Lords Sitting of 3 November 1976

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

AIRSHIPS AS FREIGHT VEHICLES
Lord DAVIES of LEEK: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have considered the possibility of relieving pressure on road transport by the use of the modern airship as a heavy freight vehicle and if not are they now prepared to initiate such an experiment in this relatively safe field of locomotion.
Baroness STEDMAN: My Lords, the Government have given no detailed thought to the use of airships to relieve pressure on the roads. At first glance the operational advantages of airships—that is, their ability to move fairly large loads of passengers, goods or both between specially equipped points—suggest that if such a system could be made successful it would be more likely to capture traffic from rail than from road. However, we believe any development of this kind is best pursued on a commercial basis rather than by Government.
Several noble Lords Several noble Lords: Hear, hear!
Lord DAVIES of LEEK: My Lords, while thanking my noble friend for that Answer, and being encourage by the "Hear, hears" that were sotto voce throughout the Chamber, may I ask my noble friend whether she is cognisant of the fact that 18 million internal combustion engined vehicles transversing the roads of England are making a marvellous concrete slum out of England's fragile beauty, and that in this human formicary, human beings no longer seem to count. Secondly, my information is—
Several noble Lords: Question!
Lord DAVIES of LEEK: If noble Lords would wait and understand English grammar, they would know that that is the beginning of a conditional clause.
Several noble Lords: Hear, hear!
Lord DAVIES of LEEK: My Lords, is my noble friend aware that already the National Enterprise Board have been approached tentatively by Aerospace Development, who are selling 22 airships to Venezuela? They are already consultants to Shell and to the American navy. And this is not a jocular question; it is a question of importance to the future of Britain's engineering. In view of the fact that there was a slight amount of hope in my noble friend's Answer, may I ask whether she w ill encourage the National Enterprise Board to investigate the possibilities of the use of these airships in the future?
Baroness STEDMAN: My Lords, on the first part of my noble friend's question about the concrete jungle that may be created in this country, I may say that 17 per cent, of the traffic on our roads is commercial traffic. Nine per cent. of that consists of light vans and only 8 per cent. consists of heavy lorries. Therefore the roads are needed not only for the lorries but also for cars, et cetera. As to approaches to the National Enterprise Board, that matter of course is not the responsibility of my Department. I can advise my noble friend that a number of approaches have been made to the Department of Industry in the past few months asking about support for the development of various airship schemes. The parties concerned have been told the kind of information that they would need to supply before the Government could consider the possibility of any financial assistance.
Lord HALE: My Lords, in view of the necessity for energy conservation, will the noble Baroness give, in terms of megajoules per passenger kilometre, the energy consumption used in transport by airship and a comparable loaded aeroplane?
Baroness STEDMAN: Not without notice, my Lords.
Lord GAINFORD: My Lords, may I ask the noble Baroness whether Her

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Majesty's Government are aware that in the United States the United States Navy and the National Aeronautics and Space Administration are sponsoring considerable inquiries into the possibilities of the use of airships for both military and civilian purposes? If so, have the Government any contact with the United States' Government for exchange of information on such matters?
Baroness STEDMAN: Not to my knowledge, my Lords; but I will find out and write to the noble Lord.
Lord LEATHERLAND: My Lords, may I ask my noble friend whether she does not think that there are already far too many gas bags about, without having them flying over us every hour of the day and night?
Baroness STEDMAN: My Lords, I hope my noble friend is not referring to Members of this House!
Lord THOMAS: My Lords, would the noble Baroness agree that in the present economic state of this country, any Governmental money spent on investigating the doubtful merits of airships as transport vehicles would be grossly extravagant and utterly unwarranted?
Baroness STEDMAN: My Lords, I am inclined to agree with the noble Lord. From the proposals that the Government might expect to receive, and from the work that they have done themselves, they are not sure that moving heavy loads by an airship would be an economic proposition. There are certain problems involved in the picking up and setting down procedures, and interruption by the weather. It has also been estimated, on very crude statistics, that there are only sufficient such loads in the United Kingdom to keep one airship operational.
Lord THOMAS: My Lords, will the noble Baroness accept my thanks for that answer?
Lord DAVIES of LEEK: My Lords, may I finally ask my noble friend whether she will take no notice of the old curmudgeons who pour scorn on this method of transport, since in 1913 the Daily Mail in a leading article said that aeroplanes would never fly?
Lord FOOT: My Lords, may I ask the noble Baroness this question? When, in her original reply to the Question, she drew a sharp distinction between the carrying on of a businesss on a commercial basis and carrying it on as a public enterprise, was she making a general statement of policy on behalf of the Government?
Baroness STEDMAN: No, my Lords.
Viscount St. DAVIDS: My Lords, is the noble Baroness aware that there is one thing an airship could be used for which would be particularly valuable—that is, the carrying of a particular kind of indivisible heavy load which, because of its width, blocks up roads and traffic, causes us to spend vast sums of money on policing the situation and is a thorough nuisance to everybody else? Would the noble Baroness not agree that if such a load could be picked up by airship it would be a good thing?
Baroness STEDMAN: My Lords, there may be something in that argument, but we are not satisfied that airships could ever offer a viable alternative to road haulage. We accept that when there are very large loads on the road they do cause chaos and delays; but even if the consignments were small, the distribution pattern would be so complex that the problems that would have to be faced in developing an adequate network of roads to get from the point of landing and to the point of taking off would possibly add to the concrete jungle that my noble friend referred to earlier.
Lord GAINFORD: My Lords, is the noble Baroness aware that there are people in this country who are designing airships that could give an almost door-to-door service between this country and Europe?
Baroness STEDMAN: My Lords, we have no information about that at the moment.

OIL EXPLORATION: LICENCE APPLICATIONS
2.45 p.m.
The Earl of LAUDERDALE: My Lords, I beg leave to ask the Question

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which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will now comment on the reports, mentioned during Questions on 20th October, of pressures allegedly brought to bear on oil companies applying for new licences under the Fifth Round to agree to BNOC participation in licences already granted before BNOC came into being.
Lord STRABOLGI: My Lords, suggestions that undue pressure has been applied to companies during the participation negotiations are quite unfounded. The noble Earl has also made reference to a letter sent to certain of the companies which have applied for Fifth Round licences. I should like to assure him that this letter was simply an invitation to these companies to indicate their attitude to the principle of participation. Noble Lords will recall that one of the factors which the Secretary of State for Energy has announced that he will bear particularly in mind when examining applications, is the degree to which the applicant has demonstrated his agreement to the conceding to the State of a majority share in any discovery made under existing licences. Her Majesty's Government have already sufficient information, in respect of many of the applicants, to assess this. It was necessary, however, that those companies about which not enough was known should be given an opportunity to indicate their acceptance of this important element of Her Majesty's Government's policy for the development of the United Kingdom's offshore oil resources.
The Earl of LAUDERDALE: My Lords, in thanking the noble Lord for that very smooth reply, may I ask him whether he considers that a 10-day ultimatum can properly be called an invitation?
Lord STRABOLGI: My Lords, I am sorry if the noble Earl thought my reply was smooth. It was intended to give him as much information as possible. This is quite a straightforward matter. The different factors were spelled out in the London Gazette and the Edinburgh Gazette on 20th August. The seventh factor (g)
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made it clear that one of the points to be taken into account was State participation in existing contracts. Certain of the companies did not comment on this in their applications and so a letter was sent on 12th October, asking for their views.
The Earl of LAUDERDALE: My Lords, I am sure the noble Lord will appreciate that I appreciate his efforts to give a helpful reply. I do not doubt for a moment that that is his purpose. But would he not agree that this letter, which refers to a "fair" price instead of a "market" price as hitherto in such discussions, does break new ground and therefore goes beyond the published general conditions which were made known some months back? In view of that, would the noble Lord consider asking his right honourable friend to publish his letter so that any doubts may be set at rest?
Lord STRABOLGI: My Lords, participation negotiations are being conducted on a basis that will leave the companies financially no worse off. BNOC will, of course, pay the market price for the oil taken under participation agreements in the form now being negotiated. Perhaps the noble Earl will contain himself for a moment because I am just going to come on to his second point. With regard to the letter of 12th October, I have it here on the file. If the noble Earl would like me to send him a copy I shall be happy to do so. I will also make a copy available in your Lordships' Library and publish it in Hansard.—[See below.]
Lord SLATER: My Lords, is my noble friend aware that, in view of the Question and supplementary question put by the noble Earl, Lord Lauderdale, one gets the impression that this is where vested interests come into the picture and one really feel, in view of the questions asked by the noble Earl, that he must have tremendous interests which are vested inside—
Several noble Lords: Oh! Oh!
Lord SLATER:—inside this particular issue on which he has questioned the Minister?
Lord CARRINGTON: My Lords, I really must ask the Leader of the House

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whether it is proper to make allegations of that kind.
The LORD PRIVY SEAL (Lord Peart): My Lords, I hope that my noble friend Lord Slater will withdraw his remark.
Lord SLATER: My Lords, I do not see why my noble friend the Leader of the House and the Leader of the Opposition are taking exception to the question which I have asked. Is it not the custom of this House for individuals, who have vested interests in certain organisations and so on to declare those interests? As I understand the position, there is nothing to stop any Member from asking a direct question about whether the individual concerned has a vested interest.
Several noble Lords: Withdraw!
The Earl of LAUDERDALE: My Lords, may I set your Lordships' minds at rest and declare that I have altogether 200 shares in Shell, and those are the only shares I have in any oil company of any kind whatsoever, or have ever had at any time.
Lord PEART: My Lords, I hope that my noble friend will really withdraw graciously.
Lord SLATER: My Lords, is my noble friend the Leader of the House—
Several noble Lords: Withdraw!
Lord SLATER: Shut your mouths! Is my noble friend the Leader of the House aware that I have been in this type of life too long to be drowned by people on the other side. But I withdraw the statement that I made to which they take exception.
The Earl of LAUDERDALE: My Lords, can we get back? May I thank the noble Lord, Lord Strabolgi, for offering to publish this letter? If he would publish it in Hansard that would be helpful, because it would clear up the question whether it refers to a fair price, as I understood, or whether it refers to a market price, which the noble Lord said is the Government's position in this matter.
Lord ORR-EWING: My Lords, will the noble Lord consider whether it is
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reasonable, as this letter suggests, on anything of such importance as retrospective participation on existing licences, that they should have an answer to this letter within 10 days? I think it is a little unreasonable on an enormous business venture of this kind, where millions of pounds and many jobs are at risk, and it is pressing the bargaining power of the Government a little far. Would the noble Lord also confirm that if it ever was said that a resident's licence should be withdrawn, that was improper and will never be said on any future occasion?
Lord STRABOLGI: My Lords, with regard to the first part of the noble Lord's question, this was a question of principle that was being asked, and it was decided by my right honourable friend that the time which the noble Lord has mentioned was sufficient. With regard to the so-called threats to withdraw—I cannot remember whether it was passports, residents' permits or something like that—there is absolutely no truth in that. It is absurd.
Baroness ELLES: My Lords, can the Minister inform the House whether he is satisfied that the participation agreements are not in contravention of the monopolies provision of the EEC Treaty? Also, will he kindly inform the House whether any consultation has taken place with the European Commission on this monopoly activity of BNOC?
Lord STRABOLGI: My Lords, I think that that is quite a different question.
Lord BLYTON: My Lords, is the Minister aware that it is a poor company which applies for a licence and does not know the basic principle of the Government, that they want 51 per cent participation in any licences granted for this oil which belongs to this country, instead of its being handed over to private enterprise to make profits? If some day we have to nationalise it, it will cost millions of pounds in compensation.
Lord STRABOLGI: My Lords, there is a great deal in what my noble friend has said. The White Paper stated the Government's belief that majority State participation in existing licences provides

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the best means for the nation to share fully in the benefits of North Sea oil.
The Earl of LAUDERDALE: My Lords, will the noble Lord answer one other point? He has been good enough to deny altogether the story, which I brought to this House in good faith, about a threat to withdraw a resident's permit. He said that that kind of thing is absolute rubbish, and I am very glad to hear that it is. But is he aware that the noble Lord, Lord Balogh, who unhappily is not here—he is a great friend of mine and I wish that he were here—told us in the Committee stage of the Petroleum and Submarine Pipelines Act that the Government would use their strongest cards and full bargaining power, and on another occasion said, "We have other cards up our sleeves", and there is reason to expect the Government to use all kinds of pressure?
Lord STRABOLGI: My Lords, all I can say is that Her Majesty's Government do not conduct their negotiations like that.
Lord PARGITER: My Lords, can my noble friend say whether or not—
Lord PEART: My Lords, I think that we should proceed.
Lord PARGITER:—there would be quite so much worry about a fair or a market price, if the fair price happened to be higher than the market price?
Following is the letter referred to:
DEPARTMENT OF ENERGY
12th October 1976
Dear Sir,
Your company is amongst those which have recently applied for an offshore petroleum production licence.
Fifth Round licences will of course be awarded on the basis that BNOC is a 51 per cent. partner from the outset, but the Gazette Notice inviting applications set down that one of the factors which the Secretary of State would bear in mind when examining applications would be the degree to which:

(a) the applicant; or

(b) any existing licensee in whom he has a controlling interest; or

(c) any existing licensee who has a controlling interest in the applicant;

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has demonstrated his agreement to the conceding to the State a majority share in any discovery made under existing licences.
The Government is already in discussion with companies with existing commercial oil fields and a number of other companies have informed us that they accept the principle of participation in the event of a discovery being declared commercial. We now seek an indication of the attitude towards participation of those companies with interests in existing licences whose views are not already known, or are known in respect of part of their licence interests only.
Our intention is to seek an indication of your acceptance of the principle of majority State participation in the event of a commercial discovery in any of the licence interests presently held by your company. Where no commercial development is in prospect it is not our intention to initiate a new round of negotiations at this stage, but your acceptance would mean that when any find in which your company has an interest through an existing licence is declared commercial, your company would be prepared directly to enter into negotiations with the Department for majority State participation in that interest. While the terms of participation would be negotiable in each case and could be expected to vary according to circumstance, you will no doubt know that participation agreements so far concluded provide for BNOC to have an effective voice in the decision making processes of the field, and a right at its option to take up to 51 per cent. of the petroleum produced but on a basis which secures to the company a fair price for any taken up.
To confirm that our records are complete, if categories (b) or (c) above apply to your company I should be grateful if you would notify me of names and addresses within the next few days.
When replying to this letter, would you please write on behalf of any company in category (b), and ask any company in category (c) to write to me direct, in both cases covering all the interests presently held by the company concerned.
In order that your application may be given full consideration within the time available I should be grateful if I could have your reply within ten days of the date of this letter.
Yours faithfully
(Signed) Robert Priddle.

AVRAIL AND VENEZUELAN RAILWAY CONTRACT
2.55 p.m.
Lord RHODES: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why the British consortium Avrail has withdrawn from bidding for the Venezuelan railway contract.
Lord ORAM: This is not a matter for which the Government had responsibility

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but they had been assisting the company with normal export services. Avrail Limited is a properly constituted commercial company, and its decision to withdraw from bidding for this contract was based on the commercial judgment of its shareholders. I understand that the reasons were a combination of the unusually onerous conditions of contract and the estimate of the cost, which led the company to the decision that it could not make a competitive bid.
Lord RHODES: My Lords, does the Minister agree with the statement attributed to the British Ambassador in Venezuela that the consortium pulled out too soon?
Lord ORAM: My Lords, as I have said, this was a matter of commercial judgment upon which I would not wish to comment. I believe that the remarks made by Mr. Taylor in Venezuela have been misrepresented in the Press. He used the word, "unfortunate", but that related to the general situation arising out of this decision.
Lord RHODES: My Lords, in fairness to the consortium, may I ask whether the Minister agrees that the fear of cost escalation due to sterling devaluation was the main reason for withdrawing?
Lord ORAM: My Lords, I think that a new estimate of costs was made and that was part of the reason for the withdrawal. But, obviously, the value of sterling entered into that.
Lord ORR-EWING: My Lords, does the noble Lord agree that in heavy engineering projects of this kind, which may last five or seven years, the rate of inflation is of tremendous importance, as the noble Lord has said? Therefore, is it not of paramount importance that we, on all sides of this House and in another place, should do everything we can to reduce the rate of inflation? If we do not, our competitors all over the world will beat us for heavy capital projects of this nature.
Lord ORAM: My Lords, it has been stated many times that the Government's view of inflation is as the noble Lord has said; that is, a major objective of our general economic policy.
Viscount ECCLES: My Lords, as the President of Venezuela is expected in this country within three weeks, would the Government try to get this consortium together again, and look particularly at the question of the performance bonds, which I think bulk large in the withdrawal from competition?
Lord ORAM: My Lords, the performance bonds were, indeed, a major factor. As to getting the consortium together again, Her Majesty's Government would be willing to play the same role, if asked by the commercial concerns, on a second occasion. But in relation to this project, since bids have to be in by 6th December I do not think that that is really a practical proposition.
Lord POPPLEWELL: My Lords, does my noble friend agree that our industries are finding difficulties in many of these foreign contracts? It is argued that the severe conditions imposed by many would-be customers are rather too harsh for our people to bear. But in this developing world trade other nations are competing, so will my noble friend ask his honourable friend to use his best offices to get industry to have another look at this type of project?—because, if we want to get over our balance of payments difficulties and take our share in world trade, there must be some new appraisals by our industrialists of these foreign orders.
Lord ORAM: My Lords, the need for us to be competitive is well-known. But in relation to this project, I think I have made it clear that the conditions laid down were quite unusual.
Lord RHODES: My Lords, is not this a prime example of devaluation nor always helping exports?

AIRCRAFT AND SHIPBUILDING INDUSTRIES BILL
3 p.m.
Further considered on Report.
Clause 6 [Duties of the Corporations to review and report on management of their affairs]:
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 58:
Page 9, line 24, after ("interest") insert ("or is against the commercial interests of the Corporation").
The noble Lord said: My Lords, I beg to move Amendment No. 58 which seeks to insert the words "or is against the commercial interests of the Corporation". This is a rerun of an Amendment which we discussed at the Committee stage when a certain amount of confusion, which has subsequently been cleared up, reigned between the noble Lord who answered the question and myself. The trouble was that in the course of the confusion we lost sight of what seemed to us to be two quite important points. The more general point was most particularly alluded to by the noble Viscount, Lord Simon, from the Liberal Benches.
May I say again that we are seeking to address ourselves to the problem of making these Corporations as workable as possible and setting up a satisfactory relationship between the Minister and the Corporations which are being set up under the Bill. The situation, as I understand it, and it has been confirmed to me in a letter from the noble Lord, Lord Kirkhill, under what has now become Clause 6 of the Bill is that the first thing which happens is that within six months there is what I call a management audit. A kind of consultant's report takes place on these industries which is submitted to the Minister within six months. We got into some difficulty because the clause goes on to say that from time to time when it considers it appropriate, or the Secretary of State so requires, further reports may be submitted.
Already the Bill states that certain parts of these reports can be omitted when it is considered by the Minister that their inclusion would be against the national interest. One could have circumstances in which it would be in the interests of the Corporations to omit certain sections of these reports. It is fair to say that most noble Lords, and certainly I include myself, are in favour of as much information as possible being submitted to Parliament. But we have to try to be realistic.
As I have said, it raises the question that was raised by the noble Viscount, Lord Simon, of confidentiality of reports
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between an industry and its Minister and the danger that if a report is to be published the person submitting the report may feel that it is necessary to hold back some part of the information he would otherwise have put into the report. I said at the Committee stage that this was taking up the whole issue of the publication of advice given by civil servants to Ministers. I know that this is not the point to which we are addressing ourselves here but it is the general point which the noble Viscount, Lord Simon, was seeking to make in this connection and I hope that the noble Viscount will give me the benefit of his advice in a moment.
If I may try to make an analogy, although it is not an exact one, the premature publication of the fact that British Leyland was about to replace the Mini model would be quite damaging to the sales of the Mini until such time as the new model had been phased in. One can think of analogies with the aircraft industry or, indeed, with the shipbuilding industry. It seemed to us that it would be liable to protect the interest of a free exchange of information between the Corporation and the Minister if this provision were made in the Bill, whereby what one might call economically sensitive information could be held back so that the free exchange of such information could take place untrammelled by the dangers which could result from premature publication.
I hope that I have not made what, on the face of it, is a fairly simple point sound too complicated. It is a matter of some importance, although I hope and believe that it is not in any sense a Party point. At the Committee stage we failed to make the point clear, but I hope that I have clarified it now. My Lords, I beg to move.
Viscount SIMON: My Lords, may I support what has been said about this Amendment by the noble Lord, Lord Strathcona and Mount Royal. We discussed the point in Committee and I expressed the view strongly that what was essential was absolute frankness between the Boards of the two nationalised industries and the Minister, and that this might well be vitiated if there were a danger of matters which were against the commercial interests of the Corporation being published. I am afraid that I do

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not have the reference with me, but I thought that at the end of the discussion the Minister said that in his view what was against the commercial interests of the Corporation would be against the national interest and could, therefore, be excluded. That seemed to me to be a very good way out of the situation, but it would be even more certain if these words could be added. I cannot see any objection to adding these words, but I shall wait to hear what the noble and learned Lord says in reply to the Amendment.
The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey): My Lords, as the noble Lord, Lord Kirkhill, pointed out during the Committee stage debate, this point had been made in Committee in another place where it was agreed that it should be considered. The noble Lord explained in Committee that the Government were not convinced of the need for an Amendment on these lines, and that remains our position. It remains our position because we think that there is a misunderstanding among noble Lords opposite about the kind of matter which will be contained in a report made under Clause 6. It is essentially a report about matters of organisation and will cover such questions as whether the Corporations should be organised on regional or functional lines, whether the vesting subsidiaries should retain their old identity and so forth. Matters of the kind which have given rise to the concern which has been expressed are unlikely to be contained in any such report.
All of these points have been made before in Committee and the Government remain of the view that the Amendment is unnecessary. I should also add that a clause in the terms of the present one is contained in other nationalisation measures and that this would be a new departure and might suggest there was something wrong with the previous clauses. However, I am empowered to say, and am able to say to your Lordships that if your Lordships feel strongly that this matter ought to be amended in the terms now proposed we should not resist, in a Division, the moving of the Amendment.
Lord STRATHCONA and MOUNT ROYAL: My Lords, the noble Lord has
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rather surprised us by the acceptability of the Amendment which he is expressing. It leaves me slightly uncertain about what to do because it is difficult, as it is a Report stage Amendment, for noble Lords again to express their views. I think in the circumstances it would be proper to suggest that I move this Amendment, on the understanding that the Government are prepared to accept it, but I suppose I must also say, as they are being so co-operative, that if on second thoughts they feel it is a terrible thing we might have to agree to take it out again later if the case appeared to be pressing.
On Question, Amendment agreed to.
Clause 7 [Machinery for settling terms and conditions of employment etc.]:
3.11 p.m.
Viscount SIMON Viscount SIMON had given notice of his intention to move Amendment No. 60:
Page 9, line 28, leave out ("consult") and insert ("seek consultation with").
The noble Viscount said: My Lords, this is the second of a pair of Amendments; we have already discussed the first one and the noble Lord, Lord Winterbottom, explained very clearly that the Government preferred the original wording. I do not think it is really worth while taking the time of the House to deal with this point. I am only wondering whether, to make honours even, the noble Lord, Lord Winterbottom, will leave the other Amendment which was carried by mistake in the early hours of the morning so that we shall be able to say that there is at least one Liberal Amendment which has been accepted by the Government. Subject to that I do not intend to move the Amendment.
Lord WINTERBOTTOM: My Lords, I am not quite certain of the position. We are now talking about Amendment No. 60 which I think went with Amendment No. 56. Is the noble Viscount mentioning the issue of decency and fairness on Amendment No. 60 or on Amendment No. 62?
Viscount SIMON: My Lords, it is not to do with Amendment No. 62. I will not move it, but I will speak to the noble Lord, Lord Winterbottom, afterwards.
Earl FERRERS Earl FERRERS moved Amendment No. 60A:
Page 9, line 29, leave out ("or professional organisation").
The noble Earl said: My Lords, this is an Amendment to leave out the words "or professional organisation". At the Committee stage we had a long discussion about the correctness of everyone being consulted, particularly when industrial democracy was being spoken about. It has always been our intention and our belief on this side of the House that everyone should be consulted as regards the future of these two Corporations, particularly where industrial democracy is concerned. However, this particular clause refers to collective bargaining and it has always been the accepted principle of professional organisations that they do not involve themselves with collective bargaining processes. If the Bill were to remain as it is, I think that bodies such as the Institution of Mechanical Engineers or even the Law Society or the Royal Institute of Naval Architects could in fact be consulted over matters to do with collective bargaining. We think that this should not be so, and for that reason we tabled the Amendment to exclude those professional bodies from consultation where it relates solely to collective bargaining. I beg to move.
Viscount SIMON: My Lords, these words were put in on the basis of an Amendment moved by my noble friend Lord Lloyd of Kilgerran, and we feel that it is desirable to retain them. In my opinion the clause as drafted is not completely correct and one might need to discuss with noble Lords opposite the possibility of some adjustment of the wording. What we have in mind is this. There may in a large organisation be quite a small group of highly qualified specialists who conduct essential work, who are not members of any trade union and who are certainly not the substantial proportion of the people employed in the plant or factory, or whatever it may be, but it seems to me that that small group of highly qualified professional people have just as much right to have proper machinery in existence for the purposes specified in subsection (3)(a) for the settlement by negotiation of terms and conditions. If they are not put in this clause in some way it appears that the sort of people to whom I am referring would simply be
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at the mercy of the employers to say, "These are your terms", and that is the end of it. I should have thought it was desirable in some way to get these small groups of highly qualified people put into a position where they are entitled to have proper machinery for settling their terms and conditions of employment. It was on those grounds that we thought it right to put these words in, and it is on those grounds that I think it is right to retain them.
Lord COOPER of STOCKTON HEATH: My Lords, are the people to whom the noble Viscount has just referred covered by subsection (2):
"It shall be the duty of each Corporation to seek consultation with other organisations not being relevant trade unions"?
Viscount SIMON: My Lords, if, with the leave of the House, I may speak again in reply to that question, the answer is that the next clause refers specifically to people who represent substantial proportions of the persons in the employment of the Corporation, and this might not be a substantial proportion at all—it might be a very small proportion.
The MINISTER of STATE, NORTHERN IRELAND OFFICE (Lord Melchett): My Lords, it may be helpful for me merely to say, in keeping with the happy relations which exist between noble Lords immediately opposite and the Government, that we are quite happy to accept these Amendments.
Lord CAMPBELL of CROY: My Lords, I am grateful that the noble Lord, Lord Melchett, is starting the day—as far as he is concerned—by accepting this Amendment, but I should like to say something on the point raised by the noble Viscount, Lord Simon. The words "or professional organisation" appear in subsection (4) of the previous clause—Clause 6—which we have been discussing, and there it is a duty laid upon the Corporation to consult with professional organisations. This is a matter which my noble friend Lord Carr feels strongly about, with all his experience of having served at various times in the Ministry of Labour and then having been Secretary of State for Employment, and he spoke about it at the Committee stage. He feels that it

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is not the place for professional organisations to be involved in the machinery for settling terms and conditions of employment. To his knowledge most of those organisations would prefer not to be involved in the way suggested in the Bill as now drafted. Clearly the Government have come to the same conclusion and I am glad that they have accepted this Amendment.
I just wanted to take this opportunity of explaining to the noble Viscount, who was naturally anxious about this point, that we feel that professional organisations are being consulted at other points in the Bill, although if there is any suggestion that there is some place which is appropriate for them where consultation should be added, of course we shall be glad to consider that at the Third Reading.
On Question, Amendment agreed to.
Viscount SIMON Viscount SIMON had given notice of his intention to move Amendment No. 62:
Page 9, line 43, at end insert ("incorporated in the United Kingdom.").
The noble Viscount said: My Lords, this, again, is the second of two Amendments and we discussed the other one towards the end of our discussion on the last occasion. I have now had an opportunity of reading what the noble Lord, Lord Winterbottom, said, and in view of that I do not propose to move this Amendment.
Clause 8 [Formulation of the Corporations' policies and plans and conduct of their operations]:
3.19 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 65:
Page 10, line 13, at beginning insert—
("Except in so far as it is satisfied that adequate consultation has already taken place having regard to the particular subject matter for inclusion in the plan").
The noble Earl said: My Lords, this Amendment is similar to one which we tabled at the Committee stage of the Bill. Its object is simply to prevent any repetition over the preparation of the corporate plan of a process of consultation with the relevant trade unions which has been going on anyway as a result of other consultation provisions in the Bill. Clearly it is right that over the preparation of the
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corporate plan there should be consultations, and it is right that this should happen. We feel that as the Bill is at present drafted it might put a duty on the Corporations to consult even further with trade unions when they have already in fact done so. The noble Lord, Lord Melchett, believed that such repetitious consultation would, on a commonsense basis, be avoided and that therefore the Amendment was unnecessary. On the other hand, we thought that it would be very prudent to put it quite clearly in the Bill that if in fact consultation had already gone on there is no point in putting a statutory duty on the Corporation to further that consultation once it has been achieved. I beg to move.
Lord MELCHETT: My Lords, when we discussed this Amendment in Committee, both I and the noble Lord, Lord Carr of Hadley, were agreed about what we wanted and expected to happen under corporate planning procedures. But the noble Lord, Lord Carr, was concerned that this clause as drafted would not achieve the happy result we both wanted to see. At that stage, we agreed that the words of the Amendment which the noble Lord moved in Committee probably did not achieve the desired effect. We both agreed to go away and think about the matter. I certainly have given the matter some thought since Committee stage and have taken further advice on it. First I would emphasise that in drawing up these provisions the Government were most anxious to strike the right balance between the requirement to consult and the need to ensure that the consultations were not so onerous as to inhibit the corporate planning procedures. We hope that the development of industrial democracy, encouraged by the consultation provisions in the Bill, will mean that there are frequent consultations with the unions at various levels on a wide range of subjects. Many of these subjects may be included in the corporate plan—the most obvious example, perhaps, is employment. I have looked carefully at this again, and have taken legal advice.
As a result I can assure noble Lords opposite that where a particular subject covered in the corporate plan has already been discussed between the unions and the Corporation, the Corporation would not have to consult the unions about it again to meet the requirement in Clause 8.

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This would have been met by the earlier discussions. All the clause requires is that at some stage there shall have been consultations between the unions and the Corporation about the subjects to be covered in the corporate plan. These consultations can be formal or informal, and need not be expressly for the purpose of the plan. What the clause does not require is a formal consultation procedure on the plan itself.
Our hope is that by not specifying how consultation shall take place in detail we have left the unions and the Corporations maximum scope for arriving at an arrangement which is acceptable to both, and which makes sense to both parties. What we intended to do, and what I am advised, after thinking about this carefully again, we have achieved in drafting the clause is both what the noble Lord, Lord Carr of Hadley, wanted and what the Government want. We have done our best to strike the right balance between ensuring that consultations are worth while, but not so onerous as to detract from the effective implementation of planning procedures. As I have explained, this means that where the Corporation has consulted a union about a subject covered in the corporate plan, the Corporation will not be under an obligation to consult them again. I hope, with that further explanation of the practical effects of the Bill as it is drafted and the assurance, I think, that the clause actually achieves what we both wish it to achieve, that the noble Earl will not press his Amendment.
Viscount SIMON: My Lords, in this case I find myself in agreement with the noble Lord opposite about this. I did not think it needed quite such a long explanation because the clause says it shall be the duty of the Corporation after consultation to formulate the plan. [f there has in fact been adequate consultation, then the formulation is after consultation.
Earl FERRERS: My Lords, I am grateful to the noble Lord, Lord Melchett, for having given this consideration and for having taken further advice on it. We were concerned merely to see that the Bill was as tidily drawn as it should be. There was nothing between us on the substance of the Amendment. I think that the noble
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Lord, Lord Melchett, inadvertently referred to the fact that he wanted to make sure that the Corporations and the unions would have as much freedom as possible to discuss. The noble Lord forgot line 14 which puts the obligation to consult not only with relevant trade unions but also with professional organisations. I am sure that was an error into which the noble Lord inadvertently slipped, having for-gotten Committee stage. I am sure he really intended to say that it is the intention of the Government to allow the Corporations as much freedom as possible to consult with the relevant trades unions or the professional organisations, as the case may be. That being so, I appreciate the trouble that the noble Lord has taken in having made quite certain that our Amendment would not be an improvement to the Bill. Therefore, I am happy to withdraw it. I beg leave to do so.
Amendment, by leave, withdrawn.
Clause 9 [Furnishing and publication of information by the Corporations]:
3.25 p.m.
Lord CARR of HADLEY Lord CARR of HADLEY moved Amendment No. 72A:
Page 11, line 32, at end insert—
("(2A) Without prejudice to the generality of subsection (2) above the Secretary of State shall direct each corporation to publish at least such information as, had it been a company listed on the Stock Exchange daily official list it would have been required to make available to its shareholders to conform with the regulations of the Stock Exchange for the time being in force.").
The noble Lord said: My Lords, we are now dealing with Clause 9, which deals with the furnishing and publication of information by the Corporations. I think it probable that it would be to the convenience of your Lordships if I spoke also to Amendment No. 72B, because they are very closely related points, and the arguments I wish to put forward for one are virtually the same as I would wish to put forward for the other.
My Lords, in these two Amendments, we are simply seeking that the two Corporations shall be required to maintain the same standards, no higher, but the same standards as public companies in the private sector are under in their obligation to maintain, either by virtue of the rules of the Stock Exchange, with which they

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must comply in order to obtain a quotation, a listing of the Stock Exchange, or by virtue of the obligations of the Companies Acts. We believe that the nationalised Corporations both could and should conform to the practice which is rightly expected of companies in the private sector in these matters of giving information. It is true that their reports may contain somewhat different information from those given by public companies in the private sector. In some cases, nationalised Corporations may give more information. All we are saying is that they shall have imposed upon them a minimum standard, no higher but no lower than the minimum standard imposed on public companies in the private sector. I hope that the Government will feel able to accept this Amendment.
I know that the Government will say to us that this is what public Corporations will try to do. But we really cannot see why companies in the private sector should be under an absolute obligation to do so either because of the operation of company law or because of the operation of the laws of the Stock Exchange, which, although not law, must be complied with if the Corporations are to maintain their Stock Exchange quotations. I hope that noble Lords from all parts of the House will find this reasonable and that the Government will be able to comply. Therefore, I beg to move.
Lord WINTERBOTTOM: My Lords, may I say how grateful I am to the noble Lord, Lord Carr of Hadley, for speaking to these two Amendments together, because it helps progress. We have much sympathy with the aim of the Amendments, but I am not able to accept them because I think they seek to apply technically inappropriate mechanisms, but I hope that the assurances we can give will satisfy the noble Lord who moved this Amendment, and other noble Lords.
I should explain why we do not think these Amendments are workable. First, the Stock Exchange requirements are aimed specifically at ensuring that information relevant to the trading of quoted securities is available to those engaged in such trading—for example, on such matters as the allotment of shares under a prospectus, company meetings and so on. The Corporations are not in that position,
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and the legitimate and proper interest of Parliament and public in their performance, prospects and situation is best met by ensuring that information on them, rather than on narrower questions related to valuation of securities, is available.
Second, as the noble Lord has said, the Stock Exchange rules are non-statutory and it would be contrary to normal practice to write into a Statute a requirement to abide by rules made by someone not acting under Statute. Third, as regards statutory requirements bearing on companies, it will, of course, be the position that the Corporations subsidiaries will he bound by the Companies Acts and will have, for instance, to lay their accounts at Companies House. The fact that they have been nationalised does not mean that they at once lose their statutory obligations to publish their accounts.
Turning now to the more positive side, and this is where I win over noble Lords opposite, I want to assure noble Lords that we expect these Corporations to meet the best commercial practice as a minimum. I believe that in general that is true of existing nationalised industries, though no doubt there are instances where less is provided than should be. In general, both their accounts and their reports are highly informative and go beyond the minimum requirements applying to companies. If necessary, the Secretary of State could use Clause 9 to require fuller information to be published—or Clause 18 to specify additional information in the annual accounts. At the Committee stage noble Lords promised to write to the chairmen of the two Organising Committees drawing their attention to your Lordships' debate on half-yearly accounts; and I am going to see that that happens. I willingly now add to that undertaking an assurance that I will draw to their attention, with approval, the general objective of this Amendment and ask them to take it into account. I hope that, with that assurance, the noble Lord will feel able to withdraw the Amendment.
Lord LEE of NEWTON: My Lords, I hope we are all agreed on the very reasonable suggestions made by the noble Lord, Lord Carr, on the importance of any nationalised industries not complying with that minimum requirement. I do not know whether the noble Lord, Lord Carr, would agree, but my only fear is if you

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write this kind of thing into a Bill some people then construe a minimum to be a maximum. We can get some people to comply with the letter, whatever it is, but to many of us that would not be quite satisfactory. One would like to think that there was a far better spirit obtaining in either public or private industry than merely a minimum written into a Statute. I would hope that, as the noble Lord, Lord Carr, said, we are not going to see any lesser standard in the nationalised industries than in private ones. It would be appalling if that happened.
Lord WINTERBOTTOM: My Lords, my noble friend cannot quite have grasped what I said: that the actual Stock Exchange requirements are the minimum. We believe that the Corporation should meet the best commercial practice as a minimum.
Lord CARR of HADLEY: My Lords, I appreciate what the noble Lord, Lord Winterbottom, has said and the spirit in which he has said it. I can see that the Stock Exchange rules are technically inappropriate because, as the noble Lord said, they are relative to trading and the Corporation is not engaged in the sort of trading to which these rules apply. I take that point. I am less sure that I take the point about the Stock Exchange rules being non-Statutory. In this Bill we have done one or two things which the Government know are governed by lack of statutory application. The standards of disclosure arc to be based on a Resolution of the House of Commons. I know that a Resolution of the House of Commons is a very powerful influence on Members of Parliament. I am not sure that it has statutory force. It is very important that a Member who does not keep those rules is unlikely to have the full freedom and influence in the House of Commons that he would wish to have, just as a company that does not keep to the Stock Exchange rules, even though they are not statutory, will lose its right to a quotation—and that would be very nearly the kiss of death to that company. So non-statutory rules are quite a strong force in compelling minimum standards of behaviour.
I take the point of the noble Lord, Lord Lee of Newton, that there is a danger
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that minima become maxima. I am bound to say—and I do not say this with any emotional prejudicial edge to my remark—that nationalised Corporations do not live up to these minima at the moment. They do in some ways, but in terms of timing I am not aware that nationalised industries make a habit of producing half-yearly statements of how they are getting on, and I do not think any large company would be able not to do that. I cannot see why they should not do so. Even if they made the minimum their maximum, it would be a better minimum than their present normal practice. On the whole, if I may advise your Lordships, I think it would be wise for us to feel grateful to the noble Lord for what he has said. I assure him that we shall not forget it and I am sure that in the messages he sends through to these new Corporations he will make clear to them that they must not forget it either.
As the noble Lord is in such a mood of good will, and wanting some good will from us, I do not know whether I could persuade him to say one more word on behalf of the Government—or perhaps the noble Lord, Lord Melchett, could say a word on behalf of the Government if the noble Lord is inhibited, although I suspect that the House might give him leave to say a few words. Since they are not going to write it into the Statute for these particular Corporations, could he help us by giving this advice—indeed I might almost say instruction—to all nationalised Corporations and not just these two, to follow these good practices in future. If the Government would tell us that they would encourage all nationalised Corporations to do that I think we should be very happy to withdraw the Amendment.
Lord MELCHETT: My Lords, it is of course the Government's wish that all nationalised and non-nationalised industries should follow the best practice in giving information and publishing reports as often as possible, but I think it would be going a little far for me at this stage to undertake, on behalf of the many Government Departments which would be involved, to draw particular attention but I have no doubt that our heart is where the heart of the noble Lord is.
Lord CARR of HADLEY: My Lords, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 11 [Financial duties of the Corporations]:
3.38 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 78:
Page 12, line 34, leave out ("by the determination").
The noble Earl said: My Lords, this clause is the one which puts the financial provisions into the Bill, and subsection (1) states clearly that,
"The financial duties of each Corporation shall be such as may from time to time be determined by the Secretary of State with the approval of the Treasury and after consultation with the Corporation concerned."
Subsection (5) states:
"The Secretary of State shall not make, and the Treasury shall not approve, a determination under subsection (1) above, unless satisfied that the duties to be imposed on the Corporation concerned by the determination are likely, taken together, to result in an adequate return on the capital employed …"
In the Committee stage of the Bill when the noble Lord, Lord Melchett, replied to Amendment No. 115 he gave an assurance that the financial duties to be imposed on the Corporation under this clause would not override other duties which are laid down elsewhere in the Bill or imposed by virtue of other provisions in the Bill. At the same time he said that there need be no fear of a determination being made which imposed an unduly low financial return.
On Second Reading the noble Lord, Lord Kirkhill, spoke of the stringency of the financial disciplines within which the Corporations could operate. He said that would mean that it would be no easier for them than for a company in the private sector to undercut their competitors. These Amendments are addressed specifically to the possibility that a conflict could arise between the financial duties and the other duties, where the Corporation would find itself in a cleft stick. These other duties, we are told, would be paramount, and the noble Lord, Lord Melchett, said as much in col. 1022 of Hansard on 18th October:
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"It would not be possible, unless the Act specifically said so, which it does not, for a determination made under Clause 10 to override any duty imposed by the Bill."
But the financial duties are to be as stringent as in the private sector, where the final sanction is receivership or even liquidation.
The first Amendment, which leaves out the words, "by the determination", seeks to ensure that the Secretary of State will look to the other non-financial duties when making a determination under subsection (1) and not merely to the new financial duties which he is about to impose. Amendment No. 79—which, if I may, I would refer to at the same time, because these two go together—is to insert a new subsection after subsection (5) whereby the Secretary of State is given the responsibility for resolving the dilemma. If he found there was no way in which one of the Corporations could be made to achieve an adequate return on capital in view of its other duties, such as, for example, keeping open shipyards which may be unprofitable, he would have to come to Parliament and state, first, how serious the problem was, and secondly, what he proposed to do about it. He could alleviate the position of the Corporation in keeping open uneconomic shipyards through his powers under this Bill or under other Statutes, such as getting finance for some temporary employment or seeking money under the Industry Act, or he might simply have to acknowledge that the Corporation had been set an impossible combination of tasks. But, at all events, he could be pressed to quantify the resulting deficiency, and to that extent there would be a chance that the Corporation's financial duties would not be abandoned altogether in the face of these difficulties without Parliamentary approval or discussion.
It is hard enough, as we all know, for a nationalised body to fulfil its statutory financial obligations. This was pointed out only the other day in another place, when attention was drawn to the fact that the National Freight Corporation has an obligation under the Transport Act 1968 to be profitable taking one year with another and at present its accumulated deficit is £51 million. If British Shipbuilders, for instance, had to keep open unprofitable yards in obedience to a

1279
direction which the Secretary of State may give under Clause 5, they would find it harder still to make ends meet. I would think that the Organising Committee is evidently very concerned at this possibility, for only last week the chief executive designate is reported in the Press as having said that in such a case British Shipbuilders would maintain the loss-making yards only as administrator for the Government. The Government might have come to suitable arrangements with the Organising Committees; I do not know. These Amendments would ensure that similar problems would receive appropriate attention in the future.
Clause 2 gives the Corporations very specific duties: what they are allowed to do and what their objectives are. Clause 5 gives the Secretary of State the right to give specific directions to the Corporations. This clause enables the Secretary of State to make the determination to say what their financial objectives are. It is perfectly possible that the instructions which the Secretary of State gives under Clause 5 could make it impossible for the Corporations to meet those financial objectives.
There may be perfectly good reasons why the Secretary of State should give those directions under Clause 5, but if he is going to give directions which make it impossible for the Corporations to meet their financial objectives, then the purpose of these Amendments is to say that he should explain to Parliament what it is that he has told these bodies to do, what the financial objectives are, and why it will, therefore, be impossible for the Corporations to meet those financial objectives. It makes it possible for Parliamentary control or discussion to take place about the directions which the Secretary of State may give to the Corporations which may result in them not being able to meet their financial obligations. I hope the noble Lord will think this is a reasonable provision to be incorporated into the Bill. I beg to move.
3.46 p.m.
Lord MELCHETT: My Lords, I am afraid this Amendment—which I know will surprise noble Lords opposite and make a change from the progress we have been making this afternoon—is not acceptable to the Government. Indeed, I believe
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it is based on a series of misconceptions. I imagine one of the things behind it is the idea that a Corporation might be in a semi-permanent situation of making a loss, and the noble Earl gave us one example of a nationalised industry which he felt was in that position. The logic behind the Amendment must be that in such a case the Secretary of State could not honestly or realistically set a financial duty of earning an adequate return, so he should instead report the position to Parliament and state the corrective measures which he proposed to take. First, these industries are not domestic utilities whose prices are likely to be restrained, even if we ever get in the distant future a Government of the Party of noble Lords opposite. These industries operate in international markets and their prices will be set, as they are now, by international competition.
Of course, we may find that one of the industries is in difficulties in the short to medium term. This is likely to be the case with British Shipbuilders because of the particularly long downswing of the international shipbuilding cycle affecting all shipbuilding companies worldwide. Our shipbuilding strategy will have to take account of that, of the likely timing and extent of the eventual upswing and of the corrective measures to improve efficiency that may be necessary. Those factors are likely to affect profitability adversely in the short term; but, taken over the full extent of the shipbuilding cycle, we believe that British Shipbuilders will be viable and profitable. We do not, therefore, accept that there is likely to be any inconsistency between the financial and other duties to which the Amendment is directed. As the noble Earl said, there may be cases where a particular yard is kept open, at the request of the Government, not for commercial but for employment or social reasons.
However, I understand that there is no power, contrary to what the noble Earl said, in Clause 5 to direct British Shipbuilders to keep a yard open. Clause 5 does not give power to give specific directions of that kind. The Government have already announced that in such a case, in a case where a yard is being kept open for social or employment needs, we would not expect the Corporation to incur the additional costs to the detriment of its profitability, but would pay an

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explicit grant under the Industry Act 1972. I think that, of itself, very largely answers the point of the Amendment and many of the points which the noble Earl made in moving it.
Of course, the noble Earl may say that these are fine words, but nationalised industries have run into acute difficulties, for whatever reasons, in the past, and have been unable to meet their financial duties to break even, taking one year with another. That is, of course, quite true. For example, for various reasons, previous Governments of both Parties decided to maintain a coal industry at a higher level than would have been indicated by the then prices of oil. Many would argue that subsequent events proved that Governments of both Parties were right in pursuing that course, though that is another argument. But the result was that substantial reductions of capital were necessary. In our view that is the right way to deal with the matter. If an industry is, for whatever reason, operating in circumstances where it cannot, or could not, however efficient, service its capital, then that capital overstates the value of the assets and should be reduced.
In the unhappy event that one of these industries proved to be unable to earn an adequate return on its capital and measures of reconstruction and improvement were insufficient, the Government, of whatever Party, would need to come to Parliament with their proposals. We of course decline to contemplate the possibility in this Bill, because it would be destructive of the very attitudes and commercial approach which we believe are essential to the success of the industries which we all want to encourage. But, as I say, in the unhappy event of such a reconstruction being necessary, the Government would of course need to come to Parliament.
A recent example, I suppose, which I took through your Lordships' House concerned the Post Office Giro, where some capital reconstruction was felt to be necessary and public dividend capital issued. In that case we were able to have a very full debate on the Bill in another place and in your Lordships' House about the financial position and other aspects of Giro's performance. From that point of view I think that Parliament would have an adequate say over any measures
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which a Government proposed to take if the industry got into the very serious position which we all hope neither of these two industries ever will.
Lord HAWKE: My Lords, before the noble Lord sits down, could he just clear up one point arising from his speech? He said that it is a very cyclical industry. What happens if he realises that in the bottom of a cycle it is quite impossible to give them any determination that can provide an adequate return on capital? Do they automatically have to come to Parliament to write off that capital, even though he believes that in the next upturn that capital will be able to be serviced?
Lord MELCHETT: My Lords, when we were discussing the financial obligations that would be placed on the Corporation we went into this point in some detail and I said then that it might well be necessary to impose a financial duty on the Corporation which involved some such formula as taking one year with another, so that one could look over as the noble Lord, Lord Hawke, has suggested, not only the few years in the middle of a downturn but the whole cycle of a major industry like this. I think it would be possible to set sensible financial objectives under the terms of the Bill as it is now drafted.
Viscount SIMON: My Lords, what concerns me is what is the position if the Secretary of State has made a determination in accordance with this clause, after consultation with the Corporation, and then, for reasons which may be quite unforeseen, the Corporation decides it is unable to fulfil the determination. That is one of the circumstances in which, with this Amendment, I thought that it would be incumbent upon the Minister to come to Parliament and explain what had happened. Secretaries of State, with the best will in the world, may sometimes make mistakes, and so may corporation, and I think the object here is that in those circumstances the Secretary of State would have to come to Parliament and explain what had happened. Or have I misunderstood the noble Lord?
3.54 p.m.
Earl FERRERS: My Lords, I do not think that the noble Viscount, Lord

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Simon, has misunderstood me, and I think that he has understood the noble Lord, Lord Melchett. What this Amendment seeks to do is to enable the Secretary of State to come and explain the situation not to Parliament but in a report which can be laid before Parliament. I should like to think that I found Lord Melchett's arguments more convincing. I am afraid to say that I do not really find them convincing, because we believe that it is wholly right that these two nationalised Corporations should have financial objectives. It is a perfectly right and sustainable argument that they are going to function as public bodies, as nationalised bodies, and therefore they should have financial objectives put on to them. As the noble Lord, Lord Melchett, said, this may take the form of saying that taking one year with another they should achieve certain objectives. Clearly this must be relatively flexible.
Clause 2 makes it perfectly clear what they are to do. But one of our criticisms all the way through the Bill has been that the Secretary of State has colossal powers of interference. The noble Lord, Lord Melchett, said that he would not have the power under Clause 5 to tell them to keep open various shipyards. But one does not know what the circumstances of the future may be. Maybe unemployment would be desperate in a certain area; maybe some other unforeseen occurrence would come about which would make the Secretary of State feel that he has to give a direction to these Corporations. The result of that direction could well be that the Corporations would not be able to meet the financial objective. As the noble Viscount, Lord Simon, said, it is only right that in those circumstances the Secretary of State should not be able just to get away with it, but should have to explain in his report why the Corporations would now not be able to achieve the objectives which they had been given, and what his reasons for doing this were.
Lord MELCHETT: My Lords, I am grateful to the noble Earl for giving way for a moment. May I make two brief points? First, I said that I did not think that the power existed under Clause 5 to make the sort of direction which the noble Earl is saying could be made. In any event, the Government have made it
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clear that they will use the Industry Act 1972 if it is necessary to subsidise in keeping a yard open for some purpose or another. I take this opportunity, while intervening in the noble Earl's speech, as I cannot really make another speech, to make the point that if the Corporation is unable for some reason or other to meet the objectives the Secretary of State has laid down for it, the Secretary of State would have to revise those objectives and they would be laid before Parliament, and Parliament would presumably then have a chance to question the Secretary of State on any revised objectives.
Earl FERRERS: My Lords, I was in fact coming to those two points. The noble Lord, Lord Melchett, said that the Secretary of State would not be able to give directions under Clause 5. If that is so I will accept his view there, and also that it would be the intention, if they wanted to keep shipyards open, to make grants under the Industry Act. That is understandable, and I am grateful that we have had that point clarified. But I am bound to say that the remark of my noble friend Lord Carr the other day reminded me of what I have in mind. As a result of an intervention by the noble Lord, Lord Leatherland, about the nationalisation of Rolls-Royce, my noble friend said that this was a thing which suddenly blew up and the Cabinet had to take a decision within two days. I am not resting the whole of my argument on the fact that the keeping open of various yards would be a reason for having his Amendment, but I think there could be occasions in the future when some other oddity might all of a sudden blow up and action would have to be taken within a short period of time. I should have thought that it is precisely possibilities of that kind which would be covered under Clause 5. If that were the case it is only right that the Secretary of State should be obliged to lay before Parliament the reasons why these Corporations would not be able to fulfil the objectives which they were given.
I do not wish at this juncture to press this point, other than to say, with the greatest respect, that I think that the noble Lord, Lord Melchett, is probably, on balance, wrong. But I do not think that there is a vast amount between us. I think merely that it would have been better that the Secretary of State should be

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obliged to put this in a special report which could then be discussed by Parliament. In those circumstances, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 12 [Borrowing powers of the Corporations and their wholly owned subsidiaries]:
4 p.m.
Lord CARR of HADLEY Lord CARR of HADLEY moved Amendment No. 87:
Page 15, line 2, at end insert—
("( ) Before a draft of an order under sub-section (6) or subsection (7) above is laid before the Commons House of Parliament in accordance with the preceding subsection, the Secretary of State shall lay before Parliament a statement in which shall be given so far as is practicable and in his opinion not contrary to the commercial interest of the Corporation concerned, the following information regarding that Corporation, namely,—

(a) its plans for capital investment;

(b) the trends expected in the amount and value of its production and sales;

(c) the amount, sources and application of the funds available or likely to be available to it;

(d) the sources of finance from which it proposes to borrow;

(e) its present arrangements and future plans for repayment of the amounts mentioned in subsection (6)(a) or subsection (7)(a) above; and

(f) such further information as to trends in the Corporation's financial results and capital employed as may be available and has not been published in the Corporation's Annual Report or in any other statement of its results.").

The noble Lord said: My Lords, we now come to Clause 12, which deals with the borrowing powers of the Corporations and their wholly owned subsidiaries. Subsections (6) and (7) lay down the maximum amounts allowed to British Aerospace and British Shipbuilders respectively by way of borrowing and public dividend capital and provide for those amounts to be increased up to a point by Affirmative Resolution. The Amendment calls for the equivalent of a prospectus to be made available to Parliament before such an increase is approved; that is to say, we want the Secretary of State to come forward to Parliament with a prospectus about the needs which we define here, before Parliament is asked to approve by Affirmative Resolution an extension of the borrowing powers and
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the rights to public dividend capital beyond those laid down as initial amounts in the Bill.
The things which we particularly want to know about before Parliament is asked to approve any extension are those listed in the Amendment; namely, the Corporations' plans for capital investment, the trends which the Corporations expect in the amount and value of their production and sales, the amounts and sources of funds available or likely to be available to them, the sources of finance from which they propose to borrow, the present arrangements and future plans for the repayment of the amounts mentioned in subsections (6)(a) and (7)(a) of the clause and such further information about trends in their financial results and the capital employed as may be available but which has not been published in their annual reports or in any other statement of their results.
I have correctly described the Amendment as one which demands from the Corporations and the Secretary of State the equivalent of a prospectus before Parliament is asked to approve by Affirmative Resolution the extension of borrowing powers. The noble Lord, Lord Melchett, will recognise the very words contained in the Amendment because although by now our summer holiday seems a long time ago, he at least, if not many other noble Lords, will remember that just before we adjourned for the Summer Recess we were discussing what was then the Iron and Steel (Amendment) Bill which was doing for the iron and steel industry just what is contemplated here for these Corporations. One of the things that the Opposition complained of in another place was that there was not an adequate prospectus provided before Parliament was asked substantially to increase the borrowing powers of the Steel Corporation, and when that Bill came to this House I moved an Amendment in these terms.
With the summer holiday mood upon us there were not many noble Lords present when that business was transacted and we had to go through the various stages of that business in rather double quick time; while I was telling Lord Melchett that the Opposition could not possibly let the Bill go through until that was dealt with, he was telling me that in

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that case I could not have my summer holiday. I am not quite sure whose pressure on the other was the greater, but it must have been about equal because on that occasion we came to what I was prepared to accept on behalf of the Opposition, and I hope in the interests of the whole of Parliament, as a reasonable compromise in that I accepted from Lord Melchett his statement that it was impracticable, at any rate at that moment, for the Government to write into the Bill the actual terms of the Amendment, but he gave Parliament an assurance that what the Amendment asked for would be done.
What we are asking for in this Amendment is that we shall write into this Bill, as we now have time to do so, the requirement for a prospectus—no more and no less than the Government were prepared to give an undertaking to the House would be provided by the Steel Corporation in future. That is the purpose of the Amendment. I believe that this is good, sensible and standard practice, particularly as in this Bill, whatever else we may dislike about it, the Government are stressing the need for these Corporations to be efficient, economical and in general terms normally to show an adequate return on the capital which they employ. If they are to do that, it is important that they should justify to us—they can look upon Parliament as their shareholders' meeting and as their bankers—as their shareholders and bankers in proper prospectus form the reasons for their request for a substantial increase in their borrowing powers. I hope that your Lordships, regardless of where one may sit in this House, will feel that this is in no way onerous but is simply the good commercial practice that one would expect of any corporation which will carry out the kind of duties, in an efficient, economical and profitable fashion, which the Government are laying on these Corporations.
Lord WINTERBOTTOM: My Lords, the Amendment seeks to put into the Statute a requirement for prior publication of information relating to the new Corporations. I would remind the noble Lord, Lord Carr of Hadley, that the pressure about which he was speaking was not only in terms of the summer holidays; it was the pressure of our
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domestic circumstances that I think made harmony reign in July. In justifying an increase within the limits of existing legislation, the Secretary of State normally gives in the debate on the Statutory Instrument which has to be laid a great deal of information about the financial position of the Corporation in question; sometimes a White Paper is issued in support, or the Corporation may publish a brochure, and this must depend on the circumstances of the case. This is a necessary part of the process of Parliamentary control over the finances of a public corporation.
The Secretary of State is, however, constrained by the need to protect the commercial interests of the Corporation and this fact may be recognised in the main text of the Amendment. However, much of the information contained in the headings listed would run counter to the commercial interests of the Corporations set up under the Bill. Both Corporations will be operating in the international market in fierce competition with overseas companies. To disclose publicly, at least in any precise form, such information as future plans for capital investment and estimates of future production and sales could give a material advantage to their competitors.
To amplify this, I have never believed in open diplomacy openly arrived at. This particular act of nationalisation, whatever one may think of it, differs from earlier acts of nationalisation when we were dealing purely with the infrastructure of our economy. What we are now dealing with is a group of companies which have to operate in the real world of private enterprise, where they must compete with companies owned privately abroad or owned by the State abroad. Noble Lords will I am sure agree that the publication of too much information which might be of advantage to our commercial adversaries would be disadvantageous to the companies which we are proposing to take into public control. We believe therefore that the requirements set out in the Amendment are inappropriate to legislation and could, despite the exclusion of commercially sensitive information, be damaging to the Corporations. It is in fact unprecedented.
Lord CARR of HADLEY: My Lords, is the noble Lord aware that we have

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deliberately included in the Amendment the words:
"… the Secretary of State shall lay before Parliament a statement in which shall be given so far as is practicable and in his opinion not contrary to the commercial interest of the Corporation concerned …"?
The noble Lord will see, therefore, that we have covered the precise point he was making, in the wording of the Amendment.
Lord WINTERBOTTOM: My Lords, we acknowledge this. The noble Lord is quite right. He has clearly taken great care in drafting his Amendment and we are in full agreement that there must be sensitive areas which cannot be included in a statement to Parliament. I believe that the noble Lord would also agree that, whereas we have to safeguard the Corporations' commercial tactics and commercial information from other companies which may benefit from the knowledge, we must strike a balance between the need for commercial secrecy and adequate information for Parliament. I am certain that the noble Lord will agree that Parliament needs as much information as possible on which to judge the orders granting borrowing powers to the Corporations. I willingly undertake, if the Amendment is withdrawn, to bring forcefully to the attention of my colleagues who are concerned with the nationalised industries and the coordination of the Government's practice in relation to them the views expressed by the noble Lord and his colleagues on this Amendment.
4.11 p.m.
Lord ORR-EWING: My Lords, I should like to give the noble Lord a further reason why he might press the matter, because there is no great difference between the two sides of the House on this point. He will remember that one section of the Bill was designed to—and here I am quoting the Minister—advance Socialism but that another was to advance industrial democracy as much as possible. Much of the Bill is directed towards the advancement of industrial democracy. He will remember that the trade unions—that is, the third of the workers in the aerospace industry who are in a trade union—are to be given much of this information. Capital programmes are to be put forward, how much is to be spent
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will be revealed: we are told that all this will be part of participation. So it is not only in the interests of one side that Parliament should be given the same facilities for sensible discussion about the future of the Corporations as are the workers in that industry. So I believe that this is a further argument in favour of putting forward something of this nature.
Surely, the noble Lord will also bear in mind that successive Governments have tended—and this was so during the seven years when I was a Minister—to over-emphasise the need for secrecy. If you really want to get the commercial details, you can discover most of what you want to know from informed technical magazines, articles in the scientific Press and all sorts of other areas. It sometimes seems to me that the only people who are not allowed to get this information are in Parliament. I believe that Parliament would be better informed, that our debates would be better conducted and that the public purse, which is now so important, would be better guarded if this sort of information were made available.
Lord ROBBINS: My Lords, may I with great respect say that I do not think that the noble Lord, Lord Winterbottom, has provided any concrete evidence whatever that, if regard be had to the section of the Amendment to which the noble Lord, Lord Carr, drew attention, any harm could possibly be done by writing this provision into the Bill?
Baroness WARD of NORTH TYNESIDE: My Lords, I also wish to support the Amendment. I have noticed that the noble Lord, Lord Winterbottom, is always sympathetic. Generally, when he is giving an answer, he says that he has very great sympathy and then goes on to object. I do not see much point in having very great sympathy if nothing happens as a result. The noble Lord said that he would bring this to the notice of his colleagues, and I am sure that that is a very sym-pathetic reply, but how can he say what would be the result of taking this to his colleagues? I like to have things absolutely clear. Has he or has he not the power? Is he telling us that this is a very good Amendment and that what my noble friend Lord Carr said covered everything that the noble Lord thought

1291
was right, but that he still cannot accept it because he has to put it before his colleagues? That sounds quite sensible, but surely the noble Lord must have some responsibility as he speaks in this House for this very important Bill with very important Amendments. What good is it for the noble Lord to say that he will bring the matter to the notice of his colleagues if he does not say that he will come and tell us what they have said so that on Third Reading we can have it put into the Bill?
Even in the days when I was in another place, when Ministers said that they would bring a matter to the notice of their colleagues I always liked to know what was the result of doing that. If his colleagues do not agree with the sympathy felt by the noble Lord, Lord Winter-bottom, what is the good of that? Why can we not have it exactly as in this very important Amendment with which, apparently, the Government agree because the Minister must already have power from his colleagues to accept sound Amendments. Otherwise what would be the good of having a debate at all?
Lord MELCHETT: My Lords, I should like to make two very brief points. I accept that there is an element of the Government trying to have it both ways. We are acknowledging that the Amendment of the noble Lord, Lord Carr, would allow the Secretary of State not to provide information that was contrary to the commercial interests of the Corporation. I think that it is possible to argue that that would leave very little information to be given at all. On the other hand, it is also possible to argue that were some information to be given, it could still not he in the best commercial interests of the Corporation for it to be given, even though this let-out is included in the Amendment.
However, I feel that, apart from that slight technicality about which I confess that I am not too happy, there are two important points to make. First, as the noble Lord said when the Bill dealing with the Steel Corporation's borrowing powers came to your Lordships' House in July, the Corporation, when pressed by Parliament to give more information, very readily acceded to that wish and undertook that they would in future give the information
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when such an order was due to come before Parliament. They did that because Parliament in effect said, "This order should not go through without our having this information." Of course, there will be nothing in the future to stop Parliament from saying, if an order or a Bill to increase borrowing powers or whatever it happens to be comes before them, that they simply will not pass the Bill or the order unless the Corporation concerned brings them the information they require. I believe that that is a reasonable safeguard for Parliament. We are talking about Bills and orders that have to go through Parliament and have to be debated, and Parliament can of course say to the Corporations through the Government, if need be, "We want more information."
The other point that is quite clear is that the Government accept entirely the need for the Corporations to give the sort of information that the noble Lord has asked for in this Amendment. I do not say the exact information because circum-stances can differ from industry to industry and from time to time. It is for those reasons that I should be much happier to see this not put into the Statute in a rather inflexible form, but to have it left to the arrangements which recent experience has shown achieve the desired results and on which my noble friend—who, I can assure the noble Baroness, Lady Ward, carries a very great deal of influence with his colleagues—has undertaken to express the opinions of your Lordships. I hope that, with that assurance, the noble Lord will not press the Amendment.
Lord SELSDON: My Lords, I had not intended to intervene on this Amendment because I had thought that the noble Lords, Lord Winterbottom and Lord Melchett, might have paid attention to some of the points which I tried to raise in Committee. In Committee, I moved two Amendments to try to make the Government's job easier when it came to net return on capital. First, I moved that the requirement should be that the Corporation should make a net profit. The Government did not accept that. I therefore moved an Amendment that the Corporation should not make a loss and I used as a precedent the Commonwealth Development Corporation, which is the

1293
only Government body that is required by Statute not to make a loss, and which has never made a loss.
I thought that at this stage perhaps one should put down more Amendments, but I had assumed that the Government would bear in mind the concern that we had expressed from these Benches about the possibility of these two Corporations, if they were not properly financed or properly managed, being a major and on-going drain on the economy. One pointed out that the Government were taking over liabilities, really open-ended liabilities, and we asked whether the Government would give us some idea of the level of commitment that would be required by these liabilities.
The Amendment put down by my noble friend—and he may not have appreciated this when he put it down—is fairly critical of the whole question of the future financing of these industries and to future sales. The Government tend to live a little in the past and go back to the day when the Bill was drafted, when we had a totally different financial and economic situation. The guarantee of Her Majesty's Government and of the Treasury no longer carries the same power that it did when the last Government were in power, and every day the level of indebtedness is causing concern. Quite frankly, I feel that some of the points raised in the Amendment ought to be left in.
The commercial argument is a perfectly viable one, but the' noble Lord cannot have it both ways when he says that this is not a nationalised industry but a private sector operation which is under Government control, or when he tends to draw a comparison between the private sector and a nationalised industry. We cannot pursue one rule for one lot and another rule for another. Any private sector corporation in the same position would be required to disclose to its shareholders the kind of information which is asked for here.
I should like to ask the Government—and I asked the noble Lord, Lord Winter-bottom, this previously—whether they could make some comment, even at this stage, on the financial aspects of this exercise. First, we have asked him whether he would give us a ball park figure as to how much it would cost.
1294
We have had no answer to that question, and therefore in Committee I pointed out that through various channels and by making various inquiries, one had come to the conclusion that the kind of commitment which the Government would be making of national resources, of taxpayers' money, over a three year period would be in excess of £2 billion.
The Government said that it does not cost the nation anything. I shall not repeat again the arguments one can advance upon the effect of borrowings of this kind upon DC or M3 or the money supply in general, which is a general problem with the Government. My concern is that without any knowledge, without the publication of any information, and without any assurance from the Government at this stage that we are not going into something which will cost us more than the nation can afford and which will create inflation, create an increase in money supply and all the problems that go with it, we should not allow this to go further. One of the duties of your Lordships' House must surely be to push the Government to disclose any information which at this stage of the development of the Bill could have an adverse effect upon the financial position of the nation.
Let us assume, as I pointed out before, that the total cost of capital, of setting up this operation is to be of the order of £800 million. The Government would in fact confirm that, because they were kind enough to point out that the gearing on a nationalised industry should be of the order of 60/40, and if one assumes that the current borrowing powers are 40, one comes to a capital figure of around £800 million. I think that in this current climate the general statement by the Government that it does not matter, that it will cost the nation nothing, that it is only a transfer of assets, needs looking at. I think, too, that one must give those who may manage these Corporations an understanding—and they may already have it—that they will be properly financed and properly capitalised.
If the noble Lord will bear in mind the point he made about exports and sales and problems abroad, he will realise that those who buy the kind of equipment produced by these industries will require that it is produced by an industry well

1295
capitalised, of standing, and with adequate financial resources. The requirements for performance bonds, guarantees and everything which may go with this can be quite substantial. I should like to point out to the noble Lord, Lord Winter-bottom, that it is not a question of what the total cost of this is to be, but how this is to be financed. The Government have indicated that they will issue long-dated stock. Since the Committee stage the position has changed even more and they have made, in numerous communications with the industry, comments that it does not matter, that all the industry will not particularly off-load or get rid of the stock that they are issued with. But they will immediately, because Government stock is continuing to go to a discount. The coupon which this would have to carry at the moment, as I pointed out previously, would be about 16.1, and would be rising and likely to rise. The effect of a large issue of Government stock, of gilts, at the moment in the market could be quite serious, and the repercussion effects down the line would be very substantial indeed.
If only the Government would be kind enough to give me some assurance that the estimate that one has made, backed by reasonable information—I said to the noble Lord, Lord Winterbottom, that I could give him some of these figures privately—means that we are not entering into a liability which could exceed £2 billion. I am not talking about the profits, because the profits which may be generated may be well sufficient to fund that kind of financial commitment. But even at those levels, for a national shipbuilding and aviation or aircraft industry that is not a large amount of money by international standards.
I feel it is important that if we are to have a company which, as the noble Lord pointed out, will be competing with the private sectors in the world, then it should be financially sound, properly constituted, and required to make, subject to the rider on commercial secrecy, which is already in here, proper financial returns, because, as has been made clear, it will have to borrow. It may seek to borrow without a Treasury guarantee. If it seeks to borrow without a Treasury guarantee and wishes to borrow abroad—and it may have to do
1296
this at the moment because of the differential in interest rates, whether or not it is desirable—it will have to disclose the kind of information that is asked for here. I hope that the noble Lord can give us some reassurance on costs because many of us on these Benches, particularly those of us with financial backgrounds, are concerned about the amateur approach to the financial structure of these industries. I think that the noble Lord would do well, in pursuing the same theme as the noble Baroness, Lady Ward of North Tyneside, to bear in mind Macaulay, which was something like:
"The reluctant obedience of distant provinces generally costs more than it is worth."
4.27 p.m.
Lord CARR of HADLEY: My Lords, I do not think that the Ministerial reply we have had to the Amendment is good enough. It sets a standard—and I am sorry to say this—which is lower than Parliament has a right to expect. I have great sympathy for the noble Lord, Lord Winterbottom, and indeed for the noble Lord, Lord Melchett, and others, because they are not Ministers in the Department involved, and anyone who has had experience as a Minister, at whatever level, knows that it is difficult enough to manage these matters if one is actually a Minister within the Department involved. I can imagine, although I have not experienced, the terrible difficulty there must be in conducting the Bill as a Minister from outside the Department.
But I think that the brief which the noble Lord, Lord Winterbottom, was given was grossly inadequate. It did not show the seriousness which Parliament has a right to expect. It appeared to pay no account to the debates on an exactly similar subject which we had in July on the Iron and Steel Bill. Clearly it was based almost entirely, as its main defensive point, on the question of commercial interest which, as I had to point out to the noble Lord, we had thought of and had specifically covered in the wording of the Amendment. I really do not believe that the Department can seriously have taken the trouble even to read the Amendment; otherwise it could not have put up that brief. I am sorry to use harsh words—
Lord MELCHETT: My Lords, that is a little harsh. If the noble Lord

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will look at Hansard, he will see that my noble friend, just before the noble Lord intervened when my noble friend was making a speech, explicitly stated that those words appeared in the Amendment and stated what effect we thought they would have. So the noble Lord can criticise the effectiveness of our reply, but I ask him to withdraw the allegation that we have not even bothered to look at the Amendment. We certainly have.
Lord CARR of HADLEY: I will certainly withdraw that particular remark which I would not have used—and I am sorry to have used it—had I not felt very strongly that we have had a most unsatisfactory reply to the Amendment. I do not believe that the reply has come to grips with either the terms of the Amendment or the arguments used to support it. The reply really does not even equal the assurance which the noble Lord, Lord Melchett, gave us in debates on the Iron and Steel Bill back in the summer. In order to accommodate the Government we were prepared to accept then a verbal assurance and not to press for its inclusion in the Bill. But it is treating us rather ill, when there has been plenty of time, that some months later we should have to be content not only with another verbal assurance but with a verbal assurance lacking in the precision and universality which the noble Lord gave to Parliament on that occasion.
I do not believe that this is an area in which we should be moving back. I am sorry if I used harsh words; I apologise genuinely for that. I would not have used them if I had not felt rather angry, I am afraid, at the way this matter has been dealt with. It is not good enough, for example, for the noble Lord to tell us that of course the Secretary of State would normally give such information, at least in the debate, when Parliament was being asked to agree to the order. One of the major points we made on the Iron and Steel (Amendment) Bill back in the summer, both in another place and here, was that that is too late. The Affirmative Resolution procedure is carried through in a single debate in a single day. It usually lasts only an hour or two at the most, or if it is very important a whole day. But usually it takes much less than a whole day, at the end of which one has to vote for something
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as it stands or against something as it stands, with no possibility of amendment. It is much too late to form a judgment to vote either for it or against it—which is the only option one has—when one is given the necessary information to form one's judgment only in the course of the debate.
I am speaking from memory, but what led me to he satisfied with the assurances given by the noble Lord, Lord Melchett, back in July, was not only the nature of the information which he assured the House would be given but also the fact that he assured us that Parliament would be given it in advance of the necessary debate. I would say to your Lordships that that is the absolute minimum with which Parliament ought to be satisfied.
In this particular case we are dealing with companies which are about to go into these Corporations and which are at this moment subject to prospectus requirements. We are not asking that in future they should be subject to any disciplines of disclosure to which they are not already subject. The Government are saying to us that once these companies become nationalised they should be subject to less discipline of disclosure than they are subject to at the moment, and I believe that that is an unacceptable proposition. I cannot see why when a particular day comes and these companies become companies within a nationalised Corporation, a nationalised holding company, rather than subsidiary companies within a private sector holding company, the duties of disclosure upon them when they want more money should be automatically reduced as compared with what they are at the moment. If the British Aircraft Corporation and Hawker Siddeley, which have to operate in this international competitive market at the moment, can do so successfully and have to meet these disciplines of disclosure, why on earth should not the nationalised Corporations also be able to operate successfully and be subject to precisely the same—no more—disciplines of disclosure?
It is simply not good enough 2nd I am afraid I must ask your Lordships to divide on this Amendment. I can only say to the Government that if they believe that the wording is in any way too rigid they have an opportunity when we come to Third Reading to make that wording a little less rigid in order to meet their requirements. I hope your Lordships will

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believe that it is right that we should insist that these companies in future must submit to the same disciplines that they have already proved able to submit to successfully at present and in the past.
4.34 p.m.
On Question, Whether the said Amendment (No. 87) shall be agreed to:
Their Lordships divided: Contents, 152; Not-contents 70.

CONTENTS

Aberdeen and Temair, M.

Ferrers, E.

Munster, E.

Amherst, E.

Ferrier, L.

Newall, L.

Amory, V.

Fraser of Kilmorack, L.

Northchurch, B.

Ampthill, L.

Gage, V.

O'Hagan, L.

Amulree, L.

Gainford, L.

Orr-Ewing, L.

Arran, E.

Gladwyn, L.

Penrhyn, L.

Avebury, L.

Gore-Booth, L.

Platt, L.

Balerno, L.

Goschen, V.

Rankeillour, L.

Banks, L.

Gray, L.

Redesdale, L.

Barrington, V.

Grey, E.

Reigate, L.

Belhaven and Stenton, L.

Gridley, L.

Robbins, L.

Belstead, L.

Grimston of Westbury, L.

Robertson of Oakridge, L.

Berkeley, B.

Hailsham of Saint Marylebone, L.

Rochdale, V.

Blake, L.

Rochester, L.

Boothby, L.

Halsbury, E.

Ruthven of Freeland, Ly.

Boyd of Merton, V.

Hampton, L.

Sackville, L.

Brentford, V.

Hankey, L.

St. Aldwyn, E.

Bridgeman, B.

Hanworth, V.

St. Davids, V.

Brock, L.

Harding of Petherton, L.

St. Just, L.

Brookeborough, V.

Hawke, L.

Saint Oswald, L.

Byers, L.

Hives, L.

Sandford, L.

Caccia, L.

Hunt, L

Sandys, L.

Campbell of Croy, L.

Hylton-Foster, B.

Selkirk, E.

Carr of Hadley, L.

Inverforth, L.

Selsdon, L.

Carrington, L.

Ironside, L.

Sempill, Ly.

Cawley, L.

Jessel, L.

Sharples, B.

Chalfont, L.

Kemsley, V.

Simon, V.

Chelwood, L.

Kimberley, E.

Spens, L.

Clancarty, E.

Kings Norton, L.

Stamp, L.

Clwyd, L.

Kinloss, Ly.

Strang, L.

Cobham, V.

Kinnaird, L.

Strathcarron, L.

Cork and Orrery, E.

Lauderdale, E.

Strathclyde, L.

Cornwallis, L.

Lloyd, L.

Strathcona and Mount Royal, L

Cottesloe, L.

Lloyd of Kilgerran, L.

Strathspey, L.

Craigavon, V.

Long, V.

Sudeley, L.

Cromartie, E.

Lothian, M.

Tenby, V.

Cullen of Ashbourne, L.

Lucas of Chilworth, L.

Terrington, L.

Daventry, V.

Lyell, L.

Thurso, V.

De Freyne, L.

McNair, L.

Todd, L.

Denham, L. [Teller.]

Mancroft, L.

Trefgarne, L.

Derwent, L.

Mansfield, E.

Tweedsmuir, L.

Drumalbyn, L.

Margadale, L.

Vickers, B.

Dundee, E.

Marley, L.

Vivian, L.

Eccles, V.

Merrivale, L.

Wade, L.

Effingham, E.

Mersey, V.

Ward of North Tyneside, B.

Ellenborough, L.

Molson, L.

Ward of Witley, V.

Elles, B.

Monck, V.

Westbury, L.

Elliot of Harwood, B.

Monckton of Brenchley, V.

Winstanley, L.

Emmet of Amberley, B.

Mottistone, L.

Wise, L.

Exeter, M.

Mowbray and Stourton, L. [Teller.]

Wolverton, L.

Falmouth, V.

Yarborough, E.

NOT-CONTENTS

Allen of Fallowfield, L.

Caradon, L.

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

Aylestone, L.

Castle, L.

Bacon, B.

Champion, L.

Fisher of Rednal, B.

Birk, B.

Collison, L.

Gordon-Walker, L.

Blyton, L.

Cooper of Stockton Heath, L.

Hale, L.

Bolton, L.

Davies of Leek, L.

Hamnett, L.

Brimelow, L.

Davies of Penryhs, L.

Harris of Greenwich. L.

Brockway, L.

Donaldson of Kingsbridge, L.

Henderson, L.

Burntwood, L.

Douglass of Cleveland, L.

Houghton of Sowerby, L.

Kaldor, L.

Peart, L. (L. Privy Seal.)

Stow Hill, L.

Leatherland, L.

Phillips, B.

Strabolgi, L.

Lee of Newton, L.

Popplewell, L.

Summerskill, B.

Llewelyn-Davies of Hastoe, B.

Raglan, L.

Taylor of Mansfield, L.

Lloyd of Hampstead, L.

Rhodes, L.

Vaizey, L.

Lovell-Davis, L.

Ritchie-Calder, L.

Wall, L.

McCluskey, L.

Rusholme, L.

Wallace of Coslany, L.

MacLeod of Fuinary, L.

Russell, E.

Walston, L.

Maelor, L.

Sainsbury, L.

Wells-Pestell, L. [Teller.]

Melchett, L.

Shinwell, L.

Williamson, L.

Morris of Grasmere, L.

Slater, L.

Willis, L.

Murray of Gravesend, L.

Snow, L.

Winterbottom, L.

Noel-Buxton, L.

Stedman, B. [Teller.]

Wootton of Abinger, B.

Oram, L.

Stewart of Alvechurch, B.

Wynne-Jones, L.

Pargiter, L.

Stone, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.
4.44 p.m.
Clause 20 [Vesting in British Aerospace or British Shipbuilders of securities of Scheduled companies]:
Lord CARR of HADLEY Lord CARR of HADLEY moved Amendment No. 108:
Page 21, line 30, leave out ("which shall not be before the date of the first meeting of the next Parliament").
The noble Lord said: My Lords, it may be for the convenience of your Lordships if we were to take with this Amendment, Amendment No. 178. If it is not for the convenience of the Government, I will not do that. I must confess that I realised only recently that it would be convenient and would save the time of the House to take these two Amendments together. I can assure the noble and learned Lord that the arguments which I am sure he has been given to deal with Amendment No. 108 will be exactly the same as those which will have been given for Amendment No. 178.
Lord McCLUSKEY: My Lords, may I deal with the question which has been raised, whether we should take the two Amendments together. If the noble Lord, Lord Carr of Hadley, moves Amendment No. 108 it will be the Government's intention to accept it. It follows from that that we need not concern ourselves at this time with the later Amendment. The attitude to that will be explained to the House when we come to it.
Lord CARR of HADLEY: My Lords, that is helpful and I suppose I can see why that is so. I had better explain to the House—even if we are going to take Amendment No. 178 later on—the reasons
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for my moving Amendment No. 108. We have told your Lordships on more than one occasion that reluctantly we do not feel that we can support a Division to remove the aircraft industry from the Bill because we thought that that would be in breach of the basic convention which has been established. Instead, we have moved that the nationalisation of the aircraft industry—I am not talking about the shipbuilding industry—cannot become operative until after the next Election. In Committee, we inserted into Clause 20 the words in line 30 on page 21 which we are now seeking to remove.
At first sight, this may sound odd. I am most grateful to the noble Lord, Lord Melchett, for pointing out out the technical inadequacies of the Amendment which I moved on that occasion. Therefore I am setting the Ministers an example by taking very seriously the words of comment which are made on our Amendments. So wise were the words of the noble Lord, Lord Melchett, on the inadequacy of my original Amendment that I am now removing the original Amendment and instituting another one. Technically, that means removing altogether the words given in Amendment No. 108; but in case any noble friends are concerned about that I should like them to look at the words of Amendment No. 178 concerning what is generally called the commencement clause. Your Lordships will find that instead of this technically inadequate Amendment in Clause 20 we shall be making it quite clear in the later Amendment that an order bringing vesting day about in respect of the aircraft industry cannot be made until after the next General Election.
I do not think I need rehearse all the arguments about this matter again. We made clear in our debates two days ago how strongly we believed that the nation-

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alisation of the aircraft industry is wholly contrary to the national interest. It will lead to less investment, less technical advance, less exports and less employment than would be the case in the future if the industry were left in its present form in private hands. We have made those views very clear indeed. We also believe, on all the evidence which can be accumulated, that to nationalise the aircraft industry is contrary to the wish of the people of this country and also of those who work in the industry.
As to the delay which this would cause, I would point out that it is the Government who have caused delay and uncertainty over the past two and a half years. The further delay, waiting for the next General Election and its result, will he very short indeed compared with the period of delay which has already been imposed by the Government. I therefore have no hesitation in recommending your Lordships to follow this course. This Amendment is a paving Amendment for the later one. I am for the moment drawing back in order to jump the better at a later stage. I beg to move.
The Earl of LAUDERDALE: My Lords, I intervene briefly to welcome the cordiality which gilds our discussions this afternoon. How pleasant it is to have this rapport between the two Front Benches as if they were heavenly twins. No doubt the acceptance of this Amendment by the Government will be followed by the acceptance of others—at least, we hope so, because some of us are getting terribly bored with this Bill. What is boring is hearing the same answers and seeing the same Amendments go down again and again. I was reflecting this afternoon on some of my less happy experiences at university. I sometimes received 5 out of 100 for essays that I wrote, or what was called at my university a "delta double minus". I think that is all some of the Government answers have been worth. This answer has been a very satisfactory one. Let us hope that from now on we shall get good answers, co-operative answers, and the Government's readiness to consider Amendments which are put from this side.
Of course, if this Amendment is thought to lead to some foul contrivance at the end of Bill, that is another matter. But I
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am sure that the noble and learned Lord, Lord McCluskey, who is always so good humoured and the noble Lord, Lord Melchett, who is also good humoured, will respond to the general air of good will that now subsists between the two Front Benches, and that we shall see them throughout the rest of this Bill accepting our Amendments from time to time—not every one, of course—because, if so, they will get more and more co-operation from our side.
Lord MELCHETT: My Lords, I think we should be even more good humoured if the noble Earl would be good enough to acknowledge that this is not the first Amendment we have said we are willing to accept this afternoon. It may be that the noble Earl has not been here all the way through the proceedings—I know he has accused me before of not noticing him when he has been here—but I think we have been proceeding very well this afternoon and it would keep everyone good humoured if the preceding acceptances, as well as this one, were acknowledged. There is also the fact, of course, that we are going to accept this particular Amendment, as my noble friend has already said. When we come to the later ones, it may be a different matter.
Lord McCLUSKEY: My Lords, perhaps I might say to the noble Earl that I have spoken only twice this afternoon and on each occasion I have accepted an Amendment.
The Earl of LAUDERDALE: May I just say, by leave of the House, that that is what I find so agreeable and so acceptable today.
Clause 22 [Certain loans from associated persons to be treated as securities]:
4.53 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 110:
Page 24, line 6, after ("not") insert ("or persons none of whom was").
The noble Earl said: My Lords, Amendment No. 110 enables us to get back to what we were discussing at Committee stage and, by leave, I should like to speak to Amendments Nos.110 and 111 together. The fact is that nowadays

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companies very often follow the practice of borrowing their money from consortia rather than from individual lenders. At Committee stage we pointed out that one of the problems could be that if money is borrowed from an individual, it is considered to be equity and to be treated as such, and therefore must be valued at a certain date as if it were redeemable immediately. In that way, it would attract a lower rate of compensation than money which is borrowed from a consortium. The noble Lord, Lord Kirkhill, tried to point out to us when replying that there was no real need for worry because the singular included the plural and that where "lender" is referred to in fact the word means "lenders" as well. But I asked the noble Lord whether he would be kind enough to look at the point again and to make quite sure there was no flaw—and here I am referring to col.1094 of the Official Report—because, although there is nothing between us here and what we are worried about has been covered, this point is one of substance now that funds are frequently borrowed from consortia.
I do not think that the issue to which the noble Lord, Lord Kirkhill, addressed himself in his reply was in fact the one I was concerned about. He said that "lender" would cover "consortia", but the point I was trying to make was that if a company borrows from an individual the risk is greater than if he were borrowing from a consortium. Therefore, for compensation purposes it could well be that the money borrowed from an individual, where it is to be regarded as equity, could attract a lower rate of compensation than if it were borrowed from a consortium. If I may give an example, a subsidiary company very often borrows money from the parent company and it may well be that it could borrow something like £20 million. If that were so and if the money were to be treated as coming from an individual lender, in fact it would carry a very much greater risk than if that sum had been borrowed from a consortium of, say, 10 different banks. In this part of the Bill, money that is borrowed, even though it is to be borrowed from a parent company, is to be treated as though it were borrowed from outside. I think the noble Lord, Lord Kirkhill, failed to answer the point that if the money was to be borrowed from
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a consortium it would in fact attract a higher rate of compensation than if it were borrowed from an individual lender. That is the reason why I put down this Amendment again, and I should be very grateful if the noble Lord, Lord McCluskey, could explain the Governments view on this matter. I beg to move.
Lord SELSDON: My Lords, I do not think that my noble friend and I feel very strongly about this Amendment. The reason it is down again is not so much that the Government partly failed to satisfy us at Committee stage but rather so that there should be no doubt about it. Therefore, I should like to ask the Government for a few words of comfort so that those who may be lending money may feel completely reassured.
One of the concerns that we have about this Bill is that all too often the Government say: "This could happen, but it is unlikely." The whole object of law is to be precise and I think we are being fair in our criticism that many aspects of this Bill are not precise. So all I would ask the noble Lord to say is that those who are borrowing money at the present time need have no cause for concern because they will be paid and there will be no problem about anomalies which could be related to that. I think it is important, in view of the impreciseness of many aspects of the Bill, that there should be no concept of any form of reneging whatever, or that any lender should be adversely affected in any way. I know there is a splendid Victorian Bill which declares that "masculine" shall be "feminine". That, of course, is perfectly acceptable in most Acts and would be acceptable for this legislation; but if the Government could give a few words of comfort it is important that they should be on the record.
Lord McCLUSKEY: My Lords, if I may, in the absence of my noble friend Lord Kirkhill, reply to the Amendment moved by the noble Earl, Lord Ferrers, the Government's attitude to this Amendment has already been explained. Whatever the purpose or motive behind it, the Amendment does not achieve anything that is not already achieved by the application of the section in the Interpretation Act 1889. No Amendment is necessary to cover the point because,

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under the Act of 1889, unless the Act in question specifies otherwise—and this Bill does not—the singular in an Act of Parliament subsumes the plural. Thus the reference to "person" and "lender" in Clause 22 means "persons" and "lenders" in the plural, and so the provisions may be applied accordingly.
In reply to the point that the loan may have been made by a consortium, I am not quite sure who would be in the consortium and whether the noble Earl is envisaging a consortium of one associated person with several non-associated persons, or all associated persons. But if the loan had been made by a consortium of an associated person and some non-associated persons, then it is unthinkable—not just unlikely—that the non-associated persons would have taken no securities in return for their money in a case involving long-term finance. In reply to the noble Lord, Lord Selsdon, I hope I can properly assure him from the Front Bench that there is no question whatsoever of reneging.
Earl FERRERS: My Lords, I am afraid that, not surprisingly, I did not make the point as clearly as I should have done. Under Clause 22(1),
"… the Secretary of State may, at any time within the period of 9 months beginning on the date of transfer, serve a notice on the person to whom the debt is owed stating that, in the opinion of the Secretary of State, the right to repayment of the debt should be treated as a security of the acquired company".
So where there is a debt the Secretary of State can say, "This should be treated as a security". I have in mind the situation where a subsidiary borrows from a parent company. Paragraph (b) of subsection (1) states quite clearly that such borrowing from a parent company should be treated as if it were a borrowing,
"from a person who was not an associated person, the terms of the provision of that money would have been likely, assuming the debtor not to be the subsidiary of any company, to be such as to require the issue to the lender by the debtor of securities".
The point which I hope the noble Lord can think about yet again—and I believe that is important—is that if a company were to make a borrowing from a single lender, the terms might be more onerous than if the borrowing were from a consortium. It may well be that if a consortium
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of people were prepared to put forward the appropriate money, because 10 banks were involved, their conditions might be less onerous than if there were a single lender. A single lender might say, "I will lend this amount of money, but it must be out for a long time", whereas a consortium might not impose such rigorous conditions. If an individual lender said, "If I am going to lend that amount of money, it has to be out for 15 years", it is possible that that sum would come within Clause 22. But if, on the other hand, the borrowing came from a consortium which was quite happy to have a shorter term, then it would not come within Clause 22. Therefore, depending on whether the borrowing was from an individual or from a consortium, the compensation payable could be of a different nature.
I realise that this is something which it is a little difficult to ask the noble and learned Lord to answer immediately across the Floor of the Chamber, because it is a complicated point. He was quite right in saying that the singular embraces the plural, but the fact that the plural is a possibility might make the financial provisions different from what they would be in the case of the singular, and that is why I put down the Amendment again. If the noble and learned Lord wishes to have leave to answer that point, I am sure that the House will give it. But if he does not, then I shall be quite happy for him to write to me.
Lord McCLUSKEY: My Lords, by leave of the House, may I direct attention to the subsequent provisions which will be contained in this clause if it is amended? They are really a redraft of provisions which are presently contained in the clause as it now stands. As I understand it, what we are talking about are the facts that determine whether or not a debt is deemed to be a security. We are not determining the terms on which that security is deemed to have been issued. The security will be deemed to have certain terms. That is a matter which one hopes will be determined by agreement, or failing agreement, by arbitration. That is why paragraph (b) in Amendment No. 115 states:
"on what date and terms and for what consideration any such security should be treated for those purposes as having been issued by the acquired company."

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Although I will, of course, think more about it, it appears to me at the moment that that is the answer to the point which the noble Earl has asked me to consider.
Earl FERRERS: My Lords, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
5.9 p.m.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 113:
Page 24, line 10, leave out ("within the meaning of section 19(5) above").
The noble and learned Lord said: My Lords, with leave, I would take Amendments Nos.113, 114, 115 and 116 together, and would inform your Lordships that there are other Amendments which are consequential upon them. The consequential Amendments are Nos.121, 122, 131, 138, 150, 159 and 161. This large group of Amendments arises directly out of discussions which we had in Committee on Clause 22. It became clear during those discussions that the drafting of the clause would benefit from some clarification and these Amendments seek to achieve this result.
There are two principal points which the Government Amendments Nos.113 to 116 inclusive seek to achieve. First of all, following discussions in Committee on Amendments Nos.126 and 128 the Amendments which are made here, Amendments Nos.113 and 122, clarify the meaning of "securities" for the purpose of the clause. Secondly, Amendment No. 115 simplifies the arbitration process. Under the clause as drafted, there are three possible points of arbitration: first, the point where the debt is identified; secondly, the type of security, and thirdly the value of the security. The Amendment combines the first two so that. settlement may be reached more quickly. This is in everybody's interests.
The remaining Amendments to Clause 22 are merely drafting changes which arise as a direct consequence of the Amendments which I have mentioned specifically. Similarly, the Amendments which I have described as consequential, the Amendments to Clauses 26, 31, 37 and 40, follow as a drafting consequence to the Amendments proposed to Clause 22. I hope that as a result of these Amendments, which
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involve no change of policy, noble Lords will now feel that the purpose and intent of Clause 22 is clearer. I beg to move.
5.12 p.m.
Lord SELSDON: My Lords, noble Lords opposite will know the considerable exception which we take to Clause 22 as a whole and will forgive me if I spend a moment upon it. As we know, the question of intercompany loans will vary from one company to another and has such an intangible basis that in no way should these loans be considered in relation to the question of the valuation of the companies concerned. It is totally against all accounting practice. In the case of any private sector acquisition, normally it would be a matter for valuation by independent authorities.
One of our concerns, which relates also to Clauses 36 to 38 and the whole question of compensation to which this clause indirectly refers, is that we do not like the way in which the clause is structured, nor do we like its content and the implications behind it. Your Lordships will be aware that the question of the relation-ship of a subsidiary to its parent is variable and depends upon the type of business that the subsidiary may be doing, its location, its general sphere of operations, its financial position, the domestic or international borrowing of the company and the level of interest which may be charged by the parent to the subsidiary.
We are concerned about the fact that the Government are trying to legislate on something for which no legislation can be fair. That said, in the Amendments that the Government have put down we have seen the first real sign that they are prepared to listen to those people who are more qualified and better able to judge the implications than are their own advisers. In fact, if the Government had consulted the private sector regarding the drafting of the Bill, they would have avoided many of these anomalies. Therefore, from a purely technical point of view one welcomes the Amendments that the Government have proposed because they go some way towards resolving certain of the difficulties, intangibles and doubts which this clause will create. Therefore, I support the Amendments, although should not like noble Lords opposite to feel that I support in any way the contents of Clause 22.
Earl FERRERS: My Lords, like my noble friend, I am very grateful to noble Lords opposite for having gone at least some way towards making this clause clearer, although, as my noble friend Lord Selsdon has said, we do not like the clause. However, the Government have been kind enough to try to meet some of our points. The noble and learned Lord, Lord McCluskey, has said that certain Amendments arc consequential, but when we come to Amendment No. 38 I should be grateful if he would not move it formally because I have something to say upon it. I should also draw the attention of the House to the fact that there is a misprint in Amendment No. 115. The last line of paragraph (a) says:
"… or by whose wholly owned subsidiary the debt is owned,".
I think it ought to say "owed" rather than "owned". I draw the attention of the noble Lord to that point, although I do not think that it is of great importance.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 114:
Page 24, line 15, after third ("the") insert ("whole or part of the").
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 115:
Page 24, line 23, leave out from ("Where") to ("as") in line 34 and insert ("a notice has been served under subsection (1) above, the questions—

(a)whether the right to repayment of the whole or part of the debt ought to be treated for the purposes of vesting and compensation as a security of the acquired company by whom or by whose wholly owned subsidiary the debt is owned, and

(b) on what date and terms and for what consideration any such security should be treated for those purposes as having been issued by the acquired company,

shall be settled by agreement between the Secretary of State and the person on whom the notice was served within the period of 3 months beginning on the day on which he was so served or, in default of such agreement, by arbitration under this Act.
(4) If the arbitration tribunal are satisfied that the right to repayment of the whole or any part of the debt in question ought to be treated").
The noble and learned Lord said: My Lords, I beg to move Amendment No. 115. I acknowledge the error which the noble Earl Lord Ferrers, has pointed out.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 116:
Page 24, leave out from beginning of line 39 to ("for") in line 40 of page 25 and insert—
("(5) If, by reason—

(a) of an agreement under subsection (3) above, or

(b) of the revocation or amendment of a notice under subsection (4) above,

the right to repayment of the debt or of any part of it does not fall to be treated as a security for the purposes of vesting and compensation, subsection (2) above shall to that extent cease to apply on the date of the agreement or the date when the notice is revoked or amended.
(6) If—

(a) the parties have agreed under subsection (3) above that the right to repayment of the debt or of any part of it ought to be treated as a security, or

(b) the arbitration tribunal confirm the Secretary of State's notice as respects the right to repayment of the debt or any part of it,

the right which falls to be treated as a security shall vest in the relevant Corporation on the operative date of the notice as a security of the acquired company issued to the creditor on such date and terms and for such consideration as have been determined by agreement or arbitration under subsection (3) above and be treated as such a security—

(i) for the purposes of section 20 above, and

(ii) subject to subsection (7) below, for the purposes of any provision of this Part of this Act relating to compensation for securities or the issue of securities.

(7) A right to repayment shall not be so treated").
5.18 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 116A as an Amendment to Amendment No. 116:
Line 11, at the end insert—
("and the person to whom the debt is owed shall be entitled to claim from the relevant Corporation such compensation as the arbitration tribunal shall determine in respect of the loss suffered by him by reason of the application to that extent of the said subsection (2).").
The noble Earl said: My Lords, here we are dealing with a situation where the Secretary of State can serve a notice on a parent company in respect of a loan to a subsidiary requiring that loan to be treated as a security, thereby lowering its value. If the Secretary of State serves such a notice and the company thinks that this is unfair—that it should be treated not as a security but as a loan and therefore should be repayable in full—the

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company can go to the arbitrator, and two years later the arbitrator may say that the Secretary of State was wrong and that it should have been regarded as a loan, not as a security. We put down the Amendment at the Committee stage and I withdrew it after the noble Lord, Lord Kirkhill, said that he would write to me. The noble Lord was kind enough to consider the point and to write to me, and the relevant paragraph of his letter says this:
"I also undertook to write to you in connection with Amendment No. 127. Again we see no need for such an Amendment. Clause 21 will only be applied in relation to debts incurred before the 28th February 1974. Generally they will be of longer standing. During the period in which the debts have been outstanding it is clear that the lender, normally the parent company, has been content to let the position rest. As long as the money has remained tied up in the subsidiary it must be assumed that the parent has had no other use for it and did not regard the debt as giving rise to a loss.
"the fact that the Secretary of State serves a notice with respect to that debt, thereby formally freezing its repayment, does no more than continue the situation which has existed in any case for a number of years. The service of a notice, even if it is subsequently revoked or withdrawn, does not in any way alter the potential loss situation which existed before nationalisation."
That is the end of the particular quotation from the letter of the noble Lord, Lord Kirkhill, that I wish to make.
It is all very fine for the noble Lord to assume that if a parent company lender has been content to let the position rest it had no other use for the money and that it did not regard the debt as giving rise to a loss. Of course if the parent company had lent the money to an outside company it would have been able to obtain interest on that money. Lending it to a subsidiary it gets no interest, and it is true that the situation might have been acceptable to a parent company while the borrower remained its subsidiary, because the object of lending the money in the first place was to provide the subsidiary with funds so that it could earn profits which in due course would benefit the lending parent company.
As soon as the Bill becomes law that situation abruptly ends and the parent company will receive neither interest nor the benefits of the profits which that money might have engendered from the subsidiary. The money that was lent has therefore virtually become dead money especially if, as is likely, it carries no interest and the parent company will be
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most likely, from that point on, to suffer loss as long as its repayment is frozen by a notice served by the Secretary of State under Clause 22. It is this loss which this Amendment seeks to ascertain and to recompense in certain circumstances. In fact one is really saying that if this loan is frozen by the Secretary of State the parent company gets no benefit from that loan, no benefit from the interest on it and no benefit from the profits.
In the circumstances where the company thinks this was an unjust decision we will take it to the arbitrator End if the arbitrator, after having discussed it, says that in fact the Secretary of State was wrong and this should not have been regarded as a security but as a loan and therefore should have been repayable earlier—that the Secretary of State has been shown, for the best of reasons, to have made an error—it seems only right that the company should be recompensed for the interest on that money which they would have had and which, by the freezing of the assets, they have not been able to have. It was for that reason that I tabled this Amendment to the Amendment moved by the noble and learned Lord, Lord McCluskey. T beg to move.
Lord SELSDON: My Lords, I, too, must support this Amendment, for one simple reason. We are not living in a static position, and if one is to have this sort of loan frozen for a period of time and we see the tremendous fluctuation, not only in interest rates but also in world liquidity and the ability of people to borrow, there could be circumstances where a company could be severely penalised or handicapped by having finances or loans of this sort frozen for a relatively long period of time. It is a question of what one means when one refers to, "a relatively long period of time". I believe it took eight years to settle the compensation for coal. We are not saying that it may be eight years in this case, but one only has to look at the difference in interest rates over a two year period, if one harks back, and one only has to look at the likely change in the fluctuation of interest rates during the coming months.
Further, if I may put myself in the shoes of noble Lords opposite and those of my noble friends, we are all concerned that

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those who are competent at running productive industries should invest, and invest as rapidly as possible, to take advantage of whatever upturn may come in world trade, if and when it does come, because it is certainly later than we had originally anticipated. Thus, there is an anomaly here that companies could be severely penalised. There is not only the actual fact of the loss which they may incur—or one could argue that if interest rates were to go down at a really dramatic rate, perhaps even a small gain which they could incur—but also the psychological effect of knowing that one has money tied up for an unforeseen period of time without any adequate compensation will certainly be a restrictive factor on the deployment of funds that one may wish to use for other investment.
If we couple this factor with the certain requirement that because of capital gains many companies receiving Government stocks will have to hold those for a year in order to avoid tax, the amount of money that could he taken out of productive reinvestment is very considerable, looked at on a broad front. I am not so much thinking of some of the unsuccessful companies but the more successful ones who could really be penalised. It is not just the simple cost of it but the fear of the delay, and the time that something is frozen and the effect of interest rates on it. One must also look at the likely effect on the borrowing ability of the parent because undoubtedly those who would lend would look at money that might be tied up in subsidiary loans.
I hope the noble Lord will feel that this Amendment is not in any way an attempt to change the structure of Clause 22 but rather to add something which will enable one to benefit from it and certainly to clarify the position. I think if he has not been involved with companies which may be going into liquidation or which are under blight or in limbo for a period of time, he may not appreciate how very disconcerting it is to have money tied up in this way without any knowledge that one could be recompensed in the end if things went wrong. I hope the noble and learned Lord will bear that in mind and will speak to his right honourable friend in another place about it.
Lord McCLUSKEY: My Lords, plainly noble Lords who have spoken to this
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Amendment understand fully what Clause 22 is intended to achieve, but for those who have not spoken and perhaps have not studied it as fully, I might just give a word of explanation before I turn to answer what was said about the Amendment. The clause provides for certain inter-company debts which have the nature of securities, to be treated as securities for the purposes of vesting and compensation. The clause, as a matter of machinery, provides for the Secretary of State to serve a notice in relation to any debt in existence at the date of transfer, stating that it will be treated as a security, and such a debt will, if the notice is confirmed—and that is done either by agreement or by arbitration—be valued in the same manner as all other securities which vest under the Bill. I must tell noble Lords that this point which has been spoken to by the noble Earl, Lord Ferrers, has been given due consideration, but I regret that for the first time this afternoon I have to adopt a negative attitude and say that I am unable to accept this Amendment.
The basic answer is that the Government do not consider that as a result of the service of the notice there will be any prejudice. Perhaps I may formulate that in three ways. First, the Secretary of State will not use his powers under Clause 22 indiscriminately. If he decides to serve a notice with respect to a particular inter-company debt it will be only after very careful consideration of all the factors affecting that debt, and in such circumstance that there will be little doubt that the debt should be treated as a security.
Secondly—and this perhaps is in response to the point made by the noble Lord, Lord Selsdon, about time—it is the intention of the Government that there should be the minimum of delay in settling any question as to whether a debt should be treated as a security. Indeed at a later stage in connection with another Amendment I shall be saying to your Lordships that the Secretary of State hopes to serve these notices on or about the first date when they can be served. Given the Secretary of State's intended use of the provision, it is not likely that any significant loss would fall to the creditor. But we see a danger that if the Bill were to provide for the payment of compensation in respect of rights to repayment temporarily taken away but subsequently

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restored, then there could just be a positive incentive to creditors to delay settlements so as to maximise the claim for compensation.
My Lords, on the third point I really need not elaborate, because it is the one contained in the passage from the letter which the noble Earl, Lord Ferrers, read. That is an argument which I put forward under the same head of no prejudice. In all the circumstances, I would ask noble Lords to reject this Amendment.
Lord ROBBINS: My Lords, may I just speak purely as a Cross-Bencher, with no other interest at all? I am quite amazed at the attitude of the Government, first in taking it for granted that it is a suitable thing that the power of deciding whether a debt should be decreed as a security, which I should have thought was certainly a matter for judicial rather than political decision, should be trusted to the Secretary of State; and secondly, that if it should prove on appeal to arbitration that the Secretary of State has made a mistake, the mistake should not be compensated for. To me, that seems to be almost the nadir of the arguments advanced in connection with the finances of this Bill.
Earl FERRERS: My Lords, I find myself wholly in sympathy with the noble Lord, Lord Robbins. This seemed to me such a small Amendment, one that could be justified simply on the rare occasion where the Secretary of State had made a mistake, even though that mistake were made with the best of intentions. The noble and learned Lord, Lord McCluskey, said that the Secretary of State will not serve a notice indiscriminately; he will go through all the facts and so on, and it is only when he has the facts and is quite certain that he is right that he will then serve the notice. I have no doubt that he may well be right, but what is the point of an arbitrator? The only point of an arbitrator is if one may dispute. If a case goes to an arbitrator and the arbitrator says, "Well, as a matter of fact you were wrong"—there is nothing in the Bill to stop the company from going to the arbitrator on the notice of the Secretary of State; they can go to the arbitrator, and he can say that the Secretary of State is wrong.
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The only point of this Amendment was to say that in the unlikely occurrence that the Secretary of State was wrong, why should the company be penalised? Why should they not be entitled to be reimbursed because the Secretary of State made an error? The noble and learned Lord said. that the Secretary of State will serve notices on the first day that he possibly can, which is understandable. But if he can serve notices so quickly, is the noble and learned Lord quite certain that he will have had time to make sufficient inquiries so that he cannot possibly make a mistake? It seems to me that if the Secretary of State is going to make service of the notices as soon as possible, there is a possibility that there may be an error.
All this Amendment does is to say that if there is an error, then the company should have recourse to compensation. I find it such a small point and yet one of such obvious justice that I should have thought that the noble and learned Lord could have accepted it. I still wonder whether he could not accept it. I still wonder whether he would be prepared even to look at it. He knows I cannot oblige the noble and learned Lord and break the rules of the House by making another speech, but I should be happy to give way if he could make such an obvious amendment in justice. But if he feels that he cannot—and he is not giving much indication—I must say he is spoiling his track record. The noble and learned Lord has spoken three times and has accepted two Amendments, and now he has refused to accept this Amendment, which really would embarrass the Secretary of State not one iota. The noble and learned Lord prefers to remain seated. I can only say that I shall have to withdraw my Amendment.
Amendment to the Amendment, by leave, withdrawn.
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 121:
Page 26, line 4, leave out ("or subsection (7)(a)").
The noble and learned Lord said: My Lords, I beg to move Amendment No. 121.
5.37 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 121A:
Page 26, line 12 at end insert—
("( ) If the terms on which a security is to be treated under this section as having been issued include any charge on assets of the acquired company subsection (5) of section 39 below shall not apply for the purpose of determining the base value of that security.")
The noble Earl said: My Lords, we will try the noble and learned Lord again and hope that he will get back to his usual accommodating form, because this is a similar but not the same Amendment, and refers to the same Part of the Bill. It refers also to an Amendment which I moved at the Committee stage. I withdrew the Amendment because the noble Lord, Lord Kirkhill, said he would be kind enough to write to me. The noble Lord, Lord Kirkhill, was kind enough to write to me, and in his letter he said:
"During our discussions in the Committee on Amendment No. 129 to Clause 21 of the Aircraft and Shipbuilding Industries Bill, I undertook to look again at what you said about the cancellation of charges on debts treated as securities. Having considered the points raised in the debate, we remain of the opinion that no amendment is necessary. Clause 21, as you know, provides for inter-company debts other than those of a generally short-term nature like bank overdrafts not covered by a form of security to be treated as if they were securities for the purposes of the Bill's vesting and compensation provisions. Any debt treated as a security will be available on the same basis as the type of security it is deemed to represent. The reality of the situation is that most, if not all, debts treated as securities will be debts in substitution for equity share capital. In such cases the question of charges on assets cannot arise. It is for this reason that we consider Amendment No. 129 was unnecessary".
That was a similar Amendment to the one I am moving now.
Of course, it may happen that some debts treated as securities will be debts which would, in the case of an independent company, have been represented by equity share capital instead of loans by the parent company. It certainly cannot be predicted in advance that all debts which under Clause 22 are to be treated as securities will be treated as equity share capital. Indeed, the noble Lord, Lord Kirkhill, admitted as much in the paragraph of his letter which I have just read, in which he said that most, if not all, of such debts would be treated in this way. The clear inference is that not all could
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necessarily be treated in such a way. The principle on which Clause 22 is based is that you have to look at a debt owing by an acquired company, for example, to its parent company and then decide whether, if the borrower were an independent company instead of a subsidiary, the raising of that same amount of money would have required it to issue securities to the lender and, if so, what type of securities those would have been. Where the money lent to the parent is of long standing and where there is a strong case that the debt should be treated as a security it may possibly be appropriate for the notional security to be regarded as equity share capital.
On the other hand, it is much more likely that the lender would, if he were lending to an independent company, have required a debenture with the benefit of a charge on assets. After all, the equity capital is risk capital and lenders do not commonly take risks where they can be avoided. Therefore, in my view Amendment No. 121A is necessary to ensure that if a debt is treated under Clause 22 as a debenture with the benefit of a charge, making it therefore more valuable for compensation, the benefit of that charge is not lost when it comes to be valued for compensation by reason of the application of Clause 39(5). I understand that there are companies which could be seriously adversely affected if this Amendment is not accepted. I hope that the noble Lord will be prepared to agree that this is a reasonable Amendment. I beg to move.
Lord McCLUSKEY: My Lords, it may be for the convenience of the House if I were to reply at once because, as the noble Earl will detect from the smile on my face, I am once again in the happy position of being able to accept an Amendment. A similar Amendment was discussed at the Committee stage and my noble friend Lord Kirkhill agreed to look further into the matter. As the noble Earl has said, he did so and wrote the letter which has been referred to. We looked into the matter yet again, both yesterday and this morning, and while we still believe that the problems raised by noble Lords in discussing this matter on a previous occasion and by the noble Earl today are likely to be very much the exception rather than the rule, acknoledging the possibility that some persons

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may be disadvantaged under the existing provision, in principle we accept that this should be put right. I am happy to say that I am prepared to accept this Amendment, subject only to the possibility of some slight improvement in the drafting if it is necessary at a later stage.
Earl FERRERS: My Lords, I am again greatly indebted to the noble and learned Lord. His presence on the Government Front Bench is most encouraging and we hope that he will continue in this happy and mellifluous vein. Perhaps I may be permitted to say that we on this side would not think any less of the noble and learned Lord if he would care to readdress his mind to the previous Amendment which he spoiled his track record by not accepting. If he liked to come back to that one at Third Reading, we should be only too delighted. I was a little disappointed when he said that they had looked at this problem last night and this morning. I thought he was going to say that the cogency of the argument which I put forward had led to their acceptance of the Amendment. However, we are very grateful to him. I am quite certain that there will be only rare cases when these provisions will be required, but in those rare cases I am sure it is proper to put this into the Bill. I beg to move the Amendment.
Lord MELCHETT: My Lords, whatever the reasons we have for accepting the Amendment, I hope that somebody will tell the noble Earl, Lord Lauderdale, who I regret to see is not in his place, that we have been accepting a few Amendments in his absence.
Lord MELCHETT Lord MELCHETT moved Amendment No. 122:
Page 26, line 12, at end insert—
("( ) In this section—
"operative date" in relation to a notice means—

(a) where paragraph (a) of subsection (6) above applies, the date of the agreement,

(b) where paragraph (b) applies, the date of confirmation of the notice by the arbitration tribunal; and

"securities" has the same meaning as in section 20 above.")
Clause 26 [Final payments of dividend and interest]:
5.46 p.m.
Lord REDESDALE Lord REDESDALE moved Amendment No. 130:
Page 31, line 30, at end insert ("and for the purposes of this paragraph there shall be taken into account the largest amounts, if an", approved in the case of those securities under section 25(1)(c)(ii) above, and, in the case of each of those amounts and the amounts approved under section 24(1) above, where the number of days comprised in the final financial period exceeds, or is less than, the number of days comprised in the period of control in respect of which that amount was approved, that amount shall be treated as increased or, as the case may be, reduced by multiplying that amount by the fraction, of which the numerator is the number of days comprised in the final financial period and the denominator is the number of days comprised in that period of control.")
The noble Lord said: My Lords, this is a somewhat technical Amendment. It seems that in the Government's view Clause 26(1)(b) requires payments and dividends to be made in the final financial period, of the same amount that would have been permitted had that period been a period of control, and therefore governed by Clauses 24 and 25. The object of the clause is to secure that dividends will be paid right up to vesting day, even where the accounts for the final period up to vesting day are not prepared until after vesting day. Presumably that is why the provisions are mandatory because these dividends will be paid after the companies have changed hands.
Where the provisions of 26(1)(b) fall short of their intended effect is in the situation where a company has obtained approval under Clause 25(4) to pay higher dividends than the formula based on the lesser of, first, net revenue for the period and, secondly, the dividend paid in the basis financial year, either because there is no basis financial year for some reason or because the formula produces an inadequate result. Where such approval has been obtained in respect of previous periods of control under Clause 24(1), then presumably 26(1)(b) enables that same approval amount to be paid in respect of the final financial period, but that amount is a fixed amount and does not vary pro rata to the length of the period of control under Clause 25(4). The Amendment provides that the amount previously approved should vary pro rata

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if the final financial period is shorter or longer than the period of control in respect of which the approval under Clause 24(1) was given.
Secondly, Clause 26(1)(b) does not appear to be quite clear as to what happens in a final financial period if the Secretary of State has previously approved an amount under Clause 25(1)(c)(ii) in the absence of a basis financial year. The Amendment therefore also seeks to make it quite clear that where such an amount has been so approved, that amount should be able to be used for the purpose of calculating the dividend payable in the final financial period. It is necessary, further, to allow this amount to be varied pro rata if the final financial period is shorter or longer than the period in respect of which it was approved, because once again the Secretary of State will approve an amount only under Clause 25(1)(c)(ii), and the provisions of Clause 25(4) are only effective to provide pro rata adjustments to that amount where it can be related to a basis financial year. There being no basis financial year there can be no such adjustment unless the Amendment is passed. I look forward to hearing the Minister's reply.
Lord MELCHETT: My Lords, I am tempted to ask the noble Lord, Lord Redesdale, to explain it all again. I confess I did not understand very much of what he said. However, I am advised that as a result of discussions at the Committee stage, if not of the very detailed and I am sure accurate explanation which the noble Lord has given us this afternoon, the existing drafting in this part of Clause 26 is not as clear as it might be; therefore I am happy to continue with what I am sure is on the way to being a record number of Amendments accepted on any major Government Bill of this sort by accepting this Amendment, once again subject only to the qualification that we may want to look at the detail of the drafting at a later stage. I am happy to accept the Amendment.
Lord SELSDON: My Lords, I am now at a complete loss. I had spent a little time in trying to work it out, and I made helpful speeches trying to point out to the noble Lord that if the Government did not accept certain Amendments this
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afternoon, if they had behaved in the way I thought they were going to behave, I should have to resign my job. But with the acceptance of this Amendment one can only assume that somehow those arguments have gone home, and I would say to the noble Lord, "Thank you very much indeed." It gives one hope that when we take a complicated subject such as this and present reasoned arguments there is some give and take on the Government side. Had one known that there was this sort of flexibility one might have been tempted to be a little more adventurous.
Lord HAWKE: My Lords, now that the noble Lord has accepted this Amendment it becomes part of his Bill. I wonder whether he could just explain what it means?
Lord MELCHETT: My Lords, with the leave of the House, may I suggest to the noble Lord, Lord Hawke, that he gets together with his noble friend Lord Redesdale and goes through the speech which Lord Redesdale made so cogently and brilliantly to the House. I have no doubt that his noble friend will be able to explain much better than I can the purpose of his own Amendment.
Lord REDESDALE: My Lords, I am grateful for the kind way in which the noble Lord, Lord Melchett, has accepted our Amendment, and doubtless I shall have an opportunity of speaking to the noble Lord later and explaining the Amendment in greater detail.
Lord McCLUSKY: I beg to move Amendment No. 131:
Amendment moved—
Page 31, line 34, leave out from ("were") to end of line 37 and insert ("owed any sums the rights to repayment of which are treated as securities under section 22(6) above, payments of interest which has accrued in respect of them").—(Lord McClusky.)
Clause 28 [Removal of company from companies to be acquired.]
5.53 p.m.
Lord MELCHETT Lord MELCHETT moved Amendment No. 133:

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Page 36, line 28, leave out ("disposes of") and insert ("transfers to any other person").
The noble Lord said: My Lords, with this Amendment I should like to speak to Amendments Nos.135 and 136. These three Amendments to Clause 28 are the direct result of an undertaking given by my noble friend Lord Winterbottom during discussions in Committee on Amendment No. 142. In examining the undertaking which my noble friend gave, it has become clear that the clause as drafted is indeed inaccurate, and I am most grateful to noble Lords opposite for directing our intention towards this inaccuracy. I can say to the noble Lord, Lord Selsdon, that we are always willing to consider all the points made to us—I am delighted that the noble Earl, Lord Lauderdale, is here to hear me say this—and one can always come forward with Amendments, whenever appropriate, to put right errors in the Bill. At present in Clause 28(8)(b)(ii) there is a reference to "the transfer" but there is no previous reference in the subsection to any "transfer" but rather to a "disposal". In the context of "securities" the appropriate word is "transfer" and not "dispose" or "disposal". These three Amendments put the drafting right. I beg to move.
Lord SELSDON: My Lords, the speed with which we are now seeing the Government accept Amendments is exciting, because it encourages one to think that the Government are beginning to understand some of the aspects of compensation. I think we doubted this before. All I would say to the noble Lord, Lord Melchett, is that obviously he is a great reader of Johnson, who said:
"Integrity without knowledge is weak and useless, and knowledge without integrity is dreadful and doubtful".
—or "dangerous and dreadful". I would say, "Thank you once more. I just wish I had known about all this before, because I could have spent more time in the office trying to help the balance of payments.
Earl FERRERS: My Lords, much the same goes for me, too. The noble Lord, Lord Melchett, has been kind enough to say that he agrees that the Amendment we put down earlier and against which his noble friend Lord Winterbottom argued so vigorously was a suitable
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candidate for inclusion in the Bill. I am glad the noble Lord has agreed to this, and I am also glad to hear his unique statement: he said, I think, that this part of the Bill was drafted in error. It almost makes one feel inclined to suggest that the Bill be recommitted, because we have felt that very much of the Bill has been drafted in error. Now that the Government are beginning to see the wisdom of our arguments, it would be nice if we could go over some of them again. This is only a very small Amendment; it means merely that it is not just the disposal that is void but the whole transaction. We are most grateful to noble Lords for the courtesy they have shown in investigating the points that we made at Committee stage and making these Amendments now.
Earl FERRERS Earl FERRERS had given Notice of his intention to move Amendment No. 134:
Page 36, line 31, after ("the") insert ("transaction effecting such").
The noble Earl said: My Lords, this Amendment was put down in order to encourage the Government to put down their own Amendment. I am happy not to move this one.
Lord MELCHETT Lord MELCHETT moved Amendment No. 135:
Page 36, line 31, leave out ("disposal") and insert ("transfer").
Lord MELCHETT Lord MELCHETT moved Amendment No. 136:
Page 36, line 35, leave out ("the transfer") and insert ("it").
Clause 30 [Recovery of assets transferred away.]:
Lord MELCHETT Lord MELCHETT moved Amendment No. 137:
Page 41, line 13, leave out ("its application") and insert ("relation").
The noble Lord said: My Lords, Amendment No. 137 is purely drafting. I beg to move.
Clause 31 [Dissipation of assets by transactions involving holders of securities etc.]:
Lord McCLUSKEY Lord McCLUSKEY moved Amendment No. 138:
Page 41, line 38, leave out from first ("of") to end of line 43, and insert ("any sum the right to repayment of which could be treated as a security under section 22(6) above").
The noble and learned Lord said: My Lords, I beg to move Amendment No. 138. This was the one—I would remind the noble Earl—on which he said he might wish to speak. It is in fact, in the Government's view, purely consequential on Amendments Nos. 113 to 116 inclusive.
Earl FERRERS: My Lords, it pains me to get up to speak on an Amendment which the noble and learned Lord has said is consequential, and indeed where the Government have tried to clarify the Bill, but I believe that this Amendment might possibly have recreated a doubt which had already been corrected. Clause 31(1)(e) and Clause 40 both at present refer to the repayment of a debt which would, following the service of a notice under Clause 22, have been treated as a security. The words "would, following the service of a notice" are most important, because they make it necessary to ascertain not only whether the debt could have been so treated but whether in fact it would have been so treated. This involves the same procedure being gone through as required by Clause 22 itself, to ascertain whether a debt ought to be so treated. I venture to suggest that Amendment No. 138—and I think there is a similar one, No. 159—could possibly now obscure the position, by merely referring to a sum the repayment of which could be treated as a security under Clause No. 22. Any debt of a certain nature could, of course, be treated in that v, ay if Clause No. 22 were applied. It is really necessary to go further into the circumstances to find out whether in fact it would be so treated.
I think it is necessary, therefore, at least to preserve the existing words in both Clauses 31 and 40, which make the position clear. The words are in fact,
"would, following the service of a notice under section 22 above, have been"
instead of the words "could be" which the noble Lord's Amendment has in it.
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I realise that the noble and learned Lord might have been slightly taken aback on what is a rather detailed point. If he does not feel—I was going to say "capable", but that would be wholly the wrong word to use—obliged to answer it now, perhaps he would be kind enough to give the point some consideration between now and Third Reading, and if he thinks there is substance in what I have said I am sure that the noble and learned Lord would accept that, and he could always make the appropriate Amendment later on if necessary.
Lord McCLUSKEY: My Lords, my present impression—and it is no more than that—is that the Amendment is all right and achieves the purpose which the noble Earl, Lord Ferrers, has in mind. But I want to be positive, and I shall certainly consider this matter, and if we come to the view that the matter can be clarified in order to give this subsection and this particular paragraph the sense that it ought to have, then we shall certainly take the necessary steps to achieve that.
6.2 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 138A:
Page 42, line 13, after ("if") insert—
("(a) it is a transaction the effect of which is to transfer or grant to any person any property or rights belonging to the company in connection with the business of repairing, refitting or maintaining ships carried on by it other than at a shipyard or other works in which the company had an interest in possession on the initial date, or
(b)").
The noble Lord said: My Lords, I beg to move Amendment No. 138A, and I suggest that it would be for the convenience of your Lordships' House if at the same time three associated Amendments were discussed with it. They are Amendments Nos.140A, 156A, and 177A. These Amendments follow the decision on ship repairing which was taken by your Lordships' House late on Monday evening. First, I should like to eliminate any misunderstanding that appeared to arise between the noble Lord, Lord Melchett, and me in that debate on Monday evening because I was making the general

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point that ship repairing had never, so far as I knew, been proposed by the Labour Party for nationalisation on its own. It had always accompanied shipbuilding. I was well aware that it had appeared in Labour Party documents, but it always appeared there with shipbuilding. If the Labour Party had not proposed that the shipbuilding industry be nationalised, it is perfectly clear that they would not have put forward ship repairing.
I agree with the noble Lord, Lord Melchett, who I think misunderstood what I was saying, when he said that ship repairing was deliberately placed in the Labour Party's proposals. I agree with that, but I suggest that it was only placed there because shipbuilding was there. The assumption that the framers of the Labour Party's policy made three years or more ago was that the two industries had to be treated together because they were closely interrelated, and statements which Ministers have made since then, including in your Lordships' House, seem to confirm that. My contention is that that assumption is wrong; that they are very different kinds of industry, and that in particular over the last 15 years they have diverged rather than drawn more closely together, I hope that I have been able to take the opportunity of clearing up that particular misunderstanding between us. There was not time for it at about a quarter to midnight on Monday evening when the House obviously wanted to get ahead with dividing.
These Amendments are necessary in order that the Bill will be consistent with the decision that was taken on Monday evening to remove the ship repairers from the Bill. There is at least one case where a company is involved in ship repairing as a completely separate business. By chance it is a department of the company and the ship repairing activity is not in a separate company or a subsidiary company, and that is the company of Vosper Thornycroft, where, by historical accident, ship repairing is a completely separate activity but is a department within one company. In order to take independent ship repairing out of the Bill and to remove it from nationalisation it is necessary therefore to make these Amendments. I described them during the Committee stage, so I shall not repeat all that I said then. It is
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part of the neat excision which I suggested on Monday evening that we ought to make in this Bill.
The Amendments would apply to those companies who, on the initial date, carried on business as ship repairers as well as shipbuilders. It will enable them, if they wish—it is permissive; they do not have to—to reorganise their affairs so that their shipbuilding and ship repairing are treated differently. I have mentioned Vosper Thornycroft. In that case the department which carries out ship repairing is entirely separate and autonomous. It has its own managing director, its own accountant, its own labour force, and its own managers, and it is separated geographically on the other side of the River Itchen.
In order to ensure that ship repairing as a whole is treated in the way that we proposed last Monday evening, these Amendments should be made. Then Vosper Thornycroft, if they wished, and any other company in a similar position, will he able to separate their department dealing with ship repairing from the rest of the company. I must point out that this Amendment would not have the effect of depriving the new nationalised Corporation proposed, British Shipbuilders, from having the ship repairing facilities in the companies which they are taking over, or indeed taking on more ship repairing, if they think it necessary, within their own domestic sphere in order to carry out repairs on their own ships. This is part of a neat excision which will take independent ship repairers out of the Bill without causing undue difficulties for the new nationalised Corporation should that Corporation come into existence under this Bill. I beg to move.
The DEPUTY SPEAKER (Baroness Emmet of Amberley): My Lords, the reference to Amendment No. 139 in the Marshalled List is incorrect and should read:
Page 43, line 24, after ("and") insert the words printed in the Marshalled List.
Lord ORR-EWING: My Lords, I should like to speak to this Amendment. The noble Lord, Lord Melchett, has made much of the PA Consultants' Report. I normally carry it around with me, and I have for the last six or seven days in

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these debates, but as I am in danger of rupturing myself by carrying copies of Hansard both from the Commons and this House—
The Earl of LAUDERDALE: And the Manifesto.
Lord ORR-EWING: And the Manifesto. I always carry that, too.
The DEPUTY SPEAKER: My Lords, may I interrupt the noble Lord and apologise to the House. It is Amendment No. 138A.
Lord ORR-EWING: My Lords, I am speaking to Amendment No. 138A. I am glad I anticipated the noble Baroness's ruling.
Lord CAMPBELL of CROY: My Lords, perhaps I could clarify this. I think that reference was made to the following Amendment, and that has now been corrected. We are on Amendment No. 138A, and I do not think that it is incorrectly down on the Marshalled List.
The DEPUTY SPEAKER: No, my Lords, my reference was to the next Amendment.
Lord ORR-EWING: My Lords, I will not delay the House for long on this issue. As I have said, we have had many quotations from the PA Consultants' Report, but I noticed when examining it after the last debate that there was a grave omission; there was absolutely no mention in that report of the ship repairing and shipbuilding facilities in the Southampton area. I am glad to say that this has been picked up—the Minister has referred to it on many occasions—and the trade unions have made representations to the Government because they have felt as acutely concerned as many others about this highly successful company.
I endorse what my noble friend Lord Campbell of Croy said; that despite the arguments that the Government have put forward about there being a commonalty between ship repairing and shipbuilding, I believe that to be the opposite of the truth. I wish to emphasise that they are, in their technologies, time constants and general organisation, diverging rather
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than coming together. The argument has been used that ship repairing had to be included because there was a useful interchange of personnel. Anticipating that argument—the thought that it might come up again—I have been in touch with Vosper Thorneycroft (perhaps the argument will not be repeated after I have stated some figures) and I find that in the last 12 months in the hourly paid employees group, only one in 200 of the group's strength has been transferred, and then for short periods, to work on the ship repairing side. The details are that eight fitters went for one week from Woolston, Southampton; five coppersmiths for four months; 11 electricians for five months; and two polishers for a few days, giving a total of 25 people. Therefore it is hardly right to say that there is a tremendous interchange, that this is a great facility and is a great reason for nationalising ship repairers at the same time as nationalising shipbuilders. I hope, therefore, that this arguemnt which the Government have adduced will not be used again because it does not hold water.
Viscount SIMON: My Lords, I wish from these Benches to support the Amendment. Having decided that ship repairing should be removed from the scope of the Bill, it seems only logical that in regard to those shipbuilding companies which carry on a ship repairing business as a quite separate business within the ambit of their operations—Vosper Thorneycroft has been mentioned and there may be others involved—we should not seek to transfer to British Shipbuilders that operation which, if, purely by chance, the corn pany had decided to make a separate company, it would not have been so transferred. The arguments about the nationalisation of ship repairing have been fully rehearsed and we need not go into them again, but on the basis that we have decided that ship repairing should be left out of the scope of Bill, it seems quite reasonable that in a case such as the one which the noble Lord, Lord Campbell of Croy, explained, some means should be found for leaving them out of the Bill because clearly if no special means were found they would be left in, I think under Clause 5.
Lord MELCHETT: My Lords, this group of Amendments is part of the aim

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of noble Lords opposite to remove ship repairing from the Bill. I have already explained—and the noble Viscount, Lord Simon, referred to the number of times we have discussed this issue—that the Government have a commitment to nationalise ship repairing. These Amendments are, therefore, totally unacceptable to the Government. I have already pointed out that many ship repair facilities and operations are closely integrated with shipbuilding yards. It would be wrong to agree to hive off the ship repairing part of a single company from the shipbuilding part of the same company. That would be breaking up the company's structure to the disadvantage of British Shipbuilders.
Lord ORR-EWING: My Lords, may I ask the noble Lord to deal with the arguments rather than simply saying they are closely integrated? My noble friend Lord Campbell of Croy referred to the total separation across a river of the two sides of shipbuilding and ship repairing, and I referred to the fact that there is only a marginal interchange of personnel. How can the Minister still maintain the argument that they are closely integrated with common facilities?
Lord MELCHETT: The noble Lord, Lord Orr-Ewing, gave an instance of the interchange of labour, my Lords, and although he said that it was marginal, I should have thought it would be very useful to be able to interchange that amount of labour. It may be that when these companies are under British Shipbuilders they will be able to learn rather more than they obviously have been able to learn—if the noble Lord's figures are correct, and I have no way of knowing whether or not they are and, indeed, whether they are representative of the companies that this Amendment would affect—and it may be that more will be learned from the international competitors to which I have drawn attention and that there will be more exchange of labour when that is a sensible and economical use of resources as between shipbuilding and ship repairing.
I do not want to go over all the arguments again because, as I said, we have done that at great length. I repeat that the breaking up of these companies would be to the disadvantage of British Shipbuilders. The companies involved—
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Vosper Thorneycroft, Hall Russell, Swan Hunter Shipbuilders Limited and Robb Caledon—are all shipbuilding companies in this category which carry on ship repairing and shipbuilding in one company. It would be totally illogical and, I believe, extremely difficult to try to hive off the ship repair facilities in those cases where they are so closely integrated with shipbuilding.
As I say, this group of Amendments is totally unacceptable to the Government. However, as the noble Lord, Lord Campbell of Croy, said, we had a vote on the principle involved on Monday evening and I do not intend to waste the time of the House by dividing on each of the subsequent Amendments to which we come, but I reiterate that these Amendments are not acceptable to the Government.
Lord CAMPBELL of CROY: My Lords, I am grateful for the support of my noble friend Lord Orr-Ewing, with his personal knowledge and experience of the industry, who has tonight and on former occasions underlined the entirely different character of the ship repairing industry from shipbuilding. Where the particular company which we have used as an illustration, because it has a large ship repairing department, is concerned, its ship repairing facilities are entirely separate, as I have indicated. The noble Lord, Lord Melchett, mentioned other companies and I would reiterate that this is not an Amendment which requires these companies to hive off ship repairing; it permits them to do so if that seems to them the sensible thing to do in their own circumstances. It is, therefore, an enabling Amendment but it does not oblige companies in different circumstances to hive off their ship repairing activities. As Lord Melchett said, we have been over this ground and at this stage I only wish to add that, after hearing the Government's reply, we see no reason to change our views on this subject.
The DEPUTY SPEAKER: In calling the next Amendment, No. 139, I should point out that it is incorrectly printed. The reference should read
Page 43, line 24, after ("and") insert …."
the words as printed on the Marshalled List.
6.20 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 139:
Page 43, line 24, after ("and") insert ("unless in the case of persons who did not benefit from the transaction the tribunal are satisfied that the transaction was not entered into with a view to defeating the object of any provision made by this Act or (if the transaction was entered into before the passing of this Act) with a view to defeating any provision which might reasonably have been anticipated to be likely to be contained in this Act").
The noble Lord said: My Lords, the House will be grateful to the Chairman for pointing out the error in the references. The Amendment relates to a discussion we had with the noble Lord, Lord Winterbottom, at the Committee stage. What we are once again seeking to do is to point out to the Government that there can be transactions which are entered into in perfectly good faith by directors who are doing what they believe to be their duty. Under the clause as it stands, it is possible for such directors to be descended upon by the Minister and treated in a way that seems unjust. The noble Lord attempted to give us some reassurance during our discussions about this subject at the Committee stage but, on re-reading what he said, the industry was not entirely reassured. Because of the conciliatory way in which noble Lords opposite have been dealing with some of the Amendments on further consideration, we were hoping that they might have seen the light. So, at this stage, may I content myself with inviting them to meet us on this Amendment? I beg to move.
Lord MELCHETT: My Lords, as the noble Lord has said, Amendment No. 139 would allow directors of vesting companies to avoid the adverse consequences of Clause 31 if they could demonstrate that a transaction governed by that clause was not undertaken in anticipation of nationalisation. As the noble Lord said, a similar Amendment was moved in Committee and was withdrawn to allow noble Lords opposite an opportunity to reflect. I hope that after I have again explained why this Amendment is entirely inappropriate, noble Lords will decide not to press it.
Clause 32 deals with onerous transactions. These are, by nature, unusual or imprudent transactions which cause a loss and could be foreseen to cause a loss
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to the company. In the commercial world, particularly in the aircraft and shipbuilding industries, many decisions would involve a loss, as was pointed out during the Committee stage. It is bound to be a matter of commercial judgment whether a particular risk is justified and as was said in Committee, a successful business is one where the decision is exercised wisely. However, the risk cannot he eliminated entirely and a decision taken in good faith can in the event turn out badly. This is recognised by everyone and we should not wish to penalise directors in such a case. Clause 32, therefore, has effect only where it can also be demonstrated that the transaction was undertaken in anticipation of nationalisation.
However, the situation under Clause 31 is entirely different from that under Clause 32. The transactions covered by the clause—the so-called "material" transactions—are by their very nature unusual. I think that this is apparent from the definitions of "material transactions" in subsection (1). Again this was pointed out during the Committee stage. They include capital and special dividends, premature redemption of securities, and sales of assets where the proceeds pass direct to shareholders. Because they all benefit shareholders they have a direct implication for the compensation terms. This is the main difference between the material transactions and the onerous transactions dealt with in Clause 32. Clearly, none of these transactions can be considered to be in the normal course of business. Equally, the clause relates only to transactions during a period when nationalisation is imminent. The fact that the transactions are unusual and were carried out in the full knowledge of impending nationalisation, in the Government's view clearly leads to the conclusion that there must have been at least some degree of anticipation in the transactions' taking place at all. That is something that we have again considered very carefully since the discussion at Committee stage. As I said to the noble Lord, our view remains as it was then.
If the Amendment were carried, it would be likely that directors would seek to argue before the arbitration tribunal, if only as a means of delaying the ultimate decision. This is the undesirable aspect of the effect of the Amendment which,

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again, was pointed out during the Committee stage. While we accept that very few of the transactions are likely to be sensibly arguable in front of the tribunal, there will, if the Amendment is accepted, be nothing to stop directors putting a point to the tribunal and considerably delaying matters. Such a delay would be in no one's interests and would involve both the directors of the vesting companies and the Corporations in unnecessary and time-consuming arguments. Release of the directors from the provisions of the clause as envisaged by the Amendment could make it easier for material transactions to take place, and if that were the case the basis for compensation under the Bill would be invalidated. That is something that would not be acceptable to the Government.
I am aware of not having said anything very new on this Amendment compared to the Committee stage, but it is the same Amendment and, having considered it carefully, I regret to say that the Government find themselves with little more to say about it. Our attitude remains the same as it was during the Committee stage.
Lord STRATHCONA and MOUNT ROYAL: My Lords, I am grateful to the noble Lord, Lord Melchett, and I am fully aware that he is trying. I do not believe that there is an enormous amount between us. I am in no way seeking to exonerate—that is not the word I am looking for, but it will have to do for now—directors who are clearly trying to get round the Statute and engaging in what the noble Viscount, Lord Simon, at the Committee stage called "evasive transactions". What seems to us to be objectionable is that the noble Lord used a series of rather subjective judgments in replying on behalf of the Government.
If I understood him correctly, he said that if there was an usual transaction in the circumstances that we like to describe as "blight"—the threat of nationalisation—the Government's assumption would be that it was a dishonest transaction or—and perhaps this is the safer word—an evasive one. The implication which they go on to propound is that it is a dishonest transaction that is designed to get round the provisions of the Bill. Our greatest objection to this is that it puts the onus of proof on the directors to
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show that the transaction was not an evasive transaction. That seems to me in principle to be an objectionable position for us to get into. I do not believe that if it is looked at in that way the noble Lord will greatly disagree with what I am saying, in principle. Where we get into difficulty is what is done about it in practice.
The noble Lord went on to say that if directors are provided with ready made access to appeal to a tribunal, this will open up the possibility of what I believe is called "vexatious delay" or "vexatious litigation" or whatever one happens to call it. I accept that, but what I had rather hoped to extract from the Government was an admission that there was a danger of putting directors—who, judging by the normal opinion that the Government seem to have of those who direct companies, may have been foolish rather than deliberately knavish—in a position of vulnerability. The onus of proof is placed the wrong way round. In those circumstances I had hoped that the Government would say, "We see the point here; we don't want to give up the fallback situation that we have, but we recognise that there could conceivably be an unfair onus of proof put upon a director who might have made a mistake quite inadvertently, bearing in mind that we are saying that any unusual transaction is a suspicious transaction of itself".
I do not think that this is the kind of issue on which it would be even remotely proper to divide the House at present. But having said that I am disappointed in what the noble Lord has said, I will read carefully what he has said and perhaps he has given us some further assurances which we are seeking. If this is the best we can extract from him we will put up with it for the time being. Therefore, I wish to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 32 [Onerous transactions: disclaimer and recovery of losses]:
6.30 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 140A:
Page 44, line 29, at end insert
("( ) it is a transaction the effect of which is to transfer or grant to any person any property or rights belonging to the

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company in connection with the business of repairing, refitting or maintaining ships carried on by it other than at a shipyard or other works in which the company had an interest in possession on the initial date; or")
The noble Lord said: My Lords, this Amendment was discussed with Amendment No. 138A just now, and I beg to move it formally.
Clause 36 [Compensation for vesting of securities]:
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 141:
Page 48, line 19, leave out ("subsection (4)") and insert ("subsections (4) and (4A)").
The noble Lord said: My Lords, I beg to move Amendment No. 141. This is directly associated with Amendment No. 143 and I think therefore that it would be for the convenience of the House if Amendment No. 143 were discussed at the same time. We discussed similar Amendments at the Committee stage, and I explained to the Committee that we felt that if the Government are to have the opportunity of reducing compensation in certain special circumstances they should also accept that they have a responsibility to increase it in other special circumstances. There are companies which will be affected by the Bill which since the last of the relevant days, that is 27th February 1974, have considerably improved their positions, but little allowance will be given for these improvements as the Bill is now drafted. The improvements have arisen to a large extent from their own efforts and success.
The Government have today made some welcome acceptance of some of our Amendments, including those to this Part of the Bill, and I hope that they will be able to indicate this evening that after considering what has been said in Committee they are also prepared to accept what is proposed here, particularly Amendment No. 143. But I want now to examine the whole of the Government's attitude towards compensation—this is the appropriate moment to do it—as it was indicated during the Committee stage. During the Committee stage we listened to what the Government had to say on various Amendments and it is now possible for us
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to draw up what is their general attitude. I should like to draw attention to the misconceptions which unfortunately underly that attitude and I should also like to give some illustrations.
A number of my noble friends took part in those debates and questioned the Government about their intentions and about the meaning of the Bill. In particular my noble friend, Lord Selsdon, has gone into great detail into the whole of the terms of compensation as set out in the Bill. But throughout the debates during the Committee stage the Government refused to budge from the position which they had adopted at a very early stage in the Bill. When one reads the Hansard records of what happened in another place one finds that we were getting almost identical replies here to those being given at an early stage in the discussion in another place. I hope that the change in the Government's attitude that has been apparent earlier today will be continued.
However, the Committee stage showed that the whole Government case rested on one premise; namely, that the stock market measures the earning power of a company's assets. The attributes of using a stock exchange quotation as a measure, which were cited by the Government as evidence of the fairness of the measure—the independence and objectiveness of a stock market price, and the present level of the stock market—are all applicable only if they are relevant. If the stock market does not measure the earning power of a company's assets—and we believe that it does not—then it is not the relevant market for the commodity that needs to be measured; and that commodity that needs to be measured is the whole of a business or an undertaking that is to be incorporated.
A stock market is a market for dealing with parts of a business, often small parts of a business, but what we are concerned with here in the compensation terms is the value of the whole of a business, and in most of the cases they are subsidiary companies. My noble friend Lord Carr of Hadley and the noble Lord, Lord Robbins, exposed this defect. The noble Lord, Lord Robbins, described it as the conceptual mistake, and my noble friend described it as the grand structural defect; and this is the main misconception which

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clearly underlies the Government's proposals as they now stand. A small block of shares is a different commodity from a controlling holding.
The stock market is a market for small blocks of shares. The value of such blocks of shares is their value to individual investors. The earning power of those shares is the present and prospective dividend income. The stock market is not a market for whole companies, and stock market share prices are not the prices at which companies change hands. During the Committee stage my noble friends gave examples of companies changing hands, the numbers that have done so in recent years, and the prices at which they have changed hands compared with their Stock Exchange valuations.
Because the individual investor cannot realise his share of the company's assets or enjoy his share of a total income from them, the price at which small blocks of shares change hands practically never reflects the value, or cost, or earning power of the industrial assets which underpin that share. Therefore an aggregate of small blocks of shares which, when taken together amount to a controlling holding, do not have the value of a controlling holding so long as they remain held by different investors. It cannot possibly enable the owner who controls a company to replace what he has lost, a whole business, with something of equivalent earning power. The owner cannot buy another company at the Stock Exchange quoted price because the stock market is not a market on which companies are bought or sold. I will briefly refer to the examples we gave where the Government themselves have been involved in schemes for valuation. As my noble friend Lord Carr of Hadley pointed out, the Export Credits Guarantee Department ensures British companies that have subsidiaries overseas against expropriation. There the Department, we understand, recognises the distinction between the value to a Stock Exchange shareholder and the real value of a company to its parent company. That is a Government scheme, but that principle is not being brought into the Bill.
My noble friend also mentioned the Industrial Commercial Finance Corporation. That Corporation was set up under Government auspices and it is specifically
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prevented from selling any subsidiary companies except on an asset basis. So the Government are not even following consistently what has been policy in other cases, and that is the huge flaw in the Government's argument. The stock market is not a market in which whole companies are bought or sold.
Now I come to the illustrations. At the Committee stage I gave the illustration of Kincaid, a marine engine manufacturing firm, and one of the six which are to be nationalised under the Bill. The figures which I gave immediately prompted the noble Lord, Lord Robbins, (I am sorry that he cannot be here at the moment) to point out that this was virtually expropriation. I remind your Lordships that from the report and accounts for the period up to the end of last year it is clear that Kincaid's turnover has increased almost fourfold since the relevant period for compensation, its profits are four and a half times higher, and its reserves and net assets have almost doubled. That is a comparatively small firm which has done exceedingly well in the period of almost three years since the compensation period in question, and under the scheme that the Government have in the Bill it looks as if this firm will not have any benefit from the advances it has made during that period.
I should like to refer to another company; namely, Yarrows. In the five years to June 1975 Yarrow (Shipbuilders)—that is the shipbuilding company which is in the Bill—has undertaken contracts for several overseas companies. The total value of export work was £56 million representing 49 per cent. of the total turnover of £114 million and profits earned on export contracts amount to £7·9 million which was over 80 per cent. of all contract profits in the five-year period. Yarrows also had an average share price during the reference period of 116p, giving a market capitalisation of £4·64 million for the Group. Since the end of the reference period Yarrow (Shipbuilders) alone has announced pretax profits of over £7 million and over £5 million for the years ended 30th June, 1974 and 1975 respectively.
That comparison of the profits with the valuation of the parent company share price is an extraordinary comparison if one does not take into account the success

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of the company over the last three years. There was no public knowledge of any of these profits during the reference period and it is therefore unlikely that a notional share price arrived at in accordance with the Government's proposals could adequately reflect the future profitability. Of these profits only £0·5 million has been distributed so far to the parent company by way of dividend; all the remainder I am told is still retained within Yarrow (Shipbuilders) either having been invested in capital development projects or in the form of liquidity. If the compensation basis remains unaltered, all of the retained profits earned since July 1973 will he confiscated without proper compensation.
Another company is Vosper Thornycroft. This company again has done exceedingly well and I can give some figures. In the last five years, total investment in the company has been £7 million. Of this the shareholders have provided £2 million by direct subscription and the rest has come by way of profits ploughed back into the company. Yet the Government's proposed compensation terms value the whole company at only £4.2 million. Those are examples of three companies—one that I mentioned at the previous stage, the Committee stage, and two more where I have just given some of the figures—where the value in fact is likely to be very much higher than the value which the Government under their scheme would place upon those companies.
My Lords, under our Amendment No. 143, the compensation scheme would take into account exceptional development which had occurred since the relevant date. I hope that the Government will give very careful consideration—if they have not done so already since the Committee stage—to the effect of their scheme. We have enabled the Arbitration Tribunal to have more latitude in the factors which they will take into account. Cases of the sort which I have described and the Government's way of dealing with them under the Bill, will simply give the impression to everyone abroad that this is tantamount to expropriation. The fact that no account is being taken of the improvements which these companies have made since the relevant period gives the impression that the Government are set on confiscating these assets without
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any thought of compensation. That cannot be good for confidence in Britain, confidence which is very much needed at the present time.
6.45 p.m.
Lord SELSDON: My Lords, everything that I could have said to try to persuade the Government that the whole concept of compensation for this Bill was wrong, I said in the middle of the night a few weeks ago. It is the only time in my life that I have ever asked questions of somebody who I thought had very high standards of integrity and was behaving in a fair way, and got not one answer that I could accept when I read through the matter afterwards. I came to the conclusion, therefore, that in the interests of expediency, the Government had taken legislation drafted for previous nationalisation Bills and had tried to apply compensation formulae adopted then for this Bill, when the principles, the concepts and the companies are totally different. What I tried to argue the other night was not about how much people got for their businesses but about whether the whole principle of valuation for compensation under the Bill was fair, and I will repeat, if I may, some of those arguments as succinctly as I can.
First of all, the principle or the method that the Government are using is a private sector method totally governed by codes of practice and not by law: it is a Stock Exchange valuation, the way that shares are valued for a trading matter. We have argued the question of minority shareholdings. The point I raised with the Government was this: "Would they please consult with the Council of the Stock Exchange." I should like to ask them whether they have done that, because I pointed out that the Council was willing to consult but they felt they could not interfere because the Government were not a quoted company and all but one of the companies to be nationalised was unquoted. I understand that there has been no consultation at all with the Stock Exchange. Yet, on other matters relating to the Bill since Committee stage I understand that there has been consultation and I believe that it is as a result of that consultation that the Government have begun to understand some aspects of compensation

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and have therefore accepted certain Amendments. If the Stock Exchange were in consultation with the Government to decree and decide jointly with them that this method of valuation was unfair, then I think the Government should heed it.
Since I could not get the domestic Stock Exchange to come out on a limb—because naturally they did not want to be seen to be hobnobbing with the Conservative Opposition or to interfere in any way because they have very high standards and observe a very high code of practice and do not interfere in matters of this sort—I consulted certain other international stock exchanges both in the Continent of Europe and in other quarters of the world and spoke to certain friends who would be willing to be named should it be desirable, and there is not one stock exchange I could find in the world that would agree that a share valuation was a fair price for a business. It may be that the whole system of stock exchanges and private investment is totally wrong, but it is a crucial point to me that when those who know about the business say that this is not a fair method, the Government should not adopt it. Therefore, we could say that it would be much more suitable for the purposes of the Bill if it was a simple statement under compensation that the Secretary of State will pay what he feels to be fit and we would then leave it to the tremendous fairness of the Secretary of State—and the noble Lord, Lord Winterbottorn, has assured us that he will be fair. It is wrong to use a method and to put forward proposals that the world knows are unfair because it will prejudice things that may come after. It is also against the whole system and basis of integrity of this country.
That is the emotional plane upon which one wishes to advance this. The effects which will come if this goes through are not related wholly to the amount of money it will cost to acquire businesses and the amount of paper which the Government may issue, because I would argue that in the current climate, looking at it from the point of view of the recipient of Government paper, that Government paper is not a fair method of remuneration because it is likely to go to a discount and to create all sorts of problems and nobody will hold it.
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If the noble Lord, Lord Winterbottom, says that he and his Government believe that, despite what has been said from these Benches, a share price is a fair valuation for the business, then I presume that is that and one cannot push things. I put forward Amendment No. 156 with no intention of pressing it the other night. I was then caught in an embarrassing position: I had never pressed an Amendment in your Lordships' House and when various noble Lords from all sides of the House said, "We would like you to press this and will support you", I was not quite sure what to do. That Amendment stands in the Bill. I suggest that the Government bear in mind and acknowledge that a share valuation is not an ideal method but that there has to be some form of base to start and rat her than starting again and going through the arguments of asset bases, or net worths or independent assessments, let us leave as much as possible to the Arbitration Committee, which is what we are asking.
I point out to noble Lords, too, that in these investigations I consulted with people in the private sector who know these companies. We came to the conclusion that if there were five or six of us who independently were given the job of valuing these premises, we could all arrive at a value within a matter of weeks and would probably not be more than 10 per cent. out as a whole. Many of us find that our job is valuing businesses.
I must ask whether the Government will drop this principle. They can try other methods, but let us leave as much as possible to the power of the arbitration tribunal. When we come to that later, let us see that the arbitration tribunal will be fair; let us ensure that the arbitration tribunal is made up of people who know their job and understand these things, people who will be accepted both by the Secretary of State and the Department and the companies concerned.
I mentioned to the noble Lord—and we did not receive au answer the other night—that one of the methods employed with some success over the years of valuing non-quoted securities has been that which has been carried out by the Department in connection with capital transfer tax or estate duties, where one is valuing shares held in non-quoted companies as part of the estate of a deceased

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person. The arrangements arrived at—although occasionally they give grounds for argument—have been accepted by all quarters as fair. If there is already a method by discussion and agreement of valuing shares in non-quoted companies, I suggest that that method should be used. To try to ram home something which anybody who knows anything about it believes is wrong, unfair and based on a false premise, is dangerous. It is dangerous to democracy as a whole if your Lordships' House support the proposal that the Government are putting forward.
I know that the noble Lord, Lord Winterbottom, has listened before to some of the things I have said. I feel strongly about it because I am paid and employed by people in this area. When one sees something that is so blatantly unfair, one has to speak out against it.
6.52 p.m.
Lord ORR-EWING: My Lords, many of us have been round this buoy time and time again. I do not want to detain your Lordships for too long. Previously I have drawn the most glaring examples where inequity and unfairness rears its ugly head if the compensation formula is to be too rigid. I particularly mentioned Yarrow. Tonight I want to mention some of the facts and figures about Vosper which are just as glaring. If I may refer to Lord Melchett's reply when I intervened in his windup on a previous clause, he said that he hoped that Vospers, when they had international competition, would learn to interchange personnel. I should like to point out that they have secured £300 million worth of export orders for their ships. It cannot be said that they are lacking in international aid, competition or prowess. The fact that more than 70 per cent. of their order book is for overseas customers is a true reflection of their achievement. According to the Government formula, they are to be compensated to the tune of £4·2 million. That is a rough estimate.
My Lords, if you look at the growth of this successful company, you will see how glaringly unfair this is. In 1966 the company had sales of £6½ million and profits of £0·4 million. By 1974 they had sales of £57 million and profits of
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£3 million. One year later, the sales had gone up from £57 million to £82 million. The profits had gone up from £3 million to £4 million, yet they are being offered total compensation of £4 million. My friends on the Stock Exchange would agree that normally when you have a company to sell, one of the early criteria is: what are its profits? You probably start negotiating at something between five and seven times the annual profits. You take into consideration things like investment.
Here the Government are saying that it is going to be fair in giving one year's profits for a company. They claim that that is fair and equitable. In the past five years they have invested £7 million of their money. Only £1 million comes from the shipbuilding grant which is matched by most of our overseas competitors, who give aid to their shipbuilders in a similar way, and they have paid that debt back in tax many times over to the Government. So we now find a company with an asset value in 1976 of £12 million being offered £4·2 million for that company.
My Lords, you only have to mention these figures in a single instance to see how glaringly unfair it is. I hope that the noble Lord, Lord Winterbottom, who is a fair man and understands these things, will try to draw the terms of reference of the arbitration committee as widely as possible—it has been widened a little over the discussions we have been having in both Houses—and then they can take into account the factors I have mentioned for coming to a conclusion that will inevitably lead to something being much fairer than the present formula being set before the House.
6.57 p.m.
Lord CULLEN of ASHBOURNE: My Lords, the case has been made so clearly by my noble friends that I will speak briefly as somebody who has spent most of his life on the Stock Exchange. I support most wholeheartedly what my noble friend Lord Selsdon suggested: that we remove Stock Exchange prices, particularly notional ones, from the Bill and simply have fair compensation. If the Government make it clear that that is what they are trying to do, I have no doubt that that is what they will do. If

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they put this extraordinary business of notional share prices in, it becomes a terrible red herring and makes everybody suspect that everybody else is wanting to do something different, which I do not believe they do. I hope the Government will take this matter up.
6.58 p.m.
The Earl of LAUDERDALE: My Lords, we are in a difficulty because several questions were asked on Committee which have not been answered. Alternatively, points have been made which have not been followed up. For example, we were told in Committee that the so-called imputed value of non-quoted shares would be entirely satisfactory because the Stock Exchange is an independent and objective quarter for judging these matters. The Government cite the Stock Exchange when it suits them, but they will not listen to those who know the Stock Exchange inside out, who have operated on it, who have spent their days rubbing shoulders with it and who have some proper practical experience of work in the City.
We were told that it is wrong to think in terms of takeover values; that the takeover value does not represent the market value. I quoted in Committee the British Transport Docks Board's bids for Felixstowe Docks and Harbour Board. There the shares stood at 90p and the bid was 150p. The Government in effect, by supporting the Felixstowe Bill, supported that bid. They cannot have it both ways. Is it that the Government think one thing one day and one another, or is it one part of the Government think one thing one day and another part thinks another? That may explain some of the strange legislation before us. The Felixstowe case was not answered.
This is slightly distressing. We have had a good afternoon. On the whole, the Government have been very forthcoming—particularly when I have not been in the Chamber—but the afternoon has been marred by the fact that we have not yet had proper answers to some of these questions. In Committee, my noble friend Lord Carr quoted the practice of the Export Credits Guarantee Department which insures overseas subsidiaries of companies in this country against being expropriated. The Government say that
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that is irrelevant; they say that this is not expropriation. Our argument is that it is expropriation. That is exactly our argument. We have said it over and over again and the Cross-Benches have said it. It is not even a Party point. It is a common sense point. With the greatest respect, if noble Lords opposite do not in their heart of hearts think that it is expropriation, then we are very sorry for them and we must rate their intelligence rather lower than we have hitherto. It is like the "flatearther", when he sees photographs showing the earth from Mars saying, "Of course, the earth is flat anyway".
The noble Lord, Lord Carr, quoted the case of the ICFC, which was set up under Government auspices. They are specifically prevented from disposing of subsidiaries of Companies they control except on an assets basis. The point was made by the noble Lord, Lord Carr, and it was not answered by the Government. Another case was quoted by the noble Lord, Lord Carr, about the practice of the Inland Revenue: when it values a controlling interest in a company for duty purposes, it values that on quite a different basis from that in the case of a minority interest. That point was also raised, but the Government did not answer.
Cogent arguments have been deployed from these Benches by noble Lords who know their way around in these matters: the noble Lords, Lord Selsdon, Lord Orr-Ewing, Lord Cullen of Ashbourne and others. For the sake of this country's reputation for fairness and this Parliament's reputation for serious discussion of serious matters, for the reputation of this House as a revising Chamber—for all those reasons, one hopes that the Government will take another look at this matter, because it is worse than unsatisfactory: it is a disgrace as it stands. I think that noble Lords opposite, in their hearts of hearts, know this to be the case. I do not like using language which is as strong as that, but I also know that it will be taken in good part by my noble friends on the Benches opposite.
It is a very serious inroad into the freedom and the rights regarding property in this country. It is an inroad which is either politically motivated, in which case its motives are base, or it is an inroad made largely by accident because the draftsmen drafted the Bill in a hurry. But however

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it came about, it is no credit to a Government of this country whose integrity we respect, or at least would like to respect, and whose integrity foreign Governments and foreign investors would also like to respect, if, as we hope, people from other countries will continue to invest in this country.
7.13 p.m.
Lord MELCHETT: My Lords, this Amendment, which is identical to a series of Amendments we discussed in Committee, would allow an increase in compensation where a company had undergone exceptional development since the referance period. Compensation is fixed on the basis of a past reference period—that is, the six months up to the end of February, 1974. All the companies named in the Bill were viable concerns at the end of the reference period and the basic assumption is that they will remain in that state until vesting date. Clearly, the prospects of individual companies may have changed since the reference period, but that does not itself, in the Government's view, affect the basis of the compensation. By basing compensation on a past period the compensation payable is fixed, and generally the shareholders are assured as to the basis on which the compensation they will receive will be assessed.
The share-based valuation, of course, has been used in every nationalisation measure since 1945, except for the coal industry. We heard from the noble Lord, Lord Selsdon, and indeed we have heard on many occasions during the various stages of this Bill, that that took eight years to settle. It is probably a precedent which neither side of the House would wish to see followed. In each case, in previous nationalisation measures it has been accepted that an average of the prices quoted on the Stock Exchange official daily list on particular days was an appropriate basis.
By valuing the securities of companies at a past reference period the Government accept the risk of any deterioration in the companies concerned, short of bankruptcy, in the period up to vesting date. As a converse, it is reasonable—and this was a point I myself raised when we were discussing this Amendment during Committee stage—that the Government should
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benefit from any improvements; but whether any of those improvements, if there be any, can constitute an exceptional development in the terms of the Amendment I am very doubtful. That, again, was a point made during Committee stage and it is probably one to which noble Lords opposite have not particularly addressed their minds. It may well be that the terms of the Amendment do not in fact achieve the effect they wish, because I am advised that it would be very difficult to prove, even in some of the particular cases which have been quoted, that exceptional developments, in the terms in which the Amendment uses that phrase, have occurred.
During the Committee stage and again this evening the noble Lord, Lord Campbell of Croy, cited as an example a company which has developed very well since the reference period: John G. Kincaid, the engine builders. I do not deny that this company has done very well in recent years. Indeed, the company made application to the Secretary of State to pay increased dividends, and that request was granted in full in the light of the company's performance. But the Government do not believe that the performance of this company detracts from our general argument for resisting this Amendment.
Shipbuilding is a long-term industry, as is marine engine-building. The performance of the company since the reference period must have been a real prospect at the reference period and hence it will be reflected in the imputed share price. The noble Lord, Lord Campbell of Croy, also referred to Yarrow's dividends. My advice is that it is not true to say that only half a million pounds of permitted distributions has been made. I believe approval has been given for up to £1.1 million. The stock market price of a share represents the price at which it will change hands at a particular moment in time: in other words, it is the true value in terms of the market, at that time—
Several noble Lords: No.
Lord MELCHETT: It is a well-recognised fact that stock market prices do not represent solely the general conditions at the time. The price also takes account of the prospects of a company, in some cases up to several years ahead. Under the Bill, we are seeking to define

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an objective value for shares, and the Amendment of the noble Lord, Lord Selsdon, which has been pressed into the Bill, has in the Government's view completely altered the basis on which compensation is going to be assessed. It has put into the Bill an extremely imprecise and undefined basis on which to value the shares, which is something with which the arbitration tribunal will be faced.
Therefore noble Lords, in addressing themselves to this particular Amendment, although they have spoken rather wide of the Amendment itself, have in fact been addressing themselves to the Bill as it was before the noble Lord's Amendment was included. In the Government's view, it is no longer true to say that the Bill as drafted takes as the basis for compensation the stock market valuation of the companies during the reference period. It is open to the arbitration tribunal, since that Amendment was accepted in Committee, to go very wide indeed. I, for one, have no idea what limitations are put on the arbitration tribunal now that this Amendment is in the Bill. I should be interested to hear from the noble Lord, Lord Campbell, if he is going to speak again to his Amendment, exactly what limitations will be placed on the arbitration tribunal and why the particular effects to which this actual Amendment is addressed cannot be considered by the arbitration tribunal since the noble Lord's Amendment was pressed into the Bill.
Viscount SIMON: My Lords, from these Benches I should like to make one comment on what the noble Lord, Lord Melchett, has been saying. He said that the Government accepted the risk of deterioration in a company's prosperity since the reference date, and he sought to set that off against those companies which have prospered since the reference date. I feel that, taking into consideration the interests of the taxpayer, that is quite wrong. I do not see why we should pay the same amount for a company which has gone down in the world since the reference date. It seems to me it would be far better to try to assess the value of the company at the time when the compensation falls to be paid rather than to refer it back to the reference date and then say: "We will have the swings and roundabouts, and the companies which have done
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badly we will pay too much for and the companies which have done well we will pay too little for."
Lord MELCHETT: My Lords, I wonder whether I may intervene. Naturally, I do not want to prolong the debate, but the noble Viscount must accept that there is one very real disadvantage in the course he is proposing; that is, that the prospects of various companies have been altered by nationalisation. If one takes the period pre-nationalisation as a reference, one avoids the very disturbing fact that some companies will have gained and some suffered, and some shares will have risen, because people have felt that they would get a higher price than the shares stood at on the stock market, and others will have fallen.
Viscount SIMON: My Lords, this only illustrates again the inadvisability of choosing stock market values for the purpose of assessing compensation. But while the prospects of companies may have been affected by nationalisation, the performance has not been affected up to now, and therefore the companies that have performed well should be entitled to get larger compensation, while the companies that have performed badly should get less.
Lord SELSDON: My Lords, with the leave of the House, I must correct the noble Lord, Lord Melchett. I am sure he did not mean to say it, but he said that shares can go up or down. However, there is only one quoted company, so there is only one quoted share to go up or down, and it is not possible for the others. I suggest that he speaks about one quoted company and does not generalise about all the others, because you cannot generalise on this. It is intangible ground, and it is misleading for him to say, as he did, that a stock market price is a true price for a share. It may be a price at which a share changes hands if it is quoted, but if it is not quoted it has no relevance at all.
Lord TREFGARNE: My Lords, I should just like to amplify and underline the point made by my noble friends, Lord Campbell and Lord Selsdon about the value of shares. Several noble Lords have said how the value of shares that

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change hands on the Stock Exchange does not reflect their true value when bought altogether. I asked the noble Lord, Lord Winterbottom, during the Committee stage how it was that he disclaimed the assertion that the Government were expropriating that value of a company which constituted control. I am absolutely convinced that all of my noble friends are quite right on this point, and the Government have failed to take into account the fact that they are acquiring control of every one of these companies. The control is worth something, and I have Amendments down later which I shall move, and perhaps press, to emphasise that point.
Lord RHODES: My Lords, may I ask the noble Lords, Lord Selsdon and Lord Campbell, a question for information? Is it not a fact that up to now the accountancy profession has evaded the identification of criteria on which profitability can be assessed? This could have been done over the years, and they could have been identified; for example, the form of capital employed in a business. I am in sympathy with what the noble Lord, Lord Selsdon, has said, but this is an aspect of this problem which has not been mentioned, and until businesses get down to the basis of the criteria on which profitability can be assessed, we can argue for ever more without coming to any finality. I recognise the difficulty and unfairness, as well as the hard work which has been put into assets which cannot be valued; and if criteria were established on which profitability could be based it would be much better for British industry as a whole.
Lord SELSDON: My Lords, I do not believe that I should be in order if I said anything. I hope that the noble Lord will allow me to speak later. I apologise for having disrupted the proceedings.
Lord CAMPBELL of CROY: My Lords, other speakers having moved this Amendment, may I now make my speech and, if my noble friend Lord Selsdon wishes to intervene in reply to the noble Lord, Lord Rhodes, I will very gladly give way to him. The noble Lord, Lord Rhodes, put forward the concept that the accountancy profession had evaded the basis of criteria on which
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profitability is assessed, and, not being an accountant, that is a new notion to me and I should be very glad to consider it.
Lord RHODES: Carry on.
Lord CAMPBELL of CROY: My Lords, I am not at the moment able to answer off the cuff, but if my noble friend Lord Selsdon wishes to do so, I will gladly give way to him.
Lord SELSDON: My Lords, by leave of the House, I feel that I must say something to the noble Lord, Lord Rhodes. Those of us on this side, and those connected with inquiring into the Bill as a whole, have continually pressed the Government to declare what they feel would be a fair return upon capital, and that, in a way, is a measurement of profit. Within companies connected with aviation at the moment, it is considered that a fair return on capital, and therefore a measure of profitability, would be of the order of between 20 and 25 per cent. Within the shipbuilding industry, or those companies which are in sectors of it which could be profitable, and bearing in mind the tremendous subsidies that are awarded by Eastern nations which totally distort the profitability picture of the shipbuilding industry as whole, the figure would be lower. But that criterion is a reasonable one to apply in these cases. The noble Lord has made the point that it would be advisable for the Government to consult the Institute of Chartered Accountants, who are willing to cooperate in this matter.
Lord CAMPBELL of CROY: My Lords, I am exceedingly grateful to my noble friend, because he has clearly given thought to the point which the noble Lord, Lord Rhodes, raised and will doubtless continue discussions with him on this subject outside the Chamber. I detected, happily I thought, a slight change in the way in which the noble Lord, Lord Melchett, addressed us this evening, and that followed a day in which we have had a number of acceptances of Amendments on this side. But I was sorry that he was not prepared to accept the Amendment. I say that I detected a slight change, because we have not simply had put to us, over and over again, the argument that the scheme is fair, and saying it 100 times means that it is true,

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which has been the Government's attitude in the past. So I am glad that we did not just get that again this evening, even though the Government were not prepared to accept the Amendment.
My noble friends Lord Selsdon, Lord Cullen and Lord Orr-Ewing pointed out that a scheme based on notional share values will lead to gross anomalies and unfairness. The Government's scheme simply does not start to stand up to any examination. The noble Lord, Lord Melchett, said in reply what we have heard before, that in most of the previous nationalisation Acts there were schemes based on share values. But it is a different picture when there are share values. I must remind your Lordships that in this case 42 out of the 43 companies concerned are unquoted. So I do not think that this Bill can be compared with previous nationalisation Acts, and schemes that were in them, because in this Bill the Government are putting forward proposals based entirely on notional share values for these 42 companies.
The noble Lord, Lord Melchett, took issue with me on a figure concerning Messrs. Yarrow. I can only tell him that the information which I have been given is that only £0·5 million of the profits of two years—and this may be the difference—have been so far distributed to the parent company by way of dividend. The noble Lord had a different figure, but this is something which we can settle later. However, I would just make it clear that I was dealing with two years' profits in the figure I gave.
I was glad to hear the noble Lord, Lord Melchett, speak about the amendment of the Bill as a result of the Amendment which was moved by my noble friend Lord Selsdon at the Committee stage. I hoped that that meant the Government were going to follow the intention that lay behind that Amendment. It was an encouraging part of the noble Lord's speech when he said, "We are considering the Bill as it has been amended by that Amendment." As I said in my opening remarks, we have introduced the concept that the arbitration tribunal will take certain factors into account, and I was glad to hear the noble Lord refer to that.
Lord MELCHETT: My Lords, on reflection I think that I ought to put the
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Record straight. What I think I said was that I had the feeling that noble Lords opposite were speaking to the Bill as if it had not been amended.
Lord CAMPBELL of CROY: My Lords, as I said at the beginning of this debate, we thought that this was the moment to discuss the attitude of the Government, as it had emerged at the Committee stage and their apparent attempt to defend this scheme, based on notional share values. The noble Lord has pointed out that my Amendments are not perfect in the sense that they may not be the best way to carry out what I have described. I accept that, but what these Amendments have enabled us to do is to have a discussion on the attitude of the Government and their compensation scheme and to point out again the misconceptions behind the Government scheme and the fact that it simply will not be fair and will produce these gross anomalies. I hope that I have detected some change in the Government's attitude and that they will consider very carefully everything that has been said during this debate, following the points put to us by the Government at the Committee stage. However, I now beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
7.22 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 142:
Page 48, line 29, at end insert—
("the resulting amount to be increased in the proportion (to the nearest one tenth of 1 per cent.) in which the value of the amount of compensation due to any person has fallen between 28th February 1974 and the first day of the month preceding that in which the compensation is paid to that person or, to the extent that a payment on account of compensation is made in accordance with the provisions of Section 37(6) hereof, in the proportion in which the value of such payment has fallen between 28th February 1974 and the first day of the month preceding that in which such payment is made.
(3A) For the purposes of subsection (3) above the value of an amount of compensation in any month shall be assessed by such means as the Secretary of State, after seeking the advice of an independent accountant, thinks appropriate, having regard to the increase (if any) since 28th February 1974 in the cost of acquisition of industrial assets.").
The noble Lord said: My Lords, I beg to move Amendment No. 142. A similar

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Amendment was discussed at the Committee stage and this one is intended to compensate the owners of securities who are being deprived of the use of the compensation due to them by introducing inflation protection into the scheme. The terms are similar to the provisions in the Pensions (Increase) Act 1971.
During the Committee stage, I pointed out that situations could arise where amounts of compensation would not be paid for some time, perhaps for some years after the date when those due to receive them could have expected them. For example, amounts which are not agreed fall to he determined by the arbitration tribunal and proceedings before that tribunal may well be delayed pending appeals to the Court of Appeal. Although in many cases the amounts arc likely to be agreed fairly quickly, in some cases a long time may elapse before they have been determined. As a result, some shareholders may be paid at any time between 1976 and 1980, and perhaps even later, for securities transferred in 1976 or 1977 in exchange for compensation based on 1973–4 values.
I think there was a misunderstanding at the Committee stage, because the noble Lord, Lord Melchett, stated in his reply that the Stock Exchange prices of shares are not related to inflation.1 have not made any suggestion, of course, that they are. So far as inflation is concerned, one only has to look at what has happened to the share index in recent years to see that the relationship is a very indirect one—if, indeed, there is any relationship at all.
However, my point is simply that compensation may be delayed for several years while the value of money is, regrettably, falling. Of course, all of us hope that inflation will be reduced. Nobody would be more delighted than I and my noble friends if it were reduced to nil, but we must expect that in this respect the next few years are likely to be not very dissimilar from the last five years or so. We hope that inflation will decrease, but we cannot hope for it to disappear. It is protection from the erosion of the value of compensation while time passes that we are seeking in this Amendment. I hope that the Government have had another look at this point about protection from inflation since we discussed it at the
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Committee stage and that they will tell us that they intend to introduce a scheme at the next stage which will look after it. I beg to move.
7.25 p.m.
Lord MELCHETT: My Lords, I confess that I am in the same difficulty with this Amendment as I was in during the Committee stage. Although the noble Lord, Lord Campbell of Croy, has moved the Amendment with the intention of dealing with the problem of the period of time which it may take to fix the compensation and pay over the securities between vesting day and whenever the figure is settled, it seems to me that the Amendment would have a different effect and would seek to protect from the effects of inflation people who have been holding the stocks from the reference period until now.
Although, therefore, the noble Lord is seeking to achieve a slight difference as a result of the Amendment, my advice, as I said at the Committee stage—and I did not give it just to be deliberately difficult but because I was told that this was the effect that the Amendment would have—is that it would mean that the price would be fixed during the reference period and that since then until now an allowance would be made for inflation, whereas the stock market has fallen since the reference period and now stands in general at roughly 25 per cent. (the noble Lord, Lord Selsdon, will correct me if my figures are wrong) below the level at which it stood during the reference period.
I have been trying to find the place in the proceedings during the Committee stage when I referred to this, but I did not have time to do so while the noble Lord was speaking. However, I remember that when we were discussing this matter during the Committee stage we went on to deal with the problem of the payment for securities if there was a delay over fixing the sum to be paid. The noble Lord, Lord Orr-Ewing, and I had more than one discussion about this. I said that the Government's intention was to pay over a proportion of the securities as soon as possible. I believe that we even had an Amendment on the point.
We said that the Secretary of State's intention was to pay over as soon as possible a rather higher proportion of the

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securities than the Amendment demanded and that interest on the securities would remain payable while the compensation terms were being fixed. That discussion probably dealt with the problem to which the noble Lord, Lord Campbell of Croy, has drawn attention. However, I accept that it is a real problem, that undoubtedly it is in everybody's interest that the compensation terms should be fixed as soon as possible and that there should not be a long drawn out arbitration over the matter.
That is one of our objections to the widening and loosening of the terms of reference of the arbitration tribunal which noble Lords opposite achieved during the Committee stage. The fact that the bulk of the securities will, I hope, be paid over very soon after vesting, the fact that interest will be payable on them from the vesting date and also the fact that the Amendment would have a different effect from that which the noble Lord seeks to achieve, should persuade him to withdraw the Amendment.
Lord SELSDON: My Lords, I agree with the opening remarks of the noble Lord, Lord Melchett. This is not an Amendment that, as drafted, I would support. However, I support the principle behind the Amendment. It is very difficult to get over this principle when we are dealing once more with intangible… So far as a quoted company is concerned, I do not believe that there is any need to take into account the question of inflation because during the period of time involved people could have sold shares. It is a relatively free market. I think that the Government should acknowledge, as they acknowledge with their indexed savings plans and their advisers on their indexed pensions, the need to take into account inflation, but they probably recognise that since this started we have seen a depreciation of the value of money by about 60 per cent. By March of next year that depreciation will probably be 75 per cent.
We are faced with a heavy rate of inflation and there are two factors which affect this situation. One is the rate of inflation itself and therefore the purchasing power of money and the second is what one can purchase with that money. At the present moment it is possible to purchase businesses in the United Kingdom cheaply probably too cheaply. I keep trying to
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persuade foreigners to come and invest over here because I tell them that it will never be as cheap again. The country will recover, inflation will come down at some time and prices will go up.
In real terms I suppose the stock market is almost at an all time low in deflationary terms. We hope it will not get much lower because the stock market is a measure of confidence, but the noble Lord, Lord Melchett, will appreciate that the reasons why the stock market is at an all time low have nothing to do with the relative performance of the company concerned. It is almost entirely due to factors influenced by the Government, notably inflation, and Government borrowing in particular. At the moment the factors influencing prices more than anything are the level of Government indebtedness and Government borrowing and public expenditure.
These two points, the devaluation of money itself and the availability of assets to purchase, are interesting because by the time that the companies actually have cash available to make new purchases, or to invest in plant and machinery or whatever it is, and therefore to replace the earning power of the assets which they have lost, prices will be up substantially, and if they are thinking of starting a new operation and if they are thinking of buying a company the value of the company that they would expect to buy, it may be in a year or eighteen months' time, may be perhaps twice or three times what it would be at the moment. That is if the policies that we all wish to see implemented are in fact implemented. I think it is worth bearing in mind that what the Government will be doing as a method of compensation—the money they are paying over—means this. As to the good companies, it is unlikely that they will receive something that can actively replace the assets that they have lost; that is, which will bring them back into the international competitive field on the same level as they were before; for the bad companies, that is another matter.
My concern in regard to this is that we have more and more decline in British industry as a whole. We have some extraordinarily good companies which can compete on a worldwide scale; many of these are companies which are affected by this Bill. I hope the Government will recognise from the comments we have

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made today and in Committee that in these proposals that they are putting forward, if they do not give some consideration to inflation and to the way in which a company can replace those assets on an equally profitable basis, they will be doing a disservice to British industry.
Lord CAMPBELL of CROY: My Lords, I am grateful to my noble friend Lord Selsdon for upholding the principle of this Amendment although it is clear from what has been said that its drafting is not as satisfactory as it might be. The noble Lord, Lord Melchett, has agreed that this is an important point to which we have drawn attention and I hope this discussion will have underlined its importance for those who, despite what the noble Lord, Lord Melchett, said, may find themselves waiting for compensation for a considerable period through no fault of their own. I now beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
7.35 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 144:
Page 49, line 5, at end insert—
(""independent accountant" means a person who is—

(a) a member of one of the bodies referred to in section 18(8) above; and

(b) appointed, after consultation with the company in question, to advise the Secretary of State in relation to any question whether a special declaration should be made in respect of that company.").

The noble Earl said: My Lords, we come back to this Amendment and to the subject which we spoke about at the Committee stage, in which we suggested that an independent accountant should be invited to give his advice where the Secretary of State was considering making a special declaration. Your Lordships will remember that the Secretary of State may make a special declaration when he has in fact made funds available to a company as a result of which, in the view of the Secretary of State, the company has been prevented from "going bust" and going into liquidation. We suggested that when the special declaration is made the Secretary of State should have the advice of an independent accountant because on the special declaration
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the compensation payable for that company is the reduced amount, and the reduced amount is either 5 per cent. of the notional value of what the shares were in 1974, or the break-up price of the company, and that is a very sweeping power to give to the Secretary of State. We suggested that the independent accountant should be brought in, simply to give his advice—advice which the Secretary of State need not in fact heed.
It was on this particular point that the noble Lord, Lord Winterbottom, in defending the arguments, said that "bankruptcy dropped out of the sky" and happened in a great hurry and therefore it would be inappropriate to consult a whole lot of people. But of course if the Secretary of State is going to take this action he will be advised by somebody, and presumably he will be advised by his officials. It was on this point that many noble Lords asked whether the Government accountancy service would be involved or not and we agreed that we would return to this question. I see that the noble Lord, Lord Winterbottom, is going to answer this and I know he will take into account the very strong views that are held and have been expressed at the Committee stage. It is not a point of huge issue. It just seems to me to be a point of fairness that where the Secretary of State is going to make a special declaration which means that the companies may well end up having much less compensation than they would have done, he should seek the advice of an independent accountant.
It is a fact that there may be some companies which would have been relatively solvent in 1974; terms of trade might have gone against them, they might have required only a small amount of money to keep them solvent and yet, having taken that money, they will, as I have described, have "sipped from the poisoned chalice" and thereafter they will be given only the reduced amount. I hope that the noble Lord, Lord Winterbottom, will be able to say, as has happened on so many occasions this evening, "Yes, we have looked at the matter; we think that the point you have raised is reasonable and therefore we accept the Amendment". I beg to move.
Lord WINTERBOTTOM: My Lords, I wonder whether the noble Earl could

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assist me and the House in my reply. We have here a group of Amendments, two of which—Nos.144 and 166—relate specifically to the independent accountant, and the other Amendments relate more to—
Earl FERRERS: My Lords, I think Amendment No. 166 has gone.
Lord WINTERBOTTOM: My Lords, it is Amendment No. 146. I think the noble Earl is really addressing his remarks mainly to Amendments 144 and 146.
Earl FERRERS: Yes, my Lords; if the noble Lord cares to address himself to Amendments 144 and 146 that is all right, but not Amendment No. 145.
Lord WINTERBOTTOM: No, my Lords, that is another issue. I thought at the earlier stage we had a rather searching discussion with moments of light-hearted-ness, because I seem to remember the noble Lord, Lord Harmar-Nicholls, called in the office cat as an expert and I called in Caligula's horse. Basically there was some doubt in the course of our discussion among noble Lords as to the impartiality of the advice being given to the Secretary of State at a point when he might be called upon to make a special declaration.
I can say that I recognise—indeed the Government recognise—the concern which the movers of this Amendment felt about the lack of control of the Secretary of State. This is a theme which runs through the discussion on the whole Bill. Obviously noble Lords wish to be assured that the Secretary of State will not use his powers under these provisions capriciously. Perhaps Secretaries of State are occasionally given to fits of capriciousness, but in a serious matter such as this, with the eye of Parliament and the country on him, the Secretary of State would be bound to consider carefully any action he took. I can repeat assurances that I have given.
In the exercise of his powers under any Statute, the Secretary of State must act reasonably. He can only act within the framework of the Statute, and is accountable to Parliament for all his actions. At his disposal the Secretary of State has the full resources of Government accountancy experts to investigate and advise on a particular case. There is nothing in the provision to prohibit his seeking outside
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advice if he considers it appropriate. I emphasise that he is not prohibited from seeking outside advice.
My Lords, as I said at the time, potential bankruptcy situations can arise quickly. I speak from personal knowledge of a case in which the need to call in a receiver came out of a blue sky. But if the Secretary of State was required in every case to seek outside advice there would be such delay that the company could collapse before the aid could be given, with all the disastrous employment, regional and social consequences which it might entail. I would add another point. If a special declaration is made, it has to be made before, not after, aid is given. Therefore, as I said on an earlier occasion, it is for the company to decide, with the knowledge at its disposal, whether or not to take the aid or seek salvation elsewhere. The decision is still theirs. I can assure the House that the Secretary of State will act conscientiously, seriously, and certainly not capriciously. I can assure the House that he has advice available to him within his Department, and that he can call upon advice from outside. There may be occasions when rapid action must be taken. For this reason, I ask noble Lords that these two Amendments should not be pressed.
Lord SELSDON: My Lords, I have a certain sympathy with the noble Lord, Lord Winterbottom, on this matter. When we raised the subject in the middle of the night, there was some implication that we might have been criticising the Government accountancy service in some way. I asked the noble Lord at the time whether the head of that service had been consulted on matters such as this, and I do not think the noble Lord had time to answer. I presume that now he has been consulted.
I should rather like to know what the view of the Government is, but when we come to the question of liquidation falling out of the bright blue sky I may say that it is easier to get the private sector moving than a Government Department. If there were a liquidation which came falling out of a bright blue sky now in any part of the United Kingdom, I could have an independent accountant in more quickly than Her Majesty's Government could have one of their advisers. When talking about creditors, which is what one is

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talking about in a liquidation, I may say that there is more confidence on their part if they know that the organisation advising and acting is independent, gives a true and fair view and is bound by the true and fair view concept. That true and fair view concept is not binding on Government Departments. There is a case on both sides for having recourse to an independent accountant. However, if the Government say that they will consult with an independent accountant on such matters, this will be sufficient for me, although, frankly, from my own personal experience, I should doubt it, because it is often difficult to get Government Departments to move quickly, particularly at certain times of the night when they do not happen to be in their offices.
Earl FERRERS: My Lords, in none of these Amendments was it ever intended to reflect adversely on the Secretary of State. I absolutely accept the view of the noble Lord, Lord Winterbottom, when he says that the Secretary of State will act conscientiously, seriously and not capriciously. I am certain he will. But the fact is that on making the special declaration, he can affect hugely the compensation which can be payable. I should have thought it was reasonable to say, "Let us have an independent accountant", and rather as my noble friend, Lord Selsdon, said, one who can be produced very quickly.
I should have thought that this was a perfectly innocuous and harmless Amendment which, again, could only have gone to safeguard the public interest in general, particularly when, as the Amendment says, the Secretary of State has only to seek advice; he has not even got to take the advice. That reminds me of an earlier Amendment on which, regrettably, the noble and learned Lord, Lord McCluskey, blotted his fair copybook by not accepting it. I am sorry the noble Lord, Lord Winterbottom, does not feel able to accept this Amendment, because I should have thought that the argument was in favour of accepting it. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
7.45 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 145:
Page 49, line 16, at end insert ("or—
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(c) the amount which would have been payable under subsection (3) above, if the special declaration had not been made, less the amount of the payment or assistance which is the subject of the special declaration.").
The noble Earl said: My Lords, again, this Amendment is about the special declaration and the reduced amount which is payable. Noble Lords will remember that when the Secretary of State makes a special declaration saying that the money which he has advanced to the company has resulted in the company not going "bust", the compensation payable will be the reduced amount, which means 5 per cent. of the notional value, or the breakup price. It is perfectly possible that a company may have been in difficulties, or may even not have been in great difficulties but obliged to obtain funds in order to stop it from going insolvent. The amount required to prevent insolvency might have been quite small. As a result of that, the company then will only be paid out on the basis of the reduced amount.
The point we made on Committee stage is one which I would make now. It is that because of the threat of nationalisation, it may well be that the company had no other course to take than to go to the Secretary of State. The Government have rejected this Amendment before, not only here but in another place, on the grounds that if a company is insolvent it is virtually worthless. That is understandable, but does not take sufficiently into account the possibility that the amount needed to restore solvency could be relatively small but would not be obtainable from any other commercial source, simply because the company faces nationalisation. What would have been a fairer thing to say is that the company should be compensated on the basis of its 1974 notional value, less any money which the Secretary of State or the Government had forwarded to the company. In that way there is the known possibility that a company which would have been solvent in 1974 would then be paid out of the minimal amount simply because it had taken advantage of a small loan from the Government. I hope that on reflection the noble Lord would agree that it would be more prudent to take the 1974 notional value which, after all, is the whole basis of the compensation, and subtract from that any funds which

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the company have received from the Government. I beg to move.
Lord TREFGARNE: My Lords, I believe that the assertion of the Government that they might have saved the company from bankruptcy in some cases is a somewhat unreliable one. I am inclined to the view that a company seeking aid from the Government in these circumstances may, with hindsight, appear to have been rescued from liquidation, but it may well not have appeared in that light at the time the loan was applied for. Indeed, had the company appreciated the implications of what they were doing at the time, they might well have sought and secured support from some other source. As my noble friend, Lord Ferrers, has said, for the Government to use the simile of the poisoned chalice, for the Government in those circumstances virtually to deny the company all substantial compensation, is altogether unreasonable. I think the proposal contained in this Amendment is a very proper one and trust it will commend itself to the Government.
Lord WINTERBOTTOM: My Lords, I have considerable sympathy with the noble Earl in the way he has presented his case. I seem to remember that I was also sympathetic when he stated it on an earlier occasion, and I agreed to put his points to my right honourable friend to see whether the Government would consider them. That has been done but I am afriad that we are still unable to accept the Amendment. Perhaps at the risk of boring the House by repeating myself, it may be helpful if I outlined the basic philosophy of the compensation terms before going on to deal with the specific Amendment. Compensation is fixed on the basis of a past reference period which we know about. All the companies named were viable concerns at the end of the reference period and the basic assumption is that they will remain in that state up to vesting date, and I think that that assumption still holds. I cannot think of any of the companies mentioned in the Schedules which are not in a viable condition.
Clearly, if the noble Earl is right the prospects of the companies may have changed since the reference period, but this in itself does not affect the basis of compensation. By basing compensation
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on the past period the compensation payable is fixed and, generally speaking, shareholders are sure of the basis on which the compensation they will receive will be assessed. Noble Lords will agree that this is based on the premise that the companies continue as going concerns up to vesting date. If they collapse, then clearly the basis of compensation is destroyed. This is recognised by the provisions of Clauses 28 and 30 which have already been discussed. For a number of reasons the Government may not be prepared to see a company collapse before vesting day. In these circumstances the Government may decide to support the company with some form of financial aid in the intervening period. If a company is saved from collapse solely by the Government, it is clearly wrong that shareholders should nevertheless receive full compensation as if the company had remained viable by their efforts.
The noble Earl has argued the case of the company in a position where a small amount of money would save it from having to accept either 5 per cent. or breakup value. But if the sum to stave off bankruptcy is only quite small it is most likely that funds will be available from sources other than those of the Secretary of State. I am reasonably certain that a firm's bankers who have supported it over many years would continue to support it. The prospect of nationalisation does not reduce the creditworthiness of a company; in fact it might increase it. After nationalisation the corporate guarantees of companies would of course, apply to subsidiaries. I think that is the answer. Amendment No. 145 seeks to offer a further choice of valuation.
The amount of aid does not have any bearing on the question as to whether the company is solvent without it. It is either solvent, and thus to be compensated in full, or else insolvent and of doubtful value, though I can see options for the company at that point either to soldier on, as I suggested it might well be able to do, or to accept 5 per cent. of full compensation of the amount shareholders would have received had the bankruptcy taken place, or to accept the breakup value. In the remote possibility where shareholders would have received more had the winding-up proceeded, I think noble Lords would agree that to pay them

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would not be in accord with the view that the Government should not be too generous on these occasions. For these reasons I regret that I cannot accept the Amendment, although I have some sympathy with the spirit in which it is moved.
Lord SELSDON: My Lords, I do not want to push this question, but the noble Lord has said certain things which I wonder whether he would care to expand on. He said that in his view at the moment all the companies on the Schedule were totally viable, by which I presume he means that they are not in any financial difficulty and therefore can stand on their own two feet. A few moments later he said that if they were unviable or got into difficulty the Government might reserve the right to support them. This goes back to one of the points I raised earlier about the fear of an open cheque book: that in acquiring some of these businesses the Government may acquire certain liabilities in which, for political or other reasons, it may need to inject funds. I presume that in making that statement the Government have made certain investigations which confirm that all the companies on the Schedule are completely viable. I wonder whether the noble Lord would care to expand on that.
Earl FERRERS: My Lords, the noble Lord might not care to expand on it as he would be breaking the rules of the House, but perhaps the noble Lord, Lord Melchett, would not be breaking them if he responded—but evidently he does not wish to do so. I think the real problem here is that there are two separate cases. I sympathise with the noble Lord, Lord Winterbottom, and I appreciate the fact that he had just as much sympathy for our Amendment and the spirit in which we moved it. I had hoped it would have gone rather further than sympathy with the spirit in which we moved it and attached itself to the Amendment itself. I sympathise with the noble Lord when he says that it is unfair to have a company which in 1974 was operating but because of the terms of sale and so on the company is due to go "bust". However, for the purposes of employment the Secretary of State says, "We cannot afford to let this go 'bust' so we will put money in" and as a result the company keeps going. The
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noble Lord, Lord Winterbottom, said that it would be unfair for the shareholders to benefit from a situation which would have been bankruptcy, but for public purposes, or whatever it is, the company had been kept going.
The second is a different situation, and the one I have in mind, where a company was all right in 1974 and may have the opportunity of getting an order which requires retooling or new funds. It needs money to dispense, and it cannot get that money from the bank. The noble Lord, Lord Winterbottom, said that banks were very helpful and that they would help companies if they were in difficulty; but of course banks are practical folk and they are not going to put their money into an organisation which they know is going to be nationalised, in case the compensation given would result in their not getting the money back. There may well be companies which want to expand and need to get money in order to enable them to fulfil an order, and they have no recourse other than to the Government. If that is the case, it would, in my judgment, be unfair to say, "Because you have accepted from the chalice you shall get only the breakup value or 5 per cent. of the share price". It is that second example that I think would merit the treatment suggested in this Amendment. I am sorry that the noble Lord, Lord Winterbottom, does not feel that he can accept. He still shakes his head with great conviction; I wish he would nod it instead. I should willingly sit down if he would accept the Amendment, but if he will not do so I do not feel moved to press it. I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
8 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 147:
Page 49, line 18, leave out ("either").
The noble Lord said: My Lords, with Amendment No. 147 perhaps we could discuss also No. 148. This would bring us to the unmourned end of the question of special declaration on which we have had a very good debate this evening. What is between us here is the fact that we cannot get over to the Government that when they look at the viable com-

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panies which are liable to get into trouble they do not start the story quite far enough back. We have used the word "blight" before, but we would challenge them to produce specific examples of blight.
I should like to suggest to the Government that they must accept that the whole industry is inevitably blighted by the threat of nationalisation. There cannot be any dispute about that. We really feel that the whole of this clause is making rather a mountain out of a molehill. Perhaps it would be more accurate to say that they are afraid of making a sow's ear out of a silk purse, because during the Committee stage the noble Lord made much play of the possibility of our dealing with hypothetical situations. But then he has to concede that the whole of this clause is in fact devoted to a highly hypothetical situation which has shown no signs of happening, and anyway the word "hypothetical" has become rather acceptable for the first time in this Bill. Therefore, the defence of this clause on the Government's side should not be that the whole thing is hypothetical; if it is that hypothetical they would do much better to forget about it. The Government cannot prove what has happened, and we cannot prove what has happened.
Everybody recognises that the possibility of the companies getting themselves out of difficulties by their own efforts—the noble Lord, Lord Winterbottom, used some such expression just now—has been very much vitiated by the fact that they are about to be nationalised. The other sources of finance have been denied them. What happens here—we have not perhaps completely made this plain—is that the company says: "I have suddenly run into trouble. I have no other source of finance except you, because I am about to be nationalised. Please will you lend me some money?" The Secretary of State then says: "Well, I am going to make a special declaration which you will have to agree to before I can lend you the money, and I am saying, in the process of making the special declaration, that if, in my view, you are in such serious trouble, then I reserve the right not to pay you any compensation at all". That seems to me the effect of where we are getting to. We have probably explored that argument at some length during the course of the two other debates we have had on the question of special declaration.
What we are coming back to here is the point that we were trying to make to the noble Lord; we were trying to be entirely practical. All we are really saying is that all the accountants tell us that they cannot be asked to deal with the even more hypothetical situation which is postulated in paragraph (b), where "it is probable that in the foreseeable future" a company might be unable to meet its liabilities without assistance. We have suggested that this is an unreasonable and an impractical provision to have in the Bill. On the ground of pure practicality in this hypothetical situation, we still believe that it would be wise to take this out. I am not terribly hopeful, in view of the previous debates we have had on this point, that we shall convince the Government of our case, but nevertheless I beg to move.
Lord WINTERBOTTOM: My Lords, I do not know whether it is a breach of the Rules of the House, but may I job backwards for a moment. I was resisting attempting to reply to the noble Earl's argument against me: the situation where a company had a chance of developing itself during this period and could not get the money required for undertaking a major new contract, or some such situation. That is not insolvency. That is a problem which can face a company outside the scope of the Bill. I think one must say that the threat of blight has been overplayed tonight, and I would make this as my main point in answering the noble Lord. Industries are not blighted by nationalisation, because any new money put into the companies before vesting is repayable in full. For this reason, there is every incentive for banks to support their clients. This is what I said earlier, but I have said it a little more clearly with a little assistance. Banks will continue to support their clients because they know that they are not going to lose as a result.
May I try to make myself as clear as I can on this point. When a company is running into financial difficulties, its directors will seek to avert a final collapse by early action—that is common sense—and not wait until the receiver is at the door. As soon as the danger signs appear, the company will seek whatever financial assistance it can get to stave off collapse. It may be that it has no option but to turn to the Government, if the size of the problem is too great for any other sources to

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deal with. While the ultimate collapse without assistance might be inevitable and clearly foreseen, it might nevertheless not occur at once. If the Government give aid in these circumstances, taking a long-term view of the situation, it would be just as much to stave off bankruptcy as if the bankruptcy were to happen on the next day. Paragraph (b) of subsection (6), which Amendments Nos.148 and 147 seek to delete, recognises the fact. If the paragraph were deleted, a company could receive aid a mere week before its bankruptcy and thus maintain its right to full compensation. I think this would not be fair, and for this reason I must resist the Amendment.
Lord STRATHCONA and MOUNT ROYAL: My Lords, I was surprised, but pleased, to hear the noble Lord saying that any money advanced by the banks would be repayable in full, because I seem to remember that some of the other Amendments we have been discussing have been attempting to establish exactly this and I had the feeling that that was not the case.
We do not agree about this; there are no two ways about it. If you look at the thinking behind this Amendment in the light of the discussions we had earlier on, about the refusal of the Government to recognise the possibility that companies can improve their situation from vesting day, we end up again by feeling that the Government are really saying, as usual, "It is heads we win and tails you lose". This is a one way street, entirely geared in their favour. However, I accept that it is a narrow point. We hope there will not be any special declarations. In view of the fact that everybody is getting rather hungry, I do not think there is any point in pursuing this further. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord MELCHETT: My Lords, in view of the really remarkably rapid progress we have made this afternoon, I think this might be a convenient moment to adjourn the Report stage until Friday. I beg to move that further consideration on Report be now adjourned.
Moved, That further consideration on Report be adjourned.—(Lord Melchett.)

EDUCATION BILL
8.8 p.m.
The MINISTER of STATE, DEPARTMENT of EDUCATION and SCIENCE (Lord Donaldson of Kingsbridge): My Lords, I beg to move that this Bill be now read a third time.
Moved, That the Bill be now read 3a—(Lord Donaldson of Kingsbridge.)
On Question, Bill read 3a.
Clause 1 [The Comprehensive principle]:
Lord ELTON Lord ELTON moved Amendment No. 1:
Page 1, line 19, after ("pupils") insert ("of compulsory school age").
The noble Lord said: My Lords, the effects of the Bill as it stands are to debar local education authorities from placing pupils at schools to which admissions of pupils are made on the basis of selection by ability or aptitude. The Amendment leaves this criterion intact so far as pupils of compulsory school age are concerned. It sets it aside where pupils above this age are concerned. The necessity for this Amendment arises from the need of many local education authorities to avoid building comprehensive schools for excessively large numbers of pupils. Their intention would, therefore, be to obviate this necessity by the building of sixth form colleges. These colleges, unlike colleges of further education and polytechnics, are classified as schools, operate under the same regulations as schools, and provide what is unquestionably a part of secondary education; and they are, therefore, subject to the provisions of the Bill as it now stands. Such schools could not be maintained by the local education authorities under the Bill as it stands unless they operated on the principle that they did not select their applicants for places on grounds of either ability or aptitude.
The Amendment is familiar, since it was tabled at both the Committee and Report stages. On each occasion Her Majesty's Government argued that it was superfluous, and on each occasion I undertook to examine the arguments they had advanced before pressing the matter to a Division. On each occasion I did so, and on each occasion I found the arguments insufficient. This matter has been threshed out and winnowed over thoroughly twice already. We are left with one essential matter at

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issue. Her Majesty's Government agree that entrance to courses will be selective on the basis of qualifications and that those qualifications will be academic, which is to say that the selection will be by proof of ability or aptitude. This is common ground.
They also say, and here they do not persuade us, that entrance to the college as opposed to the courses will none the less not be selective. Finally, they agree that the range of courses offered will be relatively narrow and will be planned specifically to complement and not duplicate those offered at other institutions to pupils of similar ages. This we expected and accept. It follows, regardless of school-masterly, or should I say schoolmarmly, distinctions between admissions to colleges and admissions to the courses which they offer, that where there are more applicants to a college than there are places in it there will have to be selection, and further that where some pupils have suitable qualifications and others do not there will be rejections, and that both acceptances and rejections will be on grounds of ability or aptitude. Noble Lords opposite argue that these will be rejections from courses but not from colleges.
It is also the case, we argue, to follow the matter closely, that if a pupil was to apply not for a place on a course but a place at a college and had no qualifications suiting him to study there, the rejection with which his application must inevitably be met would demonstrate that entry to the college was selective on grounds of ability or aptitude and thus preclude its use—that is use of the college—by the local education authority in question. This being the case, we regard the Bill as being imperfect in this respect and not in a proper state to be enacted.
There are other considerations, but those to which I have alluded constitute I believe sufficient grounds for discontent with this part of the Bill as it stands, since it will have effects quite different from those which noble Lords opposite seek to achieve; effects which indeed they are anxious to avoid. I am sure that they are sincere in their belief that the distinctions they make between admissions to courses and admissions to colleges are sound, but to us they sound a little like sophistry, and they do ask us to assume that the courts will concur with
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them in their really very odd interpretation of what appears to us to be reasonably plain English. I notice that the noble Lord and the noble Baroness sit pointing towards me like a double-barrelled gun. There will, therefore, although this is a Third Reading stage, be an opportunity for them to fire twice. The noble Lord looks as though he has loaded only one barrel.
It is essential that he should inform us, then, what it would be his intention to do supposing some untimely litigious person was to bring a case over the rejection of a pupil for not being qualified for courses for which he has applied or, more likely, an application of a student simply to go to the college. I do not think it will suffice for him to say that this is an exceedingly unlikely and hypothetical case. All cases are hypothetical until they arise, and it is the function of Parliament, and principally the revising Chamber, to anticipate them. Therefore, if we cannot persuade him that our interpretation of the Bill is right, and his is at the best dubious and at the worst wrong, he must tell us, should this prove to be the case, what it would be his intention to do other than to close overnight, as it were, a large number of sixth form colleges up and down the country. We must have that elicited without fail at this stage. I beg to move.
8.14 p.m.
Lord ALEXANDER of POTTERHILL: My Lords, I rise to support the Amendment, which I did at earlier points when this matter was discussed. At that time the noble Lord, Lord Donaldson, disagreed with the figures I quoted. If my memory is right he suggested that there were only some 72 sixth form colleges, and of these the Department felt there were only three that could be regarded as selective. I hope I have quoted him correctly. I have checked the compendium of six form colleges, which lists 88, and gives the names of the colleges and their prospectuses in detail. I have examined carefully those that claim open access, and I find it astonishing if the Department has sufficient naivetè to accept open access as meaning what it says. There are only four of the 88 six form colleges that in my judgment would satisfy Clause 1 in this Bill. The remainder are to a greater or less extent selective, indeed in some cases openly conceded.

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I quote from a particular sixth form college, Bilston, which has open access, but finishes by saying:
"Student entry depends mainly on interview and school recommendation."
Is there a grammar school that would not accept the definition of open access if it was allowed to accept its pupils on the basis of interview and school recommendation? When the noble Lord argues that admission to courses is quite different from admission to the institution, if indeed sixth form colleges only offer certain courses—and this is true of almost all of them, and they mostly require evidence of ability to satisfactorily pursue the course—is this any different from a grammar school which offers 0-level and A-level courses and merely seeks evidence that those who are admitted can pursue these courses satisfactorily? I find it difficult to see the difference.
I have already made clear to your Lordships that I accept the principle of comprehensive education. I believe that Clause I can be sustained if it is restricted to pupils of compulsory school age, leaving sixth form colleges to offer courses. Some of them offer rather a wider range than others; some of them essentially offer A-level and sometimes 0-level courses. Otherwise, as I see it, the 88 sixth form colleges will be compelled to become tertiary colleges, a change which I am bound to say personally I would greatly welcome since I have long advocated tertiary colleges. But I do not believe that this is the Government's intention. I believe that the Government assume that under Clause 1 the sixth form colleges could continue as they are. I am bound to put to them that in my judgment any parent, indeed any ratepayer, taking a local authority to court would be bound to win under the terms of Clause 1 on the grounds that these colleges were indeed in breach of Clause 1. I very much hope therefore that the Government might examine this again, and I hope accept the Amendment as being in the best interests of the Bill itself.
8.16 p.m.
Lord DONALDSON of KINGSBRIDGE: My Lords, I find it impossible not to quote from the Hunting of the Shark:
"Like the Bellman may I say that what I tell you three times is true."
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I really made the Government's position absolutely clear when this Amendment was discussed in Committee and on Report. In Committee I gave the September 1975 statistics which showed that of the then 64 sixth form colleges, only 14 operated a general selective admissions procedure; at Report I gave the latest statistics for September 1976 which showed that of the now 72 sixth form colleges, only three operate a general selective admissions procedure. These facts speak for themselves. All but a handful of comprehansive sixth form provision is open access, including, might I say, Luton sixth form college.
The misunderstanding over Luton is symptomatic of the basic misunderstanding from which we are suffering. By "open-access" I do not mean, as the noble Lord, Lord Belstead, suggested, that colleges must provide any courses at any standard for any pupil who wishes to be admitted. The term "open-access" simply means that there is no general academic requirement—such as 5 0-levels—before a pupil is admitted to a sixth form. This type of general entrance requirement, and this alone, is what the Bill seeks to prevent. I do not feel that more argument on this will get us any further, and I am not prepared to accept the Amendment. In answer to Lord Elton's particular question, if a student is unqualified for a course he will be rejected. There is no question of a student applying to a college without simultaneously applying to attend a course, which I think deals with the point the noble Lord raised.
Lord BEAUMONT of WHITLEY: My Lords, I think we are in something of a dilemma here. If the noble Lord, Lord Donaldson, says it three times I am sure he thinks it is true, but that does not necessarily mean that we have not got ourselves into a rather tricky position. I think that there is considerable force in the points that the noble Lord, Lord Elton, has been putting. On the other hand, I think that his solution is worse than the trouble. I think that if this Amendment was passed we might find ourselves in a situation where the children who want to stay on at school after compulsory school-leaving age is finished, who for years and years we have all been encouraging to do exactly that,

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and who want to stay in a school atmosphere and not go out into a different form of college, will either find that they cannot do it because a local education authority may set up completely selective sixth form colleges, or may find special schools set aside which are really secondary modern sixth form colleges. That would be a disaster. That is the kind of thing which could happen if the Amendment was passed.
I think everyone has got himself into a muddle over this. I think that the Government have got themselves into the most muddle and it is up to them to produce legislation which makes sense. But I do not think this Amendment is the right answer, and if it were to be pressed to a Division I would certainly advise my noble friends to abstain.
Lord ALEXANDER of POTTERHILL: My Lords, the Minister quoted statistics as at September, 1976. May I suggest that I send him a copy of the compendium of sixth form colleges, which lists 88 with their addresses and full details relating to them?
Lord DONALDSON of KINGSBRIDGE: With the leave of the House, my Lords—and we must not have an argument about statistics—I am advised that this list includes sixth-form centres, which accounts for the discrepancy. But we will communicate.
Lord ELTON: My Lords, I cannot profess myself in any way satisfied by what I have heard, and heard, as the noble Lord rightly says, three times. I am tempted to threaten his life with a railway share. In the first instance, it is plainly open to anybody to apply to the principal, head or whatever of a sixth form college and say, "I want to come to your college for a year or two to improve myself, "but he will be told, according to the noble Lord, "You cannot do that; you can apply only for entry to a course; but you cannot apply to do that because you are not qualified, so you cannot come here". It is sophistry to say that that is not selection.
Lord DONALDSON of KINGSBRIDGE: My Lords, we should not be arguing about this, but surely what happens is that the parents say to the
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headmaster what the noble Lord has said and the headmaster replies, "What course would the boy like to do?". They discuss the courses and find that he is qualified for one and not the other and the headmaster says, "He can come and do this one but he cannot do the other". It seems to me to be as simple as that.
Lord ELTON: It may seem simple to the noble Lord but I do not think it will seem so simple to the courts, and our fear is that it will reach the courts. What lie described was, as it happens, a college which is not wholly but partly selective, and those words we shall be referring to later. It is clear, I suspect, from the noble Lord's failure to act at our invitation on an earlier Amendment designed to remove the words "or partly" from the Bill, that it is the intention of his friends at the other end of the corridor to put the words back, and that will have exactly the effect I described, and that is, ruling these colleges out of use by the local education authority. Then it will be too late, because the Commons cannot produce a new Amendment. Therefore we come to this water jump which the noble Lord refuses to leap: what is he going to do then, if the courts find against him?
The noble Lord belongs to a Party which has a goodish track record on this matter. There was the Enfield case, where they found themselves in an analogous if not a similar difficulty, and they went to Parliament with fresh legislation to put things right. Will the noble Lord, regardless of the fact that it will make him look rather silly—because he will have resisted what by then will have been proved to be a sound argument—and his Party take sufficiently swift action to see that the results which otherwise would inevitably follow, to the enormous expense and inconvenience of local authorities, are put right? As the noble Lord, Lord Beaumont of Whitley, said, we are in a dilemma. We are loath to press things unnecessarily and we are loath to pick unnecessary quarrels, but the noble Lord is at the moment putting us in possession of a Bill which does not say what he wants it to say with sufficient clarity for all to be agreed that that is what it says.
We have had the Bill since July, the Commons have had it since the beginning

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of the year and the Parliamentary draftsmen have had it throughout. It is not a lot to ask that a Bill, and a short Bill at that, should at this stage say what the Government want it to say with sufficient clarity to convince us that that is what it means. I have spoken the last few paragraphs at greater length and rather more slowly than is my custom because I hope to tempt the Minister to his feet to tell us, as silence is rather damaging in these circumstances, what they will do if and when this situation arises.
Lord DONALDSON of KINGSBRIDGE: With the leave of the House, my Lords, I will not respond to that hypothetical suggestion.
Lord ELTON: My Lords, it is with enormous reluctance, and I suspect it will prove with hindsight to be against my better judgment, that in order to gain the goodwill of your Lordships and of noble Lords opposite I will not press the Amendment. But I will write to the noble Lord, Lord Donaldson of Kings-bridge, such a letter as he has not received before if such a case comes before the court and the result is what I expect. We shall then take every step available to see that legislation is put through very quickly. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
8.28 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 2:
Page 1, line 20, leave out ("wholly")
The noble Lord said: My Lords, it is the object of noble Lords on these Benches to be as helpful as possible, and I hope that with this Amendment we have been exactly that. Your Lordships will remember that in Committee we took out the words "or partly" in subsection (1), so that the provision now reads:
"… local education authorities shall … have regard to the general principle that such education is to be provided only in schools where the arrangements for the admission of pupils are not based"—
originally it was "wholly or partly" but we took out "or partly"
"wholly on selection by reference to ability or aptitude."
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Noble Lords opposite and noble Lords on these Benches held that it was a wrecking Amendment. Although conservative noble Lords denied that it was meant to be, I think there can be no doubt that it was. It seems to me that the words "wholly or partly" were unnecessary in the first place, and therefore I hope for the goodwill of noble Lords opposite in seeking to remove the word "wholly" so that the provision would read:
"… arrangements for the admission of pupils are not based on selection by reference to ability or aptitude."
That would make it absolutely plain, quite clear, very simple and how it should read. I know I shall have the goodwill of noble Lords on the Conservative Front Bench because in another place their honourable friends tabled an Amendment to remove the words "wholly or partly", and, having themselves removed "or partly", they cannot possibly object to my trying to remove "wholly". The Amendment would restore the general tenor of the Bill in a way which would make it simple and easy to understand.
Lord DONALDSON of KINGSBRIDGE: My Lords, may I first say that I appreciate the motive that led the noble Lord, Lord Beaumont, to move this Amendment. During Committee stage the Opposition persisted in forcing an Amendment to remove the words "or partly" from Clause 1—and hence virtually to destroy the comprehensive principle—even when the wrecking nature of the Amendment had been clearly demonstrated. This Amendment, by removing the word "wholly", restores to Clause I a meaningful comprehensive principle. Clause I would now require admission arrangements not to be "based on selection by reference to ability or aptitude", which seems to me, as to the noble Lord, fairly unequivocal. This Amendment is undoubtedly an improvement, and as such I welcome it. I must, however, reserve my Government's position when the Bill is considered in another place, because we shall have to consider carefully the wording of Clause 1 if this Amendment is accepted. Subject to that, I welcome the Amendment.
Lord ELTON: My Lords, this Amendment would seem to have its roots in the Committee stage of the Bill. It was then

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that the noble Lord, Lord Beaumont, spoke to our third Amendment to the Bill which he has since referred to this evening to remove the words "or partly". He said that it was wrecking in effect if not in intention and that,
"maybe the answer is that we should go away again—and I speak for noble Lords on all sides of the House—and try to think of an Amendment to the Bill which would allow a little more flexibility."
He has gone away and this is what he has come back with—an Amendment that will have the effect of restoring the Bill to almost exactly the condition it was in before your Lordships decided in Committee to amend it. Originally he had said that the schools used by local education authorities must be schools where arrangements for the admission of pupils are not based wholly or partly on selection by reference to ability or aptitude. We, arguing that it was difficult to think of many schools that would not have, perforce, to have some element of selection, sought and found your Lordships' concurrence in altering that phrase to, "arrangements not based wholly on selection". The noble Lord, Lord Beaumont, now seeks to make it read, "not based on selection".
"Not based on selection" is simply a weaker way of saying "not based wholly or partly on selection". The difference between the two phrases is very narrow indeed and that between the noble Lord's phrase and "not based wholly on selection" is much wider. So our first objection to this Amendment is therefore that it seeks to overturn a decision that your Lordships have already taken in Committee, which we think is not proper. The noble Lord has adduced no reason sufficiently fresh to suggest that he seeks to do anything else. It is a bad practice to reverse at Third Reading decisions taken in a Committee of the whole House, and that alone is sufficient ground for us to resist the Amendment.
Our second reason is that the noble Lord, Lord Beaumont, claimed, when speaking against the words "or partly" at the Committee stage, that he was speaking for Peers on all sides of the House when he said that we should go away and think of something better. In my remarks on the Question, That the clause stand part of the Bill? I made it clear that he did not speak at least for us.
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It was the view of the Government—in which he encouraged them—that this was a wrecking Amendment. We did not then, and we do not now seek to wreck the Bill. It is a detestable, partisan, doctrinaire and contemptible little Bill and untimely to boot, but we do not seek to wreck it because we wish to keep faith with our undertaking to respect the success with which the Labour Party "conned" the public into voting for a Manifesto of which this is an attempt to act as a fufilment.
We invited the Government, therefore, to introduce a phrase of their own. When we took off the straitjacket of "wholly or partly", we invited them to dress themselves in something more comely and more flexible. This they resolutely refused to do on two applications, and therefore, although they did not make the rod to beat their back, they have colluded in leaving it where it is. Moreover, there is an element of the incongruous in the circumstances in which it is the noble Lord, Lord Beaumont, who brings this doubtful Amendment before your Lordships. It was he, after all, who persuaded your Lordships to introduce into the Bill the words that now stand as new subsection (3) and which read:
"Subject to subsection (1) above local education authorities shall have a duty to arrange for the admission of pupils with particular needs to the schools most suitable for them."
Whatever the defects of drafting that may present, its intentions are honourable and sensible and they are the intentions of a Party that actively espouses the comprehensive clause. They sit very well with the Bill as it now reads. But the requirement within which they are expressed is a requirement that is specifically stated to be subordinate to the requirements of subsection (1). It is in the noble Lord's own words, "subject to subsection (1) above". Very well; what is the principal requirement of subsection (1)? It is the very requirement that the noble Lord seeks to alter. At present it says that the local education authority shall provide for the education of pupils at schools where the arrangements for the admission of pupils are not based wholly on selection by reference to ability or aptitude. That makes sense. It is compatible with our Amendment taking out the words "or partly". It comes close to being the flexible delimitation of our Amendment that the noble Lord set himself to find at Committee stage.

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Indeed, when he produced it at Report stage as Amendment No. 2, that is what we thought it was. But now the noble Lord seeks to alter the requirement to which he has made his new subsection subject to a requirement that no school by which an LEA seeks to discharge the function given to it by the noble Lord of arranging for the admission of pupils with particular needs shall be other than a nonselective school—that is to say, a school that cannot meet some of the most important of those needs (the need to have one's own abilities and aptitudes catered for) except by offering exactly the same spread of opportunities as every other school.
It seems to me that this is a set of circumstances that perfectly illustrates the weaknesses and contradictions of the comprehensive system as it is being built up by the Labour Party and welcomed by the Liberal Party. I have yet to find a better. However, we have a principal reason which is that it is bad Parliamentary practice to reverse at Third Reading a decision of a Committee of the whole House and I feel that that is perhaps sufficient ground on which to stand, though I would ask your Lordships to bear the other matters in mind when considering our opposition to this Amendment.
8.37 p.m.
Baroness ELLIOT of HARWOOD: My Lords, I dislike this Amendment, because I dislike what I call the dictatorial attitude that the Bill takes towards all the education committees throughout the country. These committees were freely elected and are responsible for the education in their area. They are, in my experience, generally very knowledgeable about local conditions and about the children in their area. I know that the object of the Bill is to try to make every school in the country exactly the same. What it cannot do is to make all the children the same. They will be different and the idea that we should dictate from Whitehall to all those people who have worked—as we have all worked—very hard in local government on education and other committees and shall say, "You have got to do this. You can't do anything else. There is no method of having any choice of any kind at all", is
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something I heartily dislike. I dislike the Bill for many reasons but this is the one for which I dislike it most.
If one takes out this word "wholly", that means that one is once again taking out any loophole or opportunity which a local authority might have for dealing with the conditions in its own locality. They are very different and varied. I remember listening to the noble Lord, Lord James of Rusholme, in one of our debates in which he told us that in the area in which he lives—I believe that it is Cumbria—the making of a comprehensive school entails children driving either 12 or 14 miles between two schools in order that the schools should be called comprehensive. Anything more idiotic I can hardly imagine. I cannot imagine being on an education committee and allowing such a thing to happen, but perhaps the education committee on which I sat for many years was more resistant towards dictation from above. The committee in question was not in England but in Scotland, and perhaps there is not so much dictation there. This seems to me to be altogether a most depressing end to the discussions that we have had on this issue, and I very much hope that we shall not allow this Amendment to go through.
Having much old Liberal blood in my veins, I find it very difficult to listen to the noble Lord, Lord Beaumont of Whitley, taking out of a Bill the freedom, which we all fought for in former days, to do what one thought was best for one's children or in connection with education. That has all gone by the board. One has to fit into this pattern, a pattern which may be very good or very bad; we do not know. At any rate there is no alternative at the moment. If this phrase is taken out, the situation will be made even more dictatorial than before and I hope very much that we will not agree to this.
Lord BEAUMONT of WHITLEY: My Lords, one thing that the noble Baroness said must not be allowed to go unchallenged. I suppose that it would not have been left to go unchallenged in any circumstances, because it is a point which the noble Lord, Lord Donaldson of Kingsbridge, and others have made at Second Reading, at the Committee stage, and since. I am afraid, with great respect to the noble Baroness, that it

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just is not true that the object of the Bill is to make all schools the same. That really is not so. There are many comprehensive schools in this country already and anyone who has been around any number of them knows that they are all completely different. It is said that some are worse than others, which means that some are better than others. It all depends upon the way that one looks at it. My view of education is that all schools of any kind are bad, and some are worse than others. That applies to comprehensive schools as well as to others.
Without being led away on these rather odd educational philosophical topics, I must take up the two points which the noble Lord, Lord Elton, put to me. The question of whether or not by this Amendment I am in fact derogating from the Amendment which I put forward previously, and which was passed, is one of these rather muddled matters, rather like the one we were discussing on Amendment No. 1. I certainly take the view that the words,
"the arrangements for the admission of pupils".
have to do with the general admission of pupils. As the noble Lord, Lord Donaldson of Kingsbridge, said on the last Amendment, they are to do with whether there is a general academic standard. They are not to do with whether a particular child, an individual child, cannot go to an individual school because that school has the best facilities for that particular child. If that were done in bulk it would go against Clause 1, but if it is done individually and with sensitivity, and within the comprehensive scheme, it appears to me to be completely allowable and, indeed, what the Bill and the Government envisage—
Several noble Lords: It is not in the Bill.
Lord BEAUMONT of WHITLEY: My Lords, it is in the Bill; noble Lords are wrong here. The phrase,
"the arrangements for the admission of pupils",
does not, I submit, mean anything which covers just individual cases in detail like that. It is about the arrangements which will be made for the general admission of pupils. That is what it says. All right, I have put in the word "general", but even that I do not think
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adds very much. It seems to me that the Government are absolutely on safe ground here and so am I. Now, the noble Lord, Lord Elton—
Lord ELTON: My Lords, will the noble Lord permit me to intervene for a moment because I am not quite sure that I follow his argument. He is saying that if one pupil is rejected on grounds of ability or aptitude, that is not a breach of the general principle. Presumably, if 50 are rejected it is a breach of the general principle. Will he kindly tell us how many one can breach the general principle of and get away with it?
Lord BEAUMONT of WHITLEY: My Lords, why not take the situation of accepting a child? That is what we are talking about. In anything that I have said—in the Amendment that we passed at the last stage; indeed, at no stage—I have not been talking about rejecting children. I was talking about accepting children with special needs—that is the point—and I think that one can, so long as there is a comprehensive system with not a general degree of acceptance, or rather not general acceptance of all children, say, of a particular I. Q., of a certain ability, of a certain aptitude. I hope that the noble Lord is listening instead of giggling. If we have that, I think it is perfectly admissible to make the kind of provision that I talked about on the last occasion for people who need a special course, which was a matter which was raised when we were talking about sixth form colleges, people with a special artistic aptitude which can be catered for in a particular school. It does not seem to me that this is a breach of that at all. I do net know whether the Government want another opportunity to comment on this matter; they have probably had enough of it. But I maintain that this is the common sense of what we are saying.
We get to the case put forward by the noble Lord, Lord Elton; that it is, in fact, a bad thing and against the custom of your Lordships' House that at this stage we should go back on a decision made in Committee. I have known it done; it is not inviolable. I should have thought that there were two very strong reasons for doing it tonight. One is that the Conservative Front Bench have brought this on themselves by saying that this is not a wrecking Amendment when it quite

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obviously is, or by going on to say, "Well, if it is a wrecking Amendment, it isn't meant to he", which is somehow meant to make it all right. If they did not mean to pass this Amendment to wreck the Bill, they should not have passed it. Let us put them back on the right track. If they meant to pass it, it was a wrecking Amendment and they should not have passed it. That is a very good reason why this Amendment should be passed, because it is not the ordinary course of an Amendment as it usually conies up in your Lordships' House to be reversed as a minor Amendment in a Bill—it is a wrecking Amendment. I do not think that it is improper to reverse a wrecking Amendment in this way, particularly when noble Lords think that it is not a wrecking Amendment—
Lord DONALDSON of KINGSBRIDGE: My Lords, I should like to say that I agree with the points he has been making in his last two or three sentences. I certainly think that it is a wrecking Amendment; I have always said so. I think that there would be a case here, if this were the last opportunity of dealing with it. for going against the custom of your Lordships' House. But as our Amendments have to be considered in another place, this Amendment and the original wrecking Amendment, will certainly be among those which will be considered. I think that the noble Lord has done valiant service to us in raising the points he has which will be studied. But I think it is probably unnecessary to breach this general, though not final, convention at this stage because there is another opening later.
Lord BEAUMONT of WHITLEY: My Lords, I accept rather reluctantly what the noble Lord says. Why I accept it rather reluctantly is, I hope, a reason with which the Conservative Front Bench might have some sympathy; namely, that I think it would have been much better if we had been able to find a way past this wrecking Amendment in this House by our own decision, rather than to send it to another place for the Government to put back what was originally in the Bill. It would have been much more sensible; it would have been much more acceptable. But I accept that one has to
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have very strong grounds to breach the conventions of your Lordships' House. Frankly, at this moment I feel that there are very strong grounds, but since we may be able to look forward, we hope, to a rather more constructive future on the remainder of the Third Reading of the Bill, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
8.49 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 3:
Page 2, line 21, after ("arrange") insert ("as far as is practicable").
The noble Lord said: My Lords, this is an Amendment which I inserted after listening to and reading the speech of the noble Lord, Lord Alexander of Potterhill, at the point where we put in this subsection (3) which deals with the duty to arrange for the admission of pupils with particular needs to the schools most suitable for them. The noble Lord, Lord Alexander of Potterhill, made the same point which was made by the noble Lord, Lord Elton, on the last Amendment: that once you open the door at all and say that one person can go in, then there is a duty to put everyone in and the whole thing becomes unmanageable. I know I am paraphrasing the words of the noble Lord, Lord Alexander of Potterhill, and I know that he will put me right, but if we put in this Amendment, the words "as far as is practicable", it would give a saving clause which might help to get round that particular difficulty which the noble Lord foresaw. I do not foresee it myself but obviously noble Lords did. I hope this Amendment is drafted properly to qualify the subsection so that it is a greater safeguard for local education authorities. I beg to move.
Lord ALEXANDER of POTTERHILL: My Lords, I greatly appreciate that the noble Lord, Lord Beaumont of Whitley, has tried to meet the point which I raised when this matter was previously discussed and I particularly regret that I do not think he has solved the problem I had in mind. I had hoped that the Amendment he might move would be simply to delete "a duty" and insert "the power". That seemed to me to be the essential problem. If a local education authority

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has a duty to make arrangements for individual children according to their individual needs, the first thing it has to do is to ascertain the individual needs of all the children in its area. It follows, therefore, that not only would it be necessary to restore the 11-plus but a super-plus would have to be devised, to establish not only the differing academic abilities or aptitudes of the children but also any other needs they might have. Its practicability was what worried me.
On the other hand, if a local education authority had the power there would be an entirely different situation, in that you could give effect to the full significance of parental choice. I accept the conception of the noble Lord, Lord Beaumont of Whitley, that comprehensive schools will vary a great deal one from another. Indeed, I noted with great approval that the Secretary of State in his speech made the point very clear that they would in fact vary and perhaps offer different courses and opportunities. That is inevitable. Therefore it would be very desirable to have a degree of flexibility where a local authority, if a parent approached them on the subject or indeed if the head of the school drew their attention to a particular child whose needs did not fit in with that particular comprehensive school, could say, "This child would be very much better placed in another comprehensive school where his or her needs would be more adequately met." If, therefore, the power was there, this could be done. But to place a duty on an authority to do it seems to me to place them in an extraordinarily difficult position.
As a relatively new boy in your Lordships' House I am very ill-informed on procedures in these matters and I gather it is not possible to move what I believe is technically called a "manuscript Amendment" at this stage. I am not sure whether the other place when this Bill goes back to them can alter Amendments we have made or can only either accept or reject them. But I hope that when this Bill comes back, if the Government are sympathetic to this degree of flexibility, it will be possible to find an Amendment which gives a local authority the power, without placing a duty on them—which would in my opinion place an impossible task on them and indeed would be utterly contrary to the intentions of Clause 1.
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I am, however, most grateful to the noble Lord, Lord Beaumont of Whitley, for seeking to meet the point I made.
Lord DONALDSON of KINGSBRIDGE: My Lords, our position can be stated very shortly: we did not agree with this clause which was imposed upon us. We think, however, it is the better for this Amendment.
Lord BELSTEAD: My Lords, I must say that that is pretty cold comfort to the noble Lord, Lord Alexander of Potterhill. I am one of those in your Lordships' House who, although I differ in my view with the noble Lord, Lord Beaumont of Whitley, on the effect of what the Conservative Party did to the words wholly or partly "in Clause 1, believe that we supported the Liberal Party in the insertion of this subsection, and we understand the argument put forward by the noble Lord, Lord Alexander of Potterhill. We hoped that the Government would give at least some cognisance to what someone of the noble Lord's experience has put to the Government. That reply is extremely disappointing and we shall wait with interest to hear what the noble Lord, Lord Beaumont of Whitley, is going to do with his Amendment.
Lord BEAUMONT of WHITLEY: My Lords, it is quite clear what I am going to do with my Amendment. The Government Front Bench think it improves the matter. The noble Lord, Lord Alexander of Potterhill, thinks we made such a mess of it anyway by passing the previous Amendment that there is not much we can do at this stage—if I understand him rightly he does not object to this Amendment; he just thinks it will not do very much. I imagine that the Conservative Front Bench support this Amendment. Therefore, my Lords, I hope your Lordships will pass it.
Clause 5 [Committee of Inquiry]:
8.57 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 4:
Page 4, line 43, leave out ("and").
The noble Lord said: My Lords, it might be for the convenience of the House

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if with this Amendment we discussed Amendment No. 5. This is a brief point which I want to make. It is important, if we have this inquiry which, as your Lordships know, we on these Benches think would be an extremely good thing, that we study the experience gained by other countries of the comprehensive system. Your Lordships will know that I have quoted twice already, and in order that your Lordships shall accept it as true, as apparently you do from the noble Lord, Lord Donaldson of Kings-bridge, I will say it for a third time, that what is wrong is not a crisis of the comprehensive schools; it is a crisis of the secondary school system and it is common throughout the whole of the Western world. It is for this reason that international comparisons are very important, and the study of international practice, some of it going back a long way further than ours, is important. I say to noble Lords on the Conservative Benches that it is important in making up your mind one way or the other. I am certain that a lot of the evidence will be just as conflicting in other countries as it is in this country. It is important though that we look at it. I am sure the Government will tell us that the Amendment is unnecessary and that the Commission will do exactly that, but I should feel happier if it was, so to speak, put down in the Bill as part of the terms of reference. I beg to move.
Lord DONALDSON of KINGSBRIDGE: My Lords, the clause to which the Amendment applies was added to the Bill on Report against Government advice, and on that occasion I gave the Government's reasons for resisting a Committee of Inquiry. I do not intend to repeat those reasons today. To extend the terms of reference, as this Amendment suggests, in no way ameliorates our fundamental objections to this clause; hut your Lordships have added it to the Bill and as it is there I must look at it. Of course we should expect the experience of other countries to be considered by any such Committee of Inquiry, but multinational comparisons are notoriously difficult. To pay particular regard to the experience of other countries would not necessarily be the most profitable way to proceed in an examination of our own system. However, if the
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noble Lord presses his Amendment we shall not vote against it. The Government reserve their position to consider the whole clause in another place.
9 p.m.
Lord ELTON: My Lords, it is a rare and perhaps agreeable experience to follow the noble Lord so closely in some of the things he said. We also feel that this is a superfluous Amendment. It is not our function to draw up the complete terms of reference on such a committee, only to ensure that those of future contemporary national concern are included. I hope that this short debate will help serve to remind noble Lords—not least those on the Liberal Benches who persist in helping Her Majesty's Government to ram their obnoxious nostrums down the throats of an increasingly repentant electorate—that just about every other evolved nation that has embarked on an advance to the comprehensive principle is now in rueful retreat therefrom. One could hope that the noble Lord, Lord Beaumont of Whitley, would be on the Committee to learn these lessons at first hand rather than at the expense of the taxpayer and the public—almost, but not quite. In the meantime, I can only advise your Lordships that while I am not seeking to dissuade your Lordships from voting for this Amendment if it comes to a Division, I can find little reason for your Lordships to make a great effort to support it.
A Committee such as this as is required by the Bill could scarcely function without reference to foreign experience. In that it is superfluous to particularise. On the other hand, given the chance, it would not be permitted to look at matters such as size, discipline and mixed ability teaching. If you doubt me, my Lords, read what noble Lords opposite said with great animation when resisting the insertion of the clause when we put it in. In that it was necessary to particularise. So I would not seek to get your Lordships to resist Lord Beaumont's Amendments; I would merely reflect in passing that it is his Party which is using to no good purpose the time which Her Majesty's Government are so fond of accusing my Party of wasting.
Lord AUCKLAND: My Lords, this Amendment, particularly paragraph (c),

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has been brought in several years too late. Comprehensive schools have been in action all over the country since about 1949. There have been various comparisons and studies made; headmasters and headmistresses from secondary modern schools have been to America and other countries to study this for the past 20 years. To quote one instance, a diplomat I know in this country, representing one of the East European countries, has one of his children at a well known comprehensive school in London. One of the complaints that he has registered is that the classes are too big and the discipline is not as strict as it would be in his country. In their schools—which are presumably all run by the State—classes are much smaller and discipline is much stricter. While I am sure that this Amendment has been put down with the best of motives, it would be very difficult to put into action. The Commission will have enough to do as it is. As I said earlier, it is my presumption that all this has been a progressive situation since comprehensive schools started and presumably will continue. No Amendment of this kind seems to be necessary.
Lord BEAUMONT of WHITLEY: My Lords, the noble Lord, Lord Elton, is overoptimistic if he assumes that inquiries of this kind will necessarily look at foreign practice. It is one's experience over a long period of years that if an Englishman or English body can ignore anything which happens outside these shores, he or it will certainly do so. When we come to discussing education in this House, very often the only comparison with anything abroad which is ever mentioned is that noble Lords on the Conservative and Cross-Benches raise for us the experience of Russia, and the example of Russia, as if it were a good example to follow the example of a totalitarian country in moving to selectivity away from comprehensive schools. I take the point that one should not over-particularise in this matter as to what the Commission should look at. I hope that this debate will have made its point. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
9.6 p.m.
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 6:
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Page 5, line 4, leave out ("two") and insert ("three").
The noble Lord said: My Lords, this is going to be a very difficult and a very complex inquiry indeed. Noble Lords have said that the inquiry of the noble Lord, Lord James of Rusholme, into teacher training was carried out in a very short time and was an admirable piece of work, as indeed it was. It was simplicity itself—and it was complicated enough—compared with this particular inquiry. We have already said—and it has just been said on all sides of the House—that of course we will look at international comparisons. That will be an enormous task in itself in addition to looking at what we are going to consider at home. It will be very difficult to draw conclusions. I cannot see that we can possibly have a full report within two years. Earlier, the noble Lord, Lord Elton, said that there was nothing to say that it should not be an interim report, and I take that; point. I also see a very good reason in speeding up the sitting of bodies and giving them target dates. It seems to me that for an inquiry of this enormous size the Conservative Front Bench was being harsh and tough in limiting it to two years. I should have thought that three years was a con5iderable improvement. I put it forward as one of my little peace offerings. I beg to move.
Lord ELTON: My Lords, it is always interesting to examine peace offerings. The Red Indians had a habit of burying them, I seem to remember. The suggestion is that we have here an inquiry of such complexity and size that it cannot be expected to report effectively within two years. Leaving aside the matter of whether or not such a report at the end of two years would be an interim one, whether it, would be proper to term it as such or whether a new report would have to be prepared, I would point out to the noble Lord that the James Report—a rather smaller matter—took one year to run to completion. The Bullock Report—a highly complex, sophisticated, statistical analysis over a very wide field outside the schools as well as in them—took barely over two years to complete.
I do not therefore think that the requirement—though it is stiff—)s one that cannot be met. Your Lordships will recall the history of the inclusion of the requirement for this inquiry in the Bill. It came as a Siamese twin to an Amend-

1399
ment which precluded the enforcement of this Bill until the inquiry had reported. As a more substantial peace offering, and one which I suspect took the noble Lord opposite by surprise, I threw the other twin away and said, "Very well: let's have the inquiry". Obviously one could not make so large a concession without considering what was entailed. It seems to me that the setting up of the reorganisation which is envisaged by this Bill will go on apace, but I hope it will not be precipitate because, if it is, pupils and teachers will suffer. I would have thought that an inquiry which reported in two years and the shadow which its advancing report would spread before it would form official opinion sufficiently to have some effect on all but the most immediate results of this Bill. I think if we were to defer that for three years a great many wrong decisions might be taken simply because the Bill had not been published before those decisions were taken. I accept, therefore, with gratitude from the noble Lord that this is a peace offering. I hope it will not be necessary for me to accept it in order for peace to supervene, but I am afraid I cannot advise your Lordships to accept this Amendment.
Lord DONALDSON of KINGSBRIDGE: My Lords, the Government's position is the same as it was on the last Amendment. The clause is not acceptable, but were it to be acceptable the extension from two years to three years would no doubt be sensible. I therefore accept the Amendment as it stands but, in so doing, must reserve the Government's position to consider the whole clause in another place.
Lord BEAUMONT of WHITLEY: My Lords, I think that the noble Lord, Lord Elton, in rejecting my little peace offering is in fact very, very much understating the complexity of this inquiry. If we are really going to look at the changes in standards of schools against the background of complete change in the philosophy of education over the period and against a background of a complete change in our civilisation over the period, then I believe that if one says the Bullock Report was one of great complexity and took two years, this one would probably take six years. It is, I consider, three
1400
times as complex; and if the noble Lord put forward the demand for the inquiry which we supported in the first place, thinking it was not going to be as complex as that, he has made a mistake. However, the proposal was offered merely as an amelioration of what the Conservative Front Bench were putting forward. If they do not want that amelioration, so be it. I beg your Lordships' leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 6 [Duty to implement approved proposals as to maintenance or change in character of school]:
9.10 p.m.
Lord BELSTEAD Lord BELSTEAD moved Amendment No. 7:
Page 5, line 17, at end insert—
(""Provided that the necessary resources for building and equipment have been made available to give full effect to the Secretary of State's approval of the proposals."").
The noble Lord said: My Lords, I beg to move Amendment No. 7 and, if I may, I should like to take with it Amendment No. 8. I have put down these two Amendments again for two reasons. First, I believe that local authorities must be assured that they will not be forced to reorganise their schools without having the necessary resources to do so. Secondly, although I was grateful to the noble Lord, Lord Donaldson, for seeking to assist me at a previous stage, I have reservations about the assurances he was able to give me. Clause 6 lays a duty on local education authorities to implement comprehensive proposals which have been approved by the Secretary of State without any proviso that the necessary resources will be provided. It is this proviso which is incorporated in these two Amendments.
I think it is fair for me very briefly to remind your Lordships of the resources which are available for secondary reorganisation. Hitherto, only £25 million has been allocated specifically for reorganisation, and that was immediately oversubscribed three times and is being spent at the present time. There is at the moment virtually no secondary improvements programme and, with the rapid decline in school population which is forecast by the Department of Education and Science for the next 12 years or so, the basic needs programme will he reduced yearly. With

1401
that will also be reduced the programme for minor works, which is so often so useful to local authorities when reorganising their schools.
All that is encouraging news for public expenditure, but it leaves very little opportunity for the expensive rebuilding programmes which are demanded by reorganisation schemes. In addition, expenditure by authorities on equipment, which is also mentioned in the Amendments, is under great pressure. We read continually of authorities being forced to economise in a variety of ways, from the number of teachers employed to the quality of school meals being served. In the media and in the Press during the last few days we have been hearing and reading of warnings of further impending economies in local authority expenditure. This is fully understandable at the present time, but I must say it leads me to the conclusion that it is a delusion to believe that the necessary resources for building and equipment to enforce reorganisation within the foreseeable future are going to be available. I hope the Government will take notice of the warning which was delivered by the noble Lord, Lord Alexander of Potterhill, on Report stage that authorities will be encouraged to comply with the provisions of this Bill only if they can be assured that resources will be available for them to reorganise properly. So I do not believe that these Amendments are in any sense wrecking, because where resources are not available proposals ought not to be made, and approval should never be given.
The effects of these Amendments would be to prevent the Secretary of State from forcing an authority to propose a botched-up scheme which is never fair, either to staff or to pupils. But the really gaping loophole which these Amendments would plug is the crisis situation, which can occur when proposals have been conscientiously costed, proposed and approved in good faith by all concerned, and then the economic blizzard strikes, the school building programme is cut, local authority expenditure is reduced and an authority is left with the duty under Clause 6 to implement the proposals without the resources to do so.
The noble Lord, Lord Donaldson, has given an assurance that, in that event, under the Education Act 1944 the Secretary
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of State could use the discretion granted by Section 99 not to force a local education authority to implement approved proposals. I hesitate to question the Government's legal advice, but I must say that on rereading Section 99, it still appears to me to allow the Secretary of State to enforce a duty, not to relieve an authority of discharging a duty. I recognise that if the Secretary of State believed that an authority had insufficient resources, then he or she could choose not to enforce the duty to implement by not invoking Section 99, but that would be entirely at the Secretary of State's discretion and it is not written into the Bill. Even then, it would presumably be open to a third party to complain to the Secretary of State that it was unreasonable not to invoke Section 99.
If I am right in the train of thought which I have followed, this seems a most unsatisfactory way to leave the drafting of the Bill, hoping that the Secretary of State will be able to turn a blind eye and, indeed, will he left free to do so. That situation would leave local education authorities in peril of court action under Section 99, if they found themselves without the resources to implement Section 13 proposals, and it would leave the Secretary of State liable to the kind of case about the meaning of the word "unreasonable", which occurred recently over the Tameside situation. To leave Section 99 as the only remedy would appear to be most unsatisfactory, whereas these Amendments make the duty to implement reorganisation proposals, subject to the necessary resources, absolutely clear. I hope that on those grounds the Government may be able to accept these two Amendments. My Lords, I beg to move.
9.17 p.m.
Lord ALEXANDER of POTTERHILL: My Lords, I share the view of the noble Lord, Lord Belstead, that the Government might look at this sympathetically. There are very real problems involved in reorganisation. The worst thing that could happen is that this is done badly. That is the worst thing that could happen in the interests of the Bill. The noble Lord referred to the falling birth rate. Some of the small comprehensive schools that are now being established will not be viable within five or six years, because within that period they will have lost at

1403
least a quarter of the pupils they now have, and they will continue to go down. So that we are talking of comprehensive schools of 200 or 300.
The Secretary of State has said that she will be reluctant to approve a school of more than 1,000—a view which I readily share. But if you have a school of very much less than 1,000, then, again, within a measurable period of time it will be a school not of 1,000, but of 700 or even 600. These are problems which require careful thought and planning. Those who were most resistant to the principle of comprehensive education would be reassured by this Amendment that they would not be forced to do it badly, and that would be helpful. It is also true, as can be seen if you examine some of the arrangements which have already been approved, that we are endangering the principle because of them being done badly and causing a good deal of reaction.
From the Government's point of view, there is no harm in this Amendment, since the noble Lord, Lord Donaldson, has virtually sought to give an assurance that no Secretary of State would be so unreasonable as to require an authority to carry out proposals, when, manifestly, they could not be carried our satisfactorily. If that is so, then I hope that this Amendment might be accepted.
Lord WOLVERTON: My Lords, I spoke in support of this Amendment at some length at the Report stage. I intend to speak only briefly tonight, but I do so because I believe that it is necessary to include this Amendment in the Bill and I hope that my noble friend will press it to a Division. Today I was handed a copy of a joint release by the Department of the Environment and the Ministry of Transport about the proposed bypass to the west of Cambridge which they have decided to go on with during the first half of 1977. However, they have qualified their decision by these words:
"… subject to the availability of funds at the time."
If the Department of the Environment and the Ministry of Transport can put in those words, surely something similar can be included in this Bill. The noble Lord said that it might not be possible to do all these things because they would
1404
cost a lot of money. I suggested that I had heard mentioned the figure of £70 million, and it was not refuted. However, the noble Lord said that we ought to get the plans ready. Plans alter as time goes on and it seems to me to be a waste of time to make plans if no funds are available to carry them out. Therefore, I strongly support the Amendment.
9.21 p.m.
Lord DONALDSON of KINGSBRIDGE: My Lords, as the noble Lord, Lord Alexander of Potterhill, has said, this is not a wrecking Amendment and I do not accuse the Opposition of putting one forward. However, we have discussed this point twice—and this is the Bellman's third. I mentioned it at Second Reading, in Committee and on Report and I made it absolutely clear that the existing law allows for such eventualities as the noble Lord has postulated. I explained the Secretary of State's discretionary powers under Section 99, which the noble Lord is not happy about, but my information is that he need not worry about them. In answer to the noble Lord, Lord Alexander of Potterhill, I gave an assurance that authorities would not be required to reorganise before resources were made available.
I do not know how often one has to repeat oneself to get a point into the heads of people who think differently. My previous Secretary of State said the same thing during the debate on the Queen's Speech on 24th November 1975, and again at Second Reading in another place on 4th February of this year. My honourable friend Mr. Fowler, then Minister of State, said it again in Committee in May. Finally, I say it once more. No authority or governing body of a voluntary school will be penalised by the Secretary of State for failing to implement its plans under Section 13 if it can convince the Secretary of State that the resources to do so are not available. I do not think that I can say more than that; nor do I think that it is necessary to put into the Bill an Amendment which assumes unreasonable behaviour by a Secretary of State. I hope very much that what I have said will satisfy noble Lords in all parts of the House.
Viscount ECCLES: My Lords, it is not only the Secretary of State who might

1405
want to carry through a scheme when the resources arc not there. What about some of the local authorities? For example, let us take the Inner London Education Authority. They may very well want to push on with one of their schemes for amalgamating a grammar school with another school of a different character and that scheme may be very poor unless money is spent upon it.
May I stress the point which was made by the noble Lord, Lord Alexander of Potterhill. If this reorganisation is done badly, it will reflect for ever on the comprehensive system. While these things are being thought about and while money is very short one must consider the attitude of the staff of the grammar schools. I know one or two grammar schools, and the senior staff in those schools either are already deciding to leave or arc very uncertain about their future. I know one girls' grammar school where the staff have domestic obligations. They are afraid that if they do not accept the comprehensive solution they may lose their jobs, but they all say the same. If the money is not forthcoming to make the job reasonably possible for them to do, then they will not stay.
What I think we want is a clear statement in the Bill which will mean that neither the Secretary of State nor a local authority can press on with one of these "botched-up" schemes, as they are usually called, unless there is adequate money for the minor works and the equipment. I venture to say to the noble Lord opposite that he will get a better reception from the staff of grammar schools if this is in the Bill than if he just says, "Oh, it need not be in the Bill; you can trust us". I am not sure that they do.
Lord BELSTEAD: My Lords, I am grateful to my noble friend Lord Eccles for explaining so clearly what our worries
are on this Amendment. I do not know whether any of your Lordships remember that at a previous stage of the Bill my noble friend Lady Brooke of Ystradfellte, explained how the school of which she is Chairman, the Godolphin and Latymer school, which was a girls' non-denominational school, at the instigation of the Inner London Education Authority was to be joined up with two other schools to form a mixed Church of England school on a separate site. When that met with united opposition, the next recommendation was that Godolphin and Latymer should be joined up with another school of totally different traditions and objectives, the two sites to be separated by well over a mile and by busy main roads. That is the sort of thing that we are worried about and to which my noble friend Lord Eccles was referring.
With respect to the noble Lord, Lord Donaldson of Kingsbridge, if I may say so his discretionary powers under Section 99 are really not good enough. We must try to see that something is written into the Bill and I think it would be right for another place to look at this, considering that the very situation which I warned about in my opening speech—the intervention of an economic blizzard—may be just the situation in which we find ourselves, so far as education is concerned, within the next six weeks or so.
For those reasons, I ask the House to agree with this Amendment, on the grounds that I believe that the elected Chamber ought to look at the problem of resources as they touch this Bill, before it becomes law.
9.28 p.m.
On Question, Whether the said Amendment (No. 7) shall be agreed to?
Their Lordships divided: Contents, 49; Not-contents, 35.

CONTENTS

Airedale, L.

Faithfull, B.

Mowbray and Stourton, L. [Teller.]

Alexander of Potterhill, L.

Falmouth, V.

Amherst of Hackney, L.

Gainford, L.

O'Hagan, L.

Auckland, L.

Gough, V.

O'Neill of the Maine, L.

Balerno, L.

Gray, L.

Rankeillour, L.

Beaumont of Whitley, L.

Greenway, L.

Rochdale, V.

Belstead, L.

Hampton, L.

St. Aldwyn, E. [Teller.]

Bridgeman, V.

Hanworth, V.

Sandford, L.

Broadbridge, L.

Hives, L.

Sandys, L.

Cork and Orrery, E.

Hornsby-Smith, B.

Selkirk, E.

Cullen of Ashbourne, L.

Inglewood, L.

Shuttleworth, L.

Denham, L.

Kemsley, V.

Strathclyde, L.

Drumalbyn, L.

Lauderdale, E.

Vickers, B.

Eccles, V.

Long, V.

Ward of North Tyneside, B

Elles, B.

Mansfield, E.

Wolverton, L.

Elliot of Harwood, B.

Massereene and Ferrard, V.

Young, B.

Elton, L.

Merrivale, L.

NOT-CONTENTS

Ardwick, L.

Hamnett, L.

Ritchie-Calder, L.

Birk, B.

Houghton of Sowerby, L.

Shackleton, L.

Blyton, L.

Kirkhill, L.

Stedman, B.

Champion, L.

Lee of Newton, L.

Stewart of Alvechurch, B

Collison, L.

Llewelyn-Davies of Hastoe, B.

Stone, L.

Davies of Leek, L.

McCluskey, L.

Strabolgi, L. [Teller.]

Davies of Penrhys, L.

Maelor, L.

Taylor of Mansfield, L.

Donaldson of Kingsbridge, L.

Murray of Gravesend, L.

Vaizey, L.

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

Oram, L.

Wallace of Coslany, L.

Fisher of Camden, L.

Peart, L. (L. Privy Seal.)

Wells-Pestell, L. [Teller.]

Greenwood of Rossendale, L.

Pitt of Hampstead, L.

Winterbottom, L.

Hacking, L.

Popplewell, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.
9.36 p.m.
Lord BELSTEAD Lord BELSTEAD I beg to move Amendment No. 8:
Page 5, line 24, at end insert—
("Provided that the necessary resources for building and equipment have been made available to give full effect to the Secretary of State's approval of the proposals.").
Lord BEAUMONT of WHITLEY Lord BEAUMONT of WHITLEY moved Amendment No. 10:
After Clause 11, insert the following new clause:
Effect of marital status on attendance at school
. Notwithstanding the provisions of section 35 of the Education Act 1944 as amended by section 1 of the Education (School-leaving Dates) Act 1976, a school child, having attained the age of 16 and who also achieves marital status, shall be permitted to leave school at his or her discretion on or after the date of the marriage.
The noble Lord said: My Lords, we come to the last of the Amendments at this stage of the Bill before it goes to another place. This raises a new matter but one which I think stems from the removal of the old Clause 10 at the last stage. I gave notice to noble Lords that I should be moving this Amendment. Noble Lords will remember that the old Clause 10 took away from the parents the responsibility for seeing that a married child of 16 went to school and gave that responsibility to the spouse. In the course of getting the clause right a terrific paraphernalia built up so that it took up a large proportion of the Bill. Noble Lords quite rightly took the view that this had become so complicated and complex that it should be done away with. All sorts of problems might have arisen which we did not get round to examining; for example, the suggestion
1408
made to me by the association for technical teachers that possibly it destroyed the whole of the in loco parentis situation for teachers in dealing with anything concerning that particular child. I think we were right to take that clause away but we did not solve the basic problem.
The basic problem is quite simple. It is that if a person is 16 and married it is ridiculous that there should be a legal obligation on that person's parents to see that he or she goes to school. It is not easy to see quite what to do about it. Of course the number of cases involved is small. I have no doubt about what is usually done about it. The fact is that the local education authority and the school turn a blind eye to the proceedings. That is a common sense solution, but I do not think it reflects very well on the law that we should have a situation w here it is clear that there is a bit of total non-sense to which everyone agrees to pay no attention. I do not like it wherever it happens, and I think that where it happens one ought to do one's best to put it right. If that is so—and I see several heads nodding—and it is agreed that what is done is one of the sensible things to do, perhaps we ought to regularise it and make it clear that if a person of 16 is married, frankly he or she is free to leave school. If the whole point about school leaving was a watertight barrier, and if you breached it in one place it would be tremendously important, I could see the argument; but I think more and more people are beginning to agree that there is a certain flexibility in the whole question of enforcing the school-leaving age to the last rigorous moment and in the last rigorous respect. I was particularly encouraged by the mild, but nevertheless it seemed to me thoughtful, answer by Miss Margaret Jackson yesterday in another place (at col.1180 of the Commons Official Report). I am not depending on

1409
this. I am merely saying there are signs that everyone is moving towards the idea that there should be a little more flexibility. This would seem to me the right place to apply flexibility.
It has been argued by an honourable friend of mine in another place that if you let children off school when they were married, if they were 16 they would all promptly go and get married in order to leave school. I do not think there is all that much in this; I do not think really there is anything in it at all. People get married for the silliest reasons, but I do not think they get married for anything quite as silly as that. If they do not want to attend school they will not attend school. We know from the truancy figures that a great many of them do not. They do not need to go as far as that. I am merely concerned that we should, if possible, tidy up the law, in order that it should be held in respect and actually apply to the cases to which it is meant to apply. I therefore beg leave to move this Amendment.
9.42 p.m.
Lord DONALDSON of KINGSBRIDGE: My Lords, flexibility is fine, provided it does not mean replacing order by chaos. Noble Lords will remember that many Amendments to the Education (School Leaving Dates) Bill were debated, all intended in one way or another to introduce flexibility into the matter of when children might be entitled legally to leave school. But in the event no exceptions were made. It is a principle now embodied in the 1976 Act that there should be only two leaving dates, one at Easter and one in May. There is nothing arbitrary about the thinking which led to that result. The Government are firmly committed to the principle that every child should have the benefit of a full five years of secondary education. To allow children to leave school piecemeal not only undermines that principle, it increases the impatience to be gone of those who feel that they are no longer deriving benefit from education and who are freed to enter into commitments which they may be too immature fully to understand; and it disrupts the life of those who remain.
The noble Lord, Lord Beaumont, would have us excuse those who marry at 16 from
1410
continuing their education until they attain school-leaving age. Marriage does not j release people from their obligation to observe the law. And it is not self-evident that those who are married have no further need of education. Experience has shown that many young people obliged by law to remain at school when they might have preferred to leave have gone on to take examinations and obtain qualifications, thereby enhancing their prospects of obtaining worthwhile employment. In these days when so many married women go out to work, girls as much as boys are well advised to get the maximum benefit from their time at school.
However, the requirements of the law can be met by provision of suitable and efficient education other than at schools. We hope that local education authorities will apply common sense in considering with the parents, on whom the law places responsibility for its observance, whether an acceptable alternative to school attendance may be practicable, particularly when the girl is pregnant or has given birth to a child. We think it is far better that difficult questions of this kind should be left to the people on the spot to deal with rather than to incorporate in a Bill of this kind an exception to the law. So, although we acknowledge the anomaly which the noble Lord has pointed out, and appreciate his effort to put up a solution, we do not feel inclined to accept this solution and we think that common sense will probably provide a better one.
Lord ELTON: My Lords, let us not protract unduly the proceedings. Sophisticated arguments have been advanced in favour and against this Amendment. I think that the arguments advanced by the noble Lord, Lord Donaldson, at the conclusion of his remarks coincide remarkably closely with my own instinctive feelings. Here is an occasion where it is up to the common sense of those handling the case to deal with it, because the cases will not be numerous but extremely different one from another. They will, what is more, be what I: think is now called distressful cases of people in a high state of emotion. Therefore, they should not be dealt with by an inflexible machine, or an inflexible rule. Inflexibility has been the noble Lord's cry throughout this stage.

1411
Furthermore, the interim between the earliest possible marriage and the earliest possible date of leaving school is sufficiently short to mean that even when it is not common sense there will be a very swift release from the problem. I therefore concur with the noble Lord, Lord Donaldson, and it gives me great pleasure to do so at this significantly final stage of the Bill.
Lord BEAUMONT of WHITLEY: My Lords, the way of a radical is a hard one in Britain. A typical English solution: close a blind eye, muddle through. Do not treat the law as if it were at all important. Do not try to get to the root of the trouble. In fact do not try to do anything which might be decisive and which might demand intellectual exercise. Lord Donaldson's brief on this particular matter—because I do him the credit of thinking that it was a brief—was as full of holes as a fish net, and I should be delighted at any time to take him aside and point out some of the problems. I shall not do it in your Lordships' House
1412
because it is getting late, and we all agree that we want to get to an end. As for the noble Lord, Lord Elton, who accuses me of inflexibility—
Lord ELTON: My Lords, to be fair, I do not think "accuse" is the right word. I congratulate him on his cry for flexibility throughout this stage and indeed the previous stages, but the solution he seeks to impose his flexibility with is itself inflexible.
Lord BEAUMONT of WHITLEY: My Lords, on the contrary, the solution is a flexible one, and what noble Lords on both Front Benches are defending is an inflexible law. That is the inflexible law; that is the inflexible machine; and the fact that no one pays any attention to it does not really make any difference. It is flexibility that I am trying to introduce. However, as I say, the way of a radical is a hard one, and I beg your Lordships' leave to withdraw this Amendment.
Amendment, by leave, withdrawn.
9.50 p.m.
Lord DONALDSON of KINGSBRIDGE: My Lords, I beg to move that this Bill do now pass. The main purpose of the Bill is to give statutory effect to the comprehensive principle. As the noble Lord, Lord Alexander of Potterhill, said on Second Reading, there is now a consensus in the country ill favour of comprehensive education. Three-quarters of maintained secondary school pupils attend comprehensive schools. The great majority of local education authorities and voluntary school governors wish to complete the process as soon as possible and only in a few areas is there still resistance to the comprehensive principle.
The most charitable interpretation of the Opposition's views—and not everyone is as charitable as I am—is that they believe co-existence to he a viable option. We do not. I regret that we have not been able to convert noble Lords opposite to our point of view, but we stand where we began; we believe in comprehensive education and we believe that the retention of selective schools has an adverse effect on comprehensive education. This is why we have introduced this Bill; to ensure that reorganisation is completed as quickly and as efficiently as possible and that all children are given the best possible secondary education. However, I do not think our discussions have been entirely wasted. Major changes invariably throw up difficulties, to which the Opposition have drawn attention—some real, some imaginary. Some of the Amendments which their built-in majority has carried have been frankly undermining the whole approach to the achievement of comprehensive education; but some have been serious and worth discussion and more of this they will get in the other place.
On Second Reading I explained the function of each clause. Clause 1 spells out the comprehensive principle and admits of certain exceptions. Clauses 2 and 3 make provision for progress to he made to giving effect to the comprehensive principle where, in the opinion of the Secretary of State, such progress is desirable and possible. Here I would reply to a point raised by the noble Lord, Lord Elton, on Report which my noble friend Lady Stedman dealt with in correspondence. Subsection (5) of Clause 2
1414
states that proposals prepared and submitted under Clause 2 shall be in such form as the Secretary of State may direct and shall indicate the proposed timing of implementation. When the Secretary of State calls for these proposals she is asking authorities how they intend to complete reorganisation. She will ask that their replies distinguish between long-term and short-term proposals within the overall sketch plan for reorganisation. Where the proposals are short term, which means to be implemented within five years, she will expect sufficient details to be furnished to judge whether the proposals can subsequently undergo the full Section 13 procedure; where proposals are for the longer term, she will at this stage, after considering whether or not they are at first sight satisfactory, merely note them.
Looking at the miscellaneous section of the Bill, two clauses have been deleted and three added. We shall be seeking the restoration of the old Clause 5 in another place. We have given many assurances about the workings of this clause but they have not been accepted. I am content that time should prove us right. Old Clause 10, concerning married pupils of compulsory school age—which we have just been discussing—has been deleted in order that another place might have the opportunity to debate it. Clause 11 has been added at the Government's wish to meet the very real concern felt by noble Lords of every political persuasion that handicapped pupils be given every opportunity at school in order that they should find their place in society.
In conclusion I should like to refer to the excellent debate during Committee on the subject of banding. I said on that occasion that it was a good instance of how controversial Bills could occasionally become non-controversial. During that debate, however, Lord Elton seized on and has made altogether too much of one remark of mine. The noble Lord, Lord Beaumont of Whitley, said that comprehensive education could not solve the problems of inner urban deprivation. He supported comprehensive schools on their educational merits and not as a means of social engineering. I expressed myself in sympathy with those remarks. I, too, believe in comprehensive education for its educational merits and too, do

1415
not believe that the comprehensive schools can by themselves solve the complex problems of urban deprivation by social engineering. But my Government support comprehensive education not only for its educational merits but also for its social and psychological effects. If a desire to give children equal opportunity in education—and to avoid the social divisiveness of a fairly arbitrary system of segregation—is to be called "social engineering", then I am very happy to be a social engineer. And if this label is to be attached to those who believe, as I do, that it is morally wrong to condemn four-fifths of our children as failures at the age of 11, then I am proud to wear such a label.
My Lords, we have had quite a constructive debate on an issue which divides us deeply. I am grateful to noble Lords opposite for their moderation and for some of their purple passages and I am especially grateful to my noble friend Lady Stedman for spending so much time in the firing line on our behalf and carrying herself so bravely under fire. The issue is integration or segregation, equality of educational opportunity throughout a child's school education or only to the age of 11. I repeat, the comprehensive system is not compatible with the selective creaming off of the brightest children. It is one or the other. We choose unequivocally the one and this Bill is to put it into operation. It is on these issues that the Bill rests and I beg to move that it do now pass.
Moved, That the Bill do now pass—(Lord Donaldson of Kingsbridge.)
9.55 p.m.
Lord ELTON: My Lords, the noble Lord, Lord Donaldson of Kingsbridge, has seen his sorry work on this Bill through with his customary charm. We are grateful to him and to the noble Baroness, Lady Stedman, for the competent way in which they have performed their regrettable task and for the numerous letters that they have written to us to ease the communication between us. I am also deeply grateful to noble Lords in all quarters of the House who, with wisdom born of experience arid concern, have assisted us
1416
in trying to make the operation of the Bill perhaps less damaging than it might have been. Of course I am also deeply grateful to my noble friend, Lord Belstead, who will be seeking an opportunity to speak later.
I believe that we ought at this stage to look briefly at the work that we have done, and perhaps the masterly oversimplification of the purport of the Bill to which the noble Lord, Lord Donaldson, has treated us is a fitting introduction to it. It was in the otherwise agreeable month of July that the noble Lord laid this Bill before your Lordships. We received it with reluctance and examined it with distaste. It owed its birth to a union of dogma and fantasy. The dogma states that if one passes all children through the same educational process one will finish with a population without social division. The fantasy supposes that the resources exist in both cash and teachers to reconstruct our educational system on these lines and that this can be done without damage to either the process or the pupils.
The Bill's single and doubtful redeeming feature did not become more noticeable during the debates. This was that some of those who fathered it supposed it to be a means of achieving a very proper ideal—the ideal of a system that educates each to his full capacity and at the same time produces a cohesive society. How very greatly we now stand in need of a cohesive society! That is, therefore, an objective that we share, but it is increasingly clear to us that those opposite who seek to lead us to it not merely have very short sight but are also holding the map upside down.
In these circumstances, there was some temptation amongst those opposed to the Bill to throw it out altogether. It is, after all, expressly intended to enable Whitehall to overrule the wishes of democratically elected local authorities. If the local education authorities were all in agreement with the Labour Party there would be no need for the Bill, but the Party that controls Whitehall does not control all the local authorities. Hence the need for the Bill and, since the Government now begin to feel their grip on Whitehall slipping with the approach of the impending by-elections, hence also the need to get it on to the Statute Book before the Prorogation.

1417
However, two considerations weighed against our natural wish to throw out this misconceived Bill altogether. The first was that it was necessary not merely to say but also to demonstrate, since it was as difficult for us to impart to the noble Lord certain items of importance as it has appeared to be for him to impart them to us, that our Party is not opposed to the comprehensive system as such but only to its blind, doctrinaire and universal imposition, which can only be at the cost of a huge waste of talent in the rising generation.
The second consideration was a constitutional one: the constitutional theory is that the declared policy on which the ruling Party in the Commons is elected continues to carry the endorsement of the electorate until either the Government falls or Parliament is for some other reason dissolved. The theory may be shaky and the percentage of the electorate voting for the Party in power may have been derisory—and the noble Lord, Lord Beaumont of Whitley, will probably want to make something of that—but even that proportion may long since have realised that it was terribly misguided in its choice. No doubt the returning officers will have something to say about that tomorrow.
However, any Constitution must rest to some extent upon a fiction if it is to work for any length of time. The fiction that we observe is that what the' Government are doing in this Bill is the will of the people and not, as we know it to be, that of their own Party theoreticians and dogmatists. We therefore prepared to amend the worst features of the Bill rather than to reject it, and in so doing we took pains—in spite of what the noble Lord said—not unnecessarily to damage (if indeed we damaged it at all) its fundamental principle. We wished only to remove its more obviously unworkable or unjust features. Specifically we have, by two Amendments in Clause 1, made binding on the Government their undertaking that the Bill would not act to the detriment of the rights of parents set out in Section 76 of the Act of 1944 or the rights of children set out in Section 8 of that Act.
In the same clause we have stipulated that the principle of the Bill shall not be enforced in such a way as to prevent children profiting to the greatest possible
1418
extent from the talents of our diminishing numbers of qualified teachers of mathematics. We have protected in Clause 3 the continuity of education of children in voluntary schools which are forced to go independent under Section 13 of the Act of 1944 as a result of the passage of this Bill. We have required local education authorities to make details of the schools in their charge generally known particularly with a view to secure for the children in those schools the advantage of the protection of the informed interest of their parents.
We have required the Government to hold what in the person of the Prime Minister they loudly protest that they wish to hold, an independent inquiry into the performance of the secondary sector. We have removed from the Bill the retrospective and draconian powers which it would have given to the Secretary of State in old Clause 5—and I am sorry to hear that the noble Lord wishes to drag it back in again. We have also relieved him of the absurd and tempting duality of function originally in Clause 2, which had the effect of making him both judge and jury in his own cause in planning matters, and we have removed from the Bill entirely Clause 10, which we have already averted to, and which had not been discussed at all in the House of Commons.
We have prevented the Government inadvertently debarring local education authorities from placing next year the 11,500 boarders at present in nonmaintained schools supported by them and indeed other children supported by them for similar purposes, but not boarding. Finally, we have ensured that plans will not be embarked upon until the cash to complete them is to hand. It would I think be difficult for Her Majesty's Government to argue in either House with any conviction that any of these Amendments is in any way either an attack on the principle of the Bill or an affront to the other House. Our Amendments elucidate its meaning, inhibit its misuse, or enable the Commons to discuss matters they have not yet touched. Otherwise they merely enact the stated aims of the Prime Minister.
There are three possible exceptions to this rule. An Amendment on the publiccation of particulars was debated in

1419
another place, but it was defeated. But it was defeated by only one vote, and there should be an opportunity for the other place to consider anew an improved version of it, and that is not an affront or a challenge. The omission of the words, "or partly" from Clause 1 has been blackguarded frequently as a wrecking Amendment. I have said before that it is not intended so. I have also told your Lordships that we have invited noble Lords opposite to say what they meant and they have turned down the opportunity. They will have it in another place. The implications of Clause 5 were I think wider than has been recognised in another place and the hostility evinced for it in this House came from a much wider spectrum of your Lordships than I think the noble Lord probably in all conscience expected.
So much then for this miserable Bill. It is a partisan, undemocratic, untimely, and absurd little document. It is partisan because it seeks to enforce a universal principle for doctrinaire reasons. It is a Parthian and vindictive shot fired by a Government retiring, we hope, from Office. It is undemocratic because it seeks to crush the will of democratically elected local authorities from the centre. It is untimely because it will cost untold, literally untold, millions; we have asked frequently to be told them, but we have not been told; and it comes limping on to the Statute Book when our cash resources are at an historic low and may, as my noble friend Lord Belstead said, get lower very rapidly.
Above all, it is utterly and totally absurd that it should reach this stage in Parliament simultaneously with the Prime Minister's much publicised cry of joy and aspiration of at last seeing the last educational light. How, when he has trumpeted forth from the mother of universities his grave alarm that something is sadly wrong with our secondary education, his own Government can force through a Bill committing the whole secondary sector to one form of organisation which is widely suspected of being in part to blame for this decline, I cannot find it in me to explain.
If the future of all our children was not hound up with it, it would be a farce, but they are, and it is a tragedy. It is a tragedy that noble Lords opposite should
1420
allow their idealism to be so blinkered by the ideologues in their Party, and I earnestly hope that they will honestly endeavour to stop their friends in another place from rejecting all our Amendments in a mere blind and destructive jerk of political reflexes. Given cool heads and an honest appraisal they will find—and there was something of an intimation of this in what the noble Lord said, and I welcomed it—that they can accept much, if not all, of what we proposed without too much effort.
If they do not, then they will be very much lessened in my estimation and bear a grave and unwelcome responsibility towards the children who in the end will be the unwitting judges of their work. I hope that although heads are hot, as they always are at the end of a Parliament, it is not the intention of the friends of noble Lords and Baronesses at the other end of the corridor simply to say that these are Conservative Amendments and, therefore, they are bad. "Let us filibuster, let us harangue, let us guillotine but let us not accept." It is important that they should be accepted or rejected on their merits and then we shall see where each Party stands. With these acid words of farewell, I await the return of this Bill from another place.
Lord BEAUMONT of WHITLEY: My Lords, there are many frustrations in being the spokesman of a smaller Party, but there are some reliefs and one of the reliefs is that I feel under no obligation, your Lordships will be relieved to hear, to repeat as do spokesmen of the major Parties, all that we have heard over the last few months since July. It has been on the whole a fruitful and useful series of debates that we have had, marred I suppose by two minor things; first, that the Conservative Front Bench has never been quite clear whether or not its serried ranks behind it—when there have been serried ranks—really support them. Every time the noble Lord, Lord Elton, pledges his devotion to the comprehensive principle, there seems to be a sidling out towards refreshments from those behind him who do not want to hear quite so much about that.
Lord ELTON: Would the noble Lord substitute "toleration" for "devotion"?
Lord BEAUMONT of WHITLEY: To make up for that, the noble Lord, Lord Elton, makes "Worra-Worra" noises at the opposite Benches like Tigger, which is all very entertaining. On the other side the problem has been slightly more serious. We were met at the beginning of this Bill with a rigidity and an inability to accept, while all of us genuinely wanted to approve this Bill, which I know did not come from the heart or head of the noble Lord, Lord Donaldson of Kingsbridge, and later that of the noble Baroness, Lady Stedman, but came from the nature of the Secretary of State at the time, the fact that neither of the Ministers dealing with the matter were dealing with the Bill ab initio in their own Department. We have seen a very hopeful change of attitude just recently. Not quite hopeful enough so far, but with the new Secretary of State in whom we have, almost ad nauseum, said how much hope we have got with the very welcome interest of the Prime Minister in educational affairs; and with a certain amount of increased flexibility—if I am allowed to use that word—on the Government Front Benches we have moved a bit further towards making a better Bill of what was not completely satisfactory to start with.
I join with the noble Lord, Lord Elton, in saying that I hope the Government will not just reverse all the Amendments in another place and bang them back. There have been some Amendments which obviously I cannot accept, but there have been some very useful ones passed. I hope that the result of all of this labour on all our parts—and I, too, am grateful to noble Lords in all parts of the House for the constructiveness that has gone into our debates—will be met now with a certain understanding on the Government Benches. If so, then we will have done a very good job.
10.10. p.m.
Viscount ECCLES: My Lords, I agree with the noble Lord, Lord Beaumont of Whitley, that we have had some good debates. Personally, I have learned much in the course of these debates which I did not know before. Your Lordships have spoken from experience and with economy and have fully justified the time that has been taken. The Bill leaves us imperfect but better than it was. I
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imagine all on both sides of the House can now see more clearly what a tremendous amount of practical work remains to be done before the comprehensive system can be expected to operate reasonably well in the interests of the greatest number of our children.
In another place, the Bill was contested all the way to the very end and my honourable friends put up a notable, well-informed and stubborn resistance, led by the indefatigable Mr. Norman St. John-Stevas, but they were defeated. So we started our consideration of the Bill by accepting the basic principle of non-selection—not that we liked it but, speaking for myself, we thought it was the right thing to do when a principle of that kind has been endorsed by another place and sent to us to consider the practical methods of putting it into action. That is a consolation, because it has enabled our debates to concentrate on the application of the principle which we have made much more flexible, and much less likely to do harm to a great many children, I agree with the two noble Lords who have spoken from this side of the House, that if all our Amendments are removed as a matter of politics, that will be a great pity. Many of them make the Bill better for those who believe in a comprehensive principle.
I was interested in what the noble Lord, Lord Donaldson of Kingsbridge, said about the argument for comprehensive schools of social engineering. I am sure that he was wise not to shy away from that argument. Society shapes the system of education, and the system of education shapes society. That is true and always has been true. The things which politicians care about, the unity of the nation, how far people share a sane view of the world in which they live, how far they have learned to talk to and treat other people as equals—all those social objectives have their roots in education. On any side of the House we should he very foolish not to recognise that.
But it does not follow that the comprehensive system is a good instrument for bringing about this social cohesion which we all desire. On Second Reading, I tried to show that the effects of the Bill are more likely to be divisive than socially cohesive. I pointed out that a system

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of neighbourhood comprehensives means that the good schools will get better and the poor schools will get worse.
The Bill is going to create a new class system within secondary education. It is going to be one which will be even harder for the parents to understand than the division between grammar schools and non-selective schools. The Bill is also bound to widen the jealous gap between the maintained and independent schools. That is going to be divisive. It will be dangerous because, as it becomes starkly obvious to everybody that the education in the independent schools is superior to that in the decapitated comprehensives, the envious political Left will raise the cry: "We cannot match the independent schools, so let us go out and murder them". That is what is going to happen as a result of this Bill.
The Government made no answer either in another place or here to our doubts about the social benefits that they have advanced as part of the reasons for the Bill. I cannot understand why the Government dropped the argument of social engineering in between the Bill leaving the other place and coming here; it may be they saw the light in your Lordships' House. Having dropped it, we are left with only the educational argument; and that argument does not now stand up since so many non-selective schools will have to be too small to do justice to the able children. It may well be found that the strains of coping with mixed ability are too great to do the best by any category of children. That is something we need to know a great deal more about, and that is why we put down the Amendment concerning the independent inquiry.
These are doubts which are shared much more widely than many complacent authorities and Ministers realise. What should the Government have done to set these doubts at rest? Obviously, they should have considered more carefully and made public the experience to date in non-selective schools. Now, very late in the day, they are starting up all kinds of inquiries—almost, it seems, in a panic—but I suppose they want to get this Bill through first before the results of those inquiries are available. As the noble Lord, Lord Alexander of Potterhill, said last week:
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"Public anxiety has grown to such dimensions that only a politically independent inquiry will he accepted as satisfactory.".
Those misgivings about standards in secondary schools were brought to the surface by the Department's Yellow Book—that well-leaked trailer to the Prime Minister's speech at Ruskin College. That the Prime Minister himself should say what he did has changed the background to this Bill. Once the Downing Street cat had been set among the pigeons of Elizabeth House, our Amendments to this Bill, for which my honourable friends had argued in vain in another place, became not just worth reconsideration by the House of Commons, but plain Prime Ministerial common sense. The appointment of the new Secretary of State is another excellent thing that has happened since the Bill left another place and came to your Lordships' House. Mrs. Williams is bound to take a more thoughtful line than the uninspiring Mr. Mulley and his textbook colleagues, who appeared to believe that all would be well in all non-selective schools.
No one can be so complacent now. Fortunately, the Secretary of State and the Prime Minister are what the Americans call "very close"; and we take our cue from their recent speeches and are quite confident that they will not remove from Clause 1 the reference back to Section 76 of the 1944 Act. Not to accept that Amendment would, in the light of what they have both said about bringing parents into the picture, be an inconsistency too glaring ever to be forgotten by parents or by the public as a whole. Secondly, after the Prime Minister's strong and sensible words about the deficiencies in mathematics, the Government must welcome the Amendment made to allow the inadequate numbers of qualified teachers we have to be matched with the pupils best able to profit from their teaching. That is clearly in the national interest.
Thirdly, if the Prime Minister meant what he said—and I am sure he did—that an economy in as much trouble as ours and exposed to such fierce competition cannot afford an education system that sacrifices excellence to some notion of equality and new style methods of teaching, then his right honourable friend must welcome the Amendment to allow sixth-form colleges to select their entry

1425
on grounds of ability. If they are not allowed to do that, the standards of sixth-form work—already falling—will fall much faster.
Before I finish, I want to turn to two aspects of our debate which cause me great regret. The Bill compels sweeping changes in voluntary-aided secondary schools. Those of us who wish to safeguard the sixth-form standards of the grammar schools have received no help from the Church of England. On Second Reading, the right reverend Prelate the Bishop of Blackburn was obviously in a quandary, for he told us that the Church is so divided on the main issue of the Bill that his brethren had decided to do nothing about it. All through our debates we have hardly seen one Bishop. The Bishops' Bench is empty now, as it has been practically through all the stages of this Bill.
If the Church decides to abandon her interest in voluntary aided schools, that is her affair. Her leaders may think the financial problems too great a burden, or that the State will educate children equally well when denominational influence wanes, as it must do when aided schools are merged with controlled schools. Nevertheless, to keep silent about the destruction of sixth-form standards, and to give many devoted teachers the feeling that they are being let down by their Church, and to turn a deaf episcopal ear to the appeals of thousands of Christian parents, marks a definite retreat from a great position in secondary education held for so long with such distinction. Many famous aided grammar schools, which have served Church and State well, now go to the chopper without a single protest from the Bishops' Bench at any stage in this Bill.
If the attitude of the Church has been depressing, that of the universities has been inexplicable. The universities know very well that non-selection has been partly responsible for the decline in sixth-form standards. Yet I wonder how many vice-chancellors and principals have read this Bill, or even glanced at the first three clauses. Only last week, the noble Lord, Lord Todd—and he ought to know—told me of a university which is so dissatisfied with some of the new intake of science students, that they are talking about a year's remedial
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teaching to make up for the deficiencies in the secondary schools. That would mean lengthening the course from three years to four years.
In our debates, the noble Lord, Lord James of Rusholme, speaking as a schoolmaster rather than as a vice-chancellor, and the noble Lord, Lord Robbins, made notable speeches. But no other noble Lord with university experience has said one word. One might think that the quality of their raw material, the standard of their students when they arrived, was a matter of no consequence. This in-difference to a Bill which, for example, in the first clause lays down that there shall be no selection by ability for sixth-form colleges, I find inexplicable but not surprising.
Lord DONALDSON of KINGSBRIDGE: My Lords, just to put the record straight, the noble Lord, Lord Annan, and the noble Lord, Lord Vaizey, both spoke.
Viscount ECCLES: I am sorry that I omitted them, my Lords, I did not hear the noble Lord, Lord Annan. The noble Lord, Lord Vaizey, I know, was entirely behind the Government. In conclusion, I feel bound to say that for someone like myself who knew our system of public education in better days, and cared for it, and confidently expected it to make steady progress, what is happening now hurts very much. I can only hope that younger men and women will come forward to stop the rot, and return to that policy of raising standards throughout the maintained system which offered us so much hope and could do so again.
10.25 p.m.
Lord BELSTEAD: My Lords, I think that the speech of my noble friend Lord Eccles puts more clearly than I possibly can the fact that this Bill will not con-tribute to an improvement in educational standards in this country. Now that we have dealt with the Bill in all its stages, I think it is clear that it is very doubtful, to say the least, whether it is going to hope to carry out the Prime Minister's

1427
expressed wish for an improvement in standards, for a more practical approach to the responsibilities of education and for the objective which the Prime Minister expressed at Oxford in these words:
"What a wise parent would wish for their children, so the State must wish for all its children".
Those were the words of R. H. Tawnay. I wonder whether Professor Tawnay really would have approved of the whole-sale destruction of good schools in order to enforce a principle which is not based on any findings of fact whatsoever. Let us be clear that the objection to the Bill—an objection which has not come just from the Conservative Benches but from the Liberal and the Cross-Benches as well—in a free society is the insistence of the Government that comprehensive education must he served for breakfast, dinner, lunch and tea, with never any variation in the diet.
I wonder whether, before the Bill leaves us, I may digress for a moment to make this point. If the Government believe that I am merely being Party political, may I remind the two noble Lords on the Government Front Bench of views which were put forward in two articles in the Times Educational Supplement less than a year before the Bill was introduced. In April 1975 Mr. Stuart McClure wrote an article warning that in this country we would do well to learn from the experience in the United States of America. He pointed out that in America education for many people extends well into their twenties and that it is therefore an exceedingly costly service to provide.11 noble Lords recall that article, they will remember that Mr. McClure then professed his belief in the abolition of the 11-plus and in more post-school study but concluded that, with limited resources in this country, it would be a policy of disaster to forbid any selection whatsoever. He recommended as a solution a comprehensive middle school system from 11 to the age of 14 and then some choice of schools and courses for parents and pupils.
One month later, Dr. Harry Judge, one of the most successful of former comprehensive school headmasters, wrote another article in the TES which he claimed to be central and moderate. He gave credit where it was due, referring to
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the considerable progress in comprehensive reorganisation which has been made under various Governments and local authorities of various shades of opinion. Referring to comprehensive reorganisation, Dr. Judge said:
"It is idle to pretend that there survives in secondary schools, in colleges and departments of education, in local education authorities, even in the hearts of bruised sociologists, any powerful conviction that the present phase of comprehensive planning will bring great educational improvement or even be worth doing at all"
Dr. Judge explained that his misgivings stemmed from the Government's onward rush towards neighbourhood schools in towns and cities and, like Mr. McClure, he concluded that a transfer age of 14-plus could utilise the pattern of schools in this country for the benefit of more, not fewer, pupils.
I digress for this reason. The Government cannot say that they were not warned before the Bill was drafted, yet apparently, totally unheeding, they proceeded to draft a Bill which, as it was originally drafted, is, I think, a disaster. It is disastrous because it allows for no flexibility. Only this evening we have seen the Government resisting the idea of allowing any form of selection for sixth-form work in schools. It is also disastrous because it purports to make policy without providing the necessary resources, a subject which again we have been discussing this evening. I think it is a disaster because it dispenses with the idea of partnership which was so firmly based in the Education Act of 1944; partnership with parents, local authorities and the voluntary schools about which my noble friend Lord Eccles spoke so eloquently.
If the Government arc to have their way, then under this Bill parents will he treated as cyphers, local authorities as agents and the rights of voluntary schools provided by the 1944 Act as of very little account. In addition, when the original draft of the Bill reached the subject of independent schools, never was it more clear that this Government are willing to wound and yet afraid to strike. I should like to put seriously to the Government the desirability of keeping schools which can be looked upon as a yardstick for what is happening in the maintained system.
I have been referring to the draft of the Bill as we received it from another place,

1429
but of course during Committee, Report and Third Reading stages various improvements have been made to the Bill. May I add my voice to other noble Lords, including the noble Lord, Lord Beaumont of Whitley, from the Liberal Benches, that we hope the Amendments which have been made in this House will be looked at and seriously considered. The Secretary of State inherited this Bill, to which clearly the Government had intended to make no alterations except the extraordinary Amendment relating to banding which was inserted in another place, but the Secretary of State now has the opportunity to consider Amendments relating to such things as parental choice, the special case of mathematics teaching, a more equitable procedure for local authorities when they are being required to put forward comprehensive proposals. We have put forward what is a very modest protection for pupils of voluntary-aided schools which may be going independent, and there is a reasonable protection for the local authorities on the subject of availability of resources, which the House has agreed to this evening.
I concede at once that the Secretary of State is of course absolutely entitled to preserve the main principle of her Bill. But the point which it seems to me the Government have not taken on board during the successive stages of this Bill through your Lordships' House is that the principle of the Bill really is not going to be acceptable to those who work in and use the Education Service if the Bill is not a workable instrument, if the necessary resources are not provided, if parents are denied any choice of school, if members of staff find themselves working in schools which, because of the provisions of this Bill, have had to be very hastily reorganised.
I hope especially that the Government will take to heart that the case for total comprehensive reorganisation which should have underpinned this Bill is in no way proved. I found it extraordinary—and my noble friend Lord Eccles referred to this—that the reply to the Amendment for a committee of inquiry at the previous stage of the Bill was that a good deal of research in the Department of Education and Science is now being set in hand. To say the least, I really thought that was setting the cart before
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the horse and I hope very much that Clause 5 of the Bill, which provides for the independent committee of inquiry, is going to be allowed to stand.
I would not for one moment deny that there is a majority wish in the country today to do away with the selective examination at I-plus. Perhaps it is right for me to say this at the end of this Bill because it was one of the first things that my noble friend Lord Elton said when the Bill started its life in your Lordships' House. The reasons for the dislike of that examination are un-doubtedly there, and I think rightly so, because I-have always thought that II was a very early age for a child to he assessed.
But it is a very different story when specific proposals to reorganise schools are put forward, and particularly so if they are put forward with coercion by the Secretary of State. Once again, reasons are varied, but according to their point of view people do have reasons to object. For some it may be because there is the loss of a good school; for others, the removal of particular facilities. Re-organisation may provide no small school, no single-sex school, no easily accessible school. These objections which are going to be, I would almost say, overridden under Clauses 2 and 3 of this Bill have nothing whatsoever to do with Party politics. Recently in my local education authority a reorganisation scheme for a mixture of 11 to 16 and 11 to 18 schools has been approved by the Secretary of State, but in the teeth of opposition not least from the local Member of Parliament who was a supporter of the present Government, because the alternative which many in the area wanted was a sixth-form college, for which it so happened there was not the available resources. There-fore, it is not just a move by the Conservative Party to have urged an inquiry into the working of secondary schools within this Bill. It would be helpful to teachers, parents and local authorities and a very prudent step for a Government which has introduced a Bill of this kind.
My Lords, I noticed yesterday in the House of Commons that the Prime Minister criticised the Opposition for concentrating on the problems of structure rather than the content of education. I must confess I thought that criticism came

1431
a little strangely from a Prime Minister whose Government have introduced this Bill, but let us meet on common ground, and agree that both the structure and the content of education are in need of inquiry and assessment. We still have not really assessed the problems and opportunities of school size, the complex management structure needed in very large schools and the problems of personal identity in such institutions. It is over five years since Dr. Elizabeth Halsell of Hull University drew attention as she saw them to the advantages of the small school—better staying-on-rates, simpler communications, the possibility that smaller schools are more socially cohesive.
At a time when, encouraged by the drafting and the introduction of this Bill, the Inner London Education Authority has been professing its faith in mini-comprehensives so it could reorganise more quickly, we need to know more about the effects of school size, as we do about the problems of split sites, two-tier schools, the effect of removing sixth-form teaching to a totally different institution. We need to take the subject of guided choice for pupils at a certain age out of the arena of party politics into which this Bill has placed it, and look objectively at the proposals which, for instance, Mr. McClure and Dr. Judge made when this Bill was being planned. At the same time, I readily concede that the moment has come to look critically at some of the theories which seemed to take hold in the 'sixties and which one suspects have not been applied with much benefit to pupils.
In The Times of 22nd October, Lady Plowden wrote a letter in which she said that although many people, including herself, had for many years advocated informal teaching methods, she had always also given a warning, "Do not throw out the baby with the bathwater". In her letter she added that it had also been the practical problems of the very rapid expansion of teacher-training during the 'sixties, the increasingly rapid turnover of young women teachers, and the pressures of an increasing population which in reality had created the problems for the over-enthusiastic adherence to informal methods.
My Lords, this Bill which deals solely with the structure of secondary reorganisation
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has given your Lordships the opportunity to make some valuable Amendments dealing with the content of education, also. In his speech at Oxford the Prime Minister, referring to various aspects of the curriculum, said:
"These are proper subjects for discussion and debate and it should be a rational debate, based on facts".
If the right honourable gentleman really means what he says, I hope that new Clause 5, providing for the committee of inquiry, is to remain unamended in the Bill. I trust the Secretary of State will consider with great care the Amendments made in this House, many of which will make this Bill more acceptable to those who are working in the Education Service.
10.39 p.m.
Lord DONALDSON of KINGSBRIDGE: My Lords, I had not intended to exercise my right of reply, but I have listened to so much that I find it impossible not to say a word or two. I should like the three noble Lords who have spoken from the Conservative Benches to go home and, tomorrow, to read Hansard when it comes, and to remember that each of these noble Lords have said they are fully in favour of the comprehensive system. I think this will make them realise that they have given an impression which is wildly in the opposite direction.
Secondly, I always have to admit that the noble Viscount, Lord Eccles, speaks with great charm and great conviction, but quite honestly, it was almost a dirge tonight. Everything is wrong. We know that he has no time whatever for the Department which he presided over with such skill and distinction some years ago. It is new to us to know that he is now going for the Church and the universities. There is practically nothing left but a total depression. I assure the noble Viscount that if he will come with me to two or three comprehensive schools—I daresay he has been to them before—and talk to the staff he will find an energy and a dedication which is extremely exciting and which he ought to be proud to be helping instead of hindering in the way the speeches this evening have hindered.
My Lords, I do not want to end on too unhappy a note, but I could not sit and hear what I have heard without making

1433
it clear that two-thirds or three-quarters of the teaching staff in this country are teaching in comprehensive schools. Nearly all of them are dedicated to the work they are doing, think they are doing it in the right way, are excited about it and want help. I do not think they have had it tonight. On that note I should like to ask that this Bill do now pass.
On Question, Bill passed and returned to the Commons with the Amendments.

LONDON TRANSPORT BILL
Reported with Amendments.
WEIGHTS AND MEASURES (No. 2) BILL [H.L.]
Returned from the Commons agreed to with Amendments; the said Amendments to be printed.
BAIL BILL [H.L.]
Returned from the Commons with the Amendments to the Commons Amendments agreed to.
TEES TUNNEL BILL
Returned from the Commons with the Amendments agreed to.
NEW TOWNS AMENDMENT BILL
Returned from the Commons with certain of the Amendments agreed to; but with the remaining Amendments disagreed to with a Reason for such disagreements; the said Reason to be printed.