to set up an organisation and find suitable staff to administer this enormous edifice which is being created. One wonders what is to happen and how they are to select those companies in which they are to participate. This is a slightly complicated point. Is BNOC to be put in a position where the Government say, "You must participate to the tune of 51 per cent. in every enterprise which is being set up in order to participate in the North Sea development in the future"? If the answer is, "Yes", clearly BNOC is to be lumbered with some unfortunate investments into which much public money could be put. If on the other hand the answer is, "No", is this not going to be rather a dangerous situation? Are the bankers not going to look around and say, "BNOC would not go into this; we had better stay away from this one"? This sounds like the kiss of death to anything in which BNOC is to participate. These will be extremely difficult judgments. These are the sort of judgments which merchant banks are presumably set up to deal with.

This brings me back to the present situation and how the current negotiations are taking place. It seems to me to be an extraordinary arrangement. Presumably we have civil servants indulging in negotiations with companies about participation on a straight old-fashioned bargaining basis, the kind of bargaining which one employs merchant hankers to do. I would have thought that this was a most unsuitable task for civil servants. I do not in any way intend to denigrate civil servants—we have already discussed them in a rather different connection. If we must have participation—which we find difficult to believe—is it as voluntary as the noble Lord tries to persuade us? I hope we are not going to get into one of our arguments about definitions of the English language. I always feel that either my noble friend Lord Lauderdale or I should bring a dictionary when we participate in these debates. I do not think there is much doubt about what most of us mean by the word.

If there are to be voluntary negotiations, would it not be a more normal situation for the Government to have produced a model set of rules? They seem to be very keen about producing model sets of rules. Part of this Bill is full of model clauses. Then we would all know what it is we are going to argue about. In practice, one thing one suspects is that it is extremely difficult to get a set of model rules which is not terribly attractive to the small company but absolute anathema to the big one. It may be that one needs to have different rules in each case, but I feel that it is a most odd situation to imagine senior civil servants in the Department of Energy indulging in straight old-fashioned merchant banker-type market horse trading. It seems a very curious situation.


Perhaps that is merely because of the disclocation of the place of negotiation, because so far as I can make out, a very great number of civil servants are now in the City where they can certainly get the knowledge and knack of negotiation, as the splendid career of so many people has shown. That they are absolutely unable to fulfil that at Millbank, if it is Millbank—for I must not give away official secrets—is, I believe, questionable.


I am not suggesting that the individuals have any shortcomings in this direction at all, but I am suggesting that the nature of their work and their terms of reference inherently make it rather difficult if they are put in that kind of position. That is all I am saying. I shall finish by saying that what we shall be seeking to do in Amendment No. 50 is, to some extent, a test of the Government's genuineness, good intent, good faith and credibility. What we shall be seeking to say is, "If you really mean what you have always been saying about participation, surely you will be very happy to have this Amendment in the Bill at the end of the day".


I am very grateful to noble Lords opposite for raising this most important question about a point which is probably one of the most misunderstood aspects of the Bill. First, I should like to deal with a charge which is clearly going around again. It is very interesting to see that the publicity machine produces bad reports about the oilfields when we are in negotiation and then, when the negotiators because, for instance, of the summer holiday, ebb away, splendid new discoveries are immediately available—six of them in August. I wonder whether the Lord has so arranged geography that these discoveries should coincide in this very precise manner.


Is the noble Lord suggesting that oil companies deliberately held back the news of these discoveries with this in mind? Could it not be that it would be natural to be achieving some positive results towards the end of the drilling season?


I leave it to the Lord to decide.

A Noble Lord

Which Lord?


Not noble Lords, but the Lord. I cannot say. The coincidence is very interesting, however. Since then we have again had bad news. However, this has been punctuated by a very interesting comment on the situation by one of the directors of the Shell Company which, fortunately, was reported in the Guardian, though I did not see any other paper pick it up. He said that a splendid new era was dawning in the North Sea, that the Brent field had been up-valued from 1,500 million to 2 billion barrels, that the North Sea total now looks like 4½ billion barrels, et cetera. I will not impugn anybody. I absolutely accept that it is the duty of the directors of these great companies to do their utmost for their shareholders, and I am therefore in no way condemnatory, virtuous or moralising about all this, but I feel that we should take it with a grain of salt.

I assure the noble Lord, Lord Campbell of Croy, that the negotiations are voluntary. If they were not voluntary they would not be so slow—and they are slow. I shall not go into details but I should like, for instance, to deal with the interesting question of a model participation agreement. Of course one cannot have a model participation agreement ex post facto. Ex ante, certainly, and, I hope that when the fifth round begins the various positions will be set out in such a way as to be acceptable from the point of view of risk-taking for fields which are of such a different order of magnitude. The PRT and various other regulations show how very intent we are on making even small, badly located and badly shaped fields profitable. The interesting point is that the noble Earl, Lord Lauderdale, in one of his very interesting speeches, said that he was rather in favour of participation—or perhaps I misunderstood him?


I accepted the logic of the noble Lord's argument but not his premises.


That is not what the noble Earl said. If I remember correctly, he said that as a bipartisan solution he would accept participation.


I have always said that for future licences I am in favour of the principle of the carried interest and this I believe could be the basis of a bipartisan policy. But I am not—and I stress that—in favour of trying to superimpose that on contracts which have long since been entered into freely and bindingly.

5.48 p.m.


The noble Lord reassures me. I feel that the contracts which were negotiated were not very favourable to this country. A Committee of both Parties—the Public Accounts Committee—gave a picture of the procedures which were followed during the fourth round in 1970–71, which made such little hair as I still possess on my head stand on end. It was really something quite extraordinary and I strongly recommend noble Lords who intend to participate in this debate to look up the Report, because it shows that what we are trying painfully, slowly, voluntarily, to do is to get a situation which ought to have been laid down as soon as the knowledge that Northern waters contained a very large amount of oil came to light. As I said in one of my interchanges with the noble Lord, Lord Avebury, one Government Minister admitted as early as 1970, or the beginning of 1971, that about 150 million tons of oil might become available from the British part of the North Sea. So what we are trying to do is remedy the situation and safeguard for Britain a very large part of the take in the North Sea.

It seems to me that a number of these Amendments—and I absolutely accept that the motives of noble Lords opposite are of the best, and I do not wish to impute anything adverse at all—are, de facto, in their theoretical inclination, weakening the bargaining position of Britain with these very big and extremely skilful companies. Another book which I should like to recommend to noble Lords opposite and behind me is Sampson's Seven Sisters. Then they will know that what we need is every ounce of strength in order to be able to defend our own natural resources. I am absolutely sure about the patriotism of noble Lords opposite, but whatever they do now would weaken our position and our negotiating power with the companies.

The most important part of participation is that we should get physical control over the oil. I do not wish to go into the details and intricacies of the situation, but if we do not have physical control of our oil then, under certain circumstances, we might pay very dearly for our neglect. That is most important, but there is another important matter to consider. The oil business has always had an interesting, intriguing aspect. There are big companies and decision-making is concentrated mainly in Houston and New York, although sometimes partly in Amsterdam and London, but not so much there as in Houston and New York. These companies can, in multinational fashion, go into any business they wish. Their bylaws, unlike the bylaws suggested by some noble Lords opposite are very wide indeed. They have power not merely to produce oil, but to produce almost anything in the world; and they indulge in agriculture—and do it very well—in Jamaica.

It seems to me that to face these companies without knowledge would be very much against the interests of this country. We want to know how things are going and how the situation is thus affected. These are not companies which make decisions affecting perhaps one in a million, or decisions which cannot influence markets. A single decision by these companies influences the nation. I point out in passing that in December 1973 some of the noble Lords then in Office were not as fierce in their defence of the powerlessness of the then British Government in the oil company field.

I am sure that noble Lords will not wish me to go into detail on negotiations; indeed, I cannot do so at all because of confidentiality. But I remind noble Lords that a number of companies have already publicly accepted the participation principle. These are Burmah, Deminex, Tricentrol, Blackfriars, London and Scottish Marine Oil, and BP. Altogether we are already in discussion with about 30 companies, which include large and small United Kingdom and foreign companies. Noble Lords will appreciate that it is not possible to hold discussions with all the licensees at once. The issues arc very detailed, and the situations regarding these various licences are very different. We are pressing ahead as quickly as possible and we shall report from time to time.

On the matter of Amendment No. 50, I should prefer to postpone discussion until we reach the relevant clause. It is too important to take that matter on the side, so to speak. it would be very interesting to know whether the Conservative Front Bench is in agreement with the noble Earl, Lord Lauderdale, about the carried interest. I ask the noble Earl why he objects to voluntary agreements ex post facto


May I answer that question? If it is voluntary, and if we agree about what "voluntary" means, then I am happy. But I say "if", and there are two "ifs". One is if it is voluntary, and the second is if we agree on what "voluntary" means; and I do not think that we do.


That brings me to a very interesting point. Noble Lords have raised a number of questions about assignments and the possibility of consent to participation. We must be more realistic here than we are at the moment. We are negotiating with the most powerful economic interests in the country. It would be a dereliction of duty on the part of Ministers—to be punished by being put in the Tower, and not in the Jewel Tower, either—if we did not use our strongest cards, if we went into negotiations without the strongest cards we have. I am not by any means saying that assignment and participation and such are our strongest cards. There are stronger cards. That we should announce in advance that anybody who has not participated would get preferential treatment in the next round of assignment of licences would surely not be in the national interest. Surely it is in the national interest to get the best deal possible for England. We have been gentle- men too long. I want a little sacro-egoismo in the policy of this country. We want as great a strengthening of the bargaining position of this country as we can possibly get. As long as I am in the irresponsible, or rather sub-responsible, post that I now fill I am not willing to throw away those cards. I hope that noble Lords opposite will acknowledge, as I have acknowledged in what I have said on their part, that this is in the best faith and within what I call voluntary agreement —


Before the noble Lord sits down, will he please answer the question I put to him on research?


We shall have to correspond a little further on this question. The noble Lord will have ample occasion to raise this matter, but I should like first to have a personal discussion and perhaps we could then exchange letters.


Perhaps it is a matter which again the organising committee could consider in detail.


Of course it will.


With regard to the interest in these matters North of the Border, I direct your Lordships' attention to the slip of the tongue which my noble friend made when he spoke about what would be the best deal for England.


I do apologise.


This debate has given the noble Lord, Lord Balogh, an opportunity to tell us about this very important policy and the progress it is making. But I am sure that noble Lords will, like me, be disappointed that he has not been able to tell us more than he has in his speech just now. I asked him whether he could tell us of the progress, and also of the objectives at which the Government were aiming. and in what forms the 51 per cent. participation was being sought. I am grateful to the noble Lord for confirming again that it is to be a voluntary procedure, with no pressure being brought upon the companies. But the noble Lord did not answer my question about the Government statement that the companies are to be no worse off. Perhaps I should give way to the noble Lord now.

6.0 p.m.


First let me say that in these matters one ought to be completely exact. What my honourable friend the Chancellor of the Duchy of Lancaster said was that they will be financially neither worse nor better off; that is to say, they will have the same amount of revenue as they would have had if there had been no participation. How this is to be arranged will depend on many factors, more especially on the situation of the company. It is obvious that a company which has financial difficulties or which gets into any sort of cash flow crisis will have very different treatment—it has to have very different treatment—from a company where the cash flow is splendid, the credit is absolutely unimpeachable, and so on.

I think that I can give the answer to what the Government wish to have. It is knowledge, and possession of the oil. So long as the situation is as it is now, it seems to me that we do not have to worry very much about what to do with the oil. On the contrary, one of our difficulties will be that our oil is far too much sought after because it is very low in sulphur content and is a light oil. This has a premium aspect. Therefore, I think that these worries will, like the frost in the morning, disappear by the noon of our great prosperity.


That explanation was welcome in so far as it went, because it indicated that the expression "no worse off" was restricted to finance; but then the noble Lord in his previous speech went on to the question of licensing policy. That is different. That is a separate matter from the 51 per cent. participation. He referred to licensing policies which have been carried on by successive Governments, both Labour and Conservative, since 1963 and the question of changes in that policy—and that we shall he discussing when we come to Part II of the Bill. We have Amendments, as have the Government, to that Part.

The point is that the 51 per cent. participation is not necessary for the take to which the noble Lord referred. That can be obtained by taxation and licensing policy. Certainly, a great deal of it has already been looked after in the Oil Taxation Bill. What the noble Lord did was to refer particularly to the 1970-71 fourth round of licensing of the North Sea, Governments of both complexions having taken part in the previous ones. The Public Accounts Committee had some comments to make on how that was done. Let us suppose that they had no reason to make any comment supposing that changes had been made, that still would have nothing to do with the 51 per cent. participation which the noble Lord is talking about now; because if the licensing had been different then it would still not be the Government having 51 per cent. participation in offshore oil activities.

That part of the noble Lord's speech was interesting from the point of view of Part II on production licences which we shall be coming to later, but it is no justification for the 51 per cent. participation policy. The only reason he gave was that the nation had to have physical control of the oil. By getting 51 per cent. participation, he said, that would be achieved. I find that an extraordinarily weak justification for this policy. I do not think the Government are even trying to justify this policy. They are stuck with it.

The noble Lord asked me about the Conservative attitude to the carried interest policy, and many of my noble friends who follow these matters have known that my noble friend Lord Lauderdale has been interested in this possibility. But I will not repeat what my right honourable friend Mr. Patrick Jenkin said both in Committee on this Bill and on other occasions. I will sum it up by saying briefly that the Conservative Government considered carried interest as a possible course, but preferred the excess profits tax, as we have stated since. Any Party or Government would have considered as a possibility the question of carried interest. Some people, like my noble friend Lord Lauderdale, may well prefer that solution in certain circumstances, as he suggested.

Norway introduced the carried interest system, but only into future licensing. The Norwegian Government did not try to backdate it or to interfere with licences which are at present valid. In a mixed economy, one must expect that it will be normal that there is some public sector involvement in the North Sea; and there has been with the National Coal Board who. I think, have done very well in their activities in the North Sea. I was going to refer to' the "slip of the tongue" but the noble Lord, Lord Hughes, did that. I would ask the noble Lord to remember that there are Scotland and Wales and Northern Ireland, as well as England. Indeed, on these matters Scotland is the part of Britain more affected than any other.

Clause 2 agreed to.

Clause 3 [General duties]:

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 1H: Page 4, line 17, leave out subsection to.(1).

The noble Lord said: I cannot rise to the heights of oratory of the noble Earl, Lord Lauderdale, but in spite of his kind remarks about a withdrawal of certain Amendments, that I made earlier, I propose not to move this Amendment either.

6.8 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 2:

Page 5, line 9, at end insert— ("(6) In any case in which the Corporation is in competition with any private company operating in the energy sector the provisions of this and the next succeeding subsection shall have effect for the purposes of securing that such competition is fair. (7) Neither the Treasury nor the Secretary of State nor any other Minister nor local authority nor any public corporation conducted wholly or in part under national ownership or control shall, or shall counsel, procure or incite others to discriminate unfairly as between the Corporation and a petroleum company operating in the private sector in competition with each other in favour of the Corporation, whether in respect of the terms of any loan, or any contracts, the making available of land, buildings or equipment, the granting of contracts, the prices and other terms for supplies or purchases of petroleum, goods or services or otherwise howsoever. For the purposes of determining whether discrimination is unfair, regard may be had not only to the economic but also to the social consequences of any matter. (8) No criminal proceedings shall lie against any person on grounds that he has committed, or aided, abetted, counselled or procured the commission of or conspired or attempted to commit or incited others to commit any contravention of this section. But any person who suffers or apprehends that he will suffer any loss or damage by reason of any such contravention may bring civil proceedings in respect of such contravention or an apprehended contravention whether for an injunction or interdict or for the recovery of the full amount of the loss or damage or for any other appropriate relief or for any two or more of them.")

The noble Lord said: This rather lengthy Amendment contains an important principle. I start by saying that this is not in this instance in any way directed particularly against this Government; it is directed against all Governments in principle. We are in any case a little concerned about the powers it is proposed to give to BNOC, and our suspicions and reservations are perhaps exacerbated by the sort of attitudes to which we have been referring in the recent debate.

The industry is gravely concerned lest the way it is proposed to set up BNOC would be open to abuse by the Government. The purpose of this Amendment is to stop Governments, local authorities or other public corporations from using their influence to induce others, whether in the public or the private sector, to discriminate unfairly in favour of BNOC. May I call the attention of the Committee to the fact that the Amendment mentions not only the economic consequences but also the social consequences of any matter in determining whether the discrimination is unfair.

It seems to us that it is possible that the Government or other public bodies may, consciously or unconsciously, have a number of reasons for favouring BNOC. In the first place it is going to be a new body on public trial, and clearly there will be many who will be wanting to snipe at it. I suppose that in that category we should have to include ourselves, if we are honest about it. Secondly, it will be our own British company and it will he publicly owned. Of course, while this Government is in power it will be a plank in their Party political programme and they will feel bound to bend their best endeavours to see that it will succeed in the way they will feel confident that it will succeed.

If you start to think about it, there are alarming ways in which the BNOC, or other Government bodies, might be able to discriminate. I am not now taking the general point that we have been discussing, that some of the powers being taken in this Bill might be used as levers to secure participation. But it is a fact, I believe, that about one-third of the oil sold inland in this country is bought by the public sector. There is an obvious temptation to direct that the public sector should buy from BNOC; and the same might apply to other products bought from the industry and through the industry. Then again, with companies seeking public finance, public aid, it might be that somebody would say, "We would find this easier if it were to become a customer of BNOC". Public authorities might be asked to give every possible assistance in a discriminatory way to the BNOC. British Railways or the Coal Board could well be asked to assist. Indeed, nobody is criticising the present efforts to see that the oil industry buys British goods. This is one form of discrimination in which we do not pretend we do not indulge. This is something we clearly support.

When we start the same kind of activity in favour of BNOC, this is clearly a worry if we are to continue to have a mixed economy. I do not want to spend a long time listing a whole series of possibilities, of which there are a great number. We will be dealing later with the fact that BNOC will be in a different commercial situation due to its petroleum revenue tax exemption, but it has an effect on this part of the argument. The same argument could apply to other industries using oil as a feed stock. In straight commercial terms, there are possibilities of exercising pressure in the way in which the market could be rigged or about the way oil was sold or distributed, information given, which dealers were to be used, or which refineries would be asked to cooperate, or which refineries were owned by BNOC, and so on. Then the Corporation—which is going to have almost unlimited funds—would be in an extremely strong position to indulge in market rigging if it so wished in order to take in some of its brethren who were not so happily placed and in not such a strong economic situation. One can even envisage this Government Corporation being able to acquire special assistance from other Government organisations in terms of export deals, import deals or deals with other Governments.

There are a great many ways in which the BNOC could be encouraged to discriminate. The purpose of this Amendment is to preclude this possibility. It may be argued that this has not arisen in the case of some of the other nationalised corporations; but, then, we have to remember that, on the whole, the nationalised corporations are in virtual monopoly situations, and therefore the question of discriminating against other companies in the same field certainly does not arise to the same extent, if indeed it arises at all. I suppose the recourse which is suggested is at the latter half of the Amendment, whereby a company will be able to claim against the Government for any damage which it feels has been done to itself. I accept this might be something that would worry the Government. By putting in a provision of this sort, one would hope one was not opening the door to a mass of legislation. The way I would view this possibility, of having a recourse to this kind of a fall-back situation, is that it should preclude the kind of discriminatory action which would otherwise he possible. I sincerely hope that the Minister is not going to take shelter behind the argument that there is no precedent for this kind of legislation, because I think we have all agreed that there is no precedent for BNOC.I beg to move.

6.17 p.m.


I wonder whether I may follow the noble Lord at this point? Before doing so, may I declare my interests (which I was unable to do in the brevity of my two previous interventions) as a director of companies involved in the extraction of oil and gas from the North Sea; in companies involved in a wide range of supplies and services to those industries, and in banking in support of those industries. On this question of BNOC and its commerciality of operation, there is here a particular point for an industry with which I am also directly connected; namely, the petrochemical industry. We all agree that the greatest value to be obtained from our oil will be from the products to which we have added value in the course of refining and other processes, rather than from simply getting rid of the crude oil.

There is considerable concern in the petrochemical industry—the chemical industry as it may be calkd—as a whole about the possibility of unfairness of competition from a State petrochemical industry which is one of the things which it is clear this Bill gives the BNOC the power to set up. It says it may specifically move, store, treat, buy, sell or otherwise deal in petroleum and anything derived from it. That is a very wide brief. It has been suggested that the stage of reaching into these activities will be some way into the future. It is equally hard to believe that with these very substantial revenues going to the Corporation—and I will not go into the rightness or wrongness of that at this stage—with the vast resources at the disposal of the Secretary of State and this Corporation, it will not seek to involve itself in these downstream activities as time goes on.

Frankly, we in the industry do not feel that there is any need for the addition of State competition alongside an industry which has shown itself a remarkably efficient and extremely good earner of revenue and exports for the country. Assuming for the time being there is to be the power, and the BNOC will ultimately involve itself in this, we feel that it is of the utmost importance that its entry should be on fully competitive terms. There is at the moment no requirement in the Bill for the Corporation to operate to normal commercial standards, or generate a trading surplus.

We have had assurances from Ministers that when acting in partnership with others, or engaged in downstream activities, BNOC will act commercially. We do not for one moment doubt the validity of those assurances from the Ministers concerned. By the time these Acts come about, we do not know who will be the Ministers or what will be the Government, so therefore there can be no certainty that those assurances will be valid years into the future. That is why we feel that provisions should be written into the Act to ensure the commercial operation of the Corporation in these activities. There is no doubt that so long as the provisions remain as they are, there will be uncertainty in the industry as to its future prospects. There is enough for it to contend with already. It is intensely competitive internationally, and here at last we see the chance of getting a secure feedstock at, we hope, a reasonable cost, to give us greater help to compete in the international market.

Recently, industry has been criticised for failing to invest, and I do not think this is something that can be laid at the door of the chemical industry. If I may quote the case of my own company, ICI, we have recently announced that despite the present depressed condition of world markets in chemicals and other commodities, and despite all the other difficulties, we intend to press on with an investment programme at the rate of something like £1 million a day. But these plans have to be laid a long way ahead. There is normally a lapse of some five years following an investment decision before a positive cash flow results from it. In making decisions, one is therefore looking at conditions 10 or 15 years ahead. Those decisions must be made on the best possible "certainties", so far as there can be any certainties over such a length of time. To that extent the possibility of a State competitor which is not obliged to operate commercially must be an added element of uncertainty. We shall be coming to another Amendment later to make the BNOC subject to the payment of petroleum revenue tax: if that were to be the case, if the royalties were paid direct to the Treasury and if the Corporation were to be financed by the normal methods of a State enterprise, we could see when it was and was not operating commercially. Failing such a change, I feel that the present Amendment and others related to it are the least we should seek in order to ensure that the Corporation is obliged to operate commercially should it enter the downstream field in relation to petroleum products.


I should like to support the Amendment moved by my noble friend. Perhaps we all ought to declare an interest. The nation has a 70 per cent. shareholding in BP, so there is not a single person sitting in this Committee who does not have an interest. I must declare another interest, because I have a few shares in a number of other companies who form part of a consortium, so I suppose very indirectly I also have a financial interest. But I am not a director of any company which is in any way more than marginally involved in the North Sea. But it is difficult to be a director of any engineering company worth its salt which has not some minor interest—and, frankly, it bloody well ought to have if it has not!—so as a director of four engineering companies, I obviously have some minor interest in this, and I was glad to hear the noble Lord honourably declare his interest.

What we are really asking of the noble Lord the Minister is that we should have a further declaration that he believes in a mixed economy. This was spelled out very clearly in the last Queen's Speech and I hope it will be repeated in the next Queen's Speech. We should like to hear that they believe in a mixed economy and that they want to stimulate the private sector. If you believe in a mixed economy, then you obviously must believe in fair dealing as between public sector and private sector firms. Of course, the greatest inhibition to fair dealing at the moment—and perhaps the Committee will amend the position at later stages of the Bill—is this extraordinary arrangement of the exception of PRT, because once you have excepted a public company from paying the normal taxes which everyone else has to pay, you are liable to distort everything.

I should like to draw attention to some of the ways in which distortion could be produced. First, as my noble friend has said, there is the public sector product; and if you have one-third of inland oil sales bought by the public sector, one-fifth by the Electricity Board and the rest by nationalised industries, you have a very powerful weapon for negotiating a very special price and a very special deal. I can think of ways in which the Government might help the BNOC by inducing nationalised industries and the like—


Would the noble Lord give way for one second? Can he quote a single example in which, for instance, the Coal Board or the Gas Corporation have discriminated in favour of the public sector as against the private sector? The total impartiality and neutrality of their operations are strictly safeguarded.


I am delighted to hear that, and perhaps I might point out that so far as I know there are very few, and very marginal private mines these days, so they have a monopoly in the mining industry for coal. Equally, I do not know of any private gas company, so they have a monopoly of gas. Therefore—


That is not the point. The point is that they are selling their product—monopoly or non-monopoly—to some public sector companies, for instance, British Leyland, at completely uneconomic and discriminating prices. That is what the noble Lord is really saying.


I am not saying that. Here we are setting up a quite unusual organisation. I think the noble Lord the Minister has been quite clear on this. Never before have we had an organisation like this. This is not an ordinary nationalised industry: it is exceptional and, in some ways, as the noble Lord has said, it is experimental. If he is so sure that discrimination will not occur, then obviously he need have no objection to accepting this Amendment; it merely includes in the Bill what he has said. So surely he is making my case for me. He should accept the Amendment and then, if there is a change of Minister or of Government, there can be no question that they will have to be kept to fair dealing.

But there are other private sector areas, too, where the Government might further aid the BNOC by bringing, pressure to bear, either directly, or indirectly through agencies—because Governments are very powerful and they can lean on people. No-one wishes to antagonise a Government Department. These days if you work in industry and are perhaps concerned with Government contracts—because after all the Government spend £5,000 million in contracts with industry —you do not wish to offend a Government Department. We all try to keep in with them, because we want fair treatment and good relationships. It is just the same with our unions as it is with Government Departments. So, on the whole, one does not seek quarrels with Government Departments.

Equally, I can think of occasions when local authorities might be persuaded, with the power of the BNOC, against private companies over planning permission for service stations, bulk plants, terminals, refineries and other downstream activities. We have the assurance of the Minister that this would never happen with nationalised industries; but if this is never going to happen, is it not a good idea to have an appeal court perhaps, or an independent arbitrator, to whom a person could go when he believes, rightly or wrongly, he has a case and is worried about it?

I am thinking particularly of the Price Commission. They control prices, and it could be that they would allow profit margins which, for private sector companies, would be only marginally sufficient or would perhaps permit companies merely to break even, whereas, because of the exception of PRT, that same profit margin would be substantially better for the BNOC because of their favourable tax position. A bigger profit margin is needed if you are paying tax than if you are not paying tax. The noble Lord shakes his head, but I should like to treat him at some time to the facts of life about running profitable industrial companies, as against the theory of the Treasury Bench or the universities. We respect the advice he has given about running the economy, but I promise that the facts of life are different.

There are dangers in this area, where favouritism, because of the power of Government, because of the influence of Govment, might be shown. One can be leant on—one might find it difficult to prove. That is why I would so strongly commend my noble friend's case which he has disposed quite honestly to the Committee, and on which we have had some assurances from the Minister during the debate that in principle he wishes to see this situation brought about. If he wishes that, then why not accept these Amendments?

6.30 p.m.


We have had so much civility this afternoon that I was hoping we should presently hear the Government being willing at any rate to consider one or two of the Amendments that have been put down. We have not even heard the Minister say, "Well, I will look at it between now and Report". Not once have we had that. A number of questions have gone unanswered. Let us say that we accept the principle from which the noble Lord begins, which is that in the national interest we must have physical control—that is his term—of the oil and we need to have knowledge. That is the point he has made throughout. If I may just give him an argument in his own case that he might be too modest to adduce himself, obviously within the European Community there might be the danger, for example, of a German interest buying itself into one of the companies with a licence in the British sector and entering upon policies which were not wholly to the liking of the British Government.

However, let us say there is a case for trying to get physical control of the oil. We have all along said that sufficient control, adequate control and total control can be obtained by means of tax and licence. If we accept that at any rate the object is to obtain control in some fashion or another, we still have to return to the question of how BNOC is going to operate. Is it going to operate with the same purity as that of Caesar's wife, or is it going to have undercover relationships, as one might call them, from the wrong side of the blanket, and use all sorts of pressures that big organisations can use?

My noble friend was challenged to give an example from the National Coal Board or any of the other nationalised industries, and he was unable to do so. But as he himself said, this is a new animal. The noble Lord says it is not nationalisation. All right, it is not. It is a new animal. It is an animal that has civil servants on the board. It is absolutely the creature of the Secretary of State, so much so that he has his own sources of information on the board without resorting to the chairman, and there is a kind of counter to the chairman. In all these respects, and many others, it is different, and we have been assured by noble Lords that it is different from nationalisation. All right, let us say it is different. Then, we must have fresh assurances, which we have not required of late from the existing nationalised industries, that it will literally operate with commercial fairness.

Anyone who has been involved in Government, and certainly anyone who has been involved in local government, knows very well that there is a certain amount of "leaning on" which happens all the time. Only the other day I was talking with friends of mine who are officers of a local authority which is having some difficulty with the Government at the present time on the matter of its local authority rents. They said to me: "You know perfectly well the Government can lean on us. We want to do this, that and the other, and then they say, 'All right—but we will stop something else if you go ahead with that'." Just as the Government can lean on local authorities, and local authorities can and do lean on individuals and companies, so indeed it is inconceivable that this mighty organisation will not in fact have powers of leaning—I just use that phrase. The volume of oil that is already taken by the public sector is very considerable. I think the figure of 30 per cent. was given, and now 20 per cent. by the electricity supply industry. In that area alone if BNOC is going to be downstream it will have very considerable leverage. There are other respects in which it will have leverage; it would be tiresome and tedious to go on labouring the point.

If it is the case—and we have been assured that it is—that the Government want the industry to have confidence, the Government want to attract investments and want to negotiate fairly and freely (one might almost say "like gentlemen", but that is not. perhaps, a very "in" phrase to use these days)—if all that is the case, then it is important that the industry's apprehensions are allayed. I should have declared—I am afraid I forgot—that I have 200 shares in Shell. I am sorry that I did not mention that before—and of course we all have our interest in BP. But in the British interest, if we believe in a mixed economy, if the noble Lord and the Government still believe in a mixed economy, then the private sector needs to be reassured. We on this side of the Committee are in any event spokesmen for private enterprise. This is our philosophy. If it has perhaps been lost sight of in recent years, I am glad that the Leader of my Party has brought it to the fore again in the last week or two. But this is a serious matter. Noble Lords opposite, despite their mirth—and sometimes they laugh at rather silly things, and say silly things—we take as serious, or try to take as serious (not always easy) and they will, I am sure, realise that it is important to try to reassure the private sector, especially when they are knocking them about in this way.

6.37 p.m.


I have a great deal of sympathy for the aims which this Amendment wishes to secure. How could I be otherwise when we have gone out of our way to stress that, when it is in competition with the private sector, the BNOC will act commercially? But for the same reasons that convinced the Committee in another place, I fear I have to advise your Lordships not to accept the Amendment. Competitors of BNOC will have the protection of the Fair Trading Commission. The Fair Trading Act 1973 empowers the Secretary of State or the Director General of Fair Trading to refer to the Monopolies Commission cases such as are envisaged. It is not true that there is not legal protection. On the other hand, the Amendment as it is now put forward to us can lead to very difficult situations. We have given assurances that the BNOC will behave commercially downstream. This is the easiest thing to control. It is controlled in fact in this country. It seems to me that the Secretary of State in Committee in another place has given all these assurances.

However, if this Amendment were accepted it could make life difficult in practice for BNOC. It would be open to any company which thought, reasonably or otherwise, that it had been treated unfairly, or might be treated unfairly, to bring proceedings, to hold up a transaction or operation to be objected to, and to make a claim for compensation. Is that the way one wants to treat a company? Does one want to penalise it especially? Why not treat it as any other company is treated and rely on the fair trading arrangements? It seems to me that there is scope here for the unscrupulous person, who may have got the worst of it in fair competition with the BNOC, to indulge in a bit of litigious fun. If he wins, well and good; if he loses he suffers no great harm, and in the meantime he throws a number of spanners into BNOC's works. My noble friend the Leader of the House may have something to say about the so called exemption problem of the BNOC over PRT.

May I make two points to the noble Lord, Lord Orr-Ewing? First of all, he ignores the fact that when I was younger I was an ambitious merchant banker for eight years, and that then I earned my salary in a far harder way than I shall ever earn it again. It was Maynard Keynes who recommended me. But that is by the way. I am not one of those economists who has never been in life; I have been right in the middle of it. Secondly, I should like to tell him as an economist that exemption from PRT is not a subsidy in any sense of the word as it is understood in the EEC Treaty. The whole of the cash flow will go straight into the oil account.

It is not like a private company where the ploughed-back profits can then be used at the discretion of the directors. On the contrary, each time the directors of BNOC will have to refer to the Secretary of State when they want to use the money. His consent is necessary. There is not a shred of evidence that the money can be used as a type of subsidy in whatever form. It is not a subsidy; it is a remission of tax. However, there is a proviso that not only the tax itself but the whole cash flow has to be surrendered to the national oil account. This is a problem which will arise later on. Therefore, I do not wish to pursue it further now. In short, I do not believe that the Amendment adds to the assurance we have given. It would add to the legislation which is on the Statute Book and it could serve to throw unnecessary stumbling blocks into the Corporation's path. For these reasons, I implore the Committee to reject the Amendment.


Surely the noble Lord's speech is incomplete. He began by saying that he has a great deal of sympathy with the argument.


Yes, that is so.


The noble Lord seemed to mean that, and he has repeated that he is impressed. Having expressed that view, one cannot merely say that one will not accept these words because, with some logic, one has been able to show that they would not fit into the Bill. Surely the noble Lord is going to say that he will consider the point and will find words of his own which give vent to the sympathy which he says he has evinced from the arguments which have been used. In the very argument which the noble Lord has just presented to us, he said that if these words were put into the Bill it would mean that companies would be able to claim compensation as a consequence.

The very fact that he thinks someone may be able to challenge the words and get to the point where they may have compensation is proof that extra words are needed, because they could not obtain that compensation which the noble Lord anticipates might be there unless they proved their case. They could obtain compensation only if an impartial arbitrator, having listened to the arguments on both sides, thought they deserved compensation. Now that this argument has been presented—it may be one of the weaknesses of democracy, if one can use that words again—it is a pity that the noble Lord and the Government are not able to accept these words, or words like them.

It is also a pity that my noble friend put down the Amendment, because the situation now is that it is taken out of the realm of judging whether or not any future Government would act as fairly as the noble Lord says he would act. We are now in the position where words which have brought forth the sympathy of the noble Lord have been turned down by the noble Lord and the Government. If the whole subject had never been mentioned, one could have presented a picture which would have maintained confidence in a way which is impossible now that it will be on the Record that these reasonable words, or something like them, are not to be accepted by the Government of the day.

One point has not been answered to my satisfaction. As a listener to this short debate, I concede that many of the arguments regarding whether or not there will be a tax advantage, and whether or not the Corporation will be in a preferential position to lean on people so as to get their orders, have been reasonably answered by the noble Lord. But the one argument that he has not answered, because I do not think he can, is this. If he will refer back to his experience as a merchant banker, as distinct from his academic qualifications, I think he will confirm what I am going to say now. It could well be that my experience of sitting on boards where decisions have been made covers just about the same number of years as the academic career of the noble Lord, which gives him confidence to make his speeches in this House and in other places.

One thing I can say with the utmost confidence is that if one is thinking of investment which will show returns in the future, the knowledge that you are likely to be in competition with a Government-owned organisation will in future make one think very carefully before one invests, because, by its very nature, opposition from a Government-owned organisation is unfair, even when it is intended to be applied fairly, by the very impact it makes upon the people who would otherwise normally be in competition with it. It removes competition by the very existence of the possible powers that it will have, because it is Government owned. If the noble Lord is as concerned as I am, and I believe he is, about the desperate need for this country to have investment today in order to preserve our situation in the future, anything which is likely, even marginally, to undermine that confidence is in the worst interests of this nation.

I believe that the absence of these words, or words like them, in the Bill at this stage, as was confirmed by the noble Lord who spoke with all his knowledge of ICI, will have a much greater effect upon the confidence of present day investors than all the talk about possibly losing tax, about the necessity to own as a Government, and all the other marginal matters.

On those grounds, I hope that even now the noble Lord will complete the speech which I believe he left incomplete. He said he had sympathy with the argument, and he was right to have that sympathy. Now let him say that, while the words are not acceptable, the spirit behind the Amendment is such that later on he will come forward with words which may meet the needs of all sides.


If I may follow up that point of the noble Lord, I fully appreciate that the wording of this Amendment may be imperfect. It probably is. It may have such effects as the noble Lord mentioned and it may be disadvantageous to the BNOC. However, one thing which I cannot understand, and I should be grateful if the noble Lord could explain this to me, is that if two Ministers can give such categorical assurances why is it not possible for the Government to insert their own wording to give statutory force to those assurances?


It is because we find that, whatever you do, the disadvantages of that procedure do not disappear. At the same time, it is unnecessary because already there is legal protection against this kind of abuse. If legal protection against such abuses is not worth the paper it is written on, why should we add to the useless paper? In the fair trading legislation there is a complete and absolute guarantee that fair competition can be enforced. It is expressly provided in the Bill that the BNOC will not be exempt from any legislative regulation which is applicable to the private sector.


That may well be the case, but if it is so, and if action is to be taken under fair trading legislation, it will undoubtedly be necessary to make some further amendments in regard both to the accounting procedures and to the publication of information by the Corporation, to enable those outside to discover whether or not they arc in breach of this other legislation.


I want to make it clear that we do not for one moment question the good faith of the Government, but we have made the point that assurances from them are really not good enough when we are making the law of the land. Not only have the activities of the BNOC to be fair, but they have to be seen to be fair. The only point which I should like to make to the noble Lord is that we cannot say that the BNOC can be treated like any other company, because we have all agreed that it is not like any other company. Surely that is one of the points on which we all agree. After the passionate support from my noble friend Lord Harmar-Nicholls, I must invite the Government, if they do not like the form of our Amendment, to see whether they can find some better words which will more suitably express what they appear to aspire to, so I must invite my noble friends to press this Amendment.

6.53 p.m.

On Question, Whether the said Amendment (No. 2) shall be agreed to?

Resolved in the affirmative, and Amendment agreed to accordingly.

7.1. p.m.


It may now be convenient for the Committee to adjourn for half an hour until 7.30.

[The Sitting was suspended at 7.1 p.m. and resumed cat 7.30 p.m.

Clause 3, as amended, agreed to.

Clause 4 [Directions by Secretary of State]:

On Question, Whether Clause 4 shall stand part of the Bill?


This clause enables the Secretary of State to

Their Lordships divided: Contents, 77; Not-Contents, 40.

Aberdare, L. Gainford, L. Pender, L.
Alport, L. Garner, L. Polwarth, L.
Armstrong, L. Glenkinglas, L. Rankeillour, L.
Atholl, D. Gowrie, E. Redesdale, L.
Balerno, L. Hailsham of Saint Marylebone, L. Robertson of Oakridge, L.
Berkeley, B. St. Aldwyn, E. [Teller.]
Bridgeman, V. Halsbury, E. St. Davids, V.
Brougham and Vaux, L. Hanworth, V. Sandys, L.
Campbell of Croy, L. Harmar-Nicholls, L. Selkirk, E.
Cathcart, E. Hereford, V. Selsdon, L.
Colwyn, L. Inglewood, L. Somers, L.
Cork and Orrery, E. Ironside, L. Strange, L.
Cottesloe, L. Killearn, L. Strathclyde, L.
Cowley, E. Kindersley, L. Strathcona and Mount Royal, L.
Craigavon, V. Kinnoull, E.
Cranbrook, E. Lauderdale, E. Sudeley, L.
Cullen of Ashbourne, L. Lindsey and Abingdon, E. Suffield, L.
Daventry, V. Lloyd of Kilgerran, L. Terrington, L.
Davidson, V. Long, V. [Teller.] Tranmire, L.
de Freyne, L. Merrivale, L. Trevelyan, L.
Denham, L. Monck, V. Templemore, L.
Deramore, L. Moyne, L. Vickers, B.
Drumalbyn, L. Northchurch, B. Vivian, L.
Dundee, E. Nugent of Guildford, L. Wade, L.
Emmet of Amberley, B. Onslow, E. Ward of North Tyneside, B.
Falkland, V. Orr-Ewing, L. Wigoder, L.
Gage, V.
Balogh, L. Henderson, L. Pitt of Hampstead, L.
Birk, B. Houghton of Sowerby, L. Popplewell, L.
Blyton, L. Hughes, L. Ritchie-Calder, L.
Champion, L. Jacques, L. [Teller.] Shepherd, L. (L. Privy Seal)
Collison, L. Janner, L. Shinwell, L.
Cooper of Stockton Heath, L. Kirkhill, L. Stedman, B.
Crook, L. Lee of Newton, L. Stewart of Alvechurch, B.
Crowther-Hunt, L. Lovell-Davis, L. Strabolgi, L.
Darwen, L. MacLeod of Fuinary, L. Taylor of Mansfield, L.
Douglass of Cleveland, L. Maelor, L. Wallace of Coslany, L.
Fisher of Camden, L. Melchett, L. [Teller.] White, B.
George-Brown, L. Morris of Kenwood, L. Willis, L.
Hale, L. Pannell, L. Winterbottom, L.
Hamnett, L.

give specific directions to the Corporation as well as general directions. This is a new departure which is being followed in other Bills which are at present before Parliament: three of them, for example, are the Industry Bill and the two Development Agency Bills. In the past, in situations where there are bodies in relationship with the Government, particularly nationalised industries, only general directions have been possible for a Minister. The nationalised industries know this very well; they know that they can be instructed by the Minister only in general terms. We discussed this on the Industry Bill as well as the other Bills, and we on this Bench have accepted this with some reluctance on hearing arguments that there are situations in which it is useful to have the power to give a specific direction. The Government have also qualified this by stating that it would be used only in very special circumstances. I would, therefore, draw attention to this and ask the Government whether it is the same policy, that what they have said in regard to the similar provision in the Industry Bill is the intention here too.


Subsection (1), as the noble Lord has said, empowers the Secretary of State, after consultation with the Corporation, to give the Corporation such general or specific directions as he thinks fit. I understand that there are two examples of such power. There is the United Kingdom Atomic Energy Authority, pursuant to Section 3 of the Atomic Energy Act 1954, although this power contains a proviso that the Secretary of State is not to regard it as a duty to intervene in detail in the conduct of the Authority unless in his opinion overriding national interest so requires.

In regard to this Bill, we think it is necessary to have these specific powers in order that there should be no loopholes for the BNOC to evade essential Government control. Many of the controls that the Government might wish to exercise —for example, the disposal of North Sea oil—are specific by their nature. The Secretary of State can give any directions which he sees fit. He does not need a reference to the national interest as a criterion. But clearly this would be very much in the forefront of the Secretary of State's mind were he to intervene in a specific way.

I hope that that brief explanation will indicate the philosophy of the decision of the Government in this respect. As I understand it—and I think the noble Lord reminded us—it was much debated when we took the Industry Bill through the Committee stage in your Lordships' House.


I am grateful to the noble Lord the Leader of the House for giving that explanation.

Clause 4 agreed to.

Clause 5 agreed to.

Clause 6 [Borrowing powers, etc.]:

7.35 p.m.

Lord LOVELL-DAVIS moved Amendment No. 2A: Page 6, line 6, leave out ("temporarily, by way of overdraft or otherwise,").

The noble Lord said: In moving Amendment No. 2A I should like, with the leave of the Committee, to speak to Amendments Nos. 2B and 2C at the same time. The effect of these Government Amendments will be to allow BNOC, with the consent of the Secretary of State and approval of the Treasury, to borrow long term from the market in sterling, or in a mixture of currencies including sterling, instead of in foreign currency alone. The Amendments will enable BNOC more effectively to engage in joint financing ventures with its private sector partners and thus more effectively fulfil its role as a commercial partner in participation agreements. In the longer term it will also enable BNOC to establish whether it can borrow on its own on the security of oil. I am sure that the Amendments commend themselves to your Lordships, but I feel that I should explain, as briefly as I may, why these powers were originally denied BNOC and what has led to our change of heart.

Clause 6, as presently drafted, allows BNOC to borrow sterling long term (for instance, for more than one year) only from the Secretary of State or from the European Investment Bank, the European Communities Commission or other similar designated bodies. They may not, however, borrow long-term sterling from the United Kingdom money market in the way that firms commonly do by the issue of debentures or by loans from banks or other financial institutions. Equally, they could not borrow from the market a mixed currency loan which included any sterling. This reflects what has been the practice with nationalised industry borrowing since 1956. Prior to that date nationalised industries did borrow long-term sterling from the market. But because the industries are Government owned, and indeed their borrowings formally guaranteed, they tapped the same pool of "gilt edged" funds as the Government did with their own borrowing. The result of this competition was to raise the cost to each borrower. It was therefore decided to make the Government the sole borrower and to finance the nationalised industries via the Government. The decision was reviewed and judged correct by the Radcliffe Committee in 1959 and by the Select Committee on Nationalised Industries in 1971.

There are, however, two features of BNOC which have persuaded us that a dispensation from this régime would be in order. First, and the more important, BNOC will be, to an extent unique among the nationalised industries, acting in partnership with the private sector. It would be most awkward if BNOC could not participate in a joint fund-raising operation in a mixture of currencies including sterling, or in sterling alone, from the market because its statutory powers forbade it. For the success of participation, we recognise that BNOC must be able to operate on the same wavelength as its partners.

Secondly, because in such operations private sector partners would be involved, and because of the special financing arrangements which are available uniquely for hydrocarbon development—for example, loans on the security of the borrower's oil rather than his balance sheet assets—it is possible that BNOC, unlike other nationalised industries, will be able to tap some sources of funds, particularly from abroad, which might not otherwise be available to the public sector. Their borrowing in these cases would not compete with the Government's and the argument for denying the Corporation direct access to these markets, the argument which largely convinced Radcliffe and the Select Committee, in these cases lapses. I must stress, however, that these are circumstances unique to all intents and purposes to BNOC. The traditional arguments in general still have validity and these Amendments do not presage any fundamental change of thinking towards nationalised industries borrowing. But for the special circumstances of BNOC it makes sense, and I accordingly commend it to the Committee.


I am sure the noble Lord will be relieved to hear that I do not intend to ask him any searching questions on this subject. I would simply say that if, as we advocate, the Corporation is to operate commercially, then it should have freedom to raise funds in a commercial manner. Therefore, it seems to me that this is a sensible provision.


I should like to agree with my noble friend. These somewhat complicated financial provisions are not something that I would pretend always to be wholly familiar with, but in so far as these are intended to be aiming towards commercial comparability then I am sure we must support them.

On Question, Amendment agreed to.


I beg to move Amendments Nos. 2B and 2C.

Amendments moved— Page 6, line 11, leave out subsection (2). Page 6, line 21, leave out ("provisions of this section") and insert ("subsection") (Lord Lovell-Davis.)

On Question, Amendments agreed to.

On Question, Whether Clause 6, as amended, shall stand part of the Bill?

7.42 p.m.


Subsection (4) of Clause 6 is an important subsection, on which I think we ought to hear the Government's comments. I am glad that the noble Lord the Leader of the House is still here because it is something that affects Parliament as a whole. This subsection seeks to restrict borrowing where repayment is guaranteed to a certain sum, £600 million. If that sum is increased, then Parliament has the opportunity to consider the role and functions and what the money is needed for. Normally, this is a way of exercising Parliamentary control, and this kind of provision is written into a Bill so that if more money is needed Parliament has the opportunity of discussing why.

In this case, as we see it, because of the National Oil Account and the new financing system proposed, that kind of Parliamentary control ceases to be possible. Royalties and other payments will go into the National Oil Account, and the exemptions from PRT—if that remains in the Bill, and we arc due to discuss it later—means that the amount which some estimate will be available to the Corporation in three or four years' time will itself be about two or three times this amount of money. This, of course, makes a mockery of any concept of Parliamentary financial control. Therefore I would ask the Government to tell us whether this is intended as any form of Parliamentary control, or simply as a minor point about the degree of borrowing of this kind.

May I turn to the question of what methods there would be of Parliamentary financial control of the new Corporation. Some two years ago (I remember it well in another place) there was a change in the system of the public expenditure survey, and the White Paper that is published annually and which looks five years ahead. Naturally, so far there is nothing in these White Papers about the British National Oil Corporation, even though I suppose some estimates might have appeared on the basis that this Bill would go through much as it exists now. Therefore, I now ask the Government, in the public expenditure White Papers will there be estimates in future of the expected investment and spending in different activities of the Corporation? This question was put during the Committee stage in another place by my right honourable friend Mr. Patrick Jenkin, but so far as I know no reply has yet been made. So I must ask the Government, who have had a long time since then to consider this matter, to tell us, either now or later, the answer.

I am not referring to auditing. Auditing is of course necessary, and the Bill makes provision for the Comptroller and Auditor General to keep a check on what has been done by the Corporation. But that is quite different to Parliamentary control of the future plans of a body like this, say in the next five years, and their place in the public expenditure programme as a whole. The Comptroller and Auditor General, working with the Public Accounts Committee, has provided Parliament with some extremely valuable reports, but very often they are a long time, even years, after the events. I hope that the noble Lord, Lord Winterbottom, who very often deals with defence matters, will not mind if I say that sometimes the PAC report that so many thousand more boots have been ordered than were required by the Ministry of Defence for the Armed Forces, but it refers very often to several years before. Though that is quite salutory in making sure that these things are discovered and arrangements made so that they do not recur, it is quite different from Parliamentary control of what a body like this is going to do in the future. I ask the noble Lord, first, to agree that it certainly is not in this subsection—although this is the usual form of wording for Parliamentary control of bodies like this—because of the financing from other sources and, secondly, whether he can tell us what alternative system of Parliamentary financial control there will be.

7.46 p.m.


I shall do my best to answer as many of the noble Lord's questions as I can. Understandably, the Opposition pressed hard in another place for detailed estimates to be given of the likely cost of participation and the relation to that cost of the limits of £600 million and £900 million in Clause 6 for borrowings and the guarantees of the Corporation. Their persistence was rewarded when my right honourable friend the Under-Secretary, Mr. Smith, gave an indication of the likely cash flows during the fourteenth sitting of the Committee on 26th June.

We in this House traditionally take a more relaxed attitude to such matters and I am sure you will not expect me to go into the minutiae of financial calculations. We are still in a negotiating situation and the unknowns in the Under-Secretary's education cannot yet have a value assigned to them. I realise that this will come as disappointing news to many noble Lords, but it makes no sense in a negotiation to show one's cards to the other side. In any case each negotiation is different and every one is complex. I must ask noble Lords to be patient.

I can, however, recapitulate the salient points which have been previously made. The borrowing limits are the best estimate of the likely needs of BNOC over the next year or two, that is until the revenues from participation begin to flow. It is our aim that participation itself will involve no net burden on public funds. There maybe initial outgoings, the extent and nature of which will depend on the negotiations, but over time there will be no net costs. This is the basis on which negotiations are being undertaken. But while the negotiations are in progress it is not possible to give any further details or to anticipate their precise outcome.

The National Oil Account will be audited by the Comptroller and Auditor General. There will be more financial scrutiny of BNOC's finance than of any other public corporation. We undertook in another place to give estimates of BNOC's capital expenditure, and the manner of publication is something which I am afraid we shall have to consider. I hope that those answers will satisfy the noble Lord.


I am grateful to the noble Lord for what he has said, but I think that he will realise that it is by no means a full answer to the questions we are putting. He has said that it has not yet been decided in what form the forward estimates of investment and expenditure of the Corporation will be made available to Parliament or the public. I had hoped that in the weeks that have elapsed it would have been possible for the Government to tell us more. I must stress that, of course, although it is right that the Comptroller and Auditor General should be checking in the way in which the noble Lord has just told us and which is provided for in the Bill, that this is something which he is doing after the event. This is different from the public expenditure control which Parliament requires, and which is normally written in the form of this subsection of the Bill, but which, of course, is meaningless from that point of view in the case of this Corporation. However, I am grateful to the noble Lord for what he has said and I hope that the Government will look into this matter. I realise that this is not the occasion for a long financial discussion and I would not have expected the noble Lord to go into that aspect of it. I hope that the Government will look into this matter because in due course many millions of pounds will be involved.

Clause 6, as amended, agreed to.

Clauses 7 and 8 agreed to.

Clause 9 [Exemption from petroleum revenue tax and stamp duty]:

7.51 p.m.

Lord CAMPBELL of CROY moved Amendment No. 3: Page 8, line 7, leave out subsection (1).

The noble Lord said: It might be convenient for the Committee if, with this Amendment, we were to discuss Amendment No. 3A in the name of the noble Lord, Lord Lloyd of Kilgerran, and Amendment No. 4 in the name of my noble friend Lord Strathcona and myself.


I consent to that.


I am sure that it will be convenient if I move, as I now do formally, Amendment 3 and if we are able to discuss the two associated Amendments, Nos. 3A and 4. These are alternatives on the question of the special dispensation which is proposed in this Bill for the Corporation; that is to say, that it should be exempted from petroleum revenue tax. As has already been indicated in the debates so far today, this is a subject which is regarded as very important, not only to Parliamentarians but to many outside your Lordships' House, because it is the first time that any public body has been exempted from a tax. The Corporation is being exempted not from corporation tax but simply from petroleum revenue tax, but in the offshore oil industry that is a very substantial element in the financial calculations of companies which are operating.

There were many arguments in another place about this, and I certainly do not intend to go over them again. I would point out, however, that the British Gas Corporation, which is operating in the offshore fields, is not being exempted. I would also point out that Statoil, the Norwegian State corporation of this kind which has been brought into being to deal with offshore oil in Norwegian waters, is being expected to pay the equivalent Norwegian tax, which again is a petroleum tax though different in form from PRT. There are two serious difficulties about this proposal of the Government. I recognise the argument the Government have put so far, which is that if the Corporation pays the tax then that is equivalent to taking money out of one public pocket and putting it into another, but I regard that as too facile an answer. I accept it on the basis that this does not affect the revenues of the Government as a whole and does not affect the private taxpayer in the country; it is a matter between the Exchequer and Government bodies, including the nationalised industries and this new Corporation.

However, the two serious difficulties are these. First, it would give an advantage to the Corporation when it is competing as it will with other companies not only in offshore operations but in what are described as downstream operations, because the Corporation is being given powers to undertake activities in virtually anything to do with petroleum or its products, including running service stations by the roadside. Unless there is a notional charge throughout the operations of the Corporation, there can be no check that there is not unfair competition arising from exemption from the tax.

In Amendment No. 4, an alternative, it is suggested by my noble friend and me that if there is not to be a payment from one pocket to another, then at least there should be known and published what amount the National Oil Corporation would be paying if it were not exempted, and then it would become clearer—and I hope would be completely clear to the other companies in the industry—that it was not gaining an advantage in competition with other companies. Thus, that is an alternative on which we would welcome the Government's views. I might add that it puts into words what the Under-Secretary of State at the Department of Energy said in another place; that notional figures would be kept which would be published in some form from time to time.

I come to the second difficulty, which is over partnership. It is foreseen that the Corporation will be developing—exploring first, and then developing—oilfields in consortia, in partnership, with private companies. But because the private companies will be paying PRT whereas the Corporation will not, they are bound to have different views when looking ahead and making their plans. I remind the Committee that PRT is a very special tax and is quite unlike any other. It could not possibly be extended to any other industry. It is unique to the offshore oil industry and it includes a 75 per cent. uplift, an oil allowance running for 10 years and each oilfield is considered for PRT separately.

Companies do not as with other taxes, consider their total operations and then offset losses against profits elsewhere. PRT is levied on each individual oilfield. Therefore, consortia will have to consider their operations ahead in the light of the impact of PRT on them, and the private companies may, for example, decide to develop fully one oilfield before they move to another because of the impact of PRT. But the Corporation, which will be working as one of the partners, will not need to have that sort of consideration in mind because it will not be paying PRT. It will therefore be difficult for the Corporation to work in partnership with other companies when their financial planning ahead must be considered in the light of different considerations.

We on these Benches would prefer Amendment No. 3, because we think that the cleanest and simplest course would be to remove this special dispensation from the Corporation and not create this anomaly. We realise, however, that there is the alternative, and certainly what the Under-Secretary said in another place indicated, that the Government might welcome an Amendment which would enable the calculations to be kept and the results to be published, so that even if the actual payments were not made everyone would know where the Corporation stood, and that its activities were being carried out as if it were paying PRT. The Government have said that the Corporation will act commercially and that the oil will be sold at a price which would be the price if it paid PRT. But only something like Amendment No. 4 written into the Bill would ensure for everyone's benefit that this was being done.

In another place, the Minister gave assurance that transfer prices downstream would be on the basis of full market price and that Parliament would be told how much petroleum revenue tax the Corporation would have paid if it had been liable. I therefore ask the Government to recognise that Amendment No. 4 tries to write that into the Bill. It would make no overall difference to the Government and the oil revenue coming in if the Corporation were to pay PRT. It would make some difference to the amount of corporation tax that the Corporation would pay, although it would not make any overall difference to the Government. Indeed, that is one of the arguments the Government have used.

I now come to an interesting point which I hope noble Lords will take on board; that is, that as the Oil Taxation Act is drafted, and as this Bill is drafted, some change will have to be made anyway. If the Corporation is exempted from PRT while the private companies with which it is working in an oilfield are not, then the private companies will end up with more oil allowance than they are expected to get. As the Act and the Bill are now drafted, the Corporation would not be paying PRT and the amount which it would not be paying would accrue to the private companies in due course. Since the Corporation would never be able to use its share of the oil allowance, the partners would be able to go on receiving a large percentage of the half million tons of oil per six months, which is the oil allowance. I will not elaborate on that now, but I would point out that there seems to be a defect which, clearly, the Government will have to amend either through this Bill or through the Oil Taxation Act. The present situation is unsatisfactory and will have to be altered. I hope the Government will think very carefully about these alternatives put forward here.

I tell my noble friends straight away that it is not my intention to press this Amendment tonight, because we are putting forward alternatives and want to hear the Government's views. We are sincerely asking the Government to look at this again, because it is something that has never been done before. I am not one of those people who say that one should never do something because it creates a precedent. It is not that; it is simply that there is a feeling in this country that everybody pays taxes. Even nationalised industries pay taxes, and this is going to be the first one which is given this exemption. It will lead to complications both in competition with other companies and in working in partnership with other companies. I apologise for the time spent in spelling this out in a rather longer speech than I usually make, but I think it is a subject which deserves very full attention and I hope I have made our point clear to the Government.


I should like to support the argument of the noble Lord, Lord Campbell of Croy, on this matter and ask the Government to reconsider this question of the exemption that is given to the BNOC in regard to petroleum revenue tax. It seems to me that there are four main reasons why BNOC should be liable to petroleum revenue tax, and if any arguments of the Government preclude their taking that view then serious consideration should be given to the alternative proposed in Amendment No. 4. The four main reasons why it seems to me that BNOC should be liable to tax are these. First, it seems wholly illogical and inconsistent that a Government-owned Corporation, which it is stated is proposing to act commercially, should be exempt from tax on its profits in this way. Secondly, the exemption of the Corporation from the petroleum revenue tax would complicate and possibly exacerbate relations between it and other oil companies when partnership or joint operating arrangements are in existence. The noble Lord, Lord Campbell of Croy, has mentioned that.

The third reason is that the exemption of the Corporation from this tax may have serious and unfortunate international implications, and may lead to the imposition of penalty taxation against United Kingdom oil companies which are operating abroad. My last reason is that the exemption unfairly prejudices foreign oil companies, particularly United States companies, operating in the United Kingdom, in that the Corporation's exemption from this tax may cause—and I am advised that this is the position—overseas tax authorities to disqualify petroleum revenue tax and disqualify credit relief, the result being that that the total tax burdens suffered by such companies in their United Kingdom oil profits could be materially increased and, therefore, there would be lack of incentive to operate in this country. It seems to me that those are four cogent reasons why the Government should at least reconsider this position. If, as I say, there are fundamental reasons about which I know nothing why the Corporation must be exempted from this tax, then serious consideration should be given to the alternative Amendment No. 4.


Perhaps if I intervene here I could deal with some of the disquiet which has been expressed by the two noble Lords and also by those who took part in the debate in another place. I immediately recognise the concern—I think it is mistaken—and certainly it exists. Let us be clear that the BNOC will be subject to all forms of taxation—corporation tax and all the other impositions upon companies. The one exemption is the PRT and this is because it is a new tax, it is limited and it is infinitely less cumbersome than if we were to adopt the proposal in the Bill that the Corporation should not be subject to PRT, but that the sum should proceed immediately into the National Oil Account and then on to the Consolidated Fund. I do not think I need to dwell very long on the reasons for the Government's decision in this matter, and I think that the noble Lord, Lord Campbell of Croy, at least acknowledged the logic of the proposal.

I accept the concern and I have looked into it, and I must say that it is misplaced or perhaps exaggerated. For instance, to take the question of the sale of the crude oil—that is, upstream—I do not think the point really arises for the market in crude is international and the price is determined internationally, and BNOC, like any other North Sea producer, will be a price-taker. No doubt there will be price differentials to take account of different qualities of crude, discounts on long-term contracts and the like. These are normal features of any industry.

I accept that there is a different situation so far as downstream is concerned. There distinct advantages might be gained by someone who can sell refined oil or oil products for less than his competitors. But it is no part of the Government's plan to confer any such advantage on BNOC through PRT exemption. When it goes downstream BNOC will compete fairly with the rest of the industry, and to ensure this my honourable friend the Parliamentary Under-Secretary of State for Energy gave an assurance in Committee in another place that BNOC will be required to transfer crude oil to its downstream subsidiaries at the market price. Thereafter, BNOC will be on all fours with the rest of the industry, because PRT applies only at the production stage and BNOC will be subject to corporation tax on its downstream operations in the same way as other people.

In, I think, Amendment No. 4 there is another consideration, which is that BNOC might not pay PRT and will therefore be able to retain sufficient sums to give it access to an additional source of cash which it might spend on objects of its choice, or which might lead it to take a more relaxed view of expenditure decisions taken by its private sector partners.

I understand these worries and I hope to reassure noble Lords, but I do not think that acceptance of the Amendment would be the right way to do it, for a variety of reasons. First of all, all BNOC revenues, including what would have been paid in PRT, will be paid into the National Oil Account. This is provided for in Clause 40(2)(a). It is true that there is a power for the Secretary of State to allow exemption from this rule because, clearly, there will be day-to-day expenditure which it would be quite absurd to make the Corporation draw from the NOA, but it is the Government's clear intention that with these relatively minor exceptions—relative, that is, to the size of the sums which the BNOC will handle—its revenues will be regularly and quickly paid into the NOA. So sums represented by what would otherwise have been PRT will go to the NOA in any case and it is not necessary to amend the Bill to achieve that.

Secondly, even if there were a requirement on the lines contained in the Amendment, there would be nothing to stop the BNOC drawing the money out again, provided the Secretary of State considered that it was needed to meet expenditure properly chargeable to revenue or capital account under Clause 40(3)(a). So, if the Secretary of State and the Corporation were so minded, the Amendment could be rendered singularly ineffective.

The real guarantees that BNOC will behave commercially lie not in whether it pays PRT or what sums are transferred to the NOA, but in the regime of financial duties under which it will operate. It has been stated again and again that these will be set and any other necessary steps taken to ensure that the BNOC will not occupy a specially favoured position compared with its private sector partners. As we have already said, we are currently discussing these matters with industry and, while it would be premature to say precisely what arrangements will be concluded, the guiding principles are clear.

I could not ask the Committee to accept these Amendments. The noble Lords, Lord Lloyd of Kilgerran and Lord Campbell of Croy, asked whether the Government have given this matter further consideration. Yes, we have. I have gone into this very carefully with the Department, anticipating the fears that have been expressed. In response, therefore, to the points that have been made, I can give an assurance that the Government will move an Amendment on Report stage to require in the Bill itself the publication of information about the payments of PRT which BNOC would have made had it been liable. There will therefore be the disclosure in the reports which we would have given assurance of in any case, but if there is any element of doubt we are willing to move an Amendment.

I shall be open with the Committee: there arc some practical difficulties which are mainly of an administrative nature. Clearly, we want to avoid the problems and cumbersome methods of moving money from one account to another, but we do not want to overload the machinery merely in order to provide this information. However, I am going into the matter and I shall be happy to have discussions with the noble Lords, Lord Campbell of Croy and Lord Lloyd of Kilgerran, between now and Report stage. In the spirit of trying to meet a genuine—though, I believe, mistaken—concern, I hope that this gesture will meet with a ready response from noble Lords opposite.


I must say straight away that of course this is very welcome news. I am grateful to the noble Lord the Leader of the House for having said that the Government are considering putting down an Amendment and for the fact that they recognise that something needs to go into the Bill. I cannot say more before the discussions which the noble Lord mentioned take place and before we see what the Amendment will be. I had been going to say that I hoped that the Amendment would be tabled in good time before Report stage so that we could consider it and revert to our own equivalent if we did not think it good enough, but the noble Lord has said that he intends to have private discussions first so I must immediately thank him for this. I feel that it may be regarded as a breakthrough in this subject where, though the Government have given verbal assurances in the other place, they have not been prepared to make any change in the Bill.

I should like to go on to comment on some of the other remarks made by the noble Lord. He again tried to assure us that there would not be unfair competition arising from this, either upstream or downstream. He accepted that the downstream element was difficult to regulate and police unless there is to be some way in which it can clearly be seen resulting from his proposed Amendment. On the question of working in partnership with other companies, I believe that this would still remain a problem if PRT were to be paid with no change. For example, the question whether private companies decided to buy or lease vessels and equipment is one which both the companies and the Corporation working in a consortium would have to consider, but the companies might well decide to do something quite different. I give that as a good example of a case where their own judgment would probably be quite different on buying or leasing if one were paying PRT and the other were not.

I do not feel that I need do more now than to ask the noble Lord whether he also identified the anomaly to which I referred, because that will certainly need to be put right. I hope that the noble Lord, Lord Balogh, has noticed it. I do not know whether the Government were already aware of it, but it is certainly a massive loophole in the legislation whereby private companies in partnership in an oilfield with the BNOC would be able to enjoy considerably more oil allowance than private companies operating in another field. I am sure that that cannot be the Government's intention; I believe that it is simply a lacuna in the legislation. That will need to be put right either in this Bill or in some other amending legislation.


I will certainly look into the anomaly which the noble Lord has mentioned. I still think that the fears which he has again repeated are exaggerated. Since this is the only intervention that I shall have on the Bill, may I say to the noble Lord, Lord Polwarth, that I too, before I came back into Ministerial office, was in the petrochemical field—shall we say, more downstream than ICI. I must say, thank goodness! that there is going to be even more competition in this field for those who have to purchase petrochemical raw materials. I look forward to increased competition, which I am sure noble Lords opposite, with their political philosophy, must welcome. I am glad that the noble Lord is to consider my suggestion and I shall certainly consult both him and the noble Lord, Lord Lloyd of Kilgerran.


I should like to thank the noble Lord for his remarks. I would simply say that, so far as we in ICI are concerned, we welcome any competition provided it is on fair and level terms.


In view of the statement that the Government are to produce an Amendment which we hope will be equivalent at least to our Amendment No. 4, I shall not press the Amendment now. However, I must tell the Government that if we find that their Amendment does not really meet our case, we must retain the right to revert to this subject. In view of what the noble Lord has said, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 3A: Page 8, line 7, leave out ("not").

The noble Lord said: I am grateful to the Leader of the House for his kind gesture of consultation and so I do not propose to move this Amendment.

Clause 9 agreed to.

Clause 10 [Accounts and audit]:

8.20 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 4A: Page 8, line 36, at end insert ("which conforms to normal commercial standards").

The noble Lord said: Perhaps it would be convenient to the Committee if I spoke at the same time to the three subsequent Amendments as they are all on the issue of accounting standards and separate accounting. They are intended to once again ensure that the BNOC is in a comparable position to private companies, be it in competition or in partnership. The purposes of these Amendments are, first, to ensure that the normal commercial standards are adhered to and, secondly, to make certain that there is no hidden cross-fertilisation as between one activity and another. Perhaps at this stage, as it is rather late in the evening, I need not elaborate at great length on this matter. The only point between the noble Lord, Lord Balogh, and this side of the Committee is the question of whether or not this should he at the discretion of the Secretary of State.

However, it would be churlish of me not to be grateful for the Government's movement at least in our direction. But I have slightly failed to understand why they are not prepared to go all the way, because I am assured that in the Gas Acts 1948 and 1972, and in the Coal Industry Nationalisation Act 1946, it is not a question of the discretion of the Secretary of State. It is a straightforward direction written into the legislation. For example, the Gas Act 1948 refers to a form which shall conform with the best commercial standards. It says that the Gas Council shall keep proper accounts. There are no "ifs" or "buts" or passages to the effect, "if the Minister so instructs". With that brief introduction I beg to move Amendment No. 4A.


This Amendment seeks to provide that any statement of BNOC's accounts will conform to "normal commercial standards". This s a slight change from the Amendment moved in another place which provided for adherence to "best commercial standards". I hope that this does not indicate a lessened acuteness of the critical minds in this House. I do not know whether the noble Lord considers he has lowered his demands, but in any event I can assure him that BNOC's accounts will not fall short of best commercial standards. First, it is provided that certain special members of institution should prepare the accounts. Though I hate playing this game—which is a favorite game—I can quote a very Conservative Member, Sir John Eden, in support of my case. He said during discussion of the Coal Industry Bill 1971: I agree that this phrase has been used in other Statutes and that, therefore, there are plenty of precedents for it. On the face of it, there is plenty of good reasons for including the words in the Bill. I shall not ask the Committee to accept the words, simply because I feel that they do not lend themselves to clear enough definition. I have looked at this matter closely. I find, for example, that the phrase 'best commercial standards' is not very precise and, as a result, may lead to a variety of different interpretations. The Select Committee for Nationalised Industries in its First Report for the Session 1967–68 made some observations on the interpretation of the word 'commercial'. The Select Committee found, in paragraph 63, that it is much more difficult to define 'commercial' than to define 'public interest', and it offered a number of alternative possible definitions. I am not picking at words. I accept the sentiment of the Amendment. However, I think it important not just to lift from earlier Acts forms of words which do not add particularly to the legislation under consideration. I do not think that I could have expressed myself more precisely or in better English, or with nobler spirit than Sir John Eden. We shall see that auditors are appointed whose standing will ensure that good commercial practices—indeed the best commercial practices—are observed. But it would be unfair to saddle them with a statutory duty which is so imprecise and is capable of so many interpretations. I hope noble Lords will agree, and I think they will also agree that nationalised industries, whether or not their accounts are statutorily required to conform to commercial standards (for example, those of the Post Office) do in practice produce accounts to the highest standards. I can assure noble Lords that BNOC will be no exception.


Would the noble Lord concede that if the wording of these Amendments is not satisfactory, none the less the principle enshrined in them is worthy of attention? There are a number of respects in which the oil companies' standards of accounting are very high indeed and are not comparable to those normally used in nationalised industries. In the post-prandial bonhomie which has now enveloped this Chamber, would not the noble Lord be willing to look at this matter? It would not commit him to very much. He may come hack and say that this should remain as it is. But surely these Amendments enshrine an approach of which in principle he approves. There can he no doubt about that. Therefore would he just tell us that he is willing to look at this matter between now and Report? Could he not just give us that little after-dinner concession?


Before the noble Lord replies may I add my voice? I have listened to the argument involving Sir John Eden, who is a good friend of mine. He was the chap who talked me into becoming chairman of the Metrication Board, and I am not sure that that was an honour for which I should always thank him. I honestly do not think that we need go back to 1971–72 because many things have changed since them. To start with, inflation used to be at the rate of 3 per cent., or 4 per cent., or even 5 per cent. a year. The Government have set up the Sandi lands Committee, there is now inflation accounting, and everything has changed since 1971–72. The "best commercial practice", as put here, seems to me a sensible arrangement. The noble Lord appears to be in a conciliatory mood. I was delighted to hear immediately upon returning to the Chamber about his concession on PRT. The "best commercial practice" is now bringing out very firmly that one has to have cross-centres and profit and loss in areas which are clearly defined.

We do not have to go back to 1971–72, because while these matters were being discussed an undertaking was given by Her Majesty's Government in the Commons Committee to make provision for the financial and operating results in each of the BNOC's main activities. This is what I should say is the sort of cross-centre philosophy: to be kept separately, capable of individual scrutiny. That was an undertaking by the Minister in Committee in another place. I do not see any point in quoting Sir John Eden in relation to a matter in 1971–72 which was a rather different circumstance.

In view of the noble Lord's feeling of co-operation and of his meeting points which are being put constructively from this side of the Committee, I hope that he will look at this matter. I am not being hostile. I am merely saying that if accounts can be concentrated so that the profit and loss on the main activities and the capital employed, and the investment on the main activities are brought out and are capable of individual scrutiny, it will be to the advantage of the efficiency of any undertaking, small or big, and particularly of a really big and new undertaking like BNOC. I hope that the noble Lord will look at this in a sympathetic mood, because of his great financial knowledge and as an economist, as a merchant banker, as an academic and as a Minister.


I am overwhelmed, but I think that the noble Lord, Lord Orr-Ewing, gave us the best reason why this approach is not altogether satisfactory. There is, as we all know, an enormous dispute going on about inflation accounting. There is the Cambridge view and the Reading University view and they clash, enlivening The Times with unusual economic terms which they throw at each other with great verve and solid conviction. It seems to me that Sir John was right in one thing. If you lay down in a Bill words which are difficult to interpret, then there might be most awkward situations, and while what the noble Lord called the post-prandial spirit of concession might shine in a few later passages, I think there would not be any sort of advantage in specifying to this industry the best commercial practices; for one ought to assume that a nationalised industry of this size, of this complexity and of this importance will be managed to the very best commercial standards. Therefore, it would be a reflection and at the same time a source of difficulty and possible embarrassment.

I was told that when a person in my position says "I will look at it", that is almost saying, "Yes!". It is like a young girl who by saying in a certain way, "No", has already said, "Yes". I feel that my virtue must be protected and therefore, I must say that I cannot accept this Amendment, and I hope your Lordships will be content to see that we shall seek in other ways to ensure that the accounts will be so kept as to produce general approval.


I am not going to argue with the noble Lord about what is the best of normal commercial accounting practices, particularly at this stage of developments in the accounting field. If the noble Lord does not like the wording in some of the past Acts to which we have referred, I wonder if it would be fair to ask two questions. First, would it be the Government's intention to go back and revise the wording in these Acts? Secondly, in practice, has the wording in those Acts given rise to any accounting difficulties? I am not seriously expecting an answer to either of those questions now. Let me say at once that there is very little between us on this Amendment. That is quite clear. In spite of the noble Lord's fear that he may be talked into something if he does not take a firm line against us, I am content to leave it and to say that this is something which we will look at to see whether we need to come to it again.

I think it would, in the end, save the time of the Committee if I might now look forward to Amendment No. 6 which is in my name and in that of my noble friend Lord Campbell of Croy, and to pray in aid (since we have been talking to all these Amendments) the recent Report of the Select Committee on Nationalised Industries which said this about the nationalised industries' accounts: The accounts of the nationalised industry subidiaries engaged in the exploitation of UKCS"— which is, I suppose, the United Kingdom Continental Shelf— should as a matter of course be laid before Parliament by the Secretary of State, as are those of the main Boards. I appreciate that this applies not to this particular Amendment but to Amendment No. 6. In the meantime, I beg leave to withdraw Amendment No. 4A.

Amendment, by leave, withdrawn.

Lord BALOGH moved Amendment No. 5: Page 8, line 38, at end insert ("and, if and so far as the Secretary of State so directs, giving separate information with respect to, and showing as far as may be the financial and operating results of, each of the main activities of the Corporation.").

The noble Lord said: These Amendments effect small and technical but, none the less, real improvements to this clause. I cannot think that they will prove controversial and I shall not weary the Committee with elaborate explanations. This is, in a sense, consequential on the Amendment moved on Report in another place to provide for separate accounts to be prepared for each of the main activities of the Corporation. That Amendment was drafted so as to apply to the case where consolidated accounts of the Corporation and one or more subsidiaries are produced. The Secretary of States, in moving the Amendment, noted that the provision ought really to apply also to the cases where there is no consolidation. This Amendment repairs the omission by providing for separate information to be given where the Corporation produces its own unconsolidated accounts.

Amendment No. 7 similarly repairs an omission in the Bill by providing an express power for the Secretary of State, with Treasury approval, to request the preparation, in a form which he may specify, of accounts for each of any group of the Corporation's subsidiaries. Provision is also made for separate information to be given about each of the main activities of the subsidiaries or group in question. Provisions concerning the form and preparation of subsidiaries' accounts were made in the (Conservative) Gas Act 1972, and in the (Conservative) Coal Industry Act 1971, section 8.

On Question, Amendment agreed to.

8.38 p.m.


I beg to move Amendment No. 6.

Amendment moved— Page 9, line 6, leave out ("if the notice so requires,").—(Lord Strathcona and Mount Royal.)


This Amendment would make it mandatory, when consolidated accounts are prepared, for a breakdown to be given of each of the main activities of the group in question. As drafted, the Bill provides for such a breakdown only if the Secretary of State requires it. There was considerable debate on this clause in another place, and I am aware that the Under-Secretary undertook (in column 999 of the Report of the Committee proceedings) that the same sort of directions would be given to BNOC in respect of accounts as have been given to the BGC, and that when we undertook to move an Amendment on Report to provide for separate accounts for separate activities, the parallel of the Gas Act was very much in the minds of the members of the Committee at that time.

In the event, the Amendment we moved did not exactly parallel the Gas Act.Section 23 of that Act requires, rather than permits, a breakdown and the noble Lords, Lord Strathcona and Mount Royal and Lord Campbell of Croy, by this Amendment seek to insert a requirement in this Bill also. In shrinking from a requirement in our Amendment to this Bill in another place we were inspired not by a grudging reluctance to go the whole hog but by prudent practical caution. The 1972 Gas Act established the BGC but it did not establish the nationalised gas industry. The Gas Council was already in existence and we had a good idea of what was both proper and practical in such matters as accounting procedures. We are obviously not in that position with BNOC and where the realities are uncertain it is only common sense to preserve the maximum degree of flexibility in the available options. We thought it right therefore to give the Secretary of State discretion whether or not to call for disaggregated accounts.

However, having listened to noble Lords, I am persuaded that we have erred on the side of caution. I think it is right that separate activities should be separately accounted for—this is one of the concessions I had in mind when I replied to the noble Lord, Lord OrrEwing—and I go along therefore with the spirit of the noble Lord's Amendment. A little practical difficulty now besets us. These are two Government Amendments to this clause which similarly contain a permissive power to require a breakdown in the case of the Corporation's own accounts and those of its subs diaries. The corresponding Gas Act provision is mandatory in the former case but not in the latter. I think we should like a little time to consider what the appropriate course will be for this Bill and I would invite the noble Lord to withdraw his Amendment on the undertaking that we shall revise this clause on Report so as at least to incorporate the principle of the noble Lord's Amendment.


That is a very handsome concession from the noble Lord. We have "twitted" him earlier in this debate for not giving us anything. We welcome what crumbs we can get. I was going to remind him that the Select Committee on the Nationalised Industries had a good deal to say on the subject. We had a debate in this House not so long ago on this subject, when I was in dispute with the noble Lord, Lord Hughes, about the nationalised shipping concerns in Scotland. It is interesting to see the way this has moved; the Government have at last come clean on breaking down the subsidies to the various services. I do not want in the least to be churlish in thanking the noble Lord for the concession he has made, and I am delighted to withdraw the Amendment in the light of what he said.

Amendment, by leave, withdrawn.


I must apologise for not mentioning when we discussed Amendment No. 5 that I was also speaking to Amendment No. 7. May I now move Amendment No. 7.

Amendment moved—

Page 9, line 13, at end insert— (2A) If the Secretary of State with the approval of the Treasury gives notice to the Corporation requiring it to prepare statements of accounts in pursuance of this subsection, it shall be the duty of the Corporation to prepare, in respect of each accounting year while the notice is in force and in the form specified in the notice, statements of accounts showing—

  1. (a) the state of affairs and the profit or loss of such of the following as are specified in the notice, namely—
    1. (i) a group consisting of such of the Corporation's subsidiaries as are so specified; and
    2. (ii) each of the Corporation's subsidiaries so specified; and
  2. (b) if the notice so requires, the financial and operating results as far as may be of each of the main activities of the group or of each subsidiary in question."
—(Lord Balogh.)

On Question, Amendment agreed to.

Clause 10, as amended, agreed to.

Clauses 11 and 12 agreed to.

Clause 13 [Transfer to Corporation of shares of NCB (Exploration) Ltd]:

8.44 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 74: Page 10, line 38, leave out ("face") and insert ("market")

The noble Lord said: I was going to say that at face value this Amendment looks innocuous!In point of fact it contains an important matter of principle. We are back to the question of the reality of the BNOC and how it is intended to behave. If it is intended to behave in a fully commercial manner, is it not rather odd to launch it by transferring to it massive assets for the sum of £50,000 when I would say, without getting into an argument, they must be worth something of the order of £100 million? Is it not inconsistent to do this, when it is intended that the BNOC should take over the £100 million of loans which the Coal Board currently has on a totally realistic basis? it seems curious to take over the shares on one rather artificial valuation, and the loans on what one might regard as a normal valuation.

Clearly, one concedes at once that here we are talking about taking an asset from one public pocket and transferring it to another public pocket. I understand that it is not by any means an easy matter to value these assets. I am not really in a position to judge how difficult a matter this is, but clearly it is an activity which is undertaken on a regular going basis, It must be happening every day that one is trying to value these assets, and the normal way would be on their potential earning capacity. Naturally, the Coal Board would be unwilling to complain about this, and I am not suggesting they have done so. However, I cannot but think that they must be a little sad that it should be suggested that their assets should be virtually sequestered in this manner. The Select Committee on Nationalised Industries had this to say: The Goal Board are obviously reluctant to leave the North Sea. Not only have they invested money but they have developed a broad philosophy of hydrocarbon use which they had hoped to exploit when their share of oil began to flow. It is difficult to believe that these plans, which depend largely on NCB's on-shore expertise and association, could be simply transferred to BNOC even if the dozen or so members of NCB (Exploration) Ltd. are themselves transferred. That is what the Select Committee on Nationalised Industries recently reported.

Is it not rather knocking the stuffing out of the NCB—who are constantly being exhorted to behave in a commercial manner and earn a profit—if, when they set up a profitable subsidiary, the first thing the Government do is to take it from them at what is by any standards a totally unrealistic valuation? I admire the NCB's restraint: they must have been sorely tempted to give themselves a massive bonus issue so that the face value of the shares was no longer £50,000 but some more realistic figure which represented the true underlying value of the assets. So far as I am aware, they have not sought to do this. We believe that this would be an unrealistic thing to do. It will confuse the financing and it will undermine the confidence in the way these industries are expected to behave. It must represent a hidden subsidy to the BNOC.

It must also be an alarming precedent for those who are going to negotiate with the Government about the dreaded question of participation. If the Government want to convince industry and the country at large that they intend BNOC to start by behaving in a business-like manner, would it not be better to try to strike a realistic price for these shares? Even if arriving at an accurate valuation is too difficult, too contentious or too costly, surely there would be a case for putting in some kind of figure which could be defended even if it is not necessarily the last word in perfectly accurate valuations. I am sure the Government must listen to this plea. I beg to move.


May I add a word before the Minister replies. First of all, because of the rapid movement of events, I am sorry that I did not have the chance to join in thanking the noble Lord for his own recent Amendments which have gone some way to easing some of our anxieties. Now we come to this Amendment put forward by my noble friend. Let us be frank about it: the NCB's achievement in the North Sea is in no way to be despised. Indeed, the NCB's accomplishments in the North Sea are the first real asset that BNOC is going to have. The first access to knowledge and experience will come from the NCB's exploration operations.

It is true that there will be participation as well—I prefer to call it rape. But the real starting point of the BNOC is going to be the accumulated knowledge of the NCB. I cannot help reminding myself of occasions when I have addressed election meetings, when two or three hecklers would get up from the audience and try to put questions to me all at once. I would say, "Comrades, where is your comradeship?" Here we have the BNOC proposing in effect to rape the National Coal Board. To take it over at its face value is to take it over at nothing at all. That is surely common ground, because we are all very reasonable now that we have had dinner! Secondly, this particular exercise is not going to encourage others. It is not going to encourage other investment. When a nationalised industry has invested with such praiseworthy enterprise in the offshore operations and is treated like this —as a sort of cousin, a non-U cousin, a kind of upstart—by a nationalised body, this will not encourage others at all. The noble Lord will not expect me always to defend nationalised industry—he may even be surprised that I should defend it at all—but having been the guest of nationalised industry in the North Sea and having seen with my own eyes something of what has been accomplished, I am prepared to wave a flag on their behalf and on behalf of their fair treatment. I hope the noble Lord will give his mind afresh to this, because it is not a silly or superficial point. It is a real point, a point of equity and justice.


In supporting this Amendment I should like to raise one point which puzzles me. One would have thought that on this particular point the National Coal Board would have had sufficient power to establish its own importance as regards this Bill in the eyes of the Government. It rather worries me that there should be a sort of conflict between the National Coal Board and this particular Bill, because one would have thought—although I personally am not in favour of any nationalisation—that, considering that it has been in operation since 1948, the National Coal Board would have been in a position to have protected itself since, as I understand it, it appears to require protection from its own Government. I find this extraordinary. I should have thought the Coal Board would have made representations. Perhaps it is asking a great deal to expect the noble Lord—though I hope he will do so—to accept this Amendment in favour of the National Coal Board if the National Coal Board themselves could not make the Government accept what they think is the right thing for them.

Viscount LONG

I rise in absolute sympathy with my noble friends. The noble Lord, Lord Balogh, and I have had several quiet conversations before dinner on the Committee and Report stages of the National Coal Board Bill. I feel that Clause 13 is just about as mean a clause as I have seen in any Bill. My noble friend Lady Ward has asked whether the National Coal Board could not defend itself. I think we are seeing for the first time a situation where here we have a mammoth Bill, by means of which the National Coal Board is to be squashed; it is to be bullied and not allowed to have any say at all. My noble friend Lord Strathcona said that they have been very quiet about it. I think it is very serious that there could be an enormous difference in the handing over of these shares—either £50 million or £55 million on the market value of the shares. If I may use a schoolboy expression, I think it is particularly mean. Another point I should like to make concerns manpower, the people who have explored in the North Sea. How demoralised they must feel when suddenly they wake up to find that they are ordered by this clause to hand over these shares! What is their work about? I think it is very sad, and I have great sympathy with the Amendment of my noble friends.


This is a red letter day for me, to hear my unofficial friend the noble Earl and the noble Baroness, Lady Ward, defending a nationalised industry, and their dying in the last ditch represents a pleasure to me which is not very often encountered—


Surely they are defending fairness and equity. We defend that wherever it may be necessary.


I stand corrected. Noble Lords must begin to realise how this whole operation came about, because this is very important. It came about that a nominal share capital was put at the disposition of the Coal Board. This is one of the advantages of nationalised industries which I would be the last to decry. It was an enormous amount of money, something like a £100 million. Obviously this could happen in a capitalist affair only if, say, £50,000 was produced by, perhaps, Getty, Rockefeller and Ford combined, because on £50,000 equity capital they can borrow £100 million. This was therefore, economically and financially speaking, an operation based on the credit of the State. It was not a commercial operation. It was not an operation by means of which somebody raised X amount of money and then borrowed 2X, which is perhaps the most even a very large and well-founded company can do. So to think of this as a sort of "rape of the virgin" or something of that kind is really incorrect. I am fortified in this attitude because the noble Lord, Lord Strathcona, was helping me greatly to avoid attacks from my rear, especially from my noble friend Lord George-Brown who, in a very splendid mood that night, attacked me because he said that the social cost of coal ought not to be subsidised by stealth; it ought come out in the open.

In this case, a non-commercial operation on the basis of the State credit, plus heavy borrowing, produced very good results, and I congratulate the Coal Board. I have the highest regard for what they have done. That does not mean, of course, that more should be given to them than they borrowed and spent on the enterprise—because after all it was not a speculation intended to subsidise the coal price. That is really what this Amendment amounts to. It seems to me—although I am the first person who would wish to stress the magnificent record of the Coal Board—that this has nothing to do with that. This was not a Coal Board operation, because the Coal Board does not have capital of its own: it has to borrow from the State. It invested here, and the State now transfers this value which it created—the locus being the Coal Board—into another place, the BNOC. We have accepted the argument from the Gas Board because the Gas Board activities are almost inextricably linked, especially in the Southern waters—here I may say, perhaps, English waters, not the Northern Scottish, British waters so much. The noble Lord argued in favour of this Amendment in regard to the coal industry compensation Bill, and I am sorry that the noble Baroness, Lady Hornsby-Smith, is not here because she was then especially emphatic on this point and I should very much have enjoyed her support.

9.1 p.m.


I do not quite understand the noble Lord's last few words. Surely, when the National Coal Board made a decision to invest in the North Sea it decided to allocate funds to that investment, and could easily have taken a different decision to allocate funds somewhere else. Therefore, when the noble Lord speaks about the transfer of the trust of this investment from the National Coal Board to BNOC, surely he is not correct in saying this because he is taking something away from the NCB. He is taking something more than just the original investment; he is taking something from which the National Coal Board had hoped to realise future profits.


I am sorry; I may have expressed myself badly. My point was merely that the National Coal Board w as the locus on which a certain State participation was financed in, I think, the second and third rounds; in the fourth round there was no participation by the public sector. This is not a risk venture in the normal, ordinary sense, because the Coal Board had to borrow the money and this borrowing is, I think, to be repaid fully. It was not like the noble Lord's going into a company which has a loan capital, and then because the asset appreciates, the loan capital remaining the same, an enormous profit emerges on the equity. This case was not like that. This was an operation which was based on the State's credit. The State has the right of allocating when it sees that a new situation arises and a new specialised industry is bung built up. It decides that the assets which were created on the basis of the credit should be transferred.


May I come once more to this question? In some ways, the Minister's reply underlines how difficult it is to keep commercial practices and fair competition between the public and the private sector. As he said, this was a venture which was underwritten by the State, they got special terms—I think that was the implication—and therefore they were taking no risk. This underlines the point we were trying to make about fairness of dealing as between the public sector and the private sector in the same areas. But I just could not accept the noble Lord's argument that, because the money was borrowed, they were not at risk. If I or my company want to borrow from the bank, we are every bit as much at risk. Either we make a good and wise investment, in which case one hopes for a reasonable return, after tax, or one makes a blunder of an investment, in which case one is penalised. If the worst happens the bank forecloses and you go bust.

I hope the Minister will consider this point rather more carefully, because we are living—I have stressed this earlier today, as has everyone else—in a mixed economy. We are trying to make nationalised industries work. They are here with us and we should like to see them following commercial practice and commercial outlook. If that conception is taken, then when their investments are good they should be rewarded, and when bad they should be penalised. What seems to us to have happened in this case is that they made a wise investment of £50,000. It is only right, if they have made a wise investment, that they should be rewarded for their foresight and aptitude.

I am not sure that "market value" is the right term, because it is very difficult in a closed market of this kind to work out exactly the market value. But I think one can—many companies have been concerned in a similar position, trying to work out the valuation of a share after a take-over or some such thing—put this matter to arbitration to be dealt with by professional people. We are trying to be helpful, to reward initiative, to reward success, and in the public sector that is every bit as necessary as in the private sector. Will the noble Lord look at this point again before we come to a further stage of the Bill, to see whether there is a better provision than the" face value" of the shares, as referred to in the Bill?


I should like to follow the noble Lord, Lord Orr-Ewing, who has said most of the things I needed to say. I find the argument of the noble Lord, Lord Balogh, very difficult to follow. He seemed to be arguing strictly from the National Coal Board's point of view. We did not single out the National Coal Board for particularly favourable or particularly adverse treatment, but it happens that there is a clause in the Bill which appears to single them out for this special and, in our view, inequitable treatment. I am not very worried about inequitable treatment of the NCB as a nationalised industry. As the noble Lord said, this is a Government affair. But a few minutes ago we were speaking about good accounting practice and normal accounting practice. We are here talking about setting up the BNOC on the basis that it is going to be a realistic commercial organisation. I am not going to repeat it all again, but the whole idea is to make it as near an ordinary operating company as we can. Is it not therefore curious to transfer to it assets at a totally unrealistic value? I do not mind a bit how those assets have been created.

In this argument, I am not concerned about what the Coal Board receives, except in so far as it seems to cut across the instruction to the Coal Board and I think it will have a damaging effect on the morale of the people who work in the Coal Board. I am not taking it as a matter of principle that the Coal Board should receive a realistic price, but if we are talking about real accounting how will these assets be valued in the BNOC? Will they be put in at a face value of £50,000 when everybody knows that we are talking about something worth £100 million? How can anybody call that good accounting practice? I will not pursue this point. Indeed, I find that my temerity in arguing accounting with the noble Lord amazes me, but I think he will frighten the hell out of the industry if this is the way he starts off the BNOC.


I am really astonished. First of all, let us suppose that the BNOC had existed in 1964 and 1965, or whenever it was that the second and third rounds were launched. If it had been in existence then, it is obvious that it would have been not the Coal Board which participated but the BNOC, because the BNOC is created for oil production and the Coal Board for coal production. The fact that the BNOC did not happen to exist at that point surely does not make it illogical to transfer to it the things in which they would have invested. To say that they are getting £50,000 is not absolutely correct, because they are being relieved of an enormous number of millions of pounds of debt. They are being reimbursed for everything they have paid, plus the rate of interest which they have paid out, which was obviously in their balance sheet. From an accounting point of view this is the only way in which we could deal with the matter.

Just as I do not believe that we should introduce Bills similar to the old nationalisation Bills, I do not believe that the Coal Board should make neither a profit nor a loss over good and bad years. I think it was one of the stupidest things that the post-war Labour Government did. Private industry was ploughing back profits and the price level of publicly produced goods was too low. Obviously there was a shortage, there was not sufficient conservation et cetera. Why should we continue cross-subsidisation? That is why I think that this Amendment is contrary to the very principles which were announced by the Front Bench opposite on the occasion of the coal compensation Bill to which I stick absolutely, because it is good practice, good economics and good accounting.


It is not worth pursuing this Amendment. I am not familiar with the coal compensation Bill. In the case of the last Bill which we had before us, we spent all our time saying that it was not a compensation Bill, so I do not suppose that is the one we are talking about. I can say only that I shall read the Report of this debate with care and that we may very well have to come back to this point. I believe there is a fundamental difference between us as to the basis upon which the BNOC should start its journey. Since we are to have it we want to start it pointing in as nearly and realistically the right direction as we possibly can. Having said that—we have probably had enough Divisions for the time being—I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Clause 14 agreed to.

Clause 15 [Annual Report]:

9.13 p.m.

Lord CAMPBELL of CROY moved Amendment No. 8:

Page 12, line 5, at end insert— ("(e) particulars (including financial details) about 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: Amendment No. 8 is similar to Amendment No. 6. I am encouraged, because the noble Lord, Lord Balogh, stated that he was prepared to consider Amendment No. 6 which was on the question of separate accounting for the different activities of the Corporation. The purpose of this Amendment is to ensure that in its annual report the Corporation gives details of its noncommercial activities. By the provisions of the Bill, the BNOC can be asked by any Government Department to undertake activities as an agent of the Crown. Through its National Oil Account funds it will have large sums to deploy and it seems right that these should be deployed to the best national advantage.

We believe that the Corporation's commercial activities should be subject to appropriate and rigorous tests of commerciality, but in addition any activities which may be laid upon the Corporation of a non-commercial nature should also be subject to the same degree of examination.

Examples of the kind of thing which the Corporation might do are to run pipelines on behalf of the Government or perhaps to develop oil production as a reserve from wholly uneconomic fields. The Government of the day might well decide that it was in the national interest in certain circumstances that the Corporation should do this. Then there are downstream investments which the Corporation might be asked to carry out by the Government which are uneconomic but which the Government regard as desirable, for reasons such as high unemployment in a certain area, or other reasons which I am sure will occur to noble Lords.

From a public accountability point of view it is proper that such activities should at least be identified. A proper evaluation of how the Corporation is operating and whether it is operating efficiently and to what extent will also depend upon how free it has been to operate commercially. I think it is in the interests of those in the Corporation that these non-commercial activities should be identified and known so that it may then be judged on its efficiency in its main tasks by real criteria. Therefore the Amendment would enable this information to be public and the noncommercial activities to be identified, and in view of the noble Lord's earlier attitude to Amendment No. 6 I hope he will also be prepared to look kindly upon this Amendment. I beg to move.


The noble Lord will know that I have a great regard for his logic if not always for his premises, but on the last Amendment he told us that he was against cross-subsidisation. This arose on the argument about the NCB's exploration equity, and of course the object of this Amendment, as I am sure he will see, is to anticipate and prevent any cross-subsidisation within BNOC as between commercial and noncommercial activities. That is surely the point that we are trying to press. It is consistent with what the noble Lord—he has now disappeared, no doubt to get some more dinner which I hope has the effect of making him even more full of bonhomie when he comes back—has already half conceded in his genial way. It would therefore be proper and would accord with his own standard of logic if he would give this Amendment a fair wind as well. I am sure that if he comes back in time he will do so, or in his absence the noble Lord opposite, who we are getting to know better now that he has been here a month or two.


I must say that it seems a very long month or two to me! First, in answer to the noble Earl, Lord Lauderdale, I must say that although my noble friend Lord Balogh said that we are against cross-subsidisation, I do not think in this particular case our reasons for asking the Committee to reject this Amendment fit this case at all. I recognise that the Amendment reflects the concern of noble Lords opposite to have a clean separation between the commercial and non-commercial activities of the BNOC.


I wonder whether the noble Lord would speak a little louder, or would suggest that the volume be turned up about 6 db on the loudspeaker.


I apologise, and I am sure it is my fault and not that of the loudspeakers. I was saying that I recognise that the Amendment represents the concern of noble Lords opposite to have a clean separation between the commercial and non-commercial activities of BNOC, the Amendment requiring, as it would, separate entries in the annual report for non-commercial activities. As noble Lords know, the principle behind the Amendment is not one to which I take exception. In general it is the right in any business that profitable activities, if used to subsidise unprofitable activities, should be clearly seen to be doing so, although it is not a prescription which is always followed. I hope that for the most part the BNOC would follow it, but I must invite noble Lords to reject the deduction that this Amendment should be carried. In the first place we have already made provision in Clause 10 for separate accounts to be proposed for each of the main activities of the Corporation. This, particularly as we have undertaken to reconsider the drafting, as the noble Lord, Lord Campbell of Croy, has reminded the Committee, will go far to meet the point of this Amendment.

The Bill also requires publication of the financial duties laid upon the Corporation under Clause 5, provided publication is not against national or commercial interests. That last phrase brings me to my final point. The Amendment offers no saving for the national interest or commercial interest of any person. The type of unprofitable activity which BNOC may be asked to carry out may well relate to matters such as exploratory drilling to establish the size of reserves or, as the noble Lord, Lord Campbell of Croy, said, may relate to the Government oil pipelines and storage system, or similar matters, where it would not be desirable in the national interest to discuss a wealth of information about them every year in the annual report of BNOC. For these reasons, I invite the Committee to reject the Amendment.


Would the noble Lord, Lord Lovell-Davis, just turn back in his mind to his opening words? He said he accepted the principle of this Amendment, but urged the Committee to reject the Amendment itself. Surely, it would be logical of him—if he is as logical as his tutor—to say he would look at the Amendment and, having accepted the principle, then to say that he will advise the Committee to reject our Amendment. There is a certain contradiction there which I am sure would not appeal to the noble Lord, Lord Balogh, who was out of the room at the time. It is as well that the headmaster should know!


I agree. But I said that it is a principle to which I did not take exception. I said that I was inviting noble Lords to reject the Amendment, because the principle would be fully supported by this Amendment and did not necessarily follow and was not necessarily one which one could make. Therefore, I invite the House to reject it. There is nothing illogical in the case I put forward.


I must confess to some disappointment that the noble Lord, Lord Lovell-Davis, was not able to give this Amendment the same treatment as Amendment No. 6. This is the first time that this point has been raised. Although it was on the Order Paper in another place, because of the guillotine it was not reached, so there was no opportunity to discuss it. In the course of his remarks, the noble Lord said that there might be information which it would be worth while or, indeed, desirable to publish each year. But I return to the point that it could well be a duty directed by the Minister for the Corporation to carry out something entirely non-commercial which was, none the less, in the national interest, or dealing with some emergency or, as I mentioned, an area of higher employment, and which Parliament as a whole fully agreed, but none the less no one knew the extent of the activity in financial terms.

Therefore, I ask the noble Lord, when he is considering Amendment No. 6 and the question there of the Corporation having to spell out its different activities, that there should be something also there mentioning its non-commercial activities. I hope the noble Lord will be prepared to go a little further than he has in simply inviting the Committee to reject this Amendment. This was not one I was going to press at this stage, but it has given us an opportunity on this Bill of discussing something it was not possible to discuss in another place. So in the hope that the Minister will be more forthcoming, I will give him the chance of being so before I withdraw the Amendment.


I can give the noble Lord, Lord Campbell of Croy, no hard and fast undertaking in respect of this. Amendment. However, I will undertake to consider this when we come to consider Amendment No. 6, to see whether there is any way in which we can meet him on this matter.


I am grateful to the noble Lord for that statement, and beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 15 agreed to.

9.24 p.m.

Lord CAMPBELL of CROY moved Amendment No. 9: After Clause 15 insert the following new clause:

Right of complaint against unfair practice of BNOC

".—(1) The three next following subsections shall have effect where a body corporate engaged commercially in the exploration, production, sale or supply of petroleum or any product derived from petroleum not being the Corporation nor a subsidiary of the Corporation makes to the Secretary of State written complaint about a practice employed by the Corporation or a subsidiary of the Corporation in the exploration. production, sale or supply of petroleum or any product derived from petroleum and the complaint is expressed to he made on the grounds that the practice is unfair to the complainant and specified the respects in which he considers that it is so unfair.

(2) The Secretary of State shall forthwith after receiving the complaint send a copy thereof to the Corporation and, after such period for consideration of, and comment upon the complaint by the Corporation as the Secretary of State thinks reasonable has elapsed, shall send to the complainant a statement of the comments, if any, made by the Corporation on the complaint and shall, if he is of opinion that the complaint raises a question of substance and that the complainant has a reasonable case to make in support of the complaint afford the complainant and the Corporation an opportunity of appearing and being heard either personally or by a representative, before a person appointed by the Secretary of State.

(3) The Secretary of State shall consider the report of the person appointed under the last foregoing subsection and may if it appears to him that the practice complained of is unfair to the complainant, give to the Corporation such directions as appear to him to be requisite to secure the removal of the grounds on which it is so unfair; and the Secretary of State shall furnish the complainant with a statement of any such directions and the Corporation shall give effect thereto.

(4) Where a complainant avails himself of the right conferred by subsection (2) above to appear and being heard before a person appointed by the Secretary of State, the Secretary of State shall furnish the complainant and the Corporation each with a copy of the report of the person so appointed and a statement of the conclusions reached by the Secretary of State on considering the report."

The noble Lord said: I beg to move this new clause. This follows an amendment which the Committee has already made to the Bill earlier today by Amendment No. 2. It also deals with the subject of fair competition. This new clause provides a remedy for complaints that the existence of the Corporation and its operations have created unfair practice. Noble Lords may have recognised that it is similar in wording to a provision in the Iron and Steel Act 1967. It has been drafted for the same purpose and it is very similar in its wording. The object of the provision in the 1967 Act was to enable industry also to have a system for complaints, if the British Steel Corporation was thought to be operating in unfair competition. The noble Lord who replies to this Amendment may well say," Well, that is no longer in existence", and I agree that what has happened is that it has been subsumed in European Economic Community arrangements. But for some time after the 1967 Act was passed it was in operation. and indeed at least one case was brought under that system. It has been accepted in other nationalisation Acts that there should not be discrimination. It was started in the 1946 Coal Industry Nationalisation Act; it is clearly stated that there should not be discrimination in the operations of the nationalised body.

I should like to give some examples of the kind of thing that could happen. The Corporation might discriminate between British purchasers in the sale of crude oil to them, either to suit the Corporation's own commercial ends or to strengthen the Secretary of State's hand in his dealings with the oil industry; or the Corporation might charge some customers uneconomically low prices for refined products in order to drive a wedge into the market. These are the kinds of things which one hopes would not happen but which the private part of the industry naturally fears could happen.

We believe that there should be machinery, as there was under the Iron and Steel Act, providing a remedy for any company which feels it is being discriminated against and is a victim of an unfair practice. We should hope that such machinery would be seldom used and that there would be few cases where recourse to it was necessary. But I am sure that it would be a great reassurance to industry as a whole, and certainly to the oil industry, if these provisions were included in the Bill. I would make it clear that the Government, not only in what they have said but also in what they expect to happen in the future, would wish the Corporation to operate completely fairly, and to have a system to enable those who have complaints to bring their cases to be considered. I beg to move.


Before the noble Lord replies, may I draw his attention to this point? If there were to be the kind of discrimination which we fear and which we want to make sure cannot happen, if, indeed, BNOC were to act in ways which proper costings would determine to be uneconomic, there would be a positive disadvantage to the public interest. The disadvantage would be a misallocation of resources and possibly a misallocation of energy, because of the pricing distortions that would arise from it. Therefore, it is not only a question of the private sector seeking protection. It is a question of trying to secure for the national interest as a whole the best and the correct balance of the use of resources, which we know to be very much in the Government's mind at the present time, and equally the best allocation of energy. So that the value and merit of this proposal goes a little wider than simply trying to protect the interests of the private sector. Therefore, on that account, in view of the Minister's patent concern primarily with the national interest, perhaps he will be able to give this some sympathetic consideration, if not now then perhaps later on.

9.30 p.m.


The purpose of this new clause is to strengthen the guarantees which the private sector of the oil industry has against unfair commercial practices by the Corporation. I do not want to rehearse the arguments put forward by my noble friend Lord Balogh during the discussion we had on Amendment No. 2. I can only reply to the case put forward by the noble Lord, Lord Campbell of Croy, that we have said again and again that the BNOC would not be in a position to take an unfair advantage. I cannot imagine a situation where it would be charging uneconomic prices to gain an unfair advantage. The proposed new clause would give a company in the private sector the right to complain to, and receive a hearing from, the Secretary of State. There was a considerable debate on an almost identical new clause in Committee in another place, and I think the arguments that prevailed there continue to have force.

Let us say straight away that I acknowledge the resemblance which the new clause bears to Section 30 of the Iron and Steel Act 1967, which was mentioned by the noble Lord, nor has it escaped me that that section was inserted into that Act when it was before this House. I need hardly add that I cannot claim any share of the credit or responsibility for that, but without impugning the wisdom of noble Lords on that occasion I think a different situation faces us in this Bill, which makes it less than fitting that history should repeat itself.

In the first place, the situations of the two industries are very different. The nationalised steel industry was to be the giant; the private sector which remained was by comparison a pygmy and it was entirely reasonable that the pygmy should be accorded some statutory protection against any possible depredations by its leviathan competitor. But no one can say that such a situation obtains in the oil industry. BNOC is being set up as a new body. It will have to learn its trade and make its way in the world. Its competitors are far from being pygmies. They include some of the biggest and most powerful corporations in the world and history, both very recent and not so recent, amply demonstrates that they are neither unable nor slow to look after their own interests.

Secondly, as was pointed out, there will be the protection of the fair trading legislation. The Fair Trading Act 1973 empowers the Secretary of State or the Director-General of Fair Trading to refer to the Monopolies and Mergers Commission the supply of any commodity of which more than 25 per cent. is in the control of any one company. They could so refer the supply of any particular commodity if BNOC were to win 25 per cent. of the market for that particular product. Finally, although I would not stress this point, there is the danger which my noble friend Lord Balogh alluded to on Amendment No. 2, that this would open the door to a number of vexatious complaints with little foundation. I hope, in the light of all these considerations, that the Committee will reject the new clause.


May I just put this point to the noble Lord? He has said that there is absolutely no question of BNOC behaving in the way which is suggested. Let us take honourable Government assurances at their face, if not their market, value and say that there is an honourable Government, and they will give honourable directions to an honourable BNOC to behave honourably. But that Government will not be there indefinitely. They might be succeeded by the Tories. Would noble Lords opposite trust us to behave honourably? On the contrary, everything that is said from those Benches suggests that they would never trust us to behave honourably. Then there might be a Liberal Government.

Several Noble Lords



It might happen. Or there might be a Left Socialist Government, one run by a Tribune Group. Would they be honourable? The difficulty we are trying to face —we are being genial about this, but we are also being serious—is that assurances given by any Government are of no value whatever once Parliament has been dissolved and a new Government have come in. We have had assurances all afternoon and they have become more and more friendly as the day and the bonhomie have progressed; but they have not become any more meaningful. Rather, they have become less meaningful, and it is not good enough for the noble Lord, Lord Lovell-Davis, to say that it is inconceivable that man should sin. We all know well that man does sin, and that can happen with Governments. It is perfectly possible, in the nature of life as it is and as we know it —of fallen man—for a future unscrupulous Government of whatever colour—who knows, it might be a fascist Government—to give directions to the BNOC to discriminate in the sale of crude or in some other way, for example by charging uneconomic or low rates. All these things are possible by the nature of human life, and it is not satisfactory simply to hang everything on good faith.

Why do we have laws? Why are we here in Parliament? Why do we have the whole apparatus of constitutional Government if everyone can always be trusted to act in good faith? We have these instruments of Government to preserve the rights of all of us. Because we have this framework of laws, so I invite the Government to take this point seriously. The assurances we have been given are not satisfactory, even though the persons who have given them are among the most honourable and, I might add, the most attractive personalities in the world.


I support this Amendment. The arguments adduced by the noble Lord, Lord Lovell-Davis, do not add up. He says that the large oil companies can look after themselves. But there are a lot of small oil companies. Are they doing precisely the same business as the BNOC? In the steel industry the pygmies, as the noble Lord called them, are not doing the same business as the British Steel Corporation. The BSC engages largely in the supply of basic steel materials while the private sector undertakes the tasks downstream, tasks which the BSC are unable to undertake—for example, shaping steel in the special moulds and shapes which industry needs and which the BSC cannot provide. The BSC can provide only the basic forms. The private sector deals very much in special steels as well. I urge the noble Lord to accept that comparisons cannot be made in this way. My noble friend is right to seek an amendment which is designed to protect the small oil companies.


The whole content of our debate this evening has been concerned with fairness in a mixed economy, and it has been conceded from both sides of the Committee that this is an Amendment designed to achieve fairness. We must remember that overseas investors and companies, who play a very important part in the North Sea, do not read Hansard and possibly do not even know the noble Lord, Lord Balogh, by name or reputation. We can have statements and restatements in your Lordships' House but none of them is a good substitute for putting a matter in the Bill, and I therefore endorse what my noble friends have said. It may be that giants versus giants is an important aspect, and that is why the noble Lord, Lord Lovell-Davis, said it was not necessary to accept this Amendment; but one has to try to protect the weaker brethren, and it is the weaker brethren who may produce the extra oil that we so badly need for export. It is not just the big boys who are concerned. They may produce enough for us in this country, but if we are ever to get our balance of payments right we must have a surplus and bring in the marginal fields and, therefore, the marginal and the small companies as well.

Why not have an appeals procedure, an arbiter, so that a person who feels he has been wronged and who thinks there has not been fairness in this competition can go to that arbiter? I am sure that both the noble Lords, who are in a concilatory mood, will realise that we desire that there should be a referee, not just sitting on a bench temporarily, but written into the Bill we are now discussing.


Can I appeal to the noble Lord to reconsider his decision to reject this Amendment? We are all being very reasonable; we are all reasonable people on both sides of the Committee. Nobody believes that any of us would do anything dishonourable or apply undue pressures or that this brave new Corporation would dream of doing anything of the kind. But is it not only natural. Here we have a new public body. It is the public sector as a whole —Central Government, local government, nationalised corporations—who are one of the potential customers for this industry. It would be totally unreasonable to expect that there will not be every wish in the public sector to help this new body in every way possible to get off the ground. It is all very well to say that we can identify unfair practices by the use of various fair trading Acts. The provisions with regard to the finance of this new Corporation which have already been spoken about, including exemption from PRT, are such that it will not be easy to identify such practices and it may well take a long time. Surely, in the interests of fairness, even at the risk of the occasional—as the noble Lord said, I thought rather unfairly—vexatious complaint, it would be right and fair to give the avenue for raising complaints in relation to this. I would ask the noble Lord to consider this again.


I find the case put from the other side totally unconvincing. Why has the assumption constantly been made this evening that the BNOC will act unfairly? I have just finished reading a book to which my noble friend Lord Balogh has referred, Seven Sisters. All the time I have been in this House, and all the time I have been involved in politics, I do not think I have heard very much from the other side about the activities of the major oil companies which to a large extent have helped to create the oil situation that exists today. I think the case is being made that there is one law for public corporations and another for private companies.


Will the noble Lord—


May I just finish what I was saying'? The point I was making is this. Why will noble Lords not accept that the application of the fair trading legislation is perfectly adequate in this respect? Why should BNOC have to be singled out and be made subject to these sort of conditions? As I said before, I cannot conceive a situation where BNOC would be able to put itself in a position by undercutting other people to gain an unfair advantage. What is the point of the fair trading legislation if it cannot be applied universally not only to the BNOC but to the private sector companies as well? I hope that noble Lords will accept that this is adequate to deal with the situation.


May I interrupt the noble Lord for a moment? He is assuming that we on this side have no knowledge of good practice in the nationalised industries. Would he take it from me that I have had experience on an organising committee of a national board, and that I know how it works. I and my colleagues on the organising committee have tried to operate the fairest practices we can in the formation of this board. I would say that many of us on this side of the Committee really understand these issues.


I accept the point made by the noble Lord, Lord Ironside. I was not in any way impugning the motives or in any way degrading the experience of noble Lords opposite.


Would not the noble Lord agree that in the case he has just cited, he has been referring to the latest little red book which is about the oil companies and the oil companies are wicked. If there is wickedness among the oil companies, is there any reason to suppose that human nature in the BNOC will be any different—one lot redeemed and the other condemned; the one a saint and the other sinners?

The noble Lord refused to give way earlier, and he can have a little taste of that medicine himself. He belongs to a Party which lectures us morning, noon and night about justice. Here we are trying to insert a simple provision in the name of justice, and all I should like to suggest to the noble Lord is that if he thinks over his attitude—which is not always quite as co-operative as we should wish in a new Member of this House—he will find that his present attitude of obduracy and resistance to this plea in the name of justice does no credit to the cause of justice which his Party espouses.


I must start by saying that I think, with all respect to the noble Lord, that he has given us a quite inadequate reply to the Amendment. I feel that his brief was inadequate and unfortunately he appears to have added some personal points with which most of us on this side did not agree. On the Iron and Steel Act, on which the Amendment was based, the noble Lord said that the BSC was a giant among pygmies. My noble friend has already pointed out that there are large oil companies but that there are also small and medium sized ones. They certainly will be needed if we are to get all the oil we should from our part of the Continental Shelf.

The noble Lord, Lord Balogh, referred earlier to the question of vexatious cases being brought, but if that argument were used there would be no tribunals, arbitration procedures or procedures for complaints at all. That is an argument against any procedure anywhere, because of course there is the possibility of such systems being abused. Finally, the noble Lord began to use this debate as an opportunity to snipe at the oil industry. Having read a book, he said that it was because of the oil companies that the present oil situation exists.


If I may correct the noble Lord, I said that I was not making an attack on the oil companies as such. The oil companies have in many ways been very co-operative. Indeed, I believe that in some ways they are proving more co-operative to us than noble Lords opposite. What I said was that, to a large extent—and I do not believe that this can be gainsaid for, though the noble Earl, Lord Lauderdale, may make fun of the little red book, it is a major work on the oil industry which I commend to noble Lords opposite and which presents a very good picture of the oil industry overall which we could all well take a lookat—that could be the situation. I am not laying it absolutely on the oil industry, but there is no doubt that they played a part in creating the situation which exists today.


I was taking down the noble Lord's words. He has repeated that they created the oil situation as it exists today. They certainly have. Without them today, in the middle of 1975, we would not know that any of that oil existed. We should not know that it existed under the North Sea if the major oil companies of the world had not used their technology and raised the finance to carry out the exploration. As 1 said once before in this House, it is not an accident that man reached the moon before he discovered that there was oil below the North Sea, because the same kind of advanced technology is required in both cases.

The Amendment is directly linked to Amendment No. 2 which we have already passed but, as the noble Lord has referred to that book, 1 must say that I have not vet read that book. There was an earlier hook of which, again, I read only a small part. This was for the interesting reason that friends immediately got in touch with me and said that, in the description of me, it was so wrong that they had probably got somebody else. I received an apology from the author for having written something completely wrong about me which he intended to correct in later editions. I mention that only as this book has come out, but the only exchange which I have had with that author has been on something where he had to admit that he was completely wrong and had to make a correction. No doubt I shall get around to reading his later book when I have time and when this Bill permits. This Amendment is directly linked with the one we

Aberdare, L. Hailsham of Saint Marylebone, L. Rankeillour, L.
Abinger, L. St. Aldwyn, E.
Amherst of Hackney, L. Ironside, L. Sandys, L.
Atholl, D. Keyes, L. Strange, L.
Balerno, L. Kinnoull, E. Strathcona and Mount Royal, L.
Campbell of Croy, L. Lauderdale, E.
Cathcart, E. Lindsey and Abingdon, E. Suffield, L.
Cowley, E. Lloyd of Kilgerran, L. Terrington, L.
Davidson, V. Long, V. Trevelyan, L.
de Freyne, L. Mowbray and Stourton, L. [Teller.] Vickers, B.
Denham, L. [Teller.] Vivian, L.
Drumalbyn, L. Moyne, L. Wakefield of Kendal, L.
Dundee, E. Northchurch, B. Ward of North Tyneside, B.
Exeter, M. Orr-Ewing, L. Ward of Witley, V.
Falkland, V. Pender, L. Widoger, L.
Gainford, L. Polwarth, L.
Balogh, L. Janner, L. Ritchie-Calder, L.
Birk, B. Lovell-Davis, L. Shepherd, L. (L. Privy Seal.)
Collison, L. Morris of Kenwood, L. Strabolgi, L. [Teller.]
Houghton of Sowerby, L. Pitt of Hampstead, L. Winterbottom, L. [Teller.]

Resolved in the affirmative, and Amendment agreed to accordingly.

Clause 16 agreed to.

Schedule 1 agreed to.

Clause 40 [The National Oil Account]:

9.58 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 10: Page 39, line 10, after ("paragraph") insert ("but before 1st January 1979")

The noble Lord said: This Amendment leads us into what the bankers have called the "slush fund". It is more politely known as the National Oil Account. We have already discussed the question of how BNOC will be financed, and the borrowing limitation of £600 million rising to £900 million has been mentioned. The object of this Amendment is to put some degree of control and limitation on the size of this rather curious arrangement which has been made for financing BNOC.

passed earlier today. It is the second part of the system which we think should be in the Bill. I intend to press the Amendment and I ask noble Lords to support me.

9.50 p.m.

On Question, Whether the said Amendment (No. 9) shall be agreed to?

Their Lordships divided: Contents, 44; Non-Contents, 12.

I think that in arguing this fairly limited Amendment it is necessary to say a word or two about the concept of the National Oil Account. I imagine that what the Government are trying to do here is to address themselves to this difficult problem. One of the reasons why we, as a Party, are not keen about nationalised industries is that they create a problem of management and Parliamentary control. As I see it, on the one hand we try to set up independent corporations to enable them to carry on their day-to-day affairs without intereference by Ministers. This is the only way in which one can see these corporations being capable of doing their job.

The difficulty about this approach is that the moment you make the board of the nationalised industry sufficiently independent to carry out its job, you run into the problem of Parliamentary control. The first thing that happens is that somebody wishes to ask a Question in Parliament about the way a nationalised industry is behaving, and the Minister save he is not allowed to interfere in the day-to-day running of the industry. He says that all he can do, if he is terribly moved and if it is sufficiently impressed upon him, is to sack the whole board and start again. This is, roughly speaking, as I understand it, the degree of control which exists for a nationalised industry, and it clearly has shortcomings.

What appears to have happened here is that the Government have said, "We will allocate a large sum of money to be at the disposal of the Secretary of State." One can see the advantage of this arrangement, in that the Secretary of State then becomes responsible for the way in which this money is disbursed. The first worry we have about this is that we could be putting the BNOC into a situation where it is no longer answerable for its financial behaviour. If the Government think an extremely large sum of money is required to finance the activities of this Corporation, and if the figure of £2,000 million is the right one, would it not be better, more honest and open handed if the Government said: "We think that in a given period BNOC is going to require £2,000 million of public money". There may be political reasons why they do not wish to do this. It is not for me to try to find excuses for that. What we are seeking to do, in moving this Amendment, is to say that we object to the open-ended nature of the financing which is postulated by the present arrangement.

A number of figures have been suggested for the kind of sums of money which will he made available through the National Oil Account to the BNOC. The argument is simply that by 1979 enough money should be available to the BNOC to carry out very many of the jobs that it is intended to do, and if it requires more money it would be a good thing if it came to Parliament and said: "We have spent the original sum of money allocated to us. Can we have some more?" Then we could have a debate as to whether it was doing a satisfactory job, whether it was spending the money satisfactorily and see whether Parliament was prepared to agree to a further allocation of money.

Lying behind this argument is another worry. Given these large sums of money, who in the Ministry is going to be competent to allocate them? Normally, this has been a Treasury activity; and this represents a radical new departure. I am astonished that the Treasury have agreed to this arrangement. My understanding has always been that when one has had arguments about giving greater degrees of responsibility to people running various things—and I can even remember this cropping up in the Ministry of Defence—the argument was: "You must keep the Treasury control and all income must be through the Treasury. You must indent and come back again, and hypothecated revenue is anathema to the Treasury."

Here we seem to have an astonishingly large potential sum of revenue, which I can only see as being wholly hypothecated to the National Oil Account but which will be at the disposal of the Secretary of State to spend in any way he wishes, and in particular to allocate to BNOC. It is one of the reasons why, throughout all our arguments today on the competitive nature of BNOC, we have been concerned to make fair accounting for BNOC and perhaps to limit the scope of activity of BNOC—because if we have an open-ended fund of this kind permanently available to the Secretary of State to hand over to BNOC, rather than keeping Parliamentary control of it, it would appear that we are in danger of creating some kind of Frankenstein. And if the Frankenstein happens to have the face of Tony Benn, it is a great deal more alarming than it would be even in principle.

I do not wish to develop that particular point because it goes very much further than that and it is perhaps wrong to personalise on it. But equally one has to accept that unfortunately it creates an extra alarm bell so far as we are concerned. Therefore, in effect this Amendment says, "By all means let us put a sum of money at the disposal of the Secretary of State through the National Oil Account for the use of BNOC but, please, rather than trying to do away with the National Oil Account altogether, could we not have another look at it, after a sufficiently large sum of money has been raised?" And we suggest that 1st January, 1979, might be a reasonable date to put upon it. I beg to move.

10.7 p.m.


As I understand it, the object of this Amendment is to provide that royalties shall be paid into the National Oil Account only up to the end of 1978. I must ask noble Lords not to accept this suggestion. First, let me say that we think it right that royalties should be paid into the NOA. The NOA has a number of purposes, chief among them being to secure the quick and immediate availability to the Government of the nation's oil revenues, to enable a rational, easily-monitored system of expenditure planning and budgeting to be established for BNOC and to give an account of BNOC's transactions with Government. But a further function is to give a convenient account of receipts and payments which arise directly out of the grant of petroleum licences; that is, to subsume the functions now performed by the Petroleum (Production) Account prepared under the 1934 Petroleum (Production) Act. Thus, royalties, rent, et cetera, will flow to the NOA and refund of rent and royalties and other payments under Clause 41 to licensees in respect of participation will be met from the Account. This is a logical accounting procedure, and it makes no sense to alter it on 1st January, 1979.

I understand, of course, that the noble Lord sees things differently. He sees the royalties as a temporary subvention to BNOC until its own revenues are enough to cover its outgoings. But at present the payment of royalties into the NOA makes sense, quite apart from the position of BNOC, as I have said. I must also say a word about the underlying assumption of the Amendment, that BNOC's access to royalties in the NOA represents an unwarranted favour to the Corporation. This is not so. It is true that BNOC will have access to all funds in the NOA, but that will not permit it to do anything it could not otherwise have done. It is the quantum of BNOC's expenditure which will be crucial, and not the source from which it is financed. That quantum will be decided by the Corporation and the Government as part of the normal processes of public expenditure planning.

I am extremely interested that noble Lords were opposed to Clause 3(1) in which it is provided that the Corporation must produce plans which must be approved, and feel that the whole thing should he on an ad hoc basis. Parlia- ment will have control over the National Oil Account, and of course the Corporation is both directly responsible for its plans to the Secretary of State and, at the same time, subject to financial scrutiny when it appeals for funds. I cannot see how the Amendment would in any way further the purposes of supervision, which are far greater than those for the ordinary nationalised industries. I quite agree with noble Lords opposite who said that the Corporation must be different because it is a different animal. I can assure them that the control is very much stricter inasmuch as there can be general and specific directions and the accounts have to be prepared in the way in which your Lordships want them. This further impediment would certainly necessitate some kind of legislation, because it would destroy the whole overall financial control of our oil revenues and expenditures, and is absolutely unnecessary.

10.12 p.m.


I should like to add my voice on this issue. I understand—the Minister has made this point - -that this is an experiment. I was brought up as a physicist. I was concerned, and have been all my life, with research and development and production where we always proceeded by steps. Nowadays, because the cost of development is so much higher, one has probably to produce a budget for the next step. I cannot quite see why we should not proceed by steps with this experiment here. This is the biggest experiment which any Government have foisted on the nation, possibly with the exception of the National Enterprise Board, in the history of our nation. So it is not unrealistic to say: "Let us feel our way and see whether this is going to work; whether the National Oil Account is a sensible suggestion, whether it feeds its revenues through to BNOC and whether this is sensible."

What we are suspicious about is that for the first time there has been, it seems to us, rather a lack of Treasury control. In the past I have been critical of the Treasury, and I think that every one of us who has served in Parliament, wherever we may sit, has felt that its dead hand may have had a reaction on our nation, our enterprise and our vision over the years. But in a period when our finances are, if not out of control, nearly out of control and certainly more out of control than those in any other of our competitor nations. I would welcome more rather than less control from the Treasury. It seems to me, therefore, that as we are trying an experiment this is a sensible Amendment. I hope that the noble Lord, Lord Balogh, will have a look at it to see whether he cannot agree that it is sensible to ask that we limit the timing of this experiment and that, should extra money be needed, we ask that the Secretary of State should comeback to Parliament to request it. This seems to me to be a sensible suggestion when we are conducting an experiment of quite unusual proportions.

I hope that the Minister, who is certainly as anxious as every one of us in this House to ensure that our finance is properly controlled, will think that there is merit in having a limited experiment for a period. If 1st January 1979 is not the right period, perhaps he will make a counter proposal. Perhaps he will make it 1st January 1980. Let us make it a limited experiment for a given time and see how it goes.


Noble Lords opposite will, I think, now concede that although we do not like this animal we have been unable to kill it. Therefore we want it to live as decently as possible. That being so, there is a great case, which the noble Lord, Lord Orr-Ewing. has just made, for treating this matter as a serious experiment. Earlier on the noble Lord, Lord Balogh, in one of his most agreeable exchanges, said that he has been taught that when a Minister says, "I will have a look at it" it carries a certain meaning and a powerful obligation to do something. May I commend to the noble Lord a phrase which I think was used very happily and adroitly by the noble Lord, Lord Lovell-Davis. In relation to a previous Amendment the noble Lord said that he and his friends would consider the matter. If the noble Lord, Lord Balogh, will not have a look at it may I ask him to consider it in the light of other Amendments to which the Government have undertaken to give further thought. I will not put it any higher than that. Perhaps that would be helpful and would enable us all to sleep well when presently we go home.


I am afraid that this is one of those occasions when I must say, No. Noble Lords are not being absolutely logical. We do not know what the royalties will be at that point in time and whether there will be enough money to cover further investment. Our hopes are strengthening daily that we shall be in a position of balance or even, perhaps, of surplus, but we do not know yet and it seems to me that to bind ourselves to do this would be wrong. The noble Lord knows very well that the Bill could not have been put before this House without the consent of the Treasury. This is not a tiddlywink Bill in which the Treasury does not take an interest. As noble Lords have expressed such complete confidence in the Treasury's judgment, I should like to ask them to trust the Treasury and to withdraw their Amendment.


Perhaps the noble Lord would concede that some of us feel that the Treasury has lost its backbone in recent years. It is beginning to regain it, I am glad to say. but any Treasury which allows us to budget for what now appears to be a £12 billion deficit as between expenditure and revenue must have been softened up a little bit by some method which we on this side of the House do not quite understand. However, I compliment the noble Lord. Perhaps he has fogged them with his experience of these matters. The Treasury have clearly been softened up in some way. Now we want them to regain some of their strength, and backbone and resolve. That is why we have moved in very reasonable terms a constructive Amendment.


It is a curious situation altogether. May I start by saying that I for one never said that I had such unbounded confidence in the Treasury: I merely said I was surprised that they had agreed to this particular arrangement. The noble Lord said that we are not very logical, and yet he himself said, "We are not worried about the source of the funds". If he is not worried about the source of the funds why has he thought it necessary and fit here to create a totally new system which appears to cut across the long-enshrined objection to the whole concept of hypothecated revenue? I have always been led to believe that this was absolutely Rule 1 in the Treasury.

We are not saying that we are against anything new simply because it is new; that would be the greatest possible mistake. But it seems to me that the concept of the National Oil Account is a radical departure from anything we have ever seen before. I think it would be wrong to say that it is necessarily the worse for that, and in financial terms, I suppose, if we judge this country's record in recent years perhaps almost anything different from what we have been doing recently might be an improvement—it could hardly he any worse.

We are talking in terms of thousands of millions of pounds, and I have complained previously that one gets "punch drunk" in discussing this whole oil problem. I sometimes drop the odd nought or two, and I think even the noble Lord himself is occasionally guilty of a misplaced dot; but the fact remains that if we take a cold, hard look at it, when we are talking about income of thousands of millions of pounds a year, we are talking about putting into this National Oil Account something like a third of our annual defence budget. These are very big figures indeed, and if we are going to treat this in a totally new way, which appears to cut across a well-established Treasury dictum, whether or not you think the Treasury is so marvellous it is a very strange thing to do. So far I am bound to say that I do not think the noble Lord has made a tremendously convincing case for the need to do it. I shall read with great interest what he has said. At this stage I certainly have no intention of pressing this Amendment. However I am bound to say that I am not so far convinced of the need for this new Department and, if need be. I think we shall have to take a cold, hard look at it again at a later stage. Subject to what any of my noble friends may feel. I shall now be happy to withdraw this Amendment.

Amendment, by leave, withdrawn.

10.23 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 11: Page 39, line 34, leave out ("Secretary of State considers and the Treasury agree") and insert ("Treasury determines").

The noble Lord said: I think we can deal with this Amendment rather more briefly because it is on a somewhat similar point. We have discussed our view of the Treasury: we merely believe that it would he more sensible—I had better not use the word "logical" since once again the noble Lord, Lord Balogh, and I have been arguing about exactly what we mean by words—to let the Treasury be the arbiters here.

I raised this question on a previous Amendment. Is it really likely and reasonable that in the Ministry of Energy there will be staff who are accustomed to allocating sums of money on quite the scale that we are talking about concerning the National Oil Account? This is going to be a major part of the revenue of this country, yet here again the Government appear to be seeking to squeeze the Treasury out of the decision-making process for this money. Without necessarily singing the praises of the Treasury (which I certainly would not want to do) I would merely say that the Treasury system is the one to which we are accustomed, and if we are to have a new departure it seems strange that we should not at least make use of the Treasury machine which, to put it mildly, must be said to have certain merits. In moving this Amendment, I shall be interested to hear the opinion of the noble Lord about this suggestion. I beg to move.


The object of this Amendment is to place entirely upon the Treasury the onus of deciding when the amounts in the NOA are surplus to the requirements of that Account, and are therefore to be transferred to the Consolidated Fund. I cannot agree with this Amendment. First, the Account, as laid down in Clause 40(1), is to be under the management and control of the Secretary of State. The Amendment would run counter to that. The Secretary of State will have the responsibility for ensuring that the Account receives what is due to it and disburses only what should properly be disbursed from it. The Secretary of State will be responsible to Parliament, through the Public Accounts Committee, for ensuring that all the operations of the Account are propertly conducted, including the transfer to the Consolidated Fund of surplus amounts. The Treasury does not have these responsibilities and it would be neither right nor fair—either to the Secretary of State or the Treasury—to charge it with the sole duty of determining one of the operations of the Account.

Secondly, let me disabuse noble Lords of any notion that the Treasury and the Secretary of State are at odds on this question. As the Under-Secretary made clear in Committee in another place, the Account in concept and detail has been the result of close co-operation between a number of Government Departments, including the Treasury and, of course, the provision already in the Bill requiring the Treasury's agreement to any transfer to the Consolidated Fund reflects their continuing interest in the administration of the Account. The noble Lord seeks the finest possible guarantees against abuse of the NOA. The answer to him lies in the provision for the auditing of the Account by the Comptroller and Auditor General, not in the sort of Amendment which is proposed. I beg him to withdraw the Amendment.


This is a very much more sensible Amendment than the last. Surely it is a very unwise innovation that we should downgrade the Treasury to the extent that is really implied by this clause. The clause says, the Secretary of State considers and the Treasury agree which appears to me, if I interpret it correctly, to take away all initiative from the Treasury in the matter. So that the whole initiative is with the Secretary of State, and the Treasury cannot take any action unless the Secretary of State has already agreed that there is an amount to be transferred to the Consolidated Fund. If that interpretation is correct, I should have thought that that was a very undesirable innovation in our practice.

10.29 p.m.


I have listened to the debate on these Amendments, and find the response of the Government extraordinarily unsatisfactory. In a normal Department, a Minister gets funds on a Vote originating from the Treasury. He gets his money carefully allocated to him according to the needs expressed, and having first been through the normal Parliamentary processes. Here we have a totally different situation. All these millions—and I do not attempt to quantify them because apart from anything else I do not think any of us can quantify what they will be by, say, 1980—which will be rolling into the National Oil Account, whether from royalties, rents, tender fees, surplus coming in to the National Oil Corporation, will be accruing to the Secretary of State without any Treasury control or sifting on the way.

Surely it is only natural for any Minister to endeavour to hold on to funds that come his way, and make use of them if he has the statutory power to do so. Will there not be an immensely strong temptation for the Secretary of State for Energy to keep his hands on as much as possible of these funds, and seek to find uses to which to put them, rather than say, "Now, I have got enough. I am prepared to hand them over to the Treasury"? This is more or less, as far as I can make out, what the Bill says is the procedure. I should have thought that the Treasury should have rather more say as to whether there are funds that should be properly handed over for the general use of the country, and not just the Department.

The Earl of KINNOULL

I should like to support this Amendment. I feel that other noble Lords have made a very convincing case. I should like to make a plea to the Minister. The Committee has been going now for seven hours and during all this time the Minister has been gradually earning the title "Stonewall Balogh". He never says "I accept"; he rarely says "I will consider"; he almost invariably says "I cannot agree", with an enormous wealth of charm and wit and undoubted political skill. I hope that tomorrow he will be in better form.


May I add my voice to this? I rise to endorse what was said from the Cross-Benches with great experience by the noble Lord, Lord Trevelyan. If we had not recently had at the DTI a Secretary of State called Mr. Benn, who has now gone to the Department of Energy, perhaps we could have accepted these arguments more readily. One has to look at the track record of this gentleman—and no doubt he will be succeeded by others. You start with the RB.211, which of course sent Rolls-Royce bankrupt in due course; then the motor-cycle firm, where his accounting officer had to put in a caveat saying it was outside his terms of reference and it was unviable, which proved to be absolutely true—with £30 million extra wanted if it was to continue in production. Nor are we absolutely confident of his judgment on Ferranti that £15 million of public money was right, though that is not yet proved one way or the other. We now have the position where we cannot think that a single person should be trusted, however worthy the Secretary of State of the day may be, and it is better to put it back on the Treasury.

I absolutely agree with what the noble Lord, Lord Polwarth, said. In business finance or Government finance, do not leave vast sums of money in the hands of a minor organisation. They are much better sent back to head office, which will deploy them for the betterment of the firm, or in this case for the betterment of the British economy and our future. We can all be critical of the Treasury, but it is far better and safer and more sensible to allow it to have these funds. I hope the noble Lord will look at that again in the light of the many representations made from all sides.


It would be so easy to apply soothing words. I would emphasise that it will be subjected to audit by the Comptroller and Auditor General, whose report will be laid before Parliament. The finances of no other nationalised industry will be subject to such direct Parliamentary control. So far as the alleged depreciation of the Treasury is concerned, I assure noble Lords that the Treasury has never been in firmer hands than it is in at the moment.


I must thank the noble Lord, Lord Trevelyan, for his support for our Amendment, coming from an authoritative source on a subject which, so far as I am concerned, is admittedly not an easy one or one with which I am familiar. I am a little sorry that the noble Lord, Lord Balogh, is quite adamant. There has not been a single voice this evening raised in support of his contention and everybody has expressed varying degrees of dissatisfaction. Before I withdraw the Amendment, I ought to warn him that we think this is a subject to which we may have to return at a later stage. I believe it raises very large issues indeed. At the present time, at 25 minutes to 11 o'clock, it seems appropriate to withdraw this Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 40 shall stand part of the Bill?

10.35 p.m.


This is an appropriate moment to continue a matter which I raised on Second Reading on 7th August. I refer to subsection (3)(a) where it states: There shall be paid out of the Account … (a) such sums as the Secretary of State considers are needed to enable the Corporation and any relevant subsidiary to defray expenditure properly chargeable to revenue or capital account;". During the Second Reading of the Bill I asked the Government about platform building, and I presume that it is one of the functions of the new Corporation to take over platform building activities where they would otherwise fall to the Government.

In a letter replying to the point I raised, the noble Lord, Lord Lovell-Davis, on 8th September, confirmed that the Government had guaranteed—and he corrected a figure which had been wrong in Hansard in another place— £11½ million plus interest on platform building at Hunterston, and that if there were no order the Government would acquire an interest in that. Presumably it is that kind of Government interest that will be taken over by this new Corporation. He also confirmed in his letter that the Government were financing directly a platform building site at Portavadie (a point which I had raised), again the amount being £11½ million. These amounts may seem small relative to some of the very large amounts we have been discussing today, but this is the kind of expensive operation which is required in order to extract oil from the North Sea and our Continental Shelf.

Will the Government confirm that under paragraph (a), money would be taken from the National Oil Account in order to finance projects of this kind each costing about £12 million or more, and is it a function of the new Corporation, as we assume, to take over platform building operations as well as others that have been mentioned during the course of the debates today? I hope that the noble Lord can continue the exchanges which we have had on this subject and answer these points.


On the specific point, I can assure the noble Lord that the Government's activities in such matters as platform building will not be taken over by the BNOC. It is highly upstream—so upstream that it does not belong any more in the Shelf.


That is extremely interesting, and that is information which your Lordships will be glad to hear, because the impression that had been given in discussion of the Corporation's activities was that the Corporation would be able to take part in any activity relating to extraction of petroleum and it was a question of how far that would go. The noble Lord has said quite definitely that this does not include platform building, and that is some information which I am glad to get from him.

Clause 40 agreed to.

Clause 41 [Payments to petroleum licence holders etc. from the Account]:

10.40 p.m.

Lord LLOYD of KILGERRAN moved Amendment No. 11A: Page 40, line 35, leave out ("disregarded for the purposes of") and insert ("shall be increased by").

The noble Lord said: At the outset I commend this Amendment to the Government because it may be a very useful tool in negotiations they may have with the industry on other matters. The noble Lord, Lord Balogh, indicated that he has had great experience as a merchant banker. He will know, therefore, that small variables can be of great assistance in negotiations. Having spent a great part of my life being concerned with negotiations, I realise how small parameters can be of great assistance. This clause as drafted contains an incentive, so it seems to me, in subsection (3) which provides that any repayment of royalties by the Secretary of State from the National Oil Account shall be exempt from United Kingdom tax. I believe that the incentive effect of my Amendment would mean the present proposal in the Bill being considerably increased. This would happen if the royalty repayments which are to be made were grossed up for United Kingdom tax payable thereon, and the revised gross repayments were then subject to United Kingdom tax—that is, income tax, corporation tax and petroleum revenue tax, as the case may be.

It seems to me that this grossing up would have at least three great advantages. First, it would enable licence holders to recognise an additional taxable income for the purpose of relieving other expenditures. Second, it would serve to avoid additional tax cost—for example, advanced corporation tax, which may not be relieved, on the distribution of profits comprising the royalty payments. Third, this would have the advantage of avoiding undue prejudice against foreign oil companies which will remain liable to overseas tax on the royalty repayments. I hope that these three points make the Amendment clear, and I ask that at least before Report—because I do not necessarily expect an answer tonight—the Government will agree that my Amendment could be of considerable advantage to them in relation to their negotiations with the oil companies.

With the leave of the Committee, I speak at the same time to Amendment No. 11B because the words there are entirely consequential on Amendment No. 11A.


As we emphasised during the long debates on these matters, the Government are extremely anxious to promote the exploitation of wells which are not large, which are unsatisfactorily situated or which have an awkward shape and thereby increase the cost of production. I can therefore say that we recognise the motives of the noble Lord, Lord Lloyd of Kilgerran, in moving this Amendment. I certainly assure him that the Government also attach importance to making the repayment of royalty a means of encouraging marginal production which is as flexible and effective as possible.

However, while we share the noble Lord's objectives, I am afraid I cannot advise the Committee to accept his Amendment. I say that for two reasons. I begin to suspect that next time I shall say "Niet"! There are two reasons for this. First, it would mean departing from the principle that the Secretary of State repays to the licensee what he has already received. It would mean that he would repay double or more what he has received. This introduces an entirely new principle and would, I think, go too far. Secondly, there would be a bigger outflow from the National Oil Account. It is true that the noble Lord's intention is that the net payment from the Government should, after payments of tax on the royalty repayment have been taken into account, be the same as under the Bill. But tax is of course paid to the Inland Revenue, not to the National Oil Account.

Thirdly, there is always an interval before corporation tax is paid and during this interval the Government would, in effect, be making an interest-free loan to the licensee. In some years, in fact, there may be no liability to corporation tax and PRT, but this would not be known for sure in advance. How would that unknown possibility be dealt with? We are always, of course, ready to receive representations from the industry on this as on any other point and I should welcome such representations. But, on the case put forward, I must advise the Committee not to accept the Amendment, much as I appreciate the motives which led to its being tabled.


The noble Lord has referred to the discussions on the question of incentive where there are marginal or clearly noncommercial fields to be developed. Was he referring to the discussions on the Oil Taxation Bill among other debates because, during debates on that Bill both here and in another place, the Government said quite clearly that they intended to use the waiving of royalties in certain cases? Therefore, this subsection to which the noble Lord, Lord Lloyd of Kilgerran, is suggesting Amendments presumably covers the intentions expressed in the Oil Taxation Act. But does it also cover other situations where the Government consider that royalties should be returned or waived?


As I understand it, the Secretary of State, with the consent of the Treasury, can waive royalties and these would be paid under the Act, if I am not mistaken. However, I would not swear to it and if I am wrong I shall inform the noble Lord tomorrow. They are to be repaid free of tax, so the incentive effect of the repayment of the royalty is indeed very great.


I am much obliged to the noble Lord for his sympathetic reception of my Amendment, particularly as regards marginal fields. At one stage, it seemed to me that he was rebuking himself for having dismissed many Amendments that were suggested to him. and I thought at first that he was trying to reply to me by saying "No" in my native language of Welsh, but perhaps I misunderstood the language. I am also grateful to the noble Lord for the gesture he has made in welcoming representations which may be made to him. I understand, therefore, that he would be willing to have conversations with me before Report stage in relation to this matter. If that is the position, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 41 agreed to.

Clause 42 [Loans etc. to promote development of United Kingdom petroleum resources]:

10.50 p.m.

Lord POLWARTH moved Amendment No. 12: Page 41, line 7, at beginning insert ("undertake an obligation covering or").

The noble Lord said: At the request of my noble friends, and if the Committee is agreeable, I shall move this and the subsequent Amendment on behalf of my noble friends. I submit that these two Amendments are technical and non-contentious, and I hope that by moving them I am giving the noble Lords opposite a chance to hand us something in return. The need for these has been drawn to our attention by some of those engaged in the financing of oil fields as being a desirable improvement to the provisions for the Government's giving of assistance in the form of loans, guarantees or otherwise to oil companies for developing their resources.

If I may deal with the Amendment now before us, I should like to say that the present drafting of Clause 42 limits the form of assistance which will be given by the Government to a guarantee or a loan, and it is quite clear from figures given in subsection (2) that it is intended that guarantees will be much the larger form of assistance: a limit of £600 million as compared with £50 million for loans. Guarantees have certain disadvantages. They are a limited form of assistance and a guarantee is really meaningful only where the primary obligation to repay lies with the party to whom the guarantee has been given.

I understand that under a guarantee this means that if recourse is had to the borrower in respect of the guarantee it can be against all the assets of his business, and not merely of the oilfield in connection with which the guarantee has been given. This seems unreasonable, and perhaps restricting to people accepting a guarantee as a way of help. It ought to be possible for the Government to give other forms of support, such as underwriting a financing scheme in preference to a guarantee. That is the reason for the Amendment in which we seek to add the words "undertake an obligation covering or", to what is in the clause.

This is a complicated point, but I believe it to be a genuine one and, so far as I know, it is entirely non-contentious. I hope that the Government can see their way to accepting it as an improvement.


Before the Minister replies, I wish to support fully what my noble friend said. He has moved this Amendment on behalf of my noble friend and myself. It is a banking point. It is one to which those concerned attach a great deal of importance, and I hope that the Government will consider it sympathetically.


We are as anxious as are the noble Lords who put forward these Amendments to facilitate the financing of North Sea developments, and I think that the Amendment is designed to help us to do this, by eliminating what the noble Lords believe might be a gap in our proposed powers. I am not sure, however, that it would be right to go as far as the noble Lords, Lord Strathcona and Mount Royal, Lord Campbell of Croy and Lord Polwarth, would like us to, since the Amendments moved provide for the Government to undertake the primary risk in financing oilfield development. This is to go very much further than Clause 42 as drafted, which envisages that normally the risk will be borne by the company, with a Government guarantee in support.

But I must tell your Lordships that I doubt whether in practice the question arises. This is because the Amendments are outside the terms of the Money Resolution which refers only to guarantees. Your Lordships will readily understand—although I agree with the noble Lord, Lord Polwarth, that this is a complicated matter—when I say that in those circumstances it is doubtful whether they should be incorporated in the Bill. I said that in practice the question does not really arise. There is another reason for this, which is that we believe that in practice agreements of the type mentioned by noble Lords can be drafted as Clause 42 guarantees.

For all these reasons, I would ask noble Lords, while, as I say, appreciating their motives, not to press the Amendments.


The complexity of the reply almost equalled the complexity of my exposition of the Amendment. In the circumstances, I certainly do not wish to pursue this further tonight. I shall reserve the right, if I find on further consideration outside that there is still a difficulty, of raising the matter in some other form later. Perhaps the matter might be discussed outside the House at some stage. In that case I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

10.55 p.m.

Lord POLWARTH moved Amendment No. 13: Page 41, line 8, leave out ("loans made") and insert ("funds made available").

The noble Lord said: I understand that in another place a similar Amendment to the Bill was introduced and it was withdrawn on receiving assurances that the matter would be reviewed. It still appears to us that this wording restricted to loans is too limited. We should be grateful for a further opportunity to hear the Government view on this matter. I beg to move.


I am sorry, but I was under the impression that when making my last reply I was replying to both Amendments No. 12 and No. 13. I heard the noble Lord, Lord Polwarth, say that he was talking to both Amendments. Therefore I hope that, complicated though the issues are, I have covered the matter contained in Amendment No. 13.


What I heard my noble friend Lord Polwarth say at the beginning was that, with the leave of the Committee and with our agreement, he proposed to move both these Amendments but not necessarily together. I should like to reinforce what my noble friend has said, in that the second Amendment, No. 13, was considered in another place in Committee on July 10th—

A Noble Lord

July 15th.


Yes, it was on July 15th. In the course of that debate, the Secretary of State for Energy made it clear that this would be considered again. Even if the noble Lord is not able to consider the matter now, I hope that he will look at it again in that inasmuch as if the Minister at that stage said it could be considered again, it seems odd that it should now be found that it is not within the Money Resolution. That seemed to be the reason which the noble Lord gave for not being able to include this Amendment. We understand that, technically, if it is not within the Money Resolution in another place we are probably wasting our time in trying to amend the Bill in this respect. Because there was an undertaking given to look at this again, it seems odd that this should be the answer. I hope that the noble Lord will look at it again.


The answer I gave was that it was not in the Money Resolution. The point that is being raised is the same as that in Amendment No. 12. An undertaking was given in another place to re-examine the drafting to see whether there were any gaps. No Amendment was tabled on Report, because it was decided that the power to guarantee loans was apt to cover any circumstance in which the Govern- ment were likely to exercise that power. We considered it again but did not put forward an Amendment because it was outside the Money Resolution. This is the main point.


I am grateful. May I clarify another point? I have a copy of Hansard of the other place. It has printed "Tuesday, 15th July" on the outside and "10th July" at the top of the pages all the way through it—a misprint that may have caused trouble to other noble Lords and Members of another place. I ask the indulgence of the Committee for having given the wrong date at first.


I am grateful for the noble Lord's reply and, in view of it, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 42 agreed to.

Clause 43 agreed to.

Clauses 17 and 18 agreed to.


It may be convenient to your Lordships if we halt the Committee here. I beg to move that this House do now resume.

House resumed.