HL Deb 18 October 1976 vol 375 cc869-1117

8.6 p.m.

House again in Committee.

Lord CARR of HADLEY moved Amendment No. 85: Page 9, line 16, at end insert ("and any other person who, or organisation which, appears to it to be representative of a substantial proportion of its employees or of those of any of its wholly owned subsidiaries.").

The noble Lord said: This is another Amendment which deals with the large and difficult subject which we now call, "industrial democracy", and as I said towards the end of the discussion on the Amendment which we took immediately before our break in this business, much that was said on that Amendment really overflows into this Amendment. I should first like to pick up something said by the noble Lord, Lord Melchett, last Thursday evening when I apologised to him for not being here to hear his reply, because on that occasion I spoke just before the dinner interval and I could not be back quite as promptly as I am tonight.

I want to say this because I think it is central to the differences between us. The Amendment to which I spoke just before the dinner interval last Thursday was a probing Amendment to remove from the Bill the words "industrial democracy of a strong and organic kind". I made it clear that it was a probing Amendment to discover what the Government intended by those words, and I see that in his reply the noble Lord made the point that what form industrial democracy takes should be left to the people involved. I want to assure him that of course we agree with that very strongly. There is no difference between us on that point. The noble Lord then went on: In fact, when noble Lords ask us to define precisely what we mean by industrial democracy what they are either consciously or unconsciously saying is: 'You must lay down what form industrial democracy is to take in these particular industries at this particular time'."—[Official Report, 14/10/76; col. 568.]

I want to make it clear to the noble Lord that this is precisely not what we want to lay down. This is not the issue between us. Indeed looking ahead to what action the Government might take following the Report of the Bullock Committee which is expected towards the end of this year, my concern is lest the Government should introduce legislation which will do just that. It would fix a rigid pattern for the development of industrial democracy. What I believe is necessary is a diverse series of experiments in different industries and different companies, anyhow for some years, until we see what forms are the most suitable; but even with that experience I suspect that what is most suitable for one industry or one firm may not necessarily be what is wanted by the workers in another industry or another firm. The difference between us and the Government most certainly is not that. I repeat, we do not want to lay down precisely what form industrial democracy shall take in this or indeed any other industry.

Our concern is a very different one. It is that it should indeed be democracy. This was why, since the Government had not themselves defined it in the interpretation clause of the Bill, I went back to the dictionary and drew the attention of the noble Lord to the fact that democracy is something to do with Government by all the people, the concern of all the people in the community. My complaint against the Government was that they were not making it the concern of all the people in the community. On the contrary, they were deliberately and specifically making it the concern of only some of the people in the community. This seems to me to be seriously wrong.

Moreover, I also drew the attention of the noble Lord to the fact that among the many meanings of the word "organic" which is used in the Bill, the one which seemed to me the most apposite was that which involved some systematic organisation, some systematic connection between the different parts of the whole. So when the Government say they wish there to be the development of a strong and organic industrial democracy, they really must, if their words mean anything at all, mean a strongly organised form of democracy which not only affects but involves all the employees in these industries. Alas! this is exactly what the subsequent provisions in this Bill fail to do. Hence the reason for Amendments Nos. 50 and 51 which we dealt with last Thursday and carried. Hence the reason for this Amendment, and hence the reason for some Amendments still to come.

In considering this matter, we have to distinguish very sharply between consultation, on the one hand, and collective bargaining, on the other. I think most of us know that custom and practice in British industry is much stronger than the effect of law in British industry, but the very widespread and deeply ingrained custom and practice in British industry on the part of both management and trade unions is to make a sharp distinction between consultation and collective bargaining. Indeed, some of the consultation which goes on in British industry via works councils and so on does so satisfactorily only on the assurance that the joint consultative machinery will not overstep the boundaries in collective bargaining, and will not concern itself with those matters which are the proper concern of collective bargaining between trade unions and employers.

Here in this Clause 5 we are dealing with consultation. When we come to Clause 6 we shall be dealing with collective bargaining and there the issues are different although closely related; but here we are dealing consultation. The case I am making to the Government is this: that at least where we are dealing with consultation as opposed to collective bargaining it makes an utter mockery of the word "democracy" if the consultation is not to include all those involved in the industry. Of course, I accept that if there are 100,000, or even 10,000, or even 1,000 people involved in an industry and none of them chooses to organise themselves, it is a practical impossibility to consult with 1,000, let alone 100,000 or 200,000 separate individuals. So I accept the point that, if people want to be consulted, they have some duty of self-interest, if no other, to form themselves into organisations. Clearly if consultation is to be effective the Corporation will have to be able to pick out organisations with whom they should consult. That I accept.

However, I do not accept that everyone should be pressurised to join an organisation. I accept that if they wish to be consulted, they should normally reckon to join some organisation. What I am really saying to your Lordships is that the organisations which are consulted should not be limited in any way. It may be necessary—and we will come to this in the next clause—to limit the organisations with whom collective bargaining takes place. But we ought not to limit these organisations with which consultation takes place and that, I am afraid, is what this Bill does as at present drafted. It is wholly wrong, and it is grossly unfair.

I was delighted to hear one of my noble friends just before dinner, when speaking on the last Amendment, using the word "fair". The word "fair", I know, is a word which can be abused, but it is an extremely important word. It is not fair to single out those employees in those companies who may perhaps be about 70 per cent. of the total, in other words the majority of the employees, but to leave out a substantial number, probably amounting to about 30 per cent., simply because they do not belong to organisations the colour of whose eyes are acceptable to the TUC. If we "cut the cackle" this is what it is all about. At the moment the Government are saying one can only put a duty to consult on those organisations which happen to find favour with the TUC. This is a most depressing and sad situation to be in.

When I look back I think of long before I was even born or before any of your Lordships were born, of the role of the unions which now form the TUC, when some of them (others were not even formed in the days I am talking about) were fighting for the right to associate, to be consulted. They were fighting for the right to organise. And today we see those unions which have now achieved those rights selfishly trying to exercise a tyranny on those who have not yet achieved them. This is a sad day in British industrial history. There are some people, like Mr. Clive Jenkins, who like to call some of these bodies about whom we are now talking "sweetheart organisations"—I think that is the phrase. It really is insulting in the extreme because the groups of workers he now represents, had this Bill been introduced a comparatively few years ago, would have been on the wrong side of the blanket as he now defines it. I find it thoroughly objectionable that those who happen to have reached a certain point in their historical development should now try to have a monopoly in these cases.

When we come to the question of collective bargaining we have a much more difficult problem—I agree it is a very much more difficult problem—to consider. But

when we are talking about the right to consult, it is wrong, on any basis of natural justice, to exclude those organisations which at the moment are not relevant trade unions in the narrow definition of that phrase contained in the Bill. So I hope that the Minister will address himself seriously to this Amendment. I know he has told us, and I know other Ministers have told us, that of course the Corporation will talk to anyone. All right. But he must accept that there are many people who do not believe that, who fear that that will not be true, who fear that the noble Lord, Lord Beswick, has already come under pressure not to consult with certain people. In any case, even if there is no truth in those fears at all—and I certainly hope there is no truth in them—what justification is there for singling out certain organisations which must be consulted with, and leaving out the others?

The truth is that if industrial democracy is to mean anything in this country, all organisations representing any significant number of workers in industry must have the right to be consulted. Let me once again underline that when one comes to the question of collective bargaining one is in a much more difficult position. Whatever might be the perfect ideal to aim at, we probably cannot reach it because of the natural failings in human nature. At least we cannot reach it easily and quickly. But when we are only talking about consultation, there is no reason in the world why an equal right should not be given to all significant, proper, independent organisations to be consulted. That is what this Amendment asks, and I very much hope the Government will take the case very seriously, because if they do not I am afraid they will be convicted of gross hypocrisy so far as their concern for industrial democracy is concerned. I beg to move.


I seem to remember that, during the discussion on the last Amendment, the noble Lord, Lord Melchett, said that one of the difficulties would be to decide which organisations should be consulted. Of course, the difficulty is even greater now that the list has been enlarged. But could not that be overcome by leaving the decision to the Corporations themselves, by simply inserting the words, "and if they so choose with any other person", et cetera?

Baroness SEEAR

Can we be told more precisely what really is the meaning of the word, "relevant" in this context? What does or does not make a trade union relevant? I can well understand that "independent" has something to do with this, but what is "relevant" in this context?


In his opening reply to the last Amendment the noble Lord, Lord Melchett, no doubt choosing his words very carefully, referred to "independent and organised trades unions", and he then went on to speak of the difficulties in identifying professional organisations. Since he cannot—and I do not imagine ever would—seriously suggest that there are not independent and organised professional organisations, nor that they have an equal right to represent their membership in any consultations, as have the trade unions, the noble Lord can only have been pinning his argument to the word, "relevant". That will not do, because the word "relevant" is in the Bill, surely, for the purposes of identifying the trades unions. If we can identify the trade unions, we can identify the other organisations which might be concerned, whether they are within the narrow confines of the last Amendment or the broader areas of the Amendment proposed by my noble friend Lord Carr. Any responsible body could well come within this.

The noble Lord, Lord Melchett, when he spoke on the last Amendment—I make no apology for referring to that because the arguments could be equally applied here—referred to the question of size, the small numbers of people who might be represented if we included other organisations. But in the Bill the words are, "any relevant trade union". There is no qualification of how many members that union should have. Not only is this whole proposition from the Government distinctly undemocratic, and singularly unsuitable, I would suggest, in a clause specifically referring to industrial democracy, but if the noble Lord is serious in his argument surely he should go back and delete that word "any" from the Bill. This undemocratic attitude as to who may or may not be consulted simply will not do.

8.25 p.m.


My noble friend Lord Carr of Hadley has expressed the fears of so many of us on this side of the Committee with infinitely more precision, accuracy and force than I could hope to do; but I should like to emphasise the point that he made by reference to a matter which was raised on an earlier Amendment, and to which, to my mind, the noble Lord, Lord Melchett, gave no satisfactory reply. That was the case of the British Association of Aerospace Staffs; I think I have that name correctly. I was not personally involved with that, but the matter was originally raised by my noble friend Lord Ferrers.

It was quite clear that that association had been denied the right to make their case to the Organising Committee for the Aerospace Industry, and that that denial had been caused, it seemed to us, by pressure from other sources. All that took place last week, and I hope, therefore, that the noble Lord, Lord Melchett, will have been able to look into that particular matter with more care than he was able to do standing at the Dispatch Box and can give us a helpful answer on that point tonight.

It is, I believe, a fundamental cornerstone of our arguments and our complaints about this particular clause of the Bill that the will to consult seems so feeble and has been so inadequately written into this Bill. I hope, therefore, the noble Lord, Lord Melchett, will listen very carefully to the points we have made. I also hope that my noble friend, Lord Carr, and others on the Front Bench will not he too easily persuaded by any answer that the noble Lord and his advisers may give. I think we should stand very firm on this Amendment and divide upon it if necessary.

The Earl of ONSLOW

There was a song in the Eurovision Song Contest a few years ago called "Puppet on a String". What I am asking noble Lords opposite is whether they are acting as collective puppets on strings. I want to find out—and I am sure noble Lords opposite can give me an answer—whether the TUC or the relevant trades unions, which I am sure they can define, have made representations to Her Majesty's Government on this particular subject. If they have said, "We do not want anybody else being consulted by law under this Bill except us", then from the noble Lord, Lord Melchett, right up to the right honourable gentleman, James Callaghan, they are acting as puppets on strings. I think that is a very undignified position for Her Majesty's Government to find themselves in. It is very distressing to see this particular performance.

If, as is so frequently the case—I am sure Her Majesty's Government and Her Majesty's Government's spokesmen here can advise me on this—peradventure, I am wrong, and the TUC and the relevant trade unions have made no representations to Her Majesty's Government, then there is no possible argument against consulting everybody else. The only argument that there can be for not consulting the remaining 30 per cent. is that the 70 per cent. do not want it. If the 70 per cent. do not want it, then that is industrial democracy my foot! It is not; it is tyranny of the majority over the minority. I am sure that the noble Lord, Lord Melchett, would rather resign than countenance tyranny.

8.30 p.m.


First, may I answer the direct point put to me by the noble Baroness, Lady Seear. I understand that "relevant trade union" is defined in Clause 56. In effect, the definition is in two stages. First of all an independent trade union, and it will be certified as such under the Trade Union and Labour Relations Act, and the second leg as formally recognised by the Corporation, or a wholly owned subsidiary of one of the Corporations, for the purposes of collective bargaining, again as defined in the Employment Protection Act. I shall be mentioning the relevance of the definition to those two previous Acts in a moment.

As the noble Lord, Lord Carr, made clear, these Amendments directly parallel Amendments Nos. 50 and 51 to Clause 2, which we have already discussed at some length. They seek to achieve the same result as those Amendments, but in relation to Clauses 5, 6 and 7 instead of Clause 2.


May I intervene to say to the noble Lord that I specifically went out of my way to say that I recognised that Clause 6 was in a different category. It is important to recognise that difference, because Clause 6 is to do with collective bargaining and the others to do with consultation.


I apologise to the noble Lord. I did not make that point, which he made quite clear. I explained on Clause 2 why the Government consider that relevant trade unions are most suited to act in the interests of all employees. I pointed out that in practical terms the Amendments would have little effect since the Corporations may he expected to recognise unions which they consider represent substantial proportions of employees. Moreover, the provisions suggested by noble Lords opposite could, as again I pointed out on the earlier Amendments, lead to damaging recognition disputes and so create very difficult industrial relations problems for the new Corporations.


I apologise again, but with great respect I think that the noble Lord is muddled up. Recognition disputes arise over recognition for industrial relations recognition, for collective bargaining recognition. It really is a custom and practice in wide areas of British industry that consultation can be on a wider basis than collective bargaining.


I accept that there is some force in what the noble Lord says, but I still think it is the case that if we did not follow the existing industrial relations legislation in this Bill we would leave these two Corporations facing very difficult problems in making the decisions which I think, to reply to the point made by the noble Lord, Lord Somers, are in their hands already, as to which organisations shall represent and which organisations not represent. What we propose by linking in these industries to our general legislation on collective bargaining and proper employee representation at least has the merit of providing a means of resolving disputes between rival groups in claiming to represent employees. I pointed out on the previous Amendment the role that ACAS would play in that case.

I should also like to point out that in practical terms some organisation must be assumed to be representative, otherwise consultation gives rise to damaging delays. We might differ about which organisations the Corporations should be obliged to consult, and I can only repeat our view that we regard relevant trade unions as the most appropriate organisations for that particular purpose.

The Earl of ONSLOW

I specifically asked the noble Lord two questions just before he rose to speak. I know that he is a highly clever chap, and I am sure that he has not forgotten what I said. It may not have been absolutely right. But could he answer whether he has had, or Her Majesty's present advisers have had, any representations made to them by the TUC or the relevant trade unions on this particular point of the Bill?


I had hoped that the noble Earl would see something in what I said as an answer to that point, but I apologise for not answering it in terms. I was trying to make clear that the definitions in the Bill follow the general industrial relations legislation passed by this Government, and therefore are in line with our thinking, and it did not need representations from relevant trade unions or anybody else to convince us that this was the correct course to follow.

8.36 p.m.


I think we are in a slight difficulty here because the noble Lord says that this Amendment would have little effect as he anticipates that the Corporations would consult these people anyhow. But he then says that if we put it into the Bill it will run counter to the Government's policy on collective bargaining and employee representation. I do not think one can have it both ways. This is obviously nothing to do with collective bargaining. What we are doing in this clause is saying that after British Aerospace or British Shipbuilders have made their report, before they take any action at all on what they propose to do as a result of making a report on what they find, they should consult with various people.

I find it difficult to consider that the people whom they should consult should be tied up with those people with whom they do their collective bargaining. Obviously if, as a result of this wide-ranging review which is going to be undertaken as soon as this Bill becomes law, the two Corporations are going to take some fairly drastic action, it is quite right that they should consult with those who are going to be affected. It is quite right that they should consult with the trade unions; it is quite right that they should consult with those people with whom they do their collective bargaining, but it is also quite right to consult with those people who may not be members of trade unions.

But, as my noble friend Lord Carr said, you cannot consult with everyone. If they are to be consulted, they must get together in some form of union in order to identify the various people, or the various bodies, who should be consulted. The noble Lord, Lord Cooper, said on the previous Amendment—and I can understand it; after all, his knowledge of trade union practices is widespread and is greatly respected—that there are many trade unions, and really it is reasonable to expect people to join those bodies who are already known and associated with consultation; that if they want to be involved, let them join the trade union. That is an understandable point of view, but it is equally the very one that we on this side are frightened of because there are many people who do not want to join those trade unions. There are many people who do not want specifically to join the trade union they would need to join if, under Lord Cooper's argument, they were to be consulted.

Because there is a large body of people who do not want to join any trade union, who wish to be independent, who because of this legislation find that nevertheless they are being forced into some kind of association, is where the danger lies, because they are being obliged to do that which they do not want to do, which is to join an association. The noble Lord, Lord Cooper, says, "Well, this is one step further. If you are going to join an association, then there are those already there which you should join." It is because there are so many people who do not want to do this that we feel very strongly that they ought nevertheless to be consulted in some form or shape. I would hope that this would be done. We are on the subject of industrial democracy, and it is something that is bound to rear its head on several occasions, because after all it is one of the fundamental parts of this Bill, and one of the fundamental parts on which the Government have laid great stress, that there should be industrial democracy.

I said the other day and I do not mind saying again that I view this with a great deal of apprehension, not because consultation should not be undertaken, because it should, but because of the idea that managements and businesses should be run not by people who are the right people to run them, people who should be expert at doing it—they may very well be people from the shop floor and plenty of people have come from the shop floor to positions of management by their own ability; that is absolutely right and I admire and respect it—but because they have been elected to do it. I believe that this is something that, not in the immediate future but in the long-term, could run us into many industrial problems.

I say that for the simple reason that those who run any business, in the same way as those who are test pilots, engineers or aero-dynamics experts, are in positions of management because they are experts, and if they are not they should not be there. I hope that those people will retain their positions of management and authority because of their ability to do so and not because they have been elected to do so.

I hope that the Government will consider this matter again. I appreciate that the noble Lord, Lord Melchett, said that it runs counter to their policy at the moment. Nevertheless, I hope he will be prepared to look at it again because, as drafted, the Bill means that many people will not be democratically consulted; either they will not be consulted or they will be forced into a collusion of people with whom they would rather not be forced to be with. I hope that even now Lord Melchett will say that he will reconsider the matter.


I hope that if my noble friend Lord Melchett is tempted to give way by the power of persuasion of the noble Earl, Lord Ferrers, he will have another look at the words which the noble Lord, Lord Carr of Hadley, and his noble friends have suggested because it seems that they are as nearly meaningless as any words could be. The Government may be wrong, but at least they know what they are doing; they say that the relevant trade unions shall be consulted and we all know what a trade union is for. On the other hand, Lord Carr does not want to do that. He wants the clause to read: … any other person or organisation which appears to it to be representative of a substantial proportion … A substantial number of people engaged to do what? It would be possible inside a firm to have an organisation with a substantial membership to propagate the idea that the earth is flat. On the basis of Lord Carr's Amendment, the flat earthers, representing a substantial proportion of employees, would have a right to be heard. The same would apply to a body of Jehovah's Witnesses or even a football club. The words in the Amendment are in no way associated with the noble platitudes that have been ennunciated from the Conservative Benches.


Is the noble Lord aware that one of the main purposes of some of the relevant trade unions is to propagate Socialism? If that is not as out of date as the belief that the world is flat, what is?


I am delighted to know that trade unions are engaged in propagating Socialism, which is a noble cause. I have no doubt that the Jehovah's Witnesses and the Flat Earth Society regard their causes as noble. We are not discussing nobility, but the noble Lord's Amendment. It is obvious that the noble Lord's heart has run away with his head. I am simply saying that, even if the argument is sound, the words are wrong because they do not mention collective bargaining or trade unions.

The Earl of ONSLOW

If the wording of the Amendment is defective, I am sure that my noble friends would be happy to take it away and ask the Government to redraft it, provided the Government agree to listen to the principle that 30 per cent. of the people in the aircraft and shipbuilding industries who are not represented by relevant trade unions can in some way be consulted. That is the kernel of the argument.


I am not saying whether there are 30 per cent., 40 per cent. or 50 per cent.


Why not?


Does the noble Baroness wish to interrupt?


Not really.


In that case I wish she would not interrupt from a seated position. Whether the percentage is 30 or 60, the words of the Amendment written into the Bill would render it meaningless. I repeat that, while the Government may be wrong, at least we know what they are wrong about. The Opposition's proposed words are linked to a person or an organisation "which appears to it," which are the sort of imprecise words which should not be included in a Statute because, as has been argued, they could be the cause later on of dispute and great trouble. What we need here is clarity of thought and precision of expression. The Amendment is neither and I hope for that reason that the Government will stand firm. On the other hand, if Lord Melchett has been converted by the arguments of noble Lords opposite, I hope he will get up and say so. At the moment I am not dealing with conversion but with the lack of clarity in the wording of the Amendment.

Baroness SEEAR

I, too, hope that the noble Lord, Lord Melchett, will look at this matter again, and I ask him to do that for somewhat different reasons from those advanced by the noble Lord, Lord Wigg. From the answers Lord Melchett gave it seemed with respect as if the distinction between negotiation and consultation was not quite clear to him in the way it is put in the Amendment. It is one thing to say that one will negotiate only with certain unions. It is quite another to say that there are positive mutual advantages in consulting with a much wider range of groups, and this does not conflict with the trade unions and labour relations legislation. The advantages are two-fold.

First, from the point of view of the organisation, whether or not the Government like it, there are a number of individuals at all levels who are not going to join existing trade unions. They will be unable to have the contact which consultation would give them unless something of this kind is included. They will be very bitter. It cannot help these new industries if one starts with quite sizable groups of people who not only are excluded from the industrial relations and industrial negotiating process—which, whether or not one likes it, one accepts—but are also excluded from consultation. The ability to have consultation would alleviate this bitterness. Secondly, many of these people have knowledge and information and it is the purpose of consultation to get that knowledge and information across in a very complex new industry, because it will be newly organised, which will have many new problems to face. It is surely extreme folly not to tap all sources of knowledge, information and ideas that are available by extending consultation which would not cut across the negotiating procedures. There would, therefore, be this double advantage.


I wish to add a brief word of support for my noble friend Lord Melchett. It seems to have been overlooked in this discussion precisely what Clause 5 aims to do, and that is to impose a statutory obligation on the Secretary of State to consult with certain bodies. For this purpose, therefore, one must have very clearly defined the precise bodies with which the Secretary of State must consult, not bodies which he would possibly and desirably consult because he can consult with anybody he likes and I have no doubts that he will consult with a wide range of people.


I interrupt the noble Lord simply to remind him that it says that the Corporation, not the Secretary of State, shall consult.


I am grateful to the noble Earl; I should have been referring to the Corporation. It is the Corporation that is bound to consult and I think the point is exactly the same because the statutory obligation is there. In the case of a relevant trade union, this is a clearly defined concept. I have forgotten the provision, but we have the definition clause in the measure and that is precise. It defines precisely what is meant by a relevant trade union. But when you consider the situation of the Corporation, which may have a variety of employees—solicitors, accountants, architects, all sorts—does that mean that if you have some general expression such as a "relevant organisation", there is to be a statutory obligation to consult with the RIBA, or with the Law Society, or the Bar Council or whatever it is?

A noble Lord

Or the Transport and General Workers' Union.


This is a clearly defined body, related to a specific group, but in the case of all the different sorts of people who may be in this organisation, they belong to professional organisations. It would be an absurdity that the Corporation should be expected to consult with every representative professional body that may in some sense or another be regarded as the representative of small groups of people within the organisation. Therefore, it seems to me that if we are to impose a statutory obligation, what we must have is a clearly defined group of organisations. These Amendments, as I understand them, do not even begin to qualify from that point of view.


I should like to refer back for a moment to what I was saying earlier about the Bristol Channel Ship Repairing Company, who set an example with their quarterly meetings at which they consult with all groups in the firm and explain what is going on. As the Bill is drafted, it seems obvious that there will be meetings between the management and the relevant unions and that consultation will take place at those meetings where all the points will be thrown to and fro. After that meeting the management would—presumably, almost in secret—have to go along to the associations and consult with them, not in the presence of the unions. This must be an extremely divisive arrangement if the results are different from what the unions were led to believe during their own meetings.


As regards the importance of consultation, I should like to refer back to a point on a question put by my noble friend Lord Trefgarne about British Aerospace. When I raised this point on Friday the noble Lord, Lord Melchett, was quite heated and asked me to withdraw. I said then that I thought that if he would refer back to Hansard the point at issue—the importance of consultation—was there. I would refer the noble Lord to column 589 of Hansard for Thursday, 14th October, where he said: They"— the chairmen designate of the Corporations— are both perfectly willing to talk to anybody who wishes to talk to them, and I know that my noble friend Lord Beswick has met groups of people, among which have been both members of trade unions and also people who are not members of trade unions. I merely refer to that because I was making the point that if he had talked in the past, he would presumably talk in the future. I was trying to put the situation right and I was not, as the noble Lord suggested, deliberately trying to make trouble. I should just like the noble Lord to take that point in the spirit in which it was meant.

8.53 p.m.


I must take up your Lordships' time for a moment more because I feel that the Government ought to pay more serious attention to the points we are making. When we get on to Clause 6 which deals with collective bargaining, we shall be on much more difficult ground and I may find myself not altogether at one with some of my noble friends on that issue, because what is ideal and what is practicable in the field of collective bargaining machinery may differ quite considerably. In my view, one can only move towards the ideal by rather slow and sometimes rather painful steps.

However, when it comes to the question of consultation, there is not the same resistance or rigidity, nor ought there to be. I was very glad to hear the noble Baroness, Lady Seear, support me on the point of the difference between consultation and negotiation, because there is a difference not only in kind but also in industrial relations practice, in the custom and practice in British industry. I notice that the noble Lord, Lord Cooper, shakes his head and I must be careful because, clearly, the noble Lord, Lord Cooper, from his great experience in the past, knows more about this than I do. However, I do know something about it. No doubt it varies from one part of industry to another, but I know whole parts of industry where what is permissible and acceptable in terms of the consultative constituency is different and wider than the negotiating constituency.

I really believe that the noble Baroness, Lady Seear, said wise words when she asked the Government to consider the bitterness and frustration that will arise if we start these new Corporations in the situation where some 70 per cent. of the employees have a legal right to consultation and the other 30 per cent.—and we are only guessing the percentage, but I do not think that I am exaggerating, and certainly in the aircraft industry it is a full 30 per cent. and may be more—are not given that legal right. As I say, when we come to the more difficult question of collective bargaining, we shall be on more difficult ground and I accept—though not all my noble friends will do so—that we may have to be more restrictive and that it may be necessary to be more restrictive. However, when we are at the consultative stage, for goodness' sake let us consult as widely as we can!

The noble Lord, Lord Melchett, opened his rejection of this Amendment by saying that the relevant trade unions as at present defined were the most suitable for all employees. With due respect to the noble Lord, that is palpably not the case. The relevant trade unions predominantly represent the shop floor employees. That is absolutely right and necessary. They are the largest number in the industry and they and their unions must have a full right to consultation. That is absolutely agreed and we are not trying to disagree with that. But to say that the large numbers of people in the managerial and technical grades who, though they may be smaller in number, contribute equally to the welfare of these organisations and their contribution to the national interest should not be represented, is wrong. They really have an equal right to this legal right of consultation. I beg the Government to think about this more seriously because it is nonsense to say that the relevant trade unions as at present defined are the most suitable for all employees.

The noble Lord, Lord Lloyd of Hampstead, made the point that we needed to define precisely who was entitled. I think I should remind him that when this Bill started out the phrase in the equivalent clause to the present one referred to "independent trade unions". As, again, the noble Baroness, Lady Seear, said in her first intervention in this debate, there is some point in referring to "independent trade unions". I can see the point that one should not give a legal right of consultation to organisations which are dominated by the employer, but, where there are organisations which are independent and are certified as independent, it seems to me that they ought to be consulted. In other words, the Bill as it started might just have been acceptable, although only marginally so, but the word "relevant" means that the union must be both independent and recognised for collective bargaining purposes. By including that extra condition the Bill has now become much more restrictive than when it started life. Whatever may be necessary for good order in collective bargaining, it would be disastrous if we agreed to confine it in this way over the process of consultation.

If I may turn to the noble Lord, Lord Wigg, if the wording of this Amendment is too sloppy, I take that criticism. It is always difficult, as he knows as well as anybody, for Private Members and Oppositions to get their wording right, but of course we will willingly consider any suggestions from the Government to tighten up our wording, to be more precise in our definition, because I do not want people of the Flat Earth Society to be consulted on this matter because they are the Flat Earth Society. I am sure we could alter our Amendment with due thought to make it relevant to the purposes we have in mind. I beg the Government to think about this a little more fully. We may come to an unbridgeable divide when we get on to the collective bargaining side, but I do not believe we need to be on opposite sides of the chasm when we are talking about consultation. If the Government would only address themselves to this and not go on repeating their previous position, I think some good might come of it.

What the Government seem to be saying at the moment to some 30 per cent. of the employees in those Corporations—and I am sorry if my last words appear to be rather harsh ones—is that some people, some superior persons, are entitled to the legal right to be consulted and that legal right shall be solemnly enshrined in the Statute but that the remainder, the inferior people, the peasants, if you like, have no legal right which can be enshrined, although as a matter of grace, of paternalistic benevolence, they may be consulted. That is thoroughly insulting to the 30 per cent. of the employees in this industry, and I beg the Government to think again.


I should just like to explain why I was shaking my head at the noble Lord when he spoke of this distinction between collective bargaining and consultation. That used to be the case. I think that the TUC reports are carefully prepared and well-documented. On the question of consultation they say—and this is in their pamphlet on industrial democracy—that the situation has become blurred. It is true that if you go back a decade there is a very clear distinction between consultation and negotiation but, as the Donovan Report brought out, there are two systems of industrial organisations in this country; that is, the shop floor and the national bodies. Very often they are at odds with each other. This is a problem for the trade union movement but, because of the power of the shop floor—power, incidentally, brought about by the development of British industry, the high concentration of industry and the situation created by industry—where a few men can stop a line, the old conception of consultation has become blurred and negotiations take place that at one time were national or regional.

So there is this situation. The very thing we are discussing illustrates a very different development from ordinary consultation, because this is talking about the Corporation preparing a review, and the only reference to consultation is that when they have prepared that review they must refer it for consultation to the relevant trade unions. I say this because, as the noble Lord, Lord Carr, has said, we do not want to get at odds with each other, I will not mention the facts, because you cannot generalise in this situation. All situations are different, but in many situations where you have consultation—this again is the attitude of the TUC; I do not say it is wrong; it is an attitude I support—where the relevant trade unions have made the consultative machinery, then, of course, they regard this in a sort of partially possessive way, that this is their machinery.

When the question was asked about what consultation had taken place between the unions and the Government, that was indeed a naive question to ask, because, as the noble Lord, Lord Carr, knows, the trade unions nationally will negotiate with any Government. We negotiated with the Conservative Government. I played my own part in that. We negotiate with the Labour Governments. Governments have come to the point of view that any legislation touching upon industrial relations shall be discussed, and very properly I think, with the CBI and the TUC. I thought I would say this because I agree with the noble Lord, Lord Carr, that a decade ago there was this clear distinction between consultation and negotiation. I do not think that prevails any longer.

9.5 p.m.


I wonder whether I could be allowed to say this to the noble Lord, Lord Cooper, because clearly he speaks with more knowledge and experience of these matters than certainly anyone present in this Committee at this moment. He is at any time equal to anyone in this House. I accept that there has been a change in the last 10 years and I am also prepared to say that the change has gone further than perhaps I had realised. But, if that is so, then there really is a burden of obligation on the TUC unions also to soften their attitude as to who they bring in and who they do not. May I just draw the noble Lord's attention, and of course the Government's attention, to the sort of matters which this comprehensive review is to cover; it is to cover the decentralisation of management. Surely, if the review is to cover the decentralisation of management, then management in the Corporations really ought to be consulted about that. They are not properly represented in those trade unions which at the moment qualify as relevant trade unions in the terms of this Bill.

Then, if we look a bit further, we see, particularly in relation to shipbuilding, decentralisation of the management and decision-making to separate profit centres. Not only is there the need to consult with management generally but when we are talking about profit centres and, later on in another clause, about corporate planning, all the specialists in management—for example, accountants, in the widest sense of the word, cost- and work accountants, management accountants, as well as the more technical sort of accountants, all the systems analysts, all these people—really need to be consulted. This is the guts, not the whole guts but part of the guts, of the review. The relevant trade unions as at present defined simply do not, and if they are honest cannot, claim adequately to represent those grades of staff.

I submit to your Lordships' Committee that to have this comprehensive review to look at all these things and to fail to give a legal right to consultation to the people most concerned with some of the aspects I have just mentioned is not only an injustice to them but madness in terms of the future efficiency with which these Corporations are expected to operate as written into this Bill.

Again, I beg the Government not to treat this in some partisan, political manner. There really is a matter of the future efficiency of these Corporations at stake, and getting the right organisation. There is also a matter of future good will of large numbers of their staff. I am always saying in speeches that in the end democracy is about the will of the majority and, although minorities must be carefully considered and have great rights to be heard, in the end the will of the majority must prevail. In this case the will of the majority is being allowed to prevail without the minorities being given a fair crack of the whip in having their say in arriving at a collective judgment; and I believe that that will not lead to future good will and harmony and efficiency in these organisations.

9.9 p.m.

On Question, Whether the said Amendment (No. 85) shall be agreed to?

Their Lordships divided: Contents, 85; Not-Contents, 42.

Airedale, L. [Teller.] Drumalbyn, L. Northchurch, B.
Amherst, E. Ellenborough, L. O'Hagan, L.
Amory, V. Elliot of Harwood, B. Onslow, E.
Ampthill, L. Elton, L. Orr-Ewing, L.
Armstrong, L. Emmet of Amberley, B. Penrhyn, L.
Arran, E. Ferrers, E. Redesdale, L.
Ashdown, L. Gisborough, L. Reigate, L.
Auckland, L. Glasgow, E. Rochdale, V.
Balerno, L. Gowrie, E. Ruthven of Freeland, Ly.
Balfour of Inchrye, L. Gray, L. St. Aldwyn, E.
Banks, L. Greenway, L. St. Davids, V.
Barnby, L. Gridley, L. Saint Oswald, L.
Barrington, V. Grimston of Westbury, L. Sandys, L.
Belstead, L. Hampton, L. Seear, B.
Berkeley, B. Hankey, L. Seebohm, L.
Bridgeman, V. Harmar-Nicholls, L. Selsdon, L.
Broadbridge, L. Hives, L. Sempill, Ly.
Brookeborough, V. Hornsby-Smith, B. Simon, V.
Brougham and Vaux, L. Hylton-Foster, B. Somers, L.
Byers, L. Ilchester, E. Stamp, L.
Campbell of Croy, L. Kemsley, V. Strathclyde, L.
Carr of Hadley, L. Killearn, L. Strathcona and Mount Royal, L.
Carrington, L. Kimberley, E. Swansea, L.
Clifford of Chudleigh, L. Lauderdale, E. Terrington, L.
Colville of Cuirass, V. Lloyd of Kilgerran, L. [Teller.] Teviot, L.
Cullen of Ashbourne, L. Loudoun, C. Trefgarne, L.
Daventry, V. Lyell, L. Vickers, B.
De Freyne, L. Mancroft, L. Ward of North Tyneside, B.
De La Warr, E. Monck, V. Wardington, L.
Denham, L. Morris, L. Wigoder, L.
Deramore, L. Mottistone, L. Windlesham, L.
Derwent, L. Newall, L. Young, B.
Aylestone, L. Henderson, L. Phillips, B.
Blyton, L. Jacques, L. [Teller.] Pitt of Hampstead, L.
Brimelow, L. Kirkhill, L. Popplewell, L.
Brockway, L. Llewelyn-Davies of Hastoe, B. Sainsbury, L.
Champion, L. Lyons of Brighton, L. Shinwell, L.
Collison, L. McCluskey, L. Stedman, B. [Teller.]
Cooper of Stockton Heath, L. Maelor, L. Stone, L.
Davies of Penrhys, L. Mais, L. Strabolgi, L.
Douglass of Cleveland, L. Melchett, L. Taylor of Mansfield, L.
Elwyn-Jones, L. (L. Chancellor.) Milner of Leeds, L. Wells-Pestell, L.
Evans of Hungershall, L. Murray of Gravesend, L. Winterbottom, L.
Fisher of Rednal, B. Oram, L. Wynne-Jones, L.
Greenwood of Rossendale, L. Pannell, L.
Hale, L. Peart, L. (L. Privy Seal.)

Moved accordingly, and, on Question, Motion agreed to.

Airedale, L. Ferrers, E. Orr-Ewing, L.
Amherst of Hackney, L. Gainford, L. Penrhyn, L.
Amory, V. Gisborough, L. Redesdale, L.
Ashdown, L. Gore-Booth, L. Remnant, L.
Balerno, L. Gray, L. Rochdale, V.
Balfour of Inchrye, L. Gridley, L. Ruthven of Freeland, Ly.
Beaumont of Whitley, L. Hacking, L. St. Aldwyn, E.
Belstead, L. Hampton, L. St. Davids, V.
Berkeley, B. Harmar-Nicholls, L. Sandys, L. [Teller.]
Birdwood, L. Hives, L. Seear, B.
Bridgeman, V. Hornsby-Smith, B. Selsdon, L.
Brookeborough, V. Hylton-Foster, B. Sempill, Ly.
Brougham and Vaux, L. Ilchester, E. Shuttleworth, L.
Burton, L. Inglewood, L. Simon, V.
Byers, L. Inverforth, L. Stamp, L.
Campbell of Croy, L. Kemsley, V. Strathclyde, L.
Carr of Hadley, L. Killearn, L. Strathcona and Mount Royal, L.
Chelmer, L. Kimberley, E. Swansea, L.
Colville of Culross, V. Lauderdale, E. Teviot, L.
Cork and Orrery, E. Lloyd of Kilgerran, L. Tranmire, L.
de Clifford, L. Lyell, L. Trefgarne, L.
De Freyne, L. Mancroft, L. Vickers, B.
Denham, L. [Teller.] Monson, L. Ward of North Tyneside, B.
Deramore, L. Mottistone, L. Wardington, L.
Drumalbyn, L. Newall, L. Wigoder, L.
Elles, B. Northchurch, B. Windlesham, L.
Elliot of Harwood, B. Nunburnholme, L. Young, B.
Elton, L. O'Hagan, L.
Falmouth, V. Onslow, E.
Blyton, L. Janner, L. Pitt of Hampstead, L.
Brimelow, L. Kirkhill L. Popplewell, L.
Brockway, L. Llewelyn-Davies of Hastoe, B. Raglan, L.
Champion, L. Lloyd of Hampstead, L. Sainsbury, L.
Collison, L. Longford, E. Segal, L.
Cooper of Stockton Heath, L. Lyons of Brighton, L. Stedman, B.
Davies of Leek, L. McCluskey, L. Strabolgi, L. [Teller.]
Davies of Penrhys, L. Maelor, L. Taylor of Mansfield, L.
Elwyn-Jones, L. (L. Chancellor.) Melchett, L. Wallace of Coslany, L.
Evans of Hungershall, L. Morris of Kenwood, L. Walston, L.
Greenwood of Rossendale, L. Murray of Gravesend, L. Wells-Pestell, L. [Teller.]
Harris of Greenwich, L. Oram, L. Wigg, L.
Hirshfield, L. Pannell, L. Winterbottom, L.
Jacques, L. Peart, L. (L. Privy Seal) Wynne-Jones, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

9.14 p.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 88: Page 9, line 23, after ("interest") insert ("or is against the commercial interests of the Corporation.").

The noble Lord said: On behalf of my noble friend, I beg to move Amendment No. 88. I should perhaps make clear at the outset that this is essentially a probing Amendment on the issue of national and commercial security, but it raises some fairly wide issues which have cropped up in this House before and I shall be referring to these in a moment.

It is no coincidence that the increase in Government involvement in industrial affairs leads to demands for more information. What we are concerned about here is essentially that this can be construed as being what one might call "snooping" powers in furtherance of interventionist legislation.

I have to confess that the last time we were talking about this issue we were dealing with a particularly interventionist Minister in talking about the Energy Bill, but nevertheless the general point remains true and the noble Lord, Lord Lovell-Davis, made a perfectly fair point, which illustrates my point also, when he said that without information it would be impossible to make any soundly based decision. The principle that we are trying to get at here is conceded in an earlier clause in this very Bill that we are discussing today where it stipulates that where the Secretary of State gives the general direction to either of the two Corporations under Clause 4(2) he shall lay a copy of that direction before each House of Parliament within 28 days unless he accepts the Corporation's advice that it would be against the Corporation's commercial interests to do so.

I think it would be common ground between us that one would hope it was quite exceptional for the Secretary of State to seek to override the opinion of the management of either Corporation as to whether a particular matter is contrary to its commercial interests. Indeed, earlier on we had quite a debate about what happens when the Secretary of State is at variance with the chairman and the Board of either of these Corporations. But, of course, it is also the reality of the situation that a number of commercial agreements which are entered into in the ordinary course of business impose strict limitations on the right of a company to disclose confidential information outside those in their employment who need to know such information for the purposes of the contract. The Secretary of State cannot override any such legal restraints upon the Corporations, although clearly it is likely that, in the case of future contracts, the Corporations will have to seek to preserve the right to communicate freely with the Secretary of State. I think I should perhaps at the very outset have mentioned that I am really speaking to two virtually consequential Amendments, which are Nos. 111 and 114, so I hope it will not be said that I am speaking too wide of the particular point here.

One of the worries which inevitably create disquiet, I think, is that under this clause there is a power to demand a mass of information which could be highly sensitive and confidential, and I do not think everybody in this Committee would necessarily concede that it is always in the public interest that information should be available to Government Departments in all circumstances. In that connection, at the Committee stage of the Energy Bill I moved, and the Government accepted, an Amendment which had the effect of ensuring security of information as between the customer and the supplier— this was in col. 2128 of the Official Report—but the veto on the disclosure of information was given to the company which supplied that information. This Amendment, as I say, was accepted by the Government as being an essentially reasonable limitation. If the Government were extracting sensitive commercial information from a company, it seemed to us, and apparently it was accepted by the Government, that it was reasonable that, before the Government disclosed that information to any outside party, they should seek the agreement of the company which had to supply the information: and I do not think that is totally irrelevant to the issues that we are discussing here this evening.

Let me make another, purely practical point in this way. The Government and their Departments have a great capacity to process information and they employ many people who are expert at doing precisely this. There is very little constraint on a Government Department about demanding information from companies. It is very easy to ask for information, and I have no doubt that Ministers may at times say that that is certainly true of the Opposition, who can make themselves a nuisance by demanding information which appears to be totally irrelevant and unnecessary and which is time-consuming and demanding to provide. Therefore I say to them, let them remember that it is very easy for a Government to say, "Let us ask for all sorts of information from a company". It is worth bearing in mind that one would hope that most executives in companies have rather better things to do than spend their time supplying information to the Government.

I do not want to broaden this into a general argument about the malaise which affects small companies but, as has often been said, small businessmen feel that they spend half their time filling in forms for the benefit of the Government. I would say that it is worth bearing in mind that it is easier to demand than to produce. It is liable to be an onerous task they are placing on companies if they make what the companies consider to be unreasonable demands for information. Let them remember that when they ask for information, this is, at the very best, bound to be an onerous task placed on companies.

I am not sure that the Government sufficiently appreciate all the issues involved in the growing tendency to demand private information. I believe it is proper for Parliament to challenge this tendency which seems to be an inevitable concomitant of the wish to intervene and the wish to nationalise. In moving this, I am saying, first, that there is a fear that the Government could, and if they could it is possible they would, impose a number of onerous duties on companies; and, secondly, and more seriously, there is a fear that confidential information will leak via "the grapevine" into quarters in which it would be highly undesirable for it to find its way. Government by leak has been something we have become increasingly used to. I will not put a time limit on that, otherwise it will sound too deliberately Party contentious; but most people will agree that Government by leak is a technique increasingly used in recent years. It would be reasonable to say that some of the information existing in the industries we are discussing—and particularly the aircraft industry—is of a highly sensitive nature. I think that the onus lies on the Government to see that what they are demanding is necessary. This is basically the purpose of these Amendments. I beg to move Amendment No. 88.

9.28 p.m.

Viscount SIMON

I should like from these Benches to support this Amendment. I do not want to follow the noble Lord, Lord Strathcona and Mount Royal, along the path he was pursuing. I am bound to say that he seemed at intervals to be getting wide of the Amendment. My feeling about this is simple. What is essential is that there should be complete frankness between the Corporation and the Secretary of State. The Secretary of State who, whether we like it or not, is going to have a number of powers to take action on these matters, should have an absolutely clear picture from the Corporation of the situation as they see it.

It seems to me that if there is not some provision that the Secretary of State has the power to remove from any report made to him items that: may affect the commercial interests of the Corporation, the Board of the Corporation will be chary about making their reports to him. They will try to make little twists here and there to conceal information that they do not want him to publish. It would be better to say: let the Corporation make absolutely frank reports, after they have had this review, to the Minister and indicate to him that "paragraph x or y of our report is something which we feel should not be disclosed because it will have an effect on our commercial position". If the Secretary of State is satisfied that that is the case he should be empowered to remove it from the document as published. That is the only basis on which I rise to support this Amendment.


There is one question that I do not begin to understand and I am not sure that I can read the problem. It is that the Corporation will be involved with many other private companies, in many techniques, secrets, or whatever you like to call them, some of which are national secrets. They are easy to deal with. However, the Corporations will be involved in commercial secrets. What protection is there against a dislcosures? How will representations be made known to the Secretary of State as opposed to the Corporation because by law the Corporation is required, and the Secretary of State is not required, to talk to its partners on a question of disclosure. I do not understand that but I may have misread the problem.


I think that these extra words should be accepted by the Government on the basis of the argument used by Government spokesmen so far on other clauses. The noble Lord, Lord Melchett, said that the general idea behind one of the other clauses was to make the Government's intentions clear. I believe that these words should be added in order to make their intentions clear that they do not want the general relationship between the Corporation, the Government and the smaller subsidiaries to which the noble Viscount, Lord Brookeborough, has just referred, to be disturbed by any uncertainty.

It may not have reached the point where it could be proved to be against the national interest, but if it is against commercial interests, that may be the first step towards reaching the point where it would be against the national interest. If, in framing what eventually will be an Act, it is passed, the general intention, as I said at the beginning, should be made clear; that is that they do not want anything against the commercial interests to be disclosed if, in the view of the Secretary of State, it would be injurious to that level. Something would not become detrimental to the nation's interest before, first of all, going through the phase where it would be against the commercial interests of not only the Corporation and the work it does, but of the subsidiaries which will have to work with it.

I accept absolutely the points made by the noble Viscount, Lord Simon, that unless "this intention is made clear", to use the noble Lord's own words on a previous clause, it could well be that there will be lack of frankness because when executives prepare their reports, or when executives in charge even of medium-sized organisations (much less ones as big, important and as embracing as this would be) believe that they have no protection against the interests of what will be their daily bread in terms of the Corporation's efficiency, it may well be, as the noble Viscount, Lord Simon, said, that they would deem it to be their duty not to disclose certain details which they otherwise would if this general intention was made clear by accepting these words.

I should have thought that it can only strengthen the good working of the Corporation if this safeguard is made quite clear by these words being included. At the end of it all, when people are running an organisation their first interest is in the immediate success of the organisation. In doing that, many commercial risks must be taken and many commercial decisions must be made which, perhaps, with hindsight, would not have been made. That sort of thing must be taken into account. By adding these words one is virtually instructing any future Secretary of State that, before he is impelled to do something in what is called the national interest, he must take the preliminary precaution of safeguarding also the commercial interests of the Corporation in its earlier stage. It is for that reason that I hope that these words will be accepted. They can only strengthen what I hope was the Government's intention when they first prepared the Bill.

9.35 p.m.


I feel that one ought to support the argument of the noble Viscount, Lord Simon. When my noble friend was speaking just now, I was sorry to observe the noble Lord, Lord Melchett, shaking his head in a negative sense because there are moments when one wonders whether the Government have not taken a phrase out of Lord Cudlipp's literary performances, which we enjoy at weekends, and that they have been answering with the chattiness of an uncooked clam. They have not been responding very much. The noble Viscount, Lord Simon, made the point which is a very serious and real one, particularly in the light of recent experience, that there must be total frankness between the Corporations and the Secretary of State. Let us think of some recent cases where nationalised industries—or at any rate their chairmen—have been reduced to a point where there is no frankness. What about Sir Richard Marsh, former chairman of British Rail? Some of the things which lie has had to say about the Government have suggested that frankness withered away until the chairman of British Rail and the Government were at daggers drawn. What about Sir Monty Finniston? The same thing again.

What is absolutely essential is that there should be real frankness. What has happened in the past is that State corporations have been established and then they have grown further and further apart from the Government. This is what must be avoided. The noble Viscount, Lord Simon, addressed his very astute mind exactly to the point. There is a procedure well known in Select Committee work where evidence of a confidential nature is subject to what is known as "side-lining". Surely it is proper that the Corporation should have some kind of protection, and should know they had some kind of protection, before they talk frankly with the Government. Unless they have that protection they will not talk frankly. It may be said, after things that were mentioned earlier in the debate today from this side and other parts of the Committee, notably the Cross-Benches, about Parliamentary control over what goes on, that there might be a certain contradiction here because we are now suggesting that the Secretary of State should be vested with a requirement to delete certain things from reports which will eventually come before Parliament. We are concerned with making sure that the system works. We want Parliamentary control to the fullest extent but within limited responsibility and understanding which is well known in this Chamber and even down the road.

We have to make sure that there is a proper balance between the information that is necessary for Parliamentary scrutiny and the legitimate, proper and serious requirements of commercial security which, if they are protected, will of course make possible frankness between the Corporations and Government. We know very well in Parliament how often a Minister has to answer on a delicate matter and says to the House, "I hope noble Lords will not press me", or to the other place, "I hope honourable Members will not press me." When that is said we never press the matter because we understand that there are matters which it would be against the national interest to bring out in public. When we plead, are concerned for and, indeed, will fight for, proper Parliamentary scrutiny, we are none the less also saying that the matter to be scrutinised must be properly protected. In this case we are saying that the Corporations must be absolutely satisfied that their own secrets revealed to the Government are not then blabbed all over the place, or leaked—to take another rather disagreeable contemporary phrase.

Reverting to the point made by the noble Viscount, Lord Simon, we believe that it is most important for the confidence between the Corporations and the Government that they should be protected in this manner. Therefore, I hope that the Government will perhaps really open up. Let them now be a "cooked clam" for a change and say something that will be to the delight and taste of us all!


I should like to raise a point which came up in Standing Committee D in another place. In Part I, column 719 to 721, a volume which makes War and Peace look positively thin—


That only goes to show how extensively the Bill was considered in another place.


I am so glad that the noble Lord said that. Perhaps he will, at a later date, reply to something I asked him when discussing a previous Amendment which he did not answer. I am sure that I shall receive an answer as regards that matter later.

On this great tome which, as the noble Lord says, shows how very well the matter was considered, I wish to raise one point. Mr. Warren in another place spoke about the number of agreements which apparently consist of something like 400 arrangements between BAC and Hawker Siddeley with other corporations, countries, et cetera and whether they are multilateral or whatever. They are extremely complicated, as are the star and the mesh consortia arrangements. When this was considered the point that has been raised by my noble friend was raised. On considering it Mr. Carmichael stated on Clause 18(2): There are further safeguards. Without commitment I am prepared to consider the matter further, perhaps with a view to seeing whether the formula of Clause 18 can be incorporated into Clause 5. I wonder whether we might get a further instalment of that particular saga?


I am sensitive to the point made by the noble Lord, Lord Strathcona and Mount Royal, who suggested that this Amendment and, I think, Amendments Nos. 111 and 114 give the Government the opportunity to explain some of their thinking behind this section of the Bill. I think that the noble Viscount, Lord Simon, as indeed did other noble Lords, bore upon this point.

When an Amendment similar to this was debated in Committee in another place my honourable friend the then Parliamentary Under-Secretary of State undertook, without commitment, to consider whether there might be grounds for amending Clause 5 on these lines. Indeed, the noble Lord, Lord Redesdale, has made mention of that point. We gave further thought to this matter. However, we remain unconvinced of the need for the Amendment. We therefore resisted a similar Amendment at Report stage in the other place.

The reports on organisation under Clause 5 will not set out detailed individual commercial dealings. I must emphasise that point. They will examine questions of general organisation—for example, what sort of regional function the Corporation should engage in and what type of maintenance of identity of subsidiary companies should be engaged in. Any exceptionally major and sensitive contract would be considered within the corporate plan.

Generally it is clearly in the public interest that there should be maximum disclosure of the contents of the reports which affect the livelihood of many people. In the Government's view it would be undesirable to build in too many loopholes for non-disclosure. Perhaps I should say a little more about why we do not think it appropriate to insert a provision which would enable the Secretary of State to withhold publication of the organisation report or part of it on the grounds that it is against the commercial interests of the Corporation. The Government do not foresee how the likely contents of such a report could give the Corporation's competitors any commercial advantage.

Again, I would emphasise that the kind of information which they might find useful—for example, about contracts, about the Corporations' research plans and about their marketing strategy—will not be in any report on organisation. The kind of questions covered are whether the Corporations will be organised on regional or functional lines, whether the vesting subsidiaries will retain their identity and to what extent, and so on. It follows from that that we know of no compelling commercial reasons for not disclosing what the organisation of the Corporations will be.

The noble Lord, Lord Strathcona, brought within his comprehensive statement questions on Amendments Nos. 111 and 114. Amendment No. 111 seeks to lay down in Statute that the Secretary of State may not require a Corporation to disclose something which it is not legally entitled to disclose. Amendment No. 114 seeks to prevent the Secretary of State from directing a Corporation to publish some information, if publication would be against the national interest or the commercial interests of the Corporation. This clause is precedented. I am advised that it follows Section 4 of the Railways Act 1974, and to some extent Section 6 of the Iron and Steel Act 1975. We believe that the national interest and the interests of the Corporations are therefore adequately safeguarded.

It is unacceptable to imply that any Secretary of State would knowingly use Clause 8 to require a Corporation to break the law, and therefore we consider that prohibition is unnecessary. As the provisions in the clause covering publication are not automatic but operate at the discretion of the Secretary of State, it must be presumed that he will act in the national interest as he conceives it. As the clause is drafted, before publication the Secretary of State must consult the Corporation. If the Corporation were to indicate that publication was against its commercial interests, it can be assumed that the Secretary of State would insist upon publication only in the unlikely event that some reason of national interest overrode the Corporation's commercial interests.

Finally, I should add that this clause dispenses with the need for provisions comparable to those in Schedule 2 to the Iron and Steel Act 1975, requiring the publication of information about diversified or ancillary activities. I know that noble Lords opposite are always anxious in the interests of fair competition, and properly so, that public corporations should publish adequate information about their activities, and Clause 8 in its present form would allow the Secretary of State to ensure that this was done in the unlikely event of any reluctance on the part of the Corporations.

The noble Lord, Lord Strathcona, posed a question as to the protection of sensitive defence information. I am advised that the Corporations, and those working in them, will be subject to the Official Secrets Acts and arrangements related to those which at present cover the vesting companies. The noble Earl, Lord Lauderdale, mentioned the national interest versus the commercial interests of a Corporation. En the Government's view, the national interest would normally subsume the commercial interests of the Corporations. Therefore, under this clause as drafted the Secretary of State could withhold such information from publication—


Might it not be in the general interest for that to be spelled out in the Bill? Of course I take what the noble Lord says. I always take what he says, and I always admire the manner in which he expresses it. But could that not be in the Bill? We have had assumptions on this Bill and on other Bills, and if this were spelled out our fears would be put at rest.


Of course I cannot say that the explanation which I give could not in more legalistic terms be drafted into the Bill. But my explanation is, at the very least, on the record and the noble Earl will have to be content with that at this stage.

As he frequently does, the noble Lord, Lord Redesdale, posed a question to which I have not fully replied but which I touched upon in my opening remarks. To be fair, there is a question of judgment involved and to be equally frank in reply I would say it turns upon a matter of judgment from the Government point of view as to whether amendment might have taken place under the aegis of Clause 18(2). Although I am straying from the question immediately before us, the thinking behind that sort of clause suggests that, against the national interest to do so, the Secretary of State accepts the intention of the Corporation that it is contrary to the commercial interests of the Corporation. We have considered that fact, but upon a balanced view feel that the need to amend as outlined does—


In his opening comments the noble Lord said that these reports, which he is suggesting should be added to would be organisational. I cannot find any guarantee that they would be organisational reports only. Is it not possible that, even inadvertently, something which would affect the commercial future of the Corporation would creep in? If these words were added, it would add some little protection and would go some way to answering my noble friend Lord Lauderdale. If it cannot be guaranteed to be purely organisational, if there is even a half a risk that there would be some commercial interest that could slip into these reports, ought we not to give the protection of these extra words to try to minimise any danger of that happening?


I am advised that that which has commercial impact will not form part of the organisational reports. I made the point that that would form part of the corporate plan. I can give no more firm assurance than that.

Viscount SIMON

If I heard the noble Lord aright, he said that if the Corporation were to include in the report a matter which affected their commercial position, they could ask the Secretary of State to exclude it and that he would do so. Is that right?


I certainly suggested that if the Corporation made that clear, the Secretary of State would give it every consideration.

Viscount SIMON

As I see it, the difficulty is that without this Amendment the Secretary of State would not have the right to do that. He would be bound to publish because he has no right to exclude matters of commercial concern. This seems to me to be the nub of the problem. Although these reports are basically organisational, I can conceive circumstances where, for instance, they might say, "We think this particular part of our undertaking had better be dealt with in this or that way because, talking quite frankly to the Secretary of State, at the moment their position is rather rocky and we want to nurse them through a difficult period". That is something which does not want to be published but is something which, to my mind, if the Corporation is to be frank with the Secretary of State, ought to be said.


I re-emphasise that in the Government's view the detailed commercial dealings of the Corporation will be matters for the corporate plan. At one point one might argue that the Amendment is technically unsatisfactory because in the Government's view the Secretary of State is not the most appropriate judge of the commercial sensitivity of the Corporation.


Is that not a very good reason why those words should be in? I think it is right that he would be a layman in this sense, but if these words were added he would be more likely to seek advice as to whether it would be in the commercial interest. Otherwise I use the word "inadvertently": he may inadvertently do damage because we have not given him the hook on which to hang his hat and take an extra precaution. I should have thought that the final words of the noble Lord made this wording essential.


Noble Lords cannot have an assurance of the addition. Noble Lords have at least, I trust, had as full an explanation as I am capable of giving to them.


Before I go into the wider issue, may I ask the noble Lord to make clear one point. Here we are referring virtually to a one-off operation. When vesting takes place and British Aerospace and British Shipbuilders are set up (I speak as an ex-industrial consultant) a kind of consultancy review is to take place—what we used to call a management audit. This will result in a report and I hope I am right in thinking that it is to this report that this operation refers.


Yes, I confirm that that would be my interpretation.


I am grateful to the noble Lord because some of us had possibly been imagining that we were talking about a continuing process: a series of reports which would go on rolling out.


If one reads subsection (1) of Clause 5 one sees that the phrase "from time to time" appears; but in my view subsection (5) relates very clearly to subsection (3) and to the reference to subsections (1) and (2) which is contained in subsection (3).

9.57 p.m.


I am not at all sure that I am not more confused than I was at the start. The noble Lord makes his way about the Bill rather better than I do, but I do not know that it necessarily affects the general conclusion. The noble Viscount, Lord Simon, raised a very broad issue which has been frequently debated. I find myself slightly surprised to be saying that here I am talking about non-disclosure to a certain extent. In the context of the advice of civil servants to Ministers being published, endless arguments about disclosure have taken place.

I do not want to widen this into a philosophical discussion, but I believe that this is what we are speaking about. There is no great difference that I can see between the kind of report which will be submitted to the Minister by the Corporation and the kind of advice which is submitted by civil servants to a Minister. This is precisely the point which the noble Viscount, Lord Simon, is making. If the Corporations do not feel that any particularly sensitive information will be respected by the Secretary of State, clearly this places them in a grave difficulty about submitting reports. Happily, for once I do not believe that we are on a Party matter and I find myself possibly arguing against disclosure leading to Parliamentary control. However, the fact remains that we have to keep coming back to what are the commercial interests of these Corporations, and the great concern on this side of the Committee is that, although we do not want these Corporations, if we are to have them we want to give them the best possible chance to succeed. This Amendment is a lead-in to the next Amendment where we shall return to the issue which we have already discussed once during the course of the Bill; namely, the power of the Minister to interfere.

It would be fair to say that our big worry is to make sure that the Corporations can "do their thing" without undue intrusion into their affairs. To that extent I find that it is reassuring that the Minister is able to say that the commercial security of the Corporations is adequately safeguarded. What one would be worried about would be if a report started to take the form of playing to the gallery so that one could have an exchange between the Corporation and the Minister which was not really a dialogue between the two of them but was, strictly speaking, designed for outside consumption. What we are seeking to do here is to try to get a meaningful way in which information can be exchanged between the Corporation and the Minister, while the possibly extremely sensitive information—or comment, indeed—would be totally secure and the person submitting this report would know that it would be secure. I think that is the essential point.

The Minister said, in a particularly hopeful moment, that at this stage he did not want to make any further comment about the matter. I thought that was a hopeful opening in that it conceivably indicated that he might be prepared to think further about the matter, although not that he will come back to us on this issue. I shall read with interest what he has said, and particularly when he referred forward to Clause 18 and to the other subsections in this particular clause.


I apologise for my interruption to the noble Lord's very reasoned response. Upon reflection, I think I somewhat misled him in my earlier reference to subsections (1) and (2). Reflecting upon it afterwards, I think that my initial response was rather more correct than my subsequent qualifying remarks. I thought I should just say that for the record.


Could the noble Lord repeat what his immediate reaction was?


My immediate reaction was that this is essentially a "one-off" procedure, but I do not think that that means necessarily that it may never happen after the "one-off" occasion.


Let us get this matter clear. I really do not think that the Minister is right. Subsections (1) and (2) lay upon each Corporation the duty (a) to undertake a review, and (b) to make a report and this is to be done "forthwith" and "from time to time". So there we have a whole series of reports going on for ever and the subsection that we are discussing talks about "a copy of any report". So we are discussing copies of all sorts of reports and not just one.


I do not at all disagree with what the noble Lord has just said. I was merely attempting to say that the phrase "from time to time" may mean that a subsequent report—or reports—will occur. I would not personally think that that was a likely course of events, but I do not disagree and that is why I came back to the noble Lord, Lord Strathcona and Mount Royal, because I did not want to mislead him on that point.


I am grateful to the Minister, and I accept that he is doing his best—as I am sure he accepts that we are—to clarify what we are all agreeing or disagreeing about. If I may just go back to where I began, what essentially concerned us somewhat here is that the Government appear to be saying one thing in the previous clause; namely, Clause 4(5), where they mention the fact of it being against the Corporation's commercial interest, and yet under this clause they appear to be saying that they do not think that that is a relevant consideration. I think we have had a good discussion about this. We have got into a certain amount of complication; we have referred forward and we have referred back. I shall read what the noble Lord has said, but at this stage I beg leave to withdraw this Amendment and, if necessary, refer to it later.

Amendment, by leave, withdrawn.

10.5 p.m.

Earl FERRERS moved Amendment No. 89: Page 9, leave out lines 25 to 31.

The noble Earl said: This Amendment also deals with the report. As Clause 5 says, immediately after vesting date and from time to time thereafter, the two Corporations have to undertake the review, which was what we were discussing in the previous Amendment. Then they make a report to the Secretary of State, saying what they find and what they propose to do and how they propose to do it. That is fine.

Then the Secretary of State lays the report before Parliament so that everyone can know what these two public bodies are going to do. That is fine. But then, in the latter part of subsection (5), the Secretary of State is given powers to tell the Corporation not only what to do, but how to do it. He can tell them—indeed, the words are that he can give them directions what to do in order to ensure the greatest efficiency in the management of those activities. The actual words that this Amendment seeks to delete—and they are important—are that the Secretary of State can give to the Corporation such directions as he considers appropriate for securing that the general principles upon which the activities of the Corporation and its wholly owned subsidiaries are organised are calculated to produce the greatest efficiency in the management of those activities. Those are extremely wide powers to give to a Secretary of State. They are giving the Secretary of State powers to tell the Corporations what they are to do in order to achieve the greatest possible efficiency.

Here, we come back to what is efficient. The noble Lord, Lord Melchett, and I had a discussion about this the other day, as, indeed, did a number of other noble Lords, too. But if the Secretary of State is going to give instructions to the Corporation as to what to do in order to achieve efficiency, he must know what efficiency is. Does it mean turnover? If so, the Secretary of State can give them certain directions to that end. Or does it mean he can give them directions so as to secure increased profits, or to secure a higher return of assets? Here again, one has the word "efficiency" which the noble Lord, Lord Melchett, rather brushed aside saying, "We all know what efficiency is." I suggest we do not know what efficiency is.

A noble Lord: They do not!


I daresay they do not. It will come up again in another Bill next Wednesday. The whole thing gyrates round "efficiency". It is a word that sounds very important and very impressive, but nobody actually has determined what it is; yet we are giving the Secretary of State these powers to intervene in the Corporations. They are very substantial powers, because the Secretary of State could easily say, "I am going to give you, the Corporations, instructions as to how you select your management because I do not think your management is efficient enough."

The Secretary of State could even give instructions with regard to the funding of pensions in order that that could be more efficiently done. So what happens to the trustees of the pensions fund? He could give them instructions as to how to budget their business if he thought it was not being budgeted properly. Or he could even go to a greater extent and say, "If in fact you have all your offices open-plan, they will run very much more efficiently". He could even say that members of the Corporation should not have individual secretaries, and that it would be much better if they were to dictate all their letters into a dictating machine and have a pool of secretaries. He could say this was more efficient. It may be the view of the Secretary of State, but it is quite intolerable that it should be even possible that he should have this kind of power.


I am trying to follow the noble Earl, Lord Ferrers, but I am not sure that I am doing so. I assume the noble Earl is still talking about the part of the Bill which says that the Secretary of State can give such directions as he considers appropriate for securing that the general principles upon which the activities of the Corporation.…", and so on. Am I right in thinking that the noble Earl is saying that the way the office is organised is one of the general principles on which the Corporation is being run?


The noble Lord, Lord Melchett, is entirely right. I am on that point. It could well be that the Secretary of State could say, "This is the principle on which I want to see the thing run". That is a very considerable power. But if the noble Lord is worried about that, can I put the point to him in this way: that the Secretary of State could say that he believes the Harriers should not be made at Kingston but at Preston, because then the factories will be reorganised so that they will work more efficiently. I believe these to be powers which are far too great. I suggest we should ask ourselves what in fact is the true role of the Secretary of State here.

In my judgment his proper role is to monitor the country's investments in both Corporations. He should ensure that the return on the investment is adequate. If it is inadequate, then he should tell the Corporations that they are not doing what they should do and that the return is inadequate. It should not be up to him to tell them how to make it adequate. Mr. Carmichael has said perfectly clearly: Those who will be responsible for managing and running the two new Corporations should do so within the broad parameters set by the Bill and shape the organisation in the way that will best enable the Corporations to carry out their functions. That is a very broad direction. I believe it is quite right. He said on another occasion: The Government wish both Corporations to operate on an independent and commercial basis and they wish to lay down only a broad strategic framework. Yet here in this part of the Bill the Secretary of State is given very considerable powers of intervention in order to tell the Corporations how to run themselves efficiently. We have all seen cases of intervention by the Secretary of State in other nationalised industries which have been to the detriment of the industries working on a commercial basis. We have had referred to already the comments which Sir Richard Marsh made about the intervention of the Secretary of State in running British Rail. We have also referred to the fearful row that went on a short time ago when Sir Monty Finniston wished to reorganise the Steel Corporation so that it would run, in his opinion, more efficiently. He was prevented from doing so, for reasons which may be entirely understandable, by the intervention of the Secretary of State. In order to avoid similar mistakes being made over these new nationalised industries, I suggest that we ought to remove the interventionist power of the Secretary of State as it is set out in the Bill at the moment, where it refers to very considerable detail. If your Lordships look again at these words, you will see that the Secretary of State has power to intervene in the day-to-day management to a degree which is really wholly inappropriate. I beg to move.


Perhaps before the noble Lord, Lord Melchett, fires off his first salvo I may fire a tracer bullet or two—armour piercing, as my noble friend says. It was Lord Melbourne who among his memorable aphorisms included this one: Nobody ever did anything foolish except for some strong principle". The strong principle that we are given in this case is the principle of efficiency. First, is it or is it not in the interests of the industry whose efficiency the noble Lord seeks to promote that there should be more or less Secretary of State's interference. That is the first question. Noble Lords opposite like a lot of Secretary of State intervention. Chairmen of nationalised industries like as little as possible. Two cases have been cited, very dramatic cases, during, this evening's debate. On our side the case is consistently put that the less the Secretary of State intervenes in a nationalised industry, the better. Noble Lords opposite think otherwise.


Would my noble friend allow me one minute? He was quoting Sir Richard Marsh, who said what trouble he had had with the then Secretary of State. But I think it is important to point out that Sir Richard Marsh had not got the courage to resign. He ought to have resigned, as some others have done. Not at all. He fiddled along with it until the railways got into a worse and worse position.


The noble Baroness always puts her finger on the nerve. with a gentler touch, try to avoid doing so. However, there is the issue for more or for less Secretary of State intervention. Our philosophy is that if you have to have nationalised industries at all, the less the Secretary of State intervenes the better. In this case his intervention is to be maximised in the interests of efficiency; and to the concept of efficiency I shall gladly return. I am not quite sure whether the Front Bench have any reply to that at all?


The noble Earl made a reference before. I was taking particular care to listen to every word he was saying, and was not having any conversation with my noble friend.


I do know that when the two noble Lords converse the conversation is always so seductive that it might mean that he was distracted. Lord Jacques's wit is never to be resisted. I take what the noble Lord, Lord Melchett, has been good enough to say. The first issue is for more or for less Secretary of State intervention. We are for less, and they are for more. But there are Secretaries of State and Secretaries of State. The present Secretary of State for Industry is an ambitious and meddlesome person. There are others who are less so; either less ambitious or less meddlesome. We do not know who the Secretary of State will be. It might well be a Tory one. I think it very likely will be in a matter of months if this Bill goes through, and he could be quite as meddlesome. I have criticised Secretaries of State on my own side. It is not really a Party issue here. It is really a question of whether we are to keep the meddlesome potentialities of the Secretary of State of whatever Party—it might even be a Liberal; it might be my noble friend Lord Lloyd of Kilgerrant— to a minimum.

The trouble about this passage in the Bill is that it is an open-ended invitation to the Secretary of State of the day, of whatever Party, to meddle, and meddle, and meddle. That really means to muddle as well as to meddle. We have always taken the view—and in this the Conservative Party, inconsistent in many things, has at least been consistent—from 1945 onwards that if there has to be nationalisation, at any rate let the management manage. We have been consistent on that, and it does not lie in the mouths of noble Lords opposite to accuse us in that matter of being less than absolutely consistent for 30 years or so.

We say let the management manage, and this is what we want to ensure. If there has to be a nationalised management, let it at least manage. Let us take the past experience. What about the record of BAC or Hawker-Siddeley? Surely the evidence of their performance is that their management is good, but had it been muddled about and meddled about and interfered with by Secretaries of State, it would have been of a very different order. Probably the top chaps would have been away to America, Germany, Sweden, or whatever country would employ their talents with better reward and respect. Those are the general issues.

Then there is the question of efficiency. Apparently the Secretary of State is to have power to tell the Corporation certain things, as one of my noble friends on the Front Bench said. For the moment I forget which of my noble friends it was.


It was I.


I knew it was one of my noble friends with an elegant smooth haircut when viewed from behind, and I am pleased to know exactly who it was. My noble friend said that the Secretary of State would be able to tell the Corporation not only what to do but how to do it. What indeed does efficiency mean? It could mean many different things. It is to be looked at in the national interest. Then efficiency must at least embrace efficiency from a defence point of view. Or it might be efficiency from the point of view of the moneymaking capacities of the Corporation; that might be efficiency in terms of tax avoidance. It might be that efficiency is to be in terms of non-overmanning. My goodness! if there is one problem that blots the scene of British industry today it is the problem of overmanning, and everybody knows it.

Might it be that efficiency in terms of manning or overmanning will be the criterion? Again, it might be fiscal efficiency; in other words, not tax avoidance from the State but the provision of tax rewards to the State. Either could be an element, indeed the guiding star, where efficiency is concerned. It might be managerial efficiency, and that could mean many things. It might mean having very few managers but that they are very dictatorial or it might mean having many managers who are very consultative. Whatever it is, managerial efficiency might be the test.

On the other hand, I feel sure that the evening will hardly pass without something being said from the Benches opposite to the effect that it might be social efficiency. One can hardly blame a Government of the mixed colour that they are, producing a Bill for nationalisation and pushing all sorts of social theories such as woolly ideas about industrial democracy at the same time. That is to be expected; we have learned to take the rough with the smooth, the Right with the Left, the Marxists with the Social Democrats and so on, but I feel sure that the term "social efficiency" might well arise. What will that mean? Will it mean providing and creating jobs? Will it mean overmanning? I was amazed when, not long ago, Mr. Kaufman gave evidence to a Select Committee of this House, of which I was chairman on that occasion, about the aircraft industry in relation to Europe. What concerned him most—I was shattered to hear him say it; it is on the record because it was published in our 52nd Report—was how many jobs would be created or preserved for the aircraft industry. Thus, I ask: is employment to be the criterion? Is that what is to be meant by social efficiency?

Having wondered whether it will be managerial efficiency, fiscal efficiency, tax avoidance efficiency, overmanning efficiency, defence efficiency and so on, and the fact that efficiency can mean absolutely anything, I return to the point I made at the outset, that some of the worst things are undertaken with the best motives, and I would never credit the noble Lord opposite with anything but the best motives.


At the heart of the sentence we are discussing are the words, "general principles calculated to produce the greatest efficiency". Any draftsman who uses the word "calculated" in a Bill is courting disaster because it can have one of two separate and distinct meanings; sometimes it means "likely" and sometimes if means "intended" and one should use one or other of those words to explain what one means. However, in this context I do not think it means either. I believe that what is intended here is general principles which "shall" produce the greatest efficiency, and perhaps we can think about that with a view to an Amendment at the next stage.

10.25 p.m.


Perhaps it will save time if, before the noble Lord replies, I draw attention to a comment he made during my noble friend's opening remarks. When my noble friend said that this open-ended instruction could interfere with detailed day-to-day management. the noble Lord got up and said, "But it is made quite clear that it is only if it is on a general principle". He said that as though the "general principle" meant that that automatically ruled out any interference at a day-to-day level. But because it is so open "general principle" means just the opposite. That phrase can give the excuse to say anything about everything. If it were confined to the point where it said that the Secretary of State can give directions but not on matters of day-to-day interest, I believe that I could accept that. But to try to give the impression that the phrase "general principle" means that it is restricted as to what can be done is, to my mind, a complete misuse of the English language.

If the noble Lord means that he wanted to confine this to what he called "matters of general principle affecting the general efficiency", he must find words other than "general principle" standing alone. He must define what he means by that sort of general principle, and unless he is prepared to add words excluding interference on day-to-day matters, this open ended instruction can only allow what my noble friend called a "meddlesome" Secretary of State to intervene in a way that can do nothing but harm. This will undermine confidence and do the very opposite of increasing the general efficiency which is apparently the general principle that the noble Lord wants. I thought it right to intervene at this stage so that the noble Lord can correct the impression that he has given so far. If, in correcting it, he says that he is prepared to add words which will certainly exclude what I should call day-to-day management, I shall be happy.


Before the noble Lord rises, perhaps I may throw something into the pool to make matters more difficult for him. It seems to me that this phrase, if it is harmless, as I suspect the noble Lord will say, is a monstrous cliché. "General principles to produce greatest efficiency in management"—what on earth would any manager want to do except produce greatest efficiency? So why is it necessary to put this in the Bill? If the noble Lords opposite and the Government have arranged to provide good management, as I believe they have, they do not need a phrase in the Bill to tell that management what to do. I am sure they will say, "Of course we shall not use this; it is obviously a sort of safeguard". But, if it is just a safeguard, what is to prevent some rather less understanding Secretary of State misusing it in the future? It seems to me that we do not need to argue this: it is a nonsense; it is not necessary. Why should we have it in the Bill? It would be very much easier for everybody, including the Government, if they accepted that this was not here.

Before I sit down, 1 should like to suggest that this is one clause—and noble Lords have been arguing throughout the evening about others that are similar—which gives away the fact that it is understood by the Government that previously nationalised industries have been a failure. The Government must know that in their hearts. None has been successful as a business enterprise. There are all sorts of reasons for this and some of them are understandable hut, as business enterprises, they just do not stand up to the major free enterprise companies. That is a fact of life and I suspect that, in producing before Parliament this draft which is called a Bill, instead of saying to themselves that perhaps the reason they have not been successful is because, on the whole, previous Acts of Parliament have given Ministers too much power to interfere, it would have been better if they had said to themselves that the answer might perhaps be to give Ministers less power to interfere.

In fact there is a fundamental, underlying "Auntie Government", interfering sort of theme: "It's all right, old boy. We'll not use it. It's just useful to have it there". And there are all sorts of paragraphs and clauses in this Bill which really cannot stand up to being regarded as something absolutely essential for the proper control of a State enterprise, which has to look after the public money, and all that sort of thing. It really does not live up to that. I would suggest to the noble Lord that a nice thing to do—it is half-past ten—would be to say, "This is a clause which we are terribly sorry about. It slipped in, and we do not want it."


Before the Minister rises to speak, I feel we should have a clearer definition from the Government on this question of efficiency. I am very pleased that my noble friend Lord Lauderdale raised the point, because it was only on Friday that we questioned the noble Lord, Lord Jacques—I am not quite sure whether my noble friend bowled him out by his remarks or whether he had a premonition that his name was going to be mentioned—on what was "efficient performance" on the Dock Work Regulation Bill. We asked him, " Is it the same as cost effective?" He was not prepared to answer. Now we really must have an answer as to what the Government consider to be efficiency on this.

The noble Lord, Lord Kirkhill, a few minutes ago quoted as an example a regulation or an Act governing British Rail. I do not know if they consider that British Rail are either cost effective or efficient. I think we really must have something clearer on this, and I completely agree with what my noble friends on this side have said.


Maybe I could first of all, hopefully, put the minds of the noble Lord, Lord Harmar-Nicholls, and the noble Earl, Lord Ferrers, at rest by making it quite clear that the term "general" means exactly what it says in the example which the noble Earl gave, of making the Harrier at Preston rather than somewhere else. It is not a matter which would be dealt with by specific direction under Clause 5, the power of direction which we are discussing, because of the limitation to general principles. "General" is defined—and this may help the noble Lord, Lord Harmar-Nicholls—I am advised, in this phrase in the same narrow way as when it is used in the term "general directions" in the Bill, and in all Acts of Parliament. This Amendment would remove the power of the Secretary of State to give directions.


I am sorry, but if the noble Lord is leaving that point, could he explain—I would seek his guidance on this point—why he says that the example of the Harrier being moved from one place to another could not be given under this clause? Because under this clause surely the Secretary of State has powers to give the Corporation directions which he considers would make it more efficient; and if he considered it would be more efficient for that to happen, surely he would be entitled to give them directions?


Because I do not think it would be a general principle. My advice is quite clear on this. It would not be a general principle which would make it more efficient. if I could be allowed to make my speech, then no doubt noble Lords will all come back at me and make any points they like, but we have had quite a long debate on this Amendment and I would be grateful for a chance to say a word at least.


Very well.


I am very grateful to the noble Earl, Lord Lauderdale, for his permission to continue. We believe the Secretary of State must have power to give, such directions as he considers appropriate for securing that the management of the activities of the Corporation and its wholly owned subsidiaries is organised in the most efficient manner. The power is well precedented in the most recent nationalisation legislation on which, as we have already made clear on the various Amendments on the Bill, the broad theme of this legislation is based. For example, the power was included in the Iron and Steel Act 1967, the Civil Aviation Act 1971, and the Gas Act 1972, and it does not need me to remind noble Lords opposite that these were two Acts passed by noble Lords opposite when they were in power—


I am much obliged to the noble Lord for giving way. I am trying to make a helpful intervention, as always. Can the noble Lord be specific about the Civil Aviation Act 1971? Which power of direction is he referring to? There are several powers in that Act.


It so happens that I cannot be specific because what I have in front of me is the Gas Act 1972, not the Civil Aviation Act 1971. But I will come to the Gas Act in a minute, if the noble Lord will permit me to continue my speech, and I will no doubt be able to give him the reference in a moment.


I am much obliged.


Both these industries are of vital national importance, and it would surely be imprudent if the Secretary of State, who is responsible for them, were powerless to act in the face of an obviously unsatisfactory organisation. To be able to act in such circumstances, the Secretary of State needs this power, as has been recognised in previous Statutes. The intention is to provide the Secretary of State with a reserve power, but one which could be effectively used should circumstances require it. As I have said—and I emphasise again—it is not a power to permit interference in detail. That is why the directions may cover only "general principles", and that, as no doubt noble Lords opposite will have realised, is a change made between the first and second prints of the Bill and a departure from the precedents set in some of the earlier legislation, for example, the Gas Act—this is why I happen to have it in front of me—where in Section 4(3) more or less exactly the same wording is used, except that "general principles" is not included. So no doubt that gave the Secretary of State much greater power to interfere in matters of detail. We have included the words "general principles" to make it absolutely clear that the Government's intention in passing the Bill is not to give the Secretary of State unnecessary power to interfere in matters of detail, but only to allow him to give an opinion on matters of general principles to the two Corporations.

The noble Lord, Lord Carr of Hadley, said on an earlier Amendment that it was quite clear that the Government were saying one thing and doing another in the Bill. I would suggest to him that this is a good example of somewhere where we have broken away from the precedents, including those of the legislation of Governments of noble Lords opposite, by making it clearer than it ever was in the past that Secretaries of State, in these circumstances, should not interfere in the kind of detail about open plan offices and so on, which the noble Earl, Lord Ferrers, gave as an example—


I am grateful to the noble Lord for giving way. He will recall that when we were debating Amendments to Clause 2, he specifically confirmed that under that clause the Secretary of State would have power to order the appointment of a particular person as sales director or as director of research and development, or to particular positions. I do not quite see how that is a general principle. It is all very general here, but it is all very particular somewhere else. This is one of our great troubles with the Bill.


Were I to return and make the same speech as I made on Clause 2, I am sure that noble Lords opposite would accuse me of filibustering, which is the last thing I should want them to accuse me of.


I should like to raise a point before the noble Lord sits down. He has sitting beside him a Law Officer from the Scottish Office. The noble Lord has tried to suggest to me—if I have got it right—that the term "general principles" is restricting, and he tried to give the impression that in legal terms "general" meant that it was narrower than it would be if the word "general" had not been included. I wonder whether the Law Officer from the Scottish Office could give any legal basis for showing me where, even in legal terms, the word "general" has made the position narrower than it would have been if that word had not been included?


With great respect to my noble friend, I am not sure that I need his advice on this occasion, although doubtless on many occasions I will benefit very greatly from it. As I have said to the noble Lord, "general" is defined in this instance in the same way as it is in other circumstances in similar Bills and similar Acts of Parliament, and that is quite firm advice that I have.


The only "general" I should find acceptable at the moment would be a General Election.


We are getting into a most extraordinary position over these Amendments. On the last Amendment we discussed we had the Government refusing to add a few words which could not have been damaging and which, in the opinion of many noble Lords, would have been beneficial to protect the commercial interests of the Corporation. But, no, we could not add a few words. Now the Government are refusing to remove six lines of gobbledegook. It drives us to desperation.

I must remind the noble Lord of something I said very much earlier this afternoon, and that was that if we wanted to make progress—and presumably the noble Lord and his colleagues want to make progress—it would help us to make progress if instead of this stonewalling and sticking to everything in the Bill word for word, there was a bit of give and flexibility from the Government side. The more rigid the noble Lord is the longer the pressure will go on to try to get some concessions from the Government, and the noble Lord must not grumble if it takes a very long time, because it is nonsense that we have to argue for over an hour in order to get a refusal to add what were quite harmless words. Even if the Government did not think they were positively beneficial, they could not conceivably have done any harm. We are now having to argue for a long time because of these words of gobbledegook, and they really are gobbledegook—unless they are sinister, and Ministers are trying to assure us they are not sinister. I do not know.

Let us try to take stock of the position. One thing we are quite sure about—and this must be common ground on all sides of the Committee—is that after more than a quarter of a century of experience we know now that nationalisation as at present practised does not work; that it is wholly disastrous. It is disastrous economically, and disastrous in producing a proper return on scarce capital investment, and it has certainly not brought satisfaction to the employees in the nationalised industries. All the initial claims of nationalisation which the Labour Party put forward to the country and brought in from the 1945 period onwards have been proved, after 30 years, to be false. I do not believe that anybody can contest that.

We believe we should not have any more nationalisation, but still the Party opposite is determined to go on with it. After the experience of these 30 years surely we must go one way or the other. I must remind the noble Lord that it is not just noble Lords on this side of the House who are saying that, but, to take one example among noble Lords behind him, the noble Lord, Lord Shinwell, is saying: "If I could start all over again I would do it all differently". Because he is true to his Socialist belief in nationalisation, he is not saying, as we are, that he would not have any of it; but he is saying, "Believing as I do in nationalisation, with the wisdom of hindsight I would now do it quite differently".

Therefore, I say to the noble Lord that we must go one way or the other. One way to go is back to the idea that a nationalised industry is run by a Government Department, as the Post Office was, in which case the Secretary of State is his own chairman, as I said earlier. That is one way to go. There we would at least get rid of this conflict between the Secretary of State and the chairman and board of the Corporation. We would also gain Parliamentary accountability, which many noble Peers and honourable Members in another place want. That would be one way of going.

The other way to go is to set about making these nationalised Corporations, if we have to have them, much more independent. Surely what we have learned over the last 30 years is that we are getting the worst of both worlds. We are getting the benefit of neither one form of organisation nor the other. Our constant complaint in this Bill is that the Government, with a great flourish in their Consultative Document and in some clauses of this Bill, and in what they have said in regard to the Bill, have said, "Here is a new departure in nationalisation. There will be far more decentralisation, far more autonomy; we are really going to set a new precedent." And if they were, much as we dislike nationalisation, if we are to have it thrust upon us, most of us on this side of the Committee would welcome that if it were genuine. But when we study the details of the Bill we find it is not genuine, because for every clause or subsection of a Clause which talks about more independence, more decentralisation, more autonomy, and autonomous profit centres, and all that sort of thing, there are other clauses which give the Ministers more powers of intervention than they have had in the past. It is the fact that the Government are pulling in both directions which makes us so profoundly dissatisfied with this Bill as it is at the moment.

Of course, we should like to chuck out the whole Bill, but for the moment we are concerned to see whether we can improve it, to see whether we can reduce the chances of nationalisation ruining the industries involved in this Bill. The Government must go either one way or the other and not try to go both ways at once; because, as I have just reminded the noble Lord, he is now saying that we need not bother about this clause because it is concerned only with directions about general principles. But, as I reminded him, an earlier clause of this Bill, on his own admission, gives the Secretary of State power to make specific appointments to specific important posts in the Corporations and does not leave it to the top management to do that. It is no good his trying to reassure us about its being limited to general principles here and saying that the word "general" is by custom defined so narrowly that, as his noble friend said in another context earlier, it really means that directions can scarcely ever be given; because even if that were true of this clause there are other clauses where he himself has admitted that exactly the reverse applies.

What does the noble Lord mean by this phrase "general principle"? When my noble friend Lord Ferrers in moving this Amendment spoke about office management and office design, the noble Lord, perhaps not unfairly, said that that was not a general principle, and perhaps we can understand that. But he tried to say the same to my noble friend when he spoke about a decision as to where the vertical take-off aircraft, the Harrier, and its developments, should be made. Is that really not a general principle? Is it not a general principle for the Secretary of State to say, "I believe on grounds of regional policy, of employment prospects, that this great new technological development, with so much promise for the future, should be made all in the Preston area rather than all in the Kingston area because the needs of employment in this great new technology are much greater in Preston than they are in Kingston"? Is that not a general principle?


If the noble Lord would like me to repeat myself, my clear, legal advice is that the answer to his question is, No, it is not.


It is very satisfying if that is so, but I think the noble Lord must realise that we must have some examples of what is a general principle, because if he cannot give us any example of what is a general principle then I come back to the fact that all these six words are just gobbledegook. They either mean something or they are gobbledegook. If they mean something the noble Lord must explain to us what it is.

Let me test the noble Lord out on another matter and ask him whether or not it is a general principle. Let me go back a moment. Here this great review has taken place—a review which the noble Lord I think agreed earlier was the equivalent of a management audit or a consultancy review. This, I think, was admitted by the noble Lord, Lord Kirkhill, when we were talking about the previous Amendment. All right; this great consultants' report comes forward, and no doubt this consultants' report contains recommendations about the basic structure of management—the relationship, for example, between functional services and line management. I am sure the noble Lord will know, without my going into a great lecture about managerial principles, the sort of things I have in mind.

Are those general principles? Is the Secretary of State entitled, under this provision, to say to the Corporation, its chairman and its Board members, "I have now read the results of your review, the recommendations contained in your consultants' report and all the rest of it, but I think that this is the general principle on which you must organise yourselves, I believe that these should be the powers of the functional departments and that these should be the limitations of the line management functions, and so forth; and this is the amount of decentralisation I believe in"? Is that a general principle or is it not? Because if it is, then the Secretary of State is setting himself up as the super-management expert and is telling his chairman and the chairman's colleagues on the Board how they should run their organisation; and that I do not believe to be what the Government are holding out as what they are trying to do.

If that is what the Secretary of State wants to be, the great management expert, then I go back to the earlier point and say this. Let us have this as a Government Department with the Secretary of State as his own Chairman. Let us do it that way. But do not try to go in both directions at once. If the sort of thing I am talking about is not a matter of general principle—and the noble Lord will tell us—then I come back to the thought that these six lines are gobbledegook. If they are not, I beg the noble Lord to tell us what are meant by "general principles" on which the Minister can give directions. If he cannot give positive examples, then I am afraid the whole thing is nonsense and we shall not only want to continue the debate now, and vote in the end against, but to return to it at the next stage of the Bill as well.


The noble Lord intervened to say that the matters my noble friend was talking about were not general principles. Would he admit that they are major matters? Would he concede that much if they do not come within what he defines as general principles? Would he concede that they are major matters of concern to the organisation from day to day? Or does he disregard their importance altogether?


I am not clear whether we are still talking about matters such as the organisation of office furniture.


We are talking of the general day-to-day matters. He said they are under matters of general principle. Are they major matters that ought to be given consideration to or are they unimportant? I should like an answer to that.


There is some difference between deciding where the Harrier is built and deciding where to put office furniture. They are the two examples given by the noble Earl, Lord Ferrers. There was one point which the noble Lord, Lord Carr, brushed aside when referring to these (how many?) lines of gobbledegook. It is that they clearly are drawn from previous nationalised industry Statutes passed by Conservative Governments. I gave as examples the Gas Act 1972 in Section 4(3). I now have the information asked for by Lord Trefgarne. It is the Civil Aviation Act, Sections 39(1)(a) and 39(3). The only difference between those Acts where this "gobbledegook", as Lord Carr called it, appeared and what is in this Bill is that we have inserted the words "general principles".

My legal advice is clear in saying that that means it does not refer to day-to-day matters, specific matters, such as those to which the noble Earl, Lord Ferrers, raised. We have these lines—which may or may not be gobbledegook—but noble Lords opposite happily inserted them in their legislation. We have gone further and say that in this particular instance where we are looking at the organisation, you should not have power to interfere in detailed matters but only in matters of general principle. I should have thought that that explanation ought to satisfy noble Lords.


The noble Lord did not follow the line I wanted. Would he look at the Explanatory Memorandum in his own Bill referring to Clause 5. The final sentence is: He may then give directions to the Corporations on major matters with a view to securing their most efficient organisation. They did not, in the Explanatory Memorandum, call them matters of general principle, they defined them as "major matters". The noble Lord is working to his brief and I have sympathy with him; but the Explanatory Memorandum of the Bill is clear that this general principle is not matter above any day-to-day running of the organisation. They call them "major matters". 1 believe that whoever prepared the Explanatory Memorandum has a better understanding of what is meant by general principles in this context than has the noble Lord's brief.


May I press the noble Lord a little more? First let me say this about the precedent argument. All right. Something was in the 1972 Gas Act passed by a Conservative Government. I was a member of that Government and must share my collective responsibility. But I am not impressed by that argument. I think, as I said at the beginning of my remarks, that surely what we have to realise is that Governments of both Parties have tried to make nationalisation in its traditional form work and have failed. We must start from that point. That really is the truth on which many people of both Parties agree.

It is not precedents which we should be looking at. If it helps the noble Lord, I admit that 1 was wrong as a member of the Cabinet to agree that that should appear in the 1972 Gas Act, What does he say? He says that we have tried to learn from experience to a certain extent, so he has included this great phrase "general principles" but he will not tell us what he means by "general principles". He has told us that there are one or two things which are not general principles and, therefore, would not be subject to direction. When he tells me that a matter so big as where the Harriers should be manufactured is not a general principle, I am relieved, because at least he is saying that the Secretary of State will not attempt to interfere with the judgment of the chairman and his colleaeues on the matter.

What about matters such as the general structure of management, to which the noble Lord gave no answer? As a result of this review we have the consultancy report which no doubt will have a good deal to say about the general system and principle of management which the Corporation should adopt. Is that a matter of general principle on which the Secretary of State could give orders overruling his chairman and board if he so desired, or is it not? Until the noble Lord or one of his colleagues begins to give us some examples of what he means by "general principles", we are bound to continue in a rather tedious way bringing forward new examples and asking whether they are matters of general principle. So far, he has set our fears at rest on all those we have mentioned by saying that they are not matters of general principle. Perhaps he will tell us what is a matter of general principle. Then we may be able to make faster progress.


I wonder whether a new fellow might have at least one ball, not an over, to ask the Minister whether it is not possible that the insertion of the words "general principle" for which he takes credit, is the cause of all the trouble. It seems to be those two words that have rendered the clause nonsensical. Apparently, the clause requires that after considering reports which do not have to deal with general principles—and there is no indication that general principles are matters with which they are involved—directions are to be given which are solely restricted to general principles. A less effective way of dealing with the detailed report it is impossible to imagine. One arrives at the conclusion that in a desire to absolve themselves, quite virtuously, from interference in detailed matters, they have rendered the whole of this clause absolute nonsense.


I am a very simple-minded man and I believe that most noble Lords would agree that Lord Beswick will have all the top brass from the British aerospace industry in the Corporation, if and when it is ever formed. Surely they know more about the day-to-day management of the general principles and the major matters to secure efficiency than any Secretary of State in the past, now or in the future.


I hoped that we would receive an answer from the noble Lord, Lord Melchett, on what general principles are.


He has answered.


No, in fact he has not. He has said what they are not. He specifically rose and said that he had taken legal advice on my example of where the Harriers should be made. He said that it was not a general principle. We have not received an answer to our question of what is a general principle. The situation becomes difficult because we find ourselves in the position, frankly, of almost punching a cloud. I am not suggesting that we are trying to punch the noble Lord, Lord Melchett. However, when one asks a question, one never receives an answer. He does not answer these points of particular importance.

The idea behind this Amendment is to try to ensure that if nationalisation is to come about, which is the purpose of the Bill—and we admit that we do not like it—it must be as successful as possible. The one thing that we think ought to be done is to keep the Secretary of State out of the "hair" of British Shipbuilders and British Aerospace. As we see it, this Bill, as it is drafted, permits the Secretary of State to interfere. The noble Lord, Lord Melchett, said, regarding my question about the Harrier, that if he was to say that it should not be built at Kingston but at Preston, this would not be regarded as something with which the Secretary of State should interfere.

But supposing as a result of this nationalisation, there is rationalisation—and everyone knows that that is going to happen—and the two industries will be drawn together, and therefore there will be fewer factories. Supposing it is determined that there should not be 15 factories but 10. Is not that a general principle upon which the Secretary of State should interfere? Is he not permitted to say: "There are to be only 10 factories, and these should, in my judgment, be situated here, there and there"? I should have thought that those are points on which the Secretary of State could well interfere. We have not had a—

11.2 p.m.


May I interrupt? It strikes me that in this Bill we are discussing in an odd way two particular problems. One is the nationalised industries, and the second concerns the two companies, Short Brothers and Harland and Harland and Wolff, which are not going to be allowed to develop in isolation. I think "isolation" is the word to describe it. Where is the Secretary of State's power to come in, and where is he going to relate that to general principles if rationalisation is going to occur? If shipbuilding, for instance, is going to be cut by 60 per cent. or some such figure—that must be a general principle—how is this going to be related? Where do we go between the reduction of the national capacity by 60 per cent. involving the British Shipbuilders and Harland and Wolff as one and the other? This I find rather difficult to understand.


Is the noble Lord not going to define the boundaries? He is asking this Committee to sign a contract in the sense of allowing this to go through. If it is that one is asking people to adhere to clauses within that contract, there ought to be a plan which defines the boundaries of the area covered by the clauses in the contract. The noble Lord has said what it does not cover. I think those who are interested in the full employment of these industries and general efficiency (which is supposed to be the general principle uppermost in their minds) ought to know the boundaries

of what "general principle" means as regards interference by the Secretary of State, otherwise it makes a nonsense of suggesting that this is going to be anything other than a fully politically controlled organisation, with all the dangers that can effect both our industry and our standing in the world.


I did not speak because I understood that the noble Earl, Lord Ferrers, was in the middle of making a speech a minute ago.


The noble Lord is on his feet; I will by all means let him answer the question, if he would like to do so. I only say this: the noble Lord has failed to answer, in a quite demonstrative way, what the general principles are over which the Secretary of State is allowed to interfere. We asked six times and on every single occasion he refused to answer. Nothing more remains other than to say that in that case we think it is wrong that the Secretary of State should have that power, and I ask your Lordships to agree to this Amendment.

11.4 p.m.

On Question, Whether the said Amendment (No. 89) shall be agreed to?

Their Lordships divided: Contents, 94; Not-Contents, 36.

Abinger, L. Falmouth, V. Onslow, E.
Airedale, L. Ferrers, E. Orr-Ewing, L.
Amherst, E. Gainford, L. Penrhyn, L.
Amherst of Hackney, L. Gisborough, L. Redesdale, L.
Amory, V. Gladwyn, L. Remnant, L.
Ampthill, L. Gowrie, E. Rochdale, V.
Ashdown, L. Gray, L. St. Aldwyn, E. [Teller.]
Auckland, L. Greenway, L. Sandys, L.
Balerno, L. Gridley, L. Seear, B.
Belstead, L. Hacking, L. Seebohm, L.
Berkeley, B. Hailsham of Saint Marylebone, L. Selsdon, L.
Bridgeman, V. Hampton, L. Sempill, Ly.
Broadbridge, L. Harcourt, V. Sherfield, L.
Brookeborough, V. Harmar-Nicholls, L. Shuttleworth, L.
Brougham and Vaux, L. Hives, L. Simon, V.
Burton, L. Hornsby-Smith, B. Strathclyde, L.
Campbell of Croy, L. Inglewood, L. Strathcona and Mount Royal, L.
Can of Hadley, L. Inverforth, L. Swansea, L.
Carrington, L. Kemsley, V. Tanlaw, L.
Chelmer, L. Killearn, L. Terrington, L.
Cork and Orrery, E. Kimberley, E. Teviot, L.
Cullen of Ashbourne, L. Lauderdale, E. Thorneycroft, L.
de Clifford, L. Lloyd of Kilgerran, L. Tranmire, L.
De Freyne, L. Lyell, L. Trefgarne, L.
Denham, L. [Teller.] Mancroft, L. Tweedsmuir, L.
Deramore, L. Merrivale, L. Vickers, B.
Drumalbyn, L. Monson, L. Ward of North Tyneside, B.
Dudley, E. Mottistone, L. Wardington, L.
Effingham, E. Newall, L. Wigoder, L.
Elles, B. Norwich, V. Windlesham, L.
Elliot of Harwood, B. O'Hagan, L. Young, B.
Elton, L.
Brimelow, L. Janner, L. Pitt of Hampstead, L.
Champion, L. Kirkhill, L. Platt, L.
Collison, L. Llewelyn-Davies of Hastoe, B. Ponsonby of Shulbrede, L.
Cooper of Stockton Heath, L. Longford, E. Raglan, L.
Davies of Leek, L. Lyons of Brighton, L. Shepherd, L.
Davies of Penrhys, L. McCluskey, L. Stedman, B.
Elwyn-Jones, L. (L. Chancellor.) Melchett, L. Stewart of Alvechurch, B.
Gregson, L. Morris of Kenwood, L. Strabolgi, L.
Hankey, L. Murray of Gravesend, L. Wallace of Coslany, L.
Harris of Greenwich, L. Noel-Buxton, L. Wells-Pestell, L.
Hirshfield, L. Oram, L. [Teller.] Winterbottom, L.
Jacques, L. [Teller.] Peart, L. [L. Privy Seal.] Wynne-Jones, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly-

11.12 p.m.

On Question, Whether Clause 5, as amended, shall stand part of the Bill?


I should like to come to a point of immediate topical application. It is a duty of British Shipbuilders to review and report on the management of its affairs and, as to the timing, subsection (2) states that "forthwith after the shipbuilding industry vesting date" the new Corporation shall produce its first report, while subsection (3) indicates that that must be withinsix months of that vesting date. In passing, I would ask the Government whether they can give us any news of their views on when the shipbuilding vesting date is to be after the enactment of this Bill, were this Bill to go through Parliament.

The next point is that this new Corporation will find it difficult to produce a review as soon as this, because subsection (2) states that it has to undertake a review of the affairs of the Corporation for the purpose.

(i) of determining how the management of the activities of the Corporation and those subsidiaries can most efficiently be organised"— and then— (ii)…of seeking the largest degree…of decentralisation of management and decision-taking to separate profit centres in the ship-building and ship-repairing areas of Great Britain, and in particular of Scotland and Wales". At present, no decision has yet been taken as to where the headquarters of British Shipbuilders is to be, and unless the Minister can tell us that tonight it will still be a mystery. It will be difficult for this new national Corporation to produce a review in this short time, "forthwith after the…vesting date", when it still is not known where it is to be, whether in Scotland, in a development area in England or Wales, or in London.

There was a report in The Times of 9th September which stated: Government delays over the announcement of the location of the headquarters for British Shipbuilders is jeopardizing preparatory work for the planned new state undertaking. Members of the organizing committee and key personnel recruited over the past few months are now seriously worried at the implications of the failure of the Government to make an announcement. The delay is causing considerable frustration and inconvenience, and it is clear that the new corporation could suffer unless the issue is clarified within the next few weeks. The article went on to discuss what development area in Britain might be chosen for the headquarters, and went on— The organizing committee itself favours London as the most desirable location, however, and wherever the new state corporation is based, its executives expect to spend a good deal of their time in London". That is still the position today, over a month later. I would ask the Minister whether that report in The Times is broadly correct. It is going to be exceedingly difficult for the Corporation to get started and to do this kind of review if it does not know where its headquarters will be. If it is not known today and the decision has not yet been taken, can the Minister tell us when that decision is likely to be taken? Will it be taken before vesting date?

Viscount SIMON

May I ask another question arising out of this clause? I do not want to reopen the discussion we had about commercial interests, but I think I heard the noble Lord, Lord Kirkhill, at one point saying something that sounded like an expression of opinion that what was against the commercial interests of the Corporation would be against the national interests, presumably because the Corporation is a nationalised body and we do not want it to fail. It struck me that that is quite a useful line of approach if noble Lords on the other side are going to give proper thought to the long debate we had on that Amendment. I wonder if I could confirm that the noble Lord, Lord Kirkhill, or perhaps the noble Lord, Lord Melchett, when replying, will say whether I heard that correctly. It seems to me that that is a possible way of getting out of our difficulties.


The noble Viscount did understand my noble friend correctly. This is one of the matters we shall be considering. I am sorry to see that the noble Lord, Lord Carr, is not here, and no doubt the noble Lord, Lord Campbell of Croy—if I may do a Lauderdale on him, if I may use that expression—will convey to his noble friend Lord Carr that we have agreed, as the noble Viscount has reminded us, to consider this matter. Perhaps he would also convey to him that, of the eight substantial Amendments we have discussed this evening, six have already been discussed extensively in another place. It may be that if we were to make a little faster progress we would come on to those parts of the Bill which were not fully discussed in another place because of the guillotine procedure where my noble friend and I would be able to be rather more forthcoming on giving consideration to Amendments made by noble Lords opposite. If I may make the point, there is a little give and take in this, and if we do not make progress there are no Amendments for us to consider. If we made rather more progress and covered more ground we would come on to Amendments where there are some very good viewpoints to be put by noble Lords opposite which we can consider.

The noble Lord, Lord Campbell of Croy, asked me two points on the vesting date. My understanding is that for each Corporation the vesting date will be as soon as possible after Royal Assent, which no doubt will be in the comparatively near future. The noble Lord also referred to a report in The Times, which I confess I did not see. Naturally I place great weight on what appears in that newspaper. No doubt he will have noted what it said in the leading article this morning about the House of Lords not indulging in delaying tactics by spending too long on particular sections of Bills.

Baroness SEEAR

No doubt the noble Lord will have noted from The Times how very important it was that we should do the revising job properly.


Yes, and somebody —either a noble Lord sitting on the Cross-Benches or one of my noble friends —has made the point that there have been occasions today when we have spent such a long time on Amendments which did not warrant it that it will be difficult to use time sensibly. I say frankly to noble Lords opposite that the only response which I and my noble friends can make if debates are, as it seems to us, very greatly extended beyond what is reasonable is simply to sit here and not say anything, and that cannot possibly help the process which both the noble Baroness and I would like to see of a proper consideration of the Bill. There comes a time during a debate which has gone on for a certain length of time when the only response that I feel I can sensibly make, without helping noble Lords to prolong matters, is to sit still. I do not like doing that because it is not a constructive way to look at a Bill and, with the noble Baroness, I hope that we can all use our time more profitably by addressing ourselves to the main issues.

The noble Lord asked me about what the report in the Sun said about the headquarters of British Shipbuilders. The noble Lord will have seen that in answering a question in another place last week my honourable friend the Minister of State said that, although a decision had not yet been made, it would be made as soon as possible and that the decision would be made public as soon as possible. The situation remains as it was last week when that question was asked.

11.22 p.m.


I was interested to hear from the noble Lord that after 25 hours during which we have not had a single concession from the Government he is not persuaded by any of the arguments, points or Amendments which have been made during those 25 hours but that he says he may be persuaded by future arguments.


No. I said that there are other bits of the Bill which were not so extensively discussed in another place, since they had fallen under the guillotine procedure, which we have not yet reached, whereas the bits of the Bill we have discussed so far were discussed fairly fully during both the Committee and Report stages in another place. However, we have undertaken to consider various points. As the noble Earl, Lord Onslow, will remember, we were rebuked, although I accept that subsequently he withdrew the rebuke, for offering to consider one Amendment.


I am grateful to the noble Lord for having clarified the position. It seemed to me that he was saying that so far he had not been persuaded about a single jot or tittle but that he might be persuaded in the future. I concede that we want to leave time for the Amendments which have not yet been discussed, but since July I have no doubt that the Government have been considering very carefully how they could improve the Bill and I hope that we have put forward certain suggestions which have helped them in that process. Here, however, we are discussing the Question, Whether Clause 5 shall stand part?

The Government Memorandum accompanying the Bill speaks of "the most efficient organisation". In my terms that means cost effectiveness; that is the only way that we have discovered in our modern society of measuring efficiency. You have the social consequences as well, and of course I accept that. However, I cannot believe that cost effectiveness means producing seven major Bills in your Lordships' House with seven weeks to go. It does not seem to me to be either efficient or cost effective, and if we are not giving to those Bills all the consideration that we should it is because we are being asked to revise in a hurry something which would normally take the whole of a Session in this House—because we are being asked to do it in seven weeks. Certainly it is totally against the spirit of democracy when there is a minority Government and a minority within that minority which is trying to provide Left-wing policies.

In his book Sir Ronald Edwards, who was closely concerned with the nationalisation of the electricity industry, said that "as precise a definition as possible in the Act of the tasks and duties of a statutory body is essential to efficiency". I think that is a good point and I hope that when we discuss decentralisation, as we have been doing in this clause, we shall discuss all the ways in which it can be achieved. I hope that the organisation will be encouraged to put a lot out to contract, but I am reminded of the fact that one has to remember that there is a very strong purchasing power in the hands of the chief purchasing officers of nationalised industries. As a member of the Royal Commission on Standards of Conduct in Public Life I am mindful of the fact that in some of these nationalised industries there was some slippage from the high degree of integrity which one hopes to have in all industry, and particulary in nationalised industries. So I hope we shall have no further lack of integrity in those areas.

In this nationalised industry we are dealing with something far more complicated than we have ever dealt with before. In my 20 years in another place and five years as a candidate I have watched various nationalisation measures going through, and on the whole they were dealing with simple things, like coal or gas or electricity, more or less homogeneous units. Then we had steel, which can be made in various grades and sizes—I hope all of them metric! Then we had railways and 'buses and freight. I will not go over them all because I might be accused of "spinning it out", but every single one is now making a loss. So on cost efficiency they are not frightfully good examples of how to run a business. We are now trying to concentrate our minds on how to do better in future.

Here we have possibly the most complicated nationalisation measure because we are dealing with products which are so very different. They are not simple, as were the others. In ships we have cargo ships, warships, tankers, liquid gas carriers, container ships, all sorts of auxiliary ships, tugs—a whole host of different ships with totally different technologies. If we go to aircraft it is even more so. There is the military aircraft, with its tremendous concentration on technology and its high speed characteristics, and of course its ability to fly in the most difficult environment and through nuclear clouds and through the worst of weather, and to find its way to the target and back.

We have been concentrating on decentralisation and the tasks of the Corporations. I have been looking through the Bill and it rather terrifies me because the tasks are legion. We have been told that there are to be only a very small number in the headquarters. I know the noble Lord, Lord Beswick, believes this sincerely and I am sure he will try to achieve it. But look at the tasks and remember that there will have to be the headquarters, big or small; there will have to be the regional headquarters, and presumably there will have to be local management headquarters in the various firms.

Then look at the tasks that they have to undertake. I think the whole is covered by the term "management audit". There are the management activities of the Corporations—they have to be looked into and defined in the Bill. There is the process of industrial democracy—defined in the Bill. There is the decentralisation of management. There is the decentralisation and creation of separate profit centres. There is the formulation and the implementation of an investment programme. Goodness knows! we have been told that this is a gargantuan task—the investment programme for the whole of shipbuilding, ship repairing, marine engine building, and the like. There is the manpower planning; there is the recruiting and the training of manpower, all to be done by the headquarters and the regional centres. There is the whole of industrial relations—and God knows! that is important enough and perhaps especially important in shipbuilding; and there is the financial performance.

Looking at the profit centres, I have tried to analyse the sort of profit centres there might be. There are 19 shipbuilding firms and each one of them, I would suggest, cannot have less than 10 profit centres. So that is a total of 190 profit centres to cope with. There are 12 ship-repairers. I would suggest that each one of those 12 ship repairers has at least five profit centres, making a total of 60. There are eight slow-speed diesel manufacturers, and I would suggest, again from experience, that they must have at least five profit centres. So in fact there are 290 profit centres under the shipbuilding Corporation alone, and I suggest that I am under-estimating rather than over-estimating.

Now we come to where these are to be sited. I know that there will be tremendous pressures. I am delighted to hear from the Minister that the headquarters of these two Corporations will be announced relatively soon—I hope in time to discuss it in this House or in another place. Then there will be the regional centres. Where will they be? Before the Bill finally receives the Royal Assent, perhaps we may be told at least where the headquarters will be.

I wish the Corporations well, but I am mindful of the fact that we look to see through past experience that there was going to be a small headquarters in London, and what was a small headquarters becomes Hobart House, which becomes Coal House, which becomes an enormous headquarters with an immense staff and satellite headquarters round it. Every time this intention has been declared as we nationalize—and I am sure people sincerely believe this is going to be small—Parkinson's Law begins to act, and up and up builds the snowball and more and more people sit in offices trying to control it, to monitor it and prepare reports, as is laid down in the Bill. I wish them well, but would say to any Government that they will have to watch the growth of administration desperately carefully. The whole country at present is suffering because we have 1.9 administrators on the backs of a very small industrial production, and it is that which is sinking this country financially, economically, and making the pound go lower every day.

11.32 p.m.

The Earl of ONSLOW

I rise to underline what the noble Lord, Lord Orr-Ewing, has said. I am not doing this in the sense of Fabius Maximus Cunctator, but in the hope of producing a slightly different aspect of it. When the headquarters of British Shipbuilders is announced, can we not have a guarantee from the Government that there will be no increase whatsoever in office space required? In other words, it will be announced, and some other office space owned by one of the present companies to be nationalised will be released, because it cannot make sense to have the offices of all the present shipbuilding companies, all the present aircraft companies, and then put yet another layer of office people on top of it. That must be wise. We cannot afford it, and we are really up against it financially. So it seems to me they should make it a simple rule that there will be no extra office space bought. Especially since the Government have stated there will be redundancies on the shop floor, it cannot be right to increase office space and decrease factory investment in actual productive workers. To do so would be dotty.


I certainly think the second point put forward by the noble Earl, Lord Onslow, is a very strong point. The noble Lord, Lord Beswick, has already made the point on the aerospace side that he does not see the need for new office space, and that existing facilities will be used. I will certainly put the point to my right honourable friend and honourable friends so far as the shipbuilders are concerned, but I think the noble Earl will accept that it should be a matter for the Organising Committee in the first place. No doubt they will take careful note of what he has said.

My response to the noble Lord, Lord Orr-Ewing, would be that I accept that it would be very desirable for your Lordships, before the Bill leaves your Lordships' House, to know where the headquarters will be. I will certainly convey that thought to my right honourable friend to see what we can possibly do before the Bill goes back to another place.


One merit about the Motion, That the Clause stand part, is that at least it is an amended clause. I rather detected in the earlier response of the noble Lord, Lord Melchett, a certain—I would not say impatience, but a certain sadness that we were not apparently moving as fast as he would like. I think he even said that if we persisted in discussing matters in the way we have done, all he could do was to sit tight and say nowt. He quoted The Times, and perhaps I may invite him to re-read the leader in The Times to which he referred. I quote: None of the Bills before the Lords is vital to the national interest at a time of great economic peril. Some will be positively damaging; others will be irrelevant. Many of them will help to confirm the impression that is so damaging to the Government in the country and abroad; namely, that they are forced to implement a portion of Left-Wing measures that are not at all to the taste of most Ministers as the price of preserving a semblance of Party unity. The noble Lord introduced The Times leader, and I dare say it is important for the record, but for the spiritual improvement of noble Lords opposite they should be made to drink their own medicine. The leader goes on: The important principle is that the legislative process must not be impaired. I do not quite know what was the inwardness of the noble Lord's meaning when he referred to time. I am not aware of any constitutional reason why this particular Session has to be ended and the next has to he started on a particular day. It is not for the convenience of the Royal Mews. Parliament can be opened by a Royal Commission. So the whole idea that we are up against a deadline, if we are, is entirely of Ministers' choosing, and it is for them to enjoy their medicine. If they are now finding it bitter, then so be it.

There were two main matters on this clause which I was concerned with and which I do not think have been properly answered. There was the whole question of efficiency. We got no answer whatsoever. It may well be that there is no answer.


The answer is that I think I am right in saying that the noble Earl was not here when we had a debate on the Amendment which covered the particular point. Noble Lords opposite who were here may well say that even then we did not get an answer, but we did discuss it at length and I did not feel it right to go over that ground yet again.


I appreciate that the noble Lord has been working so hard that he is a little myopic and does not see even my large bulk, but I was in fact here throughout the discussion of the clause we are talking about. The short point is that the term "efficiency" has not been satisfactorily explained. It is in a passage now happily eliminated from the Bill. But what one really complains about is the lack of a proper answer.

Then there is the question of decentralisation. I raised the question of shipbuilding being treated as one activity. There is Vosper in Portsmouth; there is Yarrow in Glasgow. Is either to be subject to a distinct Scottish or English division, with pricing policy? And what about naval shipbuilding? That simply was not answered. That is why—since, as I say, there is no constitutional reason why we should worry about time—I return to the matter. If the noble Lord is going to go on saying "You did", "I did not", "You did", "I did not"; if that is going to be the performance, I must say to noble Lords opposite—all of whom, so far as I know them personally, I regard as Parliamentary friends and indeed personal friends—that is not good enough and it will be resisted and fought. And it will be seen by the public, to be resisted and fought, because although our proceedings are not widely reported in the ordinary generality of events, they are when things are moving to a crisis and a clash. Therefore, I beg noble Lords opposite—and particularly the noble Lord, Lord Melchett, who, if I may say so without appearing in any way to patronise, has such a future in this House; we all admire his perfomance, we like him, he has immense ability—for Heaven's sake! listen to what the Opposition say; one day he will be leading the Opposition. We are not just trying to barrack and be tiresome. There is the whole question of industrial democracy which was not properly covered. The way it is presented by the Government, industrial democracy is for the so-called relevant trade unions only.

I quoted 1984, "Some are more equal than others". One might quote another allusion to democracy; namely, that the democratic system is Government of the people, for the people, by the people—and to hell with the people! They are proposing an industrial democracy which is to hell with a certain part, perhaps 30 per cent., of the labour force. Is this to be the democracy of the cemetery, and the equality of the slaughterhouse? We did not have proper answers on that, and that is why I draw attention to these matters, and it is important for the record because these records are going to be looked at.

The fate of this Bill is not a trivial matter. It is possibly going to be of constitutional importance. In the matter of industrial democracy we have had this large phrase used, and there is nothing to tell us, from what the Government have said today, whether that has any relevance to all workers being shareholders, to worker directors, to the basis on which they are elected, or to full disclosure of the company accounts to the work force. There are noble Lords opposite for whom we have the greatest respect, and it would be invidious and might damage their reputation if I were to identify them by name, but there are certain noble Lords opposite whom we trust and respect from the bottom of our hearts, but it is no good the Front Bench trying to brush this off and fail to meet the issue.

Before we pass this amended clause, I hope that as the days wear on, even if not as this night wears on, the Front Bench opposite will modify their stance a little. Perhaps an occasional resort to the bar will cheer them up and make them more willing to be open minded. There is no Government by sheer confrontation. It is what they have told us all the time, and what we must remind them of.

11.43 p.m.


If I may refer to my noble comrade in arms who has just spoken (on so many occasions we find ourselves in agreement), on this occasion he has offered—I am not certain whether it was spirituous or spiritual consolation, but I would take it in either sense. The arguments that are used about this Bill are quite extraordinary. I listened to the noble Lord, Lord Orr-Ewing, and I wondered whether the great firm of ICI possibly existed, because it was impossible to have such a vast organisation with a whole lot of units. ICI has 11—or is it 13?—separate divisions. It deals with an enormous mass of employees, with a range of activities far greater than that of the shipbuilding industry. It deals with a total amount of profit infinitely greater than the shipbuilding industry has ever thought of; and we are told that this is impossible, and that it cannot be done.


I was saying that the track record of nationalised industries over the last 30 years has shown that it cannot be done. I am hopeful that perhaps at some stage it can be done.

There is no nationalised industry which has consistently made a profit. I have all the records here. I would not bore the Committee by giving all the profit records over the last five years, but look at the record and that is what you will find. If you could only simulate and reproduce the competitive spirit which exists in ICI! because if they do not compete with the great chemical firms in Western Europe they will be bankrupt. They are not protected. They are not a monopoly. They are very competitive, highly geared and extremely sensitive to competition.


That is all very well, but the noble Lord quoted the number of units in the shipbuilding industry and said it was impossible to have that number brought together. I am saying that ICI has done it and I would go further and point to the mining industry.

Baroness SEEAR

Before the noble Lord does that, may I reinforce what the noble Lord, Lord Orr-Ewing, said, because I do not think he was referring to the possibility or impossibility of operating on that sort of scale? He was saying that it had not been done under nationalisation. If one looks at the figures of the return on capital published on Friday one sees that the return from 1970 to 1975 for every nationalised industry was such that if it had been ICI's return on capital, ICI could not have become the size it is today.


It is difficult to make a coherent argument if one is constantly interrupted. I am in the middle of making a point and I have given way twice. Unless the noble Baroness thinks that nobody else should be allowed to make a point, I hope she will allow me to complete mine. The noble Lord, Lord Orr-Ewing, referred to the size of the organisation and quoted the number of units. I am saying that the number of units is no greater than the number brought together in ICI and that therefore such an argument is not relevant to what we are discussion. If it is said that it is impossible for a nationalised industry to do it, then the noble Lord is on very strange ground.

I went to the City of Newcastle in 1947 when the coal industry was brought under national control. The first thing that happened was exactly the opposite to what Lord Orr-Ewing described; instead of there being a completely new and large organisation created, many minor organisations were brought into one. I happened to be interested in the research side. There were in the coal industry a number of minor and highly inefficient research groups, extravagantly run, and they were brought together and made into one centralised coal research organisation at Stoke Orchard near Cheltenham. This illustrates that what happens is quite the contrary to what Lord Orr-Ewing described. He spoke of the creation of a vast organisation with the dissipation of effort. The reverse happens; there is a concentration of effort and the very people who are concentrated squeak about it, saying, "Look what nationalisation has done". Noble Lords opposite cannot have it both ways. All the time, what they are doing is to say, on the one hand, that nationalisation is extravagant and, on the other, that nationalisation takes away work and destroys the number of jobs. It does. It destroys the number of jobs for their boys. The general effect, so far from being what they are suggesting, is the exact opposite.

The Earl of ONSLOW

Would the noble Lord just define who are "their boys"?


Your boys.


I should like to congratulate the noble Lord on his eloquence. He clearly thinks that Clause 5 is good and ought not to be criticised. That is his point of view. It is not my view nor that of my noble friends. I should like to contest the principle that the noble Lord, Lord Melchett, has tried to maintain. What he tried to say was that because this clause had been well discussed in the other place, we ought not to discuss it at length.


No. I did not. I was merely, very quietly and I hope without creating too much fuss, trying to make the point that there were parts of the Bill that had been very extensively discussed both in Committee and at Report in the other place and other parts which fell under the guillotine at Report stage and which we have not yet reached. They concern compensation on the whole. I was merely making the point—and I did not expect very much to be made of it—that when we reached the points that had fallen under the guillotine, I would naturally expect there to be more that needed to be considered again by my noble friends and myself, more that needed to be taken back, more Amendments that needed to be accepted. That was the only point I was trying to make.


But, if the noble Lord was not saying that we ought not to take up time on Clause 5 because he thinks that it would be better to spend that time on those clauses which came under the guillotine, what was he saying?


It is entirely for the Committee how it spends its time: it has nothing to do with me.


But the noble Lord said that if we went on at that sort of length on clauses such as Clause 5 that had been discussed in the other place he would sit silent and not answer. The whole impression of what he was trying to lay down as a principle was that parts of this Bill that had been discussed at length in another place ought not to be discussed at full length in this House, whatever we felt about them, and that we ought to concentrate whatever time we decided to allocate to those parts of the Bill that came under the guillotine. I want to contest that principle and I am glad that the noble Lord has now gone to the Box to say that that is not what he meant. The reason that we and the other place have spent so much time on Clause 5 is that it seems to embody principles which we think can be terribly dangerous to an important part of the economic sector of the country.

The object of a Second Chamber—whether it be your Lordships' House as it is now constituted or any Second Chamber—is, in the light of what has gone on in the past, to emphasise that part of a Bill which both Houses deem to be important and worthy of detailed consideration. We are a revising Chamber, it is said by some who defend our position. It is our duty to try to revise the Bill and Clause 5 in some way that will make it more acceptable if we have to tolerate the danger of these industries being nationalised at all.

It may well be that, on other parts of the Bill, the noble Lord will find that those clauses upon which they spoke at length in the other place are the very clauses upon which we shall speak at length in this House. In doing so, we shall be doing no more than our duty. I am delighted to associate myself with the personal tribute paid to the noble Lord by my noble friend Lord Onslow: I think that he shows signs of having done his homework and has shown a skill and aptitude which are much to his credit. But I believe that the good reputation that he has earned up to now will be spoilt if he does not recognise that it is that part of the Bill which excited the other place which is most likely to excite this House, too. It is our duty to revise it if we cannot kill it and it does not look as if we were going to be able to do that. If we can send it back marginally better than it came to us because we talk at greater length than they did, then we shall have done our duty.

11.55 p.m.


I am very anxious to say a word or two to the noble Lord, Lord Cooper of Stockton Heath. He complained, quite rightly, because it is very annoying for people to keep on interrupting, so I did not interrupt. I wanted to get up and have a word with the noble Lord, but my noble friend behind me was not going to let me have the chance of being polite. I thought that I was being extremely polite, but it did not pay me to be so, but perhaps it did a little bit of good. It was not that I wanted to help the noble Lord, Lord Cooper of Stockton Heath; I did not. But I thought that I would be polite. I want to say one thing about the mining industry. Was the noble Lord really saying that he went to Newcastle-on-Tyne, or to Newcastle-under-Lyme?




Jolly good! It was the real one, Newcastle-on-Tyne. I do not know whether the noble Lord was concerned about his arrival in Newcastle-on-Tyne, but he spoke about what he called the advantage of nationalisation in terms of all the mines around Newcastle-on-Tyne. There are a tremendous number of mines in that area— I probably know more about that than he does—if one includes Durham county as well.

The noble Lord said that the great advantage was that all the mines were brought together, but he seemed to forget, or he did not know, that the Newcastle and Durham coalfields were established very early. Therefore they were not established with the kind of modern machinery which one finds in Bolsover, with which I had some connection for very many years. I know all about Bolsover and about the advantages which Bolsover had compared with Newcastleon-Tyne. In fact, what happened in Newcastle-on-Tyne was that most of the mines were worked out and so most of them had to be closed down. So if the noble Lord thought that nationalisation was the way to bring the mines together then he had a very funny idea about the situation.

I have spent a lot of time crawling on my front up to the coalface in the Ashington pits. It is true that the pits in the Ashington group were modern and they had reasonably good coal. The Ashington group has gone on very well indeed, and that was not at all due to nationalisation. It was due to the fact that those pits happened to have a lot of coal which had not been dug by the time the Government nationalised Ashington.

Although the miners would not really support me hardly at all, I am very devoted to them. They are absolutely grand people. I do not know how old the noble Lord, Lord Cooper of Stockton Heath is; perhaps that is a rather difficult question to ask. But I have lived a very long time, and I remember that in two world wars we had to stop the miners recruiting—

The Earl of ONSLOW

May I interrupt the noble Baroness? It is terribly rude of me to say this, but I must say, with the greatest respect to my favourite Lady on our side, that we are not discussing mines; we are discussing shipbuilding, and the Government are getting slightly cross with us for filibustering. I hate doing this, and I do not think we are filibustering, but please—


Would the noble Earl kindly allow me to make my speech? He has had a great deal to say, to which I have listened with great interest, but there is no reason at all why in this Chamber I should not answer somebody who talks about the area in which I live and which I have represented for a very long time—38 years—in the House of Commons. Therefore I know something about it, and I am not going to allow any noble Lord, whether he be on this side of the Committee or the other side, to say things about my area without getting up to say what I think. I shall continue to do that, and I say to the noble Earl and indeed to my noble friend behind me that I am just as interested in shipbuilding as most noble Lords. Wallsend-on-Tyne, which I represented, has some of the biggest shipbuilding firms in the country, and I want them to continue, although they are not so likely to continue under nationalisation. There is no reason at all why I should not speak if the noble Lord opposite is going to talk about the mining industry in support of the noble Lord, Lord Melchett, whom I think is a very nice young man. I do not think he is particularly capable. I am in a position, as an ordinary individual, to like people whatever their politics. At the same time I should like to say some of the things that I want to say and, therefore, I go back to the noble Lord, Lord Cooper.


In fear and trepidation may correct the noble Baroness, to say that I am Lord Cooper and that she is directing her remarks to another noble Lord.


I asked him whether his name was Lord Cooper and lie said it was. I am not going to talk any longer, whatever he said about mining—in support of nationalisation, I gather. I am against the nationalisation of shipbuilding. I have done as much as most noble Lords to deal with it in my own part of the world. Fortunately, my own part of the world—although they do not always like what I do or say—at least kept me in power in another place for 38 years. I do know something, therefore, of what I am talking about. I am not going to allow anybody to make comments about the miners in the part of the world which I represent, without my getting up and saying what I think about the miners. I shall not go on talking about that but I say to this Committee that if I want to speak and I want to say what I want to say, then I shall say it.


I think the noble Baroness had made that quite clear. I am overwhelmed by the compliments which have been paid to me, not only by the noble Baroness but by the noble Lord, Lord Harmar-Nicholls, and the noble Earl, Lord Lauderdale. I thank them all very much. I do not know what I have done to deserve it. I dread to think what I might have done to deserve it indeed. I apologise to the noble Earl, Lord Lauderdale—to get back for a moment to Clause 5 stand part—for the fact that I did not satisfy him on the various items which he mentioned, in particular our discussion on industrial democracy. But in fairness I think he would concede that I mentioned that two questions he asked, concerning workers owning the shares or mere consultation, were two examples I gave in my own speech on that particular Amendment, which no doubt he will remember, of the range that industrial democracy could cover.

I apologise if my explanations on the particular points have not been sufficient, but I can assure him that I am doing my best. I know my noble friends are doing much better at satisfying noble Lords opposite on points they have raised. We are certainly doing our best and can assure the noble Earl that we will continue to do so. On the two substantive points which have been raised on Clause 5 stand part—the request of the noble Lord, Lord Orr-Ewing that we should have an announcement on the location for British Shipbuilders and the request of the noble Earl, Lord Onslow, that it should involve no new offices—I have given an undertaking already to take up both of those points very seriously and to take the matter to my right honourable friend. I hope that we can now get back to Clause 5 stand part.


Would the noble Lord allow me? He raised the point that it would be helpful if we got on to the clauses which were not discussed in the House of Commons in the Report stage. I would remind him that Clauses 5, 6, 7 and on to 18 were not discussed in the Report stage, so we are on a clause which was guillotined. Perhaps therefore he would be ready to give way as he suggested he might do on those clauses which had been guillotined and not discussed.


I was happy at the end about this question of decentralisation until the noble Lord, Lord Wynne-Jones, started talking about the concentration of research. I have very little experience of research in the shipbuilding industry, but I know a little about the pharmaceutical industries, and one of the things that has been proved time and time again is the great importance of having individual centres operating almost directly in competition. I would very much feel it not to be in keeping with the philosophy of decentralisation if the first thing that is to happen on this Bill, the moment nationalisation occurs, is that all research will be concentrated. I did not hear the noble Lord the Minister deny that concept which his noble friend behind raised.


I think the noble Lord, Lord Melchett, deserves compliments, certainly so far as I am concerned. started this debate on the Question, Whether Clause 5 shall stand part?, by putting two or three questions to him about the immediate future so far as British Shipbuilders are concerned in relation to this clause. I am grateful to him, because he gave as much information as he apparently could. First of all, he told us that it was intended that the vesting date should be as soon as possible after Royal Assent if the Bill goes through; and, secondly, he said that we were still awaiting a decision as to what part of the country the headquarters of British Shipbuilders were to be located. This clause requires British Shipbuilders to produce their first report forthwith, as soon as possible after vesting date; and, therefore, he has presented us with the information, and confirmed, that British Shipbuilders will have a good deal of leeway to make up. Their first review and report will be required immediately after vesting date, and they still do not know even where their headquarters are going to be—and I do not mean what part of London: I mean what part of the country. The noble Lord also said that it was the intention of the Government, if possible, to announce where the headquarters of British Shipbuilders would be before the Bill left your Lordships' House; and, again, we naturally welcome that and are glad to know that that is the intention of the Government.

Clause 5, as amended, agreed to.

Clause 6 [Machinery for settling terms and conditions of employment etc.]:

Viscount SIMON had given Notice of his intention to move Amendment No. 92: Page 9, line 34, leave out ("consult ") and insert ("seek consultation with").

The noble Viscount said: This Amendment is similar to Amendment No. 84. On that Amendment, the noble Lord, Lord Winterbottom, kindly said that he would refer the matter back and look into it, and I assume that his assurance covers this Amendment as well. I therefore do not propose to move it.

12.7 a.m.

Lord LLOYD of KILGERRAN moved Amendment No. 92: Page 9, line 35, after ("union") insert ("or professional organisation").

The noble Lord said: The purpose of this Amendment is to increase the duties of each of the Corporations by making it a duty of each of them in the context of Clause 6 that the Corporation should consult not only "any relevant trade union" but also the relevant professional associations. The arguments in favour of this form of Amendment have already been canvassed at considerable length under Clause 5 in Amendment No. 86, which this Committee carried, and I therefore do not propose at this stage to talk at any greath length about the desirability of consulting professional organisations of which engineers, designers and people of that kind will be members as employees of the two Corporations.

It may also save the time of the Government if I ask leave of the Committee to speak to Amendment No. 94, which is a consequential Amendment in relation to Amendment No. 93, and also Amendment No. 103, where, again, the purpose is to increase the duties of the Corporations by ensuring that they consult not only the trade unions but also, again, the professional organisations. The desirability of the professional organisations being consulted under Amendment No. 103, in the context of Clause 7, is even greater than it is in the context of either Clause 5 or Clause 6, because in Clause 7 a direct reference is made to the desirability of consultation in regard to research and development, in which, of course, the engineers and the designers will be closely concerned. Therefore, with that, I hope, short introduction, I beg to move Amendment No. 93.


It may be to the convenience of the Committee if I made it clear that, in view of the fact that we divided on Amendment No. 86 and it was carried, I would not oppose what seem to me to be consequential Amendments on exactly the same point; that is, Amendment No. 93, which the noble Lord has now moved, and Amendments Nos. 94 and 103.


I think there is a difference here, and I apologise to the noble Lord, Lord Lloyd of Kilgerran, if there has been any misunderstanding between us about this. In my earlier speech I drew this very sharp distinction between consultation and negotiation. Of course, here we have a clause dealing with collective bargaining.

Quite apart from what the relevant trade unions or the Government may wish, I must say to the noble Lord, Lord Lloyd of Kilgerran, that all the professional organisations that I know have, in their terms of reference, their charters, or whatever they may be, words which specifically exclude them from being able to participate in collective bargaining. I think that we should gravely embarrass the professional organisations if we write them in here—even if I thought it right; which 1 do not. I did think so in relation to consultation but not in relation to collective bargaining. I wonder whether the noble Lord, Lord Lloyd of Kilgerran, might reconsider the matter in the light of what I have said.


I am grateful to the noble Lord, Lord Carr of Hadley, for having said that there was some misunderstanding. I deliberately asked him a few minutes ago whether he was in favour of and would support this Amendment. Now that he has spoken, it seems to me that, with respect, he has misunderstood the conditions of Clause 6 in relation to these matters of consultation. It specifically says in subsection (2)(c): the promotion and encouragement of measures affecting efficiency, in any respect, in the carrying on of their activities by the Corporation …". May I remind the noble Lord, Lord Carr, that the duties of the Corporation are to be found in subsections (1) and (2) of Clause 2 referring to "the efficient and economical design"—efficiency in development, efficiency in production, and so on.

Therefore in respect of all those aspects, I would remind the noble Lord, Lord Carr, that it is "efficiency, in any respect" that is referred to in Clause 6 and that the "efficiency, in any respect" includes efficiency in the matters I have enumerated and will involve the engineers and designers in their activities. Therefore it is proper that professional organisations should be added to the words "trade unions" to enable consultations to take place bringing in the engineers and designers et cetera, people who may not be members of the trade union, in accordance with the argument I have already put in respect of the other clause.


I apologise again to the noble Lord, Lord Lloyd of Kilgerran. He spoke to me and I apologise for the fact that I failed to note that this came within Clause 6. I ask him to consider the matter carefully. It is his affair; but for the reasons I have given I could not advise my noble friends to go into the Lobby with him on this occasion. Although I agree with part of what he has said, if he looks at the next Amendment in the name of my noble friends and myself he will see that there we are deliberately limiting what we want done to paragraphs (c) and (d) of subsection (2) of this clause—which are not the ones involved with collective bargaining.

It is for the noble Lord and his noble friends to decide, but if we were to be successful in getting our next Amendment accepted it could be appropriate perhaps at Report stage to move "professional organisations" into the new subsection (1A). We should then be limiting the professional organisations to the consultative parts of this clause and not to the collective bargaining parts.

What I am concerned about is that if we move it, as the noble Lord suggests, without qualifying it as our next Amendment would qualify it, we shall actually be bringing grave embarrassment to the professional organisations involved, many of whose charters specifically forbid them to enter into the sort of activities described in paragraphs (a) and (b). I did not spot this when speaking to the noble Lord earlier.


I draw the attention of the Committee to the heading of Clause 6: Machinery for settling terms and conditions of employment". Clearly that is negotiation and not consultation.


May I remind the noble Lord that the heading of Clause 6 in my draft of the Bill says: Machinery for settling terms and conditions of employment etc Although the terms of employment are referred to in paragraph (a) of subsection (2), paragraphs (c) and (d) deal with other matters entirely. Therefore, the scope of Clause 6 is far wider than the noble Lord, Lord Cooper, indicates.

12.17 a.m.

Lord CARR of HADLEY moved Amendment No. 95: Page 9, line 39, at end insert— ("(1A) It shall be the duty of each Corporation to seek consultation with other organisations not being relevant trade unions, as appear to it to represent substantial proportions of the persons or of any class of persons in the employment of the Corporation or any of its wholly owned subsidiaries for the purposes specified in paragraphs (c) and (d) of subsection (2) below.").

The noble Lord said: This, again, is another of our industrial democracy Amendments. We propose that a whole new range of people, in addition to those covered by the definition of "relevant trade unions" should be involved, but involved only in part of the purposes specified in Clause 6. I should like to reinforce the importance of the word "et cetera", to which the noble Lord, Lord Lloyd of Kilgerran, has recently drawn attention in the marginal title of this clause. If the noble Lords, and particularly the noble Lord, Lord Cooper, will read subsection (1), they will see that the first objective of this clause is that there should be consultation on a number of issues. The objects of the consultation or the desired outcomes of the consultation are then defined in subsection (2). Paragraphs (a) and (b) are undoubtedly what I would call industrial relations matters, clear and simple. There it is proper that those should be confined to relevant trade unions. I shall return to that briefly in a moment.

Unless and until some of the other organisations, about which we talk in our Amendment, succeed in becoming relevant trade unions, I do not think that they can expect to participate in paragraphs (a) and (b). However, they can expect to participate in the consultation leading to paragraphs (c) and (d): (c) the promotion and encouragement of measures affecting efficiency, in any respect, in the carrying on of their activities by the Corporation and its wholly owned subsidiaries, and (d) the discussion of other matters of mutual interest to the parties to the agreements. Organisations representing a great bulk of the 30 per cent. of the labour force at all levels in these Corporations that are not covered by the relevant trade unions really should be party to this. Let us take the basic terms and conditions point. Of course I accept that in many companies where the closed shop does not exist, but where there is union recognition and collective bargaining, the terms settled by collective bargaining for the union members are then subsumed into the individual contract of employment of relevant grades of those members of the labour force who are not unionised. That is very well-established custom and practice in British industry.

On consultations, those who will not have the chance at present to participate directly in collective bargaining should at least be able to participate in the consultation, as is suggested here. Secondly, paragraph (c), if we are to consult about the: promotion and encouragement of measures affecting efficiency, in any respect… it is absolute nonsense to have consultations about the right sort of structure for collective bargaining and not to listen at least to the views of such vital portions of the work force in these Corporations that are not at present covered by this phrase "relevant trade unions".

Many of the organisations involved have felt great satisfaction that my noble friends, I and others have put down, supported and carried Amendments to bring them into the consultative process; but they have expressed grave disappointment to me—I received a letter this morning—that we are not doing the same in bringing them into the collective bargaining process. I said to them privately, and I must say again to the Committee, that I am afraid I cannot support that because one must confine the actual collective bargaining process to relevant trade unions. They have a proper course, proper machinery, for seeking to become recognised. In order to be relevant, they have first of all to be independent and to satisfy everybody that they are genuinely independent. Having done that, they have to seek recognition. Machinery is laid down whereby they can seek recognition. I doubt whether we would or could do anything to help them other than advise them to take that course.

We should involve them in the consultation. It is right to exclude them from the actual joint consultation unless or until they become recognised. They say, I imagine, to that: "This might be all right if we had any reasonable confidence that our claim for recognition would be judged with equity and impartiality". They are sceptical about that. I must, I am afraid, say to them: "You may be sceptical; but you must first of all put the agreed procedures to the test, because I do not think that it is right for us to assume that you will not get a fair hearing and a fair judgment by the machinery laid down until you have tried it". If they try it and there is a general feeling that they are not fairly and properly considered, Parliament at some stage will have to do something about it. At this stage they must first become independent and then try the machinery laid down to enable them to become recognised. Until they have done that, I do not think that it is right for us to try to push them into the negotiating machinery.

I wish to move the Amendment, making it quite clear that it is a deliberate act, for the reasons that I have explained now and earlier, to give them only limited inclusion under this clause. On that basis, I hope that the Government this time will consider the need, if we are going to have a good spirit from the beginning in these Corporations, to allow the consultative process to go right across the field and not be limited to relevant trade unions who, whatever their mertis, do not—and they know in their hearts cannot—claim to represent adequately large and important sections of the labour force in these Corporations. I beg to move.

12.23 a.m.


Again as the noble Lord, Lord Carr of Hadley, has made clear, it seems that the Amendment covers the same ground upon which the Committee divided on Amendment No. 85, and I daresay the same thing will apply to Amendment No. 104 which is in exactly the same terms. I do not think it right for me to seek to divide the Committee again on what is substantially the same point. As the noble Lord knows, and as my noble friend Lord Cooper made clear, we would not draw the same sharp distinction as the noble Lord has drawn between consultation and collective bargaining. Since this Amendment strikes exactly the same points, I think it would be sensible to allow it to go through on the basis of the Division on Amendment No. 85.


Clause 6 is another of the clauses which was not discussed or debated at all in the House of Commons at Report stage. Also, in the Explanatory Memorandum it specifically says under Clause 6 the discussion of matters of mutual interest… That was clearly the intention when the Bill started. It may have fallen by the wayside during the Committee stage.

I should also like to draw attention to the fact that the CBI submitted a serious memorandum, some 20 pages long, to the Bullock Committee. It emphasised the need for all working people to have a chance to participate in discussions about the objectives and financial positions of firms and in everything which affected the future. Therefore, I think it is important that all be included rather than separating one section from another. I hope that the Minister will make these representations. We do not, presumably, want a confrontation between the CBI's recommendation and the TUC's views. We are trying to see a modus vivendi for this new organisation. We hope that the Government will give way on this matter.

Baroness SEEAR

In an attempt to clarify the situation, I wish to probe whether the Government can give us some help. It seems to me that the real difficulty arises in that the Government are, in many ways rightly, trying to extend the area over which there shall be joint regulation, covering efficiency and all the other matters that have been mentioned. I think that a great many of us would support this. However, while doing this the Government, in the view of many of us at any rate, appear to be narrowing the range of people who can take part in these extended consultations. If the Government could encourage us to believe that there was a possibility that this opportunity for wider consultation and wider joint regulation would be extended to all independent unions, and if we could be told as regards the widely felt and genuine fear that this will be allowed only to those who are affiliated, that it would be for all independent unions approved by the certification officer, it would make a great deal of difference to the way that a large number of people feel about these proposals. Will the Government at least say that they will reconsider and clarify the position?

12.27 a.m.


I made it clear that I felt I must rest on what I said on the previous Amendment, where exactly the same point was discussed and on which your Lordships' Committee divided. I do not think that I could sensibly, a few Amendments later, start going back very very substantially on that course. This is a matter which has been discussed many times by your Lordships' House. I tried to make clear that the reason why, in these circumstances, we were applying the same tests as those mentioned in the Statutes as we have in previous legislation, was that we did not accept that there was a sharp distinction to be drawn between consultation and collective bargaining. I explained to the noble Baroness on the previous Amendment what the terms of the Bill meant.

I should like to correct one thing that I think the noble Baroness said, no doubt inadvertently. If I heard her aright— wrote it down—she said that the Government were trying to restrict the range of people who can take part in these discussions about the various issues that she rightly said were put very widely in the Bill. That is not the case. The Government merely said that it is the independent trade unions, the recognised trade unions, whom the Corporation must consult. They do not say that the Corporations are precluded from consulting other people. I hope I made that point clear when we were discussing the previous Amendment on the same matter.


I do not ask the noble Lord to comment on this now, but I ask him to reflect upon it before we reach the next Amendment or even before the Report stage. He must know—I do not want to labour it unduly—that certain, at least, of the relevant trade unions are making it clear to the Corporation and to the management of existing companies prior to their merging with the Corporation, that they would, to put it mildly, take grave umbrage if the new Corporation even consults some of the people whom we are talking about now. Therefore, to say that they can is really rather meaningless if in fact the Corporation is to be threatened by some of the relevant trade unions, but if it does there will be industrial trouble.


Will the noble Lord say how he visualises this consultation will take place? Does he visualise that there will be a meeting where the unions would meet the management and consult? If so, would that meeting also be attended by other than relevant unions, for example, the non-unionised people or rather the associations, or would there be a separate meeting after or before the meeting with the unions? This is an extremely important matter.


I agree with the noble Lord, Lord Gisborough, that it is important, but I would say very strongly that it must be a matter for the Corporations themselves—those people they are consulting, whoever they might be—to decide on these matters, and it certainly should not be for a Government Minister in your Lordships' House to lay down how a meeting should take place and what its form should be. In response to the noble Lord, Lord Carr, I certainly accept what he says and I know that there are real difficulties. There is no disguising that fact, and I hope that at no stage in the passage of the Bill have I attempted to disguise it. Furthermore, my noble friend Lord Beswick and the chairmen of the organising committees are well aware of the difficulties.

These difficulties have arisen as a result of general industrial relations legislation. I think the noble Lord will agree that the difficulty is particularly acute in the case of British Aerospace, because of the large number of people. Again, I accept that point and have never denied it in our discussions. The point I would make to the noble Lord, Lord Carr—maybe we can both take these points away and think about them—is this. In view of the fact that this is a general problem and is not specific to either of these industries, although it may be more acute for one industry than for some others, would it he right to pass legislation in this Bill which would, I suggest, put the organising committees in a very difficult position? They would be out of line with the general industrial relations legislation which we have passed. We should be placing on them a duty in a Statute which might be very difficult. As the noble Lord knows, legislating on industrial relations matters is not necessarily the best way of proceeding. I do not say this in any partisan way, and it is a genuine point, but it would not necessarily be the most sensible thing to do to place upon these organising committees these very general problems that would be particularised in this Statute.


I take the point which the noble Lord is making. One of the troubles arises because the Government are trying to particularise their industrial relations legislation in these industries. They are in advance of the Bullock Committee's report, and general legislation on industrial democracy. They are making these two industries a test bed, as it were, and it is because they are doing that, that other organisations are so particularly concerned. With respect, the Government are not treating this as a general problem—and I agree that it is a general problem in large fields of industry—because they are deliberately picking out these two industries and saying that they are special industries in which there will he new experiments in industrial democracy which will be written into the Bill. It is because of that that the anxieties of the people about whom we are talking are greatly multiplied. They feel that, if they miss out in this first great experiment in this year of industrial democracy, they will miss out altogether, and I hope that the Government will realise that this feeling has greatly intensified, because they are experimenting in the case of these two new Corporations.


The noble Lord, Lord Melchett, said that it is not for the Minister to decide what the Corporations should do about the question of who attends meetings. But surely he is putting them into an impossible position, because if they allow the staff associations to attend with the unions there will be total dissatisfaction, and if there are two separate meetings there will still be total dissatisfaction. I do not see how he is giving the Corporations a chance.

Viscount SIMON had given Notice of his intention to move Amendment No. 96: Page 9, line 43, at end insert ("incorporated in the United Kingdom.").

The noble Viscount said: This is the same point that was raised on Amendment No. 47 and the noble Lord, Lord Winterbottom, gave me an undertaking that he would take the matter back and look at it. I am sure that that undertaking also applies to this Amendment, in which case I shall not move it.

12.34 a.m.

Baroness SEEAR moved Amendment No. 97: Page 9, line 43, at end insert ("who are members of the trade union engaged in such negotiations").

The noble Baroness said: This Amendment is very much in line with that moved by the noble Lord, Lord Carr, and it deals with the same kind of problem; that is, the rights of persons who are not represented by recognised trade unions. The purpose of this Amendment is to ensure that the machinery which is to be set up by negotiation with trade unions does not lay down what should be done about persons who are not members of trade unions. It may not be the Government's intention that negotiations should be carried on for persons who are not members of trade unions, but the Amendment is put down to find out whether it is. If it is, we want to safeguard against it by inserting this Amendment into the clause. I beg to move.


The provisions in Clause 6 of the Bill as drafted are designed to ensure a fair system whereby the industries can be ensured of stable collective bargaining procedures. It is based on the premise that any company, whether in the private or public sector, must be in a position to recognise certain unions and through them negotiate the conditions of employment of all its employees. We regard this as essential for a rational industrial relations policy. As Clause 6 stands, the Corporation are obliged to consult relevant trade unions about the establishment and maintenance of machinery for the negotiation of the terms and conditions of employment of its and its wholly-owned subsidiaries' employees.

The effect of this Amendment would be that an independent trade union, recognised for negotiation in respect of the terms and conditions of employment of a certain grade of the workforce, would not be able to negotiate with respect to all members of that grade but only with respect to its own members within that grade. On the one hand, this could mean that non-union members need not receive any of the benefits of those negotiations, yet on the other hand the Corporation concerned might feel it necessary also to negotiate with the nonunion members of a particular grade, either through an unrecognised association or perhaps even individually. Noble Lords might feel on reflection that their Amendment might not lead to the most stable collective bargaining arrangements. Different groups within the same grade would all be negotiating separately but concurrently with the Corporations. I hope that noble Lords might accept that there is no way that a Corporation could agree differing conditions of employment within a particular grade without ensuring considerable disruption of industrial relations.

The clause as it stands leaves the actual development of machinery for the Corporation to agree with relevant trade unions. There is nothing to stop there being different machinery for different grades and unions; similarly there is nothing to prevent the Corporations from not agreeing to particular machinery if the Corporation concerned considers that it would lead to undesirable consequences. For example, if the Corporation considered it undesirable there is nothing to make it agree to machinery which would give a particular relevant trade union the right to participate in negotiations over the conditions of employment of employees, none of whom were its members. I think I have explained as fully as I can the Government's reasoning behind this subsection and I ask your Lordships to resist the Amendment.

Baroness SEEAR

Perhaps I did not make myself quite clear. It may be that the Amendment is not particularly well drafted, but of course it was not our intention to suggest that within one grade non-members should not be negotiated for by trade unions. This is always done and it would be ridiculous that if there were non-union members in that grade they should be excluded from the results of the negotiation. This was not our intention. In putting forward this Amendment we were thinking about different grades that were not covered: that machinery should be laid down for the negotiation of terms and conditions for a grade other than the grade carrying out the negotiation. But there are categories of employees outside the negotiating unit whose method of negotiation would be determined by the trade unions mentioned—not the first set of circumstances which, I entirely agree, would be quite nonsensical.


I hope I said in the course of my remarks—and it might be worth repeating that particular section of them—that there is nothing to stop there being different machinery for different grades and unions. I have said that, and it may in part meet the point.

Baroness SEEAR

I think in the circumstances of the Minister's reply we prefer to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 6, as amended, agreed to.

Clause 7 [Formulation of the Corporations' policies and plans and conduct of their operations]:

12.41 a.m.

Lord CARR of HADLEY moved Amendment No. 100A: 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 Lord said: Here in Clause 7 we have come to the clause which lays upon each Corporation the duty to prepare annually a corporate plan. Let me say straight away that this is a duty which I fully support. It is absolutely right that the Corporations each year should prepare a corporate plan. But I do not know how many of your Lordships have had any experience of preparing corporate plans. I am glad to say that I have had no experience in actually working on the preparation of them but I have had experience as a director of a number of companies in considering them and trying to assess them. I can assure the Committee—and I am sure your Lordships will all feel this yourselves—that the preparation of a corporate plan for even quite a modest sized company is a substantial piece of work, if it is to have any validity to it at all, and for Corporations as large as the two Corporations we are discussing now it really is a mammoth task.

One of the difficulties about it is that if the corporate plan is to have any reality it ought to be based on assumptions which are as up to date as possible, and even in quite a small company—small at least in comparison with these large corporations—it is very difficult to prepare a corporate plan on assumptions which are made much less than six months before the beginning of the financial year to which the detailed plan will apply. Normally—and I imagine this is what the Government have in mind here—the corporate plan will be a long-term document which will try to show in considerable detail the parameters and performances expected in the immediate first year ahead and will try to set out in less finer detail the objectives and performances which are expected in years two, three, four and five. But if one is to have any real accuracy—and therefore force in helping management—in the corporate plan for the immediate year, where it attempts to set out in some detail the targets for the company, then it is important that it should not be prepared too long before the beginning of the financial year in question. I repeat that even with a moderate sized company this has to be done on assumptions which can be as much as six months before the beginning of that year. This clause lays this duty upon the Corporations and also lays upon them the duty to consult any relevant trade union.

I hope I have made it clear that I am very much in favour of consultation, but what seriously concerns me here is that if the management of these Corporations have got to prepare their corporate plans, but can only do so after consultation with any relevant trade unions, then they really will have to start the preparation of the plan and base the assumptions of the plan on data a very long time ahead of the financial year to which that plan is going to apply in detail. I believe that the Government must—I was going to say rub their noses in the reality of the difficulty. It is not any lack of wishing to consult, but the danger is that if we make the preparation of these corporate plans every year so enormously time-consuming by excessive consultation with everyone beforehand, then, indeed, we are going to run the risk that the corporate plans in the end will not be worth the paper they are written on. They will be self-defeating from every point of view, from that of Parliamentary control, management control, and indeed, from the point of view of creating that feeling in an organisation which comes from a feeling of success. Set your targets for a year and achieve them. If you set them too far ahead before you have the realities of the situation in your mind, you are liable to set false targets and you are lible not to succeed in meeting them.

Therefore, we are in some difficulty. Your Lordships will notice that my noble friends and I have two Amendments on the Order Paper, Nos. 100A and 101. Amendment No. 101 which was the first one which I and my noble friends put down, was proposing to leave out, for the reasons I have been describing, the whole idea of consulting any relevant trade union. But on reflection I had second thoughts, because if I can I want to try to reach a sensible compromise with the Government in this field. I understand the importance which they and the trade unions attach to consultation about all matters, including the preparation of a corporazte plan. I certainly fully accept the importance of getting the trade unions, as much as everybody else, committed to the corporate plan once it is made, so consultation is highly desirable.

The compromise I eventually thought out after much discussion with people in the industry and with my noble friends is expressed as well as we can express it in Amendment No. 100A. What we are really saying there is, "Yes, let there be consultation, but let us bear in mind all the other parts of the Bill where we have already written in consultation". I think this is what happens if you have consultation on everything. When the management come to prepare their corporate plan and the whole consultative process is going on in the Corporations as a network running through their whole management style and practice, in fact most of the things which go into the corporate plan will already have been the subject of consultation in some other context. Therefore, it would be unnecessary to go into another formal process of consultation all over again. That is why in Amendment No. 100A we are trying to limit the amount of consultation and perhaps therefore limit the amount of time taken for the preparation of the corporate plan every year.

So we say that, 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 I think it makes it clear to your Lordships that with this Amendment we are trying to preserve the principle of consultation, but at the same time to seek the other great benefit; namely, that the preparation of the corporate plan should be as quick as possible and should not have to be started so far ahead of the beginning of the financial year to which it is going to refer as to make that plan less realistic and therefore less likely to be a good management tool, and less likely to set targets which the Corporation can succeed in meeting.

I should like to repeat that in moving Amendment No. 100A we are genuinely trying to reach a compromise which will preserve the important principle of consultation by making it somewhat more practical to achieve, without doing damage to the whole idea of corporate planning, which we think the Bill does as at present drafted. May I say in conclusion that I hope the Government will remember that this again is a clause which could not be debated at all on Report stage in the Commons because of the guillotine, and therefore is one of those which everybody agrees must be particularly carefully debated in this House. I beg to move.


I have at least two versions of the response to make to the noble Lord having heard his explanation. As a preliminary point, no doubt I will be advised that the Amendment is not adequately drafted for inclusion. But having heard his explanation, I think there is very little between us. I certainly agree—and I am sure that both the Corporations and the trade unions involved will agree—that it is important that the corporate plan be as up-to-date as possible; that it should be prepared without delay; that there should not be a whole new round of consultations on subjects already under discussion.

My doubt about the Amendment is that it puts the whole onus on the Corporation for deciding whether or not there has been adequate consultation; in other words, it is for them to be satisfied or otherwise, and there is no scope for the relevant trade unions to say that there may be some aspect of the corporate plan in regard to which they are not satisfied there has been adequate consultation. It seems to me that, as the noble Lord put it, in rubbing our noses in the reality of it, what the noble Lord wants to happen will be exactly what will happen under the Bill as drafted. The Corporations and the trade unions will be consulting regularly on a large number of matters, both those covered in the Bill and those which would normally be consulted about anyhow. The corporate plan will not involve a great new set of meetings with possibly different people on matters which are consulted about as part of a continuing process. Both sides will be anxious not to duplicate the work they are doing. The realities of the situation under the Bill as drafted will be exactly what the noble Lord and I seek to achieve.


Supposing this corporate plan was being drawn up in the early months of next year, what are they going to put in for expenditure? How will they allow for what will happen in Phase 3? There are many highly paid people, 95,000, I think, in one of the Corporations. The parameters are very difficult to set. It says, first, capital investment; it presumably means what you are able to generate internally from profit after tax. Secondly, research and development. There again, it is what you can make in profit, or at any rate it is strongly influenced by that. Capital expenditure in the public sector has to be sanctioned by the Government to make sure it is within the target set by the Government for the public sector. Wages would presumably come under the present incomes policy, Phase 3, since that starts in July. I think we are being unrealistic in asking them to draw up these things and discuss them with the unions before they start wage bargaining at all. Will they not give away what they have allowed for and what conditions they have set. Is it not weakening the hand of those who negotiate these very important matters?

12.55 a.m.


I do not think that to enter into consultations on things covered in the corporate plan would have the effect the noble Lord suggested. It would in fact strengthen the process we all want to see of the sharing of information and the increase in responsibility shown by both sides of industry when they mutually discuss the difficult problems which both Corporations will have to face. I would entirely agree with Lord Carr's welcome for the concept of corporate plans. It already takes place with nationalised industries as a matter of routine; the modern relationship between the Secretaries of State and the nationalised industries for which they are responsible. The innovation of the Bill is that we are putting into statutory form something which is standard practice with most of the nationalised industries. It will be difficult for these Corporations when they start up. There will he a process of getting things going, and it may well be that for the first few years or longer things will take time to settle down, but that does not detract from the usefulness of the process in which management, and unions, and Government will all be involved.


We were most heartened by the noble Lord's answer to my noble friend Lord Carr at the start. I felt that he was almost about to accept the Amendment as it stood. But after that he seemed to slide away from it. However, he paid tribute to my noble friend and they seemed to have a lot of mutual ground over the planning. Therefore, I wonder whether the noble Lord would consider this point in the way we have worded it, just to think about it at this stage, and perhaps give us an opportunity not to move it. I would be grateful if the noble Lord would think about this.


I attempted to make clear to the noble Lord, Lord Carr, that I thought that under the Bill as drafted what the noble Lord and I both wanted and expected to happen would actually happen, and the difficulty I saw in the Amendment, besides the fact that I am advised that it does not do what it says it does, is this concept of simply giving the Corporations the power to decide whether or not adequate consultations have taken place. Neither the noble Lord, Lord Redesdale, nor as yet the noble Lord, Lord Carr, have come back on that. I do not know whether they also would accept that this is the difficulty with the Amendment, and indeed whether they would accept that the Bill, as drafted, would provide the position which we both want to see. I am doing this simply because I do not want to say that I will take away and consider something when I have not a clue of the response on those two points.


Perhaps I can see whether I can move forward to get some mutual aid going in this matter. The opening words of my Amendment, which appear to be the ones which disturb the noble Lord because they seem to put the responsibility for deciding on the Corporation, were in fact chosen because I thought they would please the Government since they are the same words as the Government have written into the beginning of Clause 6: Except in so far as it"— that is the Corporation— is satisfied that adequate machinery exists…". I am doing no more than the Government were doing in the previous clause, so I thought I had a good precedent. That is why those words were chosen.

What I wonder whether the noble Lord would consider is this. I have to say to him that we are not happy with the wording as it stands at the moment. We wish to insert something along these lines, but I am not tied to these precise words and, as the noble Lord's preliminary view seems to be that he does not see anything objectionable in what we are seeking to do by the Amendment, I would ask him, without commitment of the outcome, to look at these words to see whether, with the aid of his advisers, he is able to return to us on Report with some different words which would overcome the main difficulty he has in mind.

If the noble Lord feels that he can do that, then no doubt he will wish to consider the rightness of the Government's own words, which are exactly the same words, at the beginning of the previous clause, and if necessary I am sure that both could be amended amicably on Report. If he would give that undertaking, we would spend the time between now and Report looking at the words to see if we could come up with any ideas, taking account of the difficulties to which the noble Lord has drawn attention. If we could reach agreement on that basis, I think that my noble friends would be prepared not to press the Amendment at this stage but to leave it there and return to the subject on Report when, with luck, we might have reached an agreed solution.


I am willing to go along with what the noble Lord suggests. I am not sure that the context at the beginning of Clause 6 is exactly the same and I see real difficulties in moving away from what is in the Bill, given that I think the Bill will provide the practical effect of what we both want to see, but I am willing to consider the matter between now and Report.


With that assurance, and remembering that we may wish to return to the matter on Report, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The PRINCIPAL DEPUTY CHAIRMAN of COMMITTEES (Baroness Tweedsmuir of Belhelvie)

I should point out, in calling Amendment No. 101, that if it is agreed to I shall not be able to call Amendments Nos. 102, 103 and 104. I gather that Amendment No. 101 is not moved.

Lord LLOYD of KILGERRAN moved Amendment No. 102: Page 10, line 13, leave out ("consulting") and insert ("seeking consultationg with").

The noble Lord said: The wording of this Amendment was fully discussed in relation to Amendment No. 84, on which there was a Division. No doubt, in those circumstances, the Amendment will be acceptable to the Committee.

Lord LLOYD of KILGERRAN moved Amendment No. 103: Page 10, line 14, after ("union") insert ("or professional organisation").

The noble Lord said: I spoke about the insertion of the words "or professional organisation" when we discussed a previous Amendment. I beg to move.


This is the Amendment which I thought we were talking about earlier when I assured the noble Lord, Lord Lloyd of Kilgerran, of my support. We are now back in the area of consultation and out of the area of collective bargaining. I apologise that when we were talking earlier I overlooked the Amendment; however, I assure the noble Lord of my support on this one.

1.5 a.m.

Lord CARR of HADLEY moved Amendment No. 104: Page 10, line 14, after ("union") insert ("and any other person who, or organisation which, appears to it to be representative of a substantial proportion of its employees or of those of any of its wholly owned subsidiaries.").

The noble Lord said: Here again, we are in the realm of consultation pure and simple and therefore we wish to move that we should insert the same words that we have inserted in other consultation clauses about the other bodies that ought to be consulted. I have explained this point before and there is no need to do so again. I beg to move.

Lord CAMPBELL of CROY moved Amendment No. 105: Page 10, line 32, leave out from ("relate") to ("the") in line 34.

The noble Lord said: I think that it will be for the convenience of your Lordships if Amendment No. 106, which is on the same point, is discussed at the same time. The clause imposes wider obligations on the Corporation in respect of its corporate plan than have previously been imposed by Statute in the case of other nationalised bodies. Previous Statutes have normally required Ministerial approval of capital outlays but not of all the other matters set out in subsection (1). The provisions of the subsection are reasonable in themselves so long as the clause affects only the formulation of the plan and the period to which it is to relate. The requirement that the Corporation should in addition act on lines settled from time to time with the approval of the Secretary of State in the general conduct of its operations seems to give yet further and unnecessary sweeping powers to the Secretary of State. Here again, the Government seem to be going further than necessary and further than Governments have gone in the past.

I remind your Lordships that, at the Committee stage in the other place, the Minister, who was replying on an Amendment similar to the present Amendment, rejected it on some unusual grounds: these were that, without the words which the Amendment sought to delete, the Corporations might draw up corporate plans, agree them with the Secretary of State, but then do something entirely different. This seems an unusual thing for a nationalised Corporation to do and it did not seem a very real point. However, in order to restore any lost confidence that there may be in that context, Amendment No. 106 has been proposed. The Government's objectives in requiring agreed corporate plans would thereby be directly safeguarded without giving the Secretary of State the power to intervene in day-to-day management. So we think that the combination of the two Amendments would mean that the Secretary of State would not have unnecessary powers under Amendment No. 105, and that the unusual doubt that has been expressed by the Minister in another place is looked after by Amendment No. 106. I beg to move.


I confess that I am not entirely clear. Perhaps I can do a "Lauderdale" on the noble Lord, Lord Campbell of Croy, if I can have his attention for a moment.


I am very good at listening, I can assure the noble Lord. As he must find himself, in Parliament one often has to do two things at the same time, and sometimes even three or four. I heard everything the noble Lord was saying.


I personally find that that is quite possible, but it does not stop noble Lords opposite criticising me as soon as I start listening to anybody who talks to me when they are addressing me. I do not think that it does any harm to have a bash back occasionally if one is the subject of criticism oneself.

I am not entirely clear in what respect the noble Lord feels that Amendment No. 106 would allow freedom to the Corporation to stick to the corporate plan or not. If it does not allow the Corporation any chance to deviate from the plan, I am not quite clear what is the point of having it in at all.

1.10 a.m.


To answer that point, I should say that the Amendment was simply to meet the criticism made by the Minister of State in dealing with a similar Amendment at the Committee stage in another place. I have his actual words. He said that the Corporations might draw up corporate plans, agree them with the Secretary of State, but then do "something else entirely". Amendment No. 106 was therefore intended to reassure the Government on that particular point. But if the noble Lord does not think that Amendment No. 106 gives that reassurance, or that it is necessary, then Amendment No. 106 is not of great importance or significance. The Amendment that matters is Amendment No. 105, and I hope therefore that the noble Lord will be able to accept Amendment No. 105 for the reasons I gave.


Not entirely, and so far as I can see the questions raised by my honourable friend in another place remain valid. The general objection is that if a corporate plan is drawn up and is agreed it is important—and I think that the noble Lord would agree with this—that all that work is not wasted by the Corporation immediately going off and doing something else. That is the basis of the fear raised by my honourable friend and it would remain in my mind, having listened very carefully to the noble Lord. But the important thing would be that once the corporate plan is drawn up it should, by and large, be stuck to. It would be a considerable waste of time if everyone puts a lot of work into drawing up the plan and agreeing it, if immediately after that the Corporation can go off and is not obliged to take any account of it. I am still not quite clear whether Amendment No. 106 precludes that possibility in the view of the noble Lord. It would be extremely important if it did, and my advice is that it does not.

The Earl of ONSLOW

Perhaps the noble Lord could give us some evidence of this fear. It seems most extraordinary that a lot of time and trouble should be taken to produce a plan after which no account whatsoever is taken of it. Has the noble Lord any evidence that this is ever likely to happen, or that it has happened under previous nationalisation Statutes?


No, because as I said a moment ago, while drawing up a corporate plan in conjunction with the Secretary of State is now standard procedure, this is the first time that it has been put into Statute. Here we are putting into Statute what, as I said on a previous Amendment, is the modern way of conducting the business between the sponsoring Department and the nationalised industry.


I have said what is the intention of Amendment No. 106, the second Amendment. If the noble Lord, Lord Melchett, is doubtful about the actual drafting of it and about whether it is effective in doing what it sets out to do, I certainly will not press this Amendment. As I have said, it was drafted in order to reassure the Government after the Minister's doubts expressed in another place. But we attach importance to Amendment No. 105. This is a change which will improve the Bill, and I hope that the Government will be able to accept it.


I should not feel happy about accepting Amendment No. 105, for this reason: As I say, what we are trying to do in incorporating these provisions in the Statute is to incorporate, on a statutory basis, the arrangements for forward planning in nationalised industries which have in practice obtained for some time; and part of that practice is for the general plan to be drawn up and the general conduct of the operations to be settled from time to time with the Secretary of State. As I see it, the effect of Amendment No. 105 would not make what is now standard procedure occur under the Bill. I still have my doubts about Amendment No. 106, but if the noble Lord is not intending to press that Amendment, perhaps I will not pursue those doubts at this stage.

The Earl of ONSLOW

Would it be

possible for the noble Lord to accept Amendment No. 105 in principle and then to come back with his own Amendment to make sure that the fears that he and his colleagues have expressed, that the whole bureaucracy of this particular nationalised industry should waste hours and hours of its time making plans which it has no intention of keeping? Surely it would be possible, along the lines of Amendment No. 106, to put down something which would stop that happening.


The noble Lord, Lord Melchett, has spoken as if there were a precedent for this, but as I said at the outset, the precedent in the past has been for capital outlays but not for all the other matters that are in subsection (1). The Statute which I know has similar wording is the Civil Aviation (Declaratory Provisions) Act 1971; but that relates to capital outlay and hiring of equipment. It is a very different matter when the same obligation is made, as this seeks to do, concerning the general conduct by the Corporation of its affairs; and that is something we feel would be a definite improvement to the Bill.

1.17 a.m.

On Question, Whether the said Amendment (No. 105) shall be agreed to?

Their Lordships divided: Contents, 67; Not-Contents, 29.

Abinger, L. Elliot of Harwood, B. O'Hagan, L.
Airedale, L. Elton, L. Onslow, E.
Amherst of Hackney, L. Falmouth, V. Orr-Ewing, L.
Ampthill, L. Ferrers, E. Penrhyn, L.
Auckland, L. Gainford, L. Redesdale, L.
Barrington, V. Gisborough, L. Rochdale, V.
Beaumont of Whitley, L. Gowrie, E. Saint Oswald, L.
Belstead, L. Gray, L. Seear, B.
Berkeley, B. Gridley, L. Seebohm, L.
Brookeborough, V. Hankey, L. Selsdon, L.
Burton, L. Hives, L. Sempill, Ly.
Campbell of Croy, L. Hornsby-Smith, B. Strathcona and Mount Royal, L
Carr of Hadley, L. Kemsley, V. Swansea, L.
Carrington, L. Killearn, L. Tanlaw, L.
Cork and Orrery, E. Kimberley, E. Teviot, L.
de Clifford, L. Lauderdale, E. Thorneycroft, L.
De Freyne, L. Lloyd of Kilgerran, L. Trefgarne, L.
Denham, L. [Teller.] Monson, L. Tweedsmuir, L.
Deramore, L. Morris, L. Vickers, B.
Dormer, L. Mottistone, L. Ward of North Tyneside, B.
Dudley, E. Mowbray and Stourton, L. [Teller.] Wardington, L.
Effingham, E. Wigoder, L.
Elles, B. Newall, L.
Brimelow, L. Lyons of Brighton, L. Shackleton, L.
Champion, L. McCluskey, L. Shepherd, L.
Collison, L. Melchett, L. Stedman, B. [Teller.]
Cooper of Stockton Heath, L. Morris of Kenwood, L. Stewart of Alvechurch, B.
Davies of Leek, L. Murray of Gravesend, L. Strabolgi, L. [Teller.]
Delacourt-Smith of Alteryn, B. Oram, L. Wallace of Coslany, L.
Elwyn-Jones, L. (L. Chancellor.) Peart, L. (L. Privy Seal.) Wells-Pestell, L.
Harris of Greenwich, L. Pitt of Hampstead, L. Winterbottom, L.
Kirkhill, L. Ponsonby of Shulbrede, L. Wynne-Jones, L.
Llewelyn-Davies of Hastoe, B. Raglan, L.

On Question, Amendment agreed to.

Resolved in the affirmative, and Amendment agreed to accordingly.

1.24 a.m.


I understand that my noble friend is not going to move Amendment No. 106, but perhaps I may say this to noble Lords opposite. It is the obligation of the Government to see that their business gets through, and, if there is a Division, the quorum in a Division is 30. It is no task of the Opposition to see that the Government's business gets through. If noble Lords opposite cannot muster 30 of their own Members to support their own legislation, of which we on this side most strongly disapprove, there is no reason whatever why we should sit all night to listen to them. I must tell noble Lords opposite that if, on the next Division, they have not got 30 Members in their Division Lobby, I shall move that the House be resumed.


I have listened, as always, with great respect to the noble Lord, Lord Carrington. On the whole, I think it fair to say that this side of the Committee is listening to the other side, rather than the other way round. Leaving that aside, we take the noble Lord's point and understand it, and if he moves that the House be resumed we shall debate that Motion.

On Question, Whether Clause 7, as amended, shall stand part of the Bill?


There is one point that I should like to raise on this clause. One of the important matters listed there is research and development under subsection (1)(b) and it is clear that the Government intention is that the two Corporations should have programmes for research and development. On the shipbuilding side, can the Government tell us what will happen to the British Ship Research Association which is at present the main instrument for research and development where shipbuilding is concerned? I understand that there is considerable uncertainty as to what is to happen to that Association. If this is not a matter to which the Minister can reply now I shall understand; but it is related to how much is to be done by the new nationalised Corporation, British Shipbuilders, and what relationship the present British Ship Research Association will have with it.


I am grateful to the noble Lord for allowing me a "let out" by saying that if it is not something to which I can respond straight away I can take advice and write to him. I undertake to do that before reaching the next stage of the Bill.

Clause 7, as amended, agreed to.

Clause 8 [Furnishing and publication of information by the Corporations]:

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 111: Page 11, line 18, at end insert ("and which the Corporation is legally entitled to disclose").

The noble Lord said: We spoke to this Amendment with Amendment No. 88. I beg to move.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 114: Page 11, line 34, at end insert ("and he shall refrain from giving any direction if the publication would be against the national interest or the commercial interest of the Corporation").

The noble Lord said: This comes into the same category as did the last Amendment. I beg to move.

On Question, Whether Clause 8, as amended, shall stand part of the Bill?

1.28 a.m.


On the question of whether this clause shall stand part of the Bill, there arises the matter of the furnishing and publication of information by the Corporations and the provision of information to the Secretary of State. This raises the general question of accountability to Parliament and to what extent the Minister will be responsible for answering questions or dealing with general matters raised by either House of Parliament. Under the Addison Rules if—as we know is so in one case and may be so perhaps in the future—chairmen of Corporations are Members of this House they themselves cannot speak or take part in the debate. We have the examples of British Rail and the Post Office since it became a Corporation where we know that Ministers have been in some difficulty because, clearly, they cannot answer for the day-to-day affairs of the industrialised industries. On the other hand, when major problems and issues arise the Government must be involved and answer to Parliament, although in many cases they can only say that they will pass requests, appeals or any other representations on to the nationalised industries concerned. Can the Minister tell us today what the relationship will be and whether, having been furnished with information by the Corporations under this clause, he in this House and Ministers in another place will expect to answer questions and be accountable to Parliament? If so, can he give us a general idea of what area that accountability will cover?

1.31 a.m.


I certainly agree that the area of Ministers' accountability to Parliament for nationalised industries is one of great difficulty. Like one of the Ministers referred to, I have had to come to the Dispatch Box in your Lordships' House to answer specific Questions about particular operations of nationalised industries, and have found them difficult to answer. It may have been the noble Earl, Lord Lauderdale, who said that noble Lords all felt sorry for Ministers in that position. I find the problem particularly acute because I am aware of the problems from two sides of the country in some respects and I know how annoying it is for nationalised industries and those running them when very minor matters, which may well not even be the concern of the chairman or the chief executive of a nationalised industry, are questioned and raised in Parliament and Ministers have to give answers for them although the Ministers have no responsibility for the running of the industry in that detail.

On the other hand, it is very frustrating for those in Parliament not to be able to question Ministers on the activities of corporations in which they have a great interest. That possibly applies more acutely to a corporation such as the Post Office than to more industrial spheres, such as the steel industry and now these two new nationalised industries. However, the annual reports of these two industries in particular will be laid before Parliament, on which Parliament may question Ministers. As I have made clear on the various occasions when Amendments have raised this or when we have discussed it, Ministers will be answerable in Parliament to the use or non-use—and the latter is just as important, if not more so—of the particular powers that they have under the Bill. In general, the relationship will be as it is with other nationalised industries.

I acknowledge that that relationship is not entirely satisfactory from any party's point of view. I think that those running the nationalised industries and the Ministers concerned will agree—certainly I have felt this on occasions—that the relationship is not all that satisfactory, and it is not always entirely satisfactory to those in Parliament. A great deal of serious thought has been given to this by those involved and I hope that some improvement will be forthcoming. In other respects these industries will be treated as existing nationalised industries. Ministers will answer Parliamentary Questions and debates in Parliament in the same way as they do on other nationalised industries.

The Earl of ONSLOW

It is also fair to say that the public frequently believe—or perhaps it is reflected in the Press now—that it is extremely difficult to get replies out of nationalised industries. The noble Lord, Lord Melchett, has indicated that he does not think that the situation is totally satisfactory. Perhaps I could proffer a personal suggestion. Is this not the time, possibly, to look even at the Addison Rules and to say that it might be reasonable for all chairmen of nationalised industries, for instance, to be present in your Lordships' House? They could answer questions or queries which are raised about their industries. I am speaking totally personally on this issue. Whether or not it is worth while discussing, I do not know.

1.35 a.m.


I hope that these annual reports, which form the only survey that one has an opportunity of discussing, should progressively be more punctually printed and delivered to the House. They become much less interesting if they are presented five, six or seven months after the end of the accounting period, the financial year or calendar year. One would hope that the Minister will, without interfering in day-to-day affairs, be able to say, "If we are to have Parliamentary control, it is important that we should be as up-to-date as possible with the rendering of these reports. They will be as informative as possible, as is laid down in the Companies Act". I am not pretending that the private sector is good in this respect. Too many people are too late in the rendering of their reports and accounts. I hope that the nationalised industries will be as punctual as is conceivably possible, so that both Houses will have good, up-to-date information which they can use for discussions and debates.


I agree with the noble Lord about that. One of the problems of the nationalised industries is that the accounts, which have to be audited before they can be presented in the annual report, are often extremely complicated and inevitably, a certain amount of time must be taken up with that. Too much time is taken up with the auditing of the accounts. That is often one of the things which will delay the presentation of the annual report. That is something which the chairmen of both Organising Committees will bear in mind. As to the suggestion by the noble Earl, Lord Onslow, with respect, it goes slightly wider than the remit which "Clause 8 stand part" gives us. Interesting though it might be to discuss the proposition, it might better be left for another time.

Clause 8, as amended, agreed to.

Clause 9 [Control by Corporations of wholly owned subsidiaries]:

On Question, Whether Clause 9 shall stand part of the Bill?

1.38 p.m.


Clause 9 is entitled "Control by Corporations of wholly owned subsidiaries"; but it is a prohibition upon the Corporations from disposing of any subsidiaries or allowing any subsidiaries to carry on activities without the consent of the Secretary of State. It forbids the Corporations to dispose of any interests without the agreement of the Secretary of State. Is it not right that some of the companies to be taken over under the Bill have interests which are not connected with shipbuilding or aerospace which they have developed as a matter of commercial policy? What are the Government's intentions toward these? Will it be the policy of the Government to give permission for the Corporations to dispose of such interests, or will it be the policy of the Government to retain these interests even if they are not connected with aerospace or shipbuilding? Alternatively, are the Government thinking at present of considering each case on its merits? It would be helpful if the Minister could give us an indication of the Government's thinking on this important clause.

1.40 a.m.


Certainly I shall be happy to give the noble Lord an indication of our thinking on the clause, but I do not know whether it will answer the question that he has asked which I confess I did not entirely follow. Perhaps I can give him a general view of the clause, and if his particular question is not answered we can return to it. As the noble Lord knows, this is a very technical clause. It relates to the position of the wholly owned subsidiaries. It is quite possible that one or both of the Corporations will permanently operate largely or wholly through wholly owned subsidiaries or wholly owned Companies Act companies. Of course initially on vesting the Corporations will operate entirely in that way.

These wholly owned Companies Act companies will retain their separate legal identity from that of the Corporation which owns their shares, so that limitations placed on the Corporations do not automatically limit their wholly owned subsidiaries, since it is in some senses coincidental that a Corporation may decide to operate through subsidiaries rather than owning the assets and conducting the business direct in its own name.

We do not think that fundamentally different limitations should apply in the two cases—in other words, whether the Corporation operates through wholly owned subsidiaries or in its own name, conducting its business in its own name, owning the assets itself. That is why the clause requires the Corporations, exercising their powers as 100 per cent. shareholders, to ensure that the wholly owned subsidiaries extend their activities, take shares in companies and so on, and dispose of interest only with the same consents as would be needed if the Corporations were acting directly. The provisions are thus symmetrical with those in Clause 3(2).

As I explained previously, the Bill consistently applies to the Corporations and the wholly owned subsidiaries. We have not placed restrictions on the Corporations in respect of other subsidiaries and interests to avoid prejudicing the interests of shareholders other than those of the Corporations. Of course, the Corporations' investments and lendings to these other subsidiaries and interests will be subject to the overall financial provisions of the Bill.


Unless I misread it at this rather early hour in the morning, I do not quite understand what is the general policy. If these wholly owned subsidiaries are not in any way connected with either the aerospace industry or with shipbuilding, ship repairing or marine engine building, is it the general policy to get rid of them and return them to private enterprise?


Yes. I have read my note on the clause. The noble Lord has been kind enough to repeat the point made by Lord Campbell of Croy which I did not answer fully. The answer is that the disposals will be considered on their merits, as I think the noble Lord, Lord Campbell of Croy, suggested they might be. The ancillary activities were presumably developed for commercial reasons. However, if the new Corporations wanted to dispose of any we would certainly consider that sympathetically.


It was not, in fact, a suggestion of mine. It was one of three possibilities which occurred to me. I am grateful to the noble Lord for having indicated the Government's present intention on this matter, which is clearly to consider individual applications by the Corporations for disposing of interests through wholly owned subsidiaries, and to consider these individually on their merits. I am grateful to the noble Lord for that answer.

Clause 9 agreed to.

Clause 10 [Financial duties of the Corporations]:

1.44 p.m.

Lord SELSDON moved Amendment No. 114A: Page 12, line 35, leave out from ("in") to end of line 36 and insert ("a net profit by the Corporation and its subsidiaries after taking into account all costs of financing.")

The noble Lord said: This is the second time that I have intervened in this Committee stage, and I warn your Lordships that I shall do so fairly frequently from now on. To some extent we have passed the question of the principles. We have reached the question of costs. As, to some extent, this is part of my own profession, it seems right that I should raise those points of concern that I would raise if I were dealing with clients and others in the private sector. I tend to feel that as the Government move on this nationalisation course they look too much one way. I would remind noble Lords opposite of the phrases which one finds in Tom Brown's Schooldays—for example, He never wants anything but what is right and fair. Only when you come to settle what is right and fair it is everything he wants and nothing that you want, and that is his idea of compromise. I therefore propose to give back to the Government what they have given to us.

My bible is not legislation but a Code of Practice. It is known in the City of London as the "Yellow Book". It consists of rules that are written by the Stock Exchange, rules that people tend to follow, not because of law, but because they believe that they are right. I begin by treating the Government as I would any other corporation that wished to make a major acquisition. I start by drawing the Government's attention to transactions which come under Acquisitions. There are various types in the Code and I would regard this as a Class 1 acquisition; that is: Those which are to be considered sufficiently material, either individually or in aggregate, to call not only for an announcement to be made to the department"— meaning the Stock Exchange— and the Press, but for a circular to be sent to shareholders. I go on, and what concerns me most, if I could turn it the other way round, is the effect of a bid on the offeror, who in this case is the Government.

What is the effect that this bid or acquisition will have on the Government? I must read this, because these arguments are so often one-sided: Where a listed company"— in this case, the Government— makes an offer involving the exchange of securities for securities of another listed company, the offer document and any circular relating thereto which is sent to shareholders of the offeror company"— the Government— must include a statement as to the effect of the bid upon the offeror company. Such a statement should set out the effect upon the assets, profits and trading position of the offeror company and the effect upon other aspects of the offeror's business, which may be significant for a proper appraisal of the offer.

I am not sure whether the Government, in this case—we are all shareholders of the Government, and, speaking as a banker, one should point out that one holds rather large amounts of Government stock at the present time and is therefore entitled to speak as a shareholder—have given us enough information to decide whether or not this acquisition is desirable from a financial point of view. We have had the arguments from the commercial point of view. Rationalisation and all forms of other arguments have been put forward earlier. But, from a purely financial point of view, I should like to give your Lordships some of the background to the Government's current position.

If the Government are willing to stand up now and say that British Aerospace and British Shipbuilders will pay their way and will not be a further drain on the taxpayer—that is, they will not cost the nation anything at any time and there will be no increased liability in any way—then I will think further. But I am concerned about certain elements which I would call as background. First, there is a general concern about the increase in Government spending and borrowing. This is something that we have all noticed and, as your Lordships know, we have seen Government spending increase by 20 per cent. since this Government came to power, whereas output or production has gone up by only 2 per cent.; that is, a ratio of 10 to 1. At the moment, we know that Government spending in this country is something over 60 per cent. of GDP. We also know that last year the public sector borrowing requirement was £10.4 billion and that the Chancellor, pointing out the need to reduce that requirement, said that it would come down to £9 billion, one of the reasons given by him being that there would be increased output.

If it is being said that British Aerospace and British Shipbuilders will increase output for the nation, that is one thing. But there is concern that Government borrowing at the moment is about half the total taxes collected. Thus we can argue that Government borrowing is too much, or that taxation is not high enough; and the right ratio, if we look at informed, developed countries, is probably something like a 33 per cent. increase in taxation in order to get the balance right. We know, too, that at the moment the Government are borrowing roughly £400 per working person per year, and if we consider those people who are not paid by the State it is perhaps approaching £600. It is quite a lot for one man to carry.

There is another scene that is just as dangerous: what we might describe as public sector borrowing in foreign currency. Last year the public sector borrowed 1.3 billion dollars in foreign currency. This makes a total of about 5 billion dollars in foreign currency since this Government came to power, and the pound now stands at 1.65 dollars. It is not so much the interest cost; people borrow abroad because it is cheaper. But when it comes to repayments you are not repaying in devalued pounds; you are paying more and more interest and the burden of debt starts to become intolerable. The debt interest of this nation under PSBR was 2.1 billion in 1970 and 4.4 billion in 1975, and one would forecast it conservatively at 6.5 billion in 1976. Thus, over 40 per cent. of public sector borrowing is going in interest. This is roughly 10 per cent. of all Government expenditure.

We have spoken about Government cuts. Cutting Government expenditure is one matter, but if we are to be faced not only with a debt interest of this enormity but also with the repayment problem which will be incurred by the 5 billion of foreign currency (the total is 6.5 billion but it is 5 billion since this Government came into office) the situation will be quite serious. Against that argument the Government say, "Well, we are going to control inflation", but the mere act of controlling and reducing inflation increases the burden of one's indebtedness. If one is borrowing a lot of money, it is desirable to create the maximum level of inflation because the burden of one's debt is to some extent minimised.

My question to the Government, if I were to look at their balance sheet, is that perhaps they are too heavily geared up at present to take on any further commitments. The Government may be able to demonstrate that they can finance these further commitments in a manner which is acceptable not only to all the basic codes of practice but also to our foreign lenders, particularly foreign banks and, in due course, the IMF. But we are faced with two solutions: a major cut in expenditure or a sharp increase in taxation.

In a few words I have tried to set the scene of the financial position of the would-be buyer of businesses, some of which are perhaps more profitable and successful than Government organisations; but when we come to the basic elements of this proposition, from the financial point of view first of all we must look at the economic background of the government of the nation and the commercial advantages (and it may well be that the commercial advantages outweigh the financial cost) and then we must look at the cost. I thought that it was a relatively simple matter to determine what this would cost. I thought, too, that in their comments on public expenditure earlier this year the Government said that they would be prepared in due course to make a statement and that they would do this after the Bill was passed. According to the normal code of practice when dealing with private sector businesses you have to say to your shareholders what it will cost before you do it, not after. You have to consult your shareholders in some way, and one of the best ways of consulting them so far as this nation, which is still democratic, is concerned must be through Parliament.

Then I thought: what is it going to cost? Perhaps we may look at the way that these costs are broken down. As a banker, one would ask what is the cost of acquisition and it would be one's duty to advise whoever was trying to buy a business to acquire it as cheaply as possible. The Government having decided that it will acquire these businesses, it must be their intention and the intention of their advisers to find a way to acquire them as cheaply as possible within what might be constituted as fair practice.

The story does not stop there because of the other commitments: the additional working capital needed to keep the businesses alive and the new capital needed to ensure that they are commercially viable and competitive on world terms. It is fair to comment that one of the major problems which our nationalised industries have faced is that historically they have been under-capitalised. This is a terrible burden on management, but in trying to work out what it will cost one is faced with an interesting problem. If you ask a company, "What do you think your business is worth and what do you think the Government will pay you under Clause 35 onward to Clause 38?" in many cases it cannot tell you, because they cannot disclose to you information which they would not disclose to their shareholders, because that could have an effect upon the valuation of their shares. Also they are concerned, as any negotiating company would be, that they should not give the buyer any information which would assist him to acquire their businesses more cheaply. That is common practice and it is right and proper.

Thus if you ask the companies concerned it becomes difficult and they will not tell you. I have asked them. I have a shrewd idea from the conversations I have had with many of them what it would cost, but many of them, although they are not quoted companies, do provide information in their annual reports and provide information which their brokers issue in circulars. The private sector in general has a pretty shrewd idea about the operations of many of these companies, and if, as I did, one made inquiries through the financial sector and also among people who were in the neighbourhood where these companies existed, one arrived at a basic figure of how much one believed that the Government would have to pay for that business.

This is, first, the cost of acquiring 100 percent. of the shares of the companies to be nationalised. The cost of acquiring these shares, which would be acquired by Government stock, could be assessed at around £400 million. But dependent upon the type of paper which the Government issues and the coupon which it carries, and the capital transfer problems, the Government paper might well go to a discount, so of course the price would come down to the recipient company, although not having any effect upon the Government themselves.

We start therefore with the belief that there is a need for an acquisition which would cost in paper terms £400 million. My first question to the Government is: Is this a reasonable figure? If we look at Clause 38 as it currently stands and as related to some of the other clauses which affect compensation, this would probably be on the low side, but one must accept that it is the duty of the Government to acquire this business as cheaply as possible, and if it were the private sector of course it would be on this basis, and of course the Government will be fair and will be seen to be fair.

When we come to the next stage of the equation it is, how much more working capital is it necessary to pump into the business to keep it going? In the private sector we all know of the word "blight". If a company is under threat that something will happen it is often prevented, for a number of reasons, from taking action which it would otherwise have taken, meaning that no company would willingly have made a major capital investment. It would have been looking towards vesting day and to divestment, and we can assume that many of the companies, having made no further capital investment, could be in substantial difficulties in the future. We can also assume that others, having kept going, in many cases in order to be nationalised, may be very short of money.

The trouble is that one cannot generalise. During the course of the Second Reading debate and the Committee stage we have all heard that there are good companies and bad companies in both sectors. This is quite normal in any acquisition involving lots of subsidiary, affiliated or associated companies: there are some you want and some you do not want; there are some that are good and profitable and continue to exist successfully with no new money and may even have a high liquidity ratio, and there are others which are over-geared and in substantial difficulties. This applies to shipbuilding more than anything. Throughout the shipbuilding industry there are various phases: those in difficulties and run down, threatened by international competition, unable to compete, short of orders, over-geared, and those at the other end who, because they have had good management—often not enough money but good management—have managed to be profitable and viable.

That is the spectrum, but from an analysis of the accounts of many of the subsidiary operating companies and information which is available, particularly of the weaker sector—and I should explain that once upon a time I was a director of a management consultant firm and did a lot of work in shipbuilding, and was often commissioned by the Government—it is reasonable to assess that the level of working capital that would need to be injected in the immediate period would be in the order of £200 million. This makes a total so far of £600 million. If the noble Lord would like me to finish, I would prefer that he answered at the end because we have a lot of confusion.


I do not want to interrupt the noble Lord, particularly if he is going to come to the Amendment which we are discussing. But it seemed to me that that Amendment deals specifically with the rate of return which the Corporations should be under a duty to achieve. We are coming to a large section of the Bill which deals with compensation and other matters. Interesting as the noble Lord is being, I do not know whether he is dealing strictly with the Amendment under discussion.


If the noble Lord, Lord Melchett, would please tell me under line 35 what is the capital employed by the Corporations and subsidiaries, we could then get down to it. I am trying to determine the amount of money which will represent capital. If the noble Lord will give the answer now, I should be happy to continue, if he would like me to do so.


It is up to the noble Lord to move his Amendment in his own way. I simply make the point.


Perhaps the noble Lord will allow me to get on with it. This is important, and we should not forget the fact that the Government have flatly refused to give any information on finance. Since I as a private sector man am trying to give them that information, perhaps they will give me an answer if they do not wish to listen. We are entitled to that. No one can dispute that this is the first basic rule of financing a business. It would he less or more, but £600 million is not a particularly high amount of money for the industry's working capital. But that is really only the start. Your Lordships will know better than I the background with which shipbuilding is faced at present—unfair competition we may describe it as, but heavily subsidised competition from South-East Asia.

We therefore come to the question that if we are to continue in this business there must be Government support. When the Government have nationalised these businesses, support, capital, money, aid and loans will he all the same thing; it will be in one way or another Government or borrowed money. When we come to the way in which it is financed, it is a different matter but for the moment it is still money. In order to look at this development we could assume that the capital required should take a look at about a five-year period. This is normal financial practice; you might say a three-year period. From the Public Expenditure figures, and I take the Government's figures first, under industrial innovation and general support for industry—these are at 1975 prices—there are a number of interesting projections. We have a total, over a three-year period for aerospace and shipbuilding of £233 million at 1975 prices. Allowing for inflation and so on, it is reasonable to raise this figure to around £350 million, and in a five-year period it is reasonable to say £450 million. These are the Government's own figures in Public Expenditure.

In Public Expenditure they comment on other aspects. They say at the moment that no provision is included for capital expenditure by British Aerospace or British Shipbuilders. If we go on to page 50, there are certain forecasts which should not really be regarded as forecasts, but they are reasonable estimates of some information needed, but this does not take into account everything. They have given a figure of £380 million over a three-year period at 1975 prices (we can give the noble Lord figures later if he wishes) which, with inflation, may take the figure up to £450 million. Starting at £400 million for acquiring the shares and £200 million for the working capital, this is really only the start if we look at what these things actually cost. I do not want to go into capital expenditure of other industries except to draw comparisons. We know aerospace costs money —Concorde, Boeing, Lockheed, every manufacturer in the world has proved that in order to be viable, you need money and investment. In many cases we know that investment has been feeble over here. Anyone will tell you in the aerospace industry that the development of a new aircraft, even a modest one, is likely to cost a minimum of £500 million. At least one of these is required to be on the stocks for the British Aerospace, and perhaps more. One also knows that in shipbuilding, although it is not always a question of capital but more often management, we are faced with the historic practice of good money in terms of capital going after had to shore up the weaker industries. Unless the Government can give us some idea of what rationalisation is likely to take place, we must assume that the businesses are all to continue. The figures I have been given are fairly reasonable according to international standards, bearing in mind the value of the pound.

It is estimated that in order to keep these businesses going, having got the working capital sorted out initially, there needs to be an expenditure of around £1,500 million over a three-year period. This need not be expended at £500 million a year; it can be additional capital at the beginning. People will tell you at the moment that shipbuilding industries should not be heavily geared; they should not be over-borrowed, and they should have adequate working capital to run their businesses from the start, with a chance of making a profit. If we look at the investment figures given for capital investment for British Steel, National Coal Board and the electricity people, we find a projection over a five-year period from 1975 to 1980, at 1975 prices, of an average of about £450 million each. I give those only as comparative figures. Your Lordships realise that these things, aeroplanes, ships, are not cheap. All I am concerned about is not the Government's argument about the transfer of assets, but the transfer of liabilities that go with it, because 100 per cent. of those liabilities will fall on the Government.

With those figures one comes to a reasonable conclusion that the total level of cost—I am not saying additional cost, but the cost to the nation—over a three-year period is going to be of the order of £2,100 million. If I am wrong in these assumptions and in the research work I have tried to do, then perhaps the Government would tell us how much. We must not differentiate at this point between what the amount of money required is and how it will be financed. I will take from the noble Lord, Lord Melchett, some of the points he made at Second Reading on the transfer of assets. One is faced with the problem of, how do the Government finance £2,100 million expenditure over a three-year period at current prices—no allowance for inflation —and afford to do it?

The Government argue, quite reasonably, as they would, that this does not cost anything. This is such a classic argument that every board puts to its shareholders, "All we are doing is issuing new stock; it does not cost anyone anything; it is just a piece of paper changing hands, and there is no dilution, no effect upon anything." The noble Lord, Lord Melchett, has pointed out that this does not affect public sector borrowing requirement. This, in a way, is true. But public sector borrowing requirement is the difference between the Government's revenue from taxes, nationalised industries profits and the like, and its total expenditure, including lending.

To issue gilts or Government stock for an acquisition like this is wise, because these industries need long-term finance and a gilt is good long-term finance. We have to look at the fact that it will probably have to carry under current terms a coupon at 16.2 per cent. rather than 16.1; otherwise it would go to a 4 per cent. discount. But issuing gilts is in fact deflationary because you are taking money out of the system, and they are not an immediate burden upon public sector borrowing requirement. But what they do do is to have an effect upon money supply, direct or indirect.

The noble Lord has commented, quite rightly, that his right honourable friend the Chancellor of the Exchequer has power to control money supply. Had he this power, or had he adequate power, I would ask why he has not controlled it satisfactorily to date. Suppose we issue £1 billion of gilts in the early stage. The effect is that the public sector, whether we like it or not, is incurring an additional liability in order to purchase the assets from the private sector, and while the immediate effect on the money supply is nil, because the increase in the liabilities of the public sector is offset by the net acquisition of public sector debt by the non-bank private sector, the liabilities are still there. We will face the fact that this issue of Government stock, while having no immediate effect on the money supply, does one thing. The Government are claiming they are going to reduce public sector borrowing requirement by increased productivity and output and go on and on about investment. If we do see an upturn in world trade and an upturn in demand and we pull out of recession—and, frankly, the signs of the world coming out of recession are not as encouraging as they were even a few weeks ago—there would immediately be a demand for money and for investment, and that, coupled with the Government taking more money out of the market through gilts, would have a very substantial effect on M3 and also on DCE, which is the one thing the IME worry about.

I am not arguing very strongly on this because there are ways of financing it, but the level of indebtedness and the level of increased liability which the Government would incur to finance £2.1 billion is so substantial that it is something that would cause any economist, any banker, or anyone else apoplexy unless the Government put forward a reasonable reason as to how they are going to do it. I am not arguing about a reasonable return upon capital at this point. I do not believe that an adequate return upon capital is possible without clearly defining "adequate". All I am concerned about is that the liabilities which the Government will take on in doing this are not so great that they could be a major contributing factor towards further bankrupting the nation. I beg to move.

2.11 a.m.


I am grateful to the noble Lord who has just sat down, first because he woke me up by the breezy nature of his speech and kept me awake by the figures flashing about in the air, which almost gave me vertigo, and gave me a valid and respectable opportunity to say what I want to say now instead of having to wait some further hours until Clause 35, because he made the valid point in relation to his Amendment that one needs to know what these companies are going to cost.

The provisions of Clause 35 render it nearly impossible to decide at this stage, or indeed until very much later after the operation, what the cost is going to be, and the delay involved and the nature of the procedures under Clause 35 have in them so inherent an injustice as to make it proper to appeal to the Government to reconsider the whole basis of compensation, not merely because they cannot know the cost but also because of the unfairness involved. It is right to put this in the most moderate terms. Nobody knows whether Clause 35 will work well or ill for any particular company; nobody knows whether we will, in the event, produce an injustice in terms of someone who had his shares acquired at too low a rate, or whether some other individual will have his shares acquired at an excessive rate. What we know is that built into the whole operation, into the whole computation, is a complete roulette element which is quite inappropriate for a situation of this kind.

There are two bases of valuation under Clause 35. First, there is the basis for shares which are quoted. Unhappily, or perhaps happily, of the number of companies involved, which I think is 40 odd, only one has a share quotation, so that the highly speculative and notional operation relates to the great majority of the shares concerned. In relation to the one which has a share quotation, the method is manifestly unfair because I have never heard of a takeover of a company at precisely the Stock Exchange price. This is a total novelty to me, and I think to anyone with any acquaintance of city and financial matters.

The operation of the Stock Exchange is in relation to relatively small holdings of shares processed at a Stock Exchange price. When seeking to acquire the entire shareholding of a company it is not merely unusual but inevitable that you will add some premium to the Stock Exchange price, for the reason that you are not acquiring a minority interest which has, by definition, a lesser value than the total interest; you are acquiring the total interest which calls for a different price. There is only one company affected by this. In relation to the other companies it appears to me that the financial arrangements have been devised by the late Lewis Carroll. I did not know he had engaged in financial operations until I read this Bill, but they make Alice in Wonderland a work of the most sober and realistic character.

What is to happen, apparently, is that a notional Stock Exchange price is acquired from the 43 companies. I have never heard of a notional Stock Exchange price and I do not have the slightest idea—and I shall be delighted to hear from some pundit on the Government Benches how one can contrive such a situation—how such a change in price can be plucked out of the air. It derives from the fact that there is a starting point at which permission to deal is obtained. That permission to deal is obtained from an advertisement or out of a detailed document setting out a great number of matters relating to the company's affairs. Those matters are, in particular, what number of shares are being placed on the market, who the directors are and what luminaries are being added to the board; an innumerable number of factors that cannot be introduced into the question of a notional price.

There is no way of doing this, except on the basis that we are to have an arbitration procedure. I invite the Government to consider whether, if they are going to have an arbitration procedure—and I do not want to delay the Committee for more than a few moments at this hour of the morning—it would not be much more sensible to follow the usual principles and allow the arbitration to relate to the value of the assets being acquired, let the vendor make his case to the tribunal, let the Government make their case and let the arbitrator decide what the price is to be. To introduce as a supervening consideration a total financial novelty, amounting in my view to a total impossibility in the way of a notional Stock Exchange price, would produce not only obvious injustices, not necessarily excessive or inadequate prices, but would create an amount of work and argument that could last for ever and could leave the Government for years without any idea of what had to be paid.

I have, I hope, presented my views in as moderate a fashion as possible. They could have been presented in more violent language having regard to the absurdity of the notions that are involved in the Bill, but between now—I will not say between now and the Committee's arrival at its consideration of Clause 35 because I hope not to be here by the time Clause 35 comes up for consideration, as exhaustion will carry me back to my home—and Report I invite the Government—


May I interrupt the noble Lord, to ask him to what he is relating his remarks so far as this Amendment is concerned? I would say that the noble Lord is taking undue advantage of your Lordships' tolerance. His remarks relate primarily to Clause 35 and he is tagging them on to the Amendment simply so that he can go home early.


Nothing would have induced me to tag my remarks on to the Amendment in order to go home, great though is the temptation to go home. What induced me to tag my remarks on to the Amendment was the fact that the Amendment makes it entirely appropriate and relevant that we should consider what sum of money is involved in the acquisition of these companies. The Amendment having been introduced, it would have been inflicting great .hardship and cruelty upon myself if I had not taken advantage of a perfectly legitimate situation. Having said that, I think I have completely answered what I am sure was a kindly intervention by the noble Lord, Lord Shackleton. I would only add that these financial proposals are an absurdity. They are unworthy of the Government; they should be withdrawn and, having been presented with the opportunity of making this point at this time of night when I am still capable of some sort of organised thought—though that is for the Committee to judge—I am grateful to your Lordships for your attention.


I am a stockbroker and we have heard a lot about prices. What are these companies going to cost? It is said that the purchase price given by the Government will be based on a Stock Exchange price. The Stock Exchange does not purport to represent in any way a fraction of a whole in arriving at the price, nor do the prices of shares represent anything other than the whole based on a balance of earnings and assets. This is very well illustrated in the bid situation of Teachers, which appeared last week. The price of the shares on the Stock Exchange in the ordinary way and looked at as an investment was 190p. After the bid it rose to 380p and it is now over 400p.

I should like to try to explain why I think that the price in the Stock Exchange should be altered to assets. Most people view a Stock Exchange price basically as a totality of the company concerned. It is based on earnings and capital and the relationship of one with the other. However, in a bid situation, there appears a much more important factor and a new one, in that the assets become of paramount importance and the value of those assets is what is looked at. The bidder not only has to look at the company as a whole but has to break it down into various components. While one bidder may attach great importance to one part of the company, another may attach a very much greater price to a different part or component.

The point that concerns me is that I fear that, in concentrating on Stock Exchange prices, the Government—and I am sure that they are totally unaware of it—are laying themselves open to comparison with some of the activities of the so-called financiers and with some people in what the Press call the City. In this connection, I should like to emphasise that most of the people who have been hitting the headlines lately have not been established in the City for very long. They are forgetting about the assets or manipulating them. The undesirable financial activity of these people was of two kinds: the first and perhaps the less open to criticism was a conglomerate company with great growth potential which was able to issue ordinary shares to take over other companies and acquire earnings. They were able to issue ordinary shares on a very low base and acquire earnings.

Another method was to issue unsecured loan stock with a high rate of interest so that they would command a price of par in the market and satisfy the purchase of a new company without giving up any of the equity themselves. The ordinary shares of the company being bid for would respond to this bid, but the response was related solely to the market or Stock Exchange price, with little relevance to the underlying value of the assets. Many of these conglomerates and financial leaders have run into trouble today through issuing high coupon unsecured loan stock without due care for the future, and this is exactly what the Government are proposing to do. I am sure that they are not aware of it, but they are intending to issue a high coupon Government stock to buy a company's assets based on share prices and prices related thereto, and not related to the value of the assets. I really think that this is very important.

2.25 a.m.


I hope that due weight will he given to the most important intervention of my noble friend Lord Goodman, who has enormous experience, in this field, and to what the noble Lord, Lord Wardington, has just said, because these are very important issues. I hope that when we come to Clause 35, to which they are rather more relevant—and I say that with all respect—they will be able to repeat those observations to your Lordships in order that these issues may be very scientifically considered.

I want to back up what was said by the noble Lord, Lord Selsdon. Here we have our country in a state of being grossly over-borrowed, in a state of permanent deficit of thousands of millions every year, and yet at this stage of our affairs, with the pound facing the real crunch, the Government have the nerve to bring forward a Bill—in the middle of the night, incidentally—which will cause a borrowing requirement. I do not know whether the noble Lord, Lord Selsdon, is right, but it may be in the region of another £1,500 million, and I should certainly calculate it at not less than £500 million. This is to be done with money raised at a time when the Government are at their wits end to raise money to meet the ordinary deficit.

How would one suppose that one is going to add to the public deficit financing in a responsible and sensible way when one brings forward this totally irrelevant Bill which bears no resemblance to the needs of the industries concerned, and which will add to the problems of our country at this time? It is really most irresponsible. I speak now not only as an ex-diplomat with economic experience, but as a person who is now in business. When one settles down to raise a lot of money one says to oneself, "I am going to use this money in such a way that I shall make more money than I pay for raising it."

If one raises money at a coupon of 15 or 16 per cent. one has to have a jolly good prospect of making large profits. What are the prospects of making large profits out of shipbuilding? One may make something out of aerospace if one can run it sufficiently well, as the present private corporations do; but I very much doubt whether, on the performance of the nationalised industries, the Government will be able to do that. But on shipbuilding it is unquestionable. The Government are going to let the country get into the position of losing an enormous amount of money on the money they are to borrow. They are going to add to the borrowing, requirement; they are going to make it harder to raise the money they need to run our country, and they are going to get themselves into further trouble with the IMF. The whole thing is utterly ridiculous.


In the view of the Government Amendment No. 114A, like the new clause of the noble Lord, Lord Selsdon, which no doubt we shall come to shortly, would actually weaken the financial disciplines imposed upon the Corporations by the Bill as it now stands, and for that reason I regret to say that Amendment No. 114A would be unacceptable to the Government and, I hope, to the Committee. As noble Lords know, the Corporation's capital will consist of a number of elements, of which the main ones will be two: first, long-term debt, whether to the National Loans Fund or to certain other persons from whom the Corporations may borrow; and, secondly, what may loosely be called the "equity stake"—that is to say, public dividend capital and reserves, ploughed back profits, and so on.

It is clearly desirable that a good return should be earned on the entire capital employed by the Corporations, and I imagine that that sentiment is shared on all sides of the Committee. The interest paid on long-term debt represents a return on the debt element. Merely to make a small "net profit" after paying interest, and after making allocations for depreciation, and so on—and that is the minimum requirement laid down, I understand, by the noble Lord's Amendment—could represent a very small return indeed (say 1 or 2 per cent.) on the equity stake, on the PDC element. In the Government's view that is quite clearly inadequate. The formulation at present in the Bill requires at least an "adequate return" on the entire capital employed, and that must be at least the payment of interest and an adequate return on the PDC and reserves element. I do not pretend that "adequate" is a precise term, but I can assure your Lordships that my advice is quite clear, it goes beyond the mere "net profit" which the noble Lord, Lord Selsdon, is suggesting.

There is one qualification which I should make to my exposition of the Bill going a great deal further than the noble Lord's Amendment would require. We do not believe it would be realistic to require in the Bill a net profit to be made in every single year. In a cyclical business, it is quite possible that there will be an adequate return over a run of years representing the business cycle in that industry, but very low returns—possibly even a loss—in particular years. I believe the noble Lord's Amendment would tend to conflict with that business reality—the cyclical nature of the business these two Corporations are involved in and the necessity to recognise the realities of that and that they may not be able to make an adequate return in some years and indeed might well make a loss. For those reasons—but principally because the Amendment would introduce a less stringent financial regime for the two Corporations than is now in the Bill—I hope the noble Lord will withdraw his Amendment.

2.32 a.m.


Might I just say a few words on this Amendment because it seems to me to touch the heart of the Bill. As I understand it, this clause is concerned with the financial duties that we impose upon the Corporations and I propose to restrict my remarks to that and to the Amendment. I realise that the capital is relevant but it will be debated in more detail later so I will not follow in any detail what my noble friend Lord Goodman said.

We are concerned with the financial duties, and I take it that what we are talking about is something which precedes Clause 7. That is to say, I imagine that a corporate plan is not drawn up until someone has said what the financial duty of the Corporation is. If I am wrong in that I have no doubt I can be corrected, but it certainly seems to me to be difficult to imagine anybody drawing up a corporate plan, whether in consultation or not in consultation with the relevant trade unions, which dealt with capital investment, research and development, the employment of persons, the forecasts of income and expenditure on profit, without knowing what it was trying to do.

As to the nature of the instructions, it appears that they will not be given, or may not be given, until 12 months after the relevant vesting date. I only make this point as an inquiry since I am not clear how these procedures will be worked out, because first of all you have to decide whether they are to make an adequate return on capital or whether they are to make a profit in the terms of the Amendment of my noble friend, and thereafter a great deal of very complicated corporate planning has to take place. Perhaps the noble Lord, Lord Melchett, would explain to the Committee the order in which these events are supposed to take place. My own judgment is that whether one accepts the Amendment of my noble friend, or accepts the terms of the clause as drafted, if anybody is to get on with any very useful work, there will be a certain urgency in someone deciding what the objective of these Corporations really is. As we all want to make a success of anything that is done, I would ask the noble Lord to try to think about that and let me know.

The noble Lord, Lord Selsdon, made the point that, in addition to assets being taken over, there are liabilities that are taken over, and with those liabilities it is of course necessary to place certain obligations on the Government. The noble Lord, Lord Kirkhill, when he was dealing with these matters the other day at Question Time, sought to argue that this was just a transfer of assets; and, as the noble Lord, Lord Selsdon, said, this is an argument which we have all heard before. We have heard it in the case of private companies as well as public companies. It may be that the noble Lord can say that he is buying these companies cheap; it may be that he can say they are being acquired by the printing of Government paper. But the hard fact remains that, one way or another, as you nationalise one industry after another the obligations that fall upon the State to raise the money to run these industries increases every time, and I think your Lordships' Committee is entitled to ask: Where is the money coming from? However technical one can be, there comes a point at which everybody is going to say, "These industries may be very great industries but they are very costly industries to run, and where is the money coming from?" When one has thought about that, then one comes to a conclusion: What sort of obligation, in those circumstances and against that background, ought we to put on the Corporation?

The noble Lord, Lord Kirkhill, with his usual courtesy, very kindly said that he was not ready with the immediate answer to some of the questions I asked him the other day, which are directly relevant, I think he would agree, to this debate, but that he would let me know. He most kindly sent me a letter, in which he said that I had asked who was responsible for the new capital formation when the aircraft and shipbuilding companies scheduled for nationalisation were acquired. Indeed I did. Of course, the question of new capital formation is the sort of question which seems to be omitted, very largely, from public debate. I do not know whether or not the obligations are as high as the noble Lord, Lord Selsdon, said, but I have a feeling that the noble Lord, Lord Melchett, does have an idea about this, because I do not believe for one moment that the Government have put forward this immensely important and far-reaching proposal without having calculated in some detail at least the parameters of this problem, and have some idea as to what is involved. Even if they had been moved to do so, I cannot believe that the Treasury would have allowed them to do so without the closest cross-examination of Government Ministers as to what was in fact involved on the money supply, on the public borrowing requirements and the rest.

The noble Lord, Lord Kirkhill, told me: The new Corporation will have a commencing capital to be determined retrospectively on the basis of the compensation which is paid to vesting companies when this has been settled". That was not an extremely illuminating answer. It rather reminds me of the allegorical account of the Minister in your Lordships' House who, when answering a Question, read on from what the civil servants had written: This answer may seem a bit thin, but it will probably serve for their Lordships' House". It will no doubt have to serve for me; and, to tell the truth, to be fair to the noble Lord, Lord Kirkhill, it is just about as illuminating as Clause 15, when we come to it, which does not tell us very much more.

The noble Lord goes on, as to the money—and this is the point I really want to make: The capital requirements of the new Corporations after vesting will be met from four principal sources: funds generated internally by them… Again, I have a feeling that noble Lords opposite know what funds are being generated by them, and no doubt, like everybody else who takes over a company, they have plans for rationalisation, for redundancies and other matters which may be painful. It may involve unemployment. No doubt they have such plans; but they must have an idea whether they are going to generate more funds or less funds when these industries are taken into public ownership. I think that some discussion of those thoughts by the noble Lord would be at least rewarding in this Part of the Bill.

Secondly, funds from the Government, which I might leave for the moment. It is a large question. "What funds from the Government?" and "What funds have the Government got?" are questions that can be asked. Nobody imagines that they have £500 million. I do not think the noble Lord, Lord Melchett, would actually say that they had got £500 million. They are living on borrowed time and borrowed money already. The introduction of Bills which assume that they can produce money of that order is a little wide of the mark.

Then, overseas borrowing. I should like to ask the noble Lord what his plans are and what his ideas are about overseas borrowings. There are not many private firms at the moment who would borrow overseas to finance themselves. The risks would be very substantial. Every year they would have to write into their accounts very substantial provision against losses on the overseas loan. Will the Corporations include in their accounts provisions for losses on overseas loans? I think that this is an extremely relevant question.

I was puzzled to learn the other day—I will not embark on the electricity industry —that, in the midst of this major crisis, the Electricity Generating Board had borrowed £300 million. I wondered what they were up to. It seemed to me a most extraordinary thing to do. I realise that it has a short-term benefit for the Treasury on the balance of payments side; but I am puzzled as to why they should rely very heavily, or at all, on overseas borrowings. I should like an answer to those questions from the noble Lord.

It says, "where appropriate". When the Government say, "where appropriate", they must have got—and the noble Lord, Lord Kirkhill, must have had—some clear idea of what is deemed to be appropriate or not. I do not ask for an immense amount of detail, but what kind of situation would the noble Lords consider to be "appropriate"? If they could give the sort of background to their thinking about financing the losses or deficit on the purchase and capital formation of these companies from overseas borrowings "where appropriate", I should very much like to know.

Finally, there are bank overdrafts which, I can tell the noble Lord, cost quite a lot these days. They go on then to detail the other ways in which the Government might make up their funds. I see that this is going to be a costly business. I think that the noble Lords see it, too. And the question then arising is this. What obligation do you place upon the Corporations facing this situation? The noble Lord says that the words of my noble friend, "making a net profit" would be a weaker provision than his. His provision is: 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 by the Corporation and its subsidiaries. I think that my noble friend wants it to make a profit. I must say that I should have thought that this was a laudable ambition. I hope that the Government want it to make a profit. If the noble Lord does not like the precise words of my noble friend, I have no doubt that he can suggest others. But I say to him that to embark upon this exercise, with all the horrors of getting into a negative cash flow position, with all the possibilities of having to borrow heavily either at home or, worse still, overseas, to find ourselves running in this industry, which potentially is one of the most dangerous they have ever nationalised, into the kind of loss position that we have seen in other nationalised industries, is a very great step indeed.

Therefore, I ask the noble Lord, whether he likes these words or not, first, to answer some of my questions about the financing arrangements upon which he proposes to embark but, above all, to indicate to the Committee that this is supposed to be a profitable concern, that it will not lean on all these devices, perfectly properly referred to by the noble Lord, Lord Kirkhill, and that it is not the intention to embark upon the massive flow of Government funds, overseas borrowing and the rest. I hope that the intention is to ensure that this is a profitable industry. We should certainly like the Minister to find words that would embrace that within the compass of the Bill.

2.47 a.m.


Yes, I can assure the noble Lord that the intention is that it should be a profitable industry. As I tried to make clear in my brief intervention, my advice, quite clearly, is that the words in the Bill at present put a more stringent duty on the two Corporations than those suggested by the noble Lord's Amendment. It may be that when one takes a superficial look at them the words do not give the noble Lord that impression, but I went into some detail in explaining why my advice was quite strong. That is the case and the Bill as it stands will place a more stringent duty, which I gather from what the noble Lord said he and I both wish to see, on the Corporations than the words suggested in the Amendment. That is why I suggested to the noble Lord, Lord Selsdon, that it might be better to leave the words in the Bill and not to press the Amendment, unless he actually wants to reduce the financial disciplines being placed on the two Corporations, which I do not think any of us want to do. Of course, I should be happy to listen to any argument which suggests that my advice is wrong and that the noble Lord's Amendment would actually place the Corporations under more stringent financial duties than those in the Bill as it stands. However, my understanding is that that would not be the case and, therefore, I would advise your Lordships to leave the Bill as it stands.


On a point of information, can the noble Lord confirm that in his calculations of an adequate return he will take full account of my noble friend's reference to "all costs of financing"?


I am not quite sure which noble friend and where the reference to "all costs of financing" came. Is it in the Amendment?




I have not looked at the Amendment for some time. As the noble Lord will appreciate, we have ranged rather wide. My understanding is that the duty that is placed on the Corporations in the Bill will take into account the capital employed by the Corporations, which I think is what the noble Lord has in mind.

The noble Lord, Lord Thorneycroft, asked about foreign borrowing, which I believe is dealt with under Clause 11, not Clause 10. However, I am happy to answer his question at this stage if the noble Lord would like me to. Whether and when Corporations borrow foreign currency will, of course, depend on the commercial judgments of the Corporations. I accept from the noble Lord, if that is the case, that it might not be wise for them to borrow abroad at this moment, but we are, of course, enacting a measure that will last for some time. It is right that the Bill should bestow on the Corporations the power to borrow abroad should they need to in the light of commercial situations ruling at any particular time.

The Earl of ONSLOW

Would the noble Lord please answer the most important question to which he has not yet given an answer? It is this: How much is this going to cost? Everybody wants to know this. If we cannot find out, it is to a certain extent a waste of time discussing all the financial provisions. It is like discussing something in a complete vacuum. We want to know how much it is going to cost and what interest the country is going to have to pay for it. If the profit is going to be less than the interest, it is exactly the same as going to your bank, getting an overdraft and putting that money on deposit: it is stark, staring, raving mad.


With respect, this again goes rather wider than the precise terms of the Amendment. If noble Lords wish to press me on it, and with with the leave of the Committee, I can go rather wider than the Amendment that we are discussing. I am happy to do so. The noble Lord, Lord Selsdon, and others, asked for an estimate of the cost of compensation. As the noble Lord acknowledged, the Government have said all along that the request to give a figure could not be complied with because it would inevitably prejudice the negotiations and pre-empt the arbitration that would follow the negotiations if we stick to the system for arriving at compensation at present in the Bill.

When we discuss compensation, I gathered from the noble Lord, Lord Selsdon, that he would like to see the method of arriving at compensation completely changed from that outlined in the Bill. If that were done, it might be possible to arrive at an estimate of the figure. I think it would pre-empt the discussions. Indeed, as I think the noble Lord, Lord Selsdon, pointed out, if the Government were to give a figure it would either hopelessly prejudice our position in any negotiations or, alternatively, I should have to give your Lordships a misleadingly low figure to ensure that I did not prejudice the Government's hands in such negotiations. That has been the position all the way through the discussion of the Bill, and remains so.

Then there are the working capital requirements. The need for external sources of new capital, in other words, new borrowing and new PDC, but not including ploughed back profits, is covered by the limits in Clause 11. That is something we shall no doubt get to when we have dealt with Amendment No. 114A. We expect the limits in Clause 11 to last, roughly, five years.

There is one other source of working capital which is provided for under Clause 45. That, as noble Lords will know, is offset by the end of the launching aid for civil aviation projects. It will not be extra expenditure but it will be a different way of providing the same money that is provided at the moment under the launching aid requirements. The noble Lord, Lord Selsdon, gave the figure of, I think, £1,500 million over three years for the two Corporations. So far as I know, this has no basis in the likely requirements of the two Corporations. I have mentioned already the figures for external borrowings in Clause 11. A broad indication of the capital investment, which excludes research and development in the aircraft industry, was set out in the public expenditure White Paper early in the year and was less than one-tenth of the figure of £1,500 million which the noble Lord gave. The figure which I think he mentioned—although it was a long time ago—of from between £500 million and £1,000 million for a new aircraft is the kind of cost that we would expect from a really major aircraft project pursued entirely on our own.

As the noble Lord will know from earlier debates on the Committee stage and the Second Reading of the Bill, and many debates recently about the aircraft industry, it is clear to everyone that future civil aviation projects are going to be collaborative efforts between several countries, and therefore just because of the major cost of launching, such projects the cost will be spread between at least two, if not more, countries participating in the project.

2.55 a.m.


I should like to ask Lord Melchett a question which may have already been asked in the course of this wide-ranging debate; but if that be so, I missed it. The Amendment requires the Corporation to seek to make a net profit after taking into account all costs of financing. This is a figure, is it not, that can be ascertained mathematically and precisely by accountants who can say whether or not the duty has been fulfilled? Under the terms of the Bill the Corporation is required to see whether it can obtain an adequate return on the capital employed. Who decides what is the adequate return? What criteria are used?


I should like some clarification. In the estimate that the noble Lord has made about the basic cost, has he already been in touch with all the shipbuilding companies that are to be taken over and the ship repairing yards—I shall not deal with the air side because I do not know anything about it—to find out what their assets, et cetera would be; or is he just making an estimate out of the blue?


I did not make an estimate on the value of the securities to vest in the two Corporations for almost the very reason that the noble Baroness has given; namely, that were we to name the figure in advance, it would disclose the Government's hand in the negotiations and arbitration that will take place. Throughout the passage of the Bill I think it has been accepted that that would be difficult.

The noble Lord, Lord Wigoder, asked me about the precise terms of the Amendment which I attempted to cover in my original reply, but as it was some time ago and the noble Lord said that we had ranged widely, it might be helpful if I repeated it. The Corporation's capital will consist of two elements: the long term debt, and what I loosely call the equity stake. They are two separate elements.

We agree that good returns should be earned on the entire capital, both the debt and equity stake. The return on the debt side will be the payment of a fixed rate of interest on that debt. My objection to the Amendment of the noble Lord, Lord Selsdon, is that the requirement that it lays down could represent a very small return indeed, say, 1 or 2 per cent. on the equity stake. That would be a net profit, but it would be a very small return. I accepted immediately that the term "adequate" was not precise. However, my advice quite clearly is that it will mean more than the net profit—the 1 or 2 per cent. or less—that would need to be earned on the equity stake under the noble Lord's Amendment.


I should like to thank the noble Lord for what he said about overseas borrowing. It is rather an important statement because it seemed to be a reversal of what has been happening in recent weeks. There are recent instances of very heavy borrowing by publicly owned companies, and it struck me as most important that he should have said—and I agree with him—that in present circumstances it would be singularly unwise for a public corporation to be borrowing overseas. I think we should take note of that.

However, the question which he did not answer was: When will these decisions be taken? I told him that it would be so difficult to do a corporate plan before someone had said what sort of return on capital you were trying to get. Whether it is adequate or net profit, I do not mind for this purpose, but when will it be decided? I do not follow—the noble Lord has not answered this point—how you can wait 12 months with that sort of decision in limbo and your corporate plan sitting around doing nothing very much. I should have thought that you must make a decision, not necessarily tonight, but very soon. Will he explain the sequence of events?

Finally, I do not want to press the noble Lord on what precisely he means by "adequate". However, does he mean, for example, taking the aircraft industry, that at least they should not earn less on capital employed than they are earning at present? If he could answer that it would be of some assistance to the Committee.


Yes, I certainly hope that the aircraft industry will do better than it is doing at the present time, particularly as the world economic recession recedes. I would not say that that would be the precise formula adopted; indeed, it would be a very imprecise and difficult formula to adopt. But, certainly, the broad intention is that the aircraft industry under British Aerospace should be profitable and we have maintained that belief throughout.

Maybe I can help the noble Lord a little on the sequence of events, which I agree will not be clear in the early stages. We dealt with this when we discussed the corporate plan on the previous Amendment, when I acknowledged that the corporate planning would take some time to get going. In the first few years, the plans might be rather less detailed and less precise than would be the case when they were rolled forward on a regular annual basis. I think the procedure would be that very soon after vesting—I could not possibly be tied to a precise number of days or weeks, or to the date; it would obviously depend upon several factors—an initial financial objective should be set for both Corporations. But it would be the initial objective, quite deliberately, to enable the corporate plan to go forward, so that after a period when the corporate plan was available for discussion with the Secretary of State a more permanent financial objective could be set. So that is the quite sensible way in which we would go about it.


I wonder whether I heard the noble Lord correctly. The Minister in another place estimated that the assets could be bought for £300 million and my noble friend said £400 million, so we are not wildly apart there; although later on it was said that this method of valuing companies is neither fair nor equitable, but that is for the future. Then the difference seems to arise on the working capital. Whereas my noble friend said that £200 million of working capital would need to be injected immediately, and I would think that a reasonable figure, the noble Lord said that he expected that the borrowing powers, which are £300 million and £250 million plus £50 million making £300 million, would last for five years. So those are rather different figures—about half as much as my noble friend calculated.

Lastly, I come to the capital investment, and there is a very wide difference of opinion on the injection necessary. I think the noble Lord gave a figure of £150 million, but I believe he had taken that from the Blue Paper on public expenditure, whereas my noble friend said £1,500 million over three years. Am I not right in thinking that the £150 million figure in the Blue Paper on public expenditure had a caveat against it, and said that it did not allow for certain other figures? I think what we are saying in summary is that, whether you are taking the working capital or the capital investment necessary, the figures are very large indeed and one wonders whether the Government would not be well to think of ways in which they could reduce them. We come back to the fair and equitable treatment of those who are being taken over under this nationalisation Act.


There is one point raised by the noble Lord, Lord Orr-Ewing, to which I should like to respond straight away. I gather that the figure of £300 million—I am acting entirely on advice—was used by way of illustration by my right honourable friend the Chief Secretary to the Treasury on television and not in another place, though I stand to be corrected. It was used very loosely by way of illustration, and I understand that no one has subsequently tried to give the impression—and I would certainly not want your Lordships to have the impression—that that was in any way a fixed figure. As I have said, the consistent line of Government spokesmen in another place, and, I regret to say, of Government spokesmen here, is that it would not be right for the Government to give a figure in advance of the negotiations and arbitration that will take place.


May I ask one question, which arises out of something the noble Lord said earlier, when he made the point, I think quite fairly, that these industries—and I believe he meant both, although I think he had particularly in mind the shipbuilding industry—are cyclical ones, and therefore it would be foolish to say that they would make a profit every year, and one would have to use the old phrase, which does not have very happy antecedents, that taking one year with another there would be a profit. I wonder whether the noble Lord can tell us what is the basic thinking when it comes to determining financial duties. Will this then be expressed in a number of years which cover the normal period of the cycle of these industries? As I say, I have particularly in mind the shipbuilding industry.


Yes, I imagine that it would. The financial duty may well be expressed in the terms which the noble Lord has mentioned of taking one year with another, stating that such-and-such a rate of return should be earned. However, that reply is subject to my being able to correct it if my off-the-cuff reaction is not entirely right.


When the noble Lord was asked what it is going to cost, quite understandably he said that he and his right honourable friend did not want to say what it was going to cost because it would tie their hands in negotiations. My noble friends want to obtain an approximate figure. To me it is sinister that whole chunks of the Bill consist of a very detailed method of compensation and valuation and yet the noble Lord has insinuated by his answer that he and his right honourable friend and his advisers will then get locked into consultation with those who are to be taken over and that it will be a matter of horse trading: that they will argue between each other and the one who argues best will come out with the best result. That seems to me to be hardly a dignified way of carrying on a compensation exercise when it is apparently written into the Bill that the negotiations are to be conducted in a certain manner. Why is there this reticence on the part of the Government to say approximately what the compensation is likely to cost? Of course we cannot get down to the last £1 million, £2 million or even £50 million, but for the Government to say, "We cannot give any figure because we would be bound when we began the negotiations" seems to me to be somewhat sinister.


We shall be dealing with the compensation clauses no doubt later on this morning, but I thought I had made it clear that it would entirely prejudge any arbitration that is to take place on the compensation terms if the Government were to lay down a figure in advance. The noble Earl says, "Give us a rough idea", but, as I think the noble Lord, Lord Orr-Ewing, illustrated, when my right honourable friend the Chief Secretary gave a very rough figure which he had not intended to be anything more than an illustration we were immediately told that this was what it was going to cost. I know that the noble Lord, Lord Orr-Ewing, did not put it in quite those terms, but as soon as the Government give any figure, whatever it is and however rough we say it is, there is a danger that people will say, "That is how much it is going to cost and therefore the security must be worth so much". Therefore it would be wrong for the Government to do that.

We shall discuss shortly the way that the compensation is to be worked out, but it would he wrong entirely to prejudge any appeal to arbitration or whatever if the Government said, "This is what we are going to pay and that is an end to it".


I think I give up in despair. Almost everybody in your Lordships' Committee is agreed that it is right that Parliament should know what kind of financial commitment the Government are to enter into. In the past we have been provided with figures. The Government started to give something; they said that subject to the passage of the legislation the Government would be concerned with the finance required for the new nationalised industry to carry on its business.

I want to know not how much it will cost in terms of paper transactions and the transfer of assets, but how much it will cost to finance it. The noble Lord, Lord Melchett, is quite right in raising the point that at this stage one cannot indicate what the Government intend to pay for a company when negotiations are entered into. We know about the mistake which the Chief Secretary to the Treasury made on television, perhaps without prior thought, but mistakes such as that can have an effect upon earnings or attitudes in stock markets, and we have to be extremely careful. But if one really comes down to it, I cannot for the life of me see why the Government cannot give a clearer indication of the level of financial commitment that will have to be made to these industries to keep them going and in order to up-date them and to make them competitive in the world.

One is often required to make estimates and calculations when one cannot meet face to face with a particular company. In this case one has made those calculations out of discussion, and I have estimated that the cost of acquiring the shares—which is, I suppose, in a way the initial capital—would be £400 million. It does not matter whether it is £400 or £500 or £600 or £800 million, in the context of the total commitment necessary the actual acquiring of the companies is almost minimal or insignificant if in fact one is using Government paper.

I am saying that there is a need for additional working capital. All right, the Government cannot say what that will be, but a figure of £200 million is very realistic at current prices; and when the noble Lord, Lord Melchett, says that aircraft do not cost money and European co-operation or international co-operation does not cost money, look at the cost of Concorde. All right; that is but one aspect. Look at the cost of the European airbus—another one. I think the Government should ask the aerospace industry how much it costs to develop an aircraft, either on your own or in co-operation; and co-operating internationally does not halve the cost, because of language complications and innumerable problems in dealing with other nations.

It is for me the most encouraging moment of my life that for the first time I have heard the Government declare that they believe they are capable of making a nationalised industry far more profitable than I would hope. I am worried about the liabilities on the nation; that is all. When the noble Lord, Lord Melchett, spoke about aerospace he said that the Government will make it more profitable and more successful. I think that is extremely difficult. I always take this document, Talking Points on Britain's Economy—things which we talk to people abroad about, and how much we borrow, but there is usually something good in it. This month we have good news—record aerospace exports: "Net exports of aircraft and engines from the British aerospace industry in 1975 were valued at a record £600 million". It continues: "On shipping exports, Austin & Pickersgill, general cargo ships, the S.D.14, now total £100 million, for 77 ships". I do not think there is anything wrong with some of the companies, aerospace particularly.

What I come back to at the moment is, please, will the noble Lord, Lord Melchett, bear in mind in this House and in another place there are people who, while they may disagree or agree with the Government's intentions, would like to know the level of finance involved; and that I take, as I have said, as a figure for working capital and equity of £600 million, and an input needed in one form or another of borrowings or new capital of a further £500 million a year over three years. Three years is a reasonable cycle for these industries; five is perhaps too long. They have cash flow problems at one end of the cycle and they have considerable liquidity problems at the other.

The purpose of my Amendment was really to solicit additional information, and also to draw attention to the point of adequate return on capital. The other day my noble friend Lord Redesdale asked the Government whether they could give figures of percentage returns on capital and the noble Lord, Lord Jacques, answered. He said that unfortunately the tables show rates of return on net assets calculated before interest and after historic cost appreciation taken or derived from the annual reports and accounts of the industries concerned. It shows nil for steel and 14 for the Post Office—an enormous jump, almost treble over one year; but it does not come hack to the basic point that our nationalised industries in general have been historically under-capitalised, have been short of money and have not been given freedom of management.

If this Bill is to go through and these two industries are to be nationalised, then surely the Government must make up their minds as soon as possible how much money they need to inject, or how much it would take to acquire the industries. There are many people around who would willingly give some sort of help or support or advice.

I will not press this Amendment because it is not satisfactorily worded, but I would ask the Government to return to the Code of Practice. In the City we talk about very substantial acquisitions or reverse takeovers. The Code says this: Where a listed company proposes to acquire another business, company or companies, all or some of which are not listed, and the transaction would be one where the relevant figures on the basis set out in paragraph 5 would he 100 per cent. or more, or which will result in a change of control through the introduction of a majority holder or group of holders, that transaction will be deemed to be a reverse takeover "— which this is. The Council of the Stock Exchange will normally require that the transaction be subject to the approval of shareholders and that the listing of the company security be suspended. This suspension will usually last at least from the time when the acquisition or acquisitions are announced until the shareholders' approval has been obtained and all relevant information made available. This is a sort of twilight period that we are in at present. It is normal practice. This must include an accountant's report on the business, or unlisted company or companies to be acquired, and a pro forma balance sheet of the group as reorganised.

These are reasonable things to ask for. It does not take much for the Government to start and draw some "ball park" figures not on acquisition but on the level of investment needed. The industries know that there has to be investment, know that it costs money and that they have to compete on a worldwide basis.

Many arguments have been advanced on the question of compensation, which we will come to later. We come to the nub of the matter, which is: can the nation afford to take on a commitment which at present it is said is open-ended and which I have said is about £2.1 billion at this time. It may generate sufficient profits to reduce the funding requirement for the industries. I have never known any single group of companies or individual companies which upon acquisition by a third party has produced a higher level of profit immediately. It is not on. It has never happened anywhere in the world with any acquisition of any size. If this can be done, and if we can have, as many of us believe, both a viable shipbuilding and aerospace industry, I say good luck to management and the Government. But at present they are going about it in such an unprofessional manner that it is right that it should cause us all concern. I am not happy. I shall go on seeking information throughout this Committee stage, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Earl FERRERS moved Amendment No. 115: Page 12, line 37, at end insert— (" ( ) shall be consistent with any duties imposed on the Corporation by, or by virtue of any other provision of, this Act; and ").

The noble Earl said: I cannot help feeling a great deal of sympathy for the noble Lord, Lord Melchett, because he has had some difficult Amendments to answer, and if I may say so, he has stood up to the battle extraordinarily well. This will not be a difficult Amendment, I can assure him, if it is he who will answer it.

Clause 10 allows the financial duties of the two Corporations to be determined by the Secretary of State with the approval of the Treasury. This gives the Treasury considerable powers. What I should like to know is what are the kind of financial duties which the Treasury are going to impose upon the Corporations. Will they be targets of profit or targets of output? What kind of targets will they be given? What are the Corporations supposed to do in fact? Indeed, do these similar financial duties apply to existing nationalised industries? Did these similar provisions appear in other Acts which refer to nationalising other industries? It could be that the Treasury would request a level of profit, for instance to be imposed on each ship or on each aircraft that was produced. As I understand it, this is what the Bill could allow.

The difficulty is that Clause 2 states perfectly clearly what are to be the objectives of the two Corporations. One sees, in the case of British Aerospace, that they have to undertake the efficient and economical design, development, production, sale, repair and maintenance of civil and military aircraft and guided weapons;". Clause 10(1) gives very considerable powers to the Treasury which could make the Corporations unable to fulfil the duties which Clause 2 imposes upon them. This modest Amendment merely makes any financial obligations which the Treasury may impose not conflict with the duties of the Corporations under Clause 2. It seems a reasonable request. If the noble Lord could give us some indication of the type of financial duties which the Corporations are going to be obliged to stick to, we should be grateful. I beg to move.

3.21 a.m.


It might be helpful if I say something about what will happen when the Secretary of State makes the determination as to the factors to be taken into account. First, he will have to act in the context of the provisions of the Bill as a whole, which would include the duties set out in Clause 2. 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. Secondly, there need be no fear of a determination being made which imposes an unduly low financial objective.

The financial duties must, taken together, be likely in the Secretary of State's view to produce an adequate overall return. There is the need to pay interest on borrowed capital and pay a dividend on public dividend capital. The Secretary of State would have to take account of those factors as well as things like depreciation. In short, the Secretary of State will be bound to take account of all the other duties of the Corporations, not merely because that is the legal construction of the Bill but because the Secretary of State wants the Corporations to earn a proper rate of return.

The noble Earl also asked about the form the financial duties might take. This might well be a percentage return over a period of years. But the Bill is deliberately flexible on the point. For example, before the commencing capital is determined, which may not be the case at the start, indeed I imagine will not be the case, the financial duties could not sensibly be expressed as a percentage rate of return on the commencing capital. In those circumstances it might well be sensible to set for the first year—or perhaps longer, but probably for a year at a time—a net profit figure to be earned by the two Corporations. That is one of the advantages of the flexibility allowed for in the Bill as it stands.


I am grateful to the noble Lord for that answer. I think inadvertently he did not answer the question whether this is unique to this Bill, or are the financial duties incorporated in other nationalisation Acts? I ask because quite clearly other nationalised industries which have not made profits have not measured up to such financial duties as were imposed, if they were. Therefore, one might ask what is the point of imposing a duty if they cannot measure up to it. As I understand it, these financial duties are going to be quite simple in operation; they are merely going to be something like, "The Corporation will be expected to pay interest on its money and be expected to achieve a return on the capital involved". Is it as simple as that, and that it will not involve any greater detail?


I hesitate to give that assurance. Once it has been through legal advisers and other sources the noble Earl will know it always comes out in an extremely complicated form, and it may well be necessary to set different financial objectives for different Corporations, besides splitting up the two Corporations as separate entities and deciding what would be right in the different circumstances of those two Corporations. I do not think it would be quite as simple as the noble Earl suggested, and I should not like him to get the impression that I would agree with that. I would hope that it would not be so complicated that nobody could understand it, and it will need to be understood clearly by the Corporations. On the other question, my understanding is that the provisions in the Bill are broadly similar to previous nationalised industries' Statutes, and particularly modelled on the Industry Act 1975, but there are some differences in detail.


I am grateful to the noble Lord for having cleared up that point too, and clearing up the point of how deep the financial duties will go. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 10 agreed to.

3.27 a.m.

Lord SELSDON moved Amendment No. 115A: After Clause 10, insert the following new clause:

Balancing of Revenue account and

surplus revenue

.—(1) It shall be the duty of each Corporation so to exercise and perform its functions as to secure that its revenues are not less than sufficient to meet all sums properly chargeable to its revenue account taking one year with another.

(2) Any excess of the revenues of each Corporation for any financial year thereof over the sums properly chargeable to its revenue account for that year (including as aforesaid) shall be applied by the Corporation for such purposes as it may determine with the approval of the Secretary of State given with the consent of the Treasury.

The noble Lord said: This Amendment follows on logically from my previous Amendment. The previous Amendment was to ask the Government to ensure that the new nationalised industries made a profit. This Amendment is to ask the Government to ensure that they do not make a loss. I have here taken a precedent from one of the existing Government corporations, the Commonwealth Development Corporation. I said to myself that there must surely be one Government corporation which is charged by law not to make a loss. There is one. Clause 16 of the Overseas Resources Development Act 1959 requires that the Commonwealth Development Corporation should not make a loss.

This precedent is a simple one. I only came across this when it was raised by one of the directors at an international conference at Stockholm recently. It was one of the most impressive things that the British delegation said there. They wanted to believe that there was a British nationalised company that was required not to make a loss, and nobody could believe that that British company had actually performed its function satisfactorily and had not made a loss. Two of the directors of the Commonwealth Development Corporation sit on the Benches opposite.

Would it be wrong to include something like this in the Bill? What I am thinking about is some of the general concern expressed abroad in international financial political and economic circles about the level of our indebtedness and about the likely run-away train, as some people call it, that could start off on Government borrowing, particularly on nationalised industries. If we embody in nationalised industries new clauses which require greater public accountability, or demand that there should be no loss, we could gain a little confidence. It was put in with a slight smile on my face because I never thought that the noble Lord, Lord Melchett, would say that the Government ought to make more profit than I thought it likely that it should. I am sure that when the noble Lord replies he will say, "Don't worry. It is going to make a profit because we have done all our homework, our sums and our planning and none of you need worry"—but when we find that it does not make the right profit we shall never know because we shall never know what an adequate return on capital should have been. I hope that the noble Lord will comment on this because if it applies to CDC, why can it not apply to others?


As the noble Lord, Lord Selsdon, rather foreshadowed, though not for exactly the reasons he foreshadowed, I hope to be able to persuade him that the new clause is unnecessary and that, because it conflicts with the provisions in other similar nationalised industry legislation, it would cause confusion to include it in this Bill. Historically, the position is this. The earlier nationalisation Statutes provided for the Corporations concerned to be financed by long-term borrowing from the Exchequer, what is now called the National Loans Fund. There was no provision for public dividend capital. In those earlier Statutes —and it applies still in the case of those industries without PDC—there was an obligation which this new clause seeks to impose on British Aerospace and British Shipbuilders—to break even on revenue account, taking one year with another, after meeting all charges including proper allocations to depreciations, reserves, and so on.

During the 1960s, public dividend capital was introduced into BOAC and the British Steel Corporation, and subsequently into NEB and others. In these cases, there was substituted for the "breaking even, taking one year with another" formula an obligation on the sponsoring Minister to prescribe a financial objective for the Corporation concerned. The reason, I think, is plain. If a Corporation gets all its external finance in the form of fixed interest loans, then if it breaks even after paying interest it is actually earning a considerable return on its capital. If, on the other hand, a substantial part of its external finance is in the form of PDC, then merely to break even will represent a rather low return on its capital. Plainly, therefore, something more rigorous is required, which takes us back, as I said it would, to the noble Lord's Amendment No. 114A. That is why the Secretary of State is required in this Bill, as in other legislation governing Corporations with PDC, to set a financial duty or duties so that a good return can be required on all the Corporation's capital. In fact, the requirement in Clause 10 is, in effect, to earn an "adequate" return and, as I told the noble Lord earlier, I am advised that this must as a minimum mean a positive return; so the new clause would be watering down, in the way Amendment 114A would have done, a good deal of the financial disciplines already in the Bill.

But the noble Lord's new clause has another effect which the Government consider is undesirable; it leaves a clear implication that surpluses should normally be retained in the business. We do not accept that as a requirement, though it will often be the case to a large extent. The concept of public dividend capital, as has been frequently stated, is that over a number of years, covering the business cycle of the industry in question, the Government should receive in dividend on PDC at least as much as they would have received in interest had the capital been provided in the form of long-term fixed-interest loans. PDC is intended, among other things, to provide a capital structure analogous to that of a competing private company, here or abroad; and competing private companies normally have to pay dividends on their equity. That would be the usual expectation. What is left after paying these dividends will, without any need for this provision, remain in the business and thereby reduce the amount of new capital requirements that have to be raised outside the business. For these reasons, I hope that noble Lords will agree that the new clause would, if anything—though I agree that it is marginal—detract from the rigorous financial regime under which the Corporations are required to operate and that therefore it would be preferable to leave the Bill as it stands.

3.36 a.m.


I agree with the noble Lord. It is odd to be trying to be more moderate on this side, but I am concerned because I do not believe that in the current climate, with interest rates as heavy as they are at the moment, an adequate return on capital can be obtained. Perhaps I should describe that adequate return. In the current climate, an adequate return on capital must be more than the cost of borrowings and it is generally considered in most industries—and I believe that aerospace would be one—that companies making new investments would expect to obtain a return on capital of not less than 20 to 25 per cent. In the shipbuilding industry, while there are some companies that can do extremely well because of good management and good labour relations, one would not seek such a high return. However, one is talking on that sort of level of return in the current climate.

The arguments that I have advanced before have been that the cost of financing, whichever way one looks at it, will be high. We know that the Corporation will borrow and that it will borrow abroad. We know that, at the current rate, if it borrowed in Eurodollars, it would be 6 per cent. plus, say, 7¼/7½. If it borrowed sterling, it would be 15 plus 1 over 16¼. These are fairly hefty charges to incur and it would be right and proper that those charges should fall upon the Government or the industry. But I should prefer the industry to have the right level of capital to get it off the ground. I shall come back to that, but I do not believe that the other industries have had this. That has been the case with steel and right the way through in the past. If we have a new situation, for goodness' sake let us give them the right amount of money to work with from the word "go"!

To come to the second part of the new clause, the concern we have is that we know that both these industries are industries of the present, the past and the future, and that they will require continuing inputs of money. The purpose of inserting this second provision was to try to make sure that the Corporation could utilise its own profits for further investment and, therefore, reduce the liability from the demands which it might place upon the Government and to stop the cyclical problem that can develop with these industries. Suppose you have the classic three-year cycle: there will be cash flow problems and a need for money at the start of the first year. At the end of the third year, when everything has been sold, the developments have been finished and the orders are starting to come in, there is a surplus. That surplus could be taken away by the Government, which might be full of good intentions, and utilised in other areas. Immediately, the new cycle would start again. The money would be taken away just before the company would need it for the next cyclical development.

We know that aerospace is a risky business. We know that shipbuilding is a risky business. Both are high risk businesses which require entrepreneurs, but I believe that one of the riskiest businesses of the lot is the Commonwealth Development Corporation. I do not know whether your Lordships know the terms of that, but the Commonwealth Development Corporation essentially takes equity participation in developing countries. Formerly this was in the Commonwealth, but it has since been extended to Zaire and, I think some of the Francophone countries—places where no-one in their right mind would go and take a high level of risk. The Commonwealth Development Corporation puts in money: it takes equity participation in agricultural projects and agro-industries. It involves high risk, and because of its Statutes to some extent and its good management, it always fails to make a loss.

This has been a splendid effort by the CDC. There is much that one can say on the need for public accountability and for some form of control rather than open ended and general statements. I do not believe that general statements, such as "adequate return on capital" have any meaning in a Bill unless they are defined subsequently, and I hope that the noble Lord will agree that this is one of the matters which his own Party will press. As soon as we know what it is, it does not matter how high or how low it is, we are faced with the fact that there are nationalised industries. Let us define what it is and judge people by that definition.

Before I withdraw the Amendment, I should be glad if the noble Lord could comment a little further about what he would regard as an adequate return. If he feels that he cannot, will he give some assurance that this is something which will be raised during the passage of the Bill or as soon as possible immediately afterwards, and that we will not be faced with the establishment of these two industries without some clear guidance as to what the Government regard as an adequate return. The noble Lord need not do it now, but I hope he will bear it in mind as something for which we all ought to press, because otherwise we stand in danger of just going slowly down the plug.


Yes; I entirely agree with the noble Lord. I do not intend to do it now, and I think I judge from the noble Lord that he did not really expect me to do so. In response to an earlier Amendment—I think it was in response to the noble Lord, Lord Thorneycroft, speaking on Amendment No. 114A—I said that what would probably happen initially would be that the Government would set an initial target for the first year, which would be in the form of a net profit, which I know has attractions for the noble Lord, Lord Selsdon. At that stage it might well not be possible to know what was the capital on which the two Corporations were working because the negotiations and decisions on the compensation had not been fully worked out.

So I think that we are together on agreeing that there ought to be an initial target set as quickly as possible, and that it would probably be sensible to do that, although I would not say that that would be the only way of doing so. But one way of doing it would be to fix a net profit for the first year and possibly even for the second year until things had got into the swing of it. But I entirely agree with the noble Lord that it will be important to fix something definite as soon as possible.


In the light of that and, as the noble Lord will appreciate, because of the unfortunate association of my name by one of his former right honourable friends in another place with the failure and the lame ducks of the shipbuilding industry, I am naturally sensitive to put this right and to ensure that in due course they do get on to profitable ground. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 11 [Borrowing powers of the Corporations and their wholly owned subsidiaries.]:

3.42 a.m.

Lord HIVES moved Amendment No. 116: Page 13, line 7, leave out ("and") and insert ("given with").

The noble Lord said: With the leave of the Committee I should like to take Amendments Nos. 117, 118, 119 and 121 together. Most provisions of the Bill make it clear that it is a responsibility of the Secretary of State to satisfy himself that he has Treasury approval where necessary. This can be seen, for example, at Clause 12, page 15, lines 4 and 13, and at Clause 15, page 17, lines 17, 20, 30 and 35. In the cases noted in my Amendment, however, the wording of the Bill is ambiguous and appears to place upon the Corporation concerned the onus of obtaining Treasury approval in addition to the approval of the Secretary of State.

I believe that this question of responsibility should not remain ambiguous, and my proposed wording defines the responsibility in the way in which I believe it is intended. I beg to move.


I am grateful to the noble Lord for grouping these five Amendments together. I cannot share his concern that the wording as it now stands will cause unnecessary delay. The phrase the consent of the Secretary of State and the approval of the Treasury is a common form provision appearing in all the public corporation Statutes. It is not dreamt up for this particular Bill. In practice it does not mean that a Corporation has to make separate application to two separate authorities, with the time-consuming procedures which the noble Lord fears. On the contrary, the issue of such consents is handled quickly and jointly by the sponsoring Department and the Treasury, on the basis of a single application to the sponsor Department. The Department and the Treasury, in the normal way of consultation, reach a common view on the matter, and the sponsor Department in conveying the consent of the Secretary of State at the same time also conveys the Treasury's approval.

Therefore, the practice accords with the intention of the noble Lord in moving his Amendment. But the Government, although sympathetic, do not feel able to accept the Amendments because to do so would create an inconsistency—for what we believe is no compelling reason—with other public corporation legislation; and it is for this reason that I hope the noble Lord will agree to withdraw his Amendments.


If the noble Lord feels—as I rather gathered from what lie was saying—that this is a slightly better system than the one that exists, perhaps this would be the moment to create a precedent which could be used in future legislation.


Either it is the late hour or my rather croaky voice, but I do not think I said it was better. I said that the noble Lord feared certain limitations on the present wording and therefore was attempting to improve them by better wording, but I did not agree with him.


I thank the noble Lord for his reply and. in view of his explanations, I will withdraw the Amendment.

Amendment, by leave, withdrawn.

3.48 a.m.

Lord SELSDON moved Amendment No. 117A: Page 13, line 27, leave out subsection (4).

The noble Lord said: I am afraid that once again, either on this Amendment or on the Question, Whether the clause shall stand part? I shall have to raise this question of borrowing in order to seek more information from the noble Lord, but I start with an Amendment which is based on an element of concern. I should like to delete the subsection: Each Corporation may borrow from any of its wholly owned subsidiaries, without any consent, approval or other authority. I know that this is common practice in the other nationalised industries, but at this particular point and in connection with these particular industries to be acquired under this Bill there are some anomalies which we must take into account and some very real reasons for concern.

As I mentioned earlier, there is a tremendous difference between the good company at one end of the spectrum and the one in difficulties at the other. There are also tremendous differences in the regional location of the companies and it is not by chance that the good ones are scattered around. In general we know that some have been fortunate enough to have good management, receive good orders, be on the right design track, and they have produced good products, earned good money, had positive cash flows and have a relatively high degree of liquidity at the present time. This degree of liquidity and success has a great deal to do with morale among labour forces and others working in the shipbuilding industry. I think particularly of shipbuilding.

Those of your Lordships who have been privileged to go to launchings, or have become involved in the shipbuilding industry in one way or another, will know how important is the feeling of Co-operation and the mood of success in the development of a profitable business in those fields. Each yard in general—and even different yards within individual companies—has a pretty shrewd idea of how things are going. Most of the activity is visible. They can see what is going on. They know when things are busy and when a company is doing well. They also know from history that if a company does well it is likely there will be new orders, new jobs, new investment, and if a company does badly their livelihoods are at stake.

What I am concerned about is that, among the good companies—and it is as important to the Government to give encouragement to the good companies as it is to support the bad ones—if it becomes apparent that the Government can at a whim transfer money from one company which is making money to another which is losing money, then a lot of the incentive of those particular companies or yards will disappear, and with it will come the general feeling of apathy which exists in so many sectors of the nation that it does not matter how hard you work or how well you do, you are never going to get anything out of it. This is a point on which I should like the noble Lord to comment. If he can give some reassurance that immediately after nationalisation the nationalised companies will not start transferring funds from one subsidiary to another, so much the better; but this is a difficult assurance for him to give because to some extent it prejudices the Government's own negotiating position.

But what causes me added concern is that we are so confused with large groups already, despite the very high standard of accounting practice in this country, and inter-company loans, and if these intercompany loans arc permitted without full disclosure, and further disclosure than is in fact normal in the case of those that are in big groups, your Lordships will never know which companies are doing well and which are doing badly. I think the way this is treated from an accounting point of view is fairly important. We know already that there are .these very good companies, and they should be praised for what they have done. It is important, too, that the goodwill which they have generated, which has a capital value and also a tremendous export sales value, is not dissipated by the knowledge that they could suddenly be short of money or that the money they are generating is being diverted, for political or other purposes, to high unemployment areas or to weak industries. Considerable pressure could be exerted by the Government upon the management of the new companies, and if the noble Lord could give us some reassurance on that, or at least accept that it is a point which needs consideration, I should be most grateful. I beg to move.

3.53 a.m.


To introduce my reply to the noble Lord, may I just read what the Bill in fact says? It says: Each Corporation may borrow from any of its wholly owned subsidiaries, without any consent, approval or other authority". May I clear up the first point? It is not the Government which would switch funds: it would be the Corporation. The noble Lord said that it was a common practice of nationalised industries for this to be done. It is also, of course, common practice in private enterprise that there should he central banking of a group of companies, and that funds should be switched from one operation to another in order to optimise the use of the companies' funds.


I said that the inclusion of such a clause as this was common practice in a nationalised industry Bill; and I said, too, that inter-company loans were common practice in the private sector. I feel that in this particular instance, because the nationalised Corporation is a Government sector, it will not have the same freedom of action as it would have had if it were in the private sector.


Having said what 1 have, I have a great deal of sympathy with what the noble Lord is saying because, having operated central banking, I know it is very often disappointing for a very successful company to have to underpin a less successful one for a time. This is one of the facts of life. I wholly agree with the noble Lord that, particularly at the beginning of this enterprise, the maintenance of morale in all units within the two Corporations is of very great importance. I am certain that since the men concerned with running these two new Corporations are experienced, they will in fact watch with care the impact of any policies that they may follow in this particular field; and what the noble Lord has said is, I think, a useful warning to people who are studying the problem by reading the progress of this Bill through your Lordships' House.

I cannot give any assurance that the new Corporations—not the Government but the new Corporations—will not rapidly switch funds about after vesting day and the time when they take over control of this group of companies. Nevertheless, I should have thought it rational and sensible for them to hasten slowly and to study the position of each company within the group—which is making a profit, which needs help and which can give help. For this reason, I believe that the noble Lord's fears (although based on experience similar to my own) must also be known to the men responsible for these groups. I am certain that they will exercise their powers with common sense and moderation.


It is common practice among companies and their subsidiaries in one given industry to support each other, but it is not common practice for two companies which are totally separate and not subsidiaries or parents to support each other within one industry. This is what one is worried about. Here you are going to have companies in their own rights within one of the two Corporations and subsidiaries of other parent companies which, in themselves, in many instances are the biggest entities that will be forming these Corporations. One should not necessarily support another. This would not happen in private industry. You cannot imagine that BAC, for instance, is going to support Hawker Siddeley. It would not happen. To suggest that this might happen under the new Corporations set up might be terribly damaging to employees of either BAC or Hawker Siddeley; or—which is still a danger, as this seems to be all under this one Bill—you might get BAC under the noble Lord's suggestion perhaps supporting Vickers Shipbuilders.


The last supposition is not correct. Vickers Shipbuilders would be in one Corporation, in the shipbuilding operation. It would not have to be called upon to support any unit within the aircraft Corporation. I think the noble Lord will agree that we are placing financial limits on the operations of these two Corporations. It would be stupid to let funds build up in one particular company within the group and be forced to borrow to support or develop another. In order to optimise the use of funds available to the two Corporations, I believe that central banking and the power to transfer funds if necessary is one that we should give these new Corporations. I agree with the noble Lord that, in fact, this is a power to be used carefully because morale would be destroyed if a good company is milked to support a bad one.


The sort of thing that the noble Lord is saying may be true in private enterprise groups. Indeed, it is true. But I think that he is leaving out of his considerations one of the factors which cause great concern to many of us and to many people, particularly in some parts of the shipbuilding industry. The noble Lord is comparing what is proposed here with what I agree is normal central banking practice in a private group. But in a private group it is normal, if that group is to succeed, that severe loss-making activities are eliminated. While there is a certain amount of transfer and, therefore, no doubt a certain degree of cross subsidy—there may be a decision to prop up for a year or two from one part of the group the perhaps shaky operation of another part of the same group—it is done because of the well-judged belief that the shaky activity nevertheless has a long-term future. What we are concerned about in the shipbuilding side is that certain of the companies which are going into British Shipbuilders are in a very heavy loss-making position indeed and have been in such a position for some years past.

In the current state of the shipbuilding market worldwide, it is very difficult to see how these companies will be floated off the rocks on which they have virtually wrecked themselves. This is one of the things that worried us the other day when we discussed the question of separating the naval shipbuilders from the British Shipbuilders Corporation as a whole. I remember expressing the fear, perhaps in the form of a question: was not there a danger that instead of the profits of these highly profitable companies continuing to fructify their own business and so, therefore, building on success to the benefit not only of those companies but of our balance of trade and our general economic wellbeing, they would be creamed off to try to sustain hopeless rescue operations on other members of the Corporation which, in a private company, would undoubtedly, however sadly, have to be eliminated as hopeless, loss-making situations?

That is the sort of thing that worries us about a nationalised corporation—that this sort of cross-subsidy on a scale which simply would not be possible in a normal private enterprise group will be indulged in. If it is indulged in, and if we are not very careful, we may find, as I think I said in my Second Reading speech, that nationalisation results in a vain attempt to prop up failure at the cost of not sustaining success. The final state will be much worse than the state we are in now, because our successful companies—and although I have mentioned only the naval shipbuilders, I am glad to say, as the Committee knows, that there are successful companies in the merchant shipbuilding area as well—will not build on their success and the money drained from them will not be sufficient to float the ones in real trouble off the rocks on which they are at present impaled.

Therefore, it is extremely important that, somehow or another, the Government should give us some assurance about this, bearing in mind that when discussing Clause 10 we spoke about the adequate profits, and the noble Lord, Lord Melchett, assured my noble friend Lord Selsdon that "adequate return" meant more than his net profit and all that sort of thing. Some of us, looking at the shipbuilding side in particular, wonder how this can be so.

I do not say that a Government should not in their overall view, both of the social needs as well as the economic situation of the country, decide to prop up a shipbuilding company which is in a hopeless economic position, at least temporarily until alternative employment can be found in that area. I am in no position to say that because I was a Member of a Government that did just that. That Government were criticised outside Parliament and by some of their own supporters for doing it. What one does for social reasons in order to gain time so that economic change can be conducted in a decent, humanitarian manner is one thing; but it is quite another thing if it is done within the context of a Corporation which is being charged to make an adequate return on its capital.

That is why I do not see the shipbuilding side of the Bill working out. I am sorry to say that it is my judgment that so many members of that Corporation will be it such severe financial trouble that I do not understand how a viable net return can be made on the whole. My great fear is that in an attempt to do so we shall milk the money from those which are a success and which, if they are allowed to keep the money, would go from strength to strength, and still fail to succour the ones in trouble.

The Government must take this seriously. While I am not suggesting that we should press this Amendment to a Division, I think that my noble friend, in moving this Amendment, has raised a very important point. I hope that at some time before we finish all stages of the Bill the Government will find some opportunity to let us know at least their thinking on the problem that I have put forward. The thinking I have put forward is probably not susceptible at the moment to be met by specific Amendments. Parliament ought to know what the Government's thinking is on the problem that I have raised. I do not want to be a Jeremiah and forecast failure for too many companies, but when I look at their present state and the state of the world shipbuilding market, I cannot help thinking that it is going to be very difficult indeed to risk some of these companies. It would be terrible to destroy the ones which are successful and which, if they could keep their money, would go on from strength to strength.

4.6 a.m.


The noble Lord, Lord Winter-bottom, said that he understood a company could become very bitter if its profits were taken to subsidise another company which was losing money. In the few words I want to say, perhaps I have a friend on the Front Bench. I fully support what was said by my noble friend Lord Carr. What arc the Government proposing on Tyneside or Humberside?—both are really in the area in which I move about from time to time. On Tyneside we have had a great deal of unemployment, but at the same time our shipyards have done very well indeed. Am I to understand that perhaps a shipyard losing money on the Clyde might have money transferred from Tyneside? If that is really what the Government are thinking, they must be mad. I am not saying that I want to be recognised as being English against Scottish or Welsh, but sometimes quite a good feeling of competition exists between one area and another.

If it is the idea of the Government that they are going to take money from one area which really has struggled very hard to obtain full employment and a profitable shipbuilding industry, and transfer it to another, then the feelings between Wales, Scotland and England would he understandable. The English are proud to he English: the same as the Scots are proud to be Scots, and the Welsh are proud to be Welsh. If you start trying to move money about from one area to another, perhaps making a profitable company on Tyneside lose money because of some other difficulty and to transfer the money to Scotland, my goodness, I can understand their feelings. I live on the right side of the Border and I do not think I need say any more because the noble Lord, Lord Winterbottom, realises the situation. It is tremendously important to know whether this is in the Government's mind. I think it would be absolutely "dotty".

I shall say no more than that. As my noble friend Lord Carr said, one can understand that sometimes when a yard has to be closed, time is given so that those who will lose their jobs can be retrained. However, if one has lived in an area like mine, one knows that one cannot retrain people in, for example, engineering—we are short of skilled engineers—in a very short time. It takes a long time to retrain for a highly skilled industry, and all that time we should be using money which belonged to a shipyard which had made a profit and which we had had, for some reason or other, to transfer to Scotland or Wales.

I am not discussing capitalists who have shares in profitable shipbuilding com panies. I am saying that the population would not understand. People are finding it very difficult to understand what the Government are doing at present. If the noble Lord opposite realises that, as I think he does, he will not want the English, the Scots and the Welsh to fight hard against each other without being able to arrive at a satisfactory solution themselves. I like people to understand even if there are difficulties in making them understand.

I am always trying to explain difficult matters to the people in my area. They do not always agree with me, but if you speak the truth, they know. I should not like to explain on Tyneside that money was being sent up to Scotland or to Wales because they would think that I had gone mad. I should not like them to think that I had gone mad: I would rather like them to think that the Government have gone mad!


I agree with the noble Baroness, and should like to cross a "t" and dot an "i" as regards what the noble Lord, Lord Carr, said. Being reasonably young, although not feeling it at present, I should like to go West from the noble Baroness, to Barrow. Barrow is the home of Vickers Shipbuilding, which is particularly proud of the fact that it produces superb work. It is the only shipbuilding company that has never made a loss. In fact, it is the shipbuilding division of Vickers.

Barrow is dependent upon Vickers. If you start to take money away from Vickers Shipbuilding you will hurt Barrow. You will hurt an area which is entirely dependent upon shipbuilding. When I spoke earlier, I was talking about the aircraft industry and wondering whether shipbuilding could go to the aircraft industry, or vice-versa. The noble Lord very kindly said, no, that was not possible. However, it concerns me that an area such as Barrow, which provides the shipbuilding company that has never made a loss, might have its pride hurt by having its profitability distributed elsewhere.


I should like to ask the noble Lord a question which follows on from what the noble Lord, Lord Wardington, said. Do I understand that if one of the shipbuilding companies in the Corporation requires help—for example, a company that manufactures slow marine diesels—it could be bailed out by a ship repairing company or a shipbuilding company?—or will it only be bailed out by another engine company?


May I first answer the noble Earl? What the clause says is: Each Corporation may borrow from any of its wholly owned subsidiaries, without any consent, approval or other authority. That means to say that the necessary funds can be transferred within the Corporation, from a ship repairing company to a diesel engine company, without any consent. Although that answer may not satisfy the noble Earl, that is the situation. The noble Lord, Lord Selsdon, and I had an agreeable theoretical discussion about the transfer of funds. Then the noble Lord, Lord Carr, made a valuable contribution when he took the discussion from the theoretical to the strictly practical. Like myself, he is optimistic about the medium-term future of the aircraft industry in this country, but one would have to be very blind indeed not to see that the shipbuilding industry must face severe problems during that same period. The problems are not all of their own making.

The noble Lord said that they had run themselves on to a rock. In point of fact, some of them may have done that, but others were swept away by the turbulence that came out of the Middle East. For this reason, we must realise that if we are to have and retain a major shipbuilding industry in this country, which is something we all wish to see, we have to take steps during the coming difficult few years to protect those shipbuilding companies which have been hit through no fault of their own. I think of Swan Hunter's unhappy experience over their contract with the Israeli firm, Maritime Fruit. That is the kind of situation where, for social reasons, it may be necessary to help certain shipyards.

As I said, I believe that the people who will be managing the Corporation will be experienced, and will not go out to damage the morale of the successful shipbuilding companies by milking them to prop up companies in difficulties. I can say with fair certainty that if a situation like that arose, a subsidiary's needs would be met by borrowing externally using the powers that we are giving to the Corporation. As the noble Baroness and others have said, it would be folly to destroy morale in a successful company in order to prop up one that was struggling. The noble Lord has himself admitted that, for very good social reasons, it may be necessary to support struggling companies until they are once more able to stand on their own feet, and I believe that the money for those purposes will come not from milking successful companies but from external borrowing.

Members of both Houses will be able to see what is happening, because individual companies will have to lay their accounts at Companies House, under the Companies Acts, just like any other, and this is one field where those noble Lords and Members of another place who are interested in this problem will be able to control the actions of the Corporation. I personally express the hope that the Corporation itself will give very full indications in its annual reports of what it is doing in this field. The noble Lord asked whether we could give some indication of Government policy on this matter. I will bring his views to the attention of my noble friend who is in control of this Bill, and Third Reading might be a suitable point to indicate the Government's present thinking.

4.19 a.m.


Listening to the noble Lord, Lord Winterbottom, I thought that the Government must somewhere have an estimate of the reduction in the capacity of shipbuilding in this country that must be made, and therefore what social problems will arise as a result. If they have not got that down at this moment it is very surprising, because I am sure that somewhere in the files of the Government this estimate has been made. Yet we seem to be pussyfooting along without meeting what is going to be a very serious social problem. It has been said that 60 per cent. will have to come out before British Shipbuilding can be made profitable. It seems to me that we are talking in unrealistic terms. Could the noble Lord say what reduction in the capacity of British Shipbuilding has to be made in the next five years, taking the European and the world concept into account?


No, I could not do that. However, as I said in answer to the noble Lord, Lord Carr of Hadley, I will ask my noble friend to give the Government's present thinking on this problem at, say, Third Reading.


The noble Lord has expressed some concern about the morality of the possible skimming of profits from a profitable to an unprofitable company. Can the noble Lord say whether the Corporation will have any policy about retentions in profitable companies? It would give considerable reassurance to a number of the hoards of such companies to know that all their profits will not be taken and that they will be allowed to keep, say, 40 per cent. of their profits. It is good overall policy, as practised in the private sector, that the subsidiaries of, say, a multinational company should be fully aware that their profits may be used to assist other companies while at the same time there is retention of profits. Do the Corporation have such a policy and would the noble Lord support it, in view of what he has said about the possible damage to morale if there is a sudden movement of profits from a profitable to an unprofitable company?


It is much too early to say. At the moment we have an organising committee which will become the Corporation. All that I think I can say is that the organising committee must be studying the reports of this debate in your Lordships' Committee and will doubtless have noted what the noble Lord has said.


Obviously the noble Lord, Lord Winterbottom, understands this problem from his own personal experience. However, some of the noble Lord's right honourable friends and honourable friends in another place have the ability not to understand the practical and psychological problems, so may I ask the noble Lord to bring the matter firmly to their attention? The noble Lord has pointed out that there would have to be substantial support for the ailing side of the shipbuilding industry, something which we on this side of the Committee and others have pointed out continually. My object in the earlier Amendment to Clause 10 was to drag out this fact and to point out that the Government will have to provide large sums of money for the ailing industries.

I should like to ask the noble Lord whether it is possible in any way to prevent the profits or the accrued revenues of the good companies from appearing to be a straight hand-out to the bad ones? The Government face the problem that they have to win the loyalty of the management and operators in successful businesses; they have been loyal to somebody else. This is one of the classic problems of any takeover acquisition. It is much easier to win over those who have worked in unsuccessful businesses because they will often blame the management and everybody around them, maybe, for their own failure to work hard enough. This is a real problem and I hope that the Government will bear it in mind. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 11 shall stand part of the Bill?

4.24 a.m.


I wonder whether it is possible for me to elicit a little more information on the Question, Whether Clause 11 shall stand part of the Bill? My business is borrowing and lending, and there are certain areas of concern in connection with the borrowing powers of the Corporation in relation to wholly owned subsidiaries upon which I should like the noble Lord to comment. These mostly relate not so much to the overall borrowing limits that are imposed but to the limits that are imposed upon other corporations. I have reason to believe that the limits of many public corporations may soon have to be increased. This may be a normal inflationary exercise, it may be that they have further expenditure that they have not budgeted for; but can the noble Lord give some assurance that there will not be a sudden all-round increase in the borrowing powers of other nationalised corporations, or the limits that the Government set, because that obviously can have an effect as well? That is the first point.

The second point is the question of foreign currency borrowing by the public sector. As the noble Lord said earlier, much of the financing of these two industries will have to be carried out by borrowing, first in sterling and secondly by foreign currency borrowings—or alternatively. We know that sterling is extremely expensive at the moment and we know that Eurocurrency is relatively cheap. Of course, there is the exchange risk. We also know that in borrowings of this sort presumably—and the noble Lord will confirm this—both these industries could only borrow with a Treasury guarantee, and presumably if they were borrowing Eurocurrency they would in fact have to join the normal queue that the Treasury operates. Therefore in joining that queue they would take a very low priority because there are many other nationalised industries and the queue system is probably known to your Lordships: nationalised industries wishing to borrow apply to the Treasury and the Bank of England are very good with their controls office and there is a tendency to give priority—subject to different criteria—on a first come, first served, basis.

One of my concerns is that if immediately, as is apparent, the Government should have the intention that these two Corporations should borrow, the possibility of borrowing Eurocurrency, because of the fact that the Corporations would be at the bottom of the queue. would be considerably reduced and there would be a need to borrow larger amounts in sterling. We have seen this tremendous growth in foreign currency borrowing by the public sector. It is referred to in the Bank of England report and accounts, which I have here, that in the year to the end of February 1976 (these are figures I quoted before but I should like to raise them again under this clause) public sector bodies borrowed £1.3 million under the scheme, making a total of £6.5 million since the current scheme was introduced in March 1973.

The rate of growth of foreign currency borrowing by the public sector provides cause for concern if the basic economic ills are not put right. If they are put right it may not be quite so serious. Sterling may improve. We all believe that there are many things that can be done; we just have to believe that the right people are not in the right place doing the right thing at the present time. Perhaps the noble Lord could comment on those two aspects: the aspect of the Treasury guarantee and the queue, and secondly the whole question of public corporations' limits of borrowing powers being increased.

4.29 a.m.


Taking the second point first, I hope the noble Lord will forgive me if I do not comment on it, because I simply do not know. We are talking about the shipbuilding and aircraft industries; what the problem of the other nationalised industries is I cannot say, although one feels that with inflation being as it is and money being less valuable, more of it must be found to do the same amount of work. That is all I can say on that matter.

I agree that the problem of foreign borrowing must concern us at a time when the pound is dropping in value. The question of foreign currency has already been discussed earlier in this debate, and my noble friend Lord Melchett said that the matter would be for the commercial judgment of the Corporation. I believe we have to assume that they will have proper commercial judgment and will weigh the advantages and the risks of borrowing abroad.

A lot of the borrowing, of course, will have to be approved by way of Statutory Instrument. These Instruments will have to be issued to cover the borrowing listed in subsections (6) or (7). This is a situation change which would enable your Lordships to keep an eye on the policy being followed by the Corporation in order to see whether, in the judgment of your Lordships, the commercial judgment of the Corporation was correct. It would be an opportunity to comment on it and to draw the attention of the Government to any failings which may be noticed.

A note has been passed to me, to the effect that other Corporations' borrowings are increased with Parliamentary approval as and when required. I am not able to answer comprehensively, as I have said, but no doubt, if asked, the responsible Minister or the Treasury could give a more comprehensive answer. That is something on which the noble Lord may care to put down a Question.

4.31 a.m.


I should like to bring the Committee down from the high-flown areas of the total Corporations to the lower level dealing with part of Northern Ireland. My noble friend Lord Rochdale and I have an Amendment down to Schedule 2 which, if passed, would include Harland and Wolff and Short Brothers and Harland in the nationalised industries. Since this clause involves the financing of the companies in this Bill, I feel, with the permission of the Committee, I am entitled to raise this matter on this clause. The question of Harland and Wolff is not a minor matter. They represent 20 per cent. of the total capacity for the United Kingdom. I feel that if I can clarify a few of the points here it would help the Committee to decide whether it is right and proper to include Harland and Wolff and Shorts in the nationalised industries.

I should like to repeat what my noble friend Lord Rochdale and I both said, that we are trying to ensure that Harland and Wolff and Short Brothers and Harland have an equal chance, as do all the other companies listed in the Schedules. This means that somehow or other, in spite of being outside the Bill at the present moment—and we have an Amendment down to put them in the Bill—they have got to be guaranteed a free flow of information on research and development, and real access to the markets and continual interchange of ideas. But none of this is any use at all unless they have an equal opportunity of availability of finance.

The importance of Harland and Wolff to the Northern Ireland economy has been stressed in this Committee and recognised by this Committee, right across the Floor. It is a question not only of the economy, but also its stability in the present situation of violence. The Government have made it perfectly clear that they do not expect either Harlands or Short Brothers and Harland to develop in isolation from the two large nationalised industries. This is nothing new, because in years gone by, in the 'sixties, Whitehall decided, when Harlands were in trouble and the development of the supertankers was involved, that Harland and Wolff should become one of the mammoth tanker builders of the United Kingdom. This was a Whitehall decision and the Treasury provided the money. During Second Reading I asked the noble Lord, Lord Melchett, how much of the vast amount of money which has been provided for Harlands is in fact invested in the fixed assets. I should be interested to hear the answer.

But that is not the real issue at present, because about two years ago Harland and Wolff were again in trouble and there was an urgent need of more money. A great deal of money—£60 million—was provided, but an entirely new principle was invoked by the Government; £37 million of that came from the services in the Northern Ireland budget, and at the end of the day the Minister of State at that time said that not one penny more would go to Harland and Wolff from Government sources. That is a very serious thing to say, when we are now debating the financing of the shipbuilding industry of the United Kingdom.

Up till then what I would describe as job promotion throughout the United Kingdom had always been dealt with on a United Kingdom basis. So far as Northern Ireland and my own personal experience is concerned, the Northern Ireland Government and Her Majesty's Government had always negotiated about individual projects when they were as massive as this; because this is not just another 100 jobs or another 1,000 jobs; it is a massive refinancing. If there was justification for financing on that scale, then this was dealt with as a Treasury matter; the money was in fact coming forward from the Treasury.

Northern Ireland is unfortunate in one way, in that its finance is totally identifiable as going to Northern Ireland, and our services are run on what is called a parity basis; that is, the services, water, sewage, roads, hospitals, schools and the like, are generally considered to be on a parity basis. In some cases we in Northern Ireland think that a lot of that money has been rather better spent than it has been here. There are probably one or two cases where it has not; the noble Lord, Lord Melchett, will be able to see for himself and maybe rectify it. But it is, broadly speaking, a parity basis. Quite suddenly, we had £37 million taken out of the parity of services, with a further assurance from the Minister of State that no more money from the public purse would go to a firm which comprises 20 per cent. of the United Kingdom capacity for shipbuilding. This was a completely new precedent in the field of job promotion. As a result of it, I could name the hospitals that have been delayed, the university projects which have been delayed, and the roads which have been abandoned. When the noble Lord, Lord Melchett, travels down to County Fermanagh, as he passes down what is called the "murder triangle" from Dungannon to my home, he will regret very much that this has happened, because that road has been abandoned as a result of this particular decision.

This was an iniquitous thing, to punish an area for a United Kingdom decision to make Harland and Wolff into one of the tanker building shipyards in the United Kingdom. It is a question of setting town against country. I think there is much to be said for making areas feel the result of nationalisation and to realise, if there is a failure and the Government decide to nationalise something, that this is going to mean less of something else. The question I ask is what is going to happen when an enormous "dollop" of money goes to Govan Shipbuilders? Are we going to have a line drawn round Glasgow? Are we going to find hospitals and roads abandoned in order to pay for that, or is Northern Ireland and Harland and Wolff the only part of the United Kingdom to suffer thus? If that is so, when we come to the Schedules I feel that my noble friend and I will have to think very seriously about asking for the support of this Committee in putting Harland and Wolff into the normal financing.

Apart from that, the question which must arise is this: when we get a shipyard which is not making money, and there is a decision to supply money from whatever source, for social reasons, and if the social problems are due to the failure of the shipyard, is the money in fact going to have to go through the shipyard sources or will there be discretion to be able to use that money as the area may need, if the 60 per cent. reduction, which I believe to be the figure, is going to happen in the capacity of shipbuilding in this country?


I understood the noble Lord to say that borrowing for these Corporations would be a matter for the commercial judgment of the Corporations. Clause 10(1) says: The financial duties of each Corporation shall be such as may from time to time he determined by the Secretary of State with the approval of the Treasury… Can the noble Lord tell me which it is? Is it for the financial judgment of the Corporations or for the Secretary of State to decide who shall do the borrowing?


I think both noble Lords were a hit off target. The noble Viscount, Lord Brookeborough, has given us a preview of the points he is going to raise on Amendment No. 213, and at the moment I am afraid I am not intellectually suitably prepared to continue the argument. Harland and Wolff has been kept separate from the creation of the Shipbuilding Corporation of this country because Northern Ireland still has a somewhat different political structure to this country. I believe that the future relationship between a future Northern Irish Administration and Harland and Wolff is something we wish to preserve. I think the noble Lord, Lord Burton, was talking about Clause 10 when we are discussing whether Clause 11 should stand part.


I wondered which was right. Was Clause 10 right, or what the noble Lord just said, that the Corporation would be responsible for its own borrowing? Clause 10 says otherwise.

4.43 a.m.


The noble Lord did not answer the questions I asked; he said they were slightly difficult to answer. If it were possible for him to write separately to me about this, my concern is what procedures must the company go through in its foreign currency borrowings. I asked on the overall level of foreign currency borrowings, but particularly in this case on the question of a Treasury guarantee and the problems of the queue. Until such time as we can get the Government to say how they are going to capitalise the business, this particular element of borrowing, and foreign currency borrowing in particular, is important. As one knows from subsection (8): No part of the commencing capital of the Corporations specified under section 15(1) below shall be taken into account under subsection (6) or (7) above. This means that loans under the borrowing powers are not included as capital.

In the light of borrowing powers having been clearly defined, or a limit having been set on them, and in the light of the normal requirement that in this sector you should not have a business too highly geared, then it would be reasonable to assume that an undue equity/debt ratio would not be desirable. If the noble Lord could give us some indications as to what sort of equity to debt ratio he would consider worth while for these Corporations, what the Government's policy would be, that would give us something to work on even if he could not apply the total figures. My concern all along is on the gearing of the two businesses. If they are over-geared, they go bust.


This is something that the Corporation will have to think through when it has all the facts at its disposal, but I will write to the noble Lord and give him the present state of thinking on the subject.


Without knowing, it is wrong to fix borrowing powers and it would be better to remove the figures and say that the Corporation will borrow whatever it is necessary to borrow as decreed by somebody who knows something about it. To lay down figures clearly there must be a base for providing them. My concern is about the relationship between equity and debt, which is a common principle of financing. I am sorry to press the noble Lord, but it is outrageous for the Government to push something forward really without us knowing what it is we are approving.

4.45 a.m.


I must press the Minister on this. It is astonishing that on Clause 10 we had to form a judgment about the return on capital without having any of the information which a private company would be bound to give for a takeover bid in relation to the capital costs involved, and now, on this clause, we have this question of borrowing. I was about to raise this matter with the Minister had my noble friend not raised it. How do these borrowing powers granted in subsection (6) to British Aerospace and in subsection (7) to British Shipbuilders compare with the borrowing powers of the companies involved at the moment? What is the debt/equity ratio, at any rate in total if not company by company? Now that we are going to lump them all together I suppose it would be satisfactory to look at them in total for each industry. What is the existing gearing and what are the Government's views about future gearing? This is vital to Parliament forming a judgment about the financial viability of the proposals that the Government are putting forward.

I do not know what the Minister can do about this now. If he is not briefed on the subject now, at nearly five in the morning, he probably cannot get briefed at all. I hope that he and his colleagues will reflect on the utter irresponsibility in financial terms of coming to Parliament with an enormous scheme of this kind without having got this basic and elementary point about the financing of the industry ready to put before us. No wonder that many of us, regardless of our political affiliations, shiver in our shoes for the good of the country when another industry is sought to be nationalised. Who are the loudest in their criticisms of a private enterprise undertaking which goes bust because it has been careless over matters like this? It is hard to be louder over that than members of the Party opposite. Yet when they and their Ministers want to nationalise something, they behave more irresponsibly than any private company they condemn. This is an extraordinary way for the Government to behave, remembering that it is not their money. We are talking about our money, the public's money, not theirs.

I am afraid that all Governments have gone on in this way in the past, and as I become older the succession of failures among nationalised industries drives this home to me in an increasingly vivid manner. It is time to pull ourselves up because until we get some financial discipline in these matters we will never give these Corporations a chance to operate. We cannot expect them to operate properly unless we start off by giving them a reasonably sound financial structure, not only reasonably capitalised but with a reasonable provision of capital including a proper ratio between equity and debt. I hope that if the Minister is unable to deal with the subject now, at nearly five in the morning, he will give an undertaking to return to it later, and I had better give an undertaking that I and my noble friends will draft an Amendment for Report, which will at least be an occasion for the Government to give a reply.


I cannot accept the charge of irresponsibility. What the clause says is that borrowing up to the figures in subsections (6) and (7) —that is,£175 million extensible to£250 million in the case of aerospace, and£200 million extensible to£300 million in the case of shipbuilding—is permitted. But it also lays down that a draft Statutory Instrument must be laid and approved by the House of Commons before these extensions take place. I can now give the noble Lord, Lord Selsdon, and the Committee a rather better answer than I was able to give earlier. It has been a general principle that the ratio of the whole public dividend capital of a nationalised industry should correspond broadly to a similar industry in the private sector. If we compare the Corporations or, presumably, their integral parts with similar companies in the private sector, the indications are at present that the equity/debt ratio will be in the region of 60:40. That is the best figure I can give the Committee this evening.


That is extraordinary. I should like to help the noble Lord because I think my noble friend Lord Carr was unduly critical of him and his right honourable friend. It has never really been the role of Governments to manage businesses. It has been the role of Governments to govern. I think we often make the mistake of assuming that the Government are not governing properly and I am sure that the noble Lord is determined to make sure that his right honourable friends start to govern properly.

As to the equity/debt ratio, the criticism that I would make of the whole of this Bill when we come to finance is that there has not been enough consultation with people outside in the private sector who know and who have the experience, and who would be willing to pass on that experience to any Government, whatever their political belief.

The question of debt and general gearing is terribly important for these two industries. If I can hammer it home I will do it again and again. If we over-gear them we shall jeopardise the future not just of individual companies but of the whole industry. A reasonable gearing for an aerospace operation of this sort could be 2:1—two equity to one debt. In shipbuilding, there would preferably be a nil gearing in the initial stages until it was sorted out.

One welcomes the relatively low level that the Government have put on the borrowing powers in the hope that the capital injection and the capital structure of the businesses will be sufficient for them to operate profitably and efficiently from the word "go". If this does not happen and the Corporations are undercapitalised for reasons of expediency or because there is pressure upon the Government in the general spending of money, that could be disastrous. I know that the noble Lord will bear that in mind. A ratio of 60:40 is reasonable for private sector companies, but it is not a figure that one can draw across the board in these industries, because they are both dangerous industries if not well managed. I believe that the gearing aspect is an important one. I hope that the noble Lord will forgive me for having raised this point here, because it was not a point that one could put down on an Amendment. It was just something to make the Government realise that one of the basic elements of running a successful business is to get the gearing right.

Clause 11 agreed to.

Clause 12 [Loans by the Secretary of State to the Corporations]:

4.54 a.m.

On Question, Whether Clause 12 shall stand part of the Bill?


I notice that in subsection (2) it is said that, Any loans made in pursuance of subsection (1) above shall be repaid to the Secretary of State at such times and by such methods, and interest on the loans shall be paid to him at such times and at such rates, as he may, with the approval of the Treasury, from time to time direct. Can the noble Lord give us some idea about what will govern the rates of interest that will be paid by the Corporations?


I am afraid that I cannot answer that immediately. I can inform your Lordships at a later stage, possibly when we get round to discussing the whole mechanics of borrowing compensation. Presumably the loan interest rates must vary with the climate of the time, and surely what we decide today may not determine what we do in five years' time.


Of course I should be very worried if that were not the case, but I was wondering whether they would be related on some formula basis to some base rate such as minimum lending rate, or whatever it may be. Clearly I should hope that they would vary, as the noble Lord says, according to the climate of the times. But at some stage we should like to know whether these Corporations will have to borrow at the same going rate that other industries, alas! have to pay.


It might be helpful if the noble Lord could ascertain the answer to a hypothetical question; namely, what would be the rate of interest on a loan made to the Corporation if it were to exist today? The Government are having to pay no less than 16 per cent. for money that they are borrowing in the market place. Are they going to charge at least that rate to the Corporations?


The noble Lord is right; of course there is a relationship. In fact I have just learned that the relationship is governed by the National Loans Fund Act in which the rate of interest on loans must reflect the rates at which the Treasury itself can borrow.


I am sorry to intervene again, but there is here something which I raised relating to the last Amendment and it causes me concern, but it is a simple calculation. If we talk of equity/debt ratios of 60/40 and the borrowing powers are totally utilised, as the Government said they would be over a five-year period, then the minimum cost is£1.4 billion on a 60/40 ratio, if one takes the total borrowing figure and apply it on that. I hope that the noble Lord will forgive me making that point, because I warned him and his noble friends earlier that throughout this financial sector I shall be doing what I think is right to solicit further information from the Government.


I too am sorry to speak again, and I hope that the noble Lord and the Committee will forgive me. We have dwelt continuously upon the rate of interest of these loans. Can the noble Lord indicate what repayment terms are normally required? I can see nothing of that in the clause, but it would be helpful to the Committee, or at least to me, to know on what terms the loans are repayable. The noble Lord has told us that the borrowing capacity of the Corporations will be taken up over a period of five years, but surely by the end of that five years they will have begun to repay some of the loans that they might have had at the beginning of the period?


If the noble Lord would like to resort to the private sector, there are noble Lords on this side of the Committee who could tell him at what rate the Government would borrow and for how long the loans would be because they are based upon market conditions, of which many of us are aware at the present time.


Obviously, the repayment must arise from negotiations between the Corporation and the Treasury, but the terms of repayment are by convention related to the average asset lives of the borrowing arranged. What that really means in five years from now I cannot say, because we may be very prosperous, we may be in greater difficulties. But, obviously, the repayment of loans must be a matter of negotiation between the future Corporation and the Treasury on the period under discussion.


I hope that noble Lords will realise that at the present rate of interest of 16 per cent., and if it is a five-year loan, it is in effect doubling the amount of money that is required over that five-year period, because a gross rate at this time doubles the principal amount.


I should like to interrupt if I may because I believe that there is a point here in what the noble Lord has said. We are facing a situation where the Government's ability to borrow is continually being questioned. I happen to believe that one of the ways in which we can improve our credit rating abroad is by being more forthright about Government spending. That is one reason for asking on this.

At the moment the Government could borrow for five to seven years. This industry requires long-term money. Therefore those in charge of it would be well advised to seek the longest term money that they can possibly obtain. That is not, in terms of long-term sterling, very long at the moment. In terms of dollars, if it were a private placement in America it could have an average life of, say, ten years. It is important for the noble Lord to understand that the more he can disclose, which will reassure people that the Government have not gone haywire and are failing to observe the basic rules of finance, the better this will be for our credit rating abroad. We should not have any scaremongering here. Everybody knows the level of borrowing that there is at the present time, but any information that is forthcoming can only help to reassure people.


I apologise for speaking yet again, but we have, accidentally perhaps, alighted on an important point. I am returning to this question of the period of the loans that the Secretary of State may make to these Corporations. According to the noble Lord—and we do not dispute this—the money will come from a loan that the Treasury make or stock that the Treasury issue for this and other purposes. I hope the noble Lord can assure me, in my financial simplicity, that the Government will not borrow short and lend long, because I have always been told that that is a short-cut to disaster. Disaster, I must say, always seems to loom just around the corner so far as this Government are concerned and that may be one of the causes. I hope that the noble Lord can assure me that, in addition to the asset life that he referred to a moment ago, which I suppose means that loans made for the purpose of acquiring specific assets will be repayable over the life of that asset, loans made for more general purposes, like working capital and so on, which could not be tied to specific assets, will be made in some way equivalent to the life of the source of the money.


All I can say is that I am certain that the future Corporations will follow a conservative financing policy—using the word "conservative" in the best sense. They have a difficult road to follow and I am certain that they are not going to try to solve the problems of these two industries by gimmicky finance.

Clause 12 agreed to.

Clause 13 [Treasury guarantees]:

5.3 a.m.

On Question, Whether Clause 13 shall stand part of the Bill?


I do not think we should let Clause 13 pass without drawing attention to the fact that this clause is the one in which the Treasury is given the power to provide guarantees to the Corporations when they seek loans from a person other than the Secretary of State. Such a loan, of course, can be either in sterling or in currency other than sterling, and so this clause brings us straight back to the important matter of overseas borrowing which my noble friend Lord Selsdon has already raised and given such importance to.

There is just one other general point that needs to be made in passing, and that is this. When Government spokesmen are inclined to say that all this operation is nothing but a book transfer and costs them nothing, what do they say about this guarantee? The moment the Treasury gives a guarantee, it is effectively undertaking a commitment in certain circumstances to increase public spending. Indeed, we have seen over recent years where certain public corporations have borrowed from abroad under Treasury guarantee that the Treasury has incurred substantial extra expenditure in order to fulfil that guarantee because of the fall in the value of sterling. In other words, this clause potentially commits the Government to substantial extra expenditure and we ought to know a little about what the current policy of the Government is.

We were encouraged earlier when in answer to points made by my noble friend Lord Thorneycroft, the noble Lord, Lord Melchett, seemed to indicate that no sensible corporation would at the moment think of borrowing overseas. I only hope that the thoughts of the noble Lord, Lord Melchett were right.


I rather agree with my noble friend Lord Carr on this, but I think my major concern is to ask the question: Will these Corporations be allowed to borrow without a Treasury guarantee? The normal requirement for nationalised industries which are borrowing abroad—and that is our main area of concern at the moment—is that they cannot do this without a Treasury guarantee. I asked this question before, and I will ask it again here. A Treasury guarantee is, in a way, some form of control, but if a Corporation is not allowed to borrow without it then it cannot get over-geared in the wrong way and at the wrong time. I think that if my noble friend could pursue this, I would be grateful.

Also, we have to look at the question: If a company such as this is allowed to borrow without a Treasury guarantee, on what does it borrow? The companies in the industry at the moment borrow, like others, on their balance sheets, and some have very high borrowing powers because of their past track record and degree of liquidity, and can borrow at reasonably fine rates. Others have not got a balance sheet worth speaking about, and therefore cannot borrow at the moment, so they have to resort to the Government. I think the whole question of Treasury guarantees needs looking at on a much wider basis in view of the ever-increasing commitment or engagement of the public sector or overseas borrowing. I think one would like to see the rule that the Corporations cannot borrow overseas without a Treasury guarantee, and cannot borrow at all without a Treasury guarantee, because the mere intervention of a Treasury guarantee does imply some element of control; and, as I have suggested before, I think these businesses under nationalistaion will be slightly more risky than they are even at the present time.


I think we are getting two things slightly muddled. We have still to discuss the economic significance of the compensation payments that will be made after the negotiations between the stockholders' representative and the Department have been completed. That is one thing. The other thing is the money necessary to run the businesses, which is really to what this particular clause relates. It is in fact a standard provision which appears in all public corporation Statutes. It allows the Treasury to guarantee borrowings by the Corporations from sources other than the Secretary of State. It is normal practice for the nationalised industries' bank overdrafts to be guaranteed in this way; and, indeed, any foreign currency borrowing is also eligible for guarantee. But if it is guaranteed, the Treasury is required by the clause to lay before Parliament a statement of any guarantee given immediately after it is given. But apparently they can borrow without guarantee. For instance, normal overdraft facilities for all companies which are already in being and trading would obviously continue or be permitted. For this reason, I think the answer to the noble Lord is that what we are talking about is the normal borrowing required either to re-capitalise industries or to provide them with working capital or additional working capital. It is a problem separate from the effects of compensation, which I expect we are going to discuss at some length and which arises on Clauses 25 to 31.

Clause 13 agreed to.

Clause 14 agreed to.

Clause 15 [The commencing capital of each Corporation]:

On Question, Whether Clause 15 shall stand part of the Bill?

5.10 a.m.


This is a question I could resist very easily because I feel like breakfast, but again we come to the commencing capital of each Corporation. My brief notes here led me to believe that if, as I say, the Government's estimate of equity debt ratios was 60:40, then the minimum commencing capital of the Corporation would be somewhere around £800 million.

This is getting nearer the billion figure that I gave earlier. It is, if my calculations are right,£825 million. The clause says: As soon as possible after the passing of this Act, the Secretary of State shall by notice in writing given to each Corporation specify as the commencing capital of the Corporation such amount as he may with the approval of the Treasury determine … We know that these are standard clauses but in this particular case, again and again, one comes back to commencing capital. We know that the commencing capital is not made up by borrowing as this was already raised in Clause 12; but we know that commencing capital can be made up of a number of things, bits of paper in one form or another. Can the Government even at this late hour give us an assurance that the commencing capital of the Corporations will not give an equity-to-debt ratio of worse than 60:40 within a five-year period and that we will always keep the equity level up?


Obviously, when negotiations have not yet begun, it would be impossible for me to give any undertaking at all. This House contains a wealth of expertise; its discussions will be read and we will have an opportunity perhaps to talk about it on the Third Reading, as I suggested earlier. I think that the noble Lord, Lord Selsdon, asked what was the Government thinking on this particular point and I said that I would try to satisfy him at a later stage of the Bill. I cannot give an assurance on the particular ratio for the actual commencing capital, but I can give an assurance that it will be of the order that we have already discussed; namely, 60:40.


I am grateful to the noble Lord. He knows the points I am trying to make. I think that Third Reading could be too late. If it is possible to encourage his right honourable friend and honourable friends in another place to stop arguing so much with the Opposition about principles and to get down to brass tacks about how the business is to be run, we should all be grateful. I believe that the cost of setting up and running the business is one that this country cannot afford at the present time.


At the risk of embarrassing my noble friend Lord Selsdon with my financial simplicity, could I ask one question about subsection (2)(a) where the amount determined by the Secretary of State (this is the commencing capital) is to include provisions for the liabilities incurred under Clause 35, which is the clause providing for compensatory stock? I may have this wrong, but does this not mean that the Corporation is assuming liability for the cost of its own shares? Is that not a novel arrangement?


If the Committee will bear with me I will read a rather long analysis of the exact meaning of Clause 15. The clause provides for the Secretary of State to specify the commencing capital of each Corporation. The securities of the vesting companies which will be transferred to the new Corporations will represent their inheritance. The Government will pay fair compensation to the shareholders for the securities. The commencing capital of the Corporations will reflect the amount of compensation so paid, together with the notional amount of compensation which would have been paid for the securities of those companies which are already Government owned. In addition, then commencing capital will be adjusted to reflect the value of those Government loans in respect of which the Secretary of State's rights and obligations are transferred to the Corporations under Clause 14.

The loans referred to are those made to the vesting companies under private ownership and remain outstanding at vesting day. In some cases these may have been given some time ago and their value to the companies may now be less, in terms of the use to which they have been put, than their face value. To account for this possible discrepancy, and so as not to burden the new Corporations with an unrealistically high capital structure, it is provided that the commencing capital shall not exceed the sum of the various elements. The commencing capital does not contribute to the financing limits in Clause 11. The Secretary of State is also empowered to specify, with the approval of the Treasury, a proportion of the commencing capital as public dividend capital, and that is what we have been talking about.

The rest will be in the form of debt. The purpose of the distinction is to ensure that the new Corporations have a capital structure similar to that of their international competitors. Although no decisions on gearing have been taken, we intend that the public dividend capital should be broadly similar to the equity capital of private companies—that has already been said—and the corporations will be expected to pay dividends on their PDC in the same way as private companies pay dividends on their share capital. The proportion of PDC in the commencing capital will be such as to ensure that the Corporations are not disadvantaged in competition with other major manufacturers' worldwide. It is hoped that the basic capital structure established under this clause will ensure that they will have a sound financial base on which to compete in the markets of the world.


The expression of those words is absolutely splendid. That is exactly what we are asking the Government to do; in other words, to ensure that they have the right level of capital. One knows that they are sensible. However, it is dangerous to use the phrase "capital" in line with our international competitors. At present in shipbuilding, in particular, there is not the normal Western competition. It is the South East Asian and Asian competition whose capital structure is often so amazing that it is impossible for one to believe that businesses there can survive, but they do because of a very peculiar backdoor relationship with Government. If talking about competitors I should be very careful about using that phrase as it is very difficult to determine which of our competitors have which capital structure because of the continual to-ing and fro-ing down the corridors of power with large cheque books and bundles of gold. I hope that the noble Lord will not treat that too seriously because I believe that we should decide what is best for our industry and do it successfully as we have very often in the past, rather than try to imitate others.

Clause 15 agreed to.

Clause 16 agreed to.

Clause 17 [Accounts and audit]:

5.17 a.m.

Lord CAMPBELL of CROY moved Amendment No. 120: Page 20, line 22, after ("by") insert ("the Corporation with the consent of").

The noble Lord said: This clause as at present drafted departs from the normal practice in the appointment of auditors. The choice and appointment of the Corporations' auditors ought to rest with the Corporation concerned, though subject to consultation with the Secretary of State. This would then be similar to the normal procedure within any company and the correct relationship between the auditors and the Corporation would be established.

This appears to be yet another case where the Secretary of State assumes the role of a possessive auntie and treats the Corporations as though they were small children. There appears to be no reason why the clause has been drafted in this way. I hope that the Government, having noted that it departs from normal procedure, can tell us that they intend either to accept this Amendment or to make some other change.

5.20 a.m.


The Government believe that it is right in principle that the auditors of each Corporation should be appointed by the Secretary of State. The provisions in the Bill follow the precedent of earlier nationalised industry Statutes and are analogous to the provisions of Section 159(1) of the Companies Act 1948, which provides that the auditors of a company are chosen by the shareholders in annual general meeting. The Corporations are responsible to the Secretary of State, who in turn is responsible to Parliament. The auditing of accounts is an important safeguard built into the commercial process. It is wrong in principle for the directors—or in this case the Board—actually to appoint the auditors, even if no one seriously anticipates collusion or dishonesty. It is only right in principle that appointments should be made by the Secretary of State to whom the Corporations will be responsible.


I have a lot of sympathy with the Government on this. They are quite right in saying that it is the shareholders who not only can hire but can fire auditors. But that is the shareholders. In this case, are the Government continuing to play the role of shareholder in the companies? If they are going to use the rules that applied to shareholders, will they undertake to use them in all other aspects? We are concerned in this House—and others will be concerned in another place—that the accounts that are presented show a true and fair view. We know that even in current circumstances often, unless you are good at reading balance sheets and understanding the market place, a true and fair view does not necessarily tell you everything you might wish to know about a Corporation.

We also know that Government accounts are published rather late. Nationalised industries always produce data rather too retrospectively. There could be a case for asking for quarterly reporting of nationalised industries, particularly in the current climate. I would never suggest that there could be any collusion between one single shareholder, the Secretary of State, and a group of auditors. What causes some concern is that too much power is given to a Secretary of State who may be under other political pressures because of his job and under the pressures which no normal shareholder could be under, could perhaps bias on occasions his opinion or judgment. I support this Amendment because of my concern about giving too much power to the Secretary of State, who is not necessarily a permanent "animal".


I should like to support my noble friend. Theoretically he is correct that the Government, especially the Minister of State, is the shareholder and thereby has the right to appoint the auditors. In an ordinary private company in practically every case the chairman and directors are shareholders. I cannot think of any case where the chairman would appoint the auditors and not leave that appointment to the general body of shareholders at the annual general meeting. Therefore, whether one person should be allowed to retain this appointment needs to be considered very carefully.


If one follows this argument in a slightly philosophical way, the Secretary of State is not the shareholder; he is only a representative of other people, meaning that in his case in nationalised industries either Parliament is a shareholder, the taxpayer or somebody else. It is only a minor point to make, but there is a real danger in the Government trying to equate the position of the Secretary of State with that of shareholders in the private sector. It is using my analogy of Tom Brown's Schooldays. It is not quite right.


I intervene to point out that in practice, of course, the Secretary of State would be greatly influenced by the chairman and by the Board.


The previous Secretaries of State, according to previous chairmen of nationalised industries, have not been influenced at all by them or the Board. Maybe the position will change, but the noble Lord must understand that this is a point that I must make.


I understand the noble Lord's anxieties, but it has been emphasised throughout these last hours that there is an attempt, at least on this occasion—it is no more than an attempt— to make these Corporations accountable. Moreover, there is an attempt, in a variety of different directions—I need not go into them at this stage—to have new thinking and new emphasis on the nationalised role. Let us at least be optimistic at this stage.


Is the noble Lord saying that the chairmen of the Corporations will, in fact, tell the Secretary of State who they recommend to be the auditors and then the Secretary of State will appoint such auditors as he thinks fit?


I think that it is a fair point to put on the record.


Yes, but that is not the answer to the question.


I frankly could not give you an opinion as regards that matter. I truthfully do not really know how these things work.


There might be something to be said, might there not, in following up what my noble friend Lord Selsdon said. There is not really a true correlation between the Secretary of State and the shareholders at an annual general meeting, because clearly the shareholders are a quantity of people who are joined together, and the recommendation is for an auditor which is usually made by the Board and then it is the subject of ratification by the shareholders. To equate one individual as being the same as a number of shareholders corporately at a meeting I should have thought was an extension of the facts.

I should have thought, for what it is worth, that where you have a Corporation, such as these two which are being set up, it is reasonable that they should choose their auditors, as the Amendment says, in consultation with the Secretary of State. If the Secretary of State says: "I think that you have chosen the wrong one" then, of course, they must choose another one. However, to say that the Secretary of State alone should choose who should be the auditor, would seem to be putting a great deal of power in the hands of the Secretary of State which really is not reasonable.


I can only reiterate that I am advised that in practice the Secretary of State will consult with the chairman and with the Board. I do not know whether I exactly correlated these two points in my earlier comments. I think that I was drawing an analogy rather than making a correlation. However, I do not mean to split hairs. I accept that from your point of view I am perhaps extending somewhat, but from my point of view I thought that it was a reasonable situation to offer to the House.


I want to ask about the situation of the Secretary of State if there is not a Board.


I am sorry, I do not understand.


The noble Lord argued that the Secretary of State will be advised by the Board. I presume the noble Lord to be saying that this is the usual system. However, there must be some industries where the Secretary of State does not have a board to make recommendations. I was wondering, as regards the nationalised industries, what power the Secretary of State has to provide the auditors. I do not think that I agree with such a power.


I can respond only within the terms of the Bill. There is an Organising Committee and there is to be a Board, on the supposition that the Bill eventually becomes an Act, and within that framework my comments are relevant. Outside that framework and referring to other nationalised industries, I could not offer an opinion.


I am grateful to my noble friend Lord Selsdon, and to my other noble friends, at this early hour in the morning for helping to point out the special relationships between the Secretary of State and this Corporation, and for showing that the position is not as straightforward as the Government appear to think. I hope that the Government will give further thought to the question of how the auditors should be appointed, but, in the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 17 shall stand part of the Bill?

5.30 a.m.


I want to ask the noble Lord about the form of accounts which the boards may have to prepare. The accounts that are produced from time to time by nationalised bodies have been criticised, in some cases for their late arrival. But I should like to ask about the form of accounts; in particular, in relation to the new skill, so-called, of inflation accounting. The noble Lord will be aware that the Civil Aviation Authority, which is the best analogy that I can take, recently produced accounts which included what I call "laundered" figures, which purported to show that the Authority's performance was nothing like so bad as the figures showed, or would not have been had it not been for inflation, which is, I suppose, a fair enough assertion. But is it the expectation of the Government that the accounts of the boards will be prepared in that way, or will they be conventional accounts?


I have not been advised thus far on the point which the noble Lord, Lord Tregfarne, raised as to whether the accounts will be in the form of inflation accounting or in laundered form. I will certainly make inquiries and let him know.


I am sorry to rise again. This question of accounts is very important, because they are often the only possible manifestation to outside potential lenders, existing lenders, taxpayers and others, of the performance of a company. We should bear in mind the occasional criticisms of the way in which nationalised industry accounts are prepared. There is the possibility of draft directives being moved internationally, but throughout the country, and certainly in the developed world, there is a cry for greater disclosure, and the question of disclosure right the way through the public sector and Government is fairly critical.

In these two industries, one might ask more than in any other that disclosure is more instant than it has been in the past, and that information is slightly more wide-ranging. When the noble Lord advises his right honourable friend the Secretary of State on the appointment of auditors, could he please instruct the Corporations to start to produce as much information as possible? It is unusual to have anyone crying from these Benches for more information, but because of the doubt that one has expressed already one must ask that the Government will undertake to disclose far more than they have done before on the operations of nationalised industries. If we are having all these arguments on finance, could not the Government start to consult the Institute of Chartered Accountants or some auditors now, and seek some advice from the private sector, because they would get a lot of advice and that would solve a lot of problems.


I have received a note, and I am advised that the initiative lies with the Corporation, which is an innovation compared with other Acts. The Government want to avoid interference if they possibly can, but they expect the highest standards and the best practice of, for example, inflation accounting and hope that these new standards will be followed by all nationalised industries. That is, of course, a general comment.


What the noble Lord has said makes me almost despair. What we want the Government to do is to lay down sound basic standards and then not interfere, but they seem to do it exactly the other way round. They refrain from laying down sound basic standards, but then do interfere. It passes my comprehension that we should have so many powers in the Bill for interference by the Secretary of State, but when it comes to vital matters such as accounts we are told: "The Secretary of State does not want to lay down basic standards here. He is going to leave it to the Corporation". This is absolutely standing things on their head. Let us set down certain basic standards and then, within those standards and guidelines, leave the Corporations with the maximum freedom from interference.


Will the noble Lord allow me to put one more specific point to him which I hope he will be able to answer. The noble Lord, Lord Winterbottom, explained earlier that companies within the Corporations would be able to pass funds from one to the other. In other words, if one company was doing badly it could be supported temporarily by a company which was doing better. Will these kinds of transfers be recorded in the accounts and shall we be able to see quite clearly from the accounts how one company is doing compared with another?


It would be injudicious of me to give an off-the-cuff reply to that question. I do not suggest, however, that it is anything other than a question of substance, and it is certainly a matter to which I shall give consideration.

Clause 17 agreed to.

Clause 18 [Annual report]:


Amendment No. 122A.


I think that there has been a misprint in the Marshalled List. If the Committee examine Amendment No. 122A more closely they will see that it applies to Clause 19. I am afraid that I noticed the misprint only a short time ago.


I thank the noble Lord very much. I regret the error.

5.37 a.m.

On Question, Whether Clause 18 shall stand part of the Bill?


I want to say something briefly about Clause 18, because it disappoints me. I had hoped that we might now have reached the point where the reporting of nationalised industries might come up to the standard which is expected of the private sector. I am disappointed by Clause 18 in two ways. First, so far as I can see no provision is made for half-yearly accounts. I should have thought that by now public corporations could have provided short half-yearly statements in the same way as private companies are required to provide them. The annual report is a full report but nowadays the half-yearly statement is also an essential part of reporting. Indeed, as I think I heard mentioned in an earlier part of our debate, some companies (I think it is an increasing number) now provide their shareholders with quarterly reports. I am not asking for quarterly reports but I think that we should now expect half-yearly reports.

The other point which troubles me is that on the whole nationalised industries have a very bad record regarding the time that they take to produce their annual reports. I had hoped that in this clause we might have seen at least the latest date by which the nationalised Corporations must present their annual reports. I do not believe that that would be unreasonable, even if that latest date were generous by private sector standards. I cannot understand why public corporations should continue to be so slow compared with the best of the private sector and why they should still be able to get away with producing just one annual report without short half-yearly statements to supplement it.

The Earl of ONSLOW

I think that secrecy has been called the disease of British Government, although I am not sure whether I have the quotation exactly right. That has to be taken into consideration together with the fact that there is fairly widespread disquiet and distrust concerning the way that nationalised industries are run. These two factors, taken together, seem to me to call for even greater clarity and more information in the reports of these two public Corporations so that not only will the public have more knowledge of what is going on but also it will make the supervision of the Secretary of State in using his powers easier for Parliament to carry out. I beg the noble Lord to understand what I am trying to say. Perhaps one is not making oneself absolutely as clear as one would have done eight hours ago. I apologise for that, but what I am asking for is the greatest clarity and the greatest amount of information in these reports, and preferably half-yearly reports. I have seen very clear reports which even I could understand, and I should like everybody to be able to understand these reports, easily and clearly.

5.41 a.m.


Before the noble Lord replies I should like to say that I agree with this idea. After all, nationalisation of an industry, if I put it under what I call the Socialist arrangement, means that the people of the country own the industry. Of course that means millions of people, and whereas in a private company it is the shareholders who can decide about their auditors, and so on, and of course the shareholders will be interested in the particular company with which they are concerned, when it comes to millions of people they would be very unrealistic if they did not realise that they had a right to look at the audit; and if there are going to be millions of people the audit should be as simple as possible and be produced more often, so that we shall be giving to the ordinary people of the country what we talk about such a lot— communications. It is quite true that the nationalised industries take a very long time because they seem to have forgotten that it is the people of the country who are concerned, and so far as this Amendment is concerned we are representing the people of the country.


As noble Lords will remember, we had a discussion on the production of accounts when the noble Lord, Lord Orr-Ewing, raised it earlier in the Committee stage, and I think today rather than yesterday. I am not at all clear whether the noble Lord, Lord Carr, is referring to accounts under Clause 17 or reports under Clause 18. It is of course true that several private sector companies produce half-yearly accounts, and indeed, as the noble Lord knows, the nationalised industries also publish half-yearly statements. I agreed with the noble Lord, Lord Orr-Ewing, when he raised this matter, that it would be a good thing if the annual report and accounts were published together rather sooner, at the end of the financial year, and we went in some detail into the length of time it takes auditors to audit the figures. I would not wish to repeat that detail at this hour; we have been though it once. But I agreed with the noble Lord, Lord Orr-Ewing, when he raised the point, and certainly as to the half-yearly accounts. It is the practice of many nationalised industries to publish these, and certainly I will draw this to the attention of the chairmen of the two Organising Committees.


I am grateful to the noble Lord. At this hour of the morning I may perhaps have been getting confused as to whether I meant accounts or reports, and I shall be grateful to the noble Lord if he will do what he says. I should perhaps warn him, although I do not say it as a matter of definite decision, but it may well be that if it is half-yearly accounts that we really ought to want, we might think of moving an Amendment to make that obligatory when we get to Report stage, because I do not see any basic reason why it should not be as obligatory on a nationalised industry to do this as on a private sector company. Nevertheless, I do not say that in an ungrateful spirit, and I appreciate what the noble Lord has said.

Unless I am getting remarkably unreceptive at this hour of the morning, I do not think that he said anything about the possibility of giving these Corporations the latest dates for which they must produce their annual reports. I really think that it is important that the annual report and accounts should come out within a few months of the end of the financial year. Certainly this is a matter about which many private companies are not as good as they ought to be. This is another area where, if nationalisation means anything, perhaps the nationalised Corporations should set a good example to the other companies rather than too often setting a bad one.

Clause 18 agreed to.

Clause 19 [Vesting in British Aerospace or British Shipbuilders of securities of Scheduled companies.]:

5.46 a.m.

Lord CARR of HADLEY moved Amendment No. 122A: Page 21, line 30, after ("date") insert ("which shall not be before the date of the first meeting of the next Parliament").

The noble Lord said: I beg to move Amendment No. 122A. As perhaps may be appropriate at this time of the morning, one might say this is where we came in. We have now come back to where we started, because no doubt if your Lordships cast your minds back to a week ago yesterday, namely, Monday, 11th October, on the very first Amendment on this Bill moved by a noble Peer on the Liberal Benches, there was a suggestion to remove the aircraft industry altogether from the Bill. Nevertheless, your Lordships will remember that I said in reply that, so far as we on the Conservative Benches were concerned, much though we hated all nationalisation, much though we believed that the nationalisation of the aircraft industry would do great damage to the national interest and bring no satisfaction to those who worked in it, we felt that, with great reluctance, we could not support this Amendment for the reason that, with equal reluctance, we had decided on Second Reading that we ought to abide by the established convention of this House that it does not refuse a Second Reading to a Bill which formed a major item in the elected Government's Election programme. I went on to say that it was a matter of judgment how much one could excise from a Bill in Committee without its being equivalent to a vote on Second Reading. We reluctantly came to the conclusion that we really could not excise the aircraft industry like that without going back on the decision of principle, taken on Second Reading, to abide by your Lordships' normal convention in these matters.

I went on to say that although we could not agree to the sort of vote recommended at that stage by the Liberal Party, we believed there was another way in which this matter could as effectively and more responsibly be achieved. When I say "more responsibly" I mean more responsibly in relation to the accepted role of this House, which is essentially a revising and a delaying role. Now we have come to that point. The way I had in mind, as I made clear at the time, was that we should follow a precedent set in this House 25 or 26 years ago when the vesting date, I think, for steel, was postponed in a way rather similar—I forget whether it was precisely the same way—to that we are proposing this morning. It seems to me that we are putting this forward because we believe it is in the vital interests of the country that the aircraft industry should not be nationalised.

If I may recap, very briefly why we think that is so, we have here a highly successful industry, as my noble friend Lord Selsdon pointed out in an earlier debate some two or three hours ago. The speaking notes provided by the Treasury for British businessmen and others going overseas and speaking at meetings overseas start nowadays by quoting the performance of the aircraft industry as bullpoint No. 1 in favour of Britain. It really is, on the whole, a rather golden rule in industry and in other walks of life not to upset something which is going well. So the first objection we have is that to pull up by the roots something which is successful is in itself a mad thing to do.

We ought to realise that all experience shows that whenever any merger or take-over takes place, however willing the parties, there is an initial setback. When you put two great organisations together, even though it may be right in the long run, there is inevitably an initial setback. It causes distraction; different people have to learn to work together; all the old management and working structures are temporarily upset. Even though they may eventually meld together into something better, can we afford at this moment to cause even a temporary setback in an industry which serves this country as superbly well as the aircraft industry does at the moment. If it is indeed advantageous for the two great corporations, BAC and Hawker Siddeley Aviation, to merge, there is no reason why the Government, using their preponderant power as a customer, could not wield the necessary persuasive force to bring this about.

Then we have the fact—this is a very important reason in favour of this Amendment—of the economic crisis through which we are passing at the moment, and the need to limit public expenditure and commitments to public expenditure to an absolute minimum. It seems to us to be extremely odd, to put it mildly, when there is no compelling reason to do so, to increase public commitment in order to nationalise this highly successful industry which needs no help from the public, while at the same time having to cut public expenditure on such vital things as people's homes and equipment of hospitals and things of that kind.

The advantage of this Amendment over the course originally proposed by the Liberal Party is that it does not break the traditional convention of your Lordships' House. Therefore, it does not in any way compel Members of the Party opposite to surrender the basic principle. But it does enable them to bow to what is a very widespread feeling in this House and outside, and not only among their political opponents, that this is not an opportune moment for doing this. The opposition to nationalising this industry is twofold: those of us—and, of course, we are in this category—who think it should never be nationalised, but also there are those who believe in nationalisation but admit that this is a singularly inappropriate moment at which to do it.

So we are trying to get some sort of modus vivendi by saying that this should be delayed until after the next General Election. This would have the advantage of not putting any immediate financial burden on an already greatly overburdened public borrowing facility. It would have the advantage of increasing confidence overseas. Whatever may be the position in theoretical terms inside this country, there is no doubt at all that in practical terms outside this country seeing the Government postponing one of their nationalisation measures would undoubtedly be a boost to confidence in sterling; it would show the world that the Government was establishing a proper sense of priorities and putting on one side things which, however deeply they believe in them, cannot by any stretch of the imagination be presented as being essential to the solution of our immediate crisis.

The third thing this would do is to give the electorate another chance. We believe that given another chance the electorate would not support a Manifesto which included a nationalisation measure such as this. That is our opinion. If our opinion is wrong, that would settle the matter. But we believe there is overwhelming evidence to suggest that the public do not want any more nationalisation, and that this feeling is felt by the majority of people regardless of Party. From such public opinion polling as one can do, while making full allowance that that sort of evidence is inaccurate by a number of percentage points one way or the other, the figures seem so overwhelming that it is fairly clear that even a great majority of Labour voters want more nationalisation almost as little as almost 100 per cent. of Liberal and Conservative voters.

So we believe it would be right to give the electorate another say, particularly bearing in mind—and I am sorry to labour this, but I am glad to see that the noble Lord, Lord Murray, is not here, because I shall not enrage him at this hour of the morning—that really the Government have no mandate for this. They only talked about public ownership. Public ownership can take many different forms from this sort of nationalised State monopoly, which the Labour Government seem to love. Apart from the fact that the word "nationalisation" was no doubt deliberately omitted from the Labour Manifesto, the fact remains that only 28 per cent. of the electorate supported this Government, or 38 or 39 per cent. of those who actually voted. There really is no strong mandate for carrying out this highly controversial and much unwanted Bill. On those grounds, many people think we would be justified in throwing out the Bill altogether. I explained why regretfully we do not feel that, but we feel that this is the only remaining course.

Finally to those who believe that this continued uncertainty would be a decisive argument against the course I propose, let me say that I accept that this would be the case if we were dealing with the shipbuilding industry. Although we have believed, and still believe, that what needs to be done for the shipbuilding industry could be done at least as well or, we think, better and certainly more quickly by methods other than nationalisation—there are other powers available to the Government—nevertheless something must be done as a matter of urgency about the shipbuilding industry. One could not leave the shipbuilding industry in a state of suspense even for a few months.

The case of the aircraft industry is different. There are two great Corporations, and only two, and that makes the position much easier. They are highly prosperous in the short run, and their medium future is at least assured. There is no reason at all, if the merger is thought to be desirable, why the merger proceedings could not go on even pending this further decision of the electorate. Although I accept that in the best of all possible worlds delay of any kind is undesirable, the potential benefits to be gained from delay greatly outweigh the possible disadvantages from it, which would be unbearable in the case of the shipbuilding industry but quite easily bearable in relation to the aircraft industry, and would bring great and lasting benefits in their train to the national interest and to the health of this industry in the future. I beg to move.

6 a.m.


We on these Benches are in complete agreement with the noble Lord, Lord Carr of Hadley, but I should like to admit, as I was largely responsible for the first Amendment last Monday week, that I think we were wrong in doing it in the way we did it, although the end product has been right. Having listened to I do not know how many hours of reasons—or, rather, nonreasons—why aerospace should be nationalised, I feel, like noble Lords on both sides, that we have not been convinced by any of the Government's arguments that this industry should be nationalised. As Lord Carr said, this is an inappropriate time, for a variety of reasons, to take this step. As I said and as Lord Carr said, if we were to stop and put a brake on this part of the Bill, the confidence it would give to overseas investors in this country and supporters of sterling abroad would be enormous.

I said earlier, and Lord Carr said tonight, that there is no reason why the merger of BAC and Hawker Siddeley should not go ahead while we have this time pending the next Election, whenever that might be. I do not want to repeat what I said last Monday week. Having re-read my speech in Hansard, I see no reason to retract what I said; if anything, I feel even more convinced that what I said was right, and I assure Lord Carr that we on these Benches will support him if he decides to divide the Committee on this Amendment.


I suggest that the time has come to have a look at the so-called Salisbury-Addison agreement. It was made 30 years ago and, from research in the Library, it seems that it was never recorded. It was made in totally different circumstances. There was a vast majority—of over 150 seats, I think—in the post-war Labour Government of Mr. Attlee, totally different from the situation today, when we have a minority Government who have a minority within them deciding their policy. Under present-day conditions, I do not think that the Salisbury-Addison agreement is relevant, remembering that it was made 30 years ago in totally different circumstances. I hope that the powers-that-be will consider the future of that agreement, at least until such time as the House of Lords is reformed.

I suggest that aerospace should be an exception, with its fantastic results of £3,300 million in exports in the last 10 years. That has been an outstanding achievement. I have been looking at the last Parliamentary Answer on the subject. Compare that with £306 million lost by the Post Office; £258 million lost by electricity, and goodness knows! our bills are high enough; £158 million lost by British Rail; £44 million lost by British Gas. I could go on, but I will not bore noble Lords at six o'clock in the morning. We all know the sorry story. Since this Bill was introduced things have become even worse because the Government are committed to £1,400 million for British Leyland, of which Leyland have had only a part so far, in addition to which NVT has had £40 million, Ferranti £15 million, and the list goes on, though that was done not under nationalisation but under the Industry Act 1972.

For all sorts of reasons the Government's proposals in the Bill should be postponed because our outgoings by way of public expenditure are creating lack of confidence in the pound overseas. indeed, I cannot think of a single gesture that would encourage people holding sterling and continuing to lend us money than postponing the nationalisation of this extremely successful sector of our industrial economy. I therefore hope that my noble friend will divide the Committee on this issue.


I, too, should like to support my noble friend's Amendment. The more I read it, the more I like it. I was particularly glad to hear his remarks at the end when he strengthened the case for the aerospace industry by drawing attention to the difference from the shipbuilding industry, which is referred to in the identical subsection (2). Had my noble friend introduced an Amendment on shipbuilding, I should have had some serious doubts for the reasons that he gave; namely, that it would create a further period of doubt when we all know that some of the companies that are to be nationalised are either in or are likely to be in serious cash flow difficulties. Unless something is done for them quickly, they will be in serious difficulty and may not be able to continue.

However, in the case of the highly successful aircraft industry, the position is entirely different and, as other noble Lords have said, to keep it out of the Bill for the time being will only create enthusiasm for them and confidence outside in the world at large. I very much hope that my noble friend will, if the Government are not prepared to accept the Amendment—which I doubt—press it to a Division.


I should like to point out one practical difficulty. I think I am right in saying that my noble friend Lord Thorneycroft asked the noble Lord, Lord Melchett, to outline the progression of the measures that he was going to bring forward. That made me think of the discussions that we had on Clause 5, when my noble friend Lord Orr-Ewing described the major centres that had to be set up and the noble Lord, Lord Wynne-Jones, used as an illustration of his point of view the fact that ICI had similar subsidiaries and divisions which it managed very satisfactorily.

It is inconceivable to me that any major company could, without a building, immediately set up an on-going management situation which must produce a successful Corporation. We agree that the Corporation must be successful. To conceive that a major company could set up a new management organisation within a couple of years is impossible. If they were setting it up today, they would spend 18 months getting everything correct and in the right place. So I believe that there will be a very big difficulty when the new Corporation is setting up its headquarters in the timescale that the Committee has been led by the noble Lord, Lord Melchett, to believe is a possibility.

The Earl of ONSLOW

If the argument against the Amendment is that it would create confusion, is it not the case that confusion is initially created by the agitation to nationalise and then by the commitment to nationalise? That is my first point. My second point I believe needs underlining so strongly that, though it has been made several times before, it must be emphasised again. It relates to what my noble friend Lord Carr has said about money.

Let us assume for the sake of argument that nationalisation is a good thing and, further, that to nationalise the aircraft industry is also a good thing. Surely to do so now is so extravagant. It is exactly the same as a situation I have in mind which involves a tramp—and do not let us delude ourselves. In Great Britain at the moment our finances are very similar to those of a tramp. We cannot feed ourselves, we cannot clothe ourselves, we cannot do anything, without begging money from all over the world. It is exactly the same as a tramp deciding to go on a round-the-world cruise first class on the "Queen Mary".

This proposal will increase public expenditure of money which the Government have not got. That is rake's progress. When one looks at the Government Front Bench one sees that no one could look less like a rake than the noble and learned Lord, Lord Elwyn-Jones, or the noble Lord, Lord Melchett, but perhaps appearances are deceptive. Perhaps we in this Chamber should try to save Her Majesty's Government from themselves and allow people to express a view on this subject. This is not a question of Peers versus the People, but of Peers and the People versus Transport House.


I should like to support the Amendment moved by my noble friend Lord Carr of Hadley, particularly as it relates to the aircraft industry. Unfortunately I had not heard of the original proposal moved by the Liberal Party. But I am very pleased about this Amendment and I should like to tell your Lordships why. I have not been in your Lordships' House very long, and I sometimes think that the country must be puzzled when very severe criticisms emerge from this side and then the Committee does not divide. This is a very difficult matter, and I sometimes feel quite annoyed about it. I think that those who are in this very important and very successful aircraft industry may themselves be wondering why the Opposition do not divide against nationalising it, because the industry does not want it to be nationalised. I agree exactly with what was said by my noble friend Lord Carr of Hadley and by the noble Viscount, Lord Rochdale—that the country does not want more nationalisation; certainly in my part of the world the people do not want it. Therefore this seems to be a very good opportunity to accept the Amendment of my noble friend Lord Carr of Hadley.

I should like to make one other observation before I sit down and, I hope, vote for the Amendment. I have listened to what has been said and I quite realise the problem which the Government face and the fact that it does not seem to please their supporters when they keep on saying that public expenditure will have to be reduced more and more. Meanwhile, all the local authorities are wanting all kinds of things, many things which I want to support. Yet this Government do not seem to realise that they could help the country if they were to cut their expenditure by not introducing a Bill of this kind which nobody in the country really wants. Therefore I have the greatest possible pleasure, from my own point of view, from the national point of view, and from the point of view of the aircraft industry, in supporting the Amendment which has been moved, and I hope that we have a large Division in support of it.

6.14 a.m.


There are three aerospace companies to be nationalised under the Bill: BAC, Hawker Siddeley and Scottish Aviation Limited. It may be argued that the problems of delay which would beset the shipbuilding industry if we were to remove it from the Bill, also to some extent apply to Scottish Aviation Limited, which is infinitely smaller than the other two companies. But I must tell your Lordships that it has been represented to me that Scottish Aviation Limited would be in some medium-term difficulties anyway if their nationalisation were to be inordinately delayed. I would put it to the noble Lord that that is no argument for nationalising them. I have never been able to accept the assertion that nationalisation is the answer to all financial ills. I do not think it is the answer to any financial ills. In the case of Scottish Aviation Limited, if it be that they need some support in the medium term pending the outcome of the next General Election, I put it to the noble Lord, Lord Melchett, that they could be supported by the provisions of the 1972 Industry Act which the noble Lord's right honourable friends have already used in some other cases.


I must say that the noble Baroness and I have been on very friendly terms throughout the night and I think we will continue on friendly terms. I share her confusion about some of the tactics employed by her noble friends, particularly on the ship repairing Amendments which we were told were going to be pressed and the noble Baroness and I expected, unfortunately, to be voting against each other on those and have not yet had the chance. But I am afraid the noble Baroness will be yet more confused.


I am not confused at all.


The noble Baroness is going to be when I have told her and noble Lords opposite exactly what the effect of this Amendment which noble Lords are so keen to press, would be.

First, as the noble Lord, Lord Carr of Hadley, said, he was kind enough to give us warning about this Amendment when we discussed Amendment No. 1 so many hours ago. As the noble Lord will know, it is wholly unacceptable to the Government. It is, quite simply, a wrecking Amendment. The Government are completely opposed to it for two quite distinct reasons. First, the constitutional reason: noble Lords opposite are seeking to go beyond the Parliament Act and to impose a requirement that a particular measure should be endorsed not merely at one General Election but at two and in fact in this case it will be at three General Elections.


Does the noble Lord think 28 per cent. is an endorsement? That was the situation at the last Election —28 per cent. of the electorate voted for this policy, even if they knew what it was.


The second reason is an industrial one. The industrial consequences of further delay would be wholly mischievous and, of course, the delay would be a long one. No responsible observer could be in favour of the aircraft industry remaining adrift without leadership, cohesion or direction but under the shadow of a change at some undefined time in the future. The great majority of people in the industry at all levels, including top management, believe, whatever their view on nationalisation itself—and I accept that many may well be opposed to it—that a decision must now be reached once and for all and put into effect immediately one way or the other. How could the companies play an effective part in international collaborative discussions in the situation proposed by noble Lords opposite—an Act nationalising their industry but a delay on its implementation until some uncertain point in the future?

I assume that the two arguments I have so far adduced against the Amendment have little effect on noble Lords opposite, or indeed they would not have tabled the Amendment at all. But there are two other reasons which I believe would convince any one, noble Lords opposite or noble Lords on this side of the House, that there were very good reasons for not pressing the Amendment. First of all, the Amendment would have a very strange effect. Although this Amendment would delay vesting day it would not prevent the establishment of British Aerospace; that would occur on Royal Assent. I cannot believe that that is the recipe of noble Lords opposite for the success of the British aircraft industry. A Corporation called "British Aerospace" and obliged to carry out all the duties laid on it under the Act, yet with no subsidiaries or any powers, apart, incidentally, from the power to get information, over the companies named in the Bill. I have heard of "power without responsibility" but this would be "responsibility without power". Who would participate in the international discussions on collaboration? What would foreign buyers and potential collaborators think of an aircraft industry which was condemned to spend a continued, and, I can assure noble Lords, long period of confusion and uncertainty, drifting about with no direction at all?

There is another practical reason why I do not think this Amendment should appeal to noble Lords opposite. Because of the way the Amendment is drafted, there is still nothing to stop the Secretary of State of an outgoing Administration from making the vesting order for a specific date which is likely to be after the date of the first meeting of the next Parliament. If the incoming Administration were a Conservative one and it wished to prevent vesting, it would be forced to pass legislation, conceivably with only one or two days in which to do it, to that effect, as the vesting order would not be revocable. In other words, it would be quite possible, when the date of the next General Election is decided, for the outgoing Secretary of State, despite the amendment which noble Lords opposite wish to make to the Bill, to make an order vesting the companies in the Corporation, and quite clearly that would not give time for the incoming Administration, whatever the General Election had decided, to have any effect on the vesting. So even the effect which noble Lords opposite seek to achieve with their Amendment will not be achieved by it. The Amendment, frankly, is a nonsense. I would suggest to noble Lords opposite with great respect that it goes beyond opposition into obstruction, and nonsensical obstruction at that.


If the noble Lord's last observation that it will have no effect is correct, why does he consider it to be a wrecking Amendment? Furthermore, if he considers it is a wrecking Amendment, as he said it was, does he assume that there is no chance of his Party coming back into power? Has lie thrown in the sponge on their behalf already?


It is a wrecking Amendment because it will wreck the prospects of the British aircraft industry up to the time of the next Election. It is a nonsensical Amendment because it will not achieve the result which noble Lords opposite want it to achieve.

The Earl of ONSLOW

Who has created the confusion? The confusion has been created by the Labour Party's agitation for nationalisation. If they had not started all this, there would not be all this confusion, we would not be up till this time in the morning and they would not be spending all this non-existent Government money.


One point the noble Lord raised was that we were trying to get round the Parliament Act in some way. How on earth is that? Why should the Parliament Act not be used on this Bill if this Amendment were agreed?


There is nothing to stop the Parliament Act from being used, but I am suggesting that the Amendment is a device to get round the Parliament Act. My understanding is that the Parliament Act would delay the implementation of the Bill until the next Session of Parliament; this Amendment would delay it for considerably longer than that.


It seems an awful pity that one should let the matter go like this. It is some while since I was in the Chamber. I came back to find the noble Baroness, Lady Ward of North Tyneside, on her feet, and now we have the noble Lord, Lord Melchett. He appears to be worried that the verdict on this should be put to the electorate. I do not know, but I thought that noble Lords opposite professed to be democratic.


The noble Lord, Lord Melchett, was extremely persuasive. We did not exactly think that this Amendment would meet with his approval, but I am bound to say that he did shove his hand right to the bottom of the bran tub and pull out every single little trinket he could find. But the one thing he did not address himself to is the fact that if this Bill goes through it is going to involve the Government and the country in a colossal expenditure of money. My noble friend Lord Selsdon totted it up to £2,000 million. That is a lot of money. When the noble Lord, Lord Melchett, was asked, he said he did not know. If he does know and he did not say, that is infinitely worse. But when he was asked, he specifically said, "I cannot say what it is and it would not be right to say how much the Government are going to be involved with because that would prejudice any negotiations".

It is quite obvious that there is a certain difference of view between the two sides of this Committee, and that is not exactly

Resolved in the affirmative, and Amendment agreed to accordingly.

On Question, Whether Clause 18, as amended, shall stand part of the Bill?

6.33 a.m.


I wonder at the beginning of this debate whether it might be an appropriate moment to ask surprising. All that we would say is that, of all times, this is the worst possible time, from a public expenditure point of view, to engage in this kind of exercise. If this Amendment is passed it will have at least the great merit of enabling another place to reconsider the whole point in view of the serious financial situation in which we presently exist. That, in itself, I would suggest, is an excellent reason for passing it.

6.25 a.m.

On Question, Whether the said Amendment (No. 122A) shall be agreed to?

Their Lordships divided: Contents, 60; Not-Contents, 32.

Abinger, L. Elliot of Harwood, B. O'Hagan, L.
Airedale, L. Elton, L. Onslow, E.
Amherst of Hackney, L. Falmouth, V.Orr-Ewing, L.
Armstrong, L. Ferrers, E. Penrhyn, L.
Barrington, V. Gainford, L. Redesdale, L.
Belstead, L. Gisborough, L. Rochdale, V.
Berkeley, B. Gowrie, E. Sandys, L.
Birdwood, L. Gray, L. Seear, B.
Brookeborough, V. Gridley, L. Selsdon, L.
Burton, L. Hives, L. Sempill, Ly.
Campbell of Croy, L. Hornsby-Smith, B. Strathcona and Mount Royal, L.
Carr of Hadley, L. Kemsley, V. Swansea, L.
Carrington, L. Kimberley, E. Tanlaw, L.
Cork and Orrery, E. Lauderdale, E. Teviot, L.
de Clifford, L. Lyell, L. Trefgarne, L.
Denham, L. [Teller.] Monson, L. Vickers, B.
Deramore, L. Morris, L. Ward of North Tyneside, B.
Dormer, L. Mottistone, L. Wardington, L.
Dudley, E. Mowbray and Stourton, L. [Teller.] Wigoder, L.
Effingham, E.
Elles, B. Newall, L.
Brimelow, L. Lyons of Brighton, L. Shepherd, L.
Champion, L. McCluskey, L. Stedman, B.
Collison, L. Melchett, L. Stewart of Alvechurch, B.
Cooper of Stockton Heath, L. Milner of Leeds, L. Stone, L.
Davies of Leek, L. Morris of Kenwood, L. Strabolgi, L.
Delacourt-Smith of Alteryn, B. Murray of Gravesend, L. Wallace of Coslany, L.
Elwyn-Jones, L. (L. Chancellor.) Oram, L. Wells-Pestell, L. [Teller.]
Harris of Greenwich, L. Peart, L. (L. Privy Seal.) White, B.
Jacques, L. Pitt of Hampstead, L. Winterbottom, L.
Kirkhill, L. Ponsonby of Shulbrede, L. Wynne-Jones, L.
Llewelyn-Davies of Hastoe, B. [Teller.] Shackleton, L.

the Government, the Leader of the House or the Minister in charge of the Bill, or whoever is appropriate, what they feel about plans still ahead of us, because the time has come when we should like to know and exchange views about this matter.


We are making such satisfactory progress that I hope we can keep going for a little while.

Several noble Lords: No!


Possibly until eight o'clock if noble Lords opposite are not feeling too tired.


The noble Lord, Lord Carrington and I, I thought, had come to an agreement that we would go on until eight o'clock.


I thought that it would be nice if somebody told your Lordships that we had decided that perhaps we might last until eight o'clock without having a row, and the object was to extract from the Government the proposal that we were going on until eight o'clock, at which we would then have said we were prepared to do so. But since the noble Baroness has completely ruined that bit of politeness, we will now say that we will go on until eight o'clock.


I will attempt to frustrate the knavish tricks of the noble Lord whenever I can.


The Question was put that Clause 18, as amended, should stand part of the Bill but, owing to a misprint, we are in fact on Clause 19 because the Marshalled List was printed incorrectly.

On Question, Whether Clause 19, as amended, shall stand part of the Bill?


I should like to draw attention to the fact that we are now moving on to this series of clauses numbered 19 to 34, which cover no fewer than 28 pages of the Bill, pages 21 to 48, and they indicate the burden of onerous exercises which nationalisation causes. In Clause 19 and the following clauses there are set out various courses and procedures for all the various circumstances of the companies and their subsidiaries. They involve the arbitration tribunal, which itself is to be established later by Clause 42, and we do not even reach the main compensation clauses, Clauses 35 to 41. But we are dealing with the question of vesting in Clause 19, and then with payments of dividends and interest, avoidance of certain transactions and prohibition of transfer of certain works. This is an example of the complicated matters which have to be dealt with, because of this process of nationalisation.

Then, again, another clause deals with dissipation of assets by transactions involving holders of securities; another one deals with onerous transactions, disclaimer and recovery of losses and, later, there are supplementary provisions relating to dissipation of assets. No doubt most, or all, of these procedures and courses are necessary, in order to cover all possible circumstances arising from the transfer of ownership which nationalisation implies. But what a waste of time and energy! A lot of people will have to pick their way through Clause 19 and the following clauses, to pick their way through a forest of details, instead of helping to restructure their industries and, in the case of shipbuilding, to get on with the business of shipbuilding.

The Government are setting up a tortuous obstacle race for those concerned, and this even before the main provisions on compensation are reached on Clause 35, which I would describe as a giant game of snakes and ladders, mostly consisting of snakes. This is the burden with which a great many people will be faced, if and when the Bill is enacted, and I draw attention to these 28 pages on which we are now starting.

Clause 19, as amended, agreed to.

Clause 20 [Vesting in acquired company of certain assets of privately-owned companies in same group]:

6.39 a.m.

Lord REDESDALE moved Amendment No. 123: Page 23, line 36, after second ("company") insert— (""holding company" means in relation to an acquired company a company which is deemed to be its holding company for the purposes of the Companies Act 1948;").

The noble Lord said: I beg to move Amendment No. 123 and hope that the noble Lord can give us some guidance on this clause which is concerned with the "holding company". Although the "subsidiary" and "wholly owned subsidiary" are defined in Clause 56(1)—it is by reference to the Companies Act 1948—the "holding company" is not defined anywhere else in the Bill. This term appears to be used only in Clause 20. It seems that we have a definition of an "associated privately owned company" and of a "privately-owned company", and this further definition should be included at Report stage.

The Companies Act 1948 contains a definition in Section 154(4) which states: A company shall be deemed to be another's holding company if, but only if, that other is its subsidiary"— and "subsidiary" includes a company which is only 51 per cent. owned and is not limited to a wholly owned subsidiary. I wonder whether the noble Lord could give us some help on this point?

6.40 a.m.


We have now got past the brouhaha of Amendment No. 122A, and as I know how anxious noble Lords opposite are to make substantial progress before we adjourn for breakfast, I think it might help matters if I start on the next leg of the Bill by saying to the noble Lord that I agree entirely with the Amendment that he has moved. I am afraid, however, that I do not quite accept the position in which he has placed it in the Bill. It would be more appropriate for the definition to be included in Clause 56, the definition clause. If the noble Lord would like me to do so, I shall be happy to move an Amendment to Clause 56 at the Report stage, the sense of which will be the same as the noble Lord's Amendment.


I am most grateful to the noble Lord for his constructive and helpful attitude. We are delighted to withdraw our Amendment and we look forward to seeing the noble Lord's Amendment at the Report stage.


Why wait until the Report stage? We are not going to reach Clause 56 for some time.


I would not be that pessimistic! We are making such good progress now that we might reach it at any time.


It is only a matter of drafting: whether or not it would be more convenient to have the definition here because the term appears only in this clause. One could make a case for saying that it is best to have the definition here rather than to group it with the other definitions, but this is a matter which perhaps the noble Lord could discuss with the Parliamentary draftsmen.


My advice is that the term "holding company" appears in other places in the Bill, although I must confess that I could not give the noble Lord at this moment any instances of it.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

Clause 21 [Certain loans from associated persons to be treated as securities]:

6.42 a.m.

Earl FERRERS moved Amendment No. 124: Page 24, line 10, after ("securities") insert ("as defined in section 56(1) below and").

The noble Earl said: After that exciting start my tongue is hanging out in anticipation that the noble Lord, Lord Melchett, will be able to accede to this Amendment also! One of the curious things about the Bill is that the data upon which the value of businesses is compiled is wrong. It is compiled on the basis that all the companies are quoted on the Stock Exchange, whereas only one of the companies is quoted on the Stock Exchange. Therefore one starts off with all the data being wrong. The Bill virtually says, "Let us assume that they are all quoted", which they are not, "and then find out what the price would have been had they been quoted", which, of course, you cannot do.

Many of these companies are subsidiaries. It is not impossible that a subsidiary company may have only £100 of share capital and that it could borrow from its parent company any sum of money—possibly £20 million. That would be perfectly normal. Now the Bill says that that is not borrowing in the true sense; that is long-term capital. Clause 21(1)(b) says that that sum of money should be considered in the same manner as a borrowing which, had it not been from a parent company, would have been the type of borrowing which would have had to be secured by assets for the lender. The clause as drafted refers to the lender in the singular and apparently ignores the increasingly common practice of consortium loans which are loans from a group of banks where the individual contribution and, therefore, the risk to each is reduced. Consequently, the terms and conditions are likely to be less onerous to the borrower. Therefore the value of the securities is likely to be greater than if all the risk were on one lender.

The introduction of the possibility of securities being valued on the basis of a consortium loan would, I suggest, have two effects. First, it would be more realistic in the light of current banking practice, for this is what usually happens. Secondly, it would enable the companies to argue for more value to be paid on the securities which are deemed to exist, although they do not exist, by virtue of Clause 4. Of course the value of the security will depend on the terms and conditions which the Secretary of State or the arbitrators determine would have been required by the lender had the loan been obtained in the open market.

If one may take an example, a company could have borrowed £20 million: in fact under this clause that would not be regarded as a loan and therefore repaid. It would be considered as capital and the arbitrator would have to determine what that value would be if the redemption were immediate, and if the loan were to have come from a single lender it may well be that, say, the loan might have been regarded as £50 million, but if it had come from a consortium it might have been put at a higher value. The point of this Amendment is really to bring into line what is normal practice, which is to assume that borrowings come not from a single person but from a consortium. I beg to move.


This Amendment seeks to point to the fact that there may be more than one person involved in a particular loan. While this may well be the case in certain instances, I am advised that no Amendment is necessary to cover the point. Under the Interpretation Act of 1889, unless the Act in question specifies otherwise the singular in an Act of Parliament subsumes the plural. Thus the reference to "person" and "lender" in Clause 21 can equally mean "persons" and "lenders", and the provisions may be applied accordingly.


I am not quite with the noble Lord on this point. He is saying that in an Act of Parliament if something in singular it can be deemed to be plural. Is that right? I should explain that I am speaking from a banking point of view and as a lender. It is a very interesting Act and I have not come across it before in drafting loan agreements, and it may be that the noble Lord has found something that the banking community might be pleased to have a look at. I should be grateful if he could expand on it, because I was going to support my noble friend on this Amendment but in the light of what the noble Lord has said I am out of my depth.


I am in the hands of my legal advisers on this point. I do not think I can expand usefully on what I have already said. If it is of help to the noble Lord, Lord Selsdon, I can reiterate that under the Interpretation Act of 1889 unless the Act in question specifies otherwise, the singular in an Act of Parliament subsumes the plural, and then I went to on say that that, of course, would cover "person" and "lender" in Clause 21, and can equally mean "persons" or "lenders".


Is the noble Lord saying that therefore the Amendment is unnecessary?


I am indeed saying that.


I think that perhaps this should be looked at again. If we apply the Interpretation Act, which says that the singular includes the plural, we get from the words in the clause, "a person who was not an associated person", and you would get, "persons who were not associated persons". But the Amendment does not say that: the Amendment says: "persons, none of whom was an associated person". I am not satisfied that the Interpretation Act covers the subtle difference in those two wordings. It may well be so, but I think it should be looked at again.


I have been handed a copy of the Interpretation Act 1889 and if I may read Section 1(1), it says: In this Act and in every Act passed after the year 1850 whether before or after the commencement of this Act unless the contrary intention appears

  1. (a) words importing the masculine gender shall include females:
  2. (b) the words in the singular shall include the plural and the words in the plural shall include the singular."
I cannot honestly add more to that than I have just mentioned.


If the noble Lord, Lord Kirkhill, had only raised that Act before, a lot of legislation passing through this House might not have been necessary. But I think he understands from the intervention of my noble friend the point we are making now. I cannot comment on person or persons unknown, but I hope the noble Lord will have in mind the point raised on the question of loans. Many loans are done direct; one borrower and one lender. More and more now as my noble friend has mentioned, the practice is for the management of consortium loans, where you have a single loan agreement which is fairly critical to the whole banking structure. What he says has an effect on the content of loan agreements as such, and is fairly significant. Maybe the Amendment on the wording is wrong, but if he will consider the point raised on this, it is an important one from a banking point of view. Perhaps he will give some assurance that they will look at it. I am not good at singular and plurals, or feminines and masculines, but I think it is a splendid Bill the noble Lord has produced. It is something I shall look at when we are faced with the problem of different genders, which is growing on the domestic front.


I do not wish to appear to be inflexible when flexibility is the commonsense approach to the matter, but I am legally advised that this Amendment and, indeed, the one that follows it, is not necessary. In matters of this kind I must accept what is considered to be sound legal advice offered to me.


I do not think there is anything between us. The point is that the aspect of the Bill I was worried about is covered, according to the noble Lord, Lord Kirkhill, and therefore the oretically, there should be no cause for worry, but, in view of what has been expressed, I would be grateful if the noble Lord would be kind enough just to have a look at this again and make quite certain there can be no flaw, because there is nothing between us. What we were worried about is covered. But the point is one of substance where consortia are a very common method of providing funds. The noble Lord referred to the Interpretation Act. I was slightly amused when he did. He said that the singular included the plural, and I remembered well the occasion when I had to answer a question, and I was told by my advisers that the masculine gender included the feminine. I was told that the short answer was that the male embraced the female. I am grateful to the noble Lord for having answered that. I should have indicated that my remarks referred to Amendment No. 125 as well, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.54 a.m.

Earl FERRERS moved Amendment No. 126: Page 24, line 6, after ("not") insert ("or persons none of whom was"].

The noble Earl said: This is really a drafting Amendment. The problem is a technical one in the context of the very complex provisions of Clause 21, and the Amendment is designed to assist the clarity and not to change the intent of the clause. Clause 19(5) does not define "securities". The primary definition of "securities" is in Clause 56. Clause 19(5) merely lists what in the context of that section are not to be regarded as securities. Clause 21(1) refers back to Clause 19(5), but the use of the words within the meaning of Clause 19(5) tends to obscure the fact that Clause 19(5) merely modifies the primary definition contained in Clause 56. The Amendment is designed to make sure that when the Secretary of State serves his notice under Clause 21, he cannot give effect to the notice if the security would have been one of those listed as exclusions from the definition in Clause 19(5). I beg to move.


Amendment No. 126 seeks to clarify the meaning of "securities" in relation to Clause 21. I hope to persuade noble Lords that the Amendment is not necessary. Clause 56(1) includes a definition of "securities" for the purposes of the Bill as a whole. However, in relation to the vesting of securities in the new Corporations a more restricted definition is necessary and this is achieved by means of Clause 19(5). As I am advised, it is not necessary for the limitation of the definition of "securities" contained in Clause 19(5) to make reference to the wider definition contained in Clause 56(1). It is exactly the same point in relation to Clause 21. In this provision we are identifying certain inter-company debts which will be treated as securities and hence vest in the new Corporations. Therefore, the same limited definition of "securities" must apply in relation to Clause 21 as applies in relation to Clause 19, and for this reason a cross-reference to Clause 19(5) is included in Clause 21(1). But in the same way as it not necessary to refer to Clause 56(1) in Clause 19(5), it is unnecessary, I am advised, to make a similar reference in Clause 21. I apologise to your Lordships for what appears to be a somewhat legalistic convolution towards the end of my remarks, but this is my firm legal advice on this point.


The contents of my head are now spinning round like a catherine wheel. It is not the noble Lord's fault at all, because I realise that that was a very carefully considered answer, and the object of this Amendment was to make the matter clearer. I will study what the noble Lord has said.


These are difficult matters. I think the key is that it is not necessary for the limitation of the definition of "securities" in Clause 19(5) to make a reference to the wider definition in Clause 56(1).


That I quite see. I think the point I had in mind was that the reference referred to something left out as opposed to something put in. The noble Lord gave a carefully considered reply, and I will therefore study that when I see it in print. Meanwhile, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.59 a.m.

Earl FERRERS moved Amendment No. 127: Page 24, line 43, at end insert ("and the person to whom the debt is owed shall he 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 of the said subsection (2).").

The noble Earl said: Under the provisions of Clause 21 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 for the purposes of Clause 21. Once the notice is issued any obligation to repay the debt is therefore suspended. It is possible that the Secretary of State will in some cases not be able to persuade the Arbitration Tribunal that he was justified in serving a notice in respect of that debt. But it may be that after a considerable period of time the notice will be revoked and the loan will once again become repayable according to its terms.

The purpose of the Amendment is to ensure that where a loss is caused by the freezing of a loan due to a Clause 21 notice which is subsequently revoked, that that loss should be compensated. The extent of the loss could, for example, be the cost of borrowing money elsewhere during the interim period. Could I give the noble Lord an example. If the Secretary of State said a loan, possibly for £2 million, is a long-term borrowing, and would therefore be less on immediate redemption, if he were to go to arbitration, the arbitrator may say, "The Secretary of State is wrong. This is not a long-term loan, and as such would not be worth the full value of £2 million. It is a borrowing, and therefore would not be worth the full value of £2 million." Meanwhile, that is frozen and the company concerned has to borrow the money elsewhere.

It may be some time before the arbitrator comes to a decision, and having come to it he has virtually said, "Secretary of State, you are wrong". The suggestion in this Amendment is that where the Secretary of State was proved to be wrong by the arbitrator, and where that wrong decison by the Secretary of State inevitably made the company concerned borrow the extra money, the cost of doing that, in other words the interest on that extra money, should be compensated by the Secretary of State for his erroneous judgment. I beg to move.

7.2 a.m.


Clause 21 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 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, be valued in the same manner as all other securities which vest under the Bill. I accept that a fair example has been placed before me by the noble Earl. I am unable to accept the Amendment for two main reasons. That may not necessarily be my position on certain following Amendments. First, the Secretary of State will not use his powers indiscriminately under Clause 21. If he decides to serve a notice with regard to a particular inter-company debt, it will be only after very careful consideration of all the factors affecting that debt, and in such circumstances that there will be little doubt that the debt should be treated as a security.

Secondly, it is the Government's intention that there should be the minimum of delay in settling any question as to whether a debt should be treated as a security. Given the Secretary of State's intended use of the provision, it is not likely that any significant loss would fall to the creditor. If, however, the Bill were to provide for the payment of compensation in respect of rights to repayment temporarily taken away but subsequently restored, then there is the possibility of a positive incentive on creditors to delay settlement so as to maximise their claim for compensation. It is principally on that latter point that I would have to resist the Amendment.


That was not a convincing reply. This is a case where the Secretary of State may have considered all the company's borrowings and said, "I believe this is not a short-term but a long-term borrowing and must be treated as such". Of course, if it is treated as a long-term borrowing a different figure is paid as compensation, because a long-term borrowing may be for 20 years and obviously if it is valued for immediate redemption it will be valued at a lesser figure than if the borrowing had finished within 20 years' time; that is one of the facts of financial life. I accept that the Secretary will take great care and will go into all this. The noble Lord said that he would go into it with such care that there would be little doubt that he was right, but that is not an adequate answer because that is the whole purpose of the arbitration tribunal; so that people can take the matter to the tribunal and say, "We do not think the Secretary of State is right". It is not a just argument for the noble Lord to say that such people will be told, "If you do take it to the tribunal and I am proved wrong, you must still suffer the financial loss of my wrong judgment". If the Secretary of State is wrong, and if that has resulted in the company concerned being put at a financial disadvantage, it seems only fair and just that the Secretary of State should compensate for that wrong judgment. I accept that it is the noble Lord's view that there may be very little time for the arbitrator to come to that conclusion, but I am not sure that that will be so; it might well be quite a long time.


While the noble Earl, Lord Ferrers, was speaking I received some further advice which may be helpful. If the right to repayment is suspended by a notice served by the Secretary of State, the lender will still earn money on the money lent within the term of the loan. Therefore, in the unlikely event of a notice being revoked, it is hard to see how the lender could suffer a loss; he will continue to receive interest on his loan.


I understood that where that was the case, the loan was frozen and the company concerned would then have to borrow the equivalent sum of money elsewhere because it could not use the money which was under arbitration. If the company has to borrow that money, it is obliged to pay the interest. Am I right in believing that what the noble Lord said was that the money which belonged to the company and which was thereafter frozen would have interest attached to it and would accrue to the company?


I appreciate that it is difficult to grasp some of these points at this stage and it might be helpful if I were to repeat what I said; namely, that if the right to repayment is suspended—the noble Lord said, "frozen" and I said, "suspended"—by a notice served by the Secretary of State, the lender will still earn interest on the money lent within the term of the loan.

7.10 a.m.


I had intended to launch into a long discussion on the whole question of inter-company loans and the way debts are treated. My concern is that at this stage of the night we may, if we are not careful, confuse the whole compensation issue to which the Amendment relates indirectly. What I would advise the noble Lord is that the way in which companies treat inter-company lending varies from one company to another. The rate of interest charged by a parent to a subsidiary varies. The terms of loans vary. The terms often tend to be shorter between parent and subsidiary because the parent controls the subsidiary and therefore the long-term borrowing of the subsidiary is not an important consideration. Further, as the noble Lord will know, it is normal practice that subsidiary companies within groups borrow from parents and do not borrow direct, and that it is the parent company that incurs the long-term debts and provides the appropriate funds for the subsidiary.


I hesitate to intervene, but I should have thought that the points to which the noble Lord wishes to direct my attention would probably come under Amendment No. 128. That is the next Amendment and it appears to cover the points that have been raised so far.


But the question is that the lender can suffer a loss. It depends entirely on the term and the rate charged for a specific loan. The term is perhaps the most critical factor of all because, having got rid of or lost one of its subsidiaries and having funds tied up in it, while it will continue to receive the interest that is due to it under the original agreement between the lending company and the borrowing company, one must take into account the continual shifts and changes in market conditions. We all know that there are considerable shifts and variations in interest rates. My concern with this Amendment is that, when we take vesting day—which will be coming up next year—at the moment we have a situation in which there is a very high degree of liquidity in the banking system. It is relatively easy to borrow money and, despite the high levels here, international rates are still relatively low. There is a very real concern that, where companies have lent to subsidiaries, the lender could suffer some form of financial loss. We ask the noble Lord to recognise this. I appreciate that he would be reluctant to accept the Amendment. Exactly how one quantifies this is difficult, but it is a factor and, believing as I do that there could be substantial changes in market conditions in the next six months, it could become much more significant than it is at present.


I certainly give the noble Lord the assurance that I shall read with care the remarks he has made this morning. I do not feel that I can give more of an assurance than that.


Can the noble Lord also look at the question of inter-company borrowing as between one subsidiary and another? Also, in this case, it might possibly be borrowing by the parent from the subsidiary on certain occasions. There are so many subsidiaries in these industries that are being nationalised and they, in many instances, form the profitable side of the parent. I believe that it might be worth while to look at both sides of the position; that is, the position where the lender is the parent and where the lender is one of the subsidiaries lending to another or even back to the parent.


These are not matters about which I have any particular expertise. I recognise that there are among your Lordships those who have considerable knowledge of these matters. I shall certainly direct some attention to the point which the noble Lord has just made.


I should like to raise another point here and I promise that I will raise it again later, so I will not be lengthy at the moment. What the noble Lord may appreciate we are getting at as well is the effect that the capitalisation of debt or the conversion of debt into equity can have on the fairness of compensation under Clause 38. I hope that the noble Lord will acknowledge that we will return to this matter at a later date, because I would prefer that we dealt with the compensation issues when we get under compensation rather than have this continual cross-reference backwards and forwards. But he should acknowledge that what is proposed by the Government has an affect upon compensation. It is not normal practice, and anything that is not normal practice—he will agree—needs to be looked at; but it is better that we look at it later rather than earlier. If we get into these cross-arguments at this time of the morning we may fail to put across the right points.


We are grateful to the noble Lord, Lord Kirkhill, and we certainly appreciate the difficulty in which he finds himself. He need feel no embarrassment over that, because he is not alone. These are extremely complicated and extremely technical matters, but I hope the noble Lord will realise, as I am sure he does, that nevertheless they are extremely important. it is difficult to have a dialogue about such complex matters across the Floor, but I know that he will look at these points again. I wonder whether it would be possible for him to consider what has been said and whether he will be kind enough to write to me with the conclusions he has arrived at having taken advice? If he would do that on a number of these very complicated points, that would help us to consider, not only at this Committee stage but possibly at a later stage in the Bill, whether or not we ought to return to any of these points. I should be very grateful if he would do this.


I shall certainly write to the noble Earl.


I am very grateful to the noble Lord and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.18 a.m.

Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 128: Page 25, line 32, at end insert ("unless a security forming part of the loan capital of the company and issued on the terms agreed or determined pursuant to paragraph (a) above would have been excluded from the operation of section 19 above by virtue of subsection (5) of that section as not being a security within the meaning of that subsection").

The noble Lord said: I am afraid that we have have a little more of this rather indigestible gruel that we are trying to get outside before we can break for breakfast. This is another of these technical Amendments, but I think that possibly it may be acceptable to the Government. The problem is this. As paragraph (b) of Clause 21(7) is at present worded, the right to the repayment of a debt, as it says under paragraph (a), is to be treated for the purposes of— (i) section 19 above…". as being a security. It goes on to say that it is automatically to vest in the relevant Corporation in the operative date of the notice as defined in subsection (6). But, so far as we can see, this conflicts with the provision of Clause 19(5), which we have already passed, that certain actual securities issued on specified terms are not "securities" for the purpose of Clause 19 and consequently will not vest.

The purpose of the Amendment is to put right the fact that it cannot be the intention in the mind of the Government that a right which is deemed to be a security by virtue of Clause 21 should vest if an identical actual security would not have vested. The proposed Amendment is intended to put the deemed security on the same footing in this respect as an actual security issued on the terms attributed to the deemed security. I at one time understood this Amendment but I am not absolutely certain that I do, having laboured through it again. I beg to move.


There is a mutual fatheadedness around at this stage and I am very anxious to come to the good parts of the Amendments which are still around—good, that is, from the Opposition point of view. I am advised that Amendment No. 128 is unnecessary. It merely repeats a provision which is already contained in Clause 21(1)(b) of the Bill which is linked through to Clause 19 at subsection (5). The capital structure of many of the companies to be nationalised will be complex. The capital of subsidiaries may be provided by unsecured loans from parent, or associated companies, as we have just said.

Clause 21 provides for such inter-company debts which are of the nature of long-term capital but which are not covered by formal loan agreements, to be compensated for as though they were formal securities of the acquired company. By contrast, debts of a short-term nature, redeemable either without notice or upon not more than one year's notice or upon not more than one year's notice—for example bank overdrafts—under Clause 21(1), are specifically excluded from the provision. The effect of this Amendment would also be to ensure that short-term debts as defined in Clause 19(5) were excluded from the provisions of Clause 21. It is for those two reasons that I am advised that the Amendment is not necessary.


Could I ask the noble Lord one question? He says that Amendment is unnecessary. That is fair enough. Is he saying that it is actually harmful and should therefore be rejected? Because it is a slightly different question if he is going as far as that.


No, I did not say at any time that I was of the opinion or that I had been advised that the Amendment was harmful. I am advised by my legal adviser that it was unnecessary. As I speak I received a note.


Confirming that view, I have no doubt.


It is confirming the view, but perhaps I could have another look at it.


I am most grateful to the noble Lord, because it is quite obvious that we are both having to refer to those who understand these things rather better than we do. Under the circumstances, the obvious answer is to withdraw the Amendment now and have another look to see where we have got. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.24 a.m.

Earl FERRERS moved Amendment No. 129: Page 25, line 36, at end insert ("except that if the terms agreed or determined under this subsection to be contained in a security include any charge on assets of the acquired company subsection (5) of section 38 below shall not apply for the purpose of determining the base value of that security.").

The noble Earl said: This is another nice little point to which the noble Lord, Lord Kirkhill, might care to address himself. It is an Amendment which seeks to clarify a point of uncertainty on the valuation which will be given to loans which are treated as securities under Clause 21. The problem is that Clause 38(5) requires that the base value of securities is to be determined as if the assets of the company were not subject to any charge on any of the relevant days. That principle, of course, is quite correct since Clause 53(5) provides that all charges on securities are released on vesting day so that the securities vest free from encumbrances and therefore the valuation should be on the same basis.

But what may happen when a loan is deemed to be a security as opposed to a loan under Clause 21, however, is that the value of that deemed security may be dependent to a large extent on the charges on assets which form part of that security. If the security is valued as if there were no charges on the assets of the company, it would be worth very little.

The Amendment provides that where a loan is deemed to be a security under Clause 21, the charges on assets subject to which the security is deemed to have been issued should be taken into account in valuing that security, since it is upon those charges that the value will depend. If I could give the noble Lord, Lord Kirkhill, a simple example—and I take some figures relatively at random—if a loan of £100,000 is taken out with the freehold of a factory as a security, the interest may be, say, 15 per cent.; but if there is no security the interest may well be higher. It may even be 20 or 25 per cent. The point is that the value on redemption of that security is higher when it is secured against assets than when it is totally unsecured.

In other words, if you borrow £100,000 and you have to pay it back in 15 years, the chances of you doing so are slim, so the interest rate is higher; but if you borrow £100,000 and you secure it against the asset of your house, the security is much better and therefore the chances are more reasonable. Because these are subsidiary companies, the companies have very little equity and a great deal of borrowing, and if they were independent companies much of the borrowing would be in equity or in longer-term securities. It is therefore essential to get the value of the borrowings right in order to get a proper value on them for immediate repayment. I beg to move.

7.27 a.m.


I find myself virtually in the same position on this Amendment as I was on the previous Amendment, in that, while I appreciate that noble Lords opposite may have put down this Amendment, in this case certainly, in an attempt to provide greater fairness to parent companies, I am advised that the Amendment is an unnecessary one. Clause 21 is concerned only with inter-company debts, which are of the nature of long-term capital but not covered by a formal security. Such debts may be treated as if they were securities for vesting and compensation purposes. Amendment No. 129 would have the effect of disapplying one of these compensation provisions—that is, Clause 38(5), to which reference has been made by the noble Earl—which ensures that, as assets will be acquired free of all charges, the compensation will be determined on the assumption that those assets were free of charges at the period at which they are valued.

Amendment No. 129, I am advised, is unnecessary, first, because in the situation covered by the provisions of Clause 21, since there is no arm's length relationship between the debtor and the creditor it is highly unlikely that any of the intercompany debts will be secured by means of either a fixed or a floating charge. Clause 38(5) would therefore not apply, I am advised. Secondly, inter-company debts treated as securities under Clause 21 are likely to be equivalent to equity. They provide an alternative means of company capitalisation to the more usual equity finance. Under the compensation provisions of the Bill, they are valued in terms of the securities to which they are equivalent. Equity share capital is not subject to charges, and it is therefore most unlikely that the question of charges on assets in relation to inter-company debts treated as equity would arise. Again, this is a somewhat complicated reply which perhaps deserves to be read, but I have spoken, I hope, at a speed at which it was possible to follow at least some of the points in it.

7.30 a.m.


I do not follow the noble Lord. I cannot see why he says that this Amendment is unnecessary. What we are getting into now are the realms of what might be described as notional argument. In almost every one of these Amendments we are going to have a notional price or a notional something raised. Those who are of Wykehamical origin such as myself will know that a notion is a practice or word which has Wykehamical origin which only a Wykehamist can understand. If you take this case, the question of a charge—and in Clause 38 it is proposed to remove a charge—but it is all a notional situation to be dealt with in Clause 38. But the relationship between that and Clause 21 is essentially this. If you do not keep a charge on a debenture, that debenture falls in value perhaps by as much as 15 per cent. meaning that the holder of that debenture, instead of being a secured creditor becomes an unsecured creditor. An unsecured creditor is treated rather lowly in the field and while one may say that these are transactions between what was the parent company and its subsidiaries, one must look at the effect, however marginal, that this could have on the way in which people regard the parent company's balance sheet in that it is lending unsecured or, if lending secured, it becomes an unsecured loan. I think that this is an important factor.

It raises the basic principle of secured loans and unsecured loans. These have very different values both in terms of capitalisation if they are capitalised and in terms of the effect on the lending of the company concerned. I do not feel that this Amendment is unnecessary. It is unnecessarily complicated because of the complicated way in which compensation is being treated. It is one of the fringe aspects of the whole compensation argument which has come too soon in the Bill and therefore we are arguing in theoretical notions in a way that we cannot fully understand.

But the basic principles come back to the difference between secured and unsecured loans. I would suggest that we keep the question of a charge here, in Clause 21. I will not have made myself clear to noble Lords. But it is one of the principles which I believe need to be raised and brought in. If, in the light of what I have tried to say, the noble Lord can assure me that it is unnecessary, I will accept his view on this; for this is a legal matter and something that I am not fully versed in. I approach it from the commercial banking point of view.


I am further advised that the point is that it is very unlikely that any charges will exist in relation to the type of debts we will be dealing with. Therefore, the effect of the cancellation of a charge—and I accept that the cancellation could reduce the value—could not apply. The problem raised is hypothetical in some ways.


In banking and in loan agreements, however unlikely it is, it is in fact likely. Thus one cannot accept the principle of allowing something to go through where there is an element of risk. The whole banking principles are based on removing that risk. While we know that it is unlikely, circumstances could arise where it becomes more likely; or if it did happen, it could be serious. There are many hypothetical arguments on this, but it is not impossible; it is unlikely. I would not accept the noble Lord's suggestion that this Amendment is unnecessary. It is likely that it would be unnecessary but equally it is not unlikely that it would be necessary.


The Amendment has not been unnecessary, in that it has allowed the noble Lord to explain succinctly at this stage what he considers to be a fair point from his position. We have been arguing somewhat hypothetically; but we must deal with this particular clause as we come to it in the Bill.


I think the real problem is that the noble Lord's advice and my advice are different. That is not always unsurprising. The noble Lord's advice is that this is unlikely and my advice is that it is possible. As my noble friend Lord Selsdon said, if it is possible that this could happen, then the effects could be substantial. If a loan is made unsecured, that is going to be very much cheaper in value than if it were secured. If that happened, the companies, when they came to be compensated, would be compensated unfairly. The noble Lord has been kind enough to say he will look at the other Amendments, and I hope he will also look at this one, which is a real point which we have put forward this morning. If he would write to me with his considered view, I would find this very helpful indeed.


I accept that these are complicated matters. Undoubtedly we are dealing with them at the wrong stage. I will look again at what the noble Earl has said. If I can expand or explain further, I will communicate with him.


I am much obliged to the noble Lord. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

7.36 a.m.

On Question, Whether Clause 21 shall stand part of the Bill?


Before we leave this clause, may I first say how much we on this side appreciate the noble Lord's efforts. We are all swimming in deep waters fairly seriously out of depth. It may be useful if we can try to send out a couple of general markers in slightly more intelligible terms, because the issues which arise under this clause have an effect later when we come to the vexed issue of compensation which, believe it or not, may take even longer than we are taking over this issue.

There is in this clause a certain amount of objectionable materiat which some companies think is potentially onerous. Of course, the clause is complicated, but what we are really talking about is parent companies who have been financing subsidiaries by way of loans. They may find themselves on nationalisation not having those loans repaid in full when they are due. Instead, they may be treated as securities which are worth less than par for which they may hope to be compensated at some later date. Very often parent company financing is more convenient and often the only way to finance subsidiaries in the kind of circumstances of blight in which they have been working in recent times. Because of the threat of the Clause 21 provisions, quite a lot of companies have not expanded as they might have done. They get no compensation for growth and they are severely inhibited in their activities by the provisions which perhaps the Government see as safeguarding provisions in clauses of this kind. The effect is that they run the risk of losing some of the money which they have lent to their subsidiaries for the purpose of expanding their activities.

The Government intend to run these industries in the national interest. But for the past few years they have virtually been put in the position of having to do nothing to secure long-term benefit because ordinary commercial management has been made impossible. The point we are trying to make is that, if the parent companies had not been deliberately risking the potentially onerous provisions of Clause 21, many of the subsidiary companies would have been unable to receive any finance at all during the period of blight which had been hovering over them because of the threat of nationalisation.

I am trying not to say this in a contentious manner, and am merely pointing out the underlying worries which affect the companies and, therefore, some of the representations that we have been receiving, which have led to these very complicated Amendments that we have been discussing. As I said, this is an issue to which we shall be coming back when we deal with compensation.


I would only add this, that one of the problems from which we are suffering as regards valuation and compensation is that everything is being based on uncertain, unknown and, indeed, erroneous data. When the companies have to be valued in accordance with what the Stock Exchange shares would be if they were quoted, which they are not, that immediately starts one off on the wrong foot. Then, again, there are loans which are being treated as if they were not loans but were securities instead, and as if they were long-term borrowings when, in fact, they will be repaid short-term.

I am quite sure that it is the Government's intention to be as fair as possible. do not think for one moment that they want, because of the complexity of the valuation arrangements, deliberately to "do down" any company, or to "do" a company unduly well. The important point is that whatever compensation is paid should be as nearly right and just as possible. I hope that the noble Lord will look again at these matters, because what we are anxious to do, complicated though they are, is to get them as fair as possible from the companies' and the taxpayers' point of view.


I did not intend to say anything on clause stand part, because I accept that noble Lords opposite have thus far attempted to be constructive on this Part of the Bill, and I hope they feel that I have tried to be as helpful as possible. I felt that perhaps we had strayed a little, in some of the remarks on clause stand part, into perfectly proper expressions of political view and that it might be better for me just to soak that up, as it were. However, I am advised that we have given clear assurances to companies, both general and particular, that money loaned by parents to vesting companies after the reference period, which is 28th February 1974, will not be treated as securities under Clause 21. This has avoided any question of blight from the possible effect of Clause 21, so perhaps I should just place that on the Record.

Clause 21 agreed to.

Clause 22 agreed to.

Clause 23 [Control of dividends and interest]:

7.44 a.m.

Earl FERRERS moved Amendment No. 130: Page 27, line 2, leave out ("prior ").

The noble Earl said: This subject is not easy to understand and I hope that the noble Lord, Lord Kirkhill, will accept this Amendment. The safeguarding provisions relating to the Bill were revealed in another place on 17th March 1975. They provided that dividends would not be permitted in excess of the stated formula, without the prior approval of the Secretary of State. When the Bill was first published later that year, it spelled out the details in which it was provided, first, that dividends would be effectively limited from February 1974—in other words, the date of the General Election—to March 1975, when the safeguarding provisions were announced, with the threat of deduction of any excess from the compensation; secondly. that directors would possibly be liable to repay excessive dividends paid after 15th March.

Dividends are therefore limited to the permitted formula for a period of over a year prior to the publication of the safeguarding provisions and the directors are personally liable for any excess paid over 18 months prior to the expected date of Royal Assent. The Secretary of State, though, gives himself the power to approve the payment of dividends in excess of the formula, provided such approval is obtained prior to the payment of the dividend. It is quite apparent that the companies which are to be acquired may have been paying dividends which could well turn out to be excessive in terms of the permitted formula before they were even aware of the safeguarding provisions and that the directors may further have exposed themselves to the risk of personal liability before that risk was made known to them in the Bill.

The calculation of permitted levels is complicated. The possibility of an accidental excess cannot be ruled out, but the inclusion of the word "prior" in Clause 23 prohibits the Secretary of State, even in a manifestly reasonable case, from approving retrospectively an excessive payment of dividends, even if he should want to do so. He may therefore be forced into the position of having to deduct a sum of money from compensation or to impose personal liabilities on directors, whatever the merits may be of their arguments against that course of action and despite the fact that during part of that period nothing was known of the need for prior approval.

Therefore the Amendment seeks to remove the word "prior" in order to enable the Secretary of State to give retrospective approval to excessive dividend payments if he feels that a good case has been made. The Amendment does not place any obligations on the Secretary of State but it goes some way towards mitigating the extraordinarily punitive consequences of the retrospective legislation in Clauses 23 and 29. I hope that the noble Lord will think that this Amendment is acceptable. I beg to move.

7.48 a.m.


As the noble Earl has said, Amendment No. 130 is concerned with the control of dividend payments in the period before vesting date. It would delete the requirement for companies to seek prior approval of dividend payments in excess of the permitted levels. On the particular point which the noble Earl raised in the Amendment, as I understand it there is no way that directors can be made liable for any dividend payments which were made before they were given detailed waiving. The liabilities of directors arise only after the detailed statement of 17th March 1975. I do not know whether that satisfies the noble Earl immediately regarding the point of his Amendment.

The Amendment would go on to have a very undesirable effect on the directors of the companies involved. As I think the noble Earl appreciates, the requirement for the prior approval of the Secretary of State, although it is unprecedented in that it imposes a requirement for prior approval, is made simply to protect directors so that they do not do something without the approval of the Secretary of State for which they can subsequently be made personally liable. Therefore to remove the provision, as the Amendment would do, could place directors in a very difficult position which I do not think the noble Earl, from what he has said, would wish to do. Certainly the Government would not wish to do so. I do not think that the particular fear which the noble Earl raised as the purport of putting down the Amendment can arise.


I have some sympathy with the noble Lord, Lord Melchett, but what we are talking about is retrospective legislation—on a hypothetical basis to some extent, whatever that means. By removing "prior" we are giving to the Secretary of State the power to declare that a dividend is reasonable. We are not trying to overprotect the directors of the companies concerned because all directors have certain responsibilities which are clearly defined in the Companies Act and in other places.

The noble Lord is saying that "prior" is necessary and I am saying it is retrospective. It is definitely retrospective. Therefore, are we saying that retrospective legislation in this Bill is necessary? If the noble Lord says it is not retrospective, then maybe at this time of the morning I have got it wrong, but certainly it was retrospective when I went through my brief and did my homework on this and when we tabled the Amendment originally, because one of the fears that one had was not just the effect but also the principle.


Perhaps it would help the noble Lord if I were to go into a little more detail. This is the danger that we see in the Amendment rather than the danger which the noble Earl, Lord Ferrers, raised as being the reason why he tabled the Amendment. For example, if the company has a large number of shareholders and pays a dividend in excess of the permitted levels, without obtaining the prior approval of the Secretary of State, and that approval is subsequently withheld, directors could be placed in a very difficult position, as I said. To avoid being subject to a personal liability for excess payment the directors would have to seek repayment from all the shareholders, all the payment in excess of the permitted levels. As the noble Lord will appreciate this might not be possible for practical reasons. It might not be possible to trace all the shareholders who received the dividend but who are no longer shareholders—who have sold their shares, if it is a publicly quoted company. Indeed, some shareholders might simply refuse to repay the dividend which they have been paid. By requiring the directors to seek prior approval of the Secretary of State, it seems to us that the directors are protected against the unfortunate consequences which I have outlined in this hypothetical position. That is why the thing is necessary: not because it is retrospective but simply because it protects directors from the very unfortunate consequences of making a dividend payment which is subsequently not sanctioned by the Secretary of State and being faced with the appalling difficulties of trying to retrieve the dividend which has been paid in excess. It may be that noble Lords had not realised that the effect of removing the word, "prior" would be to place directors in this very difficult position. In view of the explanation I have given, possibly noble Lords would like to take this away to look at it when we have all had a chance to sleep, I will not say in the cold light of day.


I think one would like to take this away, but since the directors who were consulted and who would ultimately have the responsibility did not appear to be overtly concerned about the point now raised by the noble Lord, because of the responsibilities which they accepted, then I think it is something that one should take away and discuss. I still come back to the point that I think it is retrospective, but I withdraw my objections.


I will certainly take this away and have a look at it, but I think we are slightly at cross-purposes, and this is probably through my own lack of adequate explanation. If I might take one example, the thing I am concerned about is that these safeguarding provisions were announced in March 1975 and the Government took the view that, as the companies knew that they were going to be nationalised as from the date of the General Election, therefore anything paid between February 1974 and March 1975 should be at the level which the formula stated. But, of course, if any dividends were paid during that period the directors could not have had the prior approval of the Secretary of State because they did not know then what the formula was going to be. That is the reason why, if the Secretary of State were to say, "No, we have got to make this deduction because you did not get my prior approval", the directors might well have said, "Yes, but we could not get your prior approval because we did not know what the formula was going to be".


I thought I had met the point which the noble Earl is making when I first replied, and I am now quite sure that I did. As I said, the directors will not be made liable for payments made before 17th March 1975. If there would have been excess, the directors would not be liable for that.


I think over that period it is a question of the deductions being made. The directors become liable for any payments made after the Royal Assent. But I take the point and I will have a look at what the noble Lord has said. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 23 agreed to.


I think it will be the general agreement of the Committee that we should halt this extremely long Committee stage at this point. I beg to move that this House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.