§ 3 p.m.
§ Further considered on Report.
§ Clause 6 [Duties of the Corporations to review and report on management of their affairs]:1263
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 1264 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 1265 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 1266 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 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 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 1268 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 1269 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 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 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 1270 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. 1271 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.
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 1272 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 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 1273 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, 1274 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 1275 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 1276 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.
§ Amendment, by leave, withdrawn.
§ Clause 11 [Financial duties of the Corporations]:
§ 3.38 p.m.
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:
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 1280 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 1281 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 1282 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.
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.
My Lords, I do not think that the noble Viscount, Lord 1283 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 1284 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.
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 1285 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 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,—
§ 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 1286 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 1287 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 1288 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 1289 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 1290 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 1292 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 1297 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 1298 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 1299 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 70.1301
|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.|
|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 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 1302 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- 1303 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 1304 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 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 1305 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 1306 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, 1307 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.
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 1308 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.1309 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.
§ Amendment, by leave, withdrawn.
§ 5.9 p.m.
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 1310 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.
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 moved Amendment No. 114:
Page 24, line 15, after third ("the") insert ("whole or part of the").
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—
(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.1312
§ 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—
(7) A right to repayment shall not be so treated").
§ 5.18 p.m.
§ 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
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 1314 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 1315 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 1316 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 1317 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.
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.
1318 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 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. 121.1319
§ 5.37 p.m.
§ 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 1320 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 1321 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.
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 moved Amendment No. 122:
Page 26, line 12, at end insert—
("( ) In this section—
operative date" in relation to a notice means—
securities" has the same meaning as in section 20 above.")
§ Clause 26 [Final payments of dividend and interest]:
§ 5.46 p.m.
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 1323 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 1324 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.
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.
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.
§ 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.
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 1326 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 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 moved Amendment No. 135:
Page 36, line 31, leave out ("disposal") and insert ("transfer").
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 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.1327
§ Clause 31 [Dissipation of assets by transactions involving holders of securities etc.]:
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.
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 beeninstead of the words "could be" which the noble Lord's Amendment has in it. 1328 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 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
§ 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 1329 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 1330 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 1331 these debates, but as I am in danger of rupturing myself by carrying copies of Hansard both from the Commons and this House—
§ 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.
§ 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 1332 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 1333 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— 1334 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 readPage 43, line 24, after ("and") insert ….the words as printed on the Marshalled List.
§ 6.20 p.m.
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 1336 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, 1337 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 1338 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 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
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 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 1340 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 1341 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 1342 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 1343 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 1344 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 1345 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.
1346 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 1347 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 1348 £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 1349 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 1350 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 1351 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 1352 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 1353 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 1354 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 1355 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 1356 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 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, 1357 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 1358 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 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 1359 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 1360 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 1361 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 1362 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 1363 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 moved Amendment No. 144:
Page 49, line 5, at end insert—
(""independent accountant" means a person who is—
§ 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 1364 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 1365 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—
§ 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.
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 1366 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 1367 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.
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 moved Amendment No. 145:
Page 49, line 16, at end insert ("or—
(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 1369 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 1370 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 1371 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.
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 1372 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 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- 1373 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.1374
§ 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 1375 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.)