SHIPBUILDING AND AIRCRAFT NATIONALISATION (Hansard, 1 October 1976)

§ Lord TREFGARNE
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The MINISTER of STATE, SCOTTISH OFFICE (Lord Kirkhill)
My Lords, compensation will be satisfied by the issue of Government stock. This represents the substitution of one form of security for another and does not place a direct demand on resources; neither does the issue of compensation stock add to public expenditure.

§ Lord TREFGARNE
My Lords, in thanking the noble Lord for that reply, may I ask what rate of interest will be paid on the compensation stock and also whether the stock will be dated or undated?

§ Lord KIRKHILL
My Lords, it would not be possible for me at this time to say what rate of interest will be paid on the stock. That will be assessed much nearer the time of the date of issue which, depending on the process of the Bill, would be probably in about one year from now.

§ Lord WIGODER
My Lords, can the noble Lord say whether interest on the stock can also be paid by the transfer of resources?

§ Lord KIRKHILL
My Lords, I accept that the effect of interest on the public sector borrowing requirement is certainly one of pressure; but, as my right honourable friend the Chancellor of the Exchequer has made clear on a number of occasions, he will take all countervailing fiscal or monetary measures that may be necessary at the time to ameliorate that position.

§ Lord ORR-EWING
My Lords, will not the Minister agree that this so-called transfer of resources really means that the Government gilt-edged stock will, in the great majority of cases, be transferred to the holding company of which the subsidiaries have been nationalised? In most cases these groups will need to realise this money in order to re-structure their companies and to invest in new jobs and new equipment. Is it not true that the Government can cover this money either by raising taxation or, according to present practice, by increasing their 758 borrowing requirement? Is it not true that £9 billion needs to be borrowed in the current year of which £4 billion has still to be covered? Does it not therefore mean that the stock will have to be issued with a high coupon rate? Does not this add to the inflationary pressure of Government commitments? Would he suggest to his right honourable friends and other Ministers that they stop using this mumbo-jumbo, face the facts, stop spending more money and get down to action on this point?

§ Lord KIRKHILL
My Lords, if I may comment on the last question first, without making any comment on the noble Lord's last phrase—with which, naturally, I tend to disagree— I have already admitted that the coupon rate will be adjusted, probably in ten or eleven months' time from now. As to the actual rate, I am not at this point able to say. There will be opinion as to whether that rate is high, too high or not high enough. Regarding the other points, I confirm that compensation stock in the majority of cases will be issued to a single shareholder—as the noble Lord says, the holding company concerned. Certain incentives have been provided for such people in the 1976 Finance Act by way of capital gains tax relief to encourage them to use the proceeds of compensation—as the noble Lord suggested—only for productive reinvestment. The Government encourage such a view.

§ Lord HAILSHAM of SAINT MARYLEBONE
My Lords, does not the answer to which I have just listened, and did not the original speech to which the Question relates, amount to this: if we offer in payment paper which is not immediately redeemable, it costs us nothing? Is not that rather a dangerous doctrine at this time for the Government to proclaim?

§ Lord KIRKHILL
My Lords, one must be straightforward and say that as between these Benches and the Benches opposite there would probably be a disagreement on interpretation as to exactly what this phrase "transfer of resources" means. I am advised that in effect the Government are exchanging shares in the private sector companies for gilt-edged securities. The shareholders concerned will have been receiving 759 dividends on their shares; in future they will receive interest on Government stock. By and large, the effect will not be to place a demand on resources unless the shareholders being compensated choose to sell their compensation stock in large quantities. I am further advised that recent and past practice regarding the issue of stock in the nationalised concerns does not suggest that shareholders off-load in large quantities. This ties up with the point which the noble Lord, Lord Orr-Ewing, made earlier.

§ Lord THORNEYCROFT
My Lords, may I ask the noble Lord who will be responsible for new capital formation within the company when it is acquired?

§ Lord KIRKHILL
My Lords, I need notice of that question before I can answer with competence.

§ Lord THORNEYCROFT
My Lords, as the main charge upon the public in these cases of nationalisation is the colossal burden of capital formation, would the noble Lord look closely to see what charges on the public are likely to result if we increase the number of publicly owned industries?

§ Lord KIRKHILL
My Lords, I will look very carefully at the point which the noble Lord raised. I said a few moments ago there is usually a difference in basic ethos between this side and the other side on matters of that kind. We then get into difficulties about whether the issue of a Government coupon leads to an inflationary tendency or whether it is a transfer of resources.

§ Lord DAVIES of LEEK
My Lords, will my noble friend refuse to be led up the alley of froth-flowing propaganda from the questions opposite when this matter can be fully debated when the time comes? Will he finally note that some of us who had railway stock which was worth nothing when the railways were nationalised, suddenly found that it became valuable, and interest was duly paid to people who would have had nothing when the railways were nationalised?

§ Lord KIRKHILL
My Lords, it may have been frothy but it was very interesting.